To Test For 'Exploitation' Ask: 'compared to what?

From a comment on Harry’s Place (a political Blog) in a discussion on globalisation and attitudes among ‘white liberals’:

“Johan Norberg's book In Defense of Global Capitalism is very good (and readable) on this. His basic argument is distilled here:

Ten years ago, when Nike was established in Vietnam, the workers had to walk to the factories, often for many miles. After three years on Nike wages, they could afford bicycles. Another three years later, they could afford scooters, so they all take the scooters to work (and if you go there, beware; they haven´t really decided on which side of the road to drive). Today, the first workers can afford to buy a car.

But when I talk to a young Vietnamese woman, Tsi-Chi, at the factory, it is not the wages she is most happy about. Sure, she makes five times more than she did, she earns more than her husband, and she can now afford to build an extension to her house. But the most important thing, she says, is that she doesn´t have to work outdoors on a farm any more. For me, a Swede with only three months of summer, this sounds bizarre. Surely working conditions under the blue sky must be superior to those in a sweatshop? But then I am naively Eurocentric. Farming means 10 to 14 hours a day in the burning sun or the intensive rain, in rice fields with water up to your ankles and insects in your face.

Comment
Globalisation excites many people and the debate stays stuck at the macro-level. It sometimes helps to get down to the micro-level to get perspective – a device that Smith used throughout Wealth of Nations and against which many neo-classical economists complain, ‘divergences’, etc.
Our predecessors did the same throughout the 19th century – ‘dark satanic mills,’ etc.

They sometimes talks as if, before the factories came, the families of common labourers and servants, spent their short lives as an idyllic life in the sunshine, feasting on nature’s bounty, drinking beer and dancing round May poles, or playing the bagpipes.

Before the factories in India, etc., the lives of the exploited children was as likely to be one of prostitution (hetro and homo), of long days in the fields and of no schooling whatsoever. The well-healed, well-fed, well-educated demonstrators in the West, who spend more to get to G8 summits to vent their spleen against globalisation than the wages of the recently globalised workforces they wish to return to their pre-factory work lives, though they have never worked on a peasant farm or in a factory to understand the differences such developments mean to the 'victims'.

Read the entire piece and the debate at: http://hurryupharry.bloghouse.net/ under ‘Bad to the Bone’ posted by ‘Graham’.

Smith Had Nothing to Say on CSR- for or against!

Corporate Social responsibility (CSR) is a modern proposition. Much of it arising from the problems associated with pollution, or with extractive methods that do not account for the environmental damage a firm’s operations cause to a locality.

Two responses already exist, or can be put under the ambit of laws, namely that polluters pay and that extraction processes must include the cost of restoring the land or sea to the situation before the process commenced. If ‘clean up’ costs make an operation unprofitable, then it should not commence, until technology resolves the clean up requirement.

But CSR that goes beyond these type of requirements, to requiring a firm to engage in social expenditures that do not arise from its operations, when not voluntarily offered, and are really an additional ‘tax’ on its revenues, in addition to the taxes on employee incomes, on local taxes for local amenities provided by local taxpayers, and on its profit taxes and other charges, are problematical. They are also the subject of current debate.

In Townhall.com (‘where your opinion counts’), Wayne H. Winegarden Ph.D., Chief Economist, Economic Solutions, makes a case against CSR in its wider sense. My problem with his article is not his opposition to CSR, but is that he ropes in Adam Smith, quite inappropriately in my view, to suggest that his writings provide ammunition against wider CSR, a line taken by Milton Friedman some time ago.

Wayne H. Winegarden writes:

“Economic theory posits that by pursuing one’s self interest, the greater good can be achieved. As Adam Smith famously noted, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” Free markets work because generally, Smith’s observation provides the optimal social outcome.

CSR proponents argue that this is not the case for modern corporations. They claim that private individuals serve their private interests at the expense of the public interest. The solution, which should come as no surprise, is an elaborate CSR scheme that redefines private interests of corporations to include public concerns. This definition contradicts the very foundations of our free market economy and society, and consequently poses a clear and present danger to the health and vitality of our economy.

To require that private company investments should also include public development investments redefines the basic economic principles that are responsible for the unprecedented welfare gains our economy has produced over the past 300 years. These are the benefits that Adam Smith was describing in his famous quote. They are the best way to ensure prosperity now and in the future – for both private individuals and the broader community.”

Comment
‘Economic theory’ in its neo-classical form certainly does advance that argument, but Adam Smith did not. The famous reference to the ‘benevolence of the butcher, the brewer, and the baker’ had nothing to do with CSR (a wholly modern phenomenon); it was about the exchange process that enabled trade to function.

Nor did self interest automatically mean that ‘the greater good can be achieved.’ It could as easily, and in Smith’s day often did, mean that an individual’s self interest could have malign, not benign, outcomes for society.

The lifting of only one part of the possible outcomes of the exercise of self interest and transmuting into a universal ‘law’ of ‘the optimal social outcome’, does great disservice to the development of appropriate social policies and to the reputation of Adam Smith, a far more nuanced theorist than presented by the dogmatic school from Chicago.

Wealth of Nations contains many more examples of malign self-interest operating for personal gain at the expense of others, of which the many cases of mercantile political economy are the most well known. Competition was favoured, not because it arises automatically, but it was the only way to ensure that individuals were disciplined by a force they could not subvert.

So unreliable was the motive of self-interest on its own to provide the optimal outcome and so distrusted was the benign nature of self-interest alone, that the power of competition was required to override the monopolizing tendencies of self-interest.

In passages related to the ‘butcher, the brewer, and the baker’ Smith draws attention to the need for the parties to trading transactions to mediate their conflicting self-interests by their addressing the self-interest, not of themselves, but of the other party. Self-interest is not enough! Self-interest brings the parties to the verge of a beneficial trading transaction (you want your dinner, and the butcher, brewer, and baker’ want your payments – to provide their means to other trades); itisin the mediation of their differences, not the unrestrained insistence of their own self-interest, that results in the ‘optimal outcome’, when, that is, both parties reduce their initial demands and raise their initial offers, otherwise known as bargaining.

Only in this Smithian interpretation of what he meant by the ‘benevolence’ passage is it true that “Free markets work because generally, Smith’s observation provides the optimal social outcome” from their transactions. That is why the first requirement of corporate responsibility includes the full costing of a corporation’s impact on the environment (polluters pay; full cost restoration of environmental damage or disruption).

Whether it should go further is a matter of debate, to which Adam Smith had nothing to say. for or against. We must use our own (new) arguments to these ends and not appeal to the authority of a name, and misinterpretations of his legacy, to make a case inappropriately.

Target Euro Regulators But Leave Smith Out of It

Problems in markets that are put down to regulators with political agendas owe much to mercantile policies much criticised by Adam Smith.

An article illustrates this point in ‘The Motley Fool at Fool.com’, called: “Free Markets? In Europe?” by Rich Smith (TMFDitty) at:

http://www.fool.com/news/commentary/2006/commentary06092726.htm:

“Right No. 2: Shareholders win when regulators step out of the way and permit free markets to work as good old Adam Smith intended, shareholders win. I have little doubt that the CNE imposed stricter conditions on E.ON's bid than on Gas Natural's, in hopes that the former would bow out and allow the latter to proceed with acquiring Endesa. If that had occurred, then Endesa shareholders would have involuntarily paid $7 billion for the "privilege" of keeping Endesa Spanish.

National pride may warm the heart, but it does little to fill the wallet. In contrast, now that the Competition Commission has forced Spain to swallow its pride, E.ON has already upped its bid to $47 billion -- raising the "national pride premium" to a cool $20 billion. Hey, call me a Tory if you want, but if Prince Charles ever offers us $20 billion to buy the Liberty Bell, I'd vote we take the money and run.”

“The more so because the Competition Commission has rudely failed to shake Adam Smith's Invisible Hand in recent years. It incessantly hounded Microsoft (Nasdaq: MSFT) for competing too effectively, attempted to turn eBay(Nasdaq: EBAY) into a unpaid tax collector, and quashed the merger of two U.S. companies, GE(NYSE: GE) and Honeywell(NYSE: HON), in 2004 (in order to protect Europe's own aerospace industry). Under Ms. Kroes's hegemony, this so-called "Competition" Commission has proven itself no friend to competition from outside the borders of the European Union.”

Comment
Why Rich Smith thinks Adam Smith would endorse such a silly ‘sell everything and anything for money’ policy I do not know.

I have no feelings about the ‘Liberty Bell’ one way or another but it seems Smith’s response to such a suggestion would have been to which other use of $20 billion would add the most to annual net revenue. I also suggest you might want to wonder where Prince Charles would get $20 billion from, whether his cheque would bounce and whether he was good for the money! (Historians might wonder for what reason would he want the Liberty Bell?)

As for “has rudely failed to shake Adam Smith's Invisible Hand in recent years”, apart from 9 out of 10 for clichés associated with Adam Smith’s name, although his use of the metaphor had nothing to do with markets, it is a really silly use of it anyway.

Rich Smith is on the right track about the regulators in Europe, but why he needs to bring Smith into the quarrel (as well as the luckless Prince Charles) is beyond me.

Rich Smith is on the right track about the regulators in Europe, but why he needs to bring Smith into the quarrel (as well as the luckless Prince Charles) is beyond understanding.

How Not to Be Invited to Visit Cambridge

Gareth Stedman Jones at Columbia University's ‘Reclaiming Adam Smith Conference’ at the Centre for History and Economic (Cambridge), where he is also Professor Political Science, and a fellow of King’s College. In short, they do not come much higher in British academe.

This he demonstrated eloquently in his paper, ‘When Did Smith Join the Neo-cons?’, which gave a highly competent and ranging analysis of what happened to Smith’s reputation among both left and right in the century and more after his death in 1790, with more focus on the early part of the 19th century.

There is not much more I can say about his contribution without breaching the protocol of the conference against citing or quoting from the conference papers. However, in every other paper this request is included below the title, but in Professor Jones’s paper it is absent. Does this mean I can refer to it or not? This is quite a poser, with caution suggesting not and the recklessness of retirement suggesting otherwise.

However, despite my retirement, and no longer a young academic ‘who lived dangerously’, as a professor-mentor once cautioned me privately at my first promotion, I shall desist from slipping between a busy contributor’s omission and commenting generally (and ‘Ken’ from his heavenly vantage point can smile indulgently that I have finally heeded his advice of 32 years ago).

In so far as I do comment on three minor matters, I shall plead for forgiveness rather than prior permission. After all, the paper is as one expects from a Cambridge Professor and judging by his physical ‘presence’ I take it that Professor Gareth Stedman Jones is well able to look after himself.

The most minor of comments is that his paper was poorly proof read, if read at all. This is not important in Blogs, or at least not as important, as it is in conference papers. The paper was finished on 15 September, probably against a deadline and no doubt Gareth was extremely busy. But I noticed no similar ‘typos’ in the other papers.

The second minor comment relates to the date of Adam Smith’s death. This could be a slip under the pressure of delivery, though among Smith scholars it was bound to be picked up when he first talked of Smith’s death in ‘1792’, instead of 1790. When the same error of his death in 1792 was repeated later in the talk I wondered.

My third and last comment is less than ‘trivial’ but again not earth-shattering. Gareth made three references to the ‘dismal science’ without once drawing the attention of the audience, not many of which were economists, to the literary origins of the term in Thomas Carlyle’s 1849 pamphlet of his defence of slavery and his brutal criticism of John Stuart Mill’s defence of the humanity of negroes taken into slavery in the West Indies and some states of the American Union.

Carlyle dismissed economists for their ‘dismal science’ because J S Mill recognised negro slaves as human beings on the same standing as white Europeans. Carlyle wrote this pamphlet under the title of ‘An Occcasional Discourse on the Negro/Nigger Question’ (depending on which edition is quoted). It had absolutely nothing to do with the economics of Ricardo or Malthus, or Bentham, and, we must note, emphatically nothing to with Smith’s account of economics in Wealth of Nations.

I spoke privately to Professor Jones immediately after he had finished speaking. He noted what I said, or rather what I started to say, and dismissed my concerns, saying he was only quoting the usual relationship credited to ‘dismal science’ and was perfectly aware of Carlyle’s role.

I returned to my seat suitably chastened by the professor’s authority, but was not happy that his reasons for repeating three times without mentioning the same false perspective on the origins of ‘dismal science’ was an appropriate justification for his choice of words to an audience of fellow academics.

● For an authoritative survey of ‘The Secret History of the Dismal science: economics, religion and race in the 19th century’ by David M Levy and Sandra Peart see: http://www.econlib.org/LIBRARY/Columns/LevyPeartdismal.html

●For a downloadable academic paper on the origins of the ‘dismal science’ in Carlyle’s racist pamphlet see: http://ideas.repec.org/p/mlb/wpaper/715.html

●For an acknowledgement of Carlyle’s awful invention of the ‘dismal science’ and a case for keeping it in circulation because Ricardo and Malthus were dismal, see: http://kwonbook.com/2006/05/17/the-dismal-origins-of-a-sobriquet/

● For a recent rebuttal of its wrong use in 18th century economics and its correct origins in Carlyle’s pro-slavery criticism of J S Mill, whiule throwing it back defiantly see: http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2006/09/kaletskys_ignor.html

Need I say more?

I shall discuss Istvan Hont’s contribution tomorrow.

Poverty is Society's Default Mode - Don Boudreaux

Don Boudreaux, of Café Hayek, one of the liveliest of Blogs from economists, puts his finger on what Adam Smith was about compared to that other giant in the history of the discipline, Alfred Marshall, (before the locus of major advances in economics passed across the Atlantic). I offer an extract, but you should read the rest of his short piece at: http://www.cafehayek.com/

“The Causes of Poverty?” by Don Boudreaux

“[The Wealth of Nations] written just as the booster rockets for humanity’s great wealth explosion were being ignited, Smith inquired into the nature and the causes of wealth. Smith understood that the phenomenon to be explained is wealth. Wealth doesn't just happen; it is not humanity’s default mode. Wealth must be created; therefore, wealth has causes.

Writing a mere 114 years later, another illustrious economist, Alfred Marshall, wrote on page two of his justly celebrated Principles of Economics of “the causes of poverty.” Marshall wrote these words as part of his explanation of why the study of economics is useful. But writing after the fruits of the wealth explosion began raining down widely, even as astute a mind as Marshall missed the fact that poverty has no causes. Poverty is humankind’s default mode. It’s what exists if we do nothing. “Creating” poverty -- causing poverty -- is no challenge whatsoever.

Escaping poverty has causes – that is, wealth has causes.

This point bears repeating. Poverty has no causes. Wealth has causes.

But capitalism has been so enormously successful at producing widespread material abundance that we today -- like Alfred Marshall in 1890 -- regard wealth as innate to our existence, as our default mode. It is not. The set of institutions that will promote the creation of widespread prosperity is minuscule in number compared to those that prevent people from creating material prosperity.”

Comment
I like Boudreaux’s designation of poverty as the ‘default mode’ of society. With an economy of a few paragraphs, Boudreaux conveys the most important idea of what creates wealth, which, absent its creative forces, it leaves people in poverty. Where these creative forces of wealth creation are frustrated, or worse, deliberately suppressed, poverty reigns.

That so many of those who are rightly concerned about poverty and its effects on people are themselves wedded to ideas that perpetuate poverty is one of the most remarkable of paradoxes of history.

