The Limitations of Philosophers

Lauren Axelrod writes the interesting Blog, “Ancient Digger: a view from an archaeology Student” HERE/a>">:

“When Adam Smith and the Physiocrats brought about new economic laws, it completely changed society. Wealth could be increased with more agricultural production, so to put it simply, it was the only productive means of increasing state revenues. Consequently, with the establishment of laissez-faire, merchants were allowed to pursue their own economic self interests. This was the start of the small business. As a result, Adam Smith and the Physiocrats were able to establish the foundation known as economic liberalism.”

Comment
While making allowances for a specialist crossing over from archaeology into 18th-century political economy, I found this fairly common error of attributing to, in this case, Adam Smith and the Physiocrats their bringing “about new economic laws, [that] completely changed society”.

Philosophers who observe and then report on the object of their thinking do not “completely change society”. A moment’s thought would show the absurdity of such ascription.

Smith observed the elements of commercial society that already existed and had been underway since the re-emergence of commercial society, circa 15th century, a thousand years after the fall of Rome in the 5th century. Smith didn’t “completely change society” – it had already, long ago, had changed. He only reported what he observed.

In short, if Smith had never been born, commercial society would have continued to develop without the aid of philosophers. Moreover, the idea of laissez-faire was never established in practice – it remained an idea that some Physiocrats put forward for the way that society should be organized.

But Adam Smith was sceptical of the benefit to the public of merchants’ behaviour when “allowed to pursue their own economic self interests” because of their proclivity to monopoly practices to the detriment of consumers. Indeed, the merchant who responded to Colbert’s question as to what the state could do for them – to which he replied “laissez faire” – spoke for himself and merchants and not for consumers (a point unlikely to have been missed by Smith, which probably is why he never used the words ‘laissez faire’, despite his false reputation for favouring the doctrine).

Society is not changed by the pronouncements of philosophers. It changes itself from the actions of individuals undirected, unintentionally, and without foresight, often long before the philosophers, or anybod
">http://www.ancientdigger.com/2010/02/monday-ground-up-philosophes-and-their.html

“When Adam Smith and the Physiocrats brought about new economic laws, it completely changed society. Wealth could be increased with more agricultural production, so to put it simply, it was the only productive means of increasing state revenues. Consequently, with the establishment of laissez-faire, merchants were allowed to pursue their own economic self interests. This was the start of the small business. As a result, Adam Smith and the Physiocrats were able to establish the foundation known as economic liberalism.”

Comment
While making allowances for a specialist crossing over from archaeology into 18th-century political economy, I found this fairly common error of attributing to, in this case, Adam Smith and the Physiocrats their bringing “about new economic laws, [that] completely changed society”.

Philosophers who observe and then report on the object of their thinking do not “completely change society”. A moment’s thought would show the absurdity of such ascription.

Smith observed the elements of commercial society that already existed and had been underway since the re-emergence of commercial society, circa 15th century, a thousand years after the fall of Rome in the 5th century. Smith didn’t “completely change society” – it had already, long ago, had changed. He only reported what he observed.

In short, if Smith had never been born, commercial society would have continued to develop without the aid of philosophers. Moreover, the idea of laissez-faire was never established in practice – it remained an idea that some Physiocrats put forward for the way that society should be organized.

But Adam Smith was sceptical of the benefit to the public of merchants’ behaviour when “allowed to pursue their own economic self interests” because of their proclivity to monopoly practices to the detriment of consumers. Indeed, the merchant who responded to Colbert’s question as to what the state could do for them – to which he replied “laissez faire” – spoke for himself and merchants and not for consumers (a point unlikely to have been missed by Smith, which probably is why he never used the words ‘laissez faire’, despite his false reputation for favouring the doctrine).

Society is not changed by the pronouncements of philosophers. It changes itself from the actions of individuals undirected, unintentionally, and without foresight, often long before the philosophers, or anybody else, noticed what is going on.

Announcement XV

'Tis taking longer to empty and stow the contents of the boxes - 18 still to go! - and domestic imperatives require I continue 'right on to the end of the road' ( a famous music-hall song from old Scotland).

However, a new Chinese language translation of Adam Smith: a moral philosopher and his political economy (Palgrave) has been published by Huaxia Publishing House. Beijing this month. Visually, it look impressive.

