Thursday, May 31, 2012
“The invisible hand slit the invisible wrist.”
By Zandar HERE
PW-Philadelphia Weekly (blog) Randy Lo Basso HERE
“A reconfigured plan would not leave the whole thing up to the free market's invisible, Gin-soaked hand.”
AllAfrica.com Dene Smuts HERE
“How much of the chorus was calculated and conducted by a previously invisible hand?”
Adam Smith as an "Apologist"?
[APOLOGIES: the lay out of this post is somewhat crazy. Attempts to edit it to read as normal all failed by messing it up even more. New Google lay out not helpful.0
Jeremy Jennings, Director of the Centre for the study of the History of Political Thought at Queen Mary, University of London reviews Jonathan Israel’s, “Democratic Enlightenment: philosophy, revolution, and human rights”, Oxford University Press, 20121, in the Times Literary Supplement, 25 May, 2012, pp 3-4.
Jeremy Jennings, Director of the Centre for the study of the History of Political Thought at Queen Mary, University of London reviews Jonathan Israel’s, “Democratic Enlightenment: philosophy, revolution, and human rights”, Oxford University Press, 20121, in the Times Literary Supplement, 25 May, 2012, pp 3-4.
“[David] Hume, to Israel’s obvious disapproval, was ‘ready to accept the inconsistencies inherent in human life’. The same defect was evident in Adam Smith. ‘Rarely given sufficient emphasis’, in Israel’s opinion, is the fact that Smith was an ‘apologist’ for empire, aristocracy, ecclesiastical power as well as the social and racial hierarchy of the ancien regime. With their misplaced faith in the beneficial effects of commerce, like the majority of their complacent British contemporaries, both men incorrectly imagined that, with England’s balanced constitution in place, the revolution was over,”
Even making allowances for the possibility that Professor Jennings is simply quoting Jonathan Israel’s view, rather than his own, these remarks are extraordinary which ever one of them is their author. Professor Jennings or Jonathan Israel attributes the statements to Adam Smith. I do not know on what basis he makes a statement thatis at variance of what Adam Smith wrote either in Moral Sentiments, 1759, or Wealth Of Nations, 1776, taking in all the editions of both books in Smith’s lifetime.
Taking the first one: Smith an “apologist” for “empire”? Smith wrote pointedly with disdain about the history of empires, especially the British Empire to 1776, on the eve of the rebellion by the British colonies in North America, even mocking Britain’s pretensions to empire. Much of Book IV is a polemic against the distortions inflicted on the commerce of Britain by the monopoly interests flowing from the colonies in North America:
“To found a great empire for the sole purpose of raising up a people of customers,
however, a project altogether unfit for a nation of shopkeepers; but extremely fit for anation whose government is influenced by shopkeepers. Such statesmen and such
statesmen only are capable of fancying that they will find some advantage in
employing the blood and treasure of their fellow citizens to found and maintain
such an empire.” (WN IV.vii.c: 613)
Also, he warns readers, in the last paragraph of Wealth Of Nations, of the need to avoid adventures into empires in future with words relevant in the two centuries after the end of British rule in the former American colonies:(WN V.iii.92: 947)
If any of the provinces of the British empire cannot be made to contribute towards the support of the whole empire,it is surely time that Great Britain should free herself from the expense of defending those provinces in time of war and of supporting any part of the civil or military establishments in time of peace, and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.(WN V.iii.92: 947)
Smith was an historian with a pragmatic outlook about the realities in the affairs of nations:
“No nation ever voluntarily gave up the dominion of any province, how troublesome
soever it might be to govern it, and how small soever the revenue which it afforded
might be in proportion to the expence which it occasioned. Such sacrifices, though
they might frequently be agreeable to the interest, are always mortifying to the pride
of every nation, and what is perhaps of still greater consequence, they are always
contrary to the private interest of the governing part of it, who would thereby be
deprived of the disposal of many places of trust and profit, of many opportunities of
acquiring wealth and distinction, which the possession of the most turbulent, and, to
the great body of the people, the most unprofitable province seldom fails to afford.
