A Correspondent Writes...

A correspondent writes:

“I find Smith difficult, because after 800 pages extolling the virtues of free exchange and how bad the politicians are, he suddenly starts to suggest various public spending programmes. Justifiable if they, so to speak, lay down the highway along which commerce can travel, and make the process more efficient. Though a thoroughgoing free-marketeer might say that the market would do that itself - entrepreneurs would realize that new roads or bridges are needed, and build them, and find innovative ways of charging for them. Of course, Smith says that those who get most gain should do most of the paying, so that helps assuage the thoroughgoers a bit. But his ideas on education, with the public paying for builders but not, of course, for good reasons of incentives, the teachers, seem rathe woolly.”

Comment
Book V of Wealth Of Nations does seem to stand out from Books I-IV. It is, however, foreshadowed by his continual references to the misbehaviour of certain of the ‘merchants and manufacturers’ who leap at the first opportunity they get to ‘fix’ markets for their selfish interests by widening them with more customers and simultaneously narrowing the competition by monopolies and protection, to raise prices and enrich themselves as they lower the real incomes of consumers and narrow their choices.

Book V is about the duties of government which raises its finance by taxation, duties and borrowing. Let’s always start from the proposition that government spends our money not theirs. In the modern era it discovered yet more sources of increasing its funds, of which income tax was the most obvious, yet by no means then the most odious and dangerous. Government borrowing, bonds, and sinking funds (often spent on them accumulating, rather than used to clear government debts) was of lasting economic damage.

The need for such increased sources of funds was often occasioned by sudden needs to mobilise armed forces (army and navy) not usually to fight off invasion threats – the first duty of government – but to initiate military force against neighbouring trading partners in exhibitions of what David Hume called ‘jealousy of trade’, or to subsidise continental absolute monarchs who were (temporarily) friendly to Britain.

So, lets see Adam Smith’s advice to invest capital in projects that facilitated commerce (roads, canals, docks, and such like) and in public institutions that supported justice – popular knowledge that would replace illiteracy and ignorance, and potential ‘enthusiasm’, or wild disturbances of society. A belief that there were individuals around who commanded the vast sums needed for road building who were motivated by ‘free enterprise’ in mid-18th-century Britain is an exaggeration.

His schools programme was an attempt to lay the basis for universal education, at least for boys, that would benefit commerce (reading, writing and account, plus a little geometry) – even using a gaunt tale of factory work to frighten the middle class readers and upper class influencers into building a barrier against subversion by supporting the modest expenditures required. It was a better use of public money that £170 million spent on the Seven Years War. Smith even found a use for government combating ‘loathsome diseases like leprosy’ – again more socially useful that millions wasted elsewhere.

Smith was not an ideologue; he was pragmatic: which system of organisation and finance worked best: public funding with public commissioners or public funding with private companies?

The choice of independent free market subscribers required resort to the vehicle of Royal Chartered Joint Stock trading companies, awarded monopoly rights. There was not enough private capital around, or at least insufficient mechanisms for assembling them – that came later and was beyond Smith’s remit in Wealth Of Nations.

Today, the same battles need to be thought, especially with the state sector grown to incomparable heights, and taxation of our money on an unprecedented scale – not just income tax, but also value added tax; not just taxation of profits but also taxation of capital – and the spending agenda is not just foreign wars but also spending into every nook and cranny of private behaviour.

Today, Radio 5 discussed another government agency to tell parents what games their children should play and another idea was offered that suggested an ‘independent’ agency should decide what the police can do with the DNA records – neither will be cheap to implement, of course, and neither will resolve the problems they are set up to deal with.

There is a lot of work to do to roll back the ever expanding public control of how we live.

When Talking Turkey is Talking Nonsense

Wayne Dowler (Department of Humanities, University of Toronto), writes in the Globe and Mail, Canada (31 July) HERE:

“Talking turkey”

According to your article India Nixes WTO Deal To Cut Tariffs (Report on Business, July 30), the chairman of the Canadian Turkey Marketing Agency says the World Trade Organization talks "didn't seem to be favouring our interests so I guess no deal is better than a bad deal." Adam Smith sure got it wrong. Of course the interests of producers trump the interests of consumers. Now that that comparative advantage is comparatively much less advantageous to Western producers, the old Corn Laws - well, massive subsidies to cotton producers and the like in the U.S. and supply management in Canada - look pretty good.

Still, Western negotiators will keep right on invoking Smith's free-trade principles to put those tariff-loving developing nations in their place.

Comment
I am not clear where Wayne Dowler gets the idea that Adam Smith “sure got it wrong”?

Is Wayne Dowler, an academic at the prestigious University of Toronto asserting that Smith said “the interests of producers trump the interests of consumers.” What exactly is he saying?

Is it that Smith said producers didn’t ‘trump the interests of consumers’ or that if he didn’t say that, he should have?

Reading what Adam Smith did say doesn’t help me understand the allegation made by Wayne Dowler:

‘Consumption is the sole end and purpose of production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting the interests of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.’ (WN IV.viii.49: p 660)

It seems to me that Adam Smith was perfectly correct and his comments are remarkably apt for explaining the remarks by the chairman of the Canadian Turkey Marketing Agency.

Being a publicist for the turkey producers (at least those that join the agency representing them), he is putting a good spin on the failure of the WTO round to remove tariffs, presumably on turkey meat, by looking at, for him and his members, the status quo has being better than reform which would benefit consumers by lowering the price of turkeys and simultaneously raising their real incomes".

I fail to see how ‘Smith's free-trade principles’, as understood by Smith, can be used ‘to put those tariff-loving developing nations in their place’.

The US, Canada and the EU are not ‘free trader’ economies at all. In agriculture particularly, of which turkeys are a part, they are protectionist in the worst mercantile tradition of 18th-century Britain.

Quoting a Dodgy Source About Adam Smith Does No Favours to an Author's Assertions

Hardly a day goes by without somebody waxing lyrical about what Adam Smith means by the metaphor of 'an invisible hand' and from their misunderstanding making a case for this or that observation of modern economies. Hardly a day goes by without me responding to their views in

F.D. Zigler writes in MoneyThoughts Blog HERE:

"A Visible Hand Is Needed

Invisible hand is the term used by Adam Smith to describe the natural force that guides free market capitalism through competition for scarce resources. According to Adam Smith, in a free market each participant will try to maximize self-interest, and the interaction of market participants, leading to exchange of goods and services, enables each participant to be better off than when simply producing for himself/herself. He further said that in a free market, no regulation of any type would be needed to ensure that the mutually beneficial exchange of goods and services took place, since this "invisible hand" would guide market participants to trade in the most mutually beneficial manner.

Adam Smith (baptized June 16, 1723 – July 17, 1790 [OS: June 5, 1723 – July 17, 1790]) was a Scottish moral philosopher and a pioneering political economist. One of the key figures of the intellectual movement known as the Scottish Enlightenment, he is known primarily as the author of two treatises: The Theory of Moral Sentiments (1759), and An Inquiry into the Nature and Causes of the Wealth of Nations, commonly known as The Wealth of Nations (1776). Smith is also known for his explanation of how rational self-interest and competition, operating in a social framework which ultimately depends on adherence to moral obligations, can lead to economic well-being and prosperity. His work helped to create the modern academic discipline of economics and provided one of the best-known rationales for free trade. He is widely acknowledged as the "father of economics".

The above two paragraphs I borrowed to make a point. Adam Smith was a Scottish moral philosopher who lived in the 18th century and never saw the likes of Wall Street. Had Adam Smith lived to see what technology has permitted markets to do today, I seriously doubt that he would have insisted that no regulation was necessary because an “invisible hand” would guide market players to trade in the most mutually beneficial manner.

… It is my opinion, that if Adam Smith could come back and see how the capital markets operate today, and given the size of the markets today, that he would say it is time for the “invisible hand” to become visible.”

Comment
The main problem with the author’s ‘borrowed’ two paragraphs is that they do not represent anything like what Adam Smith said either about invisible hands or commercial markets.

The arrival at ‘rational self interest’, and ‘an “invisible hand” [that] would guide market players to trade in the most mutually beneficial manner is mythical to say the least, and was invented by mid-20th-century economists to add a respectable gloss or aura to their eloquent mathetmatical models (no people!) of general equilibrium (which, of course, bore no resemblance to the real world).

Those interested in the genesis of Adam Smith’s use of the metaphor an invisible hand on the two occasions he referred to it, once each in Moral Sentiments and Wealth Of Nations (his single use in the History of Astronomy paper had nothing to do with economics, let alone markets: it was a pagan 'pusillanimous superstitition'), may obtain a copy of my paper: ‘Adam Smith and the invisible hand: from metaphor to myth’ by introducing themselves and mailing me ‘gavinaTnegwebDoTcom or may scroll through the archives here in Lost Legacy and selected any of a hundred posts on the subject,

These facts make redundant what Adam Smith would think of Wall Street today, especially if you start from the wrong premiss.

Oh, and by the way, Adam Smith was NOT 'baptized June 16, 1723'; he was baptised on 5 June 1723. Why the dodgy source used by F.D. Zigler, should have any credibility for the meaning of the invisible hand metaphor when it gets such a simple and well known fact wrong, raises questions as to why he quotes from it.

No Return to Equality

I sometimes receive correspondence from readers off the blog, so to speak, and a recent one picks up on Monday’s piece about free markets v. capitalism. I don’t think capitalism needs much defending it - clearly it works overall.

Nor do I buy the ‘inequality’ complaint, as if this is something new and associated uniquely with modern capitalism. It began with the first steps away from the ‘1st Age of Hunting’ when some humans discovered the institution of property by excluding outsiders from their pasture land in the ‘2nd Age of Shepherding’ (they preferred to fence their livestock from wandering away or outsiders from wandering in and helping themselves to the livestock). In time, other humans applied the institution of property to the ‘3rd Age of Agriculture’, preferring to fence their fields off from wandering livestock eating the crops and outsiders trampling over the crops.

These developments created inequality. Those who were part of the insider groups – those who led them and those who worked for the leaders – lived better than those who didn’t and those who stuck with hunting in the shrinking territory unclaimed by the property owners or too distant to be reached (that is, outside the Mediterranean and Western European lands; and later in the East across the Asian continents).

The rest of the world remained in totally equal societies and economies, that didn’t change much until the property-owning societies ‘found’ them in the geographical explorations from the 15th century onwards. As Smith noted the gap between the poorest labourer and the prince in 18th century Britain was much smaller than the gap between the poorest labourers and the ‘savage’ princes on North America and Africa (Wealth Of Nations, WN I.i.11: p 23-24) The reason was in the advanced division of labour in the unequal 4th Age of Commerce then emerging fairly rapidly from the great disruptions after the fall of the western Roman Empire nearly a thousand years earlier.

Some evince a desire to return to the ‘simpler’ life of nature of those previous equal societies, though quickly modify their desires once they realise what they would have to give up just to reach their simple-life goals. Not only would all the elements of modern society (good and bad) be absent but they would have somehow to revert to the knowledge needed to exist solely within the bounds set by nature, and, crucially, the population levels sustainable by what was available for the equal basics of food, coverings, and shelter, i.e., not six billion but something less than a hundred million, may be fewer.

Fine, if you and your descendants are among those not eliminated in the largest world genocide ever contemplated; but if not, then within a short time. Happy hunting. Of course, you first have to persuade everybody else to choose suicide and leave the planet to you. Good luck.

Markets versus Capitalism?

Is there something different to debate when considering a market economy and a capitalist economy? This is the question posed by Tim Worstall on the Adam Smith Institute’s Blog this morning (HERE).

Tim asks the question because he is discussing: ‘Comparing the Costs of Communism’, using Finland and Estonia as the cases for study, because they were quite similar in their living standards in 1939 and 50 years later in 1994 they weren’t; Estonia for much of the 50 years had been a Soviet satellite and occupied country with all the trappings of a communist command economy, and Finland, while living under the shadow of the Soviet Union, had ‘remained a market economy’ with, however, a fair degree of state control.

Tim Worstall writes:

‘But Finland was far from being a rip-roaringly capitalist economy over those years: it wasn't particularly intellectually free either, and the economy was quite closely aligned with that of the Soviet Union as well. The important point was this:
Despite close relations with the Soviet Union, Finland remained a market economy...

By leaving voluntary exchange unchecked, by having a price system that could inform on the allocation of resources, after only 50 ish years the place was creating three times as much wealth per head for the people to share than the place which did not retain those options.

I've said before here that capitalism and markets are two very different things: the former is a description of a method of ownership, the latter a description of a method of exchange. I've also said that if we were only able to retain one of the two I would unhesitatingly pick keeping the markets and capitalism can go hang. Finland during the post war years wasn't all that capitalist a place but it was indeed a market economy and the comparson here wth Estonia simply reinforces that belief of mine.’

Comment
I am often commenting on people’s assertion that Adam Smith wrote about capitalism and using the illustrative point that he never mentioned the word ‘capitalism’ as it was not invented in English until its use in 1854 by Makepeace Thackeray in his novel the Newcomes (Smith died in 1790).

Wealth Of Nations was not about capitalism; it was about a commercial economy, then prevalent in the 18th century Britain, a mainly agricultural economy (nearly 50 per cent of what we call the GDP) with shops, market stalls, small workshops, artisans of various types and skills, and manufacturing activities that were mainly driven by hand power and not steam or electric power. It had a thriving international trade but these were relatively small sailing ships, supported inland by abysmal roads and a few canals.

It was the commercial market economy that drove the country towards the spread of opulence, and Smith saw the possibilities if the existing markets were kept free of interference by politicians, who thought they knew better than the price system, and by ‘merchants and manufacturers’, who saw personal gains from widening the market, narrowing the competition and raising their prices. But despite these interferences, some dire, many minor, the inner strength of markets continued to work for economic growth.

