Tuesday, December 29, 2015


John Kay posts (29 December) in the Financial Times HERE 
“An apt misquotation can reveal the greater truth
“Sometimes posterity forgets the context. Adam Smith did describe how a merchant might be “led by an invisible hand to promote an end which was no part of his intention”. But the remark was not the eulogy to untrammelled free markets attributed to him by modern libertarians.
In fact, Smith was explaining that protectionism was often unnecessary because consumers and traders so often preferred to buy goods made in their home country rather than importing them.”
I knew John Kay when we were students in the 1960s. He did Political Economy and Edinburgh University and I did Economics at Strathclyde University in Glasgow. A mutual friend, Robin Cook, later the Brithish Foreign Secretary in a Labour government, described John as the “Brightest man he knew” and his career as a senior consultant economist since at all levels has showed just how brilliant he was and is. Our paths seldom cross nowadays; more's the pity.
His statement quoted above is most encouraging for Lost Legacy. It is (almost) wholly correct. The mimor restriction in it is that Smith was talking about a merchant whose aversion to the risks of exporting his capital abroad, where he was less sure of the probity of their commercial morals and their legal systems, was motivated to his action to invest locally instead. This chosen action was intended to safeguard his capital but the motivated action had the unintended consequence of adding to domestic capital formation and benefitting  domestic revenue and local employment. In this case, the merchant was unintentionally “led by an invisible hand” to add to public benefits resulting from his action.

John’s summary that Smith’s metaphoric “remark was not the eulogy to untrammelled free markets attributed to him by modern libertarians” is typically masterly. It is also unique among modern economists and seldom expressed so clearly and typical of John Kay’s brilliance.


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