Joseph Stiglitz on Thin Ice?

A reader send me this piece: “In No One We Trust” by Joseph Stiglitz in the New York Times (21 Dec) HERE 

"The undervaluing of trust has its roots in our most popular economic traditions. Adam Smith argued forcefully that we would do better to trust in the pursuit of self-interest than in the good intentions of those who pursue the general interest. If everyone looked out for just himself, we would reach an equilibrium that was not just comfortable but also productive, in which the economy was fully efficient. To the morally uninspired, it’s an appealing idea: selfishness as the ultimate form of selflessness. (Elsewhere, in particular in his “Theory of Moral Sentiments,” Smith took a much more balanced view, though most of his latter-day adherents have not followed suit.)"

"...If any of them thought about the social implications of their activities, whether it was predatory lending, abusive credit card practices, or market manipulation, they might have taken comfort that, in accordance with Adam Smith’s dictum, their swelling bank accounts implied that they must be boosting social welfare."

And finally:

“I suspect there is only one way to really get trust back. We need to pass strong regulations, embodying norms of good behavior, and appoint bold regulators to enforce them. We did just that after the roaring ’20s crashed; our efforts since 2007 have been sputtering and incomplete. Firms also need to do better than skirt the edges of regulations. We need higher norms for what constitutes acceptable behavior, like those embodied in the United Nations’ Guiding Principles on Business and Human Rights. But we also need regulations to enforce these norms — a new version of trust but verify. No rules will be strong enough to prevent every abuse, yet good, strong regulations can stop the worst of it.”

Comment

I find Joseph Stiglitz an untrustworthy authority on Adam Smith’s Works and ideas.

Now if his remedy for lack of trust in society were to be applied to his “lack of trust” when attributing ideas to Adam Smith, we should “pass strong regulations, embodying norms of good behavior, and appoint bold regulators to enforce them”. We “also need regulations to enforce these norms — a new version of trust but verify. No rules will be strong enough to prevent every abuse, yet good, strong regulations can stop the worst of it.”

Yes, you can imagine the impossibility, this side of dictatorship, of first passing the necessary legislation through parliament, and second, devising a safe system of regulation that actually worked.   And Stiglitz wants to apply such a system to the supervision of every act that assures anybody trusting anybody else is worthy of their trust right across a complex society’s economy!  Gives us a break, Joseph!  And this suggestion appears in the New York Times from a distinguished Nobel Prize winner? 

Surely something is wrong with Joseph’s thinking here? 

Although he correctly writes: “Adam Smith argued forcefully that we would do better to trust in the pursuit of self-interest than in the good intentions of those who pursue the general interest”, Smith also observed that there were occasions when individuals acted in furtherance of their (hidden) motives, which he described in a “more striking and interesting manner” (Lectures on Rhetoric) by using a popular metaphor of them being “led by an invisible hand”, which had “unintended consequences”.

Now this did not mean that Smith equated “self interest” with “selfishness” nor that “If everyone looked out for just himself, we would reach an equilibrium that was not just comfortable but also productive, in which the economy was fully efficient.”   Such a conclusion is absurd and was invented by modern economists (Paul Samueson, etc.).

Why? Well each individual is dependent on the self-interest of others and therefore cannot look out “just for himself”, because he must take account of and mediate his “self-interest” with respect those others.  What is true for one individual is true for others.  No individual lives on an island of egoism in a sea of indifference to the egos of others: to receive what he wants from the “butcher, brewer, and baker” he must address – serve, contribute to - by curbing his own “self love” to persuade others to serve him in return.  Smith called this exchange “bargaining”.

As for “Adam Smith’s dictum, their swelling bank accounts implied that they must be boosting social welfare” I do not recognize the reference to this as a “dictum” of Adam Smith’s.

Stiglitz in these examples does Smith and himself a disservice and feeds the “greed is good” school of scriptwriter’s one-liners. 

As for his remedy to lack of “trust”, I consider it worse than the problem is supposedly addresses.  Trust cannot be imposed or monitored by parliaments across the globe, nor can relationships between billions – even millions, or even thousands – regulated by the boldest of “regulators”, necessarily deputised across an economy, even across a family.  In certain dictatorships people are closely monitored against harbouring disloyal thoughts against the regime. while sharing them is death sentence.   Surely Joseph is not suggesting that?

