Adam Smith's Lost Legacy

A Scotsman Ponders the Big Questions

2012-02-01T19:41:00.003Z

Allan Massie writes (1 February) in The Scotsman, our national newspaper HERE

“There is no such thing as a truly free market”

“THE phrase “the free market” is much bandied about. Capitalism, we are told, depends on the efficient working of the market so that the operation of Adam Smith’s “invisible hand” may make for general prosperity.

Actually, as James Buchan observes in his book on Smith, “the phrase ‘invisible hand’ occurs three times in the million-odd words of Adam Smith’s that have come down to us, and on not one of these occasions does it have anything to do with free-market capitalism”.

The Italian immigrant shoeblack who was asked what he had learned in his 40 years’ shining shoes on Broadway replied: “There is no such thing as a free lunch.” I don’t know whether he required a licence to practise his trade, but he might as well have said: “There is no such thing as a free market.” All markets are regulated to some extent, either by the law or, in the case of illegal markets such as the market in drugs or the market in alcohol in countries where its sale is prohibited, by the gun or the knife.

…… Regulation of the market has always been necessary in the public interest. Everyone recognises this at some point. A few years ago, Gordon Brown was applauding his “light regulation” of the financial services industry. Now it is generally agreed that the regulation was too light, and that regulation must henceforth be stricter. So it is perceived to be in the public, or general, interest that financial markets be less free."

Comment
Adam Smith would have agreed. Despite his attributed reputation as an advocate of “laissez-faire” (words he never used), Smith had a keen sense of the need for regulation of certain functions of banks (lending recklessly) or over-issuing low value promissory notes) and general statutory measuring of weights and measures and of quality-stamping of cloths. Above all, he favoured rule by law to protect people from arbitrary torments and general oppression.

He favoured a general role for state funding from taxation (with the equity balance falling on the consumption of luxury goods, not necessary foodstuffs). He lived in a relatively rich economy, compared to most of the rest of the world, but where the poorest sections of society, who did most of the work to create everything that everybody consumed, were left with the meanest share of the annual product (wealth).

He considered it ‘but equity besides’ that the poorest should receive more in the form of higher wages (this was before notions of a welfare state’ and modern version of a ‘living wage’ were thought about). His modest suggestions were many decades before newer ideas became practicable.

Alan Massie is a thoughtful intellectual in Scottish society. I think the rest of his article wanders off track by equating “free markets” with criminality (follow the link). Markets remain the least worst of the alternatives. Markets are preferred where possible (unavoidable regulations and all). The State is an option where absolutely necessary.

Smith was not, however, a utopian thinker. He did not think it likely that free trade would be implemented in Britain. He dismissed it as a ‘utopian’ idea because in the taxation regimes of the 18th century – there was no income tax as we know it, until after he had died in 1790 – some revenue had to be raised on imports if government (that is, defence, justice, public works, and an assortment of smaller things, each with inevitable larger possibilities) was to function at all. The (mainly avoidable) heavy war agendas of the 18th-century required more sources of government revenue (more so when new French wars threatened bankruptcy) and these new sources of revenue went on to finance imperial adventures in Europe and the rest of the world, not education, health and local government. Smith’s dictum, after the American war of independence, that Britain should curtail its ambitious spending agenda to within the limits of the “modesty of its circumstances” (last lines of Wealth Of Nations), was ignored in creating the world’s largest ever Empire.

‘Tis a pity that the British government stumbled, or bumbled, into this track, and the fault lay with the legislature, and those who influenced it, and it continues to be a cause for regret, given also, that Britain continues to make the same error of judgement, by disregarding the true modesty of its current and prospective future circumstances.

Incidentally, there is 'no such thing as a free lunch' - someone, somewhere pays for it.

Are Sociologists About to Follow Economists into a Dead-End in Pursuit of Becoming a So-Called “Hard Science”?

2012-02-01T14:25:00.003Z

A recent blog post HERE

The author asks “is sociology as a hard science major”?

‘Why don't we offer a "hard science" sociology track? If you teach at a university with a lot of decent social science departments, it's an easy major to implement. Except for math soc, all the courses are there already. My version:
Intro soc
Research methods
Social theory
Basic stats (hypothesis testing) + applied regression analysis
Microeconomics
Demography
Social Network Analysis
Mathematical Sociology/computational models
Intro game theory
Breadth: a few courses in qualitative topics; three courses of topics in sociology (like race, gender, education, etc.); a capstone course
The background that a student would need is about 1 year of calculus and some computer literacy. The only course that soc depts don't already offer is math soc. But I think that could be offered, or made an elective. At a competitive R1 school, I'd imagine that you could get 3-4 majors per year. A minor could probably bag you 5-8 students per year. I bet a few hard science types would be happy to tack it on as a double major. And the cost would be zero.’

Comment
Mathematics is classed as a “hard science”. Since about 1870, economics faculties, gradually at first and then in an all-fronts rush since the 1950s, melded economic theory into mathematics to claim the title of being the “hard science” in the social sciences.

A few yeas back, some mathematically astute economists met with some physicists to show off their astuteness and maths skills, and the physicists were mildly amused at their claims (in private they were probably rolling about uncontrollably in laughter). The physicists recognized the economists’ maths as ‘so 19th century’, because maths had moved on a great deal from the calculus of two variables.

All this left economists with the virgin individualists of “Max-U” Homo economicus, existing in an imaginative world of general equilibrium and Pareto theorems, but not much nearer in the 21st century to understanding how real world economies function.

Hence, I am worried about this suggestion, which the accompanying comments seem to suggest it might be welcomed, though I don’t think much of their ambition. Even the sponsor suggests that “At a competitive R1 school, I'd imagine that you could get 3-4 majors per year. A minor could probably bag you 5-8 students per year. I bet a few hard science types would be happy to tack it on as a double major. And the cost would be zero”.

In short, the drive for a “hard-science” accolade is driven by the ambition of recruiting a handful (between 4 and 8) of additional students for sociology. To acclaim this very modest target with the additional illusion that “the cost would be zero”, is the height of folly.

What would sociology lose in the process? If it is anything like what economics has lost with its crowning mathematical achievement being the unreal, non-existent, and non-operational idea of general equilibrium, I think the sponsors need to think again.

To make sociology a “hard science” it is better to stick with relevant and accurate analysis of sociology applied to the real-world, with less jargon and more relevance, and above all less ideology and fewer political agendas.

Looney Tunes no 21

2012-01-30T21:00:00.001Z

“The Invisible Hand's Green Thumb”

Shawna Stirrett, Robbie Rolfe and Stephanie Shewchuk HERE

2

Are You With Us?

The Entity
Box Office Prophets HERE

“I was shaken again when the same invisible hands raped her again… seven minutes later. “

3

Nation First

Beijing Review HERE

“While acknowledging China has legitimate grievances against Western powers, some Western observers tried to justify themselves by asserting the national sentiment was manipulated by an invisible hand.”

An Economics Historian (and much more) Who Speaks Good Sense About Capitalism

2012-01-28T11:35:00.004Z

Dalibor Rohac, deputy director of economics at the Legatum Institute, reports on a lecture by Deidre McCloskey at Hartwell House, Buckinghamshire, London and post in the Wall Street Journal HERE

“The New Theories of Moral Sentiments”

“…But humor and witticisms aside, the talk revealed her conviction that economists should not shy away from the subjects of love, friendship or virtue.

Ms. McCloskey sees a problem in the way that economic models are dominated by a strange, sociopathic character—"Max U" as she calls him, referring to the standard economic problem of maximizing utility subject to various constraints. Her own scholarly work has become increasingly focused on bringing love, hope, faith, courage and other virtues back into economics.

… If her talk of ethics sounds fluffy, recall that in 1759 Adam Smith earned his reputation by publishing "The Theory of Moral Sentiments," in which he accounted for the emergence of sympathy and moral judgments. It was only in the 20th century that ethics disappeared from economics, partly as a result of the increased mathematization of the discipline. Ms. McCloskey says it was a fundamental error for economists to start making their arguments in terms of "Max U" alone. "In fact, 'Max U' would be a much more sensible person if he had gender change and became 'Maxine U,'" she chuckles.

... [In 2010} she completed a 600-page sequel, "Bourgeois Dignity: Why Economics Can't Explain the Modern World." ...

... "Bourgeois Dignity" makes a historical argument. Modern economic growth, she claims, is a result of an ideological and rhetorical transformation. In the Elizabethan period, business was sneered upon. …

… She contrasts this with attitudes 200 years later. When James Watt died in 1819, a statue of him was erected in Westminster Abbey and later moved to St. Paul's cathedral. This would have been unthinkable two centuries earlier. In Ms. McCloskey's view, this shift in perceptions was central to the economic take-off of the West. "A bourgeois deal was agreed upon," she says. "You let me engage in innovation and creative destruction, and I will make you rich." A commercial class that was not ostracized or sneered at was thus able to activate the engine of modern economic growth.

Ms. McCloskey insists that alternative explanations for the Industrial Revolution fail, for a variety of reasons. Property rights, she says, could not have been the principal cause because England and many other societies had stable and secure property rights for a long time. Similarly, Atlantic trade and plundering of the colonies were too insignificant in revenue to have made the real difference. There had long been much more trade in the Indian Ocean than in the Atlantic, moreover, and China or India had never experienced an industrial revolution.

By elimination, Ms. McCloskey concludes that culture and rhetoric are the only factors that can account for economic change of the magnitude we have seen in the developed world in past 250 years.

The danger of our era is that the bourgeois deal is slowly crumbling away. It is under attack from the political left and also from economists whose work revolves around one sole virtue—prudence—thus eroding the public understanding of markets and economic life. Looking at the West's current economic woes, it is easy to share Ms. McCloskey's concern that unless we revive a sense of dignity and approbation for entrepreneurship and innovation, we might easily kill the goose that lays the golden eggs of our prosperity.”

Comment
What a splendid account of McCloskey’s scholarship, warmly reported on Lost Legacy when I read her “Bourgeois Dignity” recently.

She combines heavy original scholarship with much erudition and a light writing style. I recommend her works to readers (follow the link to read the full report). Publicity on the Wall Street Journal will catch the eye of many working economists, though I suspect many of them will not have been exposed to McCloskey’s themes with their critical focus on the equations of “Max U” that eliminate any real human relationships, or even real people. She is well versed in Adam Smith’s works too.

Actions Speak Louder Than Mystical Forces

2012-01-27T13:53:00.001Z

Anonymous writes (27 January) in The Point (Gambia) HERE

“Tolerance in the teaching of the great prophet(s) and in liberalism: A contrastive analysis (Part 2)”

“The humans of today feel that they have reached mature self-sufficiency and are no longer like the children of yesterday who had to hope for an invisible hand to reach out and do something.”

Comment
Nobody ever had to wait for an invisible hand to do anything. It has always required people to act and do something.

Who is Kidding the Good Folks of Nappa Valley?

2012-01-26T12:14:00.004Z

Bill Dyer writes to Napa Valley Register HERE

"Unchecked free markets risk unfair playing fields"

“Adam Smith believed there is “an invisible hand” that regulates free markets, but we have found that without some fair-minded regulation to level the playing field, we have to watch out for the invisible fingers getting into our wallets.”

Comment
What does “an invisible hand” add to our understanding of markets?

Why not try checking very visible prices?

Adam Smith never said anything about “regulating markets”, other than by price competition.

Regulations may be necessary for safety (banking, fire risks, quality stamping, and such like) but these regulations can never be invisible for them to apply, and no "invisible hand" implements of initiates them.

A Correspondent Spots a Looney Tune

2012-01-25T22:37:00.003Z

"This is just like Adam Smith's economic "Invisible Hand" concept! Only Obama's invisible hands are wrapped in a death grip around America's economic throat." HERE

and writes (A correspondent (25 January):

“It seems more likely that Americans have a death grip round the last remnants of the Enlightenment.”

To which I would respond:

I agree. You make a good point, which expresses brilliantly what I have been coming to in my current writing of a review of Warren Samuels’ last book, ‘Erasing the Invisible Hand’ (Cambridge University Press, 2011), for colleagues working in the history of economics sub-division within the broad discipline of economics.

Specifically, the modern myth of the so-called “invisible-hand” of the market that supposedly ensures that complex economies end-up reaching an equilibrium that benefits everybody, whatever the motives of the agents who make investment, pricing, and production decisions (it doesn't). Allegedly it is substantiated in practice (it isn’t), and apart from asserting that the said “invisible hand” exists and carries out this imaginary function, it most importantly, is claimed to carry Adam Smith’s prestigious endorsement (it doesn't).

And that is the rub. This major ”theory”, for that is what it has become by a tidal wave of assertions to that affect, even from Nobel Prize winners, particularly from the 1960s – though initiated in 1948 by Paul Samuelson in his best-selling textbook, ‘Economics: an introductory analysis’ - carries a heavy burden from the extent to which its complaisant policy has been adopted and applied in practice across the world’s economies, with the results with which we are now living under.

Looney Tunes no. 20

2012-01-25T16:24:00.002Z

1
Flavius (23 January) on dagblog HERE

“That invisible hand's not holding a bandage”

2

Neoliberal Globalization – Is there an alternative to plundering the ...

By dagobertobellucci HERE

“Neoliberal Globalization – Is there an alternative to plundering the Earth? by Prof. Claudia von Werlhof”
The question remains: why has Adam Smith's “invisible hand” become a “visible fist”?

3

“Economists' 'Inside Job' problem requires more than just disclosure”

‘Richard” writes in “Trust Your Instincts” HERE

“The invisible hand does not require that buyers know what they are buying. …”
“The invisible hand can work properly in the presence of information asymmetry. …”
“The invisible hand can work properly in the presence of opacity. “

4
Jason Unger writes (24 January) for Environmental Law Centre (Alberta) HERE

“Pipelines and participation: radical rhetoric, planning and public interest”

“we can rely on the invisible hand but don’t be surprised if there is a “radical” slap to the face, coming from those with legitimate public interest concerns.”

Even the Left(ish) Buy the Myth

2012-01-23T12:33:00.002Z

Dadepfan post in Reverse Spin HERE

"American Political Myths – The “Invisible Hand”

As the theory goes, in a free market, each individual strives to maximize his or her own gain, and in doing so is “led by an invisible hand to promote an end which was no part of his intention.” The end that is promoted is “to render the annual revenue of the society as great as he can.” As explained by Investopedia: “Smith assumed that individuals try to maximize their own good (and become wealthier), and by doing so, through trade and entrepreneurship, society as a whole is better off. Furthermore, any government intervention in the economy isn’t needed because the invisible hand is the best guide for the economy.”

Well, this makes some sense and does seem logical, at least on the surface. I believe that the “invisible hand” does have the postulated effect, but certainly NOT to the magical extent claimed by free market advocates and anti-government zealots.

Comment
Dadepfan does not have to accept any vestige of the "invisible-hand" myth. Adam Smith was not responsible for the modern myths, largely invented in American academe in an oral tradition (possibly emanating from Cambridge, England), which gained traction after Paul Samuelson published his popular best-selling textbook, 'Economics: an introductory analysis', 1948.

For Adam Smith, it was a useful metaphor, popular in his days in theology, sermons, plays, and novels. Smith used in only twice in his published works, and hardly any notice was take of it until the late 19th century, and then rarely before Samuelson gave it a boost in his 5- million best seller and graduates taught what they had read.

Smith used it as a metaphor for the behaviour of some, but not all, traders who felt the "foreign trade of consumption" was too risky and therefore, preferred to invest only "domestically", which on the arithmetic rule that 'the whole is the sum of its parts' increased domestic 'annual revenue and employment", the latter of which Smith considered an public benefit, given the dire circumstances of the 18th-century poor, and the former raised capital available for new investment. Their "insecurity" was the object of the IH metaphor - all metaphors have "objects" which metaphors "describe in a more striking and interesting manner" (as taught by Smith in his "Lectures on Rhetoric and Belles Lettres", 1763, and in the Oxford English Dictionary, 1983).

Smith mentioned nothing about all 'self-interested' actions benefiting the public - indeed, he gives over 70 examples of malign 'self-interested' actions that hurt the public in Books I, II, and III of Wealth Of Nations. Today, we could give many more. Tariffs, protectionism, prohibitions, monopolies, mistaken government policies, and poor education were among his targets. He used the IH metaphor only once in Wealth Of Nations and not in connection with markets.

[I tried to post this as a comment on the Reverse Spin Blog to no avail.]

Looney Tunes 19

2012-01-22T09:03:00.002Z

1

Daily Kos Week in Review: Juan, the Whipping Boy

NewsBusters (blog)

"The real conservative religion is the worship of capital, as the burnt-offering smoke that feeds the Invisible Hand.."

2
The Harper house rules: An intervention

ERIKA SHAKER on rabble.ca (blog) HERE

“And given that the majority of the damage occurs during or after you have been entertaining your friends, your repeated insistence that the "invisible hand of the marketplace" -- not your deliberate actions -- is responsible is just plain weird.”
[GK: agreed!]

3
Fort Worthology » The Forces Behind the Market Forces

Kevin Buchanan (director of transportation for the North Central Texas Council of Governments) has some thoughts on a recent interview the Dallas Morning News did with Michael Morris, HERE

“If market preference is the invisible hand, government policy provides the invisible arm.”

No, Tristan, A thousand Times No!

2012-01-21T16:07:00.002Z

Tim Worstall writes (21 January) on his Blog HERE
a repudiation of the latest nonsense about Adam Smith’s use of the Invisible Hand metaphor:

“Can I call Tristram Hunt a Twat?”

“Or should I use the more obvious word?

“It is a tradition of redistribution, intervention and socialism equally as compelling as Adam Smith’s “invisible hand” (which, one should remember, was a satirical attack on laissez-faire morality, drawn from Shakespeare’s Macbeth).’

It’s got bugger all to do with laissez faire morality. It’s about how the merchant (read, capitalist, for the word had not been invented in Smith’s time) will, despite the greater profits of the foreign trade, find himself still likely to invest at home.
The most important modern result of which is that even if we have perfect theoretical capital mobility it still isn’t true that labour bears all of the incidence of corporate taxation.”

Comment
Tim Worstall is a lively blogger. See Tim’s regular contributions to the “Pin Factory” Blog of the Adam Smith Society (HERE)

Scroll through Tim’s Blog (where he doesn’t take prisoners). Read some of his long-running contra-temps with Richard Murphy, a left-of-centre chartered accountant.

Tim’s economics are usually spot on for accurate presentations of good, common-sense economics. (He is a Fellow of the Adam Smith Institute).

The above is a clear step from Tim towards a correct reading of Adam Smith’s use of the IH metaphor on “an invisible hand”. OK, his robust use of the English language is characteristic of his style on his own Blog (somewhat toned down on the ASI Blog), but he is never boring, nor slavishly mealy-mouthed.

I do not know of ‘Tristram Hunt’, but if Tim’s quote is representative, Tristan writes rubbish on Adam Smith’s use of the IH metaphor.

Bernard Mandeville and Adam Smith

2012-01-20T15:45:00.001Z

Jan Peter Hammer is reported on ArtDaily.org HERE

Jan Peter Hammer produces a ‘U-tube’ video cameo asserting, wrongly, that Adam Smith’s use of the “invisible hand” metaphor was an “off-shoot” from Bernard Mandelson’s (1705-1724) ‘Fable of the Bees, Private vices, Public benefits’ theme. It wasn’t.

“The Fable of the Bees by Jan Peter Hammer at Supportico Lopez in Berlin”

“The Fable of the Bees by Jan Peter Hammer is an exhibition based on the 1705 poem by Bernard Mandeville “The Fable of the Bees: or, Private Vices, Public Benefits.” In his poem and ancillary prose Mandeville brings into being the counter-intuitive argument that better people make the world a worse place, since so-called vices such as egoism or greed stimulate social prosperity, whilst altruism or honesty result in collective atavism and disinvestment. In spite of the harsh reception of Mandeville’s work, which gave great offense to contemporary readers, his core idea that private vices lead to an increase in public benefits was later recovered and popularized by the British Utilitarian School. Adam Smith’s “invisible hand” parable is an off-shoot of Mandeville’s fable minus the cynical crudeness, with an added veneer of scientific respectability that makes the argument much more palatable and less contentious. Fables and parables are moral tales whose aim is to instruct, each of which contains a lesson to be learnt by its readers. Though 18th century’s classical political economy embraced a moralizing function, economics has since gone to great lengths to hide its ethical foundations. Claims of neutrality notwithstanding, choices of economic policy remain largely political.

In Jan Peter Hammer’s eponymous video “The Fable of the Bees” – shot in the guise of a You Tube home-made production – an eager young professional unwittingly channels Mandeville’s reasoning, providing a good illustration of the adage that “practical men who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”(J.M. Keynes)”

“That Which Is Seen and That Which Is Unseen” is a title borrowed from Frédéric Bastiat’s 1850 text “Ce qu’on voit et ce qu’on ne voit pas”, in which Bastiat lays out yet another parable, the “parable of the broken window”. Positioning himself against Mandeville’s notion that destruction brings net-benefits, Bastiat states that, “In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.”

Comment
Two erroneous ideas may make a passable ‘U-Tube’ video that amuses viewers, but art is not necessarily history, nor instructive. Adam Smith did not deduct Mandeville’s “cynical crudeness” to add a “ veneer of scientific respectability” to make Mandeville’s “argument much more palatable and less contentious”.

He dismissed Mandeville’s satire as a “licentious System” and regarded it in “almost every respect erroneous” (Moral Sentiments, Book IV, Chapter 1.10.185); which should be read to appreciate Smith’s rejection of it in every respect). He attacked his ideas about vice and vanity as being wholly vicious, and a “mere offspring of flattery begot upon pride”. He concedes that Mandeville “once made so much noise in the world” because “in some respects [it] bordered upon the truth”, which is necessary to “deceive us” and “yet [it had] no foundation in nature, nor any sort of resemblance to the truth”, much like the “groundless and absurd fictions” about a “distant country” (which the 18th century abounded in). Such authors, concluded Smith, “appear absurd and ridiculous [even] to the most injudicious and unexperienced reader”.

Adam Smith’s “invisible hand” was never a “parable”, nor an “off-shoot of Mandeville’s fable minus the cynical crudeness”. Treating his use of a metaphor as a parable confuses a figure of speech in English grammar with a moral-type of “story”. How this particular and common 17th-18th-century metaphor became mythical story in modern economics, has to do with those neo-classical economists from the 1940s who felt a need to give their direct opposition to Soviet central planning by invoking the credentials of market solutions for problems of economic growth, living standards, innovation and technologies, in which they felt (rightly) that capitalism was far superior to communism. The Soviets had Karl Marx as their fount of wisdom; western economists rediscovered a mythical Adam Smith who had nothing to do with the Adam Smith born in 1723.

Marxists disparaged Adam Smith; neo-classical economists invented a role for the invisible hand metaphor and ascribed their inventions (wrongly) to Adam Smith by asserting that the invisible hand operated in the “miracle” of markets (but without showing precisely what it did and without a term for it in any of their mathematical abstractions). Marxist theorists simply side-stepped the “wonders” of “an invisible hand”, saying that central state planners replaced the market’s invisible hand (see Oscar Lange: ‘Economics of Socialism’, 1937 and 1947).

Keynes may have been right about “practical men” being “the slaves of some defunct economist”, though neoclassical exponents of “invisible hand” myth are the slaves of a wholly invented role for a lowly metaphor that has nothing to do with Adam Smith (see Warren Samuels, “Erasing the Invisible Hand: essays in an elusive and misused concept in economics” 2011 – and Lost Legacy, passim).

Jan Peter Hammer’s quotation from Frédéric Bastiat’s 1850 text “Ce qu’on voit et ce qu’on ne voit pas”, is interesting. It is not clear what Jan Peter Hammer makes of what Bastiat was saying: “the first [effect] alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.” This formulation has nothing to do with the “invisible hand” metaphor.

In both cases of Smith’s use of the IH metaphor its object is clear (but unseen). In Moral Sentiments, the rich landlord is led to his action in feeding his dependent serfs (“the thousands he employs”) by his unseen dependence on their toil (‘no food, no toil’), but the consequences of his action are seen in the subsistence paid to his toilers and their families, which results in the “advance of society and the multiplication of the species” (‘no toil, no food’) (TMS IV.1.10: 185).

In Wealth Of Nations, those insecure traders who prefer to invest in “domestic industry” rather than risk investing in “foreign trade” (unseen attitudes to risk), which unseen motive results in higher and seen “domestic revenue and employment” (WN IV.ii.9: 456). Bastiat’s quotation is about seen causes and unseen consequences, while in Smith’s use of the IH metaphor, the causes of being led are unseen; the consequences are seen. The IH metaphor describes these relations in a “more striking and interesting manner” (Adam Smith, Lectures in Rhetoric and Beller Letters, [1762] 1983, p 29).

Smith’s point was specific too: both the landlord and the investors act without “intending, without knowing” the consequences of their actions (Moral Sentiments, TMS IV.1.10: 185), and a risk averse investor acts to “promote an end which was no part of his intention” (WN IV.ii.9: 456). In neither case can we see the cause, but we can see the consequences in both cases.

I am all for art and such-like creative endeavour as demonstrated by Jan Peter Hammer, but let's keep my feet on the ground, not in the clouds, when it comes to interpreting historical licence from artistic subjects.

Small Steps in the Right Direction

2012-01-19T15:17:00.001Z

James Higham writes for Orphans of Liberty HERE

James covers some of the distorted ideas about Adam Smith, especially about markets and morals. He picks up the distortions of Smith in the “concept” of the invisible hand and the claims of Ayn Rand (and her mentor, Bernard Mandeville, 1724, in “Private Vice, Public Virtue”, today known as the “greed is good” school of mindless radicalism.

“Adam Smith”

“Thought this a most significant take on Adam Smith who, like all great ideas people who’ve influenced humanity, has been partly read and misread as has been people’s wont and their own prejudices:
Smith saw economics as a branch of moral philosophy, and he saw capitalism as an ethical project whose success required political commitment to justice and freedom, not merely an understanding of economic logistics.
The notion of classical liberalism certainly embraces economic freedom but it also embraces that pesky bit “unless/until it is to the detriment of others”. Cue the moral dimension.

A great deal of contemporary (neo-classical) economics can be understood in terms of translating Smith’s Invisible Hand metaphor into a systematic theoretical form, with a particular emphasis on the economic efficiency of perfectly competitive markets.

However the popular view of Smith that has resulted from this emphasis is twice distorted.

Firstly, it is based on the narrow foundations of a few select quotations from The Wealth of Nations (WN) that are taken in isolation as summing up his work (Smith only mentions the ‘all important’ Invisible Hand once), and secondly these quotations have been analyzed in a particularly narrow way.

Both selection and interpretation have been driven by contemporary economists’ interest in justifying orthodox economic methodology and their peculiar (Mandevillian) assumption of the selfish utility maximising homo economicus.

And that’s the nub of the matter.

But anyone who cares to read Smith’s Wealth of Nations for themselves will find an economics discussed and justified in explicitly moral terms, in which markets, and the division of labour they allow, are shown to both depend upon and produce not only prosperity but also justice and freedom, particularly for the poor.

This is more than just a philosophical nicety and sets it at odds with the Randian dystopic view of freedom, the free market’s motivation and the cold indifference of the amoral “business is business”. This extremist position is a central plank in the platform of the crony capitalists and justifies all the corruption and I’m all right, jack of the Dimons et al.
It has zero to do with classical liberalism. “

Comment
Steps in the right direction are always welcome away from the neo-classical inventions of an Adam Smith not born in Kirkcaldy in 1723, but invented in US academe in the late 1940s (Paul Samuelson) through to today. It was an ideological attempt to defend capitalist market economies from the pressures of the competing Soviet experiment in totalitarian centralised planning, which fortunately collapsed after 1989, before the Cold War turned Hot.

Some erroneous ideas die slowly, some at a glacier-like pace. The ‘invisible hand’ and ‘greed is good’ fantasies are two such erroneous ideas.

Lost Legacy welcomes even the smallest steps away from the largely Chicago Adam Smith.

Pay Attention to What Adam Smith Actually Says

2012-01-19T12:12:00.003Z

Christina Free posts (19 January) in e-International Relations (“the world’s leading website for students of international politics") HERE

In doing so she repeats the false exposition of Adam Smith's use of the metaphor of “an invisible hand” and repeats the modern economists’ myth that this metaphor is related to several ideological (i.e., not founded on facts) assertions about how Smith considered economies functioned. The result is a misreading – and by the aims of e-international relations – a false presentation of Adam Smith’s views for ‘students of international politics’.

“The Goldman Sachs Abacus 2007-ACI Controversy: An ethical case study”

“The 21st century economic landscape is a reflection of the philosophy and ideas set forth by Smith and his contemporaries. Among Adam Smith’s works, two stand out as his most influential; the Theory of Moral Sentiments published in 1759 and Wealth of Nations published in 1776 (ibid). The Wealth of Nations, in part records what Smith considered to be the benefits and potential problems of a market economy, and lays the foundations of the modern economic system. What many consider to be his most important contribution to economics is his theory of the “invisible hand”, which recognizes the benefits that can be derived from allowing people to follow their self-interest (Smith, 1776). He analyzed the way in which a market system could combine the freedom of individuals to pursue their own objectives “with the extensive cooperation and collaboration needed in the economic field to produce our human needs” (ibid).

Adam Smith’s economic theory claims that when individuals are granted the “natural liberty” to pursue their own interests, they also end up promoting the interests of the greater good (Bruni and Sugden 2008). His famous theory of the ‘Invisible Hand’ states that if consumers are given the opportunity to freely choose what to buy, and producers are allowed to freely choose what to produce and sell, the market will settle on a “product distribution, and prices that are beneficial to all the individual members of a community, and hence to the community as a whole” (Keller 2007). This “invisible hand”, or the market, consists of self-interested suppliers on one side and self-interested buyers on the other. It is each parties self-love which Smith considered to be the best motivator for fair pricing and quality production in the markets (Smith 1776). The harmony of these individual pursuits which “often produce social and economic good” creates a “self-constraining system” (Werhane 2006). Thus, the “invisible hand” which governs market transactions, functions as a regulator of self-interests, and simultaneously promotes economic growth and well-being. In the Wealth of Nations, Smith gives several examples of how this mechanism works, and how it gives rise to the division of labour. He states that “it is by treaty, by barter, and by purchase, that we obtain from one another the greater part of those mutual good offices which we stand in need of” (Smith 1776).

[Follow the link HERE to appreciate Christine Free’s essay in full. ]

Comments
Some questions of fact: where does “his theory of the “invisible hand recognize “the benefits that can be derived from allowing people to follow their self-interest”?

Smith never had a “theory” of “an invisible hand”. He mentioned it twice, once each, in his two published works (Moral Sentiments and Wealth Of Nations). It was a metaphor, not a theory. It became a “theory” because modern economists claimed that it was a “theory”, and from the 1940s invented content to demonstrate that it had one.

The theory of “natural liberty” was promoted by Grotius and Pufendorf, and taught at Glasgow University (and other Scottish Universities) in the Moral Philosophy courses, but it had nothing to do with the metaphor of an “invisible hand”. Not did Smith assert that it had any connection.

The “invisible hand” was never a synonym for “the market”. Smith discussed how markets operated in Books I and II of Wealth Of Nations, without mentioning anything about the presence of “an invisible Hand”. It is mentioned only once in Wealth Of Nations (in Book IV) as a metaphor for the ‘insecurity’ of some, but not all investors, who, from their insecurity, were led to prefer to invest in “domestick industry” rather than the “foreign trade of consumption” (WN Book IV, chapter 2, paragraph 9: 456). Modern economists generalized that single (and singular) mention of the invisible hand into a “theory” about something else entirely.

They also, apparently, did not know about the role of a metaphor in English grammar, though Smith did. Smith taught Rhetoric each year from 1748 (his public lectures in Edinburgh to 1751 and at Glasgow University from 1751-64). We also have a set of student lecture notes for 1762, which were found in a house-clearance sale in Aberdeen in 1958 and published as Adam Smith, ‘Lectures in Rhetoric and Belles Lettres’ in 1983. Lecture 6 is devoted to metaphors and figures of speech. On page 29 he defines a metaphor as: “describing in a more striking and interesting manner its object”. Clearly, concerns about the security of an investor’s capital (the object) are brilliantly described in a “more striking and interesting manner” by the metaphor of “an invisible hand” leading the investor to act in this manner because of his “insecurity”. Everybody remembers the metaphor, but few – too few – remember, or even recognise its object, namely their insecurity, mentioned 6 times by Smith in the paragraphs leading to the metaphor of "an invisible hand".

