Sunday, October 31, 2010

My Review of Nicholas Phillipson's "Adam Smith: an Enlightened Life"

Nicholas Phillipson, Adam Smith: an enlightened life, 2010, London: Allan Lane; New Haven: Yale University Press (pp. 346) (ISBN 978-0-300-16927-0)

I first met Nicholas Phillipson in September 2006 at a conference, entitled: ‘Reclaiming Adam Smith’, at Columbia University, New York. It was never made clear just who the organisers were ‘reclaiming Adam Smith’ from, or even ‘why’ it was necessary. Lost Legacy (September 06) carried my reports of the conference and my opinions of various speakers. Here is an extract:

I would like to comment first on the ‘joint-star’ of the conference (in fact he slightly edges it), Nicholas Phillipson, Emeritus Reader in History at the University of Edinburgh. Until the conference I had not heard of him or his work (though many other attendees did know him, judging by how warmly they greeted him during the intervals). I found his performance outstanding, as he showed everybody how to lecture, and he clearly followed Adam Smith’s advice in ‘Rhetoric and Belles Lettres’: to know his subject (he does), to be perspicuous (he was) and to be enthusiastic (which he is in spades).

[He told me that] that he is writing an intellectual biography of Adam Smith, of which, if his session was but a sample, augurs well for what is coming, to which I certainly await with anticipation of not being other than educated in aspects of Adam Smith, so far untouched by what has been written to date.


Well, Phillipson’s intellectual biography of Adam Smith is now available. My four-year wait has been worth it, though it actually took years for its gestation. I am not disappointed in any degree; in fact, quite the reverse, for it exceeds all my expectations. Quite frankly it is outstanding and it will be many years before it is superseded.

While it contains some necessary biographical material, it is not comparable, intentionally, to the detail of Ian Simpson Ross’s definitive biography, "The Life of Adam Smith” (2nd edition, 2010: now available from Oxford University Press - which I shall be reviewing shortly on Lost Legacy).

Phillipson’s is an intellectual biography – the history of Smith’s startling ideas – carefully developed over his lifetime and their germination from Smith’s solid grasp of the work of those who preceded him, particularly David Hume, whose ideas he applied and developed, but also ‘the never to be forgotten, Francis Hutcheson, whose ideas he sympathetically critiqued and developed, as well as host of others, including Newton (by analogy), and by critical attention to contemporaries.

It is not just a talented account of Smith’s ideas. Phillipson delves into their development, taking just enough space to keep his theme of their evolution rolling along at a non-exhausting page-turning pace. And in the background, all the time, is the ever-present brave mood of Enlightenment in struggle with the cloying embrace of theological superstition, under the watchful eyes, and lurid imaginations, of the Presbyterian zealots, and to be fair, of the timid and intimidated Presbyterian Moderates who, privately, knew better but remained silent in public (as Smith did, sadly, until the last, sixth edition, of Moral Sentiments a few months before he died in 1790).

Refreshingly, Phillipson, makes full use of all of Smith’s works, published under his direct authorship, Moral Sentiments (1759) and Wealth Of Nations (1776), his posthumous Philosophical Essays (1795), and the detailed near-verbatim notes of his Lectures On Jurisprudence (1762) and Lectures On Rhetoric and Belles Lettres (1763), and what remains of Smith’s Correspondence. Phillipson’s mastery of these materials gives the necessary ballast to his account, without weighing the reader down with seemingly endless quotations, because he weaves his judicious selection of illustrative quotations seamlessly into his discourse.

From the beginning at the local Kirkcaldy school, Smith aptitude for the Latin and Greek classics prepared him for the more arduous work he undertook at the Universities of Glasgow (tutored by talented teachers such as Professors Hutcheson on moral philosophy, Simson on mathematics, and Dick on Newtonian physics), and at Oxford (untutored and mainly by self-study), an experience of Oxford which he denounced in Wealth Of Nations thirty years later.

It was at Oxford from around 1744 (when 21 years-old) that he started his ‘intended juvenile essay’ on the History of Astronomy that displayed his budding genius for philosophy, both moral and natural. In the clearest terms, Phillipson places the ideas in this early work on the ‘origins of philosophical thought’ in the ‘psychological need to explain the unexpected, to soothe the imagination and to restore the mind to a state of order and tranquillity’ (provoking James Buchan’s wonderful quip: ‘philosophy as a tranquiliser’).

Smith explained that only when men had some ‘security and leisure to reflect on the world’ could they ‘attend to the train of events which passes around them’. Meanwhile, they would cower in frightful superstition and fear at everything they could not understand, until they could seek ‘the invisible chains which bind together all these disjoined objects’ so as to ‘… render the theatre of nature a more coherent and therefore a more magnificent spectacle’. Knowledge grew slowly and the remnants of ignorance, accompanied by imaginary and invisible polytheistic gods and ‘pusillanimous superstition’ (which persisted unsaid into monotheistic modern times).

Phillipson casts his understanding eye over the milieu within which Smith’s intellectual mind developed throughout the years of the Scottish Enlightenment. He uncovers, from hints and fine deductions, the probable content of Smith’s Edinburgh lectures (1748-51), which I have not seen attempted credibly in other authors. In particular, he gives an account of the role of Smith’s neglected ideas of the Origins of language (1761), which was to be articulated as an Essay attached to ‘Moral Sentiments’ (from the 3rd 1767 edition). This Essay was particularly important, not just for its originality, but as an early indication of his conjectural-historical method that can be seen in all of his works.

Here, I would enter a small quibble in that Phillipson has not reported on the potential suggestions of a common core in all of Smith’s work in ‘Moral Sentiments’, ‘Wealth Of Nations’ and ‘Languages’, as found credibly in James Otteson’sAdam Smith and the Market Place of Life” (2002): ‘Motivation desire’ (in TMS: ‘pleasure of mutual sympathy’); ‘Rules Developed’ (TMS: ‘standards of moral judgement’); ‘Currency’ (TMS ‘personal sentiments and moral judgments’); and ‘Resultant unintended system of order’ (TMS: ‘Commonly shared standards of morality and moral judgement’), which, incidentally and in addition, can also be applied to Smith’s ‘Astronomy’ and his ‘Jurisprudence’ lectures. (See the 1st hardback edition of my Adam Smith: a moral philosopher and his political economy, 2008, p 43, Palgrave.)

