Monday, October 31, 2011

Another Excellent Review of Ian Simpson Ross's "Life of Adam Smith" (2nd Edition)

Maureen Harkin (Reed College). “Review of Ross, Ian Simpson, The Life of Adam Smith.” H-Albion, H-Net Reviews. October, 2011

Ian Simpson Ross. The Life of Adam Smith. Oxford: Oxford University Press, 2010. ISBN 978-0-19-955003-6.
“Harkin on Ross's The Life of Adam Smith”

When Ian Simpson Ross published the first edition of his Life of Adam Smith in 1995 it had been many years since the last full-scale biography of his subject. Despite the status of The Wealth of Nations (1776) and to a lesser extent, The Theory of Moral Sentiments (1759), Smith had not, until quite recently, attracted much specifically biographical investigation. Before 1995 the most recent major biography had been W. R. Scott’s in 1937, preceded by John Rae’s in 1895 and the foundational text of all Smith biographies, Dugald Stewart’s short biographical sketch of 1795. For all the intimate knowledge Stewart had of Smith’s life and circle, his short narrative concluded with a note of disappointment, the suggestion being that the biographer’s task was, in the case of Smith, rendered extraordinarily difficult by the subject’s life being so “barren of incident.”

… Smith famously had most of his surviving incomplete manuscripts burnt by his executors in a deathbed bonfire a few days before his demise in July 1790; Stewart commented on Smith’s unusually strong dislike of students taking any notes at all on his lectures; and, as the editors of Smith’s correspondence in the Glasgow edition of his works noted in 1977, in the golden age of letter-writing, Smith produced a remarkably small body of correspondence. The total of surviving letters over a fifty-year period from 1740 to 1790 is well under two hundred, with only a few dozen more known to have existed. Such a record was reason both for friends like David Hume to complain of neglect to Smith, and for biographers to hesitate.

The co-editor of the 1977 volume of correspondence, part of the six-volume Glasgow edition of Smith’s works published between 1976 and 1987, was, of course, Ian Simpson Ross, and the meticulous reconstruction of the material circumstances of Smith’s life in the annotations to these letters formed the foundation for the extraordinary detail of his 1995 biography. Now within the same year, 2010, we have not only another major new biography of Adam Smith from Nicholas Phillipson, but a second edition of Ian Simpson Ross’s book. That Smith is now attracting this level of biographical investigation is not the product of the discovery of any major new letters, documents, or facts, but of the dramatic surge of interest in Smith and the reevaluation of the significance of his work across a range of disciplines over the last three or so decades--an interest that the Glasgow edition has itself helped to foster.

Simpson Ross’s biography was acclaimed on its first publication for its command of every material detail of Smith’s daily life in Glasgow and Edinburgh. In its twenty-four chapters it followed the major stages of his personal and professional life, his writing of The Wealth of Nations and the Theory, including his numerous revisions, and other projects. Part of the achievement of Simpson Ross’s book is precisely in its accretion of the details of daily life and the implicit challenge this posed to the traditional image of Smith as unsociable, traditional since Stewart’s first sketch of Smith as awkward in company. Simpson Ross’s portrait stressed instead the range and depth of Smith’s social and familial relationships. Smith’s actual responses to particular situations, however--bringing back the body after the death of the younger brother in his charge, the Duke of Buccleugh, to the family home, for example (p. 234)--remain necessarily somewhat conjectural in light of the absence of Smith’s direct commentary: “It seems ... ”; “It is likely …”; and so on.

The new edition updates the text in incorporating references, albeit necessarily rather brief ones, to the abundant important work on Smith since 1995 (Samuel Fleischacker, Ryan Patrick Hanley, Emma Rothschild et al.) in the text and notes. As in the 1995 edition, Simpson Ross’s focus is on establishing contexts and connections rather than on reinterpreting Smith’s texts. The overall structure of the book is little changed, though Simpson Ross provides a reorganized and expanded account of the social and intellectual context in which Smith turned, in late 1766, from his travels abroad to the composition of The Wealth of Nations. …

Two hundred and twenty years after his death, we now have two impressive and complementary recent biographies of Smith: Simpson Ross’s reconstruction of Smith’s society, daily life, writing habits, and relationships, and Phillipson’s tracking of the development of Smith’s ideas and intellectual character through his texts. While Simpson Ross’s study refrains from interweaving biography with a reinterpretation of Smith’s texts his work lays the strongest foundation for such interpretative work. His account will be mined for many years to come.


Comic-book Racism and Nonsense About Adam Smith

James Lewis writes in American Thinker “The Parasite LeftHERE

Retroviruses are like a speedboat full of grinning Somali pirates who go careering hundreds of miles into the Atlantic to take over passing supertankers, by randomly firing off their ancient AK-47's at anybody on board. When they succeed, they get great big ransom payments from Lloyds of London. Everybody's happy, and the pirates go back to Mogadishu and make a lot of little baby pirates.” …

Gordon Brown is a thrifty Scot, 'tis true, but he's also a True Believer in the all-knowing and all-mighty State, which is much more to the point. Adam Smith was also a Scot, but as Professor of Moral Theology -- and therefore a believer in the immortal soul -- Smith would hardly approve of cannibalizing one's loved ones for parts. Adam Smith admired free markets, but only for moral and responsible people.

A typical hyperbolic piece written by a man with a theme into which whatever passes by his attention is fitted.

But themes should be based on facts, especially those that may be checked. Even allowing for slips of the kind that anybody might make in a first draft, consider the racist, comic-book rubbish written by James Lewis quoted above.

Memo to proof-readers [?!]: at American Thinker: Somalia is in East, not west, Africa, and the Somali pirates have a very long was to go to get to the Atlantic. They find the Indian Ocean more convenient for their depredations.

2nd memo to proof readers and facts checkers:

“Adam Smith was also a Scot, but as Professor of Moral Theology -- and therefore a believer in the immortal soul -- …”.

As this is a lynch-pin for James Lewis’ rant, please note that Adam Smith was a professor of moral philosophy from 1751-64 at Glasgow University. He was never a professor “moral theology” (whatever that is supposed to mean).

There is no evidence that Adam Smith believed in an “immortal soul”, indeed there is considerable evidence that he did not so believe – see my paper, “THE HIDDEN ADAM SMITH IN HIS ALLEGED THEOLOGY”, Journal of the History of Economic Thought, Volume 33, Number 3, September 2011.

Included in this evidence is the hostility of George Horne, President of Magdalene College, and later the Bishop of Norwich (Horne [Anon.] 1777) who attacked Smith for praising David Hume and, interestingly, for not mentioning in TMS that ‘belief in the soul’s existence and immortality could do no harm, if it did no good’ (Corr. No. 189, 230).

In short, James `Lewis was factually incorrect in his American Thinker article, and should try to do better before he refers to Adam Smith - or the geography of Somalia - next time.


Thursday, October 27, 2011

Looney Tunes no 4

1 Balloon Juice » Strange fruit By Doug

"Ya gotta love the invisible hand of the marketplace… as it's busy groping you in the dark" October 27
Europe finally listening to Geithner

2 The Guardian (17 October)

“The panic, far from being the invisible hand of the markets lauded by many right-wing economists, is a bludgeoning stick causing pain and unemployment wherever it strikes.

L. J. Furman writes in Popular Logistics HERE

3 “Occupy Wall Street – Why are They There?”

‘Sometimes the “Invisible Hand” shoots itself in its “Invisible Foot.”’


In The Better Traditions of the Republic of Letters

Paul Oslington was reported by Noel Debien,(18 October) on ABC local HERE:


“The religious involvement in the Occupy Wall St movement should come as no surprise given the primoridal capitalist theorist Adam Smith was a Calvinist Christian. Paul Oslington argues that Smith's notion of an "invisible hand" was inextricably linked with the just "hand of God", and that Adam Smith's "invisible hand" needs reading in this context. Somehow, that idea of God's providence driving the world seems to have become lost as modern economic theory has secularised and developed. Economics and morality seem to have become estranged. And these are the kernels for discussion in this program. Could John Calvin be the clue to justly reforming modern economics after all?”

Setting aside the modern presentation of Adam Smith as “the primoridal capitalist theorist” – he theorized about the commercial society as the 4th age of man (Lectures on Jurisprudence, 1762) and the fact that ‘capitalism’ entered the English language in 1854 (Thackeray’s ‘The Newcomes’), that Adam Smith was a Calvinist as an adult is questionable (see my paper in Journal of the History of Economic Thought, September, 2011: ‘The Hidden Adam Smith in his Alleged Theology’).

I know Paul Oslington quite well. We met when he was my Discussant at a session on my paper on the invisible-hand at the University of Virginia, Fairfax, in 2008. He gave a constructive criticism of my paper and we subsequently corresponded and met again in Edinburgh, when he invited me to give a short talk at seminar hew as running on ‘Theology and Economics’ for the Templeton Foundation. Subsequently, in 2010, he invited me to address a couple of seminars at the Australian Catholic University (Sydney) on the theme of my JHET paper. The seminars were attentive and expressed scholarly disagreements with my thesis, from which I learned a lot about theology. Paul and I ‘agreed to disagree’ without the slightest rancour. Since which time, Paul has been helpful in identifying additional reading and has provided several paper with which I was having trouble locating. In short, our relationship is in the best traditions of the Republic of Letters.

