Hurray! Joe Stiglitz Stamps on the Invisible Hand

Joseph Stiglitz (an Economics Nobel laureate and university professor at Columbia University. Author of:”Globalization and Its Discontents” and “The Roaring Nineties. His latest book, Freefall, will be published in January ) writes (31 December) in China Daily
HERE: and HERE

“Harsh lessons we may need to learn again”

“The best that can be said for 2009 is that it could have been worse, that we pulled back from the precipice on which we seemed to be perched in late 2008, and that 2010 will almost surely be better for most countries around the world. The world has also learned some valuable lessons, though at great cost both to current and future prosperity - costs that were unnecessarily high given that we should already have learned them.

The first lesson is that markets are not self-correcting. Indeed, without adequate regulation, they are prone to excess. In 2009, we again saw why Adam Smith's invisible hand often appeared invisible: it is not there. The bankers' pursuit of self-interest (greed) did not lead to the well-being of society; it did not even serve their shareholders and bondholders well. It certainly did not serve homeowners who are losing their homes, workers who have lost their jobs, retirees who have seen their retirement funds vanish, or taxpayers who paid hundreds of billions of dollars to bail out the banks”.

Comment
At last! A major modern economist sees the light about the fiction of the “invisible hand”, usually, with knee jerk regularity, attributed to Adam Smith, as if he made the metaphor mean what most modern economists insist it to mean: the invisible guiding influence in the commercial/capitalist economy that creates that wonderful ‘miracle’ that no matter what your motivation it ensures that it benefits ‘society’.


The sheer implausibility of this modern assertion (invented in Chicago in the 1930s, and then carried forth across US campuses everywhere – in Britain there was a slower uptake) from the 1950s to today.

That Joe Stiglitz has stepped out of line, no doubt to be rubbished by many colleagues (‘how dare you say there is no Santa Claus – take that you spoiler of children’s happy illusions … [biff, bang and butt]. Of course there is an invisible hand (and an invisible foot too) and everybody who knows anything about Adam Smith and markets – except for some cranks - says there is’.

It’s about the current crisis and the moral dimension of who gained most, as if nothing has happened or changed, and who lost out.

UPDATE: The 2009 Prize for the best contribution to restoring Adam Smith's Lost Legacy is awarded to Professor Joseph Stiglitz.

UPDATE 2: The Stiglitz annnouncment that the invisible hand does not exist is reproduced at Business Insider (Silicon Valley) HERE

UPDATE 3: It's at The Huffington Post too HERE:

Adam Smith's Parable of the "Poor Man's Son"

Professor Sir Partha Dasgupta, from The University of Manchester, writes in Manchester Mouth (HERE)

"Economist: ‘GDP is misleading a measure’ and says:

“Gross Domestic Product (GDP) ignores the value of natural ecosystems – an essential component of wealth.

“Adam Smith did not write about the GDP of nations, nor the HDI of nations; he wrote about the ‘Wealth of nations’,” said Professor Dasgupta who is based at the University’s Sustainable Consumption Institute.

“As Smith would surely have agreed, the international community needs to routinely estimate the comprehensive wealth of nations which includes natural capital. This is not happening.”

Comment
Adam Smith (nor nobody else in the 18th century) wrote about “GDP” because the measure was not invented until long afterwards.

Smith wrote about a nation’s wealth in his “Wealth Of Nations” (1776), which he formulated as the annual production of “the necessaries, conveniences, and amusements of life” (others at the time had a similar construction). Wealth most definitely was not the amount of gold, silver, or money held within the country (Wealth Of Nations, Introduction, p 5, and passim throughout the book – see Index).

However, he did identify what was instrumental in transforming a country from “savagery” (living off the forest) during the first Age of Man, into a “civilised” state, in Moral Sentiments (1759) and in his Lectures on Jurisprudence (1762-3), specifically its transformation into a “commercial society” in the 4th age of man.

He discusses (Moral Sentiments IV.1.8: p181) his parable of “The poor man's son, whom heaven in its anger has visited with ambition, when he begins to look around him, admires the condition of the rich” and what happens to him over a lifetime of toil and trouble to acquire riches – the great “deception” Smith called it:

“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.” (Moral Sentiments IV.1.10: 183-84)

This puts a different slant on an assertion that Adam Smith “would surely have agreed” that wealth should be measured by an indicator that contains the value of “natural capital” (however that is measured).

Review Commentary No. 2: Milgate and Stimson's "After Adam Smith": a promising good read

Review Commentary No. 2: Murray Milgate and Shannon C. Stimson, 2009. "After Adam Smith: a century of transformation in politics and political economy", Princeton University Press, Princeton, ISBN 978-0-691-14037-7
a promising good read

Chapter 2 has the intriguing title, ‘Adam Smith’s Political Odyssey’.

There has long been controversy over Adam Smith’s politics: was he a Whig or a Tory?

If we could divine his politics, some people think today, we could translate his 18th-century politics into 21st-century political affiliations. But as we don’t really know about his politics, this has proven an improbable fantasy, which has not prevented people from ascribing to Adam Smith their own political preferences, or, ironically, their pet hates, in inappropriate modern terms. None of this has prevented wild speculation.

Milgate, the economist, though more probably Stimson, the political scientist, cites Ronald Meek (an influential Smithian scholar at Glasgow University in the 1970s-80s) as noticing that the range of assertions about Smith’s politics find him described, variously, as having Whig, Tory, republican, conservative, liberal, and even Marxist leanings, while Ian Mclean (Oxford University) welcomes Smith as a “would be”, or “would have been”, social-democrat like Britain's New Labour under Tony Blair and Gordon Brown.

Strangely, in a minor footnote reference (p 28, n 37), the authors ascribe to myself an attempt to “appropriate the politics of the Wealth Of Nations to the consideration of the present”, in my Adam Smith’s Lost Legacy, (2005, Palgrave-Macmillan), an assertion which I find difficult to understand.

Lost Legacy is about separating Adam Smith’s authentic legacy (the works he wrote, not what epigones have claimed he wrote) from those today who would misspeak (present tense of Hilary Clinton’s “misspoke”) about their politics as emanating from Adam Smith.

In a section, “Distinguishing Smith from His Interpreters”, Milgate and Stimson observe, what must be true, that “the characterisation of Smith’s politics has largely been left as much to the imaginations of others as to anything to be found in his own published writings” (p13). A discussion follows of the written views of Elie Halévy (1928) that Smith was not a Whig politically, and Joseph Cropsey (1976), who argued that Smith laid down the “necessary conditions for the existence of commercial society”, which Cropsey interprets as akin to modern “liberal capitalism” and compatible with the institutions of democracy.

The dangers of accepting these ideas is that we are prone to making errors, especially in the absence of evidence that Smith made specific proposals for adoption in Britain. One is bound to insert here the observation that in Smith’s circumstances, as he saw them, he had to take care not to be read as challenging the existing political order. Arguing from Scotland for republicanism, or any major institutional changes, in a constitutional monarchy, in a country already notable for two violent attempts to incite rebellion against the crown (1715 and 1745), was not a prudent option, and alien to Smith’s temperament. Also, he wasn't sympathetic to the Jacobites, though he was ympatheitc to plight fo some of them individually when they were exiled.

Smith’s close attachment to liberty is a more solid argument for his politics. He outlined his modest case in his Lectures on Jurisprudence (see LJ(A) v5-v12 and v31-40 see also Adam Smith’s Lost Legacy, 2005, pp 81-83).

He did not argue for universal suffrage and when speaking of democracy in Wealth Of Nations he was offhand and occasionally disparaging about the “virulent” factionalism exhibited in practice.

Projecting back modern ideas and associations of liberty and democracy to Smith’s politics is a mistake which I acknowledged in a review of my Lost legacy by Professor Edward Harpham (International Adam Smith Review, no 3, 2007). Liberty for Smith was more important than universal suffrage and democracy. The highly limited suffrage (Smith did not have a vote) was sufficient to curb the absolutist tendencies of King’s in 18th-century Britain by his requiring the consent of the House of Commons to raise finance.

Milgate and Stimson make much of Smith’s recognition of the “pernicious effects of the division of labour” in Book V in contrast to his unqualified optimism about the phenomenon in Book I.

I think there is another perspective about this supposed contradiction and I offer it as a counter-point to the “civic tradition in political thought” (p 21), asserted by modern scholars, and indeed, by those who read Smith as foreshadowing Marx and others on alienation. Milgate and Stimson conclude that “a governmental responsibility existed to attenuate these effects of the division of labour” because serious consequences would follow “unless government takes some pains to prevent it” (WN V.1.782).

Having stated the problem is graphic and eloquent terms, Smith’s remedy is clearly outlined: the foundation of little schools in every parish; in short, mass education funded by local taxes and partly paid for by parents.

Now that is a powerful argument with a heavy price on richer families across the country and it required all the eloquence that Smith could muster (he was a brilliant rhetorician). He rose to the occasion and people read those pages today and are still moved in some measure by them, which was precisely Smith’s intent. Those well enough off to pay taxes would not voluntarily do so unless there was a pressing case made in favour of them.