Phillipson suggests there is a common methodology in Smith’s work and I agree, and I think Otteson provides a skeletal outline of that common method, with fruitful research implications.

Phillipson’s discussion of Moral Sentiments is both engaging and thoughtful. I enjoyed it particularly for its perspicuity (as Smith would have expressed it). He covers a lot of ground (we are nearly half-way through Phillipson’s book). I found Phillipson’s account of Smith’s none too obvious philosophical response to Rousseau’s critique insightful, though, as an economist, I consider Smith’s analysis of the historical evolution of post-hunter economies, as outlined in his ‘Lectures On Jurisprudence’ and ‘Wealth Of Nations’, a fuller and more complete answer in respect of the relative conditions, and continuing promises, of European ‘day labourers’ and the African or North American ‘savages’, post-1776.

However, Smith’s moral philosophy is a deeper analysis of real morality – and potential for humanisation - through the device of an ‘imaginary man within the breast’ - the impartial spectator – and more convincing to contemporary readers in and beyond 1759. It made Smith’s reputation in Scotland and England, and to some extent in France.

It was the latter country that entered Smith’s life and exposed him to company of the French Physiocrats around Quesnay and others. Before he met them (1764-6) Smith had developed and finalised many of his early ideas in political economy. His Lectures On Jurisprudence (1762-63) show sections that were to appear in Wealth Of Nations – some verbatim – in 1776 and he delivered detailed elaborations in Book I and II, particularly in regard to the historical significance of the division of labour, the propensity to ‘truck, barter, and exchange’, the crucial influence of the extent of the market, the importance of inter-connected supply chains, market and natural prices, the role of money, foreign trade, monopolies, competition, stock (capital), loan finance, the mercantile errors in their concepts of ‘wealth’, advantages of ‘free commerce’, bargaining, and an historical account of the decline of feudalism.

His contact with the Physiocrats and others did not teach him his economics. He listened, admired their ideas (but not those of ‘laissez-faire’), and severely criticised their major error, as he saw it, of the primacy of agriculture as the sole productive driver of the economy and their outright dismissal of commercial industry as ‘sterile’. As always, Smith remained on good personal terms with Quesnay, Mirabeau and Turgot. He respected them but did not agree totally with their views, as Phillipson shows brilliantly.

One review of Phillipson’s ‘An Enlightened Life’ seemed to complain that his account of the Wealth Of Nations was too short. I did not get that impression when I read it. He had already introduced much of Smith’s political economy before he wrote a separate chapter on Wealth Of Nations, where he concentrated on Smith’s critique of mercantile political economy (‘the very violent attack’).

I do not know what he is alleged to have missed out that fitted the book’s theme. Adding in a detailed discussion of, say, the ‘labour theory of value’ controversy, would not add much. Anyway, the LTV controversy in Wealth Of Nations is much misunderstood by modern economists, from Ricardo onwards, as I have made clear on Lost Legacy and in my books. Phillipson’s account is competent, relevant, and complete. Familiar as I am with the torrid, not to say arid, disputes among economists about almost every idea uttered by any economist before Smith’s time, and since, not to mention what they have done to Smith’s Legacy, I am not surprised that a distinguished historian shied away from ‘kicking over the hornet’s nest’ of what passes for economic theory today.

In discussing the importance to Smith of his last major revision of Moral Sentiments much of what Phillipson says is undoubtedly true and I think he deals well with the arguments of Smith’s critics (for example Thomas Reid). I would add that he 6th edition of TMS (1789-90) was also notably less ‘religious’ in expression and tone than the previous five editions.

I suggest that both old-hands at Smithian studies and new readers of anything from Smith, will gain a great deal of satisfaction from reading Nicholas Phillipson’s considered thoughts on the Works and contributions of Adam Smith to moral philosophy, political economy, and the broader ‘science of man’ that he articulated so consistently throughout his life. It is a remarkable achievement worthy of the attention it has attracted so far, among general readers and the cognoscenti.

Gavin Kennedy

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Thursday, October 28, 2010

A Mystery Author, A Mystery Blog, and Mystery of Meaning

Google sent to me a reference to the invisible hand, written by “Klein” (no, not by Daniel Klein) but with no further details other than the title and paper (“Klein on The Theory of Moral Sentiments, Episode 5–A Discussion …”. )

The mystery grew as I read of the supposed source: a blog devoted to “Hypnotherapy Stress” (HERE):
A search of the Blog’s archives showed no other references to Adam Smith and so sign of “Klein’s” identity.

Anyway, I noted these paragraphs:

“There is little in TMS that appreciates the Thomas Paine, William Lloyd Garrison, Lysander Spooner, Ludwig von Mises, Ayn Rand, Murray Rothbard, Thomas Szasz, Robert Higgs, and so on … I grant that Smith’s counsel is not simply knuckle under but the counsel is too one-sided: he encourages bargaining and discourages challenging.”

“James Otteson’s book Adam Smith’s Marketplace of Life (Cambridge UP, 2002) does a great job with Smith’s doctrine of an invisible-hand in culture. I think Jim gets Smith right. but I felt a need to criticize Smith for neglecting the possible usurpation of cultural mechanisms.

Smith says: “False notions of religion are almost the only causes which can occasion any very gross perversion of our natural sentiments” (176.12).
Well, what of political religions that have the coercive power of the state behind them? What happens when the state dominates the political culture and uses the cultural institutions to propagate its interpretations? What happens when children are indoctrinated with false notions of political propriety?


Comment
I am not surprised that “there is nothing in Theory of Moral Sentiments that appreciates the Thomas Paine, William Lloyd Garrison, Lysander Spooner, Ludwig von Mises, Ayn Rand, Murray Rothbard, Thomas Szasz, Robert Higgs, and so on.

Moral Sentiments was published in 1759 (sixth edition, 1789) long before most of these named people were born and when Smith certainly was in no position to ‘appreciate’ (or alternatively traduce) them.

I too am a great admirer of James Otteson’s ‘Market Place of Life’ (2002: Cambridge University Press), which is why I find “Klein’s” allusion to James Otteson’s alleged allusion to “Smith’s doctrine of an invisible-hand in culture” more than perplexing. I have no idea of what “Klein” speaks. Otteson speaks of the invisible–hand metaphor only four times is his ‘Market Place of Life”, in none of which is about a “doctrine of an invisible-hand in culture”.