A regular 10-15 visitors from China appear in the stats for Lost Legacy - not a large market (yet) but this may change as the translation sells at 38.00 rmb (I think).

Should my regular Chinese visitors wish to acquire a copy they should contact Huaxia Publishing House (Ms Linda Li):
No 4 Xiangheyuan Beili, Dongzhimenwai. Beijing 100028, China [hangliabc@sina.com]

Boxes calling...

Announcement XIV

Returned to Edinburgh and somewhat jet lagged, plus in new home with everything in removal boxes.

First task: empty boxes and distribute contents appropriately round new house;

Second task: connect new Apple computer;

Third task: household chores;

Fourth task: sleep.

Shall be active on Wednesday on Lost Legacy.

Gavin

Announcement XIII

My sunny Australian 'holiday' comes to a close. I'm on my way back to Scotland tomorrow (Sunday) and to our new Edinburgh home - and scores of boxes to empty and other chores assigned for my personal attention.

At present, I am told, the Internet connection isn't and it may be some days before it is, even with my new Apple computer awaiting a link up. My return to Apple after 35 years may not run smoothly, but it will run eventually, I am assured. Thank goodness I can escape from Windows 7.

While away, I have been editing the new paperback edition of "Adam Smith: a moral philosopher and his political economy" for Palgrave. It's going well, though slowly.

Treating my paper: The Hidden Adam Smith in his Alleged Theology, as part 1 on his drift from Christianity, I am also now working on part 2: on his alleged Deist and Providential views.

So it will be back to normal at Lost Legacy - soon.

Who Can and Does Are Entrepreneurs

Shikha Dalmia writes (12 February) in Reason.com (HERE):

“The Fable of Market Meritocracy”

“Markets don't reward smart people. They reward value ... Most advocates of markets have failed to fully make this distinction, perpetuating a cult of market meritocracy—something that has hindered, not helped, the cause of free markets.

With the notable exception of Nobel laureate F.A. Hayek, market theoreticians have to a large extent employed the equivalent of the Great Man theory of history to explain what makes markets tick. According to this theory, the course of history is shaped not by the convergence of multiple, unpredictable events but by the intervention of great men. Likewise, in the conventional thinking about markets, economic progress depends not on the labors of infinite economic actors but on the select few, the brainiacs, who rise to the top and generate innovations from which ordinary mortals benefit through a kind of trickle-down effect.

English sociologist Michael Young noted in his influential 1958 fable, The Rise of the Meritocracy: "Civilization does not depend on the stolid mass, the homme moyen sensuel, but upon the creative minority, the innovator ... the brilliant few … the restless elite who have made mutation a social as well as a biological fact." Less elegantly, Ayn Rand evinced a "pyramid of ability" in capitalism under which "the man at the top contributes the most to all those below him." What's more, this Nietzsche of capitalism opined: "Man at the bottom who, left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of their brain."

What's good about markets in this line of thinking is that they identify the incandescent geniuses among us and catapult them to the top where their innate brilliance is harnessed to improve the lot of mankind. At once, then, markets yield economic progress and what Rand (and others) regard as justice—the biggest rewards to the best.

The only problem with this neat little formulation is that it is wrong at every level. For starters, the idea that value creation is a one-way street from the top to the bottom is not just offensive, but it ignores the principle of comparative advantage, a key breakthrough in market theory. Put simply, this principle holds that everyone benefits by exchanging goods and services with everyone else, regardless of anyone's inherent capabilities. It's in the interest of even the most annoying "all-rounder" (as we say in India), who is better than me at everything, to specialize in those tasks in which our gap is the biggest and trade with me for those in which our gap is smaller. Under the elaborate division of labor that ensues, both the less-endowed and the better-endowed contribute to each others well being.

But is it the case that this division of labor necessarily directs the biggest rewards to the most gifted by putting them at the highest end of the value chain? No.
The beauty of the market, Hayek brilliantly pointed out, is that it allows people to use knowledge of their particular circumstances to generate something valuable for others. And circumstances, he emphasized, are a matter of chance—not of gift. Furthermore, since no two people's circumstances are ever identical, every producer potentially has something—some information, some skill or some resource--that no one else does, giving him a unique market edge. "[T]he shipper who earns his living from using otherwise empty or half-filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differences of commodity prices, are all performing eminently useful functions based on special knowledge of circumstances of the fleeting moment not known to others," noted Hayek.”

