Tuesday, January 09, 2007

What Adam Smith Said, and Didn't

‘Outsiders’ to an economic controversy sometimes make quite telling points and one such is Father John Flynn, a catholic priest in Rome, in an article published in Indian Catholic, entitled, ‘Markets and Morality’, a subject which, for more than a millennium, exercised the minds of leading intellectual authorities in the Roman Church.

The close interest that the Roman Church has always taken in such matters relates to the ‘very slow and gradual’ recovery of Western Europe from the destruction of Rome in the fifth century, particularly in the tentative emergence of money prices (and wages) within the rebirth of a commercial age, for long enough dominated by the imperatives of localised non-market agriculture, from the 15th century.

Money was a novel commodity that purported to measure exchange values in place of the traditional values of what was in essence a localised barter economy. It was the pastoral need to re-assess the values of things and behaviours in the presence of new fangled coinage that prompted the Church to offer answers to its confused Church-going flocks.

On this occasion, Father Flynn partly comments on "The Moral Ecology of Markets: Assessing Claims about Markets and Justice," by economist and theologian Daniel Finn, and, inter alia, mentions Duncan Foley’s “Adam’s Fallacy” (discussed here several times to date). Among Father Flynn’s comments he writes:

“Defenders of markets, Finn explained, follow in the footsteps of Adam Smith, and claim that good results can arise from complex systems of human interaction even when the individuals are not intending to generate those good outcomes. Egoism and greed no doubt exist, but through the mediation of markets, self-interest can work for the good."

A fair statement of the facts, and noteworthy because it is balanced: “good results can arise from complex systems of human interaction”, not ‘always’ or necessarily ‘will’ arise, etc.,, which so often is interpolated as if this is a law of human behaviour, against which somebody half paying attention would note the many cases where ‘good results’ plainly do not so arise. I would add that it is through the mediation of the parties’ self-interest in striking their bargains that markets work, and not from each party trying to impose its own self-interest on the other.

Father Flynn continues:

Saints or sinners?

The concept of self-interest is not without its critics, continues Finn. For example, a theory that makes no distinction between a Mother Teresa and a thief -- positing that both are acting to further their respective self-interests -- is deficient. A description of the world that cannot distinguish between vice and virtue, saint or sinner, martyr or murderer, is seriously lacking in the ability to describe life's realities

Adam Smith completely agreed with these sentiments. In ‘Moral Sentiments’ (under the chapter heading: ‘Licentious Systems’, found at TMS VII.ii.4.6: p 308) Smith rejects the ‘system’ that ‘seems to take away altogether the distinction between vice and virtue, and of which the tendency is, upon that account, wholly pernicious.’

Smith writes here of the explicit views of Dr Mandeville (‘Fable of the Bees: private vices, public benefits’, 1724), whose views on self-interest, melded with selfishness, are often attributed quite erroneously to Smith, who sharply criticised them. Such people, whatever their pretensions, clearly, have neither read Adam Smith nor Dr Mandeville.

Father Flynn continues and writes two paragraphs that when considered together expose Duncan Foley’s flanks and raises questions about his entire theme in his ‘Adam’s fallacies’:

In his analysis of how markets work, Foley admits that the concept of pursuing self-interest proposed by Smith has a lot of sense and realism, but to describe it as a positive good is another question, he argues.”

In concluding, Foley comments that Smith himself realized better than many subsequent economic thinkers the limits of self-interest and the market. In addition to defending the advantages of a market system, Smith also recognized the need for political institutions to channel and control the operations of capital.”


The barrenness of Foley’s argument is summed here: first Smith is appreciated for his ‘realism’ in how ‘markets work (fair enough; he analysed them without taking sides or suggesting they were perfect), then he is accused of asserting that markets are a ‘positive good’ (yes, but not in all cases, e.g., monopoly markets were anything but a ‘positive good’, wrote Smith). Competitive markets could be a ‘positive good’, but may not be, depending on circumstances, to which we could add today where competitive markets create ‘externalities’ like congestion and pollution.

However, the striking statement in Flynn’s second paragraph is his comment that Smith acknowledges (much better than ‘subsequent economic thinkers’) the ‘limits of self-interest and the market’. That alone would be enough to negate Foley’s entire thesis that his book discusses “Adam’s fallacy”; it wasn’t a fallacy at all because he did not assert that self-interest was sufficient. He denied it to be so; what more then did he have to do to justify his so-called ‘fallacy’?

For these and other reasons I have described Foley’ “Adam’s Fallacy” as “Foley’s fallacy”.

(Read father Flynn’s article at: http://www.theindiancatholic.com/newsread.asp?nid=5471).


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