Saturday, July 31, 2010

A View on Smith on Protection

This arrived as a comment fom 'Brian', but after pressing 'publish', it 'disappeared' and it is not clear to which post it refers.

I post it here with my comments:


Its important to understand that Adam Smith also saw cases in which tariffs might be beneficial, which he discusses in Part II of Book IV of the Wealth of Nations : 'Of Restraints Upon the Importation from Foreign Countries of Such Goods as Can Be Produced at Home' .

He argues that the two cases in which it would be advantageous are when an industry is required for national defense, and when there is some internal tax placed on domestic industry which makes it more difficult to sell domestic products compared to foreign products.

Then he goes on to talk about cases in which there have to be deliberation, including retaliatory tariffs. His difference from mercantilists was he thought retaliatory tariffs always should have the goal in mind of returning the situation to how it was and influencing the other party to drop tariffs.

So there's a question to me of how much Hamilton really strayed from Smith compared to others who went even farther than Smith and become doctrinaire partisans against tariff.

Hamilton, and later List, expanded on Smith's limits, and suggested tariffs may appropriate for things like 'infant industry protection'.

But like Smith, they opposed the old System of mercantilism, which was more than about protective tariffs -- in establishing state sponsored monopolies, privileges, control of trading ports, determining who colonies could trade with, creating strict quality regulations that were punishable by death. Mercantilists also assumed the point of trade was to always encourage exports over imports, which Hamilton didn't accept either.

The opponents of Hamilton and List, who were free trade exponents and disliked all tariffs, were no better as heirs of Smith.



Your comments are welcome and accepted.

Hamilton was considering the situation post US independence, where the UA was no longer inhibited by Britain’s Navigation Acts and prohibitions on US domestic manufacturing. Its manufacturing sector was weak and it was US policy to grow it, and to export to Europe, including the UK.

Smith had considered this a good idea but political realities prohibited it. Whether it required tariff protection was an empirical issue – domestic substitution would promote domestic manufacturing. How much so was empirical. The easier route to protection had implications and political favour.

List was an outright protectionist of a German nationalist disposition, seeing in Smith a dubious advocate in a protectionist (mercantile) Britain, of which Smith was critical – List implies that Smith was devious.



Thursday, July 22, 2010

Announcement XXIV

Friday, 23rd, I plan to be en route to France by road (and tunnel) for four weeks, which I left in June, expecting to be in Scotland for a fortnight, but events intervened necessitating hospitalisation.

I am now in recovery and expect the relative quiet of rural life in France to be an aid to these plans.

As usual, there will be Internet connection problems, but of necessity there will be less of an urgency to connect on my part, which you may notice has been a bit of a problem recently.

While I hope to Blog on Lost Legacy, I shall be doing so less regularly until I return in September.

I am advised to do as little as I can to ensure a quicker and surer recovery. Regular walks and daily swimming are on the agenda. Little sitting at computer too.

Above all, I am advised not to get too intense in feelings about things that I care a lot about, of which Lost Legacy is top of the list.

Apologies for all this, but my family considers it is in my best interests. (But nobody can stop me thinking!)

Let’s see how I get on for a while.



Five Sociologists Misled by their Adoption of the Neoclassical Myth of the Invisible Hand

The “Invisible Hand”: neoclassical economics and the ordering of society’, Alan Finlayson, Thomas Lyson, Andrew Pleasant, Kai Schafft and Robert Torres in Critical Sociology, 2005, vol. 31, no. 4: 515-536.

Still, much of the conceptual cure of classical economics was preserved including the primary metaphor for the meta-function of the market – the “invisible hand.” First spelled out in An Enquiry into the Natures and Causes of the Wealth of Nations[.] Adam Smith wrote: (the invisible hand paragraph from Book IV, ii.9: 456 follows).

