DOWN MEMORY LANE AND ON TO TODAY
Peter Martin (Editor of AGE - an Australian newspaper) posts (9 August) an article in The Sydney Morning Herald.
In 1957 I was employed, (aged 17) as an Assistant Proof Reader by the Sydney Morning Herald. From a friend at Sydney University, (Paddy McGuiness) I was introduced to economics and attended (strictly unofficially) various classes and seminars (my first one was on ‘Ricardian Rent’ - even the title was beyond my comprehension) but unable to afford university fees (on proof readers’ wages of £12 a week) I determined to return to the UK to undertake a university degree in economics, a goal I achieved in 1969, followed by an MSc and PhD (and last year a D.Lit).
Hence, I was intrigued by Peter Martin’s article, particularly his references to Adam Smith, of whose Works I am tolerably well informed. My remarks focus on Peter’s statements about Smith (I am not informed enough of banking controveries in Australia) in his article: “The defenders of banks don't get capitalism. They're holding us back”
Peter Martin writes: “The founder of modern economics, Adam Smith. was the first to mount a case for the pursuit of profit.”
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner," he wrote more than two centuries ago. "But from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love."
The search for profits - the search for that extra money that exceeds the cost of production - is what motivates the brewer, the baker and the banker. Without it they wouldn't bother. Yet miraculously, in pursuing profits each of them (Smith believed they were each men) ends up providing almost exactly what we need.
Peter assumes merchants were all men. This contrasts with printed illustrations of 18th-century street markets in Scotland, which show both men and women serving at market stalls. In Kirkcaldy, Smith lived with his widowed mother and street markets ran along the ‘lang street’ to the town’s’ harbour, where his father had been a customs official. In Edinburgh, Smith lived in the Old Town, latterly at Panmure House (now under restoration). It too had street markets and booths.
But at this point, Peter jumps from Book 1 (chapter 2) of Wealth of Nations to Book IV (chapter 2) and truncates the full quote, implying that he is refering to the behaviour of one of the ‘butcher, brewer, or baker’ men. In fact, Peter quotes from Smith’s account of a specific and quite different merchant, whom who prefers to invest his capital domestically, rather than send it abroad, because the merchant considers foreign traders and their legal systems less reliable than those in his own country. By investing locally the merchant, unintentionally, arithmetically adds his capital to the total of invested domestic capital, which increases the quantity of domestic revenue and employment in his country’s economy.
By truncating the extract, Peter links Smith’s Book IV singular mention of the metaphor of “an invisible hand” to the “butcher, brewer and baker” reference in Book I. I suggest this is not correct.
"He intends only his own gain," the author of The Wealth of Nations went on, in the sentence that came to define him. "He is in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention.”
Smith has only been “defined” by such misreadings of Smith’s use of the invisible hand metaphor since Paul Samuelson’s unfounded assertions to that affect in his bestselling 1948 textbook, Economics (c.5 million sales, 20 editions, to 2010) alleging that Smith said ‘selfish’ motives led to public benefits.
Editors used to be expected to check and cross-check their newspaper’s published facts, at least they did in the old SMH in the 1950s.