Monday, June 13, 2011

From A Debate in Las Vegas

Don Maw, Mesquite writes in the Las Vegas Sun(13 June) to comment on remarks by Bob Jack (HERE):

‘Capitalism has plenty of drawbacks’

‘Bob Jack — in his Thursday letter to the editor, headlined “Let loose invisible hand of self-interest” — seeks to apply Adam Smith’s 1776 writings to today’s economy. Mr. Jack wrote that Smith “attributed great power to the ‘invisible hand of self-interest’ in leading to that which is best for society.” That may have been true 235 years ago, but today the “invisible hand of self-interest” has a new synonym — it is called “greed”

Without entering into a debate about the nature of modern capitalism, I am perplexed by the claim that Adam Smith “attributed great power to the ‘invisible hand of self-interest’ in leading to that which is best for society.”

This is not what Adam Smith actually said on either of the (only) two occasions in his books, Moral Sentiments (1759) and Wealth Of Nations (1776), in which he mentioned the metaphor of ‘an Invisible hand’, without attributing ‘great power’ (his point was more subtle than that).

Modern media and modern economists attribute various meanings to the invisible hand metaphor, including the one claimed by Bob Jack: the ‘invisible hand of self interest’. Other claims are that the Adam Smith meant by the ‘invisible hand’, the market, supply and demand, even elementary ‘general equilibrium’ and the Pareto’s ‘welfare theorems’ (Samuelson, Debreu, Arrow, Nobel prize winners all). And, anyway, self-interest also led many individuals to anything remotely linked to the ‘best interests of society’ – what do these senior economists think Adam Smith was saying in critiquing 18th-century mercantile political economy which was riddled with sectional self-interests of those (many) individuals who lobbied legislators and those who influenced them for tariff protection, trade prohibitions, the one-sided combination acts against their employees, local monopolies conspiring against consumers, and the setting of wages by local magistrates, and so on? Did these self-interested actions benefit society as a whole? If they think so, they have never understood Adam Smith.

The fact remains that Smith did no such thing and the reading of his two references to the metaphor of ‘an invisible hand’ show this clearly. More, Smith identifies the object of the IH metaphor in his two books (all metaphors have an object which they describe in a ‘more striking and interesting manner’, as texts on English grammar show (and, incidentally, and importantly, Smith also states in his ‘Lectures on Rhetoric and Belles Lettres’, delivered in both Edinburgh and Glasgow from 1748-63 and published in 1983, p 29).

The IH metaphor in Moral Sentiments was about rich and unfeeling landlords having no choice but to feed their retainers, serfs, and labourers (and their families) if their fields were to be farmed, because of necessity ‘no food’ meant ‘no labour’. Smith’s metaphor for this necessity, is that the landlords are led by an invisible hand’. In Wealth Of Nations, Smith refers to those merchant traders who fear for their capital if sent abroad and, in consequence choose to invest at home in their domestic economy. It is their insecurity that lead them to make that choice and Smith’s metaphor for this choice is that they are led by ‘an invisible hand’. Both occasions show Smith’s meaning of the IH metaphor in a ‘more striking and interesting manner’.

But, who am I, a single voice against so many distinguished economists, who clearly know much about modern theory, some of whom claim with merit to know much about Adam Smith, but, somehow for some obscure reason, all of them are deficient (apparently) in the standard elementary grammar of the English language? Smith even states clearly what he means on both occasions, yet these very literate scholars seem not to notice.

No wonder that Don Maw and Bob Jack are debating something for which they innocently misunderstand. By the way, Adam Smith regarded 'greed' as licentious and did not equate it with self-interest.

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