Saturday, February 28, 2009

Correct Summary of Adam Smith's Ideas

‘pilgrim’ in Red State Blog (HERE): writes “Fisking Marx” (that’s Reinhard Marx, archbishop of Munich and Freising, formerly, bishop of Trier, the birthplace in 1818 of Karl Marx, who has views on the end of capitalism, to which ‘pilgrim’ objects, during which post he made these statements:

Never did John Locke, David Hume, Adam Smith, John Stuart Mill, Ayn Rand, F.A. Hayek, or Milton Friedman advocate unbridled capitalism or freedom. It seems that socialists have badly sullied the reputation of liberty. The socialists have repeatedly alleged that capitalism caters to so-called capitalists and gives them unbridled powers to exploit the weak. But that is totally false. Philosophers of liberty have always insisted that freedom comes with responsibility and justice. Adam Smith opposed mercantilism and monopolistic industrial interests. David Ricardo wanted more competition and free trade. Adam Smith and John Stuart Mill advocated labor unions to face the economic power of the owners of industry.

Unlike Karl Marx, who was a revolutionary, Adam Smith was a reformer. Where Karl Marx saw class struggle, Adam Smith saw special interests that were often at odds with the public interest. If Adam Smith were alive today, it is unlikely that he would join the chorus of triumphant anticommunists. Instead, he would warn that capitalism is prone to excess. He would observe that vigilance is required to ensure that the political system is not manipulated for the economic benefit of a few to the detriment of the entire society. He would be advocating political reforms to make sure that the system is not corrupted by special interests.

Adam Smith described free markets as an obvious and simple system of natural liberty. He did not favor the landowner, the factory owner, or the worker, but rather all of society. He saw, however, self-defeating forces at work, preventing the full operation of the free market and undermining the wealth of all nations.”

I think we can rest assured that ‘pilgrim’ understands what Adam Smith was about.

Perhaps ‘pilgrim’ is stretching a bit when saying Adam Smith favoured labour unions – he certainly objected to collusion among employers to restrain labourers who sought either pay rises, or resisted pay cuts, and he considered the Combination Acts against labour taking collective action in defence of their interests, while employers’ combinations, especially their ‘secret’ meetings, were not disallowed under current laws.

I suspect that Adam Smith wanted restrictive laws against combinations repealed, but favoured open competition in wages matters, applied to both labourers and employers. He certainly favoured higher wages for labourers because these were conducive to higher productivity and diligence and opposed reactionary policies that held wages down, ostensibly in the belief that such measures ‘encouraged’ labour to work harder.

Apart from this criticism of ‘pilgrims’ post, I would suggest readers follow the link because overall ‘pilgrim’ is spot on.


Friday, February 27, 2009

A Reply to a Commentator

My post yesterday, which I attributed to ‘anon’, apparently comes from a ‘gk’, or ‘Gary’, from Knoxville, Tennessee, though I did not notice his initials when I commented, for which I apologise. His initials, in small type, are easily missed (at least by me).

I shall reply to his comments in general terms – a blow-by-blow critique of them would probably cause deeper friction than is expressed in his response in the Lost Legacy comments, and which are much enhanced on his Blog (HERE): As an educator, I have no interest in causing friction when there is an opportunity to learn something.

I accused Gary of appearing not to have read Wealth Of Nations in respect of Smith’s use of The Metaphor of ‘an invisible hand’. His critique of President Obama’s misuse of The Metaphor was not/is not the subject of my post; I do not comment on another country’s politics).

My interest is in defending Adam Smith’s legacy, which, in my view Gary has not understood, and no wonder. Almost the entire body of US (and UK’s) academe misrepresents Adam Smith’s use of The Metaphor (see earlier posts since 2005 on Lost Legacy), including the worthy encyclopaedias and internet dictionaries cited by Gary – of which Wikipedia is particular notorious).

This misrepresentation began in the early 1950s as economists reacted to the assault on ideas about Western capitalism emanating from the Cold War (but ‘hot’ in places), with Soviet communism. The contest between communist planning and market capitalism was in the forefront of these debates, as Western European economies, with several social-democratic parties in government, and large communist parties in France and Italy, hotly contested which economic system was appropriate.

Economics textbooks, such as Paul Samuelson’s, introduced a modern version of the metaphor of ‘the invisible hand’ and credited it, under Adam Smith’s name, as being his ‘theory’ of markets, which markets were (and are) superior to state planning. These textbooks gradually became the norm across academe, training hundreds of thousands of students in beliefs that markets were guided by an ‘invisible hand’ to lead to optimum solutions of problems of market resource allocation and efficiency, in contrast to the manifest failings of Soviet State planning, and Western social-democratic ‘nationalisations’.

What became of The Metaphor (unintentionally, I am sure) in the rest of the 20th century was a belief, widespread to be sure, that markets had a ‘mystical’ ingredient in them that made them superior – in some recent versions, the invisible hand has become the ‘Hand of God’ – which is wholly ridiculous if linked to Adam Smith and the Wealth Of Nations.

Moreover, the modern myth of the invisible hand, mentioned only once by Adam Smith, and then not about how markets work, is based in part of a paragraph in a chapter about a specific issue (risks in the colonial trade), as if it was a major element in Adam Smith analysis of commercial society. It was, in fact, nothing of the sort.

I have made this case regularly on Lost Legacy (follow the ‘invisible hand’ label, including on my comment on Gary’s post), and in my books; ‘Adam Smith’s Lost Legacy’, 2005; and ‘Adam Smith: a moral philosopher and his political economy’, 2008, both by Palgrave Macmillan.

I have also posted a downloadable paper, ‘Adam Smith and the Invisible Hand: from metaphor to myth’ on this site (it’s on the Lost Legacy Home page; click on the red lettering; scroll through to ‘Articles and Press’ and then click ‘The History of Economic Thought 40th Anniversary Conference at University of Edinburgh: Adam Smith and the Invisible Hand: from metaphor to myth: A Lecture by Gavin Kennedy’.

I did not on this occasion go into such detail in my comments on Gary, because the documentation supporting my assessments is widespread on Lost Legacy. I quote examples of the popular prior use in literature of the metaphor of an invisible hand, as follows (refs are in the above paper):

“ Homer (Iliad, 720 BC); ‘And from behind Zeus thrust him [Hector] on with exceeding mighty hand’; [12]

Horace, Fulminantis manus Jovis (‘The mighty hand of thundering Jove’); [13]
Ovid of Caeneus at Troy: ‘twisted and plied his invisible hand, inflicting wound within wound’;[14]

Lactantius (De divinio praemio, c.250-325): early use of ‘invisibilis’;

Augustine, 354-430AD, “God’s ‘hand’ is his power, which moves visible things by invisible means’;[15]

Shakespeare, (1605) ‘Thy Bloody and Invisible Hand’;[16]

Glanvill, J. 1661. ‘nature work[ing] by an invisible hand in all things’; ‘invisible intellectual agents’;[17]

Voltaire (1694-1778) in (1718): “Tremble, unfortunate King, an invisible hand suspends above your head’; and ‘an invisible hand pushed away my presents’;

[18]Daniel Defoe, ‘A sudden Blow from an almost invisible Hand, blasted all my Happiness’, in Moll Flanders (1722); ‘it has all been brought to pass by an invisible hand’ (Colonel Jack, 1723); [19]

Nicolas Lenglet Dufesnoy (1735) an “invisible hand” has sole power over “what happens under our eyes”;[20]

Charles Rollin (1661-1741), whom Pierre Force describes as ‘very well known in English and Scottish Universities’, said of the military successes of Israeli Kings “the rapidity of their consequences ought to have enabled them to discern the invisible hand which conducted them”;[21]

William Leechman (1755): ‘the silent and unseen hand of an all wise Providence which over-rules all the events all the events of human life, and all the resolutions of the human will’;[22]

Charles Bonnet (whom Smith befriended in Geneva in 1765) wrote of the economy of the animal: “It is led towards its end by an invisible hand”;[23]

Jean-Baptiste Robinet (1761) (a translator of Hume) refers to fresh water as “those basins of mineral water, prepared by an invisible hand”;[24]

Walpole, H. 1764. ‘the door was clapped-to with violence by an nvisible hand’[25]

Reeve, C. (1778) ‘Presently after, he thought he was hurried away by an invisible hand, and led into a wild heath’.[26]

Adam Smith had many of these books in his library. The invisible hand metaphor was a popular literary reference in the 18th century.

For Adam Smith, the metaphor came into use (only once in the entire volume) after he had succinctly explained in detail in Chapter 2: ‘Of Restraints Upon the Importation from Foreign Countries of Such Goods as Can be Produced at Home’, how merchant traders chose between using their capital in the export/import trade or using it in domestic investment. The key variable for them was the relative risks of both:

Thus, upon equal or nearly equal profits, every wholesale merchant naturally prefers the home-trade to the foreign trade of consumption, and the foreign trade of consumption to the carrying trade. In the home-trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever necessarily brought home, or placed under his own immediate view and command.” (WN IV.ii.6: p451 or Edwin Canaan’s 1937 edition, p 421, Random House).