The 18th-Century Chartered Companies Were Not 21st Century 'International Trading Companies'

Three contributors remain to be discussed in the remaining reports of the Columbia University Conference, ‘Reclaiming Adam Smith’. They all cover political economy in the 18th-century sense, i.e., about politics and economics.

I start with Sankar Muthu (Princeton) who delivered (in first-class teaching form) ‘Adam Smith’s critique of International trading Companies: theorising ‘globalisation’ in the age of Enlightenment’, which was a well-based study of Smith’s thoughts on an aspect of international trade.

The protocols of the conference prohibit my commenting directly on what Professor Muthu said (and wrote in the accompanying paper distributed to participants). This rule is particularly unhelpful on this occasion as there is much I wish to say directly about Professor Muthu’s paper but doing so without citing directly from the paper weakens my comments from the point of view of readers of Lost Legacy, because there were nuances in his actual statements not represented in my comments. I spoke directly to Professor Mutu during Saturday morning’s coffee session about my concerns and he responded positively, without rancour, as typifies a serious and courteous scholar, which he clearly is.

Let me speak generally then about the subject of Smith’s critique of the 18th century ‘international trading companies’. My main point is that we have to be careful in reading Wealth of Nations (Books III and IV) to downplay the limited modern relevance of Smith’s criticism of the nature of the trading companies about which he wrote. The Charetred Companies were not in fact analogous to the modern ‘international companies’ that operate across the world today in many countries (IBM, Microsoft, Boeing, John & Johnson, BP, Shell, Mobil, and so on). ‘Globalisation’ should be used with great care when back-projecting the term to the 18th century.

On the surface they had analogous forms: joint-stock company structures, run by boards of directors on the basis of share capital are prominent similarities, but like the Carronades retrofitted to 74-gun warships of the Royal Navy in Nelson’s time, they are not usefully analogous to satellite-guided cruise missiles fitted to modern warships and nuclear submarines.

Their similarities hide many significant structural and situational differences. In the 18th century the common form of business ownership was ‘co-partnery’, where the owners risked their capital and were liable to the full extent of all their personal property for business debts. The owners managed the business (or risked their capital to someone else’s decisions and behaviour). Overseas trade was similar in investors taking a share in the ‘venture’ that fitted a ship and loaded it with cargo for a single voyage for sale abroad, purchase of return cargoes and a share in the profit of the voyage on its return, whereiupon the venturer's liabilities were dissolved. If the ship sank, was taken by pirates or the captain ‘ran’, they lost their money. In short, overseas business (and domestic) was very risky – investors could lose everything.

The 17-18th centuries joint-stock company alternative was viable (not as in today’s version, a 19th-century legality open to any business, with risk confined to limited liability for the investment in shares), only because of its Chartered status, awarded by the King, which protected the shareholders to the extent of their share capital only. For this reason they raised considerable capital sums for what were risky ventures in foreign lands, aided by the additional proviso that the King’s Charter gave them an absolute monopoly of trade in a foreign country or region. Without their Royal Charters it is most unlikely that these companies would have attracted financial support, except on a much smaller scale of single-ship ventures of little economic significance, except over the very long run.

The East India Company, the salient target of Smith’s biting criticism in Wealth of Nations had a particularly special monopoly of all trade from India (defined as commencing east of the Cape of Good Hope and west of Cape Horn). Bear in mind too, that the Pacific was hardly explored - Cook’s three voyages of ‘discovery’ (Australia, New Zealand, Hawaii, Behring Straits) took place in the third quarter of the 18th century – and the Dutch were extremely secretive (and violent) about protecting the location of, and routes to and from, the Spice Islands in their part of [Indonesia]. The only ships that always passed unhindered in the area under the Royal Charter were ships of the Royal Navy - who would dare try to stop them? (The East India Company made silly efforts after 1788 to prevent the King's new penal colony of New South Wales from trading because this breached, it claimed, the East India Co’s monopoly.)

Hence, when we extrapolate much of the language (and with it the criticism) of Wealth of Nations to modern ‘globalisation’ we must take case to recognise their different contexts.

Meaningful similarities between the Chartered Companies do not include their joint stock structures or the separation of directors from shareholder owners. One of the most powerful ingredients of criminality in the East India Co was the distance in miles and time between London government and Company activities in India. It took seven to nine months to send by sea letters of instruction and similar time to receive replies and reports. For much of the time the Company was independent of supervision and the remedies to the circumstances (largely provoked by Company staff) occasioned by their behaviour. Death rates from disease were high, encouraging Europeans to remove restraints on their appalling and rapacious behaviour of outright plundering to make their money and get out as quick as they could. In short, these were special circumstances that are not attributable to today’s highly mobile communications (24-hour news cycles) and free media, inquisitive governments - and oppositions - and investigative agencies.

Constant use of the nomenclature of ‘international trading companies’, as if Smith was talking of specific traits inevitably associated with 18th century Chartered Corporations could be misleading. Modern corporations may be exposed to critiques today, but such critiques should not be supported by Wealth of Nations as if Smith and today's researchers are talking about the same phenomenon.

Smith criticised the Charter Companies, both when they were committing extreme cases of malfeasance (and worse), like in the East India Co, and when they were just bad loss-making investments from their incompetence or lack of commercial opportunities. The answer was not to apply co-partnery rules to the trading companies, nor to ‘clean up’ the Chartered companies; it was to allow in open competition by private adventurers, and to withdraw from the Chartered companies their monopoly status, and back-up such changes with the resources of the Royal Navy (as with enforcing the end of the slave trade).

This means disconnecting Smith’s perfectly accurate critique of Chartered Trading Co’s from modern debates about ‘globalisation’, by highlighting the differences, and not the nominal similarities. Unfortunately, this was not done at the time in the 18th and 19th centuries and the East India Company slid into the ad hoc adventures of the British Empire, possibly the worst mercantile decision in three hundred years of mercantile political economy.

Sankar Muthu is the author of Enlightenment Against Empire (Princeton 2003) and he is working on a new book, Globalisation in Enlightenment Thought: commerce, communication and crossing borders.

Tomorrow’s report will cover Gareth Stedman Jones and Istvan Hont’s contributions.

Out of Context but Still a Good Quote

Not for the first time, nor I suspect for the last time, I refer to John Stossel, a punchy free market US columnist and radio host. On this occasion he is reviewing Timothy Carney’s recent Cato Policy Report, "The Big Ripoff: How Big Business and Big Government Steal Your Money" in Town Hall TalkRadio: ‘Big business loves government’ (27 September 27)

Included is this paragraph:

“Another friend of the free market hated the business-government alliance: Adam Smith. In "The Wealth of Nations" Smith wrote, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick. . . . But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."

Comment
Yes, that’s a fair quotation from Wealth of Nations (WN I.x.c.27 p 145). To be clear, Smith was talking about small tradesmen combing in Guilds to create monopoly privileges in small 18th-century Towns and generally conspiring to raise prices by keeping supplies limited to their own products.

It was one of these Corporate bodies that refused James Watt leave to practise as a mechanic because he had not served the obligatory seven years apprenticeship in 1756. Smith and his fellow professors gave him a post as University instrument mechanic and space in the university to conduct his work. Fortunately for history, Glasgow University grounds were ‘outside’ the city boundaries and the Guild Corporations writ did not cover them.

Today’s big business enterprises had nothing in common with the type of ‘trades’ Smith talked about, but the point is well taken as made in the context Stossel refers to.

Read his article at: http://www.townhall.com/Columnists/JohnStossel/2006/09/27/big_business_loves_government

Carlyle, Much Lauded Man of Letters and a Disgrace to Humanity

Brad Delong on his inimitable Blog performs a useful service in revealing more dubious filth from Thomas Carlyle, lauded man of letters, but also a man of appalling views on poor people, black slaves, and economists. Read this short extract:

“Enemies of economics: Thomas Carlyle and his ‘Latter Day Pamphlets’:
[T]o these floods of Irish Beggars, Able-bodied Paupers, and nomadic Lackalls, now stagnating or roaming everywhere, drowning the face of the world (too truly) into an untenantable swamp and Stygian quagmire, has the Chief Governor of this country no word...?... Perhaps... the following...: Speech of the British Prime-Minister to the floods of Irish and other Beggars, the able-bodied Lackalls, nomadic or stationary, and the general assembly, outdoor and indoor, of the Pauper Populations of these Realms.

"Vagrant Lackalls, foolish most of you, criminal many of you, miserable all; the sight of you fills me with astonishment and despair. What to do with you I know not; long have I been meditating, and it is hard to tell. Here are some three millions of you, as I count.... The question, What to do with you? especially since the potato died, is like to break my heart!
"One thing, after much meditating, I have at last discovered.... Vagrant Lackalls, I at last perceive, all this that has been sung and spoken, for a long while, about enfranchisement, emancipation, freedom, suffrage, civil and religious liberty over the world, is little other than sad temporary jargon, brought upon us by a stern necessity,--but now ordered by a sterner to take itself away again a little. Sad temporary jargon, I say: made up of sense and nonsense,--sense in small quantities, and nonsense in very large... no better than fatal infinite nonsense eternally untrue. All men, I think, will soon have to quit this....’

Brad Delong comments:

“We are proud to have such enemies.
Note that this is not cherry-picked. Carlyle has much worse: his "Occasional Discourse on the Nigger Question," for example.”

Comment
Need I say more? Congratulations to Brad delong for publicising Carlyle's views on Irish immigration in the 19th century. He has his imitators today who go on about 'threats' of Polish, Romanian and Bulgarian immigration today with equal empty credibility.

I shall return to Brad’s posting and his comment on Carlyle's notorious essay (1849) in my third report of the Columbia University Conference tomorrow.

Reclaiming What From Who?

Report Part 2: Columbia University conference

Immediately under the title of the Columbia Conference, ‘Reclaiming Adam Smith’, the first thing I wrote on my note pad was: ‘from “what” or “who” are we reclaiming him?’ At the end of the conference I was in no better position to answer my question.

About half way through, I concluded, provisionally, that it was about reclaiming Smith from (neo-classical) economists, not because this was made explicit but because I could identify nobody else who was the ‘culprit’ from what I had heard so far, and as I had heard nobody who sounded like an economist, by elimination I concluded they must be the ‘target’. Yet, by the time that contributors began to consider some economic ideas, I was not so sure, because an underlying theme among all contributors was an acceptance of the assertions of neo-classical economists in some fairly clear litmus tests that I apply to views about him in ‘Lost legacy’.

For example, Smith was associated with the theory of ‘the’ invisible hand (not, of course by Emma Rothschild, who demolishes that notion in her magnificent ‘Economic Sentiments’), and all speakers assumed Smithian economics to be synonymous with laissez-faire, despite his not using such a concept in his writings, which, to the contrary, include quite a bit about how ‘merchants and manufacturers’ cannot be trusted to desist from monopolistic practices, hence they cannot be ‘left alone’, as per laissez-faire. There was too little time in the busy agenda for interventions along these lines, and anyway I was there to listen and learn.

But if it is not the economists from whom we must reclaim Adam Smith, then who? At the end of the conference I was none the wiser. A participant who spoke to me at the Warden of Barnard College's reception, as the conference ended, offered, without prompting, the same question with his answer that the English faculty wanted to ease themselves into Smithian studies (‘Lectures on Rhetoric and Belles Lettres’, and Smiith's essays on poetry, plays and dancing, all published posthumously) and reclaim him for ‘literary and cultural history’. Emma Rothschild wondered in her supplementary remarks, about the 'covert agenda, or one of them'(!) behind the conference. I would have liked to ask her what she meant by these innocuous remarks.

Well, in my mind the field is large enough for all disciplines to contribute their perspectives. Two literary contributions from James Chandler, University of Chicago, (‘Smith and Sentimental Mobility’) and Ian Duncan, Berkeley, (‘The Fate of Sympathy’) attracted genuine attention – I certainly was stimulated by them - though it had little to do with political economy; all means to get closer to Smith’s holistic thinking are appropriate, but this was not ‘reclaiming’ as I understood the title.

James Chandler’s linking of sentimental perspectives of ‘players’ – especially his account of ‘stage play’ single view perspectives, and the cinematic techniques of ‘cutting back and forth’ (shot and reverse shot) among talking heads, seemed to strike a chord among those I spoke with about his imaginative allusion to the mediation of moral sentiments.

Along complimentary lines, Ian Duncan, opened discussion of Scottish historical thinking (Walter Scott’s Redgauntlet, 1824, and his many historical novels, and James Hogg’s ‘Private Memoirs and Confessions of a Justified Sinner’, 1824) and the Enlightenment, with Edmund Burke (Philosophical Enquiry into the Origin of our Ideas and the Sublime and beautiful, 1757) thrown in. This was a strong paper and it would have benefited from more time for more elaboration (he lectured well, too). The respondent, Kirstie McClure, UCLA, was enthusiastic about his ideas (she also teaches political science to English students) and was the last person with whom I briefly discussed near the end of the conference (we shared a space during coffee), indicating in my mind that some evening session (informal dinners) would have been most productive if they had been loosely arranged for participants to engage with others to develop their ideas. I certainly would have benefited from hearing her thoughts developed. Where people do not know each other it is difficult to match them by leaving them to their own devices; generally those who already ‘know’ each other make such arrangements; strangers are left to drift off, as I did.

Sam Fleischacker (University of Illinois) was a strong ‘first bat’ on behalf of philosophy, speaking on ‘Hume and Smith on Sympathy’. It was a brilliant technical performance, typical (that is not meant to be derogatory) of a clear thinking, even fastidious, philosopher professor in complete command of his material (I speak after many School Boards and University committee meetings where the association of high intelligence and common sense are rare aberrations). He focussed on the relations between ‘ideas’ and ‘imagination’ in Hume and Smith, but being ignorant of Wittgenstein’s work, and Kant’s significance (I know of the ‘categorical imperative’, however) and I missed aspects of his argument, which may be crucial to his paper’s conclusions; an offence, I suspect, no student of his is allowed to commit.

This was the session much affected by lousy acoustics and poor voice projections from interveners (not Sam Fleischacker), so I missed large parts of the brief discussions from the other side of the room. Unfortunately too, Sam had to leave sharp that afternoon to return home to Chicago for an important family event, curtailing a too short discussion. His book, 'On the Wealth of Nations: a philosophical companion' is high on my list of favourite books on Smith.

Later today, perhaps, but certainly tomorrow, I shall report on themes in papers by Gareth Steadman Jones (Cambridge) and Sankar Muthu (Princeton), and Ivan Hont.

Back at Work! Reporting from the Columbia Conference (part 1)

As announced last week, I was in New York until last night, the purpose of my visit was to attend a conference entitled ‘Reclaiming Adam Smith’, organised by the Columbia University Seminar on Studies in Political and Social Thought, the Heyman Centre for the Humanities, the Conference for the Study of Political Thought, and the Office of the Provost, Barnard College. I know, a long intro but academic politeness mandates a full reference.

Taken as a whole it was an illuminating experience. Despite the room changes, I managed to find tmy way to the sessions. Apart from Professor Chris Berry, Glasgow University, I knew nobody who attended, except by the writings of a few of them. In that sense it took some time over the two days before I was spoken to or I spoke to anyone. I went up and introduced myself to some people but felt awkward, I must say, at the cool, not to say, cold reactions. On reflection, perhaps many others were also strangers to each other and my experience was more general than it seemed. Perhaps, though, they thought I was a ‘nutter’ of some kind – well I did have a suit on, which probably worried anybody not from a Business School (er, joke!). I am an economist, of which there seemed to be few, if any others at all.

