Saturday, May 30, 2009

Dangerous Crowds of Activists Gather to Excite Each Other

Sarah Kuck reports on “Using Human Rights Law to Address Climate Change” (29May) in 'World Changing change your thinking’ HERE: in which Victoria Hykes Steere, author of an essay titled “An Iñupiaq Reflection on ‘Ice,’” from Global Warming Reader, by William H. Rodgers, Jr., Jeni Barcelos, Anna Moritz, and Michael Robinson-Dorn, (in press, Carolina Academic Press, Durham). She is also a former law student of William H. Rodgers, Jr., at the University of Washington School of Law, speaks on “What are the legal and human rights implications of climate change?”:

"Our market-based economy owes its existence to Adam Smith and his tract, "The Wealth of Nations." We now must rethink our consumer-based economy. We must learn to share this planet with one another and all animals. The challenge to use climate change to create the opportunity to remake the way we interact with the earth's systems is inspiring. The chance to totally reshape our relationships with the earth, each other and to ensure future generations rarely comes. We must all reach out of our comfort zones and make the message simple. The lives of our children, the oceans, and animals flicker in front of us. Simple is best. Not fear, not anger or guilt but some thing simple and beautiful that we all dream together with the political will to make the dream reality.”

Victoria begins with an absurdity: ‘Our market-based economy owes its existence to Adam Smith and his tract, "The Wealth of Nations."’ It doesn’t get much better.

The commercial society, of which she refers, was formed long before Adam Smith and 1776. It was active in Britain in the centuries before the 18th century from which emigrants from Britain took with them to North America. It is safe to say that if Adam Smith had never lived, let alone had never written Wealth Of Nations (some ‘tract’ at nearly 1000 pages!), commercial society in what became the United States of America would have continued to flourish, just as it did in Britain and Europe. It does not ‘owe is existence’ to Adam Smith!

If Victoria wants to ‘rethink’ her ‘consumer-based society’, and to urge others to do so, she is free to do so – largely because Britain in Europe had evolved the instruments of liberty (rule of law, independent justice, separation of powers between King and parliament, Habeas Corpus, and private property).

She wants to ‘totally re-shape our relationships with the earth, and each other’, an ambition that is no mean challenge, especially as it requires that ‘we all dream together with the political will to make the dream reality’. I fear that Victoria’s dream hosts the roots of the age of totalitarianism like the world has never seen – and lets face it, the earth has hosted some pretty accomplished totalitarians who were not shy of soaking their dreams in considerable rivers of blood and angst.

And who is to blame for the US predicament? Why a mild, 18th-century moral philosopher, Adam Smith, who never sought to enforce his observations of how the world worked (badly, as it happens) upon anybody. Who sought by his writings in both of his Books, ‘The Theory of Moral Sentiments’ [1759] and ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ [1776], to influence legislators and those who influenced them – he never had a vote under the existing electoral franchise (never forget, liberty is more important than democracy) – to address some important problems that he considered worthy of the early attentions of governments.

He did, however, leave some important messages applicable to Victoria, and all of her ilk at present adding determination to their sense of urgency and pending doom (always a toxic mix for activists).

Smith writes of political activism in Moral Sentiments in two parts. The first is for those whose ‘public spirit’ is ‘prompted altogether by humanity and benevolence’:

The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force; but will religiously observe what, by Cicero, is justly called the divine maxim of Plato, never to use violence to his country no more than to his parents. He will accommodate, as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniencies which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the right, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear.”

The second is for ‘the man of system’ who is ‘apt to be very wise in his own conceit’:

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.”
[Both from The Theory of Moral Sentiments, Book VI.ii.2:116-17]

If Victoria and her ilk were ever to read Adam Smith’s books, they would learn a lot about the manifest gaps in their education.

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A Funday Piece of Advice from Economics 101

A Correspondent writes:

This is from an article in the St. Petersburg Times Newspaper on Sunday.

The Business Section asked readers for ideas on "How Would You Fix the Economy?"

I think this guy nailed it!

Dear Mr. President:

Please find below my suggestion for fixing America's economy.

Instead of giving billions of dollars to companies that will squander the money on lavish parties and unearned bonuses, use the following plan. You can call it the Patriotic Retirement Plan:

There are about 40 million people over 50 in the work force.

Pay them $1 million apiece severance for early retirement with the following stipulations:

1) They MUST retire. Forty million job openings - Unemployment fixed.

2) They MUST buy a new American CAR. Forty million cars ordered - Auto Industry fixed.

3) They MUST either buy a house or pay off their mortgage - Housing Crisis fixed.

It can't get any easier than that! If more money is needed, have all members of Congress and their constituents pay their taxes.

If you think this would work, please forward to everyone you know.
If not, please disregard.


Friday, May 29, 2009

Serious Adam Smith Studies

Check out the International Adam Smith Society (IASS) HERE

Now in its 6th year with its Adam Smith Review (ASR) (annual), peer reviewed journal of authoritative, interesting and well written articles, symposia, and book reviews of recent Adam Smith scholarship, it is worth the annual subscription fee alone (members receive it automatically).

Contributions cover not just economics, but also moral philosophy, sociology, English literary aspects of Smith's works, classical history (a major interest for Adam Smith - he considered the fall of Rome in the 5th century a major defining event in the successor regimes that made modern Europe by the 18th century), and politics.

IASS helps to place Adam Smith in the context of his wider interests, not just his political economy.


Nicholas Gruen on Intellectual Property

Nicholas Gruen, an Australian economist, who has featured several times on Lost Legacy, posts at Club Troppo HERE and his recent paper:

Adam Smith 2.0: Emergent Public Goods, Intellectual Property and the Rhetoric of Remix”, presented to the Copyright Future: Copyright Freedom Conference, Canberra (27th May) is now available (follow the link). Here is his introduction:

“I put quite a bit of effort into my two pieces on Adam Smith in Ross Gittins’ column while he was on leave and got quite a lot of positive feedback about them. So when I was asked to talk to an excellent conference organised by the indefatigable Fitzgerald siblings of QUT - Professors Brian and Anne - entitled Copyright Future: Copyright Freedom about the law of copyright in the age of the internet I decided to try to turn those columns, particularly the latter one, into a more substantial paper. Some academic stars were in attendance from around the world including Lawrence Lessig and it was a great conference. Plaudits to the Fitzgeralds and others associated with it.

One thing I really liked was the terrific way in which PhD students were involved, giving five minute talks on their research, being involved as discussants. They’re doing interesting things, and we were interested to hear what they were. Still, I christened Brian “Brother Didactica” because boy did we have a meal to chew through - full on papers, comments, discussants, questions, slide shows, from 8j.30 am till 6.30 at night. Seventeen people wheeled on and off the stage efficiently before lunch! And on it went.

I was one of the very few economists there, and was alarmed at how much of a meal lawyers can make of things that economists see as non-issues (like how to get the last penny of royalties to the copyright holders of ’orphan works’ - that is works that are not ‘public domain’ but for which rightful owners of copyright can’t be found.) I was sitting in a lengthy session about this and other not dissimilar problems in amazement that no-one reached for an economic perspective on this stuff (even if they didn’t want to treat it as the final word). I hope to blog about this. I wanted to say that there should have been more economists at the conference - which there should have been. But I didn’t want to say that if only economists were in attendance it would all be sorted. So if I get round to the post I have in mind I’ll spell out a little more about what I mean and explain where I think economists’ reasoning is strongest (something I’ve already forshadowed above) and where I think economists don’t think particularly well, and where lawyers do a better job.

In the meantime, I thought I’d post my talk which is the ‘paper’ of the ‘column‘ as it were, which I was pleased to find Mark Thoma thought worthy of his fantastic site Economists’ view. Likewise Gavin Kennedy liked my earlier column about Adam Smith and mirror neurons. Gavin and Mark Thoma have also picked up Don Arthur’s post on Adam Smith on poverty.”

(Excuse the shameless plug.) Nicholas is not just an economist; he is also a talented writer and he understands Adam Smith better than most who claim to quote him authoritatively. In short Nicholas has read Smith’s books, joining a very small elite among economists, and an even smaller elite of those who write about him with false confidence in the mainstream media.

Currently, I am in correspondence with Nicholas over his use of the phrase ‘hard wired’ in relation to human capacities for sympathy. His use fits the themes of ‘Web 2.0’ - it sounds ‘ITish’ – and therefore possibly legitimate on poetic grounds, but I am not so sure that it is appropriate for Adam Smith’s thinking.

Innate capacities in some sort of moral faculty, as asserted by Francis Hutcheson, Smith’s tutor and mentor, were rejected by Smith when he wrote Moral Sentiments, and presumably in the lectures he delivered on Ethics at Glasgow University (1751-1764) – and possibly during his public lectures at Edinburgh (1748-51) – in favour of the firm idea that humans acquire their capacities for sympathy from social experiences, first as infants and youth from their contact with others (the ‘great school of self command’).

Without that social contact, a human would have no notion of sympathy for others. Fortunately, humans have always been born into social contact (as were the primates before them). Absent their parents and contact only with non-human animals (a case was reported this week of a child growing up only with dogs and behaving like a dog) the person would be bereft of any notion of human behaviour. Smith asserted that because they had no mirror on their behaviour they would have to learn how to behave when they did come into society, which is where normal human beings learn about moral behaviour (whether they practice it or not).

I conclude that our moral capacities are not ‘hard-wired’; they are not placed there by God or Nature. This is also seen in the different behaviour sets practiced by humans living in different social cultures and how behaviour sets can clash remarkably clearly when in contact. Smith noted in Moral Sentiments how people in groups living off murder and theft would have to desist from murdering and stealing from each other if their society were to function – though they may happily murder and steal from people in other societies.