What more pressing a case could be made than caressing the anxieties and latent insecurities of those risk-averse “superior” orders with the consequences for social instability of allowing the “lower orders” to sink into crass ignorance stupidity? He explains this in is last paragraph of the section, not often quoted as much as the earlier rhetoric:

“The state, however, derives no inconsiderable advantage from their instruction. The more they are instructed the less liable they are to the delusions of enthusiasm and superstition, which, among ignorant nations, frequently occasion the most dreadful disorders. An instructed and intelligent people, besides, are always more decent and orderly than an ignorant and stupid one. They feel themselves, each individually, more respectable and more likely to obtain the respect of their lawful superiors, and they are therefore more disposed to respect those superiors. They are more disposed to examine, and more capable of seeing through, the interested complaints of faction and sedition, and they are, upon that account, less apt to be misled into any wanton or unnecessary opposition to the measures of government. In free countries, where the safety of government depends very much upon the favourable judgment which the people may form of its conduct, it must surely be of the highest importance that they should not be disposed to judge rashly or capriciously concerning it” (WN V.i.f.61: 788).

Smith’s meaning is often more clearly understood from following his rhetorical style of argument than it is in taking isolated quotations on their own.

Which brings us to Milgate and Stimson’s treatment of the invisible hand metaphor. I was disappointed here, as readers of Lost Legacy will anticipate, and I shall not miss the opportunity to explain why. Our authors wish to explain why there are differences between Smith’s treatment of moral and civic concerns in Moral Sentiments and Wealth Of Nations by comparing the “parallel passages on the invisible hand in both books" (p 22-24).

In Moral Sentiments, the invisible hand brings about “nearly the same distribution of the necessaries of life which would have been made had the earth been divided into equal proportions among all its inhabitants” (TMS 1759 IV.1.10: 184-85) compared to Wealth Of Nations where the invisible hand ensures, that “every individual necessarily labours to render the annual revenue of the society as great as he can” (WN IV.ii.9: 456).

In the case of the “proud and unfeeling landlord” and in spite of their “natural selfishness and rapacity”, whatever their “vain and insatiable desires”, they are “led by an invisible hand” to distribute “the necessaries of life” to “all the “thousands whom they employ” about their landed estates and their palaces to achieve a remarkable result: “they divide with the poor the produce of all improvements”.

Similarly, those who direct their capital so that “its produce may be of the greatest value” unintentionally “render the annual revenue of the society as great [they] can”; they too are “led by an invisible hand”.

I shall develop a long thesis about the invisible hand metaphor – most readers of Lost Legacy should be familiar with my cautions about accepting modern interpretations of its significance to Adam Smith – but I shall simply observe what is missed by most, including sadly, Milgate and Stimson: that the landlords have no choice but to feed the “thousands whom they employ”, not because of the power of the invisible hand (a mere metaphor, which like all metaphors doesn’t actually exist) leading them, but because if they didn’t feed them “the thousands the employ” would die in a season and the landlords were never dumb enough not to know that.

As for those individual merchants who were risk-averse to the risks of foreign trade, even with the protection of monopoly privileges and the British Royal Navy, who preferred to trade locally at lower risks to their fortunes, they were not ‘led by an invisible hand' to strive to increase the value of their capital. This process follows the arithmetic rule (not algebra nor calculus) that the whole is the sum of its parts. While their risk-tolerant colleagues, of which there were many, who did trade abroad, also strived to increase the value of their capital too – they did so mainly “for their own security”, leading me, and a few others, to ask, albeit from the back of class, what exactly did the invisible hand bring to the party?

Besides mystification of perfectly clear explanations for the conduct of both rapacious landlords and some, but not all, risk-averse merchants, what exactly does the metaphor add to the sum of knowledge about economics?

Instead of the plain, vanilla obvious answers, many theorists import into their thinking poetic-sounding literay metaphors about invisible hands that have no representative term in the simplest of supply and demand curves, and don’t make it to the mathematical equations of general equilibrium.

We shall move on.

(To be continued)

EnTech - Your post disappeared

Sorry but your post disapeared while trying to load it. Please send it again.

Thanks

Gavin

A New Myth for the Myth of An Invisible Hand

“Steve” posts (27 December) at Radimisto HERE:

‘THE "INVISIBLE HAND" MYTHOLOGY’

"In his biography of Adam Smith, Ian Simpson Ross attributes Smith's belief in an invisible hand that makes free markets work as if there were a Free Market Fairy derives from his readings in Stoic philosophy. I didn't realize the Stoics had anything that could justify this, so I went to the online Stanford Enccyclopedia of Philosophy and read the entry on Epictetus and found this:
Equally important for him is that human rationality has as its setting a maximally rational universe. His confidence in the fundamental orderliness of all things is expressed in frequent references to Zeus or “the god” as the designer and administrator of the universe.

This also explains why Smith also used the "invisible hand" argument decades before he wrote the Wealth of Nations.

1The life of Adam Smith / Ian Simpson Ross.
Oxford : Clarendon Press ; New York : Oxford University Press, 1995.”

Comment
This looked promising, at least in the title.

Ian Ross’s biography of Adam Smith is about as definitive as can be got. In fact, a second edition is in press at the moment and should be published in 2010.

However, a lot of water has gone under the bridge since its first edition in 1995 and I look forward to reading his treatment of aspects of Smith’s writings, including his current views on the significance for Smith of his use of the invisible-hand metaphor.

I had several discussions with Ian Ross at academic conferences at Balliol College, Oxford and in Edinburgh (the latter including a memorable visit together to Panmure House, Edinburgh, Smith’s last residence from 1778-90; now owned by Edinburgh Business School, Heriot-Watt University).

Ian has also read my paper, “Adam Smith and the Invisible Hand Myth”, in the May 2009 edition of Economic Journal Watch (ejw_wat_may09_kennedy.pdf) and while keeping his proper, because neutral, distance as Smith’s biographer, he made some useful comments in subsequent correspondence. I do not think you can with justics accuse Ian Ross (or indeed Adam Smith) of believing in a “Free Market Fairy”.

Smith as a classical scholar, in both Moral Sentiments and Wealth Of Nations, was more than familiar with stoic philosophy – he taught philosophy after all – but I find no connection between stoic philosophy and his two uses of the invisible-hand metaphor, once only in each of his two books (and once only in an early juvenile essay on The History of Astronomy, began in 1744, which had nothing to do with economics, or stoic philosophy).

Indeed, I would go so far as to say that the proponents of the invisible-hand metaphor, who give it great significance (especially since the 1940s, but rarely before then, right back to the 18th century) always, almost without exception – I may have missed one or two – never discuss in any detail the exact contexts in which Smith used the metaphor. The attribute the metaphor to Smith's theory of prices, of markets, of supply and demand, and growth, all anlaysed in detial in Books I and II of Wealth Of Nations without mentioning the metaphor; yet his only use of it is once in Book IV.

They de-contextualise and introduce separate philosophical references, and quote what others – never Smith – said about loosely related issues, as if the views of others are important for deciding on issues of the significance of his rhetoric for Smith.

For instance, I have not yet seen any discussion by believers in the mythology of the invisible-hand which analyses the paragraphs preceding the use of the metaphor, or the exact contexts (quite often they get the meaning of the ‘invisible hand of Jupiter’, the Roman god in his Astronomy essay, quite wrong), which I find significant. If you do not discuss – virtually hide- the context, you mislead yourself and your readers.

As for Smith on religion, see my 2009 paper, ‘The Hidden Adam Smith in his Alleged Theology’ (available on request from: gavin AT negweb dOt com).

Steve’s theory, sadly, like his title, is empty of what it promised.

An Invisible Hand That Claps!

“Chris” writes in Mapwatt Blog HERE:

“Copenhagen was about a bunch of politicians getting together so it looked like they were doing something to slow Climate Change (to be fair, I’m sure most of them really wanted to work it out). But a better strategy for solving Climate Change is one that has been around since America declared its independence in 1776: The Invisible Hand. Adam Smith put forth in The Wealth of Nations that when we act in our own self-interest, society as a whole benefits.

“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 not 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. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.” [Wealth Of Nations, IV.ii.9: 456]

“So why don’t we start promoting a Clean Energy strategy not as the solution to Climate Change, but as a path to greater prosperity for America? And when America acts in its own self interest to get off fossil fuels, we will also be aiding the climate as a side effect.”

“….As we learned from Adam Smith, society benefits the most when each country acts in its own self-interest, which is what is always going to happen anyway because the International community doesn’t keep politicians in office (and if you don’t believe me, please get off your idealistic high-horse). Instead of trying to convince 190 countries – each with their own culture, industry, and goals – that they all need to agree on a solution (we can’t even get politicians in our OWN country to agree on what to do about Climate Change), let’s show each country that by adopting a Clean Energy strategy and getting off fossil-fuel that the country AND the climate will benefit.”

[And finally:]

“….Once everyone realizes how a Clean Energy (a.k.a. fossil-fuel reduction) strategy benefits their whole country ALONG WITH THE CLIMATE, the invisible hand will start clapping.”

Comment
I don’t with to be picky, but there are a number of holes in Chris’s argument, of which I am sure he realises. Let alone that political systems don’t quite work like that in welcoming an idea that assumes that it hasn’t been thought of many times before, and promises in its simplicity to over-ride the disparate self-interests present in societies, large, like the USA (and China, India, Brazil) and smaller, like the UK, France, Germany, and tiny like the Pacific islands.