Comment
Follow the link and read the rest of Shikha Dalmia's article.

It’s an excellent exposition of markets and what makes them work better than the alternatives on offer, and better than those designed on a scribble pad somewhere by some “man (or woman) of system” that Smith warned us about in Moral Sentiments (and which Lost Legacy gets plagued with from time to time).

Like many students I read Ayn Rand in paperback many years ago – I still have her books – but like most other readers, I grew out of her ‘exceptional men of destiny’ characters.

Most enterprising small traders I came across were not John Galt figures of genius. Their ordinariness was their common denominator.

In short, they supplied value to sufficient customers who need a service or something and who were willing to pay for it at least up to the figure the suppliers could make a living from and did. The last bit separated them from the people with great ideas and little else.

People who need ‘fail-safe’ guarantees before they take their ideas to market are not entrepreneurs, and never will be until the penny drops – they usually become state bureaucrats, instead (many teach in business schools, er, there are notable exceptions of course!).

I remember representatives of the type when the state-funded Scottish Enterprise ‘companies’ were formed in the 1980s who, faced with an initial funding of £126 million to promote local private enterprises, immediately declared that their “company” was “under-funded”.

Fortunately, these companies were also peopled by a few real entrepreneurs, giving up some of their time to sit with the civil-servant bureaucrats and trade union leaders in the ‘local enterprise’ teams, and readily declared that “nobody in the private sector had ever given them £126 million to do anything they had ever done in the private sector” and they suggested that they all got on with their work without delay, in case the government withdrew their capital realizing they had made a mistake.

Markets are about creating value and selling it to customers. Unless that is understood, markets become mysterious, other-wordly, even godly, in fact everything but complex clearing-houses for creating and distributing value-added.

As 'Meerkat', the cartoon character in the TV-ad would say: Simple!

A Student Who Reads Smith for Himself

Dan Hirschman writes “A (Budding) Sociologist’s Commonplace Book” Blog HERE:

"Adam Smith on Systemic Risk, ca. 1776

Adam Smith is sometimes heralded as the foundational thinker of laissez faire economics. As many people have written before, Smith was not a doctrinaire proponent of laissez faire, but rather took a pragmatic approach that started with the principle of promoting natural liberty to the extent possible, but recognized times when government must encroach on that liberty to promote everyone’s welfare.
Smith’s chapter on Money (book 2, ch. 2) in The Wealth of Nations provides an excellent example. Smith has a lengthy discussion of bank notes and other forms of paper money as supplements to hard currency. Smith generally favors such notes, especially in relatively large denominations for use in transactions between businessmen or banks themselves. Smith worries about small denominations of paper money because such small denominations are much more likely to be accepted at first, even when issued by someone of questionable credit, and then end up going unpaid and causing lots of bankruptcies (Wealth 351-352). Smith concludes this discussion with a recommendation for government intervention":

"To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is manifest violation of that natural liberty which it is the proper business of law, not to infringe, but to support. Such regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed. (Wealth 353)"

"In other words, if your liberty could lead to a major negative consequence for many people who have no part in your actions, the government should step in to prevent such harm. Sounds like a pretty good justification for regulating derivatives and other financial instruments to me!”

Comment
Dan Hirschman (now that’s a name to contemplate in economics) appears to be well informed on Adam Smith (see his earlier post on his Blog on Adam Smith and laissez faire via Jacob Viner’s 1926 seminal paper on the subject). This is probably because Dan Hirschman, as an ultra-keen, serious student takes the trouble to read Smith’s books for himself and not rely on “summaries” (A.K.A. epigonic inventions) from his tutors.

Have a look at his website and enjoy.

How to Learn Without Arrogance

Last evening in Melbourne I was invited to give a talk on Adam Smith, part biography part his ideas to a weekly discussion group fascilitated by an extraordinary and genuinely self-confident, but in no way arrogant, man called Produs, who is passionate about learning from engaging with people who have something positive to contribute to the understanding of 'members' of the audience (and speakers). The ethos of the discussion in firmly fixed on the celebration of capitalist values in the context of freedom and liberty.

How refreshing from the usual moaning pressure-minded scholars, who are expert at denigrating each other's ideas and outlook, and aredoom-laden with moans about everything they talk about, and who usually talk in place of learning.

