Sunday, August 31, 2008

The 'Indoctrination' of 6-year Old Good Economist

Ike Pigott (‘better communication makes the complex simple’)
Occam’s RazR (‘This site is as much for him as anyone -- to explain things that ought to be explained, explore ideas that keep him up at night, and connect concepts that are just begging to be joined’) HERE:

Invisible Hands

We’re lucky when the teaching moments come to us.

My wife was explaining how she got a discount on milk yesterday. Apparently, the local Walmart and Publix are in a price war over milk which has dropped the price per gallon more than 90 cents. My six-year-old daughter wanted to know why the Walmart checker dropped the price without even being prompted.

“Let’s say you and Ryan are selling cupcakes,” I said. “You are selling them for five dollars, and Ryan is selling them for three. Who makes more money?”
“I do,” she said.

“Okay, now say I have ten dollars (holding up 10 fingers). I can buy two of your cupcakes (spending the fingers), or I can buy three of his and still have a dollar left over (re-spending the fingers). NOW who makes more money?”

“Ryan does.”

“So what do you need to do?”

“Charge three dollars,” she said.

Why is it that Adam Smith’s invisible hand is so difficult to understand? Functional adults deny its existence because it clashes with their ideology, yet a six-year-old gets it in 30 seconds

Well, Ike, I deny the existence of ‘an invisible hand’ and it certainly does not clash with any ‘ideological’ considerations on my part. I am familiar with the works of Adam Smith and know something about his use of the metaphor of ‘an invisible hand’, which he used once in 1759 in The Theory of Moral Sentiments at TMS IV.1.10: p 184, and once in 1776 in Wealth Of Nations (short-title) at: Book IV.ii.9: page 456.

He also, for the record referred to ‘the invisible hand of Jupiter’ in an essay, unpublished in his lifetime, known by its short-title as History of Astronomy, when he described the ‘pusillanimous superstition’ in pagan societies.

In none of these cases was his use of an invisible hand metaphor anything to do with how simple price markets work. Indeed, the operation of market choice is so simple that your charming six-year-old daughter can understand how they work. Congratulations to her.

So why do you complicate the issue by adding a reference to ‘an invisible hand’ as part of your explanation, and which is now part of her formerly clear understanding? What does an invisible hand have to do with the price mechanism?

It certainly wasn’t part of Adam Smiths’ explanation of prices in Books I and II of Wealth Of Nations – he never mentioned invisible hands when doing so.

His use of the metaphor, detailed above, had nothing to do with price signal, markets, or consumer choices. (If you do not have access to either book to hand, email me and I shall send the relevant two chapters as attachments to you for you to consult.)

In the case of ‘Moral Sentiments’ (short title), he was discussing how some people suffer from a ‘deception’; they disregard the utility of an object in favour of its ‘fitness’ of design. They chase after ‘numberless artificial and elegant contrivances for promoting this ease or pleasure’. In doing so they imagine their ownership of such items means that they will possess ‘more means of happiness’, adding that it is important that they feel this way:

And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants’ (TMS IV.1.8: p 182)

This leads directly to his use of the metaphor of ‘an invisible hand’:

It is to no purpose, that the proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest that grows upon them. The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets, which are employed in the oeconomy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice. The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition. These last too enjoy their share of all that it produces. .” (TMS IV.1.20: p 184)

In summary, having explained exactly why the rich landlord from the products of his farms feeds the labouring farmers and their families (he can’t eat it all himself), Adam Smith uses a common 18th-century literary metaphor to support his contentions.

How necessary is the metaphor? The inescapable fact is that if the landlord didn’t distribute the surplus food, above what he and his immediate family consume for themselves, the labourers would starve and there would be nobody around in the Spring to work his lands (they would not last the Winter without subsistence, clothing and shelter), and the rich landlord’s life style would terminate. In other words landlords can do no other. The invisible hand metaphor adds nothing to the necessities of self-preservation.

In Wealth Of Nations (short title) he uses the metaphor of ‘an invisible hand’ after he has explained completely why some wholesale merchants prefer the home trade to engaging in the riskier foreign trade:

First, every individual endeavours to employ his capital as near home as he can, and consequently as much as he can in the support of domestic industry; provided always that he can thereby obtain the ordinary, or not a great deal less than the ordinary profits of stock.

Thus, upon equal or nearly equal profits, every wholesale merchant naturally prefers the home-trade to the foreign trade of consumption, and the foreign trade of consumption to the carrying trade. In the home-trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever necessarily brought home, or placed under his own immediate view and command
.” (WN IV.ii.5-6: p 454)


But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” (WN IV.ii.9: p 456)

Again, Smith first explains the circumstances that lead some merchants to prefer the domestic trade to foreign trade, which boils down to their fears for the security of their capital (or in modern parlance, their risk-avoidance) – ‘he intends only his own security’ – and to the extent that many individuals react in this manner, the quantity of local capital will be greater and, therefore, the total output domestically will be greater.

This follows from a law of arithmetic that the whole is the sum of its parts – the more numerous the parts, the greater the whole. It is at this point that he uses the metaphor of an invisible hand, though anybody who reads the earlier passages will get the importance of his explanation without it. The invisible hand adds nothing to the correctness of Smith’s earlier analysis.

Yet, Ike accuses ‘functional adults’ of finding the invisible hand of being “so difficult to understand”. Is he sure that he is attacking the correct targets?

I completely understand Adam Smith’s explanations of the ‘mechanism’ by which the rich landlord feeds the poor labourers working for him and maintains their subsistence sufficient for them to maintain families and bring up their children - the next generation’s farm labourers, household retainers and body guards.

I also understand the psychological pressures that induce some merchants from their risk-avoidance to invest locally rather than abroad.

What I don’t understand is why Ike (and many, many others) think the metaphor of an invisible hand adds anything to our understanding of these processes.

Moreover, I cannot fathom why Ike (and many, many others, including distinguished economists) believe it is necessary to extend the use of the metaphor of an invisible hand to Adam Smith’s theory of markets, the derivation of prices, the working of competition and capital accumulation.

Adam Smith never suggested that the metaphor had wider use, nor did he link it to any other element of his analyses in moral philosophy not political economy.

I’m with his daughter age 6 in this exercise. She didn’t mention anything about an invisible hand either. She got the answer correct from the data given to her. Smart kid.

I hope she was not confused later by Ike introducing her to ‘an invisible hand’ as a dubious explanation for what she already knew from the data. That’s no way for her to turn into a ‘functional adult’.

Inferior Essay on Adam Smith's Theory of Exchange Value

I am always suspicious of essay writing Blogs that students may use (for a fee) to build their essay around (some hope!), but more likely simply lift and send in as their own work.

The worse comment I can make on this practice is that their tutors, presumably read the ‘essay’ and grade it, apparently without noticing that it is not their student’s work but an essay writing agency’s. I read one (‘Adam Smith and Theory of Value’) this early morning from a supplier of essays, this one presumably for a university assignment, called Thinking Made Easy (‘ideas, thoughts explanations’), HERE:

You can see why I was drawn to it and why I printed it to read over breakfast at 7 am.

Verdict? Oh, dear!

I was surprised by its truly juvenile English style, wrapped in an apparatus to give it an air of polished maturity. Unfortunately the cracks show in every paragraph.

All references are secondary and not from Wealth Of Nations. Even the references are ‘naked’ – a surname name, a year, occasional page number, no titles, no publishing data (even one reference says simply ‘Princeton University n.d.’) – which restricts reference and a quick judgement as to their quality. Interestingly, most references cite, suspiciously, page numbers between 1-6, with one at p 13.

The final test of the unsatisfactory nature of the author’s views on ‘Adam Smith and Theory of Value’ (note: no definite or indefinite article), is the number of incorrect statements attributed to Smith and the clear evidence that the author does not understand either what Adam Smith was writing or what others have written since.

As an educator, I am all for being encouraging in my comments to new students and examples of their work. I would even be gentle in what I recognise as a bought-in or copied piece of somebody else’s work (on the first occasion only), following a kind but firm exchange of views on presenting something as your own work that belongs to somebody else.

If they proved it was their own work, they would be requested to go away and show from Wealth Of Nations the sources for all their statements, and we would discuss their re-worked essay later that week.

For the authors who write for these sites I have not a great deal of respect – who knows what desperate circumstances they are in that pushes them to participate in such activities?

I blame those educationalists who allow ‘course work’ to count towards a final grading (as well as in-class participation and group work), even more so when the work is ‘out of sight and supervision’ in distance learning programmes.

