LIBERTY REVIEW OF PETER FOSTER'S "WHY WE BITE THE INVISIBLE HAND"

LibertyReview Books connected to the Liberty Fund, the publisher of a magnificent collection of publications (at affordable prices) for scholars.  Its most famous series, the authoritative, “The Glasgow Edition of the Works and Correspondence of Adam Smith”, initially funded and published by Oxford University Press as the hard-cover edition, from 1976 to 1983.  Liberty Fund's soft-cover edition has an “absolutely must have” status Adam Smith scholars    Liberty Fund also has many other authoritative titles on the history of economic and political liberty (send for Liberty Fund's catalogues).

The review article below about Peter Foster’s new book HERE   is an excellent place to start from. Regular Lost Legacy readers will know of and anticipate my reservations about Peter’s take on the “invisible hand” mythology: 

“Why We Bite the Invisible Hand: The Psychology of Anti-Capitalism.” Peter Foster. Pleasaunce Press. 2014

“In Why We Bite the Invisible Hand, Peter Foster delves into a conundrum: How can we at once live in a world of expanding technological wonders and unprecedented well-being, and yet hear a constant drumbeat of condemnation of the system that created it? That system, capitalism, which is based on private property and voluntary dealings, is guided by the “Invisible Hand,” the metaphor for economic markets associated with the great Eighteenth Century Scottish philosopher Adam Smith. The hand guides people to serve others while pursuing their own interests, and produces a broader good that, as Smith put it, is “no part of their intention.” Critics. however, claim that the hand is tainted by greed, leads to inequity and dangerous corporate power, and threatens not merely resource depletion but planetary disaster. Foster probes misunderstanding, fear and dislike of capitalism from the dark satanic mills of the Industrial Revolution through to the murky concept of sustainable development. His journey takes him from Kirkcaldy, the town of Smith’s birth, through Moscow McDonald’s and Karl Marx’s Manchester, on a trip to Cuba to smuggle dollars, and into the backrooms of the United Nations. His cast of characters includes the man who wrote the entry for “capitalism” in the Great Soviet Encyclopaedia, a family of Kirkcaldy butchers, radical individualist Ayn Rand, father of evolutionary theory Charles Darwin, numerous Nobel prizewinning economists, colonies of chimpanzees, and “philanthrocapitalist” Bill Gates. Foster suggests that the key to his conundrum lies in the field of evolutionary psychology, which offers to help us understand both why some of what Adam Smith called our complex “moral sentiments” may be outdated, and why so many of our economic assumptions tend to be wrong. We are hunter gatherers with iPhones. The Invisible Hand is counterintuitive to minds formed predominantly in small close-knit tribal communities where there were no extensive markets, no money, no technological advance and no economic growth. Equally important, we don’t have to understand the rapidly evolving economic “natural order” to operate within it and enjoy its benefits any more than we need to understand our nervous or respiratory systems to stay alive. But that also makes us prone to support morally-appealing but counterproductive policies, such as minimum wage legislation. Foster notes that politicians and bureaucrats — consciously or unconsciously — exploit moral confusion and economic ignorance. Ideological obsession with market imperfections, income gaps, corporate power, resource exhaustion and the environment are useful justifications for those seeking political control of our lives. The book refutes claims that capitalism’s validity depends on the system being “perfect” or economic actors “rational.” It also notes the key difference between capitalism and capitalists, who are inclined to misunderstand the system as much as anyone. Foster points to the astonishing rise in recent decades of radical, unelected environmental non-governmental organizations, ENGOs. Closely related to that rise, Foster examines with one of the biggest and most contentious issues of our time: projected catastrophic man-made climate change. He notes that while this theory is cited as the greatest example in history of “market failure,” it in fact demonstrates how both scientific analysis and economic policy can become perverted once something is framed as a “moral issue,” and thus allegedly “beyond debate.” Foster’s book is not a paean to greed, selfishness or radical individualism. He stresses that the greatest joys in life come from family, friendship and participation in community, sport and the arts. What has long fascinated him is the relentless claim that capitalism taints or destroys these aspects of humanity rather than promoting them. Moreover, he concludes, when you bite the Invisible Hand… it always bites back.

Peter Foster studied economics at Cambridge. After working at the Financial Times (London) he emigrated  Canada in 1976, to the Financial Post, and became a senior editor. Since 1998, he has written for the National Post. He has won many prizes for his writings.

Comment

Lost Legacy welcomes reader’s opinions on Peter Foster’s “Why We Bite the Invisible Hand: The Psychology of Anti-Capitalism.”

I am prepared to tolerate the first part of Peter's title by putting it down to the high-standards of his journalism, in favour of the second part on “Psychology of Anti-Capitalism”.

People expecting perfection are often disappointed.  Like Smith we should be pragmatic ….

SCOTTISH INDEPENDENCE AND ITS CURRENCY

Sam Bowman (Adam Smith Institute) posted (26 August) in the Yorkshire Post (England) a well-argued case for an independent Scotland’s banking system, post-independence.  HERE (originally published on the Adam Smith Institute’s web site).  

"Answer to Scots’ currency dilemma”

"In a new paper for the Adam Smith Institute, I offer a solution to Salmond’s problem. I argue that an independent Scotland should continue using the pound sterling without a currency union. Combined with a system of financial reform based on Scotland’s most successful period in economic history, this system of ‘adaptive sterlingisation’ could give Scotland a highly stable banking system and economy in the long run.

“lan I propose, they would continue to issue these ‘promissory notes’, but would be free to start doing so on a fractional reserve basis. This means that for reserves of, say, one billion pounds sterling, a bank may lend out notes worth two billion pounds in the expectation that not everyone would try to redeem their notes at the same time. Bank runs can be avoided by including an option clause in the notes, allowing banks to defer repayment at the cost of additional interest for the customer.

When Adam Smith wrote his Wealth of Nations, it was during a golden age for Scotland. This period, known as the Scottish Enlightenment, saw thinkers like Smith, David Hume and Robert Burns revolutionise the way we think about the world, and took place against a backdrop of stunning economic growth for Scotland, unrivalled before or since.

Smith singled out Scotland’s banks as one of the main factors in its 18th century flourishing. But this banking system was fundamentally different to ours: banks could not rely on bailouts from the state, had to make their own arrangements to access liquidity when funds were short, and were free to issue their own bank notes according to demand.

The result was one of the most stable banking systems the world has ever seen, and it was only wound up with the passage of a Banking Act in Westminster that was designed for England but needlessly imposed on the Scots as well.

An independent Scotland could reinstate this system while maintaining its use of the pound without permission from Westminster. Scottish banks already issue their own notes. These are backed on a one-to-one basis by one million and one hundred million-pound notes stored at the Bank of England.