Scottish Independence, no 1

Andrew Ferguson writes (30 December) in "Scotland On Sunday” (The Scotsman): HERE

 “Adam Smith would have backed Scots pound

I was interested to read the article by Brian Quinn in Scotland on Sunday (Another Voice, 15 December) in which he questions the proposal outlined in Scotland’s Future that an independent Scotland would use the UK pound.

In my book, Scots Who Enlightened The World, which explores the Scottish Enlightenment through the lives of its key figures, I focused on some of the issues which need to be addressed to enable informed voting in next year’s referendum on independence, attempting to approach these from an Enlightened perspective. Foremost among these are membership of the European Union and the choice of currency.

Adam Smith, were he alive today, would, I suggested, be troubled by the inherent dangers of becoming a part of a currency zone, be it the pound sterling or the euro, with different economic characteristics. This was starkly demonstrated in recent years by the runaway boom in Irish property prices fanned by the low interest rates imposed on the Eurozone by Germany’s domestic policies when the Irish economy needed to dampen excessive exuberance by a sharp rise in interest rates. With his belief in the operation of markets, he would, I postulated, have favoured the flexibility given by a Scottish pound, albeit if initially informally linked to the pound sterling, as this would give a Scottish Government the freedom to adopt the policies best suited to Scotland’s needs, sharing the views expressed by Brian Quinn.”

Andrew Ferguson, 
www.scotswho.com, via email

Comment

This is becoming one of the many “hot” topics in the 2014 Referendum Debate in Scotland. While happy to join in that debate here in Scotland I am not sure that readers of Lost Legacy are as interested in the issues in the debate as we are in Scotland.

However, I think it worth pointing out that drawing on an imaginary Adam Smith to give a view on the many issues involved is likely to prove unhelpful. This view does not detract at all from Andrew Ferguson’s well thought-out analysis of the currency issue.

What Adam Smith might say today is entirely hypothetical, and subject to many caveats, most of them unknown to anyone who lived over two centuries ago and, not least, missed the history of events during that interval all of which, or course, was unknown to Smith.  He was a pragmatist not a visionary.

Moreover, whatever the politics of the 1707 vote in the then Scottish Parliament on its highly restricted franchise that led to the Union known as the United Kingdom, today’s case for Scottish independence does not depend on them (nor does the sad history of the Jacobites and their dynastic quarrel within the UK monarchy).

The UK is now a busted flush: Empire (which Smith warned against) has gone; it will never come back.  World domination is now a lingering memory that the ruling political elites, with their proclivities for “police style” interventions, will have to accept eventually. Scotland does not need to remain wedded to the last days of the UK.

 Into this mix, the question of the currency is an important element.  If the £ benefits Scotland and the rest of the UK then it will happen, but nothing can be negotiated this side of a “Yes” vote.

Meanwhile, we can put forward that which is best for Scotland.   If a currency union (with its side effects) is considered best, then so be it ; if it cannot be agreed with the former UK recalcitrant elite, then Scotland will live with one of the alternative options, none of them constituting the end of civilization as we know it.

[Disclosure: I favour a “Yes” vote in the 2014 Referendum.]

Sydney Newspaper Prints Good Sense on Darwinian Evolution and Self-Interest

Ross Gittins, Economics Editor, posts (28 December) on the Sydney Morning Herald – a newspaper I once worked for as an assistant proof-reader long ago in my teens – HERE  or read more HERE 

“Darwinian model of economics flawed for firms”

“What can the theory of evolution tell us about how the economy works? A lot. But probably not what you think it does.

Famous economists such as Joseph Schumpeter (author of the notion of ''creative destruction'') and Milton Friedman, and the contemporary economic historian Niall Ferguson, have viewed economies as Darwinian arenas: competition among firms reflects the ruthless logic of natural selection. Firms struggle with each other, with successful firms surviving and unsuccessful ones dying.

Thus evolution seems to support three pillars of the conventional, neoclassical model of the economy. First, that ''economic actors'' are self-interested, second, that self-interest works to the good of the public (propelling Adam Smith's ''invisible hand'') and, third, that together these lead the market to deliver the community ideal outcomes (''optimisation'').