The victim on this occasion is Adam Smith and his legacy; the students who ‘buy’ this inferior work also lose and not just what they pay for it in cash - they lose their dignity and integrity too.

Saturday, August 30, 2008

The Usual Misunderstanding About Adam Smith and an Invisible Hand

In the Brisbane Times (30 August) HERE:

“Nature and the Altruism Gene”

Capitalism, Darwinism and democracy share not only a reliance on competitive self-interest but a presumption that self-interest works - or can be made to work - for the common good. As America's patron saint Adam Smith so memorably wrote in The Wealth of Nations, "it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."

This was the essence of Smith's famous invisible hand concept, and to the founding fathers it must have seemed, indeed, like manna from heaven. The invisible hand is the idea that a serendipitous glue ties individual self-betterment to the common good, so that the private interest and the public interest are, essentially, one.
The individual, wrote Smith, "intends only his own gain and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his original intention". Greed, in other words, will drive people to beneficial behaviour: producing the right deed, albeit for the wrong reason

The political comments associated with this article are not my concern. Its author has distinct views regarding a possible collapse of the US economy, to which I am tempted to say, as Adam Smith said in response to a similar concern about the collapse of Britain in the war against its colonies in North America, ‘there is a great deal of ruin in a nation’ (Corr. Letter 221, p 262, note 3; also WN IV.vii.64: pp 615-15, note 52).

However, the usual misquotation, and therefore, false conclusions of the article are of concern in Lost Legacy. The author, presumably an Australian, mocks Adam Smith as ‘America’s patron saint’, an goes on to show he is not talking of the Adam Smith from Kirkcaldy, Scotland, because the interpretation he puts on the passage he quotes, is actually the interpretation of the 'Adam Smith' created in Chicago nearly 200years later.

This Adam Smith is made to dance to the tune of “its all about greed”, which is quite different from Adam Smith the moral philosopher. Clearly, scholarly exactitude is not a strong point of leader writers on the Brisbane Times.

Where exactly is the reference to greed in the passage quoted: "it is not from the benevolence of the butcher, the brewer[,] or the baker that we expect our dinner, but from their regard to their own self-interest. We address[,] ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages"? (You will find it at WN I.ii.4: pp 26-27; original punctuation aded in square brackets.)

If you tried to buy the ingredients for your dinner out of greed, you may be less successful if you fail to appeal to the seller’s self-interests. She serves her family’s self-interests with the net proceeds from what you pay her for your meat, beer, and bread, and she is able to meet her self-interests – the comforts of her family (presumably a moral duty, including in Brisbane) by addressing your self-interests in feeding yourself and your family.

Each party to the exchange by addressing the self-interests of the other is not being greedy by any meaning of the word. Smith specifically enjoins you to address their ‘self-love’ and talk of ‘their advantages’, NOT YOUR OWN! Be other-centred, not self-centred.

Of course, you can try to appeal to their 'humanity' and if successful (and everybody else was successful similarly) the seller’s family would starve and the Brisbane authorities would doubtless intervene and charge the seller with neglect of her children.

Moreover, if the Brisbane Times bosses suggested to the editorial writers that they work each and every day not for their pay, or their family’s requirements in food, clothing and shelter – not to mention the affluent living standards associated with Brisbane – but out of sheer delight at working for nothing but the entertainment of the Brisbane Times’ readers, we know, and so does the author of the editorial, what the response would be.

Brisbane Times: “This was the essence of Smith's famous invisible hand concept, and to the founding fathers it must have seemed, indeed, like manna from heaven.”

The connection between the use of the metaphor of ‘an invisible hand’ (used only once in Book IV) and the above quoted passage from Book I) is entirely made up. There is not connection in Wealth Of Nations, which is one of the common errors associated with those who assert that there is a connection. It most certainly was not a connection made by Adam Smith from Kirkcaldy. Its connection was invented by US academe in the 1950s to give a spurious blessing to their assertions that their mathematical models of general equilibrium prove what they allege Adam Smith had in mind when he used the metaphor.

The fact that the metaphor was not connected to markets (covered in Books I and II without a single mention of ‘an invisible hand) is an exactitude of damaging relevance and it is safe from instant rebuttal on the fairly certain assurance that hardly anybody is likely to check by opening Wealth Of Nations and reading for themselves.

How ‘it must have seemed, indeed, like manna from heaven’ is a nonsense – I think the ‘Founding Fathers’ and a lot more to think about (they were creating the world's first democracy before Australia was founded as another colony in 1788) than an obscure metaphor in a long book, which they didn’t take much notice of, and nor did anybody else until one or two obscure philosophers (Cliff Leslie for one) in the late 19th century commented critically on the metaphor’s religious implications, and then 60 years later a whole host of neoclassical teachers invented a narrative about it from the 1950s.

[Those readers interested in my rebuttal of the myth of the invisible hand may ask for a copy of the paper I am presenting to the History of Economic Thought, 40th Annual Conference, to be held in Edinburgh 3-6 September, by identifying themselves to: gavin at] negweb Dot coM .]

The invisible hand is the idea that a serendipitous glue ties individual self-betterment to the common good, so that the private interest and the public interest are, essentially, one.

The individual, wrote Smith, "intends only his own gain[,] and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his original intention". Greed, in other words, will drive people to beneficial behaviour: producing the right deed, albeit for the wrong reason
.” [WN IV.ii.9: p 456; Original punctuation added]

This statement, as they say, straining to be polite, is problematical.

Has the editorial writer in Brisbane actually read Wealth Of Nations? The chapter in question is not about greed at all. It is about motivation and in this specific case the motivation of ‘wholesale merchants’ who act to invest locally is their ‘risk aversion’ to sending their capital stock abroad to the British colonies in North America, where necessarily it has to cross a wild ocean, and be placed in the hands of people they do not know well, in legal systems which are likely to be partial to local interests, and where the turn around of their capital stock as imports back into Britain, not only doubles the risks of a second crossing, but also may take up to four years compared to a local turn round of two or three times in a single year.

It is not surprising that the more risk-averse merchants prefer the domestic trade to foreign trade. Smith explains it thus:

Thus, upon equal or nearly equal profits, every wholesale merchant naturally prefers the home-trade to the foreign trade of consumption, and the foreign trade of consumption to the carrying trade. In the home-trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever necessarily brought home, or placed under his own immediate view and command.”
(WN IV.ii.6: p 454)

And the bit quoted in the Brisbane Times misses out the critical motive for preferring domestic investment, essential to understand the context of Smith’s use of the metaphor:

But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestick industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” (
WN IV.ii.9:p 456)

The motive is not greed – it is caution; risk avoidance. And there is not mystery about it – ‘he intends only his own security’.

The consequence is that the total of domestic investment is the sum of all the individual investments made by those wholesale merchants who trade locally – the whole is the sum of the parts, a law of arithmetic. The greater the number of citizens who purchase the Brisbane Times, the greater the total revenue earned by the paper, and no invisible hand brings this about- it’s called producing a better newspaper as judged by customers. (If its a free sheet, the greate the number of readers the more advertising it atracts.)

And remember, despite the risk avoidance of some merchants in these matters, there was till a large number of local merchants who did engage in the colonial trade, despite the risks. They were not affected by an invisible hand – they took the risk and enough of them made regular profits to continue doing so.

Whether the actions of corporate bodies benefits society is an examinable question.

Certainly, polluters, monopolists, protected producers and restrictive union practices, do not benefit society. Adam Smith never shied from reminding readers of the perfidy of special interest groups (read Book IV if you want to check this statement).

And he never said anything about beneficent outcomes from whatever producers (owners, managers and employees) decide to do that necessarily benefited society.
The belief to the contrary is as much of a myth as the metaphor of ‘an invisible hand’.

Adam Smith On Absolute not Comparative Advantage

There are errors and there are double errors in proposing policies in economics. Here’s a typical week-end one:

Matthew Hisrich writes in (HERE):

From bananas and prunes, lessons for an election year’ (30 August)

“The only response that makes sense now is to begin a major overhaul of how we produce and consume potassium in this country. To put it bluntly, we are addicted to bananas.

Fortunately, The Linus Pauling Institute reports that prunes and prune juice are a much better source of potassium than bananas. It is high time that the federal government begin to foster alternative sources of potassium such as prunes by subsidizing their production and launching educational campaigns to help consumers make better choices.

