Thursday, December 22, 2011

Adam Smith and "Neo-Liberalism"

Mike Norman writes the Mike Norman Blog HERE

“Neoliberalism for dummies

“My contention is that the invisible hand of Adam Smith is the god of 18th century Deism that creates the universe and then lets it operate automatically in accordance with the laws of nature He has ordained.

This is one reason that economics as a discipline compares itself to physics. Another is Smith's association with his contemporary Isaac Newton, who influenced Smith's thinking about natural processes. While my view of direct influence is rejected by some Smith scholar's for lack of evidence, it seems that even if Smith was not directly influenced by either Deism or Newton, these were dominant ideas of his time and his work arguably reflects these overarching themes.

However, as Smith scholars correctly observe, Adam Smith cannot be blamed for spawning neoliberalism, which is a bastardization of his ideas by some New Classical economists, as well as New Keynesians, subsequent to the marginal revolution ushered in by Alfred Marshall. Marshall himself cautioned against using his ideas in a simplistic fashion to draw unwarranted conclusions from mathematical models. Marshall realized that economic models are thinking aids and not expressions of either natural laws or God-given ones.

What began as political economy with Adam Smith and David Ricardo has become theological economy under Milton Friedman and neoliberalism. It is a theology that the privileged are using to exploit the credulity of the masses with yet another superstition.

Mike Norman seems to be close to being on the right track, and should be commended for that. However, being close is not the same as being correct.

Ship’s captains searching for landfall at Pitcairn Island in the Pacific, and using contemporary charts with the first discoverer’s position on them, missed the island by many miles, until later Royal Navy navigators rediscovered it and, accidently found out the truth of the disappearance of Fletcher Christian after the Bounty mutiny. They corrected their charts for it thereafter. **

The “invisible hand” in the 17th-18th Centuries was indeed a popular metaphor with orthodox (not Deist) religious preachers, sermon writers and others. Among the others were: Shakespeare in Macbeth –a murderer not God; there were also: Daniel Defoe in Moll Flanders and Colonel Jack; Voltaire, in Oedipe; Glanvill; Dufesnoy; Lenglet; Rollin; Bonnet; Robinet; Walpole; Kant; and Reeve (for details, see: Kennedy: Adam Smith: a moral philosopher and his political economy, 2nd ed. 2010, pp 150-52). For a fully comprehensive list of religious references, see: Peter Harrison, “Adam Smith and the History of the Invisible Hand”, History of Ideas, September 2010.

Whether Adam Smith saw the metaphor in a deist context remains controversial, but he was not a believer in the revealed religion of Christianity (See Kennedy: “The Hidden Adam Smith in his Alleged Theology”, Journal of the History of Economic Thought, September, 2011). It is stretching it to say that Isaac Newton (1643-1727) was Smith’s (1723-90) “contemporary”.

That Adam Smith admired Isaac Newton is evident in Smith’s History of Astronomy (1744-c50, published posthumously in 1795). I believe that the marginal revolution and Marshall’s early contributions, leading to the mathematical dead-end of neo-classical economics, had more to do with the 19th-century mathematics prevalent when Marshall was alive than the calculus of Newton a hundred years earlier. Modern physicists and mathematicians are reported to be “amused” at what modern economists considered to be “advanced mathematics, as so much had moved on since the late 19th century, with which economists consider to be their “hard science”.

Smith certainly cannot be “blamed for spawning neo-liberalism” and modern economics, as taught (preached!) with religious zealotry and intoned by some politicians in the 21st century. Both interest groups, adding to their assertions their modern myths of Smith’s meaning when he used (only twice) the invisible hand metaphor in his published works.

Mike Norman is absolutely correct in drawing attention to Alfred Marshall’s cautions about using mathematics as anything more than “teaching aids”. Adam Smith would probably approve of Mike’s summary:

“It is a theology that the privileged are using to exploit the credulity of the masses with yet another superstition.”

So, well done Mike Norman. Have a good holiday.

** See my Kennedy, Captain Bligh: the man and his mutinies, Duckworth, 1989

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