The discussion that followed, under guidance from Produs, involved the audience, including some new attendees and 'old hands', was direct, and fairly robust. My answers were gently chided when not to the point of the questions! I can think of many academic seminars where such interventions would have been appropriate from the chair, and productive ...

I introduced the myth of the invisible hand - which was closely qestioned from several listeners - and was (correctly) objected to by a participant when I appeared to leave out Smith's assertion that self-interest drove behaviour and this had beneficial outcomes in the main and was not negative. In making one point that merchants and manufacturers often acted in a protectionist manner - narrow the competition to broaden the market for themselves - but without the beneficial aspects of self-interested motivations, I was open to justified criticism. So, speakers learn how to present their views in the round too!

If I lived in Melbourne, I would join this group to keep my feet on the ground. The meeting finished at 9.30 on the dot (what admirable discipline from the chair) and the participants dispersed happy that they had not wasted their evening.

It's back to Sydney today.

Adam Smith Meets God and Mammon

During my visit to Australia I was invited to participate in a panel debate with Professors Paul Oslington (Theology and Economics) and Brandon Long (Political Advisor and PhD in Theology from Cambridge) on the subject: “Reconciling and God and Mammon: Adam Smith and how religion shaped his ideas”. The debate was chaired by Dr Oliver Marc Hartwich, a research fellow at the Centre for Independent Studies, Sydney, a think tank akin to the Adam Smith Institute in London (of which I am a Fellow).

About 40 (CIS confirm the attendance was 70 not 40!) people crowded into the CIS library (itself a poignant place for me to visit as it is the location of the ‘P. P. McGuiness Library’ and ‘Paddy’ was a mentor of mine when I was a teenager in Sydney in the 50s – he got me interested in economics and we shared many a debate on history, politics, and current affairs.

We each had 15 minutes, Paul and Brandon sharing the case for Smith being religious and me taking the opposite tack that his beliefs in Christianity faded from his time at Oxford, particularly after 1744.

Because Paul led on the role of the invisible hand (a case of providence), I responded with it being a ‘mere’ metaphor for what drove ‘rich landlords’ to feed the ‘thousands whom the employed’ – the absolute necessity for them to do so – and what drove some, but not all, merchants to invest locally – their insecurity in face of the higher risks of foreign trade.

Brandon found evidence of Smith’s Christianity in religious- sounding statements in Moral Sentiments and I responded with alternative readings of the same statements.

Audience participation and questioning was of a high standard – clearly the audience were divided – and Dr Hartwich chaired the proceedings most fairly, even inviting short-rebuttal remarks from the panellists.

What, with the CIS event and my paper, ‘The Hidden Adam Smith in his Alleged Theology’, which I presented at the Australian Catholic University the day before, it has been a bit of a ‘theological’ visit so far. Certainly, I have learned quite a bit about different perspectives on Adam Smith, with several readings to follow.

I am also happy with the robustness of my critique of modern inventions about Smith’s use of the metaphor of ‘an invisible hand’ and, perhaps more original, my critique of the alleged theologies of Adam Smith. It is in the intense exchange of competing ideas that we refine our understanding of Smith philosophy and political economy.

Adam Smith on Benevolence

John Milbank is quoted in the Faith and Theology Blog (HERE)

"The point about talking about a culture of trust is not some kind of moralistic wishful thinking; the point about a culture of trust is actually that an entrepreneurial culture needs trust. Even if you believe in the free market, it turns out that the model of individualist utilitarianism that goes all the way back to Adam Smith is actually the wrong model. Itʼs the wrong model for the free market itself because if you have endless checking up on people, if you donʼt have trust, that actually inhibits initiative, risk and creativity. This is why the Italian economist Stefanos Zamagni is saying we need to return to the principles of Italian political economy, not Scottish political economy, because the Italian political economists from the 18th century onwards saw sympathy as part of contract itself, not as standing outside contract.

"In the end Adam Smith subordinates sympathy to self-interest and he says that if your butcherʼs selling you meat heʼs not doing it out of the goodness of his heart. But this is untrue. In fact people do enter into economic relationships at the local level for social reasons, for personal reasons, and Zamagni argues in a really powerful way that the more we have relatively informal contracts between people, the more itʼs based on trust, the less you need the intervention of state law on the one hand, or of inner control by firms on the other hand. So this is a different way of thinking about the free market. The market would actually be freer if it was a moral market....”