Otteson’s first mention of the invisible hand metaphor is revealing: the impartial spectator unlike the invisible hand “is not wholly imaginary” (p 105).

Otteson’s second mention (p 127) is:

“the claim that it can produce virtue in individuals without their intending such is the ‘invisible hand’ of WN at work in TMS.”

Otteson’s third mention (p 156) is:

“The argument seems to be that we act out of self-interest, but, as far as economic growth and progress are concerned, we should be happy about that because by pursuing our individual interests in bettering our condition we act in ways that unintentionally – as if ‘led by an invisible hand’ (WN 456) - conduce to the greater standard of living and economic growth of our entire community.”

Otteson’s fourth mention (p 267), in a subsection entitled “The Invisible Hand of Rule formation” (p 266-69):

“The description in the preceding section is reminiscent of the passage in WN in which speaks of the ‘invisible hand’ that ensures that people’s self-interested economic pursuits also conduce to the overall welfare of society. There is, of course, no real hand – that is why Smith calls it ‘invisible’.”

None of these references mention a “doctrine of an invisible hand of culture”. “Klein”, sad to say, appears to have made it up. Unless, somebody out there knows better?

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Wednesday, October 27, 2010

A Step Towards Understanding the Invisible Hand Metaphor - Then Two Steps Back

Brendan Jordan writes in Power, Identity, Resistance (PIRana Wiki Blog) HERE:

“Brendan's Reading Blog in response to questions 1 & 2 on the e-mail sent October 8th”

“1. Adam Smith's two claims regarding the 'invisible hand' of a market economy, found on pages 18 and 477 in The Wealth of Nations both reach the same conclusion regarding the benefits of appealing to man's self-interest. However, Smith's claim on 477 is much more ambitious than his former claim, since he explicitly conveys how the "invisible hand" of a market ensures that man's self-love can contribute to the collective well-being without his explicit knowledge or consent. Although Smith cites the "invisible hand" phenomenon specifically in reference to how a man's support of domestic industry for his own security can benefit the collective, he clarifies this statement by noting that this invisible hand is evident in "many other cases." On page 18 Smith writes of how natural economic exchange is based upon the self-interest of each individual, and not their benevolence. From reading page 18 it can be inferred that "by treaty, by barter, or by purchase" man can satisfy a variety of wants, efficiently and with a low opportunity cost to himself. However, unlike his later claim Smith does not explicitly connect how self-interest giving rise to exchange can benefit society as a whole. Smith's claim on page 18 omits the words "invisible hand" and is also mostly confined toward the reasons for and the effects of self-interest and exchange with regards to division of labor whereas Smith's claims on page 477 are much broader in their scope.”

Comment
I found this piece intriguing. Brendon Jordon writes an interesting account of what he calls “Adam Smith's two claims regarding the 'invisible hand' of a market economy” (even quoting “page 18 and 476” of Wealth Of Nations). [This is not the definitive Glasgow Edition of the book from Oxford University Press, where the pages are 26-7 and 456 respectively and therefore Brendon is quoting from another edition.]

Still, that leaves a major problem. Smith used the metaphor of ‘an invisible hand’ only once in Wealth Of Nations (456) and only once in Moral Sentiments (184) (he also used the ‘invisible hand of Jupiter” in his Essay on Astronomy [1795, posthumous)], but this use was as a noun, not a metaphor). The reference to page ‘18’ being meant an invisible hand is by Brendon’s controversial attribution, of which more below.

Brendon writes: “… Smith cites the "invisible hand" phenomenon specifically in reference to how a man's support of domestic industry for his own security can benefit the collective …”, which is quite correct and very pleasing to see – clearly he has read the passage, which is a step up from the usual reports of Smith’s use of the Invisible Hand metaphor, by people who have not read WN. He then spoils his case by adding: “On page 18 Smith writes of how natural economic exchange is based upon the self-interest of each individual, and not their benevolence. From reading page 18 it can be inferred that "by treaty, by barter, or by purchase" man can satisfy a variety of wants, efficiently and with a low opportunity cost to himself. However, unlike his later claim Smith does not explicitly connect how self-interest giving rise to exchange can benefit society as a whole.”

The “butcher, brewer, baker” case centres on how parties make their bargains to acquire their dinners from those others who sell them items on their menus, specifically by the conditional proposition: “Give me that which I want, and you shall have this which you want” adding “it is in this manner that we obtain from one another the far greater part of the far greater part of the good offices which we stand in need of” (26).

Smith does not mention the Invisible Hand metaphor because the metaphor is redundant in these exchange cases: prices and offers and demands are visible, not invisible, neither are the items they wish to exchange. They use persuasion and conversation to find a price acceptable to both of them and the mechanism is by their not talking to the other party of “own necessities but of their advantages” to conclude their transactions.

In short, they achieve their own self-interests by serving the self-interests of the other party and they mediate their initial differences on price and quantity, by raising their offers or lowering their demands until they reach a single visible price and quantity.

Two extremely egotistical, self-interested would-be bargainers will never conclude a transaction unless they change their behaviours. Which is why the invisible-hand metaphor is inapplicable to such cases, and why Adam Smith never spoke of the ‘invisible hand of the market’. That last was an invented attribution by modern economists from the 1950s (see Paul Samuelson, Economics, 1948, p 36).

Moreover, consider the two cases where he did use the Invisible Hand metaphor: in Moral Sentiments (1759) he refers to feudal landlords – indeed all to all landlords from when farming was ‘discovered”, Pharaohs, Babylonian Kings, and Roman Emperors, etc., included, who used some of their crops to feed their slaves or serfs; and in Wealth Of Nations he refers to some, but not all, merchants and manufacturers, who prefer domestic investment to the riskier (in their view) investment abroad.

Now feudal landlords did not operate in a market; they fed their slaves and serfs because their own fortunes and “greatness” depended on doing so; neither did those investors in 18th-century Britain whose risk-aversion led them to add to domestic output and employment operate in free markets, especially considering the mercantile political economy with its tariff protection and prohibitions, its Government enforced Acts of Settlement, Apprenticeship Statutes, Incorporated Town Guilds, Chartered Companies, Patents, Primogeniture and Entail Laws and the Navigation Acts enforced by the Royal Navy.

