Wednesday, June 29, 2011

URGENT Family Emergency

Due to the sudden hospitalisation of my daughter Florence, who is 33 weeks pregnant, I am returning to Edinburgh tomorrow 30 June from France.

Hence, no blogging.

Readers may still post about today's and earlier posts. I shall respond when things are clearer and, hopefully, settled for the best news.

Gavin Kennedy


An MP Talks Sense - shock!

Steve Baker MP speaks, 29 June, (HERE):

“Political economy and the crisis”

“I had the great pleasure last night of speaking to the Economic Research Council on the subject of Political Economy and the Crisis. I argued that:

• Economics should become political economy, embracing the problem of knowledge in the social sciences, morality (think Adam Smith’s Theory of Moral Sentiments) and public choice theory, in particular.
• Classical liberalism is the most robust political economy.
• The Austrian School offers important insights, particularly into business cycles and capital theory.
• The Austrian School predicted and intellectually survived the crisis.
• That reality is, or should be, a challenge to the contemporary paradigm.
• The implications for financial reform are profound.

We had a lively Q&A covering subjects from the Chinese socio-economic model to the residual role of the state. We agreed that we must not seek a rational reconstruction of society and we left outstanding the key challenge: to determine how to reform the financial system to deliver a free-market monetary regime.

My slides are available as a PDF HERE: For related reading, please see our primer (HERE): and this article (HERE): on the need for a paradigm shift in economics.

[Published on Lost Legacy under Cobden Centre ‘ShareThis’ request.]

[Steve Baker is a professional engineer with a background in the Royal Air Force and entrepreneurial software businesses. Among other things, he has worked with major banks and regulators internationally. His personal and political website is at Steve is MP for Wycombe.]

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Are Libertarians the Descendants of Socialists?

Klint Finley posts (29 June) at Technocult HERE

When Libertarians Were Socialists

Kliny quotes from Benjami Tucker (HERE):

State Socialism and Anarchism by Benjamin Tucker, a proponent of individualist anarchism, a predecessor to modern libertarianism. The essay was written in 1886.

'The economic principles of Modern Socialism are a logical deduction from the principle laid down by Adam Smith in the early chapters of his Wealth of Nations,—namely, that labor is the true measure of price. But Adam Smith, after stating this principle most clearly and concisely, immediately abandoned all further consideration of it to devote himself to showing what actually does measure price, and how, therefore, wealth is at present distributed. Since his day nearly all the political economists have followed his example by confining their function to the description of society as it is, in its industrial and commercial phases. Socialism, on the contrary, extends its function to the description of society as it should be, and the discovery of the means of making it what it should be. Half a century or more after Smith enunciated the principle above stated, Socialism picked it up where he had dropped it, and in following it to its logical conclusions, made it the basis of a new economic philosophy

And he comments:

‘Tucker said socialism was the claim that “labor should be put in possession of its own,” holding that what “state socialism” and “anarchistic socialism” had in common was the labor theory of value. However, “Instead of asserting, as did socialist anarchists, that common ownership was the key to eroding differences of economic power,” and appealing to social solidarity, Tucker’s individualist anarchism advocated distribution of property in an undistorted natural market as a mediator of egoistic impulses and a source of social stability. Tucker said, “the fact that one class of men are dependent for their living upon the sale of their labour, while another class of men are relieved of the necessity of labour by being legally privileged to sell something that is not labour. . . . And to such a state of things I am as much opposed as any one. But the minute you remove privilege. . . every man will be a labourer exchanging with fellow-labourers . . . What Anarchistic-Socialism aims to abolish is usury . . . it wants to deprive capital of its reward.

And he concludes:

‘The abandonment of the labor theory of value is one difference between the anarchism of then and the libertarianism of today.’

It is not clear in my opinion if Adam Smith had a labour theory of value or if he believed that exchange takes place between items of equal value. In fact, Smith on the labour theory of value writes what can only be described as a muddle. I have suggested in the past, and will examine the case in due course, that Smith’s text in WN suggests that he heavily edited it for publication and in doing so he deleted some, perhaps a lot, of its wording, leaving the joins on show.

I also heard this case at a meeting of the History of Economic Thought conference in Manchester a couple of years ago made by a continental scholar, but others at the conference (Terry Peach, a specialist on Ricardo) fiercely disagreed, and because I had not thought through my arguments I was unable to join in the debate.

My thoughts remain, however, how to account for Smith switching back and forward in WN between a pure theory of labour value (the deer and the beaver example) and the acknowledgement that when land became property, there were other necessary claims of the labourer’s product (landlords, labourers, and merchants). In other words, the labourer’s product was unambiguously his own in the first age of man – hunting – but in question in the other ages. Marx took the labour theory of value to a philosophical extreme, creating a poetic language and much mystification in doing so, making it almost irreligious not to believe it and couldn't make it stick, except, as his followers showed in either their continuing anger against capital, or worse, when they achieved to power to harm those who disagreed with them. Libertarians are not in the least dangerous on a similar scale.

Worth a debate, and perhaps my next project for research?


Tuesday, June 28, 2011

The Emergence of Capitalist Economics III

Yanis Varoufakis, Joseph Halevi, Nicholas J. Theocarakis, 2011, Modern Political Economics: making sense of the post-2008 world, London: Routledge.

If chapters 3, 4, and 5 are taken together they are disappointing to me (a longtime critic of modern economics' obsession with equilibrium and mathematical models of non-existent economies to derive policies for the economies that exist. They cover a numbers of economists from the 19th century, including the Physiocrats, Ricardo (in some detail), Marx (in some detail) and, surprisingly, an economic model (in great detail) derived from the recent science-fiction screen-play of the film, The Matrix.

Readers must get used to the adjective ‘commodified’, introduced without explanation, as if it is in daily discourse around the world’s campuses (most of whom are not familiar with Karl Marx). If the authors, VHT, aim at persuading a wide audience of modern economists, they should invest some space in the text for accommodating the lack of a working knowledge of Marxist thinking, let alone any empathetic feeling for his politics.

Letting the mathematics, of which modern economists are competent to follow, do VHT’s work is not enough, given the abrupt introduction of deep concepts like ‘value’, disengaged from its classical meaning and treated almost as a ‘life force’, and similarly with ‘capital’ an entity also with a life of its own (hence, VHT’s empathy for The Matrix – where the world has been taken over by a mysterious force based on technology that subordinates all humans and subjects them to being passive source of bodily heat to work the ‘economy’).

VHT propose a Ricardian ‘corn model’ to explain how economies reproduce, grow and produce a surplus, followed by a detailed account of the Matrix economy, leaving this reader unclear of the significance of either to the headline concern with the crash of 2008, which I assume comes later(I’m only at chapter 4, ‘The trouble with humans’). Apparently, we must ‘grasp the dialectical nature of our species’, namely that ‘at the same time, (a) we possess the properties and display the behavioural codes of a particularly stupid virus; and (b) we have the capacity to act as intelligent designers of a rational life on Earth’ (p73). It’s usually a sign of an over-exited imagination that always see problems as knife-edge choices.

Chapter 5 is a tutorial on the Marxist theories of labour, labour power, wages, surplus value, and capital. VHT write as if Marx was profoundly right, until he got to the transformation problem, as his labour theory of value was otherwise correct. That’s not going to convince many modern economists easily.

But on to Chapter 6: Empires of Indifference …

Joseph Black's 18th-century Lab Equipment Found





Gavin Kennedy

Victoria Raimes writes (28 June) in The Scotsman (Scotland’s National Daily published in Edinburgh) HERE:

Dig finds treasured tools of leading 18th century scientist’

‘SCIENTIFIC equipment dating back to the 18th century and believed to have been owned by … Joseph Black, a professor of chemistry best known for his discovery of carbon dioxide gas.

Also included in the discovery which was described as a "very unusual" find, are samples of mercury, arsenic and cobalt, together with glass tubes and other vessels, bottle stoppers and thermometers, storage jars, and ceramic distillation apparatus made by Josiah Wedgwood. …

Excavation director Tom Addyman, of Addyman Archaeology, explained that the team had not expected to find such a large amount of artefacts. He said: "We dug some test trenches last year, but didn't find much. But as we watched the general excavation take place, we realised there was a huge amount of archeology coming up and a lot of human remains.

"We started an emergency dig a couple of weeks ago, opening a bigger area within the building, and there we found a whole floor strewn with laboratory-related materials.

"While there will have been some clearance before the building was demolished, it seems a lot of materials were simply left there, perhaps because they had become out of date.

"We very strongly suspect that many of these items belonged to Joseph Black as they date back to 1766, when he was working at the college."

"We have also found some very interesting ceramics, a type that so far is pretty much unrecorded, and we believe they were sent by Josiah Wedgwood. They are of the right date.

"This suggests a direct link between Black and Wedgwood and is the first physical evidence linking these two great minds of the 18th century."

Black was a student at Edinburgh from 1752-54 and went on to become Professor of Chemistry in 1766. He was a key figure in the Enlightenment and was an associate of Adam Smith and David Hume, among others.

Dr Robert Anderson, an eminent museum curator and expert on Black, said: "The age and style of the items and the location in which they were discovered all point towards their having belonged to Joseph Black himself. The discovery is wonderful new evidence of Black's working practices."

Joseph Black was indeed a leading figure in the Scottish Enlightenment and knew Adam Smith at Glasgow University, and later they continued their scientific relationship at Edinburgh where they both worked.

The linkage to Josiah Wedgewood is most interesting. He was a leading entrepreneur at the time in the pottery trade, especially in superb dining crockery for the rising middle class in England and Scotland, much boosted by what is known now as the industrial revolution, and by Rostow as the ‘take off’ to fully fledged capitalism.