The most visionary enthusiast would scarce be capable of proposing such a measure,
with any serious hopes at least of its ever being adopted. If it was adopted, however,
Great Britain would not only be immediately freed from the whole annual expence of
the peace establishment of the colonies, but might settle with them such a treaty of
commerce as would effectually secure to her a free trade, more advantageous to the
great body of the people, though less so to the merchants, than the monopoly which
she at present enjoys. By thus parting good friends, the natural affection of the
colonies to the mother country, which, perhaps, our late dissentions have well nigh
extinguished, would quickly revive. It might dispose them not only to respect, for
whole centuries together, that treaty of commerce which they had concluded with us
at parting, but to favour us in war as well as in trade, and, instead of turbulent and
factious subjects, to become our most faithful, affectionate, and generous allies; and
the same sort of parental affection on the one side, and filial respect on the other,
might revive between Great Britain and her colonies, which used to subsist between
those of ancient Greece and the mother city from which they descended.” WN IV.vii.c.66: 616-17
Or take another: “ecclesiastical power” on which Smith spent a long sub-section of Book V: “Of the Expense of the Institutions for the Instruction of People of all Ages’ which critically analyses the established Church of England, demonstrating his disdain, not an “apology”, for its institutional forms (governance by Archbishops, Bishops, and clergy) and their proclivity in common with the former dominance enjoyed by the Church of Rome until the protestant reformation:
“Such a clergy, upon such an in an emergency, have commonly no other resource than to call upon the civil magistrate to persecute, destroy, or drive out their adversaries, as disturbers of the public peace. It was thus that the Roman catholic clergy called upon the civil magistrate to persecute the protestants; and the church of England, to persecute the dissenters; and that in general every religious sect, when it has once enjoyed for a century or two the security of a legal establishment, has found itself incapable of making any vigorous defence against any new sect which chose to attack its doctrine or discipline. Upon such occasions the advantage in point of learning and good writing may sometimes be on the side of the established church. But the arts of popularity, all the arts of gaining proselytes, are constantly on the side of its adversaries. In England those arts have been long neglected by the well–endowed clergy of the established church, and are at present chiefly cultivated by the dissenters and by the methodists.” (WN V/i.g.789)
Smith it should be remembered went to Oxford University in 1740 to prepare to be ordained into the Church Of England, but left in 1744 without joining the Church, full of distaste for the low quality of its exponents, their censorious views and general incompetence as university teachers.
Space prohibits dealing with the absurd characterisation of Smith as an “apologist” for the “social hierarchy” of the day. In fact, I am surprised that the author, Jonathan Israel, makes such comments and that the reviewer, Professor Jeremy Jennings, repeats them without correction.
Wednesday, May 30, 2012
From My Notebook 1
I took with me my copy of “Turgot in Progress, Sociology and Economics”, translated and edited, with an introduction by Ronald L. Meek, Cambridge University Press, 1973. to my local coffee bar, ‘Earthy’, an organic vegetable shop, and a 3,000 step walk there and back (as recommended to me by the Physio lady for every other day's actvity),
It is some 9 years since I purchased a second-hand copy of Turgot’s book and I read it while preparing to write my “Adam Smith’s Lost Legacy” (Palgrave Macmillan, 2005). Nowadays, I take something to read for 20 or so minutes at “Earthy” before walking home, and I had selected “Turgot” from my library for the simple reason it fitted into my coat pocket. Today, I hadn’t gotten to page 6 of Ronald Meek’s excellent introduction when I noticed some faint pencil lines where I had underlined a quotation of Turgot’s critique of Montesquieu’s, The Spirit of the Laws (1748):
“More happy are the nations whose laws have not been established by such great geniuses; they are at any rate perfected, although slowly and through a thousand detours, without principles, without perspectives, without a fixed plan; chance and circumstances have often led to wiser laws than have the researches and efforts of the human mind; an abuse which had been observed would give rise to a law; the abuse of that law would give rise to a second which modified it; by passing successfully from one excess to the opposite excess, men little by little drew nearer to the happy medium”.
