Loony Tunes No. 82

1

d r i f t g l a s s: The Invisible Hand of The Market

By driftglass HERE 

“The Invisible Hand of The Market methodically snuffs out the long-term unemployed”

2

Matthew Pate — Smith's invisible hand cracks whip | The Daily World HERE

3 Are God and Satan nothing but invisible hand puppets to entertain people?

HERE 

4

How Texas Is Making It Easier for Utilities to Keep 'Phantom Taxes'

Jason Standford from his Blog "Behind Frenemy Lines.":  in Huffington Post HERE 
“As a result of Rick Perry's version of "competition," the invisible hand gave consumers the middle finger.”

[Third time I have seen this one in three months.  Is it spreading?]

Plus this one too” “They're called "phantom taxes" because they're usually not itemized on your utility bill as taxes and not because that ol' invisible hand is picking your pocket.”

[Vulgar and folksybut lowers the tone.]

From My Notebook, no.9

Adam Smith, “Theory Of Moral Sentiments“, Part IV.ii.11: 185:

“The same principle, the same love of system, the same regard to the beauty of order, of art and contrivance, frequently serves to recommend those institutions which tend to promote the public welfare. When a patriot exerts himself for the improvement of any part of the public police, his conduct does not always arise from pure sympathy with the happiness of those who are to reap the benefit of it. It is not commonly from a fellow–feeling with carriers and waggoners that a public–spirited man encourages the mending of high roads. When the legislature establishes premiums and other encouragements to advance the linen or woollen manufactures, its conduct seldom proceeds from pure sympathy with the wearer of cheap or fine cloth, and much less from that with the manufacturer or merchant. The perfection of police, the extension of trade and manufactures, are noble and magnificent objects. The contemplation of them pleases us, and we are interested in whatever can tend to advance them. They make part of the great system of government, and the wheels of the political machine seem to move with more harmony and ease by means of them. We take pleasure in beholding the perfection of so beautiful and grand a system, and we are uneasy till we remove any obstruction that can in the least disturb or encumber the regularity of its motions. All constitutions of government, however, are valued only in proportion as they tend to promote the happiness of those who live under them. This is their sole use and end. From a certain spirit of system, however, from a certain love of art and contrivance, we sometimes seem to value the means more than the end, and to be eager to promote the happiness of our fellow–creatures, rather from a view to perfect and improve a certain beautiful and orderly system, than from any immediate sense or feeling of what they either suffer or enjoy. There have been men of the greatest public spirit, who have shown themselves in other respects not very sensible to the feelings of humanity.”

Comment

This is an Interesting passage from TMS.  It follows directly on from his more famous passage discussing the “proud and unfeeling landlord” who is “led by an invisible hand to makes nearly the same distribution of the necessaries of life” etc.

Smith discusses the phenomenon of state officials or representatives who get behind schemes using public money to undertake some project or other (today such a scheme could be about using public money for devote welfare expenditure to address a social problem):

“When the legislature establishes premiums and other encouragements to advance the [insert names here] manufactures, its conduct seldom proceeds from pure sympathy with the wearer of cheap or fine cloth, and much less from that with the manufacturer or merchant.”

From there Smith shows the justification for government:

“The perfection of police,* the extension of trade and manufactures, are noble and magnificent objects. The contemplation of them pleases us, and we are interested in whatever can tend to advance them. They make part of the great system of government, and the wheels of the political machine seem to move with more harmony and ease by means of them.’

[* By “police” Smith referred to its 18^th century meaning: ensuring the wherewithal for the subsistence of the community.]

Notwithstanding the ideal, we should note the quite poor performance of most governments throughout history, which may succeed in achieving some “noble and magnificent objects” but fail in others like public health, public safety, and public welfare.  That is where the role of the entrepreneurs became so important where they flourished, beginning from the 14th century in Europe, and crucially, in a civil society that allowed them dignity (see Deirdre McCloskey, "Bourgeois Dignity") in North-west Europe. 

Some governments fund magnificent buildings, statues, public works, and so on, while the bulk of the population is left destitute and exposed to dangers (pestilence, diseases, violence, wars and invasions and the ravages of natural disasters).