There is no discussion of the context in which this metaphor was used by Smith. It certainly had nothing to do with the ‘the primary metaphor for the meta-function of the market’ – there is no evidence that our authors have any idea about Adam Smith’s use of metaphors: see Adam Smith: Lectures on Rhetoric and Belles Lettres’, Oxford University Press, 1983, p. 29). Briefly, metaphors express in a ‘more striking and interesting manner’ their ‘’objects’. Context shows that the object of the metaphor, invisible hand’ had nothing to do with markets, which were discussed in Book I and II, without mentioning the invisible hand.

The context, should our authors, be bothered to do their research, was the behaviour of some, but not all, merchant traders, to prefer domestic investment to foreign investment because of their concerns for their ‘own security’ (risk-aversion; see Book IV, ii, 1.9). By behaving thus, the domestic investments of these particular merchants added to national investment, with consequent increases in domestic investment and employment, that had, in Smith’s view, beneficial consequences for society, particularly among the labouring poor and their families.

In sum, the ‘invisible hand’, in this case, complied with the arithmetic rule that the whole is the sum of its parts’, and
this process had nothing to do with the ‘existence of well-functioning market that efficiently distribute labor, resources and wealth’ (p 518). The latter idea was an invention of modern economists, and was popularised, particularly, by Paul A. Samuelson in his text, ‘Economics: an introductory analysis’, 1948, p. 36, and the developed in the following 18 editions 2010.

The ‘core of classical economics’ was NOT ‘preserved’ in the ‘meta-function of the market’ as the ‘invisible hand’. Our authors would be hard pressed to find a reference to the ‘invisible hand’ in the works of Ricardo, J S Mill, or Karl Marx, or indeed, almost any contemporary or near contemporary of Adam Smith. In fact, Smith only mentioned it once in Wealth Of Nations. His friend, Dugald Stewart, quoted the passage without comment in his Principles of Political Economy in 1801. And from Smtih’s death in 1790 to the late 19th century hardly anybody mentioned it at all, until 1920 (Pigou) and in the oral tradition at Chicago in the 1930s (Oscar Lange, 1938, Keynes1930s).

Our authors consider the ‘invisible hand’ as being about ‘power’ That is more an assertion from their sociological analysis of modern capitalism and from their passive adoption of the neoclassical appropriation of its invention of the wider use of the metaphor from the 1950s, and the inevitable, but completely unjustified, attribution of its modern meaning to Adam Smith’s quite different uses in both Theory of Moral Sentiments, 1759, (once only) and Wealth Of Nations, 1776) (and, just for the record, once only in his Essay on Astronomy, posthumous, 1795).

In all three cases, Smith was not referring to competitive markets – hardly so because ‘rich landlords’ were not in a competitive market economy, nor were 18th-century merchants in mercantile Britain, and nor were credulous Roman citizens who believed that their god, Jupiter, fired thunderbolts at enemies of Rome.

These elementary misunderstandings undermine our Authors’ case against neoclassical economics, the broad aims of which I would normally have sympathies. But scientific criticism must be based on facts, not fallacies, including those perpetrated by neoclassical economists.


Sunday, July 18, 2010

Matt Ridley's New Book: he understands Adam Smith on 'Toil and Trouble'

I am reading Matt Ridley’sThe Rational Optimist: how prosperity evolves’” (2010: Fourth Estate, London) , a most impressive composition with which I am both enthused by his new material and pleased that so much of my own work is confirmed.

For example, I have long had the view, and been on the receiving end of sharp criticism by fellow economists for my interpretation of Adam Smith’s so-called labour theory of exchangeable value, as expressed in my “Adam Smith: a moral philosopher and his political economy”, 2008, Palgrave Macmillan, soon to be out in a second edition in September, 2010.

A sentence in Matt Ridley’s book (page 22) struck a chord:

‘The true measure of something’s worth is the hours it takes to acquire it.’

which echoes Adam Smith in Wealth Of Nations (WN I.v.2: 46):

The real price of everything what everything costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, who want to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour as much as what we acquire by the toil of our own body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity. Labour was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased; and its value, to those who posses it and who want to exchange it for some new production is precisely equal to the quantity of labour which it can enable them to purchase or command.’ ( WN I.v.2: 47-48)

Now, many colleagues read that passage too quickly. They see ‘quantity’ of labour and jump in to think of a labour theory of value.