In this context, I am not able to accept that Smith’s use of the IH metaphor was other than as a metaphor for its object; it has no ethereal existence as the just "hand of God". To argue thus is perfectly legitimate as an ‘inextricable link in Paul Oslington’s (or that of Peter Harrison’s, Brendon Long’s, Andy Denis’s, et al) names, but is debateable if argued in Adam Smith’s name.

As for the ‘secularisation’ of the philosophical ideas of ‘providence’, this too is a debateable issue. Providence was a pre-Christian, pagan notion, first regarded a schism. Later, like so much of pagan religion, absorbed into Christianity and re-presented as a divine phenomena.

I agree that “Economics and morality seem to have become estranged” but this has nothing to do with Adam Smith’s legacy. Economics, like the IH metaphor, have been hijacked and re-marketed by modern economists as somehow connected to Adam Smith’s political economy. In this modern ‘spin’, Adam Smith’s Moral sentiments is disregarded.

That some theologians have attempted to ‘inextricably link’ Adam Smith to their spiritual beliefs is part of this re-branding. I happen not to agree with this interpretation of Adam Smith, though I certainly respect those scholars who make such a case.


Market Prices Are Not Invisible

Alan Wheatley, Global Economics Correspondent writes in News Daily HERE

“Population boom heralds big global economic shifts”

“With the global population headed for the 9 billion mark by 2050, economists are pinning their faith on continued technological innovation and the invisible hand of market prices to lead to a more efficient, sustainable use of finite natural resources instead of a deadly fight to the end for the last barrel of oil and drop of water.”

I hope economists are NOT “pinning their faith on …the invisible hand of market prices”.

One thing for sure on the controversial question of the “the invisible hand’, not such things as “invisible market prices” exists or can exist.

Visibility of market prices is assured. No price system could work if prices were “invisible”.

If Alan Wheatley disagrees, please would he explain how an invisible price system conveys the necessary information for a market to work!

Their necessary visibility characterizes a market from a non-market, and that is a global certainty.

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Monday, October 24, 2011

A Marxist Writes About Adam Smith's Ethics

Andy’ (‘Ph.D. supervisor’) produces papers related to Adam Smith, HERE

"A Study on Adam Smith’s Economic Ethics–In the Perspective of Marxist" [what?]

Adam Smith is not only a master of economy in Br[itain], but also a palmary ethicist. He left two excellent works, the one is An Inquiry into the Nature and Causes of the Wealth of Nations (short of The Wealth of Nations), which is regarded as a “Bible” in economics field, and the other is The Theory of Moral Sentiments, which is regarded as “crown jewel” in economics field. In The Wealth of Nations he created a classical economics system of “rich country and wealthy people”, in The Theory of Moral Sentiments set out with “happy life of citizens” as the goal of ethics. Beginning with the origin of Adam Smith’s economic ethics thoughts and historical evolution, followed by the “economic man” and the “invisible hand” to prove Adam Smith’s core of the economic ethics in The Wealth of Nations, then from “the human nature “to prove the [the]oretical cornerstone of Adam Smith’s economic ethics thoughts in The Theory of Moral Sentiments, then from the evaluation of the Adam Smith’s Economic Ethics thoughts and learning from China the latest results of academic research in recent years and analyzing key issues in Ethics of Market Economy, come up with he ethical thoughts ’construction in [a] Socialist market economy. From the beginning of the first chapter, elaborating on the theory research Article topics, the current theoretical research, and giving the normative definition of the key concept. Chapter II to Chapter V is the main part of the paper. The second chapter is the analysis of Adam Smith’s Economic Ethics about the origin and history of evolution theory. The third chapter is from the “economic man” and the “invisible hand” to describe the core of Adam Smith’s Economic Ethics thoughts. Chapter IV is mainly from the “human nature” point to view of Adam Smith’s Economic Ethics’s theoretical foundation. The fifth chapter is the impact on the history assessment of Adam Smith’s Economic Ethics, while building a socialist market economy with Chinese characteristics and ethical framework, which is the destination of entire article."

There are a few typo errors and unfinished thoughts (shown in my square brackets, including an unfinished title) in the abstract and this makes it difficult to assess Andy’s ideas.

The charge of $38 to read the paper prohibits my deploying that expense. Plus the questionable ideas as presented, such as:

Beginning with the origin of Adam Smith’s economic ethics thoughts and historical evolution, followed by the “economic man” and the “invisible hand” to prove Adam Smith’s core of the economic ethics in The Wealth of Nations, then from “the human nature “to prove the [the]oretical cornerstone of Adam Smith’s economic ethics thoughts in The Theory of Moral Sentiments, then from the evaluation of the Adam Smith’s Economic Ethics thoughts and learning from China the latest results of academic research in recent years and analyzing key issues in Ethics of Market Economy, come up with he ethical thoughts ’construction in [a] Socialist market economy.”

I am sorry to say so, but such writing does not earn enough confidence to warrant spending $38 a paper.

For the record, Adam Smith did not have a theory (nor did he mention) “economic man”. This idea was created in the 1870s; Adam Smith died in 1790. As for the so-called “invisible hand”, a lonely metaphor mentioned in both books, that too, in its modern guise, is an wholly invented ‘theory’ by modern economists, primarily among Paul Samuelson’s generation from 1948 - 2010, and bears little relevance to what Adam Smith wrote when he used it.

I am sure that Andy is a sincere student of Adam Smith and may have some interesting contributions to make, and normally I would certainly like to try the seven papers he has written, as listed on his web site. But not on what is shown above.

I am always willing to encourage contributions on Adam Smith and I am not being critical in order to discourage them, but there are certain basic standards in scholarly discourse that must be reached if they are to be taken seriously. Hence, with regret, on the above performance, and in the meantime, I shall not pursue my interest in Andy’ work further.

Friday, October 21, 2011

Respectful Disagreements on Smith's use of the IH Metaphor

Nicholas Phillipson, who wrote the justly praised, “Adam Smith: an enlightened life’ (Yale University Press, 2010), writes in The Guardian (UK)

Governments are the custodians of Adam Smith's invisible hand”

History thinks of Adam Smith as the economist who thought that whenever a person is able to work in his own way, an invisible hand will ensure that he is quite unintentionally working for the benefit of society at large. "Nor is it always the worse for the society that it was no part of it," Smith commented. "By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good."

This is voice of a philosopher who thought that the interests of merchants would never be the same as that of the public, and who had no faith whatever in the ability of governments to increase national prosperity by rigging the market. It is the voice of someone who thought that the bedrock of economic life and national prosperity in a commercial economy were workers, productive landowners and small businessmen living and trading in local markets they knew and understood. It is the Smith who thought that all that governments needed to do to promote economic growth was to provide security, easy taxes and open markets "all the rest being brought about by the natural course of things".

… “Whatever his private religious beliefs – and Smith was deeply circumspect on such matters – Smith shared his friend David Hume's view that neither philosophy nor science had provided the slightest reason for believing in the existence of a benevolent deity. What is more, Smith was scrupulous in ensuring that at no point had his philosophy been built on Christian or even, as some have claimed, Stoic, assumptions.

… In fact Smith's invisible hand reached much deeper into the fabric of society than the economy. In Smith's wider philosophy, it is an unspoken metaphor for opening up the history of a species that has had to learn to co-operate and exchange its members' goods, services and sentiments if it is to survive, a species whose members have tried to make their lives more "convenient" whenever they have felt secure enough to do so….

… As Smith told it, it is the story of the making of a sociably self-interested species composed of beings who have quite unintentionally acquired their sense of identity, their understanding of sociability in the struggle for survival and contentment. It is a species that owes its humanity to the invisible hand.”

I reviewed Nicholas Phillipson’s book when it was published and thoroughly recommended it on Lost Legacy. It gives a deep thinker’s assessment of Adam Smith’s life in the form of an intellectual biography by a scholar, who is thoroughly immersed in Smith’s moral philosophy and his biography.

Nicholas is a moral philosopher, not an economist – his pages on Smith’s political economy are very brief. This explains, perhaps, why he has bought into the modern invention of the myth (also spread by historians of economic thought, hence what follows is my distinctly minority view) of the use by Smith of the metaphor of ‘an invisible hand’ in Nicholas’s Guardian piece. However, I know Nicholas is familiar with Smith’s teaching on the role of metaphors in English grammar, in that Smith taught that they describe “in a more striking and interesting manner” their objects and do not have an existence beyond their objects. We know this because that is how Smith described the role of metaphors in his “Lectures on Rhetoric and Belles Lettres” [1763] 1963, p 29).