Under the ‘adaptive sterlingisation’ pUsually, when people are worried about the future, they spend less, creating a vicious cycle leading to economic slowdowns. Giving Scottish banks complete freedom over note issuance would allow them to expand and contract the supply of money in accordance with their customers’ desire to hold cash, effectively creating an automatic stabiliser in downturns.

Outside a currency union, Scottish banks would have no central bank acting as an unlimited lender of last resort to provide liquidity when they needed it.

Three Latin American countries – Panama, Ecuador and El Salvador – use the US dollar in a similar way. These countries have been praised by international institutions such as the International Monetary Fund and World Economic Forum (WEF) for the soundness of their banks. According to the WEF, Panama has the seventh soundest banks in the world.

Other bailout mechanisms should be removed too. Deposit insurance means that bank customers have nothing to lose if their bank fails, so banks have no reason to avoid risk.

Without deposit insurance, depositors would have a strong incentive to choose safe banks.

This proposal should not be seen as a panglossian case for independence. There are other issues at stake. … But removing bailout protections for banks and letting the market sort out money has worked before and should work again. If he is willing to look to economic history, Alex Salmond [Leader of the Scottish National Party and First Minister of the Scottish Government] may find an answer from his countryman Adam Smith: if you want prosperity and stability, get out of the way.”

Comment

[Disclosure: I am a Fellow of the Adam Smith Institute.]

The Scottish Referendum is drawing towards a close on 18 September, when 4 million-plus Scots voters go the Polls to answer 'YES' or 'NO' to the single question: "Should Scotland be an Independent Country?".

One of the main issues is on the currency in an independent country. The 'NO' campaign has taken the stance that Westminster will not allow and independent Scotland to be in a currency union with the rest of the UK (mainly England, of course, with tiny Wales and Northern Ireland remaining part of the rest of the UK).

The Bank of England, set up as a private bank in 1694 (one of its prominent founders was a Scotsman) when England and Scotland were in a union Crown under A Scottish King resident in England.  The two countries formed a Union of Parliaments in London in 1707. The Bank of England was nationalised after the World War II as the whole of the UK’s central bank. Its most famous currency is the Pound Sterling. 

The current argument is about the currency of an independent Scotland.  Alec Salmond, leader of the Scottish National Party, is an economist, educated at St Andrews University, Fife, Scotland.  He favours an independent Scotland in a currency union the the rest of the UK (rUK) because it is in the best interests of both parties.  The UK party leaders have announced that they will not agree to a currency union with Scotland.  Salmond considers this is a cynical bluff to  frighten voters into supporting a ‘No’ vote.  

He includes a commitment that an independent Scotland would be responsible for its proportionate share of the current UK’s historic National Debt and has budgeted it as annual debt payments into Scotland’s future, post-independence, annual commitments to the Bank.  This too is controversial, because the UK parties in rejecting a currency union insist that Scotland continues to pay off the UK’s national debt but they do not agree that Scotland would continue to have its share of the National Assets of the B of E.

In response, Salmond warns that an independent Scotland that is denied its proportional share of the BoEs national assets cannot be expected to contribute its annual share of the National Debt. The ‘No’ camp’s leaders say that this amounts to a repudiation of a debt which would shock world bankers into bankrupting Scotland!  This is an absurd assertion.  Bankers understand basic book-keeping that is based on balancing columns of Assets with columns of Debts (invented in Italy) and highlighting whether the columns balance or not, as practised all over the world in commerce and in banks. If denied its share of the joint assets, Scotland cannot be expected to pays its share of the joint debts.

However, Sam Bowman highlights the options on currency for an independent Scotland and the technical details in plain English.

Incidently, I shall vote ‘YES’ in the independence Referendum.

GOVERNOR OF THE BANK OF JAPAN MISUNDERSTANDS MARKETS AND BLAMES THE INNOCENT ADAM SMITH

Jacob M. Schlesinger writinging (26 July) in ‘Real Time Economics’ in The Wall Street Journal HERE

“Kuroda Urges ‘Visible Hand’ to Raise Japan Wages” 

“During Japan’s long, debilitating bout with deflation, basic market mechanisms broke down.

Fixing the machinery requires more than the traditional stimulus policies deployed to pump up growth, says Haruhiko Kuroda.

“A ‘visible hand,’ is necessary” in particular to prod companies to lift worker pay, a crucial element for sustainable growth, the Bank of Japan governor declared in a weekend speech at the Federal Reserve’s annual Jackson Hole, Wyo. symposium.

Mr. Kuroda certainly isn’t the first central banker to discuss alternatives to Adam Smith’s “invisible hand” of the free market. During the emergency response to the 2008 financial crisis, the Fed and others smashed any number of taboos.  …

In conventional “invisible hand” logic, prices are dictated by supply and demand. In the labor market, that means falling unemployment should force companies to raise wages to secure workers as they become more scarce. In the U.S., Ms. Yellen is focused on maintaining an easy monetary policy to reduce the persistent “slack” in the job market, on the assumption that once the slack disappears, wages will then naturally rise. …

And he suggests the Bank of Japan’s 2% inflation target become that “visible hand,” the benchmark framing labor negotiations. Management and unions should set wages around the assumption that the BOJ meets its target, which, of course, would in turn make it easier for the BOJ to hit that target in a sustainable manner.”

Comment

When senior international bankers regularly chase a phantom illusion about “Adam Smith’s invisible hands”, we don’t have to look far for the causes of problems in the economies they think they are, or ought to be, managing.

Even the notion that “conventional invisible hand logic” (whatever that means), behind supply and demand, which together dictate prices is a weird way to describe the role of prices in markets. 

No market can function without VISIBLE prices. No EXHANGE of GIFTS, reciprocated FAVOURS OR SOCIAL OBLIGATIONS, can function without mutually understood (often cumbersome) social conventions of RECIPROCITY, no human society has ever functioned without the human disposition to EXCHANGE. 

Modern commercial markets using VISIBLE PRICES are the most EFFICIENT manifestation of THE HUMAN PROCLIVITY for EXCHANGE, compared to all their social predecessors  (see anthropology, archeology, sociology, and other social sciences).

So where does Smith’s use the metaphor of an “invisible hand” fit into Haruhiko Kuroda’s, a governor of the Bank of Japan no less,  thinking about markets?  What does this mysterious entity do? Where did it come from?  What is it describing?

As Adam Smith NEVER said anything about “an invisible hand” of markets (in fact his first reference to the metaphor of “an invisible hand” was applied to a non-market economy (Adam Smith: Theory of Moral Sentiments, 1759).  

His second use of the “invisible hand” metaphor described “in a striking and more interesting manner” (Adam Smith: Lectures on Rhetoric and Belles Lettres, 1762) the risk-averse motivations of a merchant deciding to invest his capital locally rather than risk his capital abroad (Adam Smith: Wealth Of Nations, 1776).