I had completely forgotten Turgot’s words – it was early in my background research for my 2005 Adam Smith book. At the time, Turgot’s ideas seemed of distant direct relevance. I was perhaps distracted at the time by my work at Edinburgh Business School’s for its distance MBA programme, and managing my consultancy, Negotiate limited.
It would seem that ideas relating to the evolution by what people do rather than design by geniuses were circulating in France long before Adam Ferguson is credited with drawing attention to the “result of human action, but not the execution of any human design” (“An Essay on the History of Civil Society” 1767, Edinburgh University Press, 1966, p. 122).
I referred some time ago on Lost Legacy to the writings of Cardinal Du Retz who mentions something of a similar expression even earlier. But Turgot’s expression of the same basic idea is interesting on its own merits. I shall continue reading Turgot’s papers and see what else they reveal about his influence on Smith (and Ferguson).
Monday, May 28, 2012
Loony Tunes no 52
Esquire (blog) Charles P. Pierce
“Well, Curt's business is rather after cratering at the moment, and he's come to the state, asking for more help against the merciless pasting The Invisible Hand is dealing out to him.”
Mikel Kwaku Osei Holt HERE
“As for the “Invisible Hand,” the overwhelming majority said they could feel, sense and even smell its presence, although few could specifically label, or otherwise put a finger on, its members and specific agenda.”
OpEdNews Curt Day HERE
“Like the terrorists our government is fighting, they know no national boundaries and so they are not controlled by Adam Smith's ‘Invisible Hand’."
Morning Whistle Ma Nan HERE http://morningwhistle.21cbh.com/html/2012/FinanceMarkets_0528/212426.html
“Its priorities veer between the invisible hand of the equity market and the angel of social welfare.”
Sunday, May 27, 2012
More Notes on the Division of Labour (Part Two)
Smith’s example was not unique, nor was he the first to identify pin making. He asserts at the start of the paragraph “from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker”.
The paragraph in Wealth Of Nations also follows part of what is written in his manuscript known as the “Early Draft”, which is among some of Smith’s manuscripts that were written 12 years before WN (1776) and is cited in his “Lectures On Jurisprudence” (1762-3) 1983, Oxford University Press. The manuscripts were found in Glasgow University archives by W. R. Scott, author of Adam Smith as Student and Professor, Glasgow. Peaucelle shows that the manuscript details the ‘eighteen operations’ are in identical arithmetic to the productivity improvements that are found in the multi-volume, Encylopedie, Paris (1755) by Diderot and D’Alembert’s, and similarly in Chambers Cyclopedia (4th edition, 1741). What Smith reported arithmetically relies on these 18th-century sources.
Smith’s Early Draft is interesting because it shows the arithmetic of a similar example and clarifies the divisions of the work among the operators:
“The division of labour, by which each individual confines himself to a particular branch of business, can alone account for that superior opulence which takes place in civilized societies, and which, notwithstanding the inequality of property, extends itself to the lowest member of the community. Let us consider the effects of this division of labour as it takes place in some particular manufactures, and we shall from thence more easily be enabled to explain in what manner it operates in the general business of society. Thus, to give a very frivolous instance, if all the parts of a pin were to be made by one man, if the same person was to dig the mettal out of the mine, seperate it from the ore, forge it, split it into small rods, then spin these rods into wire, and last of all make that wire into pins, a man perhaps could with his utmost industry scarce make a pin in a year. The price of a pin, therefore, must in this case at least have been equal to the maintenance of a man for a year. Let this be supposed equal to six pounds sterling, a miserable allowance for a person of so much ingenuity, the price of a single pin must have been six pounds sterling. Supposing that the wire was furnished to him ready made, as at present, even in this case, I imagine, one man could with his utmost dilligence scarce make twenty pins in a day, which, allowing three hundred working days in the year, will amount to six thousand pins in the year; an immense increase! His maintainance for a day therefore must be charged upon those twenty pins. Let us suppose this maintainance equal to ten pence, a most liberal allowance compared with the foregoing, there must be a half penny of this charged upon each pin over and above the price of the wire and the profite of the merchant, which would make the price of a pin about a penny: a price which appears as nothing compared with the foregoing, but which is still extravagant compared with that which actually takes place. For the pin–maker, in preparing this small superfluity, very