Hence, I don’t feel the need for particular affection for modern day capitalism. I am happy to see scores of senior executives caught with their hands in the till, alongside shifty politicians, and each big fine or jail sentence imposed is a cause of celebration – justice works! – and is not a sign of the ‘system’ collapsing, nor a need for more regulation, because strong laws and a willingness to implement them is enough for a free society.

I do feel and see a need for extending and deepening markets into further aspects of society; Smith favoured public-sector funding of projects to ‘facilitate commerce’ and he was pragmatic about whether public or private sectors managed the projects, preferring to make that decision on the pragmatic grounds of which management demonstrably worked best, even experimenting with some sites (in his case toll roads) managed by ‘Public Commissioners’ and some by Private Commercial bodies and then letting performance be the judge (though it's easier to sack poor private sector performers than poor perfoming public servants). The obsession of every-size-fits all in these issues is a triumph of ideology over good sense. Let people bid to manage local public services.

So the choice between capitalism and markets is unlikely to be agenda; unfortunately the choice between state-regulated and managed economies and markets is ever present. Here, we can take sides with enthusiasm. I favour extending markets at every opportunity.

With socialism off the agenda for now (except for those from the Left buried within the ‘climate change’ consensus, for which consensus I am not enthusiastic at all), the battle lines are drawn with the job seekers among regulators, quangocracy and public commissions on one side, and the exponents of free markets on the other.

Taking the historical view, it has been ever thus since Smith’s time.

A Blog Author 'Replies' to Lost Legacy, Sort Of ....

The author of the Blog which I commented on the other day (see Probaway – Life Hacks): ‘How Adam Smith’s invisible hand might help us avoid Doomsday’, Thursday 24 July, has ‘replied’ indirectly to my adding the full quotation from Moral Sentiments to his selected use of the first part only (HERE)

I have commented on his Blog, which comment I reproduce below:

One Response to “The little finger on Adam Smith’s invisible hand.”

1. Gavin Kennedy, on July 26th, 2008 at 11:24 pm Said:

"I think you make your case by ignoring the first sentence: “would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them?”

Smith is talking about ‘a man of humanity’ and not every single person on the planet.

He was well aware of the prevalence of selfish, even ‘rapacious’ men of inhumanity. You go further and talk about ‘most people’ as if you have interviewed ‘most people’, when clearly you have not.

You have also interpolated far too much in Smith’s use of a well-known metaphor in the 18th century of ‘an invisible hand’ (scroll down my web site for details). On [the] single occasion he used the metaphor in Wealth Of Nations he was talking about ‘risk aversion’ and the whole is the sum of its parts (hardly 'gigantic unseen, even unknown and perhaps even unknowable processes’, and on the single occasion in Moral Sentiments he referred to [the] absolutely necessary requirement that rich landlords had to feed the ‘thousands they employed’ if their fields were to be planted, tended, and harvested each season.

Your poem is interesting, but it is a poem of your mood and not reality.”

[Readers of Lost Legacy interested in my exposition of the role of the invisible hand in Adam Smith’s works may apply to me: gavinAT negwebDoTcom introducing themselves and I shall send them a file copy of my paper: 'Adam Smith and the invisible Hand: from metaphor to myth' July 2008]

An Annual Adam Smith Festival in Edinburgh?

Eamonn Butler’s done it again, this time in our national newspaper, The Scotsman, advocating an annual festival around Adam Smith and his works, similar to the events around the unveiling of Smith’s statue on 4 July this year (also organised by the Adam Smith Institute).

By all accounts of many of those who participated in the events (including me) considered the 4 July events were a great success, and the natural thought is now circulating that Edinburgh should promote an annual Adam Smith Festival. Edinburgh already the home of one of the largest arts festivals in the world, currently about to begin, with thousands of events packed into four weeks in August in scores of simultaneous festivals of ‘high’ culture is an ideal venue for such a new festival.

The original Edinburgh Festival was held in 1947 – ‘wartime’ rationing was still in operation; I remember it well as it was around that time that I ate my first banana!

Students of modern ideas about ‘spontaneous order’ and such like, should note that the official ‘arts’ festival was accompanied, from the start by what we now call the ‘fringe' unofficalfestival, without any recognition of any kind of these early upstart performers (Scotland was more deferential of established authority in those days).

The unofficial fringe events were set up by people who simply turned up in Edinburgh, booked a hall (the City has an abundance of such venues, some of excellent quality, some not so, and not a few of them of imaginative ‘adaptations’), handed out their leaflets to passing and probably bemused tourists, among which were the serious serial, high-arts patrons, known for their ‘superior’ and serious dispositions. The less 'superior' lovers of the arts, joined by detached refugees from officialdom, soon voted with their feet to take in events from the Fringe productions along with the 'High Arts' productions.

Since 1947, the International Edinburgh Festival has grown and grown with separate but integrated festivals of Television – all the big names and tv personalities; International Books – getting bigger and bigger each year; International Science; Children’s Theatre; International Film; International Art; International Jazz and Blues festivals, plus the ever popular Military Tatoo (of which the military bands of the former eight Scottish Regiments – sadly, now just one – are ever popular with all Scots and with the many international visitors; and the ever expanding, famous ‘Fringe’ that now has 2,008 separate shows on during this coming month, up 30 per cent on last year. The Fringe keeps growing each year and arts lovers still keep coming.

The significant aspect of the mushrooming, unofficial festivals, which until relatively recently were disdainfully ‘ignored’ and kept apart from the official and publicly funded festival, was their complete lack of ‘central direction’. The 'organisers' of the Fringe facilitated rather than ran the events and did so without censorship (if your show is crap or 'beyond the pale' you won't get an audience once the daily reviws are in).

What started as poorly printed individual leaflets, has by today been developed into a 288-page colourfully printed catalogue. The Fringe is an example of the evolution of an uncoordinated, undesigned, and unintentional successful matching of outcomes to opportunities, and was recognised eventually by numerous producers of art and culture as comparable to the official Fesitval. (There are graduate theses and dissertations here waiting to be taken up by economists, sociologists, political science and anthropology students…)

So Eamonn Butler’s suggestion today is of sound practical interest. I hope it is taken up in Edinburgh. You can read his article HERE (courtesy of The Scotsman).

"Following the huge success of the unveiling events, there are calls for an annual Smith celebration – let's call it an Adam Smith Festival. A good time might be near his birthday in mid-June. (His exact birthday is unknown, though his birth was registered on 5 June, 1723. But the calendar was changed in 1752 and a few more days were added, so mid-June is about right.)

A highly successful part of the unveiling celebrations that a festival certainly should replicate was the Adam Smith Debate in the Caves, under the arches of South Bridge, Edinburgh. It was led off by former Scottish secretary Michael Forsyth, proposing that "this house would prefer to be led by an invisible hand" – against the opposition of his old political adversary Brian Wilson. It was an example of what many of us thought no longer possible: a really good-natured debate on serious issues that was both enlightening and entertaining. That makes it worth repeating: you won't see the like in Holyrood, after all.

Another highlight of the unveiling programme was the opportunity to enjoy Adam Smith's favourite food – strawberries – in his old home, Panmure House. Its new owner, the Edinburgh Business School, Heriot-Watt University, seems keen to repeat this event, too.

We will certainly stage an international dinner near the statue; and perhaps a candle-light vigil around it. But other people will have their own ideas. After all, it would not do for an Adam Smith Festival to be too rigidly planned. How much more appropriate it would be if different people's initiatives came together – as if led, indeed, by an invisible hand.”

Comment:
Bringing together both topics I discuss above, I find on page 180 of the Fringe Festival Catalogue of events the following:

‘Adam Smith – making poverty history’ from ‘The Radicals’, featured at St Mark’s artSpace, 7 Castle Terrace on 3, 10, 16, 24 August (from 5pm to 6pm):

‘Adam Smith! Brilliant Scottish economist? Inspiring moral philosopher? Hero or Villain? You decide after meeting with his friends, including David Hume, Benjamin Franklin and Robert Burns in this thought-provoking, vitally relevant, entertaining docudrama’ (World Premier)

Bookings to T: +44 131 226 0000; Online booking: edfringe.com (24 hours)

Disclosure: Neither I, nor Lost Legacy, has any commercial or personal interest in this show, nor any idea of its contents or of its quality – it’s the Fringe after all! I have booked to attend it out of interest, to be followed by a family dinner later that evening.

Just What Economics Needs, Someone Who Understands Adam Smith and Writes So Well

If you want a punchy, short piece (under 800 words) on what Adam Smith was about for colleagues, or for introducing young people to economics, then you cannot do better than pass out copies of anything written by Eamonn Butler (and his colleague, Madsen Pirie).

Today there’s an excellent example in The China Post in Tapei, Taiwan (yes, Eamonn gets around), under the headline HERE:

“Adam Smith: Economics can set you free”

“The pioneer of modern economics and the most influential thinker Scotland ever produced has at last been honored in his homeland with the first public statue of him in the United Kingdom. His message of freedom has worked wherever it has been tried, but it still needs spreading further.

Adam Smith's great and practical 'An Inquiry into the Nature and Causes of the Wealth Of Nations' (1776), is one of the most influential books ever written. It transformed our understanding of economic life from an ancient to a modern form, based on a completely new understanding of how human society works.
His 10-foot classical bronze statue was unveiled on July 4 (he was a friend of American independence) on the historic Royal Mile in Edinburgh by Nobel Prize-winning economist Vernon Smith (no relation).

Before Adam Smith, people assumed that the measure of a nation's wealth was the gold and silver in its treasury. Imports were bad because this gold and silver must be given up in payment. Exports were good because these precious metals came in. Trade benefited only the seller, not the buyer, and a nation could get richer only if others got poorer.

So countries erected vast trade barriers and controls to prevent money going out of the country -- taxing imports, subsidizing exports and protecting domestic producers (as many still do, hampering the World Trade Organization's troubled Doha Round negotiations).

Over 240 years ago Smith showed this was counterproductive.

He started not with theories, but from the fact that in any free exchange, both sides must benefit. The buyer profits, just as the seller does, because the buyer values the cash less than the goods it buys. That's why you buy things.
Since trade benefits both sides, said Smith, it increases our prosperity just as surely as do agriculture or manufacture. It is not gold and silver that measure a country's wealth, but the total of its production and commerce. Today we call that Gross National Product.

This blew a hole through the trade walls that had persisted for centuries. Leading politicians to read the book. They were convinced, cutting back trade restrictions and subsidies. That led to the great 19th-Century era of free trade and rising world prosperity.

Smith told politicians to get out of the way and let people trade freely: Social and economic harmony did not need to be planned from the center. It emerged naturally as human beings struggled to find ways to live and work with each other. Freedom and self-interest did not lead to chaos but -- as if guided by an "invisible hand" -- to order and concord.

All that was needed was an open society and free markets, with rules to maintain that openness and freedom. But those rules, of justice and morality, would be general and impersonal, not for the benefit of minority cliques.

It was not 'The Wealth Of Nations' which first made Smith's reputation, but a book on ethics, 'The Theory Of Moral Sentiments.' That book argues that the source of human morality is our natural sympathy for others (today we might say empathy). By seeing things from other people's point of view, we learn how best to live happily alongside them.

Some wonder how the self-interest that drives Smith's economic system can be reconciled with the sympathy that drives his ethics. But Smith understood that human nature is complex. The baker does not supply us with bread out of benevolence, but nor is it self-interest that prompts someone to dive into a river to save a drowning stranger. Self-interested human beings can -- and do -- live together, peacefully and productively.

So 'The Wealth Of Nations' is no endorsement of dog-eat-dog capitalism, as sometimes caricatured. Self-interest may drive the economy, but freedom is a force for good. Smith believes in free markets because the poor will benefit most from them. Only the rich and powerful benefit from other systems.

Now Smith dominates the main street of the city where he worked and, in 1790, died. Tourists from all over the world pose for pictures and guides use the prominent monument as a natural assembly point. Many wonder who Adam Smith was and why he deserves such prominence.

In an age when governments claim to be able to solve every problem, people will find his message refreshing: When we reject political interventionism and rely on natural liberty, we find ourselves, unintentionally but surely, in a harmonious, peaceful and efficient society.”

Comment
Try to get anything like that in 800 words that is readable by both lecturers teaching economics and by general readers who know nothing about Adam Smith or economics – and still keep both groups interested and informed.

Dr. Eamonn Butler is director of the Adam Smith Institute think-tank in London, which led the campaign to raise the private funds for the new statue, and he is author of 'Adam Smith -- A Primer' , Institute of Econiomic Affairs and Profile Books, London).

Disclosure: I am a Fellow of the Adam Smith Institute; ameliorating circumstance: I consider Butler's skills in explicating market-preferred economics are uniquely excellent and would deserve praise whether in ASI or elsewhere.

[All credit to The China Post for publishing such an excellent article.]

Adam Smith on Doomsdays

I come across a mixture of articles reflecting on aspects of Adam Smith which I comment upon on Lost Legacy, but today’s example is the most unusual yet.

It appears to focus on a single consequence, ‘Doomsday’, without explaining what it is about other than leaving a long list of postings all of which incorporate Doomsday into their titles and leave the inference that we are all ‘doomed’, a bit like Private Fraser in the popular “Dads’ Army” tv comedy series. However the anonymous author does not treat it like a joke.

The author writes on his Blog, “Probaway – Life Hacks” HERE, and includes his photograph of Adam Smith’s Tomb complete with the author’s image above the heading:

“Adam Smith's invisible hand and Charles Scamahorn's all too visible one”.

“How Adam Smith’s invisible hand might help us avoid Doomsday.”
Adam Smith (1723-1790) was one of the clearest thinkers ever produced by humanity and perhaps his method of approaching problems might help us get a grip on how to cope with this modern problem of super weapons and humanity’s current rush toward Doomsday."