This is about risk avoidance, which Smith clearly identifies (‘he intends only his own security’), repeated in the passage that Gary quotes from:

“By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” (WN IV.ii.9: p 456; or in Canaan, p 423)

Now, any close reading of the whole chapter up to paragraph 9 shows what were Smith’s arguments. He identifies risk avoidance as the ‘trigger’ for the actions of some, but clearly not all British merchants, because many merchants traded with the British colonies in North America under the advantages of the British Navigation Acts, which gave British ships, crews, and owners of cargoes a monopoly on exports from Europe to the colonies and imports from the colonies to Europe, all enforced by the Royal Navy and at all British sea ports.

Those merchants who were more risk-averse than the exporters/importers willingly preferred the less risky domestic trade even if it was less profitable. It was this prior decision, fully explained by Adam Smith, which caused them to invest locally and, on the arithmetic law that the whole is the sum of its parts, by doing so it meant that local domestic investment was higher than it otherwise it would be, which benefited domestic capital formation and domestic employment as an unintentional consequence.

Now any reader who had followed Smith’s argument in the previous eight paragraphs had no difficulty in understanding Smith’s conclusion, but not all readers of political economy (then as now) follow every argument, which was important to Smith’s general critique of monopoly foreign trade, especially with the British colonies in North America and, to make sure he carried all his readers with him, he added at the end of his clear argument the metaphor of ‘an invisible hand’ leading them to do as they did on entirely on their own account under the influence of their risk aversion. His use of the metaphor of ‘an invisible hand’ meant nothing more or less than that.

Hence, when I read, as I do, 10-20 times a day from the world’s press and academic papers, assertions to the effect that Adam Smith was the first to identify the invisible hand and that he applied it to his political economy of markets (markets are discussed thoroughly in Books I and II without a single mention of the metaphor in any role at all), I quite often remind Lost Legacy readers of this fact.

Modern economists who make assertions about the invisible hand and associate it with Adam Smith are absolutely wrong to do so.

Smith is wholly innocent of involvement in the mystification of markets; their workings are understood, and were understood by Adam Smith. It insults his legacy to suggest otherwise.

Markets are superior to state-managed economies, including state-capitalist corporate economies, which presently dominate the West, and which enshrine monopolistic principles in place of the superiority of competition, which promote legislators, and those who influence them, to directing roles for which their capabilities are well-short of modest competence.

In that opinion I agree with Gary that governments are not as competent as markets; but this has nothing whatsoever to do with ‘hands’ that are ‘visible’ or ‘invisible’ or with anything that should be associated with Adam Smith.

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Thursday, February 26, 2009

The Metaphor, the President, and the Critic

Anon’ writes (25 February) on (‘Rambling rants from the lunatic fringe'), HERE:

This will not help

President Obama today said “If we once again guide the market’s invisible hand with a higher principle, our markets will recover, our economy will once again thrive and America will once again lead the world in this new century as it did in the last”.

Has he actually read The Wealth of Nations, the classic Adam Smith book that coined the term “invisible hand?” Does he even know what the term means?

Evidently not, because “invisible hand” is the term economists use to describe the self-regulating nature of markets. I’d like for President Obama to reconcile that with his call today for increased regulation of financial institutions

Anon’ asks if President Obama has read Wealth Of Nations, strongly implying that if he has, or did, he would not have used The Metaphor in his speech. Moreover he would know what the ‘term’ means.

This is problematic because it is not evident that ‘Anon’ has read Wealth Of Nations.

Adam Smith did not ‘coin the phrase’ at all; he used a fairly commonplace metaphor, well known to readers in the 18th century, though less so in the 19th and hardly at all to readers in the 20th century until it was dusted down by some economists in the 1950s, given an entirely bogus meaning, turned into a ‘theory’, a ‘paradigm’ even, and widely publicized to add popular mystical properties (even implying religious purposes) to how markets work compared to state-run communist economies (a bye-product of the Cold War).

Needless to say (or is it?) these pure inventions had had nothing whatsoever to do with Adam Smith and his use of The Metaphor only once in Wealth Of Nations and only once in Moral Sentiments had nothing to do with markets.

Even ‘Anon’ got something right: the ‘invisible hand’ is ‘the term [modern] economists use to describe the self-regulating nature of markets’.

The error is to link this modern use to Adam Smith – and, of course, to mock the President for something he/she has not done himself/herself.


Wednesday, February 25, 2009

Adam Smith and Religion

A reader, ‘RCAR’ comments on a post by Jennifer Rubin, ‘False Choices, Indeed’ on Commentary HERE:

Great point, but we already tried that. Even Alan Greenspan himself has now admitted that we need to nationalize the banks and that free markets are not self regulating. It took him a while to figure that out. Also, remember that Rand was the hardest of hard core atheists, not a position consistent with the “invisible hand” of Adam Smith”.

I shall not bother correcting the myth of Adam Smith and the invisible hand – there are plenty of posts to that effect on Lost Legacy.

My comments are directed at the alleged religiosity of Smith’s use of The Metaphor. There are many differences between Ayn Rand and Adam Smith (she was an ideologue; Smith wasn’t). That she was an atheist but that he allegedly was not is more problematical.

We are not comparing the fierce independence of mind of Ayn Rand, born in Russia, but moved to the USA, a country denominated on the right of free speech, and therefore able to enjoy the brave luxury of saying exactly what she liked (and did so), whereas Adam Smith lived in Scotland, a country dominated by religious bigots and zealots, who threw their considerable weight around at whoever expressed any views deviating an iota from the authoritarian creeds of the Protestant Church, or, down in the small details, against those who appeared to live lives of less than total (sexual) virtue (if female) or, both sexes, who didn’t attend Church services on Sundays.

How Ayn Rand, a ‘free-spirit’ would have gotten on in the company of these gentlemen – the Taliban of the age – does not bear thinking about. To teach in a university, the faculty had to sign the Westminster Confession of Faith, lead prayers at the start of a class, and lecture in Latin. Under no circumstances could they offer dissent from religion. These onerous conditions would not have bothered Ayn Rand, should she have been alive then – being female she would not have gone to university, let along taught in one.

Adam Smith signed the Calvinist Confession of Faith, asked permission to abandon the saying of prayers (was refused by Glasgow University), and otherwise he ‘got along by going along’.

The first edition of his book in 1759, ‘Moral Sentiments’ was written so as to pass the religious test (Hume teased him that three Bishops had visited his publisher to buy copies and wondered what ‘true philosophers’ would think of its author being read by ‘these retainers to superstition’, Letter, 12 April 1759).

Yet, Smith published six edition in his lifetime, the last showing quite significant changes which diluted the religious language he felt obliged to use in the 1st edition. Smith died a few weeks after the 6th edition was published. It was clearly a symbolic statement of his rejection of revealed religion; he knew he was dying and if he had believed in an ‘after life’ it was not the best time for him to cause offence to god.

My current research into the alleged religiosity of Adam Smith has revealed a far different perspective on him. He certainly was not a Christian and nor, in my view, was it likely that he was even a Deist by the time he died. I am preparing a paper on these issues at present and will post it on Lost Legacy, as well, I hope, present it to a conference of Historians of Economic Thought later this year.


A Philosopher Pontificates in Ignorance

Steve Gimbel, a philosopher at Gettysburg College writes Philosopher’s Playground Blog,(‘One Part Sandbox, One Part Soapbox: An on-going game of intellectual tag concerning ethics, science, politics, and all topics philosophical’), HERE:

But we can layer onto rationality the question of morality. Even Adam Smith, the father of Capitalism, wrote his classic Theory of Sentiments to argue that enlightened self-interest which guides the invisible hand of the marketplace is insufficient for a good human life, one must also have what he termed "sympathy," what we call empathy. Human ethical behavior must smooth the rough workings of the marketplace. We see this after natural disasters when price gauging is a both a crime and a dastardly undertaken, that is, it is deemed wrong to sell something at market price.”

Adam Smith did not write Moral Sentiments to “argue that enlightened self-interest which guides the invisible hand of the marketplace is insufficient for a good human life”.

He didn’t even write in Wealth Of Nations about ‘an invisible hand’ guiding “the marketplace”. His use of the metaphor had nothing to with markets in either book (where it is mentioned only once in each book).

Steve Gimbel should pause, reach for a copy of either (preferably both) and read each chapter (there is only two!; one in each book) on how Smith used the popular 18th-century metaphor of an invisible hand. One both occasions it had nothing to say about how markets work.

After that exercise, he could usefully read my paper, ‘Adam Smith and the Invisible Hand: from metaphor to myth’. 2008 (downloadable from the Home Page of Lost Legacy in red). Then and only then should he pontificate on Smith’s use of The Metaphor.

Odd in a way: I would have thought that doing the above as a minimum would be what a philosopher (not the least particular about the meaning of words in all the disciplines taught in universities and colleges) would do before making such fallacious assertions.


Monday, February 23, 2009

A Query for Wordsmiths

Does anybody know what William Magee, Bishop of Dublin, may have meant in 1809 by the words ‘scolists and whitlings’?

Magee used the words to describe David Hume and Adam Smith for their religious scepticism.

I have tried the Oxford English Dictionary and Google to little avail.

My crytic crossword expert, a.k.a. my wife, says it has something to with 'wormlike creatures nibbling away at bits of things'.

