Tuesday, August 02, 2011

A Glaring Contradiction That Selfishness Leads to Benefits

Christopher Chantrill writes in American Thinker (HERE):

“The Dirty Little Secret of Economics

Here is a common example of what effectively is a "secret", also argued in serious journals of economics and by serious professional scholars, showing that Christopher Chantrill is not alone in holding two starkly contradictory views about Adam Smith and the so-called “invisible hand’ and selfish benefits without even blushing. Many tutors would comment negatively on their students’ papers if they sent in such an obvious error in a class essay on any subject but on the (mythical) 'invisible hand'.

Here is Christopher Chantrill’s example:

When Adam Smith came out with The Wealth of Nations, he advanced two startling notions. One notion was the "invisible hand," that businessmen following their selfish interests seemed to be guided into benefiting others in order to benefit themselves. The other notion was a critique of mercantilism, the eternal idea that a state got strong and powerful by exporting goods and piling up gold in its treasury. On the contrary, Smith argued, it was labor that increased wealth, not gold and silver. .”

[The author is a frequent contributor to American Thinker and blogs at americanmanifesto.org. He is also writing “An American Manifesto: Life After Liberalism”.]

If the ‘notion’ that” that businessmen following their selfish interests seemed to be guided (the "invisible hand") into benefiting others in order to benefit themselves, and the ‘other notion’ of Smith’s was a “critique of mercantilism”, how could he hold both positions simultaneously, when protectionists are about a selfish as one can get?

Don’t get me wrong. Many modern economists pontificate on both ‘notions’ regularly – sometimes with near religious certainty – so Mr Chantrill is not an isolated example.

Consider, how can a businessman’s “selfish’ actions end up as a “benefit to others” and the same businessmen’s lobbying (i.e., clamouring) legislators and those who influence them, to secure tariffs and outright prohibitions on imports, also end up as public benefits too?

Of course, Adam Smith never made such patently nonsensical (and counter factual) arguments.

Smith did not make a general statement in Book IV of Wealth Of Nations about the role of the metaphor of “an invisible hand’. He referred quite clearly to some, but not all, merchants preferring to invest in “domestick industry” rather than invest in the “foreign trade of consumption” because they pereived foreign trade as too risky, which end up, unintentionally, as a public good because it added to “domestick” “revenue and employment” (the former because this increased economic activity above what it otherwise would have been through the “great wheel of circulation”, and the latter, of particular interest to Smith because rising employment, took more poor people out of poverty).

It wasn’t the Sovereigns who initiated mercantile policies of accumulating “gold”, though their war coffers were the beneficiaries, it was the clamour of domestic merchants, backed by suitably pliant intellectuals, who provided the rationale that persuaded Sovereigns to conduct their policies of “national animosity” against neighbours. Yes, these were the same merchants who perceived foreign imports as damaging their own interests and who argued for tariff protection and domestic trade monopoloies against cheaper imports.

In so far, as their selfish motives favouring their monopoly privileges were instrumental in their lobbying, they cannot be said to “benefit others”, particularly domestic consumers facing rising prices, though they certainly benefitted themselves from their higher monopoly prices.

To implicate Adam Smith in these charades is an insult to his legacy and it ought also to be to modern readers of the nonsensical claim that Adam Smith ever argued thus.

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