Let me get some negative comments out of the way. Most of the people attending were experienced and distinguished academics but the absence of elementary speaking skills surprised me. Too many considered that it was an acceptable standard of public performance to speak in a low-level conversational style unsuitable in rooms that were large, had appalling acoustics, and ignored the possible interest in what they were saying among the fairly spread-out audience of 50 others, plus the platform speakers. Even most of the platform speakers (with some notable exceptions) seemed to ignore the microphones, didn’t know how to adjust their height and direction, and also mumbled their responses to questions and interventions, a failing that, frankly, amazed me. Maybe there were not used to such a ‘large’ audience, which might explain the room changes. Hence, I missed much of the interactions in some of the sessions, which was a pity, given the high interest I found in what those floor speakers had to say who spoke loudly and clearly.

All the speakers read their papers (except one, a brilliant theorist of whom I shall report on tomorrow), which were handed out on the second morning and which I have since read carefully. They make excellent reading. All the authors of the printed papers request that they not be quoted from as they represent ‘work in progress’ and I am obliged to respect the authors’ embargoes under the normal rules of academic courtesy. Any comments I do make on what was said will be from my own notes and not from the written papers, and should be treated with caution and not as the final thoughts of the distinguished authors.

I would like to comment first on the ‘joint-star’ of the conference (in fact he slightly edges it), Nicholas Phillipson, Emeritus Reader in History at the University of Edinburgh. Until the conference I had not heard of him or his work (though many other attendees did know him, judging by how warmly they greeted him during the intervals). I found his performance outstanding, as he showed everybody how to lecture, and he clearly followed Adam Smith’s advice in ‘Rhetoric and Belles Lettres’: to know his subject (he does), to be perspicuous (he was) and to be enthusiastic (which he is in spades).

He is writing an intellectual biography of Adam Smith, of which, if his session was but a sample, augurs well for what is coming, to which I certainly await with anticipation of not being other than educated in aspects of Adam Smith, so far untouched by what has been written to date. Meanwhile, I shall look for his previous publications.

His close ‘joint star’ was Emma Rothschild, author of the magnificent ‘Economic Sentiments: Adam Smith, Condorcet and the Enlightenment’ (2001), an excellent example of scholarship. She too spoke clearly, enunciating with perfect pronunciation her English and her French, and gave an account of Smith’s views on Empire and the connections he had with some close friends who had within their households individual slaves from the colonies and Africa. Smith, of course, opposed slavery on both economic (it was less efficient compared to wage labour) and moral grounds (it condemned human beings to the level of ‘the jail refuse of Europe’). It was her command of the detail that was impressive and the way she wove it into her themes of Smith’s views that colonies and empires were a false road to the creation of wealth, upon which he banked his vision of a general opulence, particularly for the labouring poor. The ‘empire’ project took off in earnest after the end of the Seven Years War (1756-63), the real First World (European) War, and its effects were much deeper felt in the British political establishment than I had realised to that point.

I remember taking the ‘Economics of Empire’ as an undergraduate and what Rothschild outlined in her paper fitted with my distant memories of my classes and readings. The ‘loss’ of the American colonies and the rising importance of India drew Britain into Empire, with all of its consequences - wars of conquest, national rivalries, and the waste of blood and treasure, let alone much of the miseries of the populations affected. Empire was a mistake of gigantic historical proportions and a set back for Smithian wealth creation, mitigated marginally by a minority of British colonial officials who did a good job, despite official disinterest and political scheming).

The colonies annexed in the late 19th century, in the main, represented dead losses to Britain and this is underlined by the direction of outward capital flows, not to Africa and India, but mainly to America (no longer a colony), with fewer capital flows to Canada, South America (also independent ex-colonies), South Africa and Australasia, but they were larger than what went to the colonies proper. Lenin’s ‘Imperialism, the highest stage of capitalism’, was totally wrong in seeing colonies as essential to capitalism; the British experience showed differently – they represented net losses, not gains.

I shall return to the second part of my report, plus my conclusions, tomorrow.

APOLOGIES: while I attend an academic conference in New York

Apologies, but there will be little, if any, Blogging from Thursday (21st) to Tuesday (26th) because I am visiting New York to attend an academic conference, ‘Reclaiming Adam Smith’, at Columbia University (22nd-23rd) (Millbank Hall, 3009 Broadway).

Regular readers may guess why I am interested in what US and European academic colleagues have to say on this subject.

If my wireless laptop works I may be able to connect sometime (I am never that confident about the technology in these matters).

You can read from the archives, back to March 2005, from the buttons on the right of this page, or from the articles and comments from the buttons on the left on the home page.

No doubt, I shall have lots to report about the state of Adam Smith scholarship when I return.

An Appreciation of Smithian Economics from India

A ‘strange’ article in News Today (India), not because it includes ideas I disagree with, but because it is not clear what the point is in publishing it. You need to know who Narasimha Rao was to reads it:

“Narasimha Rao (June 28, 1921 – December 23, 2004) was the ninth Prime Minister of the Republic of India, and led possibly the most critically important administration in national history. A polyglot, Rao could read and write in 17 languages.He could speak and write Urdu, Marathi, Hindi, Telugu and English like a native. He learnt European languages like French and Spanish too. He translated Jnanpith Award winner Viswanatha Satyanarayana's Telugu novel Veyi Padagalu (literally Thousand Hoods) into Hindi as "Sahasr Phan". Rao studied at Osmania University and the Universities of Mumbai and Nagpur, acquiring Bachelor's and Master's degrees in law.Rao was an active young freedom-fighter, and after independence, joined politics full time. Rao served brief stints in the cabinet (1962 - 1971) and chief ministries (1971 - 1973) for the state of Andhra Pradesh. When the Indian National Congress split in 1969, he remained loyal to Prime Minister Indira Gandhi, and stayed so during the national emergency (1974-1977). He then rose to the national level in 1972 by serving in several ministries, most significantly home, defence and foreign affairs (1980 - 1984), in the cabinets of Indira Gandhi and Rajiv Gandhi. He was the first PM from South India and Andhra Pradesh.After the assassination of Rajiv Gandhi and the general elections of 1991, Rao was chosen to lead the Congress party, and when Congress won a plurality in parliament later that year Rao was invited to head a minority government. He was the first person outside the Nehru-Gandhi dynasty to serve as Prime Minister for five continuous years. He was also the first prime minister to lead a minority government for a full term (five years). This is a singular achievement in the stormy, corrupt and torn world of Indian politics.”

Obviously an important person in the dramatic changes in India society who steered through the reforms to set markets free of State management and regulation that have led to massive social changes in India. Tens of millions have been lifted out of abject poverty, no mean task given from whence India began, post-independence. State socialism failed in India as it did elsewhere in Russia, China and Eastern Europe (and Cuba!).

Here is what the author says about Adam Smith in News Today (India 20 Sept 06) where V Sundaram writes:

“ 'The Wealth of Nations' introduces readers to the world of philosophy, politics and business with the sharp, sceptical, yet ultimately optimistic Adam Smith as a guide. Just when the Industrial Revolution explodes in England, Smith confidently points to every player, from farmer to friar to merchant to shipper, masterfully making sense of the social upheaval. Furthermore, Smith approaches economic policy without a biased brief for a particular party or class. No one could accuse him of sycophancy or insincerity. Though he finally endorses the rise of the bourgeois, he warns society not to naively succumb to bourgeois blandishments. In a way, the 1776 publication of 'The Wealth of Nations' brought forth a declaration of independence for economists.
Adam Smith is the father of free market economics. He brilliantly states that individual ambition, effort and choice are guided by an 'invisible hand' ? a term employed by him in his earlier 'Theory of Moral Sentiments' (1759) and mentioned only once in 'The Wealth of Nations' ? to create the highest social benefit: that in order to encourage individuals, government ought not to interfere in economic matters; that efficiency in production will be increased by division of labour (his classic example was a pin factory in which worker specialisation boosts output); that value and price are distinct aspects of economic transactions; that prices and wages are best determined competitively and that 'balance -of-trade' justifications for high tariff walls and other mercantilist protections are hogwash.
The important natural drives or 'propensities' Smith discovers in human nature form the basis of his analysis in 'The Wealth of Nations' and the foundation of classical economics. All humans want to live better than they do. Smith finds 'a desire of bettering our condition, a desire which, though generally calm and dispassionate, comes with us from the womb and never leaves us till we go to the grave ... Between the womb and the grave, there is scarce perhaps a single instant in which any man is so perfectly and completely satisfied with his situation, as to be without any wish of alteration or improvement of any kind'. Second, Adam Smith points to 'a certain propensity in human nature to truck, barter, and exchange one thing for another. It is common to all men'. Adam Smith called these urges as the invisible hand of enlightened self-interests.
To increase the wealth of a nation, Smith argues that society should exploit these natural drives. Government should not repress self-interested people, for self-interest is a rich natural resource. People would be fools and nations would be impoverished if they depended on charity and altruism. A healthy society cannot rest its future on the noblest motives, but must use the strongest motives in the best possible way.”

Comment:
I am not going to dissect these passages, being pleased to see some articulation of the policies behind the Indian break away from the dead-hand of the state – which has still some way to go. Governments that try to ‘manage’ economies usually make them worse. I shows a very Smithian message, without him dropping into the errors of libertarian extremes.

Jagdish Bhagwati for this year's Nobel!

Nominations are moving up the chattering agenda for this year’s “Sveriges Riksbank (Bank of Sweden) Prize in Economic Science in memory of Alfred Nobel”. Awarded simultaneously with the traditional Noble Prizes (which relate directly to Nobel’s Will), they are seriously contested each year with armies of economists lining up behind their favourites.

I too have been adding my two-pence worth each year and always for the same person, Jagdish N. Bhagwati, whose (difficult) articles I read as an undergraduate student of economics and whenever since I came across them (less difficult). I am now retired.

Greg Mankiv, ever at the forefront of what is going on in the profession, today started the season’s nomination exchange in the Blogosphere, so I thought I would get my nomination in before the ‘big guns’ open fire (from the people, that is, who are probably asked to make their own nominations officially to the committee).

My support for Jagdish Bhagwati does not express disappointment with those who were successfully nominated in the past. I was especially pleased when Amartya Sen was awarded the prize. As a junior lecturer many years ago, I heard him deliver a seminar paper and was most impressed – his theme was moral choice and he used the example of choosing to wipe or not wipe the washbasin on an international flight to make his welfare points. Recently, I re-read his ‘Development as Freedom’ (Oxford, 1999) and it is as fresh as it was some years back, and is noted for its appropriate references to Adam Smith’s economics and moral philosophy.

However, my ‘vote’ today would go for Jagdish N. Bhagwati because he has long had a strong claim on the award. His work continues consistently to influence debate on the major issues of the day, as his analyses cut through the noisy confusion of those aiming to decide these issues on the streets.

Smith's and Darwin's Evolutionary Models

The ‘debate’ between religion and science is much sharper in the United States than in the UK. Recently, it became a debate about ‘Intelligent Design’ versus evolution, a subject less fraught here than in North American media. The fact that in the UK the consensus about the validity of evolution has not caused a crisis among Christians or Jews, or a collapse of their religious values, ought to give comfort to those who feel unable to accept any questions about theology in case their religious faith erodes. That the Roman Catholic Church has accepted much of the theory of evolution, without abandoning one iota of its faith, is comforting to those worried on that score.

Michael Shermer, publisher of Skeptic (www.skeptic.com) and author of ‘Why Darwin Matters’, enters the debate with an article in Scientific American (October 2006): ‘Why Christians and conservatives should accept evolution’. The part of his article that caught my attention deals with evolution and free market economics:

“Evolution explains conservative free-market economics. Charles Darwin's "natural selection" is precisely parallel to Adam Smith's "invisible hand." Darwin showed how complex design and ecological balance were unintended consequences of competition among individual organisms. Smith showed how national wealth and social harmony were unintended consequences of competition among individual people. Nature's economy mirrors society's economy. Both are designed from the bottom up, not the top down.

Because the theory of evolution provides a scientific foundation for the core values shared by most Christians and conservatives, it should be embraced. The senseless conflict between science and religion must end now, or else, as the Book of Proverbs (11:29) warned: "He that troubleth his own house shall inherit the wind."

Comment
It is a neat argument to link a Conservative economic totem (the free market) to religious belief. Unfortunately, the way Shermer does this is false. Darwin’s natural selection is not ‘precisely parallel’ to Adam Smith’s metaphor of the ‘invisible hand’. Darwin makes a statement, not a metaphor, about an evolutionary process – ‘natural selection’ – while Adam Smith used a ‘metaphor’, not a statement. Darwin’s evolution had content; the metaphor of the so-called invisible hand’ had none.

Of course, Shermer only picks up what US faculty teaches, namely a so-called ‘theory of markets’, wrapped round a metaphor. It helps in this context that Christians (and Jews and Muslims) believe in an invisible God, which must be attractive to believers in ‘invisible hands’. Indeed, several economists have suggested that Smith meant by ‘an invisible hand’ something related to a Deity (see Jerry Evensky, for example, ‘Adam Smith’s Moral Philosophy’, Cambridge, 2005). But it is still a false prospectus because that is not what Smith meant. He was not even writing about ‘markets’ on the two occasions in which he used the metaphor, one each in ‘Moral Sentiments’ and ‘Wealth of Nations’. His use of ‘the invisible hand of Jupiter’ in his essay on ‘Astronomy’ was about pagan religious superstition.

He did not consider that ‘national wealth and social harmony were unintended consequences of competition among individual people’. Wealth – the annual output of the ‘necessaries and conveniences’ of society – did not require social harmony. If society had to enjoy ‘perfect liberty’ to produce goods, no society in the history of the Earth would have done so, yet they did, despite regimes showing degrees of disharmony from mild to tyrannical for almost the entire history of the human species. Perfect liberty has never, yet, been experienced; Smith opined that it was unlikely that they would ever do so.

Social harmony arose, not from competition between peoples, but precisely the opposite. Individuals learned about acceptable moral behaviour from within those elements of society to which they were exposed from the family, childhood and the ‘great school of self command’, i.e., interactions with others as they grew up to adulthood, and their exposure to ‘impartial spectators’ of their conduct.

There is a major difference between biological evolution, what Shermer forces into a statement called ‘Nature's economy’, and ‘ society's economy’. Biological evolution takes a vastly greater amount of time to work through, while social evolution in society is vastly quicker. Human language and knowledge is capable of speeding up social evolutionary processes. Perhaps, one day in the future, science may ‘speed up’ biological evolution but for the present is remains slower.

Economic change shows characteristic of biological change. It is undirected, undesigned, and uncontrollable. The most economists can do is remove inhibitions that slow down growth towards opulence. That was Smith’s purpose in writing his report on what caused the creation of wealth. His model had many elements in it of a social evolutionary model. He looked backwards in history for his data. Darwin looked around him from his Beagle voyage and collected reports and samples from a vast array of correspondents from around the world on the flora and fauna, while evolutionary geologists, such as Smith’s friend, James Hutton, looked at where rock formations were in late 18th-century Britain and thought about how they got into their then present states.

