Thursday, September 30, 2010

The Life of Adam Smith by Ian Ross is Published in a Second Edition

The Second edition (2010) of the definitive biography of Adam Smith is published:

The Life of Adam Smith by Ian Simpson Ross from Oxford University Press (ISBN 978-0-19-955003-6).

Ian Ross’s first edition was published in 1995 and has remained unrivalled for 15 years. It is the premier source for biographical details of Adam Smith. All Smithian scholars and general readers refer to it for authoritative details of his life, his family, his career and the people he met, who influenced him and whom he tried to influence (and how he tried to influence them).

The genesis of his works is discussed, as is his surviving correspondence – and what a range of correspondents - and what he discussed, from the relatively trivial requests for his help in typical 18th-century fashion, hoping to use his interest to secure official appointments, through to major interventions in the big debates of the day, notably in the tragic events leading up to the declaration of the independence by the British colonies in North America.

Every corner of Adam Smith’s life is examined, using the extant sources, all carefully considered by the author, and at a cracking pace too. I use Ian Ross regularly in posts on Lost Legacy, secure in the certainty that if it is in Ross it’s certainly correct.
I strongly recommend that you purchase a copy, direct for you own use (first as a great read and afterwards time and time for again for many years for reference), or for your University or departmental library. It’s the best companion volume to the Glasgow Edition of the Works and Correspondence of Adam Smith, from Oxford University Press (also the lower-priced editions from Liberty Fund).

[I am toying with the idea of reviewing the new 2nd edition of Ross’s ‘Life of Adam Smith’ on Lost Legacy from my perspectives as an aid to readers.]


Wednesday, September 29, 2010

Children of Controversy

I am working on a paper that suddenly came into focus over the weekend. There is a debate underway on the invisible-hand metaphor with a distinguished colleague who follows the modern economists’ perception of the significance of the metaphor. I am invited to respond to his paper for a refereed journal and I have been doing just that since Sunday.

Unfortunately, my computer crashed last night wiping out what I had written since Sunday – about 2,500 words – and I have spent most of today rewriting the text and recasting the bibliography. It’s a pain, made worse by the deadline (7 October).

The paper I am commenting upon is well written and strongly grounded. I feel like Lord Nelson felt at the Battle of Copenhagen, 1801. He wrote: ‘The Danish defences look formidable to children of war. I think I can better them.’ And he did.

In debate – a most useful exercise in friendly persuasion – the situation is often similar, to children of controversy. If you want hostile debate, take up politics.

Hence, my attention to Lost Legacy may have suffered since Sunday, though I hope not over the next few days.


Saturday, September 25, 2010

The Three Varied Objects of an Invisible Hand

In Resilience Science (‘coping with ecological surprise in a human dominated world’)

Gerard Roe in Annual Review of Earth and Planetary Sciences writes about 'Feedbacks, Timescales, and Seeing Red', writes:

The history of the recognition of feedbacks is perhaps best described as an emerging awareness. Adam Smith, for instance, had a clear understanding of the feedbacks inherent in the operation of the invisible hand—the set of natural and mutual interactions that govern commerce’ (Smith 1776).”

Brilliant… if true. But unfortunately, Gerard Roe has been unintentionally conned. `There is no such ‘feedbacks inherent in the operation of the invisible hand’, at least as far as Adam Smith was concerned.

He used the ‘invisible hand’ as a metaphor – literary device to express in ‘a more striking and interesting manner’ its ‘object’ (see Adam Smith’s Lectures on Rhetoric and Belles Lettres [1762-3] 1983, p 29)0.

In all three (only) cases in which he used the metaphor, the objects of the metaphor was not about ‘govern[ing] commerce’.

In Smith’s first use in his ‘History of Astronomy’ ([1744-c50] 1795; 1980, p 49) he referred to the ‘invisible hand of Jupiter’, which was belonged to the invisible Roman god, Jove, who was believed to fire thunderbolts at enemies of Rome.

This example of the ‘pusillanimous superstition’ (Ibid, p 50) of the Romans had nothing to do with ‘the set of natural and mutual interactions that govern commerce’.

In the first published use by Smith of the metaphor, the invisible hand led ‘a proud and unfeeling landlord’ to ‘make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and, thus without intending it, without knowing it, advance the interests of society, and afford the multiplication of the species’. (Moral Sentiments, ([1759] 1976, pp 184-5).

Landlord- serf relationships were not driven by ‘the set of natural and mutual interactions that govern commerce’. Serfs were not in a market- relationship with their landlords.

In fact, Smith’s context for the parable of the ‘proud and unfeeling landlord’ was from pre-Roman times to the absolute monarchies. (Moral Sentiments, p 185).

Smith’s third and final use of the metaphor was in Wealth Of Nations, ([1776] 1976, p 456) where he refers to some, not all, merchants who preferred to trade in local (national) markets, rather than invest in the more risky trade with the foreign countries or colonies. The ‘wholesale merchant’ was concerned ‘with this own security’ – the real likelihood, as he saw it subjectively, that he might be ‘deceived', and fail to secure redress from foreign courts, from dealing with people whose characters he did not know as well as his local partners, because his capital was not ‘under his own view or command’ (Wealth Of Nations, p 454).

Clearly, the ‘set of natural and mutual interactions that govern commerce’ were not working in these cases, and it was each trader’s ‘insecurity’ that led him to invest locally, not ‘the invisible hand’ of the market. Bear in mind that many other traders did invest abroad from 18th-century Britain, and many made their fortunes, while some went bankrupt.

Foreign traders exercised their trade under the protection of the continuation of Cromwell’s Navigation Acts, guaranteeing them a legal monopoly of the carrying trade, enforced by the Royal Navy and by draconian fines and seizures by British courts. Meanwhile, at home in Britain, trade was rigidly overseen by the monopoly laws of the Incorporated Towns and Guilds, by the Elizabethan Apprentices Acts, the Settlement Acts, and by sc ores of national tariffs and outright prohibitions.

None of these could be said to ‘set of natural and mutual interactions that govern commerce’. They certainly ‘governe[d] commerce’ but to describe them as ‘natural and mutual interactions’ loses touch with the realities of commerce in 18th-century Europe’ in Smith’s time.