Sunday, February 22, 2009

Once More With Feeling

Rowan Wolf writes (22 February ), “Nationalize This!”, posted on TPM blog HERE:

"We(the world) have a big problem, Namely that the global economy is crumbling. That crumbling started, and was facilitated by, an ideology that markets (including financial markets) are self-regulating. It is a fundamental belief in laissez faire capitalism. However, the ideology combines with the ranking of corporations as fictive "individuals" and therefore that they should be protected from the intrusion of government in their affairs.

The former belief ties to Adam Smith's theory of the "invisible hand" of capitalism. In its contemporary iteration, this means that people (including the fictive ones) will function within their own self interest, and that self interest includes "regulating" themselves against long term harm.”

Adam Smith did not have a “theory of the invisible hand”.

See Lost Legacy posts passim.


A Financial Advisor who Understands Adam Smith

Michael Hennigan, Founder and Editor of Finfacts (Ireland) HERE, writes a most encouraging post : ‘The "free market" in these calamitous times’, containing this gem:

Adam Smith, the father of modern economics, in his 1776 book The Wealth of Nations, identified the importance of individual self-interest, but contrary to what some critics have claimed, his emphasis was that you serve your own self-interest by serving the self-interest of others. It is not what is generally concluded because the last line of the following extract is what is most often quoted, in isolation:

"In civilized society he [man] stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-love, and never talk to them of our own necessities but of their advantages

Regular readers of Lost Legacy will recognise this familiar quotation from Wealth Of Nations (WN I.ii.2: pp 26-7; Edwin Canaan, 1937 edition, p 14).

Michael Hennigan is absolutely right in his reading of this famous passage. Congratulations.

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Saturday, February 21, 2009

Misleading Instructions: I try again

No posts yesterday. It was my birthday and the family took me to the races at Musselburgh, near Edinburgh, and dinner at Guiseppe's il Positana in Newington Edinburgh. At my age, birthdays are celebrated by people like no others...

A correspondent asks me how to find my paper : "Adam Smith and the invisible hand: from metaphor to myth", as have others on occasion.

Apologies, if you found my instructions unclear.

It is accessed from the Home Page on this site (the one you open when clicking on the site).

Near the top of the page there is a paragraph in Red.

Read through that and follow the invitation to 'click here'.

That opens a list of items. Scroll down until you reach this: "Letters to Editors and Articles"

You will find a list of items, including:

"The History of Economic Thought 40th Anniversary Conference at University of Edinburgh: Adam Smith and the Invisible Hand: from metaphor to myth: A Lecture by Gavin Kennedy".

Click on that - that's it!

I hope you find it interesting. Any comments? mail me at gavin At NEgweb DoT com.


Thursday, February 19, 2009

Adam Smith on Exchangeable Value

Art Carden, assistant professor at Rhodes College, who teaches, inter alia, 'Classical and Marxian economics', and posts today on “David Harvey on Karl Marx”, on the authoritative and excellent economics blog, Division of Labour, HERE:

Less interested in Karl Marx, I noted this interesting paragraph:

In fairness to Marx, he derived his erroneous value theory from Adam Smith and David Ricardo, but in fairness to the classical economists, they did not try to build an entire theory of history and social change on so sandy a foundation as the proposition that labor alone is the source of value. As I read Adam Smith, his endorsement of the "obvious and simple system of natural liberty" does not derive from his value theory".

In this statement we see the drift in meaning that led to both the Ricardo-Marx error, which was picked up by the modern economists on its own terms and continued the drift, until we are no longer talking about the same things.

Smith’s ‘exchangeable value’ became ‘value’, as if the two are synonymous and value is something ‘intrinsic’ (a misreading that even Oscar Wilde didn’t realise).

Admittedly, Smith wrote a muddled presentation of his basic ideas and it takes some effort to disentangle them. I have a draft paper on my disentanglement which I must finish sometime soon.

The idea of ‘exchange value’ is central to Adam Smith’s analysis of commercial society and how it evolved from the time when humans were predominantly, even exclusively, gatherer-hunter/scavengers. There was no idea of property except in the ability of humans to ‘pick fruit’ (which Smith erroneously dismissed as ‘hardly imployment’ in his Lectures on Jurisprudence, 1762-3) and to track and kill animals, in the forest and open land owned by nobody. There were no landlords or stock holders, or tax collectors, with whom they shared the fruits of their gathering or hunting.

Smith looked for a basis by which the products of the labour of people could be exchanged freely among them (summarized in his ‘beaver and deer’ parable in Lectures on Jurisprudence 1762-3, and reproduced in Wealth Of Nations, 1776).

He deduced exchange value as being the labour time taken to acquire products for exchange. It was in exchange that products acquired their exchangeable value; outside exchange, products did not have value in any intrinsic sense. The word ‘exchangeable’ is important because it defines value related to the act of exchange, and not to some notion of common views of their ‘intrinsic’ value. That was the extent of his pure theory of exchange value in the first age of mankind.

But beyond the forest, when humans settled in permanent locations and when ‘herding’ wild animals and gathering plant food in relative abundance from accidentally or deliberately farming the land, property was extended from the labour of people to the ‘ownership’ of land and all that was on it. With property human life changed for ever.

It did not matter whether property was held in common by the band or larger tribe, or ‘nation’ of tribes, or by the head of a family, or by private individuals. Property was held by the ‘what we have, we hold against all comers’ basis, which became the first ‘law’ of human society, enforced by those strong enough to enforce it.

In those parts of the world where property emerged in land and resources, separate from the labour of producing them, about 11,000 years ago initially, and then spread, the new property relations set the necessary conditions for permanent settlements with their growing populations able to reap (unequally) the benefits of growing productivity through exchange relationships fostered by specialisation and divisions of labour.

The singular characteristic of these early property-based societies was that the products of labour were shared among those who laboured and those who owned property. Smith acknowledges this important difference between the beaver-and-deer hunters’ parable, with which he opened his analysis of exchangeable value. The beaver hunters, etc., now had to share the exchange value of their prey with the owner of the land on which the beaver were found, and the owner of the wherewithal by which he sustained himself and his family by the necessary subsistence and tools, themselves extracted from somebody’s, or some tribe’s, claim to the ownership of land and natural resources.

Unfortunately, in jumping from one mode of subsistence (primitive hunting in the ‘open’ land) to another (property in labour, land and resources), a process that took millennia, not decades) to get underway, and more millennia to spread across Europe ad the Near East, and those other parts of the world, though not necessarily contiguous in either time or territory, Smith, without the basic knowledge common today in an Anthropology 101 class or text, in compressing the process, he constantly gets into a muddled exposition, switching back and forwards between what we now know were different periods with their much varied local circumstances.

Hence, Wealth Of Nations on exchangeable value is a challenge to disentangle, much like primitive, ancient maps of the world, where imagination often informed their authors, but which are barely recognizable to a modern eye, familiar with maps of the entire planet in different forms of projection, and which are embedded in instantly recognizable shapes and proportions when shown North to South.

Smith’s exchangeable value for commercial society specifically includes the requirement that the (much higher) product of labour is shared between the three owners with their claims to their shares: the labourer, the owner of land, and the owner of stock (formed from resources for subsistence and tools). From this point on, for these people, but not for those who stayed as hunter-gatherer-scavengers, labour alone ceased to have the sole claim of the (lower) product of labour.

Smith’s clear acknowledgement of the significance of these changes, and, what was in effect, if not stated too clearly, his repudiation of the labour theory of early exchange value, became and remains one of the most enduring misreading of Wealth Of Nations since it was published in 1776 (and of much older vintage than the modern myth of the ‘invisible hand’, which only dates from the 1950s).

This problem today was prompted too by the misreading of Smith’s statement about ‘toil and trouble’ being the 'real cost' (or value to the indvidual)of anything, which can be read as a return to labour as the source of exchange value (clearly is demarked elsewhere in Wealth Of Nations as determined by Market prices, which may coincide or be close to Natural prices), when in fact it relates to one of the benefits of the division of labour, namely that by acquiring products through exchange, the receivers save themselves the ‘toil and trouble’ of making those products themselves. In short, it is a psychological advantage of a commercial economy from the plethora of products to which people have access, should they choose to pay (or have) the market (money) price for them. It was not a labour theory of value!

A last point where Art Carden is right: Adam Smith’sendorsement of the "obvious and simple system of natural liberty" does not derive from his value theory’. Theories of Natural Liberty come from the philosophical theory of ‘Natural Law’, from such philosophers as Grotius, Pufendorf, Carmichael, and Hutcheson, which Smith learned while a student at Glasgow University, where Natural Law jurisprudence was taught to him and which his writings are sprinkled with throughout. In turn, these ideas are often confused with laissez-faire, but that's another story...

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Wednesday, February 18, 2009

A Good Case for Markets Spoiled by Misuse of Quotations

Walter E. Williams posts (18 February) ‘Economic Miracle’ in The Patriot Post (‘the conservative journal of record’) HERE:

Adam Smith, the father of economics, captured the essence of this wonderful human cooperation when he said, "He (the businessman) generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. ... He intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain." Adam Smith continues, "He is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. ... By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." And later he adds, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest."