Joseph Black was also a close associate of James Watt, the steam engine improver and entrepreneur. I have a set of their correspondence published some years ago, which makes interesting reading. (I also attended the official opening of the Joseph Black building in Edinburgh University in 2010.)

Black was also a close colleague and trusted confidant of Adam Smith, and was appointed one of his two literary executors, who on his direct and repeated instructions, with James Hutton, a pioneer of the science of geology, burned almost all of Adam Smith’s unpublished manuscripts and correspondence, shortly before he died in 1790. The were also instructed to ensure that Smith’s essay, his History of Astronomy, was saved and published posthumously, which they did in 1795.

If Black’s chemical equipment and samples are curated and exhibited in due course, no doubt in the Joseph Black Building, I shall ensure I attend.

When I return to Edinburgh this weekend I shall make contact with friends at Edinburgh University and see what is known about the archeological finds.

Mises and Hayek versus Adam Smith on the Invisible Hand

Sandy Ikeda, an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism, writes the Moral Liberal (HERE):

‘The Virtue of Market Inefficiency’

‘Taken together, Mises’s and Hayek’s analyses of the market economy added greatly to our understanding of what Adam Smith in the mid-eighteenth century referred to as the “invisible hand.” And so where this is repeated again and again for all goods and services produced in an economy, it’s easy to see why many economists are impressed by the problem-solving capabilities of the market.
’ (Copyright © 2011 Foundation for Economic Education.)

I am sure Mises’s and Hayek’s analyses of markets did add to our understand on how markets work, and I am also sure that Adam Smith’s analysis of how they work also added to our understanding too, but I am absolutely certain that neither Mises nor Hayek added anything to our understanding of what Adam Smith in the mid-eighteenth century referred to as the “invisible hand.”

Smith’s analysis of markets had nothing to do with his use of the IH metaphor (scroll down Lost Legacy for detailed rebuttals of such nonsense) because it had nothing to do with markets in WN (and likewise in TMS, which was about feudal landlords - even landlords and tyrants before feudalism, back to when ‘providence first divided the land’) and their having to feed their serfs, slaves, retainers, and, later, their tenants from the produce of their lands.

In WN it as not about how markets work (they work through very visible price signals!) but how the unintentional behaviour of some merchants, concerned with the security of their capital in foreign trade, preferred to invest in ‘domestick industry’. Read the two passages in TMS and WN – the only two occasions where Smith used the metaphor – and correct the modern economists misreading of Smith (and their apparent non-appreciation and understanding of what a metaphor is in the English language).


Monday, June 27, 2011

Helpful Review of My Adam Smith 2010 Book

John McHugh, PhD, visiting assistant professor of Philosophy at Denison University in Granville, OH, reviews in Metapsychology, Jun 21st 2011 (Volume 15, Issue 25) the second, paperback, edition of my recent book on Adam Smith HERE:

Adam Smith: A Moral Philosopher and His Political Economy
by Gavin Kennedy, Palgrave Macmillan, 2010,

Like much recent scholarship on Adam Smith, Gavin Kennedy's Adam Smith: A Moral Philosopher and His Political Economy aims to shatter some common misconceptions. One misconception in Kennedy's sights is that Smith was a "purist advocate" of laissez-faire economic policy (2; 180-189). Another, the one that most concerns Kennedy, is that Smith's Wealth of Nations is nothing but a primitive predecessor of contemporary mathematically-focused "textbook[s] on economics" (2). Kennedy believes that many modern economists have failed to appreciate the fact that Smith employs a "method" that is not an imprecise ancestor of the ones they use but one that is "entirely different" (1). Although Kennedy suggests that Smith's alternative way of "understanding how societies and their economies work" could serve as a "learning aid" for modern economists, he mostly leaves to others the task of showing what these economists should learn from it (2). His primary goal is to ensure that his readers are clear about the nature of Smith's work.

Kennedy's efforts result in an accessible yet thorough reader's guide to the Wealth of Nations. In keeping with Kennedy's objective of demonstrating that Smith was never interested in building clean mathematical models of economic activity, the book illuminates the elements of history, sociology, and psychology at work in Smith's use of Britain as a "case study" to show how modern commercial societies have developed, wherein lies their wealth, and what policies will best promote the growth of this wealth (2). The book is also sprinkled with interesting observations regarding the development of what Kennedy sees as the inaccurate depiction and use of Smith by economists writing after him (e.g., 158-62; 173-4).

The book's greatest strength, however, lies in its attention to the unity of Smith's thought. Kennedy sets up his treatment of the Wealth of Nations with a chapter on Smith's method of performing educated thought-experiments to trace the development of important human institutions (famously dubbed "conjectural history" by Dugald Stewart), a chapter on Smith's moral psychology, and a chapter on what is reported to be Smith's multifaceted theory of law (as Kennedy points out, most of our information about this aspect of Smith's thought comes from notes taken by students attending his lectures at the University of Glasgow). By showing how the Wealth of Nations is just one component of Smith's broader inquiry into the human condition, these chapters lay the groundwork for Kennedy's reading of Smith as a political economist who was interested in the behavior of real human beings, not abstractions who are motivated solely by the desire for financial gain.

The unity of Smith's thought and his concern with actual human behavior become particularly evident in Kennedy's discussion of the specifically human propensity to bargain and negotiate. Following philosopher James Otteson, Kennedy points out that this propensity plays as central a role in Smith's developmental accounts of language and of morality as it does in his developmental accounts of the division of labor and of commerce in general; underneath all these institutions, Smith argues, is our natural desire to make agreements (15-18; 25-38). Kennedy also points out that since this foundational propensity is social in nature, economists cannot claim inspiration from Smith if they decide to represent commercial interaction exclusively as the antagonistic clashing of solely self-interested atoms (61-4). Although Kennedy does not fully articulate what he takes to be the social aspects of our propensity to "truck, barter, and exchange," his emphasis on its general "other-centeredness" makes quite clear the complex, non-simplistically egoistic way in which Smith understood the psychology of economic behavior (53; 62).
We see what is perhaps an even more striking instance of this complexity when Kennedy observes that Smith's understanding of economic interaction between the "mutually anonymous" members of modern commercial societies mirrors in important ways his account of the kind of interaction that fosters the development of an agent's impartial moral conscience (32). If the former mirrors the latter in teaching us to take seriously others' points of view, it, surprisingly, must have some moral value. Thus, we see another source of unity within Smith's project and another source of difference between his and many modern understandings of economic interaction.

The remaining chapters walk the reader through all five books of the Wealth of Nations. Obviously, this is a lot of ground to cover in (roughly) 150 pages, but Kennedy does so without sacrificing detail. Many of these chapters contain helpful lists of the myriad examples and arguments that Smith uses to explain things like the differences in wage rates between professions (88-9) and the psychological traits, social practices, and official polices that have served as "obstacles to the progress of opulence" (111-2). As in the earlier ones, most of the writing in these chapters is admirably non-technical (although there are some spots in which more precision would have been welcome, as when Kennedy discusses the tendency of "modern authors [to] imply that the [invisible hand] metaphor itself was its own object"; he seems to mean that these authors simply make too much of the metaphor, but it is not clear why this exaggeration amounts to "making the metaphor the object of itself"; 154, 157). Also like the earlier chapters, these ones are titled and structured around a quoted Smithian phrase. This organizational device would work better if it were paired with a more straightforward indication of the chapter's subject matter. This is especially true in the chapters on the Wealth of Nations, which should also state the exact sections of Smith's text to which they correspond; the same goes for the titles of the subsections of these chapters. The book would better perform its function as a commentary on the Wealth of Nations if it made more explicit the way it follows the structure of Smith's text.

This flaw, however, is by no means fatal. On the whole, Kennedy's book is a competent addition to the literature on Adam Smith. It is recommended primarily to those interested in the history of economics.

(Copyright John McHugh 2011)

John McHugh, PhD, visiting assistant professor of Philosophy at Denison University in Granville, OH, review is most welcome and shows he has understood what I, as the author, was attempting to achieve in my book on Adam Smith.

I prepared the second edition (paperback) under the constraint that Palgrave wanted the first edition cut down by amalgamating some chapters and editing down several others. Hence, chapter 12, on the IH metaphor, though it would benefit from more recent work, primarily from my appropriately friendly debate with Professor Daniel Klein (GMU, Virginia), from which I learned a lot, was squeezed to the point of my making difficult decisions on what to leave out.

Professor McHugh rightly identifies a weakness in the absence of my full argument, which I have advanced several score times this past year on the IH metaphor:

‘As in the earlier ones, most of the writing in these chapters is admirably non-technical (although there are some spots in which more precision would have been welcome, as when Kennedy discusses the tendency of "modern authors [to] imply that the [invisible hand] metaphor itself was its own object"; he seems to mean that these authors simply make too much of the metaphor, but it is not clear why this exaggeration amounts to "making the metaphor the object of itself"; 154, 157).’

My point is more than modern economists have made the IH metaphor ‘the object of itself’, important as that it is, because many of them have invented objects for themselves and palmed them off falsely as what Adam Smith meant on the only two occasions in which he mentions the metaphor in TMS and WN. The net effect is to invent meanings for the IH metaphor that makes it its own object. This evidence that many economists do not understand the purposes of metaphors in the English or any other European language given the close link between English and classical Greek and Latin.

Smith knew the purpose of metaphors both from his studies as a student at both Glasgow and Oxford, and knew the classical roots of metaphors in rhetoric from his fluency in Greek and Latin, a precondition of attending universities in the 18th century, and as significant, a precondition for becoming a professor because lectures were delivered in Latin by the professors (though Francis Hutcheson changed to English in his classes, as did Smith after he was appointed in 1751 and certainly by the early 1760s).