Our discussions continue… Meanwhile, follow the link and enjoy Nicholas' great writing and thinking talent - there ain’t a lot of it about and much of what there is available you will find in Nicholas Gruen’s short articles.

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Wednesday, May 27, 2009

An Oxford Economist Comments on Adam Smith and 'An Invisible Hand'

Mark Koyoma, an editor of the Oxford journal, Oxonomics (Economic Perspectives from the Dreaming Spires) HERE: reports on the Kennedy-Klein debate on my paper, ‘Adam Smith and an invisible hand: from metaphor to myth’:

The Fight over Adam Smith’.

Lost Legacy will be publishing a response to Dan Klein’s reply in September in EconJournal Watch and therefore will not reply directly to Dan Klein’s interesting and well-considered article until then. You can read both my paper and Dan’s reply HERE>

However, I consider it appropriate to take up a paragraph from Mark Koyoma’s lucid article, without breaching my self-denying ordinance in respect of my September more detailed response to Dan Klein.

At several points in both the theory of Moral Sentiments and the Wealth of Nations, Smith suggests a theory of social order as a emergent and self-organizing phenomenon. He also dwells on the role self-interest plays both in motivating the baker to supply us with bread and in driving merchants to pursue monopolistic rights and privileges. The interactions of self-interested individuals are what is ultimately driving the formation of the types of societal orders Smith is interested in. Together these two points suggest that identifying what institutions lead the interaction of self-interested individuals into produces socially suboptimal ends and what institutions lead to socially desirable ends, is an important question. From this perspective, the term `invisible hand' is a convenient short 'hand' for the types of processes that lead to 'good' outcomes.”

I think Mark Koyama has got it about right in the quoted paragraph, except for the mysticism he insists on including in his last sentence. There are two outcomes(roughly speaking) possible in any social interaction to which we can usefully contemplate. One is “what institutions lead the interaction of self-interested individuals into produc[ing] socially suboptimal ends and what institutions lead to socially desirable ends.”

Now about that we are in unanimous agreement! Smith makes it clear (I refer to over 60 instances where the self-interested action of individuals where he does so) that there are multiple instances of sub-optimal outcomes identified in Wealth Of Nations in Book I and II (I stopped counting from Book III because this book and Book IV are predominantly about the sub-optimal outcomes of Mercantile Political Economy and from history, and Book V is about government expenditure and revenue raising).

The other kind of interactions producing optimal outcomes are different, but are not unexplainable! Smith does exactly explain how they come about, as he does in the famous paragraphs in Book IV which end with – don’t begin with – the use of the metaphor of ‘an invisible hand’ to do what a metaphor is supposed to do (as described in his Lectures on Rhetoric and Belles Lettres in 1763).

The metaphor was not an explanation – he had already given that in paragraphs 1 to 9 – it was a poetic flourish, if you like. But instead of its being seen as a metaphor it was re-structured as an explanation – a ‘theory’, even a paradigm - ascribing to Smith something he never implied. And that is the point. The modern construction – general equilibrium theories – is modern, not Smith’s.

Worse, the two alternatives outcomes that Mark has highlighted have been melded together by popular usage in post-War American dominance of the deiscipline from the 1940s into a single myth that the self-interested actions of individuals in a market economy inexorably lead to the benefit of society, irrespective of whether the self-interests of individuals tip in selfish greed, a wholly false attribution to anything Adam Smith wrote.

I have no objection to modern economists drawing such a conclusion in their own names; but it had nothing to do with Adam Smith’s ideas about markets or his use of the metaphor of an invisible hand.

That Hayek found some resonance in the metaphor for his work on ‘spontaneous order’ is a secondary issue, unless linked to the modern economists’ simplistic and politically dangerous notion of whatever self-interested individuals – and, pace Friedman, corporations, assisted by big government - do, they somehow benefit society,. which is precisely Smith's departure from the then prevailing Mercantile Political Economy of 'merchants and manufacturers' and legislators and those who influenced them.

Their conduct - monopolies, protectionist tariffs and prohibitions, sanctions against neighbours, 'jealousies of trade', hostilities, military posturing beyond the need of defence against invasion, colonies and wars or intrigue over dynastic quarells - were not only damaging of a country's real interests in progress towards the spread of opulence, they had real costs among those - the majority of the poor families - who were affected by them.


Tuesday, May 26, 2009

Adam Smith and Capitalism

Gagdad Bob’ writes in One Cosmos HERE:

The Stone Age Economics of the Left: Who Would Jesus Bail Out?’

‘But Gress believes that such critical developments as liberty, democracy, and the free market weren't so much ideas as behaviors that people lived out and only later reflected upon, in the manner, say, of Adam Smith, or America's founders. In other words, no one invented capitalism, or liberty or democracy, and that's the point. These things had to first be lived and experienced in order to be valued in an abstract manner

Extracted from Gagdad Bob’s long article (worth reading for a different but intelligent view of the ‘cosmos’).

Gress’ touches on a theme I have commented upon several times in Lost Legacy. Some contributors to Blog Land refer to principle authors associated with path- breaking themes, such as Adam Smith and Wealth Of Nations for instance, which assert, erroneously, that he ‘invented’, ‘created’, or was somehow responsible for the emergence of ‘capitalism’.

This, more than the usual misattribution of the word ‘capitalism’ to Adam Smith, when, of course, the word itself was first used in English in 1854 in a novel, The Newcomes, written by William M. Thackeray, and Smith died in 1790.

The assertion that Adam Smith ‘invented’ capitalism is the main error. Smith did not invent anything; nor its it likely that anybody could invent a social phenomenon of such a scale. Indeed, attempts to ‘invent’ new societies with new ‘plans’, crafted for their assumed perfections that their authors consider valuable, but which have not been tried out for their practicality (I am thinking of Karl Marx and such of his ilk) have a poor track record.

Even trying to bolt on a set of social arrangement onto an existing social arrangement has had unintentional consequences, mostly negative (think of those religious preferences imposed on their societies).

These things had to first be lived and experienced in order to be valued in an abstract manner.’

I think ‘Gress’ or ‘Gagdad Bob’ (it’s not clear which or both) has got it right. Social trends (for ‘good or ill’) emerge for them to be ‘lived’ and ‘experienced’ for them to be set into social norms and last beyond being a fad among a few and to become a definite trend among many.

This is a more likely scenario for, say, the emergence of such defining trends as the ‘propensity to truck, barter, and trade’ (of much wider social application than mere commerce (Polanyi’s error), the division of labour (initially associated with natural degrees of ‘fitness’, physical, emotional, and intelligence), the behaviours of gift exchanges, leading to reciprocity norms and sanctions, and the emergence of shepherding, farming and property.

The earliest manifestation of these social changes within early, larger societies than the gatherer/scavenger small extended family bands led, of course, and inevitably, to the emergence of inequality, without which the emerging, social changes, designed by nobody, would not have taken root.

Adam Smith, a moral philosopher, was an acute observer and knowledgeable reader, who wrote about what he understood of how society from the earliest times had evolved, not always positively, to, ‘at last’, the age of commerce well before classical times. He refrained from commenting about what would happen beyond his own lifetime – that was for future legislatures to determine. He recommended changes to existing arrangements, particularly in the political economy of the mercantile practices of current governments across Europe.

He was not too optimistic that the necessary changes would be introduced. He was realistic enough to recognize that such changes would come about, if at all, ‘slowly and gradually’, because that is how they had come about in the past, and contingent, unanticipated events could as easily change things for the worse as for the better.

His Book IV of Wealth Of Nations should be read for how he approached the existing state of affairs right across British society. It is a remarkable tour de force on how he applied his observations to existing problem trends and how he applied his realism about the limitations of conscious human interventions on manifest missed opportunities to overcome major, and minor, obstacles to the approach to opulence within the existing norms of British society, upon which the unhappy plight of the overwhelming majority of the population depended for amelioration of their circumstances.


Monday, May 25, 2009

Invisible Hands that 'Step In'

Hans Wagner at Daily Markets writes on ‘Bond Yield Curve And The Stock Market’ HERE:

In theory, rising interest rates should be good for stocks. Rates tend to rise when the economy is recovering from a down turn. However, higher rates can also be a determent to an economy that is recovering. That is why the Federal Reserve is keeping short-term rates near zero. However, controlling long-term rates is much more difficult. The hidden hand of Adam Smith steps in and forces all entities to deal with the realities of economics.

When rates go up, many investors seeking safety, who had been buying stocks, opt for bonds to receive their yields tempting. When investors perceive they can get better returns from long-term bonds than from stocks it takes money out of the stock market. This tends to put downward pressure on stocks prices. In addition, companies that sell long-term debt will pay more now that rates are higher. This reduces their earnings power

Hans Wagner writes a clear, concise, and accurate account of the Bond Yield Curve, accepting that the BYC is a possible prediction; more of a guide from the past for possible, but uncertain, future behaviour.

The authorities can attempt to influence future behavour by manipulating current and future yields, which may have a desired affect or may meet with stubborn resistance as opinions diverge and losses mount for some.

What investors in stocks and bonds do in their anticipations of the future is down to their usual perceptions of risks. Here, Hans employs a metaphor to skate over the effects of investors’ judgements: ‘The hidden hand of Adam Smith steps in and forces all entities to deal with the realities of economics.’

He does not explain how an ‘invisible hand’ is able to ‘step in’ (more a role for a foot). In practice investors do what their degree of risk avoidance influences them to do. The ‘realities of economics’ are not read from a textbook - more likely from professional advisors angling for commissions to advise them or subscriptions to their newletters – and opinions may differ about the ‘realities’ of ‘economics’.