Comment
Then follows the famous China Earthquake report, or at least part of it, from Moral Sentiments (TMS III.3.4: pp 136-7):

“Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connection with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment. He would too, perhaps, if he was a man of speculation, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general. And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquility, as if no such accident had happened. The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him, than this paltry misfortune of his own.”
I hadn’t remembered this Adam Smith statement until this search but it’s apt and perfectly related to our Doomsday predicament because it shows clearly that if any idea no matter how momentous can not be made concrete and immediately applicable to a person’s life they will either ignore it altogether or give it a sentimental lip service and go on about their trivial affairs.”

Comment
As regular readers of Lost Legacy know, the Doomsday author has left out the most important part of the paragraph he has quoted:

“To prevent, therefore, this paltry misfortune to himself, would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them? Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it. But what makes this difference? When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble? When we are always so much more deeply affected by whatever concerns ourselves, than by whatever concerns other men; what is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct. It is he who, whenever we are about to act so as to affect the happiness of others, calls to us, with a voice capable of astonishing the most presumptuous of our passions, that we are but one of the multitude, in no respect better than any other in it; and that when we prefer ourselves so shamefully and so blindly to others, we become the proper objects of resentment, abhorrence, and execration. It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the natural misrepresentations of self-love can be corrected only by the eye of this impartial spectator. It is he who shows us the propriety of generosity and the deformity of injustice; the propriety of resigning the greatest interests of our own, for the yet greater interests of others, and the deformity of doing the smallest injury to another, in order to obtain the greatest benefit to ourselves. It is not the love of our neighbour, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble, of the grandeur, and dignity, and superiority of our own characters.” (TMS III.3.4: p 137)

This puts a better slant on Smith’s point. I don’t know whether this makes much difference to the author’s focus on Doomsday or not, but it sure underlines Smith’s message about the decency of people (he was not a cynic).

I have found over the years, listening to people -laden literary culture, where everything get worse and there is no hope of a better future – that we are highly selective in our evidence. It’s the bits the doomsayers leave out that suggest that we are not quite heading for doomsday; more the case that we are heading for more of the same.

Adam Smith on Origins of Moral Senses

There is quite a buzz going round the boundaries between economics and psychology these past few years. Much neuro-research is showing interesting patters in brain activity when humans are presented with certain subjects. Tim Worstall is a major Blogger influence in Europe (he is an Englishman based in Portugal) and blogs all over the place. I am in agreement with him on most things.

Tim modestly describes himself as not an economist but displays more economics nous than many professional economists and almost all mainstream newspaper columnists, especially and typically just this week when berating serious politicians for confusing job creation with value added contributions to national incomes: employment is a cost of activity quite separate from whether it adds to welfare.
In this piece he lights upon a report about research showing that certain areas of the brain light up when children are shown selected pictures of people in pain.

Tim Worstall in Vivre la Difference Blog (23 July) HERE:

“Empathy is Hard Wired- And Adam Smith Was Right

“Interesting research here suggesting that empathy is hard wired into the human mind.
Using functional MRI scans on normal kids aged 7 to 12, researchers found the parts of the children’s brains that were activated when shown pictures of people in pain, according to findings published in the current issue of Neuropsychologia.
Study author Jean Decety, a professor in the departments of Psychology and Psychiatry at the University of Chicago, reported that empathy appears to be “hard-wired” into the brains of

“Consistent with previous functional MRI studies of pain empathy with adults, the perception of other people in pain in children was associated with increased hemodymamic activity in the neural circuits involved in the processing of firsthand experience of pain…,” Decety wrote.

… However, what sparks my interest here is that there’s really not all that much new under the sun. The father of economics as he’s often called, was Adam Smith. He’s associated these days with a rather dry form of free market loonery but that’s really not at all where he really comes from (I should add that I’m a Fellow of the Adam Smith Institute so I know whereof I speak.): he was a moral philosopher first and foremost.

For example:

To his credit, and ours, Smith thinks the species empathetic, morally disciplined, and reciprocal.
That’s not quite what we normally get from the modern economics textbooks, is it?
More:

Look at what he has to say about sympathy:

‘But whatever may be the cause of sympathy, or however it may be excited, nothing pleases us more than to observe in other men a fellow-feeling with all the emotions of our own breast; nor are we ever so much shocked as by the appearance of the contrary.’

Wait a minute, this isn’t sympathy at all. It’s empathy. Smith argues, extensively, that the fundamental driving force behind moral actions is the drive to understand the people around us and walk in their shoes. Why doesn’t he use the word empathy? Well, it didn’t exist as a word in the English language until 1904, according to the OED.

So what’s the big takeaway from all this? Adam Smith’s Wealth of Nations set generations of businesspeople down a path based on self-interest and an extreme disinterest in other people. But he himself believed quite strongly that our moral sensibilities, what we believe to be the better parts of ourselves, are derived from interest in other people.

Empathy is not an emblem of weakness or sensitivity, in Smith’s view. It’s a way to practice self-interest on the lives of other people. And since self-interest leads to prosperity, understanding the self-interests of the people around you leads to the creation of wealth more broadly. Empathy is the most important business strategy of all. Well said, Adam.

Empathy is both hard wired into the human brain and is also the most important business strategy of all?”

Comment
I find problematic the notion that sympathy/empathy is ‘hard-wired in the brain’. That is not quite how Adam Smith put it, though his mentor, Professor Frances Hutcheson, did believe that people are born with a moral sense, like the other senses, sight, hearing, and touch.

Smith saw the development of a moral sense from social contact in society, starting with childhood (adults) then at the ‘great school of self command’ (other children, especially at school), and onwards to adulthood. Society was a ‘mirror’ for comments, good and critical, of our behaviour.

To follow this story, you should consult Smith’s ‘Theory of Moral Sentiments’, a book he wrote in 1759, before The Wealth Of Nations, 1776, but the contents of both books he taught together at Glasgow University between 1751 and 1764.

It certainly become implanted in the brain, but is not hard-wired like the other senses. I am sure Tim Worstall knows this but just in case readers get the wrong idea, I have offered my two pence (I am also a Fellow of the Adam Smith Institute…).

Competing Commercial Interpretations of Adam Smith

There are various modern interpretations of Adam Smith’s legacy available. Some authors extolling the virtues of ‘greed is good’ (after Bernard Mandeville, 1724, and Ayn Rand, 1954), though neither author would attract any sympathy from Adam Smith, as indeed Mandeville explicitly did not (see Smith's Moral Sentiments, Book VII), and some other authors adopting Adam Smith’s moral philosophy as appropriate policy for modern businesses, or at least as an argument for readers of their mail shots to buy their books and attend their conferences, presenting their version of Smith’s philosophy.

One such is Lewis Green (‘Inspiring conferences and businesses for 25 years’) at the Bizsolutionsplus Blog (‘Featuring Solutions to Grow Your Business'): (‘lead with your heart: sell happiness and your and your business will flourish’) HERE:

“Succeeding in Business by Living Our Principles” Lewis Green

“While I recognize Gandhi, Hawn identifies Adam Smith as the father of spiritual capitalism. In The Wealth of Nations, Smith writes that “every man, so long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with any other man” is the best way to build wealth.

… Hawn also solidifies his argument using the book Business and the Buddha: Doing Well by Doing Good, written by Lloyd Field. In it Field quotes Smith's moral philosophy: "The average man and woman, along with the society in which they lived, should be the primary beneficiaries of a wealthy nation.”

In my humble work, I write about companies that follow Smith's philosophy, whether or not they know they are doing so. Why do these companies, big and small, follow such a moral philosophy? It's not just because it's the right thing to do, although they recognize that it is. It is also because putting people first (employees, customers and communities) increases productivity, drives employees and consumers to be loyal to the company, and results in excellent profits and revenues…

… Business models that are driven by greed and executives who either don’t know how or don’t want to change create this kind of apathy. According to a recent Gallup poll, 55 percent of employees are doing the bare minimum required of their jobs and 19 percent are actively working to sabotage your business. That leaves just 26 percent of employees who care."

Comment
As a response to the exhortations of the Geko school of greed (echoes of Bernard Mandeville school that has inspired Hollywood film-script writers, who probably don’t realize their mentor was not Adam Smith) such commercial pitches by the likes of Lewis Green do no harm (I haven't seen his pitches therefore cannot be sure).

Smith thought that competition was the best antidote to bad business models (the Incorporated Town Guilds, the spirit of monopoly, and the jealousy of trade that harmed consumer interests, including expensive wars and prohibitions).

Smithian competition reverses ‘Gresham's’ Law – the ‘bad’ money drives out ‘good’ money – by ensuring the ‘good’ competitive practices drove out ‘bad’ monopoly practices.

Adam Smith on the Falling Price of SUVs

In fits of enthusiasm to get a message across, writers (for hire) can always use the old dodge (forgive the pun) of invoking Adam Smith to sell their message.

Rex Roy of The Detroit News HERE: does it in racy style.

Rex Roy is selling the idea of buying an SUV of gargantuan proportions and invokes the name of Adam Smith and his invisible body part:

“Rex Roy: Car culture: Doing the math: SUVs may add up to big value

So the family and I have just returned from a fantastic week of beaching up north.
“Good news: Up north is still there and wanted me to tell you as much. Bad news: For people driving fuel-sucking SUVs, the drive up north gives cause for some rational thought.

As I sailed home along I-75 behind the wheel of a borrowed 2009 Armada LE 4x4 (a Nissan of Chevy Suburban proportions but with worse fuel economy), I pondered the following ...

Remember Adam Smith's invisible hand of supply and demand? Well, Smith's hand is pushing prices on new and used leviathans down. According to some sources, current SUVs and full-size trucks are so heavily discounted that their price equals that of vehicles two years old.”

Comment
This exposes the phoney use of Adam Smith and the totally unnecessary invocation of the misused metaphor of ‘an invisible hand’. It’s unnecessary because the reason why SUVs at the top end are falling in price is nothing other than the higher cost of fuel to drive them.

Students learn that in preparatory classes for Economics 101. Having learned about how markets work (covered by Adam Smith in Books II and II of Wealth Of Nations) their tutors introduce them to a mystical, even magical notion to confuse them forever, which is redundant, adds nothing but confusion, the metaphysical properties of something invisible and a hand to boot, that is believed by their tutors (they learned it from their tutors) and passed on to them in the certainty of the ancient trade of witch doctors, whom are ancestors listened to in trembling fear way back when all humans on the planet across the whole world lived as hunter-gatherers.

Of what does this invisible hand add to the SUV fall in price when fuel costs rise dramatically and the entire media tells owners of them that fuel will hit $300 a barrel sometime soon, the earth is going to experience significant climate change in a decade or two, and life as we know it is going to be a memory for those still alive and an historic myth for our grandchildren’s grandchildren?

And that’s the problem with the misuse of the metaphor, mentioned only once in Wealth Of Nations, and then not even about markets. It is sloppy economics; worse, it takes modern economists back to the status of ‘witch doctors’ who, at least, had the excuse of their ignorance of how the world works. Modern economists, and journalists, today have no excuse for misapplying Smith’s use of common enough metaphor in his time.

Here’s how Adam Smith explained their world as they knew it, in his ‘intended juvenile essay, began while a student at Oxford (1740-46) and completed c.1749, but not published until 1795, after his death in 1790. For details see my: Adam Smith: a moral philosopher and his political economy’, Palgrave MacMillan, 2008:

‘a savage, whose notions are guided altogether by wild nature and passion, waits for no other proof that a thing is the proper object of any sentiment, than that it excites it. The reverence and gratitude, with which some of the appearances of nature inspire him, convince him that they are the proper objects of reverence and gratitude, and therefore proceed from some intelligent beings, who take pleasure in the expression of those sentiments. With him, therefore, every object of nature, which by its beauty or greatness, its utility or hurtfulness, is considerable enough to attract his attention, and whose operations are not perfectly regular, is supposed to act by the direction of some invisible and designing power. The sea is spread out into a calm, or heaved into a storm, according to the good pleasure of Neptune. Does the earth pour forth an exuberant harvest? It is owing to the indulgence of Ceres. Does the vine yield a plentiful vintage? It flows from the bounty of Bacchus. Do either refuse their presents? It is ascribed to the displeasure of those offended deities. The tree, which now flourishes, and now decays, is inhabited by a Dryad, upon whose health or sickness its various appearances depend. The fountain, which sometimes flow in a copious, and sometimes in a scanty stream, which appears sometimes clear and limpid, and at other times muddy and disturbed, is affected in all its changes by the Naiad who dwells within it. Hence the origin of Polytheism, and of that vulgar superstition which ascribes all the regular events of nature to the favour or displeasure of intelligent, those invisible beings, to gods, daemons, witches, genii, fairies. For it may be observed, that in all Polytheistic religions, among savages, as well as in the early age of Heathen antiquity, it is the irregular events of nature only that are ascribed to the agency and power of their gods. Fire burns, and water refreshes; heavenly bodies descend, and lighter substances fly upwards, by the necessity of their own nature; nor was the invisible hand of Jupiter ever apprehended to be employed in those matters… And thus, in the first ages of the world, the lowest and most pusillanimous superstition supplied the place of philosophy. (Adam Smith, 1744-49. ‘History of Astronomy’, III.22: pp 49-50)

Modern economists who teach a 'theory', 'concept', or 'paradigm' of the invisible hand a lot to answer for.

Adam Smith on Justice at Doha

Selected quotatiosn from Adam Smith may be used to give a distorted version of what Adam Smith actually said and the mischievous misapplication of Smith's authority to curent events can become misleading.

Paul Rayment writes in guardian.co.uk (The Guardian, London 21 July) HERE:

“Why a Doha breakdown wouldn't spell disaster. Ignore the urgent rhetoric surrounding the Doha round of trade talks. It's time for a rethink"

“For those ministers gathering in Geneva, the voice to listen to is still Adam Smith's: "Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injustice must utterly destroy it…. Justice is the main pillar that upholds the whole edifice". The current state of the negotiations shows little sign of coming anywhere near this standard.
Far from being a disaster, a failure of the Doha round will provide countries, at all levels of development, with a much-needed incentive and opportunity for reflection and debate on how to restore and strengthen the basic principles of the world trading system in such a way that will not only meet Smith's criterion but also recover the broader and longer-term multilateral vision of those who shaped the original structure of international institutions in the late 1940s.”

