Tuesday, January 29, 2008

Janet Daley and Tim Worstall Made My Day

Tim Worstall, the should-be-celebrated fount of good sense in Blogland and the mainstream media, writes in The Business a not inapposite piece entitled, “Great Good Sense Here”, on something Janet Daley wrote:

Because The Market, which seems to have a life and a logic of its own, is nothing more nor less than the sum total of all the inclinations and judgments of everyone who has a stake in it. When Margaret Thatcher said you couldn't buck it, what she meant was that once you understood this principle - that a free market was simply the cumulative expression of all human wants and needs - you realised that it could not be made to do what you or anybody else wanted on the basis of some theoretical or ideological imperative.


There is a profound confusion in our post-socialist climate that makes it almost impossible to talk sense on the subject of free market economics. First there is the basic assumption that "capitalism" is an ideology comparable to "socialism". I dislike the word "capitalism" itself because "ism" suggests a planned system. Free markets are just the human condition in economic terms. They are subject to all the vagaries and flaws of incoherence, greed and confusion of individuals acting en masse.” (Janet Daley, The Business, 28 January) (here).

To which Tim Worstall comments (here):

“I would quibble though with the conflation of capitalism and free markets. While we often see them together they are not the same thing at all. Capitalism describes a method of ownership. Free markets describes a method of exchange. Further, while they obviously work well together neither is necessary for the other.
A monopoly can well be capitalist but by the very fact that it is a monopoly it's not acting in a free market.*

A workers' co-operative is not capitalist but can operate in free markets (as John Lewis and the Co-Op shop us).

If I were pushed, if someone were insistent that I choose between the two, having one meaning not having the other, I'd plump for free markets and let the capitalism part go hang. Freedom to exchange as one wishes is to my mind the vastly more important of the two, in both moral and efficiency terms.

* Yes, yes, I know that there are natural monopolies, situations where a free market will move towards the dominance of one firm. But I'm thinking rather of constructed monopolies here, not natural.

What a great statement of what ought to be obvious to all economists but I suspect many will wonder what the difference is because by training, and now by habit, they do conflate modern capitalism with free markets, which is partly because they do not study anything much about the history of political economy since before Adam Smith and specifically since much before the mid-20th century.

Modern economies are about capitalism in all its forms – and there are different forms, such as, the US-British model; the Continental model; the Asian ‘Tiger’ model; the ‘communist state capitalist’ model; and other minor amalgams. There are arrangements called markets with degrees of state intervention, and economists assume that capitalism and markets ‘go together’.

Fair enough, as approximate shorthand for workaday conversations. But if they had some familiarity with Adam Smith’s contribution to moral philosophy and political economy they would notice something straight away – he never mentions the word capitalism, which I have often noted on Lost Legacy (regular readings may groan) was not a word for the economy until after 1854 (Thackeray’s novel, The Newcomes).

Adam Smith referred to the economy as the ‘age of commerce’. This terminology informed Wealth Of Nations, yet modern economists often refer to it as the ‘bible of Capitalism’ and himself as the ‘Prophet of Capitalism’ (plus variations of ‘High Priest of …’; ‘Founder of …’; and, etc.). It is not just a verbal quibble to insist that there is a difference in meaning in these words.

To conflate Wealth Of Nations into a text book about capitalism opens doors to the sorry mess we know dominates dialogue in academe when liberal use is made of selected quotations from Adam Smith, and often just his name, to support policy prescriptions that they consider advisable.

I experience occasional stiff rebuffs from correspondents, some senior and well known in the profession, who respond with ill-concealed irritation at my drawing their attention to their errors of attribution in their published prescriptions to Adam Smith’s authority. One defended himself like an undergraduate by blaming his co-authors who were responsible for that section of the refereed paper, as if his name only applied to the bit he wrote. Often, I have no quarrel with their policy prescriptions, but I do with their trying to enforce their authority in the manner they do.

To read Tim Worstall’s clear separation of the blanket word ‘capitalism’ from ‘free markets’ was a pleasure for me this morning. Would that everyday on the Lost Legacy front started so well as today’s did.


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