In short, if investors follow the advice or their best guess and behave according to the Bond Yield Curve’s predictions of future yields, assuming they find and trade with others offering contracts carrying interest rates according to their fancies, and assuming these prove profitable in practice, then Hans would ascribe their behaviour to ‘the invisible hand’ with a ‘foot’ attached. Of the others – there are always others – who behave differently, they have shrugged off the ‘invisible hand’ and have side-stepped its ‘foot’.

Why not say so, by explaining the role of the yield on the risk perception of investors, as identified by changing interest rates on short and longer term bonds compared to alternative perceptions of earnings from future share prices?

If stuck, try admitting that its all down to differences of opinions, backed by trades in shares and bonds? Of course, for a professional advisor to admit that what people do is respond to changing prices and yields would hardly be worth a fee or commission, or the price of a publication.

That’s where a widely shared quasi-religious belief in invisible hands ‘step in’ to obfuscate behind a veil of ignorance and a multitude of opinions. It's the difference of opinions that makes the market in shares and bonds (acknowlegements to the American author who said something similar about horse racing, but whose name I have forgetten this morning).


Friday, May 22, 2009

En Route to Edinburgh 23 May

I am travelling back to Edinburgh Saturday, two weeks earlier than planned, for family reasons.

I shall be out of contact until I boot the PC sometime Saturday afternoon.

Today - when not assembling my luggage - I was check through my Paper, Adam Smith's Religiosity: a review of the evidence', for the History of Economics Conference in Denver, Colorado in June.

It's always a nervous time: what have I forgotten? Where are there gaps in the case, incomplete references in the end notes, and bad grammar?

The paper is already too long (42 pages) and that's after heavy editing. I only review the evidence in Moral Sentiments and Astronomy, without assessing the debate in recent literature. This material shall be covered in a second paper, which already promises to be a long one, and to which some excellent papers are available from what I have read for the first paper. Nothing I have read so far undermines by basic hypothesis from my review of the evidence.

Once my paper is uploaded to the conference website, I shall make The Paper available to Lost Legacy for those readers who may be interested.


Thursday, May 21, 2009

Adam Smith on What Needed to be Done

‘sposton’, a commentator, responds to Paul Krugman, Nobel Prize winner, in a column on the recession and when it will end (recovery in the summer, and ending in 2014, says, Krugman), in the Huffington Post HERE.

‘Sposton’ broadens the discussion:

My friend, you know very little about moral philosophy and its history. Did you know that Adam Smith was first and foremost a moral philosopher? And so were many other early liberal economists. Smith's never reduced himself to a mere economist in your sense of the word. Your statements are the end result of modern reductionism than liberal economists. Our current situation is precisely the result of this kind of thinking where one discipline is utterly divorced from another and all divorced from any moral or ethical anchor. Without such an anchor our knowledge is utterly devoid of any wisdom and that is what our world need now more anything else. This methodology may have brought some good results in science but on the other hand it has diminished us all.

In its own little thought universe all you have said makes some sense. The problem lies in the nature of your universe. It belongs more to the domain of our problems and less so to the domain of solutions


I have no idea who ‘Sposton’ is or what else he/she stands for. Another commentator lists all of Krugman’s impressive awards beside a Nobel Prize, but while I acknowledge them and Krugman’s achievements, I am sceptical of their relevance when precise dates are given for a global event of the current magnitude.

If Krugman is correct, we shall stand in awe; if his precision is wrong, we can expect concurrent explanations from him about ‘surprises’, ‘lags’ and such like. We certainly will not hear his silent retirement from the prediction business.

This partly is why I noted ‘Sposton’s’ comment. Moral philosophy in Smith’s day encompassed many areas of science beyond political economy, or ‘police’ as it was known in the 18th century.

In Smith’s case, it included jurisprudence (how civil societies ‘ought’ to be governed – he wrote but did not publish a book on the subject; it was burned on his order in 1790), but he saved the philosophical method, published posthumously in 1795, and known as his ‘History of Astronomy’). He also wrote on history and the history of politics, and how the range of human behaviour influenced events in all their complexity.

Above all, Adam Smith did not make predictions about the future; his was a backward-looking appreciation of the past and a studied analysis of the present.

He did not say that everybody pursuing their self interest would necessarily produce an outcome beneficial to society; a ludicrous proposition as any acquaintance with history – of the present! – would confirm. It was human intervention, for good or ill intentions, that creates the very situation that policy makers, and individuals following their self interests, try to improve (often making them worse in the process too).

Adam Smith did not recommend sitting back and doing nothing – the logical advice if he had the views attributed to him by modern economists. Wealth Of Nations was a critique of the then political economy of the governments of Britain since the 16th century, know to Smith as mercantile political economy (‘mercantilism’ is a word, also attributed to Smith, first applied in the late 19th century; Smith died in 1790).

If he had believed that self-interest was enough he would have had no need to spend 12 years writing Wealth Of Nations!

Smith’s critique was aimed at the high policy levels of legislators, and those who influenced them, trying to persuade them to desist from policies that slowed down the growth path to the spread of opulence.

In these policies, ‘merchants and manufacturers’, were complicit; indeed, their self interests made them so; by narrowing the competition they widened the market for their goods and raised prices against consumers, many already on the bread line. Their self-interests did not benefit society; Smith knew this and said so, explicitly.

Only modern economists, Krugman included, teach a model of society without humans, who supposedly are rational maximisers, harmoniously creating an optimum output; or, in the sophisticated version (I am being a touch sarcastic) would be doing so if only government did not intervene at all.

It is the moral corruption of the players, legislators and influencers, producers and consumers, alike that leads to a far less sub-optimal outcome, precisely because self-interest, while the powerful driving force behind human endeavour, is best not left completely alone.

If moral teaching is not enough, which was the subject of Adam Smith’s earlier work, The Theory of Moral Sentiments (though its ideas were taught by Smith alongside his lectures on ‘police’ and civil government at Glasgow University in 1751-64), as Smith believed it was not, then a strong system of justice was essential, as well as a culture of Liberty, enforced by law.

Smith was not a utopian. He did not believe that there was a ‘master plan’, which if adopted would change the world towards perfection. Far from it; he denounced such ‘plans’ as the dangerous illusions of ‘men of system’, arrogant in their approach to society.

Smith took human nature as it was, pointed out several major areas where what was going on was deleterious to society (protectionism, monopolies, ‘jealousy of trade’, wars beyond the needs of defence against invasion, legal restraints on labouring people ‘combining' to raise wages or stop them being cut, while employers could ‘combine’ to resist their employees, laws preventing anybody but members of ancient Guild monopolies from exercising applying their labour as they wished, laws preventing working men seeking employment elsewhere than in the parish they lived in, and national policies that failed to educated children in ‘reading, writing, and account’ (girls were not educated at all, except in the middle class and above), and the absence of palliative care for persons afflicted with leprosy and ‘other loathsome diseases’.

In all this, Smith did not expect sweeping changes or any immediate changes. He set out only to persuade; not to impose. He did not believe that international free trade would ever be enacted, nor that slavery would ever be abolished (it’s still operating today in some countries), nor that the world would become full of ‘sweetness and light’. But it could be improved, at the margin, if legislators and those who influenced them were persuaded to do so.

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Tuesday, May 19, 2009

Separation of Church and State

Lee Randall, interviews the co-author of ‘God is Back, How the Global Rise of Faith is Changing the World’, by John Micklethwait (editor of The Economist) and Adrian Wooldridge, Allen Lane (Penguin), in The Scotsman, 19 May, HERE:

Keeping the faith

BACK in 1843, James Wilson, a hat maker from Hawick, founded The Economist, partly to serve as a mouthpiece for his campaign on behalf of free trade. As the magazine's website explains, he shared a special affinity with the economic philosophies of another notable Scot, Adam Smith. I've cornered [John-Micklethwait] to discuss his latest book [God is Back], which explores the interplay between God and politics.

God is Back [is] a thought-provoking exploration of the global rise of faith is changing the world ... the book's chief argument is that in order to understand the politics of the 21st century, you cannot afford to ignore God whether you're a believer or not.

Micklethwait is Catholic, his co-author an atheist:

"Our book is the latest stage of an argument that began in Edinburgh, between David Hume and Adam Smith. Hume favoured an established clergy that had been 'bribed into indolence', whereas Smith was keen to open up the religious marketplace to competition. He argued that you wouldn't get successful religion without competition, because established clergy are always bound to try less hard than people who have to battle for every soul."

The authors found that, at heart, man is fundamentally theocentric – given a chance to believe in God, we will do so. So although some Enlightenment thinkers saw religion as oppressive and unscientific – and prevailing wisdom, especially in Europe, held that as the world became more modern it would become more secular – Micklethwait discovered that instead, with modernity comes pluralism.

"You wind up with the ability to choose your faith, which is why we focus so much on America in the book. One in every four Americans changes faith – that's an amazing statistic. Pluralism also gives you the possibility to not be religious at all. What it does is forces you to make a choice."

The American and French Revolutions are key events, he argues. "The French took the line that the church was bound up with the state and so you couldn't have modern life without overthrowing it. That contrasts with the end of the American Revolution, when nobody felt it was particularly odd having religion around. Americans, in the main, have assumed that the two things can thrive together."

Indeed, America's Constitution, along with the writings of Adam Smith, form the key texts required to understand the "competitive mechanism behind religion's revival", writes Micklethwait. "The First Amendment – 'that Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof' – was actually a compromise between dissenters (who wanted to keep the state away from religion) and more anticlerical sorts... (who wanted the church out of politics). Yet it became the great engine of American religiosity, creating a new sort of country where membership in a church was a purely voluntary activity

To fully follow the argument you should use the link (my editing necessarily is severe).

Adam Smith on religion is a controversial subject, worsened by it being almost ignored, despite a long section on the organisation of religious institutions in Wealth Of Nations (Book V), alluded to in Micklethwait’s statements. He suggests that there was an ‘argument’ between Hume and Smith, but I would consider it more the presentation of two alternatives.