properly takes care to divide the labour among a great number of persons. One man straightens the wire, another cuts it, a third points it, a fourth grinds it at the top for receiving the head, three or four people are employed about making the head, to put it on is the business of a particular person, to guild the pins is the occupation of another, it is even a trade by itself to put them in the paper. When this small operation is in this manner divided among about eighteen persons, these eighteen will perhaps among them make upwards of thirty six thousand pins in a day. Each person, therefore, making an eighteenth part of thirty six thousand pins, may be considered as making two thousand pins a day, and supposing three hundred working days in the year, each person may be considered as making six hundred thousand pins in the year, that is, each person produces six hundred thousand times the quantity of work which he was capable of producing when he had the whole machinery and materials to provide for himself, as upon the first supposition; and one hundred times the quantity of work which he was capable of producing when the wire was afforded him ready made, as upon the second. The yearly maintainance, therefore, of each person is to be charged not upon one pin as by the first supposition, nor upon six thousand as by the second, but upon six hundred thousand pins. The master of the work, therefore, can both afford to increase the wages of the labourer, and yet sell the commodity at a vastly lower rate than before: and pins instead of being sold at six pounds a piece as upon the first supposition, or at twelve pence a dozen as upon the second, are commonly sold at several dozens for a half penny.”
I have long argued that Smith’s ‘pin factory’ example in chapter 1 of Wealth Of Nations, which while interesting, is by no means the last word on the importance of the division of labour to commercial societies. I suggest that the implications of Smith’s further example, a few pages on, of the production of the common labourer’s woolen coat is extremely, if not more, important for our understanding of how market societies raise productivity, improve existing products, creates new products (Schumpeter’s ‘perennial gale of creative destruction’), and lower unit prices and raise real wages, which in turn improve living standards. We know this happened in Europe and North America, and is happening now in China, India, and Brazil.
Smith shows in his woolen coat example, the long supply chains of productive labourers involved in producing such a simple basic product. I recommend that you read it, not just as an illustration of the national and international division of labour, but also the inter-sectoral division of labour (to use a modern designation) across all the sub-operations in the products produced elsewhere by distant, unconnected masters and operators, who probably do not know of those who might eventually use what they produce to produce other products, beyond the knowledge of earlier and later inter-mediate links in long production chains.
In my “Adam Smith: a moral philosopher and his political economy”, 2010, 2nd edition, Palgrave Macmillan, ‘Great Thinkers in Economics’ series, I present Table, 6.1, ‘Manufacture of a Common Labourer’s Coat’ page 58, which shows 17 direct trades who manufacture the coats, 4 indirect trades in the carrier business, 5 trades supplying tools, 19 indirect trades supplying the skills used in manufacturing related to the coat output, also mentioned by Smith in his woolen coat example. I also recommend consulting A. Young’s 1928 paper published in The Economic Journal, where he brings Smith’s example up-to-date and shows its implications of increasing, not decreasing, returns that dominated marginal analysis in the 19th and 20th centuries, and is still taught in Economics 101 today.
Smith’s example of a simple, basic product represents the remarkable division of labour needed to produce a simple coat in the 18th century, the implications of which are not drawn out in the ‘pins’ example, but which is about as far as most students, and their tutors, go through Wealth Of Nations on this critically important subject.
Brad Delong, however, as I regularly mention, gives to his students details of the income gap of Yanomamo, stone-age, hunter-gatherers along the Orinoco River in South America compared with modern New Yorkers along the Hudson River. That gap was $90 for the Yanomamo to $36,000 for the New Yorkers. The difference in product availability (using notional Stock Keeping Units), the gap is highlighted by several hundred products for the Yanomamo, compared to ‘tens of billions’ for New Yorkers. This significant difference indicates that while the Yanomamo hunter-gatherer economy provides what is available solely from within the tribal territory, the New York tribe depends on the availability of billions of products in long, complex, and inter-dependent product and service chains, where participants do not know nor need to know those involved more than a link or two along the supply chains.