The price for co-operation in Copenhagen-like jamborees – 15,000 delegates no less – is billions of dollars per year, probably trillions per decade, and still they can’t get agreement. A marketing man’s appeal to a PR campaign on behalf of self-interest, if it worked, would be a wonder to behold. Except that what appeals to the self-interest of Chris may not be in the self-interest, or even the attention span, of others. Even the idea of the self-interest of a country – however defined – may not be perceived as in the self-interest of other countries, making the idea of the self-interest of the whole world, somewhat vacuous.

Moreover, it would not take long for someone to note – a reader of Lost Legacy, perhaps (the author is too modest to say anything) – that Adam Smith did not quite say what Chris (and many others, top economists too) interprets him as saying.

He starts by quoting one of the paragraphs from Wealth Of Nations, disconnected from the previous 8 paragraphs, which directly connect to paragraph 9. Smith sums up an argument about the distorting affects of foreign trade, especially when part of a monopoly trading scheme as existed in the British colonies of North America, policed by the Royal Navy, which diverted scarce capital to Europe and the Americas, and thus reduced the employment generating and economic growth potential of domestic trade and investment in the Britain.

For a moment, let’s look at the merchants engaged in foreign trade, and not the ones, whose concerns for their security (mentioned above) leads them to invest locally, the metaphor for which action, is Smith’s use of the popular, 18th-century metaphor of “an invisible hand”.

Now both sets of merchants, whether engaged in foreign or in local trade, are guided by their self-interest, which happens to be, and is, different in both cases, but the same in one sense: - they both seek to make profit to enhance their capital “by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain”.

What is the greatest value for the foreign trader? Profit from exercising his foreign trade activities, despite the greater risks from doing so (shipping losses, piracy, foreign problems with local traders, fraud and criminality, and his misjudgements about his trading partners probity, honesty, and capabilities). He enhances the value of his capital by such foreign ventures, but it does not enhance his country’s. His capital could remain in the country he trades with and, in the case of the colonies, could be represented by plantations, mansion properties in town, other ships and stores.

The domestic merchant on the other hand, acting from similar self-interest, personal to him, invests locally and, seeking to enhance the value of his capital stock, he enhances the value of the capital stock of his country, which promotes the interests of his country.

The “invisible hand’s” role in all this is somewhat unexplained by Smith. Does it only work for the patriotic, risk-averse, local merchant? But what about the risk-tolerant foreign trader? It isn’t clear is it? And that’s the problem with using metaphors that are unsuitable beyond the exact situation where they are placed.

But, most readers of Wealth Of Nations since the 1950s (it was largely ignored before then) ignore the metaphor’s limited applicability, and generalise from the limited extract to make Adam Smith supposedly say that “an invisible hand” leads all individuals “to promote an end which was no part of his intention”. For here on (roughly beginning in the 1930s at Chicago University) and spreading right across US campuses, until from the 1970s onwards, the metaphor of an “invisible hand”, invariably attributed to Adam Smith, became ubiquitous among modern economists, a mythical status it maintains even today.

Yet all around, in Smith’s time and ours, conflicts of personal self-interest abound. I shall not generalise in detail, but I suggest that this is the flaw in Chris’s well-intentioned advocacy of his solution to what we call “climate change” in common discourse.

Getting from here to there is not going to be achieved by “an invisible hand” – even one that claps!

The Invisible Hand and Markets

Seth Sandronsky posts (26 December) in Alternet (HERE):

"Our 'Green Jobs' Dollars Help a Ritzy Car Company Open a Toxic Manufacturing Plant?”

“Here it may be useful to recall economist Adam Smith. In his 1776 work The Wealth of Nations, he wrote of an "Invisible Hand" that guides the marketplace when individuals pursue their self-interest to buy and sell. This individualism, in turn, improves the common good if government stays away. His theory of the invisible hand of the market (replacing the visible hand of the monarch) holds no small sway in many circles today, even with the Great Recession currently. Readers can judge how Smith’s view holds up in the case of Tesla.”

Comment
Sorry, Seth, but where in Wealth Of Nations did Adam Smith write “of an "Invisible Hand" that guides the marketplace when individuals pursue their self-interest to buy and sell”?

He did not write such a “theory”. It was a metaphor, not a prescription.

I suggest you look up Wealth Of Nations, turn to Book IV, chapter 2 and read paragraphs 1 thru 9. His single reference to the metaphor of an invisible hand is on page 456 (Oxford University Press edition).

The invisible hand was not about “individuals” “buying and selling. That is an modern invention, going back to the 1930s, not 1776.

It was about some, but clearly not all, British merchants preferring to trade locally and not to engage in foreign trade with Europe or the British colonies in North America, even though the latter activity was more profitable; it was also more risky. Some merchants were more risk-averse than others.

Smith’s alleged view in your case would not be relevant in terms of his use of the metaphor of an “invisible hand” because the Tesla investment is in Texas, or California, USA, (the condition of the loan). It is also a subject of government policy and is not a free choice of location.

The world and economics has moved on a great deal since Smith wrote Wealth Of Nations, but there were few free markets in his time and precious few today, including in the USA.

Also, In Smith's works there was never an “invisible hand” in Wealth Of Nations guiding buyers and sellers in markets either.

A Myopic Visionary Speaks: holiday edition

Prof Viswanathan, Director, International Socio-Economic Research Bureau (E Mail Id : economist@dataone.in) post a long manifesto of sorts on the Mike Adkin’s Blog (HERE)

It is full of harmless nonsense, of which its author is seriously attached, and eminently missable on busy workday but worth a look at the outer-fringes of curiousity. Here is a sample on Adam Smith:

“3. Economic Affidavit of Adam Smith: In his book Adam Smith spelt out an ‘Economic Affidavit’ solemnly and sincerely that if we, the people, entrusted our capital to a few capitalists in the name of ‘Capitalism’ (Individualism), they would not only change even the sand into gold but also drive the mankind to march towards an ‘Ideal Society’ by modernizing production potentialities with the help of scientific technologies and division of labor. Completely ignoring the working class who constitutes the society, Adam Smith concentered and focused his interest on a few capitalists and advocated that they without the interference of State would accumulate wealth of nations with the help of division of labor using modern machines and assured that the few independent capitalists would moreover create a favorable climate for the establishment of Ideal Society by increasing production many folds. Adam Smith completely neglected the equitable distribution of wealth to the mass working class. He linked the establishment of an ideal society with the mass production but not equitable distribution of wealth. Thus he misguided the whole world convincingly and decisively for a long period during which the working class was thrown into appalling poverty and horrible living hood.”

Comment
What can one say? Meanwhile, what was going on in Asia, or Africa, or the Americas, or Russia? All the tens of millions of the world’s population gave their “capital” – of what did their “capital” consist of [if their "labour" why are the labour surplus countries so wretched?] -– to “capitalists” – where did they come from, and why did they not use their own “capital”? Where did this major historical event take place and when?

The entire history of the human species has been one of varying degrees of barely tolerable poverty, absolute and relative, and debilitating ignorance, and above all short-life spans. Per capita incomes hardly changed, except for a changing few, for tens of thousands of years, and hasn’t changed yet for a significant minority.

The detritus of stone-built former ‘civilisations’ are found scattered across the globe where the elites used growing ‘GDP’ to create these structures, some useful, like irrigation, some not, like temples to their gods, meanwhile holding per capita incomes down to the eternal-like subsistence level of ages past.

Only since the so-called 'idustrial revolution', or the triumph of commerce, have many of these indicators improved, some quite dramatically in recent times.

Prof Viswanathan creates an alternative history and a fictional future to do what? Read it for yourself. Of one thing I am sure; it ain’t going to happen.

Review Commentary No. 1: Milgate and Stimson's "After Adam Smith": a promising good read

Murray Milgate and Shannon C. Stimson, 2009.
After Adam Smith: a century of transformation in politics and political economyPrinceton University Press, Princeton, ISBN 978-0-691-14037-7

Murray Milgate, a fellow and director of studies in economics at Queen’s College, University of Cambridge, and Shannon C. Stimson, professor of political science and the history of political thought at the University of California, Berkeley, have co-authored a promising exhibition of scholarship in the history of economic thought, which has significant meaning for economists and political theorists – perhaps also policy makers – in the 21st century.

They tackle the relatively unexplored territory of what happened to political economy after Adam Smith died in 1790 that made the subject, and what replaced it, quite different by the last quarter of the 19th century (and, therefore, beyond, to what it has become today).

The gap, if there is one, which I think there is, has traditionally been filled with studied accounts of the theoretical ‘corrective’ process, considered inevitable in a new discipline, once the early authorities have passed on and new authorities have arisen in public esteem, seemingly correcting the early errors and sloppy concepts that no longer held sway or even respect.

Indeed, I have read both scholars and ‘young Turks’, who comment with unveiled and disparaging astonishment that Adam Smith, for example, did not take, what is now obvious to them, because of their graduate training, a very small step from where he left some of his prominent concepts. If Smith had done so, apparently he would have ‘saved’ the discipline a hundred years of frightful errors in a dead-end, made worse by the political consequences of the delay to new ideas ‘discovered’ in the 1870s, but apparently discoverable in the 1770s, or at least in the 1790s (Smith, we note died, in 1790).