Comment
Smith's point in the 'butcher, brewer, baker' example is you cannot rely on benevolence alone to feed you (and everybody else), unless you are a beggar. In practice, you must address the butcher's, and etc.,'s interests not your own.

This is not a disavowal of benevolence - there is not enough of it to go round, so to speak. If everybody relied on benevolence for their daily needs, from whence would the objects of such benevolence come from?

This is clear from Smith's Moral Sentiments too. The divine has everything in his benevolent gift - the entire universe in fact - and still more than is needed by all of mankind. Mankind cannot match that degree of benevolence; its wants are many, its access to the means is limited; nature is niggardly, and so, necessarily, is mankind.

Murray Milgate and Shannon Stimson, 2009. Review Commentary no 5

Murray Milgate and Shannon Stimson, 2009. After Adam Smith: a century of transformation and political economy, Princeton: Princeton University Press

No 5: ‘The Economic Machine and the Invisible Hand’

[Apologies: my review commentary has been interrupted due to the domestic complications of a triple move of house in Edinburgh.]

Milgate and Stimson review in a masterly fashion, the concept on an economy as a ‘machine’ (an ordered social system ‘resembling a machine’), which had some support by analogy with Newtonian mechanics among the participants in the Enlightenment. Language like the ‘market mechanism’ fitted neatly into this vision, and Adam Smith gave attention to such analogies in his essay on Astronomy (1744-).

Indeed, Smith’s central role for his ‘propensity to truck, barter, and exchange’ since deep into pre-history, as a ‘necessary consequence of the faculties of reason and speech’, made it the driving force for the sustained operation of social exchange among humans, leading eventually, through ‘very slow and gradual consequences,’ to markets, money and prices in ‘improved societies’.

Milgate and Stimson locate the driving force of the economic machine in competition (Smith) and these thoughts attract the attention of modern economists in the gravitation of market prices towards natural prices, a distinction that appeals to a sense of order, and a basis for a seemingly ‘scientific’ analysis (Books I and II of Wealth Of Nations), but which did not survive to the end of the 19th century.

This wasn’t quite ‘perfect competition’ – more like an ideal than a reality – and nor was it a reality in 18th-century Britain, with its economy littered with monopolies, statutory regulations, and (purchasable) privileges. The analysis showed what could happen; the analyst’s understanding came from recognising what prevented it happening in its ideal form (Book IV, Wealth Of Nations).

Here, Milgate and Stimson link much of their analysis to the roots of ‘equilibrium’ in economics (J. S. Mill, explicitly) analysis, at once suitable for a mathematical treatment using calculus, as the exponents of this innovation in the later 19th century were to nudge towards.

The authors round off this chapter with a discussion-survey of the invisible hand in economics, much of which is familiar territory for regular readers of Lost Legacy. I blew hot and colder reading this section, ‘hot’ when they leaned towards the ‘hand’ being a metaphor; ‘colder’ when they tended to philosophise, though thankfully they seemed not to buy into those who see in the invisible hand something divine at work.

Partly, I detected a misreading of the invisible hand of Jupiter in Smith’s essay on Astronomy, a failing, in my view, of such authors as Macfee, one of the first to notice this early use of the metaphor by Smith (though not cited in the bibliography). Smith discussed the role of superstition among savage societies and lists how the irregular events of nature (eclipses, lightning, earthquakes, and other frightening events) lead to invoking the anger of invisible gods as weird explanations for them. The ‘invisible hand of Jupiter’ (the Roman god, replicated in statuettes and on some coins) was believed to fire thunderbolts at enemies of Rome.

Milgate and Stimson ascribe to Smith that Jupiter’s invisible hand (remember, he too was invisible) the same status as the ‘invisible’ ‘gods, daemons, witches, genii, fairies’ thought to be the cause of the irregular events. Now Smith knew his classical mythologies and the differences between the superstitions about the ‘gods, daemons, witches, genii, fairies’ and the religious beliefs about Jupiter (his large statue stood on the Palatine hill overlooking Rome) in which he was not a myth to believers; he was all too real to those who sacrificed and prayed to him in fear.