It was Adam Smith’s ‘clear understanding’ of the realities or commerce that led him to apply the metaphor to its varied objects (‘pusillanimous superstition’), ‘proud and unfeeling’ landlords having to feed their serfs their subsistence because they had no choice but to do so because starving and dead serfs could not work the landlords’ fields, and risk-averse merchants because too fearful to invest abroad, are no choice but to invest at home, which added to national ‘revenue and employment’ (the whole is the sum of its parts).


Friday, September 24, 2010

The Alibi of the Invisible-Hand Myth

M R Venkatesh is quoted in: “Prices soar, policymakers just talk

Adam Smith, one of the founding fathers of economics, spoke of the 'invisible hand of the price mechanism'.
He described how the invisible or hidden hand of the market operated in a competitive market through the pursuit of self-interest to allocate resources in society's best interest.

This remains the central view of all free-market economists.

The price mechanism is a term used to describe the means by which millions of decisions are taken each day by consumers and businesses

This erroneous view would not matter much normally, but it is said as part of a ‘slide-show’ for policy makers on the all too real-life horror of starving peasants and their inability to buy grain, even at subsidized prices in India.

Not surprisingly, there are calls to distribute the grain, which is rotting on the ground, free to the starving poor, but as surprisingly, the officials argue against such an obvious and humanitarian answer. If there was famine, and grain was sent to India by donors in the richer countries, it would be distributed free from the backs of lorries (as we see regularly in similar cases on tv).

However, by associating Adam Smith with a mythical version of his use of the metaphor of “an invisible hand”, which is both nonsense historically and wrong in fact, Indian readers are given evidence of the Smith’s apparent callousness.

Smith never wrote anything about ‘how the invisible or hidden hand of the market operated in a competitive market through the pursuit of self-interest to allocate resources in society's best interest’.
That is wholly made up by modern economists – and cheerfully repeated by corrupt state officials to absolve them of their guilt and by angry socialists to discredit market solutions in pursuit of their own disastrous politics.

To see one source of the modern myth, see Paul Samuelson’s ‘Economics: an introductory analysis’, 1948,p 36 (and its subsequent editions through to the 19th in 2010).


Thursday, September 23, 2010

Student Essays That Spread the Myth of An Invisible Hand

In (‘the world’s largest Q & A site’; Wiki Answers) they have set the following as a question:

Why is the working of the invisible hand the central theme of the wealth of nations?

This question struck me as it is coincidental to something I am working on in response to a most interesting academic paper by Daniel Klein and Brandon Lucas on their findings that both mentions of the ‘invisible hand’ in Adam Smith’s “Moral Sentiments” and “Wealth Of Nations” appear at, or almost at, the dead centre of these respective tomes in the editions (1 to 7) of them which were published during his life time.

The details of their fascinating paper and their arguments and the implications of what they regard as ‘intentional’ by Smith are part of a new publication, to which I have been invited to respond (subject to a referee’s judgement). I will not go into their arguments and their evidence on this occasion, nor to my responses (which I am writing this week for an early deadline – the invitation arrived only yesterday).

I have no idea of the status of ‘’, nor its purpose or business model, so I cannot judge its scholarly credibility. I can only say that the essay ‘question’ as it stands is only of value if we accept that the modern economists’ obsession with the statement of an invisible hand.

The ‘invisible hand’ in the question was founded on a myth, not shared by Adam Smith, that was invented in the late 1940s by Paul Samuelson, among others. Because of the global success of Samuelson’s textbook: ‘Economics: an introductory analysis’, 1948, and through 19 editions to 2010 (latterly with co-author William Nordhaus of Yale) and its sales of 4½ million (plus an active second-hand, re-sale market), Smith’s metaphor became linked in the public mind with perfect competition and the lack of it (an astonishing feat in itself)! It was believed to be real - not a metaphor.

If is about providing ‘essays’ for students, then these myths will continue at the expense of education, if students repeat the myths for their tutors. Worse, graduates in later life, who act on the assurance that there is ‘’an invisible hand’ leading (even selfish actions pace Samuelson, et al) to social beneficial outcomes, will contribute to
the disappointing chaos seen in the recent financial crises, or as bad, if not worse, will act on the assertion that the economy requires top-down regulations, crafted by governments, which will cause disappointing performances and the slower spread of opulence, especially to the poorest in our societies.

The modern myth of Smith’s ‘invisible hand’, separated from its object as a metaphor, as Smith taught was the proper use of metaphors, has become a pernicious doctrine of the 20th century, when treated as its own object (see Adam Smith’s Lectures on Rhetoric and Belles Lettres ([1762-3] 1980, p 29).

There is much work to be done to undermine this myth.


Tuesday, September 21, 2010

A Blog Worth Bookmarking

Dan Hirschman writes the Blog, “A (Budding) Sociologist’s Commonplace Book” (Highly Recommended) HERE:

“Rescuing Adam Smith from Wikipedia”

“I just made a small edit to the wikipedia page on Adam Ferguson. Ferguson was a contemporary of Adam Smith, and another major figure in the Scottish enlightenment. The wikipedia page claimed that Ferguson, Hume and Smith were all theorists of “spontaneous order” and referenced Smith’s “invisible hand”. As readers of this blog may know, I’m with Gavin Kennedy: the invisible hand in Smith’s work is a metaphor for unintended consequences, not a theory of spontaneous order and certainly not a theory of how “private vices” create “public virtues” (in Mandeville’s terms). Whether or not you think Smith and Ferguson were spontaneous order theorists of some variety – in other words, that they believed that social order was emergent from lots of little unplanned interactions rather than the result of some grand design* – we can agree that the invisible hand metaphor is not a theory of markets, and we should dissociate the two. Connecting the invisible hand to a theory of markets makes it seem like Smith believed markets just worked if left to their own devices – the laissez-faire position. Of course, that’s not what Smith thought, as a casual reading of the entirety of Wealth of Nations would show – or a casual reading of Gavin Kennedy’s excellent blog.

Both Ferguson and Smith do highlight how the modern order emerged from the unplanned actions of all kinds of people. But neither Smith nor Ferguson argues that the modern order is any way optimal or efficient, nor do they argue that this order would be more optimal or efficient if in every case government let individuals do their business unimpeded. Smith opposed many regulations – like those on what occupations someone could pursue – but supported others – such as regulations on bank lending and the creation of money. See Viner 1927."