Hume, the public sceptic about the revealed religion, and all that went with it, of Christianity, favouring an established church because it could do less harm to free thinking than allowing overly enthusiastic little sects to proliferate and cause trouble if they succeeded, and Smith favouring the weakening of state-enforced beliefs by encouraging a ‘thousand sects’ to proliferate, no one of them large enough to disturb a community’s tranquillity.

It was really an empirical question for both of them; Scotland had a quasi-established church in the many Presbyteries that covered the land, of which the zealots in many of them ruthlessly hunted down whatever they considered to be ‘heresy’ (England, of course, had the Church of England in England and the Episcopalians in Scotland); on the fringes of both countries, there were little sects (Quakers among the most prominent), which conformed to Smith’s model to a small extent – they held sway over small groups of people, but did not overly dominate non-members – they were ostracised by the larger established churches and mainly ‘kept their heads down’.

I am not clear what Mickelthwait means by ‘The French took the line that the church was bound up with the state and so you couldn't have modern life without overthrowing it.’ Revolutions can be messy, but the French Catholic church survived, and survives, as an institution (the church in the French village I live in for part of the year was built in the 11th century).

What is clear that the separation of Church and State in France is absolute and not challenged as it is in the USA. In a recent dispute over the wearing of Muslim headscarves by some young girls to School, the President of France said ‘non’ firmly and quoted the separation of Church and State and its operation , for many years in matters with the Catholic Church. The revolution overthrew the State of Louis XVI, disconnecting the roles of Cardinals, but at grass roots the Church continued, until recently – there are not enough priests to hold mass in every local church.

The problem of state and church in revolutionary America was not a little influenced by the question: which religion could be established given the already fractionated churches in existence. The last thing the new state was religious strife in attempting to force on church on the rest. Hence, Smith’s idea of competing churches struck a chord.

Note: My paper, ‘Adam Smith’s Religiosity: a review of the evidence’ is now completed and will be presented to the History of Economic Society annual conference in Denver, Colorado, in June.

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Monday, May 18, 2009

It's a Matter of Balance, not Ideology

Georg Thomas posts on Red State Eclectic (HERE)

Adam Smith's Advice for Obama"

"What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it

As always we must be careful in simply translating to the 21st century a well-expressed 18th century view of Adam Smith, which I am inclined to agree with if by it the ‘statesman’ is to directly micro-manage the business of individuals in matters which they would know better than others.

But Smith’s point was not absolutely applicable in all its elements. Governments in the 18th century directly interfered in some decisions normally left to individuals in their private affairs. That’s what laws do – they interfere in what individuals are free to do. Without such laws – indeed all laws –society would be at the mercy of whatever all individuals decide privately to do. Think of the warning from Smith about ‘entering a den of lions’ in the absence of justice.

As always it comes down to specific cases, and any sensible reading of Adam Smith supports this restriction.

For instance, individuals may adulterate food or medicine; they may undertake debts which they cannot realistically cover with their resources now or in the future; they may allow waste pipes to disgorge effluent that pollutes the downstream environment to cut costs to stay in business; they may mislead investors in order to access financial resources otherwise denied them, which bankrupts those they mislead. And so on across a modern society.

It is all down to balance. Each case may call for different responses. Even when governments try to encourage people or businesses to do what they have not done or do not want to do with various incentives, the efficacy of such conduct is not pre-determined by a quotation.

‘Backing winners’ is seductive but seldom successful; appeals for special aids are likewise dubious. Special protections are notoriously suspicious, and Wealth Of Nations is full of examples identifying the ‘merchants and manufacturers’ making such claims. Of course, they know their businesses, but they also know that narrowing the market to themselves means higher prices and more certain profits. It is not a case that the businessmen are innocent actors in these dramas. They hire legislators and those who influence them to slant legislation in their favour, and governments collude in such deceptions.

The problem with government intervention is that governments are too big, and businesses are well organised with professional lobbyists. It’s not just intervening governments which are the problem; it’s also lobbying businesses which are complicit.

Somehow, I don’t think Red Slate Blog is sympathetic to these points. We can be sure that Adam Smith had no such illusions about ‘statesmen’ or about ‘merchants and manufacturers’.

I know nothing of Obama’s views nor of his degree of credulity on these matters (and it’s none of my business; I vote in Scotland, not the USA), but I am suspicious of Georg Thomas’s sense of balance in selecting this quotation from Smith.

Reading Wealth Of Nations While Catching Salmon

El General’ blogs at The Fixed Pie HERE:

On to the good stuff, my current readings. I have three things I am reading: The Wealth of Nations by Adam Smith, I Don't Have Enough Faith to be an Atheist, and then doing my regular devotionals with the old word. Really good stuff. I am having trouble with Smith because his writing is from another time, but if I read with my pen, like I usually do, I can re-read and make notes. Overall though, the stuff is right up my alley. I have heard it is perfectly paired with Smith's other book The Theory of Moral Sentiments; I will stick to one for now though.”

The author is a student, who seems to be between Alaska and North Carolina and into salmon fishing, big time, of whom and of which I know not more.

He refers to a common enough complaint, or regular apology about Smith’s writing style, of it being too ‘18th century’, as if that explains anything, which requires close attention. What I think is meant is that his sentence construction – in perfect English as she used to be wrote – tends to contain several sub-clauses, many semi-colons, hyphenations and page-long, or longer, paragraphs.

Whereas as in 21st-century Anglo-American discourse, English is almost tabloid – no sentence longer than five words (most of them under five letters), no paragraph longer than five sentences, no chapter longer than five pages (or thereabouts).
Yet he has found a way of dealing with it, using his pen to distil what he reads into meaningful parts and re-reading them. Excellent!

I wish him well, especially if he perseveres. If the toil becomes too much, he could also visit Lost Legacy and search through the expository posts on themes from Wealth Of Nations (and Moral Sentiments too). I shall drop him a note to this affect, and invite him to ask questions.

Friday, May 15, 2009

Welcome to New Readers

When Freakonomics usually appears in Lost Legacy it is because I am commenting on something it has written with which I disagree. Today its carries a report of the publication of my paper, 'Adam Smith and the Invisible hand: from metaphor to myth’, in Econ Journal Watch (and a critical response from Dan Klein): HERE

The Invisible Hand Hoax’ By Freakonomics

‘Adam Smith’s “invisible hand” theory of efficient markets is one of the first lessons taught to young economics students. James Tobin, a Nobel prize-winning economist, once described the theory as “… one of the great ideas of history and one of the most influential.” But in this new paper, Gavin Kennedy argues that Smith actually had no invisible-hand theory, pointing out that the phrase appears only three times in Smith’s writings. One scholar believes that Smith’s use of the phrase was a “mildly ironic joke
.” (HT: Brad DeLong)’



Adam Smith on Defence

The Public Choice Capitalist (‘shifting your thought consumption’) HERE writes on:

“Rent Seeking during Wartime: A Smithian View of Military Action”

“Adam Smith believed that British Imperialism was bankrupting the country. He believed that most of the time the cost of the action was much higher than the benefit for the public. This is an area of research I have done a lot in. Scholars from Hobbes, Sumner, Cobden, and Schumpeter have all concluded at one time or another the companies that benefit from war either foreign or abroad will lobby the government for the exclusive contract. This is no different than domestic lobbying from teachers unions to Department of Education. The lobbying will allow the politicians who support more war actions to stay put in place. This is likely why the Democrats have not been as strong in their actions as they have been in their rhetoric.

A good start to the post (a bit exaggerated: he didn't suggest that Britain would be bankrupted - its rate of growth would be curtailed), but needs to go further to explain Smith’s views on ‘military action’.

Smith's first duty of government action was the defence of the country from invasion and violence of other societies (WN Book V, Chapter 1: apologies; my Smith library is in Edinburgh; I am in France; it would take too long to consult my 1818 edition of WN, given my other tasks this morning). This was not a trivial duty, especially on a shared continent, riddled with dynastic conflicts and ambitions. It was, however, a defensive stance, not an ambitious stance for the covetous.

Smith’s critique of mercantile political economy (WN Book IV) including those policies that were based on ‘jealousy of trade’, suspicion of neighbours, and what we call ‘zero-sum’ trade relationships.

Smith saw the dangers of colonial ventures, especially when accompanied by monopolistic measures beyond their initial role when setting up trading posts in distant countries (India and North America). However, for an island power, such as Britain, which was exposed to naval sanctions by foreign kingdoms, he saw the minimal commercial necessity for the Navigation Acts (to provide sufficient experienced naval personnel to man warships in defence emergencies), though he had severe reservations about their role in enforcing commercial monopolies of trade as they had become by the mid-18th century with the North American colonies.

Overall, for Smith, defence was of more importance than opulence (without the former, you would lose prospects for the latter). The implied question he posed was how much defence was enough? The slope from sufficient defence to sufficient war capacity to engage in interventions in the affairs of foreign countries was slippery. And Britain was too easily dragged into such conflicts (partly a product of the prevalence of dynastic kingdoms dominating Europe and their colonies).

Smith was not opposed to defence industries where necessary for the defence of the country. For the commercial defence industries their contribution to commerce was productive (they existed to make profits by paying for their costs, which included their owners’ profits; the government’s expenditure on the costs of defence supplies, including the wages of soldiers and seamen, was unproductive – they did not reproduce their costs).

Modern questions relating to ‘how much defence is enough’ are not much different now than in Smith’s time. Britain was projecting its interests with an increasing global reach; its colonies were showing evident signs of becoming major commercial players (held down by the UK Navigation Acts in Britain’s, not the colonies’, interests). The 18th century was a busy century for major, and expensive, wars, and just over the horizon was the even longer, and more expensive, Napoleonic wars (Smith complained at the expence of the 7-years war at £125 million – which could have gone into growth-inducing productive investment).