Comment
This is another case of a quotation from Adam Smith being stretched too far. Here is the fuller version of what Smith wrote:

“Society, however, cannot subsist among those who are at all times ready to hurt and injure one another. The moment that injury begins, the moment that mutual resentment and animosity take place, all the bands of it are broke asunder, and the different members of which it consisted are, as it were, dissipated and scattered abroad by the violence and opposition of their discordant affections. If there is any society among robbers and murderers, they must at least, according to the trite observation, abstain from robbing and murdering one another. Beneficence, therefore, is less essential to the existence of society than justice. Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injustice must utterly destroy it.

Though Nature, therefore, exhorts mankind to acts of beneficence, by the pleasing consciousness of deserved reward, she has not thought it necessary to guard and enforce the practice of it by the terrors of merited punishment in case it should be neglected. It is the ornament which embellishes, not the foundation which supports the building, and which it was, therefore, sufficient to recommend, but by no means necessary to impose. Justice, on the contrary, is the main pillar that upholds the whole edifice. If it is removed, the great, the immense fabric of human society, that fabric which to raise and support seems in this world, if I may say so, to have been the peculiar and darling care of Nature, must in a moment crumble into atoms.

In order to enforce the observation of justice, therefore, Nature has implanted in the human breast that consciousness of ill-desert, those terrors of merited punishment which attend upon its violation, as the great safe-guards of the association of mankind, to protect the weak, to curb the violent, and to chastise the guilty. Men, though naturally sympathetic, feel so little for another, with whom they have no particular connexion, in comparison of what they feel for themselves; the misery of one, who is merely their fellow-creature, is of so little importance to them in comparison even of a small conveniency of their own; they have it so much in their power to hurt him, and may have so many temptations to do so, that if this principle did not stand up within them in his defence, and overawe them into a respect for his innocence, they would, like wild beasts, be at all times ready to fly upon him; and a man would enter an assembly of men as he enters a den of lions.”

(Moral Sentiments, II.ii.3.3-4: p 86; The words selected by Paul Rayment are in bold. You should read the whole chapter to confirm what Smith meant by justice.)

Paul Rayment, former director of economic analysis at the UN Economic Commission for Europe. Co-author with Richard Kozul-Wright of: The Resistible Rise of Market Fundamentalism, Zed Books, 2008, stretches Adam Smith’s vital point that a society must have a tolerable system of justice in it for it to survive to misapply it to today's international negotiating process.

Justice is a negative virtue compared, say, to beneficence, a positive virtue. To behave according to positive virtues, you have to do something, in this case, to act beneficently, and in the absence of doing so you breach the virtue, again in this case, you are guilty of ‘the blackest ingratitude’, but cannot be forced to act beneficently. However, the negative virtue of justice must be conducted on pain of punishment (even, in 18th-century Britain, on pain of hanging).

Smith clearly is talking about justice under laws in a single society applying to a population within it. Paul Rayment is stretching ‘justice’ in Smith’s case to cover today’s international ‘society’, like, say the United Nations negotiations, which are not enforceable by laws in a system of justice in the same sense as applies within a national, or local, society.

Without specific laws – such as laws that state that certain countries must accept the demands of other countries regarding their trade relations, a wholly wooly idea and one given to serious irregularities – it follows that countries have rights to accept or reject the proposals of other countries and agreement can only be reached by each country volunteering to accept proposals, perhaps suitably amended, in a process otherwise known as negotiation.

Paul Rayment presumably believes that certain countries should, because they ‘ought’ to, accept certain demands from certain other countries, which is fine as a point of view, but it is not Smith’s moral philosophy of justice. Countries that block all progress in place of accepting what is acceptable to others (and this applies to all countries and not just one side only) may be guilty of short-sighted politics, which may be a pity for all of them, but it is not a breach of the negative virtues of justice according to Adam Smith.

In so far as they are contesting trade protection as in Doha, a favourite topic for Adam Smith, I am sure where he would make suggestions in matters of trade policy. He would favour a ‘gradual’ lifting of trade barriers (WN IV.ii.12-4: pp 457-72) to avoid severe disruptions and privations among the labourers’ families affected in all countries affected by such changes. He would also favour gradual changes in the injustices (breaches of domestic laws) in those countries where the gains from trade, and from domestic production, are stolen by their rulers for themselves from their own people.

It is a consequence of such behaviour that the labouring and unemployed poor remain so, and this alone is a situation of instability, military coups, political repression and, in too many case, civil war, from which their societies ‘crumble’, their state’s ‘fail’, and their common atrocities feature so regularly on the world’s television screens.

The above is the proper application of Paul Rayment’s truncated quotation from Adam Smith’s theory of justice in Moral Sentiments.

A Marxist Turns Adam Smith On His Head

Jayapradeep Viswanath writes in Organiser, New Delhi, India (27 July) HERE:

“A Marxist leader evaluates his ideology—IV:

”Marxian distortion of economics

(This article is based on the book written by Marxist leader P. Kesavan Nair. He is frustrated with Marxism and his expose has become a bestseller in Malayalam.”

“The Wealth of Nation of Adam Smith, published in 1976 (sic) accelerated the growth of capitalism, this book gave theoretical foundation to the market economy. This stimulated the industrialisation in Britain. Smith explained that the wealth of a nation is based on the productivity of its people and, basis of production is human-work and natural resources. He emphasised the necessity of usage of high machineries. Smith believed that the market is an invisible source and it protects the interest of the consumer and the producer. Instead of production for consumption, he said, the consumption should be in accordance with the production. Due to the balance of demand and supply, the free market decides the price of products, Smith argued. It is suitable for the uncontrolled exploitation of nature and labour.”

Comment
Followers of one god (Karl Marx) must be careful not to create another dynasty, even if it is Adam Smith.

Wealth Of Nations did not ‘give a theoretical foundation to the market economy’; it was one of several author's works that discussed how the commercial economy worked (Books I and II of WN). To say that WN, or any other book ‘stimulated the industrialisation in Britain’ is is fanciful.

Whether Smith had published WN or not, the industrialisation of the economy would have continued in ignorance of his works, just as the entire history of commercial societies, and the transition from hunting to herding and farming has commenced and continued over many millennia without the aid of a ‘theoretical foundation’. To indulge in such panegyrics is pure fiction and exaggerates the role of the philosopher (continuing bad habits from a ‘vanguard party’ sect); society does not depend on a book to change. Smith was right; Smith the role of the philosopher is to understand the world, not, as Marx alleged, to change it!

Smith did not “emphasise the necessity of usage of high machineries”. Power-driven machinery hardly existed in Smith’s time; ‘manufacturing’ was by hand-driven not power-driven machines, literally by hand. Power came later.

Smith knew of the Carron ironworks at Falkirk, set up by his friend Dr Roebuck, but he didn’t discuss it, and anyway it was a clear exception to the workhouses and small plants he knew about (the famous pin factory, nail makers, plough makers, weavers, blacksmiths, tanners, stone masons, and so on).

Smith did not believe “that the market is an invisible source and it protects the interest of the consumer and the producer.” It was very visible and he wrote about how it worked very clearly; competition protected the consumer. In fact he never mentioned the invisible hand (Book IV) in connection with his analysis of markets (books I and II).

As for “Instead of production for consumption, he said, the consumption should be in accordance with the production”, the Marxist author is so far wrong, I have to ask if we are reading the same Wealth Of Nations?.

Smith wrote:

“Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce” [WN IV.viii.49: p 660]

One could add that it was not just in the mercantile system, but also in all state managed economies that “the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.”

Apparently, the original author of these misleading thoughts “is frustrated with Marxism”; I am frustrated with the [Marxist author’s] erroneous exposition of the alleged views of Adam Smith and I despair if this author’s expose is a best seller in any language, anywhere.

Adam Smith on Nanny-Minded Governments

Philip Johnston writes in The Daily Telegraph (21 July) UK; HERE:

‘Billions wasted and they just shrug it off’

For an economic historian brought up in Kirkcaldy, Gordon Brown seems remarkably indifferent to the writings of that town's greatest son, Adam Smith.
"It is the highest impertinence and presumption in ministers to pretend to watch over the economy of private people, and to restrain their expense," Smith wrote in The Wealth of Nations.
"They are themselves always, and without any exception, the greatest spendthrifts in the society."

In his wildest dreams, Smith could not have imagined just how spendthrift they could be. UK public sector net borrowing for the first three months of the financial year was at £24.4 billion, the highest quarterly since records began in 1946.”

Comment
A fine article it is too about the problem of overspending. The problem is exacerbated by the relentless, widespread, and almost irresistible pressure right across the institutions of the country, of which the apparatus of government is both the initiator and the sympathetic receiver of recommendations, to extend the regulatory intervention habit.

This morning on my daily (well, almost daily) early walk, I heard a ‘Chief Executive’ of ‘Alcohol Concern’ making a plausible case on 'Five Live radio' for new regulations of the night club, club and pub business (apparently worth millions) to ensure that they ‘don’t serve alcohol’ to under 18s, ‘don’t serve alcohol’ those who have ‘too much to drink’ and ‘don’t cut drink prices’ to encourage over-drinking, and ‘to be drunk in public’.

Moreover, a ‘new regulatory body is to be set up’ to implement standards, to educate business owners in the new regulations and to ensure that they ‘train their staff properly in the regulations’.

I kid you not!

The fact that the offences ‘serving under 18s’, ‘serving drunks’, and ‘encouraging over drinking’, and being drunk in public’ are already illegal and there are stiff legal penalties if prosecuted and found guilty. Moreover, untrained staff are not a defence for breaches of these laws.

So why do we need a new regulatory body, with an executive, senior managers, inspector staff, training staff and all the expenses per head, plus rent, buildings, travel, and accommodation – probably not costing less than £15-20 million a year – and for every year into the distant future?

Adam Smith was right.

“The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.” (WN IV.ii.10: p 456)

The penchant for using taxpayers’ money to interfere in the application of existing laws with new layers of legal regulation is now endemic. The difference with Smith's day is that governments now devolve their interference through regulatory bodies, which spend taxpayers’ money (which remember also comes from poor people too), carry out their tasks to a variable standard (usually promoting yet more and tighter regulation), and they become less accountable for their failings that match their inadequate achievements.

Apply existing laws! That's why they were passed in the first place.

Small Note of Smith and Malthus

Mir Mahfuz ur Rahman writes in The Daily Star Blog:

“Rice haves versus rice have-nots” (HERE)

ONE of the basic necessities of a commodity's availability is trade. Adam Smith, in his seminal work in 1776, had shown that comparative advantage of nations through trade was the key to increasing the economic wealth of all nations.

Rev. Thomas Malthus put forth the idea of a future world where a majority of the people starves due to lack of food. Given the circumstances of the world in the past two years, Rev. Malthus may be considered a sage even though he himself, as a man of God, may not have been happy about the reality of his prediction.”

Comment
Adam Smith’s trade theory was based on absolute advantage – a country trades what it is better at than others, for what goods they are better than it. Comparative Advantage was a theory advanced by David Ricardo in 1817.

Thomas Malthus described a ‘law of nature’ that had operated for thousands of years: the ‘Mathusian Trap’, namely that as subsistence rose, population would grow (more babies survive, life expectancies increase), but population would eventually run ahead of the necessary subsistence to support it, and subsistence would fall per capita, reducing population as infant morality increased and life spans shortened.

The irony was that just as Malthus was publishing his population theory, Britain was experiencing rising per capita consumption and rising population and the Malthusian Trap was not sprung because food output exceeded population growth in the industrialising commercial societies and has continued to do so for the past two hundred years. (See: Gregory Clark: A Farewell to Alms" (Princeton University Press, 2007)

Incorporated Guilds were not Forerunners of Businesses

Ian Williams in the Deadline Pundit Blog (HERE)

“The Barbarians are no kind of solution
Boycotting big business

Private equity firms have become rich at the expense of workers everywhere. It's time to recognise their sins:

“Adam Smith's "invisible hand" is much quoted. However, he also knew what happened when businesspeople meet behind closed doors

People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public or some contrivance to raise prices.”

Comment
Misleading inference. These were not ‘business people’ as we know them today. They were members of the Incorporated Trades established by law in each town and city who had a legal monopoly on who could make or sell the goods of their trade, be it weaver, linen maker, butcher, baker, brewer, salter, instrument maker, blacksmith, forger, carpenter, wheel-maker, cabinet maker, carriage maker, knitter, knife sharpener, milliner, and such like, all of whom who had to have serviced the requisite apprenticeship with a master resident in the town or city. In short petty shopkeepers, mainly run by tradesmen, artisnas and labourers.

These were the town Guilds, established in Elizabethan times and their nearest modern equivalent is in modern Guilds (Screen Actors Guild) and skilled trade unions, not business people. They set prices and other restrictions to narrown the competition from other towns and excluded from employment anybody not already recognised as such who might arrive from elsewhere.

The Glasgow Incorporated Trades prevented James Watt (who served his apprenticeship elsewhere) from trading as a ‘mechanic’ in 1761 (he was born in nearby Greenock) anywhere the town. He was saved from unemployment by Glasgow University and employed as an ‘instrument maker’. The University just outside the Glasgow city boundary was legally exempt from their jurisdiction.

The University’s model Newcomen Steam Engine broke and Watt was asked to fix it; he did, and went on to design and make major improvements to it, securing his invention by patent and from that work entered business to make commercial steam engines. The rest is history.

On the Senate at the time was Adam Smith who supported Watt's appointment and who opposed monopoly restrictive practices preventing workmen engaging in any trade they wished.

Adam Smith on The Chartered Tradng Companies

In this week’s Economist an anonymous author has linked problems with the financial problems at ‘Fannie Mae’ and ‘Freddie Mac’ with Adam Smith’s well known strictures against the East India Company in the 18th century:

‘Toxic fudge’ (17 July): (HERE)

Chartered by Congress; out for themselves
“ADAM SMITH thought that private companies chartered to fulfil government tasks had “in the long run proved, universally, either burdensome or useless”. That has not stopped them thriving.”