I cover the Smithian social evolutionary model in my forthcoming book, ‘Adam Smith’, Palgrave, 2007. You can also read a positive contribution on the social evolutionary model in Jim Ottesons’ ‘Market Place of Life’, 2002.

A Conservative Case for Adam Smith

Conservatives, and people described as ‘rightwing’, have long claimed propriety ownership of Adam Smith, a claim that has been challenged recently by Gordon Brown, British Chancellor of the Exchequer, and by Professor Iain McLean, Oxford University, whose recent book, ‘Adam Smith, Radical and Egalitarian, an interpretation for the 21st century’ (Edinburgh University Press) will be the subject of my review shortly.

I read an article this morning published by Human Events online: ‘National conservative weekly’ (since 1944), “How to Win the Climate Change Debate by Alex Bozmoski, Sept 18, 2006, which contains some interesting comments on Adam Smith:

“Conservatives are lucky. Despite our recent intra-movement bickering, we have a strong, consistent, and viable philosophical tradition. We are a movement grounded in ideas; liberalism today is more or less just emotion. We, of course, used to be rather artificially divided -- Adam Smith's libertarian disciples vs. Edmund Burke's traditionalist disciples. Thanks to Frank Meyer and other "fusionists," conservatives realized that in fact the ends of traditionalism and libertarianism were shared, and the resulting movement grew into an intellectual and political powerhouse, fueled by the minds of conservatives we all admire like William F. Buckley Jr. and Barry Goldwater, and eventually articulated into practical policy that the average American can understand and relate to by Ronald Reagan.”

Comment
“Adam Smith's libertarian disciples vs. Edmund Burke's traditionalist disciples.” I can only guess what is meant by “Adam Smith's libertarian disciples” but I presume this has something to do with Smith’s Chicago reputation as an advocate of laissez-faire, of which there has been plenty of critical comment by me in earlier Blogs on ‘lost legacy’.

The Kirkcaldy Smith does not fit that image of Adam Smith. That does not, of course, mean he fits Gordon Brown’s (or Iain Mclean’s) image as a sort of social democrat, or, in extremis, some version of 18th-century ‘socialist’. It does mean that Smith was a far more complex philosopher than right and left wing commentators sometimes present him to be.

Smith had a friendly relationship with Edmund Burke for much of his life (the latter admired his 'Moral Sentiments' book and said so) but their intellectual compatibility cooled somewhat as Burke distanced himself from Smith (and quite violently in the early 1800s) as the French Revolution displayed its violent passions and the French Terror erupted from 1793. By then Smith was dead. His friends and supporters felt the force of the government and its repressive legislation (various men were hanged and others were transported; a few were ruined) as suspicions fell on some of them (e.g., Dugald Stewart) who were associated with Smith’s political economy, or rather, interpretations made of it by a frightened elite, still smarting from the American defeats and fearsome of imaginary French-like Mobs running amok in Britain.

Alex Bozmoski applies his thought to the “Free Market”:

"I often worry that conservatives confuse favoring the free market with favoring business. Perhaps the distinction would be inconsequential if business actually lobbied for free-market reforms, but that is not always the case. Business today is often a well-endowed driver of protectionist trade-barriers and government hand-outs. (Cotton is surely not grown in Arizona because market pressures.) Conservatives’ embrace of free enterprise isn’t even grounded in the resulting prosperity of a free system. Such reasoning would in fact counter conservatives’ disdain of materialism and the “soulless corporation,” to again borrow from Professor Kirk. Rather, the free market is a venue for individuals to exercise freedom with minimal government interference. That freedom should only be limited when it may impede the freedoms of others, as is the case when the market itself cannot value the negative societal externalities of trade, such as traffic congestion or pollution. Even Milton Friedman acknowledged a proper place for the government in internalizing negative externalities or “neighborhood effects.” The conservative recognizes the societal cost of greenhouse gas emissions, and should focus on the most efficient way to determine and then internalize their price. Command and control regulation is the liberal way, not our way.”

Comment:
This seems clear enough and I find parallels with Smith’s thinking (though he did not explicitly state the case for 'Pigovian' taxation - see Greg Mankiv's Blog). He did, however, state a clear case in Book V for the users of publicly-funded roads, bridges, harbours and canals, to pay for their benefits of accessing them. From that principle, providing it meets his ability-to-pay canon on taxation, as it does with commercial users who can charge their customers, but not with the children of the very poor whose parent(s) cannot pay for their education, it follows that the polluters should be charged for the disamenities they cause.

On favouring business and not consumers (the ultimate purpose of production said Smith), we have common ground. Pro-business advocates and pro-union advocates have that in common; they both ignore the consumers; Smith didn’t and neither should we.

Ever Wondered of What an Invisible hand Consists?

A Union view of the price mechanism and the ubiquitous ‘invisible hand’ of the market contrasts with my other piece today stating a rightwing view of markets and environmentalism (from Union.com):

“Wouldn’t a Bush administration powerful enough to control gas prices — a power that has escaped every administration before it — be powerful enough to clean up New Orleans in 12 months?

Some people believe that everything must be controlled by some powerful hand. They’re right. But it is not the hand of government or big corporations. It is what Adam Smith called “the invisible hand” — the end result of millions of individual choices working independently in the marketplace.”

Comment
Gas prices are set by ‘the market’ (preferably: ‘markets’) and they are “he end result of millions of individual choices working independently”. True, but no ‘invisible hand’ is involved.

And Smith did not refer to ‘the’ invisible hand; it was ‘an invisible hand’, and he was not referring to markets but to the consequences of individual unintentional actions, in the sole case in Wealth of Nations he spoke about individual fears of the security of their capital causing them to prefer to invest locally rather than out of their sight.

This leads to the usually unasked questions: Of what does an invisible hand consist? Why is such a metaphor considered to be necessary to explain markets? Why do people believe Smith used the metaphor in the manner they do, but which he did not?

Smith's True Legacy

India has a lively print medium that promotes considerable discussion of economics as an historical subject (mentions of Adam Smith, David Ricardo and John S. Mill abound) and as an analytical subject (the neo-classical abstraction). There is far more public as opposed to professional discussion of economics than commonly found in UK media. The quality of the discussion is not always authoritative, but it is more often than not, at least in the level of discourse, evidence of a widely read authorship and, presumably, of the readership too.

C T Kurien, writing on development provides an example of what I mean in Frontline (‘India’s National Magazine’: vol 23, issue 18, 22 September). Here is an extract:

“There are two broad approaches to economics. One of them puts the emphasis on its formal and logical aspects and its general applicability as a science. The other is more concerned with its substantive subject matter. Those who adhere to the former position trace its ancestry to Adam Smith's classic work The Wealth of Nations (1776). Although in it Smith had dealt with a wide range of issues, what have subsequently been elaborated are his observations of exchange as an innate human activity and the market as the automatic functioning (the much celebrated `invisible hand') mechanism facilitating it. The `universal laws of economics' have been premised on these observations. By the middle of the 20th century, those who followed this tradition claimed to have built up economics as the universal science of choice under conditions of scarcity.

But this has been essentially an Anglo-American tradition passed on to the former British colonies, including India. (Those who are interested in a detailed exposition of this tradition and a critique of it may consult my Rethinking Economics, Sage Publications, 1996.) That Smith was not the founder of economics can be seen from the fact that half a century before the publication of The Wealth of Nations, professorships in economics were established in Germany in 1727 (see page 57 in the second volume). It is a contested issue whether even in the U.K. Smith's work was the first major writing on economics, or political economy, as it was then known. A strong case has been made (by Colin Clark, Arthur Lewis and Amartya Sen among recent writers on economics and developmental economics) that in the U.K. the first major writings on economic issues were by William Petty (1623-1687) whose A Treatise of Taxes and Contributions (1662), Political Arithmetic (1671-72) and other contributions dealt with a number of important economic issues.”

Comment
I am not so sure that Adam Smith can be pigeon-holed in this manner. First of all Wealth of Nations is not a textbook on economics as a science. It was a report of his inquiry into a major social question, namely, what was the nature and cause of the wealth of nations (you get exactly what it says in its title).

Yes, he did assert that exchange (‘truck, barter, and exchange’) was a human ‘propensity’ (OK, ‘innate’ if you must, but only loosely), arising he said from the faculties of ‘reasoning’ and ‘speech’. I am not so sure, however, that we can say with confidence that modern economics owes anything to ‘elaborating’ on that assertion; quite the reverse – economists tended to ignore Smith’s assertion and thereby neglect exchange relationships in favour of ‘automatic’ price determination over bargaining, the former well defined mathematically and the latter still a hopeless mess because neoclassical theory is still stuck where Francis Ysidro Edgeworth left as the "indeterminacy of contract" (bargaining) in 1881.

The situation is no clearer when we consider what C T Kurien describes as “the market as the automatic functioning (the much celebrated `invisible hand') mechanism facilitating it.” For a start, in Smith’s view the relationship was the reverse: it was not the market that facilitated exchange, but the propensity to exchange that facilitated the division of labour and the market.

As for the ‘much celebrated “invisible hand” being the ‘automatic functioning mechanism’, I have expressed my doubts (indeed, my conviction) that Smith’s use the metaphor, apparently forever to be associated with his name, was not a ‘law’, and most certainly not a ‘theory’, but, as any metaphor is ever used, merely to give ‘colour’ to his prose, a purely rhetorical device in fact, that has been promoted without any real basis into something ‘wonderful’ or (even) ‘miraculous’, as if there is something as ‘universally’ mysterious as there is ‘universally’ applicable about how markets work when there isn’t anything we do not know about markets.

If, as C T Kurien, asserts that by ‘the middle of the 20th century, those who followed this tradition claimed to have built up economics as the universal science of choice under conditions of scarcity’, we should note that those who ‘followed this tradition’ were not following anything remotely relatable to Adam Smith’s ideas in his report. After the marginalists (Walras, Edgeworth, Marshall), neo-classical economics completely broke with Adam Smith, though they stayed in touch (only just) with Ricardo.

If Smith was not related to what C T Kurien calls ‘the Anglo-American tradition’ how does he stand alongside the approach which is ‘more concerned with its substantive subject matter’? I can only refer readers to Wealth of Nations. If that book is not concerned with ‘substantive matters’, specifically with how wealth (the annual production of goods that supply the ‘necessaries and conveniences of life’) is created and how it applied to 18th century Europe, I cannot think of another word that would accurately describe what he was about.

To suggest he wrote a ‘principles of political economy’ falls at the first fence. He did not write a comprehensive treatise (compare Sir John Steuart, 1767; David Ricardo, 1817; J. S. Mill, 1848; A. Marshall, who all wrote what we call textbooks). Smith’s reputation for including many detailed ‘diversions’ within Wealth of Nations arose from people who expected a treatise and found a specific report, highly focussed on adressing his title only; his so-called diversions were actually the data and evidence suppoting his report about his title, not about political economy generally.

Whether Smith was the ‘first’ economist or not is less important than what his posterity has accorded him. To make him the ‘first’ economist it has been necessary for his actual work to be transmuted into what it was not – a metaphor, for instance has been promoted to a theory and his theory of exchange has been ignored. This 'deception' has been successful because few people read Wealth of Nations - their copies grace their shelves only - and those who do tend not believe what their tutors told them.

Nobody before him, I suggest, produced the devastating critique of general government policy, served up to gullible legislators by special interest groups, in the manner achieved by Adam Smith.

That is his true legacy.

Nonsense Alleged About Adam Smith in Harvard Crimson

New students attending Harvard University receive all kinds of information from other students on the available courses they can take. Much of it’s amusing, some of it scurrilous, and some a bit OTT in a bid to ‘shock’ the ‘Freshers’ (were students ever different?).

At Harvard the print medium is dominated by Harvard Crimson (daily since 1873), and one item caught my eye on Friday

“Social Analysis: food, money, power (sorry no sex) 14 Sep

“Social Analysis isn’t the sexiest of Core categories, but it ain’t the dreariest either. (Hello, Moral Reasoning.) Besides, many of you won’t have to worry about it to begin with. Social Analysis 10 = Ec 10 = Harvard’s most popular freshman class. For those who foresee a high-flying life in finance—or for those who have no idea what they want to do with their lives and hey, economics could be interesting, right? right?—this is the easiest shopping choice you’ll ever make. One year of Adam Smith and N. Gregory Mankiw (guess which one worked in the Bush administration!) and you’ll be able to justify all manner of evil. It’s practical, painless, and potentially profitable. Best of all, you’ll be done with Social Analysis, right off the first-year bat. BAM!”

Comment
Greg Mankiv is probably one of the most famous of professors in the economics in the US today. His textbooks are the 21st century’s equivalent of the 20th century’s ‘Samuelson’, which were popular in the 1960s when I was a student, in terms of sales, usage and teaching aids. The main difference is that Mankiv has made it a business proposition on a grander scale than Samuelson. Instead of just one text and a workbook, Mankiv has several texts, workbooks and teacher’s aids.

They are also expensive too, and, like Samuelson’s series, they are regularly changed by new editions, which frustrate the second-hand market (the author only gets royalties from new sales). Add in companion web sites and there is a double bind; class exercises change with each new edition.

That is by way of introduction for those (few, I presume) who do not know of the Greg Mankiv phenomenon. Mankiv writes a widely read Blog each day (bookmark it at: http://gregmankiw.blogspot.com/) which includes his perspective on issues of the day (he states he is Republican party affiliations, though I would not say he was dogmatic or remotely ‘neo-con’), and he has polite spats with Brad Delong’s blog (bookmark it: http://delong.typepad.com/).

Delong's lively Blog is written from a Democratic Party perspective. He is rabidly anti-Bush, with hints of a social democratic tinge, perhaps from his youth; he wants practically the whole Bush cabinet, including the President, to be impeached and he wants all of them to be ‘impeached now!’

From the ‘students’ report on ‘Ec 10’ I think the sentence, ‘One year of Adam Smith and N. Gregory Mankiw (guess which one worked in the Bush administration!) and you’ll be able to justify all manner of evil’, is disturbing. I take it that the view expressed about ‘all manner of evil’ is a student’s twisted perspective and not representative of anything Greg Mankiv teaches.

How students could attend lectures on Adam Smith and read his books, Wealth of Nations and Moral Sentiments, and come to associate anything about Smith that would label him with anything ‘evil’, let alone ‘all manner of evil’, is so incredible as to defy understanding of the word or the phenomenon of evil. Smith could be wrong about his philosophy and his political economy, but nothing he wrote or taught was ever 'evil'.

The student author must have been attempting provocation by shock, not from considered judgement. If the student believes what he or she has written then that is a great pity (I thought one had to be in the top percentile of the educable population to get into Harvard).

In Greg Mankiv’s Blog today he comments on the Harvard Crimson report but does not mention the contents of the paragraph reported above. He leaves the allegation of ‘all manner of evil’ on the record. I find that strange.

Perhaps Mankiv is indifferent to notoriety about what he teaches, or rather is alleged to teach, coming from patently suspicious sources. Certainly, reading his Blog daily, as I do, I am not persuaded that he does other than teach clearly about economic theory and its history.

Still, I would like to have seen a repudiation of the nonsense published on this occasion in Harvard Crimson.

A Welcome Trickle of Re-Appraisals of Adam Smith

We are in the British season for party political conferences where the party leaders parade their policies and their internal party concerns, and the public looks on, if inclined, increasingly, so we are told, with disdain for politics in general.