Smith never claimed, or mentioned the “invisible hand” as “govern[ing] market transactions,” or “function[ing] as a regulator of self-interests” that “ simultaneously promotes economic growth and well-being”. That is pure fiction. Respectfully, Christine Free should read Smith’s original 1759 and 1776 texts rather than rely of second- or third-hand reports by Werhane (2006), Keller (2007), Younkins (2011), and Jennings 2004, and many others since the 1940s. She should also read the authoritative analysis of the modern ‘invisible-hand’ phenomenon by Warren Samuels, “Erasing the Invisible Hand: essays on an elusive and misused concept in economics”, 2011, Cambridge University Press, to locate the ideological source of the errors she relies on and about Smith’s innocent role in the modern “invisible hand” myth.

Turning to Moral Sentiments, Christine acknowledges that “What has been lost from Adam Smith to the neoclassical economists (although his ideas and theirs at first glance seem quite similar) is the basis of morality and control that he envisioned would go hand-in-hand with the markets (Keller 2007)”, (a most controversial statement) and she wriggles to maintain the “invisible hand” theory”, asserting that “it was Smith’s “invisible hand” which laid the foundation for the neoclassical economic ideology”. This is partly true, but not in the manner as she understands it. The so-called “theory” (an invented construction by neo-classical – and, sadly, also maintained by many heterodox economists) is at ”the foundation for the neoclassical economic ideology”, but it was not put there by Adam Smith! Neo-classical ideologues back-project their erroneous claims about Adam Smith by misrepresenting his texts.

Christine also misrepresents Smith in Moral Sentiments in presenting Smith’s theories of morality. The separation of an individual from all of the vast anonymous members of the human race, except for a few family and friends, is a fact of life. It is impossible to know everybody in a neighbourhood, let alone on other continents (the world and the people in it beyond Europe were virtually unknown for millennia) The power of the division of labour brought the possibility of peaceful and moral relationships, alas somewhat tarnished by actual experiences of European violence, though, hopefully, not excluded as a more peaceful relationship in the very long run.

However, Christine misreads the old canard that Smith stated in Moral Sentiments that “a man would ultimately have more distress over the loss of a finger than hearing the loss of millions of lives in some distant land”. This is not a quotation from Mortal Sentiments; it is a misleading summary of what the 1759 passage actually said. I suggest that Christine reads it again. It is an easy mistake to misread Smith here (I did, until Sandra Peart, Dean at Richmond University in Virginia, kindly pointed out my error). Smith, after setting up the counter-point of a man preferring his little finger over the lives of “a hundred millions of millions of his [Chinese] brethren”, then excoriates (to put it mildly) any person who actually acts in that manner, his language unrestrained, and his moral tone deafening (Moral Sentiments, Book III, chapter 3.5. para 4: 136-7). Remember, Smith was teaching young teenage boys and used such devices to maintain their attention.

Readers of Adam Smith do best by paying attention to what he says, unadorned with modern interpretations and inventions.

Memo to John Kay: read Warren Samuels' new book

2012-01-18T16:52:00.003Z

John Kay writes (18 January) the “accessible and relevant economics” Blog HERE

“A real market economy ensures that greed is good”

“Adam Smith’s insight about the invisible hand is often interpreted in this way and modern mathematical economists have established that proposition more precisely. But if co-ordination were the only strength of the market economy, a computer could do that job equally well. Computers are very good at processing information.”

Comment
I have known John Kay since he was a student at Edinburgh University in the 1960s and I have followed his impressive career as a top UK economist. However, not unexpectedly, perhaps, for regular readers of Lost Legacy, I do not agree with the implications of John’s assertionoft “Adam Smith’s insight about the invisible hand”, nor the allusions to market economies ensuring “that greed is good”.

The connection between markets and “greed” is a wholly “licentious” idea from Bernard Mandeville (1724), and more recently by Ayn Rand in the 1970s, but not by Adam Smith either in Moral Sentiments or Wealth Of Nations.

Fortunately, Warren Samuels’ new book, “Erasing the Invisible Hand: essays on an elusive and misused concept in economics”, 2011, (Cambridge University Press), is now available to tackle the issues raised in John’s post (probably he would not be satisfied by reading Lost Legacy passim, being the thorough economist that he is).

Samuels would more likely satisfy him from his thorough scholarly exploration of the history of the invisible hand covered in this new book, both from Adam Smith’s time (Smith is shown to be innocent of the attributions made to him for the modern misreading of Smith by modern economists, since the 1940s).

In what manner “modern mathematical economists have established that [invisible hand] proposition more precisely” is not shown. Warren Samuels shows by his exhaustive analysis of the many arguments claiming that “an invisible hand” operates in the economy that no such entity exists nor can add anything to our understanding of how markets work. I suggest, also, that no mathematical terms representing “an invisible hand” appear in any of the mathematical equations of those claiming to show that such a terms exists.

Adam Smith and Karl Marx

2012-01-18T14:48:00.002Z

On Quora (a social website), sent to me by a Lost Legacy reader: HERE
“Was there something fundamentally different between 1776 and 1867 in the world that led to Adam Smith's and Karl Marx's books being so different?”

‘I'm asking about Wealth of Nations and Kapital”:

To which question, Lawrence Kurnarsky, director, writer - doctorscreenplay.com, contributes an answer:

“Adam Smith foresaw a world that was very much in harmony. He envisioned, as did most of the intellectual founders of the American experiment, humanity bathed in light, arguably divine light. Smith believed that freedom was the natural condition of man and envisioned a society modeled on a natural ecology. If allowed, that society based on farming and village life, with a few shining cities on the hill, would keep itself in balance perpetuating a world in which natural forces acted beneficently on human beings so that they would be happy and thrive. If society was properly ordered, with merit, good will, mutuality, fair play, and free competition, the good life would usher forth like cordial rains. As in Jefferson's beloved garden, the societal garden, well tended, would be bountiful. Adam Smith argued well for his vision but Marx argued better for his.

Marx saw a world that was very much in disharmony. He did not believe that nature was beneficent but neither did he believe it was malevolent, Similarly, he did not believe that the basic nature of human beings was good. He believed that Nature was nature, and that human nature was plastic and molded by the forces acting upon it. Karl Marx saw the mills and smoke belching factories in which men and woman were mercilessly worked to death. He saw the workhouses in which entire families languished for generations. All of this was so that a small number of greedy, unscrupulous, wealthy men could become wealthier.

Marx saw exploitation and class war as the way of the world, yet, he too, was no pessimist. Marx shared with Smith the vision of a better world. Like Smith, Marx believed in progress and human liberty. Like Smith, Marx was well intentioned. You could call both men humanitarians. But Marx believed that for the potential of humanity to blossom, more than rational discourse was necessary. The class war needed to be fought and won by what he viewed was the most progressive of social classes, the class of people who did not live by exploitation.”

Comment
Adam Smith was not given to predicting the future. He seldom commented on anything but the 18th-century present and the past. Associating him with ‘harmony” misreads his moral philosophy and political economy.

I do not recognize Adam Smith in the assertions:

“that society based on farming and village life, with a few shining cities on the hill, would keep itself in balance perpetuating a world in which natural forces acted beneficently on human beings so that they would be happy and thrive. If society was properly ordered, with merit, good will, mutuality, fair play, and free competition, the good life would usher forth like cordial rains”.

Sounds more like a campaign speech by an aspirant US President (or Hollywood scriptwriter).

The only specific prediction that Smith made appears to be his comment in Wealth Of Nations that the (about-to-be former) British colonies in North America in about a hundred years time would be more significant economically than Great Britain (WN IV.vii.e: 625).

He added, over the page, when discussing the “discovery of America”, and the “passage to the East Indies by the Cape of Good Hope”, as "the two greatest and most important events recorded in the history of mankind”, his approach to predictions of the future:

“What benefits or what misfortunes to mankind may hereafter result from those great events no human wisdom can foresee” (WN IV.vii.e: 626).

And that was his approach to the future.

As I understand of Karl Marx’s biography, it is doubtful if he ever visited any actual “mills of smoke belching factories”. We know that Engels did – he owned one.

“Karl Marx saw the mills and smoke belching factories in which men and woman were mercilessly worked to death.”

Yes, there was mass deprivation and dreadful conditions in factories and mines. For perspective consider the records of Egyptian, Babylonian, and Chinese Emperors and Kings, feudal landlords, and slave-masters (Arab and American) which were not much different in spreading 'shortgevity' and misery among those under their control.

A founding member of what was eventually to become Heriot-Watt University, Leonard Horner, became the first UK appointed Factory Inspector and fought valiant battles to bring such practices to an end. Legislation and common practice was eventually successful, paid for by the highest living standards the world had, and still has, ever experienced.

But through all this misery, per capita living standards gradually rose at historically impressive rates from 1800 until they reached today’s unprecedented levels (see Deirdre McCloskey’s ‘Bourgeois Dignity: why economics can’t explain the modern world’, 2010, Chicago). And these increases in real incomes have never gone back to pre-1800 rates, or anything like the rates common across the world since the Age of Hunting commenced about 200 millennia ago, or the Ages of Shepherding and Farming, about 11 millennia ago. No wonder that even Marx lauded the achievements of the commercial and, later, the capitalist century. It was not all doom and gloom.

There was a fundamental difference between Adam Smith and Karl Marx. Smith saw the role of the philosopher to “do nothing and observe everything”; Marx saw the philosopher’s role as not to “understand but to change” the world. Be careful for what you wish for!

In their different approaches, we see the roots of the inevitable tragedy bound up with what Smith described as the fallacy of the view of people regarded like wooden pieces on a chessboard, as easily moved by “men of system”, “wise in their own conceit” when in fact ever single man has a “principle of motion of their own”, which, if recognized, society would “go on harmoniously” and not “miserably” and would avoid the ‘highest degree of disorder” (TMS VI.ii,2.17 234).

A Must-Read Book For All Modern Economists

2012-01-16T18:53:00.008Z

Warren Samuels with the assistance of Marianne F. Johnson and William H. Perry, 2011, Erasing the Invisible Hand, Essays on an Elusive and Misused Concept in Economics, New York and Cambridge: Cambridge University Press. ISBN 978-0-521-51725-6

This is a welcome and authoritative contribution to a central problem in modern economics, specifically that of the so-called ‘invisible hand’ and its prescriptive implications for policy. Its author is well-known among economists for his life’s work in the broad field of the history of economic thought, especially, of course, among historians of economic thought, where he is well-known and rightly admired.

Sadly, Warren Samuels (14 September, 1933 – 17 August, 2011) died just before his last major book was published last September. Many messages of sympathy and commendation have circulated among the various academic communities across the world (see, Lost Legacy, 19 and 21 August for mine HERE http://adamsmithslostlegacy.blogspot.com/2011/08/sad-loss-to-history-of-economic-thought.html) .

Samuels started on his thorough examination of the ‘invisible-hand’ in 1983 and, 28 years later, it was completed and published in September, 2011. His examination begins with Adam Smith’s initiation, so to speak, of the debate in 1744 when he began his Essay on Astronomy while at Oxford, published posthumously in 1795. He made two further mentions only of the IH in his two other works, Moral Sentiments (1759) and Wealth Of Nations (1776). Smith did not invent the IH metaphor; he used what had been widely used by many others in the 17th and 18th centuries (and was used by many others going back to classical times).

After Adam Smith, there was a long period of silence about his use of the now famous metaphor until the last quarter of the 19th century, when scattered references surfaced occasionally through the 20s and 30s of the 20th century and then flooded into print from the 1950s (with over 33,000 book titles on Amazon) and daily mentions on all media (see Google).

Warren Samuels' main critical focus is on the uses and the various attributed meanings given to the IH from the 1940s by modern economists. His examination of the modern period is detailed, exhaustive, and relentless. He provides the data: between 1816 and 1938 the “average” number of references was “very low” [I would say close to zero, especially from 1790 to 1875); from 1944 to 1974 that number “doubled”, from 1975 to 1979 it “doubled again”, between 1980-89 it became 6.6 times higher than between 1942 to 1974, between 1990-99 it was 8x that of 1942-74, and less than 20% higher than the 1980-89 level. In 2000-06 mentions fell back to 60% of the 1990-1999 level (p 18). In short, the ‘noise’ of the modern periods became awesome, in contrast with the trappist-like silence of the period 1790-1875.

I agree with Warren Samuels there is some connection with the Cold War years when “capitalism’, as an idea, was under pressure from the Soviet challenge, and I would add, from domestic challenges from communist, social democratic and anti-colonial movements at least to 1989.

By the time that Warren concludes his ten essays, no stone is left unturned. There is nowhere left to hide from Samuels' definitive and confident conclusion: there no such thing as an actual “invisible hand” at work, or present, in the economy, at any level or for any particular purpose. The idea adds nothing at all to our understanding of how markets or anything else works. It is empty of relevant meaning. It is a myth, a religious-like belief, yet some of the finest economists of our modern age, including several Nobel Prize winners, believe in it with a worrying passion.

However, even with this welcome demolition of the IH myth, I have one area of concern with Warren Samuels' absolutely splendid book. At Lost Legacy since 2005, I have focussed a lot on Adam Smith’s use of the IH metaphor, in particular on the simple test of what Adam Smith taught on the role and use of metaphors. Strangely, Warren devotes Essay 6 (pages 135-63) to a thorough examination of ‘figures of speech’, including metaphors, using mainly specialists in modern English literature, with a singular exception of a two references to Dr Johnson’s Dictionary (1755), whom Smith criticised for being "insufficiently grammatical".

What Warren does not do is consult the most relevant source: Adam Smith, a better guide than Dr Johnson! Smith’s teaching on metaphors is highly relevant, particularly when we try to consider what he meant when he used the IH metaphor so sparingly. In his Lectures on Rhetoric and Belles Lettres, delivered from 1748-64, for which we have a set of student notes [1763] 1983. Smith’s words cut through all the speculation about the meaning of the IH metaphors, which negates the wilder assertions of those modern economists and philosophers who have invented and continue to invent numerous ‘meanings’ of the IH as discussed (all demolished in a scholarly and always polite manner by Warren Samuels).

Adam Smith was clear: a metaphor “describes in a more striking and interesting manner it object” (LRBL, page 29); and the definitive guide to the English language, The Oxford English Dictionary (1983) endorses Smith’s 1763 definition. So what is the problem?

Currently, I am writing a longer scholarly review of Warren’s book for EH.Net (an internationally read eReview service for history of economics specialists across academe), in which I shall report on Warren Samuel’s assessments of the modern myths of the IH and its ideological role in recent and current economic policy and political debate (see Lost Legacy passim). When it is published in March I shall report it to Lost Legacy.

Looney Tunes 18

2012-01-14T14:25:00.002Z

1

Monkey Appetite
Salon (blog) Füsun Atalay HERE

It has become the obsession of a mind that has been continually cleared and rearranged by an invisible hand, which, at the same, time rewrites herstory.

2
Jack Lacton: Butter Chicken delivered by Adam Smith's 'invisible hand'

"Butter Chicken delivered by Adam Smith's 'invisible hand'."

HERE

“Butter Chicken delivered by Adam Smith's 'invisible hand'.

3
Gingrich is a Perverse product of political system | M ...

By Timothy P. Carney HERE
M.WashingtonExaminer.com

“Layoffs cause pain, and conservatives and free-traders have historically had trouble sympathizing with the emotional and financial difficulties caused when the invisible hand determines that one's job does not yield the optimal allocation of wealth.”

4

Lao Alps: A place of mystery HERE

Middle East North Africa Financial Network

“Hundreds of jars are dispersed over the site as if an invisible hand had thrown them there like pebbles. Some of the jars are small like a pumpkin, others are huge and weigh as much as 2 tonnes.”

5

The Invisible Handshake
Economic Populist HERE

“Adam Smith's invisible hand wasn't allowed to work here. What took its place was an invisible handshake,…”

If You Must Quote Adam Smith, First Understand Him

2012-01-13T16:04:00.004Z

The author of a Blog, Decline of the Logos HERE has commenced a series of critiques of the Adam Smith Institute. His\Her “No 1” quote is unpromising as to whether he/she understands Adam Smith’s Wealth Of Nations, while quoting from it to find quote “with “which annoy the Adam Smith Institute”. What an ambition!

Logos’s “no 1” quote is from Wealth Of Nations (WN 1.viii.11-12: 83-84):

“What are the common wages of labour, depends everywhere upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little, as possible. The former are disposed to combine in order to raise, the latter in order to lower, the wages of labour. “It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily: and the law, besides, authorises, or at least does not prohibit, their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work, but many against combining to raise it. In all such disputes, the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks, which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year, without employment. In the long run, the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.”

To Which Logus observes:

“Smith is here observing that the freedom of contract between capitalist and worker is, in reality, no such thing. The relative levels of capital each holds distort the negotiation: the capitalist can always afford to hold out for longer. However, within procedural justice libertarianism, freedom of contract is interpreted as absolute: any Government intervention, whether it be through regulation of rights or wages, is an immoral intrusion into a private negotiation.

The above quote appears to indicate that Smith understands that the freedom to make contracts varies between capitalist and worker, in a manner dependent on their relative wealth. This particular freedom appears to be determined less by Government intervention and much more so by possession of capital. Being a strong believer in the power of freedom, I would advocate that some way be found to bring a greater equality of freedom to negotiations between a capitalist and a worker, as an end in itself. I am agnostic as to how this can be achieved, whether it be through the State or through a non-state body, such as a trade union.’

Comment
The first thing to note here is that Adam Smith, writing in 1763-76, was observing the prevailing system of wage bargaining in the mid-18th century. It was not just a matter of relative “wealth’ that determined the outcome; the powers of local magistrates given them by Acts of Parliament, and the Combination Acts, contributed a great deal too. A lot has changed since then to the current situation in the 21st century. Not only has the law changed to allow wage bargaining (and much else), but also we have accumulated much experience of how trade unions operate in practice, some for the good of their members and some not so good. In so far as the, now defunct, ‘closed shop’ experiences are concerned, it was not freedom to bargain that was sanctioned, so much as restrictive trade union monopolies and, sadly, on occasion localized tyranny against individual employees. Also, the state continued to intervene, sometimes for the good and sometimes less so.

In the 18th century, Adam Smith observed what actually went on across the land. Local magistrates (a social set intimately identical with “merchants and manufacturers” and landowners) set low wage rates for many labourers. Adam Smith tended to despise their partiality. The State also prohibited freedom of assembly and strike-related “outrages”, with flogging though the streets, jail terms and transportation for transgressors (K. J. Logue, 'Popular Disturbances in Scotland, 1780-1815'). These and other examples of judicial outrages were known and commented upon by Smith within the strict and judicious self-censorship of the times. By the post-war decades of the 20th century, these had passed away, replaced by anti-liberty legislation enforcing the extra-judicial powers of trade union leaders (a phenomenon noted in Michel’s ‘Iron Law Of Oligarchy’, earlier in the century) and by the semi-corporate state established by Labourism in the 1960s.

Logos wants “a greater equality of freedom to negotiations between a capitalist and a worker, as an end in itself.” He/she is “agnostic as to how this can be achieved, whether it be through the State or through a non-state body, such as a trade union”. It is not clear exactly which age-group Logos is in, but any knowledge of post-war industrial relations shows that solving the dilemma of “freedom of contract” for firms and employees is a problem for which there have been many efforts, few of them successful.

How close Logos is to running a large (or small) organization is also an experience that might also inform him/her of the daily realities of 21st-century management, for which many reforms have been proposed (and tried), and all have failed. Cop-outs are not one of the workable solutions in the real world.

Logos concludes: “However, the Adam Smith Institute has recently put forward a proposal that runs counter to this aim of securing greater freedom of negotiation, which they have dubbed the ‘Self Employment Option’. This calls for greater use of the self-employed status amongst workers, which “sidesteps the burdens not only of PAYE and NI, but also of unfair dismissal, discrimination suits, maternity and paternity leave, statutory sick pay and holiday pay“. The self-employed, being freed from the ‘burden’ of rights, will have less freedom in negotiation than the employed. It is difficult to interpret this in any other way than the ASI having a very different understanding of freedom of contract to Adam Smith.”

Comment
Where a total, all-embracing solution is not viable, we are left with partial tinkering. Where experience shows that what we have is not working, which is certainly the case for many firms and institutions that experience the problems created by, no doubt well-meaning measures, like “PAYE and NI, but also of unfair dismissal, discrimination suits, maternity and paternity leave, statutory sick pay and holiday pay“, it is very Smithian to offer suggestions, if only to experiment at the margin to see what works or doesn’t, and move on from there. Just because we cannot change everything, that is no reason to oppose changing something. Blanket faith in all-or-nothing quick changes, with dire predictions of what could, might, or will happen as a consequence, is, with respect, very unSmithian.

ASI, as I understand it, is about pragmatism – including imaginative suggestions, which are what ASI does best – and I suggest, modestly, that Logos has some ways to go before its advice is credible, either in the selection of quotations from Adam Smith or in understanding the problems of 21st-century Britain.

[Disclosure: I am a Fellow of the Adam Smith Institute, writing on this occasion in a personal capacity.]

More Good Sense From Western Washington University

2012-01-13T14:30:00.002Z

Brandon Dupont, associate professor of economics at Western Washington University writes (12 January) for his Economic Incubator Blog HERE

“On the Fallacies of Free Markets”

“Misconceptions about “free markets” are not unusual but here’s the latest from Justin Semion, with some of my comments below:
According to Semion:

‘The concept of the “invisible hand of the market” underlies classical and neoclassical economic theories advocating for a free market economy, one with no government regulation. In summary, free market theory proposes that supply and demand in the unregulated marketplace naturally reach a state of equilibrium where the maximum possible social good is achieved.’

[To which Brandon replies:]

“First, the “invisible hand of the market” is widely attributed to Adam Smith, yet Smith did not intend it as a theory of markets and only mentioned it once in the Wealth of Nations. Paul Samuelson used the phrase to provide some color to his efficiency theorem of competitive markets, but it is not due to Adam Smith. More importantly, no free market economy (especially the version proposed by Smith) is one in which there is “no government regulation.” Smith himself proposed a variety of government regulations as do nearly all modern economists.”

Comment
Follow the link and read the rest of Brandon’s excellent critique of Justin Semion’s (of Presidio Graduate School) piece. Brandon writes a correct representation of Adam Smith’s views on markets, government, and the invisible hand.

Justin’s piece is typical of modern economics as taught on most campuses and is published in Triple Pundit HERE

The more professors who critique the views of economists like Justin Semion, the better.

Where John Emil in Daily Kos is Absolutely and Comparatively Wrong

2012-01-12T12:17:00.004Z

John Emil (11 January) writes for the Daily Kos blog HERE

It is an essay on how to get everything about Adam Smith wrong while embarrassing its author.

“Where Adam Smith was Wrong”

“I grew up on Adam Smith’s The Wealth of Nations. I was a CPA, corporate executive, and top-5 business school MBA from Mitt Romney’s era, and Smith was God. But one strange, often repeated phrase nagged at me. What was this “carrying trade” that Smith harped on, over 35 times?

"The phrase is central to his über-capitalist argument about comparative advantage, and time has proven him dead wrong.”

… Smith divided the economic trade world into three parts – the “home trade,” with goods produced and consumed locally, the “foreign trade of consumption,” where you sell your production to a foreign country, and, finally, the “carrying trade,” the third party that cut the deal and delivered the goods, taking great risks over perilous waters to do it.

The carrying trade was central to his argument that basic home-produced goods would always have comparative advantage over competition from abroad, which would largely consist of luxury goods and agricultural products your local climate could not support. The costs of the carrying trade in getting low-priced goods to market protected the local basics from foreign competition, and even if there was a low-cost foreign competitor, your home market likely had a comparative advantage over the foreign market in another area.

…“Comparative advantage” goes down the toilet.

Damn! Here I am a CPA and “golden age” MBA and I’m channeling the one 19th-century writer whose name cannot be spoken in the public in the United States unless you precede it with “Groucho,” “Harpo” or “Chico.”

Comment
Adam Smith did not write about ‘comparative advantage’ – that was from the pen of David Ricardo, written in his Principles of Political Economy (1817), some twent-seven years after Adam Smith died in 1790. Smith described the theory of “absolute advantage”, which is quite different from “comparative advantage”, and, incidentally explained less than Ricardo’s refinement to trade theory in 'comparative advantage'.

Nor was Adam Smith a "19th-century writer”. Smith was born in 1723 and died in 1790 – in the 18th century!

John Emil advertises the fact that he was “a CPA and “golden age” MBA. Some “golden Age” CPA!

I would have thought numbers and dates were John's forte. Someone showing off that he was a graduate of a “top-5 business school MBA” should be more careful with his facts. The British carrying trade was protected by the Navigation Acts which policed all trade with Britain through the Royal Navy, paid by UK taxes. It certainly did not make anything cheaper for people in the British colonies of North America and denied them the right to trade freely with the rest of Europe.

Let alone, John’s misunderstands comparative advantage.

Though, as Adam Smith pointed out, Scotland could grow passable wine products at enormous cost in glass hothouses, instead of importing cheaper, high quality, fine wines from France, which was an important source of trade between Bordeaux and Edinburgh and major feature of social-life in central Scotland – local water was often dangerous to drink - until Britain's wars, and trade-wars, against France.

Scottish wine-producing glass-houses may produce more employment to produce local wine, but it would lower Scottish living standards (already pretty low in poverty-stricken late 18th-century Scotland) from the expenditure of scarce capital on something that could be imported at lower costs, and from diverting wage incomes unnecessarily, and raising wine prices.

Similarly, if Alaska now ignored Adam Smith on needless glass houses and diverted massive funds to setting up a subsidised domestic wine producing facility, it would become poorer.

What kind of business-models did John study as a “CPA” and a “golden age MBA”? He clearly knows little about Adam Smith.

Adam Smith Was Innocent

2012-01-11T14:47:00.002Z

Juliet Schor, author of True Wealth, writing (10 January) for the Guardian blog HERE

“Adam Smith's famous maxim that the self-interested behavior of individuals produces the common good is one widely-held fallacy. It was spectacularly debunked by the selfish behavior of the 1% who crashed the world economy in 2008.”

Comment
I wonder where Adam Smith expressed this modern attributed view as a “maxim”. Among some unidentified ideologues, surely?

Adam Smith is the subject of many ideological myths, based on a misreading (more likely a non-reading) of his works. Self-interest is one such misreading – “an invisible hand” and “laissez-faire” are two others. That the fallacies are widely held is of no relevance to Adam Smith.

Smith pointedly expressed his view that for self-interest behaviour to contribute to the common good, it must be mediated by the self-interests of others. The famous example of everyday bargaining in the “butcher, brewer, and baker” example (Wealth Of Nations, Book I) is not a praise of “selfishness”, nor a rejection of “benevolence" (there was not enough to go round – he praises the virtues of benevolence in Theory of Moral Sentiments). He specifically says that you serve your self-interest, not by addressing your own wants, but by addressing the other party’s. Self-interest is best served by being other-regarding.

Wealth Of Nations also gives many examples of the self-interests of sovereigns, monopolists, protectionists, merchants and manufacturers, invading European colonialism in the Americas, and of mercantile political economy, working against the “common good”.

He gives over 70 specific examples in Books I, II and III of the malign outcomes of self-interested actors on the people they affect. The “widely-held view” of the fallacy has nothing to do with Adam Smith.

Looney Tunes 17

2012-01-10T08:45:00.002Z

1

Dropped text from UNTIL I DIE (read it or watch it!)

By amy on Amy Plum http://www.amyplumbooks.com/2012/01/dropped-text-from-until-i-die-read-it-or-watch-it/HERE

“His languid smile did its regular job on me: It was as if an invisible hand took my insides and squeezed. Hard.”

2
The Faustian Bargain Economists Never Mention

Dr Gary Peters posts on Our Finite World HERE

“Recently, beliefs have shifted again, with people worshipping just one part of a god, the invisible hand. Thanks to Adam Smith and those who followed him, especially the current neoclassical economic theologians …”

3
Wall Street's Monday Lunch Options
Optionetics HERE

“They or some might say, the invisible hand, doesn't make it easy for bulls these days.”

4

The Olive Press: Dmitri Chapter 3

Abhi Tadakamalla posts on my.hsj.org HERE

“Draco stood up, and was soon pulled by the invisible hand. He stumbled, but followed as it led him down the wall. They ran until they reached the tower. The hand led him toward a far, dark corner.”

5

Walz Talks To Business, Education Leaders About Jobs

KEYC TV HERE
http://www.keyc.tv/story/16481674/walz-talks-to-business-education-leaders-about-jobs

“Walz says, "[The idea] [t]hat the marketplace itself will start matching skills to positions, that it will balance itself out - if you will - Adam Smith's Invisible Hand will move those nurses over to be welders, or whatever it will be. ...”

The IH Debate Acquires Scholarly Traction

2012-01-09T14:43:00.001Z

'Steve J' posts on Radamisto, 6 January, HERE

'AN EARLIER "INVISIBLE HAND" MENTION'

Before Smith and Mandeville, there was Descartes, who in 1645-46 not only described the Invisible Hand but also provided a causal explanation of why it works. From Alexis de Tocqueville : the first social scientist (2009) by Jon Elster, page 53:

In one letter, Descartes merely affirms the existence of an invisible hand:

[It] is difficult to determine exactly how far reason orders us to interest ourselves in the public; yet that is not something in which one must be very exact; it suffices to satisfy one's conscience, and in doing that, one can grant very much to one's inclination. For God has so established the order of things, and has joined men together in so connected a society, that even if everyone related only to himself and had not charity for others, a man would nevertheless ordinarily not fail to employ himself on the behalf of others in everything that would be in his powers, provided he uses prudence."

Challenged by Elisabeth to explain his argument more fully, Descartes replied as follows:

“The reason that makes me believe that those who do nothing save for their own utility, ought also, if they wish to be prudent, work, as do others, for the good of others, and try to please everyone as much as they can, is that one ordinarily sees it occur that those who are deemed obliging and prompt to please also receive a quantity of good deeds from others, even from people who have never been obliged to them; and these things they would not receive did people believe them of another humor; and the pains they take to please other people are not so great as the conveniences that the friendship of those who know them provides. For others expect of us only the deeds we can render without inconvenience to ourselves, nor do we expect more of them; but it often happens that deeds that cost others little profit us very much, and can even save our life. It is true that occasionally one wastes his toil in doing good and that, on the other hand, occasionally one gains in doing evil; but that cannot change the rule of prudence that relates only to things that happen most often. As for me, the maxim I have followed in all the conduct of my life has been to follow only the grand path, and to believe that the principal subtlety [finesse] is never to make use of subtlety.”

Comment
This extract from Descartes’ correspondence (1645-6) is of historical interest. It shows that Descartes was in line with conventional 17th-century theological thinking of what became known as the “hand of God”, without mentioning the IH metaphor.

Professor Peter Harrison (Oxford University) published a detailed summary of mainly theological authors in the 17th-18th centuries, who referred directly to the “invisible hand” of God, from which Peter deduces that Adam Smith thereby used the IH metaphor in a theological sense, an assertion I find unconvincing.

See Harrison, 2010, September, Journal of the History of Ideas, and my own discussion, “The Hidden Adam Smith in his Alleged Theology”, Journal of the History of Economic Theory, 2011, September.

Presently, I am reviewing: Warren Samuelson, Marianne Johnson, and William Perry, “Erasing the Invisible Hand: essays on an illusive and misunderstood concept in economics”, 2011, Cambridge University Press, which is a promising blockbuster of a scholarly work, settling for once and all the much vexed debates we have on Lost Legacy, of which more soon when I have completed it.

Religion and the Invisible Hand

2012-01-07T16:23:00.004Z

Benjamin H. Mitra-Kahn writes (6 January) HERE on:

“How God, Adam Smith, and the invisible hand changes over time” ([Cross-posted from the History of Economics Playground HERE):

“So with a suitably provocative title I think we can declare 2012 open. And in starting the year I was struck by how words and sentences can change in meaning over time, particularly prompted by this quote:

‘In tendering this homage to the Great Author of every public and private good, I assure myself that it expresses your sentiments not less than my own, nor those of my fellow-citizens at large less than either. No people can be bound to acknowledge and adore the Invisible Hand which conducts the affairs of men more than those of the United States. Every step by which they have advanced to the character of an independent nation seems to have been distinguished by some token of providential agency”

It looks like an elegant statement of policy intent from a finely crafted presidential speech and we all know what it means. And it was exactly that, but the meaning may not be entirely clear when I tell you that the president was George Washington and the words were uttered in 1789. There is a lot of discussion of what the invisible hand means, or doesn’t mean (e.g. Kennedy 2009), but lets stick with Washington and his first inaugural speech to Congress.

Out of context it could have been any current president. With a little bit of context – here the surrounding sentences – it starts to become a very 18th century statement. That ‘Great Author’ or ‘Providential Agency’ is quite definetly a deity of some form, and then it is left to the rest of us to work out how Washington – who had a copy of Smith’s work on the shelves – had read Adam Smith’s expression of an invisible hand (or some previous reference to it). I’m partial to the religious side, but may have been swayed by Andy Denis (2005) – what do you think?”