Smith lecture series in Edinburgh (1748-51) were originally entitled ‘Rhetoric’ and we have student notes of this series delivered at Glasgow in 1763 (Adam Smith, Lectures On Rhetoric and Belles Letters [1763] 1763). In these lectures he
Discusses metaphors and makes the point that a metaphor describes its object in ‘a more striking and interesting manner’ (p 29). This is critical for the debate about what he meant by the IH metaphor.

Most modern economists, wedded to the idea that an ‘invisible hand’ is at work in ‘markets’, ‘supply and demand’, ‘prices’ and ‘equilibrium’ producing unintended consequences - even transforming ‘selfish’ purposes of individuals (sometimes ‘always’!) into socially beneficial ends – assert that this is its role. Now this invention ignores the objects of the IH metaphor as used by Adam Smith in Part IV of TMS and Book IV of WN did not mention anything about these modern attributions and neither can they be remotely associated with them.

Adam Smith mentioned the objects of the IH metaphor on the two occasions he used it. In TMS it refers to the ‘proud and unfeeling landlord’ admiring his fields and imagining the crops, etc., were for his own consumption. Smith mocked this illusion (part of a more general ‘great deception’ driving the ambition of would-be rich men) by pointing out that the rich landlord could not consume the products of his fields even if he tried (his stomach is of limited size) and, moreover, he had to feed the ‘thousands whom they employ’, and their families, upon which his wealth depends. Cantillon (1735) observed the same relationship of mutual dependence – no food for labourers, no work from them; no work (and no wealth and greatness). In short, subsistence was distributed because of the absolute necessity for doing so, a truth obvious to kings, High Priests, and Conquerors in he Oriental Despotisms, to Greek and Roman slave owners, to war lords and feudal lords, Kings, Arab and North American slave owners. That inescapable necessity was represented by Adam Smith as ‘an invisible hand’.

In WN he discusses foreign trade in Book IV and observes that some, but clearly not all, merchants prefer to invest locally rather than invest abroad, and this adds to ‘domestick revenue and employment’ because it increases domestic investment. But ignored by almost every modern economist with whom I have debate this passage, is the plain fact that the are led to do so (‘by an invisible hand’) and he also informs readers the actual cause of their behaviour; in short, by identifying the metaphor’s object, not just once but several times. It is the ‘insecurity’ of these particular merchants, which they feel from what they perceive as the greater risks of foreign trade compared to ‘domestick industry’. The IH metaphor describes their behaviour in ‘a more striking and interesting manner’.

Given the fact that he analyses how markets and prices work, the effects of supply and demand, and the role of supply costs on the seller’s bargaining behaviour and market prices on the buyer’s behaviour, all without mentioning ‘an invisible hand’ it should hardly be a difficult problem to identify the object to which Smith’s metaphor refers.

Perhaps if there is a third edition on my book, I shall have the opportunity to explain these points. If not, and in the meantime, I shall continue to present the case on Lost Legacy.

It remains to thank John McHugh for his careful read of my book and for his constructive comments.

Sunday, June 26, 2011

Thought For the Day

One of the many minor aspects of information regarding Adam Smith’s biographical details that remains largely sparse, to much it mildly, is the mystery of what he did in the six years he spent in Oxford at Balliol College, 1740-46. Kirkcaldy was a long journey, at least two, probably three weeks, to and from Oxford in those days. He arrived in Oxford in 1740 by horseback, almost certainly accompanied by his cousin and guardian, William Smith, an aide to the Duke of Argyll.

Apart from a letter to his mother, Margaret Douglas Smith, (23 October, 1741) when he informed her he had a ‘fourteen days’ holiday with ‘Mr. Smith’ at Adderbury House, 18 miles from Oxford, belonging to the Duke of Argyll. And that is all we know for certain about his sojourn at Balliol for six years.

However, Balliol college administrative ‘Battel book’ records show that Adam Smith drew daily expenses for his food, ale (safer than the water), laundry and barber without breaks, except for only five periods, each lasting for only ten days or a fortnight, over those six years. On all other days he drew in person from the ‘buttery’ for his daily requirements and none of these short absences can account for a visit to Kirkcaldy or Glasgow. On some of the other five occasions he may have returned to Adderbury for 10 or 14 days, or, as Ernest Mossner suggests (Adam Smith: the biographical approach, 1969, p.9, University of Glasgow), he may well have gone to London, 50 miles, and perhaps 2 days away on some of these annual breaks, to stay with his cousin, ‘Mr Smith’, at the Duke of Argyll’s house in Brutin Street, London.

Mossner is regarded as the definitive biographer of David Hume (1980), and would have written the biography of Adam Smith for the Glasgow Edition of Smith’s Works and Correspondence if he was not fully committed to Hume’s biography at the time. Fortunately, the remarkable scholar, Ian Simpson Ross, was commissioned to write Smith’s life, and it too, is now regarded, with much justice, to be Smith’s definitive biography, now in a second edition (2010).

So the mystery remains unsolved. We can speculate on the consequences of his prolonged absence from his mother’s house in Kirkcaldy, and one possible consequence, I suggest, is close to my own interests in Smith’s alleged religiosity.

Oxford, like Cambridge, had been closely involved in the education of young men in preparation for careers in the Church (until the Reformation, the Catholic Church) and when Smith attended it still had that function on behalf of the established Church of England. Balliol was not, however, an affiliate of the Church of Scotland, of which Adam Smith was a confirmed member. True, the Snell Exhibition, upon which his presence in Balliol was arranged and which he was nominally supposed to discharge on completion of his studies, led to ordination into the Church of England and a pastoral career in the Episcopalian Church of Scotland.

According to Nicolas Phillipson’s recent intellectual biography, Adam Smith an Enlightened Life (2011), the earlier legal obligation of Snell scholarships to be ordained into the Church of England had been relaxed from 1738 and was not enforced by Smith’s time in the mid-1740s.

However, that is of less importance to my suggestion, specifically, that Smith’s unbroken absence from Scotland, 1740-46, also removed him from the daily habits of life in Calvinist Scotland with its intense, ever-present supervision by the zealots who imposed their versions of Calvinist rituals, genuflections, and behaviours in all aspects of life. At once, his growing alienation from his Anglican tutors, grew into despising them for their academic sloth (a view he held and wrote about in WN thirty years later in 1776), and his absence from the moral influences of moderates like the ‘never to be forgotten’, Francis Hutcheson at Glasgow University, and the local moderate minister at his mother’s local church in Kirkcaldy slowly festered. His self-motivated reading at Oxford’s libraries (including the book his tutors took from him as unsuitable reading) led Smith to move away from the certainties of religion with which he had lived under until moving to and remaining in Oxford from 1740-46.

I have suggested for some years that his ‘juvenile’ History of Astronomy (1744-50) originated in this crucial period and that it should be read as an assault on ‘pusillanimous superstition’ of belief in ‘invisible gods’, without openly inviting retribution from those who might read between the lines and conclude (rightly) that its strictures applied to revealed Christian religion too. He even kept it from David Hume, whom he had known since c.1751, for 22 years until 1773, and only showed it to reliable confidants. He arranged for its posthumous publication by his close friends, Joseph Black and James Hutton, who published in in 1795 (having been instructed to burn all of his other unpublished manuscripts in 1790).

These life-changing consequences he had to cope for the rest of his life.

Saturday, June 25, 2011

On Metaphors in Economics

The Irish Economy (HERE), discusses the role of metaphors in recent economic discourse.

The Use of Metaphor in the Irish Economy, A Guest Post by Gavin Kostick (This post was written by John McHale).

John Donne is remembered on the blog by the phrase, “no man is an island” indicating, a good deal before Adam Smith, the interconnectedness of our lives. Donne (1572 – 1631) was the Dean of St Paul’s Cathedral, and a metaphysical poet. He specialized in drawing unexpected comparisons between a theoretical, spiritual or abstract notion and a concrete, palpable object. For example, Donne compared mutual love to a pair of mapping compasses, which, where-ever the points are placed on the surface of the world, lean towards each other and are connected.

The history of language itself is the history of the movement from the concrete to the abstract. Our ancestors had a far larger vocabulary than we do, as they were more particular than general.

The power of metaphor consists in making the abstract once again visceral: philosophy ‘proved upon our pulses’, in Keats’s phrase.

But it is a suspect power as it may not so much illuminate, as rhetorically persuade, or falsify.

The history of political and economic thinking is filled with metaphoric physicalisation of abstract ideas - from Hobbes’s “war of all against all”, Smith’s “invisible hand”, Marx’s “spectre haunting Europe”, right up to Matt Taibbi’s “great vampire squid”, powerful gut images have managed to consolidate a set of ideas, capture the public imagination, frame debate.

I enjoyed reading this essay on metahors because it illustrates the power of a metaphor to do what ‘it says on the tin’ (to quote an advertising slogan in the UK on a paint for all weathers), and how the metaphor can become meaningless if badly crafted or it is non-applicable (as we have with ‘the invisible hand of the market, etc., when related to Adam Smith). His many other metaphors in TMS and WN are often quite brilliant, and one of two are rather awkward.

Too many economists do not understand metaphors at all, yet many misattribute to Adam Smith (himself an accomplished rhetorician) their interpretation of the IH metaphor as a real entity in itself (they believe that the IH actually exists!), instead of how Adam Smith defined the role of metaphors – and how he used of them in all of his writings – in his Lectures on Rhetoric and Belles Lettres ([1762] 1983, p 29): they describe in ‘a striking and more interesting manner’ their objects (which are explained in his text or are relayed from classical works familiar to all educated readers in his day).