The invisible–hand metaphor’s object in Feudal times was the invisible absolute necessity of keeping alive sufficient slaves and serfs at subsistence to work their fields (and for the slave and serfs to work to survive); this mutual dependency was the object of the metaphor. The invisible-hand metaphor in 18th-century Britain was the invisible risk-aversion of those who preferred the safer home trade to the riskier foreign trade.

In neither case was the invisible-hand metaphor about how visible exchange in markets work, with visible prices, quantities of visible trade goods. The invisible-hand is not real; it does not exist physically.

Smith spoke on the role of metaphors in his Lectures on Rhetoric and Belles Lettres 1762-3 (published in 1963 and 1983, page 29). A metaphor expresses the object to which it related “in a more striking and interesting manner”; no metaphor is the object of itself.

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Tuesday, October 26, 2010

A Distributist Makes it Up

Richard Aleman is the president of The Society for Distributism, a contributing editor for Gilbert Magazine, and he blogs at St. Austin Review‘s Ink Desk. A native Spaniard, Richard resides in New York where he is currently working on a Distributist anthology of G.K. Chesterton’s newspaper, G.K.’s Weekly. He has posted this in the Distributist Review:
“The Case of Adam SmithHere:

… does anybody realise what a queer and fantastic faith is covered by the very name of Adam Smith? He is considered a dull and stolid person who invented Free Trade; but he invented much more marvellous things. He had a philosophy and even a religion; and a very rum religion it was. Its theological thesis was this: that God had so made the world that He could achieve the good, if men were sufficiently greedy for the goods. If everybody worked meanly and sordidly for money, the result would be a prosperity that would prove the benevolence of Providence. Adam Smith’s idea of justifying the ways of God to men, was to tell the men to do unjustifiable things which God would justify. Adam Smith was a mystic. He was a sort of Quietist, except that he certainly did not tell people to keep quiet. His creed was that if business men would bustle about from purely business motives, the bringing of good out of evil was the business of God. But he believed that God was good; indeed God was apparently the only person required to be good.

Now, of course, most Englishmen [sic] do not take a creed in this clear-cut way; and even when they swallowed the Smith philosophy pretty completely for generations, it was mixed up with other things. But when all such allowance is made, what an extraordinary creed it was to swallow! What a weird cosmos it was to inhabit; in which everything was good because everybody was bad. A world in which the financial speculator grew thistles to attract donkeys; and the thistles grew figs to be the food of all the good and wise; in which your neighbour gathered grapes of the thorns you had planted in order to scratch him. The whole thing was much more rationally stated than are most modern expositions; it was also rank raving nonsense, as anyone would have seen in an age of creeds and common sense. Sanity sees at a glance that society finds it hard enough to hang together, with everybody taught to be unselfish; and that it would simply smash if everybody were taught to be selfish. Incidentally, I may add, it has already smashed. We have seen with our own eyes the Wealth of Nations wither into the Poverty of Nations.”


Comment
The kindest thing I can say about Richard Aleman’s words above is that they are eccentric, even remarkably so.

The sentence: “if men were sufficiently greedy for the goods. If everybody worked meanly and sordidly for money, the result would be a prosperity that would prove the benevolence of Providence”, to say the least, is twaddle. Whoever actually said it, it was not Adam Smith. At best it is an invented script made up for some unknown purpose. It was, in fact, almost the exact opposite of Smith’s oeuvre, as found in Moral Sentiments and Wealth Of Nations (plus, of course, his Lectures On Jurisprudence.

I have no idea what ‘distributist’ stands for, though I once exchanged correspondence some years ago with a very personable someone whom I had met at a history of economics conference in Virginia, who revealed, eventually, that he was a 'distributist'. The correspondence petered out to my relief, as I could not understand of what he talked about. Against obscurantism, even the most tolerant patience eventually expires.

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Monday, October 25, 2010

A Professor Writes an Excellent Study of What Went Wrong Before 2008

Zombie Economics: how dead ideas still walk among us, by John Quiggin, Professor of Economics, University of Queensland, Princeton University Press, 2010 (27 October) (ISBN 978-0-691-14582-2).

For those who lived through the bulk of the years with which this most challenging book engages the reader, you could feel like the man who sees his whole life as an economist flash past just before he drowns. Oh, the memory of those hot debates in staff common rooms of yesteryear! This time John Quiggin’s excellent account of those years flashes by in a parade of the debates about ‘Keynesian Multipliers’, the ‘Great Moderation’, ‘Efficient Markets Hypothesis’, ‘Dynamic Stochastic General Equilibrium’, ‘Trickle-down Economics’ and ‘Privatisation’.

One thing for sure, Professor Quiggin makes no attempt to moderate his hostility to most of the Zombies he sees shuffling around the corridors of academe, and worse, whispering in the ears of those who inhabit the corridors of power. It is without doubt the best account I have read for long enough. It describes, in suitably effortless lay-persons’ language, high macro-economic theory and practice that dominated the post-war decades in the capitalist economies.

This is no treatise in mathematics, though the history of the 60-years of what is known as macro-economics, is replete with plain-language accounts of the maths, econometrics, and number-crunching that changed our profession completely. Professor Quiggin takes you through it with unerring panache, and for those readers inclined to read the original journals and books, there are clear guides to the appropriate scholarly literature at the end of each chapter (you could usefully build a course around these guides for your students and for those of your older staff needing to get-up-to speed).

Quiggin despatches the false certainties of the period from the 1980s to 2008, with his surgical precision, not sparing anything or anybody who qualified for what he calls ‘Zombie economics’ and its close-cousin, Voodoo politics. One of these ideas that I have always found unlikely, was the idea that ‘prices generated by financial markets represent the best possible estimate of the value of any investment’, at least until the moment when they clearly don’t, but by then the improbable idea had done more than enough damage.

Indeed, the very idea of general equilibrium, claimed as mathematically ‘proven’ to exist by Arrow and Debrue (1954) though not practised on any known world. General Equilibrium has long been anathema to me since Samuelson attributed the ‘proof’ of it to be related to what Adam Smith was alleged to have meant by the metaphor of ‘an invisible hand’. This is contrary to the evidence of his use of it in Wealth Of Nations, of which I have commented many times on Lost Legacy. So this alone made me wonder about ‘Dynamic Stochastic General Equilibrium’ and what resulted from applying it in real-world economies.