Does this sound like an absurd argument to you? [GK: YES]

That's probably because economist Adam Smith dispatched this line of reasoning to the dustbin of history over two centuries ago. In his classic Wealth of Nations, he gives the example of grape growing in Scotland to make his point. While it might technically be possible, he says, it would hardly make financial sense. Rather, countries would do far better focusing on those areas of production to which they are best suited.

"What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom," Smith observes. "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage."

What Adam Smith was explaining was the concept of comparative advantage. The party with the advantage in one field benefits by trading with a party who is better in another rather than trying to do everything themselves. Later economists built on this concept with the idea of absolute advantage. This means that even if you would be better at everything than anybody else, it is still in your interest to trade if for no other reason than you have a limited amount of time and resources.”

Adam Smith’s analysis was an example of ABSOLUTE not COMPARATIVE advantage (Matthew Hisrich gets it the wrong way round). Matthew then completes his double error:

Later economists built on this concept with the idea of absolute advantage.’

No, Matthew, later economists, especially David Ricardo, revised Adam Smith’s theory of ‘absolute advantage’ and produced the theory of ‘Comparative Advantage’.

Economist Frederic Bastiat got to this point when he famously said that "When goods do not cross borders, soldiers will."

Unfortunately, experience also shows that because of the perversion of ‘jealousy of trade’ (after David Hume), jealous, rival neighbours, enraged by the movement of another country’s goods across frontiers, their own and their customers, are likely to engage in warfare, or acts that lead to warfare, or at a minimum, punitive tariffs and prohibitions against successful trading nations. If only trade was allowed to enhance harmonious relations, the poisoned minds of ‘balance of trade’ demagogues, of which we have plenty of experience in the18th, 19th, 20th and 21st century, if they gain the ear of legislators, blow increased harmony out of the window.

I listened the other night to remarks by a normally intelligent and balanced professor who was abnormally upset at the balance of trade between China and the USA, considering it placed world trade in dire danger.

He considered it plausible that foreign governments held dollars and US government bonds this placed the cards in Chinese hands who could dump them all at a stroke and bring down the mighty dollar and “what’s left of US democracy” (yes, it’s all George W. Bush’s fault…).

If the Chinese were to dump the US dollars they would liquidate at a stroke their real claims on US assets; if they sold dollars at a discount, their buyers would raise demand for US exports; if they converted dollars for Euro, or Yen, they would transfer their claims on US assets to others. Such are the realities; China is in hock to the US as much as the US is in hock to China.

Thursday, August 28, 2008

David Hume, ‘Sancho Panza’ (Cervantes), Adam Smith and Karl Marx as Wine Critics?

Occasionally we can have a laugh, though the following is based on fact from their writings. But Cervantes’ immortal character, Sancho Panza, Squire to Don Quixote, tells a story about a wine critic (HERE):

“Sancho Panza and David Hume, the fathers of wine tasting?” (by Victor Ginsburgh, Journal of Wine Economics):

"But as our intention is to mingle some light of the understanding and the feelings of sentiment, it will be proper to give a more accurate definition of delicacy than has hitherto been attempted. And not to draw our philosophy from too profound a source, we shall have recourse to a noted story in Don Quixote (Cervantes, Don Quixote, Part II, chapter 13).

"It is with good reasons, says Sancho to the squire with the great nose, that I pretend to have judgment in wine: this is a quality hereditary in our family. Two of my kinsmen were once called to give their opinion of a hogshead, which was supposed to be excellent, being old and of a good vintage. One of them tastes it, considers it; and, after mature reflection, pronounces the wine to be good, were it not for a small taste of leather which he perceived in it. The other, after using the same precautions, gives his verdict in favor of the wine; but with the reserve of a taste of iron, which he could easily distinguish. You cannot imagine how much they were both ridiculed for their judgment. But who laughed in the end? On emptying the hogshead, there was found at the bottom an old key with a leathern thong tied to it."

David Hume, 1757, Of the standard of taste, in On the Standard of Taste and Other Essays. Indianapolis: The Bobbs-Merrill Company, 1965).”

Karl Marx, another wine economist?

"What is the link between Karl Marx and wine?

"The parents of Karl Marx owned a few vineyards in Mertesdorf in the nearby Ruwer valley. Karl Marx’ father was a lawyer and it was quite common for bourgeois families at the time to acquire vineyards either for their own wine consumption or as an investment for their old age security. The Marx family vineyards were located in the “Viertelsberg”, a medium quality vineyard near the renowned ‘Grünhaus’ (now known as Carl von Schubert’s Maximin Grünhäuser). The Marx family sold their vineyards in 1857. Today, the ‘Weingut Erben von Beulwitz’ produces a Spätburgunder wine (pinot noir) with the Karl Marx label. The grapes do not come from the exact Marxian vineyards but from the Eitelsbacher Marienholz, a parcel nearby.

However, this is not the only link between Karl Marx and wine. Marx had been fond of good wine from early an age on. In 1835, at age 17, Marx enrolled in the law program at the University of Bonn where he joined the Trier Tavern Club drinking society; he later served as the president of that society…

… After the defeat of Napoleon in 1815, the Mosel region became a Prussian province and as the only notable wine region within the empire it provided all of Prussia with wine. Since wines from non-Prussian Germany were heavily taxed Mosel wineries enjoyed a quasi monopoly. Wine prices were high and the Mosel wine business was booming. The area under vines was sustantially expanded and most Mosel wine makers were well off.. However, in 1834, Prussia established the German Tariff Union (Zollunion) with the southern German states -- all of which have a substantial wine production. All of a sudden southern German wine was exempt from any duties and non-Mosel wine flooded the Prussian market. As a result, wine prices fell dramatically and the wine producers at the northernmost frontier of professional viticulture -- that is, the Mosel – were in deep trouble. A rigid Prussian tax policy that referred to past profits instead of present losses and a series of bad (= cooler and wet) vintages added to the misery. Mosel wine makers fell into deep poverty.

In 1842, Marx began to write for the Cologne based Rheinische Zeitung (in the same year he also became the editor-in-chief of the Rheinische Zeitung). His articles were anonymous using the pseudonym the “++-Korrespondent von der Mosel.” Marx was appalled by the Prussian tax policy that imposed harsh and unjust hardship on the Mosel vintners. In January of 1843 he wrote a series of articles known as the “Justification of the ++-Correspondent from the Mosel” in which he vehemently criticized the Prussian government. This was the beginning of his new life. A few months later Marx had to leave Prussia and emigrated to Paris where he met another German fugitive, Friedrich Engels. Together they changed the world

Adam Smith: The Father of Wine Economics?

The foundation of Smith’s wine economics is laid out early in Wealth of Nations, Book One, Chapter 11: Of the Rent of Land. Here Smith tries to explain why some kinds of land earn more than other lands. Land suitable for viticulture earns higher rent, Smith said, and has long done so.

That the vineyard, when properly planted and brought to perfection, was the most valuable part of the farm, seems to have been an undoubted maxim in the ancient agriculture as it is in the modern through all the wine countries.

But viticultural profits were constantly threatened, Smith argued. Not by nature, although this could cause bad crops, and not by high taxes, although he argued against them. The chief threat (or perceived threat) to viticultural earnings was expansion to new lands. Old vineyards, as he called them, were threatened by New Vineyards — and would seek protection from them or to prevent their development. This section reads very well today if you change Old Vineyards to Old World wine and New Vineyards to New World Wine. Certainly New World Wines (and their vineyard, cellar and marketing practices) are seen by many Old World producers as a threat to their livelihood. Adam Smith understood why Old would seek by any means to prevent development of the New. You don’t have to have a Ph.D. in economics to already know that he did not approve.

Smith wrote about terroir, too. I can’t really say that Adam Smith invented terroir, the idea of a special taste of place that winemakers strive for, but I can say that he understood its economic value. Smith wrote that

The vine is more affected by the difference in soils than any other fruit tree. From some it derives a flavour which no culture or management can equal, it is supposed, upon any other. This flavour, real or imaginary, is sometimes peculiar to the produce of a few vineyards; sometimes it extends through the greater part of a small district and sometimes through a considerable part of a large province.

I note with interest that Smith recognized terroir and doubted the reality of its existence in the same sentence (”real or imagined”). It isn’t terroir that really matters to a wine economist, I suppose, it is only that people think there is terroir. Smith wrote at length about the economics of these special wines and, because of their limited quantities, the premium prices they could command. Any modern winemaker, upon reading this section, would immediately try to create an A.V.A. to cash in on the possibility of terroir by limiting supply.