The crucial decision point was the loss of the British colonies in 1776-83 (itself no mean expense). Smith advised:

If any of the provinces of the British empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should free herself from the expence of defending those provinces in times of war, and of supporting any part of their civil or military establishments in times of peace, and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.’ (WN last paragraph, last page).

Smith’s principled advice was disregarded: Britain went on to build a second empire, bigger than the first, which with the smaller 19th-century wars, and the two much bigger world wars, was to cost unprecedented amounts of gross annual product. It many senses, Britain has still not reconciled herself to the ‘real mediocrity of her circumstances’, and still plays, or pretends to play a role as a world military and diplomatic player.

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Thursday, May 14, 2009

Kennedy-Klein Debate

Dan Klein has kindly invited me to respond to his authoritative contribution on the invisible hand hand debate in the September issue of Economic Journal Watch and I have accepted his proposal.

Therefore, I shall not be responding on Lost Legacy in the meantime. This gives many opportunites for readers to familiarise themslves with both mine and Dan's papers the current (May) issue of EJW.

I shall address Dan Klein's main points and identify the main differences between us in the spirit of good-mannered, scholarly debate, as exemplified in Dan's serious treatment of my case in 'Adam Smith and the Invisible Hand: from metaphor to myth'.

You can read the Kennedy-Klein debate HERE


Hyperbole and the Invisible Hand

Walter Williams ( HERE in ‘aconservativeedge’ 18 February writes: “The Invisible Hand Is As Certain As The Law Of Gravity

Adam Smith: “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.”

Hyperbole in pursuit of making a statement does not improve its merits. In this case, it is almost laughable and certainly inappropriate. Gravity is a phenomenon across the entire universe, not just under apple trees. The invisible hand is a literary metaphor and as such it is not subject to the law of gravity.

The lines that Walter Williams quotes, from Book IV, chapter II, Wealth Of Nations (page 456) have been torn out of context.

Smith is talking about those merchants who prefer to conduct their business close to home and not abroad. He was not talking about all individual merchants. Their reasoning is their concerns for ‘their own security’ (it says so in the rest of the paragraph not quoted).

Risk aversion is well known today, so there is no excuse for not mentioning it (some insure against risks, some don’t). The merchants discussed by Adam Smith coped with foreign trade risks by not trading abroad with foreigners. The metaphor of ‘an invisible hand’ is a metaphoric treatment of their risk-averse behaviour. But many merchants did trade abroad and still do.

At the time, Britain exercised a monopoly of trade with its colonies in North America, enforced by the Royal Navy under the Navigation Acts (1660, as amended). These merchants were less risk-averse than the subject of the paragraph, only partly quoted. For taking the risks they received higher profits.

Apparently, they were not ‘led by an invisible hand’ – a strange omission if you think about it, given the importance of foreign trade in Smith’s analysis.

Next, Walter Williams exposes himself to a doubt that he has actually read Wealth Of Nations. He writes:

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.”

But the ‘benevolence of the butcher, the brewer, or the baker’ is not ‘added later’. It comes many pages earlier in fact, in Chapter II of Book I, on page 26, which is long before page 456! It also had nothing to do with Book IV.

What can one say? Not much.

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Wednesday, May 13, 2009

Invisible Hand Paper Published

My paper, ‘Adam Smith and the Invisible Hand: from metaphor to myth’, has been published in the on-line Economic Journal Watch HERE:

Professor Daniel Klein, of George Mason University, Fairfax, Virginia, has written a detailed and serious response which is published with mine (incidentally, his is the first serious response I have received to my critique of the modern and widely accepted version of the invisible hand since Lost Legacy appeared in Februaqry 2007, for which I am, of course, grateful).

I shall not rehearse just now the differences between myself and Daniel on this occasion, some of which I accept ('good reason by force must give way to better') and many more which I do not and they require further elucidation and discussion). Due to my lack of Internet connections in France, I have only just read Daniel’s response; hence, I shall require further study of it before commenting.

In the meantime, I urge readers to follow the above link, and to read both papers. Together, they should be considered as educational.

Several important economic, sociology and philosophy Blogs have picked up on the 'Kennedy/Klein' debate ...


Tuesday, May 12, 2009

Paper News and Thanks

Before leaving Edinburgh for France, I sent to several colleagues the early draft of my Paper, 'Adam Smith's Religiosity: a review of the evidence', and some responses have come in for which I am most grateful.

While offline, I worked on two revisions, mainly cutting down from 27,000 words to 17,000 and adding some clarifications (about -8,000 words net).

So far the responses have been positive and most helpful. It is quite an impertinence to impose on colleagues in this manner, so I will arrange a dinner for those involved in Edinburgh as a modest thank you.

I am encouraged to believe that The Paper is a modest contribution to Smithian scholarship and I look forward to presenting the finished paper at the History of Economic Thought Annual Conference in Denver, Colorado in June.

Speaking of which, the revised paper I presented to the HES annual conference in Fairfax, Virginia in 2007, and to the History of Economic Thought Conference in Edinburgh in 2008, 'Adam Smith and the Invisible Hand: from metaphor to myth', has just been published by Economic Journal Watch today (available online - apologies I do not yet have the URL here in France!).

There is a response from Daniel Kline of GMU also published in EJW (I have not read it yet - my long Internet address list is in Edinburgh - anybody who has got it who can pass it on will do me a favour, which I shall reciprocate, of course).

I am still setting up for a full service and hope to resume Blogging from tomoorrow.

Connected - sort of.

Connected! Almost, plus coping with Vista - a minor irritation, all in the name of 'improvement'... and a new laptop.

I have a large backlog to handle but I hope to post later this evening.

Thank your for your patience.


Friday, May 08, 2009

Few Days (I hope only) Absence from Lost Legacy

Saturday 9 April

I am travelling to France on Saturday and probably will be off contact for a few days. I need the Intenet connection restored by France Telecom/Organge and I cannot predict when this will happen. Apologies for this.

When restored normal services will resume.

Are We Hard-Wired for Fairness?

I attended a ‘Hume Workshop’ at St Andrew’s University on Wednesday which was peopled by faculty and post-graduate PhD students. Now, I am not an authority on David Hume, though as a Smithian I am familiar with much of his work because he and Smith were close colleagues.

Aaron Garrett (Boston University) presented on ‘Reasoning about morals, from [Bishop] Butler to Hume’, which I found most informative, knowing even less about Butler, whose dispute on the logical proof of God's existence was fascinating, because Aaron wove the philosophies of each man together with the confidence one expects in a faculty presentation. Ezra Macdonald, a postgraduate philosophy student, responded with a slightly nervous stance, but with well thought-out questions and comments, and which Aaron handled with the right tone of encouragement and agreement.

After lunch, James Harris (St Andrews) presented on ‘Hume’s peculiar definition of justice’, to which Jesse Tomalty, postgraduate, St Andrews, responded in a somewhat ‘rapid-fire’ style, but with firm command of her material (I sat two seats away from her at the large table and missed bits of what were her most interesting comments – because of my aged hearing not her content – as she flew through some passages). Her most telling question to James was what was ‘peculiar’ about Hume’s idea of ‘justice’?

The discussion among the faculty and students after each paper was revealing, at least to me. I did not speak in the open sessions but I did ask a couple of questions and made comments in the breaks to speakers and commentators.

It seemed to me that more attention paid to the biographies of philosophers like Hume (and Butler) would elucidate relevant aspects of what made their ideas in the form they published. In fact, I have noticed a tendency, if not a compulsion, of philosophers to focus entirely on the texts and their ‘meaning’ in relation to the ideas of other philosophers, ancient and contemporary, separate from any obvious relationship to their times and circumstances.

For example, in relating Hume on justice to the supposed moral senses, whether innate, as in Hutcheson, or from social experience, as in Smith, a commentator raised the work of behavioural experimenters that showed early signs of an idea of ‘fairness’ in young children in the cry of ‘that isn’t fair’, and in chimpanzees (which caught my immediate attention), in which the chimanzees behaved as if they disapproved of certain actions as a group. I thought the main error here lies in transposing modern concepts into the past, where the same words could have different meanings, such as the idea of distributive justice, which in the 18th century (and for long before, back to classical times) had to do with those who deserved re-distributions by virtue of their evident success socially, not their needs, and such justice did not equate to welfare redistributions to the poor (deserving or otherwise) from the rich in today's welfare capitalism.

It struck me that David Hume’s own position illustrated aspects of the justice debate. Smith taught his students (many of whom were the sons of well-off landowners, including aristocrats) that civil justice existed to defend the property of the rich from the landless poor (Lectures On Jurisprudence; Wealth Of Nations). Another source of the threat to property came from the rich, eyeing a weaker neighbour’s property with ‘avarice and ambition’, hence substantial civil law on inheritance, and the sale of property, characterises Roman Law. The Primogeniture laws were enshrined in statutes.

David Hume, as a second son, was excluded from inheritance of the estate where his widowed mother, and his sister, were excluded by law too. His elder bother, John Hume, inherited the farming estate of Ninewells, Berwickshire; Hume was compelled to seek his fortune for himself. Now, if there had been a dispute, then the justice system would have decided in favour of the existing law of primogeniture (which Adam Smith considered pernicious for the growth of commercial markets, especially when entails were prevalent. Whether this was ‘fair’ was not an issue – Hume’s writings hint at discomfort with the existing law – so the supposed ‘hard wired’ sense of ‘fairness’ is most doubtful, which is a more modern notion.

Also, what is fair is often a locally determined notion. People queue in Britain; they don’t in Italy. Both have different notions of ‘taking your turn’ fairly. Children learn about ‘fairness’ in their families, and, later, in the ‘great school of self-command’. It is not ‘hard-wired’.