Yet, this misses clues: ‘original price’ (in ‘rude society’, i.e. before the appearance of property, landlords and owners of capital`) which in post-rude societies is still experienced as ‘toil and trouble’.

If I want a wooden fence painted, I can do it myself (‘toil and trouble’) or pay someone else to do it (I’m a lousy fence painter; their ‘toil and trouble’). His ‘money price’ against ‘time’, ‘toil and trouble’ is the negotiated exchange ratio. It does not imply a detailed assessment of something called the ‘quantity’ of labour at all and Smith did not consider it so. ‘Toil and trouble’ is subjective, plus consideration of what else I can be doing while the fence is painted.

‘All the wealth of the world’ in the first age of society was sourced from labour. The fruits of the forest were ‘free’; they either laboured to feed, clothe, and shelter for themselves or they went hungry, were cold, and were exposed to predators. All the ‘wealth of the world’ in those times were a meagre bundle of goods, indeed!

Matt Ridley shows the consequence of time, toil and trouble motives:

‘Time: that is the key. Forget dollars, cowrie shells or gold. The true measure of something’s worth is the hours it takes to acquire it. If you have to acquire it for yourself, it usually takes longer than if you get it ready-made by other people. And if you can get it made efficiently by others, then you can afford more of it. As light became cheaper so people used more of it. The average Briton today consumes roughly 40,000 times as much artificial light as he did in 1750. He consumes fifty times as much power and 250 times as much transport (measured in passenger-miles travelled too.’

Ridley gives scores of telling examples. Read his book for eye-opening details.


Don't Rely on Wikipedia for Knowledge of Adam Smith

Anonymous writes in Rewards HERE:

"Bullies are the invisible hand "of the intellectual rewards."

“In economics, the “invisible hand”, additionally accepted as the “invisible duke of the market”, is the appellation economists use to call the automated attributes of the marketplace. It is a allegory aboriginal coined by the economist Adam Smith in The Theory of Moral Sentiments. For Smith, the airy duke was created by the affiliation of the armament of self-interest, competition, and accumulation and demand, which he acclaimed as actuality Able of allocating assets in society. This is the founding absolution for the laissez-faire bread-and-butter philosophy. (Information quoted and taken from Wikipedia)”

‘a(sic) allegory aboriginal coined by the economist Adam Smith in The Theory of Moral Sentiments.’ Rubbish! (There is no politer way of expressing it.)

The metaphor was already well known in literature long before Adam Smith published Moral Sentiments (1759). It appeared in classical literature, and, for example, in Shakespeare (Macbeth, 1605) and Defoe (1722). Smith was born in 1723 and the metaphor was very popular in theological works and church sermons.

Smith’s first published use of the metaphor of an invisible hand had nothing to do with markets (or ‘competition, and accumulation and demand’) at all; it referred to the behaviour of ‘rich landlords’ using some of their annual output from agriculture to feed the serfs and peasants, which by any count was an unavoidable obligation, because, otherwise, there would be nobody alive to clear, plant and harvest the rich landlords’ crops each year.

His second use was in Wealth of Nations and it had nothing to with ‘markets’ or ‘competition, and accumulation and demand’. It was a metaphor, expressing in a ‘more striking and interesting manner’ the choice made by some, but not it all merchants, to prefer local investment because of their perceived greater risks of investing abroad. The context had nothing to do with ‘competition’ at the time, given that 18th-century Britain was dominated by mercantile political economy with its monopolies, tariffs and prohibitions in respect of trade.

These institutional interventions did not ‘actuality’ ‘allocate assets in society’.

It was the act of investing locally that added to national output and employment – the ‘whole is the sum of its parts – a mere arithmetic consequence of the risk aversion of the local traders.