That his use of metaphors describe their objects can be illustrated by his use of a classical metaphor for the relative insecurity of paper money, compared to the solidity of gold because paper money, which is ‘suspended on Daedalian wings’, is liable to lose its value. Smith was not suggesting that there were actual wings of Icarius attached to paper money! Every reader educated in Greek mythology would know what he meant, as they would when he referred to the ‘great wheel of circulation’, and, of course, to the popular 17th-18th-century metaphor of ‘an invisible hand’ (they would hear it spoken in Church sermons, in Shakespeare’s play, Macbeth, or various historical essays, and Defoe’s novels (Moll Flanders and Colonel Jack, and etc.).

Which is probably why no contemporary of Smith’s noted his reference to the IH metaphor, nor did but very few non-contemporaries until the last quarter of the 19th century, and later in the oral traditions of Cambridge (UK) and Chicago universities in the 20th century. What happened to cause the tidal wave (metaphor) of references to he IH from the 1940s and through to today (Google the IH to see the daily flood – another metaphor – across the world)?

I suggest it is related to the current obsession with theoretical equilibrium in markets, of which we can excuse Adam Smith of any complicity in this sorry, to quote YHT, ‘inherent error’.

[Follow the link to see an excellent review of the use of metaphors in the debates among economists and others on the current financial crisis and how it affects the debate in Ireland.]


Friday, June 24, 2011

A Commentator Disagrees

‘Cuauti’ posts two comments (23 June, 2011) to yesterday’s post “A Serious Scholar Disagrees”, exactly the same as that which he/she originally posted as a comment on my 17 June 2009 post that praised Chris Berry’s very short biography of Adam Smith on the BBC, followed by cuauti's second comment, also that he/she posted on 29 June 2009, responding to my: ‘A Wee Gem of a Little Book’ on Hector MacPherson’s biography of Adam Smith (1897).

Please note, his/her comments must have been posted much later than my original 2009 posts because the context refers to my preparations in December to leave my then Edinburgh address in 2010.

This strange, though welcome, behaviour no doubt has a perfectly valid explanation, but while I regard his/her comments as not too serious a criticism, they deserve an answer. The reason why I had not replied at the time to Cuauti’s posts is that I seldom scroll back a year or more looking for unanswered comments awaiting my reply (and I always respond to comments, critical or otherwise that I notice).

Here are the two 2009 posts by Cuauti:

‘The description is wonderfully - stultifying. Smith with a homogeneous life style. In fact, Smith knew nothing about classical economics before being coached by the Économistes in Paris. Being bored in Toulouse for 18 month he started to write the promised book on Government which became the "Wealth". Later in Paris, Smith learned about macro-economics, about productive and unproductive labour. The Économistes tried to avoid the bankruptcy of feudal France and the French Revolution. The opening passage of the Wealth mirrors these ideas. Smith did not understand everything as even after 2,5 years in France his French was very poor. He thought to dedicate the Wealth to Quesnay had the latter not died earlier. But his Wealth is a muddle of his former ideas, before he became educated as a classical economist and classical economics.’
By cuauti on “The Very Best Short Summary of Adam Smith's Life a... and on 23/06/11 A Serious Scholar Disagree (and on or about June 2009).


First: Smith spoke about "an invisible hand" not about "the" invisible hand. Smith spoke about "the invisible hand" in "Astronomy", the hand people refer to if they don't understand the facts. Economists citing "the invisible hand" don't understand the facts. Second: Smith's hand "frequently promotes that of the society" so don't trust it works in your case. Third: An invisible hand "promotes an end which was no part of his intention." So you intend to make a fortune of your invention and the invisible hand helps competition to copy it. An invisible hand procures that competition curtails profits to the benefit of consumers. That's the definition of dynamic competition. (26 June 2011 and- originally posted on Lost Legacy, on or about June 2009).

To which I would comment:

That Smith owed ideas to the Physiocrats is unexceptional. Enlightenment scholars owed much to each other because the conversed without restraint and each influenced everybody else. That’s why it is called the Age of Enlightenment.

How much one philosopher owed to another was a subject of much discussion among later scholars – it still is by modern researchers looking for PhD subjects and forensic scholars digging deep into their special subject areas (a recent example I have read is Paul Russell’s excellent work on ‘The Riddle of Hume’s Treatise: skepticism, naturalism, and irreligion’, 2008, Oxford University Press).

It has been a common thread among modern Mise-ian scholars to downgrade Adam Smith’s contribution from the pedestal he was put on by 19th century economists and his epigones in the 20th century. “cuauti’s” over-extra assertions to debunk Smith are of that ilk.

Comments like ‘being coached by the Économistes in Paris’, ‘Being bored in Toulouse for 18 month’, ‘Smith did not understand everything as even after 2,5 years in France his French was very poor’, and ‘before he became educated as a classical economist and classical economics’, are to be judged as opinions not supported by the whole picture.

Certainly the Physiocrats explained their ideas to Smith and loaned him their many papers, all in French. The facts are he had a good working knowledge of French (his fluent translation of Rousseau’s Essay in 1755, and published in the Edinburgh Review, is an excellent example). Comments were made on his spoken French, but first he was not taught spoken French, he also spoke Scot’s English with a lowland’s accent that was commented on by English speakers let alone attendees at the Parisian salons; its affect on his spoken French was to make it execrable. He certainly spoke fluent Latin (a requirement in Scotland even to attend as a student, let alone teach in a university – which was also a common tongue with educated French men and his tutors at Glasgow and Balliol). Similarly, he was fluent in Classical Greek and had a working knowledge of Italian.

Cuauti writes: ‘But his Wealth is a muddle of his former ideas, before he became educated as a classical economist and classical economics.’ Again, an opinion but the evidence rebuts it. Smith did not start writing WN in Toulouse and the documentary evidence for this overwhelming.

A ms known today as the ‘Early Draft’ is in the Glasgow University Library that was written in 1763 for the Duke of Buccleugh’s guardian and follows the general lines of what became WNi, i.e., before Smith left for France in 1764.

Moreover, the students notes of his Lectures On Jurisprudence ([1762-3] 1978) contain long sections that appeared in WN almost verbatim in its early chapters. Smith taught ‘police’ (political economy) in his Jurisprudence classes from 1752 (part of his Moral Philosophy Class) and he claimed, according to Dugald Stewart, to have taught his ideas on political economy in Edinburgh 1748-51 in the 1755 paper then in Stewart’s possession in 1793.

None of this is inconsistent with his being ‘bored’ in Toulouse (prompting him to compile it into a book) before he spent months in Paris with access to Dr Quesnay’s circle, 1765-6, and exchanged ideas on a range of subjects. Nor is it inconsistent, or sinister, that he respected Dr Quesnay’s work, though disagreeing with its narrow conception of productive and ‘sterile’ labour (which he demolished in WN).

Of his second post, I am well aware that Adam Smith referred to ‘an invisible hand’ (I have often drawn readers’ attention to this fact because modern economists since the 1940s have made a noun out of the metaphor as used by Smith (most do not seem to know what a metaphor is). In yesterday’ post I wrote:

“Smith also recognized that other factors guided individuals; indeed, that was the actual point that he made about the ‘invisible hand’: some but not all merchants were led (‘by an invisible hand’) in the form of their insecurity about the evident risks of foreign trade to invest in ‘domestick industry’ and suggested, but did not identify, many other examples of similar non-price driven behaviour (WN Book IV.ii. 1-9). [Smith was no single-track ideologue.]”

This clearly differentiates between the ‘invisible hand’ [separating today’s noun use from Smith’s metaphoric use, which, as I stated: “were led (‘by an invisible hand’)”.

Smith reference to ‘the invisible hand’ in Astronomy did not refer ‘to the hand people refer to if they don't understand the facts.’ He, ‘cuaunti’, does not understand the facts: in Astronomy Smith refers to ‘the invisible hand of Jupiter’ because that is precisely what they (Roman Pagans) believed as part of their ‘pusillanimous superstition’; specifically that their god Jupiter dealt with enemies of Rome by pointing his heavenly finger at them and firing lightning bolts to destroy them. For them it was not a metaphor; it was all too real.

Some Roman coins carried the image of Jupiter’s pointed finger and a lightning bolt. It wasn’t that they did ‘not understand the facts’ – they explained irregular events by their superstitious beliefs. Perhaps ‘cuaunti’ should read Smith’s Astronomy essay more carefully.

He writes: Smith's hand "frequently promotes that of the society" so don't trust it works in your case.” No, it’s the object of the metaphor that promotes the interests of society, not an actual invisible hand (metaphors do not exist!), and the object of the metaphor here is the merchant’s regard for ‘his own security’ that leads him to prefer the ‘domestick industry’ to ‘foreign industry’, which in turn raises domestic ‘revenue and employment’ above what it otherwise would be if he had sent it abroad instead. This is plain to see from what Smith wrote.

Next, ‘cuauti’ asserts: ‘the [!] invisible hand helps competition to copy it’. Now this cannot be derived from what Smith wrote, or indeed, is meant by a metaphor: which ‘describes in a striking and more interesting manner’ its object (Adam Smith, Lectures in Rhetoric and Belles Lettres, [1763], 1983, p. 29).

If cuauti believes that there is an actual invisible hand (a perfectly legitimate belief, like the beliefs of Romans in imaginary gods, just as we have a right not to share his, and their, beliefs), his conclusion makes sense (to him, though not to me, or I would suggest would have made sense to Smith). But it is incumbent on ‘cuauti’ to explain how his ‘invisible hand’ achieves these results in ‘dynamic competition’, or whatever, where is it, can it be seen, who created it, and where does it reside in society?

‘cuauti’ is welcome to reply, with the caveat: I can identify web trolls quickly enough.