We know that Nicolas is familiar with Smith’s Rhetoric lectures; the book opens with a quotation from Lecture 22 (17 January 1763) on page 1, and refers to the lectures throughout the volume. (Nicholas also refers to Professor Hugh Blair’s follow-on Rhetoric lectures and notes Blair’s acknowledgement of Smith lending to him his Rhetoric Lecture manuscript (Nicholas, p 90), and cites Blair’s own Lectures on Rhetoric and Belles Lettres, 3 vols. 1818, Edinburgh. Blair’s own definition of a ‘metaphor’ is exactly the same as Smith’s, and, incidentally, the same as the definition in the Oxford English Dictionary, 1986. I raise this detail because Nicholas explains the IH metaphor this way:

It was a response to circumstances with beneficial if unintended consequences for the progress of civilization, behaviour which Smith in one of his more poetical moments would attribute to the workings on the invisible hand’ (p 117)”.

Note how the IH metaphor is promoted by Nicholas from ‘an’ to ‘the’ invisible hand, giving it a definite noun-like and less of a metaphoric quality. Metaphors do not exist separate from the ‘striking and more interesting manner’ by which they describe their object. Similarly with other metaphors Smith used in WN (“Great Wheel of Ciculation’; the ‘Daedalian wings of paper money’; ’a waggon-way through the air”, etc.).

In TMS the IH metaphor refers to the unintentional ‘unfeeling landlords’ being ‘led’ by ‘an invisible hand’ to feed their slaves, retainers, and serfs by absolute necessity – ‘no food, no work is possible’. In Wealth Of Nations the IH metaphor refers to some, but not all, merchants being ‘led by an invisible hand’ to invest ‘domestically rather than abroad by their felt insecurity of investing abroad in foreign countries. Incidentally, a similar insecurity of all domestick merchants led them (also by an invisible hand?) to favour protection, tariffs, and prohibitions against foreign competition, which was contrary to the interests of their consumers, that is not always ‘beneficial’.

Further, the usual quotation is provided in evidence: ‘By providing his own interest he frequently promotes …’etc., while the preceding 8 paragraphs (WN IV.ii.1-9, 452-6) detailing the limited object for the IH metaphor is, as usual, ignored. In fact, Smith’s point was not a general one that ‘an invisible hand’ existed, but a particular point that the insecure ‘domestick merchant’s’ actions add to the annual “revenue and employment of people in his own country”; in short, their insecurity leads them unintentionally to cause a quantitative consequence, because arithmetically the whole is the sum of its parts, which consequence Smith regarded as a public good or benefit.

I am in full agreement with Nicholas that Smith had strong reservations about the role of a “benevolent deity” which I have stated in my paper in the September, 2011 issue of the Journal of the History of Economic Thought (JHET, vol. 33, no 3), ‘The Hidden Adam Smith in his Alleged Theology’

I am not sure what Nicholas means by:

In fact Smith's invisible hand reached much deeper into the fabric of society than the economy. In Smith's wider philosophy, it is an unspoken metaphor”.

Such a general use of the IH metaphor is certainly “unspoken’ and as such it is without content. Metaphors in a text are the author’s choice to use or not and not a reader’s choice to generalise to mean whatever a reader wants them to mean. This fits the modern economists (and modern philosopher’s too) obsession with the IH metaphor to mean a whole range of ideas, concepts, paradigms and theories, not justified by Adam Smith’s use of it.

Of course, modern authors may make the IH metaphor mean whatever they want it to mean, but it is questionable if they can attribute their meanings willy-nilly to Adam Smith who died in 1790, as if he agreed with their modern meanings. This behaviour gives an undue mythical authority and legitimacy to the various fanciful meanings which modern economists, largely in the 20th century, and for purposes alien to Smith’s political economy and his moral philosophy, have given to his limited use to describe in a “more striking and interesting manner” their specific and clearly stated objects.

None of my objections to these aspects of Nicholas Phillipson’s Guardian article, detract from the high quality of his “Adam Smith: an enlightened life” (Yale UP, 2010). I recommend that you read his book and learn much about Adam Smith’s intellectual biography. Just ignore his references to the meaning of Smith’s use of ‘an invisible hand’ (he mentions it only once).

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Not Quite a Reliable History of Economics

Odrek Rwabwogo (20 October) writes in The Independent, posted in Africa Confidential, (Kampala) HERE:

“Uganda: Electricity Subsidies Are Good for Economy”

“The 'invisible hand of the 'market is not necessarily holy. History shows us it is tinkered with in order to take a direction a nation wants to go for growth. The 'invisible hand' was an argument David Ricardo and Adam Smith, the two proponents of British economic domination of the world, advanced heavily in support of globalisation to keep England competitive in the 17th and 18th century.’

‘Good’ or ‘bad’ for Uganda, if it relies on this ahistorical assertion then Odek’s Rwabogo’s argument for subsidies is in serious trouble.

First, Adam Smith did not provide an “invisible hand" argument for anything – he used is as single metaphor for the single instance he gave regarding some, by no means all, merchants being “insecure” about sending their capital abroad, and instead they invested it in Britain (Wealth Of Nation, Book IV, chapter 2, paragraphs 1-9).

Second, David Ricardo, like all political economists contemporary with, and immediately after, Adam Smith, did not mention the metaphor of “an invisible hand”.

In fact, until the 1870s, nobody mentioned Smith’s use of the IH metaphor, and those few after 1870 who did were but a handful. The IH metaphor was mentioned in oral lectures at Cambridge and only appeared in print from the 1920s (Pigou). It became ubiquitous in modern economics after Oscar Lange, 1937,1947, and Paul Samuelson from 1948. By the 1950s, and 1960s, the age of British imperialism was over.

Lastly, there never was an “invisible hand” of the market in anything Adam Smith wrote. It was and remains an invented associated by modern neo-classical economists.

Wednesday, October 19, 2011

Right News, Wrong Views on Adam Smith

Ruth King writes (18 October) HERE for Ruthfully Yours (‘the right news, front and Center’):


What these demonstrators invariably say is that Wall Street financiers are greedy. Too bad these occupiers of Zuccotti Park in downtown Manhattan never read Adam Smith who argued that greed in the aggregate can have a healthy effect on the economy.

The venting yields even greater fatuous solutions, if that is possible. “We want to change the system,” say the demonstrators. Which system they decry is not clear, not is there a strategy for making that happen.”

I described it in my post as “mindless activism” to which Ruth King adds more details. Follow the link - it is a good, if flawed read.

The demonstrations in other places reflect this mood. Even the Greek strikers are not, apparently, aware that the alternative, should their protests and strikes bear the fruit of a withdrawal by the government of their austerity measures to curtail their over-borrowing – and the general tax evasion among the whole population (and not just the ultra-rich) – is almost certainly very much worse for all concerned, and for people in other debtor nations.

But Ruth King also has not read Adam Smith. He never said argued about “greed in the aggregate can have a healthy effect on the economy”. I would be interested where he made such an argument in either of two books, Moral Sentiments (1759) or Wealth Of Nations (1776). 'Greed' was never in the mind of Adam Smith. He denounced Bernard Mandeville's satire in praise of greed as 'licentious' and it played no part in Smith's political economy. THat is a myth invented by post-war modern economists (Samuelson, etc).

So Ruth King joins the activists in not knowing about Adam Smith’s writings, which makes it easier for the activists to maintain their mindless stances.

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Some Support for Lost Legacy's Approach

Brandon Dupont, an Associate Professor of economic thought at Washington University quotes Lost Legacy in
Economic Incubator (using economic history to understand today’s economy) HERE:

"Should Business Schools "Occupy Wall Street"?

Gavin Kennedy gets it right in commenting on Mike Valente's call for business schools to join the Occupy Wall Street movement :

"Mike’s predisposition for Business Schools to ‘occupy Wall Street’ is mindless activism. I suggest he reads Adam Smith’s works (that is, the moral philosopher born in Kirkcaldy in 1723, and not the cartoon Adam Smith invented in Chicago in the 1920s). He should also contemplate a bit of history, such as Deirdre McCloskey’s ‘Bourgeois Dignity’ too, and give himself some historical perspective of what it really means to be worse off, and, perhaps, what requires to be done to make it better.


Brandon is definitely on the right track in his Blogs when he uses “economic history to understand today’s economy”, which is exactly what Adam Smith did in writing Wealth Of Nations, as can be seen in his ‘Lectures on Jurisprudence’ [1763, 1983]. Smith’s LJ contains verbatim sections that re-appeared in Wealth Of Nations in 1776, showing that he had been thinking about political economy in its historical context long before he found the time to commence writing about it in France (1764-67).

I note several mentions of items in Lost Legacy in other economic blogs and I am generally pleased that they take notice, even the odd one or two that are critical – we always learn from the views of other people.

Some posts from Lost Legacy appear in full on Mark Thoma’s ‘Economists View’, generally on the pure economic history themes that I occasionally touch on.

That Brandon Dupont, a young associate professor (‘lecturer’ in the UK academic system), is teaching a course in the history of economic thought, is most encouraging as many of these posts have disappeared in academe over recent years. I think there is scope for them to re-appear again, given how much modern economists rely of previous authorities, not always accurately, to give authority to their pronouncements which governments, despite the contrary evidence, accept uncritically, and which 'Occupy' activists are misled to accept as correct.