I agree with our authors that the metaphor of ‘an invisible hand’ was used as a metaphor to help explain something readers may not understand when they read his explanation (which he gives on both occasions before he uses it in Moral Sentiments and Wealth Of Nations). A metaphor in Smith’s considered view, as expressed in his Lectures in Rhetoric and Belles Lettres (1763), is used to offer ‘in a more striking manner’ a link between the metaphor and its object.

In the first case (Moral Sentiments, 1759) the metaphor ‘explains’ what drives ‘the rich and unfeeling landlord’ to feed the thousands whom he employs – if he didn’t feed them from the harvests they produce, they would starve and the means by which the landlord was rich would perish too. The ‘invisible hand’ captures this absolute necessity to feed his people, though Smith has already explained what happens beforehand.

[Note that Smith uses the words ‘necessary’, ‘necessarily’, ‘naturally’, and ‘natural’, 16 times, spread in eight paragraphs either side of the metaphor. How many times makes a hint?]

In the second case (Wealth Of Nations, 1776) the metaphor explains what drives some, but not all, merchants to prefer to invest locally rather than invest abroad. He also explains very clearly before he deploys the metaphor why these merchants chose to do so – it is the concern for their own security, a not inconsiderable concern when the risks of foreign trade are greater than trading locally. Smith specifies the nature of those risks – foreign countries have less well-known legal systems, the people you deal with at a great distance are less well known to you, their probity is less certain, and you may not see your investment again, apart from the dangers of loss from the sinking of ships across the Atlantic.

However, those that invest locally experience lower risks, and, unbeknown to them, their local investments add to the total investment locally and provide employment, all of which adds to what we would call GDP. This outcome is unintended – the individual is concerned with his own profit not the benefit to society, and doesn’t need to be concerned. If the analysis is too difficult to follow, the metaphor of being ‘led by an invisible hand’ expressed the analysis in a more ‘striking manner’, which I what Smith taught his students was the metaphor’s purpose.

Moreover, the consequence of increasing local investment – the arithmetic rule that the whole is the sum of its parts – is to increase the local availability of the annual output of the ‘necessaries, conveniences, and amusements of life’. Interestingly, and as with the associated words either side of the ‘invisible hand’ reference in Moral Sentiments, Smith deploys the word ‘conveniences’ many times around the same metaphor in Wealth Of Nations.

Is Smith’s arrangement in this manner accidental or intentional? Milgate and Stimson arrive at a similar conclusion to mine above but by a different route. The invisible hand metaphor:

‘provides a comprehensive, coherent and attractive image’ … ‘that will be familiar and comfortable to its intended audience, and framed in terms compatible with communally accepted standards of propriety” (p94).

I agree with their conclusion and commend it to readers.

Milgate and Stimson conclude with some interesting observations, again close to the treatment I have been offering on the metaphor of an invisible hand among modern economists such as: the apparent absence of comment by economists on Smith’s sparing use of the metaphor in his lifetime contrasted by the almost ubiquitous use of it ascribed to Smith by modern economists since the middle of the 20th century, a view challenged by Daniel Kline in debate with me (Econ Journal Watch, May and September, 2009).

They also quote from Samuelson’s 1948 first edition of his famous textbook (p 36) (quoted on Lost Legacy earlier in 2009), in which he noted that faculty at Chicago in the 1930s referred orally to Smith’s invisible hand metaphor and in which he also cautioned readers in too general a reliance on it. In subsequent editions, Samuelson continued to refer to the invisible hand, linking it to perfect competition, while continuing his cautions, and deprecating the idea (now widespread) that modern markets are close to the perfectly competitive, Pareto optimal, constructs also taught in undergraduate courses.

From no mentions as far as I can ascertain in the 18th century while Smith was alive and from 1790 after he died, there is a long gap until the late-19th century before the metaphor is mentioned as linked to Smith. There is an extended footnote extract, without comment on the metaphor from Wealth Of Nations in Dugald Stewart’s Lectures in Political Economy [1809] 1856.

There are score of examples of the use of the metaphor throughout the 17-18th centuries (and earlier into classical times) by numerous authors, but not in reference to economics; so many, in fact, that the invisible hand metaphor was well-known and popular in Smith’s time, particularly with theologians and in Sunday sermons (hence some today, but not me, see Smith’s use of it as having theological significance; see my “The Hidden Adam Smith in his Theology”, 2009).