Moreover, in a pothumously published essay he used the “invisible hand” to describe the pagan, pusilanimous superstitions of Roman citizens about their imagined, stone-god Jupiter, whom they believed fired thunderbolts from his finger at enemies of Rome during wild storms - hence they were motivated to stay indoors during such storms (Adam Smith, History of Astronomy, 1795, posthumous).

I respectfully suggest that Haruhiko Kuroda re-visits both basic economics ON THE ROLE OF PRICES and the history of economic thought ON THE MYTH OF AN "INVISIBLE".

TIM WORSTALL AND PAUL WALKER ON ECONOMISTS AS NICER PEOPLE , COOPERATORS, AND BARGAINERS

Tim Worstall, writing (24 August) in The Adam Smith Institute Blog HERE

demonstrates once again why he is among the very best of consistent authors around today in journalism on Adam Smith’s moral philosophy and economics.  He understands Adam Smith almost perfectly.

 Here is an extract from today’s (Tim’s and Paul’s) offerings: you can read the rest by following Tim’s link above and Paul’s link below: Paul Walker’s “Anti-Dismal” Blog HERE (another excellent daily read which you can bookmark too):

[TW]: “Economists are morally superior beings, scientifically proven that is” and “A lovely paper discovered by Paul Walker over in the land where Kiwis live standing on their heads:

[PW]: Does an economics education affect an individual’s behavior? It is unclear whether differences in behavior are due to the education or whether those who choose to study economics are different. This issue is addressed using experimental evidence from the Trust Game where trusting and reciprocating behaviors can be measured. … Thus, economists play well with others and these social preferences are not taught in the classroom.’ 

[TW]: “However, this does pose a problem for us as we try to explain it to others. For we’re, in some manner, captivated by those very examples of playing nicely together than the market offers us. We can see how competition is the method by which we decide who to cooperate with and that the vast majority of economic activity isn’t in fact competition at all, it’s cooperation. The seemingly vast and impersonal market itself is simply a description of how we all, the many billions of us, choose to cooperate to our mutual advantage … our task is to get across the points about such cooperation to those who simply do not have those same basic beliefs about human behaviour that we do. No wonder it sometimes comes out as a dialogue of the deaf: we don’t get what they don’t believe at root, that humans are naturally cooperative beings and markets are the way that we do this.”

Comment

The paradox that human co-operation is manifested best in market behaviours is the great divide between those favouring markets where possible, the state where necessary and those, ideologically, favouring only markets and its ideological opposite, those favouring only the state.

Why? For two reasons.  First, because states without open markets, as per socialist ventures, the latest being Venezuala, and earlier totalitarian, experiments with total communist states (Soviet Union, Mao’s China, North Korea), were and are avoidable disasters, and second, because markets without states are hard-libertarian/anarcho fantasies.   

Adam Smith, writing long before socialism and anarcho-libertarian fantasies were postulated as possible, viable alternatives to each other. He never used the words ‘laissez-fare’, yet his epigones today miss-apply those two words to his name.  He also cautioned against requiring as a necessary, pre-condition for prosperity by establishing “the exact regimen of perfect liberty and perfect justice”.  Smith commented that if true, “there is not in the world a nation wich could ever have prospered” (WN IV.ix.28: 674).  Book III of Wealth of Nations is a “violent’ (his word) polemic against the doctrines enshrined in mercantile political economy.  Moreover, he demonstrated his suspicions, indeed contempt, for the “merchants and manufacturers” throughout Wealth Of Nations who dominated the emerging 18th-century, market economies, and also his contempt for “crafty” politicians, and state legislators, who managed, often corruptly, the States of Europe.

Smith was even-handed in his pragmatism, not an ideologue.  He wrote of the necessity for both markets and the state for modern economies. That is why (as a ‘soft-libertarian’) I prefer to argue for “markets where possible, the state where necessary”.

Markets depend on co-operation for markets to work; states are necessary for justice to prevail. The modern, misguided perception that bargainers are in competition with each other - what one gains the other loses, because it is a zero-sum game - is profoundly wrong.  It is also misleading and at odds with Adam Smith’s expressed views on bargaining (WN I.ii.2: 26-7), which an important consideration if you are relying on quoting Smith to support your contrary assertions.

Two absolutely at odds bargainers are not seeking to maximise their utilities (supposing we accept for a moment the modern notions of self-interested, utility maximisation which inevitably means deadlock).  Bargainers seek to exchange what they have for what they want, by trading under the auspices of the conditional proposition: “If you give me some of what I want, then I shall give you in exchange some of what you want”.  

The terms of their exchange are arrived at through conversation, using persuasion, mutual consideration of each others expressed wants, offers (TMS) and mutual fexibilities in their offers, and movement between different packages. What one party ‘gains’ is not matched by the other’s ‘losses’ because bargainers want different things - the both ‘give to get’.

John Nash was closest among modern economists writing on bargaining in postulating that the agreed deal, in a mathematical sense, was not a plus or minus of their realised ‘gains’ and ‘losses’ (should they achieve a settlement), but the product of their mutual gains from bargaining. Each values what they gain from bargaining, minus their losses, but as they value the exchanged items differently, both settle by exchanging things they value less for what they value more (however ‘value’ is defined by each separately).

To explore this idea from Adam Smith more fully, see my non-technical, exposition in my book: “Kennedy On Negotiation” [the publisher’s chosen title, not mine!] 1. ‘Prologue’, pp. 1-20, Gower. 1998. (Note: I ran negotiating workshops in various business schools, in Scotland, England, Europe, Asia, Africa, USA, Canada, China, S.E. Asia and Australia, from 1973-2005 until my retirement).

PROFESSOR YINGXU WANG AND THE INVISIBLE HAND

Yingxu Wang (University of Calgary) posts on ResearchGate HERE 

“Was the classical illustration of Adam Smith’s invisible hand shown upside down between the curves of demand and supply in economics textbooks?:

“The conventional model of textbooks (Figure a) [Frank, 1997; Slavin, 1988; Park et al., 2001; Brue, 2001; …] has confused the relationship of the curves of demand (D) and supply (S) from the very beginning. It’ll be straightforward and mathematically consistent by interchanging both curves in order to rationally and rigorously explain the mechanism of the invisible hand in fundamental market behaviors (as shown in Figures b, c and d). For details, see “Toward Formal Models of the Theoretical Framework of Fundamental Economics,” Fundamenta Informaticae, 90(4), 443-459 [Wang, 2009].”

Comment

I have noticed several posts around websites by Yingxu Wang, some of them referring to the “invisible Hand” mythology.  The above is fairly typical, well stated, well supported by textual evidence from modern economists, though not, alas, from Adam Smith. That’s the main source of the problem.

