Thursday, June 02, 2011

Why Rousseau Got it Wrong

Louis René Beres, a professor of International Law at Purdue University, from The Christian Science Monitor, 1 June (also in Alaska Dispatch, ‘news and voices from the last frontier’),

'Ignoring Adam Smith is killing the U.S. economy'

In virtually all current political debate concerning the requirements of American prosperity, the classic argument of Adam Smith remains the fashionable mainstay of conservatives. It was Smith, after all, who reasoned capably and persuasively that a system of private property, although naturally unequal, would nonetheless permit the poor to live tolerably.

Adam Smith wrote of the ever-changing social trends that showed, since the re-introduction of commerce based in small towns close to ‘natural’ and ‘ancient’ routes, such as rivers, for trade (temporarily lost to that purpose with the fall of the Roman Empire in the 5th century and the triumph of feudal war lords) was gradually raising what we now call per capita incomes of the very poor. For Smith the social trends were more important than the temporary unequal excesses of the very rich few (though by modern standards of today’s low income families in the West, the rich were remarkably poverty stricken – mark this for discussion in an economics tutorial).

Rejecting Jean-Jacque Rousseau’s fully contrary position that, in commerce, “the privileged few...gorge themselves with superfluities, while the starving multitude are in want of the bare necessities of life,” Smith saw in capitalism not only rising productivity, but also the ultimate condition for political liberty.’

Jean-Jacque Rousseau saw only the then current poverty of the French rural and city poor; he was blind to historical changes, including when he lauded the imagined ‘freedoms’ of the very equal ‘savage’, at least in material possessions, though not in social stature that some families have ever been dominant for a time – and still are in chimpanzee societies.

Adam Smith pointedly compared the then current differences in material ‘necessities and conveniences’ between the poorest labourers in 18th-century Britain with the general absence of such conveniences and even necessaries available to the 18th-century ‘savages’ in North America and Africa (see Wealth Of Nations, Book 1, chapter 1, and also his Lectures On Jurisprudence, delivered at Glasgow University in 1763-4, a decade before Wealth of Nations in 1776).

Rousseau did not appreciate social changes when he compared snapshots of one imagined state of mankind with a more vivid snapshot of 18th century France (also with his own pampered life style ‘earned’ by his gigolo-like lifestyle, while his children starved in an orphanage).

‘Significantly, perhaps, Adam Smith published his “Inquiry into the Nature and Causes of the Wealth of Nations” in 1776. A revolutionary book, “Wealth” did not aim to support the interests of any one class over another, but rather the overall well-being of an entire nation. Smith discovered, of course, “an invisible hand,” an utterly unsought convergence whereby “the private interests and passions of men” will lead to “that which is most agreeable to the interest of a whole society.

Not quite: Smith did not discover
‘“an invisible hand,” an utterly unsought convergence whereby “the private interests and passions of men” will lead to “that which is most agreeable to the interest of a whole society.”

That is a myth invented by some modern economists in part analytical from their mathematical models of an imagined economy that nowhere exists, or can exist, and it is absolutely at variance with Adam Smith’s musing on the use of an 18th-century metaphor to illustrate how some, but not all, actions can have beneficial but unintended outcomes.

In the case of the invisible-hand metaphor in Wealth Of Nations (Book IV), the only time he used it in that Work, he referred to the consequential actions of those merchants who refrained from investing in foreign trade with Europe and the British colonies because they regarded it as too risky. If they didn’t invest abroad, the only other place to invest at all, was to invest in ‘domestick industry’, which added to ‘domestick revenue and employment’, making it higher than it would have been if they were less insecure (clearly, many other British merchants did invest abroad and had done so since the 14th century when Europe was beginning to recover - ‘at last’ - from the fall of the Roman Empire).

The so-called ‘invisible hand’, which led them to this fortuitous outcome, specifically the public benefit being the increase in ‘domestick revenue and employment’, was their private risk aversion, invisible in their heads. It had no visible component, of course, but like the invisible wind, it had very visible results – domestic GNP (in modern terms) was higher, as was the employment among the poor that it generated. But as a separate entity, the invisible hand did not exist. That bit is a modern illusion, invented by modern economists – though nobody, to my knowledge, has told us what it does, how it works (it certainly has no term in the mathematics of those who profess its existence).

Smith’s explanation, however, is clear; it is a metaphor, which like all metaphors, expresses ‘in a more striking and interesting manner’ its object (see Adam Smith on metaphors in his Lectures on Rhetoric and Belles Lettres, 1763, p. 29).

I commend this book of Adam Smith’s to Louis René Beres and anybody else who clings to the modern myth of ‘an invisible hand’. If they get this simple fact wrong, it may be they may re-look at what they conclude about Adam Smith’s penetrating analysis of social trends over the sweep of time. It is not just what Rene Beres claims of “today’s conservative defenders of Smith usually ignore, either deliberately or unwittingly, the full depth of his rather complex thought”. Rene has also failed to understand ‘the full depth of [Adam Smith’s] rather complex thought”.

If the ‘cap fits, Rene must wear it’.

It follows that the rest of Rene's article (follow the link) is also wrong in my view, but to dissect it would take too much space and time just now.

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