Tuesday, October 18, 2011

The Adam Smith Myth

STUART KAUFFMAN writes in NPR (public radio)HERE:

“The Lord is my Shepherd”

He opens with the 23rd Psalm and brief assertions about the period, 800 to 200 BCE, ”when, in China, India, Persia, Greece and among the Jews in Exile in Babylonia, civilizations seem to have gathered themselves up and found new expression through Lao Tzu, Buddha, Zarathustra, Plato, Socrates and the writing down of the Old Testament…. some 5,000 years after agriculture led to the beginnings of property rights and the creation of greater accumulated wealth. Civilizations arose in China, the Indus valley, the confluence of the Tigres and Euphrates, the Nile Valley and Abraham gave birth to three great monothestic religions.”

Emphasis on the individual is a cornerstone of our United States Constitution and Adam Smith in the Scottish Enlightenment, setting the foundations of modern economics with his famous "invisible hand," where each acting for his or her own purely selfish interests unwittingly, through the invisible hand of the market, achieves the benefit of all….
Begin with our evolutionary history as social primates in the clan 50,000 years ago. We did something beyond the market: We shared fairly

Watch: I meet you on the trail, you have caught a rabbit. "May I borrow half your rabbit? I'll pay you back in kind very soon," I ask. You agree. I take half your rabbit for my dinner tonight, mark a stick as an IOU and give it to you. Credit is born, as is a rude form of money in the marked stick.

A famous framework called the "Edgeworth box" shows” that Smith was wrong. … But, central to the Edgeworth box is an embarrassment to Smith and modern economics: the famous "contract curve."

“Our social primate evolution steps in. This is seen in the famous "utimatum game." Here it is: I will give you $1,000,000. First, you must offer a fraction to Bill. If he accepts I give you the money and you give the agreed fraction to Bill. But if Bill refuses your offer, I give you nothing and neither you or Bill get anything. Bill knows the rules and that I'll give you $1,000,000.
How much do you give Bill? Across all cultures we give 30 to 50 percent to Bill.”

“Beyond economic theory, market, invisible hand and price as the only sense of value, we base our actions on an evolved sense of fairness that, it turns out, we share with the higher primates.

“perhaps it becomes time for our civilizations to again gather themselves up to find our way to be our own shepherds together, take enchanting time to rest besides green pastures and still waters.

Even with my brutal selection of edited items – motivated entirely in respect of copyright considerations - from Stuart Kauffman’s article (follow the link), you should get a feel for his theme.

It us nicely plausible, but in my view, a quite idealistic picture of the real life experiences of our predecessors’ lives in the forest and afterwards. Anthropologists present a far more gruesome picture of the short lives and generally early and violent deaths of males in the forest and plains from inter-communal and inter-tribal deaths, showing unprecedented death rates per thousand, higher than the violent 20th-century wars and genocides, and the urban murder rates, of which we are familiar. Women fared no better in war-booty rape and abduction raids. The jolly picture of young males and females in ‘sharing’ utopias is a nonsense.

As for the rise of civilizations that somehow lived in communal peace, much depended on where the individual stood in relation to the power structure. Civilisations were based on violence, perpetrated against the numerous and helpless slaves who made possible much of the comforts enjoyed by the upper-reaches of these societies. ‘Abraham and the monotheistic religions’ hardly represented the unmixed blessings of the ‘sharing ethics’ portrayed by Stuart Kauffman. Turning the pages of the Hebrew Bible, one does not have to read far to find violence and treachery. The tears that flowed from the dark side of their civilizations were appropriately symbolised by the great rivers of “China, the Indus valley, the confluence of the Tigres and Euphrates, the Nile Valley” (the “Oriental Despotism”.

What exactly does Stuart Kauffman know about the history that he writes about? Selfishness was not invented and practiced only in capitalism. Thus, when we come to this sentence from his article, we realize he has bought in full the propaganda of an invented myth of modern economics, namely, the so-called contribution of Adam Smith “setting the foundations of modern economics with his famous "invisible hand," where each acting for his or her own purely selfish interests unwittingly, through the invisible hand of the market, achieves the benefit of all”.

The Adam Smith born in Kirkcaldy in 1723 and author Wealth Of Nations 1776 said no such thing. Nor did he talk of the “invisible hand of the market”. The Adam Smith “alive and well in Chicago” in 1976, according to George Stigler, can be said to have said anything, but that Adam Smith did is a myth – he didn’t exist Stuart!

From a myth, Stuart moves on to the Edgeworth Box Diagram (1870s) in a flourish of partial knowledge from Economics 102 and the modern welfare economics (oh, happy days, from when I taught undergraduates such theorems, Pareto et al). Then I looked out of my academic window and observed thousands of individuals actually negotiating for real gains and to avoid losses (I had moved to teach post graduates in Business Schools) and learned better – I also read the Kirkcaldy Adam Smith and knew better.

Edgeworth Box diagrams represent people exchanging tow commodities in pairs, and the ‘contract curve’ traces exchanges where no further exchanges can take place without making one of the pair worse off (Pareto’s theorem). Stuart Kauffman does not tell us why the Edgeworth’s contract curve (1870) is “an embarrassment to Smith” (1723-90). It certainly is not an embarrassment to the Adam Smith from Kirkcaldy – how the invented in Chicago Adam Smith fares is no concern of mine.

Stuart moves on to the Ultimatum Game, supposedly a refutation of Adam Smith. I have discussed that game here several times and shown it consistent with Adam Smith’s Moral Sentiments (1759) and with Wealth Of Nations (1776). Smith makes the important distinction between self-interest as selfishness (which he never excused, nor endorsed – he considered such ideas ‘licentious) by the key consideration of self-interested people as ‘other regarding’, not purely ‘self regarding’, as is mis-interpreted by modern economics and the welfare theorems (perfect rationality and so-called Homo economicus).

The famously misread ‘butcher, brewer, and baker’ example actually states explicitly and clearly the ‘other-regarding’ aspect of the self-interested person in Smith’s example of bargaining, in which he advised you, in pursuit of your self-interest in acquiring the ingredients of your dinner, to address yourself ‘not to their humanity but to their self-love, and never talk to them of [your] own necessities, but of their advantages’ (Wealth Of Nations, I.ii.2: 27-7). That is what being ‘other regarding’ means.

It is that bargaining experience that pushes the individual in the Ultimatum game to a decision roughly aligned to a sense of ‘fairness’. Not some independent, anti-market, ethics allegedly suppressed in actual market transactions (which are never tidy nor compressible into Edgeworth’s contract curve). A slight acquaintance with what goes in real world bargaining exchanges would correct that idealized picture. Human behaviour in the real world is not replicated in the mathematical world. Using the latter to predict the former is futile – prices are not set by ‘rational expectations’, as Smithian scholars are well aware, but not listened to.

However, none of this drains 23rd Psalm of its poetic content, I have heard it at too many funerals to forget its beauty, but it is a psalm of a belief and not a statement of the universal reality of its sentiments. Too many tears have been shed in the ‘still waters’ for majestic beliefs to compare with cold realities.


Sunday, October 16, 2011

Think, Don't 'Occupy'

Mike Valente, an assistant professor at the Richard Ivey School of Business, writes HERE: :

Why Business Schools Should Join "Occupy Wall/Bay Street"

“First, the last decade has proven unequivocally that Adam Smith’s original supposition that the pursuit of commercial interests leads to optimal gains for society is misguided at best. An unprecedented number of circumstances have emerged where the pursuit of corporate interest has left society worse off. Smith’s ingenuity fit a time when business represented a relatively small actor in society shadowing the power of the church and the state

Mike Valente writes a controversial thesis, not just because he gets Adam Smith ‘original supposition’ wrong, not least because Smith did not write that ‘the pursuit of commercial interests leads to optimal gains for society’, but also because Mike Valente controversially asserts that ‘pursuit of corporate interest has left society worse off’.

One might ask where did Smith write about ‘optimal gains for society’ (an anachronistic-sounding’ claim often made in the 20th century by modern economists and by lobbyists, but not found in Wealth Of Nations), and we can also ask by what measures has corporate interest ‘often made society worse off’? ‘Worse off’ in comparison to where it could be? When was it 'better off'?

Smith was not a dreamer; he was a philosopher, who ‘observed everything’ and was noted for his pragmatic view of the world he lived in and its history since our predecessor left the forests. Smith did not think that changes came quickly, but he thought it could better off without mercantile political economy. He sought no utopias; he had no illusions about the political obstacles along the way, not least the crass corruptions across society as had evolved - and remained.

We do know that hundreds of thousands of individuals try hard to migrate into countries where corporate capitalist interests have been dominant for periods running from centuries (since Smith’s time) and since then more recently measured in multiples of decades (think China, India, and Brazil)

There is no evidence that individuals on any serious scales have tried hard to move in the opposite direction to escape being made ‘worse off’ by corporate interests, as represented by Wall Street or the City. Yes, behaviour among such circles has had calamitous consequences of potential danger, but the answer does not depend on 'occupations', messy riots, and vandalism. After they leave, their mess will be cleaned up and paid for by insurance and future customers. Tens of thousands of people from Central and South America risk their lives to get into North America (by one count recently I saw the figure of several millions of people made that journey since the 1980s across the inhospitable deserts of Arizona and through its socially inhospitable towns too) to get a taste of being ‘worse off’ in the USA. They are doing what the now settled waves of earlier emigrants from around the world, who got there before them, including, I suspect, as experienced by Mike Valente’s forebears. His social class are usually described today as ‘middle class’, who are definitely better off by hundreds of percent than their $3 a day forebears.