Parenthetically, Adam Smith did not use the standard S-D diagram, pre- or post Marshall.  The S-D diagram was popularised by Alfred Marshall in his weighty tome, “Principles of Economics”. 1890. vol. 1 [there was no volume 2], Macmillan, of which several editions were published to 1929. Maths minded textbook authors for many years have pointed out the ‘error’ noted by Wang of the labelling of the vertical and horizontal axes.

More important, Adam Smith never associated his use of the “invisible-hand” metaphor with market supply and demand theories. That strange notion came about later in the 20th century, primarily by Paul Samuelson (Economics, 1948, McGraw-Hill) and is now widely assumed to be true by repetition and Samuelson's academic authority.

Adam Smith in Wealth Of Nations did not relate his use of the “invisible hand” as a metaphor for working markets.  He referred to the “invisible hand” as a metaphor for the actions of a merchant who considered that sending his capital abroad was too risky. Instead he was motivated to avoid his perceived risks by acting to invest his capital in “domestic industry”.  

Smith’s use of the IH metaphor described the merchant’s intended, because motivated, actions and their consequences for the merchant.  For the merchant domestic investment was more secure for him, given his risk-aversions. 

However, the merchant’s actions also had unintended consequences of which the merchant was unaware.  However, Smith noted his motovated intentions also led to unintended consequences. The unintentional consequences are not the subject of the invisible-hand metaphor which describes the intended motives that lead the merchant to act to avoid the perceived greater risks to his capital by investing abroad (mentioned four times). 

Smith’s use of the IH metaphor conformed to his own teachings on the role of metaphors, namely to “describe in a more striking and interesting manner” their “object” (Smith, “Lectures in Rhetoric and Belles Lettres” (1762-3, p.29). In this specific case, the “object” of the IH metaphor was the motive that led the merchant intentionally to his actions, specifically to invest his capital domestically for his own security.  However, in doing so, the merchant’s action, also had unintentional consequences, specifically in this case, the merchant’s domestically invested capital added to domestic “revenue and employment” (which would not be the outcome if the merchant invested his capital abroad).  That unintended consequence, which was “no part of his intention” said Smith, could have public benefits.

He also added that there were “many other cases” where  similar unintended outcomes could arise from quite separate actions where individuals intentionally acting for their own limited personal interests, could  have unintended benefits for society as a whole.  

Sensibly, Smith’s qualified reference in the IH paragraph (WN IV.ii.9: 456) to “in this and many ofher cases” also asserts that there are, and realistically could be, many other cases where individuals acting from other motives and intending “their own gain” engage in actions that may also “promote an end” which “was no part of their intention”, or realistically in the real world, that does not “increase domestic revenue and employment”, and also produces unintended outcomes that are not describable as “public benefts”.  

Much of Book IV of Wealth Of Nations discusses in detail the negative unintentional outcomes of mercantile political economy as practised across Europe.  Smith’s fulsome critique of these negative mercantile outcomes are his testimony against the “merchants and manufacturers” who pursue legislation in support of their short-sighted preferences, tariffs, trade prohibitions, monopoly privileges, trade restrictions, and risky hostilities towards potentila trading partners. 

ONCE MORE ON POVERTY IS MORE IMPORTANT A PROBLEM THAN INEQUALITY

On the Adam Smith Blog (Adam Smith Institute HERE http://www.adamsmith.org/blog/) 

Tim Worstall 20 August) posts on “What glories this capitalist free market thing hath wrought”.

It is quite briliant as we have come to expect from Tim Worstall.  Follow the link and read why.

I posted the comment below on his piece”

“Tim and Deirdre are both right: poverty is a more important problem than inequality. It wasn’t the desire for equality that drove Homo Sapiens and their immediate predecessors to develop speech and toolmaking from which human consumer products evolved, lifting them, albeit marginally at first, from the norms associated with the consumption possibilities of animals in nature.

Adam Smith lectured on these great transformations, hindered as he was by no knowledge of evolution or the circumstances and the millions of years and hundreds of millennia of pre-history involved, and without direct knowledge of modern anthropology and basic archeology, hence his summary efforts could not be taken any further by his student listeners:

“All other animals find their food in the state they desire it and that which is best suited to their                                                                         several natures, and few other necessaries do they stand in need of. But man, of a more delicate frame and more feeble constitution, meets with nothing so adapted to his use that it does not stand in need of improvement and preparation to fit for his own use” (Adam Smith (1762-3): Lectures on Jurisprudence, p. 334. vi.9).

It was, and is still, the unrelenting power of those needs for improvement to fit human use that drove human progress and adaptation, or what Deirdre McCloskey calls the “Great Enrichment” that defines “the main fact and finding of economic history”, (including of course our pre-history).

RUSSEL ROBERTS TO SPEAK AT LSE ON "REAL STORY BEHIND THE INVISIBLE HAND"

The Real Story Behind the Invisible Hand

LSE public lecture: Date: Thursday 30 October 2014; Time: 6.30-8pm;  Venue: Old Theatre, Old Building.  Speaker: Russell Roberts

“Adam Smith gave the world the metaphor of the invisible hand, the most famous metaphor of economics. But he only used the phrase three times in his writings. And none of the uses reflect what the phrase has come to mean today--a justification of laissez-faire capitalism. Yet Smith is indeed a key figure in the idea of emergent order--order that is the result of human action but not human design. Ironically, his richest explanation of that concept may be found in his little-known masterpiece, The Theory of Moral Sentiments. His application there is not to our economic system, but to the very idea of civilization and culture. This talk explores Smith's concept of emergent order and its relevance for our conduct today and its potential to let all of us help to make the world a better place.”

Russell Roberts (@EconTalker), author of How Adam Smith Can Change Your Life, is a research fellow at Stanford University's Hoover Institution and the host of EconTalk, a weekly hour-long award-winning podcast. Previously, he was a professor of economics at George Mason University and founding director of the Center for Experiential Learning at the John M. Olin School of Business at Washington University.

Suggested hashtag for this event for Twitter users: #LSEASmith

This event is free and open to all with no ticket or pre-registration required. Entry is on a first come, first served basis. For any queries see LSE Events FAQ or contact us at events@lse.ac.uk 0207 955 6043. 

Media queries: please contact the Press Office if you would like to request a press seat or have a media query about this event, email LSE.Press.Events@lse.ac.uk. Please note that press seats are usually allocated at least 24 hours before each event.

Comment

At last! Slowly but surely the truth about the myth of the “invisible Hand” in modern economics is being presented, albeit not yet, within mainstream economics, but certainly now in some of the upstream flows of ideas into that large ocean of  ideas that make up the modern, orthodox  consensus.

I know of Russel Roberts entirely from my long-standing subscription to ECONLOG (Library of Economics and LIberty) HERE http://econlog.econlib.org  Russel’s Blog carries running commentary on economic ideas, which are usually interesting because they debate modern themes and ideas about them.  