On ‘Trickle-down economics’ Quiggin really goes to town, but perhaps overstates his case a little. Of course, using data from the USA, Britain, Australia, I am not surprised that the evidence for any sign of a ‘trickle down effect’ is found wanting, but would mention the fact (of which few would disagree) o that the living standards of the poor, relative to the super-rich, in the main capitalist countries, when compared to the living standards of the bulk of the majority poor in the poor countries, are incomparably better than those trapped in the worlds really poor countries.

The fact that the super-rich and the middle-rich in the richer capitalist mixed economies are so far ahead must still have something to do with the fact that the same economies that made the super-rich so rich, also had something to do with the relatively much better living standards of their poorer minorities. I notice no mass migration, legal or otherwise, from USA, Britain, and Australia, of the poor in the big capitalist moving towards the poorer countries. The traffic is all in the other direction. Poor people are not stupid.

On ‘privatisation’, Quiggin makes another strong case against selling off state-run monopolies and it is worth studying by all sides of the argument. It is also worth noting that government treasuries prefer to sell state-monopolies to get a higher price when they are sold as private monopolies. And that’s the rub.

Private monopolies, which by definition do not compete, do not do as well as they would otherwise from the points of view of their customers. This was the experience in Britain at the time of the great transfer of state monopolies into private monopolies – BT, gas and electricity are UK examples. Getting a telephone connected could take weeks, until telecoms were opened to competition, likewise with the old public utilities. Even France Telecom has improved dramatically since Orange took it over operationally and other competitors moved in. In Australia, the old state monopolies of civil aviation, once swept way, led to incomparably better timetables and customer friendly services, as I found on a recent return visit to Sydney and Melbourne. The benefits of competition in service and customer treatment may not show in the statistics; I doubt if any government will try to draw them back into state.

However, Professor Quiggin has written a racy account of the crisis in the world economy and the related crisis in economics. He writes:

An economy can settle for long periods in a low-output, high- unemployment state and may not meet the neoclassical definition of equilibrium but does match the original concept, borrowed from physics, of a state in which the system tends to remain and to which it tends to return … we need a theory that encompasses crises and rapid jumps between one kind of equilibrium and another ... Between these two levels, we need to consider the fact that the economy is not a simple machine for aggregating consumer preferences and allocating resources accordingly. The economy is embedded in a complex social structure, and there is a continuous interaction between the economic system and society as a whole. Phenomena like ‘trust’ and ‘confidence are primarily social, but they affect, and are affected by, the performance of the economic system” (p. 124).

This is one of many other passages in which I completely agreed with Quiggin, not least for the verity of his pronouncements, but also for its echo of Adam Smith’s approach to analysis in Moral Sentiments and Wealth Of Nations, from which classical and neoclassical theorists ran away as fast as they could. The classicals slowly slid via Ricardo towards Marx, and the neo-classicals slowly – then speedily – raced towards mathematical abstractions, woefully bereft of contact with the real world.

It’s not that Zombie ideas just ‘walk among us’; their pronouncements are of a world without human beings (aka Homo economicus and her brood), and if they merely are replaced by more refined abstractions, better equations, and more sophisticated maths, we have good reasons to fear the future.

I strongly recommend Professor Quiggin’s Zombie Economics to all economists, whatever their hue and whatever their past roles in the debate’s, which he examines so critically.

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Saturday, October 23, 2010

A Professor of Economics Reviews Phillipson's Adam Smith - Poorly

Antoin E. Murphy, an associate professor of economics at Trinity College Dublin and author of The Genesis of Macroeconomics, critically reviews for the Irish Times Philip Nicholson’s, Adam Smith: An Enlightened Life, Allen Lane.

Professor Murphy writes that:

It is consistent with Scottish academia’s quest to centre Smith, and his great friend David Hume, at the centre of a Scottish Enlightenment, a type of intellectual counterpart to the great French Enlightenment. There is … a need to question this approach, because it tends to underplay the role of the French Enlightenment in the development of Smith’s ideas as well as over emphasising the enlightenment element of Smith’s ideas.

Comment

I detect a somewhat caustic Celtic umbrage in Murphy’s take on Adam Smith (who was tutored by the great Ulster Irish philosopher, Francis Hutcheson, at Glasgow University) by belittling Adam Smith’s originality in synthesizing the best of the work of both predecessors and contemporaries and his original writings on the evolution of European societies from hunter-gathering to shepherding, agriculture and through ‘at last’ to commerce (see his Lectures on Jurisprudence, ([1762-3] 1978; delivered continuously since 1751 in Edinburgh and Glasgow to 1764 until he resigned in January 1764). Long before he met with the French Physiocrats, Smith from his non-teological historical approach had set out the basic and decisive trends in the social evolution of society, including the dynamic effects of the division of labour and much else in Wealth Of Nations.

He used many sources for his economic analysis, including from the mercantile political economists (with whom he profoundly disagreed, e.g., Sir James Steuart, 1767) and from Richard Cantillon, whose Essai was circulating from 1734 in French, which Smith could read, though his spoken French was ‘execrable’. He also much admired Turgot and Quesnay. But he did not take his economics from the Physiocrats, whose main error of lauding the surplus created from agriculture and downplaying the productivity of manufacturing as ‘sterile’, he had the courage to state his disagreement.

Ironically, the ‘laissez-faire’ (for merchants and manufacturers’) of which he had his suspicions, as Wealth Of Nations reminds us, came within a few decades of his death in 1790, to be credited to, and identified with, him, whereas he had made a quite different case for a commercial society based on markets where possible and state-funded provision where necessary.

Murphy is both absolutely right to assert: that “Wealth of Nations … has been used by generations of economists to justify the role of a laissez-faire approach to market-driven economic activity” and absolutely wrong to imply that this attribution to Smith by ‘generations of economists’ was ever justified. It was seized upon by 19th-century economists, who offered it to owners of mills and mines, and their sort, as justification against legislation detrimental to their self-perceived interests.

Murphy compounds his misleading (because incomplete) attributions to Wealth Of Nations with three statements that “It identifies the role of self-interest as a catalyst to human behaviour, uses the metaphor of the “invisible hand” to show how markets if left to themselves can provide an overall economic harmony and provides a strong indictment of most types of government intervention in the economy”.