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Thursday, June 23, 2011

A Serious Scholar Disagrees

Over at the excellent Anti-Dismal Blog, Paul Walker raises important criticisms of my Monday post this week on Lost Legacy, (HERE):

“The neoclassical model”

‘When discussing The Emergence of Capitalist Economics II at the Adam Smith's Lost Legacy blog, Gavin Kennedy writes
[...] we are treated to an account of the usual Ricardian corn model, regarded by some economists as illustrative of the inner workings of a capitalist economy, upon which the seeds of the profession’s love affair with models were planted in 1817.

YHT also link Adam Smith to the problems with which the corn model is lined up to discuss and which the late 19th-century mathematical school went on to separate economics even further from the real world, leading to the fantasies of General Equilibrium and much of microeconomics as we know it today.’

Paul Walker: I find myself asking, if GE and much of microeconomics is just a bunch of fantasies, how did we come to these fantasies? If we assume, as economists normally do, that those like Ricardo, J S Mill, Marshall, Jevons, Menger, Walras, Knight and many others, who developed the neoclassical model were not stupid, then why does neoclassical economics look the way it does, there has to be a reason. Ether I'm wrong and all these economists were just morons as many critics seems to suggest or they were rationally attempting to answer some question. So, if neoclassical economics is the answer, what was the question? This is something those who just want to complain about microeconomics don’t ever seem to ask. And even less answer.

Fair enough, but I would suggest, humbly, that Paul misses my point (I cannot speak for other critics of neoclassical economics).

It is not that the neoclassical models were wrong, given their assumptions, or that their designers were ‘just morons’. Far from it; they were among the brightest minds of their respective generations. It’s just that they were asking the wrong questions. Their work (and it was hard work) was to ask how a perfectly competitive economy worked abstracted from all human distractions that could not be incorporated in the models.

This was the reverse error that shaped the thinking of the old classical mercantile political economists, whom Smith severely criticised in WN. Specifically, they ignored in their speculations about the damaging roles of imports, that the common politics of all of Britain’s nation state trading partners was one imbued by the existence of ‘jealousy of trade’, linked to the dynastic insecurities of the monarchical governments in Europe (within which primogeniture both fed and projected their insecurities).

Monarch’s proved title to their vast properties and income by primogeniture and others challenged their title through normal changing events in passing generations. Mercantile political economy did not create jealousy of trade; it was jealousy of trade (for all its reasons) that created mercantile political economy. Each nation was ‘threatened’ by every other nation, and the mercantile state threatened ever other nation, forming and dissolving temporary alliances to suit events.

Here the search for proofs of perfect competition reached their final success in the proof of General Equilibrium; but the mathematical world it identified corresponded to no known – or knowable –world in which human beings did or could exist.

‘Paul Walker’: 'I would argue there are two possible answers to my question: one theoretical, the other empirical.'

‘From the theoretical side as has been pointed out by Demsetz (1982, 1988a and 1995) the fundamental preoccupation of neoclassical economists is with the market and the price system and hence little, or no, attention gets paid to either the firm or the consumer as separate, significant, economic entities. Firms and consumers existed as handmaidens to the price system.’

In Demsetz's view the interest in the price system, culminating in the "perfect competition" model, has its intellectual origins in the eighteenth-century debate between free traders and mercantilists. Butler (2007: 25-6) briefly sums up mercantilism in the following way:

[...] it measured national wealth in terms of a country's stock of gold and silver. Importing goods from abroad was seen as damaging because it meant that this supposed wealth must be given up to pay for them; exporting goods was seen as good because these precious metals came back. Trade benefited only the seller, not the buyer; and one nation could get richer only if others got poorer. On the basis of this view, a vast edifice of controls was erected in order to prevent the nation's wealth draining away - taxes on imports, subsidies to exporters and protection for domestic industries. [...] Indeed, all commerce was looked upon with suspicion and the culture of protectionism pervaded the domestic economy too. Cities prevented artisans from other towns moving in to ply their trade; manufacturers and merchants petitioned the king for protective monopolies; labour saving devices such as the new stocking-frame were banned as a threat to existing producers.

The free trade versus mercantilism debate was, to a large degree, about the proper scope of government in the economy and the model it gave rise to reflects this. The question implicitly at the centre of the debate was, Is central planning necessary to avoid the problems of a chaotic economic system? The mercantilists would (surely) answer "yes" but Adam Smith famously answered "no".

‘Smith [ ... ] realised that social harmony would emerge naturally as human beings struggled to find ways to live and work with each other. Freedom and self-interest need not lead to chaos, but - as if guided by an 'invisible hand' [GK: Smith never used the IH as a simile] - would produce order and concord. They would also bring about the most efficient possible use of resources. As free people struck bargains with others - solely in order to better their own condition - the nation's land, capital, skills, knowledge, time, enterprise and inventiveness would be drawn automatically and inevitably to the ends and purposes that people valued most highly. Thus the maintenance of a prospering social order did not require the continued supervision of kings and ministers. It would grow organically as a product of human nature.
(Butler 2007: 27-8.)'

GK Comments: Butler imposes a somewhat idealist gloss on Smith’s more down-to-earth realism about the ‘prospering social order’. Sure, the social order did not require ‘the continued supervision of kings and ministers’ and noted that their ‘continued supervision’ was a drag on prosperity, but neither did he consider that ‘natural liberty’ was necessary or sufficient for progress towards opulence (as he told Dr. Quesnay in WN); in fact the saw the reforms he recommended on their own merits and not as some sort of economy-wide imperative.

I would also suggest that the sentence: ‘As free people struck bargains with others - solely in order to better their own condition - the nation's land, capital, skills, knowledge, time, enterprise and inventiveness would be drawn automatically and inevitably to the ends and purposes that people valued most highly’ puts a modern gloss on Smith’s thinking; his objectives were much more localised to the world as he knew it. He was not in the prophesising business. And ‘the ends and purposes that people valued most highly’ leaves much scope for modern market distortions (Bubbles, False Accounting, Cartels, Scarcity Manipulations, Pollution, etc.) that may also serve private-ends intentionally, but may also have unintentional social disbenefits.

Paul Walker:

For Smith, markets are the most prominent mechanism for solving the problems of coordination and motivation that arise with interdependencies of specialisation and the division of labour. Market institutions leave individuals free to pursue self-interested behaviour, but guide their choices by the prices they pay and receive. For economists, the 200 years following Smith involved a search for conditions under which the price system would not descend into chaos.

[GK Comments: Smith also recognised that other factors guided individuals; indeed, that was the actual point that he made about the ‘invisible hand’: some but not all merchants were led (‘by an invisible hand’) in the form of their insecurity about the evident risks of foreign trade to invest in ‘domestick industry’ and suggested, but did not identify, many other examples of similar non-price driven behaviour (WN Book IV.ii. 1-9).] Smith was no single-track ideologue.]

'The formal (neoclassical) model that arose from this search abstracts completely from any form of centralised control in the economy. [For Adam Smith this would be an abstraction too far. Smith knew of the importance of institutions to the proper functioning of the market economy.] It is a model delineated by "perfect decentralisation". Decentralised insomuch as authority plays no role in coordinating resources, the price system does the work. Note that the neoclassical model is often described as one of "perfect competition" and one reason that the emphasis on the firm and the household diminished as the model developed was that the neoclassicals placed a growing emphases on the concept of market competition and thus less emphases was given to firms and households. As McNulty (1984: 240) explains "[t]he 'perfection' of the concept of competition, beginning with the work of A. A. Cournot and ending with that of Frank Knight, which was at the heart of the development of economics as a science during the nineteenth and early twentieth centuries, led on the one hand to an increasingly rigorous analytical treatment of market processes and on the other hand to an increasingly passive role for the firm." For Knight "[p]erfect competition is conditioned by the existence of a set of assumptions, the most important of which are the following: (1) "a perfect market for productive services [ ... ], that is, uniform prices over the whole field" (1921[a], 316); (2) complete rationality and perfect knowledge by free and independent individuals; (3) "perfect mobility in all economic adjustments, no cost involved in movements or changes" (1921[b], 77); (4) "virtually instantaneous and costless" exchange of commodities (1921[b],78); (5) "perfect, continuous, costless intercommunication between all individual members of the society" (1921[b], 78); (6) perfect divisibility of commodities; and (7) "an indefinitely large number of competing organizations, each of the most efficient size" (1921[a], 316)." (Marchionatti 2003: 58)'.

[GK Comments: agreed. Paul deploys and ample illustration of the neoclassical abstraction. A step forward for the perfection of the model and a clear step away from reality.]

Paul Walker comments:
Again, authority, be it in the form of a government or a firm or a household, plays no role in coordinating resources. The only parameters guiding decision making are those given within the model - tastes and technologies - and those determined impersonally on markets - prices. All parameters are outside the control of any of the economic agents and this effectively deprives all forms of authority a role in allocation. Thus the neoclassical model gives a set of sufficient conditions under which the price system alone can achieve equilibrium.

Foss and Klein (2005: 6-7) argue that there is the possibility of an empirical reason for the way the neoclassical model considers the production side of the economy, at least. In short, the relative unimportance of the firm. Until relatively recently firms were simply not a large part of the economy. So treating firms as if they were all small may have been a reasonable approximation to a large section of the economy of the time. But they also point out that such an explanation is not wholly convincing. Large firms have existed since at least the time of Adam Smith and the classical economists knew this. Mokyr (2002: 122-3) summarises manufacturing in the U.K. before the Industrial Revolution by noting that,

[...] large plants were not entirely unknown before the Industrial Revolution. For instance, Pollard (1968) in his classic work on the rise of the factory, mentions three large British plants, each employing more than 500 employees before 1750. Perhaps the most ``modern" of all industries was silk throwing. The silk mills in Derby built by Thomas Lombe in 1718 employed 300 workers and were located in a five-story building. After Lombe's patent expired, large mills patterned after his were built in other places as well. Equally famous was the Crowley ironworks, established in 1682 in Stourbridge in the Midlands (not far from Birmingham), which at its peak employed 800 employees. [...] In textiles, supervised workshops production could be found before 1770 in the Devon woollen industry and in calico printing (Chapman 1974).