The whole quantity of such wines that is brought to market falls short of the effectual demand, or the demand of those who would be willing to pay … The whole quantity, therefore, can be disposed of to those who are willing to pay more, which necessarily raises the price above that of common wine.

A small part of this higher price … is sufficient to pay the wages of the extraordinary wages bestowed upon their cultivation, and the profits of the extraordinary stock which puts this labor in motion

What an excellent Blog from the American Association of Wine Economists AAWE ( Apart from the above, there is a storming detailed account of Robin Goldstein sending a spoof wine and restaurant review for a Wine Spectator Award: Osteria L’Intrepido doesn’t exist, but it won an award for excellence.

But I am glad to see Adam Smith among the original wine critics and I assume his membership of Edinburgh's Oyster Club (an enlightened intellectual discussion and er, drinking and dancing club), enabled him to introduce many of his fellows to the produce of Bordeaux, where his close frend, Professor Joseph Black's father was a major Bordeaux negociant.

I was also intrigued to find out that the taxation and tariff changes of individual German states, which wiped out the smaller vineyards of Karl Marx's parents, were the probable cause of his lifetime’s hatred of markets and free trade.

Visit the American Association of Wine Economists blog and let a smile or two cross your face. Intrepid journalism like this is rare.

[Disclosure: as a non-drinker of alcohol – even the great wines of Bordeaux; diet coke is no substitute – I have no commercial or other interests, except perhaps nostalgia, for promoting wine. But I do enjoy the odd laugh about it.]

John Stossel is the Man on Adam Smith on Fortress America

At last, a quotation from Adam Smith’s Wealth Of Nations that is both relevant to the subject and supported by correct Smithian analysis, and relevant to a problem discussed today – the import of energy (oil) into the USA.

John Stossel, a popular US columnist, posts in the Desert Despatch 27 August, (HERE):

Understanding energy’s place in the global market

My column last week mocking “energy independence” angered people.

I argued that “independence,” a favorite slogan of vote-hungry politicians, would require the government to interfere with the global division of labor, which, as economists have understood since Adam Smith’s day, make us richer and therefore better able to deal with the future uncertainties. “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. ... If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them,” wrote Smith.

Of course, as many readers noted, the federal government, by doing things like prohibiting drilling in on- and off-shore areas that may have oil reserves, makes it more expensive or even impossible to produce energy in this country. Those policies should go, but that would still not bring self-sufficiency. Our demand for oil is too great.

And anyway, if the economics of oil production favor foreign over domestic producers, it still makes sense to buy the cheaper product. It wouldn’t matter how much shale oil we have in the United States.

Readers correctly point out that because governments control much oil production, there is no global free market. But it does not follow that market forces don’t work. There are many sources of oil in the world and many buyers. Supply and demand still set the price globally. It is foolish not to buy at the lowest price.
Many readers agreed with the one who said: “The short-term goal here is not complete energy independence. ... The goal is partial independence from those countries, many of whose citizens hate us and would do us harm.”

“Partial independence” sounds like partial pregnancy. People don’t have to like each other to benefit from trade. Those who sell us oil need the money so they can turn it into food, automobiles and other things. Refusing to sell because they don’t like us would be self-destructive. Anyway, all the world’s oil ends up in the same bathtub. If one foreign source stopped selling oil to the United States, it would sell to someone else, and that buyer would then have an incentive to sell to us.
Several readers argued that “Energy independence doesn’t mean opposition to trade. If we ever become energy independent, we’ll still have the option of buying energy on the world market.”

Of course. But this misses the bigger point. To even attempt to achieve energy independence, the government will have to plan the energy sector. Considering how pervasive energy is throughout the economy, this is a recipe for full central planning and a step toward poverty and tyranny.

“Why not keep all that $720 billion [we spend to import oil] in the United States of America?” was a sentiment expressed by many. But that reveals a poor understanding of world trade. When we trade dollars to foreigners for oil, they have to do something with those dollars. They don’t stuff them in mattresses. They buy American products (U.S. exports are soaring). Or they invest in businesses here. Or they sell the dollars to someone else who buys American products or invests in the United States.

If we stop buying from abroad, foreigners will have fewer dollars with which to buy American products or to invest. That would hurt us.

Many readers think that energy independence would produce jobs for Americans. But the idea that money spent abroad means fewer jobs here is just plain wrong. If Americans don’t produce energy, they will produce something else. The number of jobs is not fixed. There is always work to do.

If Americans can produce competitive forms of energy — without government subsidies — great! But if others can produce energy more cheaply, we’d be crazy not to buy it and use the savings to make other things to improve our lives."


No wonder that John Stossel is “the author of “Myth, Lies, and Downright Stupidity,” which is now out in paperback.

I could not add anything to what John Stossel has written in his column today.

The edited quotation from Wealth Of Nations commences on page 456 and is picked up again on page 457 (Glasgow Edition, published by Oxford University Press and Liberty Fund). There is a small bit missed out for space reasons that is relevant to the argument too because Smith explains the mechanism by which the gains from trade are affected:

The taylor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a taylor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbours, and to purchase with a part of its produce, or what is the same thing, with the price of a part of it, whatever else they have occasion for.’ (WN IV.ii. 11-12).

Read Stossel's column and circulate it to those who participate in the debate about ‘Fortress America’, a place thta no serious consumer would be glad the politicians chose to impose it upon her and the family.

[My apologies to the good folks at the Desert Despatch for my breach of courtesy in posting the whole column without previous permission. I shall try not to commit the heinous offence again but I learned a long time ago that it is better to ask for foregiveness than for permission.]


Wednesday, August 27, 2008

Dangers in Relying on P. J. O'Rourke's Version of Adam Smith

It’s time to address the ‘little finger’ and the Chinese earthquake that kills 100 million question once again. This time, the ‘reader’, Nick Thorn, asserts that Adam Smith’s example, or at least the bit he quotes, provides an interesting ‘insight into human nature’.

To be sure it isn’t a very flattering insight at all, especially linked to Nick’s unhappy association of it with ‘capitalism’ (and the ‘Daily Mail’, the voice of lumpen middle-class England...).

Nick writes ‘Nick Thorn Home Pages’ (‘technology for business’ sake’) HERE:

“Adam Smith, Human Nature, Capitalism and Realism

Three of my holiday reading books put together came up with an interesting insight into human nature. The books were “The Genome” by Matt Ridley followed by “Confessions of an Economic Hit Man: The Shocking Story of How America Really Took Over the World” by John Perkins, then followed up with “On the Wealth of Nations” by P.J. O’Rourke. (I did chuck in an Andy McNab from the library too ).

“The Genome” basically said that nature wins out over nurture a lot more than we realise.

“On The Wealth of Nations” has an Adam smith quote on human nature. From “Moral Sentiments”, part 3. I quote:

“Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connexion with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment. He would too, perhaps, if he was a man of speculation, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general. And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquillity, as if no such accident had happened. The most frivolous disaster which could befal himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren…”

[Nick inserts a link to Moral Sentiments; leaving it to reader, presumably, to read on beyond the truncated bit he quotes.]

Interestingly, Adam Smith complains bitterly about big business, globalisation, poor government, feckless people and could have been writing for The Daily Mail today. In other words, nothing much changes. For that matter, the Romans also had pretty much the same list of complaints.”

However, Adam Smith goes on to discuss an imaginary dilemma for that same man who ‘snore[s] with the most profound security over the ruin of a hundred millions of his brethren’ in the same paragraph quoted by Nick.

The whole paragraph completely changes Nick’s presentation of the man being a close imitation of a psychopath.

Smith asks: what would the man do if he was offered a choice of losing his finger or saving the 100 million from the earthquake?

On Nick’s current prediction he would prefer to save his little finger.

Not sure? Right pose the hypothetical question to people who have read the piece that Nick quotes but who have not read the whole quotation.

Now read the full quotation, which Nick does not quote (it might spoil his conclusions about human nature):

To prevent, therefore, this paltry misfortune to himself, would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them? Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it. But what makes this difference? When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble? When we are always so much more deeply affected by whatever concerns ourselves, than by whatever concerns other men; what is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct. It is he who, whenever we are about to act so as to affect the happiness of others, calls to us, with a voice capable of astonishing the most presumptuous of our passions, that we are but one of the multitude, in no respect better than any other in it; and that when we prefer ourselves so shamefully and so blindly to others, we become the proper objects of resentment, abhorrence, and execration. It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the natural misrepresentations of self-love can be corrected only by the eye of this impartial spectator. It is he who shows us the propriety of generosity and the deformity of injustice; the propriety of resigning the greatest interests of our own, for the yet greater interests of others, and the deformity of doing the smallest injury to another, in order to obtain the greatest benefit to ourselves. It is not the love of our neighbour, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble, of the grandeur, and dignity, and superiority of our own characters.”
(TMS III.3.4: pp 136-7)

Yes, the man would choose to lose his little finger rather than 100 million ‘of his brethren’ are killed in the Chinese earthquake. This gives a somewhat different picture of the man from reading the first part of the paragraph alone.