Milgate and Stimson’s comments on Smith’s use of the invisible hand metaphor, move the debate some ways towards what I have been arguing since 2005 when I began blogging on Lost Legacy. I am much encouraged by that and by the prospect that they will influence their readers of their excellent book in such a direction.

God v Mammon: tonight's debate

Tonight's event is a 'God and Mammon' debate in which we are discussing the theme around Adam Smith's views in 20-minute slots plsu a Q & A session.

I plan to include the so-called 'hand of god' version of the invisible hand, if its raised (I speak second), and/or Smith's writings on bargaining (WN I.ii), which were remarkably clear -'give me that which I want and you shall have that which you want' - also kmown today as the conditional proposition. He supports this approach in TMS too.

Remarkably, most neoclassical 'bargaining' models are completely misconstrued. They are based on conflict and zero-sum coercion (Zeuthen, Hicks, Harsani, &co) in strike threats and 'wafare', which is not how people actually bargain. John Nash dropped trying to model bargaining as a process and opted for modelling bargaining as an outcome.

Smith made exchange a ratio, like value - what we give/what we get. I have done my bit over the past 40 years to encourage exchange-bargaining across business and government agencies.

Well, we'll see how we go.

Into the Lions' Den?

Today in Sydney, I am presenting my paper, "The Hidden Adam Smith in his Allleged Theology" to an audience of academic economists, historians, and theologists at the Australian Catholic University.

I make no presumptions about the response of those listening and asking questions, but I am not anticipating wholesome agreement. So far, the response of colleagues - we are all students - has been mixed, varying from genuine curiousity about aspects of Smith's biography, through to utter disdain for my 'presumptions' that Adam Smith was anything less than a devout Calvinist/Deist/Providentialist/stoic or some mixture of all or several of the foregoing.

When, in private conversation with a distinguished Smithian scholar ealy in 2009, I opined that Smith's public agreement with the Calvinist Confession of Faith was tempered by his knowledge that not to do so would eliminate his candiditure for the professorship at Glasgow (1751), he reacted angrily and declared that 'dishonesty' was uterly beneath Smith and he that would "NEVER" have done "such a disgraceful thing", all said with the definite certainty that what I had suggested was at all but impossible, and therefore it was not open to discussion. Polietness and my usual deference in such company led me to desist from pursing the matter.

This afternoon, I shall probably meet similar responses, perhaps, though deference is not a quality I normally associate with Australian academics (no disrespect, but I spent my teens here).

On which topic I shall report later.

UPDATE:

Well, the bit I knew about went down reasonably well, judging by the question-exchanges, but, Oh Dear, I was quietly informed by a participant that I made a crass error on a theological issue: the doctrine of 'atonement', exposing a very weak flank to my credibility among theologians.

Some reading required, urgently! Chastened, I resort to my long-standing belief that we learn from our errors, not from being right. Doesn't help my embarrassment though...

The Australian Catholic University has a lovely campus and the weather remains beautiful. Is it still snowing in Edinburgh?

Tomorrow to a think-tank on reconciling God and Mammon- note to self: don't mention attonment doctrine.

A Wee Thought While For My Journey to Oz

It occurs to me in my new paper on the invisible hand, as it became in mid-20th century economics, that it is worth considering what happens after those merchants who are risk-averse to foreign trade and, in consequence, invest locally rather than take the greater risks (as perceived by them, but not all merchants - many do invest abroad, of course), which Adam Smith observed, benefitted the national economy (the whole is the sum of its parts), that the tale ought not to end there.

Modern economists generalise from the narrow case which Smith discusses in Wealth Of Nations (WN IV.ii.1-9) to make the bold - near heroic! - assertion that self-interested people end-up benefitting the public by acting on their self-interest. Milton Friedman (among many others) celebrated this assertion, supposedly attributed to Adam Smith.

However, consider the real consequences of a national policy of investing as much as possible domestically. True (absolutely true), the more merchants who invested in profitable projects domestically, the larger would be national output (and employment) on grounds of the 'whole is the sum of its parts'.

'Tis but a short step from such a conclusions for the same domestic merchants delivering their outputs locally for some of them (it only takes a few, even one) to realise that they can raise their profits yet more by curbing rival suppliers from competing in the same domestic markets.