That is why I recommend that you bookmark Dan Hirschman's Blog, 'A (Budding) Sociologist’s Commonplace Book':

The more we chip away at the modern consensus with he facts about what Adam Smith actually wrote and the context in which he wrote, the earlier that modern economists will liberate themselves from spurious ideas about the use by Adam Smith of the metaphor of 'an invisible hand', which misled most commentators to believe the myths about how a modern economy works. And then hubris struck...

Labels: , ,

Wrong in Historical Fact and a Slur on Adam Smith's Scholarship

“Proudem” writes a comment in Huffington Post HERE which is so contrary to the historical facts that it defies description. However, it is a common enough point of view among most modern economists but is, nevertheless, nonsense in so far as its origins are attributed to Adam Smith:

waiting....waiting....still waiting.
The invisible hand is theory and it is based on a level playing field. However, thanks to Reaganomics, lobbyists, corporate campaign donations and special interest groups, legislation has been passed that disallows a level playing field and tilts the playing field in favor of corporations. So here we sit...waiting and waiting.

Where does the notion of a ‘level playing field’ operating in the context of Adam Smith’s use of the metaphor of an ‘invisible hand’ come from?

Certainly not in anything that Adam Smith wrote. I am prepared to offer $1,000 to anybody who can show the reference linking the invisible hand to a ‘level playing field’, or indeed to the usual attribution of being related to ‘perfect competition’.

That is its supposed to be so linked ins down to modern economists, such as Paul Samuelson (winner of a `Nobel Prize’ in Economics in 1972), who, to be utterly frank, made it up in his popular textbook, Economics: an introductory analysis’, first published in 1948 and which this year reached its 19th edition (and 4½ millionth sale).

In Smith’s three references (only) to the ‘invisible hand’ there is not a vestige of competition or a ‘level-playing field’ mentioned or hinted at.

In his Essay on Astronomy, [1744-c1750], 1795, he related it to the Roman pagan god, Jove, or Jupiter, which by any measure had nothing to do with ‘playing fields’ or with ‘competition’.

In Moral Sentiments [1759] his metaphor of an invisible hand refers to the unintentional conduct of ‘proud and unfeeling’ landlords throughout Greco-Roman times, feudalism and absolutist Kingdoms, who were obliged to feed their slaves, serfs, retainers, and such like from the output of their field. Again nothing to with ‘competition’ and certainly can never be described as ‘level playing fields’ – more like fields of misery, petty tyranny, and not far from slavery.

In Wealth Of Nations [1776], his metaphor of an invisible hand refers to the choices made by some, but not all merchants, to invest their capital domestically instead of abroad because of their concerns for the security of their investments. Given that Smith wrote about 18th-century Britain, with its mercantile laws in favour of monopolies at home (Guilds, etc, tariffs and prohibitions) and in Britain’s the foreign trade (the Navigation Acts), nobody but at innocent, not to say somewhat, uneducated author, could describe the context of the metaphor as referring to level playing fields’ or ‘perfect competition’.

The context of “Reaganomics, lobbyists, corporate campaign donations and special interest groups” is not much different that the mercantile special-interest groups who lobbied British parliaments to adopt the economic policies which Adam Smith wrote so strongly against.

That “Proudem” writes as if modern legislators and those who influence them are somehow different from Smith’s day is an historical error of the highest magnitude – and a slur on Adam Smith’s scholarship.


Monday, September 20, 2010

A Debate Continues

I have had to wait to acquire a copy of ‘Elgar’s Companion to Adam Smith’, edited by Jeffrey T. Young, 2009, Edward Elgar Publishing, Cheltenham, UK. The delay was largely caused by the price, £115.

A correspondent friend replied to one of my letters and mentioned that I would be interested in reading Jeffrey Young’s edited volume because it contained an article by Brendon Long, ‘Adam Smith’s Theism’ (pp 73-99), in the light of my paper, ‘The Hidden Adam Smith in his Alleged Theology’ (2009). He knew that I am researching/writing on ‘Adam Smith and Religion’ for the forthcoming volume, ‘The Adam Smith Handbook’, edited by Chris Berry (Oxford University Press, 2011) and considered Brendon Long’s chapter covered similar ground from the contrary view. Well, this prompted me to search Abe Books (Amazon) and I found a new copy for £24, which arrived this morning.

I have met with and debated on the subject of Adam Smith’s alleged Christianity with Brendon Long. In February this year, I visited Australia on a 70th birthday trip to Sydney arranged by my family – the scene of my youthful residence there in the 1950s – and an academic colleague, Professor Paul Oslington, of the Australian Catholic University, arranged for me to address a seminar at his institution and an evening seminar at the secular Centre for Independent Studies.

One of the three speakers was Dr. Brendon Long, a most engaging intellectual authority on theology and the author of the chapter in Jeffrey Young’s ‘Companion’. His chapter, ‘Adam Smith’s theism, is a finely argued rebuttal of the content of my paper (though, be clear, Brendon had not read my paper before composing his own).

We both cover much the same ground, biographically and doctrinally, and come to quite different conclusions! Now, that is one of the merits of scholarship. Ideas are tested against each other, without rancour or baseless charges of personal motives. Where somebody in debate neglects an important fact, the other debater may point to the missing fact for the benefit of those listening or reading. The arbiters of the merits of a case are sovereign.

In this spirit, I am grateful for Brendon Long’s erudite chapter; it sets a standard against which I shall deploy my chapter’s arguments.

[An Early Draft of my 'The Hidden Adam Smith in his Alleged Theology' can be accessed HERE:


Sunday, September 19, 2010

Adam Smith On Religion

[Lost Legacy has been beset by computer problems, which started on Thursday and lasted until Saturday, and were eventually traced (outside) to the cable system (we lost all TV programmes too.]

On checking the Google Alerts for ‘Adam Smith’ across the world’s media, I can report a uniform parade of trivia, not worth commenting upon, hence I won’t.

I can mention, instead, some of my desk research this week. I am more than halfway through Alistair McGrath’s, ‘Christian Theology’, which is a revealing, well written, summary of the origins, elaborations, and rows among the ‘saints’ of the doctrines that constitute its historic theology. This, in part, is for my chapter on ‘Adam Smith and Religion’ in the forthcoming ‘Adam Smith Handbook’ (Oxford University Press, 2011).