Self-interest is undoubtedly of importance in Smith’s assessment of human behaviour, but Wealth Of Nations must be read along with Moral Sentiments. Self-interest to Smith was always mediated by the social context and 'mirror' of society. Unmitigated self-interest without its acceptability by those it affects was never part of Smith’s ideas. It was always subject to the approval of the impartial spectator, to the ‘mercenary exchange of good offices according to an agreed valuation’ (TMS, 86), and to the oft-missed meaning of Smith’s “butcher, brewer, baker” example. When in pursuit of our dinner his advice was to address, not their ‘humanity’ but their ‘self-love’ and not to ‘talk of our own necessities but of their advantages’. By each of us addressing the self interests of others, we can achieve our own self-interest, albeit with perhaps having to ‘lower’ our passions for what we want, from others. ‘Society and conversations’ play an important role in ‘restoring the mind to its tranquility’ when it is disturbed by failing to get what we want. In other word by bargaining in which both party's gain ('Give me that which I want, and you shall have this which you want").

As for the ‘invisible hand’, regular readers of Lost Legacy will know that Smith never applied the metaphor “to show how markets if left to themselves can provide an overall economic harmony” and neither was it about “indictment of most types of government intervention in the economy.” These too are pure 20th-century inventions, not least by Paul Samuelson (Economics: an introductory analysis, 1948, p 46). The meaning to Smith of the invisible hand metaphor (see many posts here) had no such grandeur. They were restricted to those feudal landlords, under the great ‘deception’ of their ‘wealth and greatness’ who were compelled by necessity to feed their slaves and serfs because they could not do without them, and to some, but not all, owners of investible funds, who were more risk averse than others, who invested their funds within their sight locally, rather than invest them abroad, and consequently without knowing or intending it they added to the quantity of domestic investment and employment and, therefore, to total domestic investment and employment (the whole is the sum of its parts). This says nothing about providing an “overall economic harmony”. For that, many other conditions would need to be established, none of which existed neither under feudalism nor 18th-century Britain and Ireland and Smith did not raise or discuss them.

I could go on to the "Buccleugh" connection, but will leave with one other remark on the inaccurate and wholly ungracious slight against Smith (especially from an academic). Professor Murphy writes:

Aside from a couple of years as an academic at the start of his career Adam Smith never worked.”

Surely this is a mistake? To review Nicholas Philipson’s, “Adam Smith An Enlightened Life”, you have to read it first in order to review it? Adam Smith taught a class each Friday in Edinburgh to a ‘respectable auditory’ from 1748-51 for £100 per year. He was then appointed as a Professor of Logic at Glasgow University (1751-52) and after his appointment to the Chair of Moral Philosophy (1752-1764). His teaching hours are reported from Glasgow University archives as from 7.30am to late afternoon, 5 - days a week. Where Murphy’s “two years” came from, I have no idea. Nor where the absurd implication arising from Murphy’s statement that Smith was “ appointed commissioner of customs, a position he held for the last 12 years of his life”, as if this was on a par with a sinecure. Murphy adds, gratuitously: “Businessmen … may question the bona fides of a writer whose income derived from acting as a paid family retainer and a tax inspector.”

On his appointment as a ‘Scottish Commissioner of Customs and the Salt tax’ Smith returned Buccleugh’s bond for life, but the Duke refused to cancel it. Smith gave most of the money he received away to indigent petitioners. He died relatively poor for a man receiving £900 a year. Secondly, as a ‘tax inspector’ (which is like describing Professor Murphy of Trinity College, Dublin, one of Europe’s finest universities, as a ‘school teacher’), Smith, as shown in the archived papers of the customs house, worked four-days a week, his signature is on 90 per cent of the official documents, and his daily attendance noted in the registers, which left him precious little time to continue his work as a writer on moral philosophy and political economy. He worked there until a few months before he died in 1790. He regularly produced new editions of his two books, until his death, with the 6th editions of both books appearing in 1789 and 1790, respectively.

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Friday, October 22, 2010

The Smithian Economics of Car Parking

Ryan Snyder write that there is ‘No such thing as a free parking spot,' on City Watch, Los Angeles from ‘City Hall’
HERE: http://citywatchla.com/index.php?option=com_content&task=view&id=4098

As an economist, I don’t believe in Adam Smith’s theory of the invisible hand of the market satisfying all social needs.”

Comment
As an economist, Ryan Snyder, should know that Adam Smith never had a “theory of the invisible hand of the market satisfying all social needs”, but obviously does not.

Presumably he has not read what Adam Smith wrote about ‘an invisible hand’, either in Moral Sentiments (1759), using feudal landlords as his example, or in Wealth Of Nations (1776), using some, but not all, capital owners choosing to keep their capital in Britain, rather than risk it abroad, where they believed it was less secure.

In neither case were his examples related to markets. In fact feudal society was a long way from being described as a ‘market’, and 18th-century Britain was totally dominated by mercantile legislation that dominated its economy with tariff protections and outright prohibitions, domestic Guild monopolies, the Statute of Apprentices, the Settlement Acts, Primogeniture and Entail laws, supported by the Navigation Acts monopolizing all shipping to and from Britain, and policed by the Royal Navy.

The ‘theory’ that Smith’s use of the metaphor of ‘an invisible hand’ was a theory of ‘markets satisfying all social needs’ is an invention, mainly from Paul Samuelson’s otherwise excellent text, Economics: an introductory analysis, 1948, page 36 (and through its 19 editions to 2010 and 4.5 million readers ).

Smith noted that domestic investments increase domestic output and revenue, which Smith considered a public good, because it spread ‘opulence’, particularly to the ‘poor majority’. It was a simple arithmetic rule of quantity – whole is the sum of its parts. No mention by Smith of ‘satisfying all social needs’. That last part was part of the invention of the myth of ‘an invisible hand’, credited to Adam Smith to give the proposition a wholly undeserved credibility.

Charging individual owners who park their cars is a sensible way to place the cost on the polluter and congestion contributor. Whether that charge is managed by the market or by the state is not the issue.

Smith believed in markets, where possible, and the state where necessary.

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Thursday, October 21, 2010

Again Another Review of Nicholas Phillipson's Biography of Adam Smith

Adam Gopnik, Books, “Market Man,” The New Yorker, 18 October, p. 82 (HERE)

Adam Gopnik, Books, “Market Man,” The New Yorker, October 18, 2010, p. 82

BOOKS review of Nicholas Phillipson’s “Adam Smith: An Enlightened Life” (Yale; $32.50).