Compared to the $3-a-day predecessors of the likes of Dr. Mike Valente in pre-capitalist Europe, and to the poverty of 18th-century Scotland, the achievements of the market economies are a magnet for the world’s truly poor.

Mike’s predisposition for Business Schools to ‘occupy Wall Street’ is mindless activism. I suggest he reads Adam Smith’s works (that is, the moral philosopher born in Kirkcaldy in 1723, and not the cartoon Adam Smith invented in Chicago in the 1920s). He should also contemplate a bit of history, such as Deirdre McCloskey’s ‘Bourgeois Dignity’ too, and give himself some historical perspective of what it really means to be worse off, and, perhaps, what requires to be done to make it better.


Rational Expectations and the Invisible Hand

Ira Basen writes in the Globe and Mail (Canada) Here:

“Economics has met the enemy, and it is economics”

“Rational-expectations theory and its corollary, the efficient-market hypothesis, have been central to mainstream economics for more than 40 years. And while they may not have “wrecked the world,” some critics argue these models have blinded economists to reality: Certain the universe was unfolding as it should, they failed both to anticipate the financial crisis of 2008 and to chart an effective path to recovery.

“The great classical economists of the late 18th and early 19th centuries had no problem connecting to the real world – the Industrial Revolution had unleashed profound social and economic changes, and they were trying to make sense of what they were seeing. Yet Adam Smith, who is considered the founding father of modern economics, would have had trouble understanding the meaning of the word “economist.”

What is today known as economics arose out of two larger intellectual traditions that have since been largely abandoned. One is political economy, which is based on the simple idea that economic outcomes are often determined largely by political factors (as well as vice versa). But when political-economy courses first started appearing in Canadian universities in the 1870s, it was still viewed as a small offshoot of a far more important topic: moral philosophy.

In The Wealth of Nations (1776), Adam Smith famously argued that the pursuit of enlightened self-interest by individuals and companies could benefit society as a whole. His notion of the market's “invisible hand” laid the groundwork for much of modern neoclassical and neo-liberal, laissez-faire economics. But unlike today's free marketers, Smith didn't believe that the morality of the market was appropriate for society at large. Honesty, discipline, thrift and co-operation, not consumption and unbridled self-interest, were the keys to happiness and social cohesion. Smith's vision was a capitalist economy in a society governed by non-capitalist morality.

But by the end of the 19th century, the new field of economics no longer concerned itself with moral philosophy, and less and less with political economy. What was coming to dominate was a conviction that markets could be trusted to produce the most efficient allocation of scarce resources, that individuals would always seek to maximize their utility in an economically rational way, and that all of this would ultimately lead to some kind of overall equilibrium of prices, wages, supply and demand.
Political economy was less vital because government intervention disrupted the path to equilibrium and should therefore be avoided except in exceptional circumstances. And as for morality, economics would concern itself with the behaviour of rational, self-interested, utility-maximizing Homo economicus. What he did outside the confines of the marketplace would be someone else's field of study.

As those notions took hold, a new idea emerged that would have surprised and probably horrified Adam Smith – that economics, divorced from the study of morality and politics, could be considered a science. By the beginning of the 20th century, economists were looking for theorems and models that could help to explain the universe. One historian described them as suffering from “physics envy.” Although they were dealing with the behaviour of humans, not atoms and particles, they came to believe they could accurately predict the trajectory of human decision-making in the marketplace.

In their desire to have their field be recognized as a science, economists increasingly decided to speak the language of science. From Smith's innovations through John Maynard Keynes's work in the 1930s, economics was argued in words. Now, it would go by the numbers.

The turning point came in 1947, when Paul Samuelson's classic book Foundations of Economic Analysis for the first time presented economics as a branch of applied mathematics. Without “the invigorating kiss of mathematical method,” Samuelson maintained, economists had been practising “mental gymnastics of a particularly depraved type,” like “highly trained athletes who never run a race.” After Samuelson, no economist could ever afford to make that mistak

The extracts from an interesting article in the Globe and Mail (Canada) are part of a more trenchant criticism of the state of modern economics, as it is taught in the top universities in North America as the public face of the discipline. I have touched on the Homo economicus model that has dominated the subject since it was invented in the 1870s and which evolved into the Max U paradigm, and eventually under the flood of mathematics into the myths of ‘rational expectations’ and ‘efficient markets’ hypotheses.

Moreover, Paul Samuelson’s influence on economics is mentioned regularly on Lost Legacy, because, by distorting what Adam Smith actually wrote – and the limited context in which he did so – in his singular use of the IH metaphor, was stretched by Samuelson to be about the optima caused even by ‘selfish motives’ This view of economics spread rapidly from 1948 and the 20th edition of his big seller, Economics: an introductory analysis, and was bolstered by the immense prestige of his Foundations of Economics Analysis, but, regrettably, led economists into a dead-end in a sophisticated mathematical analysis of an imaginary world, but, alas, not an understanding of the real world immediately beyond their windows.

Their greatest triumph was the victory of the ‘capitalist’ explanation over the socialist planned economies of the Soviet and Chinese blocs, based on two major errors: the success of the western economies was not based on the success of their mathematical models, but was based on the quite separate success of capitalism, albeit as in impure social arrangement; and the failures of the planned economies were based on the equally false practice of socialism, maintained for a while in a semblance of success when bolstered by its inevitable old-fashioned tyranny.

Ira Basen covers a lot of ground but in doing so he buys the modern, Samuelson, myth of the Adam Smith of ‘an invisible hand’:

In The Wealth of Nations (1776), Adam Smith famously argued that the pursuit of enlightened self-interest by individuals and companies could benefit society as a whole. His notion of the market's “invisible hand” laid the groundwork for much of modern neoclassical and neo-liberal, laissez-faire economics.”

No sir! Adam Smith fame for that assertion arose despite his not arguing that view point as a general proposition for all the workings of capitalist political economy. Instead Smith’s was a very narrow statement: he said that those merchants who considered ‘foreign trade’ too risky for their capital preferred to invest in the ‘domestick industry’ led by their private perceptions of the risks (the actual object of the metaphor of ‘an invisible hand’), which in consequence added to ‘domestick revenue and employment’ (arithmetically, the whole is the sum of its parts) and that this was to the public good. It was not their intention – their intention was to avoid the risks of exporting capital, and even specifies what those risks consisted of for the domestic merchant:

In the home-trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of those whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress” (WN IV.ii.6: p 454).

Those who swear by the ‘optima outcome, despite ‘selfishness’, etc., ignore that earlier paragraph, and when it is drawn to their attention (e.g., David Friedman) they ignore its significance. In short, Samuelson’s version and those whom uncritically followed him remain wedded to the invention of a mystical invisible hand despite the facts that are evident in the whole argument of Adam Smith.

Smith makes a quantitative point about the outcome of a larger domestick output, specifically that the spending of their profits by merchants on their consumption and their net investment within the ‘great wheel of circulation’, benefits the public (especially the labourers) and that in itself is a public good. He did not align the unintended consequences to markets, nor any moral considerations. In poor Scotland, Smith saw domestick expenditures as a necessary improvement on the considerable levels of poverty prevalent at the time. It was not a new ‘theory, or ‘paradigm’ - it was pure common sense.
It was not a prediction or an imperative of how market economies function, or should function. It was an observation of a specific instance, clearly defined, and was no ever-lasting characteristic of what today we call capitalism. Other merchants at the time also avoided foreign trade for all kinds of reasons – insufficient capital anyway, active in non-exportable trades, no foreign contacts, fully committed domestically, and so on. They were not ‘led by an invisible hand’. Many local merchants were fully engaged in local affairs and needed no other incentive to do differently, indeed many contrived through domestic means to prevent foreign trade from entering their markets in a system Smith called ‘mercantile political economy’, from which they made local monopoly profits.

That the academic discipline of economics from the late 19th century onwards sought other tools to make it more ‘scientific’ is now history, and since 2008 has faced a crisis of confidence – of which the modern shibboleths of rational expectations and efficient prices are but an example – is slowly becoming obvious. Old paradigms do not quit their dominance easily. The priesthood is far more resilient than the shrillness of their defenders suggests. Expect a struggle, perhaps over many years – even decades – but such articles as Ira Basen’s suggest some places to start, despite his errors on the IH metaphor. I commend it to you to read in full (follow the link).

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Friday, October 14, 2011

Looney Tunes no. 3

'Invisible Hand' Playing With Sectarian Fire, Inter Press Service:

An invisible hand is seen funding "counter-revolutionary" political groups, dispatching armed thugs to disrupt peaceful demonstrations, and infiltrating protests to direct them towards violent or destructive ends.”

Annaly Capital Management Releases Market Commentary for the Third Quarter 2011 MarketWatch (press release):

There are examples large and small of how the invisible hand of economic activity is now firmly attached to the arm of an official policymaker of one kind or another.