He concludes with a truth for our times too: ”All constitutions of government, however, are valued only in proportion as they tend to promote the happiness of those who live under them. This is their sole use and end.”

How many governments can you identity where they may be judged to have met that measuring rod?  Damn few, I believe, which is, of course, the stuff of political controversies, in which the ideas of economics play their part.  That is why economic ideas are important.

On the Funding of Higher Education from Smith’s Time to Ours (see previous post)

“For some reason I remember that this wasn't so in Smith's day. Wasn't Smith paid by his students directly? When did the no fees come in for Scotland?” (A comment from Paul, a regular reader).

Comment

My response

Paul,

Thank you for reminding me of the details I did not elaborate upon.

Scotland, in common with the other countries in the UK did not have government expenditures on education in the 18th century.  These costs were met from the ancient universities own resources (grants from former pupils and their estates; fees paid by parents; local charities and such like). 

Balliol College, Oxford,  (which Smith attended) was founded and paid for by the ancient Scottish Balliol family. He had won a Snell Exhibition as a promising student – it still exists and is well funded. His mother and guardians may have added something in kind (he was accompanied on the long journey by horse to Oxford). 

Local charities paid fees and living expenses, especially to students of poorer families; richer local families paid on their own account.  Over a century or two educated Scots came from a broader spectrum of classes than common in England.

Glasgow University did not pay their academics all of their annual salaries; it required students to pay some proportion of their fees direct to each of their Professors each term. Students elected to attend their classes, a requirement that Smith approved of because it tended to ensure that professors prepared their courses to high standards (lazy professors would not attract or keep students for a large proportion of their incomes and the University would react to deal with such unpopular professors to protect its reputation and their fees).

In the 20^th century, direct government expenditure on universities increased, though student recruitment became more selective towards those whose families who could afford ever increasing fees, added to by the finances of well-managed bequests from the past and disbursed by the universities themselves (as in the main universities, especially Oxford and Cambridge), often competitively won by individual student pre-entry scholarship examinations from home and abroad.  Local government schemes also paid the fees and bursaries to local students if they won a place at a university.  Families could pay these fees direct if they had the resources.

With the 1960s Robbins Report, governments implemented a massive expansion in universities and in establishing new university status to long-established higher education institutions, e.g. The Royal College of Science and Technology in Glasgow became “Strathclyde” University, where I graduated BA and, later, MSc, and where yet later I was Senior Lecturer in Economics. Heriot-Watt College in Edinburgh became “Heriot-Watt” University, where I became a Professor in Edinburgh Business School (retired, 2005).  In between, I was Lecturer in Economics at the newly created Brunel University and graduated PhD in economics.   All three of these universities were founded in that new Robbins wave. 

Associated with the expansion across the UK were student fees and low annual student grants, funded and administered by the State, with contributions of fees from students (unless paid for from competitive grants, bursaries and charities).

From these new arrangements central government expenditure on higher education climbed steadily as the proportion of students in each age-cohort grew from 8% towards 50 per cent.

First, education and its funding was devolved to the separate countries in the UK.  Secondly, practices begun to vary in the UK, particularly in Scotland where state funding expanded on both students and institutions. 

I funded my undergraduate fees as a ‘mature’ student, first by small bursaries from the state, supplemented by low paid vacation employment. I funded my postgraduate education by higher paid employment from teaching in universities.

With greater devolution of state responsibilities to Scotland, the government decided to remove the veil of so-called student fees (with its substantial disparate sources) under the postwar changes to direct funding by the state of all fees to the universities.  This is the situation that continues today. 

No fees are charged to the students at any Scottish University. The situation in England is quite different, where increasingly higher fees are charged direct to each individual student, with a plethora of funding sources as before from the 18^th century, when England had only two universities (Oxford and Cambridge) and Scotland had four, and Scotland always recruited university places from wider slice of the population.

I hope this answers your interesting and appropriate question.

Adam Smith On the Education of the Poorer Classes

“Why Adam Smith Is Right And Mike Flanagan Is Wrong About Public Education”

Jeff Wattrick (jeff@deadkinedetroit.com) HERE 

“Smith's Practical Vision”

“This is what Adam Smith believed about education. When he wrote "Wealth of Nations" at the dawn of the industrial revolution, he didn't think England required a public education system to train youth in the practical arts of farm labor or industrial weaving. He advocated the opposite.