I have not noted Russel’s interest in the ‘invisible hand’ controvesy before but very pleased to see he has now moved into it.   Unfortunately travel for me just now is not feasible from Edinburgh to the LSE in London.  I would have loved to attend and hear what he has to say - and, as interesting, his audience' reactions.  From the above ‘abstract’ , Russel and I would agree on the subject and I am encouraged that he is taking his ideas to an important citidel of ‘IH idolitary’.   Would that he could do so in US academe too, where ‘IH disease’ is rampant both across academe and in wider US public use.

If you can get to the lecture, follow the links above for tickets: events@lse.ac.uk or call 0207 955 6043.

FACT-CHECKERS NEEDED AT FORTUNE

Chris Matthews in “Fortune” 13 August, HERE  writes: 

“The 'invisible hand' has an iron grip on America”  

CW: “There are few metaphors that have captured the American economic psyche as powerfully as the “invisible hand” of the market. The term, first coined by Adam Smith in 1759, is used to describe how the self-interested behavior of people in a marketplace leads to the greater good for all. No need to rely on concerted efforts of government or the church to direct commercial activity. If the proper economic and legal institutions are set up, we can all be made better if simply left to our own devices.”

Comment

Adam Smith did not “coin” the phrase ‘invisible hand’, nor was it a ‘phrase’ - it was and remains a metaphor that was regularly in use in the 17th and 18th centuries before Smith was born and for long afterwards. 

Moreover, Smith used the metaphor only once in his 1759 book: Theory of Moral Sentiments and it did not refer to “people in a market place”.  He was discussing an agricultural economy, akin to feudalism, where landlords owned the land and serfs, peasants, or landless labourers worked the landlord’s land and landlords in return fed them their necessaries from the farm’s produce. There was no marketplace in Smith’s 1759 example.   In reality, of course, landlords used unsympathetic overseers to keep the labourers in order and to distribute produce to them.

CW: “Before Smith coined the phrase “invisible hand,” the discipline of economics didn’t even exist, which is likely why he is so revered by economists today. But while economists respect Smith for inventing the field, they are much less uniformly fond of the “invisible hand” and its sway over public discourse and policy.”

Comment

‘Political Economy’ in Smith’s times was incorporated under the older rubric of Moral Philosophy and Jurisprudence (both of which Smith taught at Glasgow University (1751-64).  

The more fashionable subject of “Political Economy” came into fashion from Continental influence (Sir James Steuart: “An Inquiry into the Principles of Political Economy”, 1766) and for long afterwards throughout the 19th century (Ricardo, Malthus, and Marx) until Alfred Marshall published  his weighty texbook “Principles of Economics” (1890), from which the modern title became common for the narrower discipline emphasising markets over governments. 

That Smith is so ‘revered’ today has nothing to do wth the mention of the ‘invisible hand’, which was largely ignored while he was alive and hardly noticed after he died in 1790 and then until 1874, and seldom since until Paul Samuelson started that particular hare running in 1948.  Mentions of the IH are now viral.

Only recently have economists become “less uniformally fond of the the “IH” metaphor”.  Lost Legacy has tried since 2005 to undermine what “fondness” remains for attributing the invented properties attributed to the “IH”  metaphor and for it being attributed to Adam Smith.

CW:Joseph Stigliz: “Adam Smith, the father of modern economics, is often cited as arguing for the “invisible hand” and free markets. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best…. [T]he reason that the invisible hand often seems invisible is that it is often not there.

In other words, markets are pretty good at allocating resources where they are most needed, but there are so many exceptions to this rule that these exceptions deserve as much attention as the rule itself.”

Comment

I am always pleased when a leading Nobel-winning, modern economist, with a vast popular readership, acknowledges the fiction of the “invisble hand”.  I would be even more pleased if Chris Matthews, writing in the popular magazine, “Fortune”, used the legendary fact-checkers, supposedly abounding in US journalism, to clear up the other factual errors in his otherwise authoritative articles when referring to Adam Smith.

ADAM SMITH'S SCHOOLBOY TEXTBOOK ON LEARNING GREEK ON DISPLAY AT KIRKCALDY'S MUSEUM

I received a message from Craig Smith, a co-editor with Chris Berry and Maria Paganeli of “The Oxford Handbook of Adam Smith”, (Oxford University Press), who with Nicholas Phillipson (author of “Adam Smith An Enlightened Life” (Yale) visited the Museum in Kirkcaldy, Fife, birthplace of Adam Smith.

The illustration of the Greek primer school book, inscribed with Adam Smith’s signature, unfortunately did not reproduce on the blog (readers who email me I can try to send it back -it arrived by email...). 

Smith attended Kirkcaldy Burgh School in Hill Street from 1731-1737, where among other subjects he studied Greek and Latin.  He must have been an attentive student because when he went to Glasgow University in1737 he went straight to the third-year Latin class and as an adult he was a fluent Latin speaker and reader (see Ian S. Ross. “The Life of Adam Smith”, p. 18. Oxford University Press).

The Kirkcaldy Musem has several items of interest to Adam Smith scholars and visitors are welcome to see and ask questions about them. The Museum is to be congratulated for carefully collecting and displaying what limited materials are available, including the above book.  

Numerous local Kirkcaldy folk have taken a close interest in their town’s most famous son.  A couple of years ago, I joined local historians on a excellently well-informed, conducted tour of places of interest in the town, including the Kirk that he attended with his mother up to 1737 (he was born 5 June, 1723).

The Kirkcaldy Burgh School was situated a hundred yards or so down Hill Street (its now a tarred-over car park) and further down it joins the High Street, where opposite Hill Street stood his Mother’s house in its garden that fronted onto the shore line of the Firth of Forth, a short distance from Kirkcaldy’s seaport, where is father was for some time a Customs Official at the harbour before he died in January 1723.  

While his mother’s house was demolished in the 19th century, the garden and its walls remain much as they were when Smith lived there from 1767 to 1773 to compile his manuscript of the Wealth Of Nations, published in 1776 (he had started writing parts of what became its text for his Glasgow lectures before 1762). Another three years were spent in London completing his famous book and guiding it through the press, as well as him being “very zealous” in debating on American affairs with politicians prior to The Declaration of Independence - see Ian Ross, above, pp. 265-84).

There is an ambitous plan to restore an 18th century building at the end of his mother's garden into an exhibition centre of all things related to Adam Smith and to present public and well-researched history events, conferences with leading world speakers. 

Should readers be in Scotland, I recommend a visit to Kirkcaldy (short rail c. 25-minute journey from Edinburgh across the Forth Bridge - in Smith’s days the journey by boat and on horse-back took much longer and was far less comfortable.)

[Craig Smith and Nicholas Phillipson are to be congratulated on their initiative in visiting the Museum, as are the Trustees of Kirkcaldy Museum for displaying their Adam Smith collection.]