Comment
Slinging in a quotation from Adam Smith is a lazy way of writing about today’s problems and in this case the author betrays a limited knowledge of both Adam Smith and the 18th century private Trading Companies and the nature of Smith’s criticism.

It’s the bit about these private companies being “chartered to fulfil government tasks” that is almost completely misleading, as if they are like the ‘off balance sheet’ steps of modern governments to get government debt off the national accounts to mislead voters about the amount of public debt and effective breaches of the so-called ‘Golden Rule’ much lauded by the Prime Minister when he was Chancellor (and similarly in the US with student and mortgage debt).

The 18th-century Trading Companies were wholly private enterprises in which large capitals were necessary to fund their global operations. They were established by Royal Charter direct from the King or by Act of Parliament.

Their Royal Charters gave them in British Law legal rights to enforce a monopoly of the territory for which they were Chartered. [Incidentally, all British universities are appointed as such by Royal Charter, which is their legal accreditation to award degrees; without a Royal Charter no organisation in Britain may call itself a university, nor may it award degrees.]

The British government had no jurisdiction over these territories, and didn’t seek any. The initiative for securing a Royal Charter was wholly sourced from among their private investors in ‘joint stock companies’, who sought their charters from the King, with an unspoken passing of gold between the petitioners and those who had access to the King, some of which gold passed to the hard up King. Similarly, there were expenses to persuade legislators to support a Bill for an Act of Parliament.
The process was driven by the desire for a monopoly of the trade with certain territories and to keep out independent ‘adventurers’ who would take trade away from the company. A similar process of seeking Charters was associated with the setting up of colonies in North America, supported by Cromwell’s Navigation Acts that created a monopoly of shipping trade for British boats, manned by British crews and serving British ports.

While Smith defended the Navigation Acts for the secure defence of an island country ('defence is more important than opulence'), he did not approve of the monopoly nature of the Royal Charters for territorial trade (except in the initial stages to start the trade off, but not indefinitely as in the East India Company.

For a flavour of Smith views of these arrangements look up these pages in Wealth Of Nations (they contain some of the best and clearest writings of Adam Smith in polemical mood):

“The private interest of our merchants and manufacturers may, perhaps, have extorted from the legislature these exemptions as well as the greater part of our other commercial regulations.” (WN IV viii.3. 643)

‘But the cruellest of our revenue laws, I will venture to affirm, are mild and gentle in comparison of some of those which the clamour of our merchants and manufacturers has extorted from the legislature for the support of their own absurd and oppressive monopolies. Like the laws of Draco, these laws may be said to be all written in blood.’ (WN IV.viii.18. 648)

“It is unnecessary, I imagine, to observe how contrary such regulations are to the boasted liberty of the subject, of which we affect to be so very jealous; but which, in this case, is so plainly sacrificed to the futile interests of our merchants and manufacturers” (WN IV.viii.47: p 660)

“It cannot be very difficult to determine who have been the contrivers of this whole mercantile system; not the consumers, we may believe, whose interest has been entirely neglected; but the producers, whose interest has been so carefully attended to; and among this latter class our merchants and manufacturers have been by far the principal architects. In the mercantile regulations, which have been taken notice of in this chapter, the interest of our manufacturers has been most peculiarly attended to; and the interest, not so much of the consumers, as that of some other sets of producers, has been sacrificed to it.” (WN IV.viii.54. p 661)

“It is upon this account that joint stock companies for foreign trade have seldom been able to maintain the competition against private adventurers. They have, accordingly, very seldom succeeded without an exclusive privilege, and frequently have not succeeded with one. Without an exclusive privilege they have commonly mismanaged the trade. With an exclusive privilege they have both mismanaged and confined it”. (WN V.i.3.18: p 741)

“The joint stock companies which are established for the public-spirited purpose of promoting some particular manufacture, over and above managing their own affairs ill, to the diminution of the general stock of the society, can in other respects scarce ever fail to do more harm than good. Notwithstanding the most upright intentions, the unavoidable partiality of their directors to particular branches of the manufacture of which the undertakers mislead and impose upon them is a real discouragement to the rest, and necessarily breaks, more or less, that natural proportion which would otherwise establish itself between judicious industry and profit, and which, to the general industry of the country, is of all encouragements the greatest and the most effectual.” (WN IV.i.e.40: p 758)

Adam Smith On Sugar and Scalping Concert Tickets

An unsigned piece on StarNewsonline.com (The Wilmington Magazine, Wilmington, North Carolina) HERE.

‘Laissez-faire or laissez-foul?(July 18)

'Ah, free enterprise - the capitalist doctrine that allows a person to buy a ticket at face value and sell it for many times that. Some people call it scalping.
It used to be widely illegal, but many places, including North Carolina, have recognized that it's futile to fight the law of supply and demand.
In recognition, North Carolina's Honorables have decided to make Internet scalping legal, wiping out a previous ban on selling tickets for more than $3 above the face value.

The bill has the backing of, among others, our professional sports organizations, which value money and attendance more than an innate sense of fairness.
To some extent, scalping is the ultimate homage to capitalism. If someone's rich enough or foolish enough (maybe both) to plop down $2,500 so his little princess can see a real pop princess on stage, far be it from Adam Smith's disciples to stand in his way. The seller makes a profit, Daddy's princess is happy, and the law of supply and demand lives on.

When the spirit of free enterprise prevents the majority of fans from picking up tickets at a fair price, however, laissez-faire becomes extortion.”

Comment

‘Adam Smith’s disciples’ – a mixed bunch if ever there was one, running from the Bernard Mandeville's ‘greed is good’ school of Hollywood script writers and other interlopers, who missattribute their selfish nonsense to Adam Smith, through to the modern economists who have never read Adam Smith but use ‘rent-a-quote’ Internet sources instead, and on at last to that small band of economists who have read Adam Smith and don’t prattle on about ‘high priests’, ‘disciples’, and other unlikely imaginary worthies – are unlikely to take a stance on the price of tickets for a venue that cannot hold everybody who wants to attend and the low ticket prices the promoters print for the fixed number of places available.

I haven’t heard of fans of Opera being put off by the extraordinary high prices for performances by the top – very highly paid – names in the business. With the availability of other media, ‘live’ concerts are rationed by the space available. When the Rolling Stones played Copacabana Beach free, the audience reached one million. The space was rationed by the closest distance from the stage fans could get to. A stadium seating 80,000 rations seats by price, but the prices are set well below the matching demand; hence, re-selling takes place, and will take place whatever the promoters devise or are ordered to impose.

If mum and dad want to buy a ticket for ‘little princess’, it’s going to cost them. If I want to go to watch Manchester United, it’s going to cost me (and has). If no tickets are available, I can’t go. It’s no time to teach ‘little princess’ anything different – you could fill venues for pop stars several times over with all the ‘little princesses’ who want to go for nothing (they don’t pay for their seats – their parents do).

That the State Governor of North Carolina, and the ‘Honourable’ members in the State Capital, get involved in banning and unbanning ‘scalping’, with parents taking sides (what about those parents who cannot afford even the ticket price for their ‘little princesses', never mind those who can?), we have a classic state intervention too far.

In Adam Smith’s time sugar was very expensive, and Adam strongly liked sugar too; he could afford it on £900 a year. The majority of people in Edinburgh couldn’t afford the price of sugar, at least in the amounts they would have liked to have consumed it, but he didn’t demand that the Prime Minister introduce a law to lower the sugar price. He took the longer view; follow policies that promoted economic growth and through growth increase employment that permitted the spread of opulence. That would bring (and did) the availability of sugar to the table faster than any other route.

As it was, the UK legislators did not follow his advice very strictly, but even still, sugar appeared on the tables of working families by the end of the 19th century – it was on my family’s table even during the 2nd World War with rationing in force and it had been on family's table in the 1920s (my Gran had a sugar bowl from that period).

Now the deeply impatient among us will be in despair and shout in frustration that two or three generations is far too long to wait: ‘What do we want?’ ‘Sugar’! (or free concert seats); 'When do we want it?’ ‘Now, now, NOW!’ (You must have heard that refrain by now about whatever they are in a hurry for.)

But the brute facts of life are that you cannot hurry into existence the benefits of a commercial market or substitute for the slow and gradual growth of an economy – socialism tries this with disastrous results – only the Commissars got sugar on their table and got to go to the big concerts. Meanwhile, fans can get to the free concerts…which may not be daddy’s ideas of what is appropriate for his ‘little princess’.

Excellent Letter from Don Boudreaux of Cafe Hayek

Don Boudreaux at Cafe Hayek Blog (www.cafehayek.com) carries one his great letters to a newspaper, that is so good I just have to post it here too. It's not just his constant campaign for free trade, which is of Bastiat standard in fearless good sense journalism, but his price challenge to those who believe (it must be a belief because it couldn't be an argument based on reality) that they are 'worse off' now than in the 1970s, which is influenced by the undoubted visible perception of the rise in money prices and limited perceptionof the hidden rise in real incomes, is so precise, economical and brief, that I do not think it can be bettered:

"Times Aren't of '70s Bad" from Cafe Hayek HERE :

"Here's a letter of mine sent recently to the Atlanta Journal-Constitution:

We can debate just how closely the economy of 2008 parallels that of the 1970s ("Today's crunch feels like '70s," July 13). But one big difference unquestionably - and happily - distinguishes today from the dismal days of disco: no wage and price controls. This fact alone goes far toward making our prospects today brighter than they were during the presidencies of Nixon, Ford, and Carter. No inflation camouflaged by government fiat, and no long lines at gasoline stations or anxiety about finding fuel.

Plus, we're much wealthier today. Those who doubt this truth can get any Sears catalog from the 1970s, study it, and ask if they'd prefer to use their 2008 incomes to buy 1970s-era products at 1970s prices, or buy today's products at today's prices. Even though nominal prices in the 1970s were much lower than prices today, very few persons would choose the 1970s option.

Sincerely, Donald J. Boudreaux"

Comment
How true, and if worked out for every decade from the 1900s to the 1970s, I would not be surpised to see the same or similar responses.

Many angry Bloggers, politicians, and callers in to radio programmes believe they live in the worst of times, that are getting worse still. I read rants condemning everything about the rich parts of the world that they live in, sometimes overshadowed by their sight of deadly forces of the night, on the eve of a catastrophe beyond human understanding, but not quite here just yet.

Until I see people escaping from the Western countries, huddled in unseaworthy boats, under tarpaulins in lorries crossing their borders, stealing planes and flying anywhere but North America and Europe, and claiming refugee status in Africa, South America (Cuba even), parts of Asia, including North Korea, and Russia, I shall never take their cries of anguish seriously.

The traffic is all one way. Nobody is abandoning commercial society to return to hunter-gathering, though some preach at a distance just how great it was for humanity when it depended solely on what it could gather, catch and kill in the forests of long ago - when, as John Locke put it: 'all the world was [16th century] America' - but few if any of these aimlessly disastisfied myopics buy one-way tickets to go without any of the appurtances of western life (medicines, photos, metal knives and water-bottles), and strip off, dump everything, to join the hunter gatherers in the upper Amazon, the Highlands of Papua New Guinea, or the Kalahri desert, of which I can only say to them if they ever have a go: 'good luck, you'll need it.'

Adam Smith was right: the labouring poor had endured privation since their ancestors left the forest for shepherding and farming, and commercial society gave their descendants to opportunity to share in the spread of opulenc for the very fist time in 11,000 years. As far as I can see, nobody in the poorer parts of the world wants to go back to the forest; they want their share in opolence too.

Why Study the History of Economic Ideas?

Mike McBride, a guest blogger at orgtheory.net asks (18 July): “how important is it to know your discipline’s history?” HERE:

“If we base our answer on the material covered in the first year of core courses in economics graduate programs, then it is would seem to not be very important in my discipline. Yet, this is an unfair way to approach the question. The next question should really be: “Important for what?”

Let’s try a different route. It does not seem very important to know the grand history of your discipline to be a contributing member because your contributions are made at the research frontier. You only need to know the other relevant literature also at the frontier. (Or maybe the cynic would say it matters a little for establishing credibility with reviewers who want you to at give at least cursory mention to famous papers/books in your introduction.)

I remember learning this lesson as an undergraduate when I saw the list of references in one of my professor’s papers. I naively asked him how he could have neglected to cite Adam Smith’s Wealth of Nations. He chuckled and said that he’d never cited Smith in any of his papers. I was shocked. I wondered how it was possible to do economics without relating your work to Adam Smith.
Although I left this sweet innocence behind years ago, I often find myself revisiting my discipline’s history. Doing so gives me insightful perspective into how my own work fits into the overall discipline. It also aids in teaching because students love stories; if you can teach them a little history behind ideas and controversies, they are more excited about the material. But even better than these practical reasons is the thrill of encountering the evolution and synthesis of ideas. Living in the world of ideas is one of the best perks of our profession.
How important is it to you to know your discipline’s history? In what ways?”

Comment

I posted this short reply direct to Orgtheory:

‘The problem with citing Adam Smith in economics papers today is not that he had nothing to say of interest to today's researchers but what they do say about his work is almost always wrong; sometimes the citation does not correspond to the modern- day context even if the words used are similar (e.g., transposing Smith's analysis of the Royal Chartered Joint-Stock companies as if it applies to modern corporations) when the context is completely different.

There is also the misapplication of an isolated metaphor of 'an invisible hand' into a 'grand theory', a 'paradigm' even, when Smith used it simply as a metaphor on two occasions, once in Moral Sentiments and once only in Wealth Of Nations (his reference in his 'juvenile' 'History of Astronomy' referred to the real beliefs of pagan religions that Jupiter's hand cast thunderbolts at the enemies of Rome).

