Tuesday, September 21, 2010

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.



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