Comment
But George Washington could have taken the notion of “an invisible hand” from any of a dozen or more books on his shelves from predecessors or contemporaries of Adam Smith. It was a popular metaphor among many authors, particularly among theologians and church ministers in their sermons.

For a list of around forty 17th-18th-century authors using the IH metaphor, see Peter Harrison (an Oxford professor of Theology) in the Journal of the History of ideas, September, 2010). Both Harrison and the memorable Andy Denis (Andy Denis (1999) ‘Was Adam Smith an Individualist?’ History of the Human Sciences 12, 3, August, 71-86), hold the view that Adam Smith was a Calvinist and/or Deist.

I do not share religious interpretations of Adam Smith, for reasons explained in my paper: ‘The Hidden Adam Smith in his Alleged Theology’ Journal of the History Economic Thought, September, Vol 33, no 3, 2011.

For my earlier views on Adam Smith’s use of the IH metaphor, see: Kennedy: 2009: ‘Adam Smith and the Invisible Hand: from Metaphor to Myth’, Econ Journal Watch, vol 6, no 2, May 2009, pp 239-263 HERE

For more my recent statements, see: www.adamsmithslostlegacy.com, passim, 2010-11.

Looney Tunes 16

2012-01-03T19:31:00.002Z

1

5 Fatal Flaws of New Traders

Moneyshow.com HERE

“If you've been trading for a long time, you no doubt have felt like a monstrous, invisible hand sometimes reaches into your trading account and takes out money.”

2

Trust Your Instincts: Transparency and the invisible hand ...

“I discussed how transparency is the necessary and sufficient condition for the invisible hand of the market to operate properly.“
“Richard” Blogs at: Trust Your Instincts Blog HERE

3

Invisible Hand Refuses to Allocate Resources Efficiently

“Jay” writes:

“There is an invisible hand at work, but it is not the Market — it is central policy- making by a corporate controlled state for the benefit of the wealthy. “

HERE

4
The Incomplete Neoliberal Revolution

Reihan Salam quotes Ashwin Parameswaran in the National Review Online (blog) HERE

“The prior economic regime was a system where both the invisible hand and the invisible foot were shackled – firms were protected but their profit motive was also shackled by the protection provided to labour.”

5

“The Invisible Hand Thumbs Its Nose At Us (laissez-faire Illusions In An Age Of Bailouts)”

City Data HERE

A Siren Speaks, We should Listen

2012-01-03T09:22:00.003Z

Bruce MacEwen, President of Adam Smith Esq, a modern US law firm founded in 2003, with a portrait-figurine of Adam Smith in its heading. Adam Smith Esq., “is an inquiry into the economics of law firms” and Its focus is on “the business and economics of the global legal sector”. It is not connected with Adam Smith scholarship as such, but, nevertheless, I have visited its Blog site regularly purely out of interest since 2005.

Bruce posted (30 December) HERE a thought-provoking article (too long for Lost Legacy reproduction, or editing without destroying its flow): “A Second Economy as Big as the First?”

I recommend that you read it before the hurly-burly of your labours (or search for a job) begins in 2012 because:

“Every once in awhile--and the calendar's odometric rollover from one year to the next is as good an occasion as any -- it's wise to stand back and try to gain a little perspective”.

It certainly has makes you think about the implications for the wealth of nations. Let me know what you think of it.

Once More on Smith's Parable of the "Poor Man's Son"

2012-01-01T10:00:00.002Z

Steve Ross posts in Vibinc Blog (self-described as ‘progressive politics from Memphis, TN’ HERE

“We’ve been locked in this misguided notion of the Adam Smith’s “Invisible Hand” of the marketplace for a very long time. Smith was commenting more on how commerce, in a pre-industrial revolution economy, will produce goods in high demand and distribute the excess of those goods to the needy out of self-interest.

How does Adam Smith’s largely agrarian idea of an “Invisible Hand” apply to our current scenario? In the 18th Century it was customary for producers, be they farmers, bakers, or other merchants, to produce as much as they could which in turn resulted in an excess. Dealing with that excess left two possibilities: give it away (or sell below market) or allow it to spoil.
Given those two scenarios, the natural conclusion is to ensure that it is productive in some way, which may mean giving it away.”

Comment
An interesting, because uncommon, take on Adam Smith’s meaning in using the invisible hand metaphor once in Moral Sentiments (1759). Steve's unusual interpretation is open to serious challenge by examining Smith’s point in his text.

It reminds me of the only other time where I read a similar assertion in an article by William Gamp, which was challenged by Peter Minowitz in a detailed response HERE . Gamp claimed that the ‘proud and unfeeling’ landlord was immortalised by Adam Smith as charity for the poor in pursuit of national defence! But neither Steve Ross nor William Gamp are supported by Adam Smith’s text.

Steve Ross develops his theme that in the 18th century “it was customary for producers, be they farmers, bakers, or other merchants, to produce as much as they could which in turn resulted in an excess”, a wholly speculative and unlikely assertion, not supported by credible evidence, nor by the context referred to by Adam Smith in Moral Sentiments.

There was no refrigeration available for butchers to kill stock beyond what they were likely (barring occasional accidents) to sell in markets on any day, even with a regular backstop of giving it away, nor for bakers to mill more flour to bake excess bread. Prudent petty-producers do not behave that way. Producers of storable commodities had the safer assurance that what they didn’t sell on a particular day they could sell to recover their costs and earn a profit on another day. There were, of course, excess – and deficit – product supplies in the normal course of marketing things, especially in farming, fishing, livestock, perishable vegetables, and fruits, and such like, but such mismatches between supplies and demands were unreliable events beyond the control of producers to make charity a significant source of subsistence for the unemployed poor. It is also debatable that such charity was ‘customary’ except at the margin. Regular free surpluses would undermine markets - the poor and the greedy were not stupid - and neither were the middle classes, nor even the "unfeeling" rich producers.

Smith’s far more penetrating observation was that the distribution that took place consisted of the ‘unfeeling’ landlord, viewing his fields, imagining that he consumed all the produce as evidence of his pride, forgetting momentarily, that some considerable proportion of his products were distributed in those feudal (or Southern US slave-worked plantation) times, not as charity (nor for Gramm's ‘national defence’. The distribution, out of the "unfeeling" owner's necessity, to the ‘thousands’ he ‘employed’ in his fields, was because without regular distribution from his fields, his labourers and their families would not survive – they had no other source of subsistence. And if they didn’t survive, who then would be fit enough to sustain the greatness of the ambitious, ‘unfeeling’, masters of change who had altered ‘the face’ and explored the ‘oceans’ of ‘the earth’ by the humble labour of the thousands whom they employed?

All parables have a punch line, and the invisible hand of mutual dependence was Smith's on this occasion, leading the"unfeeling" landlord, from his absolute dependence, to share some of the annual product of his fields with the 'thousands whom he employed', which, thereby, unintentionally, led him to help to "propagate and ensure the survival of the species".

Smith’s whole point in his Moral Sentiments (check the text!) was that this was part of the ‘delusion’ that the wealthy ‘unfeeling’ landlords (and US slave owners) had of their social role in life, and it was this delusion that drove the ambitions of the ‘poor man’s son’ in his parable in TMS (Book IV, Chapter 2), in which he used the IH metaphor.

(Note: in Moral Sentiments his use of the IH metaphor had nothing to do with ‘markets’!).

Looney Tunes No. 15

2011-12-31T16:44:00.003Z

1
When will 'ragging' be wiped out?

Ceylon Daily News HERE

“"They seem to be 'programmed' into behaving the way they do, by some sinister and invisible hand.”

2
Apostates In Our Midst

TBogg HERE

“the invisible hand whispered in my ear”

3
National Lampoon
Evan J. Kessler

“the guy with two first names who masturbates with the invisible hand of the free market, by tossing some campaign slogans his way.”

4

ICT AND OTHER SECTORS COVERGED (PART 3)

HERE

“Adam Smith thought that politics and the economics are two different activities. … That is how he came up with his “invincible hand” (you cannot quite see what guides business in a capitalist society).”

5

The Belittle Big Bodies Banzai: A Year-End OWS Salute and Immune Key to 2012

HERE
Truthout

“Envision freeing the market's invisible hand from the jaws of Big cartels and corporatist scams.”

Worth a Good Look

2011-12-29T19:06:00.002Z

Donald J. Boudreaux reviews Deirdre McCloskey’s “Bourgeois Dignity: Why Economics Can’t Explain the Modern World”, Chicago: University of Chicago Press, 2010, in the Independent Review Institute's "journal of political economy"
HERE

"In an exhaustive history of English-language economics prior to Adam Smith, Jacob Viner wrote: “A constant note in the writings of the merchants was the insistence upon the usefulness to the community of trade and the dignity and social value of the trader, and in the eighteenth century it appears to have become common for others than the traders themselves to accept them at their own valuation” (Studies in the Theory of International Trade [New York: Harper & Bros., 1937], p. 107). …

I, too, would have reacted in this way to Viner’s observation had I not read Deirdre McCloskey’s Bourgeois Dignity. Although Viner himself quickly sped past his own observation to discuss other matters, my attention was gripped. This fact about attitudes in the eighteenth century, I realized, is evidence for the revolutionary theory that McCloskey offers to explain the Industrial Revolution.

And if any fact about human history demands explanation, it is the Industrial Revolution …the “Great Fact,” as McCloskey herself names it. ...

A fact so great does not languish for long without attempts being made to explain it. Such attempted explanations are as old as the Great Fact itself. They include exploitation of wage workers, slavery, colonialism, Protestantism, Catholicism, science, temperate climates, temperate citizens, glorious political revolutions, and lower transportation costs and the resulting expansion in trade.

None of these explanations, however, explain when the Great Fact manifested itself (the eighteenth century) and where it began (northwestern Europe).

… One of the many rewards of reading Bourgeois Dignity is to receive from a world-class historian as penetrating and eloquent a tour of commercial and industrial history as can possibly be fitted into a single volume. Along with this tour, the reader also is treated by a world-class economist to a masterful review of each of the major (and some not so major) contending explanations of the Great Fact.

Having convinced her readers (or at least this reviewer) of the inadequacies of each of the previously offered explanations of the Great Fact, McCloskey argues that what does explain it is a sea change in attitudes toward the bourgeoisie. For the first time in history, the bourgeoisie of northwestern Europe in the eighteenth century came to possess dignity. The bourgeoisie and their activities finally came to be regarded by a large enough swath of society as dignified and respectable.

Being group animals, we care deeply what other people think about us. And what people think about us is typically conveyed, to us and to others, by talk. McCloskey insists that, first in Holland and soon afterward in England, the way people talked about profit-seeking merchants and commercial and industrial innovators changed. That talk became more admiring. What we might call the “dignity return” to bourgeois activities rose.

And at the same time, at least the relative “dignity return” on non-bourgeois activities fell. Less were the relative amounts of dignity meted out to those who specialized in slaughtering people in battle or in idling about in manor houses counting the hectares on which peasants toiled to produce sustenance for the nobility and the clergy.

As the dignity return to bourgeois activity rose relative to that of other occupations, so predictably, too, did the amount of bourgeois activity. People do respond to incentives! The Industrial Revolution was launched.

Of course, McCloskey’s rhetoric-centered theory of the Great Fact does not deny the importance of secure property rights, the benefits of prudent and industrious behavior, the helpfulness of low-cost means of transportation, and the wonders of science. Even the most boundless glorification of the bourgeoisie would have done nothing to spark the Industrial Revolution if, say, private-property rights in northwestern Europe were insecure or if the terrain there was so rugged and harsh that transportation over even short distances cost a prince’s ransom.

… Secure property rights existed in England long before the Glorious Revolution of 1688, and prudent, sober attitudes about saving did not first appear then and there. Nor did big cities (by eighteenth-century standards) and their potentially thick markets. Nor did science. Nor did reductions in transportation costs.

It is possible that eighteenth-century northwestern Europe was the site of a perfect storm of all or most of these conditions coming together for the first time in history—secure property rights and a respect for science comingling for the first time with falling transportation costs and saved surplus values wrung by Calvinists from exploited peasants.
...
I close with a cavil. I dispute the truth of Bourgeois Dignity’s subtitle Why Economics Can’t Explain the Modern World. Economics can explain the modern world. Solid evidence is McCloskey’s own work. Although appointed to faculties of English, history, and communications in addition to economics, she is above all an economist. And her contributions as an economist to our understanding of the modern world rank second to none among scholars from whichever fields you might name.

McCloskey does economics correctly—as a systematic, open-minded, truth-seeking inquiry unburdened by dogmas about what does and doesn’t count as a “legitimate” explanation.

The economics that she rightly accuses of falling short in its efforts to explain the modern world—the economics that ignores human passions other than for the prudential pursuit of observable material gain and that bullyingly rejects as sissified any methods of inquiry other than those expressed in formal mathematics—is, although dominant, not the only species of economics. Economics properly done can indeed help to explain the modern world. Bourgeois Dignity is exhibit A.

Comment

I commend Donald Boudreaux's review in the Independent Review Institute's Blog HERE It is worth reading in full. Boudreaux writes for the Cafe Hayek Blog, which is worthy of reader's attention for its daily snippets on free trade and its enemies. My extracts above are brutal in deference to copyright rules, which if I have trespassed upon, I beg forgiveness.

I read McCloskey's, Bourgeois Dignity, recently and posted an appreciation of it, and her, on Lost Legacy.

I also commend a look at the Journal of the Independent Review Institute, of which I knew nothing until following Boudreaux's link.

Just The Facts Ross, Just The Facts

2011-12-23T21:03:00.004Z

Ross Gittins reviews Robert Franks’ “Darwin Economy”, for the Sydney Morning Herald, a newspaper on which I worked for a few months, long ago, as a 17-years-old assistant nightshift proof-reader HERE

“Smith was the Scottish moral philosopher, who published his most famous work, The Wealth of Nations, on the eve of the industrial revolution in 1776.

Among all his insights about how the economy works, the one for which he gets most credit is the ''invisible hand''. This is the notion that impersonal market forces channel the behaviour of greedy individuals to produce the greatest good for all.”

Comment
The problem is that though the “Insight” for which Adam Smith "gets most credit is the ''invisible hand'', the fact is, and remains, that he never wrote anything about the metaphor of “an invisible hand’ that can be remotely linked to such a non-Smithian assertion as “impersonal market forces channel the behaviour of greedy individuals to produce the greatest good for all.”

It is an invented myth, asserted and promulgated widely by Paul Samuelson with 5-million sales, plus an active used-book market, over twenty editions to 2010, plus numerous foreign language translations, from as recently as 1948 in his monumentally successful textbook, “Economics: an introductory analysis”, p 36, McGraw-Hill, New York.

The immense prestige of Paul Samuelson, winner of the first Nobel Prize in economics and author of “Foundations of Economic Analysis” (1947) which had carried all doubters before it by 2010. The effect has been a startling exhibition of the power of misattributed beliefs, when a reference to Adam Smith’s Wealth Of Nations (1776 and five editions to 1790)) would show that Smith did not use anything like the word “selfish” in connection with the invisible hand, and nor did his Moral Sentiments (1759, and six editions to 1790), the latter book dismissing ideas of ‘selfishness’ as “licentious”, and which certainly did not “produce the greatest good for all” (an idea of Bernard Mandeville's, 1724).

That Robert Franks believes that Adam Smith did say that which was attributed to him by Paul Samuelson, is beyond doubt, but that Adam Smith patently did not say such a thing (check his texts!) is also beyond doubt. The only arbiter on what Adam Smith actually wrote is what Smith wrote and not what neither Paul Samuelson nor Robert Franks claim that he did.

This cold fact undermines Robert Franks’ claims for the future supremacy of Charles Darwin as the ‘father” of economics in 100 years time (an impossible claim to verify in 2011). The other assertions of Robert Franks about what Darwin meant by “natural selection” are also false, as I have shown in my earlier posts commenting on his book.

HERE HERE HERE HERE HERE

Perhaps Ross Gittins (a journalist as well as an economist) would benefit from reading these posts.

Why Adam Smith Was No Ideologue

2011-12-23T11:48:00.003Z

Catherine Baab-Muguira writes in The Motley Fool Blog (“To Educate, Amuse, and Enrich”) HERE

“Did Our Founding Fathers Believe in Free Markets?”

 Putting it matter-of-factly, Alan Pell Crawford, author of Twilight at Monticello: The Final Days of Thomas Jefferson says, "Rightwing politicians and their publicists, like their liberal counterparts, are interested in the past only as repository of pseudo-facts. They plunder the past to make debating points, most of which are unsupportable."

Crawford cites the Founders' views on government regulation as an example. "The evidence seems to suggest that Jefferson and Washington and the men of their time and place had no problem with government regulation of markets," he says.
"County courts in Virginia exercised what conservatives today would consider outrageous power over economic relationships and transactions. They could set the prices innkeepers could charge their customers -- that sort of thing. We might now recognize such powers as unwise or misguided, but Jefferson and Washington seem to have taken it for granted," he adds.

… The market as innocent until proven guilty 
Dr. Hugh Rockoff, a professor of economics at Rutgers University and co-author of History of the American Economy, offers a complementary view: "Madison and Hamilton envisioned a society in which the bulk of economic activity would be carried out in private markets by private individuals trying to get the best returns they could on their labor and capital."
"I think the founders saw this sort of economy both as efficient -- as the best way of generating a large flow of goods and services -- and as a way of protecting other personal liberties from despots," says Rockoff.

While the Founders' ideas largely came from Scottish Enlightenment-era economic thinker Adam Smith, as Rockoff explains, Smith is himself often misunderstood. "Nowadays we tend to think of Smith as a rigid free-market ideologue," he says. "But as anyone who has actually read Smith from cover to cover can tell you, Smith was anything but."

As Rockoff puts it, "Smith believed that the presumption should be that we leave people free to go about their private business as they see fit until experience has shown us that their liberties have to be constrained for the common good. It's a court of law: the market is innocent until proven guilty."

An enlightened, experience-based approach 

No matter the ongoing political debate, the Founders' approach to the economy sets a good example for present-day Americans, argues Rockoff.

"We need to think through our policy toward each sector of the economy in the light of experience," he says. "We can't know what the founders would say about current problems, but we can adopt their 'enlightened,' experienced-based approach to trying to solve them."

What is called for, it seems, is less arguing and further study.”

Comment
I am not sure what the Motley Fool Blog is about but I have to admit heartily agreeing with the above sentiments, both from what I know of Adam Smith’s lifetime writings and from my memories of reading the Federalist Papers in full out of interest (I have a copy in my library In France from my student days from an undergraduate course on Colonial History).

I like the notion that “The market as innocent until proven guilty”. It certainly sums up Adam Smith’s approach. So does the idea of “An enlightened, experience-based approach”, which the Scottish-based David Hume Institute (of which I was a Trustee for five years until December this year) celebrated as its explicit public role in current Scottish affairs.

Ideologues are less interested in evidence as they are in their fixed ideas about the world and how it operates. Adam Smith was predominantly interested in how his world in 18th-century Britain operated and, above all, how it arrived that way from its history, based on the evidence available to him.

Wealth Of Nations is crammed with what some modern scholars, in too-much-a-hurry, call ‘distractions’, such as the whereabouts of a former King’s wedding bed, or interests rate in Biblical times, and wheat prices per quarter and average for the years from 1202 to 1764, even prices at Eton College, and many, many more. Readers of his Lectures On Jurisprudence can become fatigued over his minute dissection of the evolution of Roman laws, as can readers of his Lectures On Rhetoric and Belles Lettres (which is why so many do not recognize the English language role of metaphors).

I wish there were more people like Catherine Baab-Muguira writing on Adam Smith today. It would certainly help restore his legacy towards its proper place in the minds of those who are served instead a cold dish of balderdash by too many modern scholars (who should know better).

Review Part Eight Of Dr David Graeber’s “5,000 Years of Debt”

2011-12-22T17:38:00.002Z

Review: DR DAVID GRAEBER, DEBT: THE FIRST 5,000 YEARS, NEW YORK, 2011

Part Eight

[My review-reports of Dr Graeber’s Book have been interrupted by end of term examinations and my requirement to grade MBA/MSc papers in three subject that I taught for many years. I have continued reading when I can and making notes. I expect more papers to arrive before close of play this evening and my grading to continue over the holidays.]

The next three chapters, 8, 9, and 10 cover a wide geographical spread (The Celtic Fringe on the British Isles, through Europe to India and China) and to what Dr Graeber calls the ‘Axial’ economies, and the early market societies that blossomed almost simultaneously across the known world (Africa, the Americas and Australia remained predominantly hunter-gatherer and elementary agricultural societies).

He postulates that there are times of “historical opportunity’ and by “understanding” them we “can begin to have a sense of the historical opportunities that exist at the present” (p 212).

Critical to then (“roughly between 660 and 500 BC” (BCE) was the invention of coinage. This invention was guided from the top when “local rulers” (in the “Great Plain of Northern China, in the Ganges river valley of northeast India, and in the lands surrounding the Aegean Sea”, almost simultaneously replaced existing credit systems, though why and how this ”social transformation” happened remains unknown. It continued as issued coinage for a thousand years and then “dried up” around 600 AD (CE), and slavery was abolished, creating a cyclical process of periods of “credit money” (accurate records) alternating with “gold and silver” (accurate scales) (p 213), possibly coinciding with periods of “relative social peace“ and periods of generalised” violent periods (fall of Rome and warlords in Western Europe). Dr Graeber’s account of these periods is worth reading, if only to grasp his quite original thesis.

The “First Agrarian Empires (3500-800 BC”) (BCE) with their “virtual credit” give way to “Axial Age” (800 BC- 600 AD) when “coinage and bullion” took over. Then the “Middle Ages” 600-1450, a return “virtual credit money”, which led to the “Capitalist Empires” (1450-1971), and now we are back to “virtual money” (p 214).

Points to note: that “virtual money” implies a “lack of trust” (anonymity?) (p 215). Debts become “negotiable instruments” passed on in third-party transactions. Creditors must have had some faith in the final redeemer of the note; the trick being to pass on a credit note ‘before the music stops’. It’s not clear to me in what form a merchant repaid the lender – with what? Another credit note? Bullion? In this period Kings started wars to recover debts and to cancel all debts in their kingdoms (p 215-16). Also debtors and lying were endemic partners. “Peasant revolutionaries” made standard demands to cancel debts and led to “social breakdown” and disorder entirely (p 216).

Debts could be repaid in the form of agreed items, no doubt requiring bargaining as to what counted and the amount (nascent bartering behaviour?), though not mentioned by Dr Graeber (pp 218-20). Charging interest emerged but still requires agreement on what is added to whatever form of repayment of the debt is acceptable. Even one’s children could be accepted as a repayment, surely a barter-type transaction: which children, what age and sex, how healthy, and so on, against how much of the debt? Dr Graeber does not discuss or report such likely behaviours, which I find disappointing.

Chapter 9 on the Axial Age is most interesting (Dr Graeber never bores the reader, at least not this one for whom the parallel phenomenon across the large geographical space is quite new). Among the events was the issuing of coins as currency by all the petty kingdoms (p225). Bullion was “stockpiled in temples “as sureties for loans” , borrowed for what purpose is not stated. Once removed and broken into small pieces it was “placed in the hands of ordinary people” to be “used in everyday transactions” (p 227). Such as ….? With the king’s stamp on them, coins were a pictorial symbol of a king’s power, and when paid to soldiers, who spent them among the civilian population for whatever “necessaries, convenience, and amusements”(Adam Smith) that they required, they helped to fuel markets that made available whole ranges of products – many more than in a barter or a debt system of payment in fewer items. “Constant warfare” can be a “powerful impetus to the development of market trade” (p 226) but was not “ultimately a winning proposition” (p 227). The carnage of Axial warfare was extremely high; it also produced an “unprecedented outpouring of ideas” (p 228), (as did the Second World War, and as the 18th-century naval competition earlier).

Dt Graeber’s account of monetisation in India and China is most interesting (pp 232-37). His discussion of cash transactions is hampered by his view that “cash transactions” is about “how many of X will go for how many of Y, calculating proportions, estimating quality, and trying to get the best deal for oneself”, which Dr Graeber presents as a “new way of thinking about human motivation”. At root, Dr Graeber (p 238) believes that trade is an exchange of “equivalents” (X = Y) when exchange is actually a ratio (X/Y). It may be that X/Y for one party is > 1 and for the other it is also > 1; they do not need to be, nor are they normally, equivalent. I usually value what I get for what I want more than I value what I give up; indeed, this is the common motivation for exchange. Kids realise this when they trade their cds for video games. We can be both “better off” after the transaction than we were before it and they do not need to “calculate’ the ratio (far too complicated for everyday exchanges); they only have to “feel” better-off. Dr Graeber’s summary discussion (p 248-9) shows his counter-poising “materialism” to “morality and justice” when in reality the need for “morality and justice” is a product of the absence of material necessities among the poor.

Adam Smith and "Neo-Liberalism"

2011-12-22T11:31:00.002Z

Mike Norman writes the Mike Norman Blog HERE

“Neoliberalism for dummies

“My contention is that the invisible hand of Adam Smith is the god of 18th century Deism that creates the universe and then lets it operate automatically in accordance with the laws of nature He has ordained.

This is one reason that economics as a discipline compares itself to physics. Another is Smith's association with his contemporary Isaac Newton, who influenced Smith's thinking about natural processes. While my view of direct influence is rejected by some Smith scholar's for lack of evidence, it seems that even if Smith was not directly influenced by either Deism or Newton, these were dominant ideas of his time and his work arguably reflects these overarching themes.

However, as Smith scholars correctly observe, Adam Smith cannot be blamed for spawning neoliberalism, which is a bastardization of his ideas by some New Classical economists, as well as New Keynesians, subsequent to the marginal revolution ushered in by Alfred Marshall. Marshall himself cautioned against using his ideas in a simplistic fashion to draw unwarranted conclusions from mathematical models. Marshall realized that economic models are thinking aids and not expressions of either natural laws or God-given ones.

What began as political economy with Adam Smith and David Ricardo has become theological economy under Milton Friedman and neoliberalism. It is a theology that the privileged are using to exploit the credulity of the masses with yet another superstition.”

Comment
Mike Norman seems to be close to being on the right track, and should be commended for that. However, being close is not the same as being correct.

Ship’s captains searching for landfall at Pitcairn Island in the Pacific, and using contemporary charts with the first discoverer’s position on them, missed the island by many miles, until later Royal Navy navigators rediscovered it and, accidently found out the truth of the disappearance of Fletcher Christian after the Bounty mutiny. They corrected their charts for it thereafter. **

The “invisible hand” in the 17th-18th Centuries was indeed a popular metaphor with orthodox (not Deist) religious preachers, sermon writers and others. Among the others were: Shakespeare in Macbeth –a murderer not God; there were also: Daniel Defoe in Moll Flanders and Colonel Jack; Voltaire, in Oedipe; Glanvill; Dufesnoy; Lenglet; Rollin; Bonnet; Robinet; Walpole; Kant; and Reeve (for details, see: Kennedy: Adam Smith: a moral philosopher and his political economy, 2nd ed. 2010, pp 150-52). For a fully comprehensive list of religious references, see: Peter Harrison, “Adam Smith and the History of the Invisible Hand”, History of Ideas, September 2010.

Whether Adam Smith saw the metaphor in a deist context remains controversial, but he was not a believer in the revealed religion of Christianity (See Kennedy: “The Hidden Adam Smith in his Alleged Theology”, Journal of the History of Economic Thought, September, 2011). It is stretching it to say that Isaac Newton (1643-1727) was Smith’s (1723-90) “contemporary”.

That Adam Smith admired Isaac Newton is evident in Smith’s History of Astronomy (1744-c50, published posthumously in 1795). I believe that the marginal revolution and Marshall’s early contributions, leading to the mathematical dead-end of neo-classical economics, had more to do with the 19th-century mathematics prevalent when Marshall was alive than the calculus of Newton a hundred years earlier. Modern physicists and mathematicians are reported to be “amused” at what modern economists considered to be “advanced mathematics, as so much had moved on since the late 19th century, with which economists consider to be their “hard science”.

Smith certainly cannot be “blamed for spawning neo-liberalism” and modern economics, as taught (preached!) with religious zealotry and intoned by some politicians in the 21st century. Both interest groups, adding to their assertions their modern myths of Smith’s meaning when he used (only twice) the invisible hand metaphor in his published works.

Mike Norman is absolutely correct in drawing attention to Alfred Marshall’s cautions about using mathematics as anything more than “teaching aids”. Adam Smith would probably approve of Mike’s summary:

“It is a theology that the privileged are using to exploit the credulity of the masses with yet another superstition.”

So, well done Mike Norman. Have a good holiday.

** See my Kennedy, Captain Bligh: the man and his mutinies, Duckworth, 1989

Chris Dillow is Right: History Does MATTER!

2011-12-21T12:31:00.003Z

Chris Dillow writes (20 December) the intelligent Blog, Stumbing and Mumbling’ (it grows on you), self-billed as “An extremist, not a fanatic:
HERE

“HISTORY MATTERS”

“I am one of the richest humans who ever lived. This is not because I am uniquely hard-working or intelligent; such notions are only slightly less cretinous than the idea that I owe my wealth to my great social skills. Instead, I’m rich because I had the good fortune to have born in England in the late 20th century* - in a time and place where history has been kind.
We are not self-made men, but rather creatures of history.

And if history is so powerful an influence, other things are less so - one of these being the managerialist whims of politicians.
It’s in this context that we should regret the decline of history teaching.
Herein lies a paradox. I get the impression that those who would most like to see history given more importance in schools are Tory traditionalists who want to teach some Sellar and Yeatman-style story of our sceptre’d isle. However, Sellar and Yeatman were wrong**. History is not just “what you can remember.“ It has effects whether you know it or not. We are who we are because our ancestors did what they did. Knowing this, however, undermines right-wing fairy tales about people being the products of their own decisions. In this sense, Tories are the last people who should want history taught.”

Comment
That’s very Smith-like too. He studied history to write about what brought Britain to the way it had become in the 18th-century. It is also why he did not make a habit of making predictions about what would happen, which seems to be the main feature of the modern economics profession. Indeed, economists are expected, and are hired at good salaries and pension plans, to predict the immediate future – they seldom make predictions about the far future (unless they are climate-change specialists).

I share Chris Dillow’s regrets about the decline of history in our education systems. I am also even more regretful about the recent decline among economics departments in academe of the rapid, and near extinction, of the teaching of the history of economic thought, as a taught subject in both undergraduate and graduate teaching and research, hastened by the deliberate downgrading of the status of the history of economic thought by the controllers of the professional journals – the main route to appointment, let alone recruitment, in academic department - and the habits of appointment committees.

This wanton ignorance of history shows in the shameless failure of academic economists to show average success, let alone fail to excel, in their short- to medium-term predictions of the economies they claim to have familiarity with. Predictions in theory ‘ought’ to be possible, but the real world is not like that, whatever the shyster palm-readers claim to do (do you get regular copies of their glossy promises too?).

Understanding how we get to where we are is more productive of positive results in showing what may/could be done to improve performances of whatever our momentary concerns.

Smith’s Wealth Of Nations is a deep criticism of mid-18th century political economy – his “violent attack” Smith called it on the “whole commercial system of Britain” - was dominated by economic thinking from the past and the prejudices of government ministers and sovereigns. He did not make predictions that if everything was changed to meet some ideal conditions, such as the abolition of tariffs, no government regulations, no “jealousy of trade”, immediate adoption of “laissez-faire” - he never mentioned the words – and, above all, leave markets to the so-called “invisible hand” - he never spoke of this metaphor in relation to markets, all would be right with the world.

Now, many economists of left and right believe, with the passions of ignorant certitude, that these were what Adam Smith was about. He wasn’t.

He studied history in all that he wrote from his first (unpublished in his lifetime) essay on the History Of Astronomy to the last editions of Moral Sentiments and Wealth Of Nations, and he drew conclusions from what he learned about how the past continued to work in the present. He was never a revolutionary in a hurry. His proposals when they were made were cautious, careful, and measured against the realities of how society worked. He never fell for the fallacies of the “wooden pieces on a chessboard”, nor did he advise governments, legislatures, or sovereigns to act as if people could be forced the act against their natures.

In short, I suggest economists study more history (and the history of our ideas are a good place to start), with, perhaps, a little less attention given to utopian mathematical, perfectly competitive models of non-existent economies, the create as they go along.

This task requires a detailed study of history, such as Smith made – and taught (see his Lectures On Jurisprudence, [1762-3] 1978) - and not from a skimpy passage through an invented ‘history’ of a few popular books.