"1776 was a good year for big ideas, a rare thing. It was also a big year for good ideas, an even rarer one. Our own big-deal Declaration was, in its way, the small pugnacious summary of Enlightenment ideas that had reached their apex that winter, in London.

In February, Edward Gibbon published the first volume of “The Decline and Fall of the Roman Empire.” Then, a month later, his friend Adam Smith published his big book, “The Wealth of Nations.” Classics of English prose, Gibbon’s and Smith’s books don’t just belong to the history of ideas; they helped establish the ideas of history and economics. But where Gibbon is a clear figure in shadowy light, a figure of the Enlightenment who found his place in the twilight of history where reason fell, Adam Smith is a shadowy figure in clear light. He is to most of us the invisible-hand guy, the Scottish face on the British twenty-pound note—the one who showed that greed was good, that the market, left to its own devices, would always set the right price and favor the right goods. Yet a very different Smith is current in the academy.

This Adam Smith is seen not as the apostle of the free market but as one of the fathers of the French Revolution, albeit the nicer, warmer bits of the French Revolution. None other than Noam Chomsky is a fan of this Smith, while one of the most original and mind-altering academic works of the past decade, Emma Rothschild’s “Economic Sentiments: Adam Smith, Condorcet, and the Enlightenment,” claims him for sentimentalists more than for stockbrokers, as a man who believed that feelings of sympathy and engagement preceded impulses of industry and ambition. By cutting off “The Wealth of Nations” from his other great book, “The Theory of Moral Sentiments,” we not only cut off one half of Smith’s mind from the other but lobotomize our own understanding of modern life, making economics into a stand-alone statistical quasi-science rather than, as Smith intended, a branch of the humanities.

Phillipson’s new biography tries, very successfully, to pull together the two Smiths, letting us see how the man of feeling became the little god of finance. Tells about Smith’s childhood in Scotland, his friendship with philosopher David Hume, and the development of his ideas. ”


Comment
Niclolas Phillipson's intellectual biography of Adam Smith continues to get great reviews. If you haven't yet acquired a copy, endeavour to do so. I shall comment on his book soon. A conference in London is about to be held on the book with some of the major names among Smith scholars speaking and in attendance.

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Tuesday, October 19, 2010

Sergio Cremaschi Shows Smithian Thought Alive and Well in Croatia

A reader of Lost Legacy, new to the Blog, wrote to me from Croatia, with a number of titles of academic papers he had written, showing him to be an accomplished and rounded Smithian scholar, unknown to me. What a find he has proved to be! One of his essays particularly caught my eye immediately: “Metaphors in the Wealth Of Nations” by Sergio Cremaschi, published in S. Boehm, Ch. Gierke, H. Kurz, R. Sturm eds. Is There Progress in Economics?, Cheltenham: Elgar, 2002, pp. 89-114.

It is the first paper that I have read, or been aware of, containing a scholarly treatment of the role of metaphors, including the invisible hand metaphor, in Smith’s works (all three of Astronomy [1795], Theory of Moral Sentiments [1759], and Wealth of Nations [1776]).

His references pointed me to several other authors of whom he quotes and comments upon (Vernon Foley, 1976, The Social Physics of Adam Smith, Purdue University Press; Philip Mirokowski, More Heat then Light: economics as Social Physics, Physics as Nature’s Economics, Cambridge University Press; Vivienne Brown, 1994, Adam Smith’s Discourse, Canonicity, Commerce and Conscience, Routledge; Deidre McCloskey, 1998, The Rhetoric of Economics, University of Wisconsin Press, and several others in the Journal literature). Of these I have read Vivienne Brown’s book, but not (yet) the others. An omission I intend to remedy just as soon as I am mobile again or perhaps seek them on Amazon, if in funds.

His assessment of the invisible hand in Wealth Of Nations is a literary analysis, within the context of general and his own literary theory. It is more sophisticated than my efforts as an economist but broadly places metaphors, as Smith expressed them in his Lectures on Rhetoric and Belles Lettres, [1762-3] 1983, Oxford University Press.

Two other articles from Sergi Cremaschi are as follows:

'Merchants, Master-Manufacturers and Greedy People' [review-essay of D.N. McCloskey’s, "The Bourgeois Virtues. Ethics for an Age of Commerce"], History of Economic Ideas, 15\2 (2007), pp. 143-154
and
Newtonian Physics, Experimental Moral Philosophy, and the Shaping of Political Economy, in R. Arena, Sh. Dow, M. Klaes eds., Open economics, Oxford: Routledge, 2009, pp. 73-94.

I hope this talented scholar finds new readers in the English-speaking part of the international band of scholars. His work could prise open the rather closed minds of those smitten with the invented myths of Adam Smith’s lost legacy.

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Sunday, October 17, 2010

An Avoidable Tragedy

A post I read recently by Barry Belmont (sorry I have lost the url) referred to Garrett Hardin’s, ‘tragedy of the commons’, and said in part:

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another. . . . But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit–in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.”


Comment
I am amazed that this is often quoted today as another rock to throw at markets by politically-motivated campaigners of a certain hue. It’s not that they are bad; they just do not get it.

Yet in the presentation of the problem of open and free access to the commons, it contains the proper answer. The invention of property by our ‘savage’ ancestors started a process by which the common free forests, land, and all that came from them acquired prices for their use by those who claimed ownership of them. If they successfully held on to what they claimed, they changed the tragedy from reckless free use and destruction eventually to permissive use by market prices after millennia of tyrannical force by a few individuals.

Over-fishing of the world’s oceans comes from free access to them. What nobody owns tends to be wasted, despite a few individuals who restrain themselves. Where quotas are established, cheating becomes endemic.

It is the ownership of property that begins to remedy the drift to the tragedy. If there was another solution that worked – violent territorial claims were one remedy tried millennia ago, which had serious costs (still does) in warfare, dynastic quarrels provoking wars every bit as tragic as over-grazing, over-fishing and over-use, and endless jealousies of foreigners - then it would have been tried aeons ago.

When will they ever learn?

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Friday, October 15, 2010

What Appears in the World's Media

Here is just some of today’s nonsense on the invention of “Adam Smith's invisible hand of the market”.