The assertion that the whole is the sum of its parts’ is hardly ‘the founding absolution for the laissez-faire bread-and-butter philosophy’. Moreover, Adam Smith never referred to ‘laissez-faire’ on anything he wrote. The belief that he did is a modern invention by economists who have never read Adam Smith’s works.
The author confirms my assertion of his/her never having read Adam Smith with the revelation that: ‘Information quoted and taken from Wikipedia’, a wholly unreliable resource, quite often on a level with the corny ‘jokes’ found in Christmas crackers.


Saturday, July 17, 2010

On Getting Adam Smith Absolutely Wrong

Michael Happy writes (17 July) on The Educated Imagination (a website dedicated to Northrop Frye) HERE:

"Adam Smith

Frye in “Varieties of Eighteenth Century Sensibility”:

“We saw that Locke, like Descartes before him, based his philosophy on a philosophical man abstracted from his social context, in short, a theoretical primitive. Also that Robinson Crusoe was an allegory of another abstract primitive, the economic man of capitalist theory, whose outlines are already fairly complete in Adam Smith. These are the individual primitives at the core of Augustan culture. But such primitives have voluntarily entered a social contract and a historical tradition. For this attitude nothing in the area of culture can develop except on the other side of the social contract: literature and the other arts are rooted in a historical context in both time and space. (CW 17, 33)”

While it is risky to pick up on writings of literary specialists as a moral philosopher or political economist, this seems to me that Northrop Frye is way outside the boundaries of the ideas of Adam Smith; indeed it gives an entirely misleading appreciation of Smith’s ideas.

For Smith, there was no ‘theoretical primitive’ nor an ‘economic man of capitalist theory’.

Indeed, I should expect a literary theorist to know that the very word ‘capitalism’ emerged in English long after Smith had died in 1790. The word first appeared in English in Thackeray’s novel The Newcomes in 1854 and, therefore, it follows that Smith never had a theory – or even mentioned – capitalism or capitalist – in his writings. It also follows that the statement that the ‘outlines are already fairly complete in Adam Smith’ is, er, nonsense (apologies for being blunt but no offence is intended).

Adam Smith saw individuals as social and moral agents in his Moral Sentiments. Society was the ‘mirror’ by which individuals in society learned to distinguish those behaviours that were acceptable to others and arranged their compliance accordingly.

In Wealth of Nations he explicitly opens with social mankind in their exchange relations with each other, a relationship that went well beyond that of ‘truck, barter, and exchange’ in is writings on the formation of compound languages from the first ages of mankind, which arose from the ‘necessary consequence of the faculties of reason and speech’ (WN I.ii.2: 25). These faculties were present hundreds of millennia ago and certainly long before 19th century ‘capitalism’!

Similarly, in his Lectures on Jurisprudence (1762-3) and Astronomy (1744-50). Exchange requires at least two people in a relationship (Robinson Crusoe did not exchange anything with anybody – until Man Friday arrived) and is common to all societies from a handful to millions). And what an incredibly narrow view of mankind is in the 19th-century Homo economicus and its modern variants. Neither Robinson Crusoe nor Homo economicus have anything to do with Adam Smith’s philosophy nor his political economy.

I suggest a quick refresher course in Adam Smith's work is in order, as is a re-think about the thinking of Northrop Frye.


Monday, July 12, 2010

Korean Translation of Adam Smith


Adam Smith: a moral philosopher ad his political economy (Palgrave Macmillan) is to be translated and published in Korean by Myung Jin Publications, Seoul, Republic of Korea.

This adds to the foreign translations of this work, which has already appeared in Simplified Chinese by Huaxia Publishing House, Beijing, China.

Of course, the English language paperback is about to appear in September.

If sales measure influence (the money is unimportant in this context) this is all good news.


Saturday, July 10, 2010

Adam Smith On Property Rights and His Good Sense In the Real World

Paul Sagar (14 March) wrote in “Bad Conscience” Blog HERE:

“Intelligent Libertarians, Regulation and Financial Crisis: An Essay”

“Law’s function, in Hobbes’ schema, was to protect all of our rights to survive; if the law stood between an individual and the loaf of bread they needed to carry on living, then the law ceased to have meaningful content. Violation of the property rights of the bread-holder were thus automatically justified, and the violator was automatically excused (though the law against bread-stealing would itself stay in place due to its general tendency to promote the wellbeing of all, considered collectively and systemically).

