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.



Post a Comment

<< Home