Adam Smith On "Invisible Hands" and Banking Regulations

2011-12-20T21:38:00.004Z

Louis René Beres, educated at Princeton (Ph.D., 1971) is Professor of Political Science at Purdue University writes in OUP Blog HERE

“Occupy Wall Street, Adam Smith, and the Wealth of Nations”

“Famously, in an assessment that remains fashionably au courant with most present day conservatives, Smith claimed to have discovered an “invisible hand”, a critical convergence of satisfactions whereby the unstoppable compulsions of individual self-interest, and the equally insistent needs of an entire nation, might somehow seamlessly coincide.” …

... “In his Theory of Moral Sentiments (1759), Adam Smith first noted that human beings are not made happier by their possessions, but that the rich, in seeking the “gratification of their own vain and insatiable desires”, may still advance the “interest of society”. With remarkable originality, Smith explained, the wealthiest members of the nation, without ever intending any such generalized benefit, “are led by an invisible hand” to bring forth reductions in social inequality.”

Comment
This is a well-written and thoughtful assessment of the Occupy Movement in New York, as expected from a Professor of Political Science. There is, however, a major flaw in Professor Beres’s characterisation of Adam Smith’s moral philosophy and political economy. This can be explained, if not excused, by Professor Beres’s almost certainly innocent appreciation of modern economics, including its myths of Adam Smith’s use of a well-known 17th-18th century metaphor of an “invisible hand”. Smith used the metaphor two occasions only in his published works, once in his Moral Sentiments, 1759, and once only in Wealth Of Nations, 1776. [A third instance occurred in his posthumously published essay on the History of Astronomy in 1795, written from 1744 -c.1750, where he clearly used it as a noun, not a metaphor, referring to a belief in a pagan superstition about the Roman god, Jupiter.]

In Moral Sentiments (1759), Smith referred to a “rich and unfeeling landlord”, who, despite his illusion that he consumed everything in his many fields, was “led by an invisible hand” to feed his servants, retainers, overseers, serfs and labourers, from the same crops in the same fields. In doing so, he distributed the basic “necessaries” of life and unintentionally assures the “multiplication” of the species (TMS IV.ii.10: 185). However, he is “led” by necessity to behave in this manner, not by his fellow-feelings or compassion for the “thousands whom he employs”, but by his obvious dependence on them, as they are on him, – no food, no labour and no labour, no food. The metaphor describes this mutual dependence. It “describes in a more striking and interesting manner” this mutual dependence by the metaphor of “an invisible hand”. See Adam Smith on the role of metaphors in his “Lectures on Rhetoric and Belles Lettres” [1763] 1983, p 29).

In Wealth Of Nations, Smith refers to some, but not all, merchants, who are concerned about the security of their capital if they send it abroad, which leads them to prefer to invest in “domestick industry” rather than in the “foreign trade of consumption” (WN IV.ii.9: 456). He states the object of the metaphor of an invisible hand, namely, their insecurity, by describing it “in a more striking and interesting manner”. He mentions their relative feelings of insecurity (three times in the relevant paragraph and also several other times in the previous eight paragraphs).

Whether this metaphor is about “reductions in social inequality” in Moral Sentiments or “a critical convergence of satisfactions whereby the unstoppable compulsions of individual self-interest, and the equally insistent needs of an entire nation, might somehow seamlessly coincide” is very much open to debate, especially if it is asserted that all self-interested actions, including selfish self-interest, lead to benign outcomes. They most certainly do not. Many domestic merchants demand tariffs and prohibitions, contrary to the interests of domestic consumers, but certainly in their own non-benign self-interests.

That is why Adam Smith advised that government should regulate, by direct interference, those banks that issue paper promissory notes in very small amounts (WN II.ii.94: 324), and also those banks that charge usurious rates of interest (WN i.ix.5: 106; 1.iv.15: 357), despite these being contrary to "perfect liberty" These and many other examples, show that Adam Smith was not opposed to regulation on ideological grounds, as claimed by some extreme conservatives.

Professor Louis René Beres, in reporting the alleged views of Adam Smith in today’s debates, ought to recognize that he has assumed certain ideas that Smith never had and that these ideas come from distortions of his Legacy by modern economists and politicos.

Once More on Robert Frank's Invented Charles Darwin

2011-12-19T15:30:00.004Z

Elliott “chats” with Robert Frank in FireDog Lake HERE

“Smith’s theory of the invisible hand, which says that competition channels self-interest for the common good, is probably the most widely cited argument today in favor of unbridled competition–and against regulation, taxation, and even government itself. But what if Smith’s idea was almost an exception to the general rule of competition? That’s what Frank argues, resting his case on Darwin’s insight that individual and group interests often diverge sharply. Far from creating a perfect world, economic competition often leads to “arms races,” encouraging behaviors that not only cause enormous harm to the group but also provide no lasting advantages for individuals, since any gains tend to be relative and mutually offsetting.”

Comment
I agree that: “Smith’s theory of the invisible hand, which says that competition channels self-interest for the common good, is probably the most widely cited argument today in favor of unbridled competition–and against regulation, taxation, and even government itself”. But not a word of it is true about Adam Smith being the author of it.

Adam Smith never said anything like that statement. It is a complete fabrication – or rather several fabrications run together, popularised by modern economists and was repeated endlessly by ideologically-committed politicos in the Cold War decades since the 1940s, and then raised to shriek-levels since the Cold War ended with the fall of communism in the 1990s.

First, Adam Smith never had a “theory of an invisible hand”; he used the IH metaphor as a metaphor, it was never a “theory”. It was a figure of speech, referring to specific objects, as all metaphors in English are crafted to do (see: "Adam Smith, Lectures in Rhetoric and Belles Lettres", [1763] 1983, p 29).

In Moral Sentiments, the object of the IH metaphor was the unavoidable necessity that “rich and unfeeling” landlords had to feed their serfs, servants, and armed retainers, from the crops in their lands (no food, no toil). In Wealth Of Nations the IH metaphor was the response of some, but not all, merchants to their concerns for the "security" of their capital who preferred to invest in “domestick industry”. In each case, the public good benefitted from the unintentional survival and procreation of the species, or the unintentional addition to the “annual revenue and employment “ in boosting “domestick industry”.

Whether all self-interested actions had such benign outcomes depends on a case-by-case consideration. The notion that "an invisible hand" “channels self-interest [that always benefits] the common good” is a gross exaggeration. The fact that benign self-interest “channels benign self-interest for the common good”, perhaps, is an acceptable interpretation in the two cases only mentioned by Adam Smith that he identified, but not all self-interest is always benign; many actions, unintentional or otherwise, are not in the public interest. Some (indeed, many) “merchants and manufacturers” exercised their self-interest in non-benign monopoly activities, when they met their “competing” compatriots”, even for diversion”, they end up “conspiring against public”, they lobby (indeed “clamour” for) the legislature to set tariffs and other trade prohibitions, they conspire with “competitors” in secret “combinations” to hold wages down and to reduce them, and, from spreading “jealousy of trade, they join the jingoistic clamour for the government for wars against rival trading countries to “narrow the competition” and to “raise prices”.

Robert Frank rests “his case on Darwin’s insight that individual and group interests often diverge sharply”. This is hardly a new insight, neither unknown nor ignored by Adam Smith. What is Wealth Of Nations about other than a critique of “mercantile political economy” where “merchants and manufacturers” pit their individual self-interests against those of all consumers as a group? In what manner was this already discovered and clearly – even repeated - viewpoint of Adam Smith in 1776 become “Darwin’s insight” 82 years later at the Linean Society?

Robert Frank’s book was reviewed on Lost Legacy on 23 September (HERE ,
so I won’t rehearse my critique here. Smith spoke of the unintentional actions of thousands of “merchants and manufacturers”, who can, and did, consciously react to events in pursuing their self-interests; Franks refers to Darwin – though not to Darwin’s theory of natural selection, as published in 1859 in “Origin of Species”, in that he has some elks who are born with larger antlers than others, and some hawks born with keener eyesight that others, both benefitting from either dominating smaller antlered elks in contests with rival elk males for female sex partners, or other less well-sighted hawks in food contests for the survival baby hawks. These favoured antlers or eyesight are genetic benefits ensuring, all things considered, the survival, having been born with these advantages, of a larger number of progeny surviving per season.

The difference between humans and both elks and hawks is that genetic differences, advantageous or disadvantageous, are not within the control, consciously or otherwise, of neither the elks nor the hawks, hence they cannot consciously engage in “arms races”, nor avert them; each generation is a prisoner of their nature and their environment. In comparison, the actions of humans are within their ability to consciously change them, or not to do so, up to a limited point. They are able within wider parameters, to act consciously as their existing generation, and those yet to come. Humans are not prisoners of their nature nor their environment to the same extent as elks and hawks. Behavioural changes may occur for the better or worse, among humans in their societies. “Arms races” can be averted by agreement; elks and hawks cannot “call a truce” and voluntarily "disarm"!

Adam Smith understood that – so have most philosophers. Darwin understood that too, though not the invented ”Darwin” invented by Robert Frank, or his reviewers – none so far that I have seen makes these elementary points that demolish the thesis upon which he bases his politics and the prospects for Adam Smith's reputation in a hundred years time.

Looney Tunes 14

2011-12-17T14:11:00.004Z

1

SayUncle

“So it looks like the “Invisible Hand” has dictated that cheap, reliable, working-class pistols sell well.”

2

Can you get an invisible hand ship guide Lego Star Wars 3

Lego Star Wars 3: The Clone Wars Questions & Answers for Nintendo Wii - ChapterCheats.com. HERE

3
Where to find a financial winner in uncertain times

The Independent

"Whatever happens to the eurozone, the prospects for growth in the developed West are bleak, with the invisible hand of deleveraging set to constrain activity for several years,"

A Play About Adam Smith, David Hume, and a 21st-century Modern Scottish Woman

2011-12-16T17:03:00.003Z

I was able to get out to see a play in Edinburgh's Traverse yesterday. This is my review of it (with remarks about a review to be published in the Sunday Herald HERE ).

"The Tree Of Knowledge" by Jo Clifford

Mark Brown’s review of Jo Clifford’s, The Tree of Knowledge, in the Sunday Herald, left me somewhat bemused. I attended the Thursday matinee and failed to see what Mark Brown saw in its script and in the performances of the three actors. It was a moral play written and played with a moral tone, albeit somewhat stretching the factual history of Adam Smith and David Hume and their respective philosophies. But plays are not judged on their author’s historical accuracy, so much as the theatricality of the production. I think script and the actors worked well together.

Hume’s role, acted by Gerry Mulgrew, was to speak as an ‘atheist’; he was in fact a "sceptic", not an atheist. Hume rejected atheism on philosophical grounds, because what cannot be known to philosophy (the existence or non-existence of a god) cannot be asserted (see "Philo" in Hume's“Dialogues on Natural Religion”). But it added bite to the performance by Gerry Mulgrew that went well.

Jo Clifford’s Smith, acted by Neil McKinven, probably had more camp than historically justified, but it held the attention of the audience and gave scope to Neil McKinven to display his range. The absence of women in a man’s life, of course, does not alone make him a latent homosexual. He was a ‘man of the world’ (a phrase regularly used in his correspondence) and, like his contemporary, James Boswell, he knew where to find sexual partners within yards from his home in Panmure House in the Canongate. His devotion to his “very religious” mother in real life was intense.

He left his mother’s house in Kirkcaldy in 1737, aged 14, when she was 43, and, apart from a few years, they were separated on and off for 20 years, until he took her to live with him at Panmure House, Edinburgh in 1778 (she was then 84). Her health declined over his many absences. She died in 1784, aged 90. She was the major cause of his not marrying, despite his much noted relationship with ‘the lady in Fife’, interviewed at the turn of the century by Smith’s first biographer, Dugald Stewart.

Jo Clifford, the author, struck the right theatrical note with the camp Adam Smith in her dramatization of him and his friend, the “atheist” David Hume (it would take too long in a play to explain the philosophical difference dramatically). These characterisations, however, worked well in the context of their stage impact.

Eve (acted by Joanna Tope) presented the particular moral problems raised by the author. Eve and her mother were victims of male domestic violence and this was illustrated dramatically with all the pain that they were, but certainly this violence is not unique of the 21st century, nor as it anything to do with ‘the market”. It was present in 18th-century Scotland and elsewhere. So were women bearing a dozen or more children, most of them dying before their 5th birthday. Pin-factory workers endured six ten- to-twelve hour shifts a week, with no holidays, sick pay, social security, or the dreaded Health and Safety, in stark contrast to modern computer chip-factories. They were uneducated from 6 upward, except for two or three years in “Little Schools”. at least in Scotland, the brightest might get a chance to go to college if charity was available and if sponsored by a sympathetic school-master. Eve, herself got herself into a college, an option closed to 18th-century girls and women, even in the ancient Universities that were still closed off to women until the end of the 19th century and early 20th century.

So, while Eve acted he part with gusto (I certainly felt her anger), I couldn’t help counting some of the modest blessings of this century compared to Smith's.

Academics Discuss Dr Graeber's Book On "Debt"

2011-12-16T14:37:00.001Z

A contributor (I am not sure of the author – Favio Rojas?) contributes to orgtheory.net discussion, “grabber {sic] forum (part 2) the attack of neo-classical economics”) HERE

“The first chunk of Graeber’s book is a anthropological account of barter. Where does it exist? …Why pile up on specialized goods and wait for other people to pile up on what you want and then trade? That’s bizarre.

The conclusion? Adam Smith was wrong to say that people have a natural tendency to “truck and barter.” Why? It’s a strange, unintuitive form of economic exchange. Therefore, money is not the natural solution to barter, since barter, for the most part, does not exist.

If direct exchange of goods (barter) is not the embodiment of rational action, then what is? The answer, I think, is generlized exchange. A true believer in economics text books would correctly point out that generalized exchange can be described in terms of utility functions. Fair enough, but that’s not the point.”

Comment
Follow the link to read the whole post and the interesting comments that follow.

I have no brief for neo-classical economics; my concern is with Adam Smith’s legacy, usually placed among Classical economists.

Paragraph 1 above raises a non-issue: “Why pile up on specialized goods and wait for other people to pile up on what you want and then trade? That’s bizarre.” No, it is the image that is “bizarre”. Barter is inconvenient because specific surpluses may not coincide with other’s people’s surpluses. It is from an accidental surplus that may arise in the course of daily life that a person may seek to exchange them for something more useable by her. But if nothing is available, “no exchange”, says Smith, can be made” (WN I.iii.2: p 37). He reports that that “things were frequently … valued according to the number of cattle and women which had been given in exchange for them” (p 38). The difference on this supposed transaction between Smith and Graeber is that the latter uses evidence to show that barter exchanges did not in fact take place. However, Dr Greaber says the male-dominated theory was that human life or reputation was “immeasurable”, yet life-long debt servitude, in terms of cattle and sex slavery were a common consequence.

Dr Graeber’s point that the evidence does not show a mere transition from barter to money must be well taken (and I do). Smith did not have access (nor did anybody else in the 18th century) to the post-1850s literature and the research of thousands of anthropologists that Dr Graeber has at the click of his laptop. But Smith was right that the “inconveniences” of “non-coincidental demands”, whatever their cause, were resolved eventually by the invention of money from c.3,000 BC (BCE)..

Smith’s asserted that the “propensity to truck, barter and exchange” originated probably with the acquisition of reason (not rationality!) and speech. (WN I.ii.1: p 25), and references to the Oxford English Dictionary settle his meaning. Multiple references to Dr Graeber’s interesting descriptions of the forms of exchange in place in ancient societies mostly involved the awful consequences of the institutional tyrannical disposition to control the exchange of women and children. I found these descriptions somewhat distressing in terms of humanity. Dr Graeber named these social systems as the age of “Human [!] Economies”

Dr Graeber conflates modern theories of rational utility maximization (at best merely mathematical equations) and all that follows from them, as being representative of modern economics, which he is most welcome and justified to critique, but for some reason he believes, wrongly, that they were the views of Adam Smith, which they most certainly were not. None of these abstract mathematical structures developed since 1870 are representative of Adam Smith’s moral philosophy and political economy (1759 and 1776), which is why I strongly disagree with Dr Graeber’s (?) assertion that “generalized exchange can be described in terms of utility functions”. The central point in all of Adam Smith’s philosophy was that “exchange” was, and is, a “universal”, common across the human species since its formation from “the necessary consequences of the faculties of reason and speech”.

My exposition of the role of exchange in the human species, perhaps unique to it, could be expressed, to coin a phrase, as: “Exchange: the first 200,000 Years”.

Adam Smith Was Never a Utopian

2011-12-15T13:21:00.002Z

Veronique de Rugy, senior research fellow at the Mercatus Center at George Mason University. writes in Reason.com
HERE

“The Never-Ending Budget Battle”

“The pursuit of budget reform will lead us back to concerns that occupied the classical political economists, such as Adam Smith. As F.A. Hayek wrote in 1948, “Smith’s chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst. It is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they are now, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid.”

Comment
I do not recognize exactly where F. A. Hayek took this idea from Adam Smith’s Works, but I am inclined to appreciate its sentiments as possibly implied by Adam Smith.

How realistic could anybody get about the reality of human societies. Utopians invent human behaviours that they ought to match, but seldom do. Many economists went further and invented rigorous equilibrium worlds that could do not ever exist in reality. Utopian ultra-libertarians speculate on how society could be arranged, missing out the dangerous transition before it got there, and what might be required to keep it there.

Their anarchist forebears (Prince Kropotkin certainly) imagine how human society could be like the “fellowship” and “solidarity” of flocks of roosting birds in nature (from my distant memories of his book). Socialists believe in trying to construct their workers’ world in electoral success in the world we have, becoming corrupted as they try the levers of power, while communists believe in a period of the “dictatorship of the proletariat” from which a truly communist society will emerge as the state whithers away, without ever spelling-out how their communist utopian would function (as Marx and Engels steadfastly refused to do). The “Occupy Movement” hope that something important is about to happen as they occupy the pavements, but nobody agrees among them what that something is.

Adam Smith was different. He made no predictions about the future. He led no political movement. He avoided utopias, such as Laissez-Faire, perfect competition, the abolition of all tariffs, or the abolition of government and the state. His epigones invented his association with these ideas, all contradicted in his Moral Sentiments and Wealth Of Nations. He never mentioned once the cry of some French Physiocrats for “laissez-faire”, he advocated expenditures by the state on major and some minor headings, including two – education and health -with certain prospects of growing considerably. And, most importantly for modern economists, he never used the invisible hand metaphor as a general expectation that it neutralised “greed” and “selfishness” and led to the bliss of general equilibrium and the public good.

He wrote frankly about the foibles of human beings, mean and women, and gently mocked those who considered “place” or “cutting a figure” at a Ball, or saw ruling as if humans were like wooden pieces on a chess board obeying politicians’ plans.

He identified how mankind arrived at where it was in 18th-century Britain in a corrupted constitutional monarchy and political system, but with the elements of Liberty in place (rule of law, trial by jury, habeas corpus, independence of the judiciary, and parliamentary control of taxation by elections). It was perfect liberty, but it laid the foundations for measured improvements in advance of elsewhere. He suggested reforms to economic measures, and to the false ambitions of empire, and warned of the narrow ambitions of “merchants and manufacturers” and the influence of landlords on the legislature.

I think F. A. Hayek’s summary is pretty well on target. I commend it as a watching brief for libertarians in place of fantasising about utopia.

Review Part Seven Of Dr David Graeber’s “5,000 Years of Debt”

2011-12-14T20:30:00.002Z

REVIEW: DR DAVID GRAEBER, DEBT: THE FIRST 5,000 YEARS, NEW YORK, 2011
Part Seven

Dr Graeber summarises Chapter 6 (“Games with Sex and Violence”) in Chapter 7 (“Honor and Degradation”), and asserts that “human economies, with their social currencies – which are used to measure, assess and maintain relationships between people, and only perhaps incidentally to acquire material goods – might be transformed into something else”. However, “we cannot begin to think about such things, without taking into account the role of sheer physical violence” (p 165). Indeed, such “Human” Economies practise violence at their core and their periphery. They are quite barbaric and not given to “sweetness and light”. They are not paragons of virtuous societies.

Mostly, his accounts show that men practise “sheer physical violence” in their social institutions against women. Predominantly, this violence was an internal phenomenon from within the so-called “human economies” and it was practised in numerous cultures (for want of a better word) in them over many millennia. The “African slave trade ”, which, writes Dr Graeber, was characterised by its “very brutality”, was “imposed from outside” of the Human Economies. We know this in great detail from the written records and public debate in European and North American legislatures, a source that was not so well documented in the Human Economies where slavery was practised widely in all historical regimes in Europe, the Near East, the Mediterranean, Central Asia, and China. One main difference between millennia-long classical institutional slavery across the globe and the Atlantic trade, noted by Dr Graeber, was the “suddenness” by which the Atlantic slave trade was imposed on tropical Africa (and, incidentally, lasted over a couple of centuries, not millennia. This short, but for the individual victim life-long and a dreadful event, compared we should note to the agonies of slavery practised in “Human Economies” for millennia, is not noted by Dr Graeber, as if he believes that it was a necessary characteristic of market economies only; it wasn’t. The implication, sometimes hinted at by Dr Graeber, is that he believes that historically, commerce in markets, is a uniquely immoral and brutalising phenomenon. This is a bold (even reckless) implication, given the long list of rival candidates throughout history that remain much better qualified for such a negative accolade, among which I suggest must be what Dr Graeber designates, ironically, as the “Human” Economies.

As Dr Graeber moves through his thesis (still worth reading for its coverage of anthropological literature, not normally accessed by most economists), he opens discussions of slavery as an export along, with “goods, cattle and people” in Ireland from “600 AD (CE)” (p 171). “Money”, he writes, “was employed almost exclusively for social purposes: gifts; fees to craftsmen, doctors, poets, judges, and entertainers, [and] various feudal payments" (p 172). Once again, this is clear evidence of exchange, in a Smithian sense, occurring across the social fabric – giving something to get something in return, whatever their respective “values” (which “value” would only be of interest to neoclassical and Marxist economists). Exchange in Smith’s sense is not recognised by Dr Graeber, in order, I suggest, to keep the conceptual integrity of his claimed Human Economy intact, despite the scattered evidence from his own accounts of exchange occurring when no “money” was involved. However, he is compelled to observe of the Irish “social” exchanges, that they were, “albeit in the sort of unwieldy arrangement that markets later developed to get round” (p 172). It was the “unwieldy arrangements”, not their cause, by which monetary markets resolved them. Whether Smith was correct of the existing problem being universal ‘barter’, he was correct about the improvements from resolving them. Smith was not conversant with the anthropological record (no surprise, neither was anybody else).

From page 176, Dr Graeber treats readers to a discussion of the “Origins of Patriarchy” covering, what amount to ‘Honour Killings’ (sadly, too often regular news items in the British press of events happening even today). Historically, says Dr Graeber, “war, states, and markets all tend to feed off one another”, and it was in “Mesopotamia” where an “explosion of debt” threatened to turn all human relations – and by extension, women’s bodies – into potential commodities” (p. 179). Yet in chapter 6, his account shows that human relations in his “Human Economy” achieved the miserable low status of “women’s bodies” independently in Africa without “states and markets”, nor anything remotely resembling the mobilisation of men into standing, or semi-standing, armies of Mesopotamian Sumerian societies (3,500-800 BCE).

In Irish and nearby Scottish societies at the time, from 3000 to 2,000 BCE (BC), “war” was more like small raiding parties, and continued for long enough when Norse and Viking invaders from outside swept in small raiding parties across their territories, well into the early centuries of the first millennium. Women were also the prime victims, if they were not killed, along with their men folk and children, they were often transported across the Irish Sea in like manner to the Atlantic slave trade millennia later. Modern DNA analysis of Irish and Scottish populations show interesting genetic markers of their distant origins, and some surprising evidence of unexpected sexual contacts by Irish male slaves with the wives of the raiders, c.1200 years ago Those Viking or Norse women, who quietly bore Irish children, were almost certainly vulnerable to a death sentence if caught by their, perhaps unsuspecting, men folk.

Dr Graeber’s account of the emergence of coins in Ancient Greece is interesting, linked to Greek Philosophy, the Homeric world, and moral debates (Plato, etc.,). He notes, of course, that there was an “omnipresent danger of predatory violence that reduces human being to commodities” (p 194) and to “encourage the very worst sorts of behaviour” (compared to what and where?).

Two factors might be important in these territories - changing ideas of social relations and literacy, both of which once started, their consequences continued to change the European world, when wedded to science and innovation, spreading eventually to the whole world (Western Philosophy was based largely on the Classics – Scottish university faculty wrote and lectured in Latin up to the 18th-19th centuries. Despite the succession of empires, with large populations, devastating wars and social breakdowns, the modern world began to emerge in the 18th century. The fall of the Western Roman Empire in the 5th century stalled European civilisation until the c.15th century. Meanwhile, despite the stunning advances in knowledge and technology in China and India (and in the early centuries from the spread of settled Islam), their potentiality as rival forerunners of a market-driven industrialisation sank into stagnation until the late 20th century, not helped by disastrous experiments in communism.

Much of what Dr Graeber considers to have been retrograde steps in moral standards is wrapped around his notions of debt as the key determinant of the world’s misery.

His conclusions to the three chapters covered so far in my notes (pp 207-10) open with another swipe at Adam Smith: “we seem” he writes, “to be trapped between imagining society in the Adam Smith mode, as a collection of individuals whose only significant relations are with their own possessions, happily bartering one thing for another for the sake of mutual convenience, with debt almost abolished from the picture, and a vision in which debt is everything, the very substance of all human relations – which of course leaves everyone with the uncomfortable sense that human relations are somehow an intrinsically tawdry business, that our very responsibilities to one another are already somehow based on sin and crime. It is not a very appealing set of alternatives” (p 207). I am not sure what Dr Graeber means in this paragraph, nor do I recognise the Adam Smith of Moral Sentiments (1759), where he mocks the “poor man’s son” who is “visited by ambition” and “admires the conditions of the rich”, and is determined to emulate them to become rich in possessions whatever the costs (“trifling conveniences”, Smith calls these possessions). The dreadful consequences on his life are that he exposes himself to “anxiety, to fear, and to sorrow” and finally to “diseases, to danger, and to death”, all in pursuit of a “splenetic philosophy of no great value and certainly never to be described as “necessary for happiness” (TMS IV.1.8: pp 181-3). Typically, Smith notes that the misguided actions of such people can have unintended beneficial effects on society’s progress to opulence (TMS IV.1.9 and 10: pp 183-5) though he does not think much of the moral sense.

Amazingly, Dr Graeber explains why he “developed the concept of human economies: ones in what is considered really important about human beings is the fact that they are each such a unique nexus of relations with others’ in that “no one could ever be considered exactly equal to anything or anyone else”, adding that in a human economy, money is not a way of buying and trading human beings, but a way of expressing just how much one cannot do so” (p 208). This paragraph is of truly Orwellian proportions, much like Stalin's rule in Russia.

He admits to describing societies in which men disproportionally dominate women, and use violence to exchange them and their children to each other in marriages, and in payments to their husbands or fathers for debts in exchange for ‘tawdry” (by any definition) pieces of cloth, given by men a believed by men but otherwise meaningless magical property and “brass rods”. Among insiders their made-up, but convenient beliefs, suit the beneficiaries, the rapists (the women remain silent during their, perhaps life-long ordeal or too old the be sexually useful; they don’t have a voice in these ‘human’ economies – that are already living artifacts, disposed of at men’s will and fancy, and moved around like today’s sex traffickers).

Later, they were transferred to outsiders to suit personal preferences in who should go and who should stay in local chains of violent conspiracies of brutal kidnapping. This Human Economy is also claimed to have existed in Ireland, Scotland and much of England, in the wake of Roman, Anglo-Saxon, and Norman invaders, as well as long periods of Norse and Viking, raiders from their many settlements. Later in the second millennium, the Atlantic slave trade devastated swathes of tropical Africa, aided and abetted, so to speak, by compliant men in Human economies. That some anthropologists have uncovered in all these internal and external depredations “a unique nexus of relations with others” enshrined by the principle “no one could ever be considered exactly equal to anything or anyone else” (to which weird notion I shall return in following reviews) is one way of describing a situation with all the subtlety of making something mean whatever an author wants it to mean in well-documented (except possibly in their Celtic fringes) hierarchical societies.

Looney Tunes no 13

2011-12-14T18:53:00.003Z

1

"Quote of the Week – what Durban is really about"

By Ben HERE

"The invisible hand of the secret commie world government revealed again!"

2

"The Unnamed Bicycle Column: Christmas Magic"

Patch.com HERE

“... magic moment everyone hopes for, that moment when Glee Road intersects with Bliss Avenue and rains down eight tons of Happy is replaced with the crushing reality of Adam Smith's invisible hand waving bye-bye to your child's dreams and aspirations. ...”

3

Adam Smith Didn’t Ever Say Anything About the Invisible Hand Like This Pure Nonsense!

a) Solar PV in perspective 2011

"Renewable Energy Focus HERE:

"The invisible hand, said Adam Smith, would take care of any inefficiency in the market.”

b) Obama's Very Visible Hand Strangles Business

By News HERE

“Adam Smith observed markets flourish “as if led by an invisible hand.”

WorkplaceChoice.org

Part Six of a Review Of Dr David Graeber’s “5,000 Years" of Debt"

2011-12-11T21:21:00.002Z

DAVID GRAEBER, “DEBT: THE FIRST 5,000 YEARS”, MELVILLE HOUSE PUBLISHING, NEW YORK, 2011. Part Six.

[My analytical ‘reviews’ of David Graeber’s book, as I read through it, are my initial responses, , more like notes from a first reading that I would make when working in a library on a subject’s literature for a research project. Here, my draft notes are made with a view to summarizing them into a considered appraisal of the book’s merits.

I shall continue to publish my draft conclusions for those who have not yet read the book. For those who are too busy to read my notes in their present form, I shall present a summary review later. My initial comments are subject, where necessary, to re-drafting, excision and elaboration. Any comments, etc., may be posted as usual, or, as some have done already, sent to me privately. Of course, should Dr Graeber wish to exercise a right to reply to the final review, it shall be published on Lost Legacy without my editing, as a matter of scholarly manners.]

Chapter six: “Games with sex and death”, reveals much of the millennia-old institutional rape, slavery, and death, in what Dr Graeber calls the “human economy”, from, we should note, long before more recent commercial markets replaced them. Travellers’ observations from the 18th century, and intensive anthropological, archaeological and sociological research on a more scientific basis from about the mid-19th century, funded it should be noted by the rise and spread of commercial economies, revealed their true nature, somewhat massaged by Dr Graeber’s ‘completely new theory’.

Characteristically, Dr Graeber has a dig at the alleged economists’ insistence that ‘barter’ was ”the innocent exchange of arrows for tepee frames, with no one in a position to rape, humiliate, or torture anyone else” (p 126). This is pure rhetoric at the cartoon level, stopping just short of saying that ‘economists’ knew about what they allegedly hid from view, and therefore, are somehow implicated in it. I note here that Adam Smith relied on French travellers’ accounts of North American native settlements, such as P. F. Charlevoix (1722) and J.F. Lafitau (1735), and that he made use of what was available to him, writing in his mother’s house and garden in Kirkcaldy without access to a university library (he had returned from France in 1767 , three years after he had left Glasgow University). Dr Graeber, and modern anthropologists, have access to large libraries of the detailed work of thousands of researchers since the 18oos, and to ever-expanding Internet resources only a click away and with shelves groaning with the weight of books, specialist periodicals and monographs. They also have access to funds to fly thousand of miles quickly (it took up the three weeks to travel from Edinburgh to London in the earyl 18th century) and safely (health and security wise) to and from their subject’s research sites. He describes modern economists as being “touchingly utopian” for not being familiar with the work of anthropology; fair enough, though I didn’t get far very in this chapter without noting Dr Graeber’s own “touchingly utopian” approach to what he reports, as if the institutional mass rapes and the bondage of women, common in the ‘traditional societies’ he describes, is excused by the cultural traditions he describes or the mores of something he calls the ‘human economy’. When Adam Smith wrote of rapine by European armies at war, he in no way hid or excused it, nor was he silent of the depredations of “merchants and manufacturers”, “rich and unfeeling landlords”, nor the crass policy limitations of legislatures and those who influenced them, in his published works. His most well known sympathisers suffered the attentions of the authorities after Smith died in 1790, particularly in 1793-4 in a bout of repressions by judicial authorities, following the outbreak of revolutionary terror in France - see Dugald Stewart’s biography for his treatment after he read his eulogy to Adam Smith to the Royal Society of Edinburgh in 28 January and 16 March 1793.

People in societies in ‘Human Economy’ apparently “used one another as currency”, but “its hard to say more because the history remains largely unwritten” (p 128). If that is true, surely Dr Graeber in 2011 ought to be a little less strident in his contempt for Adam Smith for being as unsure in the 1770s about, not just ‘history’ being absolutely unwritten, but also because the because the very subject of anthropology in his days was entirely unknown.