William Gensert writes “A Disastrous Presidency” in American Thinker:

“With the government picking winners and losers, we have replaced Adam Smith's invisible hand with Barack Obama's thumb.”

The Post-Solyndra Tug of War | Sustainability Articles | Green News ... By Troy Ault:

And sooner or later that invisible hand is going smack us back to reality when we try to falsely augment our competitiveness in Tom Friedman's flat world.”

Vice's Grown-Up Upfront New York Observer:

That the market's invisible hand is also its masturbating one is a common enough strain in new media theory.”


Wednesday, October 12, 2011

Pause for a Reflection

Hywell Williams, an historian, author, and columnist, writes in his Daily Mail Blog:

“Economics: the futile predictions of a pointless 'science'”


Looking at how trade and business patterns of manufacturing, investment and productivity have operated in the past is well worth doing. And the people who pioneered that investigation in the 18th- century - such as the famous Adam Smith - called their subject 'political economy'. They were under no illusions that they were pursuing a science which might yield laws in the way that physics often does. Smith and co. understood that economic behaviour and phenomena are always variable. They are part of the life of human beings in society, and since men and women are not machines their behaviour in matters of consumption, production and investment simply can't be predicted.

We can have trends and probabilities of course. At some point demand for some goods - let's take oil as an example - having been elastic, will stop being so. But nobody can ever predict at what point people will decide they're not prepared to pay a high price for oil any more.

'Political economy' was a good phrase since it showed how politics and social life generally give a context and a meaning to economic behaviour. But that wasn't good enough for all those economists who laboured over their quasi-mathematical models in the late 20th century. Career building was all important here. All those grants from supposedly respectable research councils - all the subsidies and the 'funding' - were only available if economics could be made to appear to be a subject that could actually give you mastery of the world here and now, and in the future as well. It was meant to be the key to a predicted prosperity. 'Approve my funding mechanism for a macro-economic study and you - secretary of state - will learn how to produce economic prosperity and thereby ensure your party's re-election'.

But there's a very simple reason why all the economic charts in the world will never really demonstrate what might, or might not, work as a policy. At any one time, and especially during a major crisis as at the moment, there are in fact all sorts of economic policies that are in place. A bit of quantitative easing here - a spot of inflation toleration there, supplemented by a tightening of the money supply if that seems necessary or some restructuring of the tax regime. A time lag then occurs. Its length can never be predicted. Some people take a long time to respond to economic prompting. Others may be quicker off the mark, while yet others carry on being indifferent

I make no claims that Hywell Williams is particularly perceptive, nor that his ideas about economics are necessarily suspect for his not being recognised as a main-line orthodox economist. I was drawn to his article for its theme that struck a chord about Adam Smith and the current fashion for economics as being a predictive science – though, of course, there is much controversy about the reliability of competing predictions by economists, including among economists.

Adam Smith did not make predictions about what might, let alone what would, happen in the circumstances in which he lived. He always looked backwards historically, trying to explain what had happened. He made specific recommendations about how certain economic affairs ought to be managed to deal with specific problems that he regarded were unsatisfactory and could be improved upon and tried to identify why specific outcomes were less than beneficial compared to what they could be if they were arranged differently.

Thus, Smith’s critique of mercantile political economy – his ‘very violent attack on the whole commercial system of Great Britain’ – had much to say critically about recent 18th-century events in intervention policy by sovereigns and legislators, by ‘merchants and manufacturers’, and assorted interest groups who had influenced the kings since medieval times. These criticisms of the interventions of kings through their governments and laws were not an absolute hostility to state interventions, as is often presented by modern economists and political activists. They were measured and specific observations on the, often deleterious, consequences, of political – and theological – policies by people who didn’t (and often still do not) know
what they were doing.

In spreading his criticisms of economics to modern economists, Hywell Williams makes some telling points about the root causes of the hubris of much of modern economics. Our science is not physics, despite the pretensions of the priesthood, lightly clothed in a mathematics resting on a fatal fault-line that Smith (an accomplished mathematician by 18th-century standards) called ‘men of system’, who are ‘apt to be very wise’ in their ‘conceit’, who ‘seems to imagine’ that they ‘can arrange the different pieces upon a chess-board’, where ‘the pieces have no other principle of motion besides that which the hand impresses upon them’, when in fact ‘in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress on them’ (TMS VI.ii.2.17:233-34).

Carbon atoms, like all others, respond to forces in exactly the same way in the solar system, and probably throughout the universe, according to their common nature. People, however, are different because they are different. They are not infinitely predictable. Some choose a life of crime, others are saintly, and all stations in-between and beyond are observably different. Nor is tomorrow’s economy predictable; bets can be taken, and some will win, others lose. These suggest a degree of humility is required among economists. An imaginary world endorsed with its terms by mathematics and computing power does not the real world replicate. Smith understood that barrier to predictability; ‘tis a pity that Samuelson’s generation did not.

So, instead of taking cheap shots at Hywell Williams, and his ilk, we should pause and reflect on our limitations and try to understand more about how we got to where we are in our understanding, and rely less of what our equations tell us. Perhaps we would have less cause provoke the Hywell Williamson’s contributing to the current discourses about the current recession, what caused it, and what might be done about it, given our limited knowledge of how the real world works, or rather doesn’t.

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Friday, October 07, 2011

Looney Tunes* no 2

1 'Beware false sightings of Adam Smith's invisible hand'|

Phillip Inman: The Big Ideas: Crude interpretations of the economist's ideas are popular (HERE):

2 'How to generate shortages in a world of plenty’

'Don't look now, but in the world of drug distribution someone amputated the invisible hand.' Forbes (October)

3 'The “invisible hand” of capitalism may be showing Occupy Wall Street protesters its middle finger'. HERE

4 'The Invisible Hand is Made of Delicious Invisible Meat'
September 30 by Donald Marron HERE:

5 “Whenever someone talks to me about the invisible hand of the market, as soon as I point out that the invisible hand seems to really like sex and drugs, they get upset with me.”
Chris Doggett, commenting on ‘slacktivist’, 30 September (HERE)

(*) An irregular and irreverent series of nonsense about the invisible hand in today's media.


Empty 'Big Box' Thinking

Sara Pax, president of Bluehorse Associates, a developer of environmental sustainability metrics solutions specialized in the food and beverages industry that includes the web-based, lifecycle assessment and product carbon footprinting tool Carbonostics ( writes in Environmental Leader (HERE):

The Food Crisis & Big Box Thinking”

Adam Smith wrote in his book, The Theory of Moral Sentiments, about the “invisible hand” that is particularly relevant to this article. Consumption is not the end game of free markets, it is merely a function. Smith’s thinking embraced a philosophy of sharing the “necessaries of life” as the first order of commerce.”

“Here is the “invisible hand” as many of you have never seen expressed before:

They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of society, and afford means to the multiplication of the species.“

Imagine how different the world would be if this was the focus of Adam Smith’s influence on commerce.

Sara Pax does not seem to realize exactly what she is talking about, and may have to revise her account of the ‘sustainability’ of the ‘invisible hand’ as she interprets it.

She quotes from Smith’s account of the ‘proud and unfeeling landlord’ as if it its refers to a time of roses and maypole dancing and she assumes that the ‘necessaries of life’ were a virtual cornucopia of the blessings of the land. In fact, this was the distribution of amount of the basic necessities as regarded by the landlords from the output of the landlord’s fields, which was solely the product of the toil of the peasants, which the landlord distributed from the bounty of their land, mostly appropriated by violence, in amounts regarded by him, or more likely, his overseers, whips in hand, as sufficient for the families of those who toiled for him, long hours all season, and then huddled together in their hovels all winter, until they were set to work next spring to repeat the cycle again and again.

Now the landlords were forced by necessity, not their generousity, to supply their dependent serfs, slaves, and peasants, because without such necessities of life, his peasants would starve, and in death would be immune to the whip. No food, no toil; no toil, no landlord’s proud ‘greatness’. There was no escape from this drudgery.

Smith's use of the metaphor of the invisible hand referred to the hidden necessity for the landlords to feed their peasants. That is the role of a metaphor – it does not exist itself; it is not a proper noun. All metaphors refer to their objects and are used to describe ‘in a more striking and interesting manner’ their objects, said Adam Smith in his ‘Lectures on Rhetoric and Belles Lettres’ [1763] 1983, p 29.

Led by an invisible hand’ is certainly 'a more striking and interesting manner’ of expressing the mutual dependence on the landlord and the peasants upon each other than plain, old mutual ‘necessity’, (‘no food, no labour’; ‘no labour, no food’). Yet out of a simple metaphor, a veritable mountain of meaning has been constructed to suit a purely modern invention of Smith’s deeper meaning.

In short, Smith’s use of the IH metaphor is, like all metaphors, not a theory, a principle, a concept, or a paradigm. It was in wide use long before Adam Smith from classical times, through to the 17th-18th centuries. Theologians used it in texts and sermons (see Harrison, 2010, Journal of the History of Ideas), and dramatists and novelists used it for literary effect (see Shakespeare, Macbeth; see Defoe, Moll Flanders).