The Wealth Of Nations: In Scotland the establishment of such parish schools has taught almost the whole common people to read, and a very great proportion of them to write and account. In England the establishment of charity schools has had an effect of the same kind, though not so universally, because the establishment is not so universal.

Smith's educational vision was practical as well as Liberal. He did not, as an 18th Century Mike Flanagan may have preferred, advocate for courses like "Geometry for Coal Mines: The Science of Small Spaces." Perhaps a mill hand would find practical science useful in his job, or perhaps he'd use that knowledge to create an innovative device in his spare time.

The Wealth Of Nations: If in those little schools the books, by which the children are taught to read, were a little more instructive than they commonly are, and if...they were instructed in the elementary parts of geometry and mechanics, the literary education of this rank of people would perhaps be as complete as it can be. 

The goal wasn't "workforce development." It was to provide enough education so that every citizen could be intellectually self-sufficient. Learn to read and write, acquire an understanding of basic mathematics and science, and you can obtain (as Will Hunting famously observed) an Ivy League education for "a buck fifty in late charges at the public library." 

Yes, American schools have always offered what might be deemed vocational courses--home ec, shop class, photography, etc. Most students in an auto shop class are unlikely to become ASE-certified mechanics. For most, these vocational classes are about learning general skills that translate to many facets of life--teamwork, problem solving, a sense of accomplishment that comes from doing a job correctly.

Education for education's sake serves the individual--but more importantly, it serves the general public. It's an intellectual foundation that liberates a person of even the most humble origins to rise above his/her station and allows them, if they so choose, to reach his/her intellectual potential.”

Comment

Adam Smith strongly supported the “little schools in every Parish” policy that had existed in Scotland since the 16^th century.  England did not have the same or a similar policy.  The “little schools” in Scotland were open to all children of all ranks in Scotland and by the 1700s, Scotland had a comparatively good record in spreading elementary literacy and numeracy across the adult population, paid for, partly by parental donations, partly by charitable contributions, and partly by local state-funding.  It also permitted a large pool of educated youth to be drawn upon for university classes at the four Scottish universities (Glasgow, Edinburgh, St Andrews and two rival colleges in Aberdeen), compared to England,  where university classes were in its (only) two universities, Oxford and Cambridge.

 Scots, still today, remain proud of its universities, where all students pay no fees to attend, compared to England.

Scotland was also first in extending university-level technical education to skilled artisans in the 19^th century.  For example, my own university, Heriot-Watt, began as a School of Arts (by which was meant the manufacturing “arts” of mechanics, chemistry, mathematics and engineering), its buildings located until 1966 across the road in the same street as the magnificent Georgian buildings of Edinburgh University.  Many of its lectures in the 19th century were delivered  part-time by Edinburgh University academics. In time, this new type of mechanical arts institutes were to spread across Scotland and, later, into England, for the skilled and artisan classes, required for industrialisation.

Smith, however, was concerned about the general ignorance of working people across the United Kingdom, many of whom were not exposed to education at all.  He considered this state of affairs a threat to social stability, a condition in his view for growth.  He writes on this problem in Book V of Wealth Of Nations and seeks to persuade educated peoples, normally not in contact with the rapidly changing industrial developments common in his times. 

Some (like Chomsky, for example), mistakenly, argue that Smith had doubts about the future of division of labour and they quote some paragraphs from Book V of Wealth Of Nations to undermine Smith’s famous praises for the division of labour in Book I. I think they are mistaken from a too hasty reading of his statements out of context.

Smith’s Book V remarks are in a chapter on the education of youth, which in England was particularly deficient compared to Scotland.  The outcome of this neglect was a dangerously ignorant adult population in respect of political stability (a necessary condition for opulence), who were liable to bouts of “enthusiasm” (an occasional set of excited behaviours incited by ignorant demagogues – and religious fanatics – that Smith claimed easily misled illiterate poor people into pointless troubles).  As his readers were by definition liable to be targets of these disorders, he was trying to persuade them to act to counter-act such potential mobs by paying small amounts to have all children educated in “little schools” in every parish in England on the Scottish model, all 60,000 of them. 