Understanding how product and service chains function, both autonomously and under state regulations, is a focus of modern political economy, for which Smith’s insights are of lasting value.
One insight is that separate productivity and product changes all along the linked, but disparate, supply chains alters costs and product availabilities for all those businesses involved, who know, and do not need to know, the input and output businesses only a few links away, and this is accomplished without any overall supervisory management control. This is the real power of markets in raising living standards for millions of consumers.
The difference between Adam Smith and Karl Marx boils down to fact that Smith understood the power of freer markets to manage the apparent anarchy of complex, linked supply chains better than any known alternatives of the Sovereign and his ministers (or today, Commissars and bureaucrats) making billions of decisions a day (clearly beyond them), while Marx believed that state officials could manage complex, linked supply chains better than freer markets. The Soviet experiment showed they couldn’t.
Hence, Smith’s philosophy can be summed for a modern complex economy as “markets wherever possible, state intervention where necessary”.
More Notes on the Division Of Labour (Part One)
A correspondent questions Adam Smith’s arithmetic in his well-known example of the ‘pin factory’, in particular about the “astonishing” production feat of conducting thousands of operations needed to produce “12 pounds of pins a day” (Wealth Of Nations).
Smith’s life-long habit of visiting places of manufacturing and commerce are attested to by Ian Ross, in his definitive biography, The Life of Adam Smith, 2nd edition, 2011, Oxford University Press (and mentioned by his first biographer, Dugald Stewart, 1793). There were several nail factories or nail producing parts of general workshops in the Kirkcaldy area, where Smith grew up before he went to Glasgow University in 1737. His mother’s family was well connected in the town and in their farms nearby, and in Kirkcaldy’s busy little estuary fishing port, where his father had been the Customs Officer. He said he visited a small nail factory that employed 10 men, but does not say where. He certainly visited other places of work, including a tanning factory in Glasgow and the Carron Iron Works, near Falkirk, that made ordnance for the navy, run by his friend Dr John Roebuck. Smith took Edmund Burke to see it.
Heavy machinery was water driven. Several large machines used in pin making are illustrated in the French Encylopedie, a uniquely interesting source of information about early 18-century pin-manufacture, and many other forms of manufacture.
Crude 18th-century Pins were inches long to suit everyday clothes, not as per modern tiny pins. They were cut from brass wire. The men did not do the 18 operations; they did one operation, and some did more than one related operation. Output per hour was different in some of the operations (cutting the brass wire, or example, compared to preparing the heads) and time was therefore available to move between other tasks and share in other operations too.
The arithmetic shares are proportioned not by what each man did to complete a single set of pins, but by the notional per capita share of the total number measured by the weight of a given output (credible comment has been offered questioning Smith’s ‘strange’ use of measuring output by weight).
One man spent 12 hours, six days a week, cutting the thin wires, presumably using a guillotine. Could he cut the wire into 4,000 pin-sized pieces per hour? Possibly yes, if he operated a treadle machine (like on old manual sewing machines) with a metal jig to cut lengths of wire from a large spool of wire, and a bucket to catch them. “When they exerted themselves” (no Health and Safety regulations, no Employment Protection laws), higher output was possible. Having worked in factories as a youngster (during my long eight ’gap’ years), I remain amazed at the manual dexterity demonstrated by experienced male and female employees doing repetitive work. Boring work, yes, but it paid well, in relative terms.