These critics have in mind the example of his alleged ‘labour theory of value’ – more a ‘labour theory of muddle’ in my view – which, apparently, led to Karl Marx and , in the rather silly assessment of the ever-irascible Murray Rothbard, this meant Smith was to blame for the 20th-century’s horrors of communism! (“Against stupidity even the gods battle in vain’, Schiller)

Milgate and Stimson are not of that ilk. They have written a well-argued, mature approach to what happened in the broad discipline of political economy after Smith died. The period, of what they call the transition, which took place between the eighteenth-century discourse on commercial society and liberty of trade (Smith’s focus) and what these ideas came to exemplify in what is broadly known today as classical political economy and the science of politics.

Adam Smith was not the only memorable political economist of the eighteenth-century. The field is almost crowded with justly-memorable figures and with several-thousand lesser known and unknown figures in the healthy pamphlet culture that flourished for a hundred years before Smith’s Wealth Of Nations (Yale University has over 4,000 such pamphlets on economics, finance, and politics in its archives).

Smith wrote a synthesis of economic thought relevant to his main theme – a critique of mercantile political economy, the ruling political dogma at the time – and brought to the attention of his readers large parts of what he had taught his students about jurisprudence, including ‘police’, civic society, rhetoric, and moral sentiments, from 1748-51 in Edinburgh and 1751-64 in Glasgow.

In the first half of the 19th-century, Malthus, Ricardo, and Mill dominated British political economy and shifted its focus into new territories, which Milgate and Stimson note was quite a break from the direction in which Smith took, so much so, that they note that modern ‘left-right’ political histories that treat as a continuity the writings of Smith with modern welfare and neo-liberal politics are ‘anachronistic and misleading’. Adam Smith, the radical, however valid for the 18th century, in modern terms is unconvincing. The agenda has changed, as has the way we see social problems.

There is wide disagreement among modern commentators on what Smith was saying – see the journal literature for an overview and a sense of the differences. Milgate and Stimson explore what Smith meant and show how his idea of ‘perfect liberty’ in its market and government manifestations was developed and altered after him.

Economists were no longer talking about the same things. Take self-interest; it became “constrained optimisation” and “not only a component part of economic life in civil society but rather its only component. Where once stood Smith’s rich description of morally regulated, prudent behaviour described self-interested interaction – derived from a model of a socially constructed self – now stood a rational calculator of exclusively private costs and benefits” P6).

Milgate and Stimson open with Dugald Stewart, the son of Smith’s student friend, Michael Stewart, Professor of Mathematics at Edinburgh University, the chair that Dugald occupied before transferring to the Edinburgh Chair of Moral Philosopy, which in the fashion of the time, included political economy.

Dugald, they report, “altered Smith’s views on the input that political economy might have in both legislative practice and constitutional reform” by re-creating Smith as someone for whom “political economy was exclusively a science of the legislator” and which “had nothing to contribute to debates over forms of constitutional order”, especially in “revolutionary ways”.

Dugald Stewart had previous form in these matters, which might explain his motives for the shift. In January and March 1793, Dugald Stewart gave the eulogy at the commemoration of Smith’s life to the Royal Society of Edinburgh, coinciding inadvertently with social unrest in Scotland among the “inferior orders”.

The consequent trials of those perceived to be the leaders of the bouts of unrest took place in the heightened social tensions where the “superior orders” took fright, so to speak at the events in revolutionary France. Hanging, prison and transportation followed for the guilty.

The legal establishment took a closer look at intellectuals, such as Smith, whose Wealth Of Nations may have been supposed among the legal minds of the day (let’s be clear they were not radically-minded men; reactionary would hardly exaggerate their inclinations) to have contributed to the social unrest.

Smith was dead but Dugald Stewart was alive, and was making controversial public speeches, albeit to the staid fellows of the RSE and not the ignorant and easily stirred up ‘mob’. Think of Smith on the combination acts, his hostility to “merchants and manufacturers”, and his intemperate remarks about landlords (though actually making clear they behaved “like all men”) who preferred to “reap where the never sowed”.

Dugald escaped judicial punishment, largely by assuring his legal interrogator that Smith had no ambitions to alter the existing constitutional order. He saved himself, but also moved Smith away from his legacy, just enough to start the long transformation of his original ideas into what they became 50 years later.

I shall say more about this episode in future review/commentaries on Milgate and Stimson’s fascinating account, as I go through chapter by chapter.

You can order it from Amazon and follow my account and comments. Your opinions are also welcome.

A Reader is Perplexed by Lost Legacy on the Invisible Hand

[A Reader, Ian B, comments on yesterday's post and his question deserves a fuller treatment than afforded by space on the comments page. It raises issues which may of wider interest. My reply follows.]

Thank you, Ian B, for asking your question and for the polite manner by which you express your perplexity and disagreement.

You will note that the blog is about Adam Smith’s Lost Legacy and has been published since February 2005, during which time I have addressed the “invisible hand” on many – probably on most – occasions.

Economics as a discipline has many problems when dealing with the history of its ideas. Among these we can list several ideas wrongly attributed to Adam Smith, the invisible hand being a prime example.

Few people who quote from Wealth Of Nations, 1776, or his earlier, Moral Sentiments, 1759, have read either of his works and many know very little about him. The minority who have read his works, often attribute to him ideas he never had nor expressed. They go with the flow, like a crowd of latter-day flatterers cheering the proverbial ‘naked emperor’.

The metaphor of the “invisible hand”, used only three times by Adam Smith, once only in each in his two books, and once in his ‘juvenile essay’ on Astronomy, commenced when he was a 21-years old student at Oxford. It was published posthumously in 1795.

The metaphor itself, however, was a popular literary metaphor in both classical times, before the fall of Rome, and from the 17th century through to the 21st century (it appears in one of the “Tarzan" novels). I know of over 40 independent instances of its use, many in books in Adam Smith’s library.

Hence, on the starting-line for a debate on the significance of the “invisible hand” for Adam Smith, we have a popular literary metaphor, his use not commented upon in his lifetime by his readers, and hardly commented upon until the late 19th century by anybody. From mid-20th century until today, floods of references to “Smith’s invisible hand” appear – nowadays daily - and so frequently, that the metaphor and Adam Smith are almost synonymous.

Most comments upon his isolated use of the metaphor impute various meanings to it, for which there is scant evidence that Smith regarded it as imputed(your example is fairly common; but there are many others that are complex, general, and even theological).

In brief then, what do we make of the metaphor of “an invisible hand”? You state that the metaphor is: “simply the (surely reasonable) observation that the economy is self ordering due to the selfish actions of its agents.”

With that view you jump two centuries from Adam Smith’s in Wealth Of Nations. My observation is that whatever the truth of your view, perfectly fine if it is your name only, but it was not Adam Smith’s, and the claim that it was is a “myth”.

You may protest that whatever Smith said or meant is less relevant than the “surely reasonable” observation of many economists that the economy is “self-ordering due to the selfish action of its agents”.

Well, of course, Adam Smith did not consider self-interest to be “selfish”; in fact he went some ways to reject selfishness as an operational motive in economic (and social) transactions. In his earlier work, Moral Sentiments, he explicitly rejected such ideas, as expressed by his earlier “licentious” contemporary, Bernard Mandeville in his “Fable of the Bees” (“Public vice, public virtues”), 1734. (There are several earlier posts on Lost Legacy discussing these particular points.)

I shall move on. You confirm that the metaphor of an “invisible hand”, as understood today, is derived from Adam Smith’s use of it in Wealth Of Nations and you assert that there is “plenty of evidence that confirms Smith's invisible hand - the less regulated the market, the more ordered it is”.

Two problems with your assertion: first Smith never said anything like this in Wealth Of Nations, and second, he found in the case of banking in mid-18th-century Scotland that the absence of certain necessary regulations caused turmoil in the banking sector and required the intervention of law, noting, en passant, that even though this was “a manifest violation of natural liberty” it was necessary because their actions otherwise “endanger[ed] the security of the whole society” (WN II.ii.94: 324).

Let us now look at Smith’s actual use of the “invisible hand” metaphor. First, he used the metaphor only once in Wealth Of Nations; second his use had nothing to do with markets, supply and demand, the absence of regulations, or prices. Those associations for it were invented in the second half of the 20th century by modern economists.

Smith discusses the distortion of the British economy by the diversion of merchants’ capital from the home trade to foreign trade in Europe and with the British colonies in North America. From the British monopoly of all trade with its colonies, and the monopoly influence of the Acts of Navigation (imposed since Cromwell’s time), merchants’ foreign trade could be highly profitable compared to local trade. Likewise, in respect of trade with Europe. However, there were higher risks in such profitable trade: shipping losses, poor investments, local fraud in foreign countries and the colonies, and long delays in turning-over capital for re-use.

Some merchants, but manifestly not all, preferred to invest locally in Britain because, though less profitable, it was more secure for them. It was these merchants that Smith focused on:

“…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.ii.9: 456).

All merchants are motivated to use their capital most profitably and the only difference between those merchants who engage in foreign trade and those who engage in domestic trade is that the latter do so because of their concerns for their “own security”. We now call this risk aversion. Smith explains that it is their insecurity that leads them to do what they do. In fact, no other explanation is given nor needed.

However, he goes on to point out that their actions have unintentional and unintended consequences, specifically that “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it”, and it this outcome (society is wealthier, measured by the “annual output of the necessaries, conveniences, and amusements of life”, or what we now call GNP) that people are “led by [NOT “as if by”] an invisible hand”.