One obvious target is foreign traders sending foreign outputs to doemstic markets - including those domstic marchants who exported abroad and returned with foreign goods to sell domesticlaly. Of domestic merchants, confined to the domestic market, having been 'led by an invisible hand', the temptation to go for retrictive tariffs and outright protection by prohibition must become real.

So, being led by an invisible hand to forego profitable trade with foreigners (Smith's narrow example), they are likely to promote protectionism, to narrow the competition for local consumers by widening the market for domestic merchants.

The question occurs to me: are they led by an invisible hand to take this step?

We can ask ourselves: which group of merchants usually prefer tariffs and prohibitions against foreign traders? Which lobbies their legislators and those who influence them to this end? Is it the domestic merchants primarily, or is it those merchants who invest in foreign trade?

I conclude (for short), that the merchants engaged in domestic trade only (driven by their risk aversion from foreign trade) are the most likely proponents of tariffs and prohibitions on imports, and not the less risk averse domestic merchants who do engage in foreign trade.

As there is unlikely to be an invisible hand at work leading domestic merchants to prefer tariffs and prohibitions (the latter also brought about by narrow national interests - 'jealousy of trade'), which must make the general interpretation of the doctrine of invisible hands, as a special, limited, and partial phenomena. Smith, of course, knew this, and he also knew he was not making a general recommendation against foreign trade. Modern economists, 200 years on, ought to know this too.

What went wrong?

Visit to Australia 7 to 22nd February

Having been fairly unsettled healthwise for over two-weeks, I have recovered in time for my trip to Sydney and Melbourne, leaving this Saturday. Not before time; this is Scotland's coldest winter since records began in 1914 (no wonder the climate lobby have re-named their concerns 'climate chage' in place of yesaterday's Global Wwarming).

Apologies for the absence from posting regularly – you no doubt have noticed – and a bit more forbearance is required until I link up on the net from Monday 8 February (all being well at the Oz end).

My trip is a private visit, mainly to re-visit the haunts of my teen years when I attended the “university of life” as an unaccompanied minor just 15, and, hopefully to meet up with surviving members of my time in Sydney, should I find them.

This is my family’s 70th birthday present – they know the impact that those years had on me from which I graduated with a good 'pass'. On return to Britain, I eventually went to an academic university and graduated from there with honours, having learned lots about economics, but not as much about life as I had learned from the mean (though warm) streets of Sydney.

My academic friends, learning I was making this trip, have asked me to contribute to three informal seminars (no expenses and unpaid of course!), which I am delighted to do. These include an extra-mural debate on the my paper, “The Hidden Adam Smith in his Alleged Theology” (10 February) and on 11 February, evening, a debate on the contribution of theology to Adam Smith’s economic analysis (“Reconciling God and Mamon”).

However, the bulk of my time will be spent ‘normally’, seeing old friends and old sights. I spent weeks in the Mitchell Library researching for my biography of William Bligh (Captain Bligh, the man and his Mutinies, Duckworth, London 1989) and I have visited Australia several times since, on business (my old day-job).

But primarily, I hope to spend some of the time working on various projects including my editing of 'Adam Smith: a moral philosopher and his political economy', Palgrave, for a paperback edition, and my new paper for June on modern accounts of the invisible hand from the 1950s onwards.

But, of course, I shall post on Lost Legacy – back to normal (er, jet-lag permitting).

Announcement XII

I have been unable to post since Sunday due to a sudden heavy cold/cough episode, which tied me close to my bed until today (Wednesday).

This has knocked my schedule out completely, as a) we get entry to our new house Thursday (Tomorrow) and there is much to do arranging the administration of the first part of our move; b) I am flying to Australia on Saturday and there is also ultra much to do; c) my intended academic work intruded upon. I was meant to be finishing a couple of papers (one: my response to the brilliant new paper by Daniel Klein and Brandon Lucas, which I wanted them to have before I went to Australia; two: my re-drafted paper on "The Hidden Adam Smith in his Alleged Theology", which I shall send off this evening.

Apologies, but this has squeezed out Lost Legacy. Those who know me will know how difficult it has been to focus on the main, delayed, tasks.

I shall be in Australia until 22 Feb (not a good domestic move, two days after we move in!).

I shall post before I go (and during my visit).

Gavin