I spent a productive time at the seminar, and St Andrew’s philosophy department is to be congratulated for running these seminars and inviting others to them (and the Royal Society of Edinburgh – of which Adam Smith was a founder member in 1783 - thanked for funding them).

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On Reducing Adam Smith to a Metaphor

Emanuel Derman writes in Emanuel Derman’s Blog: ‘ Economics as Economics’(7 May) HERE:

Last week I spent a day at the Perimeter Institute in Waterloo, Ontario. It's a sort of institute for advanced study devoted to theoretical physics, and they had a meeting on The Economic Crisis and its Implications for The Science of Economics (sic).

One thing occurred to me in connection with trying to create a workable economic theory. Everyone is motivated by analogies: economics as physics, economics as collective phenomena with phase transitions (cellular automota, agent-based theories, which sounds sensible) economics as a gauge theory with a local invariance group (which sounds beautiful but maybe overambitious), economics as evolution, economics as biology, economics as computational neurology.

But if you look at new theories that burst on the world successfully -- Darwin on the origin of species, Adam Smith on the invisible hand, Freud on the subconscious, Marx on capital -- they weren't driven by analogies. They looked at the world with fresh eyes and made up an explanation for what they saw. Not everything is a metaphor.”

Extraordinary thinking represented here, with deep irony too. Everything goes well for Emanuel Derman until his last paragraph.

Among ‘new theories that burst on the world successfully’, he includes Adam Smith. Allowing for a bit of hyperbole, we still have trouble recognizing that ‘Adam Smith on the invisible hand’ burst on the scene, which is more than a stretch of the imagination.

Adam Smith might be said to have ‘burst on the world successfully’, if by that is meant his Moral Sentiments and Wealth Of Nations, but ‘Adam Smith on the invisible hand’?

The invisible hand’ was hardly noticed for 100 years; some ‘burst’!

Worse, Smith who used the words once only in each book, certainly ‘looked at the world with fresh eyes and made up an explanation for what [he] saw’ but he did not use the ‘invisible hand’ as ‘an explanation for what [he] saw’.

Smith explained what he say, taking near on a million words in doing so.

Emanuel Derman, ironically is right: ‘Not everything is a metaphor’, but the invisible hand was a metaphor. It didn’t explain anything; it substituted for one!

Smith had already explained what he saw when he observed, analysed, and wrote about how markets worked in Wealth Of Nations (Books I and II). His use of the well-known, 18th-century literary metaphor, of ‘an invisible hand’ in Book IV, was not a ‘new theory’; it wasn’t even a theory, it was a simple metaphor, and was most certainly not comparable to, say, ‘Darwin’s Origin of Species, … Freud on the subconscious, Marx on capital’, or even Adam Smith himself on the nature and causes of the wealth of nations.

That 'Not everything is a metaphor' is absolutely right; so why does Emanuel Dearman reduce Adam Smith so precisely to the metaphor of 'an invisible hand'?


Thursday, May 07, 2009

Adam Smith and Rational Man

Justin Wolfers writes on ‘Steinbeck on the Crisis’ in Freakonomics, which is worth reading HERE:

As usual a Freakonomics article has attracted a large number of comments of varying quality, among which I found this from ‘thedude’:

Unregulated capitalism will lead to the utter obliteration of civilization. Adam Smith claimed men were rational; therefore capitalism would be rational. As superstitions, magical thinking in gods, belief in black magic, witches and the occasional late purchase of a juicer attests to, man is not rational.
Luckily for the bankers the American people are too apathetic, ignorant and powerless to do anything about their current looting of the Treasury

I would not characterize Adam Smith as claiming that ‘men were rational’, in the sense that modern neoclassical economic theory makes such assumptions.

‘The dude’ follows up with what he assumes is the debilitating counter-point to Smith’s alleged claim for men’s rationality:

As superstitions, magical thinking in gods, belief in black magic, witches and the occasional late purchase of a juicer attests to, man is not rational.’

Strange argument to deploy against Adam Smith, who wrote The Theory of Moral Sentiments (1759) and the History of Astronomy ([1744] 1795, posthumous), which among other things detail and show the history (and concurrent) proclivity of humans for ‘pusillanimous superstition’ and many strange beliefs about ‘invisible beings’ (not just hands!) and, in Wealth Of Nations, for people, including ‘merchants and manufacturers’ and legislators and those who influence them to act in their selfish interests, which causes negative social affects (protectionism, monopoly, price-fixing, pollution, environmental disregard, and other negative externalities).

Rational expectations and the neo-classical paradigm are mathematical abstractions – the maths are beautiful, the prescriptions are inadequate, and the consequences of acting on them are woefully disappointing, as well as destructive.

If there are fault lines in the system, which is the gist of most comments, to Justin Wolfers’ article, they have nothing to do with Adam Smith, whose understanding of human nature was more than adequate to fix these problems.

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Wednesday, May 06, 2009

Misuse of Adam Smith Quotation

Yesterday I posted on Noam Chomsky’s Education is Ignorance’ and commented on this paragraph:

“[Smith] did give an argument for markets, but the argument was that under conditions of perfect liberty, markets will lead to perfect equality. That's the argument for them, because he thought that equality of condition (not just opportunity) is what you should be aiming at.”

I said: ‘I am at a loss to place this statement in Wealth Of Nations, not to recognise Smith as advocating it as an aim ‘you should be aiming at’.

A reader, “andrew”, kindly offered this quotation:

"Adam Smith, The Wealth of Nations, Chicago: University of Chicago Press, 1976 (original 1776). An excerpt (Book I, ch. X, p. 111):
“The whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal or continually tending to equality. If in the same neighbourhood, there was any employment evidently either more or less advantageous than the rest, so many people would crowd into it in the one case, and so many would desert it in the other, that its advantages would soon return to the level of other employments. This at least would be the case in a society where things were left to follow their natural course, where there was perfect liberty, and where every man was perfectly free both to chuse what occupation he thought proper, and to change it as often as he thought proper.

First, who is Andrew? His profile is ‘unavailable’. However, Andrew quotes from the same edition of Wealth Of Nations as below, which corresponds to the edition that Chomsky praises. Interesting. How close to Chomsky is ‘Andrew’?:

Chomsky: “the University of Chicago, the great bastion of free market economics, etc., etc., published a bicentennial edition of the hero, a scholarly edition with all the footnotes and the introduction by a Nobel Prize winner, George Stigler, a huge index, a real scholarly edition. That's the one I used. It's the best edition. The scholarly framework was very interesting, including Stigler's introduction.

Andrew: “Adam Smith, The Wealth of Nations, Chicago: University of Chicago Press, 1976 (original 1776). An excerpt (Book I, ch. X, p. 111)”.

So they both read the same edition. I have decided to respond on the main page of Lost Legacy, rather than only in the Comments page because the issue raised is quite important and some readers may miss it otherwise.

Chomsky’s assertion is an interesting comment in itself of his method.

It is quite clear from my post yesterday that I took, and I think most readers will have taken, Chomsky’s claim to Adam Smith on ‘equality’ was about equality in the general sense, as opposed to the phenomenon of growing inequality of 21st Century capitalism, and not about the tendency to the equality of market prices in a competitive economy.

Now I know, and I am sure that Chomsky knows, that Adam Smith did not advance such a proposition of society becoming more equal – he rarely made predictions about the future, perhaps because of his knowledge that events seldom work out as predicted (unintended consequences, and so on). Distributive justice was not agenda in mid-18th century Britain, other than in the classical philosophic tradition, which had little to do equality in the modern sense, and had more to do with distribution according to merit.

Turning to Andrew’s helpful provision (for which I thank him) of the quotation upon which Chomsky builds his assertion, we can immediately see that ‘equality’ of which Adam Smith refers and the ‘equality’ that Chomsky asserts does not have the same meaning.

Smith: “The whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal or continually tending to equality.”

This is unexceptional. Smith refers to prices determined by homogeneous and mobile factors – wages of labour, levels of profit from capital stock, and, for good measure, prices of products - under competitive conditions will tend to the same level. A version of this proposition, today, is part of Economic 101, and on its assumptions few would quarrel.

But that is not how Chomsky presented his case: Smith gave ‘an argument for markets’ and everybody can see that it has not quite worked out like that. We have considerable inequality, not converging equality (if anything it is diverging).

Question: how could Adam Smith get it so wrong? Chomsky’s answer: because modern capitalism does not conform to Smith’s idealised model outline in the paragraph quoted(for all the reasons which Chomsky rehearses endlessly in his critique of modern capitalism). We agree on that.

Back to Adam Smith. The quotation about wage and profit which started this debate is in paragraph 1, Chapter X of Book I of Wealth of Nations: ‘Of Wages and Profit in the different Employments of Labour and Stock’ (WN I.x.a: 3 paragraphs; p 116).

Smith follows this opening paragraph with 115 further paragraphs analysing and explaining how and why there are ‘Inequalities arising from the Nature of the Employment Themselves’ (Part I: 52 paragraphs: WN I.x.b: pp 116-135;) and ‘Inequalities occasioned by the Policy of Europe’ (Part II: 63 paragraphs; WN I.x.c: pp 135- 193). [All my references are to the Glasgow Edition, Oxford University Press, 1976, widely known among serious scholars as the definitive edition, not introduced by George Stigler of Chicago University.]

Adam Smith did not think markets were competitive in 18th century Britain, and not much has happened since to make them so, almost entirely from the non-competitive elements introduced, often by ‘merchants and manufacturers, of whom as a group, in the main he had severe suspicions about their motives, and the motives of legislators and those who influenced them, who followed the prescriptions of mercantile political economy – false doctrines of ‘jealousy of trade’, monopoly privileges, tariff protectionism, wealth defined by balance of payments surpluses, gold bullion, guild trades rights, chartered trading monopolies awarded by the King and parliament, colonies, and expensive wars for dynastic and trivial ends.