But there's a basic fault in this contention, as Dominic Johnson, of Oxford University, Michael Price, of Britain's Brunel University, and Mark van Vugt, of Amsterdam's VU University, point out in their paper, Darwin's Invisible Hand.

In conventional economics, ''economic actors'' can be either individuals or firms, although the theory tends to treat firms as though they were individuals. In reality, however, firms are groups of individuals - in the case of big national and multinational companies, thousands of them in one firm.

So if Darwinian selection applies to competitive markets, this implies that selection pressure acts on groups, not individuals. And group selection, as opposed to conventional Darwinian selection at the individual level, leads to the emergence of traits that act against self-interest.

With group selection, ''we should expect the suppression of self-interest among individuals, not its flourishing'', the authors say.

''Firms with less self-interested workers will compete more effectively and spread at the expense of firms with more self-interested workers, which will compete less effectively and decline. In other words, the model predicts nasty firms but nice people.

Comment

I am not sure that the authors of the paper Ross Gittins confronts (Dominic Johnson, of Oxford University, Michael Price, of Britain's Brunel University, and Mark van Vugt, of Amsterdam's VU University) really understand Darwinian evolution or its application to the evolution of society, or to what its “ruthless logic” amounts to.  Evolution is neither “benign” nor “ruthless” – it is moral free, blind and purposeless.  It happens, usually over long time periods.  It is about constant change.  Many sub-human species were consequences of the speciation from the common ancestor of chimpanzees and the hominine line 6-8 million years ago in East Africa, from which Homo sapiens eventually emerged some 200,000 years ago. 

All the pre-human species in the line became extinct.  In biological evolution extinction is a regular and unpredictable natural event. Nobody knows what fate awaits the human species, be it by “nature” or by the ultimate ‘unintended consequence’ of “human actions”.

Once more on the richness and boundaries of “self interest”: economists cling to the idea that self-interest is egotistically competitive.  It isn’t, at least in Adam Smith’s interpretation. No individual can reach any level of self-interest without the co-operation of many others, not all of them knowing or needing to know the ultimate beneficiaries of their co-operation.  So, as a very young teenager (before discovering a much easier, quieter and cleaner, and incidentally better paid job at £12 a week, on the Sydney Morning Herald) I worked for £5.10s a weeks as an operator of a capstan-lathe, turning out dozens of brass-fittings, drilled, scored and with threads to fit to some other machined parts for something to do with I don’t know what. I never found out what they were used for or who used them.   But without those unknown people I would not have had a job that satisfied my then self-interests of regular money.  The price of that job was my willingness to co-operate with anonymous others.

So it is in all market societies.   We cannot serve our self-interests without mediating them with the self-interests of others, as shown brilliantly in Smith’s “butcher, brewer and baker” example in Wealth Of Nations (WN I.ii.2: 26-7). The myth of a self-interest ego is, well, fantasy. True, my self-interest prompted me to move to the SMH, apart from the pay and the cleanliness of the albeit untidy, air-conditioned proofreaders’ room. There were no early morning journeys to work (12 noon beats 6.50 am and Sydney mornings at the beach beat sweaty mornings in a hot factory, in my teenager’s view; also I had time to read a lot too, including much of the paper’s contents, from which the idea formed of starting higher education in my early 20s).

Follow the link and read the full post.  Ross Gittins talks a lot of sense about Darwinian evolution and I am glad to see that the Sydney Morning Herald appears to be in safe-hands, at least for economics and evolution.

He only needs to forget modern theories of "propelling Adam Smith's ''invisible hand'' by reading Lost Legacy posts for a month or two - but, hey, let's be grateful for major steps towards agreement.

Adam Smith On Civil Government

“The Dreamer” posts (8 December) this piece “Adam Smith: the most misquoted economist of our time.” HERE on 

“Note: I was discussing with a colleague how frustrated I was when socialists took Adam Smith quotes out of context. He replied that the right had equally used Smith to support its dogmas. To be clear, Smith was not a dogmatist, but a pragmatist. I wish to clarify the context in which he said all these things.”