Smith did not refer to markets when using the metaphor in Book IV of WN (markets are exhaustively discussed in Book I and II without mentioning the metaphor). Those economists interested in following up this example amy contact me for a copy of my recent paper: 'Adam Smith and the Invisible Hand: from metaphor to myth' (gavinATnegwebDOTcom).

The professor who 'never cited Adam Smith' most probably had never really read him because he didn't need to. Smith wrote about the real economy, almost as an inter-disciplinary treatment; professors today write about an imaginary economy absent human beings, almost entirely imaginary in abstract mathematics and not the real world. That is why there is hardly any agreement on economic management or policy among the profession. Governments and those who advise them hire economists who fit their politics, as they did in Smith's day.’

There is an active core of economists interested in the history of ideas in the discipline. In the North America, there is the History of Economics Society, which can be contacted at: http://historyofeconomics.org/contact.htm
Or direct to the Treasurer: tleonard@princeton.edu

HES holds an Annual meeting, this year’s was in York University, Toronto (last year’s was in GMU, Fairfax, Virginia). You can see my reports of both that I attended by scolling through Lost Legacy. It also publishes a scholarly journal, The History of Economic Thought.

There are active sister societies of HES in Europe and Australia. For lively debates and research that informs modern debates, these are excellent entry points for young scholars and those hardened professionals of vintage ages.

Adam Smith 'chill out'?

From ‘Steve’ of Aquacentric (‘family, friends & foolihness’) HERE, a Blog devoted to its author’s hedonistic ‘chill out’ lifestyle (and good luck to him).

I note on his sidebar, his happiness is served well by Radion broadcasts, Rhythm and Blues recordings, the Oxford English Dictionary, numerous other recordings and closeness to a beach to surf upon in the proper gear and with the proper surf board, and all presented in the tranquillity of the Internet, and depend on electricity and manufacturing activity, plus transport and infrastructure. This 'dude' is truly switched on, not jsut to Buddah, but to the high-tech society a long way from the garden of Eden.

I can’t help thinking that all of these interests are products of modern society and its technologies, the rule of law and the general peace of living in peaceable societies. He may have struck a balance between the pressures of commercial society, but it is a balance and not all one way. If modern society had never developed, which Adam Smith wrote candidly about, he might have found hunter-gathering a somewhat less romantic notion than it appears in television documentaries. In the rich societies, you can ‘opt out’, survive and feel smug about it; you can’t as easily ‘opt in’ and stay in the rain forest.

Steve writes and quotes:

“Father of Economics Says: "Just Chill."

“Adam Smith : "don't worry- be happy!"
He was one laid back in-the-moment dude. Maybe a closet Buddhist. OK, I haven't been reading Adam Smith in my spare time as I should, but I happened to run into the following unlikely quote while reading a transcript of a radio interview of Pankaj Mishra, author of "An End to Suffering: The Buddha in the World."

Here is the quote:

"The poor man's son, whom heaven in its anger has visited with ambition, admires the condition of the rich. It appears in his fancy like the life of some superior rank of beings, and, in order to arrive at it, he devotes himself forever to the pursuit of wealth and greatness. Through the whole of his life, he pursues the idea of a certain artificial and elegant repose, which he may never arrive at, for which he sacrifices a real tranquility that is at all times in his power, and which, if in the extremity of old age, he should at last attain to it, he will find to be in no respect preferable to that humble security and contentment which he had abandoned for it. Power and riches appear, then, to be what they are, enormous machines contrived to produce a few trifling conveniences to the body. They are immense fabrics, which it requires the labor of a life to raise, which threaten every moment to overwhelm the person that dwells in them, and which, while they stand, can protect him from none of the severer inclemencies of the season. They keep off the summer shower, not the winter storm, but leave him always as much and sometimes more exposed than before to anxiety, to fear and to sorrow, to diseases, to danger and to death."

From: "Theory of Moral Sentiments" by Adam Smith 1759.

Comment
Adam Smith quotes get passed around and are picked up by Blog readers, often in amazement. If only they would read his books through for themselves they would find themes and gems all through them.

The quotation above is truncated, so I give it in full below. You will find it on Moral Sentiments in Book IV.1.8, pp 181-83:

“The poor man's son, whom heaven in its anger has visited with ambition, when he begins to look around him, admires the condition of the rich. He finds the cottage of his father too small for his accommodation, and fancies he should be lodged more at his ease in a palace. He is displeased with being obliged to walk a-foot, or to endure the fatigue of riding on horseback. He sees his superiors carried about in machines, and imagines that in one of these he could travel with less inconveniency. He feels himself naturally indolent, and willing to serve himself with his own hands as little as possible; and judges, that a numerous retinue of servants would save him from a great deal of trouble. He thinks if he had attained all these“, he would sit still contentedly, and be quiet, enjoying himself in the thought of the happiness and tranquillity of his situation. He is enchanted with the distant idea of this felicity. It appears in his fancy like the life of some superior rank of beings, and, in order to arrive at it, he devotes himself for ever to the pursuit of wealth and greatness. To obtain the conveniencies which these afford, he submits in the first year, nay in the first month of his application, to more fatigue of body and more uneasiness of mind than he could have suffered through the whole of his life from the want of them. He studies to distinguish himself in some laborious profession. With the most unrelenting industry he labours night and day to acquire talents superior to all his competitors. He endeavours next to bring those talents into public view, and with equal assiduity solicits every opportunity of employment. For this purpose he makes his court to all mankind; he serves those whom he hates, and is obsequious to those whom he despises. Through the whole of his life he pursues the idea of a certain artificial and elegant repose which he may never arrive at, for which he sacrifices a real tranquillity that is at all times in his power, and which, if in the extremity of old age he should at last attain to it, he will find to be in no respect preferable to that humble security and contentment which he had abandoned for it. It is then, in the last dregs of life, his body wasted with toil and diseases, his mind galled and ruffled by the memory of a thousand injuries and disappointments which he imagines he has met with from the injustice of his enemies, or from the perfidy and ingratitude of his friends, that he begins at last to find that wealth and greatness are mere trinkets of frivolous utility, no more adapted for procuring ease of body or tranquillity of mind than the tweezer-cases of the lover of toys; and like them too, more troublesome to the person who carries them about with him than all the advantages they can afford him are commodious. There is no other real difference between them, except that the conveniencies of the one are somewhat more observable than those of the other. The palaces, the gardens, the equipage, the retinue of the great, are objects of which the obvious conveniency strikes every body. They do not require that their masters should point out to us wherein consists their utility. Of our own accord we readily enter into it, and by sympathy enjoy and thereby applaud the satisfaction which they are fitted to afford him. But the curiosity of a tooth-pick, of an ear-picker, of a machine for cutting the nails, or of any other trinket of the same kind, is not so obvious. Their conveniency may perhaps be equally great, but it is not so striking, and we do not so readily enter into the satisfaction of the man who possesses them. They are therefore less reasonable subjects of vanity than the magnificence of wealth and greatness; and in this consists the sole advantage of these last. They more effectually gratify that love of distinction so natural to man. To one who was to live alone in a desolate island it might be a matter of doubt, perhaps, whether a palace, or a collection of such small conveniencies as are commonly contained in a tweezer-case, would contribute most to his happiness and enjoyment. If he is to live in society, indeed, there can be no comparison, because in this, as in all other cases, we constantly pay more regard to the sentiments of the spectator, than to those of the person principally concerned, and consider rather how his situation will appear to other people, than how it will appear to himself. If we examine, however, why the spectator distinguishes with such admiration the condition of the rich and the great, we shall find that it is not so much upon account of the superior ease or pleasure which they are supposed to enjoy, as of the numberless artificial and elegant contrivances for promoting this ease or pleasure. He does not even imagine that they are really happier than other people: but he imagines that they possess more means of happiness. And it is the ingenious and artful adjustment of those means to the end for which they were intended, that is the principal source of his admiration. But in the languor of disease and the weariness of old age, the pleasures of the vain and empty distinctions of greatness disappear. To one, in this situation, they are no longer capable of recommending those toilsome pursuits in which they had formerly engaged him. In his heart he curses ambition, and vainly regrets the ease and the indolence of youth, pleasures which are fled for ever, and which he has foolishly sacrificed for what, when he has got it, can afford him no real satisfaction. In this miserable aspect does greatness appear to every man when reduced either by spleen or disease to observe with attention his own situation, and to consider what it is that is really wanting to his happiness. Power and riches appear then to be, what they are, enormous and operose machines contrived to produce a few trifling conveniencies to the body, consisting of springs the most nice and delicate, which must be kept in order with the most anxious attention, and which in spite of all our care are ready every moment to burst into pieces, and to crush in their ruins their unfortunate possessor. They are immense fabrics, which it requires the labour of a life to raise, which threaten every moment to overwhelm the person that dwells in them, and which while they stand, though they may save him from some smaller inconveniencies, can protect him from none of the severer inclemencies of the season. They keep off the summer shower, not the winter storm, but leave him always as much, and sometimes more exposed than before, to anxiety, to fear, and to sorrow; to diseases, to danger, and to death. But though this splenetic philosophy, which in time of sickness or low spirits is familiar to every man, thus entirely depreciates those great objects of human desire, when in better health and in better humour, we never fail to regard them under a more agreeable aspect. Our imagination, which in pain and sorrow seems to be confined and cooped up within our own persons, in times of ease and prosperity expands itself to every thing around us. We are then charmed with the beauty of that accommodation which reigns in the palaces and oeconomy of the great; and admire how every thing is adapted to promote their ease, to prevent their wants, to gratify their wishes, and to amuse and entertain their most frivolous desires. If we consider the real satisfaction which all these things are capable of affording, by itself and separated from the beauty of that arrangement which is fitted to promote it, it will always appear in the highest degree contemptible and trifling. But we rarely view it in this abstract and philosophical light. We naturally confound it in our imagination with the order, the regular and harmonious movement of the system, the machine or oeconomy by means of which it is produced. The pleasures of wealth and greatness, when considered in this complex view, strike the imagination as something grand and beautiful and noble, of which the attainment is well worth all the toil and anxiety which we are so apt to bestow upon it.

[Note Adam Smith’s conclusion:]

And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants”.

Comment
Smith then goes on to discuss the rich landlord and the maintenance of the ‘thousands’ employed on his fields, which goes on to use the metaphor of the invisible hand.

It is from reading Adam Smith’s works through and not just selected quotations from them that we appreciate his genius and his thinking.

Selected and truncated quotations only give you a view of Smith that often reflect the politics or the prejudices of the person who selects the quotation.

My New Book Arrives on Adam Smith

My new book, 'Adam Smith: a moral philosopher and his political economy' has now arrived from the publisher, Palgrave Macmillan,
(ISBN 13: 978-1-4039-9948-1 or ISBN 10: 1-4039-9948-1)

It is part of the series, Great Thinkers in Economics, edited by Professor A. P. Thirlwall (University of Kent).

Adam Smith Not a Laissez-Faire Ideologue

Carl Luna, Professor of Political Science, San Diego Mesa College, writes in Political Lunacy (HERE)

“The War Between the States (of corporate desperation) and a Short History of American Economic Time (and if this title was any longer it could never make it as a bumper sticker)” (12 July):

“In economics only two things matter: supply and demand. Government policy can try to affect one over the other—it can’t really effectively and successfully influence both significantly at the same time. When one of these paradigms dominates but, then, crashes and burns, government can only—and must—shift to the other.
American economic history can be divided into three great epochs. From the 19th Century—particularly after the Civil War—to 1932 that policy was Laissez-Faire industrialism. Laissez –Faire has never meant “hands off” the economy, as many simplistically believe. Adam Smith never wrote that it did nor believed it should. Laissez-Faire means government hands of the decisions of supply and demand in the economy but it also, for Smith, meant active government in maintaining an efficient and—most importantly—fair free market. Smith, a dower, Scottish moral philosopher, understood that people are people and, given the chance, they cheat. Hence his famous admonition that “People of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” The role of government was to prevent such “conspiracy” and “contrivance.”

In practice, however, whenever you hear someone advocating so called Laissez Faire policies for government, they are calling for pro-supplyside policies: anti-labor, anti-consumer, pro-capital and a pro-producer. These were the policies of the industrial revolution—and the gilded age. This model crashed and burned in the ravages of the Great Depression, ushering in the Keynesian, demand-side, New Deal model.”

Comment
Apart from the hyperbolic language in the last paragraph, I comment on Professor Luna’s supporting arguments (not that I necessarily disagree with his broad characterisations of US history).

“Laissez –Faire has never meant “hands off” the economy, as many simplistically believe. Adam Smith never wrote that it did nor believed it should.”

Adam Smith never mentioned the words ‘laissez-faire’ at all; not once in anything he wrote. The sole source for laissez-faire was, not surprisingly, in France and among several of the French Physiocrats, whom Smith met, conversed, and read.

His association with ‘Laissez-faire’ is by attribution from his 19th-century successors (particularly among advocates against the factory Acts who resisted reforms to correct abuses in the employment of young children). The most active people characterising Adam Smith’s association with laissez-faire were found in the Manchester School and among Political Economists (J. S. Mill, etc.,). Modern 20th-century economists have embedded the false association of Smith with laissez-faire in academe and the media.

“for Smith, [he] meant active government in maintaining an efficient and—most importantly—fair free market.”

In so far as this means competition in markets, it meant repeal of all laws that allowed restrictions on competition (the Settlement Acts, the Apprenticeship Statutes, the Incorporated trades). He found the Navigation Acts necessary for defence, but was critical of the British monopoly on its colonies’ trade, and was critical of the absurdity of some of the tariff laws slipped into legislation by vested interests, but recognised the need for revenue from customs and excise to meet necessary government expenditure. In short, Smith’s policies were far more nuanced than they are often presented.

“Hence his famous admonition that “People of the same trade seldom meet together,…”.