Until recently, from a reader’s correspondence, I have not seen any scepticism about the figures given by Adam Smith which he quoted, apparently, from the French Encyclopédie, ou dictionnaire raisonné des sciences, des arts et des métiers, edited by Denis Diderot (1713-84) and Jean le Rond d'Alembert (1717 – 29) 1783, which was perhaps inspired by the earlier English Cyclopedia (1725) and the political situation in France. A young French economist, whom I have met, J. L. Peaucelle, assessed the ‘pin factory’ example, in a credible forensic account of Smith’s French sources for the numerical data: ‘Adam Smith’s use of multiple references for his pin making examples’, European Journal of The History of Economic Thought, vol. 13, no. 4, pp 480-512. Peaucelle has identified Smith’s (unacknowledged) sources for the pin-factory data.
I reproduce the relevant passage from Wealth Of Nations, Book 1, chapter 1, with relevant emphasis in bold:
‘To take an example, therefore, from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations.”
Saturday, May 26, 2012
A Snippet on the Division of Labour
I wrote a post on Adam Smith’s pin-making example in Wealth Of Nations last week for the Adam Smith Institute Blog, which has not yet been published – they get many excellent articles and it may not have made the editorial cut (published 28 May, adamsmith.org). I’ll wait and see, but meanwhile, after dissecting Smith’s example, especially the arithmetic, I came across an illustration in this week’s Times Literary Supplement (May 25) of some tangential relevance.
The illustration, ‘Interior of a candlemaker’s workshop’ is from Denis Diderot and Jean le Ron d’Alembert’s Encyclopedie (from 1751-1772). It shows four women (or boys) at work on different tables (perhaps more, the illustration has been cut to fit TLS's front page). One is tending to a boiling pot over a fire, the second marked ‘Fig 1’ is sitting at a small table wrapping tape round something, there is no ‘Figure 2’, ‘Fig 3’ come next, showing a person dipping a row of what looks like candles into a high-sided basin, and the last person, marked ‘fig 4’ poring from a container into many large button-type moulds. Various items are scattered about and some are numbered, 3, 5, 13, 8, 17, 9, and 10.
In all, this is a picture of people working in order, each person with distinct but linked tasks in a classic division of labour. There is no doubt that Adam Smith consulted the French Encyclopedie for the arithmetic details of the division of labour in the manufacture of pins. We know the Encyclopedie was popular abroad (there were copies in Glasgow University Library, though it should be noted that the was unpopular with the French authorities and was eventually suppressed).
The many detailed illustrations in the Encyclopedie are worth looking at to appreciate the extent to which manufactured tools and the organisation of work places had spread before Smith began to compose Wealth Of Nations (from 1763 onwards to 1776 when it was published).
Once More on Adam Smith on Self-Interest and Bargaining
“Das Charles Darwin Problem & The Bourgeois Virtues”
“In 1776, he published his second book--The Wealth of Nations--in which he explained economic prosperity as arising from the division of labor based upon the natural human propensity "to truck, barter, and exchange one thing for another." He indicated that this system of exchange depended on self-interest: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but their regard to their own interest." To the German scholars, there seemed to be an obvious contradiction between Smith's emphasis on sympathy in his first book and his emphasis on self-interest in his second.
In the nineteenth century, some German scholars identified das Adam Smith Problem as the apparent contradiction between Adam Smith's two books. In 1759, Smith published his first book--The Theory of Moral Sentiments--in which he explained morality as arising from sympathy. He began the book with a chapter on sympathy by declaring: "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it." In 1776, he published his second book--The Wealth of Nations--in which he explained economic prosperity as arising from the division of labor based upon the natural human propensity "to truck, barter, and exchange one thing for another." He indicated that this system of exchange depended on self-interest: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but their regard to their own interest." To the German scholars, there seemed to be an obvious contradiction between Smith's emphasis on sympathy in his first book and his emphasis on self-interest in his second. Some of them concluded that Smith must have changed his mind about human nature, deciding late in life that self-interest was stronger than sympathy among human beings, and thus that self-interest was a more reliable ground for social order.”
The so-called ‘Das Adam Smith problem’ has been around since the 1850s and was answered many times since. A summary of the fragility of the idea that Adam Smith “changed his mind” between publishing Moral Sentiments in 1759 and Wealth Of Nations in 1776, was given in the introduction by David Raphael and Alex Macfie to the Oxford Edition of Moral Sentiments in 1976, pages 21-25. I shall not, therefore, rehearse it here.