It took another 100 years for Parliament to pass an Education Act to establish a schooling system paid for from taxation, similar to the two-hundred years of the “little schools” in Scotland, only better funded. 

A Brave Outspoken Sceptic Speaks

Ahmad Jitan reports HERE 

“All the Words Pass the Margin”

 “I’ve taken an introductory course on economics. Sadly, the course didn’t instill an undying faith in the invisible hand of the free market, but nonetheless I learned some valuable lessons. The most significant of these was the idea of “thinking at the margins.”

Comment

Which is precisely why the imaginary, so-called, “invisible hand of the market” adds nothing at all to economic analysis, other than mystical mumbo jumbo.

Press Release from Fife Today about the June 2014 Kirkcaldy Adam Smith Lecture

 HERE 

“Divine Words"

"World-famous historian Professor Tom Devine has been unveiled as the guest speaker at the 2013 Adam Smith Lecture.

Professor Devine, who lectures at Edinburgh University, will speak in Kirkcaldy on Thursday June 6.

In recent years the prestigious Adam Smith Lecture has been delivered by Kofi Annan, former General Secretary of the United Nations, Professor Alan Greenspan, former head of the United States Federal Reserve, Mervyn King, Governor of the Bank of England and James Wolfenson, the president of the World Bank.

The focus and emphasis of this year’s lecture by Professor Devine will be on ‘Adam Smith’s Scotland’ and Professor Devine will put the economist’s life and work in the context of his education and residence in Kirkcaldy.

The professor is not only author of ‘The History of the Scottish Nation’, but more recently a book on Scottish emigration called ‘To the Ends of the Earth’.

Gordon Brown MP has once again helped organise the lecture.

He said: “Professor Devine is one of the great historians in Scotland and will be much welcomed as someone who has got a great reputation for his ability to talk about Scotland’s history.

“We are delighted that someone as prestigious as Professor Devine has been prepared to accept our invitation to speak.”

Michael Levack, chairman of the Adam Smith Global Foundation, said “This will be a major boost to our ambitious programme and cement the strong start we have made in the work of The Adam smith Global 
Foundation.”

Martin McGuire, interim principal, Adam Smith College, said: “Events such as these provide an excellent opportunity for our students to gain valuable experience.”

For further information or an invite to the lecture contact the Adam Smith Global Foundation on (01592) 267171 or e-mail info@adamsmithglobalfoundation.com.”

Comment

I hope to attend the Lecture.  Over the last few years I have attended these lectures.  I know Professor Tom Divine is an excellent speaker and an authority on 18^TH-Century Scotland and it is well worth listening to his historical views.

Follow the link to the Adam Smith Global Foundation.

Friedman and the Invisible Hand

Milton and Rose Friedman "Free to Choose", New York: Harcourt Brace Jovanovich, pp 13-14”

"A free market [co-ordinates] the activity of millions of people, each seeking his own interest, in such a way as to make everyone better off... Economic order can emerge as the unintended consequence of the actions of many people, each seeking his own interest."

Comment

Well, what is wrong with that statement?  Not much if we add a few words:

“A free market [co-ordinates] the activity of millions of people, each seeking his own interest, in such a way as to make everyone better or worse off than they would be if instead a government, irrespective of the individual brilliance of its members, tried to micro-manage the economy. Economic order or disorder can emerge as the unintended consequence of the net effect of the actions of many people, each seeking his own interest, which may or may not be to the public good.”

Omitting the inserted words makes a great deal of difference and enables the Friedmans and Company to assert that markets reconcile all self-interests – competitive and monopolistic and including morally questionable selfish motives and behaviours - into socially beneficial outcomes .  Smith called the latter a “licentious” theory.  I agree with Smith.

Adam Smith: Left or Right?

In Paul Walker’s excellent Blog, Anti-Dismal, (New Zealand) HERE 

He posts an informative article on a very modern issue, basically on whether Adam Smith leaned either to the “Left” or the “Right” (a somewhat anachronistic distinction, given these distinguishing terms refer to the accidental location of whether French revolutionaries who sat on the left or the right sides of the French assembly meeting hall, a event after Smith died in 1790).