I suggest that Chomsky (and Andrew) read the rest of chapter X and appreciate how realistic Smith was about labour and capital markets. Smith did not expect equality to emerge from commercial society; he did expect, flaws and all, that to the extent that revenues from the great wheel of circulation, which made up a commercial economy, were directed to productive labour and the ‘annual output of the necessaries, conveniences, and amusements of life’, via wage employment of the labouring poor, would provide subsistence for the poor majority of the population in a manner superior to their destitution under all previous modes of subsistence.

Of course, to the extent that such revenues were spent in unproductive activities, the prodigals – private individuals or public governments – would slow down the small percentage of growth below that which may be possible – it only takes a few percent to make a difference to the poor. It wasn’t equality in the Chomsky implied sense that Smith saw as possible – it was jobs with growth that would also grow population, enabling labouring families to survive longer, to breed and reach adulthood.

Per capita incomes and population growth in the 19th century – not withstanding the horrors of the industrial revolution – continued to grow under commercial capitalism, and did not produce a nation of stupid zombies. Emigration is not a dominant feature out of North America. Capitalism gave the people a share, which is more than its known alternatives.

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Tuesday, May 05, 2009

Not Sure About Chomsky's Version of Adam Smith

More on Noam Chomsky: Education is Ignorance (2 May) in W.E.A.L.L.B.E. here:

“[Smith] did give an argument for markets, but the argument was that under conditions of perfect liberty, markets will lead to perfect equality. That's the argument for them, because he thought that equality of condition (not just opportunity) is what you should be aiming at.”

I am at a loss to place this statement in Wealth Of Nations, not to recognise Smith as advocating it as an aim ‘you should be aiming at’.

If equality was a consequence of something happening which he observed (he was a moral philosopher, not an advocate) then it might be plausible but in mid-18th century Scotland I think he had more pressing concerns – mainly employment of poor labourers from incremental commercial growth – in mind than redistributive justice (a not well-known idea at the time).

When intensive poverty is the main experience, ‘equality’, however defined, may not have been an answer foremost in Smith’s mind. Nor is it clear why perfect liberty (which is not the same as laissez-faire, as understood by the some of the French Physiocrats at the time) should bring about equality.

The problem of markets in poor countries (like Scotland) was their relative absence, not their presence. But if you massage a visceral hatred for markets, as Chomsky appears to indulge, then nothing about theories of markets, or their ‘failings’ – their absence is also on the charge sheet against them – is allowed to appear in their favour. Markets are intimately involved in employment creation from productive investment out of revenue earned in earlier market exchanges.

Setting markets to work is not easy from scratch, as everybody who has observed where they are absent well knows (and leftwing thinkers, unimpressed with actual progress in getting markets to start, want to ‘kick-start’ with state subsidies, or protectionism – which inhibits market formation).

Chomsky believes markets are demeaning, inhuman, stupidity creating, and ignorance generating, and his remedy requires such a root-and-branch change in nearly everything that it ain’t going to happen on any scale quickly and threatens a far greater tyranny than Chomsky is willing to admit (though he may be more comfortable with tyranny for ends he approve of than most Classical Smithians and Lost Legacy would endorse).

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An Attorney Caught Out in a Falsehood and the Jury Knows He is Economical With the Truth

At the The Wizard of Laws HERE:
“Selective Free Market Economics and the Decline of Freedom”

In the same year our nation was founded, Adam Smith published his magnificent The Wealth of Nations, in which he described the phenomenon of the "Invisible Hand," which holds that if consumers are allowed to choose freely what to buy and producers are allowed to choose freely what to sell and how to produce it, such a free market will result in prices and a distribution of goods and services that benefit all members of a community, and hence the community as a whole.

People are driven by self-interest and the desire to increase their own income and utility (a word economists use instead of satisfaction or happiness, to be measured in utils. Not kidding.). Since the income and happiness of society is the sum of individual incomes and happiness, all benefit from the individual pursuits motivated by the Invisible Hand

Obviously, the author (‘an attorney living and practicing in Michigan, also known as the Enchanted Mitten’) has not read Adam Smith’s Wealth Of Nations, though he comments on it with the authority of someone who implies he has (naughty, naughty and yes, a typical attorney-at-law who believes he is too smart to bother reading his briefing papers and leaves it to his, mostly unpaid, ‘devils’, as we call them in Scotland).

Is it worth showing the multiple errors in the attorney’s brief? OK, well briefly, everything written “his magnificent The Wealth of Nations” is utter rubbish, or in more polite legalise, is problematical.

If his client’s best interests depended on this attorney’s brilliance in the court room, she’d be looking at 20 years (I’ve watched tv dramatic court scenes, well, US versions, because in Scottish trials the advocates are kept under strict control by their training and the judge – no approaching the witness, no moving to the jury box to intimidate or smooze the jurors, no histrionics, no verbal tricks; instead, simply questions that relate to the evidence).

The metaphor of ‘an invisible hand’ did not relate, even closely to consumers or their choices. In fact, that subject is dealt with by Smith in Books I and II, and his single use of the metaphor of an invisible hand appeared only in Book IV, and had nothing to do with consumers, or markets.

Why did the attorney attempt to make a case that Smith said something he didn’t? I’d ask if I could but only after he has read Wealth Of Nations, and not just the likes of Wikipedia.


Great Article on Adam Smith's Moral Sentiments

Nicholas Gruen (my web buddy in Australia) has given me permission to reproduce his Web 2.0 article on Adam Smith's Moral Sentiments, which I mentioned on Lost Legacy a few days ago.

I consider Nick's articles are excellent introductions to Smith's Moral Sentiments, Smith's least understood book (which is a characteristic it shares with better known, but still very poorly understood other book, Wealth Of Nations:

"When Ross Gittins (presumably a famous Oz MSM columnist),asked me to write a couple of columns in his place as he went on leave I agreed and realised shortly afterwards that they would coincide more or less with the 250th anniversary of the publication of The Theory of Moral Sentiments. So I decided I’d try to write two columns as bookends on Smith and his theory of moral sentiments.

The first one was published a couple of weeks ago second one is in today’s [Sydney Morning Herald] and Age (Melbourne).

Adam Smith and Web 2.0

HISTORY plays tricks on us. The real internet revolution picked up after the internet bubble had burst. And the economist whose framework helps most in thinking about the internet revolution is none other than Adam Smith, who kicked off economics more than 200 years ago.

The internet boom involved companies using the net to broadcast to customers — like ads on TV — or to automate the sales process: for instance, with customers booking their own airline tickets or ordering books. Today Web 2.0, or collaborative web, is enabling armies of volunteers to build a better world. Some are building and giving away public goods such as open-source software (Linux and Firefox) and reference resources (Wikipedia). Others provide expert analysis and commentary on blogs, often surpassing professional journalists. Others, such as Facebook, connect people with something in common.

These phenomena can’t be easily explained within economists’ standard framework, in which economic decision-makers are reduced to the ideal type known in the trade as homo economicus. Homo economicus is a pure, calculating egoist optimising his profit or “utility” without regard for others’ views or conduct (except where they’re useful to his ends).

Homo economicus might not explain which films we see or with whom we socialise. But a theory’s job is to highlight some aspects of reality — by leaving out others. When you make investments or haggle for a car or house, you’re probably doing the best homo economicus impression you can.

Even here, however, something’s seriously wrong. We’re socially comparative beings. We care deeply about the conduct, opinions and values of our peers, using comparisons with them to orient our own ideas about what we need or value and how wealthy we want or need to be. As for the subtler aspects of our economy, from the motivation of employees to those amazing things Web 2.0 is bringing forth, well, homo economicus doesn’t seem to get close to what’s going on.

Enter Adam Smith’s Theory of Moral Sentiments, published 250 years ago last month, a book he intended partly as a theoretical foundation for his later economics. As Smith sees it, we begin our lives as blobs of infantile egoism — infans economicus, if you like. But from then on Smith sees the process that we now call socialisation deepening and transforming us.

We learn from our immediate family, on whom we are utterly dependent, that some things win their approval and admiration, others their disapproval and even disgust. Our craving of approval and dread of disapproval and our ability to understand others by imagining ourselves in their shoes draw us into a lifelong dialectical social drama.

In modern economics, the attraction of great power, fame or wealth is simple greed for more. Smith’s richer psychology offers a more plausible explanation. “(T)o what purpose is all the toil and bustle of this world?” Smith asks. What human drive lies behind avarice and ambition?

Is it to supply the necessities of nature? The wages of the meanest labourer can supply them. To be observed, to be attended to, to be taken notice of with sympathy, complacency, and approbation, are all the advantages which we can propose to derive from it. It is the vanity, not the ease or the pleasure, which interests us.

Smith was an advocate of self-interest in human affairs, but in a much richer, more interesting way than is usually thought. In advocating a larger role for self-interest, Smith identified the public goods that are prerequisites for self-interest becoming socially constructive. Within economics the invisible hand only works in a peaceful, lawful society, and with strong, free competition.

Within society more generally, self-interest becomes a rich ethical meal, not the morally anorectic egoism of homo economicus. Our natural sociality enriches and educates our self-interest. Craving esteem and imagining ourselves as others see us, we gain some objective appreciation of our own moral worth. And this is ultimately a spur towards virtue as we strive to be worthy of the esteem we crave (although, of course, as we are mere mortals there is much stumbling on our journey).

Web 2.0 is scaling up the scope for human sociality and opening up new vistas for the expression of self-interest. And yet profit-seeking is only a small part of how that self-interest is manifesting itself.