He writes, strangely, that: “sexual exploitation was at best incidental (usually illegal, sometimes practised anyway, symbolically important). Again, once we remove some of our usual blinders, we can see that matters have changed far less, over the course of the last five thousand year or so, than we really like to think” (p 129)! In this chapter, it seems to me that Dr Graeber demonstrates his own blinders when he describes “primitive money”, which is “used almost exclusively for the kinds of transaction that economists don’t like to have to talk about” (p 129-30). Really? While modern neo-classical economists don’t even “like to talk”, recruit, or award tenure about the history of economic thought they, and Dr Graeber, repeat the myths they invented about Adam Smith. Many economists also research into economic history and the means by which people have transacted with each other.

Indeed, as Dr Graeber’s account of “primitive money” exchange transactions shows, he is blind to the nature of these exchange transactions, the common denominator of which, in his “human economy”, is the institutionalisation of the licensed rape of women and the disposal of children over many cultures and through many millennia, wrapped in male-invented superstitions, so-called magic, and religion. Far from eliminating exchange relationships, Dr Graeber's formalised theories of “human economies” are obfuscated by “quite ingenious” (p 131) theories, sometimes wrapped in jargon. He argues that passing over a token for a wife was not buying her to effect a transfer, (p.131), despite the sexual access and time honoured burden of labour services the transfer sanctioned. He says it was a rearrangement of “relations between people” (p 131) and is, he writes, “if buying anything, it’s the right to call her offspring his own” or, was the “purchase of the future fertility of her womb”. According to Philippe Rospabe , it “is not Payment” (1993, “Don Archaique et Monnoaie Sauvage”; it is, instead, “an acknowledgment that one is asking for something so uniquely valuable that payment of any sort would be impossible: (p.131-2). That’s all right then! Except that affecting a transfer of something, anything, valuable in some sense to the men involved, secures the transfer, without which there would be no transfer. That activity in any language is a transfer by exchange. Empty jargon about “non-equivalents” convinces only those who are blinded by it.

Similar tales of non-exchange transfer are taken up in the following pages after clear, not just symbolic, payments in various “complex systems”, including paid-for “marriage” by transferring sisters (p. 132), the “swapping and trading of “wards”, a.k.a. bondage relationships (p.132) among men, that is, exchanging human beings for “bundles of brass rods”, which rods are only allowed to be held by men,’ (p. 132), paying compensation for a man’s adultery (to men, not to women) with “raffia-palm cloth” (137), “hierarchical gifts” to elders (p. 138), “camwood bars” as gifts exchanged in marriage negotiations among men, the women are not involved (p. 138), compensation to men for a woman’s adultery (assumed to have occurred by superstition, or a death-bed confession), if she died in childbirth (p.138), or if a male “sorcerer” identified culprits “divination” after sickness For slipping and falling from trees (p.139), young women become “wards” or “pawns”, and any children they have “in payment of blood-debts” (p.139), the “constant game of securing or redeeming pawns” to “transfer rights in women” among men (p 139). Dr Graeber notes (eventually) that what is “being traded were, quite specifically, human lives”, such as a sister or a “different woman, a pawn he had acquired from someone else” (p. 140), specifically a “young woman’s life”. He quotes Mary Douglas (1963. ‘The Lele of Kasai’, Oxford University Press) as “one gigantic apparatus for asserting male control over women” (only men could own pawns), (p. 140)! But no. Not even after this, what were explicit exchanges of ‘A’ for ‘B’ – something given for omething that is received - Dr Graeber insists this is not within the realm of Adam Smith’s ancient propensity for exchange. However, whatever else is alleged to going on in all of the events that he highlights in his “new theory” as examples there is an exchange of things that maybe not very valuable in themselves (however measured), but of immense exchangeable value (the ratio of what is given for what is received) to those men who can exercise these exchanges of women with them. Exchange for Adam Smith was not necessarily about the exchange of “equivalents” (whatever than means).

Summarising these culturally derived customs, some anthropologists have divided “economic life” into “three spheres of exchange’: ordinary everyday economic activity, mostly the affair of women in “village markets”; transactions using “local currency” (cloth and brass rods) for acquiring “certain flashy and luxurious things” like “cows, and foreign wives”, but mainly for the “give and take of political affairs, hiring curers, acquiring magic, initiation into cult societies” (p. 146) and to acquire universal “rights in women”. Dr Graeber introduces an account of suspected “cannibalism” among these gruesome rituals (gently put as “consuming human flesh”, or ‘pretending to do so”, p. 147-9).He moves on to discuss the Atlantic slave trade in detail, which, of course, for Dr Greaber, is a consequence of human economies (a strange adjective in view of the inhuman horrors described in his account of them) coming “into contact with commercial ones” and, particularly, “commercial economies with advanced military technology and an insatiable demand for human labour” (p. 155). I note from the index that Dr Graeber discusses aspects of the millennia-old African slave trade with the Arab low-tech commercial economies later in the book (so I shall return to it later).

On the African cases he discusses in detail in Chapter 6, in what he calls the “human economy”, which developed over time into incredibly socially complex “exchange systems”, showing us that talented anthropologists have studied them in depth. But he insists these exchange systems are not in any way versions of exchange as understood in sense of Adam Smith’s exchange theory (the propensity that has been basic to human beings since the evolution in early humans of “the faculties of reason and speech” (WN I.ii.2. 26). Of course, if Dr Graeber recoils from the ideas, models and theories of neo-classical economics as taught today, I am not surprised that he came to that conclusion, but he is, however, charging at windmills believing they are really made out of Adam Smith’s moral philosophy and political economy. They were not, and are not, because these windmills bear little real resemblance to the ideas of Adam Smith, as I have tried to argue since I first read an account of Dr Graeber’s thesis and I continue to do so as I read his considered account of the issues at stake. We do not understand the same things about the Adam Smith born in Kirkcaldy in 1723 because Dr Graeber is enamoured with the fantasy Chicago Adam Smith.

Partly, this clash of two visions of Adam Smith is based on Dr Graeber’s notion of the absolute necessity for “equivalence” on both side’s of transactions for the exchange of anything, which certainly can be taken from modern textbooks on economics (marginal utility), but not from Adam Smith’s legacy. This fact is disruptive of Dr Graeber’s thesis; he needs an “equivalence theory” to make his debt theories work and to rubbish Adam Smith’s concept of exchange in the famous identification of ‘truck, barter, and exchange” in Wealth Of Nations (WN I.ii.1: p 25). Dr Graeber sees “truck and barter” and asserts that “exchange” therefore only means “commercial trade and capitalist markets” (Karl Polanyi’s error too). First of all, ‘truck and barter”, as shown earlier in my review of his book, is about exchange by bargaining – something for something - which is why the word “exchange’ was included by Adam Smith. Second, exchange is not necessarily about money either; it can be about money and it can be about anything at all that can be exchanged. The bronze age-authors of the Bible knew about exchange, for in Genesis the exchange with Adam and Eve was to refrain from eating from the tree knowledge in exchange for and for not know of “good and evil”, and death. Meanwhile, they could live in the Eden Garden, “work it and take care of it” (Genesis 2. 13). According to the fable, they ate from the tree and were expelled and, in consequence both knew of good and evil, and death. There were no “equivalents” in that transaction! And nothing changed about the meaning of exchange for 200,000 years, assuming of course, that only humans among primates and other animals consciously exchange ‘things’, tangible and non-tangible.

In Adam Smith’s essay on the origin of languages, he conjectures about the necessary steps by which a language would be developed by two ‘savages’ who, for simplicity, did not speak any language and were “bread up remote from the societies of men” (A. Smith, “Considerations Concerning the First Formation of Languages”, 1761, I.1; often published with Moral Sentiments). They would naturally begin to form that language by which they would endeavour to make their mutual wants intelligible to each other by uttering certain sounds”. Smith examined the process by which they would likely move from ‘nouns’ through to adjectives and verbs, to grammar, and so on. This process, he surmises, involved their mutual agreement, and that implies the exchange of specific sounds, as they mutually progressed towards a commonly understood language. Dugald Stewart, a family friend for many years and therefore with regular access to Smith’s private thoughts, remarked in his eulogy in 1793, of the methods by which Smith constructed his philosophy: “Something very similar to [his method in the Language essay] may be traced in all his different works, whether moral, political, or literary…” (Dugald Stewart, Account of the Life and Writings of Adam Smith, 1793, II.44: p 292). No money was involved in their mutual agreed exchanges and it had nothing to do with commerce. Adam Smith was never so narrow in his concept of “truck, barter, and exchange” as Dr Graeber, and most modern economists he despises so much. As a student of Adam Smith’s works, and absent Dr Graeber’s blinders, I consider him, modestly, to be wrong).

Looney Tunes no 11

2011-12-10T12:16:00.002Z

1
'Not Right About Anything: The invisible hand of your heart'

“The invisible hand of your heart. SEX!”

Ian McGibboney
HERE

2
"The Great Recession, Business Investment and Crony Capitalism"

Ashwin on Macroeconomic Resilience Here

"The neoliberal transition unshackled the invisible hand (the carrot of the profit motive) without ensuring that all key sectors of the economy were equally subject to the invisible foot (the stick of failure and losses and new firm entry"

3
'How do We Choose our Mates? The Big Bang Theory vs. the Algorithm'

Pamela Haag in “big think” (2 December) HERE

“an invisible hand of the (erotic) market guides us to Mr./Ms. Right through a sociobiological brew of pheromones, adaptive preferences, and other mysterious but irresistible forces of attraction that only look chaotic from afar.”

4

“Fox News for president”

“Returning to "buyer beware" markets as we eliminate federal regulations (Adam Smith's "Invisible Hand" felt around the neck of the middle class)."

Kansas City Star (blog) HERE http://blogs.kansascity.com/unfettered_letters/2011/12/-fox-news-for-president.html

Part Four of a Review Of Dr David Graeber’s “5,000 Years of Debt"

2011-12-09T21:23:00.005Z

DAVID GRAEBER, “DEBT: THE FIRST 5,000 YEARS”, MELVILLE HOUSE PUBLISHING, NEW YORK, 2011.

Part FOUR

As I get into Dr Graeber’s book, I confess that I find it interesting because of its wide-ranging number of subjects that interest me. I know that the narrative is moving slowly and methodically to a conclusion for which I expect not to have much sympathy. I must admit also that I find Dr Graeber exasperating whenever he mentions Adam Smith. He has a cartoon image of his philosophy, and is influenced too much by modern neoclassical economics and of what I take from his references is an aversion to ideas of exchange and, above all, of anything smacking of markets, or at least his versions of them.

In Chapter Four, “Cruelty and Redemption”, the reader is treated to a medley of themes which irritated me for the certainties by which they were asserted, but with which I have doubts, both theoretical and experiential.

For example, “in competitive markets, trust itself becomes a scarce commodity” (p 75), more a cynic’s wisecrack in a long meeting, than a credible statement applying to all market transactions in all markets all of the time. People have different levels of risk-aversion and various markets develop to mitigate levels of risk felt by players. Trust among market makers has to reach some minimal degree for individuals to participate in markets that function and for many other daily activities to be performed (ride a train, fly in a plane, buy and eat a sandwich, walk along a dark road, and so on). But why does Dr Graeber direct his particular ire against “competitive markets”?

Experience of low-market economies everywhere shows the reverse – it is when low levels of trust are socially predominant, among significant proportions of a population that development is inhibited in stagnant poverty. Trust is an essential quality of competitive markets since per capita living incomes began to rise inexorably from the early 1800s in north-west Europe, and by the late 1800s spread elsewhere through to today. On visits I made to South Africa on business (on bargaining counter-trade agreements) the local development of markets was inhibited by the high- levels of distrust (mainly associated with criminal gangs and over-bearing local corrupt administration of justice. Similarly, in the southern (poorest) regions of mainland Italy and Sicily, whole villages did not trust the villages around them, so that large infra-structure projects were endlessly delayed (and more expensive) by attitudes of visceral non-cooperation and long-standing vendettas, blood feuds, and chronic distrust.

Dr Graeber quotes extensively from the writings of Friedrich Nietzsche for several pages (pp.76-78, 80). Allowing for his gloomy literary style, it was Nietzsche who asserted that the earth was drenched “red by the blood of animals” who had not kept their promises; a striking, if overly dramatic, way of making a brutal point about trust. Trust is deep in the habits of acting to reciprocate mutual obligations, which is the very essence of reciprocity norms that were repeatedly practised by generations of primates and early humans in the wilds of Africa for scores of millennia ago and today too. Failure to reciprocate is seldom punished today by systematic blood letting but the consequences of foregone future mutual reciprocated conveniences in small groups can have no mean consequence in conditions of narrowing already minimal choices amidst poverty, particularly in the shorter lifetimes of ancient societies. Because ‘one good turn deserves another’ it was and is very human to neither forgive, nor forget someone’s failure to reciprocate good turns.

When Dr Graeber discusses Nietzsche he links his themes of ‘ancestor worship as somehow related to Adam Smith’s alleged “assumptions about human nature” but passes over Smith’s characterisation of the norms of early societies in his earliest thinking, in his “History of Astronomy”, written from 1744 to the 1750s, and then kept hidden in his bureau drawer in his bedroom until he died in 1790, having given instructions to burn everything else, but to publish the hidden essay. His executors published it posthumously in 1795.

In HA Smith discusses primitive explanations for nature’s ‘terrors’, and how ‘these appearances’ terrified early mankind. Eclipses of the sun and moon excited and terrified early humans by disturbing their imaginations, making them receptive to wild notions from whomsoever gave plausible explanations (HA, II.9, 43). They were ‘disposed to believe everything about them which can render them still more … the objects of [their] terror’ as proceeding ‘from some intelligent, though invisible causes, of whose vengeance and displeasure’ they are ‘the signs or the effects’. Thus ‘cowardice and pusillanimity’ is ‘natural to man in his uncivilized state’ (HA, III.1, 48), who linked the irregular events in nature, of which some are ‘awful and terrible’ and some ‘perfectly beautiful’, to some ‘invisible and designing powers’, and found in the origin of Polytheism, belief in the ‘favour or displeasure of intelligent beings, to gods, daemons, witches, genii, fairies’ (HA, III.2, 49). ‘And thus, in the first ages of the world, the lowest and most pusillanimous superstition supplied the place of philosophy’ (HA: 49-50; cf. TMS II.ii.1.2: 94).

Smith points to the ignorant origins of primitive religion in the minds of ignorant listeners, whose ignorance hardly changed from early societies to the richer myths of the gods of the Athenians, then in the ignorant forms among the common people into modern times, alongside the narratives of revealed religion, such as shared by the Old Testament of the Jews, and the New Testament of Christianity. My paper “The Hidden Adam Smith in his Alleged Theology”

(Journal of the History of Economic Thought, Volume 33, Number 3, September 2011) discusses these ideas sufficient to show that Adam Smith held private secular and skeptical views on superstitious religious explanations of the bulk of Dr Graeber’s theories in chapter 4, of which pages 80-87are largely about theology.

Before moving to chapter 5, I would point out that it was nowhere true of Adam Smith (whatever Nietzsche’s views) that he believed that ‘we are rational calculating machines that self-interest comes before society’ (p.78). Some modern economists certainly believe and teach that view but it is a wholly invented narrative when ascribed to Adam Smith. It was popular among modern economists from the 1870s, sometimes characterized by the infamous myth of ‘Homo economicus’ in neo-classical theory, with it ‘rational choice theories’, ‘welfare theorems’, and ‘general equilibrium’. None of these and the whole corpus of mathematical modeling has any textual authority in Adam Smith’s Works. Maybe it is in this common misunderstanding that we have the source of Dr Graeber’s, sometimes dismissive, anger towards Adam Smith in that he subscribes to a wholly invented Chicago “Adam Smith” from the 1970s that is not representative of the Adam Smith born in Kirkcaldy, Scotland, in 1723.

[Apologies: I missed posting part four on Thursday - it was late before I returned from a grandson's birthday party, -and today I wrote Part Five, posted immediately below.]

Review Of Dr David Graeber’s 5,000 Years of Debt (continued)

2011-12-09T15:46:00.002Z

REVIEW: DR DAVID GRAEBER, “DEBT: THE FIRST 5,000 YEARS”, MELVILLE HOUSE PUBLISHING, NEW YORK, 2011.

Part Five

Chapter 5: “Brief Treatise on the Moral Grounds of Economic Relations”

Dr David Graeber begins to get down to what he is about, and for the next 137 pages he explains his book’s challenge to “the extraordinary place that economics currently holds in the social sciences .. a master discipline”, it’s basic “tenets” treated “as received wisdom” and “basically beyond question” and a theory “so obviously true (sarcastically) that no one who understands it could possibly disagree”. I agree broadly with the overly arrogant image of mainstream economists, regularly challenged here in Lost Legacy, without sharing Dr Graeber’s specific proposed alternative when he proclaims boldly:

“I am going to … create a new theory, pretty much from scratch” (p 90). So let’s examine it.

His “key term” is “reciprocity”, in that “all human relations are based on some variation of reciprocity” (p 91), but before I started to get impressed about something I would agree with, he opens with a broadside against two anthropologists, George Homans and Claude Levi-Strauss, the latter of whom started a craze (his words) for exchange theory, and later was described as “an intellectual god of anthropology”, who made the extraordinary argument that human life could be imaged as three spheres: language (the “exchange of words), kinship (the “exchange of women “) and economics (“the exchange of things”). However, this leads to his assertions about “debt”, which, he says, repeatedly, is “what happens when some balance has not yet been restored”. And it is this theory of balance, repeatedly returned to in this chapter, that I shall criticise, long with Dr Graeber’s new theory of moral relations, which he moral principles he alleges for “any human society” can be seen to be founded upon.

Dr Graeber’s three new principles consist of “communism, hierarchy, and exchange” (p 94).Words can be said by authors to mean whatever they want them to mean (cf. Alice in Wonderland). Communism to Dr Graeber operates on the principles of “from each according to their abilities, to each according to their needs” (p94), into which he conveniently applies a whole host of phenomena. He could just as conveniently call it Christianity, with its 2,000 years of endemic ‘unChristian’ behaviours. Instead, he calls it communism, with its 75 years of endemic, and not very ‘communist’ moral behaviours, given his sanitised definition of it. It is more productive, I suggest, that key terms in social science are neutral, rather than theologically or politically provocative. After all, Dr Graeber presumably wishes to persuade his readers.

What Dr Graeber calls “mythic communism” or “epic communism”, which has “inspired millions” (as did nazism), he further asserts that “all of us act like communists a good deal of the time”, but not always “consistently”. He concedes that a communist society “could never exist”, yet he claims that all societies have included elements of communist behaviour for millennia. Societies, including capitalism, he says have “always been built on top of the bedrock of actually existing communism”, and “when two people are interacting, we can say we are in the presence of a sort of communism” (p95), much like Jesus Christ claimed when he said, “Where two or three have come together in my name, I am there among them” (Matthew 18.20). It is more helpful and more persuasively neutral to define this moral dimension as a reciprocated and co-operative sociability, common to the human species, without lumbering it with political or theological baggage. But Dr Graeber does not think much of reciprocity assertions, preferring his own assertions about everybody having a bit of communism at their core.

Dr Graeber runs through many interesting examples from anthropological field studies to illustrate his thesis, that are not always unambiguous evidence in support of his communist moral perspective. He draws communist implications (‘from each according to their abilities, to each according to his needs’) from Nuer pastoralists in southern Sudan, reportedly (1920) giving deliberately misleading information to perceived outsiders, as they would to potential enemies, though not to known friends. The Nuers’ communist behaviour to friends, like that of selfless help and aid given to victims of flood, famines, and economic collapse, is, claims Dr Graeber, a reversion to inherent communist morals. But there is another side to this inherent primitive communist behaviour in the Nuer, and in other examples he gives, which constantly challenges their proclivity for communist morals in their “constant engagement in feuds” (p 96-7). In other anthropological studies, originally vigorously denied by anthropologists at the top of their profession, but shown in the archaeological record of the extent to which Neolithic communities of hunter-gathers suffered and inflicted death by violence at levels far in excess of male deaths in recent centuries, world wars, genocides and communist and Nazis tyrannies not withstanding. (See Lawrence H. Keeley, War Before Civilisation: the myth of the peaceful savage’, 1996, Oxford University Press, and in many other works in the 14-page bibliography and the 20-pages of notes it contains).

I know from my experience as a new apprentice of the fun the adult toolmakers and older apprentices had in sending me on silly errands to the stores (to get ‘left-handed screw driver’, etc.,). It was a traditional, informal initiation process of strangers earning acceptance into the group. In later years, I joined in the fun of inducting other new lads. I think Dr Graeber, who finds communism in such common rituals and behaviours, needs to get out more.

Reciprocity is all around in work groups when partner reciprocators hand someone “a match, a piece of information, holding the elevator”, etc., (p. 97) and begin to develop a relationship with the receiver, which is constantly strengthened by mutual reciprocation – and breached by acts of non-reciprocation of refusing to supply a request of a match, of passing by in a car in the rain, and, say, breaking the informal ‘grape vine’, a powerful source of group solidarity despite its notorious unreliability. Such reciprocation exchanges occur in all universities too and are fully explained by reciprocation theory, without cluttering them with being “a sort of communism”.

Dr Graeber recognises that people “always behave in a spirit of solidarity more with some people than others” (p 99), a conclusion well known the observers of reciprocation relationships. That is what cements the relationships. Chimpanzees, studies show, groom in 2-3 hour sessions those who hold dominance ranks above them or are dependent (children and mothers) on them. In addition, some chimps have non-dominance, non-sexual relationships with other chimps based solely on reciprocation relationships, and pointedly shun those who have not reciprocated a grooming session from them in the past. Robin Dunbar, (Grooming, Gossip and the Evolution of Language, 2004, 2nd ed. Faber) called this ‘social grooming’, and suggested as much as 42 per cent of a chimps time was spent on it. He suggested there were parallels in human gossiping circles. Its trigger was not an inherent communism, which, if significant enough to be a “main moral principle” of “economic relationships” in Dr Graeber’s new theory, it is a very partial one, given he admits we do not (never) know “what people are thinking”. We most certainly don’t, compounded by the unreliability of what people say about their hidden thinking.

In my practical fieldwork of humans negotiating, I found, and taught, that what people do is of greater significance than what they say. You cannot easily hide what you do with the people interacting with you. If you can, “you’re a better man than me Gunga Din” (Kipling’s Barrack Room Ballads). Deception is almost an art form in ‘that insidious and crafty animal, vulgarly called a statesman or politician’ (Adam Smith, WN IV.ii.39 468), and projecting onto people one’s own ‘theories’ of why they behave in a certain manner is most pronounced in modern high-economic neo-classical rational micro-theory and, I must say, in Graeber’s ‘new theory’ of communism too in human relationships. Chimpanzees (‘you scratch my back and I’ll scratch yours’) and humans (‘one good turn deserves another’) demonstrate the consequence of completing reciprocated exchanges, and the consequence of breaching such exchanges by non-reciprocation. It also explains why the “spirit of solidarity” is selective – breaches in reciprocation – and why there are moral failures at the personal level, as well as with most, if not all, outsiders.

Dr Graeber asserts that he knows differently and that my point above is “only reciprocity in the broadest sense”, quoting Marshall Salins (Stone Age Economics, 1972) that “all accounts will eventually balance out”, and Marcel Mauss (1924, The Gift) with his theory of “alternating reciprocity” (my copies of both books are not to hand). But such explanations are more a hope than an experience. They fit with Dr Graeber’s concepts of
“balance” in trading relationships, derived from his ideas of ‘exchange is all about equivalence” (p103), that bargainers “try to seek the maximum material advantage”, by “comparing the value of two objects” (though he admits that “in practice this is rarely true”, p 103) and admits that there “has to be some minimal element of trust” (though on page 74 he says that in “competitive markets, trust become a scarce commodity”), yet billions upon billions of traded exchanges occur daily.

Dr Gaeber swings about with dubious generalisations (and interesting but difficult to judge anecdotes from his and other anthropologist’s field experiences) that suggest to me that he might have a distant acquaintance with the real world of both commercial and inter-personal exchanges. However, I do agree with him broadly that “standard economic theory” (and his clear summary of it p114) cannot explain the real world (p105). I am not a known defender neo-classical economics on Lost Legacy. Adam Smith did not analyse markets mathematically, he wrote of real people confronting different problems in reaching the same solution, and for him this has posed a problem for his legacy. Most readers of his books read them with the modern paradigms of economics refracting Smith’s sentences into that they are not saying.

Briefly, one person’s self-interest is not exactly of the same content as that in the minds of other people. Our self-interests may be different. I may want to invest in the home market; you may prefer to invest abroad; I may be seeking a sale to realise cash, you may want to add to future income; I may consider my best interests are served by selling to anybody; you may refuse to treat with foreigners, Muslims or Jews. To say that we maximise our ‘self-interests’ cannot be said to be of exactly the same content. Your self-interest prefers tariffs to operate; I may prefer absolutely free trade. Our self- interests may be in conflict - employers or government may conceive of different self-interests to their employees.

Moreover, ‘equivalents’ in Dr Graeber’s vocabulary may be meaningless. To seek for ‘equivalence” – you gain what I lose – is a nonsense, convenient for transforming into mathematics or arithmetic, but meaningless in the real world. Both parties can perceive their agreement in entirely different dimensions. I figure I am much better off than before the trade (it enables me to do ‘X’) and you can simultaneously believe that you are much better of with the deal than you would be without it. The price is common, but the same price means different things in the consequences that follow for both parties. The seller reaches her quarterly sales target at that price; the buyer can afford a better holiday at that price. Why? Because there are ranges of possible prices open to each party (it’s good advice to think in ranges and not absolutely rigid invariable demands). Hence, never accept the first offer – test it, there may be a better deal in the hidden range open to the other party but not yet disclosed. It is surprising to see that Dr Graeber sometimes agrees and sometimes disagrees with these fundamentals such (there are other examples) ‘equivalence’ and ‘maximum material advantage’ on p102 versus ‘relative value impossible to quantify’ and ‘no way to even conceive of a squaring of accounts’ on p 112.

I finished chapter 5 unconvinced of Dr Graeber’s completely new theory. He is an interesting and entertaining writer with lots to say on his suggestions of communism, hierarchy, and exchange, but his book, so far is full of propositions of doubtful weight (from what I know of anthropology, economics, both Adam Smith’s moral political economy and the modern neo-classical synthesis, and my experience of the panorama of life.

There are six chapters to go, I look forward to reading what else he has got in store for readers.

[Next post: Part 6: 'Games with sex and death’.]

Adam and Dave Visit 300 years later!

2011-12-09T10:27:00.003Z

Mark Fisher (9 December ) reports in The Scotsman (9 December) on a new theatre production at Edinburgh’s Traverse Theatre (for which for many years in the 1970s and 80s I was a subscribing member) HERE

"Bringing Adam and David up to date"

“Time-travelling fathers of the Enlightenment have been given a chance to appraise our world, for good and ill, by the Traverse and playwright Jo Clifford”

“ON Edinburgh’s High Street there are two statues by monumental sculptor Sandy Stoddart, placed a stone’s throw from each other. On one side of the road, next to St Giles’ Cathedral, stands Adam Smith, a proud 10ft (3m) tall bronze. The man regarded as the father of modern economics has a ploughshare behind him and a beehive to his side, symbols of the agriculture and industry on which he built his doctrines.

Further up, near the crossroads, sits David Hume, also larger than life, wearing a toga, brandishing a book and currently boasting some rather fetching nail varnish. The author of A Treatise of Human Nature was a major influence on Immanuel Kant, Jeremy Bentham and Charles Darwin. As well as his contribution to empiricist philosophy, he founded the study of cognitive science.”

The two men were born ten years apart in the early 1700s and helped establish Scotland as the cradle of the Enlightenment. Now, 300 years later, they are unexpectedly back together at the Traverse Theatre.

In Jo Clifford’s The Tree of Knowledge, they find themselves transported to the 21st century where they come across Eve, a woman whose idea of a new town is the streets of Glenrothes rather than the Georgian boulevards of Edinburgh.
“I thought it would be fun to contrast two very different sorts of new town and to think about the sort of values that both express,” says Clifford. “It tells us something about the world we live in.” ...

Written as a result of a creative fellowship at the Institute of Advanced Studies in the Humanities at the University of Edinburgh, the play reminds us that Smith was a more subtle thinker than his reputation would suggest. There was certainly more to him than many of his free-market followers would have us believe.

“He was a far more complex figure than that,” says Clifford. “He and Hume believed very strongly in what they called sympathy, which is our capacity for fellow feeling; we’d call it empathy. Smith is most famous for The Wealth of Nations, but he also wrote an extraordinarily interesting book called The Theory of Moral Sentiments, where he’s thinking about empathy. He felt this capacity for fellow feeling should be at the heart of our social relationships, our justice system and our economic arrangements.”

“Hume and Smith had a vision that the market would set human creativity free and, to a certain extent, they were absolutely right,” she says. “But particularly in the last ten years when we’ve had this total disaster of right-wing free market economics that is governing the world in a destructive and appalling way, it’s desperately clear that we need to find a new economic model. We have to or civilisation is not going to last.”

… During her research, one of the most interesting people she came across was Deirdre McCloskey, an American economics professor and fervent believer in the free market. The Tree of Knowledge reflects her views too.
“She reveres Adam Smith and believes the free market economy is a force for good in the world. Capitalism – and this is undoubtedly true – has transformed living standards, particularly in the west. Her books are very stimulating, and all that is in the play as well.” ...

Clifford is also aware of capitalism’s contradictions. Like all of us, she has benefited from the very economic system she calls into question. “I’m sitting with a little plastic ring in my heart that’s keeping it working.” She had heart surgery a few years ago. “That’s only possible because I’m living in one of the most advanced economies in the western world.”
Her challenge in all this was to bring to life two historical characters in a way that was dramatically dynamic and that did justice to their ideas. “They were economist-philosophers who were incredibly clever, so the challenge was to get myself in tune with their thinking. They were remarkably progressive, intelligent, humane, wonderful thinkers. The play is a love letter to Hume and Smith.” ...

[The Tree of Knowledge is at the Traverse Theatre, Edinburgh, tomorrow until 24 December. www.traverse.co.uk]

Comment
Looks interesting, especially because the author says she is influenced by Deirdre McCloskey, author "Bourgeois Dignity: why economics can’t explain the modern world", Chicago, 2010 (reviewed on Lost Legacy).

The Scotsman, Scotland’s national newspaper, gave it an illustrated two-page spread.

I hope very much to get to see it, weather and mobility permitting. Catch it if you can.

Smith is Misunderstood, But What is it That Modern Economists Do Not Understand?

2011-12-08T14:30:00.004Z

“Whatever Happened to Making an Honest Buck?” “Wall Street Attacks Elizabeth Warren Because She Believes in Capitalism More Than They Do”

By Neil H. Buchanan (an economist and legal scholar, a Professor of Law at The George Washington University, and a Senior Fellow at the Taxation Law and Policy Research Institute, Monash), posting in Verdict HERE

“Even the most basic economics textbooks carefully recite what is necessary to allow “the invisible hand of the market” (in Adam Smith’s famous, but generally misunderstood, words) to work its magic. Among the conditions necessary, to give us confidence that self-interested trades among buyers and sellers will lead to socially desirable outcomes, is the requirement that both sides are well-informed about the choices they face.”

Comment
True, Adam Smith’s singular in use of the metaphor of “an invisible hand” in Wealth Of Nations (WN. IV, ii. Paragraph 9: 456) is “generally misunderstood”. Smith never said anything about “socially desirable outcomes” being “the requirement that both sides are well-informed about the choices they face”.

That is a construction placed on the IH metaphor by modern economists, who invented the “misunderstood” meanings about “invisible hands”. In Adam Smith’s case, he was referring to some, but not all, merchants who were averse to the risks, as they saw them, of sending their capital out of their sight in the "foreign trade of consumption" and preferred to invest in “domestic industry” (he refers to this concern several times in the famous paragraph, though most modern economists and most authors of “most basic economics textbooks” ignore Smith’s carefully worded case, leading up to his use of the IH metaphor.

He was not writing about “the invisible hand of the market” at all. His point was more specific. From their “insecurity”, those merchants invested locally and it was their concern for their capital that led them to choose the domestic market, and Smith's use of the popular (at least in the 17th-18th centuries) metaphor was to “describe” this process in a “more striking and interesting manner”, exactly as Adam Smith taught his students on Rhetoric, then part of the Moral Philosophy degree at Glasgow and other Scottish Universities.

Neil may check for himself (and for his students and readers) Smith’s views on the role of metaphors in: Smith’s “Lectures on Rhetoric and Belles Lettres” ([1762-3] 1983, p 29), or refer to the entry for metaphors in the English Oxford Dictionary.

[Under my self-denying ordinance, I have no views on the subject of Professor Neil Buchanan in Verdict; I only comment on the politics of the country in which I vote, Scotland.]

Brief History of a Myth

2011-12-07T15:38:00.002Z

“Budget austerity works for the rich” Harlan Green writes in Huffington Post HERE

“Their economic thinking is not quite medieval but certainly from the 18th century, when Adam Smith's invisible hand theory was first used to rationalize conservatives' ideology that government is a hindrance to growth. We now know that cutting spending doesn't lead us out of recessions, or worse. It takes budget deficits during bad times to prime the pumps of private employers, until they loosen their own purse strings and begin to invest the trillions from record profits that they have instead used to buy back their stock in order to boost executives' incomes.”