Paul writes:

“In a forthcoming article (“Adam Smith: Left or Right?”) in the journal Political Studies well-known Adam Smith scholar Craig Smith writes:

Amartya Sen (2009) has drawn inspiration from Smith in developing his own theory of social justice and Samuel Fleischacker (2004) has made the case for reading Smith as a precursor of modern notions of social justice. Iain McLean (2006), on the other hand, makes the stronger claim that Smith’s true legacy lies, not with the libertarian economists of the Adam Smith Institute, but rather with the social democrats of the John Smith Institute. In all three cases the broad claim is that there are grounds for associating Smith with the modern egalitarian idea of social justice understood as the state-backed redistribution of wealth to ameliorate the effects of poverty.” …

…. That he is wary of any automatic reliance on the political process and the state to pursue our social objectives is admitted even by those such as Fleischacker who want to reclaim Smith for the left. As Fleischacker (2004, p. 241) also admits, this points us toward a presumption against the state and a presumption in favour of private action by voluntary associations of individuals. But if this is the locus for the exercise of beneficence and the provision of public works then we are dealing with something very different from the modern debates about intra-national transfers or even international transfers and distributive patterns.

Craig Smith goes on to say that what this implies for a ‘Smith-based’ notion of distributive or social justice is clear,

we should take more seriously Smith’s silence on modern distributive justice, his desire to place conceptual distance between beneficence and justice, his distrust of the political process and his temperamental distaste for utopianism. And we should pay more attention to his localist, prudential category of police and his desire to press a normative distinction between strict principles of justice and political or beneficent decisions guided by expediency. These are not accidental aspects of Smith’s thinking, however imperfectly they are carried over into his own policy prescriptions. They suggest a very different understanding of the normative ideal of justice and one that might actually give us good reasons to doubt the efficacy of thinking about our moral obligations to the poor and welfare provision in terms of social justice. …

… When thinking of our moral obligations a related question about Adam Smith’s thinking is raised by Maria Pia Paganelli in a chapter forthcoming in the Oxford Handbook on Adam Smith. Paganelli asks why Smith promotes free markets and argues that he promotes them for at least two reasons: efficiency and morality. In terms of morality Paganelli argues that Smith thought that markets can foster morality just as much as morality can foster markets. Paganelli concludes her chapter by noting:

“Adam Smith favours commerce on grounds of both morality and efficiency. Commerce is intertwined with morals, it supports moral development and at the same time it is supported by it. Commerce requires morals for its functioning and gives the conditions under which people can live, can live freely, and can live morally…

Returning to the question of whether Adam Smith was “left or right” James Otteson writes in the epilogue to his 2011 book Adam Smith:

‘He [Smith] was instead an old-fashioned liberal: favoring individual liberty, endorsing state institutions to protect this liberty, and, where they conflicted, favoring the individual over the state as a default. But he was also a sceptical empiricist. He favored free trade, free markets, and a government robust but limited to the enforcement of a few central tasks not because they comported with a priori principles but because they seemed to work.

It is worth noting that this sceptical empiricist approach to markets, trade and government rather than an a priori principle approach would most likely disqualify Smith as a libertarian, at least of the Radian or Nozickean kind.

Otteson goes on to say, “Smith’s concern with the poor leads some commentators to suggest that he must have been a proto-“progressive” liberal, since, as some believe, only progressive liberals care about the poor. Samuel Fleischacker, for example, argues that Smith’s concern for the poor is one reason to see him as “left-leaning” rather than “right-leaning”. Concern for the poor is, however, hardly the exclusive provenance of the political left. And Smith’s strong arguments in favor of decentralization of power, competition, and free markets would seem to put him rather on the right of today’s political spectrum than on the left.”

Comment

[You must follow the link to the “Anti-Dismal” Blog and read the entire post for an erudite discussion of recent contributions by Smithian scholars at the highest levels of scholarship.]

I have met and discussed Adam Smith with all of the distinguished authors mentioned in the post and have followed the issues they debate in recent years, including the specific issues raised in the post.  