The spin hacks are already hard at work, doing what they do, and aspirants within each party jostle for attention, some to seize a public mood, others to put markers down as a ‘big ideas’ politician. The problem with the first gambit is that moods among the public are fickle; the problem for the second gambit is that there are not many people in or out of politics who have mindsets conducive to intellectual enthusiasm.

One of the latter kind caught my eye this week from David Lidington MP (Conservative) issued a press release of his speech on ‘Social Enterprise and Government’. Among other things he opined:

“But too often we talk about the central political challenges of how best to create wealth and relieve poverty in terms of models of how society works which are intellectually coherent but which also present a misleadingly simple picture of how people organise their individual and collective lives.

On the one hand, there are those who argue that all that needs to be done is to break the fetters of free market capitalist enterprise and all manner of things shall be well. The beneficent "invisible hand" of the market will ensure not only that virtue and hard work are fairly rewarded but that the benefits will trickle down to everyone in society. Capitalism will inevitably harness to the common good the natural propensity of men and women to seek reward and profit for the work that they do. There is a great deal of truth in this analysis. But, as Adam Smith himself recognised, human beings are motivated by more than just the hope of material gain. You have to read the "Wealth of Nations" in the light of Smith's other great work, "The Theory of Moral Sentiments". There is such a thing as society. Capitalism is the best means that human beings have so far discovered to create wealth and spread prosperity, but there are and always will be people who, for a variety of reasons, find it difficult or impossible to thrive amid the rigours of the market. If we are serious as a country or as a city about the aim of life, liberty and happiness for all, then we have to find ways of doing politics which take those people into account.”

Comment
Ignore the myth of the ‘beneficent “invisible hand” of the market’ and focus on ‘human beings are motivated by more than just the hope of material gain’. That is a step forward.

All references, and there have been many recently (and long may that continue) to the need to read Wealth of Nations and Moral Sentiments are most welcome at Lost Legacy. It’s as if the past focus solely on Smith as a political economist has been widened by a proverbial ‘trickle down’ effect from the, as yet small, stream of re-appraisals of Adam Smith published in the past few years, such as:

Andrew S. Skinner. 1996: A System of Social Science: papers relating to Adam Smith, Clarenden Press, Oxford (and his Introductory essays, 1999, to the Penguin Edition of Wealth of Nations, 1999. volume I and II);
Emma Rothschild, 2001. Economic Sentiments: Adam Smith, Condorset, and the Enlightenment, Harvard;
Jim Otteson, 2002. Adam Smith’s Market Place of Life, Cambridge
Eli Ginzberg, 2002 [1934]. Adam Smith and the Founding of Market Economics, Transaction
Sam Fleischacker, 2004. On Adam Smith’s Wealth of Nations: a philosophical companion, Princeton
Gavin Kennedy, 2005. Adam Smith’s Lost Legacy, Palgrave
Jerry Evensky, 2005. Adam Smith’s Moral Philosophical: a historical and contemporary perspective on markets, law, ethics, and culture, Cambridge
James Buchan, 2006. Adam Smith and the Pursuit of Liberty, Profile Books
Ian McLean, 2006. Adam Smith Radical and Egalitarian: an interpretation for the 21st century, Edinburgh University Press

Readers of the books, plus readers of the reviews, plus readers of press articles that include single lines picking up on the themes in the books (if only ‘Smith wrote Moral Sentiments as well as Wealth of Nations’), gradually creates a different environment to the monolithic ‘Chicago Adam Smith’ that has dominated campus comment for so long.

Readers who are interested in following the reappraisal of Adam Smith that is now underway should start with the books on the above reading list.

'Hard Core' Adam Smith?

It is a trifle extreme to describe Adam Smith as the ‘man behind hard-core capitalism. What exactly does that mean? Don’t get me wrong, I am all in favour of a degree of literary license, but ‘hard-core’ is a statement loaded with intent.

Some statements about Adam Smith emanating fro the environs of Chicago create an image of the Adam Smith of Kirkcaldy wildly at variance with the historical man who lived from 1723 to 1790, who wrote Moral Sentiments (1759) and Wealth of Nations (1776), and who gave the Lectures in Jurisprudence (1762-4).

Here is an extract from the piece by Christopher Koch in Change Management (published by CIO of Framlingham, Mass, USA):

“The New Science of Change
Nothing is more frustrating than trying to get people to alter the ways they do things. New research reveals why it’s so hard and suggests strategies to make it easier.

“Think the man behind hard-core capitalism, Adam Smith, didn't have a touchy-feely side? Check out his writings about the power of self-determination and the "impartial spectator" in changing human behavior. Find links to both of these stories.”

Comment
See what I mean: ‘a touchy-feely side’? It grabs your attention, for sure, but I am less sure the language is appropriate to describe the alternative to something called ‘hard core capitalism’, allegedly found in Moral Sentiments (the clue being a mention for the ‘impartial spectator’).

If it gets people to click through, fine. If they read what they find when they arrive, even better. And if they read the complete volume, better still.

See the article at: CIO, Framingham, MA: http://www.cio.com/archive/091506/change.html

From Kirkcaldy to New York

Apologies for light posting Thursday and Friday of this week. I have spent two days working in Kirkcaldy, home town of Adam Smith from 1723-1737; 1746-48; and 1766-73, with short trips to Edinburgh and London.

I could not help but reflect on how Kirkcaldy has changed since the 18th century. The town has expanded northwards and east and west along the shores of the Firth of Forth, and the countryside around it is cut through with modern roads and the town conected by a railway line to Edinburgh (40 minutes) and Dundee, passing close to St Andrews University in the town of that name about 20 miles away. ST Andrews university was there in Smith's time, but he never went there, though it was his nearest university, and was one of the four universities (the others were Glasgow, Edinburgh and Aberdeen) established in Scotland at the time when England had only two universities (Oxford and Cambridge).

Over the weekend I hope to do some catching up with postings.

Next week I shall be in New York from Thursday for four days attending a conference, 'Reclaiming Adam Smith', at Columbia University on 22-23 September.

Should any readers wish to contact me in New York and, if it is convenient, I can be contacted via Lost legacy at: gavin At ['web site name'] DoT com

More Praise for James Buchan's Book on Adam Smith

From The New York Times, 15 September, another highly deserved and splendid review of James Buchan’s, ‘The Authentic Adam Smith’ (US title) or 'Adam Smith and the Pursuit of Perfect Liberty' (UK title), written by William Grimes:

“Wealth of Notions: Adam Smith’s True Legacy”:

“Great books can obscure their creators. A prime example is “The Wealth of Nations,” a work whose influence can be measured by the extent to which modern-day readers, and nonreaders, have distorted its meaning and reinvented its author, Adam Smith. As the title suggests, “The Authentic Adam Smith,” James Buchan’s concise, literate introduction to the man and his work, tries to undo the damage, “to draw Smith out of the mystifications of the economists and the simplifications of politicians and place him in view of the public.”
... Or should we? Mr. Buchan begins with a highly amusing account of last year’s annual Adam Smith powwow in Kirkcaldy, Scotland. ... Gordon Brown, Britain’s chancellor of the Exchequer, made a case for Smith as a proto-socialist who believed as much in “the helping hand” (a phrase Smith never used) as the invisible hand (a phrase that Smith famously used, but only three times).

Smith was neither the one nor the other, Mr. Buchan argues. The great theorist of foot-to-the-floor capitalism never once used the term “laissez-faire,” supported all manner of limitations on free trade, and slept through the only lecture on political economy that he ever attended. At the same time he would have loathed the intricate state interventions beloved of Mr. Brown, the sort of top-down tinkering Smith dismissed as “systems of preference and restraint.” He was not, Mr. Buchan writes, a “brash Liberal with a large ‘L,’ ” but a “cautious, voluminous, virtuous, qualified, liberal with a small ‘l.’ ”

… He also happened to be one of the century’s towering geniuses, with a restless mind, a powerful imagination and the desire, widespread in the age of the French Encyclopedia, to bring order and system to all branches of human knowledge. His first philosophical essay dealt with astronomy, and his two great works, “The Theory of Moral Sentiments” and “The Wealth of Nations,” were intended as mere installments in a series of disquisitions on law, politics, science and the arts.

Mr. Buchan loves “The Theory of Moral Sentiments,” which he regards as a great work of economics as well as philosophy. The sentiments come first, as Smith explains the way that sympathy allows human beings to make judgments about what is right and wrong.
The economics come later, in a section dealing with luxury, a subject of obsessive philosophical interest in the 18th century. In it Mr. Smith touches on the strange way in which the rich, pursuing their own selfish interests, inadvertently share their wealth with the poor in the form of wages and social improvements. It is here that the invisible hand makes an appearance and points the way toward “The Wealth of Nations.”

Mr. Buchan offers an admirably clear and well-organized account of Mr. Smith’s masterwork, starting with his theory of the division of labor, expressed in the famous example of a pin factory, and moving along to specie-flow theory, circulating and fixed capital, protection of markets and taxation.

… Mr. Buchan is not shy about zeroing in on the weaknesses in Smith’s theory, noting “the unsound commercial anthropology” and “the disdain for mere fact.” Among other shortcomings, “The Wealth of Nations” fails to address the economic effects of population change, unemployment or entrepreneurship.

… The astonishing thing is not that Smith failed to envision 21st-century capitalism in all its particulars, but the immediate and permanent influence of his ideas, and the imagination behind them. In Mr. Buchan’s able hands, Smith and his words come across as they should, in all their lucidity and elegance.”

Comment
Absolutely spot on target. Read the book, now. It will enlighten you without tears, or a temptation to skip bits, and you cannot say that about many books on economics, or indeed about many books. I thoroughly recommend it.

Last Words on Beinhocker's 'Origins of Wealth'

I have now completed my reading of Eric D. Beinocker’s 527-page, ‘The Origin of Wealth: evolution, complexity, and the radical remaking of economics’, Harvard Business School Press, 2006. It held my attention throughout and covered a lot of ground that is interesting in its own right, especially on the coming confrontation between neo-classical economics and a new paradigm based on complex adaptive systems.

Some of his comprehensive survey of management material is heavily influenced by McKinsey-speak, the leading consultancy that holds the copyright to Beinhocker’s book (he worked there as a senior consultant, and it shows). But Beinocker presents his material with clarity and style. In so far as an author’s personality is revealed in his writing (a viewpoint Smith advanced in his lectures on Rhetoric and Belles Lettres), Beinhocker comes across as an enthusiastic, straight talking and perspicuous (another favourite word of Smith’s) writer, neither patronising nor out to show how ‘smart’ he is at the reader’s expense. He marshals his evidence efficiently – and it is a real a tour de force across the widest spectrum of current ideas and findings – and the reference notes cover 34 pages, plus 16 pages of bibliography.

When I first commented on the book on Lost Legacy on 8th, 17th, 25th August, I had occasion to criticise Beinhocker’s treatment of Adam Smith’s ideas, which I gather from his references came second-hand and not from a strong acquaintance with Wealth of Nations or Moral Sentiments. This, of course is not a ‘moral’ crime – the fact that Smith is read is always a welcome sign.

However, my criticisms of August aside, I am glad I purchased The Origins of Wealth, especially as by the time I reached page 418 I found a compensating summary of Smith’s actual views that made up for the ‘errors’ (obviously imported in from earlier secondary sources) of pages 25 and 26. Here is what Beinhocker writes nearer the end of Origins of Wealth:

“The Right claims, however, that if people pursue their self-interest through the mechanism of markets, then the general interests of society will be served as well. The lineage of this view descends from Hume, John Locke and Thomas Hobbes.

One might be surprised not to see Adam Smith’s name on this list. But as the economists Herbert Gintis, Samuel Bowes, and Ernst Fehr, and the anthropologist Robert Boyd point out, Smith actually took a more nuanced view. In his Wealth of Nations, Smith indeed showed how self-interest, mediated by markets, can lead to social benefit. But in his other great work, The Theory of Moral Sentiments, Smith also said, “How selfish soever man may be supposed, there are evidently some principles in his nature, which interests him in the fortunes of others.” In other words, Smith took a more rounded view of human behaviour, one that acknowledged the coexistence of both the self-interested and altruistic sides of human nature.” (p 418)

Comment:
Now that is much better. The attribution to Smith of ideas that ignore the ‘nuances’ of his views comes from mixing his work up with ‘Traditional Economics’, or ‘neoclassical economics’ that were developed from 1870, 80 years after he had died in 1790.

So, read Eric Beinhocker’s 'Origins of Wealth'; it gives you lots to think about.

More Good Writing from James Buchan

I have praised James Buchan's book, 'Adam Smith and the Pursuit of Perfect Lberty', Profile Books, several times on Lost Legacy and below he provides a short cameo from it about Smith's relationship with David Hume (with a walk on part from James Boswell), published in the Sunday Herald (Scotland).

Read it and enjoy good writing (from a great newspaper)"

JAMES BUCHAN delves into the relationship between two of Scotland’s finest minds

ADAM Smith and David Hume believed that a man could be good without much, or indeed any, religious belief. For that to be demonstrated, it was necessary not only to live without fault, but also to die without fear. As Hume put it to James Boswell, as he lay on a sofa in St David’s Street in Edinburgh on July 7, 1776: “If there were a future state, Mr Boswell, I think I could give as good an account of my life as most people.” Among the books he had with him that Sunday was The Wealth Of Nations, “which he commended much”.

Boswell, for whom the very notion of the virtuous infidel was a paradox, was overwhelmed with religious panic, scurrying for security to the half-remembered lectures of his mother and of Dr Johnson. So disturbed was the poor man that he would liquor himself up and, full to the brim with eternal truths, haunt the building sites around St David’s Street. In one act of crapulous defiance, he picked up “a big fat whore” and took her to a mason’s shed beside Hume’s house.

In the middle of the month, Smith stayed with Hume at St David’s Street. Confined to his room in the glorious hay-making weather, Hume told his friends that he was being shown by Smith how to enjoy it “by Sympathy”. Likewise a dinner he could not attend at stingy Adam Ferguson’s. But Smith felt obliged to leave when he saw that his company tired his friend. Back in Kirkcaldy on August 14, he wrote to Alexander Wedderburn in London: “Poor David Hume is dying very fast, but with great cheerfulness and good humour and with more real resignation to the necessary course of things than any whining Christian ever dyed with a pretended resignation to the will of God.”

Like a character in the works of his favourite classical author, Lucian, Hume imagined he was bargaining with the infernal boatman for some stay of execution.
“I began to think of what excuse I could alledge to Charon in order to procure a short delay, and as I have now done everything that I ever intended to do, I acknowledge for some time no tolerable one occurred to me; at last I thought I might say, Good Charon, I have been endeavoring to open the eyes of people; have a little patience only till I have the pleasure of seeing the churches shut up, and the clergy sent about their business; but Charon would reply, O you loitering rogue; that won’t happen these two hundred years; do you fancy I will give you a lease for so long a time? Get into the boat this instant.”

On August 22, Smith wrote from Kirkcaldy asking Hume’s permission to supplement My Own Life with an account “in my own name, of your behaviour in this illness if, contrary to my hopes, it should prove your last”. His letter crossed with a bulletin from Dr Black, which described the invalid as “much weaker”.