I think this point is sometimes lost on ‘quick’ readers, who miss Smith’s description of the man in question here – he is a ‘man of humanity’ (check the first sentence), and not a miserable, selfish person, that Nick (a ‘man of the world’?) portrays, which rather spoils Nick’s (and many others’) forced example.

Always read Adam Smith, a moral philosopher, in context, which is why so many quotations from his books lead to false conclusions.

[Nick got his quote from P. J. O’Rourke’s version of Adam Smith, which is proving to be a poor source for Adam Smith’s actual views….]

[As always, my thanks to Sandra Peart for drawing this assessment to my attention.]

Tuesday, August 26, 2008

Inappropriate Quotations

Populist blogging is a feature of Blogland and it is all the richer for it. Sometimes the populists stray into territories with which they are not familiar. One such example is the 'Nerd Family. Pro-Nerd. Pro-Family Blog' (HERE:)

"Adam Smith on Public School

‘…NerdDad found a great book. It is P. J. O'Rourke's On The Wealth of Nations (Books That Changed the World) . Now we here in the Nerd Family are huge P.J. O'Rourke fans, and we can speak of his greatness further in the future, so NerdDad checked it out and found that Adam Smith had his opinions on school and how it should work.

Adam Smith was only a tepid fan of public education. As he went on to explain in book 5 of Wealth, he thought that some government subsidy of education was needed so that "even the common labourer may afford it." Teachers, however, should be "partly, but not wholly paid" by the state. "In modern times the diligence of public teachers is more or less corrupted by the circumstances, which render them more or less independent of their success and reputation," wrote Smith, making his modern times sound like ours. And Smith believed that certain very prestigious institutions of higher learning were teaching "a mere useless and pedantic heap of sophistry and nonsense." Was UC Berkeley even around back then?"

I have no idea of who forms the ‘Nerd Family’ (it must be a local joke), nor am I convinced that P. J. O’Rourke is the best guide to Wealth Of Nations; he managed to dumb down its ideas for an already dumbed-down generation of self-proclaimed Nerds.

The issue facing Adam Smith was not how to reform an existing education system, but how to persuade legislators and those who influenced them to initiate some elementary education for a largely illiterate and innumerate (and mono-lingual speaking) generation.

For the majority of youngsters there was no or very little education. Girls tended not to be educated at all, except in the middle and upper-class households and then only in how to be ‘ladies’. Among boys, education lasted a year or two before they were put to work to earn pennies to supplement the weekly family earnings.

Of those ‘schools’ that functioned, most were paid for by local communities, bequests and charities. England had only two universities and these were financed by endowments, scholarships and private funding and mainly trained boys (14-17) for the church ministries.

The picture is Scotland was somewhat different to that of England and Wales. Scotland had four universities (Edinburgh, Glasgow, St Andrews and Aberdeen) and they took boys who completed schools education from 6 or 8 to 14 years old. Every Church parish had a school with the paid teacher and took boys of all classes to teach them the basics of reading, writing, and account (arithmetic), plus a smattering of Latin and Greek.

For those who showed promise, charitable funds were available to keep them at school without having to leave to work at round 8 to salve the dreadful poverty of their families. Those that went on to university went on scholarships, again without burden on their families. This route to upward mobility was an important feature of Scottish education, as was the whole education apparatus, partly funded by local public charges and charities, and by even miniscule payments by all but the very poorest families. Many visitors were surprised at the literacy levels among common labourers in Scotland.

It was this system that Smith presented in Wealth Of Nations for emulation across the United Kingdom. I am not sure just how qualified P. J. O’Rourke, or Nerd daddy is to pontificate about Smith’s modest proposals or to assert that he was ‘only a tepid fan of public education’. I think the education debate in the 21st-century USA on ‘public education’ is a long, long way from the problem that Smith addressed.

Once again it comes down to context, of which the Nerd Family may well not be aware of. You should not drag in Adam Smith to boost one side or another of a fractious ‘debate’ (mere like a ranting scream) in modern America, especially as it includes organised teachers unions, public authorities and parents of varying degrees of measured understanding of the issues, and almost certainly a complete lack of knowledge of Book V of Wealth Of Nations and
18th-century realities.

Nonsensical Snippet on Adam Smith

Somebody reports on global warming from the Big Tent in Denver (HERE):

Van Jones: Nothing Radical Here

Oakland area activist Van Jones wastes no time getting to the heart of how clean energy can be sold as a pragmatic solution in the current political climate, and he does so by tipping his hat to everyone’s favorite capitalist, Adam Smith

everyone’s favorite capitalist, Adam Smith”?

By no imagination can anybody make out that Adam Smith was a capitalist. It’s this kind of sloppy thinking that gives 'global warming activists' a bad name among sceptics.

Monday, August 25, 2008

The Mystery of Adam Smith's '1755 Paper'

Remy Briand and Madhusudan Subramanian post an article on investment prospects in ‘Emerging Markets: a 20 year perspective’ in (Sept/Oct) (HERE):

Emerging Markets: a 20 year perspective’, which you have to read to get its professional investor flavour (vicariously, of course).

It opens, however, with a well known quotation from Adam Smith:

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things." — ."

No references to Adam Smith occupy any of the 5 pages of the article, and in that sense the quotation is disengaged from the article. I assume it was picked by the authors because it reads well and supposedly sends a powerful message to their readers.

However, the emerging markets that they are interested in do not qualify as having taken Smith’s advice – they tend to be state dominated in partnership with “family-controlled conglomerates that benefit from political connections”, which does not stop them being a ‘buy’ prospect, provided you have strong connections with a winning family (political or commercial).

The ‘1755 paper’ as it is known is most interesting, not least because it was only seen by Dugald Stewart (Smith’s first biographer) and not by others who could verify its contents and, perhaps more importantly, explain its context.

The occasion was Stewart’s eulogy following the death of Adam Smith (in 1790) and his reading of an appreciation of Smith’s work and life to the Royal Society of Edinburgh in 1793 (he read his eulogy in two parts, one in January and the other in March: the February meeting was postponed without explanation).

A partial explanation for the postponement was the rising concerns of the British Establishment for their safety in light of the events in revolutionary France with the trial of the French King in December 1792 and his execution in January 1793.

There were also a series of events in Edinburgh early 1793 in which various radicals were placed under observation and then on trial for sedition. In short, the atmosphere was not conducive to the proper business of an eulogy for a academic moral philosopher - even meetings were viewed with distrust.

Stewart quotes from Smith’s paper which was actually delivered in 1755 to his club in Glasgow and appears to be ‘expressed with a great deal of that honest and indignant warmth, which is perhaps unavoidable by a man who is conscious of the purity of his own intentions, when he suspects that advantages have been taken of the frankness of his temper’.

Stewart used the occasion to place on record in front of his peers (Smith was a founder member of the Royal Society of Edinburgh in 1783 – he had been elected to the Royal Society of London in 1773) a strong rebuttal of the mysterious circumstances that led him to write with ‘indignant warmth’ about unexplained matters that had ruffled his normal kindly disposition. Fellows of the RSE are assumed to have known what the dispute was about even though it had occurred 38 years earlier. It must have been some row!

But the paper was not published by Stewart – he thought it would be considered ‘improper’ to ‘revive the memory of private differences’, yet clearly everybody knew about them.

The paper, with a few quotations from it (including the one quoted above), was placed among Stewart’s papers and never saw the light of day. Unfortunately, Stewart’s son appears to have burned it among other papers when he was suffering from mental illness.

So, not knowing what the paper contained remains a major problem for Smithian scholars. I have discussed its possible contents and context in the appendix to my book, Adam Smith’s Lost Legacy, 2005, Palgrave Macmillan, pp 241-48.

I don't suppose Remy Briand and Madhusudan Subramanian are aware of this background, nor am I convinced that they quoted the sentence above because it had anything to do with the cotnents of their article. States and powerful family conglomerates don't do 'peace, easy taxes, and a tolerable administration of justice'.


Adam Smith on Happiness?