LOONY TUNES NO. 101

1

Global Research (Centre for Research on Globalization) (25 June) HERE

“The invisible hand of Adam Smith must bow a genuflected knee to the globalist elites, who foster the free trade fraud that only benefits their mastery and control of the planet.”

2

MEME Generator asks HERE

“If you slap the invisible hand of the market would you be clapping with capitalism?” - Philosorap (Complete with Dinosaur cartoon figure in qhweying pose.

3

Dandy Don posts HERE 

“Pimp slapped by the invisible hand, biatch.

Lesbian Bridezillas Bully Bridal Shop Owner over Religious Beliefs.”

A PROFESSOR WHO VIOLATED FAIR PLAY

“The Startling Story behind a Famous Footnote”

“For thirty years the official story of general equilibrium went like this: Kenneth Arrow and Gerard Debreu, working independently at first, then joining forces,   proved that Adam Smith was right, and the rest is history. Beginning with Jürg Niehans’ magisterial A History of Economic Theory: Classic Contrbutions 1720-1980 (Johns Hopkins, 1990), the received version shifted slightly.

By 1950, under the influence of The Theory of Games and Economic Behavior, convexity and duality were very much on the minds of mathematical economists.  Nevertheless, the only economic models for which a general equilibrium had been proved were those of Wald  and von Neumann, the first for an economically unappealing model, the other for a growth model without final consumption.  In Value and Capital, though it introduced English-reading economists to general equilibrium, [John] Hicks never bothered about existence proofs and negative prices.  Indeed, he sometimes expressed himself as if he believed that the counting of equations and variables was enough.  Morgenstern, then learning about these things from von Neumann, chided Hicks mercilessly (and unfairly) for his mathematical complacency.

It remained for Arrow, who admired Hicks, and to Debreu, to prove the existence of a competitive equilibrium for a Walrasian general equilibrium model. J. F. Nash’s existence proof for a n-person game, mentioned above in the chapter John von Neumann, showed the way. The result was the 1954 Arrow-Debreu model of general equilibrium, the neatest and most compact model of an economy since Cantillon’s [literary] Tableau Economique, in terms of land, and vastly richer and more general.*

* An existence proof of a somewhat different kind was published earlier in the same year by Lionel McKenzie). …

All this, and a good deal more is laid out in Finding Equilibrium: Arrow, Debreu, McKenzie and the Problem of Scientific Credit,  by Weintraub and Düppe, published last week by Princeton University Press. The personalities are discussed. The chronology gets quite a going-over; the indeterminacy of the dates on which the first satisfactory proof was communicated to a larger world is examined.   To my mind it doesn’t change the story that much. There are all kinds of reasons the story came out the way it did. The authors examine them all. Their aim was to “repersonalize” mathematical economics, and they certainly have done that.”

Comment

The above is an extract from David Warsh’s post this week in his magnificent “Economic Principals” Blog, (by low subscription - check google).

It is very high-quality journalism on economics as it happens in the world, largely about the activities of top US economists and their employers in academe, journalism, and the State.

This week’s account, fully detailed, of the sad machinations of one of the co-originators of the great advance in General Equilibriun theory who apparently contrived to downplay a potential rival theorist’s claims to a share in academic recognition for his contribution to the mathemarical proof of GE.  

David Warsh indentifies Debreu’s questionable behaviour that resulted in excluding Lionel McKenzie’s original contempory work on GE, thus potentially depriving him of a share in the professional glory in the award  the 1985 Nobel Prize for GE.

I find this behaviour disappointing in academe. Professor E. Roy Weintraub, a distinguished scholar and formidable force in the History of Economic Thought as a subject, has co-authored a new book that supplies the details: “Finding Equilibrium: Arrow, Debreu, McKenzie and the Problem of Scientific Credit”,  Princeton University.

Adam Smith in Moral Sentiments noted how competition between rivals is morally acceptible but:

“In the race for wealth, and honours, and preferments, he may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should justle, or throw down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of” (TMS II.ii.2.2: p 83).

Apparently, Gerard Debrue, an economist and a brilliant mathematician, did not heed Smith’s admonition, assuming he read his “Theory of Moral Sentiments” (1759 and 1790).  

More’s the pity. Quelle demage.

MORE ON INTENDED AND UNINTENDED CONSEQUENCES

LORRIE GOLDSTEIN writes (10 August) for Sun News (Canada) HERE

This is from a longer article detailing the financial policies of a government in Canada and quite devastating it is as a critique of general government debt waste (a common enough feature of many countries, including all post-war governments in the UK).  However, follow the link to read it and judge for yourself.

My interest is from a section of it quoting from Peter Foster, a very talented journalist’s, new book, “Why We Bite the Invisible Hand - the Psychology of Anti-Capitalism”.  I read Peter Foster’s book some weeks ago and found much to commend it and I intend to comment on it soon, both favourably in respect of those parts I agree with, and less favourably on those I disagree with.

First read this extract from the Sun News by Lorrie Goldstein, quoting from Peter Foster’s “Why We Bite the Invisible Hand - The Psychology of Anti-Capitalism”:

“The "invisible hand" is a reference to Adam Smith's famous description of the merits of capitalism in The Wealth of Nations.

As Smith wrote: "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest ... By directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. …”… Foster provides the perfect quotation to illustrate this attitude, which comes from a 1959 book, The Failure of the ‘New Economics' by journalist Henry Hazlitt:"The people who have earned money are too shortsighted, hysterical, rapacious and idiotic to be trusted to invest it themselves. The money must be seized from them by politicians, who will invest it with almost perfect foresight and complete disinterestedness (as illustrated, for example, by the economic planners of Soviet Russia). For people who are risking their own money will of course risk it foolishly and recklessly, whereas politicians and bureaucrats who are risking other people's money will do so only with the greatest care and after long and profound study. Naturally, the businessmen who have earned the money have shown that they have no foresight; but the politicians who haven't earned the money will exhibit almost perfect foresight. The businessmen ... whose success depends upon the degree to which they satisfy consumers, will of course have no concern for ‘the general social advantage'; but the politicians who keep themselves in power by conciliating pressure groups will of course have only concern for ‘the general social advantage.”

Comment

[Disclaimer: Lost Legacy does not express views on the politics of any country other than the one I Vote in, which is Scotland.]

Smith’s “butcher, the brewer, or the baker” parable in WN Book 1: pp 26-7) says nothing about his single use, 430 pages later, of the now famous metaphor of an invisible hand (Book IV: p 456) and is on a different subject.

The “butcher, brewer and baker” reference is about how people in markets bargain with each other to seek what they want to buy or sell and advises readers to address the other parties’ self-interests by persuading them that by selling/buying the ingredients of their dinner is of benefit the other party.  Smith cautions buyers/sellers not to talk of their own necessities but to address of the self-interests of the orther party.