If you have doubts about Adam Smith's prediction, ask yourself which areas of our lives are we the most satisfied and those with most complaints. Would they be profit motivated arenas such supermarkets, video or clothing stores, or be nonprofit motivated government-operated arenas such as public schools, postal delivery or motor vehicle registration? By the way, how many of you would be in favor of Congress running our supermarkets?

While agreeing with much of the content of Walter E. Williams’s article, I am bound to say that he also exposes that he has never read Wealth Of Nations from which he quotes.

This is obvious from his lack of context to his quotation of the famous and sole ‘invisible hand’ paragraph from page 456 in Book IV of Wealth Of Nations, which doesn’t quite say what he alleges it does. But leave that alone. It is an error that many (most?) people make and I have answered it many times on Lost Legacy.

However, he then says: ‘And later he adds, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest”, which is on page 27 of Book I, that is 235 pages earlier than page 456, and is by no means ‘later’. Clearly, Walter has never opened a copy of Wealth Of Nations, otherwise he would not have made such a crass error.

Is this important? Well, it is indicative that Walter relies on ‘popular’ versions of the misuse of The Metaphor, which are usually quite wrong.

I have read prominent economists, of unimpeachable standing, join the invisible hand paragraph (there is only one in the entire Wealth Of Nations written by Adam Smith) to the ‘butcher, brewer, and baker’ paragraph as if they appear together.

Even then, they miss the point Smith makes in the ‘butcher, brewer, and baker’ example: Smith advised those seeking their dinner to appeal not to their own self-interests, but to address themselves to the self-interests of the ‘butcher, brewer, and baker’. In short: you serve your own self interests by serving the self interest of others, which is not how most economists conclude from what is plainly written there.

But, this paragraph has nothing to do with The Metaphor of ‘an invisible hand’ as Smith used it, nor anything to do with how the numerous authors before and contemporary with Smith used it (download my paper, Adam Smith and the invisible hand: from metaphor to myth, from Lost Legacy’s home page, in red).

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Another 'As If' Attribution

Andrew Rosenblum writes: “Two distinguished economists try to revive Keynesianism—true Keynesianism”, in a review of “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
By George A. Akerlof and Robert J. Shiller, (Princeton University Press) in The New York Observer: HERE:

In their account of the Great Depression, Messrs. Akerlof and Shiller portray Keynes as the true “centrist,” with actual socialists to his left arguing for the government to take over private enterprise and assign jobs to the unemployed. Meanwhile, critics on the right clung to Adam Smith’s hallowed economic model: They insisted that through balanced budgets and limited government regulation—“as if by an invisible hand”—private markets would create a job for any worker willing to get paid less than he produced.”

Another assertion that “as if by an invisible hand” was part of “Adam Smith’s hallowed economic model” – whatever that means – adds ‘as if’ to The Metaphor as if has validity!

Even then, Maynard Keynes was not that ignorant. His assault on ‘classical economics’ was more on his contemporaries, who believed that ‘laissez-faire’ was a judicious policy, and was not an historically accurate attribution to Adam Smith (who never advocated laissez-faire, or mentioned the words).

Not having read George A. Akerlof and Robert J. Shiller’sAnimal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism”, I cannot comment on the validity or veracity of its content. The 'as if' error may well be the reviewer's, Andrew Rosenblum's sole responsibility.


Tuesday, February 17, 2009

A Myth Inside a Myth

Robert Stavins, writes The Myth of the Universal Market in Huffington Post, HERE:

Instead, self-interested producers and self-interested consumers meet in the market place, engage in trade, and thereby achieve the greatest good for the greatest number, as if "guided by an invisible hand," as Adam Smith wrote in 1776 in The Wealth of Nations. This notion of maximum general welfare is what economists mean by the "efficiency" of competitive markets.”

Er, no. Adam Smith did not use the qualifier ‘as if’ in front of “guided by an invisible hand”. In fact he did not write ‘guided by’: he wrote ‘led by’.

Neither did he address his single use of The Metaphor of 'an invisible hand' to “self-interested producers and self-interested consumers meet in the market place, engage in trade”. At least, I am referring to the Adam Smith born in Kirkcaldy in 1723 whose book, An Inquiry into the Nature and Causes of the Wealth Of Nations, was published in 1776.

Robert Stavins, writing on “The Myth of the Universal Market” may care to note he is ascribing to the Kirkcaldy Adam Smith a widespread, but nevertheless, absolutely wrong version (a real myth!) of a much misused popular 18th-century metaphor, which modern version was invented (not too strong a word) in the 1950s by many academic economists, including some Nobel Prize Winners.

From endless repetition since the 1950s to generations of students The Metaphor is now believed to be Adam Smith’s ‘theory’, ‘concept’, and ‘paradigm’ even. It is also common to add the wholly mythical qualifier, ‘as if’, which is totally absent from Adam Smith’s single use of The Metaphor in Wealth Of Nations (see WN IV.ii.9: p 456, Oxford University Press, or, page 423, in Edwin Canaan’s 1937 edition for Random House).


Misuse of The Metaphor

Guest blogger: Bill Chu, Chair, Canadians for Reconciliation,
writes to Chinese in Vancouver Blog HERE:

For those who emigrated from China, their perspective on the homeless should be a bit better. However in its shift to capitalism, China inherits all its viruses. The prime one being the assumption that an individual in pursuing his own self-interest will promote the good of his community as a whole through a principle called “the invisible hand”. In Adam Smith’s words, a free market will work, as if guided by “an invisible hand”, for the public interest and common good.”

I have long been worried that a common Chinese approach to the history of economic ideas has been to use the existing orthodoxy in respect of Adam Smith as the authentic body of ideas by which he and events should be judged, for or against.

Chinese leaders speak of the invisible hand metaphor as if Friedman and others are right to describe it as a theory by which one’s self-interest, also known (incorrectly) as selfishness, promotes “the good of his community as a whole”.

Bill Chou is a clear example of this, though in Bill’s case he criticises the so-called ‘principle’. But Bill is completely incorrect to say that “In Adam Smith’s words, a free market will work, as if guided by “an invisible hand”. Adam Smith never said “as if guided by “an invisible hand”; the ‘as if’ is a 20th century attribution to Smith’s 18th century words.

Moreover, Adam Smith did not link The Metaphor (it deserves capitals give its modern infamy) of ‘an invisible hand’ to the ‘free market’. That too is a 20th-century attribution by modern economists from the 1950s onwards.

When Smith used The Metaphor in Book IV of Wealth Of Nations (the only time he did use The Metaphor in Wealth Of Nations!) he was not writing about free markets, or even about markets; he was writing about why some, but not all, merchants who were risk-averse, because they were concerned about ‘their own security’, when choosing between the monopolised colonial trade with the British colonies in America and their own domestic trade in Britain.

Check it out; read the whole Chapter 2 of Book IV: ‘Of Restraints upon the Importation from foreign Countries of such Goods as can be produced at Home’, pp 452-72 – The Metaphor is used on page 476 – in the Oxford University 1976 Edition (and pages 420-39 in the Edwin Canaan 1937 edition).

Bill's other comments on the attitude of some new Chinese migrants into Canada towards the homeless is a timely reminder that negative attitudes to the less fortunate is regrettable - 'there but for fortune go I'.


Apologies: My Angry Rant Against Nonsense

Nicholas Jones, an ‘Analyst, Bourbon & Bayonets’, writes “Between a Rock and a Hard Place” on Oxbury Publishing HERE:

“All in all, what I’m trying to say is that an economy whose growth is based on liquidity expansions cannot last. It’s just like Adam Smith’s invisible hand. Our economy is not running at its equilibrium point and the further we get from that equilibrium, and the longer we stay there just means the invisible hand starts to push harder and harder. Natural forces are trying to push our current economy back to equilibrium. The excessive growth was the result of an expansion of liquidity (inflation), and in order to get back to equilibrium, liquidity must do the exact opposite and contract (deflation). So the question of do we inflate or deflate becomes a question of if we can’t inflate we deflate. The question of policy is do policy makers try and inflate or let it deflate? Let’s look at what happens in each scenario.”

Where did Nicholas Jones get his new ‘theory’ of the metaphor of ‘an invisible hand’, which has ‘it’ pushing (what?) ‘harder and harder’ (where?)?

Or, for that measure, where is his ‘theory’ of equilibrium from and why are ‘natural forces’(what happened to the metaphor?) only pushing ‘back’ (but not away)?

And (hopefully) sensible people pay good money for this ‘analytical’ advice?

Adam Smith, what nonsense is spoke in your name!


Monday, February 16, 2009

On Homo economicus





Gavin Kennedy

'Oz Andrew’, a correspondent writes a ‘Comment’ to my post "Evolution Challenges Homo Economicus", Friday last (13 February):

“As for the rational homo-economicus model itself, it will be staying in place until someone comes up with a superior and complete alternative. No amount of data contradicting the model can change that.”

To which I agree completely and replied:

Homo economicus cannot be improved; it is just plain wrong as it pretends to model behaviour in an economy representative of the real world. It isn't. It models behaviour in an imaginary economy that does not exist.

It's like Des Cartes' model of the solar system with 72 concentric circles, which Adam Smith discusses in his "History of Astronomy" (1744-?).

That is the point I tried to make.