However, Larry Arnhart repeats a fairly regular assertion that Smith “indicated that this system of exchange depended on self-interest: ‘It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but their regard to their own interest.’ This is a common careless reading of Wealth Of Nations committed by modern economists and sociologist, anthropologists, psychologists, and politics faculty.
Smith discusses the nature of the bargaining process in commercial society. It was not a general assertion about self-interest being central to the operation of commerce. Indeed it suggests that self-interest alone is not enough, much as benevolence alone would not allow commerce to function (for there are insufficient resources available for distribution by everybody to everybody else, on demand and reliant of universal benevolence).
Examine Smith’s argument closely.
“He will be more likely to prevail if he can interest their self–love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self–love, and never talk to them of our own necessities but of their advantages.”
Each bargainer (for there is always at least two persons engaged in such transactions - the buyer and the seller) “is more likely to prevail if he can interest their self love in his favour and shew them that it is for their own advantage to do for him what he requires of them.” The corollary is that if each tries to prevail by only seeking to satisfy their own self-interest, they are unlikely to succeed. Two self-interested egoists would never agree, because neither would move from their initial demands. Bargaining ain’t like that. It requires movement from their initial positions; they have to modify their self-interests and the best way to conduct such movement said Smith is to address ourselves “not to their humanity but to their self–love, and never talk to them of our own necessities but of their advantages”.
In 40 years of studying, consulting, and practicing negotiation behaviour in Business Schools at all levels of business and public administration in most continents, I realised early on that the essential truth of what negotiation is about was summed brilliantly by Adam Smith in Wealth Of Nations in 1776 (and noted in his Early Draft before that in 1763) in the simple statement:
“Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of”.
Now what could be clearer than that? Larry Arnhart presents the so-called Adam Smith problem incorrectly. I suggest, respectfully, that he go back to Wealth Of Nations and read it more carefully. I offer the same advice to all those senior economists who have no excuse for persisting with such fundamental errors about Adam Smith’s views on the mediation of self-interest in negotiation of those “good offices which we stand in need of”.
[Risking charges of immodesty, may I suggest that my many books on negotiation may be consulted, too.]
Friday, May 25, 2012
Philosophy Seminar on David Hume as an Historian
This week, I attended a seminar organised by the ‘Forum for Scottish Philosophy’ at St Andrews University, Fife, Scotland, which has sponsored several seminars over the past three or four years. They attract a broad attendance from faculty from most of the Scottish Universities, plus a sprinkling of final year, and recently graduated, PhD students. If I am in Scotland, I endeavour to attend because the subjects covered and the contributions are of excellent quality.
This week’s seminar was of the very highest quality. The seminar title was “Hume’s History of England at 250” (David Hume’s multi-volume history of England and Great Britain’ – the distinction was evident in the years before and after the Act of Union in 1707).
Moritz Baumstark (Heidelberg) opened with “Impartial and interesting? A reconsideration of Hume’s virtues as a historian’.
I found this account fascinating, in that, like I am sure most economists and non-philosophers, often wondered why a philosopher of Hume’s standing bothered to write so many volumes on the history of England. The answer became quite clear from Moritz’s paper.
Not only was the history of England/Great Britain from the Stuart monarch’s to the 'Glorious' Revolution marked by the dismantling of feudalism and the development towards liberty, both precursors of the conditions conducive to the expansion of a commercial society, they also showed the need for historians to do more than merely write of the dynastic successions and wasteful battles of European Kings.
Hume’s proclaimed distinction for ‘impartiality’ between this or that Monarch’s, crudely known among the historians as the clash between ‘Tory’ and ‘Whig’ biases in history and politics. That Historians should also be ‘interesting’ was also interesting, at least to me.
Moritz considered Hume as responding to the need for “impartiality” by being accused of partiality in his first volume, and then being (blatantly?) partial towards Tory interpretations of Cromwell’s rebellion, epitomised in Hume’s lyrical appreciation of the character of Charles 1 during the events leading to his execution.