On August 23, still worrying at the question of the Dialogues, Hume dictated a last letter by the hand of his nephew. “I go very fast to decline,” he wrote, and signed it: “Adieu My dearest Friend.” Two days later, at 4pm on Sunday afternoon, David Hume died. He died, said Joseph Black in a letter to Smith of August 26, “in such a happy composure of mind, that nothing could have made it better”.

The account of Hume’s last illness, one of the very finest pieces Smith ever wrote, occupied much of September, not just in the writing, but in the submission to Hume’s friends, including Hume’s older brother John, as well as Black and playwright John Home. It was published in the form of a letter to his own and Hume’s publisher, William Strahan, and dated from Kirkcaldy on November 9.

In the open letter to Strahan, Smith dropped the insulting phrase “whining Christian” and replaced the Hume-English “seeing the churches shut up” with the Smith-Latin “seeing the downfall of some of the prevailing systems of superstition”. Smith’s approach, which he no doubt thought prudent, was to turn Hume from an anti-Christian to a sort of ante- Christian: that is, to convert him from a modern sceptic into a philosopher of antique character.
In the close, he reproduces the Attic restraint of the obituary for Socrates with which Plato closes the Phaedo. Smith writes: “Upon the whole I have always considered him, both in his lifetime and since his death, as approaching as nearly to the idea of a perfectly wise and virtuous man, as perhaps the nature of human frailty will permit.”

Extracted from Adam Smith And The Pursuit Of Perfect Liberty, Profile Books, £14.99. James Buchan is appearing at the Wigtown Book Festival on September 23"

From the Sunday Herald, Scotland's brightest Sunday newspaper - worth every penny it costs and which no Scottish home should be without on Sunday. Also many thanks to the Editor of the Sunday Herald, and the in-house lawyers for not throwing the copyright book at me on this occasion. Also to the good people at Profile Books, London (who also publish one of my books from my previous day job at Edinburgh Business School, Essential Negotiation).

How to Insult a Scotsman -- call him English!

‘Free trade in modern times has existed as an ideology since at least the 18th century, when an Englishman named Adam Smith proposed an economic system that would maximize the wealth of the British Empire.’

Oh, dear, oh, dear, oh dearie me. If the author cannot even get Adam Smith’s nationality correct what can we expect of the alleged ‘truth’ in the rest of his diatribe? An ‘Englishman’ indeed!

This is a lesson in how to insult the man and the nation to which he was a member in one sloppy step. Has the author – and the editor (I assume they do check for facts) – never heard of Google?

Smith was born in 1723 in Kirkcaldy, Fife in Scotland, clearly a Scotsman, and he lived most of his life in his native land, dying in Edinburgh in 1790, aged 64. His parents were Scottish, as were his grandparents.

The nonsense about him being an ‘Englishman’ is part of an article on the ‘Dollar Crisis’ (don’t ask) published in ‘Real Truth’, ‘a magazine restoring plain understanding’ from the ‘Restored Church of God’, in Wadsworth, Ohio. The rest of article is tendentious enough without it committing gross discourtesies of the kind that gets elementary facts wrong, especially facts that are so well known as to be classed as ‘real truths’.

At this time of night I will not bother examining the further nonsense about Smith in the article but I may come back to it the next ‘quiet day’ we have on the lost legacy front.

Smith Never Believed in Homo Economicus

I had occasion to dispute with Professor Colin Camerer earlier this year over his reference to Adam Smith and the so-called theory of Homo economicus, to which his name is associated, incorrectly – he never believed in such a creature. Colin Camerer's defence was that his co-authors of the article were responsible and he did not consider my point to be important in his inter-disciplinary work on neuroscience and economics.

Well, John Cassidy writes an informative article in September’s issue of New Yorker: “Mind Games: what neuro-economics tells us about money and the brain” and reports on more of Professor Colin Camerer’s work (and that of his associates), much of which I agree with, escept where they link it to a critique of Smith’s (non) advocacy of Homo economicus.

I suppose in one sense we have moved on a bit, though I do not know whether this is a result of Colin Camerer’s realisation that links to Adam Smith in such matters are a travesty of Smith’s legacy, or whether it is the way John Cassidy wrote up his report. Top academics can be very sensitive about acknowledging errors, even minor ones.

Here is a short extract from John Cassidy’s article in New Yorker:

‘Economics has always been concerned with social policy. Adam Smith published “The Wealth of Nations,” in 1776, to counter what he viewed as the dangerous spread of mercantilism; John Maynard Keynes wrote “The General Theory of Employment, Interest, and Money” (1936) in part to provide intellectual support for increased government spending during recessions; Milton Friedman’s “Capitalism and Freedom,” which appeared in 1962, was a free-market manifesto. Today, most economists agree that, left alone, people will act in their own best interest, and that the market will coördinate their actions to produce outcomes beneficial to all.

Neuro-economics potentially challenges both parts of this argument. If emotional responses often trump reason, there can be no presumption that people act in their own best interest. And if markets reflect the decisions that people make when their limbic structures are particularly active, there is little reason to suppose that market outcomes can’t be improved upon.’

Comment
Smith is correctly linked to having been concerned with ‘social policy’ and instead of linking Smith to ‘self-interest’ it is left open at ‘most economists agree’. That is true for most of today’s economists trained in neo-classical economics and its simplistic Friedman-ite assumptions of a strange abstract creature ‘Homo economics’. This position is summed up in the article, quoted above’ as:

‘Today, most economists agree that, left alone, people will act in their own best interest, and that the market will coordinate their actions to produce outcomes beneficial to all.’

That statement (not the part that says ‘most economists agree’, but the second part) that ‘left alone, people will act in their own best interest, and that the market will coordinate their actions to produce outcomes beneficial to all’ is not absolutely or universally correct now, and was not true when Smith was alive, though that does not stop ‘most economists’ agreeing with the false idea that this was anything to do with Smith’s legacy. That markets are in general more satisfactory than attempts to control and manage production and distribution by committees, commissars, and planners is acceptable as a proposition, but that requires a context for it to be case (the rule of law, adhesion to norms of trust, reciprocity and fair-dealing, and property rights).

People act in their self interest – they are, said Smith, the best judge of their own interests – but their consequential actions can be detrimental to ‘outcomes beneficial to all’. Indeed, self interest can lead people to act malignly as well as benignly in terms of the interests of other people.

Wealth of Nations has thousands of words devoted to the malign outcomes, both specifically and generally, that flow from the self-interested actions of individuals – ‘Merchants and manufacturers’ are often mentioned in this context when they indulge in monopolising and anti-competitive practices. When individuals advocate to legislators protection for their interests against those of consumers and other merchants and manufacturers who wish to exercise their rights to enter ‘their’ industries, or persuade governments to go to ‘war’ to maintain their monopolies as chartered trading companies, or they defraud banks by the manipulations of bills of trade, or give false measures to consumers, or debase the currency, and so on, they most decidedly do not produce ‘beneficial outcomes’. People operate markets not the arguments of functions or the premise of assumptions.

How, given the evidence, replete in Wealth of Nations, Adam Smith was ever to be quoted as a source for the idea of self-interest always leading to ‘beneficial outcomes’ is a mystery to me, and should be to ‘most modern economists’.

That neuroscience is accumulating evidence that Homo economicus is a false conception is welcome news. It would be another step forward if when mentioning Homo economicus authors – and researchers – would make clear that this abstraction is a creature of modern economists, not Adam Smith.

Some Modern Economists and Marxists Err on Adam Smith

Another book review, but this one a muddle of Marxism and socialism. Eugene Coyle reviews Michael Perlman’s ‘Railroading Economics: the creation of free market mythology', Monthly Review Press, 2006.

Eugene Coyle, Ph.D., is an economist with more than 30 years of experience with utility regulation. He is an independent consultant, and his clients include TURN, the American Public Power Association, and the governments of Brazil and Mexico. He has also served as an adviser to Commissioner Carl Wood of the California Public Utilities Commission. His research helped the Korean Electrical Workers Union to successfully block privatization of electric power in Korea. Clearly, he admires Michael Perlman’s book:

“Chapter 1 describes the transition from political economy to just plain economics -- and why. Perelman sets the age of classical political economy as the period from Adam Smith's Wealth of Nations in 1776 to around 1830. Rather than defend the prerogatives of the crown, these economists sided with the rising middle class. "The leading political economists, such as Smith and David Ricardo, called for political changes that would make the economy conform to the norms of the market, what economists called 'laissez faire'." And they contended that the interests of business coincided with those of society as a whole.

Comment
Methinks that Eugene and Michael have relied too much on interpretations of what Adam Smith was about in the attempt to squeeze him into a cardboard role of being a brain-washed servant of the ‘rising middle class’, a typical (you could say, stereotypical) ascription of late Marxian sociology.

The period 1776 to 1830 is far too long to capture Smith and Ricardo in the same net. Anyway, Smith started working on what became his ideas in Wealth of Nations long before it was published in 1776; many of these ideas were written between 1764 and 1776, from his lectures in Edinburgh and Glasgow between 1748 and 1764 and, therefore, were influenced by events long before the neat symmetry of a link to a seminal date in American history. Wealth of Nations was also revised and added to in 1783 (3rd edition, with 24,000 words of new text). To detect the hidden hand, to coin a phrase, of the rising middle class is truly a triumph of invisible forensic skills, akin to the wonders of reading tea leaves.

In fact, Smith did not write a textbook of the principles of political economy, which might be the case with David Ricardo; Smith wrote a report of his specific inquiry into the nature and causes of the wealth of nations. His method was historical and combined his social-evolutionary approach to the political history of Europe from the fall of the Roman Empire (476) to the mid-18th century. He wrote nothing about capitalism (a phenomenon and word of which he knew nothing). That phenomenon happened after he died in 1790. He wrote about the social evolution of humankind from the Age of Hunting, through the Ages of Shepherding and Farming to (‘at last’) the Age of Commerce. And the commerce he wrote about was fairly primitive, as was capital accumulation and the relatively simple markets and the division of labour, both within a specific process (pins) and among sectors (common labourers’ coats).

By mid-18th century, the prerogatives of the Crown, in the form of absolutist monarchs, were over in Britain and were replaced by constitutional monarchy, with governance in parliament, under the ambit of what passed for Liberty. This, allied to Smith’s (from Francis Hutcheson) adhesion to ‘natural rights’, were seen by him as important steps to constitutional liberty, which, with a relatively impotent monarchy, amounted to republicanism.

Smith certainly advocated policy changes (he had no known views on ‘political changes’ – his politics remain a mystery: see Donald Winch, ‘Adam Smith’s Politics’, 1978) - and these amounted to his conclusions about the creation of wealth, not defined as money (gold, silver, baubles, etc.,) and the policies that stood in the way of the gradual, slow and evolving improvement in what we call national income – the annual output of tangible goods, or what he considered to be the same thing, the ability of participants in production to purchase the outputs of production, either of which amounted to a spread of opulence, particularly for the common labours and their families, who were desperately poor, especially in Scotland.

The notion that Smith neglected production is breathtaking in its emptiness; mere words to make Smith fit with the image of the Monthly Review’s commissioning editors of what Smith was about and the need to link him to Ricardo (who wrote in an entirely different genre to Smith).

We are told that:
“Karl Marx, in contrast, "…brilliantly showed how the analysis of classical political economy, built around the analysis of production, could be turned to demonstrate how employers exploited their workers.

The analysis of exchange, rather than the analysis of production was the key to refuting Marx, so the economics profession turned to a theory of markets rather than a study of industry.”

Comment
Well, Smith, of course, had nothing to say about Karl Marx to ‘refute’ him – Smith died in 1790, and cannot be held responsible for what any so-called representative of the ‘rising middle class’ considered to be a refutation of Marx, who was ignorant of the work Smith did before Wealth of Nations (see Marx’s assertions in Capital about Smith being a ‘pupil’ of Adam Ferguson!), as is shown conclusively in Smith’s Lectures on Jurisprudence.

Coyle’s final paragraph is priceless:

“23 pages of footnotes support Perelman's arguments. The book leads to a good understanding of why markets fail, and how, knowing that, economists continue to teach the lie that the best of all possible worlds will flow from letting the market decide everything.”

Comment
I regularly assail modern (Chicago) economists for what they teach about Adam Smith, so it is not difficult to see how I would comment on the last sentence. Whatever modern economists teach, or Marxian economists teach about modern economists (a ‘pox on both their houses, I say!), Smith never taught that “the best of all possible worlds will flow from letting the market decide everything”. He detailed the policies that inhibited the speedier, but nevertheless slow and gradual, growth of wealth (as defined above), and accepted that even with these Mercantile policies imposed on the economy, it would continue to grow despite the policies of people, as it had through the millennia. It would take longer, that is all – there is a ‘lot of ruin in a nation’ he cautioned on a panicky young man. He emphatically denied that it was necessary for free trade to be introduced before economies could thrive. He called this view 'utopian'.

Markets are powerful human mechanisms, but they are still staffed by people. Never forget that. Their so-called driving agents, the ‘Merchants and Manufacturers’, did not receive from Smith the same paeans of praise that Marx was to accord to them, for their role in markets. He was deeply suspicious of these people and their tendencies to monopoly and price conspiracies against consumers. Smith was never a believer in laissez-faire, as were some of his French counterparts (he never used the words even).

What he would have said about modern railroads and energy industries we will never know. Neither industry had yet been invented when he retired to his bed for the last time. I sometimes think that modern economists (and Marxists) forget that fact, as they do most else associated with Adam Smith and his lost legacy.

Business Week Reviews Buchan's Adam Smith

In Business Week (18 September edition) there is an excellent review of James Buchan’s (US edition title), THE AUTHENTIC ADAM SMITH: His Life and Ideas (Atlas Books/Norton -- 198pp -- $23.95). I have already praised this book on Lost Legacy several times and it is a pleasure to see that Business Week’s (unnamed) reviewer has got the message.

"It would be An Inquiry into the Nature and Causes of the Wealth of Nations (1776) that would make Smith's reputation, selling out five editions in his lifetime. But for Buchan, a previous book is the truest key to Smith's thinking. The Theory of Moral Sentiments (1759) was an inquiry into the psychology of moral judgments. Rather than drawing on divine law or an inherent moral sense, Smith asserted that each of us derives our ethics by evaluating other people's actions. Then, putting ourselves in their position, we make similar judgments about our own deeds. The resulting society was defined by millions of individual choices rooted in "sympathy or fellow-feeling."

Similar concerns about ethics and society impelled The Wealth of Nations, Buchan says, behind which "is the ghost of an old-fashioned inquiry into the moral character of luxury." The world had become prosperous, Smith observed, to the general benefit of mankind. How? The division of labor, combined with freedom of occupational choice, led to increased output and a surplus beyond basic needs. Individual self-interest ended up benefiting all.

The Wealth of Nations is a long and repetitive book that considers a host of topics, from prices and the nature of value to education. A revised 1784 edition had 13 new sections and 24,000 more words. And in 1789, a year prior to his death, Smith made further changes. While tending to justify the world as it was, he had reservations, particularly condemning any "conspiracy against the publick" that arises from the merchant class. He also worried over the "disposition to admire, and almost to worship, the rich and the powerful." It may be inevitable that in such a sprawling work, adherents of a range of views will find sustenance. But Buchan makes a strong case that the just society was ever Smith's main concern.”