Unlike the solar system for which a better model was developed which can predict eclipses ten, a hundred, a million years hence. Homo economicus cannot predict anything outside of the assumptions of the model

This week I am working on my paper “The Alleged Religiosity of Adam Smith: evidence from the History of Astronomy and Moral Sentiments” for presentation in the summer, and I am checking references in Moral Sentiments, and I came across this short note by Adam Smith on the other-worldliness of mathematicians, which I think says a great deal about the continuity of their temperaments through the ages:

Mathematicians, on the contrary, who may have the most perfect assurance, both of the truth and of the importance of their discoveries, are frequently very indifferent about the reception which they may meet with from the public. The two greatest mathematicians that I ever have had the honour to be known to, and, I believe, the two greatest that have lived in my time, Dr. Robert Simpson of Glasgow, and Dr. Matthew Stewart of Edinburgh, never seemed to feel even the slightest uneasiness from the neglect with which the ignorance of the public received some of their most valuable works. The great work of Sir Isaac Newton, his Mathematical Principles of Natural Philosophy, I have been told, was for several years neglected by the public. The tranquillity of that great man, it is probable, never suffered, upon that account, the interruption of a single quarter of an hour. Natural philosophers, in their independency upon the public opinion, approach nearly to mathematicians, and, in their judgments concerning the merit of their own discoveries and observations, enjoy some degree of the same security and tranquillity.”

Smith goes on the compare mathematicians with other men of letters:

"The morals of those different classes of men of letters are, perhaps, sometimes somewhat affected by this very great difference in their situation with regard to the public.

Mathematicians and natural philosophers, from their independency upon the public opinion, have little temptation to form themselves into factions and cabals, either for the support of their own reputation, or for the depression of that of their rivals. They are almost always men of the most amiable simplicity of manners, who live in good harmony with one another, are the friends of one another's reputation, enter into no intrigue in order to secure the public applause, but are pleased when their works are approved of, without being either much vexed or very angry when they are neglected.
" (TMS III.2.20: p 124-5)

How true this remains I could not say, but high-level mathematicians among economists, do tend to be exclusisve among themselves, and are distant from the general public; they also have a reputation for not looking outside their windows.

They don't share the comfort of their astronomer relations, who at least see their work vindicated by observations. After 130 years of mathematicising economics, pray tell us what they have either explained about events that have past, or predicted about events which actually happened, the last a much vaunted test of a 'hard science'?

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Saturday, February 14, 2009

A Theorist Writes - Badly

john joseph jay" posts (14 February) on Summer patriot, winter soldier HERE:

demise of democracy? of the nation state? the demise of the democratic nation state?

“in addition, the nation state required the birth of a man seldom mentioned anymore, let alone studied, which is indeed unfortunate, as his thought was a vital step in establishing the intellectual premises towards creating and understanding the personal and economic freedoms underpinning the democratic state, and the process by which individual decision making powered economies and political groupings. i speak of course, of adam smith. his ideas and analysis are literally, in my view, the underpinnings of the view that individuals may determine their futures without recourse to higher political structures, and that, indeed, for humanity to flourish individuals must follow their own individual paths, guided by their prescriptions and not the notions of others. adam smith coined the concept of “the unseen hand” as guiding the progress of societies, in one bold indefinable stroke obviating the need for paternalistic oversight of human affairs in politics and economics. his is a lesson apparently soon forgotten

An example of uniquely poor use of the English language as she is written.

It has a theatrical and affected prose style too: “the nation state required the birth of a man seldom mentioned anymore, let alone studied, which is indeed unfortunate”.

What is the science involved in a ‘nation state’ ‘requiring’ a specific birth ‘of a man’ to occur and this event occurring?

The answer is mumbo jumbo, mysticism, not science.

Adam Smith was conceived by his parents sometime in October 1722. His father was ill; he died in January 1723 (his Will is dated November 1722). Short of belief in an immaculate conception, that the future of the ‘nation state’ depended on a string of events implausibly linked to the fate of a nation or the world, is wildly improbable, and sheer hyperbole.

His was in inauspicious start; young Adam was a ‘sickly child’, tenderly cared for by his widowed mother.

his thought was a vital step in establishing the intellectual premises towards creating and understanding the personal and economic freedoms underpinning the democratic state.”

Again ahistorical misunderstanding. Adam Smith wrote of Liberty, not democracy. He didn’t have a vote under the existing franchise in Scotland.

his ideas and analysis are literally, in my view, the underpinnings of the view that individuals may determine their futures without recourse to higher political structures, and that, indeed, for humanity to flourish individuals must follow their own individual paths, guided by their prescriptions and not the notions of others.”

That may well be the ‘view’ of ‘John Joseph Jay’ about the most ‘mentioned’, discussed and ‘studied’ moral philosopher of all today. Never a day goes by in which Adam Smith is not written about somewhere in the world’s media – I know, I read most of it; sometimes 40 or more articles are published every day across all times zones.

adam smith coined the concept of “the unseen hand” as guiding the progress of societies

I won’t bother exposing this myth on this occasion. Down load from Lost Legacy's Home Page my paper 'Adam Smith and the Invisible Hand: from metaphor to myth' (clikc on the red print)

John Joseph Jay has a theory; it’s quite long and, if you are interested, you should follow the link; its, er, more than quite long.

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Walk On By Those Offfering to Make You Rich

Ron Ferguson, 'an entrepreneur who has many years of experience online', writes in the Money, Finance and Free Stuff Search Blog, HERE:

Online business Makes You Wealthy And Prosperous”

“Wealth is the most common a very familiar word throughout the world. Initially the phrase was derived from the old English word weal. Wealth carries many definitions and few of them are given by some distinguished people in the society, Adam Smith refers wealth as “the annual produce of the land and labor of the society” ‘Wealth’ refers to some accumulation of income, whether abundant or not. ‘Richness’ refers to an abundance of such income. A wealthy individual, community, or nation thus has more resources than a poor one. The opposite of wealth is destitution. The opposite of richness is poverty. Wealth can be categorized in a minor and major ways wherein wealth of a person or nation is the value of assets owned net of liabilities owed (to foreigners in the case of a nation) at a point in time

If an expert offers to show you how to make as much as he has made in business, common sense suggests you ask: ‘Why?’

One obvious answer is that the ‘expert’ intends to make money from showing those gullible enough to send him money for his alleged ‘know how’. But why is this more profitable for him than, presumably, continuing to make money on his own account from his online business?

In short, in the words of the song, when hearing ‘experts’ of this nature: “Walk on By”.

There’s a hint in Ron’s advertisement that almost gives the game away:

Ron Ferguson, an entrepreneur who has many years of experience online

But he does not say the nature of his experience – he may have had ‘many years of experience’ that showed him that it was too difficult to make money on-line - except by selling dreams to those who do not have his experience (yet) and are willing to part with money to continue dreaming.

Apart from all this, Ron slips in reference to Adam Smith defining wealth as: “the annual produce of the land and labor of the society”. Partly true, but as regular readers will know Adam Smith considered wealth as the annual produce or output 'of the necessaries, conveniences, and amusements of society’, and he did not confine wealth to the inputs of land and labour.

In short, output, not money, which in itself is a means to obtaining wealth, is not wealth.

The belief that gold and silver bullion were wealth was the major error of mercantile political economy from the 16th century onwards, which led to the non-creation of the real wealth that a county could produce by provoking wars and causing an absence of wealth for the very poor.

Finally, the above quotation from Ron is reproduced verbatim. But readers inspired to contact Ron may not notice the missing full stops, commas, and semi-colons, contained in the punctuation errors in its third 'sentence', suggesting it was written by a semi-illiterate author or an illiterate sub-editor (or both).


Friday, February 13, 2009

How to Make a Financial Crisis Worse

lMafukidze is the chairman and chief financial Architect of KM Financial Solutions, and he writes in Zimbabwe Independent (12 February) HERE:

Freedom, the Invisible Hand to Build Economy”

“In a now famous statement Adam smith (1723-1790) said that the combination of self interest, private property, and competition among sellers in the markets lead producers “as by an invisible hand” to an end that they did not intend, namely, the well–being of society.

In his legendary book published in 1776, The Wealth of Nations, Smith had a strong conviction that a market economy was a superior form of organisation for both economic progress and advancement of human liberty.

Yes markets are imperfect and there is need to regulate these markets, but the heart of Smith’s submission stands tall and largely true in 2009, over 200 later.

For economic progress, it is important that the government enhances and safeguards business and individuals to pursue their interests and capabilities in a competitive environment.

The government should aim mainly at creating equal opportunities, and protecting freedoms. Equal opportunities and freedom to pursue one’s interests are infinitely powerful motivating forces that have powered the wealth of nations for years

The last thing Zimbabwe, or any other country, needs is an incorrect theory about how economies work, especially one that encourages mythical notions of ‘an invisible hand’ guiding markets, and, in this case, acting ‘as if’ it does.

The ‘as if’ is a sure give-away that the author has not read Wealth Of Nations beyond a second-, or third or more-, rate quotation from some unreliable source (Smith never used the ‘as if’ qualifier in his once-only mention of the popular 18th-century metaphor of ‘an invisible hand’; - see Wealth Of Nations, Oxford University Press edition, 1976, page 456; or page 423, Edwin Canaan, 1937 edition, Random House).