Currently, I am working on aspects of these issues particularly in relation to the Left”- “Right” distinctions made in these debates and how they relate to the invisible-hand metaphor and its modern connotations.

I am often asked why I make such a fuss over a metaphor used by Adam Smith in the 18^th-century.  However, Smith’s use of the IH metaphor is of underlying importance today given its prominence in modern debates on the market-state’s roles and share in the GDP of all countries.  

Moreover, the protagonists in and around governments base much of their different perceptions of how much is enough on the supposed roles in the success and failures of whichever mix of proportions of State/market roles are permitted in their GDP on supposed recommendations for or against by Adam Smith.    Do we rely on the “invisible-hand’ of markets for most of our GDP or the “visible hand” of the state?  Or do we raise questions about what is meant by these categories?

Why do markets need an “invisible hand” to operate  when markets work perfectly well only by very visible prices and could not work without their visibility?  Why do states that work under conditions of invisible power deals, personal ambitions, private invisible lobbying – and not a little invisible corruption - become somehow categorised as “visible”, apart from it being a term popular with politicians?

This is a rich field well beyond interest in the search for Adam Smith’s politics.  Even if he had been alive, I doubt if he would have chosen to sit on the left or the right side of any Assembly.  He did not have a vote in 18^th-century Scotland and would have been disinclined to exercise it even if had a vote.  He believed that as a philosopher that his role was to “do nothing but observe everything”.

Michael Fry Speaks Truth to Politics

Michael Fry writes in The Scotsman (“Scotland’s national newspaper”, 18 April 2013  HERE

“Money and morality an issue for us all”

“ADAM Smith would not have been a fan of a government making its citizens’ moral judgments for them, writes Michael Fry.

In the time of Adam Smith, just like today, Scotland had a problem with its fishing industry. There was not much money for investment in that period, and the fleet was out of date – in particular, it was no match for the European boats, usually from Holland, which made a habit of coming into Scottish waters to catch the fish from under our lads’ noses. Sound familiar?

Then, as now, the British government considered that if Scotland had a grievance, the best thing was to throw money at it. So the Treasury provided a subsidy (a bounty in contemporary language) for building bigger and better Scottish boats to match the Dutch ones. Smith was living in Kirkcaldy, so he knew all about these things from the fishermen of Fife, and he wrote: “It has, I am afraid, been too common for vessels to fit out for the sole purpose of catching not the fish but the bounty.”

I thought of this when I read a speech given by Alex Salmond {Scotland’s First Minister in the Scottish Parliament] during his visit to the US for Tartan Day last week. He was addressing an audience at Princeton University, so the thoughts were suitably learned. They drew a distinction between the Smith of The Wealth of Nations, with its advocacy of capitalism (or something very like it), and the Smith of his earlier book, The Theory of Moral Sentiments, which recommends altruism and benevolence – or, as the First Minister horribly put it, “empathy”.

Salmond will always be a politician more than anything else and, before closing his remarks, he drew some conclusions from all this theory for the burning issues of today. One subject he turned to was climate change and his government’s policies to deal with it.

The most controversial part of that programme is wind farms. Even as I read Salmond’s speech, the Highland Council was nodding through a proposal for a wind farm with 83 turbines to be built above Fort Augustus, and so ruin another stretch of rugged scenery.

But hang on a minute, is it not possible to discern a certain similarity between the fishing boats of the 18th century and the wind farms of the 21st? In both cases, government decides they are a Good Thing, not only in Scotland but “worldwide”. So it subsidises them.

The interesting thing is where the subsidy goes. It goes not to the consumers of fish, nor to the consumers of energy. It goes to the producers, to the builders of fishing boats or of wind farms – both groups that then make large profits at public expense. It is in the end a transfer of money from the powerless us to the powerful them, with government the arbiter of this redistribution.