Also chartered companies were well known as witnessed by Adam Smith's negative assessment of chartered companies in general and the East India Company in particular, contained in the Wealth of Nations.

[GK Comments: agreed. (Caveat: Smith did not condemn all ‘joint-stock companies; he found them workable when they operated in ordered sectors, such as banking and insurance, but he did object to those founded by Royal Charter for foreign trade, especially in India where the London directors’ control was week to non-existent, mostly because of the distance – a year or more each way by sea).

Paul Walker:
A more precise, and more defendable, version of the argument would be that the large, vertically integrated and diversified firm was not empirically important until recently. Thus analysing anonymous "firms" may not have been a bad approximation to the empirical realities of the time. As an approximation to "anonymous firm" production - that is, fully price-decentralised production - consider the case of rife manufacture in Birmingham, England in the 1860s,

[o]f the 5800 people engaged in this manufacture within the borough's boundaries in 1861 the majority worked within a small district round St Mary's Church. [...] The reason for the high degree of localization is not difficult to discover. The manufacture of guns, as of jewellery, was carried on by a large number of makers who specialized on particular processes, and this method of organization involved the frequent transport of parts from one workshop to another.

The master gun-maker-the entrepreneur-seldom possessed a factory or workshop. [...] Usually he owned merely a warehouse in the gun quarter, and his function was to acquire semi-finished parts and to give these out to specialized craftsmen, who undertook the assembly and finishing of the gun. He purchased materials from the barrel-makers, lock-makers, sight-stampers, trigger-makers, ramrod-forgers, gun-furniture makers, and, if he were engaged in the military branch, from bayonet-forgers. All of these were independent manufacturers executing the orders of several master gun- makers. [...] Once the parts had been purchased from the "material-makers," as they were called, the next task was to hand them out to a long succession of "setters-up," each of whom performed a specific operation in connection with the assembly and finishing of the gun. To name only a few, there were those who pre-pared the front sight and lump end of the barrels; the jiggers, who attended to the breech end; the stockers, who let in the barrel and lock and shaped the stock; the barrel-strippers, who prepared the gun for rifling and proof; the hardeners, polishers, borers and riflers, engravers, browners, and finally the lock-freers, who adjusted the working parts. (Allen (1929: 56-7 and 116-7), quoted in Stigler (1951: 192-3).)
Such a method of production would be a guide to the way production would take place under a functioning version the neoclassical model of the "firm"

[GK Comments: agreed.]

Paul Walker:
‘Thus whether we see the neoclassical model as a set of conditions under which the price system alone can prevent decent into chaos, more formally conditions under which equilibrium can be achieved, or as an approximation to a large section of the economy of the time, the neoclassical model makes more sense than many of its detractors would permit.’

GK Comments: To paraphrase Smith: there is a ‘lot of ruin’ possible in a market system (and long before it ceases to function effectively) which does not require to be in equilibrium to avoid ‘chaos’ because ‘chaos’ is not the opposite of equilibrium, nor a necessary consequence. Degrees of imperfection are tolerable in real world markets; they characterise them. In fact, also, given the world we live in, they are normal.

Demanding perfection in markets is an act of faith, not an assurance of science. The study of real-world markets, and the politics of societies that impinge on markets and non-market provision, is more required than class-room illusions of perfectionism, and worse, that new scores of students leave believing that the perfection-paradigm has value as policy, even though it applies nowhere and never has.

The details that Paul provides in the course of his rebuttal are infinitely more interesting and relevant to the real world than the equilibrium models developed since Smith.

Mercantile political economy persisted in basic forms long after Wealth Of Nations. Having lost one empire after 1776-83, Britain continued its mercantile policies in a second empire in India, Caribbean, Canada, Africa, Australasia, and the Pacific (until after the second world war) and its mercantile instincts continue, post-colonialism, in the protectionism in the EU and WTO. The state’s role Britain, and all other major economies, shows that all countries are more state capitalist than they are anywhere near perfectly competitive.

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Tuesday, June 21, 2011

An Original Thinker Who Is Worthy of a Closer Look

James Otteson, professor of philosophy and economics at Yeshiva University (New York), interviewed on Adam Smith

Adam Smith: Philosopher and Political Economist’

Misconceptions of Smith come from both political directions, as it were. Some have portrayed Smith as a doctrinaire laissez-faire libertarian, while others, more recently, have portrayed him as something like a contemporary progressive liberal. Neither is accurate. His review of the available historical and economic evidence led him to conclude that, after providing protection for people’s lives, liberty, and property, minimal government interference in people’s lives led to prosperity for all—including especially the poor. So he was genuinely concerned about the least among us, and his policy recommendations were based primarily on concerns about their welfare. Yet his recommendation of limited government was presumptive, not absolute: It served as a default to which exceptions could be made if the evidence for the particular case warranted it. I call his position “pragmatic classical liberalism.”

Smith accounts for the generation of shared moral standards in the Theory of Moral Sentiments by recourse to something he calls the “desire for mutual sympathy of sentiments.” In this case, “sympathy” does not mean pity: It means a “correspondence” or “harmony” of sentiments. His claim is that we all desire to see our own sentiments echoed in others, and we are chagrined and even pained when we realize our sentiments are not shared by others. Because this desire is mutual, it acts as a centripetal force drawing people into society and community with one another. It also acts as a regulative force disciplining us through rewards and punishments (achieving or failing to achieve mutual sympathy of sentiments, respectively), thereby generating—spontaneously—a moral order that is the product of human action but not of human design.

Smith employs a similar “invisible hand” explanatory mechanism in the Wealth of Nations, though there the fundamental driving motivation is not the desire for mutual sympathy of sentiments but the desire of everyone “to better his condition.” The difference is explained by the fact that in the Wealth of Nations Smith is describing our exchanges and transactions with people most of whom we do not know. Unlike our moral communities, people in the marketplace are typically strangers to us; a different set of motivations is therefore appropriate. Smith argues that we are still required to fulfill the rules of justice, but that among strangers the special affections we develop for our friends and loved ones are neither expected nor, therefore, usually appropriate. In both works Smith is trying to understand the creation and development of human social institutions—moral community in TMS and commercial society in WN—and what I call his “marketplace model” applies in both. Because of the different circumstances of interaction among family and friends, on the one hand, and traders in the marketplace, on the other, different motivations are appropriate; the analyses in the books nevertheless integrate into a coherent whole.

In part three of your Adam Smith book you explain what “Smith got wrong” (chapter 8). One of the mistakes Smith made in the Wealth of Nations was in thinking that human labor was a constant that could be universally measured and that it was the central determining factor of value. He seemed to believe that when a person is evaluating whether the price for a good or service is worth it, he will measure the price against the amount of his own labor that he estimates would be required to produce the good or service in question. This makes his view, I think, a “subjective-labor theory of value,” which is a step in the right direction. Nevertheless, the consensus of modern economics is that an attempt to base value on labor is a mistake. …

In chapter 9 of your book you make a case for what “Smith got right.”
It turns out that Smith got a lot right—both in his moral psychology and in his political economy. Perhaps two that bear mentioning are his claims regarding (a) mutual sympathy of sentiments and (b) the prosperity promised by commercial society. Modern psychology has discovered that human beings do, in fact, desire a “sympathy of sentiments” with one another, and many different studies from several different disciplines have discovered not only the importance of this desire but also its regulative effect on human behavior. Moreover, in the two-and-a-half centuries since Smith wrote the Wealth of Nations, those societies that approximated Smith’s recommendation of rule of law, free trade, and limited government have produced unprecedented levels of wealth and rises in standards of living, including for their poor. Smith believed this would happen, but not even he could have imagined the astounding productive powers of markets that subsequent history demonstrated.

Your award-winning 2002 book, Adam Smith’s Marketplace of Life (Cambridge), offers a systematic reinterpretation of Smith’s moral philosophy. Specifically, you argue that Smith provides a single “marketplace model” to make sense of various human social institutions. Can you explain what is the “marketplace model” and why is it a “reinterpretation” in light of the relevant literature?

… In my Adam Smith’s Marketplace of Life, I argue that both books can be seen as part of a larger social-scientific project, namely, the attempt to explain the creation and maintenance of large-scale human social institutions. I argue that in TMS Smith develops what I call the “marketplace” model of social institutions, in which exchanges and interactions of moral sentiments and judgments give rise over time to shared standards of morality. I lay out in detail how Smith’s account of morality is a version of an “invisible hand” argument. I then argue that the same model is present and at work in his Wealth of Nations, though here he is accounting for not moral community but economic markets.

I think Smith’s “marketplace model” for him enjoys a general application to human sociality, making it a kind of “grand unification theory” of human social phenomena.
(© 2011 Evangelical Philosophical Society


I regard James Otteson’s work on Adam Smith particularly invigorating and worthy of the attention of scholars, particularly his Market Place of Life (Cambridge University Press, 2002), an original interpretation of Smith’s common method of analysis that has been neglected by too many scholars.

In the first edition of my ‘Adam Smith: a moral philosopher and his political economy, in the Great Thinker in Economics series from Palgrave, 2008, I extended James Otteson’s market place model from the original applications that he used to demonstrate his model from Moral Sentiments, Wealth Of Nations, and Smith’s Essay on the origins of Language (figure 2.1, p 42), by applying it to Smith’s Essay on Astronomy and his Lectures On Jurisprudence (figure 2.2, p. 43).

Jim’s common model across all of Smith’s Works has four elements, ‘Motivating Desire’, ‘Rules Developed’, ‘Currency’ and ‘Resulting Unintended System of Order’. The hint that Smith used a common system of analysis was first made, without explanation or illustration by Dugald Stewart in his eulogy to Adam Smith delivered to the Royal Society of Edinburgh in 1793.