This is often presented as Smith's general comment on business. It was, in fact, a reference to the incorporated towns where the members of each ‘trade’ – clockmakers, mechanics, drapers, weavers, butchers, printers, carriage makers, wheel makers, bakers, builders, matalworkers, and such like and so on, held a local monopoly over the sale of their designated products and prevented, legally, anybody not a member from setting up their business. It was major remnant of the old Guilds of the time, and choked competition such that members of different trades agreed not to buy from other sources, such as in nearby towns or imports, and thereby paid higher prices, but kept out competition which was a mutual benefit to all of them - but, alas, not their consumers.

The modern day equivalent is not the corporation of today; they are found in the professional guilds of employees, who have cornered markets for their skills (prominently evidenced in a town not too far from San Diego – yes, the one with it iconic name on the hills above it).

Moreover, Smith did not ‘understand’ that ‘people are people and, given the chance, they cheat’.

He had a much more subtle understanding of people – they did what was in their interests, as they saw them, and according to the norms of those around them. A community of robbers and murderers would refrain from robbing and murdering each other (Moral Sentiments) and most people will behave according to the mores of their time and place under the fairly effective tutelage of their ‘impartial spectator’.

It is true that where someone’s self interest was overwhelming, and where restraints, legal and moral were loosened (for example, the absence of competition) some of them would likely behave ‘rapaciously’), hence the need for the negative virtue of justice. Whether this required government, beyond the laws in place, to be active in administering laws and regulations to cover every eventuality, was a matter of practicality, not principle.

Professor Carl Luna’s recommended policies or the histories of them in respect of the New Deal and Keynesian policies as applied in the USA may have merits or otherwise, but I am not qualified to judge, not knowing enough about recent US economic history. My comments are confined to his representation of Adam Smith and his ideas.

New (to me) Blog Site - worth a look

A commentator on my post about being in a shrinking poor country but equal, or in a growing rich country but unequal led to my looking at a new Blog, International Political Economy HERE

It looks good at a first glance and may be worth you taking a look yourself.

Wall-E Film and Adam Smith's View?

‘A Robot who offers renewal’ by Michael Gerson at Washington Post.com HERE:

“Some conservatives have dismissed "Wall-E" as a crude critique of business and capitalism. This is true only if capitalism is identical to boundless consumerism -- a conviction that Adam Smith did not seem to share. Smith argued that human flourishing requires "good temper and moderation." Self-command and the prudent use of freedom are central to his moral theory. And these are precisely the virtues celebrated in "Wall-E."

Comment
Broadly correct. I haven’t seen the film so I cannot comment on its ‘message’ and how it relates to Adam Smith.

You can read the review for yourself.

Adam Smith Statue Photos Site

The Adam Smith Institute has opened a section on its Blog of photograps of the Adam Smith Statue HERE.

It is not finished yet, but you can see various photos of the statue and its site.

Adam Smith On Publicly Funded Health Treatment

Emmett Tyrrell, Jr, founder and editor in chief of The American Spectator and co-author of Madame Hillary: The Dark Road to the White House writes (10 July): “Health Care From Adam Smith” in Townhall.com (HERE):

“I am back from travels in old Europe and have survived in the pink. Readers of this column will recall that during the past three weeks, I have been traveling through France and England. Add Scotland to the pilgrimage. In Edinburgh last weekend, I participated in the unveiling of an Adam Smith statue, prominently placed near the top of the famous city's Royal Mile. Smith now overlooks much of this city, in which he -- along with other members of the Scottish Enlightenment -- thrived. He is referred to often as the founder of economics. He certainly is the first advocate of free markets and one of the most famous. Now a heroic statue of him overlooks one of the great tourist spots in Europe. Thousands of tourists will confront him as they parade up to Edinburgh Castle. While there, I witnessed dozens of individuals having their pictures taken at the great man's feet.”

Raising that statue would have been unthinkable a generation ago. The Edinburgh city council would not have heard of it. Smith and his ideas were supposedly passe. Now, of course, market economics has swept the world. Even old socialists, such as the Chinese and the Indians, believe in markets and allocate their capital and their energies according to the markets' demands. Marx and Engels are has-beens. The only Marx we admire today is Groucho.

I say I survived my travels in the pink because while in France and the U.K., I never had to avail myself to any aspect of their health care systems. Doing so remains perilous. Their systems remain socialist, or -- to use modern American liberals' euphemism -- "single-payer."

Comment
I met Emmett Tyrrell during the day’s events – he came up and introduced himself to me – and we exchanged a few words. Clearly, he is an enthusiast for Adam Smith and his ideas.

It’s his last paragraph that slightly bothers me. I live in Scotland and also for parts of the year in France, and I have experiences of both state-run Health Services, though I do not shake with the fears than Emmett Tyrrell reveals in his piece linked to the unveiling of Adam Smith’s statue.

Is it really true that his trip to Europe can be described as a case of his ‘survival’? Is he some kind of ultra-nervous hypochondriac? Was he genuinely at severe risk of ill-health and ill-treatment? Is true that ‘doing so is perilous’?

I would suggest that this kind of alarmism undermines the excellent case for opening up the health care systems of France and the UK to private health competition and service, if only because his attitude is far too shrill and contrary to the experiences of most people who live in both countries. That alone discredits those who purvey such extreme views.

There are many things wrong with the National Health Service in the UK and think tanks like the Adam Smith Institute has done much to highlight them and to propose workable remedies. All of which I support. But persuasion is not helped by extremist comments. In democracies we have to persuade legislators to legislate for change, not berate those hesitant to take the risks of change.

In all parts of the UK, private health care services are available – even in ‘socialist’ minded Scotland with its massive public sector. I have used, recently, the excellent health care services of the UK private insurance firm, BUPA, for a knee operation. I have also used the NHS care service over several years for regular screening in its Edinburgh cancer clinic, and, of course, for regular visits to my local GP doctors.

No pressure, no crisis, no feelings of being in peril and about to be dumped in a large queue. Similarly, in France, I have had two ‘emergency’ procedures (picked up by their famous pompiers from a street and a train, respectively) and treated in their clean hospitals, complete with scans and intensive care services. These experiences were more re-assuring than ‘perilous’.

Emmett Tyrrell had little to worry about if he needed rapid medical assistance.

He might want to reflect on what Adam Smith actually said about health in Wealth Of Nations. In Book V, when discussing the government’s role in Public Works and institutions for facilitating Commerce and on the Expence of the Institutions for the Education of Youth, he added to a discussion of the need for the public funding of part of the costs for educating youth with a ‘little school in every parish’ and for maintaining ‘the martial spirit’ necessary for defence, he added this sentence asserting the need for the ‘most serious attention of government:

‘in the same manner as it would deserve its most serious attention to prevent a leprosy or any other loathsome and offence disease, though neither mortal nor dangerous, from spreading itself among them, though, perhaps, no other publick good might result from such attention beside the prevention of so great a publick evil’ (WN V.i.f.60: p 788).

There is much to do to reform the state-managed health services in the UK and France, in particular overcoming the prejudice against private care services. It is widely accepted that health care services should be free at the point where people use them, but that in no way should restrict the provision of such services solely to publicly-funded institutions. Private institutions should be permitted to sell their services to the National Health Service, which would schedule individuals to receive such services at their (i.e., the individual’s) convenience, and individuals should be allowed and encouraged to fund their care services through private markets should they desire and be willing to pay for them.

These reforms do not break the provision of care services free to patients at the point of use, nor do they limit the voluntarily consumption of private services for those able and willing to pay. Dual provision would introduce healthy competition and over time raise standards in both private and public sectors.

Adam Smith was always pragmatic and not ideological. It might be better if those who claim they admire him (and his statue) would adopt this stance too.

Adam Smith's Question for Political Candidates

Henry Clay Ruark writes about three conclusions to his “Op Ed: 'Econ 101' Corrupted By Corporate Design”, HERE the third of which was:

“Third - only because it is the driving force behind the other two is "free trade": The laissez-faire theory that the less-restricted any commercial transaction is, the better for all concerned.

That theory is always supported by carefully-stated reference to the “invisible hand” first conceived by Adam Smith; but also always overlooking Smith’s "careful and complete definition of an honest, open, balanced, two-sides-gaining transaction."
That’s NOT how corporate/business interests choose to operate, as we have painfully learned over the past half-century.

Market fundamentalism, based on “free trade” theory as overwhelming driving/force, was "born in the U.S.A." On its worldwide record NOW, as the 21st Century grinds unmercifully on, it deserves to die here, too.

No longer can it continue domination by aggressive non-union activities; by manipulation and massive machinations to assure longer hours; less share of gains from growing productivity; and more stock-holder 'profits' via dividends, and management-gains by stock and cash-paid lush bonuses.

It is natural fact, too, that those must always come at the cost of cooperative principle and practical satisfactions-sharing for all; as in living wages and benefits for the worker-side of this natural equation.
"From whence-else?", we must ask --and insist on a straightforward sensible, checkable answer, always.

We need --indeed, we MUST have !-- a new model based on what we now know, having learned it "the hard way" ever since the first Great Depression --if we are to offset and prevent the Second GD, already in sight.”

Comment
The fact is there has never been free trade in post-Smithian economies.

Britain, smarting from its ‘wounds’ from the rejection by its colonists in North America, instead of heeding Adam Smith’s final paragraph of Wealth of Nations – to adjust its foreign policy to ‘the mediocrity of its circumstances’ – gradually slid into a second empire project in Canada, the Caribbean, Australia, New Zealand and, in an exhibition of its ultimate and original folly, in India and Asia.

It also continued to engage in wars on the continent of Europe and at sea (the latter with more justice in view of its island vulnerability). This acted as drag anchor on the spread of opulence in the 19th century, as governments spent millions on wars for trivial ends, instead of lowering taxes to all individuals to choose to invest in fixed and circulating capital.

The second empire was finished off, effectively, by two world wars, though still the British state continues to ignore the ‘mediocrity of its circumstances’ and bask in its self-awarded status as a ‘world power’.

We should note that the “invisible hand” was not “first conceived by Adam Smith” (see entries in Lost Legacy passim). It was a metaphor conceived by modern, mainly US, economists seeking a handy benediction for the applicability of their abstract mathematical theories of General Equilibrium, a sort of Holy Grail in Economics, its marvellous perfectibility compromised by the total absence of human beings in its models of the real world economies.

In practice, economics does more than ‘always overlooking Smith’s "careful and complete definition of an honest, open, balanced, two-sides-gaining transaction".’ Home policies of import restrictions, tariffs and non-tariff barriers and subsidies and dumping agricultural exports, combine to undo any pretensions to free trade.

The “new model based” we now need is actually an old 18th-century model but which Adam Smith was sanguine about its chances ever being adopted by the British Government (and by extension from the experiences of Europe, USA, most developed countries, and almost all developing countries too) comes up against the domestic resistance of those who gain from the non-free trade arrangements (including, I suspect, Henry Clay Ruark, the author seeking a ‘new model’ distant from ‘free trade’).

Smith wrote in Wealth Of Nations this stinging, sardonic, and absolutely credible paragraph, true for his days and outs:

“To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the publick, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it. Were the officers of the army to oppose with the same zeal and unanimity any reduction in the numbers of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home-market; were the former to animate their soldier, in the same manner as the latter enflame their workmen, to attack with violence and outrage the proposers of any such regulation; to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of the, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The Member of Parliament [read: member of Congress and candidate for President] who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest publick services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.” [WN IV.ii.43: p 471]

Readers should send a copy of this extract from the Wealth Of Nations to their local politicians, who join the clamour among business owners and trade unionists for protection from rival business owners and foreign workers, and who pocket their protected profits and higher wages at their domestic consumers’ expense.

Ask which type of legislator they are (and which type of President they will be): the one favouring their constituents paying more for what they need, or the other (rare) type favouring raising their constituents real incomes by extending competition, the only lasting measure against monopolies, misbehaviour, and higher prices?

Unequal Growing Share versus Equal Shrinking Share

Mark Anderson (The Ottawa Citizen, 8 July) discusses ‘Beleaguered Capitalism does a pretty good job defending itself’ and after a discussion of the issues he inserts this piece in the middle:

“In the National Post last week, columnist Yaron Brook noted that capitalism is becoming a hard sell, and not just in places like South America, where a handful of countries lead by Venezuela and Bolivia have pretty much abandoned free-market economics in favour of various nationalist, socialist, or national-socialist programs. According to Brook, everything from England's nationalization of the Northern Rock bank, to the U.S.'s rejection of trade bills with Colombia and South Korea (and threatened renegotiation of NAFTA), to the massive sovereign wealth funds of countries like China and Brazil, bespeaks a global pull-back from the principles of free-market economics.

The reason? "The lack of an intellectual defence of capitalism has left free markets vulnerable," writes Brook. "No one could morally defend self-interest."
Well, perhaps not no one. Next to Brook's column is another by Peter Foster eulogizing the great Adam Smith, capitalism's founding father. Smith argued that free market economics -- industry in the explicit service of self-interest -- was not only morally OK, but necessary to increase a nation's overall wealth and living standard.

Far from being a flint-hearted ogre, "Smith was very concerned with improving the lot of ordinary people," writes Foster.

The problem, though, is that in a free-market economy, the lot of some people (owners/executives) improves faster than the lot of others (workers), which eventually breeds resentment, which gives rise to socialist/nationalist sentiments, which hampers business and throttles the free market economy, which decreases national wealth and overall living standards.

A rational analysis of the two competing systems, capitalism and socialism, would lead one to conclude that a society is better off if everyone gets a piece, however inequitably shared, of an ever-growing pie, rather than equal pieces of a shrinking pie.”

Comment
That seems a pretty good and clear statement to me. Read it all HERE:

From this and other columns by Peter Foster I have seen, The National Post must be a pretty good newspaper, especially because it prints discussions of the issues from more than one perspective; always a sign of serious debate that is worth thinking about.

I think the basic issue is summed in the last sentence I quoted: ‘society is better off if everyone gets a piece, however inequitably shared, of an ever-growing pie, rather than equal pieces of a shrinking pie.”