This was followed by James Harris (St. Andrews) on “Hume’s History as Court Whig history”, casting further light on the depths in the distinctions between these concepts (a distinction I confess not to being too aware of prior to the seminar).
After lunch, Mikko Tolonen (Helsinki and St Andrews) read his paper, “The relevance of the Tudor volumes of the History to Hume’s political thought”. All of this was completely new to me and I listened with wrapt attention. As I did in the discussion period after Mikko’s paper.
I should say that the discussion after each paper from several of the senior professors present was informative and not divisive (there were occasional nuanced comments) all offered in the best traditions of the Republic of Letters.
For pressing domestic reasons, I had to leave the Forum quietly after Mikko’s paper, thus missing Tim Stuart-Buttle’s (Oxford) “The Flux and Re-flux of Enthusiasm and Superstition in Hume’s History ofEngland” and Nick Phillipson’s (Edinburgh) “What sort of historian was Hume?” I know Nick Phillipson’s work on Adam Smiths philosophy and regard him as among the best lecturers, and writers, I have ever heard and read on Adam Smith. His views on Hume would surely have been a tour de force. I cursed my circumstances of having to leave early, but needs must on this occasion.
It made me cast my mind back during my car journey back to Edinburgh to some incidents in the early 1980s, while I was at the University of Strathclyde, following controversy among faculty over the proposed closing down of its Philosophy department and the transfer of its faculty and students to the nearby Glasgow University. I had voted for closure on two grounds, a) it was a small department with a very few faculty and a few dozen students, and b) the faculty concerned were going to a much better academic environment for what I (wrongly) perceived as a subject of minor interest to a Business School. I was in my early 40s and knew next to nothing of philosophy. Looking back now, I see this was a major error on my part and I also see now what the complaining philosophy faculty were complaining about. Philosophy of the quality I have witnessed at the Forum for Scottish Philosophy is an ornament to the relevance of philosophy in any institution claiming academic credibility in the 21st century. Accusations of ‘philistinism’ at the time of myself and those other faculty, who expressed indifference to the demise of philosophy at Strathclyde, were among the milder words I would use now to describe such attitudes today. So apologies all round.
Thursday, May 24, 2012
Loony Tunes no 51
“While the public sprints from gold in fear, they most likely miss the invisible hand calmly collecting its things and walking in the opposite direction.”
"The invisible hand, which sounds like a 30th level mage spell but isn't, decides the pricing of the objects being traded."
By Arthur Conan Doyle HERE
“An invisible hand seemed to have quietly closed round my throat and to be gently pressing the life from me.”
The Recruiter MICHAEL MOFFA HERE
“To put this point in terms that Adam Smith might approve, recruiters supplement the cold, impersonal, often merciless “invisible hand” of the Gesellschaft marketplace with their own Gemeinschaft warm “helping hand”.”
Canada's Excellent Future Paul Summerville HERE
“More on the challenge of unequal outcomes and the invisible hand of social justice.”
Foreign Policy (blog) Elizabeth Weingarten
“That's why this invisible enemy, this invisible hand, is so dangerous, because you don't know who to counter and how to counter.”
“Arrghh. Sometimes it seems like the “invisible hand”—Adam Smith's image for the magic of the free market—is drunkenly swinging a mallet into some rusty nails to build things we don't want.”
Grantland (blog) HERE
“And in this week's podcast, the Men in Blazers analyze the game with a fine-tooth comb, considering everything from David Luiz's IQ to the invisible hand of Lady Physio.”
GhanaWeb Margaret Jackson HERE
“I agree that Rawlings is blamable in some instances, but the invisible hand that has been manipulating Rawlings by pulling the strings is no other person than manipulator-in-chief, Nana Konadu Agyeman Rawlings.”
Comedy Central (blog) Liilya Gerner HERE
“Among the disadvantages of spending all one's time on the campaign trail while remaining a member of Congress is that the invisible hand does a poor job of casting votes in the House of Representatives.”