Smith disagreed. For him, property rights had to be enforced as foundational to the jurisprudential structure of society, and they had to apply in all cases. If a starving man stole a loaf of bread to survive, then he broke the law. Now, if apprehended and taken to court for such law-breaking, a judge might consider the circumstances and offer clemency to the bread thief whilst still finding him guilty. The point, however, is that the law continued to apply – but in this case, punishment might be forestalled on the grounds of extenuating circumstance (the bread thief, after all, was starving). Whereas for Hobbes the law against stealing bread ceased to have meaningful content because the bread-thief was starving, for Smith the law continued to apply (a violation of the bread-owners legal property rights had certainly occurred) but punishment for this violation might be mitigated by a sympathetic judge. Though equally it might not. (However, given what Smith says in his Theory of Moral Sentiments, it seems that he would personally have hoped that judges be sympathetic in such cases).

As a result, Smith made property rights foundational. They became, indeed, the central supporting pillar of his vision of (broadly) free-market commercial society. And it’s Smith’s vision that we have embraced. Steal a loaf of bread today and – even if you are starving – the authorities will still charge you with theft. If you are lucky, the magistrate will let you off with a slap on the wrist when you go to court – but then, she may not. Thus, the centrality of continuing absolute property rights – as envisaged by Smith and his natural law forbearers like Grotius, Pufendorf and Locke – goes to the heart of modern capitalist society. And insofar as Intelligent Libertarians uphold the inviolability of property rights, they are indeed following Adam Smith.
Yet perhaps many Intelligent Libertarians would be interested to know that Smith did not consider the same rules to apply from the perspective of the state. Whilst individuals were always bound by the rules of property, as enshrined in law, the state was sui generis. Here Smith followed his friend and intellectual interlocutor, the great philosopher and economist David Hume. Hume had argued that, in times of extreme national emergency, the government must do whatever was required to save the nation. Under ordinary circumstances it would of course be wrong for the government to burn the suburbs of the capital city – but if that was the only way to prevent the enemy’s approach then it must be done.

As Istvan Hont, the world’s most pre-eminent authority on the foundations of modern political economy has remarked:
“Hume had taken it for granted that magistrates had the right to open private granaries and distribute grain to the poor at set prices, not merely in a situation of actual starvation, but ‘even in less urgent necessities’. He had used this example to argue that ‘the rules of equity or justice depend entirely on the particular state and condition in which men are placed’. In situations of ‘extreme necessity’ it was ‘perfectly useless’ to insist on maintaining an unlimited right of private property. Smith followed this line, but seems to have closed off the case of ‘less urgent’ necessities. Only actual impending starvation appears to qualify as the ‘case of most urgent necessity’ which would justify the suspension of property rights in grain.”

Istvan Hont, “Needs and Justice in Adam Smith’s Wealth of Nations”, in Jealousy of Trade, (Harvard, 2005).
(Grain was a favoured 18th Century example, because fluctuations in the grain price and in extreme cases the lack of grain itself could cause riots amongst the common people that had the potential to topple governments).
The point is that for Smith, from the perspective of the state, extreme necessity justifies suspension of the law regarding property rights. If the only way to hold a nation together was for the state to violate the property rights of individual grain holders then so be it. Salus populi suprema lex est – the safety of the people is the supreme law.”

Yes, it was some months ago, and it got ‘lost’ for a while.

I was attracted to ‘Bad Conscience’ because it carried sensible comments and good ideas worth thinking about. The author also knows much above average about Adam Smith, which is worth reading. If all Libertarians wrote like this, they would have greater credibility.

He carries on the discussion about property rights and the state in today’s `blog post. Follow the link.