Comment
I am not interested in commenting on the thematic charge that Harlan Green makes against “conservative ideology”. That is politics. I am interested in his/her assertion that “Adam Smith's invisible hand theory was first used to rationalize conservatives' ideology that government is a hindrance to growth.”

As a statement of fact that statement is completely wrong in respect of Adam Smith’s works, Moral Sentiments, 1759 and Wealth Of Nations, 1776. Smith had no such “theory”. His use of the popular 17-18th century metaphor had no status as a `’theory”; it was a plain and simple, albeit brilliant, literary metaphor. It has been accorded the status of theory by those modern economists who re-interpreted (invented is not too strong a word) the metaphor into a `’theory”, a “paradigm” even.

For the first 100 years after 1776, Smith’s use of the IH metaphor was virtually ignored, except among theologians, preaqchers, poets, novelists, politicians and historians. His contemporaries didn’t mention it. Dugald Stewart, the son of Smith’s student friend, Michael Stewart. Father like son, a professor of mathematics at the University of Edinburgh. Dugald swapped chairs and became Professor of Moral Sentiments. Dugald taught political economy (as Smith had taught it in Glasgow) and Wealth Of Nations was one of the texts he used in his published lecture notes. He published a volume on political economy in 1801, which included long quotations from Wealth Of Nations, one of which was a long excerpt from the chapter in which Smith uses the invisible hand metaphor. But Dugald made no comment on the metaphor and it passed unnoticed. If it was a ‘theory’ of Smith’s Dugald would have known from his father's life-time intimacy with Smith and his own close association with him until he died in 1790. Dugald gave the eulogy to Smith at two meetings of the Royal Society of Edinburgh in 1793.

That was virtually it until the 1870s, when some five authors mentioned the metaphor. It became part of an oral tradition at Cambridge in the 1920s and later at Chicago until the 1900s. From the 1940s, its (mis)use began to explode as authors gave it publicity in forms unconnected to anything that Adam Smith actually wrote. Paul Samuelson gave these false attributions a boost in his best-seller, "Economics: an introductory analysis", from 1948 and to its last, 20th edition, in 2010.

Hence, Smith's mythical ‘theory’ of 'an invisible hand' now has traction only in the minds of modern economists and politico’s of left and right today. Any ‘rationalisation’ by ideologues of the liberal or conservative persuasion is based on myth and counter-myth, wholly invented since the 1930s. It is now ubiquitous across media, politics, theology and opinion formers of all shades.

Harlan Green is but one of many, peddling false ideas about Adam Smith’s legacy, which makes his/her comments redundant, however sound his/her criticism of his opponents may or may not be. Sad.

REVIEW: DAVID GRAEBER, 2011. “DEBT: THE FIRST 5,000 YEARS”,

2011-12-06T22:06:00.004Z

REVIEW: DAVID GRAEBER, 2011. “DEBT: THE FIRST 5,000 YEARS”, MELVILLE HOUSE PUBLISHING, NEW YORK.
Part Three

Examples by Adam Smith of the limitations of barter across more than a handful of products are fine, as far as they go, as illustrations. Whether humans experienced stable barter systems does not make redundant the significance of the problem of a non-coincidence of wants and its resolution in monetisation in multi-product economies. Barter is of limited value to the extent that it obscures the important significance of informal, but real, reciprocity norms, prevalent across the human species and in nature. The importance of Adam Smith’s allusion to ‘truck, barter and exchange’ lies in the word exchange.

Dr David Graeber informs us (p.34) that “the English words Truck and barter”, in several European languages, means “to trick, bamboozle, or rip off” (John-Michel Servet, 1981. ‘Primitive Order and Archaic Trade’, Economy and Society, Parts I and II, at: 1981: 10.4: 423—50, and 1982, 11.1: 22-59). Strong stuff, indeed. It certainly puts Adam Smith’s allusion in WN into doubt, too conveniently. However, the prime authority on the English language: The Oxford English Dictionary (1981) defines both words as below. (NB: I give the first-level definitions - full entries can be consulted in OED; they do not support Dr David Graeber’s and John-Michel’s versions, nor do the lower-level OED versions):

“Barter. 1. The act or practice of trafficking by exchange of commodities or stock [source entries from 1592 to 1794, etc.,], Vol 1. p.974.”

and

“Truck. 1. The action or practice of trucking; trading by exchange of commodities or barter. [source entries from 1553 to 1747, etc.,] Vol. 23, p.602”.

Of relevance to the issue of what Smith meant by Barter and trucking, is the fact that the 18th century index, published by Smith from the third edition (1784) of Wealth Of Nations, contains this relevant entry: ‘Barter, the exchange of one commodity for another, the propensity to of (sic) extensive operation, and peculiar to man, 25. Is not sufficient to carry on the mutual intercourse of mankind, 37. See Commerce.” Smith's index for truck just gives the name, though it may be relevant to note that the Truck Act in the 19th century banned the payment of wages in truck form - i.e., employers were prevented from paying in kind (often at inflated prices - like in 'the company store' of the '16-tons' folk song) instead of cash.

Selective quotations, I suggest, from the 1980s are not as authoritative as the OED, which is the definitive etymological history of the English language. Also note that when Smith wrote Wealth Of Nations from 1763-76, his use of the words ‘Truck and Barter’ was in line with their common English meaning (and Smith had a good knowledge of French, Greek, Latin and Italian literature). He can only be called to account for what he believed, not for what 20th-century scholars assert about the meaning of words.

Chapter 3 is titled, ‘Primordial Debts’ in which Dr David Graeber shows the existence of debt ‘from the beginning’ and lays his case for his 5,000 years hypothesis, with side mocks at ‘imaginary villages’ and ‘Smith’s Land of Barter’, asserting that the ‘Myth of Barter is central to the entire discourse of economics’, p 43 ( a controversial conclusion). This really is a step too far. Dr David Graeber has not yet mentioned reciprocity, though I note he does so much later in his 534 page book. Yet reciprocity is surely central to any discussion over the origins of debt in history. How ‘mainstream economists’ are employed in modern society is hardly germane to a discussion of Adam Smith’s views (1723-90). Modern economists are deeply in error on Adam Smith's meanings, including on 'an invisible hand' theory, as no doubt we shall see when Dr David Graeber discusses it.

Long before states were formed, Smith hypothesised the early existence of exchange behaviour. It is a central idea in his two works published in his lifetime, in 1759, and 1776 (including his paper on the origins of language published in 1761, and his History of Astronomy, published posthumously in 1795, and the unpublished lecture notes on Jurisprudence, 1895, 1978). Exchange was central to Smith’s entire philosophy (see James Otteson, 2002, Adam Smith’s Market Place of Life). The issue of whether barter, at least in versions that amount to bargaining, among pre-history hunter-gatherers and in early village life, is an interesting distraction based on unverified contemporary accounts and the imaginations of travellers and 18th-century philosophers. Reciprocity norms are far more important contributory elements in the evolution of bargaining. Barter, I suggest, is not crucial to the evolution of exchange forms from general reciprocity into bargaining and to that extent, Dr David Graeber is right to downplay barter, but he is wrong in not focussing more on reciprocation norms. Looking for signs of general bartering in surviving examples of small village life or among hunter-gatherers may be the wrong focus.

Dr David Graeber takes barter as an example of Smith denying the role of the state in monetisation; I don’t think he did so from his extensive discussion of state institutions and their activities in minting coins and corrupting them for from time to time. The appearance of non-monetary tokens (cows, nails, marked sticks and written accounts, etc.,) not sanctioned by states, suggests an evolutionary pattern worthy of more study. Dr David Graeber sees a purely power-driven purpose behind the activities of kings in imposing their money, implying a far greater degree of purposeful intentionality about markets, implying intentional acts to create markets. European 19th-20 century colonial practice, I would suggest, does not project back to the unintentional consequences of the deep past, and rather than being a common purpose by all kings in all places in all millennia for 5,000 years it was originally a consequence. And with nobody else articulating that such defined purposes guided the kings’ behaviours, Dr David Graeber’s assertions to the contrary in the 21st century is original thinking indeed.

Armies most certainly had to be paid (unpaid armed are dangerous) and always were paid in some way if they were assembled to provide what Smith called the ‘first duty of duty of the sovereign, that of protecting the society from the violence and invasion of other independent societies’ (WN Book v.i.a.1: 689). Of course, the same sorts of expense were imposed on lower Lords, Barons, ‘proud and unfeeling landlords’, post-Roman Empire warlords, brigands, raiding parties, the great Khans of central Asia (and today’s ‘mafia’-style, criminal families), and on those who challenged them. If not by coinage, or precious metals, then it was by the eternal soldiers’ litany – ‘no plunder, no pay’ - and the consequential deplorable acts of mass rapine (one of the dreadful human costs of organised violence all through the ages and today).

A consequence of paying soldiers may well have been the development of markets ( have always taekn soldiers' pay in Roman armies as a sign of market activity in garrison towns, contrary to Karl Polanya's thesis of it being a 19th-century event). The population were obliged to accept the king’s coins in final payments for whatever his solders needed, from the concomitant consequence of having to pay for soldiers by some means or other. ‘Plunder or pay’ was very destructive (the Thirty Years War in Europe; the Civil War in England) and no doubt taxation suggested itself as a more reliable means of ensuring that domestic populations bore the costs of military forces, supplemented by levies on conquered populations. Dr David Graeber quotes from his research in the history of colonialism in Madagascar (p. 50-53) (similarly experienced under British, French, German, Belgian and Portuguese rule across Africa) and how domestic peoples were compelled to pay poll taxes in cash, which they could only earn from labouring for colonial settlers or on government projects. When the Jewish people were taken to Babylon the transfer included all useable property too. I doubt that this implies that ancient kings originally conceived of tax payment schemes as being about ‘generating markets’. It was initially, more likely, more of a way to relieve kings of endlessly spending money on the expence of occupation, from which finance, state institutions emerged unintentionally strengthened. The difficulties of making these tax schemes work on a large-scale were shown by the consequence of attempts at taxation in British colonies in North America before 1776, where the colonists were armed and trained, and their leaders articulate and literate.

Dr David Graeber suggests money is not a ‘thing’ (I do not disagree). He argues it is a way of ‘comparing mathematically’ equivalents, such as ‘one of X is worth 6 of Y’ (p 52), which leads to his discussion of various 19th century theorists. Smith similarly concluded that one beaver was worth two deer from the effort required to hunt both, and went down the dead-end of the labour cost theory of value (WN I.vi.1: p 65). That money has become the ‘creature of the state’, explains why ‘early states’ used money and unintentionally ‘created markets’. That this has evolved into ‘primordial debt theory’ (by French economists, anthropologists, historians and classicists; p 55), in which ‘debt is the essence of society’ and existed long before money and markets’ (p 56), originally with Asian religious explanations.

Dr David Graeber’s discussion of primordial debt theory is detailed and interesting (p.51-62). He finds it “compelling’; I found it interesting, much like reading in any unfamiliar area, such as of ancient British stone-axe trade routes and what they imply, or how war and trade in ancient Greece were conducted by the same crews in the same ships. But where does it take us? Dr David Graeber considers these scholars are “inventing a myth’ (p62).

How this myth squares with “Mesopotamian city-states’ dominated by “vast temples” which were “gigantic, complex industrial in institutions often staffed by thousands”, including shepherds, and barge-pullers to spinners and weavers to dancing girls and clerical administrators, in which Dr David Graeber is absolutely sure that nobody ever swapped “one item for another”, whether money tokens existed or not (swapping things is common in society today which historically is surely the most monetised ever). People labour for wages – swap their toil for physical tokens and swap their tokens for subsistence – in great broad cycles of exchange behaviour ‘give me that which I want, and you shall have this which you want, is the meaning of every such offer’ (Smith WN I.ii: 26). Their predecessors entered into obligations in narrow cycles of reciprocation and toiled for themselves, knowing who owed them what favours and kept count without records, ‘’If I do this for you, then you ought to do that for me”. The quasi—bargain (reciprocation) led seamlessly to the bargain over many millennia. Exchange has always been ubiquitous. Obligations (debts) are far older than 5,000 years, but do not have the onerous burdens imagined by Dr David Graeber, nor are they an intellectual case for anarchism.

Dr David Graeber must concede that the myth of primordial debt is an unlikely hypothesis, which dissolves into an argument (he is an anarchist of sorts) against the existence of states and markets (p 74). “States”, he says “created markets. Markets require states. Neither could continue without the other, at least, in anything like the forms we would recognise today”. Readers might see where his book is heading and why I shall continue should read and comment on it.

[Part 4 on ‘Cruelty and Redemption will follow in a day or so. I have a lot of exam grading to do.]

Scottish First Minister in China on Adam Smith

2011-12-06T15:19:00.002Z

The Scottish Government 6 December, “ADAM SMITH 'ENTERS' CHINESE COMMUNIST CENTRAL PARTY SCHOOL” https://mamutmail.com/owa/?ae=Item&t=IPM.Note&id=RgAAAAAHTDeM%2bod4QKuK4UsAd6jFBwC7N5BJK94RR4NQNZSWoGH1AAACIGn9AAC7N5BJK94RR4NQNZSWoGH1AIb7w7GNAAAJ

“First Minister Alex Salmond today highlighted the work of Adam Smith and his relevance to modern China in both his keynote address to the party school of the Central Committee of the Communist Party in Beijing and in the presentation of a bronze of the philosopher.

Mr Salmond also used the teachings of Adam Smith to raise the critical issue of climate justice, referencing the vital ongoing UN climate talks in Durban, South Africa.

The First Minister cited the Scottish philosopher's first masterpiece, The Theory of Moral Sentiments, during his address to some of China's emerging political figures - and highlighted Smith's contribution to the Enlightenment as an example of the kind of moral courage needed now to fight climate change.

Published in 1759, The Theory of Moral Sentiments, was translated into Chinese for the first time in 2009 and China's Premier, Wen Jiabao, has said he often carries the work - which preceded Smith's more famous work The Wealth of Nations - in his suitcase when he goes abroad.

Mr Salmond told his audience at the Central Party School - the highest institution to train new officials for the Communist Party of China - there were lessons to be learned in Scotland and China from Smith's teachings of moral philosophy and economics.

The First Minister said: "Adam Smith lived at a time when Scotland was leading the world in thinking, innovation and invention - Scottish traits that continue to this day. Indeed when Vice Premier Li came to Scotland earlier this year, he was kind enough to start his speech in the Great Hall of Edinburgh Castle by saying he loved to be in Scotland 'the land of invention'.

"For just as China was the leader of invention in the ancient world - paper-making, the compass, printing and deep mine gas for example - Scotland in the eighteenth century was a hive of invention.

"Scotland, as a trailblazer in the industrial revolution, paved the way for development which brought millions out of poverty and established many aspects of the modern world. Just as China's current economic progress has brought hundreds of millions out of poverty.

"In The Theory of Moral Sentiments, Smith talked about the impact of others' suffering. His words are instructive. Smith said: 'As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation. Though our brother is on the rack, as long as we ourselves are at our ease, our senses will never inform us of what he suffers. They never did, and never can, carry us beyond our own person, and it is by the imagination only that we can form any conception of what are his sensations'.

"This is a beautiful way of saying - use your imagination to understand the suffering of others. From that understanding comes compassion and action. Smith's theory was one of sympathy, empathy and solidarity.

"Climate change exacerbates the vast gulf in resources which already exist across our planet, but it also gives us an opportunity. Climate change highlights our true interdependence and must lead to real change.

"Climate change is the issue above all issues which illustrates humankind's interconnectedness across national boundaries. Climate is no respecter of border posts, cyclones don't turn back at passport control. In response we need a greater shared ownership of both the problem and the solution."

The First Minister also raised the importance of connecting development with human rights:

"Climate justice is what is required - linking human rights and development, putting people at the heart of our economic system, and allowing all to share the burdens and benefits of climate change and its resolution, and to do so in an equitable and fair way.

"Those who have benefitted and still benefit from emissions in the form of on-going economic development and increased wealth, mainly in the industrialised countries of the west, have an ethical obligation to share benefits with those who are today suffering from the effects of these emissions, mainly vulnerable people in developing countries.

"People in developing countries must have access to opportunities to adapt to the impacts of climate change, and not be told to 'do as I say, not as I did' by the rich and powerful developed countries.

"When he lectured at Cambridge University in 2009, Premier Wen quoted The Theory of Moral Sentiments, speaking especially favourably of the view 'that if the fruits of a society's economic development cannot be shared by all, it is morally unsound and risky, as it is bound to jeopardise social stability'."

Mr Salmond presented the school with a bronze of a sculpture of Adam Smith which stands in Edinburgh's Royal Mile. The work by Scotland's leading monumental sculptor Sandy Stoddart was gifted by Sir Angus Grossart and was on display at Bute House earlier this year when the Chinese Ambassador to the UK, His Excellency Mr Liu Xiaoming made his first official visit to Scotland.

BACKGROUND:

The model of Adam Smith (1723-1790) is based on the statue that was sculpted and cast in bronze by Sandy Stoddart and sits on the High Street in Edinburgh, near the Mercat cross and St Giles. The full-scale statue was paid for by private subscriptions, organised by the Adam Smith Institute, and unveiled in July 2008.”

Review Of David Graeber's 5,000 Years of Debt (part 1)

2011-12-05T17:10:00.004Z

REVIEW: DAVID GRAEBER, DEBT: THE FIRST 5,000 YEARS, MELVILLE HOUSE PUBLISHING, NEW YORK, MAY 2011, 534 pages.

Part One:
David Graeber is an author given to different tones. There are his personal views on current events and his academic views while making his case and rubbishing others. He challenged me to read his book first before daring to criticise his reported views, as expressed, incredibly, in what he wrote himself and put into the public domain on the internet. This is an aggressive polemical style. Who can protest that when David Graeber says something about ideas with which a reader is familiar, side-swipes with put-downs, implying that what he says in one forum is beyond criticism unless a critic first reads his 534 page volume, “Debt: the first 5,000 years” (if nothing else, an arresting title)?

So, I waited until his book arrived from my bookseller. I am now reading it. No doubt I am still vulnerable to his barbs until I have read every single one of the 534 pages of his readable (so far) book (including 60 pages of end-notes and checked his 36-page bibliography), more so, perhaps since I intend to remark on his thesis as I read the chapters (as a blog, Lost Legacy, necessarily is restricted to publishing only short posts at a time).

David, in earlier exchanges on the web, objected to my using his first name as if it is a hallowed or patronising privilege. I think it is more calming to do so than using only his surname ('Graeber says...') when tempers and invective exchanges become fragile. David is a libertarian anarchist, apparently keen on long debates – a trick that the old Stalinists of yesteryear used to wear down opposition in trade unions and, no doubt, in the early Soviets too – later they simply shot people asking awkward questions.
****
So, to David’s book: I refer to Chapters 1 (On the experience of moral confusion) and Chapter 2 (The myth of barter).

Chapter 1 has a nice, relaxed style starting with a conversation he struck up with “trim, well-appointed young woman” (“of the activist kind” – “a perfectly decent woman”), who worked as an attorney “for anti-poverty groups”. The venue for their accidental meeting was a “garden party at Westminster Abbey” (London). This is by way of a prelude to what inspired David to write his book because of the “moral confusion” about having to pay one’s debts (in monetised economies, which are a particular target for David’s own activism).

My reaction to this chapter’s vague hints at the book’s main theme was to write in the margin, ‘Reciprocity?’ David’s advertisements of his knowledge of the insights provided by his academic discipline, Anthropology, which is not as well-known to most modern economists and may have misled him into misjudging criticism from others, who, like myself, have read quite a bit of anthropology from a general interest in subjects related to my interests in Smithian moral philosophy and political economy.

Long before monetisation, primitive as it may have been over much of the last 5,000 years, and for many millennia before that arbitrary date, during what Adam Smith designated as the ‘First Age of Man’ (Lectures On Jurisprudence, December 24, 1762, 1.27-31, pp. 14-15), before the invention of property, humans, in small bands, (according to archeological remains) were thinly spread across the continents in pockets of occupation, living off the land. Populations remained small in the main, and ‘hunting’ predominated (Smith ignored or knew nothing and said nothing about the significance of female gathering in the survival of the species), where men predominantly fed themselves, while women fed themselves and the children, much as the primates (chimpanzees) have continued to do from the separation of the species from a common ancestor, several millions of years earlier, through to changing forms in varying degrees among modern humans.

Another common characteristic of the separated lines of the primate species, was the behaviour of reciprocity, still prevalent in chimpanzees (see Dunbar, 2005, Grooming, gossip, and the evolution language, Harvard) and replicated in certain ways among the early proto-humans and, today, among humans as gossip, was that of reciprocity behaviuours. I call this phenomenon in the human line, ‘quasi-bargaining’ (Kennedy, ‘The Pre-history of Bargaining’ unpublished ms, 2003). The nomenclature is less important that the content of exchange phenomena. In this debate’s context, reciprocity has significance because it describes observable behaviour in nature among primates and others (bats, etc.,) that show early aspects of what Smith called the propensity to exchange (which is much misunderstood among modern economists and anthopologist critics like David), of which reciprocity, no doubt, we shall return to discuss in David's later chapters reviewed here,over the next month.

For now, let us register reciprocity as an observable act where one entity undertakes a favourable act for another con-specific and the recipient benefits from the other’s action, following which nothing immediately happens in return, and may not happen, no matter how long an observer watches. It is likely that the donor will not repeat the favourable action (grooming) to that con-specific if his favour is not returned sometime. Observation suggests that many receivers do eventually reciprocate (in the case of chimpanzees, usually by grooming the donor, bats by sharing his harvest of blood). And the exchange cycle then continues, even if intermittently. Studies of human non-kin relationships show the prevalence of reciprocation exchanges. Reading Chapter 1, I expected to find this phenomenon integrated or at least mentioned in David’s analysis. It wasn’t.

In Chapter 2, ‘The myth of barter’ is doggedly demolished by David quoting from 20th-century economics principles texts after a few pages of David assaulting the citadel of Wealth Of Nations, supposedly the last word on the derivation of money (it isn’t). But if we were to take 18th-century texts (often on North American colonists interacting with Native Americans) of what became the subject of anthropology, we too could have a grand time rubbishing their assertions in comparison to the more mature, late-20th and 21st century, texts, the product of tens of thousands of field and desk researchers, who scrutinise their predecessors and contemporaries’ work.

Smith fixes his attention on the “very much clogged and embarrassing” exchange operations of barter compared to the invention of money as the instrument of exchange (WN I.vi), without specifically locating its source. This observation provides a case only for the greater convenience of money; it does not necessarily deny the prevalence of successful of social mechanisms for exchange via other means in the millennia before the invention of State-sponsored money and the undoubted political role of the latter. First, stable states had to form on top of a quite complex form of centralised control.

One factor in continuing with stable (sometimes complex) social norms of exchange, as studied by anthropologists among surviving human bands from the First Ages of Man, was the size of the populations involved. Large societies have anonymity problems beyond the immediate kin group and immediate neighbours (a necessary benefit of markets). Nor should a failure to replicate the utility case for money exhaust Smith’s asserted insight into a sequence of ‘truck, barter, and exchange’. Without more data from field research, Smith and others at best could only surmise, without necessarily excluding the relevance of what they could not observe like we can now.

Review Of David Graeber's 5,000 Years of Debt (part 2)

2011-12-05T17:02:00.005Z

Part Two
REVIEW: DAVID GRAEBER, DEBT: THE FIRST 5,000 YEARS, MELVILLE HOUSE PUBLISHING, NEW YORK, MAY 2011, 534 pages

Reading what Smith did say is a step forward, but we should put it into context to judge it. The difference between a 1st Age of Man in the scattered hunting bands and a spread of the 2nd and 3rd Ages of Man (accepting Smith’s words) of shepherds and farmers, was in the size of the populations involved, once changes were established roughly among in some communities along the modern borders of Syria, Israel and Jordan. The populations of scattered hunting bands surviving into the 20th century were significantly smaller in population than more settled bands of the descendants of the early shepherds and farmers. Among the many differences between the agricultural dynasties of Mesopotamia, Egypt, and China and the early human groups of hunters and gatherers, population size is striking, and in consequence, the division of labour was more specialised and the range of products significantly wider (the division of labour is ‘limited by the extent of the market, noted Smith). Brad Delong illustrated this necessary, obvious, but often missed, factor in comparing ‘stone-age' hunter-gatherers on the banks of the Orinoco River with 4th age+ New Yorkers on the banks of the Hudson, using modern Stock-Keeping Units. At most, the hunter-gatherers clocked up hundreds of units while New Yorkers it was nearer to ‘tens of billions’ (quoting Beinhocker, 2006, Origin of Wealth). Clearly, if reciprocity across simple exchanges of a few items among a small group of individuals who know each other, could be quite complex socially, but it becomes incomparably more complex as anonymity spreads and the objects of reciprocation exchange (grooming for chimpanzees; simple help for humans in modern work places and neighbourhoods) increases exponentially even in modest early, larger towns from the classical period onwards. Rome at its peak housed upwards of a million people; today conurbations reach into the tens of millions. Bargaining in its modern form is incomparable with stone-age reciprocity and this is lost in notions of primitive barter. Reciprocity is about obligations, i.e., debts.

Smith discusses examples of the emergence of items as crude money units (WN pages 37-44, without the heinous crimes attributed to him by David of ‘objecting to the notion that money was the creation of government’. He was not stupid. Nor did he ever underplay the necessary roles taken by states – he didn’t object to states as much as he did to their history of imposing damaging policies and (and wars that went with them) and of acting in economic matters way beyond their areas of competence. He was neither an advocate of laissez-faire, never using the words though he knew of them, nor a dogmatic minimiser of the state's role, and shows areas where the state should be expanded (as shown regularly on Lost Legacy in relation to public education of all children in literacy, and arithmetic, in health measures against 'noxious' illnesses, and in something as mundane as street lighting, refuse collection, and pavements).

Both Smith and David identify substitutes, as precursors for metallic money, so I have difficulty in following what Smith was guilty of when comparing their texts, unless David intends to pick a fight on a distinction without a difference, or insists that only states alone invented monitising debts (i.e., obligation, drawn from the ancient habits of reciprocation)

David describes the ‘notching of sticks’ to keep account of debts (i.e,m obligations), and later-on writing on accounting tablets. Progress yes. But knowing who owed what favours in reciprocal exchanges (quasi-bargains) was already (still is) practised for hundreds of millennia because of the common culture of reciprocity emerged, possibly pre-dating our speciation. As a faculty member at a university, I am sure David can remember who stood by and helped him in a task, and who returned to him a small favour of, say, carrying an unwieldy pile of exam scripts because he had helped her on an earlier occasion, or supported him when Yale denied him tenure (a wholly pernicious system). It’s called reciprocity, it worked in early hunting and gathering bands, and in farming among close neighbours; still works today in our societies. David makes all this well-founded, everyday obervation into something to fight about.

He denounces Smith for allegedly denying that governments created money, as if that precludes all the informal and unintentional, steps along the way, many of them before governments formed. Social evolution takes a long time, though not as long as its precursor in nature. Early governments were ‘kingships’ of one form or another, assembling armed gangs, later armies to protect themselves, and not just against the poor (as in Smith’s Lectures On Jurisprudence) but also to protect a king against rival, rich claimants, who seizing the throne also seized all the king’s lands and armies. Marking a set of coins gave a monopoly status to his money, which also bolstered his claims to his throne and to his inheritance rights to prolong his dynasty (challenging a Roman Emperor could begin with a General of Legions minting his own coins). In short, minted coins became a means to a political end, whatever else was associated or followed in consequence.

Smith’s designation of exchange as the propensity to ‘truck, barter, and exchange’ attracts the special wrath of David (and others) but he should focus on the word, exchange, because it is, and has been, ubiquitous since the ‘faculties of reason and speech’ evolved uniquely in the human species (maybe in other solar systems too where they might also be prevalent in other speaking species). Even this simple observation is twisted by David’s evident political distaste for bargaining as a phenomenon. He says “humans will always try to seek their own best advantage, to seek the greatest profit they can from the exchange” (p 25). Is that assertion even true; is David prone to it too? It reads like a cartoon extremist’s explosion of anti-market prejudice, not a considered statement of a Smithian economist, or anybody acquainted with real-world bargaining as advanced by Adam Smith, and confirmed by expeerience.

Taking the famous parable of the ‘butcher, brewer, baker’ exchange transaction (WN I.ii.2. 26-7), Smith gives specific advice to an intended diner: ‘don’t just refer to “your own necessities”, but address yourself to their (the seller's) “self-love” and to “their advantages” from transacting with you. In short, be “other-centred” and not “self-centred” (Moral Sentiments).

Bargaining exchanges are about exchanging different things that you value less (a belief) than those things you get in return that you value more (subjectively - subject to taste) with people who value what they give less than they value what they get in exchange. Little point in exchanging exactly that same things. David does not yet understand that. We do not exchange equivalents. If both seek to gain the ‘greatest profit’ they will more likely deadlock, as they do, and as I have observed in half-a lifetime of working with would-be bargainers (until retirement in 2005, I worked in a UK Business Schools).

David’s field research and reading have led him to scenarios of small group transactions where the parties know each other well, where the “double coincidence” of wants “disappears”. Was it ever there? But quasi-bargaining transactions under the customs of reciprocity do not require a double coincidence of wants at all because under reciprocity the custom, or ‘rule’, such as there is one, is that ‘if you accept the benefit (of whatever is offered) you ought at some later unspecified date make an offer in return’, usually of the same favour, with time gaps determined by local practice. Reciprocal exchange differs from bargaining exchange where the rule is that if you accept the item offered, you must hand over your own offer in exchange simultaneously or close to immediately. There was a long historical gap between the predominance of reciprocity by exchanging the same favour (quasi-bargaIning) and the introduction of bargaining, usually exchanging different things, now operating alongside reciprocity in daily human contacts.

David’s illustrations of Sumerian economies, temple bureaucrats, and Mesopotamian market places, let alone the Roman Empire, were relatively high population centres (p 39-41), a long way institutionally and technically from the small villages, and before them, small population hunting bands. He switches between them without indicating the all important population differences the different cultures of one sort or another.

[Next review, I shall examine David on ‘Primordial Debts’ in Chapter 3.]

Adam Dunn Understands Adam Smith on the Invisible Hand Metaphor

2011-12-04T15:31:00.004Z

Adam E. Dunn, Lincoln, USA in a letter in Journal Star HERE writes of the "one and only time" that "Adam Smith mentions ‘an invisible hand’ is in Book IV, chapter ii, paragraph 9 (page 456) and ir is about Smith’s preference for the 'domestick industry', not ‘wealth”.

Apologies, but the copyright sensitivity of Journal Star is so draconian, if you want to read Adam Dunn’s two short paragraphs, you will have to follow the link.

Comment
How right Adam Lincoln is to state it as it is. ‘Tis a pity that more writers do not check what Adam Smith wrote on the invisible-hand for themselves.

Congratulations to Adam Lincoln for getting right what '99 per cent' (to coin a phrase) of academic economists get wrong when attributing the modern versions of the 'invisible hand' to Adam Smith.

Of The Invisible Gorilla and the Invisible Hand

2011-12-04T10:26:00.005Z

Diane Coyle, managing director of Enlightenment Economics, writes 3 December on VOX HERE and signposted with thanks to Mark Thoma HERE

“The invisible hand meets the invisible gorilla: The economics and psychology of scarce attention”

in J.K. O'Regan, Why Red Doesn't Sound Like a Bell, Oxford University Press (2011) and courtesy of NASA:

‘Inattentional blindness’ is commonplace. The best-known example concerns what people about half the time fail to see when set the task of watching a video and counting passes between two teams of basketball players – a gorilla walking across the screen (Chabris and Simons 2010). The neuroscientists taking part in the workshop were not convinced the analogy between inattentional blindness and failure to predict was valid, but the economists thought the invisible gorilla could offer them a more fruitful set of assumptions than the invisible hand when it comes to how people form their preferences and make their decisions.

“… Since the financial crisis, many commentators have asked why so many economists failed to predict it – or even whether economics played a part in causing the crisis. A group of UK experts in 2009 attributed this failure to predict to a “psychology of denial” that had gripped the financial world as a whole.

The economics profession has since continued to evaluate its own role in the financial catastrophe and subsequent economic crisis. The subject’s standard assumptions about how people take decisions and choose to behave have been a particular focus for scrutiny. Did the assumption of rational, self-interested choice, given the available information, in itself contribute to a dreadful misunderstanding on the part of regulators and policymakers about what could happen in the financial markets?