But he has already identified the subject of the metaphor: their “own security”. And here we can agree: “no such hand actually exists”, but much of the profession, since the 1950s, has come to believe that there is “an invisible hand”, guiding the market, prices, supply and demand, general equilibrium, social harmony and so on, and on most campuses teach their students to believe that the metaphor is a real object, that it exists, when manifestly it doesn’t, at least to Adam Smith.

It is that “part of Smith's invisible hand [which] is mythical” in my view.

I hope I have elucidated the issues which you raise and reduced, if only a little, your “perplexity” upon reading Lost Legacy for the first time.

Myths and Reality

A Mr Jacob R. Freudenthal of New York writes to the Financial Times HERE

“The iron fist forcing though healthcare reform”

“I am not an economist, but I had always thought that capitalism was supposed to be based oncompetition and freedom of consumer choice. When a politically influential interest group is able to harness the power of the state in order to expand its stranglehold over an industry that is so essential to the health and wellbeing of the entire population, Adam Smith’s invisible hand looks more like an iron fist.”

Comment
A typical ‘popular’ take on the metaphor of the invisible hand used by Adam Smith and by scores of others from classical times, particularly in the 17th-18th centuries, but also right up to modern times (even in a “Tarzan” novel).

I have seen a variation of the “Iron Fist” version in the form of “a middle finger” (I understand this is an allusion to a vulgar “street” sign given out by some incompletely-educated people today).

In this case, it’s about a row over a Health bill going through the US Senate, of which I have no views (I only comment on political issues in the country where I vote – Scotland).

I can comment on the remark about “capitalism was supposed to be based on competition and freedom of consumer choice”. This is a remarkable statement from Mr Jacob R. Freudenthal. On one abstract level he is right, but not in the sense that this view corresponds to any (to my knowledge) modern state-capitalist societies in the 20th-21st centuries. It could even be argued that no such ‘capitalist’ society has ever existed.

Adam Smith wrote a devastating critique of mercantile political economy and it’s state-commercial integration almost from the 16th century onwards.

Think of 18th-century legislation to regulate society, making it less competitive in practice – Statute of Apprentices; Settlement Acts; Navigation Acts; Corporate and Guilds Acts; Protection and Prohibitions; Primogeniture and Entails laws; Chartered Monopolies and Tariff policies.

Smith’s critique was not against all state legislation or even in favour of minimal legislation (another myth dince the 19th century); it was against legislators and those who influenced them who passed laws that perverted the effects of competition.

The point is that much of what was eventually repealed was replaced by new forms of anti-competitive measures. The USA is hardly a bastion of free trade, as can be said of most others. The ultimate case is that of agriculture, a standing disgrace that rich countries discriminate against some poor countries potential exports.

In all of this, of course, the metaphor (and myth) of “an invisible hand” is a diversion. It has no relevance to the issue of health supply. That’s down to politics, finance, and the electoral system.

Origins of a Fable

Neil Buchanan writes in Dorf On Law Blog HERE

“Bastard Keynesianism Today”

“The British did not imagine that Adam Smith's fable about the invisible hand could ever be taken so seriously. They (like Keynes) saw the fundamental flaws in even the most sophisticated markets, and they offered a withering critique of the idea that government's role is merely to let rational private actors engage in self-interested action.”

Comment
Buchanan is writing about the Keynesian – Friedman approach to monetary and fiscal policy and I refer you to the whole article in the link above.

My interest was in the paragraph quoted. Depends of course where and when you look.

Certainly in the 1930s there was a stronger reserve among Cambridge, England, economists to what had become 19th-century ‘classical’ economics about the market (Mill, Manchester School, The Economist, and their stories about ‘laissez-faire) and early misattributions to Adam Smith, than was common among Chicago economists, whose enthusiasm for harmonious markets was quite explicit in house.

Interestingly, Samuelson remarked, in a sceptical tone, about the oral tradition at Chicago in the 1930s (he graduated there in 1935 – and moved to Cambridge, Mass. for his post-graduate degrees), that such ideas as the ‘invisible hand’ doctrine had limited explanatory power, especially after “two centuries of experience and thought”. (See: Samuelson’s Economics, 1st edition 1948, page 36 and 12th edition, 1985, page 41.)

Unfortunately, Cambridge, Mass. conquered Cambridge, England, on these matters with the fading of Keynesianism under the triumph of Monetarism from the 70s. Meanwhile, and afterwards, the invisible hand myth conquered the profession with the ruthless energy of the barbarian invasions of Rome in the 5th century.

A Case for Competitive Markets

Jim Carlton speaks at the launch of Richard Morgan’s “Lessons of the Global Finance Crisis: The relevance of Adam Smith on morality and free markets” HERE

“…this book is the most effective antidote I have seen in a long time to the inanity being peddled by those with a deep mistrust of the marketplace, usually coupled with a naïve confidence in the capacity of governments to produce results in areas outside their sphere of competence…

… The usual form of attack is to define free markets as laissez faire, anything goes forms of economic activity. As anyone who actually bothers to familiarize themselves with what Adam Smith actually said, and as Richard Morgan demonstrates, on no account does Smith advocate laissez faire. To quote Richard Morgan on page 47, “For Smith, a ‘well governed’ society provides for free competitive markets, law and order and infrastructure. If these elements are not in place, he warns, living standards will decline and indeed in extreme cases ‘go backwards.’

The use of the phrase “free competitive markets” is instructive. When we use the shorthand “free markets” we do leave ourselves open to willful or ignorant misinterpretation. Markets are not, in fact free, in the sense we mean it, if they are not regulated to ensure competition. Enemies of the market economy also seize on the word “deregulation” to suggest a descent into laissez faire…

… Another aspect of the Morgan book that appeals to me is that he has drawn from both Smith’s great works, The Theory of Moral Sentiments, and Wealth of Nations, to stress the underlying morality, and dare I say it, the deep compassion for the underprivileged, inherent in Smith’s writings.”

Comment
These few quotes from Jim Carlton’s speech at the launch of Richard Morgan’s new book are a blast of fresh air in Australian political economy.

In parts of the speech not reported here, Jim Carlton discusses the long term problems of the Australian economy and political policies followed by successive governments that shaped the legislative illusion that markets do not matter and can be replaced by lawyers and vested interest (a down-under version of the corporate state, if I may say so), until reality intruded and wage determination by courts, not free bargaining between employers and labour was gradually re-introduced in the 80s and 90s, leading to the strong economy Australia has today (unlike Britain, for example, which is now not the ‘sick patient’ of Europe, it having graduated to the 'sick man of the global economy' with pretensions that Britannia stills rules the waves) under the ‘spend and tax’ ‘labour’ government of Blair and Brown, since 1997.

As an example of the truth about Adam Smith’s intended legacy, which includes his Moral Sentiments, 1759, as well as Wealth Of Nations , 1776, Jim Carlton’s speech, and Richard Morgan’s “Lessons of the Global Financial Crisis”, are first rate introductions.

Buy Richard Morgan’s book from Amazon.

Not Exactly Rocket Science, is it?

David Burchall writes in the Australian (“the heart of the nation”)

“Tis the season for reciprocity” HERE

“Adam Smith's remarks about benevolence and self-interest are routinely quoted and just as often misconstrued. Smith observes that benevolence is an expression of true friendship and yet our whole lives are "scarce sufficient to gain the friendship of a few persons". Hence, unless we want to beg for what we need like a dog, we are compelled to find some basis of reciprocity on which to conduct life's transactions.
Further, when we choose to address ourselves to another's self-love rather than their humanity, this does not demean us as a human being. Rather, we are saying to them that we wish to deal with them in a relationship of parity, as someone who has something to give as well as something we wish to be given.

So far from giving and exchanging, benevolence and reciprocity, being opposites or alternatives, often work best in harness. Yet this simple, even elementary fact - so well known to everybody who has progressed out of moral infancy - seems to elude all our grandest political reckonings.”

Comment
What a clear understanding of Adam Smith of the famous passage on the “Butcher, the brewer, and the baker" is shown here by David Burchall.

‘Tis a pity that some economists quote the same passage and draw quite different (and wrong) conclusions from it, let alone the scores of theological commentators who use the passage to show how selfish-centred it makes its author, Adam Smith!

“But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. 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 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. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens.” (WN I.ii.2: 26-27)

Smith describes eloquently the way we all acquire the “good offices” - those things which we stand in need of - as human beings. Mainly by bargaining; by exchanging things we have for things we want.

And neither is this a zero sum game, because people value things differently. In free (in the sense of voluntary) bargaining in the presence of competition (not monopoly), people exchange things they value less for things they value more, that is, a non-zero sum game, with both parties gaining more than they give up.

David Burchall understands these basic relationships; why can’teverybody – it’s not exactly rocket science.

Announcement IX

First and second of three moves completed.

From now to end of January, when we prepare for our third move in February into our new home, I have time for my passion of Adam Smith’s Lost Legacy and related subjects.

On that agenda are these three main projects:

1 A considered response (Draft title: “The Unimportance of Muddle”) to the brilliant detective work of Dan Klein and Brandon Lucas in their most welcome paper, “In an Word or Two, Placed in the Middle: The Invisible Hand in Smith’s Tomes” – already underway.

2 A review and discussion of Milgate and Stimson’s “After Adam Smith: a century of transformation in Politics and Political Economy” (Princeton University Press). I shall tackle this book a chapter at a time, with the first chapter posted here before Christmas Day.