Theology is a vast subject. It seems to provoke great passions among religious folk and non-believers alike, especially when and where they attempt, and usually fail at, dialogue. This is true of all religions, for with any particular religion, there have been deep splits and associated high-levels of hostility (including murderous incidents, even whole eras).

Writing about Adam Smith and religion (and presenting papers on the subject) courts semi-hostile responses among some scholars. I am aware of these risks and have tried to avoid provoking such responses.

I was reminded this week, in correspondence from a Christian scholar, that it was necessary to recognise that Adam Smith’s writings were unambiguously influenced by the religious environment in which he lived in Scotland (including in the home that he shared with his devout Protestant mother, for much of his life and the institutions in which he worked or in which tried to exert influence). These religious influences and pressures re-appear in his writings.

However, this fact – and it is a fact, as any acquaintance with Moral Sentiments (1759) and Wealth Of Nations (1776), shows – does not ‘prove’ that Adam Smith was religious himself. He wrote as he did for good personal reasons (some of the evidence for which is presented in my paper).

It is my assertion that Smith ‘hid’ well his scepticism about theology, but not completely nor too overtly. Careful reading of his texts indicate a less than overwhelming conviction on his part that the doctrines of the Church, in which he grew up with, were worthy of his personal beliefs. His qualifications are too numerous, their perspectives too consistent, for religious persons to claim him as one of their own. It is not any single, particular sentence that supports my view; it is the cumulative evidence of many sentences that show a definite trend to downplay the theology of the day.

I have attempted to show this in my paper, ‘The Hidden Adam Smith in his Alleged Theology’ (to be published in 2011), which I presented to the University of Richmond (Virginia) Summer Institute in June 2009. In fact, it is clear from careful reading of his books, and from details of his biography, that Adam Smith was not a believer in Revealed Religion. Moreover, Smith also includes language similar to those based on Providence, Deism and Natural Religion, which inclines some scholars to believe that he held views drawn from these doctrines, but again, his language in these cases also suggests he was not as committed to these doctrines whole heartedly.

The many ambiguities in the way he writes that are the basis of my case that his real views were hidden in his statements on theology and that those who insist that he was religious confuse his acting under the necessary influences on him with commitments to the private beliefs he held. He was a teacher and he was tasked with teaching his students about these doctrines, which he did. His language suggests implied caveats about their credibility.

My correspondent reminded me of the distinction between evidence of an influence and evidence of a personal belief. I agree and understand this.

I will be happy enough if I persuade other scholars that in Smith’s case he wrote in the language of the religious age he lived in, but this is not proof that he actually agreed with the sentiments of that language.

Undoubtedly, if he had not made the public oath of the Westminster Calvinist Confession, in 1751, (and his sponsors for the Chair had not privately assured the University Senate beforehand that if appointed he would take the oath), he would never had been appointed as a Professor at Glasgow, or any other, British University, and nor would either of his books have been published in 18th-century Britain.

Those living in a more secular age, or protected by the separation of Church and State, and who enjoy freedom of speech, tend to censorious of his conduct.


Wednesday, September 15, 2010

Adam Smith No Neo-Classical Ideologue

Michael Hais and Morley Winograd post on Generational Economicsin Huffington Post HERE:

Unlike classical economics, which equates wealth with money, this new paradigm states that wealth is maximized when the largest number of people are generating ideas in a competitive, evolutionary environment.”

“Complexity economics argues that the classical economic paradigm enunciated in the 18th century by Adam Smith in The Wealth of Nations, was wrong in suggesting, "wealth is created by the pursuit of narrow self-interest." Instead, Eric Beinhocker, whose book The Origin of Wealth: Evolution, Complexity and the Radical Remaking of Economics, is intentionally titled and written as an answer to Smith, argues, "Norms of unchecked selfishness kill the one thing that determines whether a society can generate (let alone fairly allocate) wealth and opportunity: trust. High-trust networks thrive; low-trust ones fail." While the Generation X Republican prescriptions for returning to the discredited laissez faire doctrines of the past rest on the argument that you can't trust government, Millennials know that the only answer to the question "Who do you trust?" is "each other

[The two authors are are fellows with NDN and the New Policy Institute. They are the co-authors of "Millennial Makeover: MySpace, YouTube, and the Future of American Politics" (Rutgers University Press, 2008].

Whatever else is relevant in the biographies of Michael Hais and Morley Winograd, it does not include much familiarity with the moral philosophy or, indeed, the political economy of Adam Smith.

Even a poor undergraduate, who is not paying much attention to a lecture on Adam Smith, would know at least that he never (not once!) “equates wealth with money”. He always emphasized (many times) that wealth is the ‘annual output of the ‘necessaries, conveniences, and amusements of life’, in short the goods and services produced by an economy. He was adamant that money (gold, silver, currency notes and such like) was not wealth. The authors of this, otherwise, interesting piece are grossly mistaken.

They also assert that ‘classical economics’ in the person of Adam Smith, ‘enunciated in the 18th century’ a ‘paradigm’ that ‘wealth is created by the pursuit of narrow self-interest."

That is a contentious assertion, if I may say so, that owes its origin in the form of ‘narrow self-interest’ more to modern economics than it does to Adam Smith (the ‘greed is good’ school of Hollywood script writers and the school of neo-classical economics).

I am all for articles on complexity economics in part criticism of one-dimension modern neoclassical economics, but it does not help that case in grossly misinterpreting the multi-dimensional Adam Smith, author the Theory of Moral Sentiments (1759) and Wealth of Nations (1776).


Tuesday, September 14, 2010

French Revolution and the Price of Gasoline

"Invisible Hand, The Bastille and the Overthrow of the Ruling Elite"
Courtesy of Charles Hugh Smith, Of Two Minds (HERE)

The key mechanism of Adam Smith’s capitalism is a self-interest which manifests itself systemically as The Invisible Hand. It’s a concept that offers a wealth of self-satisfaction: by pursuing our most selfish interests, the whole of society benefits.”

“The essential corollary (sic) of The Invisible Hand is the notion that the free market will always supply a substitute for any product or service which becomes scarce (and thus costly) for whatever reason.”

This is an article of dubious use of Adam Smith and ‘an invisible hand’ plus of contentious relevance to the French Revolution.