Friday, July 09, 2010

Be Careful With Presumptions

Jameson Graber writes the “I think, therefore I Blog” which today included, “Adam Smith on Presumption”, HERE:

As I read through Adam Smith's Wealth of Nations, I'm finding that Book IV, Chapter II is a gold mine for some of his most concise and powerful statements on economic freedom.”

[There follows the quote of the “invisible hand” passage. WN IV.ii.9: 456]

Apparently, this is the famous "invisible hand" argument. It's kind of funny to me that its context is merely a chapter on why laws against imports are bad. However, it really is quite a beautiful idea: we can actually benefit the whole society, which is incomprehensible to us, by focusing on that which is entirely comprehensible to us, namely our own self-interest.”

“Glad you found WN IV.ii. because it is an important chapter but not as significant as it has been made out, mostly by modern economists. The only reference in Wealth Of Nations to 'an invisible hand' was not a general statement by Smith about 'an invisible hand' in markets. In his discussions on markets in Book I, he does not mention anything about invisible hands. Read Chapter 2, book IV carefully and note he is discussing how some but clearly not all, traders who prefer to invest locally because of the greater risks of overseas trade, add to national output (the 'whole is the sum of its parts), which Smith considered a public benefit (higher local employment). This has nothing to do with 'efficiency', 'welfare' or perfect competition, as claimed today.”


Wednesday, July 07, 2010

General Equilibrium and the Myth of Invisible Hand

‘endeavour15’ writes on Article
Properties of a Competitive General Equilibrium HERE

These conditions are obviously an idealized situation. But were such an economy to exist, it would be one in which Adam Smith’s invisible hand could rule without any impediment from externalities or imperfect competition.
 For this economy, we can describe consumer behavior and producer behavior and then show how they dovetail to produce an overall equilibrium. First, consumers will allocate their incomes across different goods in order to maximize their satisfactions. They choose goods such that the marginal utilities per dollar of expenditure are equal for the last unit of each commodity.

The original source of this connection between Adam Smith’s use of the invisible hand metaphor and general equilibrium was Paul Samuelson in his popular text, ‘Economics: and Introductory Analysis’, McGraw-Hill, 1948 (19th edition, 2010).

The connection had absolutely no basis in anything written by Adam Smith (see Kennedy, G. 2010. ‘Paul Samuelson and the Invention of the Modern Economics of the Invisible hand’, Journal of the History of Ideas, forthcoming, December, 2010).

The metaphor had nothing to do with perfect competition, or anything like it. Smith used the metaphor once only in Wealth Of Nations and once only in Moral Sentiments, and in neither case, it had nothing to do with markets.

‘Rich landlords’ in pre-commercial society fed their serfs and retainers from the produce of their fields because they had no choice – starving peasants could not work the landlords’ land; some, but not all traders preferred to use their capital domestically in 18th-century Great Britain which was riddled with the mercantile competitive restrictions of and direct prohibitions on we now call ‘mercantilism’ (chartered monopolies in every town, tariffs and direct prohibitions on imports, restrictions on the mobility of labour, prohibitions on settlement outside the parish in which labour was born, prohibitions on engaging in trades without serving 7-year apprenticeships, and the Navigation Acts monopolising British foreign trade), none of which are remotely competitive, let alone ‘perfectly so).

For General Equilibrium to operate in maths, it cannot operate in real world. There is no ‘invisible hand’; Adam Smith used is as a metaphor for ‘necessity’ and ‘risk aversion’.

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Tuesday, July 06, 2010

Another Set of Errors About Adam Smith

Gina Burgess writes the Refreshment Refuge Blog, HERE:

“A Study of Economics and the Downfall of the USA”

“Classical macroeconomic theory was best described by Adam Smith in 1776 in his writings The Wealth of Nations calling macroeconomy the “invisible hand of the marketplace”. He had a philosophy of laissez fair which is “leave it alone and it will work itself out”; in other words, equilibrium is the natural state and shifts in supply and demand will bobble the economy but not devastate it. The basic premise is that somebody somewhere will always want to buy something in the right quantity and at the right price. “Self-adjustment was expected in the labor market.” (Shiller, Bradley R. Essentials of Economics. Fifth Edition, 2005 p 254, 2005). Therefore, in the long term, the economy is stable and has steady.