Behavioural economics offers several examples of alternative rules of thumb about behaviour that describe typical decisions more accurately than the standard assumptions. But to address the question systematically, economists will need to learn from psychology (specifically, the psychology of individual choice in situations where people are faced with a constant flow of information, as they are with many economic decisions). …

The key theme was whether cognitive scientists’ growing understanding of how, given people’s limited attention, ‘sense perceptions’ translate into behaviour offers any lessons for economists.”

Comment
An interesting piece on threats to the self-anointed ‘science’ of neoclassical economics (which amuses natural scientists) from other disciplines that are experimenting on decision-making by people questioning the asserted theories of rational decision-making under assumptions of the mathematically proven ‘truths’ of marginal utility (post-1870s), the welfare theorems (Pareto), and post-Samuelson economics.

Much of the emptiness of modern economics was conveniently covered up adapting Samuelson’s invented version of Adam Smith (selfishness leading to public good) and his wholly innocent use of the, for him, popular metaphor of ‘an invisible hand’ which was fatally associated with the ‘miracle of markets’ without ever – and I mean ever – explaining exactly how it worked, where it came from ('hand of god'?), and why it was a missing term in the equations of marginal utility and general equilibrium, though lauded to the rafters for the effects of its spurious existence.

Metaphors, figures of speech, are never real, unlike the objects to which they refer, but nobody believes that they are real, except those who ‘believe’ metaphors exist because senior economists (including a few Nobel prize-winners) told them so.

No wonder some unidentified “economists thought the invisible gorilla could offer them a more fruitful set of assumptions than the invisible hand.”

To which I add an heartfelt: ‘hear, hear’.

Oh, What a Web of Fantasy Modern Economists Weave

2011-12-03T14:52:00.003Z

I was sent this clip by a reader of Lost Legacy a few days ago.** It speaks for itself, but follow the link for the full story. HERE

"...GlaxoSmithKline and other pharma giants to produce enough expensive vaccines for children who need them most but can afford them least? The answer, Gates increasingly believed, lay in making Adam Smith’s invisible hand more visible, giving the newly formed market a benevolent shove in the direction of free enterprise."

Comment
What exactly is meant by “making Adam Smith’s invisible hand more visible” is not stated. Forbes assumes readers know what it means. If someone can make ‘more visible’ which, by repetition is ‘invisible’. Readers of Adam Smith and Lost Legacy will - or should - know it is a simple metaphor, much used in the 17th and 18th centuries before Adam Smith used it.

Smith used it to represent metaphorically something else, which he identified in the first case (Moral Sentments) as the unintentional behaviour of ‘rich and unfeeling landlords’, who, in feeding their dependent slaves, servants, and serfs, unintentionally assured the procreation (a public good) and the continuation of the species, and crucially their own continuation (no food for serfs; no labour from serfs), and in the second case (Wealth Of Nations), the IH metaphorically represented the behaviour of some, but not all merchants, who, concerned for the security of their capital if they sent it abroad, preferred to invest in “domestick industry” instead, thus unintentionally adding to “domestic investment and employment”, which benefitted the public, especially the poor.

Only modern economists converted this well known and clear metaphor into a general and actual noun for something believed to be ‘real’ and applied it to markets, supply and demand, prices, and almost everything else in economics (and well beyond into fantasy land – see the Looney Tunes series on Lost Legacy).

So what Forbes meant – and allegedly Gates too – is that this shared fantasy, attributed crassly to Adam Smith since the 1940s, following Paul Samuelson, exists almost with religious devotion (the ‘hand of God’, etc.,) and even turns selfish actions into public benefits. Though as the broader implications for such non-Smithian notions began to strike home, even Samuelson, responsible single-handedly almost, for the spread of the nonsense, began to backtrack slightly and imperceptibly in later editions of his phenomenally successful 1948-2010 textbook, Economics: an introductory analysis, by declaring that an invisible hand could only work in perfectly competitive conditions, and not in the mixed economy of modern capitalism.

Unfortunately, Forbes and Bill Gates, and most modern economists haven’t yet realized this truth, which Samuelson belatedly realized, and which Adam Smith, bless him, had never said anything at all to lead anyone to think that he had, 335 years earlier.

[** Lost Legacy welcomes readers' clips and leads and always tries to use them - anonymously, should you require; with acknowledgments by name as requested.]

Adam Smith Was Not a Naive Moralist

2011-12-02T12:45:00.004Z

Kyle Westway, described as “the founding partner at Westaway Law, an innovative New York City law firm that counsels social entrepreneurs. He lectures on social entrepreneurship at Harvard Law School and Stanford Law School.”. He writes in Harvard Business Review Blog network (1 December) Kyle Westway, is described as “the founding partner at Westaway Law, an innovative New York City law firm that counsels social entrepreneurs. He lectures on social entrepreneurship at Harvard Law School and Stanford Law School.” He writes in Harvard Business Review Blog network (1 December) HERE

Adam Smith Was Not Schizophrenic"

The left wants to end capitalism. The right says if we could just get the government out of the way, then the capitalist system would work. … To gain some clarity, we need to consult Adam Smith.

Adam Smith, the father of modern economics, was the first to assert the concept of free market capitalism. In his most popular work The Wealth of Nations he wrote about the oft-quoted "invisible hand." But in his first work, The Theory of Moral Sentiments — which he considered his most meaningful contribution — he writes about our duty to fellow members of society. Pundits on either end of the political spectrum quote whichever work suits their argument. Predictably, the right quotes Wealth of Nations and the left quotes The Theory of Moral Sentiments. Given the gap between modern capitalism and the morals-based approach from his first book, one can't help but wonder if Smith was an intellectual schizophrenic, essentially promoting two competing theories.

… The Wealth of Nations presupposed actors in the capitalist system operating on the moral framework he laid out in the Theory of Moral Sentiments. The free market has no conscience of its own: it is made up of billions of people transacting. Though Smith asserts that each of these people are guided by their self interest, he presupposes that each of the actors in the marketplace are guided by some internal morality and an awareness of one's place within the broader context of his community — locally and globally.

The current version of capitalism is not the one envisioned by Smith at all. He was seeking to create a system defined by efficient allocation of resources driven by self-interest, but guided by self-restraint. This is conscious capitalism.”

Comment
Adam Smith’s thinking was not quite so unsubtle as Kyle Westway makes it out to be. Westway’s image of Smith is from the modern myths of Smith’s moral philosophy and political economy, as taught at Harvard (see student views of Professor Mankiw’s lectures) and Stanford (and aesewhere), with little reference to Smith’s Moral Sentiments or Wealth Of Nations.

Smith in The Wealth of Nations did not write “about the oft-quoted "invisible hand” – he only mentioned it once" and he did not present the IH metaphor in reference to markets, supply and demand, and equilibrium, as it is too “often quoted”. He wrote of a quite different ‘invisible hand’, in reference to the specific object of the IH metaphor (the concern of some, but not all merchants, for the security of their capital if sent abroad in the “foreign trade of consumption”, leading them (“led by an invisible hand’!) to invest their capital in “domestic industry” – Book IV, chapter 2, paragraph 9, page 456). Smith did not mention ithe IH metaphor anywhere else in his Wealth Of Nations. I recommend to Kyle Westway that he finds the reference and reads it carefully, if only to “gain some clarity”, as one expects lawyers to read the evidence.

I agree that “his two preeminent works [amount] to a unified theory”, but not the theory as propounded by modern economists, on both the Left and the Right.

“Smith asserts that each of these people are guided by their self interest” is right so far as it goes, but whether they are all guided by “internal morality” in the sense implied by Kyle Westway may be misleading, and it is not a conclusion intended to be drawn so generally by Adam Smith. Wealth Of Nations as a whole is not a naïve moral tale written by a simpleton. He was quite specific in a advising those looking for their dinners at the "butchers, brewers, and bakers" , not to refer to their own self-interest but to address the self-love of the those from whom they wish to buy (Wealth Of Nations, I.ii.2. 27).

Adam Smith was a keen judge of people’s behaviour, and he notes just how often their behaviour falls well short of being universally benign. After all, he studied jurisprudence at Oxford (1744-6) and was awarded a doctorate in laws from Glasgow (1763). His Lectures On Jurisprudence [1762-3] 1978) show his competence in the foibles and failings of people, especially the ‘vile behaviours’ of the ‘rulers of mankind’, and of rioting labourers goaded by their employers to act to prevent imports competing with their products.

True, Moral Sentiments is morally positive, not negative, but it was not written as a celebration of the universally benign benefits of people acting in their self-interest. In Wealth Of Nations there are over 70 examples in Book IV of self-interest leading to non-benign results. Book V addresses the depredations of self-interests of colonial invaders. He wrote in a letter that Wealth Of Nations was a “very violent attack on the whole commercial system in Britain” and it shows a keen sense of realism that merchants, legislators, and those who influence them, are often guided by their self-interests which are directly counter to the interests of the general population, and he often demonstrates an absence of any, let alone some, “internal moral” guidance in the sense meant by Kyle Westway. "

Looney Tunes no. 10

2011-12-01T20:54:00.002Z

1
‘Autumn Statement: the two coalitions go to war’
Matthew d'Ancona

Daily Telegraph HERE

“The invisible hand of the market, the supposed friend of the Conservative, is clenched into a fist, and preparing to pound, and pound, and pound, until the eurozone is a bloody mess, and all who depend on it impoverished accordingly.”

2
Beverly Macy in Social Media in Sports and Entertainment: Three Mega Trends in 2012

Huffington Post HERE

“And it will be the invisible hand that makes or breaks new shows, stars, and even commercials.”

3
CEO Says CEO Thing | The Awl

Choire Sicha HERE

“Thank you, Invisible Hand, for releasing your grip from my throat.”

4
“IF THE INVISIBLE HAND EXISTS, WHY IS THERE NO PORN OF IT?”

HERE

5
“Invisible Hand in the markets”

by Malini Bhupta 2 December, in Business Standard, Mumbai

HERE

[The article does not mention the IH metaphor again, but refers to the ‘Santa Claus’ effect.]

Markets are Visibly Run by Visible Prices

2011-12-01T10:29:00.001Z

SeekingAlpa, and investment advice blog asks readers, Solar Stocks: by or sell? HERE

“We have long been advocates of a market economy and believe that the “invisible hand” of the market should for the most part be allowed to allocate capital and resources without undue government influence.”

Comment
Markets operate by price signals all along the supply chain, any part of which can change its price at any time to which other links in supply chain adjust.

There is no “invisible hand” “allocating capital and resources”, with or without “government influence”; there is no secret force at work (it would have to be active in all markets across the globe) manipulating every transaction for some unknown entity towards some “unfathomable” end. Government run economies (aka communism) that suppress markets failed in the experiments with them conducted in the 20th century.

The myth of the invisible hand is better left to the science of astrology or some such mumbo jumbo, but the illusion that there is an invisible hand, implying that only experts, like ‘seeking alpha’, are in the ‘know’ to advise the placing of bets – for a fee - is the oldest con trick since chariot races made Ben Hur famous, and created a job for life (aka tenure) for otherwise out-of-work mathematicians, many of whom migrated into economics, claiming to make it a hard science.

More important, Adam Smith, despite what is claimed, never said that there was such a mystic force at work on the billions of very visible prices interacting each second in very real world global markets. Nor is there any such a term for ‘an invisible hand’ in the mathematical equations alleged to be necessary to show how markets work.

A Bogus Visualisation of the Invisible Hand

2011-11-30T11:02:00.003Z

Wmellin posts HERE

“The invisible hands behind The Invisible Hand”

“Towards the end of his chapter “The Great Exhibition of Things,” Thomas Richards relates the transformation of the commodity as bland in 1776 to the commodity as spectacle in 1851. He grounds this discussion with Adam Smith’s Wealth of Nations: “’the market price of every particular commodity is…continually gravitating towards the natural price’ (162)…Clearly Smith believes himself to be describing the workings of the commodity in essentially neutral terms” (67). Richards writes of Smith’s “Invisible Hand” – the mysterious arrival of a market at the intersection point of the downward sloping demand and upward sloping supply curves to create an equilibrium price and quantity for a given good or service.

In this chapter Richards highlights the juxtaposition between the work that goes into supplying the objects displayed at the Great Exhibition and the leisure spent enjoying said presentation. Twenty-five pages earlier he describes this dichotomy, “Though the manufactured objects displayed were often bright and new, Mayhew cannot ignore ‘the sunken eyes and other characteristics of semi-starvation’ that he sees on every face [of streetsellers]” (42). Now, street vendors were not necessarily the ones crafting the objects housed in “The Chrystal Palace,” but the conditions and treatment of factory workers in Industrial Great Britain is no secret. The workers who made the commodities that guided The Invisible Hand to the free market’s equilibrium were themselves invisible hands, intermediate labor inputs who created final, finished and polished objects yet were unseen in the goods’ ultimate display.

The Invisible Hand is a fascinating metonymical phrase because it captures the labor involved in a free market yet simultaneously negates its presence in the final stage, or the acting out of what constitutes the market: buying and selling.”

Comment
Wmellin articulates a myth about Adam Smith that is totally wrong. Smith never discussed the IH metaphor in relation to his discussions of markets in Books I and II of WN.

His singular use of the IH metaphor is made in Book IV of WN (p. 456) and does not refer to market prices at all. In Smith’s account, he does not refer to anything guiding ‘the invisible hand’ to ‘equilibrium’. That it does is an wholly invented idea, originating in the imaginations of modern economists in the 20th century.

‘Wmellin’ sees the invisible hand metaphor as “a fascinating metonymical phrase”, by which he means ‘the substitution of a word referring to an attribute for the thing that is meant the use of the crown to refer to a monarch’ (Dictionary) but in Smith’s use none of ‘market equilibrium’, nor supply and demand’ or such like, is in that sense metonymically substitutable in Adam Smith’s use of the metaphor of an invisible hand. If Smith was thinking metonymically, he was not thinking of these words when he used the IH metaphor in Wealth Of Nations. If me is thinking thus, fine, but it has nothing to do with Adam Smith.

Adam Smith was an accomplished grammarian. He lectured on Rhetoric at the University of Glasgow from 1751-64, and had delivered lectures on rhetoric at his public course in Edinburgh from 1748-51 to wide acclaim – his public lecturing reputation made him a credible candidate for the vacant chair at Glasgow. His rhetoric lectures of 1762-63 were found in a house clearance as student notes in 1958 in Aberdeen, Scotland, and were published as ‘Lectures in Rhetoric and Belles Lettres’ by Oxford University Press, 1963.

In these lectures he traces the use of metaphors from the classics (Homer, Virgil, etc.,) and in English literature up to the 18th century. He is careful to define metaphors as ‘describing in a more striking and interesting manner’ their ‘object’ (p.29), giving clear examples of objects for his students for the use of metaphors. One of his students, Hugh Blair, went on to become a distinguished Professor of Rhetoric at Edinburgh University.

In Wealth Of Nations Smith demonstrates to what he refers when he used the IH metaphor in Book IV, chapter 2, p 456, where he used it. He describes how some, but not all, merchants are so concerned at the risks of exporting their capital or goods to foreign countries or the colonies in the Americas, that they prefers to invest only in ‘domestick industry’. It is their concerns for the security of their capital that leads them to invest locally. He states this clearly in WN, pages 452-56, where Smith analyses how from this insecurity they are, 'led by' the metaphor of ‘an invisible hand’, to enhance domestick investment.

And that is the extent and limit of Smith’s metaphoric intentions. All other attributions and accretions are bogus, including those attributions of ‘wmellin’ in ‘Victorian Visual[!] Culture’.

On the Errors of Robert Franks. Again

2011-11-29T14:39:00.004Z

Erica Augenstein posts (29 November) in The Cornell Daily Sun a report of Robert Frank’s idea that Charles Darwin was the founder of economics, not Adam Smith
HERE

“Cornell Professor's Theory Relates Economics to Theory of Evolution”

“Prof. Robert Frank, management and economics, detailed his new theory of how capitalism can be explained by Darwinian concepts at a lecture in the Plant Sciences building on Monday.

As detailed in his recently published book, The Darwin Economy, Frank explains that natural evolutionary behavior leads people to consume more in order to compete with the relative wealth of others.

For instance, “The middle class admires the rich and attempts to mimic them, which leads to more consumption,” Frank said. These behaviors allow individuals to fight for resources in the global market, much like animals in a Darwinian system.
Frank said that the parallels extend to the potential drawbacks of Darwinian evolution. Just as some evolution creates inefficiencies for animals, some habits of individuals in the marketplace, such as conspicuous consumption, can hurt people.
“The large antlers on the bull elk are good for winning battles for females, but make the bull elk more cumbersome,” Frank said. “This behavior is brought on by competition like a military arms race.”

This Darwinian theory provides an alternative to Smith’s “invisible hand” theory, which suggests that deregulation allows self-interest to advance societal interest. However, Frank’s theory is not meant to absolutely contend with Smith’s, Frank said.
“Smith explains how often there are effects of self interest. I have no quarrel with his insight,” Frank said.

Frank said he disagrees more with contemporary disciples of Smith who, he said, wrongly interpret the principle of the invisible hand to be the sole determinant of the forces of capitalism.

“It is not the whole story,” Frank said of this interpretation. “It is a naïve version of Smith.”

Comment
Frank’s views on Charles Darwin are naïve versions of natural selection. For example: “The large antlers on the bull elk are good for winning battles for females, but make the bull elk more cumbersome,” Frank said. “This behavior is brought on by competition like a military arms race.”

Elks compete for sexual access to females. It is in their nature (and found in all living creatures that breed by sexual activity). Elks engage in sexual competition whether they had large or small antlers and some elks with small or smaller antlers continue to have progeny. Because of genetic changes some elks gain an advantage over other males from their bulk and strength. They have more progeny as a result, passing on their genes to more descendants. But they do not have any control or consciousness of their genetic inheritance and they could never consciously choose the size of their antlers. They cannot ‘mimic’ rivals with larger antlers ever! They have no control over their genes. By the time they are born it is too late. The size of their antlers is already determined.

Franks does not seem to understand natural selection. In comparing the participants in an economy, who consciously choose their actions within social constraints, with the blind forces of natural selection, Frank is in error. His is “a naïve version of Smith.” Therefore, he mistakes the so-called antler behaviours as an ‘arms race’.

It’s the wrong metaphor, much like his misunderstanding throughout his book of Smith’s use of the IH metaphor.

Frank’s version of Darwinian theory: does not provide an “alternative to Smith’s “invisible hand” "theory” on two counts.
First count is that Adam Smith never had a ‘theory’ of ‘an invisible hand’. Frank got that misattribution from modern economists, most not having read Wealth Of Nations, including, on this reading, suspect neither has Frank (see my review of his book on Lost Legacy in 2 parts, 23 September 2011). The other count is that Darwin never had a theory of natural election as represented by Frank’s misattribution.

David Brin Confronts Atlas Shrugged

2011-11-29T12:12:00.006Z

David Brin points out the parallels between Atlas Shrugged and Occupy Wall Street on Red, Green, and Blue Blog HERE

Brin's essay goes over several issues – follow by clicking on the ‘next page’

(Brin also writes on his own Blog, Contrary Brin, HERE . This Link carries a much more readable summary of his views on Atlas Shrugged and I commend it if you are in a hurry.)

“But no one can deny my ongoing campaign to get folks to read Adam Smith, the founding sage of both libertarianism and liberalism. Like Smith, I believe in fair and open and vigorously creative competition - the greatest innovative force in the universe and the process that made us. Encouraging vibrant, positive-sum rivalry – in markets, democracy, science, etc – is one reason to promote universal transparency (see The Transparent Society), so that all participants may base their individual decisions on full knowledge.

That positive aim - also preached by Friedrich Hayek - should be the goal of any sane libertarian movement… instead of fetishistically hating all government, all the time, which is like a poor workman blaming the tools. Anyway, a movement based on hopeful joy beats one anchored in rancorous scapegoating, any day.

(Adam Smith favored feeding and educating all children, for the pragmatic reason that this maximizes the number of skilled, adult competitors, a root motive of liberalism and a role for government that is wholly justifiable in libertarian terms.)
For my full, cantankerously different take on the plusses and minuses of contemporary libertarianism — and other oversimplifying dogmas — have a look at this essay.”

Comment
Brin is worth readig for his critique of Ayn Rand’s dismal brand of libertarianism in Atlas Shrugged, book and film, which I have never found attractive, nor motivating. Libertarians of her ilk are more depressingly aggressive than enlightening. Their libertarian anarchism – they hate the idea of government – does not improve on the far left’s anarchism – a pox on both of them say I!

Liberty is more important than democracy; the former cannot be faked, the latter often is. Ayn Rand’s version is more than a few steps towards tyranny.

I much prefer the humanitarian libertarianism espoused passionately by the Adam Smith Institute in the UK, of which I am a Fellow.

I also noted that David Friedman on the Ideas Blog gives David Brin’s piece a bashing over a single sentence that he wrote about Adam Smith HERE: “David Brin and Adam Smith”

Long-term readers of Lost Legacy may remember that I had a debate a couple of years back near the end of the summer academic break on Lost Legacy with David Friedman, lasting several weeks (or so it seemed) on Smith’s use of the IH metaphor. He eventually retired from the debate, neither of us giving an inch, but I enjoyed the tussle for the time it lasted.

Whatever the merits of David Friedman’s criticism of David Brin’s single sentence, I remember how mistaken he was on Adam Smith’s use of the IH metaphor. This probably goes to show that the centre-right can be as factious as the far left.

Mark Blaug Demolishes the Neoclassical Myth of the Invisible Hand

2011-11-28T17:45:00.003Z

Frederic Sautet posts an appreciation of Mark Blaug (1935-2011) on the Coordination Problem Blog HERE:
“Mark Blaug (1927-2011), fellow traveller of Austrian economics”

It includes a most interesting quotation from Mark’s excellent Economic Theory in Retrospect (follow the link to read the whole of Frederick Sautet’s appreciation).

Here is Mark Blaug’s quotation:

“I contend that perfect competition is a grossly misleading concept whose only value is to generate an endless series of examination questions. Economics would be a better subject if we discarded it once and for all. Having expunged perfect competition, we ought to follow it by also discarding Walrasian existence proofs and the Invisible Hand Theorem of welfare economics. First of all, everyone admits that these beautiful theorems are mental exercises without the slightest possibility of ever being practically relevant: first-best optima are never actually observed and in a second-best world, it is not in general desirable to fulfill any of the first-best optimum conditions; in other words, piecemeal welfare policies may be based on good or bad qualitative judgments but they are not based on rigorous analytical theorems. But once first-best, end-state competition is discarded as irrelevant, as precisely and rigorously wrong, and replaced by process-competition as imprecisely and loosely right, what are we left with? We are left with the content of every chapter in every textbook on imperfect or monopolistic competition, on oligopoly, duopoly and monopoly, in short, on industrial organization as a sub-discipline in economics. In those chapters, firms jostle for advantage by price and nonprice competition, undercutting and out-bidding rivals in the market place by advertising outlays and promotional expenses, launching new differentiated products, new technical processes, new methods of marketing and new organizational forms, and even new reward structures for their employees, all for the sake of head-start profits that they know will soon be eroded. In these chapters, there is never any doubt that competition is an active process, of discovery, of knowledge formation, of ‘creative destruction’. I call this ‘the Austrian view of competition’ because it is most firmly enshrined in the writings of such Austrian economists as Hayek, Schumpeter and, more recently, Kirzner.” (Blaug, M. 1996 edition. Economic Theory in Retrospect. pp. 594-595).

Comment
Needless to say, I agree with Mark Blaug’s take on Smith’s use of the invisible hand and his definitive criticism of the gross miss-interpretations by most modern economists and philosophers (and most of the media under their influence) of Smith’s meaning of his use of the invisible hand metaphor, including some leading scholars at George Mason University, Fairfax, Virginia.

Lies travels around the world faster than a satellite, while truth is still putting on its boots.

Meaningless Hyperbole and Twaddle

2011-11-27T18:54:00.001Z

“Misha” writes 17 November on Misha Blogs HERE

“Adam Smith vs. the Visible Hand”

"Adam Smith, the father of Capitalism, wrote about “The Invisible Hand”. The Invisible Hand is the functioning of a capitalist system, which would always bring good. Adam Smith imagined a well honed system of free markets plus enveloping democracy that turned people’s innate greed into productivity. I like the idea that some people are hungry and hire me to make their dinner and both parties benefit. But what if there is only a finite amount of food to be turned into dinner? In a reality of limited resources, the blind Invisible Hand hits a wall.
….
Take for example, the trucks Bloomberg just unleashed on the Occupy Wall Street protesters. The amazing sound weapons were used to bring the protesters to their knees do the bidding of the Invisible Hand, which by this point carries signs of gangrenous infections of government corruption. The fetid smell of a wormed-through congress, pampered by lobbyists and drunk on insider information, has swirled around the fingers of Adam Smith’s Invisible Hand. As we sit by and feel the Invisible Hand fisting our future, we may ask: is so-called “progress” evil?
…

The Invisible Hand, though it is festering with infected abscesses from bailout injections and bedraggled with engorged ticks of greed is flailing forward and shaping and re-shaping the world in it’s image. But the Visible Hand knows what the other hand is doing. The Visible Hand is inevitable. The Visible Hand will HAVE to do the clean up.”

Comment
Misha writes total imaginative nonsense:

“is the functioning of a capitalist system, which would always bring good”; “the blind Invisible Hand hits a wall; the bidding of the Invisible Hand, which by this point carries signs of gangrenous infections of government corruption”, and “The Invisible Hand, though it is festering with infected abscesses”.

To this, the invented myths about Adam Smith’s use of a metaphor, have reduced the wholly innocent Adam Smith, writing quietly in his mother’s Kirkcaldy house and garden, to meaningless hyperbole and twaddle.

A Myopic View of Trade

2011-11-27T17:40:00.003Z

Peter Epp writes (25 November) in The Farmer HERE

"Smith’s ‘invisible hand’ gets slapped"

“It wasn't supposed to be like this. Adam Smith's economic philosophy suggests that society benefits when economies and capital investment are directed by an 'invisible hand'; that is, when self-interest is allowed to dominate economic decisions.
And so when a clothing manufacturer in South Carolina is shut down so that its products can be made more cheaply in China, the Smith philosophy would find this agreeable, because the products are now more affordable for South Carolinians.
Ditto the tool and die worker in Wallaceburg or Windsor. If that work is moved to China or Korea, the Smith philosophy would find this to be a sensible move. The products are made more cheaply, and are thus made more affordable for the customers of those products.

But if workers in South Carolina or in Wallaceburg or Windsor are left without an income, or with an income made lower because of the work of the 'invisible hand', is it surprising that those same workers perhaps can't afford to purchase those goods, now made cheaper but not manufactured with their labour?”

Comment
No, no, no. Adam Smith expressed the general notion that society benefitted from economic growth, which, contrary to most modern economists, had nothing to do with ‘direction by an invisible hand’. This was a metaphor in Wealth Of Nations, used once, in reference to a specific object and not enunciated as a general principle to markets, supply and demand, and so on.

In Smith’s example the metaphor ‘described in a more striking and interesting manner’, how some, but definitely not all, merchants, who were fearful of the risks of sending their capital abroad preferred instead to invest their capital in the ‘domestick market’ (note Smith’s 18th-century spelling, written three times in the same paragraph) describing the object the metaphor of ‘an invisible hand’ (see Wealth Of Nations, Book IV. Paragraph 9. P 456).

He was not making nor suggesting a general statement about the economy. That is a 20th-century invention.

By adding their proportionally small investment to the domestic economy they added to ‘domestick’ revenue and employment (today’s GDP), which was a public benefit, especially for those labourers employed domestically in producing the ‘annual output of the necessaries, conveniences, and amusements of life’, which Adam Smith considered to be the public benefit of investment.
The merchants concerned with the risks of foreign trade and invested domestically also added by their net investment from their profits and added to economic growth.

Of course, the labourers who got paid work, and the merchants led by their risk aversions to invest domestically, were unaware, and did not need to be aware, of the public benefits of their decisions to invest locally.

It was not an ‘invisible hand’ that caused the misery of unemployment or low wages. Metaphors do not exist separate from their objects. Consult an English language textbook on the meaning and role of metaphors in the English language. However, Smith noted that trade made people in the participating countries better off in terms of the ‘necessaries, conveniences, and amusements of life’, just as, on a more local scale, trade between towns and country makes the people in a country better off, for without trade among localities, people would all be worse off – local self-sufficiency would reduce domestic living standards in South Carolina and Wallaceburg dramatically.

If this were not true, Peter Epp is welcome to demonstrate his ‘no trade’ proposition for all states in the USA. Who would he suggest would sell them, or buy from them ‘clothing, tools and die products’? Are there enough purchasers of these products in his local area of South Carolina or Wallaceburg making it worthwhile to manufacture it only locally? The same is true locally, town-wide and state-wide.

Adam Smith wrote about the situation in 18th-century Britain. Trade with China and Korea was not significant, and anyway was dominated by mercantile tariffs protections and prohibitions, and trade exclusion policies with countries with which Britain had trade quarrels (such as wine from France), and in the British colonies of North America they were compelled to buy British goods, and all foreign goods, that had to be shipped in British ships and via Britain, under the Navigation Acts at high monopoly prices, and were only allowed to export from a select and restricted list of goods, for which the monopolising British merchants paid very low prices, a classic double-whammy. We know where that led to in 1776.

The 21st-century problems of US trade relations with China and Korea (both major centres of US foreign investment) have nothing to do with Smith’s use of the invisible hand metaphor.

Looney Tunes no 9

2011-11-27T08:52:00.001Z

1
Editorial team (25 November) at Yakima Herald.com
Here

“But this commercial creep has developed over the better part of the past century, pushed by the invisible hand of economic inevitability.”

2
Who was Simply Greater at Combating: Bruce of Mohammed Ali?

Atlantadjpartyentertainment HERE

“Of course, Mohammad did supply an invisible hand techinque in a fight. Bruces rate, having said that, is definitely a constant cloud.”

3
“Adam Smith vs. the Visible Hand

HERE

“The Invisible Hand, though it is festering with infected abscesses from bailout injections and bedraggled with engorged ticks of greed is flailing forward and shaping and re-shaping the world in it’s image.
« Misha's Blog

Announcement XXV

2011-11-26T15:17:00.004Z

I am tied up writing an examination paper in Strategic Negotiation, somewhat overdue, for my old day-job (I retired in 2005) but I am still involved in various tasks for the Edinburgh Business School, including in a week or so, the grading of the December Diet of MBA exams.

This makes it difficult to post as regularly as normal, though I have one post in the system today, which I shall try to get to this evening. But before the Christmas break, I shall also be occupied with my residual responsibilities ... then family responsibilities take over.

Please accept my apologies in advance.

I shall read Lost Legacy for comments everyday.

Gavin

Weird Article of the Year

2011-11-24T10:37:00.002Z

Shelby_H_Moore III (has published articles on FinancialSense.com, Gold-Eagle.com, SilverStockReport.com, LewRockwell.com. Is the sole or contributing programmer of numerous (some million+ user) commercial software applications, such as Corel Painter, Cool Page, WordUp, Art-O-Matic, etc.. Has an education in engineering and math) posts in The Market Oracle
HERE http://www.marketoracle.co.uk/Article31717.html

“Understand Everything Fundamentally, The entropic force is fundamental”

“Did Adam Smith know entropy?
Free market (i.e. anarchist) capitalism didn�t fail, rather the world has been doing collectivism, which leads to socialism as we now see occurring. Adam Smith was advocating collectivism when he wrote in the Wealth of Nations, that tax should be apportioned relative to income.
Perhaps Adam Smith was blind to the mechanism of his �invisible hand�. This fundamental concept is the entropic force, that 99.9% of the people in the world don�t grasp.”

Comment
You have to read the weird (and I mean weird) article to judge the remarks about Adam Smith and everything else. He seems to be punting gold investments.

Taxation according to income is not socialism, nor was Adam Smith “blind to the mechanism of his �invisible hand�”. There was no “mechanism” to be 'blind to', which is a modern invention, not found in Smith's texts. It was a metaphor, as misunderstood by Shelby Moore and by most modern economists, and still wrong for all that.

It only shows what happens when engineers and maths graduates let loose on something not amenable to their skills. Sad.

Andrew Skinner; doyen among Smithian Scholars, 1935-2011

2011-11-23T14:59:00.003Z

Eric Schliesser, a fine scholar who is much appreciated for his knowledge of 18th-century leading figures of the Scottish Enlightenment, has written a tribute to Andrew Skinner, whose death was reported today:

“This has been a terrible week for the history of economics: two of its giants, Andrew Skinner and Mark Blaug, died a few days apart. Skinner was the Daniel Jack Professor of Political Economy from 1985 to 1994 and Adam Smith Professor of Political Economy from 1994 until 2000 at University of Glasgow. Skinner is best known for his superb editing of the 2-volumes of the The Wealth of Nations in The Glasgow Edition of the Works and Correspondence of Adam Smith (1976).