“Civil government, in so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all. – Adam Smith, Wealth of Nations, Book V, Chapter I, Part II On the Expense of Justice.”

“Smith was talking about the origins of civil government here and how no effective institutions for the regulation of property were put in place without significant corruption. Further in the chapter, Smith elaborates on the necessity of a separation of powers to ensure fair judgment of the Rule of Law to promote egalitarian treatment. A fair justice system will ensure that both the rich and the poor have property rights.”

Comment

I discussed this quotation from Smith on Lost Legacy 29 July way back in 2006:

“Taking a quotation out of context can always cause misunderstandings. It does so in this case. Smith was not outlining the appropriate policies for civil governments for all time and in no sense did he suggest that the appropriate role of government in modern societies was to suppress the poor. Quite the reverse! His entire approach to modern government was for it to cease intervening on behalf of special interests to enrich themselves at the expense of consumers, the majority of whom were among the poor. He saw commercial society as a road to opulence that would spread its benefits to the family of common labourers.

His lectures on jurisprudence, delivered at the University of Glasgow between 1751-1764, show his historical approach to the evolution of modern societies through four stages, each comprising a different mode of production. He began with what his contemporaries called ‘Rude’ society, the closest analogy of which were commonly described as represented by the North American ‘Indians’, as reported by travellers in the 17th-18th centuries, and in Africa and the Pacific.

In contrast to the common labourer in Scotland, by modern standards a class of people living in poverty compared to the lives of the gentry, landlords and princes of Britain, they compared well with the ‘chiefs’ and ‘kings’ at the head of the ‘savage’ nations of America and Africa. Indeed, Smith pointed out that the difference in living standards between the rich and poor in Britain was not as great as the difference in living standards between the common poor in Britain and the ‘richest’ chief in America, who ruled the lives of thousands of his people.

It is important to realise that Smith did not ascribe these differences in relative living standards to any kind of racial cause; the differences arose solely because of the relatively advanced state of the division of labour between the two modes of production. The ‘Americans’ (and Africans) were hunters; the Scottish poor were farmers and day-labourers, living in shepherding, agricultural and commercial societies that had developed from when all Europeans had lived in the first age of man – hunting and gathering. It was John Locke (1690) who said that ‘in the beginning all the world was America’. And so it was. Every human society had started in the Hunting stage as ‘savages’, just as our distant ancestors all came from Africa.

With extremely low population densities, hominids migrated out of Africa from about a million years ago (and became extinct), followed by humans about 200,000 years ago. There was no need for ‘governments’ as we understand them. People were ‘free’ of coercion, except within the families and bands, but ‘enjoyed’ extremely low living standards, first as gatherers (in common with our cousins, the primates), then as gatherer-scavengers (stone tools, primitive co-operators) and then as gatherer-hunters, the remnants of which occupied North and South America (but not Central America), sub-Saharan Africa, South Asia, Pacific Islands, and Australia.

Meanwhile, and separately, human societies in India, China, north and central Asia, and Europe went from savagery (hunting), through shepherding, then agriculture and lastly, commerce, some societies ‘stopping’ at particular stages (shepherding in central Asia and Arabia, North Africa), others reaching the commercial stages, and then reverting under barbarian invasions (Persia, Greece, Egypt, Rome, western Europe) to agriculture with the destruction of commerce. Meanwhile, China and India's civilisations stagnated under institutional inertia.

Crucially, Smith highlighted the increasing role of laws as each society developed through the four stages. With hunting and gathering, laws were few, and were settled within families; with shepherding, law were enforced by those who possessed flocks and herds (poachers were killed); and with agriculture and settlements, laws were devised and enforced by the first governments, mainly in defence of property. People who grew crops protected them against theft by those who had none. No stable society can last for long if property in agriculture is insecure. That was the main role of civil government as it settled disputes and adjudicated between disputants. Shepherds defended their flocks and herds by rewarding individuals without them with subsistence; farmers defended their fields by rewarding landless labourers in the same manner.