For all its reputation as a handbook of capitalism, The Wealth of Nations is full of such examples of what today we have come to call rip-offs. “People of the same trade seldom meet together,” Smith writes, “even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” …

... Smith is a psychologist as much as an economist, and for me the uncanniest part of his genius is to tell us, in every case, what is actually going on. He was a cautious fellow, but his very caution allowed him to read the reality of motives. And once he had read them, he was always on the side of the small man likely to suffer from the presumption of the rich and powerful. When he called for liberty, as he constantly did, it was to secure the rights of the small man against the rich and powerful. …

… How did Smith propose to deal with the abuse of liberty? To answer the question we must turn from The Wealth of Nations to The Theory of Moral Sentiments, and there we can learn that morality is not secured by the multiplication of laws, nor by the interventions of government, which are both inevitably corruptible. It is secured not at a public level but at a private level, in each person through the cultivation of his or her own moral sensibilities.

Comment

[Disclosure: until my retirement in 2005, I was a member of the SNP and I still am a donor (of small not large sums post retirement!) and I regularly vote for its candidates. I can therefore address political problems in conformity with my self-denying ordinance on Lost Legacy of not discussing politics in any country except the one I vote in.  In this respect, I shall vote ‘Yes’ in Scotland’s Independence Referendum in August 2014.

I have been an academic associate of Michael Fry for 40 years.  I do not know his politics, but I share with him membership of the Tuesday Club in Edinburgh, a slightly right-of-centre dinner club with members close to the social-democratic centre left to the more conservative centre right, and those, like me, who straddle both trends as a moderate Libertarians.]

Fry writes:

“For all its reputation as a handbook of capitalism, The Wealth of Nations is full of such examples of what today we have come to call rip-offs.” 

How right he is.  Wealth of Nations is as wildly misread (usually from selective collections of quotations from it) and it remains as widely unread.  Add to this unhappy situation the awesome fact that Smith’s “Theory of Moral Sentiments’ (1759) is even more widely unread than Wealth of Nations and we have a recipe for quite astonishing degrees of ignorance about Adam Smith’s legacy.

Take the quotation about “People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

This often quoted passage is an apt description of the baser habits of businessmen in commercial markets even today.

In Smith’s 18^th-century Scotland, he alluded to the behaviours of the Town Guilds, which shared, under legislation, legal rights to engage in powerful monopolistic practices whereby under the Statute of Apprentices (from Elizabethan times in the 16^th century) master tradesmen were restricted to two apprentices enduring 7-years of training and the further restriction that to practise their trade as fully-fledged tradesmen they had to be approved by the local Trade Guilds or move somewhere else.  These laws were a license for the local Guilds to exercise a perpetual monopoly, or, in modern terms, a “closed shop”.  Monopolies raise prices and restrict competition, which were common before Margaret Thatcher’s governments abolished them in trades unions in the 1980s.

I liked the analogy Michael Fry develops between the herring boat “bounty” and today’s wind-farm “subsidy”. I remain a sceptic of 1990s “global warming”, recently changed to “climate change”, and soon, I suspect in view of the extraordinary cold winter here in Scotland, to become “global cooling”.  Nevertheless, Fry’s analogy deserves consideration.

I commend Fry for spotting the important point Smith made on Liberty: “When [Smith] called for liberty, as he constantly did, it was to secure the rights of the small man against the rich and powerful.”

This is absolutely right!  Those who read into Smith a passion for laissez-faire (leave alone) misunderstand him. 

Firstly, Smith never used the French words,  rightly in my view as a cry on behalf of merchants, not their consumers.  M. Le Gendre, “a plain spoken” merchant, in 1690 answered dirigiste French Minister, M. Colbert, when asked what he wanted, replied ‘Laissez-nous faire”.  At the time, the French administration tightly controlled by hosts of regulations everything that merchants could do in practice.  They wanted freedom to run their business affairs entirely themselves.  Their customers were not asked what they thought.

Secondly, English mill and mine-owners supported ‘laissez-faire” for themselves, not their employees or ocmpetitors, when they supported campaigns for the Repeal of the Corn Laws (to reduce high food prices and thereby industrial wages) and the early Factory Acts that restricted hours of work and the introduction of modest safety measures, especially for women and children.

From these misleading associations, classical economists promoted “laissez-faire” in their textbooks and sank its roots into their political economy, including spreading the general and false view that Adam Smith advocated laissez-faire.  Even today, in neoclassical economics, the identification of Adam Smith with laissez-faire is commonplace

I recommend that you follow the link to read Michael Fry’s full article.