He was also the author of a very fine collection of essays on Adam Smith, A System of Social Science: Papers Relating to Adam Smith. (He also edited several volumes of scholarly papers on Adam Smith.) He should have been better known for his very helpful (1966) edition of Sir James Steuart (1767) An Inquiry into the Principles of Political Economy. (The edition does contain some cuts, so let the buyer be aware.) Steuart was a subtle reader of Hume's political economy, and was deliberately ignored by Adam Smith; it mattered a lot to Skinner to ensure that Steuart was not forgotten.

I did not have much interaction with Skinner. But one is worth recounting. At the start of 2000, I sent him a draft of my main methodological/interpretive chapter on Smith's Wealth of Nations of my dissertation-then-in-progress. (We had never met.) Skinner was a natural choice because he was the leading scholar of the connections between Adam Smith's economics and Smith's Kuhnian theory of science. A few months went by, and just before his official retirement from the university he sent me his (kind) reflections on my chapter. Then I did not realize how rare such generosity is. He concluded his letter with a remark that I quote: "I met [Thomas] Kuhn in 1975 in Princeton when he told me, as I recall, that he was unaware of [Adam Smith's "The History of] ASTRONOMY" - if true, intriguing in that both Kuhn and Smith cite Copernicus' introduction as a classic example of the crisis state?"

Comment
Eric characterises an important aspect of Andrew Skinner, whom I first met in 1972, as he passed through the University of Strathclyde meeting some of my then colleagues, and we had a conversation, typically on Adam Smith. I was researching that year on the history of defence economics and he recommended that I read Wealth Of Nations in which (Book V) Smith had much to say about the importance of defence in history. Typically of Skinner, as I came to know him during the years, he sent to me within days a two-page summary of Smith on the ‘first duty’ of government and the defence of the nation against barbarous invasions and violence. I noticed Andrew's paper recently somewhere in a pile of old papers and meant to file it where I could find it again. Alas, it seems to have rejoined another pile …

When I retired and was working on my 'Adam Smith’s Lost Legacy' (2005), I contacted Andrew and he expressed his usual enthusiasm, mentioning some of his books on Adam Smith, including those ‘fine essays’, cited by Eric, ‘A System of Social Science: Papers Relating to Adam Smith'. Anybody writing about Adam Smith who has not read that volume is surely deficient in her range. But every scholar has surely read – and regularly consulted – Andrew’s co-edited Wealth Of Nations in the Glasgow Edition from Oxford University Press, as I do almost everyday, both the edited text and its footnote references, which are gold mines of relevant facts, lifting that edition above all others.

When I was working on my second book: ‘Adam Smith: a moral philosopher and his political economy’ (2008, Palgrave; 2nd edition, 2010), I sent chapters to Andrew to which he replied with comments. Later, I gave him copy of the published 1st edition at a meeting of the History of Economics 40th annual conference in Edinburgh. To my surprise and delight, he responded many months later in 2009, with a very long phone call saying how much he had enjoyed it (from him, that was praise indeed!) and he asked several interesting questions about some of the contents, and was kindly supportive of some of my main themes.

That was typical of Andrew Skinner, a fine teacher and supportive scholar of those whom he met and conducted discourse. The last time we met at an event in Glasgow, he confided in a distinct whisper, that he did not think Smith was quite the kindly old soul that he was credited to be among some scholars, citing his poor treatment of Sir James Steuart by completely ignoring him. He also noted positively my speculative remarks (‘Did Smith Block Hume?’) that Smith may have been less than proper in his possible duplicitous role in David Hume’s potential soundings in 1751 about a post at Glasgow, when Smith was seeking promotion to the same vacant chair of moral philosophy as the Professor of Logic.

He found my other speculation that Smith’s applying for the post in 1778, as a Scottish Commissioner of Customs and the Salt tax, was principally to avoid completing his much advertised work (from 1759) on Jurisprudence (i.e, how states ‘ought’ to be governed), once the ‘disturbances in America’ flared into a successful outright rebellion against the obdurate King George and the radical proposals for government in the Declaration of Independence. There was no obvious way that Smith could avoid offending the British government and the King in such a work and his private sympathies could not do let him otherwise (best then to say nothing). The facts are that Smith did not finish his near completed manuscript and he ensured from his deathbed that Professor Black or Hutton burned the mss ‘unread’.

Andrew Skinner took a great interest in the rebellion by the British residents (published recently). He said he thought my speculation was at least worthy of note and did not dismiss it out of hand, as some other scholars have done. I read Andrew's later publication of his essay, 'The Mercantile System', with great interest, in Jeffrey T. Young, editor, 2009. 'Elgar Companion to Adam Smith', pp. 261-76. Cheltenham, Edward Elgar, with great interest. Its precision is another fine example of fine scholar's work. Readers would do well by reading it. Andrew sets a high bar for all those who want to emulate him.

Andrew was and is regarded rightly as the doyen of Adam Smith scholars in the recent past. I hope that something may be arranged to honour Andrew and his work posthumously.

Lost Legacy Quoted

2011-11-23T12:52:00.004Z

Bullfax, in “an innovative service that combines, news feeds, opinions and a dedicated blog to give a quick and comprehensive look at the state of markets and the economy, HERE quotes the ‘curious cat’ Blog, ’Investing and Economics’ Here which reports recent little extracts from Lost Legacy on Adam Smith.

I welcome interest in what I write and any Blog may reproduce anything written here on Adam Smith, his moral philosophy and political economy (I hope their readers learn something not available elsewhere), but it would be nicer for Lost Legacy to be acknowledged.

A Misreading of Adam Smith

2011-11-23T12:25:00.002Z

Shelton A. Gunaratne, Professor of mass communications, emeritus, Minnesota State University Moorhead posts in Lankaweb. HERE http://www.lankaweb.com/news/items/2011/11/22/an-outsider’s-view—9marxist-notion-of-socialism-unlikely-to-replace-capitalism-culture-determines-‘third-way’/

“Capitalism is an economic system wherein the means of production are privately owned, operated for profit (endless capital accumulation) from investment, and in competitive markets (laissez faire) free of state interference. Because perfect competition is a myth hatched in Adam Smith’s imagination, pure capitalism is only a theoretical construct that has never existed or will exist anywhere.”

Comment
Adam Smith invented nothing about 'capitalism'. The word was first used in English in Thackeray’s ‘The Newcomes’ in 1854 in reference to manipulating financiers that featured in the second half of the novel, and was picked up by Karl Marx a little later and back-edited into the English editions of Capital. Smith knew nothing of late 19th- century capitalism, nor 20th-21st century modern corporations.

Smith wrote about ‘commerce’ and the Fourth Age of Man.

What Shelton Gunaratne designates in a critical manner, as ‘endless capital accumulation’, was accompanied, necessarily, in the endless ‘great wheel of circulation, also by the ‘endless’ funding of wages for labourers. The alternative was, and remains, endless dire poverty – under $1 a day instead of $3 a day, 12-14 hours a day, versus 8 hours in a five-day week, rising only from ’endless accumulation' to the current $50+ a day in the countries that have benefitted for three centuries from that accumulation continuing. It is politically easier (but not easy) to seek to redistribute the benefits of successful capitalism than it is to merely try to redistribute poverty-level incomes, usually experienced in tyrannical regimes (e.g., Libyan oil wealth, and in war-torn and poor countries, e.g., Somalia).

‘Perfect competition’ was not a product of Smith’s ‘imagination’. Mythical as the invented “theoretical construct” is, but it was developed from a century or more after Adam Smith died (1790), and of which myths he knew nothing. On the contrary, the realities of ‘commerce’, wrapped deep as they were by the policies of mercantile political economy, were criticized sharply by Adam Smith. This was a central feature of his ‘violent attack’ on the commercial system of Great Britain in Wealth Of Nations that had existed and developed since the 16th century economic regime that was constructed by legislation from and since Elizabethan times (Apprentices Act, Settlement Acts, monopolizing powers of the Guilds, wages determined by local Magistrates, Combination Acts, and the Navigation Acts, not to mention his criticism of tariff protection and prohibitions, ‘jealousy of trade’, and regular wars on borrowed money).

Smith never said anything about a ‘perfectly’ balanced perfectly competitive economy in 18th century Britain. Nor did he advocate ‘laissez-faire’. His preference for competition over monopoly and legislated Acts of parliament were not dogmatic; they were specific and coherent.

Shelton Gunaratne’s thesis is based on a poor understanding of Adam Smith Works.

Looney Tunes no 8

2011-11-21T16:37:00.003Z

1
Greed in the name of profit: A Magic Trick that would make Houdini blink

Examiner.com HERE

“Thanks to the efforts of "truth busters-worldwide" ( the 99% grass root organization ) The Invisible Hand and their agents are becoming more and more visible.”

2
Bordering on the bizarre

Times of India

“Soon it began to rain, confirming my suspicion that the invisible hand was indeed mounting pressure on me; my resolve only grew stronger.”

3
Why haven't the 2011 protests hit Russia?

Aljazeera.com HERE

“The magic of the invisible hand, they argue, keeps getting slapped down by the interventionist bureaucratic state.”

4
Canada Income Inequality: How A Growing Earnings Gap Is Raising Home Prices ...

Huffington Post Canada HERE

“It was amidst this anxiety-ridden atmosphere that a little-known Vancouver real estate blogger tapped out a controversial post titled "Invisible Hand of Income (Inequality)."

Mark Blaug and the Invisible Hand

2011-11-21T14:47:00.003Z

Roger Backhouse has announced the death of Mark Blaug, an historian of economic thought, who influenced me, and many other young economists in the 1960s. His authoritative book, is still quoted regularly, particularly his great Chapter 2 in Adam Smith: “Economic Theory in Retrospect” [1962] 3rd edition, 1978, 2002, Cambridge University Press.

He also had many other publications in the scholarly. Roger Backhouse writes: “Ruth Towse has just given me the news that Mark died, peacefully at home, on November 18th. He had been very ill for the past year.”

I reprint below a post of mine on Mark Blaug from 28 April, 2010, on Lost Legacy, as my short tribute to Mark’s memory:

“Mark Blaug's Criticism of the 'Historical Travesty' of the Myth of the Invisible Hand”

Paul Walker, a regular reader of Lost Legacy, commented on yesterday’s post with a quotation from Mark Blaug’s, "Economic Theory in Retrospect", 5th ed. Cambridge: Cambridge University Press, which I think needs a wider circulation than would occur if left in the comments to a post. It is particularly apposite in regard to my new paper for the University of Richmond Summer Institute in June (working title): ‘Paul Samuelson and the Genesis of the Modern Economics of the Invisible hand Doctrine’.

"[ ... ] Smith's faith in the benefits of 'the invisible hand' has absolutely nothing whatever to do with allocative efficiency in circumstances where competition is perfect a la Walras and Pareto; the effort in modern textbooks to enlist Adam Smith in support of what is now known as the 'fundamental theorems of welfare economics' is a historical travesty of major proportions. For one thing, Smith's conception of competition was, as we have seen, a process conception, not an end-state conception. For another society, a decentralised competitive price system was held to be desirable because of its dynamic effects in widening the scope of the market and extending the advantages of the division of labour - in short, because it was a powerful engine for promoting the accumulation of capital and the growth of income."

Blaug, Mark 1996. Economic Theory in Retrospect. 5th edn. 60-1. Cambridge: Cambridge University Press.

Comment
I was unaware of this statement by Mark Blaug – and I applaud it warmly – though I purchased a copy of Blaug’s masterly survey of history of economic thought in the 1960s when I was a student, though the subject was not part of the curriculum for an Honours degree in economics – no surprise there then – (there were a few courses from Economic History, a different degree, that could be taken, which I did).

‘Tis a pity that I was unaware of Mark’s thought, which coincide with mine and derive from my quite independent reading since just before I retired in 2005.”

Postscript:
See also Mark Blaug on Adam Smith and the Invisible Hand in Palgrave Dictionary of Economics: Second Edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume HERE: http://www.dictionaryofeconomics.com/article?id=pde2008_I000220

“Adam Smith employed the term ‘invisible hand’ twice in his published writings, and a considerable secondary literature has explored the multiple meanings he intended to convey by the use of this metaphor. I argue that, whatever he did mean, he certainly did not mean that competition or the market mechanism promoted efficiency: instead it promoted the growth of income, even for the poor.”

Readers will recognise why I was impressed with Mark Blaug's scholarly publications and why they influenced me so much.

Adam Smith No Ideologue

2011-11-20T11:17:00.002Z

Steven Shaviro writes in the Pinocchio Theory Blog HERE

“Several important conclusions emerge from Graeber’s meticulous work of comparison and reconstruction. One (not surprisingly for me) is to expose the ridiculous parochialism of the notions of Homo oeconomicus, of self-interested “rational choice,” etc., which have dominated Western social thought since Adam Smith. ...

... (Graeber makes quite explicit what other anthropologists have known for a long time — that Smith’s claim for a basic human propensity to “truck, barter, and exchange” is ridiculous and incredibly parochial).”

Comment
David Graeber’s appreciation of Adam Smith’s Work is not high. His understanding of it is also weakened by the influence of some modern economists on his misunderstanding of the authentic Adam Smith. David Graeber is an anthropologist who immodestly asserts the primacy of his own thinking over everybody else’s, including Adam Smith’s much different analysis compared to the ideas he attributes to him, mainly from the unreliable inventions of modern economists.

‘Home economicus’ was not put forward by Adam Smith and certainly was not advanced by him. It originated in the 1870s (Smith died in 1790) from the new school of marginal utility theories to become the philosophical foundation of what we know today as neo-classical economics.

Smith did not suggest a single-dimensional economic man beholden to “self-interested rational choice”. His assertions about economic behaviour were based on a far more complex, because nuanced, theory of the self-interest of humans in society who were not rational-bound humans reacting to pure economic stimuli. (See: Smith’s remarks contrasting those who treat humans as if they were wooden chess pieces, Moral Sentiments, Book VI, p 234).

The litmus test of misunderstanding what Smith was about is captured in the widespread misreading of Smith’s paragraph about the ‘butcher, brewer, and baker’, which is often used to transmute ‘self-interest’ into ‘selfishness’, the very opposite of Smith’s point that to obtain what we want from others in voluntary exchange, each party mediates their self-interests by "addressing" the "self-love" of the other party by persuasion and accommodating to the self-interests of others, and that this propensity emerged from the ‘faculties of reason and speech’ long ago in pre-history. Early exchange behaviours took its later forms in ‘truck, barter, and exchange’. It was from exchange behaviour early language emerged among consenting parties (Adam Smith, 1761, ‘Considerations Concerning the First Formation of Languages and the Different Genius of Original and Compounder Languages’). Similarly, Smith analysed the exchange behaviours that prompted the emergence of moral sentiments, long before Revealed Religion had emerged from the associated and widespread superstitions about invisible gods (Smith: The Principles which lead and direct Philosophical Enquiries illustrated by the History of Astronomy [1744-c.50] 1795, posthumous), and, of course, his “Moral Sentiments”, 1759.

David Graeber, like modern economists, confines ‘truck, barter, and trade’ to market economies (some like Karl Polanyi, restrict this behaviour historically to the capitalist decades, ignoring the vast reciprocation and quasi-bargaining experience of humans throughout prehistory). To describe this phenomena as “ridiculous and incredibly parochial” is typical of the arrogant refusal to consider differing viewpoints that endear David Graeber to his disciples, but which when allied to self-proclaimed political certainties is the ante-chamber of tyranny.

Now, nothing above asserts that David Graeber has nothing useful to say; he has lots of interesting – sometimes insightful – things to say in his book, “Debt: The First Five Thousand Years”, which is going to be around for sometime to come and you should become familiar with his thesis. I merely think that David has a warped image of Adam Smith in some important respects, mainly because he is overly influenced by Smith’s image from modern economists, and, worse, because Smith is totally misunderstood by the exponents of modern corporate capitalism (the real source of 'greed is good' and rationality among what the Occupiers refer to as the ‘1%”.

Socialism and Capitalism Are Quite Different

2011-11-19T14:41:00.006Z

Andy Logar posts (19 November) in American Thinker HERE

“Socialism's Fundamental Flaws”

“In the Soviet model the state owned the means of production thus all workers were employed by the state -- essentially each working for everyone else, the collective, but not directly for themselves. This was effectively a compulsory altruism which, because not being a primary human drive, introduced a fatal systemic flaw to an economy so bereft of incentives as to engender the famous Russian quip: ‘We pretend to work and they pretend to pay us.’

“As if one were not enough, the second fatal flaw was the elimination of the free market and its replacement by the planned economy -- where supply and demand were in the hands of technocrats and not the invisible hand of free-market capitalism.”

Comment
Be clear, I have no sympathy for the ‘socialism’ practiced in the Soviet Union or elsewhere, of which criticism by Andy Logar I broadly agree, but I have no confidence in his characterization of the pre-Soviet economy as ‘the free market”, nor as replacing “free market capitalism”. It was largely a pre-capitalist continent, dominated by a repressive oligarchy and a semi-feudal countryside.

Stark contrasts between two extreme poles of description, as is usual in such ideological posts, do not help clarity in the argument that Logar’s post purports to make. He even makes an unfortunate and questionable statement in describing the Soviet model of state ownership as: “essentially each working for everyone else, the collective, but not directly for themselves”. It was the French, 18th-century Physiocrat, Mirabeau, who correctly commented that in markets, each individual thinks they work for themselves, but in actuality they ‘work for others’. How true!

In seeking to realise our self-interests we unintentionally serve the self-interests of others in the mediation that necessarily is the voluntary exchange process. No market would function if people tried to work only ‘for themselves’; their voluntary exchange behaviours must necessarily take account of the self-interest of others (see Adam Smith in Book 1, chapter 2, Wealth of Nations: ‘address the self-love of others, not your own’). That is what free markets bring about. In contrast, in Soviet Socialist Systems everybody in fact worked, under direct compulsion, for the State that decides what they and everybody else gets in return. This is the essential difference between markets and socialism.

Turning to Andy Logar’s sentence: “the planned economy -- where supply and demand were in the hands of technocrats and not the invisible hand of free-market capitalism”, we confront another source of Logar’s error.

It was Oscar Lange, the Marxist, pro-Soviet economist-cum-technocrat, who taught at Michigan and Chicago in the 1930s and 1940s, and who penned the notion that what he called the role of Adam Smith’s so-called “invisible hand” in directing market transactions (a wholly invented attribution he learned from an oral tradition in some US universities, as is often exposed on Lost Legacy, viz, there is no actual invisible hand), would be supplanted by the expected, though never realised, superior benefits of a centrally planned economy.

Lange specifically alluded to the invisible hand’s evident failures in the 1930s depression that contrasted allegedly with the far superior prospects of an harmoniously planned socialist economy, then being imposed without harmony by Stalin in Russia, and later on in Poland, in which the planners allegedly replaced the market’s ‘invisible hand’ (see his 1936. “On the Economic Theory of Socialism, Part I.” Review of Economic Studies 4, no. 1: 53–71; 1937 and Part 2, 4, no. 2: 123–142).

Paul Samuelson (Economics: an introduction to economic analysis, 1948, p 36) took up Lange’s challenge to the superiority of capitalism by recasting what Adam Smith actually wrote about ‘an invisible hand’ and invented the general rule that Smith said ‘selfish’ actions unintentionally led to ‘public benefits’, later re-cast as an early prediction of General Equilibrium theory. Unfortunately he attributed that nonsensical myth to Adam Smith, and even more unfortunately, most modern economists believe it, which Lost Legacy fights daily to challenge.

[NB: The ‘selfish’ myth actually came from Bernard Mandeville’s ‘Private Vice, Public Benefits’, Fable of the Bees, 1724 and resurrected by Ayn Rand, and broadcasted in the ‘greed is good’ libel].

In sum, Andy Logar’s pieces in the ‘American Thinker’(?) rightly critiques socialism, without really understanding the difference with capitalism, and, sadly, does not really appreciate Adam Smith’s political economy in Wealth Of Nations, nor his Theory Of Moral Sentiments.

Self-Interest is Not Selfishness

2011-11-18T15:53:00.003Z

James Garvey, editor, writes (17 November) a post in TP Talking Philosophy (founded in 1997 to in 1997 to publish quality philosophy in a readable and enjoyable format for readers both within and outside academe).
HERE

“Mad men and Hippies”

“Spurred on by the Occupy Movement, I’ve been thinking again about the connection between morality and our economic troubles. I thought I blogged something about it at the start, and it turns out I did, in 2008. Maybe it’s interesting reading again (Ethics Stimulus Package). The idea, dredged up from a few lines owed to Adam Smith, is that we’re sometimes self-interested butchers and bakers (and maybe hedge fund managers), but we’re capable of acts of great selflessness too. Capitalism needs at least a dose of the former to work, but it would seem that it needs at least some of the latter too. I wondered then, and I wonder now, what leads us to ‘exercise our benevolent affections’, as Smith puts it. Some ages feel more in tune with those affections, some times seem better placed to express them. The interesting thing is what drives those changes, what pushes us, back and forth, between Mad Men and hippies, Gordon Gekko and … well, I’m having trouble settling on a contemporary name to set against his, but never mind. What is it, do you think, that makes moral sentiments wax and wane?”

Comment
The ‘butcher, brewer, baker’ paragraph is widely misunderstood, including among philosophers. This was not a ‘selfish’ property at work in the act of bargaining. Explicitly it is the opposite!

To persuade the ‘butcher, brewer, baker’ to supply the ingredients of your dinner, Smith advises you, a) not to rely on the tenuous feelings of their benevolence (as if there were unlimited dinners around and everybody was infinitely benevolent), or b) to appeal not to your own self-interest, but to ‘address’ their self love/ self interest. In short, to be other-regarding, not just self-regarding is the necessary quality of Smithian self-interest, a quality ignored by most readers of this passage who centre their attention of the ignorant 'hard' (bully) bargainer who have little experience of read-world bargaining.

A moment’s thought based on many moments observing people engaged in bargaining and persuasion, show the basic good sense of this statement by Smith. Two passionately self-centred bargainers, interested only in their own self-interests, would reach agreement with great difficulty, if at all.

Each self-interested bargainer requires the co-operation of others. The selfish, greedy person (a creation of Ayn Rand, not Adam Smith, and, before Ayn Rand, the creation of Bernard Mandeville, 1724) in failing to persuade others must resort to plunder and violence, or stop eating.

Bargaining is purposeful co-operation, which does not mean that every pair-wise encounter leads to happy bargains, a wholly utopian dream. If sentiments ‘wax and wane’ that is only human. Buyer’s regret and seller’s frustration are normal. But the emergence of market exchanges, from the ’propensity to truck, barter, and exchange’ throughout the long history of human societies from the ‘faculties of reason [Not rationality!] and speech’, took millennia to become common norms, amidst the long history, and longer pre-history, of the various failing and often bloody or tyrannical alternatives, the antipathy of beneficence and benevolence which regarded as major virtues.

Adam Smith’s Moral Sentiments was about an ethical alternative to the ‘bloody or tyrannical’ alternatives, the main roots of which were already present by the mid-18th-century experiences that he observed.

Looney Tunes no 7

2011-11-18T09:52:00.004Z

A fast track to good governance

Suresh Kumar Khaleej Times HERE

“They are masters with their invisible hands close to (if not in) the proverbial till.”

Democratic Underground

HERE

The "invisible hand" has been extending its middle finger to the 99%'ers for about 30 years now.

Road Runner

FDL
“Talk to the Invisible Hand”

HERE or HERE

"Bait-and-Switch" Using Adam Smith's Name to Sell More Copies

2011-11-18T09:44:00.004Z

Johnathan Wight posts (16 November) in Economics and Ethics ('An occasional examination of economic theory, practice, and policy, informed by philosophical ethics (and a dash of whimsy') HERE:

“Rifkin, [says Jonathan Wight’] in addition to not citing Georgescu, never really makes a case against Smith. In short, he uses Smith's name to generate reader interest, but it is a "bait-and-switch" tactic. There is no end of Adam Smith. …

Rifkin, in addition to not citing Georgescu, never really makes a case against Smith. In short, he uses Smith's name to generate reader interest, but it is a "bait-and-switch" tactic. There is no end of Adam Smith.

Comment
‘Economics and Ethics’ is well worth readers bookmarking (follow the link for a taster). Alongside Jonathan Wight, the excellent Sandra Peart of the University of Richmond, Virginia, is also a co-founder.

I agree with Jonathan and would add that when some recent books with Adam Smith in the title they also present a false view of Adam Smith (e.g., Franks recent assertion about his version of Adam Smith and an equally misleading account of Charles Darwin and natural selection).

Minsky's Contribution to the Current Macro Debate

2011-11-17T10:12:00.004Z

DAN MONACO writes in The Straddle HERE

“A Moment among the Minskians” from (Michael Stephens, November 16, in Economic Policy, Levy Institute”:

[Read more on Minsky as a ‘post-Keynesian’ economist HERE
and HERE

“Dan Monaco, writing for The Straddler, attended this year’s Minsky Summer Seminar at the Levy Institute and put together an engrossing (and accessible) article that looks at the work of Hyman Minsky, paying particular attention to Minsky’s interpretation of Keynes (including his views about the misinterpretation of Keynes by mainstream economics). The article is sprinkled with excerpts from Monaco’s interview of Dimitri Papadimitriou:

“Economists have lost their credibility because they do not actually deal with the real world,” Dimitri Papadimitriou, President of the Levy Institute, told me in my conversation with him. …

“Minsky was in some ways a pioneer. He saw that economic theory assumed that everything is known and that there is some tendency of the system to reach for equilibrium and, at times, to reach periods of ‘tranquility,’ as he preferred to call them. Of course, he never believed that stability was possible. He didn’t believe in the invisible hand. There’s a reason why it’s invisible—because it’s not there.”

Comment
I strongly recommend that you follow all the links and spend ten to fifteen minutes at least judging for yourself the merits of what Minsky was arguing for his interpretation of Keynes’ General Theory in the context of post-war capitalism in the USA (he died in 1996), especially in the light of the current recession and financial/banking crisis, plus the chronic indebtedness of all European and American governments.

His approach to the modern theory of the “invisible hand” falsely attributed to Adam Smith, who was wholly innocent and never had a theory of the IH metaphor, Hyman P. Minsky reads the situation correctly. The IH doesn’t exist, (though he doesn’t directly nail the IH myth at the door of neoclassical economics), it is a fiction invented by (too?) clever neoclassical theorists in search of a respected figure head to give a gloss of historical authority to a convenient crowning of their undoubted mathematical achievements in proving the existence of general mathematical equilibrium in an imaginary world and, in passing, making, the Class A error of confusing their proofs with what happens in the real world with what happens in the mathematics of an imaginary world.

Whimpers that the ‘Emperor is Naked’ were (still are) drowned out in the loud exclamations of ‘genius’, ‘brilliant’, worthy of Nobel Prizes, and such-like praise for the simple reason that what was achieved was truly of that class. Economics is so divided politically and institutionally by the current standards of academe that young economists who challenge the creaking consensus risk their careers and access to publishing in the ‘leading’ journals, and as bad, risk their reputation among their peers, who conform and who slavishly demonstrate their conformity.

Johan Van Overtreldt’s history of the Chicago School provides a succinct summary of the worldview underlying neoclassical theory:

“The basic assumption of neoclassical economic theory is the proposition that in a competitive market environment, individuals and corporations pursuing their own self-interests necessarily promote the best interests of society as a whole.

Thus, neoclassical economics, whatever its modifications or adjustments, is always in essence a cry for “pure” capitalism, while Keynesianism, whatever its color, is always at heart a proffered solution (more or less “radical,” depending upon one’s interpretation) to the problems of capitalism from within capitalism.”

There’s more, much more, worthy of your time in the links. Some parts may appear more useful to economists, but most will appeal to general readers too.

The Metaphor of an 'Invisible Hand' in Moral Sentiments

2011-11-16T16:41:00.004Z

Rick Moniak, a Juneau resident, writes (16 November) in Juneauempire HERE

“Listen to the Invisible Hand”

“I may be taking a lot of liberty with a few random economic statistics to advocate for a socialist agenda. But the truth is I arrived here courtesy of economist Adam Smith’s “invisible hand”. The origin of this oft used term wasn’t an argument against government intervention in the free market as is commonly claimed by many economists. Smith used it first in The Theory of Moral Sentiments. He referred to the wealthy as having naturally selfish intentions, but postulated that they are led by an “invisible hand” to “divide with the poor the produce of all their improvement,” and thus “without knowing it, advance the interest of the society.”

Smith believed that most people gain nothing from their charitable acts aside from the joy of seeing the results firsthand. Similarly, he wrote “we often derive sorrow from the sorrow of others” when we directly witness their pain and suffering. It’s quite possible then that Smith’s “invisible hand” is a reference to the stirring of one’s moral conscience.
But it’s important to consider the fact the economy was almost entirely a local affair when Smith theorized about the invisible hand in 1759. It was hard, if not impossible, to ignore the plight of the poorer people living nearby. Interstate commerce and global trade have changed this. Out of sight and out of mind, the saying goes, and it’s well suited for the global capitalist who wants to keep his moral conscience from interfering with his selfish tendencies.

As Smith pointed out, care for the poor benefits all of society. He confesses he also takes few supply side economists will ever advocate restoring morality of this nature to the free market.”

• Moniak is a Juneau resident.

Comment
Apart from the imaginative attribution to the ‘invisible hand’ having a voice to listen to, there is not much to say about the rest of the piece by Rick Moniak. He seems to be confused between the IH metaphor as noun and as metaphor and, strangely, a noun with many meanings, significantly, those that support Rick’s Moniak’s rose-tinted imaginative attributions to Adam Smith.

Rick Moniak admits “taking a lot of liberty with a few random economic statistics to advocate for a socialist agenda”, which while revealing of his approach to advocacy, also reveals his bad habits in ‘taking liberty’ with Adam Smith’s texts.

At least he had read something of Adam Smith’s use of the IH metaphor in Moral Sentiments, but seems to have squeezed something into it that Adam Smith certainly didn’t. Smith was not just talking about a group of ‘wealthy’ persons (incomparably poor by today’s standards in modern capitalist economies), he referred to that relatively ‘privileged’ order in earlier societies that owned the land and, effectively, the men and women who toiled for him on that land, covering variously, oligarchs, kings, princes, barons and, in time, a ‘proud and unfeeling’ landlord, surveying his ‘extensive fields’ and ‘in imagination consumes himself the whole harvest that grows on them’. (Moral Sentiments, Book IV.ii.10: 184)

But, Smith points out, that in fact the ‘unfeeling landlord’ is ‘obliged to distribute among those who toil in his fields and pamper his whimsical needs in his ‘palace’ a ‘share of the necessaries of life, which they would in vain have expected from his humanity or his justice’.

Smith used the IH metaphor for this absolutely necessary transfer of his produce from his fields to the poor labourers and their families, and in so using the metaphor in this manner, ‘he described in a striking and more interesting manner’ the ‘object’ of the metaphor. This is what metaphors contribute to grammatical literacy, as Adam Smith defined metaphors in his “Lectures on Rhetoric and Belles Lettres” in 1763 at Glasgow University (page 29). For the record that is also how metaphors are described in the Oxford English Dictionary (1983) and as they are taught in every English language lecture and texts today. Smith’s class in Rhetoric was delivered as part of his Moral Philosophy class from 1748-63 (Edinburgh and Glasgow).

The IH metaphor was not a simple noun as suggested by Rick Moniak. The fact that in Smith’s view this ‘advance’ of ‘the interest of the society” was an unintentional consequence of the delusion of the rich landlords (shared with the Pharos of Egypt, the Kings of Babylon, and the Emperors of China) is a key aspect of his philosophy. It had precious little to do with “stirring one’s moral conscience”. Smith’s explicit point was that it was the landlord’s ignorance and delusion, not the ‘stirring of” his ‘moral conscience’ that ‘led’ him to share (for in truth the ‘unfeeling’ landlord had no choice but to do so – if he did not share even the bare minimum, his labourers could not work and would die, and 'no food, no labour'; no labour no 'greatness' to be 'proud and unfeeling about'). Also, that it would be a ‘vain’ hope if the poor relied upon him acquiring a ‘moral conscience’.

It certainly was not “hard, if not impossible, to ignore the plight of the poorer people living nearby”. The “plight of the poorer people living nearby” was ignored for generations to come, and had been since our predecessors left the forest and discovered shepherding and farming from about 11,000 years ago. Also, be clear that Smith meant by ‘necessaries’ the very basic necessities of life – and what was sufficient subsistence was as determined by ‘unfeeling’ landlords, as interpreted by the ‘landlords' ’ overseers, traditionally a set of violent bullies, not given in the main to feelings of humanity towards those at their mercy.

I suggest, politely, that Rick Moniak re-read Adam Smith’s Moral Sentiments on the ‘invisible hand’ (and read his Lectures on Rhetoric and Belles Lettres on metaphors) before imagining what Adam Smith meant by the IH metaphor of 'an invisible hand'.