Just The Facts Ross, Just The Facts
Ross Gittins reviews Robert Franks’ “Darwin Economy”, for the Sydney Morning Herald, a newspaper on which I worked for a few months, long ago, as a 17-years-old assistant nightshift proof-reader HERE
“Smith was the Scottish moral philosopher, who published his most famous work, The Wealth of Nations, on the eve of the industrial revolution in 1776.
Among all his insights about how the economy works, the one for which he gets most credit is the ''invisible hand''. This is the notion that impersonal market forces channel the behaviour of greedy individuals to produce the greatest good for all.”
Comment
The problem is that though the “Insight” for which Adam Smith "gets most credit is the ''invisible hand'', the fact is, and remains, that he never wrote anything about the metaphor of “an invisible hand’ that can be remotely linked to such a non-Smithian assertion as “impersonal market forces channel the behaviour of greedy individuals to produce the greatest good for all.”
It is an invented myth, asserted and promulgated widely by Paul Samuelson with 5-million sales, plus an active used-book market, over twenty editions to 2010, plus numerous foreign language translations, from as recently as 1948 in his monumentally successful textbook, “Economics: an introductory analysis”, p 36, McGraw-Hill, New York.
The immense prestige of Paul Samuelson, winner of the first Nobel Prize in economics and author of “Foundations of Economic Analysis” (1947) which had carried all doubters before it by 2010. The effect has been a startling exhibition of the power of misattributed beliefs, when a reference to Adam Smith’s Wealth Of Nations (1776 and five editions to 1790)) would show that Smith did not use anything like the word “selfish” in connection with the invisible hand, and nor did his Moral Sentiments (1759, and six editions to 1790), the latter book dismissing ideas of ‘selfishness’ as “licentious”, and which certainly did not “produce the greatest good for all” (an idea of Bernard Mandeville's, 1724).
That Robert Franks believes that Adam Smith did say that which was attributed to him by Paul Samuelson, is beyond doubt, but that Adam Smith patently did not say such a thing (check his texts!) is also beyond doubt. The only arbiter on what Adam Smith actually wrote is what Smith wrote and not what neither Paul Samuelson nor Robert Franks claim that he did.
This cold fact undermines Robert Franks’ claims for the future supremacy of Charles Darwin as the ‘father” of economics in 100 years time (an impossible claim to verify in 2011). The other assertions of Robert Franks about what Darwin meant by “natural selection” are also false, as I have shown in my earlier posts commenting on his book.
HERE HERE HERE HERE HERE
Perhaps Ross Gittins (a journalist as well as an economist) would benefit from reading these posts.
“Smith was the Scottish moral philosopher, who published his most famous work, The Wealth of Nations, on the eve of the industrial revolution in 1776.
Among all his insights about how the economy works, the one for which he gets most credit is the ''invisible hand''. This is the notion that impersonal market forces channel the behaviour of greedy individuals to produce the greatest good for all.”
Comment
The problem is that though the “Insight” for which Adam Smith "gets most credit is the ''invisible hand'', the fact is, and remains, that he never wrote anything about the metaphor of “an invisible hand’ that can be remotely linked to such a non-Smithian assertion as “impersonal market forces channel the behaviour of greedy individuals to produce the greatest good for all.”
It is an invented myth, asserted and promulgated widely by Paul Samuelson with 5-million sales, plus an active used-book market, over twenty editions to 2010, plus numerous foreign language translations, from as recently as 1948 in his monumentally successful textbook, “Economics: an introductory analysis”, p 36, McGraw-Hill, New York.
The immense prestige of Paul Samuelson, winner of the first Nobel Prize in economics and author of “Foundations of Economic Analysis” (1947) which had carried all doubters before it by 2010. The effect has been a startling exhibition of the power of misattributed beliefs, when a reference to Adam Smith’s Wealth Of Nations (1776 and five editions to 1790)) would show that Smith did not use anything like the word “selfish” in connection with the invisible hand, and nor did his Moral Sentiments (1759, and six editions to 1790), the latter book dismissing ideas of ‘selfishness’ as “licentious”, and which certainly did not “produce the greatest good for all” (an idea of Bernard Mandeville's, 1724).
That Robert Franks believes that Adam Smith did say that which was attributed to him by Paul Samuelson, is beyond doubt, but that Adam Smith patently did not say such a thing (check his texts!) is also beyond doubt. The only arbiter on what Adam Smith actually wrote is what Smith wrote and not what neither Paul Samuelson nor Robert Franks claim that he did.
This cold fact undermines Robert Franks’ claims for the future supremacy of Charles Darwin as the ‘father” of economics in 100 years time (an impossible claim to verify in 2011). The other assertions of Robert Franks about what Darwin meant by “natural selection” are also false, as I have shown in my earlier posts commenting on his book.
HERE HERE HERE HERE HERE
Perhaps Ross Gittins (a journalist as well as an economist) would benefit from reading these posts.
Labels: Adam Smith no ideologue, Robert Franks
4 Comments:
The invisible hand has gotten under my skin.
I was just looking at Richard Bronk's book "Progress and the Invisible Hand". Bronk's interpretation of the IH, I am thinking, is that today we are at its mercy and that it has condemned us to be slaves rather than masters of economic life.