There is no such thing as ‘Adam Smith’s capitalism’ – he never used the word and it was not used in English until 1854 (Thackeray’s The Newcomes). He wrote about ‘commercial society’. He died in 1790.

‘The Invisible Hand’ was never a concept – it was a metaphor – and Adam Smith was careful to distinguish the role of metaphors (see his Lectures on Rhetoric and Belles Lettres [1762-3) 1980, page 29) as being a ‘more striking and interesting’ way of describing their ‘object’ (metaphors are not their own object, i.e., invisible hands do not exist).

In Smith’s case, he used the metaphor of ‘an invisible hand’ when referring to rich landlords in Feudal Europe feeding their peasants out of their annual output of food, farmed by the same peasants (Moral Sentiments, 1759) and to some, but not all, traders choosing to invest domestically rather than take the extra risks of investing abroad (Wealth Of Nations, 1776).

In neither case was it a question of ‘free markets’, either at home or abroad. Quite the reverse: Britain as a Feudal country was a tyranny; Britain in the 18th century was a mercantile domestic monopoly-ridden economy, as anybody actually reading what he wrote should know.

Adam Smith never said it was “a concept that offers a wealth of self-satisfaction: by pursuing our most selfish interests, the whole of society benefits.” That is pure tosh and was an invented notion given widespread popularity by Paul Samuelson in his ‘Economics: an introductory analysis’ 1948, page 36, in 19 editions (2010).

The article twists and turns to draw an analogy between the rise in the price of bread in the 1780s and the French Revolution – incidentally, largely caused by a failure of the French harvest due to a certain Icelandic volcano, and the supposed and alarmist possibility that gasoline price will rise similarly - in fact, they already have twice in the past 40 years - and allegedly might produce similar bloody revolution in US streets.

The link to ‘an invisible hand metaphor’ is spurious and so is the historical connection between the invisible hand and future disorders from the price of gasoline. The difference between starving peasants and well-off US consumers – perhaps walking but not starving– is significant and a claimed similarity of circumstances is an insult to the 18-century French peasantry.


Sunday, September 12, 2010

A MIssing Comment (Again)_

That pesky comments moderation (more like comment elimination) is up to its tricks again.

Someone sent a comment about Adam Smith an Calvinism, but it has disappeared!

Would its author send in another comment, please



A Report from My Research Front

A revised version of my paper, ‘The Hidden Adam Smith in his Alleged Theology’, the first versions of which were presented to the Summer Institute, Richmond University, Virginia, June 2009, and to the Annual Conference of the History of Economics Society, June, 2009, at the University of Colorado, Denver, is to be published in the Journal of the History of Economic Thought (JHET).

I am now working on research for an invited chapter for an ‘Adam Smith Handbook’, edited by Chris Berry (Oxford University Press), on ‘Adam Smith and Religion’, taking account of Smith’s alleged belief in Providence, Deism, Natural Religion, and Stoicism, partly in response to a JHET referee’s ‘theological’ criticism of my original paper, presented at Richmond and Colorado, and which he or she complained of because it ‘only’ dealt with Smith’s disdain for Protestant Christianity. (5,000 words necessitates compression!).

Frankly, if immodestly, I would have thought that my papers were a fairly significant departure from many views over the years (repeated with apparent and unabashed authority by a leading historian as recently as 2009, in a paper which I had refereed and approved for publication). My chapter for the Handbook deals with all aspects of various religions and their institutions mentioned by Smith in Moral Sentiments, Wealth Of Nations, the ‘juvenile’ essay on Astronomy, and his Lectures on Jurisprudence, Rhetoric and Belles Lettres, plus some additional remarks on recently revealed new Adam Smith biographical materials. It is my main research project for 2010-2011.

This has been a fairly busy year for my academic work on Adam Smith, interrupted somewhat by my recent short illness, which still affects my mobility primarily (no visits out to the library just yet), hence desk-research and the Internet only.

However, I managed earlier to complete a revision of my book, “Adam Smith: a moral philosopher and his political economy”, (Palgrave Macmillan, 2008) sufficiently for it to be designated as a ‘second edition’, due for publication as a paperback (and at a more popular price of £18.99) this or next month. It’s already advertised in Palgrave’s summer catalogue.

Incidentally, the first (hardback) edition is reviewed in the current, number 6, Adam Smith Review from the International Adam Smith Society, to which I was allowed a short response in the same issue.

Earlier this year, I wrote a paper for the 2010 Summer Institute at the University of Richmond, Virginia, (‘Paul Samuelson and the Invention of the Modern Myth of the Invisible Hand’, May 2010, and since ‘tweaked’ by me from comments, critical or not), but which I was unable to deliver at Richmond this year due to illness.

This was a product of some research into the modern phenomenon of the myth of the “Invisible Hand” from the 1950s, taking its ‘invention’ (there are no other words for it) by Paul Samuelson from his successful ‘Economics: an introductory analysis’, first published in 1948, and continually developed, latterly with co-author William Nordhouse of Yale), through 19 editions (to 2010; yes, I read all 19 and I own many of them), and it achieved 4½ million sales (plus the multi-million second-hand market).

This paper was accepted by a refereed journal in May (but I have heard nothing since; which I am assured by friends is quite common). Several scholars have asked for and received a copy, and their comments have generally been appreciative (one or two have been critical – which is always helpful). Any reader of Lost Legacy may obtain a copy from me by emailing the usual address (critical comments, as always, welcomed).

Lastly, a suggestion by Mark Thornton in an undated paper I ‘found’ in my desk drawer in France (with marginal comments in my hand), but which I had quite forgotten about, has sparked me to look through Cantillon’s [1734] 1755 Essai for his comments about ‘providence’ and ‘proprietors’ allowing slaves their subsistence for comparison with Smith’s use of ‘an invisible hand’ in Moral Sentiments (1759) that the landlord was led to feed them ‘by an IH’.

While I have no doubts about the ‘object’ of Smith’s use of the metaphor (the absolute necessity for the rich landlord to feed his serfs from the output of his fields; see Smith’s Lectures on Rhetoric and Belles lettres, [1762-3] 1980, p 29) I am intrigued with Thornton’s suggestion that Cantillon’s prior example (read by Smith because he quotes from the Essai in Wealth Of Nations) was picked up by Smith in 1759. I read it as confirmation of Smith’s identification of the link between the object and its metaphor, and not something ‘magical’ or ‘spiritual’. Certainly, it had nothing to with competitive markets!