Commerce grew slowly, from the continuing division of labour – surplus food exchanged for manufactured products in bargaining – with contracts enforced by civil government. The relapse from Roman ‘civilisation’ (a fairly barbaric world too) into warlords and feudalism, lasted a thousand years until commerce revived”

in the 15th-16th centuries. Smith’s Lectures in Jurisprudence (1763-4) trace this entire period from Classical Greece-Rome to 18th-century Britain, and also trace the growth of Liberty within ‘modern’ society as absolutist Feudal monarchy gave way to the rule of law, Habeas Corpus, trial by Juries, independence of the judiciary, emasculation of the powers of the monarch, parliamentary ‘elections’ and freedom of contracting.”

Smith was talking about the origins of civil government here and how no effective institutions for the regulation of property were put in place without significant corruption. Further in the chapter, Smith elaborates on the necessity of a separation of powers to ensure fair judgment of the Rule of Law to promote egalitarian treatment. A fair justice system will ensure that both the rich and the poor have property rights.”

GK:

Today I would add further comments, particularly regarding the defence of property rights in history, from observation of the behaviour not just of the poor but also of the defence of property rights by the rich against the depredations and ambitions of other rich property owners. Any history of dynastic quarrels from the earliest times saw law cases galore brought by property owners against would-be suitors with claims against current owners often requiring the civil government to intervene on one side or another.   

War Lords, Kings, and Emperors were not above these quarrels.  They probably represent the largest single cause and expense of armed state interventions in much of Europe from pre-Roman times to the 18^th century, and since.

Even in the earliest times, inter-tribal warfare was common and skirmishes over territorial rights were constant.  Hence that the Left often quote this passage from Smith in righteous indignation about the affects of civil-government on the poor is not surprising but they seem to prefer the naked quotation to Smith’s full argument both his Lectures on Jurisprudence and Wealth Of Nations. 

Early legal judgments that settled disputes about property rights could cover which tribal member in an egalitarian band had the “right” to the fruit of a tree – the one who picked it or the one who snatched it from the picker? – or the “right” to an animal in a hunt – the one who “started” the chase or the one who claimed the body during the hunt?  And so on in their everyday lives. 

Smith discusses these and many other cases in his Lectures on Jurisprudence. Only Left anarchists and Hard Libertarians dispute the absolute need for civil government to support justice in civil society and that means Civil Government and the Rule of Law.

A Mysterious Mission

Poster on Debates Org   HERE.

Profit-driven society: Does the "invisible hand" solve everything?

“es, the invisible hand allows good products to succeed. Yes, the invisible hand solves the problem of allocating resources, because it allows good products that people want to succeed and it also allows things that people do not want to fail. Resources are not distributed efficiently if someone else decides what people should want, instead of what they actually want. There will be a shortage of some things and an overproduction of others. The invisible hand allows everyone to participate in the economy by allowing them to vote with where they spend their dollars.”

Comment

“es” writes as if there is some sort of entity in markets that allows some things to happen and disallows others. 

Apparently, “someone else” cannot decide what people should want but the “invisible hand” entity can! Remarkable.  How does the “market” choose between “someone” and the “entity”? 

Surely, people see visible prices and decide accordingly whether to buy?  What does the “entity” contribute to the decision?

We know that if people did not exist there would be no markets because there would be no prices.  Now suppose there was no “invisible hand” entity, we can be sure that where “visible” prices in markets exist, there would be markets.  The ”entity” is redundant; there is no “invisible hand”. 

“es” asks the wrong question.  It should be “does the "invisible hand" solve anything”? 

Murray Rothbard's Dismissal of Adam Smith

Steve Bartin (24 December) posts on News Alerts HERE 

“Murray Rothbard: Economics Was Better Before Adam Smith”

“You didn't learn this in your typical economics class in college. You probably didn't learn it anywhere. Economist Murray Rothbard explains economics didn't began with Adam Smith and was better before Smith showed up on the scene. If you read this printed lecture: you'll learn more about economics than what many people learn in their entire stay at college.”

Comment

Murray Rothbard had a “thing” about Adam Smith, which I discussed on Lost Legacy in 2006 after reading his articles courtesy of the “Austrian” web site (von Mises, etc. whose “Human Action, a large volume, that I purchased was heavy going, though impressive in its scope). 