I am not sure what Sara Pax means by ‘Consumption is not the end game of free markets, it is merely a function’. I do know that Smith regarded consumption as the sole purpose of production and there was nothing ‘mere’ about it. Toil is the foundation of life. For 180,000 years of the 200,000 years of the history of the unique human species that evolved from the hominine line, all the primitive bands relied on the forest and gathering and hunting for sustenance.

With the discovery and innovation of property in agriculture, supported by shepherding, humans moved to ever more complex new forms of sustenance. Once established in the near east and parts of Europe, humanity was locked-in to property and dependence, which spread gradually to create the modern world.

For over 10,000 years, consumption was restrained to something like $3 a day equivalent for the overwhelming majority of people, with occasional increases of a few dollars as populations rose and fell (see McCloskey, 2010, Bourgeois Dignity: why economics cannot explain the modern world, Chicago; highly recommended by Lost Legacy) in the ‘Malthusian trap’. The so-called industrial revolution – actually an innovation-driven commercialism, now often called ‘capitalism’ – occurred first in Britain and the Netherlands, then worldwide for the capitalist (private and state) economies. Per capita consumption rose from history’s norm of $3 equivalent a day by c.1,500 per cent by the 20th century.

Adam Smith’s singular use of the IH metaphor in Moral Sentiments (1759) had absolutely nothing to do with the emergence of commercial societies in the 18th-19th-20th and 21st centuries. Sara Pax does not appreciate that fact, making her speculation about Smith’s use of the invisible hand metaphor somewhat off-track and not ‘particularly relevant’ in any sense for the 21st-century debate on environmental policy.

I am not sure that the behaviour of 'proud and unfeeling' feudal landlords, a despicable bunch of human beings by any standards, would be much of a guide to 'how different the world would be if this was the focus of Adam Smith’s influence on commerce' as presented by Sara Pax. She does not appear to understand what she is actually saying when she seems to praise the distribution of what passed for the very unequal 'necessities of life' under landlordism to the 18th century in Britain and across much of the world thereafter.

Any return to landlordism - and its population levels - at $3 a day, would require a near mass extinction of the majority of the 6 billion world population, and a not inconsiderable necessary degree of violent tyranny.

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Thursday, October 06, 2011

Does Anybody Know of This Book? What are its merits?

The Adam Smith Problem; Reconciling Human Nature and Society in 'The Theory of Moral Sentiments' and 'Wealth of Nations' by Dogan Göçmen. Tauris Academic Studies, July 2007

This is the first scholarly work to deal solely with the ‘Adam Smith problem’, namely the apparent contradiction between Adam Smith’s most famous works,The Theory of Moral Sentiments and The Nature and Causes of the Wealth of Nations. Since the 1840s scholars have puzzled over and attempted to explain the fact that these works offer two fundamentally different and contradictory concepts of human nature. In this radical new approach Dogan Göçmen makes a major contribution to the debate. Accepting that Smith does indeed put forward two different and varied ideas, he argues that the ethical position articulated in The Theory of Moral Sentiments can be, and was intended by Smith to be, applied as a basis for criticising the commercial society analysed in the Wealth of Nations. Göçmen argues that this ethical position points to the character of an ideal future society, Adam Smith’s Utopia, a society in which its social components are completely in sympathy - and therefore harmonious - with each other. About the Author: Dogan Göçmen completed his PhD at the University of Edinburgh.

Table of Contents
Part I: Introduction * The Adam Smith Problem: what is it about? * The approaches to the Adam Smith Problem * An outline of the book * Part II: Smith’s theory of social individuality in the Theory of Moral Sentiments * What is crucial to the theory of the constitution of the self? * Impartiality as the basis of mutual constitution * How do we cognise and understand others and what do we understand from others? * Part III: Smith’s account of the situation of the self in the age of commercial society in the Wealth of Nations * How to approach Wealth of Nations * Smith’s account of the situation of the self in commercial society * Some comparative conclusions * Smith’s historical justification of commercial society * Part IV: Smith’s critique of commercial society and his utopia * Smith’s critique of commercial society * Smith’s utopia: society as an open and progressive system of mutual sympathy * Part V: Conclusions * Bibliography *

Wednesday, October 05, 2011

Stuart Bramall's Review of an Abridgement of Wealth Of Nations (Part2)

Dr Stuart Jeanne Bramhall writes part 2 of a review of an abridged version of Wealth Of Nations, by Laurence Dickey, Professor of History, University of Wisconsin-Madison (Hackett Publishing 1993) on Alternet (HERE)

This is Part 2 of my review of Adam Smith’s Wealth of Nations. I think neoliberals skip the final chapters – the ones where Smith argues in favor of government regulation.”

An unnecessary exposure of Stuart Bramhall’s limited mind-set. The main problem is that most economists ‘skip’ all of Wealth Of Nations, not just Books IV and V, and rely on a modern invention of Smith’s views following Paul Samuelson’ popularising a myth about what he actually wrote when he used a metaphor of ‘an invisible hand’ (once) in Book IV, and, from this single instance, created a misleading account of his views on markets. ‘Neoliberals’ are counter-poised by Stuart Bentham to ‘left’ progressives, but the left Marxist Oscar Lange also made the same mistake as Samuelson on the IH metaphor, except Lange saw ‘socialist’ Soviet planners as replacing the IH.

"The Invisible Hand”: Falsely Attributed to Adam Smith

“Book II also emphasizes what Smith calls “frugality” or the “mediocrity-of-money” as essential to this capitalization as the division of labor. Neoliberals often make Smith out as an advocate of laissez-faire economics, in which economic imbalances and social injustice is addressed by the “invisible hand” of competitive market forces.

Smith never spoke of ‘the “invisible hand” of competitive market forces.” A mythical attribution; see above comment and Lost Legacy passim.

However, it was actually one of Smith’s contemporaries J Harris who made this argument. Although Smith doesn’t refer to Harris by name, he’s clearly refuting his views in arguing the need of limited government intervention to address social injustice. Smith clearly believes this intervention (on which he elaborates in Book V) is essential to ensure “doux-commerce.” This he defines as an economy based on “frugality,” in which rich people invest their profits in increasing productive labor, rather than luxuries, corruption and vice, which contribute nothing to a society’s economic well being.” …

An interesting assertion about ‘Harris’ of which I am unaware.

Book IV – is an attack on mercantilism, which Smith despises. “Monopoly,” according to Smith, “is the sole engine of the mercantile system.” Smith, who makes the strong argument that money has no intrinsic value of its own, blames mercantilism on an overemphasis on accumulating gold and silver reserves (money), at the expense of genuine productive capacity and overall economic wealth. He’s highly critical of European nations for being obsessed with a positive balance of trade (to build up their gold and silver reserves). He’s also critical of the wrongheaded way they go about it, through the granting of monopoly rights and protective tariffs, and quotas, which always negatively impact domestic production."

Including in his critique, are the trade guilds, enshrined in laws from Elizabethan times. Analogous, in many ways, to modern trade unions in their restrictive practices that stifle innovation or delay its applications.

Smith is a strong “free trade” advocate, and his famous description of the free market, which neoliberals frequently quote out of context, comes from Book IV: “Every man, as long as he doesn’t violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring both his industry and capital with those of any other man, or order of men.”

Stuart Bramhall reads too much into Smith’s statement of a principle of the philosophical doctrine of ‘natural liberty’ as taught by Grotius and then by Pufendorf, which passed into Scottish moral philosophy from Carmichael and Hutcheson at Glasgow, and then to Smith. Natural liberty is a principle applying to mankind long before the age of commerce. It was not a description of the ‘free market’, and certainly did not apply to mercantile political economy, nor did Smith say it was. It was a standard against which this or that arrangement could be judged, and was open to challenge in certain specific instances, as when Smith justifies the building of party walls, and the prohibition of small value bank paper lending.

Smith lays out his views on government intervention in Book IV, which he elaborates in Book V.
According to Smith, a sovereign (government) has three duties:
1. To protect society from violence or invasion
2. To protect, as far as possible, every member of society from injustice or oppression from every other member of society (His use of the word “oppression,” rather than “violence,” is interesting. From the context, it’s clear that Smith is referring to economic oppression and social injustice)

No, it refers to injustice generally.

Book V – is about social injustice and elaborates on the interventions Smith would allow the government to make in the affairs of society and economy. ..

… “He talks educating common people being more important than educating the rich in civilized society. According to Smith, rudimentary education is essentially in preventing formation of “religious sects” that often lead to social unrest. At same time, he emphasizes importance of privately funded advanced education (for the wealthy). He gives numerous examples of private funding improving quality of teaching (it forces teachers to work harder).

Smith was concerned about the appalling lack if educational provision in England, in contrast to the long established “little schools” operating in Scotland, in which all male children attended school from 6 to at least 8 (some like Smith until 14) to learn ‘reading, writing and account’. He recommended this for England, to be paid for partly by government, partly by charity, parents, at by poor parents a nominal small charge.

This provision would reduce the dangers of sedition and religious ‘enthusiasm’ - aimed at frightening the affluent with the spectre of social disorder into paying for it. He linked this spectre to the effects of the division of labour, though the ignorance of the majority was due to their existing illiteracy and innumeracy.