There are border line quotations from Adam Smith's writings that may or may not express the themes than an author wishes to convey, and this may be one of them.

Gretchen Rubin, a former lawyer from Yale, turned ‘writer’, for which she is working on The Happiness Project (HERE), writes:

Happiness quotation from Adam Smith

“The consciousness, or even the suspicion, of having done wrong, is a load upon every mind, and is accompanied with anxiety and terror in all those who are not hardened by long habits of iniquity.” --Adam Smith, The Theory of Moral Sentiments

That's why I've found that when I behave myself better, and manage to keep my resolutions, I feel happier. Knowing that I've lost my temper, failed to use good manners, behaved thoughtlessly, etc., makes me anxious, even as I'm making excuses for myself

An unusual theme and I applaud any advice to readers that they might read Adam Smith’s Theory of Moral Sentiments.

Incidentally, the sentence that Gretchen quotes is part of a discussion in which, uncharacteristically, Smith attacks the ‘Roman Catholic superstition’ as part of a veiled attack on religious superstition in general. He was ‘safe’ from the attention of the Protestant zealots in mid-18th-century Scotland in describing the Catholic religion as ‘superstition’ in the context of the confession of sins to a priest; woe betide him if he said anything similar about the Calvinist confession.

However, judge for yourself for here is the quotation is its context:

The doctrine of the casuists, however, is by no means confined to the consideration of what a conscientious regard to the general rules of justice would demand of us. It embraces many other parts of Christian and moral duty. What seems principally to have given occasion to the cultivation of this species of science was the custom of auricular confession, introduced by the Roman Catholic superstition, in times of barbarism and ignorance. By that institution, the most secret actions, and even the thoughts of every person, which could be suspected of receding in the smallest degree from the rules of Christian purity, were to be revealed to the confessor. The confessor informed his penitents whether, and in what respect they had violated their duty, and what penance it behoved them to undergo, before he could absolve them in the name of the offended Deity.

The consciousness, or even the suspicion of having done wrong, is a load upon every mind, and is accompanied with anxiety and terror in all those who are not hardened by long habits of iniquity. Men, in this, as in all other distresses, are naturally eager to disburthen themselves of the oppression which they feel upon their thoughts, by unbosoming the agony of their mind to some person whose secrecy and discretion they can confide in. The shame, which they suffer from this acknowledgment, is fully compensated by that deviation of their uneasiness which the sympathy of their confident seldom fails to occasion. It relieves them to find that they are not altogether unworthy of regard, and that however their past conduct may be censured, their present disposition is at least approved of, and is perhaps sufficient to compensate the other, at least to maintain them in some degree of esteem with their friend. A numerous and artful clergy had, in those times of superstition, insinuated themselves into the confidence of almost every private family. They possessed all the little learning which the times could afford, and their manners, though in many respects rude and disorderly, were polished and regular compared with those of the age they lived in. They were regarded, therefore, not only as the great directors of all religious, but of all moral duties. Their familiarity gave reputation to whoever was so happy as to possess it, and every mark of their disapprobation stamped the deepest ignominy upon all who had the misfortune to fall under it. Being considered as the great judges of right and wrong, they were naturally consulted about all scruples that occurred, and it was reputable for any person to have it known that he made those holy men the confidents of all such secrets, and took no important or delicate step in his conduct without their advice and approbation. It was not difficult for the clergy, therefore, to get it established as a general rule, that they should be entrusted with what it had already become fashionable to entrust them, and with what they generally would have been entrusted, though no such rule had been established. To qualify themselves for confessors became thus a necessary part of the study of churchmen and divines, and they were thence led to collect what are called cases of conscience, nice and delicate situations in which it is hard to determine whereabouts the propriety of conduct may lie. Such works, they imagined, might be of use both to the directors of consciences and to those who were to be directed; and hence the origin of books of casuistry.

The moral duties which fell under the consideration of the casuists were chiefly those which can, in some measure at least, be circumscribed within general rules, and of which the violation is naturally attended with some degree of remorse and some dread of suffering punishment. The design of that institution which gave occasion to their works, was to appease those terrors of conscience which attend upon the infringement of such duties. But it is not every virtue of which the defect is accompanied with any very severe compunctions of this kind, and no man applies to his confessor for absolution, because he did not perform the most generous, the most friendly, or the most magnanimous action which, in his circumstances, it was possible to perform. In failures of this kind, the rule that is violated is commonly not very determinate, and is generally of such a nature too, that though the observance of it might entitle to honour and reward, the violation seems to expose to no positive blame, censure, or punishment. The exercise of such virtues the casuists seem to have regarded as a sort of works of supererogation, which could not be very strictly exacted, and which it was therefore unnecessary for them to treat of
.” (TMS IV.iv.16-7 pp 333-4)

I am not sure that all this is about happiness. But Gretchen is on the right track. There is much in Moral Sentiments that addresses the issues that she is interested in, and perhaps she should look elsewhere in the book for a better quotation.


Sunday, August 24, 2008

Short Rant

A side-note on a minor diversion among anthropologists:

Postmodernism: ‘the open acknowledgement that an observer brings his or her own background into a scientific question

It has meant that some of the new generation’s cultural scholars regard the time-honoured ethnographies of the past with scepticism. One health result has been an increase in the importance of ethnographies written by scholars of colour, especially those who are from the culture they study.’

p 11, Craig Stanford, John S. Allan, Susan C. Antón, 2006. Biological Anthropology, Pearson Prentice Hall, New Jersey

I was somewhat taken aback by this statement. I was looking through some newer references while completing my paper on the ‘Pre-History of Bargaining’ for the European Association for Evolutionary Political Economy (EAEPE) conference in Rome 3-6 November. You can see I sometimes cross from Economist's Land in to Anthropoloy Land, and even stranger lands beyond that.

Nevertheless it still stopped me in my tracks.

Especially the prospect alluded to in the text that anthropology may split into two clear sections, one, ‘biological’ (‘empirical’, ‘hypotheses testing’, and ‘scientific’) and the other ‘cultural’ (‘interpretive’, in the ‘light of power, gender and ethnicity’).

Well, the split may be inevitable and it may or may not be beneficial. Who knows? I am not opposed to such divisions on grounds of principle; they abound in economics and, for example, I am not comfortable with the policy consequences of neo-classical economics, but a division within a discipline that seems to be based on skin pigmentation and not science is a horrifying idea by any measure.

If some people have a view that their subject should be treated in a specific context, even by people who believe that their experiences within that context gives them an edge over outsider ‘number-crunchers’ – who may well be deeply immersed in the cultures they study - that is fine by me.

I am all for context, as Lost Legacy makes clear on a regular basis. If their results prove of lasting value, they will achieve the necessary credibility; if they don’t they won’t, and no harm done.

I would have thought that the subject range of anthropology precludes finding people who lived among the first farmers (11,000 years before the present), or the first migrants out of Africa (60-40,000 ybp), or the first human residents of California, which automatically precludes the need for people with ‘hairy-coats’, ‘white males’, ‘people of colour’ and those females ‘deeply immersed in gender politics’, who would be more 'correct' or whatever, than those moderns who were properly-trained anthropologists, with specialist expertise across the discipline, irrespective of their colour, who sift the evidence of the past with forensic passion.

The tenor of the article (‘A Paradigm Split in Anthropology’) smacks of a step too far of the insidious extremes of political correctness.

End of Rant.

Saturday, August 23, 2008

Poor Sub-editing on Newsweek?

Anna Quindlen writes a column in Newsweek (HERE) which has the heading:

Endless Summer’ and the sub-heading:

In the future, all presidential candidates should be sent to a secure, undisclosed location with lemonade and some Adam Smith

The actual article apart from the sub-heading does not mention Adam Smith again in it, so we don’t know exactly what the significance is of Cain and Obama drinking lemonade and (reading?) Adam Smith at the ‘undisclosed location’.

How did this get past the Newsweek subs?

A False Summary of Adam Smith is Published

Publishing ventures that seek to milk cash cows have their uses. Corrupting their authors' intentions ought not to be one of them.

In the Business Standard 23 August, New Delhi, a new series is announced of short summaries of 100 pages that 'explain' ideas from classical texts at popular, low prices HERE:

Adam Smith’s The Invisible Hand has been extracted from his book The Theory of Moral Sentiments. Because he hasn’t been read carefully, Adam Smith has been projected as an advocate of laissez faire who opposed any effort by a government to control self-interested activities of individuals that led to exploitation. This interpretation is false because one of Smith’s constant themes is that the unintended consequences of good intentions are often bad: the mysterious “invisible hand” provides a corrective. Smith’s dictum is simple: proper reasoning does not infallibly lead men to proper conduct.”