The metaphor of an “invisible-hand’ is about the unseen, hidden motives of a merchant, who is concerned about the security of his capital if it is sent abroad, and thereby out of his sight and control and exposed to losses with fewer chances of redress from those involved in the jurisdiction of a distant foreign country (mentioned by Smith four times).  Therefore, said merchant is likely to be motivated to prefer to invest his capital domestically.  He is guided by his motive of avoiding the risks of foreign trade to take the action to invest locally.  His motives leads him to an action that has an intended consequence (the security of his capital). That outcome also may have unintended consequences: his investment arithmetically adds to domestic “revenue and employment”, judged by Smith, “frequently” to be a “public good”. This consequential outcome was “no part of his intention”.

The use of the metaphor of “an invisible hand” is an and example of what metaphors do in English as Smith understood and taught about them in the 18th century, specifically: “to describe in a more striking and interesting manner” their “object” (see Adam Smith, 1762-3: “Lectures on Rhetoric and Belles Lettres” p. 29).  By their “object” Smith meant what the metaphor describes, in this case, clearly, he referx to the motives of the merchant that lead him to his intended consequence of protecting his invested capital from the risks of handing it over to foreign traders beyond the merchant’s security of ensuring redress if they misuse it.  The merchant has more faith in getting redress locally than in a foreign country.

The invisible hand is not about the unintended consequences of the merchant’s intended actions, though that is how the metaphor has been corrupted by modern economists to mean. It is about the intended consequence of the action which has unintended consequences. Sometimes this becomes a general ‘mystical” even “miraculous” (theological?) force operating in a market economy (yet Smith’s other use of the IH metaphor in his ‘Theory of Moral Sentiments’ refers to an agricultural economy).  

Neither paragraph quoted singly or together say what is claimed for them and Lorrie Goldstein is quite wrong to imply that they do.  I do not blame Lorrie for this error; I have seen the same claimed linking made by leading economists and by journalists who rely upon them.  There are  also references to extentions of the initial error by claiming there is a sub-category of  “invisible-hand explanations” - nothing to do with Adam Smith.  

HIDDEN MOTIVES DRIVING INTENDED ACTIONS CAN HAVE SOCIALLY OPTIMAL OR SUB-OPTIMAL UNINTENDED CONSEQUENCES

Lars P. Syll (7 August) HERE 

“Wicksell & Hotelling on the limits of Adam Smith’s invisible hand”

“It might look trivial at first sight, but what Harold Hotelling did show in his classic paper Stability in Competition (1929) was that there are cases when Adam Smith’s invisible and doesn’t actually produce a social optimum.

With the advent of neoclassical economics at the end of the 19th century a large amount of intellectual energy was invested in trying to formalize the stringent conditions of obtaining equilibrium and showing in what way the prices and quantities of free competition constituted some kind of social optimum.

That the equilibrium reached in free competition is an optimum for each individual – given prevailing prices and income distribution – was not, however, seen by some economists as making a very strong case for a free market economy per se. It wasn’t possible to prove that free trade and competition gave a maximum of social utility. The gains made in exchange weren’t a manifestation of a maximum social utility.”

Comment

“It might look trivial at first sight, but what Harold Hotelling did show in his classic paper Stability in Competition (1929) was that there are cases when Adam Smith’s invisible doesn’t actually produce a social optimum.”

Adam Smith did not say that his(?) “invisible hand produced a social optimum”.  That is a an ideological construction placed on his use of the now famous metaphor in Wealth Of Nations, in which he describes how a merchant who was motivated for the security of his capital if he sent it abroad, intentionally preferred to invest it locally in the domestic economy (mentioned four times).  This intended domestic investment was less risky - though still risky (not all investments are successful) and be that as it may, by investing it domestically, his capital added arithmetically to domestic “revenue and employment”, which, ceteris paribus, unintentionally promoted “the public good”  (WN IV.ii.10: 456).

Two points: Smith did not mention anything about a ‘social optimum’ resulting. That is a construction put on it by modern economists assuming that outcome from the mathematics of ‘general equilibrium’ theories (developed separately, by Richard McKenzie, Kenneth Arrow, and Gerald Debreu). Paul Samuelson popularised the notion in his textbook, “Edoncomics: an introductory analysis” (McGraw-Hill), causing a veritable flood of praise for the notion.

Secondly, the analysis, “proving” the associated assertions was also allegedly identified as what Adam Smith had meant by using the metaphor of an ‘invisible hand”.  I have said plenty about these assertions on Lost Legacy and elsewhere to show that such identification of the invisible-hand metaphor is profoundly wrong.

The metaphor of the “invisible hand” described in a “more striking and interesting manner” (Smith, 1762: Lectures on Rhetoric and Belles Lettres”) the hidden, private, motives of a merchant, concerned only for his own security (identified 4 times in the chapter), who acts intentionally to invest locally and that action led him unintentionally to “promote the public good” because his motivated action, if successful, adds to domestic “revenue and employment”.

The metaphor refers to the merchant’s motivated intentional action  and not to the unintentional consequence of the action.  Given the generality of all unintentional concequences of motivated intentional actions there is nothing ‘magical’ or ‘miraculous’ about unintended consequences, that is why they are described as unintentional.

Some intentional actions motivated by self-interests have negative consequencies for those affected by them and thereby they are not socially optimal. What people intend when they take action and what actually happens as a result is not necessarily what was intended by the initiator of the action.  The actor’s intentions may by frustrated by events, summed somewhat drantically in the saying that: “the road to hell is paved with good intentions”.  Hence, the unintentional consequences of well-intended actions need not lead to a ‘social optimum’, and as often do not.

In that respect I side with Harold Hotelling in 1929 observing the mistaken construction of colleagues who argued that a so-called invisible hand, as discussed by some of his colleagues, defied the improper construction they put on their misuse of a metaphor, used by Adam Smith for a quiet different purpose, about the hidden motives of individuals causing them to act for their intended purpose in pursuit of their self-interests but which could have unintended consequences, sometimes socially optimal and sometimes socially sub-optimal.

Meanwhile, the great creative intellectual energy invested by many brilliant minds in the search for proof of general equilibrium in an economy was ultimately wasted. Generations of young, gifted economists, mastered the mathematics of their proofs at great cost to the relevance of their proofs to the real world, which efforts won them prizes (including Nobels), tenure in the top universities, publishing contracts, and enjoyed due and deserved reverance from their colleagues and students, who properly stand in awe of them.

REDUCING POVERTY IS MORE IMPORTANT THAN CRUSADING AGAINST INEQUALITY

“McCloskey on Inequality” (9 August) HERE  

a 24 minute video interview on BCC ‘Hard Talk’ programme and a much clearer talk by Deirdre McCloskey on ‘ieaTV’ HERE   

I have stated on Lost Legacy (and elsewhere in discussions and debates) that “poverty is a far more important problem that inequality”.  This has sometimes been dismissed by claiming, often passionately, that people are poor because a minority are rich, sometimes ‘obscenly' so.  