I have asked several ‘Old timers’ who knew Rothbard.  Their reports of his abrasive debating prowess did not include his use of the usual academic courtesies (much like Karl Marx, who ‘never took prisoners’ of those who disagreed with him).

Rothbard’s line that “economics didn't began [sic] with Adam Smith and was better before Smith showed up on the scene” is classic of him. 

You can find similar Rothbardian approaches in Salim Rashid’s “The Myth of Adam Smith” (1998), Edward Edgar, and echoes too in Joseph Schumpeter’s magnificent “History of Economic Analysis” (1954) (Allen & Unwin), edited by his wife, Elizabeth Schumpeter. [Similar abrasive debaters should note, it does not do your case harm to include your “opponents” respectfully in your references.]

Now Adam Smith had critical respect for his predecessors.  He was severer on those governments that listened to some of them in the camp of mercantile political economy, policies we can now see in historical perspective that started England (later Britain) on the road to Empire building and to the wars up to the 1950s at great cost in capital and human life.

Rothbard had a bee in his bonnet about Smith’s muddled ideas on the theory of value and blames him for the Marxian developments in the labour theory of value, communism, and all that followed. 

Why Smith alone is selected for that odium is not clear; he followed his predecessors and was followed by Ricardo, Mill and etc., who led to Marx, who, incidentally, was quite a failure as a revolutionary, let alone as an economist. Various strains of 'Marxism' long remained a minority voice in the growing mass labour and socialist movements from the 19^th and 20^th centuries that evolved into social democracy.

Moreover, much of Adam Smith’s contributions in economics and moral philosophy were taken over by epigones, whose misinterpretations of Smith provoke critical appraisal and the hostility from such as Rothbard and others, in their one-line quips of dismissal.

Loony Tunes no 88

1

“Haynes on Fire” posts (4 December) HERE 

"Biting the Invisible Hand"

 “For the two of you who have yet to figure it out, HAYNES on FIRE fully subscribes to the Invisible Hand Theory, as so eloquently developed by Adam Smith in his magnum opus, The Wealth of Nations.  Therein, Smith advances the now-novel idea that producers should be free to individually control all aspects of production (including wages) in bringing their products to the marketplace.”

GK: “Haynes” should cool down and give his imagination a rest.  In Smith’s day employers had everything stacked against their labourers in the matter of wages.  Labourers could not meet even to discuss their wages, let alone agree to take action, or even demonstrate in support of higher wages.  Such activity breached the Combination Acts and resulted in jail sentences, even transportation to the colonies.  No such laws existed against employers combining with other employers to resist pay rises or to agree to cut wages. Local Magistrates from the same social grouping as local employers set many legal wage rates.  Adam Smith commented on this situation and attacked the hypocrisy in his “magnum opus” – "Haynes on fire" should know that.

2

Noel Butler, football (soccer) reporter, 12 September, reports on Sir Alex Ferguson, recently retired Manager of Manchester United: Butler: Fergie's ghost past looms large for Man United for TSN News (Canada) HERE 

“The last time a Scotsman made headline news like this was back in 1776. That time, Adam Smith and something about an Invisible Hand ruled the waves.”

3

Lpw CountryBuch posts on O-Zone Forum HERE 

 “The invisible hand is more patient in its work than regulators, & when it's finished, it does not suffer fools lightly*.”

4

Anon writes on Xbox 360 Achievements: HERE 

 "I cannot return to the Invisible Hand"

Nobel Prize Winner Critiques the Existence of the Invisible Hand

Joseph Stiglitz repeats his 2010 disavowal of the existence of “an invisible hand” (22 December, 2014) in All Africa (Addis Aaba) HERE   

“Ethiopia: Do Human Rights Make Economic Sense?”

“Perhaps, the single most important idea in economics is Adam Smith's invisible hand, which states that the pursuit of self-interest would lead to the well-being of society. If this were true, it would mean that business leaders would have to ask only one question: what should I do to increase my bottom line?

All other concerns would fall into place as a result of the wisdom of the market. Elevated to a creed, the idea has even more drastic implications: as long as I make a profit, I am still doing God's work - even if I abuse workers' basic rights or despoil the environment in the process.