To the false laxative of 'quantiative easing' on a grand scale, adding a mythical invisible hand can only spell more trouble.


Evolution Challenges Homo Economicus

Gary Marcus, a professor of psychology at New York University, is author of "Kluge: The Haphazard Evolution of the Human Mind" (Houghton-Mifflin, 2008), tell us to: “Forget About Survival of the 'Fittest'” in Wall Street Journal, HERE:

Evolution usually makes do with 'good enough'

“To the extent that evolution has often been forced to make do, contemporary economics has a serious problem. A great deal of contemporary economic theory has been premised on the assumption that individual human beings are "rational agents," people capable of reliably acting in their own self-interest, assessing costs and benefits with a sure eye toward making optimal choices.

If we were really creatures that invariably acted in the interests of our "selfish genes," the so-called homo economicus or "rational man" theory would have some substance. It would make sense to try to predict the actions of the multitudes by assuming that each individual would act in the interest of his (or her) own selfish genes.

In reality, we often don't. Although any fool will instantly realize that winning $5,000 is better than $500, daily life is filled with decisions that cannot be said to be rational, optimal or otherwise maximally fit. At the micro-level, we'll drive across town to save $25 on a $100 microwave, but not to save the same $25 on a $1,000 flat-screen TV, showing both that we are blind to the cost of our own labor, and confused about the fact that money is an absolute rather than relative commodity.
The average American watches three to four hours of television a day, which does nothing for our "reproductive fitness" or even for our happiness (regular TV viewers are actually less happy than those who watch rarely, as several studies have shown). Our brains often have trouble keeping our minds on track, even when vital decisions are at stake. We procrastinate on important projects until we have too little time to complete them properly, often making careless errors as a result, and we frequently sabotage long-term goals (like living a long, healthy life) in favor of ephemeral short-term pleasures (like smoking cigarettes). Such self-defeating choices afflict even the powerful and the brilliant (witness the decline and fall of Eliot Spitzer -- or the many who lost millions by investing in Bernie Madoff).
All this matters because endeavors like economics and social policy are all built around theories about what human beings are and how they function. We allow consumers access to credit cards, for example, because we assume (despite ample evidence to the contrary) that they will be smart enough to balance their short-term needs as consumers with their long-term capacity to maintain a fiscally sensible reality.

The new discipline of behavioral economics is aimed at addressing these issues, but is not taken seriously enough. Even now, in the eye of the worst fiscal storm in recent memory, we trust citizens to do the "right thing," without factoring in the quirks of our evolved psychology.

As we deal with the current crisis and in the years to come, it will behoove us as a society to recognize that evolution equipped us not with foolproof, steel-trap rational minds, but something more like a "kluge," a clumsy and inelegant mental patchwork that is good enough to get the job done, but far from perfect.

If humans were truly the fittest possible creatures one could imagine, the rational-man model would make sense. But the "fittest" that survived are not necessarily the fittest possible. We are flesh and blood creatures, filled with cognitive quirks that are the detritus of evolution. If we are to move past perpetual cycles of fantasy-driven booms followed by devastating busts, we must recognize evolution's limits, and confront them head-on.”

I am a regular critic of Homo economicus and rational agents, so I feel able to offer a correction to the statement from Gary Marcus, without being misunderstood:

“A great deal of contemporary economic theory has been premised on the assumption that individual human beings are "rational agents".

The correct statement is slightly, but importantly, different. Gary Marcus should have written:

“A great deal of contemporary economic theory has been premised on the assumption that individual agents in their theoretical models are "rational agents".

There can be no pretension that in the real economy individuals act as ‘rational agents’, nor that ‘Homo economcus’ is other than a theoretical abstraction first postulated in the late 19th century when the first steps were made by ‘smart’ economists to abandon ‘political economy’ in favour of mathematical make-believe.

Gary Marcus is absolutely correct in the general tenor of his article. Myths of ‘rational agents’ being representative of human beings are now so firmly entrenched in our discipline (often with a mixture of enthusiastic pride and disdainful put-downs to those who protest that far too much is concluded about so much of economic life from too narrow a connection with reality).

Any study of evolutionary theory, and of human history (and pre-history!) shows how varied are any species in their behaviours in their multiple environments, including at, and beyond, their normal localities.

Indeed, natural selection shows many biological cul-de-sacs, so to speak; social evolution among humans shows as many ‘dead-ends’ in social forms, of which the large stone detritus strewn around Europe and beyond, and small stone artifacts, cave paintings, and ‘grave goods’, strewn everywhere else, are strong reminders.

The ‘religion’ of rational man is due for a quiet burial. It offers little as a reliable explanation of the current crisis (it caught its exponents ‘off-side’, as we say in football). Whether ‘behavioural’ economics is the answer remains to be seen, but it certainly looks like a step forward.

[I have ordered Gary Marcus's "Kluge: The Haphazard Evolution of the Human Mind" and shall report in due course on its merits.)

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Thursday, February 12, 2009

Selfishness Is Never a Smithian Virtue

Theodore Roosevelt Malloch, author of Spiritual Enterprise: Doing Virtuous Business (Encounter Books), writes in American Spectator this week, ‘The Deeper Roots of Our Financial Crisis’ (11 February), HERE:

Capitalism, the goose that laid our golden eggs over the past decades, brings about immense transformation, particularly in its globalized form. It is in nature as Adam Smith reminded us in his first book, The Theory of Moral Sentiments, written long before his better-known work, The Wealth of Nations, all about what he called "the moral sentiments." He himself distinguished between self-interest, which he promoted, and greed. Self-interest is both good and essential. Greed is always wrong and bad. The key difference is the former uses self-restraint, which obviously requires a moral code and a moral compass. There are moral preconditions in a market economy: the sentiments of sympathy, benevolence and compassion, of approval; disapproval and indignation, which underpin the social order and make it possible to engage in business in the first place. Human beings are not just profit-maximizers. They have moral scruples, personal commitments and the desire for happiness. These set limits to their plans for personal profit, and also stimulate them to pursue profit in ways that honor their higher values and generosity. Many companies, large and small, exhibit these; they live and conduct business by these values, in every industry and on every continent. I collected sixty examples in my recent book but there are thousands upon thousands.”

Adam Smith also taught his course in ‘Ethics’ (moral philosophy) in his public Edinburgh Lectures, 1748-51, and at Glasgow University, 1751-64. Much of their contents were written up as The Theory of Moral Sentiments (1759). It is also important to realise that he also taught his Lectures on Jurisprudence, which contained elements of his ‘political economy’ and parts of which were repeated verbatim in Wealth Of Nations (1776 – though essentially completed c. 1763-4).

I mention this to be sure that Theodore Roosevelt Malloch does not accidentally give the impression that Smith’s moral philosophy was in some sense an ‘early work’ that was different in moral tones from his Wealth Of Nations, published some years later. Smith’s Work, essentially, a part of his oeuvre was not a ‘second thought’ as exponents of the myth of the 19th-century, ‘Das Adam Smith problem’, still tout seriously today (I heard a paper claiming it to be a continuing problem in 2008!).

Having said this, I congratulate Theodore on his assessment of Smith’s clear understanding, and repeated statements of the difference between self-interest and selfishness.

This is the second time today that I have offered congratulations to an author on this subject, which certainly makes a change from almost daily having to chastise authors for eliding the two quite separate motivations of self-interest and selfishness, and worse, attributing the erroneous elision to Adam Smith.

Smith didn’t ever get confused on this matter. Those authors – sad to say, many of them economists – who do so, confuse Adam Smith with a predecessor, Bernard Mandeville (1734), whom Smith criticised in Moral Sentiments as ‘licentious’, and they exhibit the ignorance of the Hollywood script writer who had Gordon Gecko mouth the savage words, ‘greed is good’, or perhaps, like Alan Greenspan of the Ayn Rand school of selfishness, misread what Adam Smith actually wrote, perhaps relying on Ayn to be authentic.

That misleading ideas about Adam Smith are not unanimous, encourages Lost Legacy in its not so-lonely battle against the epigones.

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Dipanka Dasgupta's February Lost Legacy Prize

Dipankar Dasgupta, former professor of economics, Indian Statistical Institute, , in The Telegraph, Calcutta, India, 12 February, HERE:

‘The Wickedness Theory’

Greed, of course, is a strong expression, bearing as it does the connotation of sinful behaviour. To the extent, though, that one is sitting on judgement against the background of market-driven societies, a paradox of sorts seems to arise. In this context, one cannot fail to recall one of the most frequently quoted sentences from Adam Smith’s Wealth of Nations: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Smith, of course, may not have had market economies alone in his mind when he wrote these lines. It was a broader statement, indeed, for he was explaining a natural propensity for barter among civilized human beings. The latter acquire from others objects for their sustenance not by brute force, but through exchange based on mutual consent. Moreover, the consent in question is guided by self-interest. Or, as Smith points out, “Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer....” (One wonders, of course, if British colonial rule conformed to Smith’s perception of civilized behaviour.)

