Tuesday, December 28, 2010

An 'Historically-Informed Progressive' Distorts Adam Smith

Sasan Fayazmanesh (Professor Emeritus of Economics at California State University, Fresno) posts in Real Economics (promoting itself as ‘Technologically Literate, Historically Informed, Politically Progressive’ (not modest then) HERE:

Waiting for a New Economic Theory

“Economic theories, for the most part, have emerged in response to particular social situations or governmental policies. For example, Francoise Quesnay’s 18th century Tableau Economique came into being in reaction to the plight of the French peasantry, excessive taxation, and government regulation that followed mercantilist teachings. Adam Smith’s “invisible hand” theory similarly appeared as a response to mercantilist restrictions. It also corresponded to the early stages of the Industrial Revolution, when inventions and innovations made England relatively prosperous. Thomas Robert Malthus’s population and glut theories emerged in the midst of the Industrial Revolution, when migration of peasants to the cities, unemployment, and poverty became rampant. Karl Marx’s version of the labor theory of value was a response to the revolutionary movements in 19th century Europe, as exemplified by the 1848 uprising and the 1871 Paris Commune. John Maynard Keynes’s “general theory” was developed in the midst of the Great Depression and was a response to the laissez faire economics and policies that prevailed at the time.”

The problem I have with this 'informed history' is its generalizing to the point that it just fits plausible claims to suit a theme, echoing the off-hand quips of the leftist certainties of 1960s academic coffee-rooms across the land, which when repeated by impressionable students sounded hollow.

Taking Adam Smith’s case, for instance, the ‘mercantilist restrictions’, these restrictions, in the main were present for a long time before Smith developed his ideas. The Navigation Acts went back to the 1660s – over two-hundred years before he gave his Lectures on Jurisprudence (1762-3) and began writing Wealth of Nations in 1764.

Moreover, it was Queen Elizabeth’s ministers a hundred years earlier in the 1500s who introduced the mercantile laws on Apprentices, Settlement, Guilds, and monopolies through patents, licences, and Royal charters.

One might ask if it’s a stretch to assert factor A caused Book B, when the cause is so loosely dated to the critique. Worse, in the 1760s, the so-called ‘Industrial Revolution’ that really become prominently from the 1800s, was hardly noticed by Adam Smith (if at all), or indeed anybody else at the time. By the time that it arrived so prominently, Smith's legacy had been distorted as to be unrecognisable and he was dead. Methinks Professor Sasan Fayazmanesh is stretching causation to suit his convenience.

He really grasps at straws with: "Adam Smith’s “invisible hand” theory similarly appeared as a response to mercantilist restrictions."

What ‘theory’ is this? Smith did not have a theory; he used a popular and rather common metaphor, which is a word or words that refers to an “object”, but in a “more striking and interesting manner”, which I am sure Professor Sasan Fayazmanesh is well aware of, having read Adam Smith’s Lectures on Rhetoric and Belle’s Lettres” ([1763] 1983, p 29, Oxford University Press).

And the metaphor’s “object” on this occasion? It was the insecurity of some, but not all merchant traders in mercantile Britain who were risk averse to sending their capital abroad and, therefore, were led by that very insecurity to invest locally, which had the unintentional consequence of adding to national investment and employment – because the whole is the sum of its parts.

Further, this consequence occurred, not “as a response to mercantilist restrictions”, but under their protection! These particular British merchants, discussed by Smith in Wealth Of Nations, were protected by the British Royal Navy, and by scores of mercantile laws and regulations – and still they felt insecure abroad – but less so when they invested within Britain and felt ‘protected’ by mercantile tariffs and prohibitions, the Navigation Acts and the mercantile regulations.

Professor Sasan Fayazmanesh slips up in being “Historically Informed’ in the Real Economics Blog on this occasion.

He is, however, right in his assessment of modern economics:

“The free market advocates still fall back on the marginalist or “neoclassical” theories that have dominated economic teaching since the end of the 19th century (the term “neoclassical” is a misnomer, but it is widely used). This unreal, a-historical theory started not with analyzing any real economy or human behavior, but with certain concepts in mathematical physics.

With one quibble. Not all ‘neoclassical’ economists are ‘free market advocates’ and not all ‘free market’ advocates are ‘neoclassical’ economists. It’s a lot more complex than that.

Most of us 'free-market economist only claim to be ‘classical economists’, closer to Adam Smith than Ricardo or Marx.

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