The way we express our self-interest on Web 2.0 is something new, and also as old as humanity itself. Why do millions of us blog? For the same reason we talk and write emails, text messages, instant messages and letters (remember them?). We do it to communicate feelings, ideas, needs and experiences with others who might understand us. They might even write back! Whether it’s the evolution of language itself or the evolution of culture and social mores, people’s interaction like this builds communities of shared meaning and understanding.

Even Smith’s description of a market was inherently social — he toyed with the idea that the fundamental human drive behind bargaining was the desire we each have to persuade others to see it our way. Smith would have understood the foundational proposition of an early Web 2.0 credo, “the cluetrain manifesto” — “Markets are conversations”.

As Web 2.0 burgeons, its denizens pursue their interests like the merchants in Smith’s Wealth of Nations, posting and commenting on blogs, making and exchanging programming code and mash-ups of each other’s content, making connections based on social or practical needs. Some serve practical needs — perhaps they need some software bug fixed. Others are “know-alls” proving their superior knowledge. Some express their love of a subject.

And just as the miracle of a healthy market enables the merchant’s self-interest to serve the common good, so this new alchemy of the web aggregates individual efforts into freely available public goods. Likewise this unruly mix of motives gives us glimpses of our better selves. To use Smith’s description of the psychology of ambition, it lures us on our quest for an “easy empire over the affections of mankind”, which is a hint, a tease calling us on a quest for a more distant and difficult destination — virtue itself

[You can access a printed version of Nick's article HERE: and contact him should you wish.]


Monday, May 04, 2009

At a Day Seminar at Glasgow University

I am attending a seminar on an early event in 18th-century Scottish history today at the Adam Smith Research Foundation at Glasgow University and will only be able to post this evening.

Sunday, May 03, 2009

Surprised at Sloppy Notions for Chomsky





Gavin Kennedy

From Noam Chomsky: Education is Ignorance (2 May) in W.E.A.L.L.B.E. here:

"David Barsamian: One of the heroes of the current right-wing revival... is Adam Smith. You've done some pretty impressive research on Smith that has excavated... a lot of information that's not coming out. You've often quoted him describing the "vile maxim of the masters of mankind: all for ourselves and nothing for other people."

Noam Chomsky: I didn't do any research at all on Smith. I just read him. There's no research. Just read it. He's pre-capitalist, a figure of the Enlightenment. What we would call capitalism he despised. People read snippets of Adam Smith, the few phrases they teach in school. Everybody reads the first paragraph of The Wealth of Nations where he talks about how wonderful the division of labor is. But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be. And therefore in any civilized society the government is going to have to take some measures to prevent division of labor from proceeding to its limits."

This is a long article and I wish to comment on other paragraphs, so I will focus on the above passage and return on other days to other posts.

Let me say first that Noam Chomsky is respected as a formidable intellectual with a lot of ‘hinterland’ as we say in the UK, and he says quite a lot about Adam Smith that you won’t find from many modern economists, because, as he says, few of them actually read Smith’s books. But if you put up this line of argument it is best if you show that you have read Wealth Of Nations well.

That he confesses he ‘read him’ but didn’t do ‘research’ is revealing and perhaps explains why his interpretation, given with that certainty that comes from a certain kind of intellectual bully, is actually misleading on the issue of Adam Smith and the division of labour, a common enough error among most of the Left.

Smith was a moral philosopher; he observed everything but did nothing. He didn’t bring to his work a preconceived set of prescriptions and apply them to his study of commercial society in the context of 18th-century Britain. He described, taking the long-view of history as well as his reading about and visiting fairly primitive work places to see how the division of labour increased labour productivity. And not just in the pin factory (‘a very trifling manufacture’; p14). He also, and perhaps of greater significance, he described the ‘accommodation of the most common artificer or day labourer in a civilised and thriving country’ (p 22). Here he described the long supply-chain, including its international dimensions, that produced the common labourer’s ‘woollen coat’, the ‘produce of the joint labour of a great multitude of workmen’.

Yes, the national and international division of labour is ‘wonderful’. It operated in Smith’s day without ‘central planning’, ‘central direction’, and without the help of university professors from either Glasgow (1461) or Harvard
(1636), or the sovereigns of any kingdom, or legislators and those who influenced them, in the few places where they existed.

Having discussed the division of labour and its commercial consequences in Book I of Wealth Of Nations (it created, among other things, the wealth that enabled Scotland and a British colony in North America to divert some portion of their ‘annual output of the necessities, conveniences, and amusements of life’ to the employment of professors to educate young men – no girls! – to add to the human capital of what were for many decades (in Scotland, for centuries) humans otherwise bereft of learning and sunk in ignorance.

Chomsky notes: ‘But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be.

Now, some parts of this sentence are fine, some parts woefully wrong, and almost all of it out of historical context. I have no idea how a Harvard professor managed to attack those who ‘read the first paragraph of The Wealth of Nations’ but do not ‘get to the point hundreds of pages later’ (768 actually), and yet manifestly misleads his readers as if he hasn’t read Book V himself with the due care and attention we expect from Harvard undergraduates, let alone its senior faculty.

The relevant section reference is ‘Article ii’, ‘Of the Expense of the Institutions for the Education of Youth’, pages 758-88, of Book V of Wealth Of Nations, and the relevant page is 782 (from the Glasgow Edition, Oxford University Press):

In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.” (WN V.i.f: 782)

The education of youth is a long and important part of Wealth Of Nations. In it Adam Smith presents a detailed description of the history of education from classical times to its then state in Britain. The first notable feature was that only boys were formally educated for a few years; girls were left to their parents to ‘home educate’, which for the majority meant no education at all (their parents were likely to illiterate and general ignorant).

Across Britain the picture was patchy. England was largely backward educationally. It had two universities, Oxford and Cambridge, but local schools were rare. In Scotland, there were four universities, Edinburgh, Glasgow, St Andrews and 'Aberdeen'. But local provision for education since the 17th century was managed by ‘little schools’ in most parishes, paid for by a mixture of charitable sources, local contributions and donations. Most male children spent a year or more, some ‘bright’ children up to age of 14. Middle class boys tended to stay longer than the children of the poor, most of whom were sent to work from about 8, their parents near destitute.

Smith describes this in Book V. In fact, he offers the ‘little school’ system in Scotland as suitable for England too (a much larger country in population and wealth than Scotland). He envisages all children spending some time learning the ‘read, write and account’ to extend literacy across the majority of children (he left open the question of education for girls, but clearly they could be accommodated in the ‘little school’ system).

Book V is about government expenditure and revenue. How was education to be funded? The government would have to play a serious role in such a project, which meant taxation of a relatively narrow taxation base. At the time taxation was a sensitive subject (it was ever thus) and the people who would have to consent to such an additional expense (‘little schools’ would need to be built, which with 60,000 parishes was no mean line item in a budget) were the legislators, mainly representative of the agricultural aristocracy and few ‘improving’ landlords.

If Chomsky re-reads the paragraph quoted above he will note two themes in his argument. The first, which Chomsky has focused upon, is that of the deleterious effects of the division of labour, which were of longstanding antiquity (the division of labour preceded commerce by many millennia back into pre-history).

Farm labourers were marginally ‘better off’ than the fewer primitive factory labourers, hauliers, seamen, servants and soldiers, and etc. But be clear, the outdoor farm labourers were not all dancing round May Poles and living as happy families on the prairy. Theirs was a hard life, short too, with infirmities and early deaths from disease, incapacity, accidents and starvation.

Into this background Smith raises the ‘man whose whole life is spent performing a few simple operations’ and the consequences in his stupidity and ignorance. He does not raise the spectre of millions living their awful rural lives in similar terms – his appeal is to support from the few rich men who owned the farms.

He also turns his argument neatly as his second theme. If the sources of finance for education (mainly the aristocrats) were not inclined to support the ‘little schools’ from their usual selfish inclinations to prodigality, then it would be useful to appeal to their fears of disturbances to their sheltered lives – the steady decline in martial prowess of the uneducated mass of poorer men (and Smith knew how to write well).

For the indigent labourer whose ‘torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life' could be written as a major threat lurking everywhere. Moreover, ‘Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war.’ If not inclined to rebellion, his services in defence of the island country could be useless.

These concerns were meant to strike a chord with that class of taxpayers who were fearful of weak armies and of easily misled labourers who might become rebellious (such rebel ‘mobs’ had forced the British army out of the colonies).

In short, Smith was 'spinning', as we say today, a case for increased taxation to pay for public institutions regarded as deficient in 18th-century Britain. That he was doing so 768 pages after the ‘pin factory’ was deliberate, Few of his readers would have the faintest idea of what went on in a factory and his prose was powerful because it pushed all the right buttons to rouse the rich readers from their complacency – and not a little hostility – about the plight of the children of labourers.

Chomsky has not considered this context. Hence, he can decry the division of labour and assert with conviction that it ‘will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be’, but not with much credibility. He apparently has no idea of how ignorant were the members of the majority of ordinary labouring families in the 17th and 18th centuries, let alone the millennia before then.

Empirical evidence beats speculation. Was the result of the division of labour, even through the horrors of the industrial revolution of the 19th century, a nation of people who were turned into ‘creatures as stupid and ignorant as it is possible for a human being to be?

When Adam Smith wrote Wealth Of Nations (1764-1776) he did not have a vote under the existing franchise – in fact he never had a vote – but by the late 19th century, literacy levels were at unprecedented higher levels, ignorance was not the norm, and trade unions were beginning to exercise their functions, and were led by working men who could do a lot more than ‘read, write, and account’.

By exaggerating his case with colourful prose, few facts, and no history Chomsky undermines those parts of his case that are worthy of our attention. I shall examine the rest of his article over the next few days to see whether he can be taken seriously.

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