While Smith’s notion of self-interest cannot be identified with greed by any means, the dividing line between the two concepts turns imperceptibly thin once we move on to market-driven economies or capitalist societies. The driving force underlying the capitalist mode of production happens to be profit and, even without Marx’s insight, one ought to be able to appreciate the fact that more profit is necessarily preferred to less. Or, to link it to Smith’s wisdom, a capitalist’s self-interest lies in profit-making, and it is quite pointless to set an upper bound on the volume of profit that capitalist enterprises might desire. When an excess of revenue over cost constitutes the bull’s eye, the larger the excess, the happier is the man taking his aim.”

There is much else in Dipankar Dasgupta’s article (follow the link to read it). I praise Dipankar for his (?) appreciation of the true conclusion from Adam Smith’s famous paragraph of ‘the butcher, the brewer, and the baker’, which is about the ‘propensity to truck, barter, and exchange’ for mutual advantage, and not an assault of the moral behaviour of benevolence, as some badly informed people continue to repeat, possibly because they read only the short quotation and not the second chapter of Wealth Of Nations.

But Dipankar avoids that error. He also avoids the crass error (not too strong an expression, because the error is grossly crass) in confusing Adam Smith’s self-interest with selfishness. However, I do not agree that the distinction between selfishness and self-interest is “imperceptibly thin” in capitalist societies (a different form of market-driven society to that observed by Smith in mid-18th century Britain), particularly as Dipankar sees the profit motive as being the essential trigger for the change.

The characteristic difference in markets undergoing societal changes is that activities which begin as highly profitable tend to become less so as new entrants into those markets arrive and through competition drive down the rate of profit (I discussed this on Lost legacy recently). Capitalists engage in ever finer divisions of labour, and the outsourcing of inputs in longer supply chains, to drive down unit costs, which means price reductions for consumers and rises in their real incomes, while growing employment drives up their money incomes at the expense of declining profits.

The notion that there is an ever lasting rise in profit rates for bloated capitalists (more like salaried managers with share options, and dividends for shareholders, the majority of which are pension funds) is mythical, except in the current ‘good thing’ (derivative innovators) where large earnings attract finance specialists who drive down bountiful profits in time, until the next ‘good thing’ arrives. There is also the inevitable ‘bust’ cycle that ends every boom and bubble.
All this is despite individuals craving ‘more’ against the realities of the eventual ‘less’. And it is this psychological ‘delusion’ that keeps the economy ticking over (it keeps soldiers going in the heat of battle – ‘it won’t happen to me’…).

Technological possibilities are not ending; new ‘good things’ are on the horizon.

Smith puts it well:

And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants.” (TMS IV.ii.10: p 183)

And Dipankar Dasgupta gets these thought mostly right. It is great to see an Indian economist understands these matters better than the majority of mainstream US and UK economists.

For this article Dipankar Dasgupta is awarded February's Lost Legacy Prize.

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Wednesday, February 11, 2009

To Predict It Is Necessary to Know Your History

Dani Rodrik, Professor of Political Economy at Harvard University’s John F Kennedy School of Government, writes in the Business Standard (India) HERE:

Those who predict capitalism's demise overlook its historical malleability.”

“Capitalism is in the throes of its most severe crisis in many decades. A combination of deep recession, global economic dislocations, and effective nationalization of large swathes of the financial sector in the world’s advanced economies has deeply unsettled the balance between markets and states. Where the new balance will be struck is anybody’s guess.

Those who predict capitalism’s demise have to contend with one important historical fact: capitalism has an almost unlimited capacity to reinvent itself. Indeed, its malleability is the reason it has overcome periodic crises over the centuries and outlived critics from Karl Marx on. The real question is not whether capitalism can survive — it can — but whether world leaders will demonstrate the leadership needed to take it to its next phase as we emerge from our current predicament.

Capitalism has no equal when it comes to unleashing the collective economic energies of human societies. That is why all prosperous societies are capitalistic in the broad sense of the term: they are organized around private property and allow markets to play a large role in allocating resources and determining economic rewards. The catch is that neither property rights nor markets can function on their own. They require other social institutions to support them.

So property rights rely on courts and legal enforcement, and markets depend on regulators to rein in abuse and fix market failures. At the political level, capitalism requires compensation and transfer mechanisms to render its outcomes acceptable. As the current crisis has demonstrated yet again, capitalism needs stabilizing arrangements such as a lender of last resort and counter-cyclical fiscal policy. In other words, capitalism is not self-creating, self-sustaining, self-regulating, or self-stabilizing.”

“The history of capitalism has been a process of learning and re-learning these lessons. Adam Smith’s idealized market society required little more than a “night-watchman state.” All that governments needed to do to ensure the division of labour was to enforce property rights, keep the peace, and collect a few taxes to pay for a limited range of public goods.”

“The share of public spending in national income rose rapidly in today’s industrialized countries, from below 10 per cent on average at the end of the nineteenth century to more than 20 per cent just before World War II. And, in the wake of WWII, most countries erected elaborate social-welfare states in which the public sector expanded to more than 40 per cent of national income on average.”
“The lesson is not that capitalism is dead. It is that we need to reinvent it for a new century in which the forces of economic globalization are much more powerful than before. Just as Smith’s minimal capitalism was transformed into Keynes’ mixed economy, we need to contemplate a transition from the national version of the mixed economy to its global counterpart.”

This means imagining a better balance between markets and their supporting institutions at the global level. Sometimes, this will require extending institutions outward from nation states and strengthening global governance. At other times, it will mean preventing markets from expanding beyond the reach of institutions that must remain national. The right approach will differ across country groupings and among issue areas.

Designing the next capitalism will not be easy. But we do have history on our side: capitalism’s saving grace is that it is almost infinitely malleable.”

Dani Rodrik is an excellent economist and thoughtful commentator, and I have considered his contributions to international debate as constructive. I have to make some fairly basic points about his post in the Business Standard (you should read his article in full by following the link).

He starts off well, even prophetically: “Those who predict capitalism's demise overlook its historical malleability”, which is well worth many current commentators reading and thinking about, who, jumping the gun, predict the imminent demise of all forms of capitalism, much of it in the form of the State-Capitalism most of us live in.

Those who approach such a prospect with joyful hope are going to be disappointed.
As I was disappointed to read Dani’s paragraph:

Adam Smith’s idealized market society required little more than a “night-watchman state.” All that governments needed to do to ensure the division of labour was to enforce property rights, keep the peace, and collect a few taxes to pay for a limited range of public goods.’

This is a crude caricature of Adam Smith’s observations about the commercial society he lived in, and what he proposed for it as it increased the annual output of the ‘necessaries, conveniences, and amusements of life’ and, not forgetting, as it ‘spread opulence’ towards the labouring poor. His time-scales somewhat longer than a politician’s electoral horizon – even longer than a dictator’s life expectancy.

Dani uses the well-worn phrase, “night-watchman state” in association with the name of Adam Smith, as if the two go together in an eternal association. Strange! Given that the “night-watchman state” was uttered first by Ferdinand Lassalle, the fire-brand, 19th-century State Socialism, when he was mocking the laissez-faire politicians of the right for fiddling for penny profits in business and ignoring (what was obvious to socialists like Lassalle and his ilk) the far greater power and authority that would come from gaining controlling the State. No piddling capitalist ever controlled as much wealth and command over resources of the most petter politician!

But Adam Smith’s ideas were not limited by visions of a “night-watchman state”.

Writing in the mid-18th century, Smith’s agenda for government was already extensive, and promised by inevitable osmosis a far from insignificant state employing ‘night watchmen’.

At the time, defence was already a major expense of government; it did not diminish in the coming century, with its global reach of the Royal Navy and a military reach to match.

The growth of the expense of justice was already threatening to reach beyond the relatively passive bounds of local magistrates, especially as the list of capital crimes grew inexorably beyond the capacity of jails and ship’s hulks to hold those not hanged, so much so that the expense of founding a new colony in New South Wales was undertaken in 1788.

Smith’s agenda for public works and public institutions that ‘facilitated commerce’ was so extensive that it would take near on a hundred years to build and improve the necessary roads, canals, harbours and bridges, and by then whole new projects were added to the rising financial powers of municipal governance from the industrial ‘revolution’.

In education, universal provision across the 60,000 parishes of ‘little schools’ on the Scottish model, required 60,000 school buildings, teaching staffs, libraries and furniture, plus their annual maintenance, paid for partly by the state and by parents. He even had a scheme for gymnasia for exercises and crude martial fitness.

Significantly, Smith also alluded to primitive health measures in Wealth Of Nations, worthy of the government’s ‘most serious attention’ to prevent the spread of ‘leprosy or any other loathsome and offensive disease’. It would start there and expand when dealing with other health issues considered to be ‘so great a publick evil’. (WN V.i.f.60: pp 787-88)

Similarly, policies to meet the ‘police’ obligations of Britain’s towns implied considerable municipal expenditures (and taxes) to meet the needs for night lighting, pavements, disposal of soil and rubbish, and the maintenance of law and order.

True, the total expenditure required in Adam Smith’s Britain was relatively small alongside the total expenditure that would be required in the continental United States by the time of Ferdinand Lassalle (1870s). But it was much, much more than a ‘night watchman state’.

Dani claims that Smith believed: “All that governments needed to do to ensure the division of labour was to enforce property rights, keep the peace, and collect a few taxes to pay for a limited range of public goods.”