Many Scottish parishes paid for the education at Scotland’s four universities of boys of all social classes if they showed promise, not just the ‘wealthy’. Smith’s mother was not ‘wealthy’; Smith was very bright.

It was not ‘private funding’ that kept Scottish teachers diligent so much as the pay of faculty depended on their reputation with students for their attendance; poor teachers were abandoned by students who paid their fees directly to them, not the universities. A different system operated in England’s two universities where faculty were paid for their teaching, but not by the direct student method (see Book V on Smith’s hostile view of the English system – he spent 6 unhappy years at Oxford). Smith certainly would have approved of a ‘voucher system’, whatever modern teacher unions would say.

"Book V delves at length into the effect of military spending on economic wealth. It talks about the extremely risk of a standing army destroying democracy (he gives Rome and Cromwell’s parliament as an example). He allows that with advanced military technology, a standing army is preferable, because members of a militia have other occupations and don’t have time for the extensive training that is necessary. However he argues that military spending must be strictly limited and never paid for by borrowing. He predicts that indebtedness for military spending will eventually cause the economic ruin of all European countries.”

In all, I think Stuart Bramhall is sloppy and in pursuit of a political agenda. This may be unfair to Laurence Dickey, whose abridgment may have been lost in Bramhall’s review, who is certainly partial to a view of Smith somewhat short of understanding of Adam Smith. The modern epigones of Adam Smith are not excused for their attributions to Adam Smith of political agendas and their passing off of anachronistic thinking. Smith rightly, was nor concerned with ‘democracy’ (he did not have a vote) but he was concerned with liberty, a far more important principle in the 18th century than democracy.

I advise sticking Stuart Bramhall, and all Lost Legacy readers, to stick to the unabridged Wealth Of Nations, and its sister volume, Moral Sentiments.


Tuesday, October 04, 2011

Another Review of Robert Frank's 'The Darwin Economy'

Matt Thompson, an adjunct assistant professor in the Department of Sociology and Criminal Justice at Old Dominion University. He was once cast as a soldier in Andrew Jackson's army in a theatrical production on an Indian reservation, reviews Robert Frank’s new book, ‘The Darwin Economy: liberty, competition, and the common good’, Princeton, New Jersey, Princeton University Press. September 2011 (reviewed on Lost Legacy, 23 September):

“Darwinian Tax Reform” posted on Savage Minds blog (HERE):

I think Matt Thompson understands Darwinian natural selection better that Robert Frank:

Prima facie the notion of applying ecological theory to challenge our understanding of the national economy sounds intensely intriguing. So it was with great expectations that I read economist Robert Frank’s recent NYT piece based on his new book, “The Darwin Economy.” He presents the same idea in precis, here. Unfortunately the results did not live up to the promise of such an innovative idea. …

Nowhere does Darwin say that competition among individuals does not always produce results beneficial to the group. That is a conclusion Frank comes to because he’s reading through this lens that forwards agenda for new tax policy. Natural selection doesn’t care about groups, it only ever acts on individuals. It doesn’t really care about survival either, rather “winning” at natural selection means reproductive success. Evolution is the aggregate result of natural selection shaping the frequency of variations within a population. Therefore, no bull elk would have a huge and unwieldy rack of antlers if the benefits of having them did not outweigh the costs. …

Something’s wrong here and it begins with Frank’s misreading of Darwin. The example of elk’s antlers is, properly speaking, one of sexual selection. In “On the Origin of the Species” (1859) Darwin presented his theory of evolution by natural selection, which wonderfully explained why all polar bears have thick coats and all giraffes have long necks. Over time any trait beneficial to the individual will spread through the population if it helps them adapt to selective pressures in their environment. But Darwin struggled to explain things like the ornate patterns of butterfly wings, which don’t seem to have anything to do with the environmental pressures, or the peacock’s tail which, frankly, seems to be detrimental to the individual’s survival.

It wasn’t until “The Descent of Man” (1871) that Darwin hit upon the theory of sexual selection. These things are not to enhance the survival of the individual or help them adapt to the environment but to advertize their fitness as a mate. Frank’s elk example fails because he only considers the male’s point view. Males compete, but females choose. It is female choice that has led to spread of large antlers through the elk population not male competition.

Males and females have different reproductive strategies stemming from the fact that they invest different amounts of energy into the reproductive process. Females have a limited number of eggs, when they are pregnant they cannot take another mate, and after giving birth spend time and energy caring for the young. In terms of reproductive success, females do best when they are choosy and pick a male endowed with the best genes. Males can produce sperm by the millions and after taking one mate can increase their fitness by quickly taking another. Males improve their reproductive success by competing with other males in an effort to increase the quantity of females they mate with.

If you can take that and apply it to economics, great. But that’s not what Frank does. To him Darwin’s theory is just a handy metaphor.

Nowhere does Darwin say that competition among individuals does not always produce results beneficial to the group. That is a conclusion Frank comes to because he’s reading through this lens that forwards agenda for new tax policy. Natural selection doesn’t care about groups, it only ever acts on individuals. It doesn’t really care about survival either, rather “winning” at natural selection means reproductive success. Evolution is the aggregate result of natural selection shaping the frequency of variations within a population. Therefore, no bull elk would have a huge and unwieldy rack of antlers if the benefits of having them did not outweigh the costs. …

Frank’s usage of Darwin does not go beyond analogy. Essentially it amounts to little more than a rhetorical move whereby the economist seeks to borrow Darwin’s authority to sell his idea of a progressive consumption tax. Incidentally, I had never heard of such a thing before and maybe it’s a worthwhile policy to consider. But it has nothing to do with Darwin or natural selection.

I concur with Matt Thompson. I do not believe that Frank has properly stated Charles Darwin’s views. I do not accept that Frank properly portrays Adam Smith’s ideas on competition. He is too much befuddled by modern attributions of what he calls Smith’s ‘disciples’ – more like his epigones.

Whether economists in a hundred years switch to praising Charles Darwin as the ‘father of economics’ in place on Adam Smith is an unknowable proposition, hardly worth arguing about. I am not sure even that proposition is worth arguing about in place of claims that Adam Smith is due that title, whatever it means.

I do know that Frank’s understanding of Darwin is as credible as his misunderstanding of the Adam Smith born in Kirkcaldy in 1723, at least on the evidence of ‘The Darwin Economy: liberty, competition, and the common good’, Princeton University Press.

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Sunday, October 02, 2011

Adam Smith, Jeremy Bentham, and Keynes

A correspondent (Nelson Neo)* writes, raising some questions about Adam Smith’s attitudes to usury in connection with Jeremy Bentham’s criticism of Smith’s preferences for official prohibitions of high usury rates. Bentham thought this stance was contrary to principles of natural liberty, otherwise espoused by Smith.

This discussion was accompanied by the correspondent’s reference to recent work by Michael Brady linking Smith’s writing on probability and interest rates in comparison with Keynes.

I was not aware of Michael Brady’s work, though I am familiar with Smith’s differences with Bentham on usury. The Keynes’ connection is new to me and I am inclined to agree that Bentham did not understand Smith’s pragmatic complaint about usurious rates of interest because they encouraged prodigality among reckless borrowers, and drew investment/savings to unproductive (i.e., not producing a revenue that contributed to the spread of opulence, and either indirectly or directly penalised the poor) and were to be discouraged because such usury was attractive to prodigals whose reckless borrowing caused the loss of their investments, at the expense of possible use in productive endeavours. Losses in business were regarded by Smith as equally ‘unproductive’ to prodigality. Of related interest is the assertion that Smith ‘recanted’ his original position in favour of Bentham, which is a suspect anecdote, in my view.

Now, while looking through my ‘to-be-read papers’, I found a copy of one of Brady’s papers: ‘The “Early” Logical Empiricism of J.M.Keynes Versus The Rhetoric of Subjectivism’ (HERE): but which I have not yet read carefully. However, I did read the Brady paper that the correspondent sent ("A Comparison-Contrast of Adam Smith, JM Keynes and Jeremy Bentham on Probability, Risk, Uncertainty, Optimism-Pessimism and Decision Making with Applications Concerning Banking, Insurance and Speculation") HERE: and I recommend it to readers.

Michael Brady is a working scholar and on these subjects is well-informed and writes well, without obscuring his analysis with dense abstractions. His case seems to me to be well founded. It is a new area for Smith scholars. I have not noticed the Keynes relationship elsewhere (though I am sure that those who do know of the relationship will correct my relative ignorance). Keynes, of course, was much better known to most economists prior to the ‘monetarist’ revival in the 1970s, when many of those economists of that generation had to re-learn our ‘macros-economics’ from what we were taught as undergraduates in the 1960s.

(*) I receive occasional posts from correspondents, which I sometimes share with readers, but always do so anonymously unless I received permission to identify them.

Also, please note, I always give citations to scholarly work accessible to readers, such as working papers and early drafts published in such networks as the Social Science Research Network (SSRN), which source I recommend readers subscribe to (free downloads), where recent and past work is accessible, such as on Adam Smith studies (my interest area).

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