It sure is a ‘mysterious invisible hand’ that ‘provides a corrective’ that also manages to mangle two ideas – Adam Smith was not an advocate of laissez-faire (TRUE) but he advocated the ‘invisible hand’ instead (NONSENSE).

Governments fail in attempting to lead individuals to ‘proper conduct’ (TRUE) and ‘proper reason does not infallibly lead men to proper conduct’ (TRUE), therefore leave it to the ‘mysterious invisible hand’ (NONSENSE).

Society can prevent ‘improper conduct’ by the rule of law (justice), not men – do not legislate for restrictions, monopolies, and tariffs.

Dismantle – gradually and with due consideration for their immediate affects – the mercantile political economy which is hostile to competitive trade. The only case for notional tariffs is to raise revenue for necessary public expenditure where other sources are not available.

How many readers of this series will understand Adam Smith from reading it?


Philosophising About Hard Work

Saturday's a time for some thinking about philosophical issues. On this occasion I take a brief look at the virtues of hard work for those undertaking it.

Wall Street Journal (22 August) in which Tony Woodlief asks: ‘Hi-Ho, Hi-Ho: How Can I Teach My Kids to Enjoy Work?’

I thought perhaps the best person to consult for wisdom on the virtues of work would be that psalmist of markets, Adam Smith.

But as it turns out, Adam Smith's philosophy of work was that it requires one to lay down "a portion of his ease, his liberty, and his happiness." My sons agree wholeheartedly. Further, Smith measured wealth in terms of one's ability to hire others to do the work. I've not caught anyone paying to have his chores done, but I suspect it's a matter of time. Needless to say, "Wealth of Nations" is coming off our shelf for the time being.”

Much as it pains me to say it, I think the Frenchman was right. Maybe early Americans worked hard not because they found inherent pleasure in work but because they dreamed of a world with delivery pizza and videogames. And now that we've achieved that pinnacle of economic satisfaction, we're eager to follow Adam Smith's advice and take it easy.

Much as it pains me to say it, I think the Frenchman was right. Maybe early Americans worked hard not because they found inherent pleasure in work but because they dreamed of a world with delivery pizza and videogames. And now that we've achieved that pinnacle of economic satisfaction, we're eager to follow Adam Smith's advice and take it easy.

Left-leaning theologians like N.T. Wright and Miroslav Volf, meanwhile, agree that work should be seen not as a pietist's grim duty or as an avenue to wealth but as a way of participating in God's creative order. Liberal Tom Lutz's "Doing Nothing," a book that ostensibly sets out to justify Slackerism, likewise has a beef not with work but with purposeless work.

I'm a small-government guy, but when it comes to a work ethic, I find myself siding with the left. Humans need work, and they need to see that their work has a purpose. Come to think of it, you'll hear that from any of America's countless business gurus. We're all Marxists now

You can’t help liking Tony Woodlief. He has a family oriented honesty that gives pause to thought. His awkward conclusions irritate too. So it’s best that you read the article HERE:

However, I am not so sure that he’s got Smith (or Marx) right.

Adam Smith considered the real cost of anything was the ‘toil and trouble’ of making it yourself, as in the pre-history days of hunter-gathering when everything a person wanted had to be made for themselves – feeling cold? go into the forest and hunt a bear to make a coat; your hut leaks? – gather some brushwood and cover the gaps or gather all the bits and built another hut; you’re hungry – gather from the forest some berries, and fruit, and hunt a smallish animal to make the main treat.

Smith was speaking philosophically about the real cost of anything you needed. Your own labour could give you a surplus with which you could obtain the fruits of nature from somebody who had other things to spare. Labour was the cost of acquiring things; wealth was the amount of such things that represented the ‘necessities, conveniences, and amusements of life’. It was not the labour.

If it wasn’t so, then everybody would have to labour hard and long but would also be extremely poor, far beyond what a decent saint could tolerate in their vows of poverty (the latter living off the scraps of those working around them). The hut needs fixed because it is leaking badly? 'Sorry, there’s no food and you’ll have to get wet and like it, while I go to yonder territory and gather what I can – perhaps in a few days I’ll have the time to tend to the hut, but then perhaps not.'

How taking Wealth Of Nations from the shelf would prevent Tony’s boys reading about reality – obviously Tony hasn’t read or understood it, so why he fears his boys (4, 6, and 8 years old) would be corrupted by it, escapes me. They could read Genesis and the ‘sweat of thy brow’ bits, instead.

As for de Tocqueville and dreaming about working to ‘a world with delivery pizza and videogames’, I doubt it. The early Americans were working to get the wherewithal to live well for the rest of the year.

The desire to ‘take it easy’ is not something new; it’s the fact that while that desire to 'get by' is universal across all societies, there is always a minority who want to do better that 'get by' and they work hard trying to find inventive ways of doing better, but unfortunately the self-deception that they can rest after they’ve succeeded by a lifetime of toil is a receding horizon:

And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants.” (TMS IV.1.10: pp 183-4)

What Tony Woodlief sees in hard word ‘as a way of participating in God's creative order’ other might see 12-18 hour days in paddy fields, or mind-numbing shifts in coal mines.

Without in any way deliberately mocking such religious-inspired images of the ‘creative-order’ attributed to an invisible God, its possible to intellectualise the inevitable amount of work that is and always will be ‘purposeless’ in the minds of those who have to do it.

Where does all this leave Tony Woodlief’s three young boys?

In Adam Smith’s time there were plenty of young boys, as young as six upwards, who didn’t ‘waste’ time playing; they were sent to work by and with their parents for a few pence a week which could have added a shilling-and-sixpence to the family’s meagre weekly budget, giving them the enjoyment and fulfilment that Tony yearns for his boys (echoes of the ‘Labour Sets You Free’ horrors of Nazi Germany).

Somehow, I am not so sure that his boys see it that way – at least, as well-brought up boys, they would not be overly prepared to say so in front of him. Might be better to get them engaged in sporting activities…

PS: I note in passing Tony’s comments on his son’s ‘slacking’ while nominally working, but were they slacking or exercising innovative capacities?

There are already signs of the Smithian ethos on our homestead: My 6-year-old tries to reduce how often he carries his clothes hamper to the laundry room by wearing the same outfit indefinitely. My 8-year-old, meanwhile, leaves the water hose stretched out where I trip over it, so that filling the dog's water dish takes less walking.

This is predictable and very laidable!.

Smith notes the behaviour of children in work in his day; Smith noted a similar outcome in Wealth Of Nations:

Men are much more likely to discover easier and readier methods of attaining any object, when the whole attention of their minds is directed towards that single object, than when it is dissipated among a great variety of things. But in consequence of the division of labour, the whole of every man's attention comes naturally to be directed towards some one very simple object. It is naturally to be expected, therefore, that some one or other of those who are employed in each particular branch of labour should soon find out easier and readier methods of performing their own particular work, wherever the nature of it admits of such improvement. A great part of the machines made use of in those manufactures in which labour is most subdivided, were originally the inventions of common workmen, who, being each of them employed in some very simple operation, naturally turned their thoughts towards finding out easier and readier methods of performing it. Whoever has been much accustomed to visit such manufactures, must frequently have been shewn very pretty machines, which were the inventions of such workmen, in order to facilitate and quicken their own particular part of the work. In the first fire-engines, a boy was constantly employed to open and shut alternately the communication between the boiler and the cylinder, according as the piston either ascended or descended. One of those boys, who loved to play with his companions, observed that, by tying a string from the handle of the valve which opened this communication, to another part of the machine, the valve would open and shut without his assistance, and leave him at liberty to divert himself with his play-fellows. One of the greatest improvements that has been made upon this machine, since it was first invented, was in this manner the discovery of a boy who wanted to save his own labour.” (WN I.i.8: pp 20-21) [Incidentally, Smith was misled here by an anecdote]

I hope Tony praised his boys for their ingenuity in seeking easier way to complete their tasks, instead of, I fear, chastising them. That their solutions may have been 'unstable', they nevetheless provide an ideal platform to instill in them the positive virtues of trying to improve the way things are done.

It is that search for improving productivity that led from the forest via shepherding and farming to Tony’s ability in the world this created to sell-up in the city and move to a 20-acre homestead in the American countryside to induct his children into the virtues of hard work. Just a thought.