Comment
The review in the prestigious Business Week is a small step in positively reclaiming the Kirkcaldy Adam Smith from his Chicago cyber shadow. The reviewer is almost convinced that James Buchan’s account is correct (‘a strong case’) and that is a step from the usual nonsense attributed to Adam Smith’s legacy about ‘father of capitalism’, ‘laissez faire’ and ‘night watchman state’, and, worse, the neoclassical assumption of perfect equilibrium, Homo economicus, and the ‘granite foundations of ‘self interest’.

Stuff and Fluff: a new enigma?

From tangible products to non-tangible services, which now dominate the economies of developed countries, new work needs to be done on what constitutes traded ‘commodities’. Pre-industrial concepts of commodities are less appropriate to the 21st century. David Warsh in his Knowledge and the Wealth of Nations (2006) sees knowledge as a non-rival good; Richard Lanham sees the deluge of information as an instance of abundance replacing scarcity (the reverse of economics as taught in the textbooks – scarce means confronting abundant desires). There is something in the air pressing for our attention at present! Scarcity re-asserts itself, this time as time itself. However, it is worth a look.

Richard A. Lanham, professor emeritus of English at the University of California, Los Angeles and president of Rhetorica, Inc., a consulting and editorial services company. His most recent book is The Economics of Attention: Style and Substance in the Age of Information , interviewed for the California Literary Review (Carlsbad, California, USA) on 6 September said:

Q: What is the "Economics of Attention" and how does it differ from our traditional view of economics?:
The basic argument is simple enough. We're told that we live in an information economy. We remember from Econ.1 that economics studies "the allocation of scarce commodities that have alternative uses." But information is not a scarce commodity; we're drowning in it. What is scarce is the human attention needed to make sense of it. We really live in an attention economy. What does such an economy look like? What are we to make of it?
That attention is in short supply seems to be born in upon us from all sides. From frantic multi-tasking two-career parents to soldiers in computerized fox holes or pilots inundated by cockpit information, we're all drowning in a sea of information.
The usual life preserver thrown out to us was first suggested by Herbert Simon in 1971. He argued that what we need are filters. "Knowbots" that pre-google our experience for us. Plenty of these life-preservers have been thrown over the side to keep us from drowning in information and often they do help. But information filters are not what we need the most. We need to know where the flood originates and what it means. This holds doubly true if we are moving the other way, trying to attract attention from people immersed in a flood of information.

The common assumption runs deep. What is really important, really real, is the physical stuff of the world. Commodities. Substance. We dug and grew it in the Agricultural Age, and we built it in the Industrial Age. The allocation of such stuff, after all, is what classical Adam-Smith economics came on the scene to explain. The rest is just "Fluff," style not substance, "rhetoric" instead of "reality." But now we are in a third age, the Age of Information. Now we're stuck, it seems, with the "everything else." With the "fluff." And the fluff sometimes seems to be more important than the stuff.

Comment
Interesting thoughts that make you think. Especially when applied to ‘stuff’ like printed books and the possibilities of the digital age with searchable, accessible and printable content that is downloadable from digital libraries.

I am not so sure that Smith did not appreciate ‘fluff’ and ‘rhetoric’. After all he delivered a series of 30 lectures on Rhetoric and Belles Lettres (LRBL) each session from 1748-64 and considered education in such ‘fluff’ and essential part of any seriously educated person. The 30 lectures in LRBL were published in the book (stuff) of the same name, edited by J. C. Bryce, 1983 in a Liberty Fund edition (1985). An earlier edition was edited by Professor John M. Lothian appeared in 1963 (Nelson).

Wealth of Nations is Not a Textbook on Economics

The notion persists that Adam Smith wrote a textbook on economics. He most certainly did not. He wrote a report on his inquiry into the nature and causes of the wealth of nations, as it says in the title of his 2-volume publication in 1776.

Textbooks are an intentional post-Smithian phenomenon that appeared in the 19th century, usually under titles like ‘Principles in Political Economy’ (Ricardo, Mills, Nicholson) and, after dropping ‘Political Economy’, ‘Principles on Economics’ (Marshall), until, mid-20th century, they became just plain ‘Economics’ (Samuelson). The author's intentions, content and approach of their textbooks bear no relation to Smith’s ‘Wealth of Nations’.

Jeremy N. Smith in ‘Great Moments in World Trade: the Adam Smith of Supply Chain Management’ (World Trade Magazine, 6 September) illustrates the misleading notion about Wealth of Nations being a textbook by quoting an professor who asserts the notion without comment:

“In January of 1915, Harvard University Press first published a 119-page business book covered in modest maroon cloth. Its thirty-eight-year-old author, Arch Wilkinson Shaw, was a former office supply company owner and ardent student of “scientific” business management. Three years earlier, the Dean of the Harvard Faculty of Commerce had hired Shaw to help teach business policy, reorganize curriculum, and start the school’s Bureau of Business Research. The result, Some Problems in Market Distribution, would prove the world’s first supply chain management textbook.

Enacting that replacement took almost half a century, at least in the case of “figuring out how to get it there.” Bud La Londe’s 1961 doctorate in Business Administration from Michigan State made him among the country’s first ten degree holders in the new discipline of “physical distribution.” Whatever the field’s name, Some Problems in Market Distribution, reprinted in 1920, 1951, and 1976, long-remained its central text at home and abroad. “There is an unquestionable superstar in marketing theory, whose work did in fact gave rise to all of the latter theories,” Isao Hashimoto, Professor of Economics, Kyoto University, wrote in the mid-seventies. “The man is Arch W. Shaw, ‘the father of marketing’ and ‘Adam Smith of Marketing Theory.’”

Comment
Apart from the fact that many authors before and after Adam Smith advanced ideas about political economy along the lines of Smith and could be said to have adopted an intentional textbook approach to the presentation of their ideas (e.g., Cantillon, 1734; Turgot, 1766; and perhaps, Steuart, 1767). Wealth of Nations is an account of how 18th century Britain, and to some extent Europe, had emerged from the long millennia of the post-Roman collapse to become the cradle of the re-emergence of a wealth creating commercial economy. It was about the history of the social-evolution of Western Europe.

That is why so many academics today do not read it, why they rely on quotations (Smith was a most quotable writer) and why those who attempt to read it as a textbook give up in frustration because Smith undertakes what they dismiss as diversions – they tend to comment disparagingly about the wide range of subjects listed in the index, a sure sign they skimmed it and misunderstood its purposes. The so-called ‘diversions’ are integral to Smith’s method of inquiry and to his utilisation of historical and current data as evidence in his report.

Arch Wilkinson Shaw wrote textbook; a guide to supply chain management for managers and students; a testable set of concepts and propositions suited for examination to establish a level of general competence in the subject. You cannot teach similarly from Wealth of Nations; sure, you can teach what Smith said and the context in which he said it. But as economics, no work in which the author was oblivious to everything that happened after 1790 could possibly teach much sufficient to be competent in economics has it has developed since.

The economy has so dramatically altered, and the roles of the ‘great orders’ within it, including the role of the state, that to conceive of Wealth as Nations as a textbook now, or even in 1776, and subsequent editions, would be widely at variance from anything remotely useful. Nor would it correspond to what Smith considered his labours to be about.

A Minor Quibble on the American Rebellion

All authors are guilty on occasion of exaggeration (even hyperbole) and, as often, prone to error. I commit all three deficiencies on occasion too. Hopefully, the rest of our work is acceptable at least in avoiding all three weaknesses of the human condition.

Take a clear case of the weakness of error in an otherwise acceptable essay by Ann Berg in Blackenterprise.com, entitled “Money's Sordid Tale of Dirty Floats, Debasement and Doom”:

“The same year Adam Smith wrote The Wealth of Nations, America revolted against the absolutism of monarchial power and soon after developed the first comprehensive contract in history between state and citizenry.”

Now, I have little sympathy for the British King George III and his government’s policies towards the American Colonies (although I understand where they were coming from having spent £100 million in wars with the French to protect the American colonies and their trade worth £20 million), but I willingly confess to a touch of Smithian human sympathy with him in his mental illness.

And that is the error I see in Ann Berg’s piece. The British monarchy by the mid-18th century was not in any way and example of the European ‘absolutism of monarchial power’. Whatever the legitimate grievances of the colonists against the British government’s policies of ‘taxation without representation’, these had nothing to do with practice and powers of absolutist monarchy on the Continental model.

Britain had eroded the power of absolutist monarchy from the 16th century onwards and power shifted to parliament, especially under Cromwell’s 17th-century governments. The colonists' slogan of ‘no taxation without representation’ was itself recognition of the new, non-absolutist, status of constitutional monarchy in Britain in the mid-18th century. No King could impose taxation in Britain without the authority of parliament. If the British parliament claimed authority to tax the colonies the people to be taxed must have representation; this was an unassailable principle, over which parliament had clashed mortally with Charles I. In the end it cost him his throne – and his head.

It was the British parliament that attempted to impose taxation on the colonies (to contribute to their own defence instead of relying solely on the British taxpayer); the King had no authority to do so. He was the Head of State, not the Chancellor of the Exchequer. The vote to impose taxes was passed by parliament because this was no longer and solely the absolute prerogative of the King.

In France, there was a real absolutist monarchy (at the time, 1776, it had only 13 years left of the absolutist power to tax at will). By that time (1789) the US Constitution had taken shape, but Smith was to die in 1790 and did not see the great progress materialise, which he had predicted in Wealth of Nations for the colonies. He considered that within a hundred years the American colonies (1880s) would become the most powerful economy in the world. He was right; so were the American rebels.

[Read Ann Berg’s full article at: http://www.blackenterprise.com/yb/ybopen.asp?section=ybbf&story_id=97635896&ID=blackenterprise]

Wealth Creation Reduces Poverty

An interesting piece in Tim Worstall’s always interesting Blog (http://timworstall.typepad.com/timworstall/), which is a salutary lesson to much that passes today for compassion towards the ‘sweat shops’ of the poorest developing countries. It is clear that many commentators haven’t a clue about how economies develop their way out of poverty, often against heavy odds, and just how long it takes to get them going.

Tim Worstall regularly does his energetic bit to enlighten the unenlightened, unfortunately they remain in the dark, thinking that voicing passionate concern is sufficient – it certainly makes them feel better, but it does nothing for the poor, except to keep them poor.

Tim writes, quoting from Rahila Gupta in The Guardian:

"Where does this downward pressure on prices lead us? In some cases to places such as Bangladesh, where the cost of clothing production is half that of China's; and to textile factories where women earning just £7 a month and often working 80-hour weeks make up more than 90% of the workforce.

According to this report, women's clothing prices have fallen by a third in 10 years. The cheap end of the market has doubled in size in just five years to notch up £6bn of sales in 2005. We now buy 40% of our clothes at stores such as Primark and its competitors with just 17% of our clothing budget."

[Tim adds his biting comment:}

“Exactly! Hurrah, Hurrah! Enlightened self-interest benefits us all!

We get to clothe ourselves more cheaply, women in Bangladesh get to move from no pounds a month and 100 hour weeks hand weeding the rice paddies to 7 a month and 80 hour weeks. We’re all winners!

Pity that Gupta doesn’t understand this but then there we are, you can lead a horse to water but you can’t make him drink. You can lead Guardian columnists to the evidence but you can’t make them think.”

Comment
His language may be blunt, but then Tim deals with similar views to Rahila Gupta’s in The Guardian almost every other day.

Let me try another tack. I recommend that Rahila Gupta takes a look at the economic history of the revival of commerce in the England, after the interregnum between the Fall or Rome and the 15th-16th-centuries. Similar forces were working across Western Europe.

Smith refers to this period extensively in Wealth of Nations (he was not writing an economics textbook; he wrote of his inquiry into what caused wealth – defined by him as the annual produce of a country (not its gold!). Among his evidence he cites (WN III.iv.209: page 244):

“From the beginning of the reign of Elizabeth too, the English legislature has been peculiarly attentive to the interests of commerce and manufacturers, and in reality there is no country in Europe, Holland itself not excepted, of which the law is, upon the whole more favourable to this sort of industry. Commerce and manufactuers have accordingly been continually advancing during all this period.”

The details behind this statement can be followed in Joan Thirsk’s Economic Policy and Projects: the development of a consumer society in early modern England, Oxford University Press, 1978 (I am grateful to Professor John Pratt for drawing my attention to Joan Thirsk’s work). Without going into great detail, Queen Elizabeth’s governments supported small schemes to create markets in simple produce in the countryside. I quote a single instance, among many, of the beneficial effects on the ground:

‘Woad growing, for example, could raise the income of a household from the husband’s bare wages of 3s. 4d. a week to 5s. or 6.s, by employing his wife and two children, ‘to their great comfort, as one contemporary expressed it A new project in a village could thus transform a miserable collection of beggarly poor into a self-respecting community’ (p 3).

The significance of these developments must be set against the 1,000 years in which the living standards of generations of ‘beggarly poor’ Western Europe had stagnated. When we think of sweat shops across the world, we must consider them against the alternative of a permanent ‘beggarly poor’ existence. Sometimes the choices are worse beyond measure.

Not so long ago Western media was angrily denouncing a local factory for employing young boys for a ‘pittance’ making sports shoes for sale in Western markets. A long established BBC reporter in India noted that the boys had previously been ‘employed’ as ‘rent boys’, a ‘trade’ to which the closure of the ‘sweat shop’ condemned them to return. The ‘pittance’ in the ‘sweat shop’ was their passport out of their sordid lives (assuming they were not that way inclined). Similar prostitution of young girls 10-13 was their alternative to ‘sweat shop’ employment (with the same caveats).

It may be that in a wealthy developed country such stark alternatives can be short circuited by social pressure and welfare. But these options are not available – and will not be. Moving developed countries at the poorest end of the scale to wage, welfare, health and education standards by poring millions (even billions) into ‘aid’ schemes will not create any wealth (the annual output of goods and services). Funding poverty amidst the absence of markets is no route to wealth creation.

Funding small schemes direct to the families willing to participate in the division of labour in ‘sweat shops’ they own at ‘pittance’ wages and long hours can start the process of raising village incomes. The difference between 21st century grassroots development and Elizabethan development is not just scale. Unlike Elizabethan village folk, the world’s poor have the demonstration effect in global markets, technology and knowledge available, and, if allowed by the Western so-called ‘concerned’ Guardian writers and readers, and their governments, trade unions, ideologues and rabid ‘anti-globalists’, open access to western consumer markets, and, by their own governments, to each other’s developing economies to promote intra-African trade (for example).

No wonder Tim Worstall gets angry with the Guardian (as I am too).

People Fail, Not Markets

When people try to fit Adam Smith into a modern mould they often attribute things to him of which he had no knowledge or misattribute things to him of which he never said. What they write, be clear, makes sense to a modern trained economist, but whether it meant anything to Smith is another matter. But by quoting his name they give their article an authority, which on its own it may not deserve.

Take the following from Cielito Habito, writing in Inq7money (Philippines) (read it at: http://www.inq7.net/index_network.htm).

He writes:“No Free Lunch: no business being in business” by Cielito Habito:

“Adam Smith, considered the father of modern economics, had argued in the eighteenth century that left to themselves (laizzez[!] faire), markets would be guided by an "invisible hand" that ensures the most efficient outcomes.When markets failBut perhaps what Adam Smith did not explain enough was that markets are far from perfect. They often fail to yield efficient outcomes, and more often, fail to yield outcomes that are equitable or fair. Economic textbooks give at least three reasons why markets fail: public goods, externalities and economies of scale.Some goods and services are public goods that, in the words of economists, are non-rival and non-excludable. When you buy a nice dress for yourself, you keep everyone else from using it; it is a rival good. But when you benefit from the security of having a national defense system in place, others can benefit from it as much as you do (non-rival), and neither can anyone prevent everyone else from enjoying that benefit as well (non-excludable). In such cases, people will want to "free-ride" and avoid paying for these services, or at least pay less than what it really means to them. Thus, it won't work for a private firm to produce and sell such public goods. Government must step in and provide them directly.”

