GREAT ARTICLE MARRED BY MODERN ERROR

This morning, I read an arrticle on the considered thoughts of Ryan Patrick Hanley, the Mellon Distinguished Professor of Political Science at Marquette University, Wisconsin, USA. Over recent years I have met with, listened, read and discussed Ryan’s considered views on Adam Smith (and his considerations are always worth thinking about). In short, he is certainly worth his full professorial title.

I recommend that Lost Legacy readers follow the link and read the full piece from which I have extracted my comments. 

Incidently, congratulations to Strategy + Business for commissioning and publishing the interview.

“Smith articulated what we now call free market theory: the ways in which an unfettered economy, like an “invisible hand,” as he famously put it, organizes the activities of self-interested individuals to foster the common good.”

That may be a version of “free market theory” since Paul Samuelson famously misunderstood in 1948 what Smith wrote in 1776, but it is rather idolised mistakenly by most modern economists.

Market economies, ‘fettered’ or ‘unfettered’ have unavoidable consequences that may ‘foster the common good’, or they may in fact and instead, foster the common bad, or some mixture in between. 

Smith’s metaphor is not necessarily describing metaphorically all the possible outcomes of all merchants’ actions from investing their capital in market activities. It may promote the ‘common good’ or it may not do so. 

The metaphor describes in an “interestng manner’ (Smith on Rhetoric) a necessary outcome of the merchant’s actions. Specifically that his expenditures necessarily add to domestic aggregate demand. Why? Because one person’s expenditure cannot have any other consquence, given that one actor’s expenditure is another’s income, which in turn, when spent by the initial receiver of the actor’s spending contributes to a society’s aggregate demand. 

Yes, that was Adam Smith’s simple point about the ‘invisible hand’ metaphor,which is so obvious - I have described it as ‘blindingly obvious’ - that literally nobody among Smith’s contemporaries, including his closest and intimate colleagues, and almost all of those 19th century political economists who wrote about his Wealth of Nations (Ricardo, etc), mentioned the invisible hand  even when quoting from the very paragraph containing the ‘invisible hand’! 

Certainly, none of them drew the assertion manufactured by Paul Samuelson in 1948 — without whom there would never have been the modern myth of an ‘invisible hand’ theory attributed to Adam Smith!

Nobody, nor any mysterious ‘force’ “organizes the activities of self-interested individuals “to foster the common good” in markets. There is at least two players in markets where buyers beget sellers, and sellers go onto beget sellers, and so on ad infinitum …

One person’s expenditure becomes other people’s consumption. This can foster the ‘common good’ but it can also instead foster the ‘common bad’, for example, by using ‘dirty’ manufacturing processes or dumping waste irresponsibly.

Whether successive rounds of expenditure are morally sound (Theory of Moral Sentiments) is a matter decided by observation. After all, in Smith’s example the very merchant involved directs his expenditure to the domestic market precisely because he did not trust the honesty of foreign merchants nor the probity of their legal systems. (WN IV.ii.9. p 456)

I recommend tthat you folllow the link and read the whole reference article because it contains an excellent account of the authoritative good sense of Ryan Patrick Hanley on Adam Smith.