For now, I am reading at home for some other pieces of work, though my Lost Legacy Blog has suffered several interruptions, plus two long car journeys between Edinburgh and France, driven by my son-in-law, my wife, and my daughter, which has clearly, and unsurprisingly, affected visitor ‘hits’- down from the pre-illness absence from 5,000 plus to just over of 2,000 a week.

But another, and main, factor is my general tiredness – a need for short naps - and my marked clumsiness on a keyboard, requiring many more corrections than normal. This post has taken 141 minutes so far. However, I am grateful for those regular readers who visit every day. I am slowly getting physically stronger and hope to get back to more regular Blogging soon.

Thursday, September 09, 2010

Tyler Cowen's Short and Informative Review of NIchollson's Book on Adam Smith

Tyler Cowen's Review (on Marginal Revolution Blog of Phillipson's Book on Adam Smith.

See the original for the interesting links HERE:

*Adam Smith: An Enlightened Life*

That is the new book by Nicholas Phillipson from Yale University Press. I urge all fans of Adam Smith to read this book. It covers Smith's life and times more than his texts per se. It is especially strong on Smith and Hume, Smith's work as a customs inspector, Smith's time in France, Smith and Quesnay, and Smith's dedication to his mother. I like very much what it covers; my main complaint is that the book is not longer.

Here is a James Buchan review of the book. Here is a John Gray review, more about Gray than the book. Here is further coverage. Here is a short piece by Phillipson. Here is a short bio of Phillipson.


Yet Another Good Review of NIcholas Phillipson's Intellectual Biography of Adam Smith

John Calder writes a book review in the Islington Tribune of Nicholas Phillipson’s, “Adam Smith: an enlightened life” (Allen Lane, London HERE:

“ADAM Smith is one of the most iconic names in history since medieval times, together with Darwin, Marx and Freud, even more so than his close friend and colleague David Hume….

… To modify this view, he described “an invisible hand” that brought out an element of compassion or altruism that he assumed was buried somewhere in the human character that made us want to improve the ­general wellbeing.
Smith’s theories of the wealth-creating advantages of breaking up labour into separate or specialise units (the principle of mass production as well as skilled craftsmanship) lie at the basis of capitalism and free trade. It seems likely that Smith never fully realised the miserable consequences of a capitalist manufacturing industry that forced a peasant population off the land into factories where they were paid starvation wages to create a new affluent middle class and to kill the cottage industries on which so many had subsisted.

…Smith stated: “Civil government, so far as it is instituted for the ­security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.”

“Dr Phillipson’s book is unlikely to be bettered. It catches not just Smith’s life and ideas, but the background of the Scottish Enlightenment, on which he has already written, too little acknowledged in British history as a result of the Union of the crowns, to which Smith nevertheless gives credit for a temporary trade prosperity, often used as an example to justify his theories.”

A thoughtful review of Nicholas Phillipson’s excellent intellectual biography of Adam Smith by a former(?) British publisher, who did much to produce books of high quality in his own quest for widespread enlightenment in the mid-to-late 20th century.

My comments should be taken in the light of my appreciation of most of John Calder’s review.

Smith did not foresee ‘capitalism’ (the word was not invented in English until Thackeray’s novel, The Newcomes, in 1854 - Smith died in 1790). He was well aware of the condition of the very poor in Scottish society in the last half of the 18th century. Living in rural Scotland from 1723-37, he could not but see how they lived, though his mother’s family were major landowners in Fife. The notion of some kind of ‘peasants’ idyll (Maypoles, etc.,), either in rural Scotland or England (or Wales and Ireland) is suspect.

Landless peasants were very poor by 18thcentury standards, and drifting to the towns and cities for work was often better than actual starvation on the land.

The city-dwelling poor of Glasgow (1737-40; 1751-64; Edinburgh (and 1778-90) walked in the same streets, and sometimes lived in the same buildings (Edinburgh High Street) as the professional and business leaders (at least until they made their fortunes). The fact remains (contrary to Marxian imagery) that real incomes across the board rose steadily in the 19th century (as they are for ex-peasants in India and China today).

Smith’s awareness of the condition of the poor majority appears throughout his works and he saw commercial society and the division of labour as a means to which opulence would spread to wider sections of the people. There were no other realistic alternatives available. Hence, his fierce (even ‘violent’) attack on the British mercantile system which slowed down the benefits of commercial society, particularly for the poor.

‘he described “an invisible hand” that brought out an element of compassion or altruism that he assumed was buried somewhere in the human character that made us want to improve the ­general wellbeing.

The metaphor of ‘an invisible hand’ as Smith used it did not bring out ‘compassion or altruism’; it was a metaphor he used in Moral Sentiments (1759) for ‘proud and unfeeling’ landlords having no choice but to feed their retainers and peasants, albeit at subsistence levels, to ensure each season’s crops, upon which their ’greatness’ depended (without a ‘thought for the wants of their brethren’), and in the case of merchants in Wealth Of Nations (1776), the metaphor was about those who considered foreign trade too risky, who chose to invest in the home and not foreign markets, which had nothing to do with their ‘compassion or altruism’. Their individual motive of risk-aversion (as we would say today) led them unintentionally to add to national ‘revenue and employment’, the latter of which benefitted the poor and the former of which benefitted themselves.

I completely agree with John Calder that “Dr Phillipson’s book is unlikely to be bettered”, my quibbles notwithstanding.


What A Muddle About Adam Smith

Renford Reese, Ph.D. is a professor of political science and writes in The Afro News HERE

‘Adam Smith’s capitalism, in its purest form, allows the “invisible hand” of the market to work its magic without interference from the government. So at any point there is government interference in domestic affairs, it can be construed as socialism.

What an odd assertion about Adam Smith and his use of the metaphor of an invisible hand in Wealth Of Nations.

The statement, as it stands, is complete nonsense.

Clearly its author, Renford Reese, has not read Smith’s single reference in the Wealth Of Nations (Book IV, chapter 2, paragraph 9) otherwise he would know that Smith’s referred to a merchant trade deciding whether to invest his capital in the domestic economy or send it abroad to the Continent or the colonies.