3 A new paper on the (provisional title) “The Modern Myths Among Modern Economists of the Invisible Hand From the 1930s” which I hope to present (if accepted, of course) at the Summer School for the Preservation of the History of Economics Thought at University of Richmond, VA, June, 2010.

Plus, of course, the resumption normal daily service of the Lost Legacy Blog.

Meanwhile, I am grading 103 post-graduate examination papers for my old day job (I have complete the first 31).

Gavin

A Twisted Tale of Falsehood About Adam Smith

Niall Ferguson, a distinguished historian, writes an interesting, if inaccurate and perplexing piece, “Dead Men Walking: why 2009’s truly top thinkers are yesterday’s news” in Foreign Policy (18 December) HERE.

Ferguson’s theme is somewhat predictable, given recent events in the global economy, and fairly consistent presentations of Adam Smith’s alleged writings since the 1950s.

Where before not hold – and certainly did not hold such attributions to anything like the degree to which modern economists credited to him – it is now fashionable to announce, if not recantations of their earlier errors, then certainly what amounts to mealy-mouthed confessions that their earlier attributions showed Smith to have been wrong, while failing to recognise, let alone admit, that it was their attributions that were false, not Smith's ideas!

I find it difficult to express my frustration at this approach, so carefully constructed by Niall Fergusson in “Dead Men Walking”, because it shows many modern economists have learned nothing from the impact of the events leading to a revision of their past views. Here is a sample of his approach:

“It has, for example, been a bad year for Adam Smith (1723-1790) and his "invisible hand," which was supposed to steer the global economy onward and upward to new heights of opulence through the action of individual choice in unfettered markets.”

Comment
Coming at the head of Ferguson’s “Dead Men Walking”, this unqualified nonsense sets one’s heart thumping.

Ferguson justifies the wrong, absolutely wrong, attributions of Smith’s lost legacy, instead of, perhaps, revisiting Wealth Of Nations to check the validity of his false attributions.

After all, Ferguson, a distinguished historian by any measure, should practise elementary scholarly caution by checking his references back to the original texts and compare them with their modern interpretations.

My own books, Adam Smith’s Lost Legacy (2005, Palgrave) and Adam Smith: a moral philosopher and his political economy (2008, Palgrave), with all their defects, can modestly claim to have identified where the modern misattributions are located.

How did Adam Smith’s modest use of a popular 16th-21st century metaphor once only in Wealth Of Nations (and once only in Moral Sentiments), in reference to the preferences in mid-18th-century of some, but not all, merchant traders to trade locally, rather than undertake the greater risks of foreign trade, manage leap across the years to the mid-1950s and onwards, and supposedly “steer the global economy onward and upward to new heights of opulence through the action of individual choice in unfettered markets”?

Moreover, given the counter-factual that the ‘global economy’, or main parts thereof, never come to be characterised by “individual choice in unfettered markets”, I find it difficult to understand how a top historian can look outside his window, or review his case notes, or read the papers, and write such a sentence and still attribute the false view to Adam Smith.

Pure laissez-faire was never a notion attributable to Adam Smith (see Jacob Viner, 1928, Adam Smith and Laissez faire). In fact, he never used the words at all, anywhere in his writings or correspondence.

The myth that he did so began to spread in the mid-19th century such as from John S. Mill 1849; the Manchester School; Cobden, the editor of The Economist, and assorted speeches in the House of Commons on behalf of mill-owners and manufacturers, and lazy authors, sub-editors, and other who did not read Wealth Of Nations (or they only read isolated, out of context, sentences which they gratuitously transposed to suit their claims). They quoted the only French they knew, or could remember, because others they read said so.

It sounded Smithian. But Smith always emphasised that the main enemy of competition was monopoly and the main legal protection of monopoly was particular (but not all!) government-sponsored state regulation, and illegal collusions among corporations. He commented that legislators and those who influenced them, giddy with the false arguments of mercantile political economy, used regulations to stymie competition, whether from other merchants (and would-be merchants) and their employees through collective action, plus, of course, legalised protectionism, tariffs and prohibitions.

En passant, Ferguson makes another slight against Adam Smith with this bundle of nonsense:

‘…At a time when other University of Chicago-trained economists were forging the neoclassical synthesis -- Adam Smith plus applied math -- Minsky developed his own math-free "financial instability hypothesis".’

There is a world of difference between the maths of “the neo-classical synthesis” and Adam Smith's writings. While Adam Smith was an accomplished mathematician by 18th-century standards and expressed his admiration for mathematicians(TMS III.2.20: 124), he did not conceive of humans in society as reducible to equations. He had nothing to do with the invention of Homo economicus in the late 19th century.

He specifically rejected the idea in his (famous) comment in Moral Sentiments about the “man of system” who “seems to imagine that he can arrange the different members of society with as much ease as the hand arranges the different pieces on a chess–board …” but “in the great chess-board of human society, every single piece has a principle of motion of its own” (TMS VI.ii.2.17: 234).

Interestingly, those “University of Chicago-trained economists” who “were forging the neoclassical synthesis” to whom Ferguson refers, were also among the first to invent the wider modern role for the metaphor of “an invisible” hand in the 1930s.

Paul Samuelson, who died recently, aged 94, graduated from Chicago in 1935 and was the first to note the dangers of taking the metaphor too far (Samuelson, Economics, 1948, page 36). Ironically, after Samuelson, most authors of textbooks did just that.

But at the end of his article, Ferguson drops his headline of Smith, and others, being “Dead Men Walking”, and commences a partial resurrection of their reputations:

“…So though superficially this crisis seems like a defeat for Smith, Hayek, and Friedman, and a victory for Marx, Keynes, and Polanyi, that might well turn out to be wrong. Far from having been caused by unregulated free markets, this crisis may have been caused by distortions of the market from ill-advised government actions: explicit and implicit guarantees to supersize banks, inappropriate empowerment of rating agencies, disastrously loose monetary policy, bad regulation of big insurers, systematic encouragement of reckless mortgage lending -- not to mention distortions of currency markets by central bank intervention.”

Taking the last sentence on its own, there was no need to write the first part of his article in the manner in which he did. Many readers might well stop after the first page, miss the second and third pages, and from the reputation of the author, remain attached to the new myth about Smith being the cause of the recent recessions and global financial crises!

That he wasn’t, in historical truth, and wasn’t in recent fact, makes Ferguson’s article more than unsatisfactory.

Mistaken Identity?

Mark W. Hendrickson, a faculty member, economist, and contributing scholar with the Center for Vision & Values at Grove City College, writes (12 December) for the Catholic Exchange Blog (HERE):

"The Theory of Moral Sentiments: Adam Smith’s Timely and Timeless Classic"

“2009 marks the 250th anniversary of the publication of Adam Smith’s masterful treatise on ethics, The Theory of Moral Sentiments. Smith, primarily known today for his hugely influential 1776 work on political economy, The Wealth of Nations, was a professor of moral philosophy. The Theory of Moral Sentiments is stunningly relevant today.

Whereas The Wealth of Nations featured the “invisible hand,” the metaphor that dominates Moral Sentiments is “the impartial spectator.” The “spectator” represents one’s conscience-one’s ability to perceive the divinely ordained objective standard of right and wrong.

In Smith's view, conscience is both a divine spark in mankind and also the product of reason. Indeed, Moral Sentiments (like western civilization itself) is a synthesis of Greek Stoic philosophy and Christian thought.”Comment

Take this strange sentence:

“The Wealth of Nations featured the "invisible hand," the metaphor that dominates Moral Sentiments is "the impartial spectator."

I say “strange” because both Wealth Of Nations and Moral Sentiments “feature” (if that is the correct description) the invisible hand metaphor, in both cases by a single mention only, along, it must be said, with many other metaphors, some on only one occasion, too.

Mark W. Hendrickson goes on to assert that on Moral Sentiments ‘the metaphor that dominates Moral Sentiments is "the impartial spectator."

Now the word “dominates” is a lot stronger than “features”, itself in this context an overly-strong reference for a metaphor used on only one occasion.

Being an economist, Mark W. Hendrickson, must know that Adam Smith used the metaphor in Wealth Of Nations only once (Book IV, Chapter 2, p 456).

I suspect that his reference to the metaphor being a “feature” of Smith’s work reflects the impression that many non-economists (and not a few economists, including from top universities) who haven’t read Wealth Of Nations – and a few that have – who rely on the ubiquitous references in modern media to the invisible hand assume that the metaphor was uniquely popular with Adam Smith solely because everybody believes it was major feature of his works. But it wasn’t.

Moreover, Mark asserts that ‘the "spectator" represents one's conscience as one's ability to perceive the divinely ordained objective standard of right and wrong’.

I have shown in my

“The Hidden Adam Smith in his Alleged Theology” *

, that the widespread belief (more likely, the knee-jerk repetition of assertions made by others) that Smith believed in divine origins as a source of ‘harmony’ in commercial society – or that the ‘hand of God’ controlled the so-called ‘invisible hand’ - are at a minimum questionable, and, to my mind, they are compromised by a close reading of what Adam Smith actually wrote in Moral Sentiments, especially the sixth ad last edition, and considered along with biographical facts about his life.

[* (presented to the History of Economics Society, University of Colorado, Denver, June 2009 – copies are available in PDF from Lost Legacy: gavin At negweb dot com.]

