Tuesday, February 14, 2012

A Psychologist Writes On Adam Smith

Peter Corning posts in Psychology Today, “The Fair Society: Adam Smith’s Psychology: His “invisible hand” was only part of the story; so was morality!”

He demonstrates in the use of his evidence to support his analysis of Adam Smith’s psychology at a standard (sadly) somewhere below that expected of a former faculty member of Stanford University.

[Before critics jump in with charges of an ‘ad hominem’ fallacy, they should note that I am attacking the quality of Dr Corning’s methodology on this occasion, not his undoubted worthiness as a person or his proficiency as a psychologist].

He writes (follow the link):

Man...is led by an invisible hand

This implies Adam Smith made a general statement about all or most men; he didn’t. In Wealth Of Nations (Book IV, chapter 2, paragraph 9), on the only occasion that he used the IH metaphor in that Work, he spoke of a specific group of merchant traders, but clearly not all, who were concerned about the security of their capital (he specifies this group four times) and who chose, therefore, to invest in “domestic industry” rather than take extra risks in the “foreign trade of consumption”.

It was this merchant alone who was `’led by an invisible hand” to invest locally, and it was the result of his “insecurity” that caused “domestic industry” to be higher than it would otherwise have been; specifically it produced a higher “domestic” annual “revenue and employment” (simply”, the arithmetic whole is the ‘sum of its parts’), and, because increasing employment benefitted the poor, Smith regarded this consequence as a public benefit.

In spite of their natural selfishness and rapacity...[men] are led by an invisible hand to...advance the interest of the society..."

Here, Peter Corning quotes from Moral Sentiments (Part IV, chapter 1, paragraph 10) and, for too trusting readers, he obscures the fact that Adam Smith is not referring to “men” in general but only to “a few lordly masters”, for whom “Providence” divided the earth unequally. He specifically refers to a “proud and unfeeling landlord” viewing “his extensive fields” without a thought for the wants of his brethren”, and who in his “imagination” he consumes the “whole harvest that grows upon them”. Beyond the little that he consumes himself” - “ the capacity of his stomach bears no proportion to the immensity of his desires”, he “receives] no more than that of the meanest peasant”

Crucially, because of this physical fact, “he is obliged to distribute among those, who prepare in the nicest manner, that little which he himself makes use of”. The “rich” landowners as a group act similarly and they distribute the “produce of all their improvements” to all the others who are dependent upon them, as they too are dependent on their labourers. Now Smith is clear the nature of the benefit to society, specifically, over the generations since the “land was divided” by Providence (c. 10,000 years ago since the discovery of farming): it affords the “means to the multiplication of the species”.

Adam Smith was very specific about the benefits from each of the cases. Far from being a general outcome, the IH metaphor is a localized outcome in which Smith uses a popular 17th-18th-century metaphor (not a simile!) to “describe in a more striking and interesting manner” their specific case-objects. In TMS, the mutual dependence of the “proud and unfeeling landlords” on the dependent “thousands whom they employ” (no food, no labour and no labour no food), had nothing to do with “charity”! In WN the IH metaphor describes the ‘insecurity’ felt by some, but not all, merchants – [See Adam Smith’s (1762) “Lectures in Rhetoric and Belles Letters’, p. 29, where he describes the role and purpose of metaphors.]

The generalization from two cases into a general theorem is a modern invention (from the 1940s). Dr Corner criticizes a pure invention that has nothing to do with Adam Smith’s use of the metaphor. It serves an ideology and has no scientific basis. The invisible hand does not exist: see Warren Samuels, 2011, Erasing the Invisible Hand: essays on an elusive and misused concept in economics”, Cambridge University Press.

More important, many of Smith's modern acolytes seem unaware of his cautionary warnings, especially in his earlier work, The Theory of Moral Sentiments, where (as a Stoic and a Christian) he stressed the fact that everything in a free market depends on a moral foundation of trust, honest dealing and, as he himself put it, "justice".

Peter Corning is partly right here, except that Adam Smith did not write Moral Sentiments “as a Stoic and a Christian”, certainly by when he prepared and published the 6th edition in 1790. To make that case here would take too much space, so I refer readers to my paper, “The Hidden Adam Smith in his Alleged Theology”, Journal of the History of Economics, no 3, 2011. Unintentionally, I am sure, Peter Corning has swallowed the myths among what he calls, “Smith's modern acolytes”, who purvey them around the Academy and which the media and politics popularises in a vulgar presentation of Adam Smith’s views. On this last point, Adam Smith never used ideas associated with the French Physiocrats of “laissez-faire”.

It is always risky treading into fields outside one’s expertise. I am not damning Peter Corner’s broad points; I am trying to sharpen them to represent Adam Smith’s legacy as the appropriate counter-point to slavish acceptance of myths about his work.



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