Much of my own research over the past half century has been devoted to understanding why it is that Adam Smith's invisible hand so often seems invisible. My conclusion, in a nutshell, is that it is invisible because it is not there.”

Comment

Joe Stiglitz spells out his stance on the “invisible hand” in greater detail in the rest of the article which you should read via the link.  It is parallel to regular statements on Lost Legacy, much of which I agree with, though not all. 

The problem lies in the first sentence: “the single most important idea in economics is Adam Smith's invisible hand”, but that may be a quibble in this context.

Having broken free from belief in the existence of “an invisible hand” it is a small but significant step to take for Stiglitz, but he should drop the association of the “invisible hand” idea with any intellectual connection to Adam Smith’s writings. 

It is a wholly invented modern idea that there is an invisible hand “guiding” an economy.  Smith’s “idea” was much more simple: the invisible hand was a metaphor for the motives of individuals in the only two cases he gives, and that says other individuals in “many other cases” may also do.  The two cases he identifies who acted from those motives led to those actions that had consequences, some of which also had “unintended consequences” that served the overall “public good”, and, crucially, there are many other cases (in Wealth of Nations) which did not benefit the public good, as show in Smith's "violent attack" on Mercantile political economy (WN Book 4).

First They Shoot the Doctors, Later They Come for the Patients

Robert Vienneau on his Blog “Thoughts on Economics” HERE  posts a disturbing piece of news about what seems to be happening across economics faculties worldwide.  The are attempts to downgrade History of Economic Thought courses, journals and research papers in Australia; similar trends in North America and now this in The Netherlands. 

The bias seems to be in favour of mathematic formalism which is less and less about the real world and more and more about ‘lets assume’ we can write the equations for a world that does not exist and call it “science”.  Unfortunately, the real world in which human societies have evolved is messy beyond the imaginations of those whose opening lines include the word “assume”.   Moreover, there is no consensus on how economies actually work and there are many views as to which favoured aspects are relevant.  This makes the history of ideas important, because the people who have made suggestions have a place in evaluating any proposals that may get air-time among politicians who might adopt said ideas and make millions of people unhappy with what happens as a result (net of their fees).

Yes, that’s difficult to contemplate.  But knowing nothing about past ideas that didn’t work or wasn’t tried is just asking to risk repeating them.

I am particularly concerned that Marcel Boumans and Harro Maas are named as being among the victims of the purges in the University of Amsterdam.  I know them and appreciate their work in the history of Economic Thought and the Methodology of Economics (the latter is heavily slanted to quantitative methodology). 

Well first they shoot the doctors and later they come for the patients.

Robert Vienneau has performed a singular good service in posting notice of what went on at Amsterdam.  It is warning to all those working in the field of economics.  I post it below:

"For most of my time over ten years at the University of Amsterdam my research and that of my colleagues was strongly supported. (I taught three courses every second fall term, and took leave from Marquette.) Unfortunately over the last two years people in leadership positions there at the faculty of economics decided that the history and methodology of economics (HME) was not important, and in conditions of a financial emergency associated with chronic budget shortfalls closed down the HME group. That included sacking my very accomplished and, in our field, well-respected colleagues Marcel Boumans and Harro Maas, who had been associate professors there for many years, and ending the chair position in HME, which I held, which had been at the faculty for decades. We had six courses in the history and methodology of economics; engaged and enthusiastic students; a research group of up to a dozen people; a master degree in HME; PhD students; and a required methodology course for bachelor students. I do not think there was a better program in the world in our field. We also had great interaction with the London School of Economics, the history of economics people at Duke University, history of economics people in Paris, and the Erasmus Institute for Philosophy and Economics. The HME group was internationally recognized, and attracted students from across the world. Our financial footprint, in fact, was quite small compared to other groups, and by a number of measures of output per person we were more productive than many other research groups at Amsterdam.

Since I fully believe the faculty financial emergency could have been addressed without eliminating the group, I can only put what happened down to prejudice against our field, plus the usual on-going territorial aggrandizing that has been a key factor in the elimination of history of economics from most American universities. It is interesting to me also, that with a few exceptions, members of the economics faculty at Amsterdam made no effort on the HME group’s behalf to resist what happened or even personally expressed regret or concern to those who lost their jobs. I find this reprehensible.