The spread of this nonsense to the general public and media is largely down to the laziness of those modern economists who never bothered checking what Adam Smith wrote – any copies of Wealth Of Nations on their shelves are token badges of a loose association with the history of economic ideas – some might be copies bought for them by admiring scholarly colleagues as a retirement gift or just an attempt to pass themselves off a someone worthy of association with the man himself.

Courtesy of Google General Alerts on the ‘invisible hand’ metaphor (the alert for ‘Adam Smith’ is just as bizarre):

Carbon Price Is Not A Silver Bullet « TheRealEwbank
By Leigh Ewbank
Carbon pricing advocates are happy to leave decarbonisation to the invisible hand of the market regardless of its ability to deliver the reductions needed to avoid dangerous climate change. Australia can learn valuable lessons by taking ...
TheRealEwbank - http://therealewbank.com/

Telco 2.0: Guest Post: Future Broadband: Free, Funded by Apps?
As such, the toll-free Online Access model relies wholly on the “invisible hand” of commerce to allow market participants to determine what type of content the online provider should pay for and what type of content the end-user should ...
Telco 2.0 - http://www.telco2.net/blog/

Liberals and anti americans, when do you think that profit and ...
By admin
First, the pursuit of profit can be anti-social when the economy suffers from "market imperfections," when Adam Smith's famous "invisible hand of the market" just doesnt' function as it's supposed to. For example, suppose the market is ...
jianbei answers - http://www.jiangbeicn.com/

Ad Watch: Wild thing
msnbc.com
Even Adam Smith (author of the “Invisible Hand” theory of the market) believed government should play a role. So see NO country in the WORLD exemplifies a ...

African Socialism – a Nyerere perspective - by Job Shipululo Amupanda
New Era
Adam Smith and the likes have successfully harvested these thoughts with his 'invisible hand of the market' rhetoric. He teaches the world to surrender the ...

McAdams talks issues
Mat-Su Valley Frontiersman
“I don't believe that the invisible hand of the free market is well positioned to provide those things,” he said.

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Thursday, October 14, 2010

Interest in the Authentic Adam Smith Grows

The editor of Economic Affairs (iea) has accepted my article on Adam Smith and t is now being refereed. This good news for me - how well it is received by the readers is another matter. Several colleagues have written back having read the paper and have spoken well of it, which is gratifying. It took a lot of work, as reported earlier.

News of a large conference on Adam Smith in London around Nicholas Phillipson's excellent biography of Adam Smith has come in for the end of October. I would love to go but my family say its too far at present.

So it is back to correspondence, of which there has been much more recently, including a new contact in what was old Eastern Europe, and who feels very isolated as an expert scholar on Adam Smith. I shall try to ease his isolation.

Sunday, October 10, 2010

Job Done

It's five days since I posted after the loss of the entire piece of work I was working on.

However, I finished my response to a paper on Adam Smith at the invitation of a refereed Journal this evening. The editor set the limit at 4,500 words, though the paper I responded to is 8,000 plus, but it's best to ‘play the hand you are dealt’.

Re-writing it from scratch from last Wednesday shoved the word count up to 7,900. It took me five days to cut it back to 4,674, anything less would kill my response, and my increasingly ruthless editing has had a cost. Before June I would have sat at the desk almost non-stop, but I have to take regular long breaks for exercise now.

Unlike a lot of authors on Smith, who make a feast from quoting recent authors who happen to agree with their lines on Smith, I refrained from quoting anybody who was not a contemporary of Smith, and relied for my argument, on the works of the man himself, surely the best witness for what he meant. As few authors agree with me on Smith’s work, the plethora of supporting authorities is rather slim.

However, on biographical matters I make an exception in checking facts in the definitive biography, The Life of Adam Smith, by Ian Simpson Ross, 2010, new second edition, from Oxford University Press (ISBN 978-0-19-955003-6). Until I received a copy, I used the first edition. The second is even better.

So many ‘Smithian’ scholars appear not to know very much about Smith’s life, that I could spend a lot of time persuading them to read Ian Ross’s first class work. As my debate with a distinguished colleague discussed some finer points of what he meant by the Invisible Hand metaphor in reference to some of his lesser known works (which I happen to be informed upon), I was not too fazed by some of the speculative assertions to which I was replying.

Nevertheless, I was grateful for one modern author’s work for one lead he provided, though I disagree completely with what he had used it for. Lesson: use your “opponents’” contributions where they give good leads.

Tomorrow, I send my paper to the editor. I’ll let you know his reaction.

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Tuesday, October 05, 2010

WHEN YOU HAVE ONE DRAFT - WATCH THE DRAFT!

So far this week (and the weekend) I have been working on my paper in response to a US colleague on the Invisible Hand for publication. A major calamity occurred when I lost the draft version in a computer accident. This took much of Sunday to rewrite from scratch, references and all (I save current drafts almost every paragraph).

Since then I have been working on improving the new draft for sending off by the Friday deadline, putting all else aside.

It’s just as well, though, for while the alert keeps sending invisible hand references in the world’s media, many of them are so pathetic (even some scholarly ones) that it would be tiresome to use them.

When asked why I bother, I can show many taken examples at random, where policy-makers take the conventional view that there is an invisible hand guiding competitive markets to the public good, where an examination of their version of the public good is highly political or so mysterious as to be scary.

Competitive markets are almost always likely to be more satisfactory than government dictat but that does not mean that decision-makers ought not to be watched closely (hence the importance of liberty). But there are also few markets that are free of monopolies – not all that much has changed since Smith’s day – mercantile political economy is still rampant across the world and silly ideas about behaviour and outcomes, like the tooth fairy, inhabit popular understanding of the supposed power of an invisible hand.

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Friday, October 01, 2010

Le Livre Arrive!

I have just received my author’s copy of the second edition of my book: Adam Smith: a moral philosopher and his political economy, 2nd edition, paperback, Palgrave Macmillan, London 2010, pp 224, £18.99:
ISBN 978-0-230-27700-7.

The 2nd edition is extensively revised, forming two shorter chapters from four long ones, and rewriting chapter 12 on the invisible hand to incorporate new materials in support of my case that a significant senior tranche of the discipline has been completely misled by the 1950s invention of a myth about what Smith actually wrote, especially in the recent economic crisis over finance and banking.

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