Monday, May 21, 2007

Both Candidates and Their Critics Can Be Wrong

Quite a number of Blogs are commenting on the forthcoming US Presidential Election, so it is likely that we shall be drawn into it, even if tangentially, though I shall not be commenting on the attractiveness or otherwise of any of the potential candidates. I shall be commenting on references by anybody to Adam Smith where I think it is appropriate to do so.

Take this piece from James D. Miller in his blog (‘Adventures In Economics’):

From the Politico:

“May 20 Obama is wrong. Making money is noble.”

"In his commencement speech at Southern New Hampshire University this morning, Obama ...warned against the charms of doing what most college graduates set out to do: Make money. 'In a few minutes, you can take your diploma, walk off this stage and go chasing after the big house and the large salary and the nice suits and all the other things that our money culture says you should buy. But I hope you don’t. Focusing your life solely on making a buck shows a poverty of ambition. It asks too little of yourself. And it will leave you unfulfilled'"

If he does get elected president, someone should teach Obama about Adam Smith's invisible hand. In a well functioning market economy, you only profit by helping other people. And the more money you make, the more you have helped others. A graduating student who wanted to maximize the amount of good she did for society should probably try to maximize her own paycheck. (Although she should avoid going into certain professions such as law and crime

In the second paragraph, James Miller refers to ‘Adam Smith’s invisible hand’, which when clicked takes the read through to an entry in Wikipedia that is tendentious in the way in which readers of Lost Legacy would expect me to say.

The argument used in the rest of paragraph is plain wrong, or if that is too strong, I shall call it ‘problematical’. Markets may work as indicate but in the real world, the one inhabited by Adam Smith and by James Millar, people can make money from ‘helping others’ and from monopoly practices and other externalities (pollution), which does not help others in the same sense – it helps the monopolists.

Of course, Adam Smith’s metaphor of ‘an invisible hand’ had nothing to do with markets, which he explained very well without using the metaphor at all. Whether your actions have ‘helped others’ depends on many other factors and might be independent of your intentions. The Wikipedia entry is quite wrong here, though it does make several nods in the right direction. Read it here for practice.


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