Otteson is the first to have attempted to uncover the common rules, and did so remarkably well. I found that that they work for all five of Smith’s works. Unfortunately the economic exigencies of modern publishing required that the second edition of my book had to lose 8-10,000 words, and I was forced to sacrifice the details of Jim’s ‘market place’ model in the general cut back.

I offer my application of Otteson’s market-place model to Smith’s Essay on Astronomy ([1744-c.50) 1795 p 31-105):

Motivating desire (through intercourse with others):
To discover the connecting chains of intermediate events;

Rules developed (‘to assess and judge’ diverse actions and motivations):
For the testing and debate of successive explanatory systems;

Currency (that which is exchanged to solidify and test principles):
Hypotheses, idea, and speculation:

Resulting unintended system of order (to give a firm foundation to the rules, standards and protocols that bring these associations into being’):
‘Introduction of order into the chaos of discordant appearances.’

Readers are urged to follow the link and consider James Otteson’s insightful work, especially his Market Place of Life. They do not have to accept his theological ideas to appreciate an original thinker.

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A Newly Discovered Role for the Invisible Hand

Russ Roberts of Café Hayek, writes (HERE):

‘A good week for thinking about Adam Smith’

It connects to video of a lecture by Daniel Klein (Professor at GMU, Fairfax, Virginia) on Adam Smith to a class meeting in Sweden.

Daniel Klein gives an interesting lecture on Moral Sentiments to an audience of Swedish postgrad students. I have debated with Daniel a couple of times on Adam Smith’s use of the Invisible Hand metaphor (see Econwatch, 2009 and more recently see Economic Affairs, 2010) and he is a well-informed, articulate, and always courteous scholar, who shares my passion for Adam Smith’s Works.

Our different takes on the meaning and significance of the IH metaphor does not mean I respect him less (perish the thought). Any student wanting to undertake research or classes in Adam Smith’s moral philosophy and political economy is recommended to take any opportunity to visit or attend classes at George Mason University. They are building a first-class reputation in Adam Smith studies there (look them up on the Web).

However, my differences with Daniel’s interpretation of Adam Smith’s Works have not diminished my respect for his writings and his participation in the republic of letters. We learn much from our better-informed critics.

Daniel’s account of the impartial spectator is interesting, though his throwaway afterthought of using the simile of the impartial spectator as like a ‘monotheistic god’ caught my attention, and I shall think about it, though my immediate response is to question its credulity.

When in the latter stages of his short lecture he introduced the ‘invisible hand’ in Smith’s moral theory in a major role (without the slightest textual evidence in support of his contentions) I was immediately struck by his querulous assertion.

Daniel links his (not Smith’s) novel interpretation of the IH metaphor in Moral Sentiments to ‘Smith’s presumption of liberty’, yet did not explain how or what the ‘invisible hand’ did exactly in this new role.

In fact the single direct textual reference to the IH metaphor in TMS directly concerned a time when the regime of ‘proud and unfeeling’ landlords ruled in Europe (and even before to there were landlords in pre-historic millennia in the near East when ‘the earth was divided unequally’, through all of which times nothing remotely like ‘natural liberty’ prevailed, or was known).

I found this section of Daniel’s lecture utterly unconvincing, but I wait to be corrected, with textual references from Smith. Where we present our own interpretations (which may have or not have legitimacy) we should not slide them into an account without any notice as if they are the legitimate views of Adam Smith. If we speculate we should say so.

Follow the link and watch Daniel’s lecture.

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Monday, June 20, 2011

The Emergence of Capitalist Economics II

Yanis Varoufakis, Joseph Halevi, Nicholas J. Theocarakis, 2011, Modern Political Economics: making sense of the post-2008 world, London: Routledge.

In Chapter 3 we are treated to an account of the usual Ricardian corn model, regarded by some economists as illustrative of the inner workings of a capitalist economy, upon which the seeds of the profession’s love affair with models were planted in 1817.

YHT also link Adam Smith to the problems with which the corn model is lined up to discuss and which the late 19th-century mathematical school went on to separate economics even further from the real world, leading to the fantasies of General Equilibrium and much of microeconomics as we know it today.

YHT have a habit of using language that belies the assertions they make (some of it not even explained, such as what appears to be of unexplained post-Marxist vintage in regard of commodities).

For example, to Adam Smith is attributed a notion of ‘natural’ prices as the ‘lowest possible per unit cost’, while I consider him to have argued that the ‘natural’ price as one that covers those costs (rent paid to the landowner, wages advanced to labour and revenue to cover the provider of the stock’s outlays (in respect of rent and wages), and his subsistence plus a profit. These natural rates, of rent, wages, and profit, are ‘regulated’ by local circumstances in each ‘neighourhood’ and the ‘circumstances of each society’ (‘their riches or poverty, their advancing, stationary, or declining condition and … particular nature of each commodity’ (WN I.vii.1-2).

It is these ‘ordinary or average rates’ that constitute the ‘natural rates of wages, profit, and rent at the time and place where they commonly prevail’ (WN I.vii.3) and where they ‘prevail’ they are ‘sufficient to pay the rent of the land, the wages of labour, and the profits of the stock’. The commodity then sells for its ‘natural price’, which means it sells ‘precisely for what it is worth’, which is the sellers’ cost-based price, but actual prices are based on the ‘propensity to truck, barter and exchange’, or bargaining, as defined by Smith (WN I.ii.2: 26), in which both the buyer and the seller have roles in determining.

From his receipts the seller recovers his necessary outlays (rents + wages) and he divides his share, depending on his personal degrees of frugal and/or prodigal behaviours (never forget domestic pressures in any age of mankind), between his consumption of necessaries and conveniences (his family’s ‘subsistence, conveniences and amusements’) and the share directed to his next round of investment that replaces used-up capital and that portion directed to growth and new employment of labour). In Smith’s simple growth narrative, prodigality (including business losses and failures) lowers his net, and arithmetically society’s, capital investment and reduces the employment of labour; his frugality raises both and makes a net contribution to the overall growth in the economy.

But in competition his actual (market) selling prices may not be sufficient to cover these outlays - the actual prices at which he sells Smith calls market prices - determined by the ‘effectual demand’ for the quantities bought in markets by all buyers. There could also be competition among consumers, raising market prices, or competition among stock-holders, that lowers market prices. The consequence of these relationships is for market prices to ‘continually’ gravitate around their natural prices’ (WN I.vii.21), an observation by Smith not shown by static Marshallian partial equilibrium models, nor clearly enunciated by Economics 101, except partially in the idea of the cobweb theorem.

In this simple analysis, YHT slide over the roles of people and stick to pure analysis, which leads them to make, if I may so, (and to quote back to them their favourite phrase) an ‘inherent error’ that they ascribe to those economics with whom they have (albeit) legitimate grievances. They trace their version to the ‘inherent error’ of Aristotle, a person not usually taught in standard economic texts or classes.

YHT forget, in these presentations in chapter 3, present the role of people in economies far from what single dimensional variables in an equation dictate what real people do, treating them as if they were automatons programmed to act in a certain way, viz: leading to the assertion that in Smith the ‘natural’ level of prices’ are the ‘lowest possible per unit cost’ (p 38).

Consider what Adam Smith actually said happens in the commercial societies (never called by him ‘capitalism’; the term was first used in English in 1854 by Thackeray in his novel, The Newcomes; incidentally, an entertaining read).

The merchant is not helpless in the real world and at the mercy of the market forces of supply and demand. In the real world, in the 18th century judicial system, he can intervene to ensure that effectual demand does not drive him into market prices below his natural costs, by his taking advantage of various forms of legal monopoly that restrict competition from other merchants (the Town Guilds, Apprenticeship Acts, Settlement Acts, Chartered Trading Companies, Tariffs and Prohibitions, hostile acts against rivals in other countries, and such like, i.e., the very mercantile state that Smith’s Wealth Of Nations focused on, as enacted by national legislators and those who influenced them).

He described WN in his Correspondence (pp 251 and 266) as a ‘very violent attack … upon the whole commercial system of Great Britain’, and made another broadside, added to the 3rd edition of WN, (pp 442-62) to which we can add his trenchant criticism of the ‘merchants and manufacturers’ (the rising ‘bourgeoisie’?) that was unrelenting and in one direction only in exposing their anti-social and uncompetitive behaviours. This does not square with YHT’s image of Smith as a paid mouthpiece for the same ‘bourgeoisie’, or that very awesome Stalinist concept of Smith as ‘objectively’ serving that ilk.

Some merchants seek advantages over the rivals with patents (which they protect with intense jealousy) and other secret methods (including fictitious ingredients, special ingredients, and working methods, and real or supposed advantages (today called marketing, advertising, and spin). Smith noted that ‘secrets in manufactures are capable of being longer kept than secrets in trade’ (WN I.vii.29).

YHT assert that Smith wrote”

Miraculously, as if by the providential guidance of some invisible hand (Wealth of Nations, IV.ii.[9], p. 456) which put society on a course of less moralizing, less hunger, less deprivation, and ultimately greater prosperity’ (p 38).

This absurd representation of Smith’s use of the metaphor of the invisible hand caught my attention immediately. It misreads the object of the IH metaphor (all metaphors have their ‘objects’ and using a metaphor enables the author to ‘describe in a more striking and interesting manner’ its object (Adam Smith, Lectures in Rhetoric and Belles Lettres, p. 29 ([1763] 1983). And what was the object of Smith’s use of the IH metaphor? We do not need to invent meanings because Smith identifies its object several times in the very same chapter (paras 1 thru 9) from which YHT draw their repetition of the modern invented assertion, and in the same sentence where he uses the IH metaphor.