Comment

The first sentence is as wrong as it could be. Smith never argued anywhere in Wealth of Nations, or in Moral Sentiments, that “markets would be guided by an "invisible hand" that ensures the most efficient outcomes”. His single use of the metaphor of ‘an invisible hand’ in Wealth of Nations (p 456) had nothing to do with markets, how they worked, or how, in this context, they might fail to work. That is a myth from Chicago trained neo-classical economists, who created an imaginary ‘theory of markets, guided by invisible hands’ that had absolutely nothing to do with the Adam Smith from Kirkcaldy in Scotland.

Why Cielito Habito considers Smith to have been lax in not explaining “enough that markets [were] far from perfect”, I cannot fathom at all. All of Wealth of Nations and much of his Lectures in Jurisprudence (1762-3) are about the failures of markets leading up to the 18th century.

Wealth of Nations is about how wealth is created, despite all the legislative interference in commercial society, guided, not by ‘invisible hands’, but by the very visible nonsensical policies (he calls them ‘ridiculous’) introduced by false theories, wrong notions and ‘absurd’ doctrines, and how, nevertheless, commercial markets, the division of labour, and the propensity to ‘truck, barter, and exchange, gradually, and slowly (certainly slower than necessary), managed to raise the real wealth of a country over the centuries.

He paints the picture clearly; at the time of Caesar’s ‘invasion’ of Britain (more a visit), its inhabitants were nearly at the same living standard as the ‘savages’ of North America and had been ‘improving’ ever since; by the 18th century, the poorest common labourer was incomparably better off materially than the same North American hunters (WN II.iii.33-4: p 344).

He noted how the national wealth of England had grown from the Restoration of Charles II to his ‘present day’, despite the ‘profusion of wars’, the wasted expenditure on ‘unproductive labour’, and the fire and plagues in London, which together and in succession reduced national wealth (defined as the annual output of goods for consumption and investment), though, except in short periods, still could not stop the economy growing, though slowly.It was not the natural economy that failed; it were the events (man made) that afflicted it, as mentioned above.

I have no doubt that ‘Economic textbooks give at least three reasons why markets fail: public goods, externalities and economies of scale’ (I have a large collection of them from the 19th, 20th and 21st centuries), and I agree that the three causes identified (‘public goods, externalities and economies of scale’) feature strongly in the textbooks. But these are modern textbooks about economies stripped of everything that Smith wrote about, economies that exist in the minds of economists but not necessarily reflective of real world economies ran by real people. Modern textbooks are noticeable by the absence of people (and, as Smith put it, appear to be run by ‘wooden chess pieces’ moved about the board by the agency of men of ‘system’).

Smith went to the heart of the matter. Not only were there events that caused sub-optimal performance, but the very instruments of commercial society, the ‘merchants and the manufacturers’ that people his book, driven by their self-interest, often acted in ways contrary to the Chicago image, or Shakespeare’s metaphor, of a benign ‘invisible hand’. They could act malignly against the public interest in their proclivity for monopoly practices, restrictions on competition, conspiracies to riase prices and mean behaviours. Smith was very well aware of the imperfections of how actual markets worked. He explained these imperfections more than ‘enough’ for those who actually read Wealth of Nations and not just a few third- or fifth-hand quotations from it.

He explained it so clearly he must have considered he could not be clearer, especially to those trained to think of the economy as a set of equations in perfect equilibrium, absent people and the inconveniences of their multi-motive behaviours. His assumption that his readers had been educated to think (and look outside their windows!) was, perhaps, in retrospect, unwarranted.

He did not anticipate that successive generations of economists a hundred years later would be seduced into abstraction to a degree unmatched even by his own age’s obsession with 'logic', and that they would adapt ‘an artificial method of reasoning’ (mathematics), which would come to occupy ‘the universal attention of the learned’.Modern economists assume away general market failures, caused by people inside the system, to concentrate on the three textbook market failures identified above. They also say little about how state failures (caused by people inside the state system) can be ‘corrected’. I suggest there is a rich Smithian research agenda here of great relevance to modern economies (and it might help to make neo-classical abstractions more relevant for policy purposes).

Which History Will They Teach?

Arthur Macmilllan, Education Correspondent (Scotland on Sunday 3 September),
reports on an initiative from history teachers in Scotland, concerned about their marginalisation as a separate subject in the school curriculum:

“However, the new syllabus, titled: History and a Curriculum for Excellence, lays down a detailed series of the historic events that children should study and when. For example, local history will dominate schooling until the end of Primary Three, with the next two years being used to learn about the "Making of the Scottish Nation".

Primary Six will focus on the religious upheaval caused by the Reformation, and later the Act of Union with England (1707). The last year of primary school will be dominated by the Highland Clearances but also see pupils learning about the Enlightenment, including the Scottish economist Adam Smith and the philosopher David Hume, in the late 18th and early 19th centuries.”

Comment
Whilst I am always in favour of history as a subject, I am always concerned as much with what is taught as history. In my two areas of expertise on 18th century history, Captain Bligh in the 18th century Royal Navy (‘Captain Bligh, the man and his mutinies’, Duckworth, 1988) and Adam Smith on 18th century moral philosophy (‘Adam Smith’s Lost Legacy’, Palgrave Macmillan, 2005), I am less than impressed with what passes for accurate accounts of either man or the institutions in which they worked.

I recently read Michael Fry’s ‘Wild Scots: four hundred years of Highland history’, 2005, and I doubt if much of his critical perspective on myths and exaggerations about the Highlands that are common folklore in Scotland (and among the Scottish Diaspora) will feature in a Scottish profession dominated by those who transmit, and have a political interest in transmitting, the same ‘myths and exaggerations’ to school children.

Of course, should they get to university and continue their history studies they may correct some of the obvious mythology about our nation’s past. Perhaps we should relax and accept that ‘history is but a fable agreed upon’ (a much better view than ‘history is bunk’), and should be pleased that history in some form will remain in the Scottish school syllabus, and remain as a distinct view of history from a Scottish perspective in place of the usual English view.

Smith certainly took an historical viewpoint on what caused wealth creation from the fall of Rome (476) to the 18th century in the context of a social-evolutionary theory of the Ages of Man (from Hunters to Merchants and Manufacturers in Commerce, via Shepherds and Farmers) and laid great stress on all the factors that influenced the course of events.

Unfortunately, economists from the late 19th century (Walras, Jevons) abandoned ‘looking outside their windows’ and created ‘thought experiments’ that were susceptible to mathematics, by dumping anything not suitable to becoming an argument in a function as ‘exogenous’, where not simply surplus to requirements. If they teach along these strtaight-forward neo-classical lines, well and good, but if it is the usual Chicago nonsense of Smith the ‘father’, high priest’ or ‘founder’ of ‘capitalism’ and author of the ‘theory of the invisible hand in markets’, then, frankly, they shouldn’t bother - though, of course, no doubt they will.

September's Lost Legacy Prize Already Won!

What an apposite essay from Virginia Postrel in Forbes (3 September) on the whining ethos of commentators on prosperity in the richest country on Earth!

Yesterday I commented on the real wages conundrum now being debated in US Blogs and MSM by the nation’s top economists, and this morning Virginia Postrel quotes Adam Smith to devastating effect, without any sign of the whining, the wringing of hands and the latter-day ‘Emperor’s clothes’ myopia swamping the Blogosphere this month. Add the 'debate' on ‘happiness’ and ‘wealth’ to the new angst in favour of high taxation to make everybody poorer and we have a profession in seriously trivial crisis.

Virginia Postrel did a similar exercise on economists, who only look at official statistics and never outside their windows, in the New York Times on February 22 2004: ‘A Prettier Jobs Picture?’ She is the author of ‘The Substance of Style: How the Rise of Aesthetic Value Is Remaking Commerce, Culture, and Consciousness’ (HarperCollins).

I have to ask: how is that Virginia Postrel gets it right on so fundamental an issue as the measurement of prosperity and professional economists cannot see what is right in front of them?

Let her speak:

'The American Standard of Whining' (Forbes) by Virginia Postrel

Adam Smith was a remarkably insightful guy. He not only figured out how expanding trade allows the division of labor, thereby creating wealth and raising living standards, he also realized how hard it is to get people to believe they're better off than their ancestors. He discovered declinism way back in 1776.

"The annual produce of the land and labour of England … is certainly much greater than it was, a little more than a century ago, at the restoration of Charles II," Smith wrote in The Wealth of Nations. "Though, at present, few people, I believe, doubt of this, yet during this period, five years have seldom passed away in which some book or pamphlet has not been published … pretending to demonstrate that the wealth of the nation was fast declining, that the country was depopulated, agriculture neglected, manufactures decaying, and trade undone. Nor have these publications been all party pamphlets. … Many of them have been written by very candid and very intelligent people, who wrote nothing but what they believed, and for no other reason but because they believed it."

"A continued Series of Prosperity," he taught his rhetoric students, "would not give us near so much pleasure in the recital as an epic poem or a tragedy which make but one continued Series of unhappy Events." In the rhetorical marketplace nothing succeeds like failure.

The first quotation is from Book II, chapter iii. 33 on page 344 of Wealth of Nations; the second is from Lectures in Rhetoric and Belles Lettres (ii.10: p 88).
I would add the next sentence to her excellent quotation from LRBL:

‘For this reason also it is not surprising that a man of an excellent heart might incline to dwell most on the dismal side of the story.’

Read her short essay in Forbes (http://www.forbes.com/home/free_forbes/2006/0904/118.html);
it is a great pleasure to read in contrast to the moaning minnies, presently populating Blog land.

Virginia Postrel is the outright winner of September's Lost Legacy Prize (with Oak Leave Clusters and bar)

Are Workers Real Incomes Falling?

A growing debate is in evidence in US economics Blogs on the apparent paradox of labour productivity going up and wages not growing in concert. With big guns from the economics profession blasting away, and from the other side of the Atlantic, I hesitate to dip into the controversy.

Ralph Martire, writes in the Chicago Sun-Times (2 Sept 2006), under the headline: “If economy is growing, why aren't workers' wages growing?”:

“Meanwhile, the value of the national minimum wage has dropped to its lowest point in 50 years. Wages and salaries now constitute only 45 percent of the country's economy, a historic low. An additional 1.3 million Americans became uninsured last year as health-care costs continued to escalate at rates three times greater than wage growth.

In The Wealth of Nations, Adam Smith, the father of capitalism, maintained that what improves the lot of the working classes, who constitute the greatest proportion of society, ''can never be regarded as an inconvenience to the whole.'' He continued: ''It is but equity that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged.'' Maybe Labor Day celebrations would be more festive if instead of being paid tribute, workers were actually being paid.”

Comment
Ignore the mantra about Smith being the ‘father of capitalism’ (what does this mean? Where does the notion come from?’). Smith’s sentiments were right.

Bear in mind that in his day in the mid-18th century politicians debated whether wages should be raised or left as low as possible because it wasn’t clear whether paying workers more would lead to what we call today a backward bending supply curve of labour (i.e., better paid workers would simply reduce their hours of work) or whether being hungry they would work harder and longer. People pontificated on the answer with all the arrogant confidence of total ignorance of what they were talking about. A more modern approach to such questions would be to test them empirically rather than float, what were in essence, personal prejudices.

In the passage quoted (WN I.viii.36: p 96) Smith (correctly in my view) rebuts the idea that ‘an improvement in the circumstances of the lower ranks of the people’ would be regarded as an ‘inconveniency’ to society.

How applicable his points were to a debate about the separation of national income into wages, profits, taxation (and re-distribution), and savings is another matter. Or for that matter the consumption of public goods and social goods like (in the UK) universal health and education provision, which are not minor considerations today. Labourers’ money wages in the 18th century were a smaller proportion of national income – there were not so many of them in an agricultural society (nearly 50 per cent of people were in this sector compared to under 3 per cent today).

The real test is to look at access to consumer goods of all kinds (and tastes) in the 21st century compared to the access of the population as a whole to consumer goods (a smaller set) that were available to people in, say, 1970, and various dates going back 200 years. The very existence of this medium used by Bloggers suggests that real wages are not falling.

Why is Don Boudreau Depressed?

Don Boudreau of Café Hayek is ‘depressed’! I think I will join him, but in my case because he is depressed about an obvious ‘garbage out’ result. I commented on 22 July 2005 when this poll was first reported. I was not depressed or remotely disappointed.

Anyhow, here is Don’s lament about what a year later he calls a ‘depressing fact’(!):

“Here's a depressing fact.

[In Britain] in a 2005 BBC Radio poll listeners voted Karl Marx "the greatest philosopher of all time.".... Marx received 28 percent of the votes cast, more than Socrates, Plato, Aristotle, Aquinas, and Kant combined. David Hume came second with 13 percent.
This from page 92 of Tony Judt's essay "Goodbye to All That?" appearing in the latest issue of The New York Review of Books (Sept. 21, 2006).” From Café Hayek 31 August 2006.

Comment
Before we get carried away by the tyranny of quantitative headlines, we might ponder that if 27.83 per cent voted for Karl Marx, then 72.07 per cent voted for other philosophers, which suggests the Red Dawn is postponed again.

That David Hume received ‘only’ 12.67% of the vote is remarkable, given general lack of knowledge of him and his works.

A deluded Marxist, Tony Sauvnois of the Socialist Party (UK), commented on the poll:

“This vote represents a blow to capitalist commentators. It illustrates hostility towards modern capitalist society amongst even sections of the middle class.”

That there is hostility to ‘modern capitalist society’ among ‘middle class’ youth is well-known, because their parents do well out of it, but not as well as they feel entitled; those suffering real poverty from an absence of ‘modern capitalist society’ where they presently live is reflected in the extreme efforts they make to get into the nearest ‘modern capitalist society’.

It is better that Tony Saunois dreams his dreams of a Red Dawn in a capitalist country; he would only have nightmares living in a socialist one.

Adam Smith attracted even fewer votes that David Hume, though not surprising in that most people consider Smith to be an economist, not a philosopher, though he was more of the latter than the former.

But features of the so-called poll of listeners to Radio 4 should raise worries when commentators jump in with silly assertions that even Don Boudreaux, of the otherwise intellectually sound Café Hayek Blog, seems to have bought.

The poll was ‘open’ – you could vote as often as you liked and many did. Several ‘left’ leaning people I know voted more than once (some do not even listen to radio 4 on a regular basis or at all) and some voted in what passes for ‘organised’ lobbying in Marxist fringe groups (‘Comrades, go forth an multiply votes for Comrade Marx!'). But even with this wide open goal, they still managed only a miserable 27.83 per cent!

But worse. They did not have to do better than 27.83 per cent to get the silly headlines in the ‘capitalist press’ and associated Blogs. With 27.83 percent turned into a ‘majority’, or, as good as, into more votes than the ‘respectable’ philosophers did, shows remarkable leverage on the critical faculties of those with otherwise intelligent and well-trained minds.