Adam Smith on Prodigality

Someone on Grad Student Madness HERE writes:

“Aristotle and Prodigality

In fact, we’re often told that the overall economy cannot function if thrift is too widespread. This is not a recent argument. Adam Smith, in fact, says as much at one point: thrift is good for the individual, but it’s disastrous for the economy. A consumer economy needs consumers, not tightwads. A more recent argument has been that the economy will not return to full health until consumer spending returns to what it was before- that is spending into individual debt. Conversely, these record levels of debt will make a lot of us into swine herders.

All of this is to say that industrial consumer capitalism is only a few centuries old and thus at odds with many of the traditional values of western civilization. A system that requires spending instead of thrift in order to satisfy manufactured needs in perpetuity; and which makes those fleeting desires, and therefore the individual will, the sole measure of our behavior, will therefore always be somewhat at odds with traditional ethical systems, which generally seek to limit the behavior of the individual vis-à-vis the family, the community, or the godhead. Moderation is good for the individual, but of ambivalent, if not negative value for the economy.

Of course, Aristotle and Aquinas don’t want us to live as ascetics either. (At least, not Aristotle) It is theoretically possible to reconcile the view of prodigality as a sin and the consumer capitalist economy if we agree that liberality is a virtue. One could spend a reasonable amount of their income, and give a reasonable amount to others; and satisfy both Aristotle and the chamber of commerce. The problem is that if a great number of us did this, the economy would have to seriously shrink. And so, the key to getting the western economies out of recession is promoting prodigality in a time of thrift. That is, promoting vice in a time of increasing virtue. Strength through shopping.

If I have to choose though, I’m going with Aristotle over Adam Smith.”

Comment
I am trying to find where Adam Smith said this:

“Adam Smith, in fact, says as much at one point: thrift is good for the individual, but it’s disastrous for the economy.”

It may have something to do with Smith’s point that the purpose production is consumption, not the interests of producers. But that idea is tenuously linked to Smith’s explanation of the ‘Great Wheel of Circulation’, which depends on the supply of productive capital, which is undermined by prodigal spending.

Thrift, or frugality, supplies the savings that when combined with fixed capital and the expense of productive labour causes commodities to be sold to consumers, preferably for a profit. From the profit, the entrepreneurs or undertakers are able to hire new rounds of productive labour, which when combined with fixed capitals (which do not leave the possession of the undertakers), produce further supplies of consumables. These are the source of economic growth in Smith’s view.

The author of the ‘grad’ essay is aptly regarded as ‘mad’ for his attributions. On his mental state, I could not possibly comment. May be a very clever philosophy student. ‘Too clever by far’ is probably more appropriate.

Announcement VIII

By separate post I received a suggestion from someone who signed off as “a very interested reader”:

“Could you please consider putting an FAQ page that summarizes your main views about Adam Smith's ideas and the common myths that you want to dispel?”

I asked what did he/she mean – perhaps an example?:

He/she has suggested the following:

“FAQ:

- What did Adam Smith mean by the invisible hand?

- What are common misconceptions, misinterpretations or misuses of that phrase? of his ideas in general?

- What are common criticisms toward your views on Adam Smith? What are your rebuttals to those criticisms?”

Comment
I have discussed the technical details of having a separate page on Lost Legacy for an FAQ feature and it is possible, as long as I don’t want it done before New Year.

However, it can be done from when I return from a visit to Australia (February 2010) and I have arranged for the FAQ feature to be added to Lost Legacy at that time.

Meanwhile, over the seasonal holidays I shall try out some FAQ-type posts on the main Blog addressing questions like those above. From my experience of FAQs at my old Business-School day job, over time the FAQs add up to a lengthy text (longer than the course text itself). Perhaps I can make entry-level text out of this venture?

Gavin

PS: thanks to the unknown "very interested reader" who made the contructive suggestion this month.

An Empty Front for What?

“Anonymous” writes RFK action front Blog (12 Dcember) HERE:

“How Wall Street killed Adam Smith and Milton Friedman

“But what I hadn't realized until just this morning, is that the collapse of the financial sector in 2008 killed Adam Smith and Milton Friedman. Their ideas should have been dead long ago but they kept hanging around because they provided the cover by which the powerful could continue to enrich themselves (at the expense of everybody else). But the collapse of the entire global financial system in 2008 and the fact that federal governments around the world had to come in and rescue the titans of finance with trillions of taxpayer dollars (and pounds and Euros and Deutsche Marks), definitively shows that Adam Smith and Milton Friedman were just shakedown artists. Rather than being an elegantly self regulating machine in tune with the deepest truths of the universe it turns out that our financial system in criminally corrupt and hopelessly unable to survive without massive government assistance. …

… And here's the craziest thing in all of this. The financial collapse of 2008, not only killed Smith and Friedman, but it also brought Marxist critiques of capitalism back to life. Well technically speaking, Marx was wrong and Nikolai Kondratiev was correct -- but the fundamental point of both men remains and has now been confirmed: an endless cycles of booms and busts are intrinsic to capitalism and capitalism is an inherently unsustainable system. Furthermore, it is only through a strong state regulatory system that the vicissitudes of capitalism can hope to be controlled.
… In some ways then we live in a remarkable time with enormous political, economic, and even philosophical instability. Adam Smith and Milton Friedman are dead. And Marx and Kondratiev had prescient critiques of the problems of capitalism, but no solution for an alternative approach that is more sustainable. So for the time being the regulated capitalism of Keynes becomes the big winner. And maybe that's the best that we can do. But it seems to me that there is also a higher synthesis waiting to emerge from this whole crisis -- if we can just figure it out before the gaping abyss of uncertainty causes people to completely freak out.”

In the comments to a critic of his piece, RFK defends his caricature of Adam Smith:

“Thanks for your thoughtful comment. Too often in the popular debate (and I include myself in this critique), we deal with the caricature of these men or what they have come to represent rather than the actual writings themselves.”

Comment:
Anonymous seems to be carried away with his (her?) rhetoric:

“Rather than being an elegantly self regulating machine in tune with the deepest truths of the universe it turns out that our financial system in criminally corrupt and hopelessly unable to survive without massive government assistance.”

I cannot speak for Milton Friedman on “self-regulating machine in tune with the deepest truths of the universe" (a trifle hyperbolic surely) but I do not recognize Adam Smith, the moral philosopher, historian, and social commentator in these assertions.

From his knowledge of history (and speculations about pre-history), Smith was unlikely to have considered the emergent commercial society of 18th-century Western Europe (itself interrupted from the 5th century by the thousand-year interregnum following the fall of Rome) as other than a typically human phenomenon, with all its long-standing weaknesses, not to mention the thwarted ambitions of Kings and those who influenced them.

Friedman may have exhibited an enthusiasm and too-hasty a vision of modern capitalism as a dominant economic system, in truth unshorn of the errors of mercantile political economy (tariff protection, et al), but such an arrangement was unknown to Adam Smith (who knew neither the word nor the phenomenon – ‘capitalism’ entered the English language only in 1854, that is 64 years after Smith died).

I am not sure what a “shakedown artist” is, being unfamiliar with the term, but it seems to be disreputable and I don’t think it is justified in Smith’s case, nor, if truth be told, in Friedman’s (one can be wrong about something without calling them names). We need not both caricature nor denigrate people who are entitled to some respect. Name calling is not a legitimate nor acceptable form of argument, except perhaps in bar-room verbal brawls.

RFK’s peroration: “the fundamental point of both men remains and has now been confirmed: an endless cycles of booms and busts are intrinsic to capitalism and capitalism is an inherently unsustainable system. Furthermore, it is only through a strong state regulatory system that the vicissitudes of capitalism can hope to be controlled” is questionable on two grounds.

Rhetoric about “an endless cycles of booms and busts” lacks historical and current perspective.

The unmitigated rise in living standards under various forms of capitalism since early 19th century, despite occasional "booms" and "busts", both on its own terms and comparatively is unrivaled by any alternative arrangements, including undeveloped commercial societies, socialist planning - the apogee par excellence of “a strong state regulatory system” if ever there is one – and all pre-capitalist societies known to anthropology.

There is no signs of a vast movement of populations from “unstable” capitalism to take their chances in those parts of the Earth that are non-capitalist.

However, there are large-scale attempts of populations to move in the other direction, apparently willing to risk all for their chance to suffer from “the vicissitudes of capitalism”.

It is precisely because of what Adam Smith has “come to represent” in public discourse, rather than what he advanced in his “actual writings”, of which RFK and many modern economists appear to be uninformed, that Lost Legacy functions.

Or it may be that RFK is aware of what Adam Smith actually laboured to make clear in his Moral Sentiments and Wealth Of Nations, in which case RFK is engaged, albeit, in a deception.

Announcement VII

I am on the 'home stretch' this weekend.

The house is almost fully cleared of stuff ('not taking' to the new house) and almost fully packed, boxed and ready for the uplift of the rest to storage on Monday, 14th December.

This means I can get back to my pressing tasks thereafter, which now include 86 MSc exam papers on "Strategic Negotiation" and "Influence". I shall, over the seasonal holiday also complete my response to Dan Klein's excellent paper, my other paper on the post-1950s unnecessary myth of the "invisible hand" among modern economists in support of the "triumph" of general equilibrium theory, with a side-swipe politically as evidence of the (obvious) superiority of markets over Soviet state planning during the (necessary) Cold War.

