Thursday, December 31, 2009

Adam Smith's Parable of the "Poor Man's Son"

Professor Sir Partha Dasgupta, from The University of Manchester, writes in Manchester Mouth (HERE)

"Economist: ‘GDP is misleading a measure’ and says:

“Gross Domestic Product (GDP) ignores the value of natural ecosystems – an essential component of wealth.

“Adam Smith did not write about the GDP of nations, nor the HDI of nations; he wrote about the ‘Wealth of nations’,” said Professor Dasgupta who is based at the University’s Sustainable Consumption Institute.

“As Smith would surely have agreed, the international community needs to routinely estimate the comprehensive wealth of nations which includes natural capital. This is not happening

Adam Smith (nor nobody else in the 18th century) wrote about “GDP” because the measure was not invented until long afterwards.

Smith wrote about a nation’s wealth in his “Wealth Of Nations” (1776), which he formulated as the annual production of “the necessaries, conveniences, and amusements of life” (others at the time had a similar construction). Wealth most definitely was not the amount of gold, silver, or money held within the country (Wealth Of Nations, Introduction, p 5, and passim throughout the book – see Index).

However, he did identify what was instrumental in transforming a country from “savagery” (living off the forest) during the first Age of Man, into a “civilised” state, in Moral Sentiments (1759) and in his Lectures on Jurisprudence (1762-3), specifically its transformation into a “commercial society” in the 4th age of man.

He discusses (Moral Sentiments IV.1.8: p181) his parable of “The poor man's son, whom heaven in its anger has visited with ambition, when he begins to look around him, admires the condition of the rich” and what happens to him over a lifetime of toil and trouble to acquire riches – the great “deceptionSmith called it:

And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants.” (Moral Sentiments IV.1.10: 183-84)

This puts a different slant on an assertion that Adam Smithwould surely have agreed” that wealth should be measured by an indicator that contains the value of “natural capital” (however that is measured).



Blogger Tom Hickey said...

Gavin, did you catch this reference by Joe Stiglitz yet?

"In 2009, we again saw why Adam Smith's invisible hand often appeared invisible: it is not there."

Harsh lessons we may need to learn again

4:51 pm  
Blogger Gavin Kennedy said...

Wonderful - many thanks indeed. I post a comment on it immediately.

Best Hogmanay present imaginable.

The reference has not been picked upon my Adam Smith alerts yet.

If I drank, I'd have champagne, but diet Coke will do instead.

A Guid New Year to ane and a'

Best for 2010


5:37 pm  
Blogger Gavin Kennedy said...


After writing my above comment to you, I found the Stiglitz article in Gulf News.

I hope these outposts are a prelude to its circulation in the North America and Britain.

The comments from the mainstream will be interesting...

5:53 pm  
Blogger Tom Hickey said...

Glad to make your day, Gavin. I thought you'd be excited if you hadn't picked it up yet.

It will be interesting to see what kind a play this gets in the US, if much of any in the mainstream. Crushing blow to the status quo from a Nobel. I'd say this qualifies for repeat prize.

Happy New Year to you.


6:29 pm  
Blogger Gavin Kennedy said...

Hi Tom

I think the least I can do is award Joe Stiglitz the Lost legacy Prize for 2009 on this last day of the year.


7:24 pm  

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