It was not about – and said nothing about – the ‘invisible hand’ ‘working its magic without the interference of the government’. In fact, it only required that the merchant was concerned with his ‘security’, which would lead him to invest locally. The metaphor ‘led by an invisible hand’ referred to the motivation for the merchant to add this capital to the total amount of domestic capital (the whole is the sum of its parts).

Moreover, the 18th-century British economy was riddled with government-inspired ‘interference’. There were no ‘free markets’ in Smith’s day.

The British domestic economy suffered the attentions of local government legalised monopolies; the towns of Britain were run by local monopolies, sanction by the laws applying to Guilds, Incorporated towns, patents and restrictions on the freedoms of labour to move wherever they wished in search of work (Settlement Acts, Apprenticeship Laws) and Britain maintained a total monopoly – enforced by the Royal Navy and the Customs Commissioners – of British imports and exports to the colonies. All of which had to be carried in British flagged and crewed ships.

If such interference is ‘construed as socialism’ by Renford Reese, ‘Ph.D.’ and a professor of political science’, then its author is deficient in knowledge of the English language’, deficient in knowledge of what Adam Smith wrote, and deficient in knowledge of the realities of 18th-century Britain. Oh, and Smith did not know the word 'capitalism'; it was firstb used in EEnglish in 1854 - Smith died in 1790.


Wednesday, September 08, 2010

Businesses Are in Competition With Their Rivals Not their Customers

Charles Green writes (7 September) for The Customer Collective HERE:

‘Why Competitors Hate Competition’

‘No other concept has been more enshrined in capitalism than the notion of competition. Just to pick one example, here is Milton Friedman on public schools, suggesting that “the only solution is competition.” Adam Smith has been taken somewhat out of context by free-market thinkers, who focus on this quote:

“Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

They forget not only that Smith’s “invisible hand” was first used to refer to a collective sense of morality, in his also-forgotten book The Theory of Moral Sentiments; a book that arguably Smith felt was the greater of the two.’ …

‘… To Compete, You Have to Collaborate

So here’s an irony for you: to be competitive, you have to collaborate. Sometimes (look at the software industry) you have to collaborate with the same businesses that you compete with in other product lines. Not only that, but that form of collaboration is not anti-competitive—it’s what Silicon Valley did. The talent, the intellectual capital, the know-how, do not reside within corporate walls. They reside in other people. Those who succeed are those who harness the capabilities of others, regardless of who writes the others’ paycheck.

Competition still works: it just doesn’t work via the ways of competing that were developed a century ago. The new invisible hand rewards those who collaborate better; it punishes those whose idea of competition is to go it alone against others.

Charles Green is not an academic economist, hence, I shall judge his remarks accordingly. He does, however, make a couple of good points that are worthy of some note.

For example, he chastises those who see the invisible-hand metaphor merely as an alleged behavioural characteristic of commercial markets, reminding those so inclined that Smith used the metaphor in regard to his book, Moral Sentiments, which was not about markets at all.

He quotes from Wealth Of Nations, correctly pointing out those modern economists, who in their legitimate enthusiasm for markets, misuse the quotation an treat it as a general rule, though not quite for the reason Charles Green gives.

Modern economists tear the quotation from its context, forgetting, or more likely not knowing, that Smith refers to some, not all traders, who are overly concerned with their own security and prefer local to foreign investment. (New readers may scroll down Lost Legacy posts and read my debate with David Friedman covering this issue in detail.)

But Charles Green is almost spot on in this section headed:

'To Compete, You Have to Collaborate’.

In my Business School days (I retired in 2005), I spoke endlessly to executives (and their aspirants) of the need for them to recognize that they are not in competition with either their suppliers or their customers. Shock, horror at my assertion often came in their responses.

How so, they often asked? Well, your suppliers and your customers are not your rivals. But you are in competition with your rivals, I replied, and your rivals are the other customers of your suppliers and the other suppliers of your customers.
It is from the misconception of the identity of your rivals that some of the worst examples of poor negotiation thrive – and damage your business interests.

You can see this at work when you follow widespread the misunderstanding of Smith’s other famous quotation, the one about seeking the attention of the ‘butcher, the brewer, and the baker’ for the ingredients of your dinner. Most read that as being about seeking their own self-interest, rather than seeking to appealing to the self-interests of ‘the butcher, the brewer, and the baker’. (Check the Smith's quotation out, Book I, chapter ii, chapter 1-9: pages 452-56, of

Smith made his point in 1776 (though he was teaching from 1752-1764); today still, tens of thousands of managers get the purpose and method of negotiation absolutely wrong – they ‘negotiate’ as if they are in competition with their suppliers and customers, and they think of negotiation as a zero-sum game of winners and losers, etc.

Hence, for many years I earned fees teaching negotiation to executives –and there was no end of customers for such events.

So, reading Charles Green was a pleasure this morning; he was far more right than he was wrong (follow the link).


Announcement XXI

Having recovered from the long journey from SW France, I am ready to re-commence posting on Lost Legacy. There is a backlog of Alerts, many of them the usual rubbish, buy perhaps a few gems too.

Thanks for your your understanding.



Thursday, September 02, 2010

Announcement XX

On Friday, I begin the long journey back to Scotland from south-west France.

It may take 3—4 days because I am being driven back, not being allowed to fly for another couple of months (depending on my medical after I return).

This may mean no Internet connection during the journey, depending on the facilities in hotels en route, hence, there may be an absence of posts on Lost Legacy until I am back in Edinburgh.

Meanwhile, if any reader has knowledge of Pigou’s writings that may mention Smith’s use of the invisible-hand metaphor in relation to the outcome of individual self-interest leading to society’s general benefit, please end them to me (address above).

Also, there is a suggestion on Lost Legacy that Frank Knight expressed such views and I would be grateful any information in this respect.

It also appears that Keynes may have expressed similar views – while rejecting their validity.

Any help would be much appreciated.