Such commonsense reposts to my views also see the solution as simple: ‘tax the rich and spend the wealth on the poor’.  Now I am not at all going to argue that such a penal tax level could not be undertaken by governments, whether in a democracy or in a revolutionary spirit of 'righting the injustices inflicted on those trying to live on low wages' plus, or without, state-funded benefit payments.

But to claim that poverty is caused by inequality is manifestly untrue. To argue that poverty is getting worse is also untrue, especially when supported by apparent declines in shares of annual GDP enjoyed by the poorest compared to the richest 10 or 1 percent.

If that were true you would have to argue that the bottom half of the income distribution today is worse off than the bottom half of the income distribution of say, 60 years ago, or even 30 years ago.  

Compare the shopping baskets of households in Britain in 1950 with 2014; compare proportions of households - across the income spectrum - and the contents in their weekly shopping lists.  Compare household aids available to your grandmother with those in your mother’s house - and your own household - and, if you have grown-up children, compare their household gadgets with yours when you were their age.

Poverty is relative across the income spectrum but the expectation of what constitutes poverty is also relative to your generation’s living standards.  Of course, each income level, as generations pass on, defines poverty relative to what is expected in the long-term growth of the economy. What yesterday were regarded as ‘basic’ necessities are no longer regarded as such; what are now regarded as basic necessities were undreamt or even heard-of twenty years ago.

Yesterday’s luxuries are today’s necessities.  Today’s necessities are tomorrow’s junk or antiques.  So it went on, albeit slower, since the 18th century, through the nineteenth, and in the recent past through the twentieth.  All this reflects in content units the rising per capita incomes from a dollar a day, or less, to the $100 dollars or more since before markets began to emerge in north-western Europe, eventually squeezing out dependence on agriculture and shepherding for growing dependence on manufactured products and related services.

Yesterday’s rich enjoyed their luxuries long before the majority dreamt of them.  A fridge, dish and clothes washing machines, central heating, holiday’s abroad, colour tv, mobile/cell phones, multi-car households, computers, ipads, multi-channel tvs, 24-hour news, internet, face-book, texting, Google, debit/credit cards, Amazon, skype, space travel, and all the rest, with more to come tomorrow. 

Relative poverty still exists and absolute poverty still exists in vast parts of the world.  But, significant numbers of those in absolute poverty, at great personal risk, try to move from where they are into the richer countries, despite the existence of relative poverty in their intended destinations and the certain knowledge that they will suffer those higher levels of relative poverty should they manage to evade the many political and administrative obstacles trying to prevent them arriving in the rich countries.

Why? Because the relative poverty in the rich countries is incomparably better for them than the absolute poverty from whence they came.  Moreover this migration flow is almost alll one way from poorer poorest to richer poorest in the rich countries.

Adam Smith described wealth of nations as the production of consumables which he associated with the richest market nations.  It wasn’t piles of gold or precious stones, or money (however defined); it was the annual production of “necessaries, conveniences and amusements”.  

As always across the deep history of human kind there has been inequality (culturally defined).  Only since the sustained, unintended evolution of markets, loosely acompanied by general justice  liberty across populations, has there been a secular, if uneven, rising access of humans to, albeit unequal, per capita consumption of the necessaries, conveniences and amusements of life. 

That is why I for one consider true liberty to be more important that nominal democracy and the constant, secular reduction in poverty through rising GDP per person, to be more important than inequality.

[I highly recommend that readers watch both viedeos - the iea interview is much clearer and better than the longer BBC one.]

SIR ALAN PEACOCK - "A THOROUGHLY GOOD MAN"

Following my post (2 August) on the death of Sir Alan Peacock on Saturday, I receved a number of messages from his former colleagues whose lives were nudged by him similarly to the way he nudged mine over many years.  I have posted one below by David Simpson with his permission, who was formerly a Professor of Economics at the University of Strathclyde.  He too visited or telephoned Alan in the past few months and discussed with him in the usual two-way manner (he always had much to say and abundant patience to listen, as he did with others).

David’s appreciation shows Alan his best, teaching complex ideas, socialising with his students and colleagues, and pointing to doors he had opened for them to pursue their careers and interests, and above all showing aspects of Alan’s work as a professional economist in many diverse environments at high-levels and moments in history that matttered then and still do now. 

“Alan Peacock”

“When Alan Peacock swept into Edinburgh in 1956 to take over the Chair of Political Economy from Sir Alexander Gray , he was at 34 the youngest professor of economics in Britain. (His contemporary and friend at LSE, Harry Johnson, was just one year older.) Alan’s arrival blew open the doors and let in the light to a Department that still hankered after  the Gold Standard and regarded Keynes as  a speculator, if not a charlatan. Those of us who were lucky enough to be students at that time will never forget the changes that Alan made. The ever reliable textbooks Cairncross and Silverman were consigned to the dustbin and replaced by Samuelson, national income analysis took over from the methodenstreit  in the centre of the curriculum, and the Department’s name was changed from Political Economy to Economic Science. No matter that with the benefit of sixty years’ hindsight, these changes may be seen to have been  in the wrong direction, we felt we were swimming towards the mainstream of modern economic thought. At that time demand managemt was just beginning to influence economic policymaking, and economists were in demand. Alan took great pains and used his networking skills to the full to advance the careers of his students and junior staff individually. That he was often absent lecturing in America, or in Africa measuring the national income of countries like Tanzania and Nigeria at the request of the Colonial Office only added to our excitement. Bright young American economists came to the Department to give seminars or to spend their sabbaticals. It didn’t matter that Alan barely had time to prepare his lectures, which consisted largely of equations scrawled on the blackboard –also exciting. What was important to us students was that his enthusiasm and generosity of spirit and commitment to us shone through.

His involvement with students did not end at the door of the classroom. He was a willing participant in student social events, and played an active part in the university’s musical activities. Notably, I remember, in a student production of the opera La Belle Helene. In later life, even after he had left Edinburgh, Alan continued to be a pillar of support and advice for those of his former students who had chosen academic careers. Many friendships were formed as a result, and all of these friends will feel that a very bright light has gone out of their lives. Alan was a man of extraordinary breadth  of activities: wartime sailor, university professor, campaigner – with Jack Wiseman he pioneered  the concept of education vouchers in the UK, senior civil servant, university vice –chancellor, Chairman of a Royal Commission (into the BBC) , scholar- for a while he edited International Economic Papers, for which his skills in German and Italian were invaluable, social entrepreneur – with Gerald Elliot he founded the David Hume Institute- composer and performing musician. But above all he was a thoroughly good man.” 

David Simpson