1 Adam Smith did not call the ‘macroeconomy’ the “invisible hand of the market place”.
The word ‘macroeconomy’ did not exist in English in the 18th century.

2 He never linked the metaphor of an invisible hand to markets or the market place.
3 He never had a philosophy of laissez-faire (he never used the words).

4 He did not have a theory of equilibrium.

5 He did not think that in the ‘long run’ the economy was ‘stable and steady’.

If the author is so wrong about Adam Smith what value should a reader place on her account of the "downfall of the USA"?

Has Gina read Wealth Of Nations?


Monday, July 05, 2010

A Potted Bio Of Adam Smith -Wrong In Parts

‘prescott’ writes in Bally bags an online a short biography of Adam Smith HERE:

Now, I am well known as an admirer of Adam Smith and his Works, but I mine is not unqualified in my admiration, especially for modern narratives. In particular, I am pretty cautious about what I include in his biography because a lot of ‘baggage’ is added to the known facts about his life and the checkable facts about his Works.

Hence, reading ‘Prescott’ on Adam Smith, I was struck immediately by the clear errors in his/her account in his article. In the interests of accuracy, I comment on ‘Prescott’s’ main errors:

Adam Smith: Capitalism’s Founding Father

[Adam Smith did not found ‘capitalism’ (the word was not invented in English until 1854 (See Thackeray’s novel, ‘The Newcomes’ and check the Oxford English Dictionary). Smith observed what he called ‘the age of commerce’, which had been under way in Greco-Roman times and re-emerged after the fall of Rome (5th century) in Europe from 14th-15-century. No known individual founded ‘capitalism’, certainly not Adam Smith]

Adam Smith … best known for his classic treatise An Inquiry Into the Nature and Causes of the Wealth of Nations, he is credited with establishing the discipline of political economics.’

[Adam Smith did not ‘establish the discipline of political economy’, which was and remained a sub-topic within the ‘discipline’ of Moral Philosophy in Scottish Universities before him. Others wrote on political economy before Adam Smith (for example, Sit James Steuart, An Inquiry into the Principles of Political Œconomy, 1767, 2 volumes, Millar and Cadell, London.]

The ideas put forward in his work represented a radical departure from the then-dominant economic policy and philosophy of mercantilism, which had held sway in Europe for three centuries.’

[Basically true, but many of the ideas behind ‘mercantile political economy’ live on in the minds of many politicians and voters]

So profound was the impact of Wealth of Nations that it is generally considered the most important economic work ever written. Terms that are commonly used today, such as “invisible hand” and “division of labor,” had their genesis in Smith’s treatise.’

[An exaggeration but excusable, as most people have never read Wealth Of Nations’. However, ‘the division of labour’ did not have its ‘genesis’ in ‘Smith’s treatise: Plato wrote about in classical times (The Republic), as did Sir William Petty in the 1683, (Essay in Political Arithmetic). Smith made no claim to have done so; he referred (Wealth Of Nations) to the phenomena has having been ‘very often taken notice of’ by others. Smith’s arithmetic data on pin making came from Diderot’s Enclyclopedie (1751-57; see Peaucelle. J.-L. 2006), though he visited a small pin-factory himself. As for ‘an “invisible hand”, which is well known (even ubiquitous) today, his use of the famous 18th-century metaphor has no connection to its modern interpretation by economists (see Lost Legacy passim].

He was apparently greatly influenced by Scottish philosopher Francis Hutcheson, whose theories on moral sense were a basis for Smith’s own ethical speculations later in life.

[Professor Hutcheson was Smith’s tutor and certainly influenced him, but on ‘moral sense’ Smith took a quite different line to Hutcheson on the source of our moral sentiments; see Smith’s Theory of Moral Sentiments, 1759.]

‘Smith furthered his studies at Oxford for seven years and during this period became attracted to the atheistic ideas of another Scottish ‘Kobe V’ (sic!) philosopher, David Hume, with whom he would later form a close friendship.

