Monday, March 23, 2009

Power Bid Mentioning Hobbs and Smith

Trevor Manuel, Finance Minister of South Africa, writes in (16 March) HERE:

Let fairness triumph over corporate profit’

‘From Adam Smith’s defence of moral sentiment before economic self-interest to Debreu’s algebraic articulation of the informational requirements for a welfare-maximising equilibrium, economists have been clear that markets are incomplete and cannot be left to themselves.

Political economists since Thomas Hobbes and Adam Smith have understood that capitalism relies on state power to impose instrumental checks on greed and abuse of influence

I think Trevor has got this wrong, somehow.

Adam Smith observed the role of moral sentiments in society; he did not invent them, not did he invent self interest, he observed its role too.

Debreu’s general equilibrium mathematics were a model of an imaginary economy without human beings. His equations were determinate within their assumptions, itself a triumph of pure analysis but with little scope for practical political economy.

Much like Oscar Lange’s neo-classical socialism for running the Polish economy (the planner to set prices MC=MR); it never ran the Polish economy and the Polish planners set prices as per the instructions of the Soviet planners, with the not unpredictable results).

Adam Smith’s view on ‘state power to impose instrumental checks on greed and abuse of influence’ was compromised as such by the fact that he identified British State power as a instrument of the ‘greed and abuse of influence’ of legislators and those who influenced them taking their advice from the ‘merchants and manufacturers’ who preferred monopoly, protectionism, and prohibitions that narrowed the competition which raised prices and reduced the real incomes of consumers.

I read his piece as a justification for increasing South Africa's state power in the economy as a instrument of the politicians in the government, prominent among them, of course, would be Travor Manuel.

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Blogger Andres said...

Wow. Yes Mr. Minister, we know you're an expert on economic theory. When your plan fails, will you appear on the FT mentioning Buchanan & Tullock??

I'm not an expert on Hobbes, but I don't believe he can be read that way. Hobbes did believe human passions -all of them, not only self interest- were bound to cause a generalized state of conflict. And all kinds of passions, even those we'd regard as worthy of ehtical praise, would lead to this outcome.

But Hobbes did not believe the role of the state was to contol passions, but to "keep them all [humans] in awe", so they'd not dare trigger conflict. And it would be foolish to read Hobbes, writing in the early and mid 17th century, as an observer of capitalism, or even a reformer of it. Actually, if I'm not wrong, Hobbes main (or perhaps only) explict concern with markets, is his correct view that economic exchange and economic enterprise are impossible in a generalized state of war.

4:24 pm  
Blogger Gavin Kennedy said...

Hi Andres
I ignored the reference to Hobbes, who was not a political economist, and I concur with your assessment of him.

1:50 pm  

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