I am also thinking of Norm Chomsky's contribution to the IH metaphor argument and your thinking that his understanding of it is almost right. But his understanding of it, and your support of him, is confusing. I don't know who is more confusing, you guys or Adam Smith. It is about the idea that the IH is supposed to be about the 'public good'. Yet Chomsky is suggesting it's not about the public good but about the interests of business people and where they can make the most profit.
Today there is certainly no exclusive bias among business people about investing their money at home as Smith thought the cumulative nature of self interest would work. Chomsky, though, points to self-interest and the invisible hand as being wherever one can make a profit, even to the detriment of the home country.
But is it such a bad think that the 'invisible hand' has turned out this way? Other than being a metaphor the invisible hand is a force, unimagined by Smith. It is still a force for public good. But today it acts more perversely than it did in Smith's day. It doesn't invest at home exclusively. It invests all over the world. But in doing so the invisible hand has also been a force for good, by integrating the world through commerce and thus making it a more peaceful place. By investing abroad it has also forces us to reexamine and reinvent ourselves so as to remain viable and competitive. Communism collapse because it didn't have this invisible force.
Chomsky and Bronk should come out of their blinker state and realize that the world does progress but in a perverse way. The right things are ultimately accomplished via doing the wrong thing first. This is how I see the invisible hand, as I think Smith saw it, as doing the right thing, overall, but for the wrong reason. The invisible hand is a perverse mechanism, getting us to the right place eventually, even though its through coercion and making us slaves of a system.
airth
The issue of investment in "domestick industry" versus the "foreign trade of consumption" is much broader for Adam Smith than you seem inclined to suggest. He did not oppose foreign investment; he drew on it as an example of some, but not all merchants, investing locally rathe than their taking what they perceived as a more risky investment abroad ("their own security"). All those other merchants who invested abroad, and their were many - England, then Britain, was a major export of wool, grain and timber from the 14th century - and its imports were significant for its standard of living, and its merchant fleet.
Smith was pointing the trade restrictions (tariff, duties, prohibitions, and foreign hostilities) as exacting a heavy cost of domestic consumers in Book IV, chapter 2: "restraints on imports". The invisible hand was not a metaphor for "public good", which anyway was a consequence, not a cause. The cause was the "insecurity" of some merchants that LED them to prefer the "domestick market", which, as a consequence, led them unintenionally to add their capital to increase "annual revenue and employment" , which had the consequence of being a public good. A consequence cannot be a cause. It is the simple arithmetic rule that the whole is the sum of its parts.
It still operates today wherever people tend to avoid foreign trade for risk reasons. Over many years of running a consultancy business, I tended to avoid trade with certain countries because of their known behaviour of not paying invoices, especially when domestic consultancy work was abundant, or getting paid in cash, even in their, often non-convertible, currency.
Gavin
airth
The issue of investment in "domestick industry" versus the "foreign trade of consumption" is much broader for Adam Smith than you seem inclined to suggest. He did not oppose foreign investment; he drew on it as an example of some, but not all merchants, investing locally rathe than their taking what they perceived as a more risky investment abroad ("their own security"). All those other merchants who invested abroad, and their were many - England, then Britain, was a major export of wool, grain and timber from the 14th century - and its imports were significant for its standard of living, and its merchant fleet.
Smith was pointing the trade restrictions (tariff, duties, prohibitions, and foreign hostilities) as exacting a heavy cost of domestic consumers in Book IV, chapter 2: "restraints on imports". The invisible hand was not a metaphor for "public good", which anyway was a consequence, not a cause. The cause was the "insecurity" of some merchants that LED them to prefer the "domestick market", which, as a consequence, led them unintenionally to add their capital to increase "annual revenue and employment" , which had the consequence of being a public good. A consequence cannot be a cause. It is the simple arithmetic rule that the whole is the sum of its parts.
It still operates today wherever people tend to avoid foreign trade for risk reasons. Over many years of running a consultancy business, I tended to avoid trade with certain countries because of their known behaviour of not paying invoices, especially when domestic consultancy work was abundant, or getting paid in cash, even in their, often non-convertible, currency.
Gavin
Adam Smith believed the 'invisible hand' would save England from “neoliberal globalization” because of an ingrained bias to invest and do business at home, thus maintaining England's wealth. Well, that bias evaporated, mostly due to the occurrence of evolution.
That evolution started with England's expansion and colonization. Other nations like France, Germany and the US followed, also expanding. These economic expansions caused tension and upheavals in the world, culminating in world wars. It was, as the expression goes, the chickens coming home to roost.
After WW2 the US, the most influential and standard bearer of modernity and capitalism, pushed that the world should follow its example. To make the world saver for itself it encouraged past adversaries to become capitalists and democratize, to be more like it. Japan and Germany grew into great industrial powers. In time other nations like China and india, seeing other's success, followed suit and adopted capitalism. But in the course of events the new developing economies siphoned off industrial jobs from the developed nations like England and the US. This was the unintended consequence.
If Adam Smith were around today would he have introduced another meaning for the invisible hand? I see it as a metaphor for spreading the wealth, for if the wealth insisted on remaining in the original capitalist counties I imagine something like 'barbarians at the gates' demanding a piece of the action. Ironically, though, today we also see the barbarians within us, the original capitalist countries' citizens demanding fairness. So perhaps today's invisible hand is about fairness and spreading the wealth.
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