[Hume never admitted to being ‘atheistic’; Smith was too careful to associate openly with atheism; he was not a Christian but hid his views – in his day it was too dangerous to known as an ‘atheist’, and risky to be a ‘deist’.]

Through this experience Smith gained important contacts with French intellectuals, including Voltaire, as well as firsthand exposure to the French economic policy of mercantilism. The policy advocated government control over industry and trade based on the theory that the nation would be strong as long as exports exceeded imports.’

[The French Physiocrats, with whom he associated, denied that ‘trade and manufacture’ produced ‘wealth’ –they considered them ‘sterile’ because only agriculture produced ‘wealth’ - ideas which Smith totally rejected.]

Smith objected to the French government’s interference in free trade through prohibitive duties on foreign goods. Many of his ideas in Wealth of Nations no doubt began to coalesce during this period.’

[Smith’s ideas on political economy were formed years before he visited France, as can be seen in his “Lectures on Jurisprudence’ (1762-3) and delivered at Glasgow University during 1751-63. The French influence came later.]

Smith also argued [economies] …could work most effectively in the absence of government interference. Such a laissez-faire—that is, “leave alone” or “allow to be”—policy (a term popularized by Wealth of Nations) would, in his opinion, kobe iv (sic!) encourage the most efficient operation of private and commercial enterprises.’

[Smith did not advocate ‘laissez-faire’ – he never used such words in Wealth Of Nations, nor anywhere else. He did not popularize the ‘term’ in Wealth Of Nations. He objected to mercantile interventions in commerce (particularly in legalising monopolies, tariffs, and prohibitions )but not to all government regulations (banking for example, contract laws, and the Navigation Acts).]

He also held that individuals acting in their own self-interest would naturally Kobe V (sic!) seek out economic activities that provided the greatest financial rewards. Smith was convinced that this self-interest would in turn maximize the economic well-being of society as a whole (see “The Achilles Heel of Capitalism”).’

{Smith was suspicious of the benign self-interest of ‘merchants and manufacturers’ – he hardly said a good word for them in their practices; if allowed by law a ‘free hand’ they narrowed the competition and raised prices; His reference to some , but not all, traders investing locally an raising national output was a reference to the arithmetic law that the whole is the sum of its parts, not a benign law that their self-interest necessarily benefitted society.]

‘It is not coincidental that such democratic, egalitarian views arose simultaneously with the American Revolution and only just preceded the French Revolution of 1789.’

[Wealth Of Nations was coincidental to, not linked to, the American Revolution nor t the French Revoluton. Wealth Of Nations was due for publication in 1773, but he delayed it to 1776, making final adjustments to the section on the British colonies in North America. The work had no influence on the Declaration of Independence.]

Modern capitalism traces its roots to Adam Smith and his Wealth of Nations, which has served, perhaps more than any other economic work, as a guide to the formulation of nations’ economic policies.’ Subsequent theories have altered governments’ role in economic policy, particularly the Keynesian ideas of the 20th century. Notwithstanding, Smith and his theories continue to occupy an important position in the development of economic thought.

[An exaggeration. American and British governments – indeed most governments in Europe and in the modern world – largely ignored Smith’s critique of mercantile political economy, and his policy hostility to colonies, and his preference for freer trade, and his hostility to the almost universal habit of ‘jealousy of trade’. In Smith’s day it was jealousy of France, then it became jealousy of Germany, today it’s gross suspicions of China.]

[PS: what is ‘Kobe 5’?]

UPDATE: A reader called 'nnn' sent in a comment, which I passed for publication but somehow it has 'disappeared'. Not wanting to appear censorious, I shall report that 'nnn' was 'critical', saying he/she didn't see why 'Prescott' had said anything 'wrong' and that my post was 'just words'. Having been on the net for many years, I recognise a Troll when one pops up, but I was about to offer my advice that 'nnn' looked up a course on 'English language comprehension, suited to his/her reading age.

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