Most importantly, I can return to serious Blogging "LostLegacy" ...

However, this is Saturday and its back to the old house to finalise what has been intensive and hard work. Roll on the 14th.

Gavin

UPDATE:

Despite my unavoidably light posting for many weeks, I am thankful for readers of Lost Legacy for visiting us so regularly.

Unique Visitors has only dropped slightly but still remains above 5,000 a week and Page Reviews have remained above 30,000.

Many thanks for your confidence and encouragement.

It won’t be long now – from Monday 14th when the movers clear the house and then from Friday 18th when we hand over the keys for the cash.

I should be back to normal before the former day-job’s ‘holidays’, at least until 4 February (when we take over the new house), and definitely when I return from Australia around the 21st and we have successfully moved in (fingers' crossed).

Lecture Notes: 1

Brad Delong (doyen among economics Bloggers) posts a lecture for first-time economics students:

“To Market, to Market: Blessed are the Cheesemongers: 1: Exchange”
HERE

Worth a look if you teach basic economics and wish to 'freshen up' your examples.

Anybody Recognise the Author?

Another item I found in my library clearout is a typescript paper: “Mercantalist Policy and the American Economic Community: an essay in applied economics” but with no author named. Apparently it was published in the Journal of the History of Ideas, vol. 37, but a brief search did not produce a title list for this volume.

It is an exceptionally good piece of work on Adam Smith’s views on the American “disturbances” in Book IV, Wealth Of Nations, and the author makes extensive references to Smith’s text (the Oxford University Press edition).

If anybody knows of the author’s name, please let me know in the comments or to the email address at the head of the Blig.

One striking thing I did note is that while the paper skilfully discuses Smith’s writings as an “essay in persuasion” it does not make any reference to the metaphor of the “invisible hand” in chapter ii, p 456.

Has Geology Anything to Teach Economists?

An interesting item crossed my screen this evening while in pursuit of Googling Professor Larry Neal of the University of Illinois, Urbana:
The Journal of Economic History (2000), 60:2:317-334 Cambridge University Press:

“A Shocking View of Economic History”, with a tantalizing abstract:

“Economics, like geology, is an historical science. Geology has made incredible advances by accepting it is an historical, rather than a laboratory science. Economic historians can help economics make similar advances by adopting the research strategies of modern geology. Intensely empirical and global in their range, today’s geologists focus on the historical remains of shocking, usually catastrophic, events in the earth’s past. Already empirical and global, economic historians have ample shocks to study whether their specialty is population, technology, or institutions. A few examples of the possibilities should stimulate us to reinvigorate our parent disciplines of economics and history.”

Comment
One of Adam Smith’s close friends was James Hutton, a fellow member of the Scottish Enlightenment, with a special interest in the then early days of geology. Hutton’s fairly quiet challenge to the reigning orthodoxy of the origins and age of the Earth - believed by preachers to be around 6,000 year old, as deduced from the Bible – was quite radical and based on a search for evidence beyond the mythical certainties of the Flood.

Smith took a close interest in all sciences and often walked with Hutton down from Edinburgh to its adjacent Holyrood Park, which played host to an extinct volcano.

Smith listened as Hutton explained its geology. It is not known if he took Smith to Siccar Point about 20 miles down the coast to show him the now famous ‘nonconformity’ of layers of rock, red sandstone and greywacke, which led Hutton to make his famous remark about the Earth’s origins: ‘we find no vestige of a beginning, no prospect of an end’.

Hence, I found the abstract for Larry Neal’s paper so interesting, prescient and thought provoking.

My search on Google for details of Larry Neal came from finding a typewritten paper authored by him Adam Smith on “Defence and Opulence”, undated, and at the back of a cupboard, unopened since 1998, though possibly kept by me from my time as a defence economist from the 1970s, which I had put in the cupboard on moving into the house I am presently clearing.

An Impressive Case for Moral Commerce

“Lorenzo” posts a most remarkable, erudite, and trenchant case for commerce over the political, theological, and mythical driving selective conformist attempts at oppression on the Thinking Aloud Blog (HERE)

“Speech at the Launch of Richard Morgan’s book Lessons From The Global Financial Crisis"

[If you read nothing else today (or this week), follow the link and enjoy (learn from, perhaps, too). I give three snippets as tasters:]

”The moral case for free commerce”

"We are here today to launch Richard Morgan’s book, a book that applies C18th wisdom to current circumstances.

One of the great virtues of knowledge of past ideas, is that it forces present thinkers to work harder. Not always an agreeable prospect. Hence the push to define the past as a realm of Stygian moral and intellectual darkness that our present knowing moral splendour has utterly superseded. Thus is current fashionable opinion both elevated and protected.

Yet much that has been paraded in recent decades as allegedly cutting edge thought is little more than ideas from as long ago as the C5th BC re-packaged. Indeterminacy of meaning, for example—which the post-modernists make so much of—was a hot topic for Socrates and the boys. While the politics of Plato’s Republic—with its Platonic Guardians, and their necessary supporting Platonic myths—seems to get endlessly recycled. Judges and international bureaucrats—some of them scientific—are notable current offerings as Platonic Guardians: with supporting Platonic myths from which dissent is, apparently, not to be permitted in polite society.

Against this recycling of the C5th BC, it would be quite an advance if we could get rather more academics and other intellectuals to advance to the standard of some good C18th thinking.

Consider the famous passage by Voltaire in his Letters on the English , first published in 1734.

‘Take a view of the Royal Exchange in London, a place more venerable than many courts of justice, where the representatives of all nations meet for the benefit of mankind. There the Jew, the Mahometan, and the Christian transact together, as though they all professed the same religion, and give the name of infidel to none but bankrupts. There thee Presbyterian confides in the Anabaptist, and the Churchman depends on the Quaker’s word. At the breaking up of this pacific and free assembly, some withdraw to the synagogue, and others to take a glass. This man goes and is baptized in a great tub, in the name of the Father, Son, and Holy Ghost: that man has his son’s foreskin cut off, whilst a set of Hebrew words (quite unintelligible to him) are mumbled over his child. Others retire to their churches, and there wait for the inspiration of heaven with their hats on, and all are satisfied.
Let us consider for a moment how much turgid academic ranting on the allegedly intimate connection between capitalism and bigotry is rendered otiose by this simple observation of what commerce actually means. Commerce does not care for the colour of your skin, your religion, your sex, your sexuality, your ethnicity: what it cares about is the colour of your money. And the worth of your word.

It is politics, with its conjunction of coercion and category – often coercion-by-category – that makes the colour of your skin, your religion, your sex, your sexuality, your ethnicity important, even fatally important. Commerce wants your money and so must, perforce, attend to what you want. Commerce-as-commerce is not interested in any of the vile wars waged by believers—both secular and religious—against human nature as it is in the name of human nature as it is supposed to be. Commerce just wants your money. Preferably again and again. “It is better for me if you are happy with what I do” is practical commerce.’ …

…” The marginal in society are frequently rather better treated by commerce than by politics. A Fortune 500 company is much more likely to acknowledge same-sex relationships than a US State is. The former cares about getting and keeping good staff, and reaching customers. While political and religious entrepreneurs often seek to sell effortless virtue: to sell a sense of unearned self-satisfaction from simply being different to some other group—whites feeling terribly virtuous for not being black, gentiles feeling terribly virtuous for not being Jewish, straights for not being gay, those born and raised Protestant for not being Catholic, or vice versa. And so on. …

…” Long before people talked of the “pink dollar”, there was the Jewish ducat. While women could scale the heights of commerce when they were still formally barred from even the foothills of politics. The first African-American woman to become a millionaire was not Oprah Winfrey, but Madame C. J. Walker, who became a millionaire by 1910: and if you were a millionaire in 1910, you were really a millionaire. She achieved this by selling hair-care products, employing many African-American women in the process, quite deliberately so: no doubt a grave offence against the Equal Opportunity Act—don’t tell Rob Hulls.

When one looks at the denunciations of vulgar merchants and “immoral” commerce, again and again one sees the real complaint is that they attend to what people want, not what the critic thinks people ought to want. That they attend to what people are like, not what people allegedly ought to be like.

To any supporter of a static social order, the restless energy of commerce is a threat. And what social order is more static than one that seeks equality of outcome? The societies that have most raged against commerce have also created some of the most appalling horrors in history, struggling mightily and brutally against what people want.

Indeed, if one wants to establish any bigoted social order, one of the first things one has to do is to restrain commerce. As Thomas Sowell points out, part of the impetus for the Jim Crow laws in the American South was to ensure that a white person buying a first class train ticket did not find themselves sitting next to a black person. For, left to themselves, the railroad companies only cared if you could pay.”

Comment
There's much more in similar vein too.

The book to which “Lorenzo” refers is by Richard Morgan (With a Preface from Ian M. McDonald, University of Melbourne):

“Lessons from the Global Crisis: the relevance of Adam Smith on Morality and Free Markets”.

Order it from Amazon or direct to Connor Court Publishing (ISBN: 9781921421273): sales@connorcourt.com. Price: $19.95 (Australian)

Richard Morgan, with whom I have corresponded and who kindly sent me early drafts of his arguments based on Adam Smith for his book, is an experienced business man and is also engaged in public affairs. He practices what he believes in.

I commend his book to readers.