SOMETIMES YES AND SOMETIMES NO, BUT NOT "NATURALLY OR RATHER NECESSARILY"!

John Pemble rieviews (7 January 2016 , pp 25-26) in London Review of Books HERE 

“Phantom Gold”:

Forging Capitalism: Rogues, Swindlers, Frauds and the Rise of  

Modern Finance by Ian Klaus Yale, 287 pp, £18.99. 

“In 1776 Adam Smith had argued in The Wealth of Nations that free-market capitalism was a force for material and moral progress. Capitalism left to itself, he insisted, must produce the best of all possible worlds, since a capitalist pursuing self-interest makes life better for everyone. ‘The study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society.’ He is ‘led by an invisible hand to promote an end which was no part of his intention.”

Comment

Ian Klaus writes about an interesting phenomena: the proclivity for some humans to resort to behaviours that can seek personal advantage at the expense of others. Visit any magistrates court on any day and witness the parade of hapless individuals charged with breaches of any of the host of regulations aimed at protecting others fom their petty depredations. Cross over to the higher Courts where bigger offences are tried at risk of more serious consequences. Such instituions are built on the premiss that society in general requires protection from individuals “pursiing [their] self-interest” which patently does not “naturally, or rather necessarily, lead [them] to prefer that employment which is most advantageous to society.”

Klaus’s proposition is unsound. It’s even similarly unsafe to insist that “a capitalist pursuing self-interest makes life better for everyone.”

It is certainly true on some occasions. However, Smith did not write such a sentence. As always it depends, which Smith was discriminating enough to be clear upon. In Wealth of Nations, Smith was careful enough to discriminte between the actions of “merchants and manufacturers” - he never referred to them as “capitalists” - that were socially beneficial and those actions which were detrimental to those of the “society”. Klaus, clearly has not read Wealth of Nations well enough to recognise Smith’s regular suspicion - even condemnation - of “merchants and manufactuers” their nefarious behaviours.

Upon such shaky foundations, Klaus argues that Smith wrote that “The study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society.’ He is ‘led by an invisible hand to promote an end which was no part of his intention” is an unsafe generalisation and a misreading of Smith's use of the metaphor of “an invisible hand”. 

The unqualified sentence: “The study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society”  is unsafe as a generalisation. It is safer only if it is qualified. A dishonest “merchant” in pursuit of his own “advantage” could be led to “collude” with other merchants to lobby their government to impose tariffs on competitive imports in order to narrow the market and enable them to raise prices to boost their profits. 

If Klaus is unaware to the folllowing passage in Wealth of Nations where Smith categorically states: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices” he should be embarrassed to make such unjustified assertions about capitalists acting intentionally or unintentionally to do what was “most advantageous to society”. Some do and some don’t; some do so sometimes and other times they don’t. Smith was never naive about how humans behave. He was clear about what they ought to, hence he wrote his first classic: The Theory of Moral Sentiiments (1759) and his second classic, An Inquiry Into the Nature and Causes of the Wealth of Nations”  (1776). While we are at it, perhaps, Ian Klaus could also have a look at Smith’s “Lectures on Rhetoic and Belles Lettres” (1762-3) and take special note of his advice about the use of metaphors.