Friday, August 19, 2011

Another Imaginary 'The End is Nigh'

Bob Burnett is a Berkeley writer. “In a previous life he was one of the executive founders of Cisco Systems.” Well in this life he writes about Adam Smith in a rather juvenile way and asserts there is conspiracy, ‘they’re out to get us all’ type of article (HERE):

"Why Did Capitalism Fail?"

“Third, global corporations are modern outlaws, living outside the law. There is no "invisible hand" that regulates multinationals. In 1759 Philosopher Adam Smith argued that while wealthy individuals and corporations were motivated by self interest, an invisible hand was operating in the background ensuring that capitalist activities ultimately benefited society. In modern times this concept became the basis for the pronouncements of the Chicago School of Economics that markets were inherently self-regulating.

However, the last five years have demonstrated that there is no "invisible hand" unregulated markets have spelled disaster for the average person. The "recovery" of 2009-10 ensured that "too big to fail" institutions would survive and the rich would continue to be rich. Meanwhile millions of good jobs were either eliminated or replaced by low-wage jobs with poor or no benefits.

Adam Smith never said there was an actual invisible hand – it is a metaphor for the hidden motive operating in the heads of nasty landlords in centuries long past that compelled them to feed the “thousands whom they employ” in their castles, fields, stables, and, when needed, in their armies, because without food they could not labour (and they would not labour for long without food) (Moral Sentiments (1759); and in 1776, it was a metaphor for what those merchants who preferred to invest in “domestick industry”, rather than abroad, because they perceived in their heads that this was less risky than sending capital abroad, while others (the majority) were willing to take the greater risks of foreign trade.

The metaphor worked well. The motives of individuals are private and, well, invisible! But using a metaphor, it describes its object in a “striking and more interesting manner”.

The problem is that modern standards of literacy being somewhat less sophisticated than those of 18th-century students and professors, and it became widely believed by graduates and their professors in the 20th century, that Smith’s metaphor (used once each in Moral Sentiments, 1759, and Wealth Of Nations, 1776) was something that actually existed! It doesn’t.

Smith mentioned nothing – absolutely nothing – about “capitalist activities”. He didn’t even know of the word ‘capitalism’ – it was not invented in English until 1854 in Thackeray’s novel, The Newcomes – and modern world capitalism is far different from Smith's world of “the age of commerce’.

As for eliminating “millions” of jobs, employment worldwide is increasing. Of course, jobs disappear – otherwise we would still be using horses or human porters, with living standards and weekly hours of labour to match. That’s the power of creativity – the old is continually being replaced by the new. Stop that process and living standards for everybody would stagnate.

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