Some Interesting Background to the Invisible-Hand Controversy

I was sorting through some books in my library in France, prior to returning to Scotland, tomorrow, Friday, when I had a look inside Pigou’s Economics of Welfare, [1920] 1929, and while looking for his references to Adam Smith, I came across this interesting passage:

Certain optimistic followers of the classical economists have suggested that the “free play of self interest”, if only Government refrains from interference, will automatically cause land, capital and labour of any country to be so distributed as to yield a larger output, and, therefore, more economic welfare than could be attained by any arrangement other than could be attained by any arrangement than that which come about ‘naturall”. Even Adam Smith himself, while making an exception in favour of State action in “erecting and maintaining certain public works and certain public institutions, which it can never be in the interests of any individual, or small number of individuals to erect of maintain,” lays it down that “any system which endeavours either by extraordinary encouragements to draw towards a particular species of industry a greater share of capital of the society than that which would naturally go to it; or by extraordinary restrains to force from a particular species of industry some share of the capital which would otherwise be employed in it … retards, instead of accelerating, the progress of the society towards real wealth and greatness, and diminishes, instead of increasing, the real value of the annual produce of its and and labour.” [WN, IV.ix.3rd para from end] It would, of course, be unreasonable to interpret this passage in any abstract or universal sense. Adam Smith had in mind the actual world as he knew it, with an organised system of civilised government and contract law’.

(Pigou, A. C. The Economics of Welfare, 3rd edition, 1929, Macmillan, London Part II; Chapter 1: ; 'introduction: the size of the national dividend and the distribution of resource among different uses, pp 130-1)

Interesting that Pigou does not cite the, now famous, ‘invisible- hand’ metaphor in support of the assertion about ‘certain optimistic followers of the classical economists’, presumably referring to the oral traditions in the political economy department at Cambridge University, where Pigou was its professor.

Read carefully, surely the modern attribution of the invisible-hand metaphor as a ‘doctrine’ of Adam Smith (his so-called ‘theory’, most important idea’, even a ‘paradigm’) was ‘made’ for Pigou’s reference, if it had an substance to it?

However, it isn’t used by Professor Pigou in the passage above, even though in the ‘invisible-hand’ passage itself, Smith refers to precisely the very topic to which Pigou’s introduction refers, namely, the ‘size of the national dividend’, or as Smith put it, size of the ‘annual revenue and employment’, which is increased by the unintentional consequences of the ‘security’ concerns of those merchants who invested their capital in ‘domestick industry’.

On the way towards Paul Samuelson’s 1948, attribution of greater meaning to Smith’s use of the metaphor than Smith’s Wealth of Nations supports or justified, Chicago’s oral tradition apparently had confused verbal assertions with the textual integrity of what Adam Smith actually wrote, which might explain why Samuelson's report of them (p 36) was so woefully inaccurate.

[My Edinburgh copy of Pigou's Welfare Economics is an earlier edition and I shall check further for variations in his text.]


Wednesday, September 01, 2010

Now Two-handed 'Invisible Hands', But Nothing to do With Adam Smith

Gilbert Holmes write on Online Opinion (Australia) on ‘The invisible right hand and the invisible left hand’ HERE:

‘In 1776, Adam Smith published his work, The Wealth of Nations, within which he detailed the actions of “the invisible hand” of economics.

The basic concept of Smith's invisible hand is that; when self-interested parties compete against one another, rather than there being one winner and one loser, benefit often results not only for both parties, but also for the broader society.

Since its release, the profound and simple logic of Smith's invisible hand has switched on the “lightbulbs of the mind” of generations of apparently deep thinkers and economic policy makers.

Leading directly to the idea that free competition between self-interested parties is the engine of a healthy economy, Smith's invisible hand has provided something of a social conscience for free market capitalism. It is the single most important concept that has driven the laissez-faire agenda over the last few centuries, and which continues to drive laissez-faire economic's most recent manifestation, neo-liberalism.

Unfortunately, in describing the positive results that spring from self-interested parties competing with one another, it turns out that Smith’s invisible hand only gives us half the story. Smith has left out of his theory the simple concept that there are times when we co-operate together, and that positive economic outcomes can also be derived from this co-operation.
It appears that we may actually be looking at two invisible hands!’

Imaginative discourse but one built on wet sand.

From what Gilbert writes I take it that he has not read the scant (only) reference to the metaphor of ‘an invisible hand’ in Wealth Of Nations (WN IV.ii.1-9: 452-56; the reference is on page 456).

It is not clear that Gilbert understands what Smith said about the ‘invisible hand’. He tells us that ii is”

when self-interested parties compete against one another, rather than there being one winner and one loser, benefit often results not only for both parties, but also for the broader society.’

Yet, Smith says nothing about ‘when self-interested parties compete against one another’ and the invisible hand. Gilbert should look the up Smith’s reference to the metaphor:

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

There is no mention either of ‘self-interested parties’ (Smith refers on to an ‘individual’), nor that they ‘compete against each other’, and consequence no case of there being ‘one winner and one loser’ (incidentally an unSmithian thought; for Smith trade is not a zero-sum game). Whether the result is of ‘benefit’ for ‘both parties’ – yet Gilbert asserts one [loses]? – and is of ‘benefit’ for ‘the broader society’ is not mentioned by Smith in this passage.

Smith, reporting of the consequence of the individual ‘supporting ‘domestick’ rather than ‘foreign industry’ he ‘frequently promotes that of the society’. But how? Smith clearly states how: because the individual ‘endeavours as much as he can to employ his capital in support of domestick industry … [he] necessarily labours to render the revenue of that society as great as he can’ (WN, p.456).

And that is precisely what Smith is arguing for. It has nothing to do with ‘two parties’ engaged in zero-sum transactions, with a ‘winner and a loser’. It is about the annual revenue of a society being increased by the individual contributions of individuals to ‘domestic revenue and employment’, instead of reducing that quantity by them investing abroad.

Where Gilbert got the idea that the ‘invisible hand has provided something of a social conscience for free market capitalism’ is not obvious, nor is it obvious (actually its unbelievable!) that the invisible hand is the ‘the single most important concept that has driven the laissez-faire agenda’.

Fact: Adam Smith never mentioned ‘laissez-faire’, even once, though the idea that it ‘continues to drive laissez-faire economic's most recent manifestation, neo-liberalism’ may indeed be strictly true, but that has nothing to do with Adam Smith’s views on the metaphor of the invisible hand.

Hence, I do not think Gilbert knows anything about Adam Smith and his use of the metaphor of ‘an invisible hand’.