The loss of this program was a blow to our field. There are now few places in the world training PhD students in history and/or methodology of economics. So in the final analysis the situation for economics and philosophy is mixed: considerable achievement with an uncertain future. Great weight, in my view, should be placed on restoring PhD training in the field, something that is being done, for instance, through generous grants from the Institute for New Economic Thinking at Duke University under Bruce Caldwell." -- John B. Davis (2012). Identity Problems: An interview with John B. Davis, Erasmus Journal for Philosophy and Economics, V. 5, Iss. 2 (Autumn): pp. 81-103.

New Book Appreciates Adam Smith on Multi-Layered Motivations

John Paul Rollert (14 December) reviews Jack Russell Weinstein, Adam Smith's Pluralism, Rationality, Education and the Moral Sentiments. Yale University Press HERE  (John Paul Rollert is a Lecturer in Law at the University of Chicago Law School).

“There are worse fates. Consider Adam Smith. His philosophy — indeed, the fact he was a philosopher — has been obscured by the “invisible hand.” That phrase occurs just three times in his entire corpus and only once in his most famous work, The Wealth of Nations. Nevertheless, it has become a symbol for the “caricaturish libertarian” whose philosophy (if we may call it that) has supplanted the “holistic picture of human agency” Smith spent his adult life describing. 

Or so says Jack Russell Weinstein in a remarkable new book, Adam Smith’s Pluralism: Rationality, Education, and the Moral Sentiments. The title is most telling for what it omits. Smith is best known as the founding father of modern economics. More than two centuries after his death, he is still celebrated for establishing a “free-market paradigm” — as Alan Greenspan put it in a 2005 lecture in Kirkcaldy, Scotland, Smith’s birthplace — that “remains applicable to this day.”

…. [Rational Choice Theory (RCT) “in its most vulgar form, that calculus presumes that people are always and everywhere driven by self-interest, an arid account of human motivation.’  …” As opposed to the “formal modeling of rational deliberation,” the decision-making process for Smith is “significantly more layered.” Human beings are buffeted by a wide variety of motivations — some inspired by custom, others etched in our DNA, all shaped by circumstance — and adjudicating between them is not a straightforward exercise in utility maximization, whether in respect to aim or the manner of deliberation….

… “Indeed, what truly distinguishes Adam Smith from the adherents of RCT as well as the proponents of a Kantian-based liberalism is the auxiliary role of reason in decision-making. The credo of the Scottish Enlightenment was famously coined by David Hume, Smith’s dearest friend, when he said, “Reason is, and ought only to be the slave of the passions, and can never pretend to any other office than to serve and obey them.” … Ultimately, Smith’s work, and The Theory of Moral Sentiments in particular, provides us “a process of finding social unity in the face of otherness, of creating a stable pluralism.”… Ultimately, Smith’s work, and The Theory of Moral Sentiments in particular, provides us “a process of finding social unity in the face of otherness, of creating a stable pluralism.” …

Comment

There is much in John Paul Rollert review that I would agree with.  He captures neatly and convincingly Adam Smith’s views on humans’ “mutli-layered” concepts of human motivation in rejecting uni-dimensional Rational Choice theories and the mathematics of 'Max-U' thinking that dominates many (too many) modern economists, specially where it imagines self-interest is adequate to explain everything or even most, of human behaviour.  It is not even an approximation. 

Having castrated “self-interest” into mere “selfishness” it ends up with butchers, brewers and bakers screwing their customers over their dinners, ignoring the very words Smith uses to explain how people bargain in the real world, where individuals’ self-interests leads them, via mutual persuasion, to mediate their self-interests to realise the mutually satisfying terms of exchange. [New readers can scroll through Lost Legacy to read my many posts of “Adam Smith on Bargaining”.]

Jack Russell Weinstein’s new book looks interesting and I shall note its details from Yale Press for future reference when I complete my reading of recent purchases of some other recent books on Smithian scholarship.

However, I have reservations about Weinstein’s take on Smith’s approach to education and the division of labour (also discussed on Lost Legacy, often in relation to Chomsky’s interpretations). 

Meanwhile if you know of other published reviews let me know of them, please.