This is journalism, echoing the 1755 paper of Smith's, but is not a proper audit of Smith's ideas by a leading economist.

I suspect that Adam Smith and ‘division of labour’ go together in the minds of Dani’s readers, but with industrialisation, the division of labour in the pin factory had been superseded by the much more significant increasing division of labour of the kind alluded to by Adam Smith in his example of the day labourer’s ‘woollen coat’ and the long and complex supply chain required to produce this simple item. (WN I.i.11: pp 22-24)

The implications of this less well-known example of Smith’s insight (how few read on past the pin factory?) has been reactivated following the ‘re-discovery’ of Allyn Young’s 1928 article, ‘Increasing returns Increasing Returns and Economic Progress’, (Economic Journal, vol. 38. 1928: pp: 527-42).

Dani anticipates that “Designing the next capitalism will not be easy”. But if the ‘next capitalism' is down to ‘human design’, I must express scepticism as to its practicality. Capitalism was not designed, though futile attempts at socialism were ‘designed’, but unfortunately did not work out for those who had to endure the experiments.

Societies can legislate for this or that form of parts of their economies; sometimes they work, and last for a while, voluntarily; most often they don’t.

Social evolution is not about design, it’s about experimenting, sometimes intentionally, sometimes unintentionally. It has ever been thus. That is why history if littered with social experiments – the pyramids, the ‘hanging gardens' of Babylon, the Great Wall of China, the Scottish clans, the French majesties, ancient Greece and Rome, the hordes of Genghis Khan, Mahomet’s promises, the Czar’s empire, and the anonymous stone-tool makers of pre-history.

Globalism does not make co-ordinated design any easier, or local initiatives more difficult.

At root, when all else is failing, the Smithian urges to ‘self-betterment’, the ‘propensity to truck, barter, and exchange’ to ‘avoid toil and trouble’, will assert themselves, no matter what else is happening, somewhere among some people, humanity will start over.

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Tuesday, February 10, 2009

Caveat Emptor - The Quote Suspect

‘Trent’ posted ‘Maturity and Money’ on ‘Easy Simple Side Money’, allegedly (caveat emptor!) "
A place for the little guy to learn how to make a couple bucks on the side.’

"The one absolute requirement of a money manager is emotional maturity. If you don’t know who you are, the stock market is an expensive place to find out.
- Adam Smith

I ran across that amazing quote from Adam Smith (an 18th century economist that’s often seen as the father of modern economics) the other day at the library and it’s stuck with me

Wherever ‘Trent’ got this spurious quotation from it was not from Adam Smith (1723-90).

I suggest Trent's readers ask him to check the library he says he got it from – someone may be conning him, which in the money advice business could be fatal for his readers’ wealth.


The Misteaching of Students - I Blame Their Tutors

Three students, judging by their Blogs, which contain their essays on the same set reading, “Garrett Hardin, The tragedy of the Commons, Science, 162(1968):1243-1248”, come to erroneous conclusions about the parable of the ‘Tragedy of the Commons’ and, in passing make, reference to Adam Smith and his alleged views of individual self-interested choices and their aggregate consequences for society. These illustrate the epigones in modern teaching at work distorting Adam Smith’s legacy:

First the posts:

1 Chandana Damodaram writes HERE:

According to the conclusions laid down by Adam Smith, all the decisions which reach the individual will in fact be the decision made for the entire society. Each individual pursues his best interest to explore the freedom of the commons so as to maximize his profit which eventually brings ruin to all. Each man is locked up in the system which forces him to increase his usage of the commons without the limit, in a world that is limited. Individual benefits through the denial of the truth of how the freedom of commons is affecting the society as a whole around him. Author refers to this as the “Tragedy of Freedom in a commons”.

2 Jim Totten writes HERE:

In "The tragedy of the Commons" Hardin explores the inherent weaknesses of the socio-economic view (Post Adam Smith) when applied to areas of common property. Hardin argues against Smith's position that the decisions of individuals tend to be the best decision for society as a whole since each individual agent will act an a manner that increases their own benefits. Hardin argues that while Smith's "invisible hand" might have been true at some point in history it fails to hold up in modern times in the face of increased population density.”

Andrew writes HERE:

Hardin contrasts the Tragedy of the Commons to the laissez-faire principles of Adam Smith, which state that what is good for the individual will be good for society. Examples of the Tragedy from the paper include population growth, exploitation of natural resources, and pollution of the environment. The author concludes that “the morality of an act is a function of the state of the system at the time it is performed” and that historically the only way to solve the tragedy of the commons is through regulation or through transforming the commons into private property, forcing people to take responsibility for their own actions.

I also agree that, when possible, transforming the commons into private property is the most effective way of averting the tragedy of the commons. At times in the paper I felt like the paper was more about promoting the author’s own individual beliefs on population than about actual science

Chandana Damodaram reports that Adam Smith said the individual sees his “best interest” as using the “freedom of the commons so as to maximize his profit which eventually brings ruin to all.”

The tragedy of the commons is not confined to a modern profit-maximisation model; herders can overgraze the commons because of the actual or anticipated overgrazing by others, who may not leave enough grass to keep their animals alive.

Children overuse the cookie jar’s contents out of wasteful eating, by not finishing their biscuits, dropping or leaving them carelessly, and so on; this has nothing to do with profit maximisation; it is the unconstrained use of a resource at zero price to them in the absence of property rights.

The tutor should point that out, gently.

Jim Totten reports that “Hardin argues against Smith's position that the decisions of individuals tend to be the best decision for society as a whole since each individual agent will act an a manner that increases their own benefits. Hardin argues that while Smith's "invisible hand" might have been true at some point in history it fails to hold up in modern times in the face of increased population density.”

This completely over states an alleged position of Adam Smith that “the decisions of individuals tend to be the best decision for society as a whole since each individual agent will act an a manner that increases their own benefits.”

Adam Smith did not make such a nonsensical statement because it equates any and all self-interested actions of people as being benign, which most certainly was not his view at all.

Smith gives over 50 examples in Books I and II of Wealth Of Nations of examples to the contrary of the above alleged assertion:

WN: BK I: 40; 43; 51-2; 77; 78; 79; 80; 84; 89; 90; 91; 95; 96; 106; 111-12; 115; 116; 124; 125; 126; 135; 136; 137; 139;140; 141;142; 143; 144; 145; 146; 151; 152; 153;154; 156; 157; 158; 160; 163; 171; 174; 266-7 [47]; BK II: 285; 302-03; 304-05; 308; 310-17;321; 323-24; 326; 339-42; 344; 346.

Will Jim's tutor make this clearer so that his students are well informed? Or is the tutor the source of such errors?

Which raises the question as to where tutors, including Garrett Hardin, got these ideas from about Adam Smith?

If Hardin ‘argues that while Smith's "invisible hand" might have been true at some point in history it fails to hold up in modern times in the face of increased population density’, he almost certainly is wildly wrong.

The myth of Smith’s use of the metaphor of the invisible hand never applied as ‘true’ or ‘false’ – it was an remains a literary metaphor. As Adam Smith said of metaphors, while discussing Shakespeare’s use of them: they were a ‘figure of speech’ in which ‘there must be an allusion betwixt one object and an other’, and that a metaphor can have ‘beauty’ if it ‘is so adapted that it gives due strength of expression to the object to be described and at the same time does this in a more striking and interesting manner’. (Lectures on Rhetoric and Belles Lettres, p 29, 29 November 1763, ed. J. C. Bryce, Liberty Fund, Indianapolis).

Andrew asserts another false conclusion of Adam Smith: “Hardin contrasts the Tragedy of the Commons to the laissez-faire principles of Adam Smith, which state that what is good for the individual will be good for society.”

Whatever Hardin contrasts with laissez-faire, they have no relevance for Adam Smith who did not hold to a laissez-faire stance on how commercial societies worked, or ought to work. Smith was not a laissez-faire ideologue at all. That assertion confuses Smith with some of the French Physiocrats (1760-66) who did advocate laissez-faire; the plain fact remains that Adam Smith did not.

Scroll down a few posts on Lost Legacy to Monday's post where I rebut the erroneous mid-19th century notions, endlessly repeated through to the 21st century, about Adam Smith and which are not based on a close reading of Wealth Of Nations (or see Gavin Kennedy, Adam Smith: a moral philosopher and his political economy, 2008, Palgrave Macmillan).

The notion that Smith said “that what is good for the individual will be good for society” is a variation on what Jim Totten says above and to which I have responded.

However, I did agree with Andrew’s accurate assessment of Hardin’s paper that “At times in the paper I felt like the paper was more about promoting the author’s own individual beliefs on population than about actual science.” [A sure sign of a wide-awake student who might go far! I hope his tutor notices his early talent]

Overall, these three short tutorial essays by these three students provides an insight to the continuing harvest by modern economic teachers of new recruits to the ahistorical understanding of Adam Smith’s legacy and the perpetuation by the epigones, including by those at the very top of our discipline, of myths about Adam Smith to the detriment of general understanding of economics and a slight upon the Adam Smith born in Kirkcaldy in 1723.

Readers may download my paper: "Adam Smith and the Invisible Hand: from metaphor to myth" from Lost Legacy's Home Page (click on the red notice)

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