Wednesday, March 02, 2016

Lost Legacy Quoted CY

Sam K Hughes in  Avoiding Citation HERE

writes a most welcome report quoting from Lost Legacy:

"Most people have never actually read Adam Smith and have no idea what the “invisible hand” means.I saw via stellar economic forecaster Jim O’Sullivan’s tweet today that NY Fed President William Dudley invoked the “invisible hand” in a speech this weekwhen discussing monetary policy.This seemed like a good time to continue the doomed-to-fail campaign to recapture what Adam Smith actually wrote. Whenever I need a good dose of critical thinking about Adam Smith and political economic philosophy, I turn to Prof. Gavin Kennedy, who runs the blog “Adam Smith’s Lost Legacy.”

In this particular instance, Dudley’s speech feels like a vapid invocation of Adam Smith, by trying to apply the “invisible hand” (IH) to monetary policy:

"Let me close with a final thought. Adam Smith in the Wealth of Nations introduced the concept of the “invisible hand.” Smith argued that individuals acting in their self-interest can collectively promote the public interest. This concept, I believe, also often applies to international monetary policy.2 The biggest problems that countries create for others often stem from getting policy wrong domestically. Recession or instability at home is often quickly exported abroad. Equally important, growth and stability abroad makes it easier to set policy at home. Central banks, therefore, by individually acting on their domestic economy mandates, can collectively promote the global economy"
Ignoring for now that the invisible hand wasn’t connected with Adam Smith until decades after his death, contrast Dudley’s invocation of Smith’s Wealth of Nations (WN) with Kennedy’s:
Turning to the IH in Wealth of Nations we find a too general interpretation of Smith’s use of the IH metaphor … the “phrase” (?) describes “the unintended social benefits resulting from individual actions.” This is far too general an interpretation, though very common in modern textbooks and lectures.
In WN, Smith is discussing a singular case of a merchant who is concerned about the risks to his capital if it is sent abroad, out of his sight and control, and into the hands of a foreign legal system of which he is unsure of its probity. In response, this merchant invests his capital locally where he is surer of the integrity of the legal system, where he knows the other merchants with whom he deals and is confident of the independence of outcome if he has cause to seek legal redress.
However, by acting to protect his interests he intends only his security but in doing so he unintentionally also adds his capital to “domestic revenue and employment”, which is a “public benefit”,  albeit outwith his singular intentions.
There is nothing about the IH describing the “unintended social benefits resulting from individual actions” as a general rule. This is an extraordinary and unwarranted assertion by … those who generally assert Smith’s singular example into a general rule…
Naturally I am delighted to see Lost Legacy quoted and I urge readers to follow the link and read the full discussion.


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