[Thanks to a correspondent (Adolpho Mendez) for drawing Tony Woodlief’s article in the WSJ to my attention - see comments to my post below]


Friday, August 22, 2008

US Treasury 'Manages' Its Debts?

Gerald P. O’Driscoll, Jnr. posts ‘Washington Is Quietly Repudiating Its Debts’ in the Wall Street Journal (22 August) HERE:

Will the U.S. Treasury repudiate its obligations to its creditors, be they citizens or investors around the world? Most observers would answer "no" without hesitation. But Congress, with the complicity of the White House and the Fed, has arguably embarked on a stealth repudiation.

In his famous treatise, "The Wealth of Nations," Adam Smith noted there had never been a "single instance" of sovereign debts having been repaid once "accumulated to a certain degree." We may have reached Smith's threshold.”

Possibly a rare good use of a quotation from Wealth Of Nations (WN V.iii.59: p 929).

The only problem that I can see is I am not sure if the US has reached that stage just yet, but it is appropriate that a financial journal raises the possibility of the issue arising.

Maybe Gerald P. O’Driscoll is slightly exaggerating Smith’s views in this instance. Here is the actual wording of the paragraph, which is slightly less definitive in that ‘never’ replaces Smith’s more cautious words, ‘I believe’:

When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and compleately paid. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.’ (WN V.iii.59: p 929)

Those interested in handling public debts might care to read the whole of chapter III of Book V (‘Of Public Debts’) for Smith’s excellent historical account of the sorry behaviour of kings, emperors, and governments regarding the debts they or they predecessors contracted, and which given the historical precedents, were almost certain not to be repaid in full, though they were good for their interest payments while they lasted (allowing for the ravages of inflation, adulterated coinages, and assorted financial crises on even the value of the nominal interest payments).


Thursday, August 21, 2008

Adam Smith On Government Spending From Taxation and Borrowing

Another misuse of Adam Smith's actual stance, this time on the size of government expenditure. (New York) carries a punchy Editorial (HERE:)

When Adam Smith wrote the book on economics, he didn’t trust corporations, unions, lobbyists, interest groups, governments, or anyone else. Smith knew that in an untrustworthy world, more competition was always better than less competition.

Government should be used sparingly, deftly, and narrowly focused. It has a limited purpose: Protect citizens from others and from each other, maintain courts, and minimally help people between jobs. Everything else is your business, because government doesn’t create jobs; people do. Adam Smith explained this 230 years ago.”

That’s a stripped down version of Adam Smith’s critique of the mercantile economics system prevalent in 18th-century Britain; so stripped down it’s missed a lot of the detail in pursuit of a political view.

Not that I against cutting the size of most 21st-century governments, especially the government of the UK. But I do not think anytime soon the UK, nor the USA; and certainly not Russia or China, are going to reduce the government’s share of GDP going to government legislated expenditures.

Smith’s approved programme for government expenditures was quite extensive, well beyond the editorial writer’s list on Rome Sentenial list.

Smith’s infra-structure programme to ‘facilitate commerce’ would cost tens of millions (good highways linking the main, and growing, cities; harbours; canals; bridges; paving and street lights), all mentioned in Book V of Wealth Of Nations.

The taxpayers’ money plus borrowing to fund the 7-years war at £172 million would have been better spent on british domestic infra-structure, which, of course would incur annual operating, maintenance, and repair costs, part funded by user-tolls, and Smith was pragmatic about whether they were managed by public or private commissioner.

To this you could add a national school system (a ‘little school in every parish – all 60,000 of them), partly funded by local taxes and small fees from families whose children attended them to better prepare them for productive work to supplement their family’s earnings.

He even advocated public funding for palliative care for victims of ‘loathsome diseases’ like leprosy (an agenda of expenditure in the disease-ridden towns that were to grow bigger in the next century).

Smith was not in favour of a ‘night-watchman state, an accusation often levied about him by some of today’s libertarian right. It was a sarcastic remark by a 19th-century socialist called Ferdinand Lassell (1825-64), who was trying to out-left the British left who were not robust enough politically for him; somehow, the Right picked this up as a ‘badge of pride’ and passed it on to their accounts of Smith’s government duties programme.

Smith certainly favoured a small state by today’s standards, but not as small by a long way as some would claim for him. It would make it easier to join these debates if more people read Adam Smith beyond the ‘rent-a-misquote’ efforts of those who don’t read him.


Wednesday, August 20, 2008

Misuse of a Metaphor

Emma Tom writes a punchy column in The Australian: “Bring on the nanny state and dig Doug out of squalorHERE:

Adam Smith's invisible hand was supposed to look after the underclass even though quite often it seemed to be raising an invisible middle finger and sneering "nerny nerny ner ner". The indulgent and economically delinquent concept of social justice was for girls.”


I have no quarrel with Emma’s focus in her column on the desperate abandoned plight of a down-and-out called ‘Doug’ in Canberra, Australia. It truly is a shocking account.

But why, oh, why must she bring into it a totally irrelevant and absolutely untrue link to anything that Adam Smith from Kirkcaldy had to say about it?

Maybe, the ‘Adam Smith’ from Chicago is culpable, but I don’t suppose Emma knows that. She takes a metaphor of an ‘invisible hand’, of restricted use – Smith only mentions it once in Wealth of Nations, once in Moral Sentiments and once in his History of Astronomy essay, which was not published until 1795, after he had died in 1790, and in each case, he was not talking about anything remotely connected with anything mysteriously benign nor related to the situation that ‘Doug’ is in.

Emma is taking the Chicago misuse of the metaphor at its word and makes out that somehow Adam Smith was horribly wrong about the desperate poverty of the likes of Doug and of which there were more than enough examples around Edinburgh in the late 18th century.

Her remarks more appropriately should be linked to Chicago economists, Nobel ‘Prize winners’ too, and she should berate them, not the Adam Smith born in Kirkcaldy, a long time incidentally before Chicago existed to host a group of epigones who stole Adam Smith’s legacy.

How does an invisible (i.e., imaginary’) finger manage to ‘sneer’ and vocalise about the plight of Doug? Smith respected the unemployed and the unemployable; he was quite contemptuous of the ‘great’, the celebrity admired, and the self-concerned ‘wives of Aldermen’ (we all know what he meant by that; probably even know some modern-day examples of that species, no doubt in Canberra itself).

You should follow the link to Emma’s article to read about ‘Doug’.


Misuse of a Quotation from Wealth Of Nations

Michael Dawson writes in Dissident Voice ('a radical alternative in the struggle for peace and social justice’ (HERE):

“We’re no. 28”

Does the flagship of big business society really prove the truth of Adam Smith’s famous claim that

by directing that industry in such a manner as its produce may be of the greatest value, [the capitalist] intends only his [or her] own gain, and he [or she] is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his [or her] own interest he [or she]…promotes that of the society more effectually than when he really intends to promote it.”

For those actually willing to investigate and answer this question, the evidence is clear: Check out Mercer Consultants’ 2008 quality of life and personal safety survey results.

Mercer, which describes itself as “a global leader for trusted HR and related financial advice, products and services” that “has more than 18,000 employees serving clients in over 180 cities and 40 countries and territories worldwide,” finds that the top US city in its quality-of-life index is:
Honolulu, ranked #28”

I have not comment on the politics espoused by Dissident Voice (I only comment on the politics of the country I vote in, which is Scotland, UK).

However, I have an opinion on the misuse of a quotation from Adam Smith's, Wealth of Nations, which you will find at: WN IV.ii.9: p 456. I quote it accurately below:

By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

Note the unnecessary and misleading insertions of the words: ‘the capitalist’; ‘or her’, ‘or she’, and that ‘he or she’ missed one in the last part of a sentence.

Inserting the word ‘capitalist’, a word not invented in English until 1854 (Oxford English Dictionary), when it appeared in Makepeace Thackery’s novel, The Newcomes (Smith died in 1790), is discreditable when giving the impression that Adam Smith was commenting on an economic system called capitalism when he patently was not. I call this ‘rent a quote’.

Moreover Smith was not talking about an economic system or even a market. He was discussing a behaviour associated with risk avoidance on the part of some merchants who preferred the home trade to foreign trade with the British colonies in North America, which no longer existed after 1783, when the British colonists forced the surrender of the British army, and the country went on to become the United States.

I would also observe that the authors of Dissident Voice appear to live in California, one of the richest places on Earth, and to which millions, not to say billions, would be delighted to move to from where they are to avoid starvation, disease, and a quality of life far removed from the heady delights of California.