Thursday, March 20, 2008

Adam Smith Quotations Out of Context Again

Dave Bath writes on “Adam Smith and the financial crisis” on the Balneus Blog (here)

In many respects, The Economist is maintaining Adam Smith’s love of free trade and disgust at way managers/directors avoid responsibility, and thus ruin the wealth of worlds.

Such observations are entirely consistent with Adam Smith’s distaste for the managerial classes, who mention An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith comments on these managers and directors:

…being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. … Negligence and profusion, therefore, must prevail, more or less, in the management of the affairs of such a company

A typical exaggeration by misusing a quotation from Wealth Of Nations (from WN V.i.e.18:p741), which referred to an 18th-century chartered Trading Company with a legal monopoly in a distant region, India and all trade east of Cape of Good Hope, and not necessarily to similar joint-stock companies (e.g., Bank of England, Bank of Scotland, Royal Bank of Scotland, canal building companies, insurance companies, etc.,), which did not have monopoly status, as always the critical factor for Adam Smith.

Adam Smith’s disgust for the East India Company, which is expressed unreservedly in his rhetorical style in Book V of Wealth Of Nations, was disgust at the King’s advisors, those who influenced legislatures, and the structures of corporate governance they created and which created the opportunities for fraudulent misbehaviour for which they was famous.

It should be noted that the East India Company was a year away in sailing time and the control of the conduct of the managers by the directors in London was minimal. Today, managers are within seconds only of supervision and checking, a wholly different regime, plus detailed legislation regarding their conduct.


Blogger Airelon said...

Heyya mate,

I just stumbled across this blog entry. I have to say ... I love and agree with every word.

Each side wants to quote Adam Smith, and it's obvious that neither has picked the mans book up and actually READ the darn thing.

You HAVE to get a "subscribe by email" button mate. :) Feedburner that bad boy. I'd be an instant subscriber.


5:44 pm  

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