He refers to ‘domestick industry’ (the subject of chapter ii) and points out how some merchants, concerned for their ‘own security’ (mentioned twice), avoid foreign trade and invest in ‘domestick industry’ and describes how they are ‘led by an invisible hand’ to so (WN IV.ii.9: p 456).

Their ‘concern for their own security’ is the object of Smith’s use of the IH metaphor, nothing more, nothing less (though some brilliant mathematically trained, but many modern economists did not get the basic points of grammar, as taught in rhetoric classes from classical times). All the rest of the myth of the IH metaphor was invented by modern economists, particularly since 1948 (see Paul Samuelson, Economics: an introductory analysis, p. 36, and in its following 19 editions to 2010, nearly 5 million copies later) though it was part of the oral traditions of Chicago and the two Cambridges) that has perpetrated a calamitous myth about the so-called ‘miraculous’ IH, ‘selfish ends’ and all, working out for the ‘best’ outcomes for society, and laid these ridiculous ideas at Adam Smith’s door.

That YHT join the assault on Adam Smith is understandable in light of what they believe, but nevertheless, it is deplorable scholarship from authors I had hoped were going to correct the mess that passes for the modern profession’s scholarship.

Far from Smith enunciating a ‘great insight’ he is lumbered with their avoidable misunderstanding of elementary grammar. This is underlined by the non-complex observation that he did make, specifically that the insecurity of some merchants led them to invest locally for their own private interests – calming their insecurity – which had unintended beneficial affects for ‘domestick trade’.

Now Smith’s simple point had no complex mathematics attached to it, no notions of Pareto’s welfare theorem, no relationship Debrue’s General Equilibrium (on this last YHT and I agree). Not at all: just the good old arithmetical law that the whole is the sum of its parts – the more parts, the higher the arithmetic total. And the higher the arithmetic total of domestic ‘wealth creation’ – the higher the ‘annual output of the necessaries, conveniences, and amusements’, and the higher domestic ‘revenue and employment’ will contribute to the labouring poor being better off. It’s that simple. Smith also pointed out very forcibly (to put it mildly) that the pursuit of their self-interests by many - if not most - 'merchants and manufacturers' was not the public good at all, but the opposite, far from the invented role of the IH metaphor of 'miraculously' making society 'better off' in some automatic sense (the alibi of corporate greed). It made working parents better off than their grandparents but there remains much else to do to ensure their grandchildren - and those billions not yet much better off than their parents in what was called the 'undeveloped', and mainly the tyrannical, world outside modern society.

Whether they European labourers were poor by today’s Western developed standards and endured on dreadful levels of subsistence, is not in question; of course they were and for innumerable generations before them that was all that the poor ever got in their zero growth per capita GDP societies. Their rulers were ever ‘vile’ (Smith) and for much of the world, they still are. Smith was compassionate as well as historically realistic. As a moral philosopher he observed but did nothing (while Marx saw the philosopher’s role to ‘change the world’, with the results we saw under Soviet socialism, which made the world risk a nuclear exchange). Smith observed that were no realistic alternatives on offer or from philosophers to achieve rising real incomes for the poor, other than the growth of market economies (the 4th Age of Mankind). Which is what happened in Britain from the late 18th century and through the 19th century, and beyond.

YHT do not appear to recognise or acknowledge that historical truth in their narrative so far. However, I shall persevere and not make a final assessment until I reach the end of their remarkably ambitious text.

[Readers are invited to join the discussion, preferably after, or while, reading YHT’s book.]


Sunday, June 19, 2011

The Emergence of Capitalism

Yanis Varoufakis, Joseph Halevi, Nicholas J. Theocarakis, 2011, Modern Political Economics: making sense of the post-2008 world, London: Routledge.

That modern economics is in some sort of crisis is a regular theme at Lost Legacy. Hence, I had high hopes that the authors of this newly published text would provide an authoritative account of what was wrong and from whence its problems originated, while awaiting my copy from Amazon, (originally set for 1 July, but out of the blue it arrived at my retreat in rural France on 16 June). After the introduction and chapter 1, I am more intrigued than disappointed, wondering where their argument is going to go.

Reading the introduction, I have concerns that the authors (VHT) are determined to do what the title says, give a firmly political account of the problems as they see them from their mainly tendentious leftish perspective. I say ‘tendentious’ not as a hasty judgement on the merits of their analysis but as how I expect many modern economist readers will react to it.

For myself that political problem is not decisive (I long ago was convinced that attempts to orchestrate improvements in the world seem always to make things worse – we cannot really trust the necessary implementers of change), so I shall continue reading it with my usual critical mind.

But what of mainstream modern economists, trained in the arrogant verities of the one-dimensional mathematical Homo Economicus, invisible hands, and all jazz? Anything worthwhile that YHT say may be lost in the negative reaction of the many who really need to persevere and consider its contents rather than dismiss them a few pages into the text.

Of course, there is a fair-sized minority of dissidents that might provide a market for the thoughts of YHT’s heavy thinking, and perhaps a similar number of open-minded others disturbed enough by recent global events to persevere through their anxious curiosity. But of the self-appointed elite, is there enough of them to go past their early reaction?

I assume that Routledge considered these aspects of the academic market, perhaps believing that the rightish perspectives of the elite make them confident enough to ride trenchant criticism and select those bits of YHTs’ views amenable to absorption into the mainstream paradigm (as Thomas Kuhn showed us was the early line of defence of the old against the new).

For YHT, their stage is global and their historical perspective is played at a rapid tempo, so rapid that centuries and decades go by in the blink of an eye. One moment they contemplate Adam Smith and the next paragraph we are in the ‘dark satanic mills’ of what is known now as the (power driven) 19th century industrial ‘revolution’, as if Smith was as aware of it (he died in 1790) as we are now, and some think he ought to have been.

In their outline of their theory of ‘surplus’ they add colour to Adam Smith’s somewhat greyer account in his Lectures in Jurisprudence (1762-3) of the four Ages of man - hunters, shepherds, farmers, and (‘at last’) commerce. With “humanity’s Great Leap Forward” (p21), came inevitably, and inexorably, that of property (not played up by YHT). This was the most significant essence of that ‘great leap’. From the ‘free’ forest and its produce, including humans, humanity discovered (invented) property without needing (or caring) to know the significance of what they did (unintended consequences?).

No property, no surplus. A male hunter was confined to what he could carry – while near invisible women (from all accounts of those early millennia) gathered and carried the bulk of their own and their children’s nutrition; they still do among those few remaining people still in the forests. Without property – ‘yours, mine’, later, ‘ours not yours’ – competition for nutrition would have made even a short-term surplus unlikely.

From the surplus, all that followed became possible. YHT call this ‘socialised production’ (without explanation – they seem to write for an existing consensus even as early as page 21). They call the surplus the ‘foundation of civilisation’. Surplus certainly was critical and took 10-12 millennia to end pre-history and bear such fruit, if we may describe it thus, in memory of its forgotten victims and in respect of today’s victims (incidentally, YHT would help their case if they acknowledged that modern corporations were not uniquely evil as compared to their ruling predecessors in all of history – scientists should rise above infantile student leftism).

Smith saw the emergence of the state as a means to protect the rich from the poor. It certainly had that role, but I think we can accept that the rich feared their rich rivals possibly even more than the unarmed poor (though it was possibly not politic to address such ideas to the literate sons of dukes and such like in his 18th-century classroom).

In “Condorcet’s secret” (that ‘real power lies not with the oppressors but with the oppressed’) it reads well until you ask what was secret about it if its secret was known to the oppressors – and known to their instruments of power in the overseers, agents and enforcers? Demonstrably, resistance was always publicly crushed (Sparticus and all). A Roman legion in battle order was a formidable persuader of very visible power.

The ‘Second Great Leap forward’ is credited with transforming feudal societies into ‘fully fledged market societies (p 23). Again, YHT leap over an important historical event and its aftermath: from the fall of Rome in the 5th century, Western Europe was ruled first by warlords (holding their land against all comers) and its economies were in ruins. The emerging commercial societies of classical times were wasted and such opulence that they shared was destroyed. As dynastic feudal regimes curbed war-lord power, commercial societies re-emerged, albeit slowly and the monarchist regimes in alliance the flaky towns, finally, and silently put an end to feudalism with the incessant temptation of traded luxury goods (not just for Lords but also for their ladies), from the labour of artisans and former peasants.

As important was the emergence of an educated strata, wrestling free from the grip of the church on knowledge. This aspect of the prevalence of ‘pusillanimous superstition’ (Adam Smith) is a missing core aspect in VHT’s account. They go to what they call the ‘ideology’ of ruling groups, politicising what were more basic ideas with a long pedigree in human societies.

Early humans created weird explanations of the irregular events in nature, using invisible gods, demons, and fairies to ‘sooth the fears’ of early humans long before the shamans made room for the more intense and more coherent thoughts of ‘philosophers’ (Smith) who did nothing else in societies moving from mere subsistence towards minimal diets (‘observed everything, did nothing’). But superstition remained a potent (and often dreadful) force from which religion did not provide a refuge – in fact Christianity absorbed it).

Except for the collapse of Rome, commercial societies would have matured for a further thousand years to around the 15th century, which may have brought about the ‘second great leap’ much earlier. YHT’s explanation, sans the affects of the fall of Rome, would benefit from some exposure to Adam Smith’s arguments about the ‘missing millennium’, but this might depoliticise the case that they seem determined to make – one great (secret?) capitalist conspiracy reaching its fruition in 2008.

However, I shall press on and my strong recommendation for readers of Lost Legacy to buy YHT’s book and study it remains undiluted. I shall comment on other chapters as time and obligations to visiting grandchildren tomorrow permit for the rest of this holiday.