I would add ‘growing’ after ‘everyone get a piece’ to read ‘everyone gets a growing piece, however inequitably shared, of an ever growing pie, rather than a equal pieces of a shrinking pie'.

More on the Adam Smith Statue

The Bastiat Society HERE:

"The Genius of Adam Smith"

On July 4th, outside St. Giles' Cathedral in Edinburgh, Professor Vernon Smith of George Mason University unveiled a statue of the Scottish intellectual known as "the father of economics," Adam Smith.

National Post (Canada) columnist Peter Foster noted the occasion by writing that Adam Smith has at long last received the memorial he deserves. All too often demonized as the "father of capitalism" and the exploitation the working class, Foster says Smith "was very much concerned with improving the lot of ordinary people."

Foster wrote, "In The Wealth of Nations, [Smith] pointed to the remarkable social -- and international -- benefits of self-interested interaction through trade and the division of labour. He noted that participants appeared to be guided by an "Invisible Hand" to produce a good that was "no part of their intention." This truism has been the centrepiece of attacks on the capitalist system as motivated by "greed" and "selfishness" and thus morally indefensible. But the merely obvious observation that Smith's famous "butcher, brewer and baker" are serving us primarily in their own interests in no way detracts from the value of that service, nor implies that they are rendered heartless by their business dealings."

Comment
Ignore the invisible hand bit (see Lost Legacy passim) and take the piece as a whole. One of many notices about the unveiling of Adam Smith’s statue from around the world.

This contributes to the profile of Adam Smith among the educated chattering classes and should lead to a wider readership of his books.

Professor Vernon Smith and his wife came up to me after my short talk about Adam Smith's life at Panmure House (Adam Smith's home in Edinburgh, 1788-90). He asked for a copy of my paper on the invisible hand, 'from metaphor to myth', giving me his card, after I revealed I had visited GMU in June 2007.

For a photo of the Adam Smith Statue see the Adam Smith Institute Blog HERE

Adam Smith's Statue Events 4

After the unveiling by Nobel prize winner in economics, Professor Vernon Smith, who made an excellent speech notable by including comments on Adam Smith’s Moral Sentiments, as well as Wealth Of Nations, I attend the reception and buffet arranged in the City Council building (formerly where Adam Smith worked as a Commissioner of Customs), I was chairman of a meeting held at the National Library of Scotland where a small but significant exhibition of some of Adam Smith’s letters, first editions and early translations of his books, and original letters from and to him were shown.

The role of archivists of nationally, and this case internationally, important original materials were exhibited. Having used the NLS resources on several occasions, I could not refrain from mentioning how the staff of NLS compared favourably with my experiences 30 years ago at the then British Museum Reading Room. NLS truly is a National Treasure.

The first speaker I introduced was Dr Iain Gordon Brown, the Principal Curator of manuscripts, who is also a specialist in 18th century materials. He obviously knows Adam Smith and his Works and his speech was extremely well delivered and received.

He was followed by Professor Chris Berry, Co-director of the Adam Smith Research Foundation at Glasgow University, who delivered in 25 minutes the mos knowledgeable summary of the main ideas in Moral Sentiments and I am sure that those among the audience who had not been exposed to the Impartial Spectator before, or had found it difficult to comprehend if they had, were by the end of his short speech well-enough informed to make a positive judgement of its merits. I allowed several questions for about 10 minutes and these were of excellent quality – I could have taken four of five more – who says philosophy is dull? – but time ran out, having started twenty minutes late due to late arrivals. He had a small audience of eager listeners after the meeting closed, continuing his ‘seminar’ on Smith’s philosophy.

Professor Chris Berry has organised a conference in Glasgow in March to celebrate the 250th anniversary of Adam Smith’s Moral Sentiments (which I shall post about on Lost Legacy as soon as I have full details – its preliminary agenda and speakers suggest a conference for which there will be high demand).

With that meeting my Statue celebrations ended. I had to get back to grading a box of MSc exam papers for my former day job and these have to be in by Monday.

Overall, the celebrations, organised by the Adam Smith Institute were a magnificent success, and a large thank you to Eamonn Butler, Director of ASI is in order.

Press coverage about Adam Smith's statue in Scotland and the rest of the UK has been high.

Excellent Summary of Adam Smith's Considered Views

Ligneus on his Blog, Road Sassy (“Dedicated to the fight against Islam and Progressives - Members of Either Are Candidates for Road Kill Here”) quotes from the The National Post an article by Peter Foster, ‘The genius of Adam Smith’, on the unveiling of the statue of Adam Smith:

“At long last Adam Smith, whose insights are still too rarely grasped more than 200 years after his death, will receive a fitting memorial.

July 4th is appropriate for such a tribute, as is the fact that Smith’s towering statue (pictured below) is being unveiled by an American. Not only was Smith’s great book, The Wealth of Nations, published in 1776, the year of American Independence, but he had great sympathy with the colonists’ revolutionary cause. Smith had been a professor at Glasgow University when that city was booming from trade with the Americas, but he had realized that much of Glasgow’s wealth came from restrictions on what the colonies could produce for themselves. He also pointed out that the military costs involved in controlling colonies as part of a “mercantilist” system were greater than the benefits. He favoured a free trade relationship and even political union with North America, which he predicted would one day rise to become a greater power than Britain.

One oft-repeated criticism of Smith is that his insights could not possibly apply to a world of supermarkets and giant corporations, of automobiles and air travel, of global financial institutions and the Internet, of alleged resource depletion and worsening pollution. But despite the fact that politicians and activists persist in biting the Invisible Hand, it continues its remarkable work. More fundamentally, Smith’s insights remain valid because he was not merely a supporter of markets and a critic of overweening governments, but also a student of human nature. Indeed, Vernon Smith has pointed out that Adam Smith should also perhaps be known as the “father of psychology.”

Some have seen a fundamental contradiction between Smith’s two books, but the notion that one must choose between humans as either self-interested or sympathetic is ridiculous. Smith painted humans as complex and often internally conflicted creatures whose prudence, benevolence and ingenuity is nevertheless best encouraged in a free and open society with minimal government, clear laws and strong external defences…

Among Smith’s philosophical works is a treatise on astronomy that notes that scientific theories are designed to cater to our desire for explanations, and are always and inevitably provisional. He would thus treat claims that science of climate change was “settled” with the greatest suspicion, particularly since they come accompanied by calls for draconian government action.”

Comment
An excellent account of the importance of Adam Smith that is close to his true role in modern thinking and in stark contrast to the usual version of Smith’s work and context.

You should read it in full (HERE).

I have some critical comments but shall leave them unsaid because Peter Foster's article is almost as accurate as can be constructed. (I take no responsibility for the Blog site’s targets for ‘road kill’; neither Peter Foster, the author of the excellent article, nor The National Post bear responsibility for a Blog author’s idiosyncrasies).

Events Associated with the Unveiling of Adam Smith’s Statue: 2

The first event of the day was the ‘breakfast’ reception at Panmure House in which Adam Smith lived from 1778 to 1790.

Eamonn Butler, director of the Adam Smith Institute, opened the proceedings and welcomed the early morning participants. I was next up the give a short speech on Adam Smith’s life in Panmure House, where he lived with his mother, Margaret Douglas Smith, and his cousin, Janet Douglas, and his housekeeper of his household from 1754 (at his house at Professors’ Close, Glasgow University) to when she died in at Panmure House in 1787.

Necessarily brief and selective, I reported on the visit by the young English poet, Samuel Rogers, who left a memoir of his visit to Edinburgh in 1789 and his reception by Adam Smith, regarded as a typical experience of Smith’s household in those later years of Smith’s life (d. 1790).

Smith invited him to dine everyday, and though his other social obligations cut into his free time, he did dine and sup with Smith, and accompanied him to the Oyster Club to meet some of his enlightenment friends (including Joseph Black, discovererof latent heat and cor-respondent of James Watt. He also joined Smith at his regular Sunday dinner (‘between sermons’ – Roger’s not Smith’s – at the local Kirk). Panmure House is almost next door to Canongate Kirk (where Smith is now buried).

On that particular Sunday, Smith’s guests included William Robertson (Principal of Edinburgh University), Hugh Blair (‘too puffed up’ by his fame as a preacher), Henry Mackenzie (Attorney for the Crown in Scotland). James Hutton (farmer, geologist and Smith’s close friend), and John McGowan (Lawyer).

They discussed, says Rogers, the French economist, Turgot and the Geneva man-of-letters, Voltaire. After their repast, they went together to a meeting of the Royal Society of Edinburgh (of which Smith was a founder member in 1783; he had been admitted previously to the Royal Society of London in 1772). The RSE meeting (only seven people present) heard a paper by Dr Anderson (author of papers on political economy, and reputed to have presented a theory of rent that anticipated David Ricardo’s), which Samuel Rogers described as ‘dull’.

Rogers found Adam Smith to be ‘very friendly and agreeable’ and observed that he did not have the ‘absence of mind’ that he was reputed to have.

Adam Smith died in Panmure House in 1790 and his literary executors (Joseph Black and James Hutton) supervised the burning of his 16 volumes of unpublished papers, a manuscript on Jurisprudence) which he had advertised in successive editions of Moral Sentiments since 1759, but which he never finished.

I gave my opinion that he reason for seeking employment as a Commissioner of Customs was to create a sound case for being too busy to complete the work on his book. Why? Because his book on Jurisprudence, which he described in his Lectures on Jurisprudence (the sets of students’ notes found in 1895 and 1958) as ‘the theory of the rules by which civil government ought to be directed’.

Once the decisive war of independence broke out in 1776, the contending issues about how a country ‘ought to be governed’, as expressed by the writings of, and his conversations with, representative figures (example. Bejamin Franklin) in the intellectual core of the colonists’ leaders and influencers, were bound to cause him severe personal and political embarrassment. How could he not discuss and comment upon how the colonists wished to be governed outside the rule of the King and legislature of Great Britain? And whatever he did discuss – how he honestly and intellectually would have to present it or how he emasculated his own thinking and tried to hide his sympathies – was bound to cause him serious problems with the political establishment of his country and his King.

His solution was to become ‘too busy’ to complete and publish his book. So he didn’t and on his death bed he ordered his friends to burn all of his unpublished manuscripts, except of course, his Essays on the Philosophical Method, which included his History of Astronomy, kept locked in his bureau for 40 years that he began writing in 1744 while at Oxford (but that’s another story…), which Black and Hutton published pothumously in 1795.

Events Associated with the Unveiling of Adam Smith’s Statue

Adam Smith’s new (only) statue in Scotland is to be unveiled on Friday, 4 July, in Edinburgh, and the first of the events to celebrate the occasion was held last night: ‘The Adam Smith Debate’ (sponsored by the Adam Smith Institute and the English Speaking Union).

The motion was ‘This House would prefer to be led by the Invisible Hand’.

The venue was in a part of Old Edinburgh – the converted stables off the Cowgate, now posing as a social night club, at The Caves, Niddrie Street.

It was packed with standing room only and, looking around the crowded debating room and the packed gallery, there were many ‘well kent’ faces from Scottish politics, academe, business and NGOs in the audience.

The debate was excellent, a good humoured knock-about session, loosely connected with current and past political life - someone mentioned the Atlee government and there were many references to Thatcher’s, occasional references to Blair’s and somewhat disparaging remarks about Brown’s (he really is unpopular across the spectrum).

Michael (Lord) Forsyth, former conservative Secretary of State for Scotland, a hero of the Right and ogre of the Left, led for the motion. The invisible hand became a synonym for open markets, less government regulation, and successful social mobility. It was a stellar performance.

As was the response of Brian Wilson, former Minister in Blair’s labour government, forever associated in Scottish National Party eyes as an ‘insidious traitor’ for supporting the Union and not independence (more for being an effective opponent than for any moral failings on his part). I have known him for years – we agree to disagree - and he has a genuine intellectual passion for the Union. He equated the invisible hand with Tory one-sided concerns about the plight of the rich and not with the poor, during which the old ‘war’ about the Tory ‘Poll Tax’ was re-fought by its prominent combatants – but always with good humour, polite banter, and without rabid rancour.

The supporting speakers were of excellent quality. Dr Madsen Pirie, President of the Adam Smith Institute, dapper dressed as always, plus bow tie, supported the motion and gave an excellent contribution in favour of the free market, again with a mixture of good humour and spirited rapier thrusts of a keen debater’s sword.

He was replied to by Alex Nei, MSP, of the Scottish National Party, probably the best debater in the Scottish Parliament and a well-known close-in ‘fighter’ for independence. He is also an economist. He opened by saying this was the first time he had been on the side of Brian Wilson, but he endorsed his remarks and then laid into Lord Forsyth and Dr Pirie, mixing, as they had, his barbed wit and his typical passion.

The followed too younger debaters, each prize winning champions in Debating contests, who clearly knew of each other’s style. For the motion was Andy Hume (a prominent ‘name’ in these parts) from whom I detected in a couple of places, his acquaintance with the fact that the invisible hand was a metaphor (he told me afterwards he had been reading Lost Legacy!). Kenneth Fleming, in reply, made an impassioned – but restrained with effective humour – speech that highlighted the state of the poverty estates of East Glasgow (they are not much better in the west) and what he called the failure of the 'market'. Others disagreed, believing this is a failure of state provision.

The brief summing up by Forsyth and Wilson concluded what by widespread acclaim around the room and in post-debate conversations everywhere was widely asserted to be to have been an excellent debate. Throughout the evening, the audience laughed enthusiastically at the humour from both sides – it wasn’t a partisan, baying mob supporting only those they agreed with (I watched the faces I knew well on both sides of the underlying political issues at stake and they cheered and applauded whenever either side landed an effective ‘blow’).

I enjoyed the evening, making no comments on the assertions about the metaphor and myth of the invisible hand. It was not the time or place for academic argument. I spoke to speakers from both sides afterwards and congratulated them on their performances.

Today, I am making two short contributions to proceedings in the programme, beginning this morning with a reception at Panmure House (Adams Smith’s home in 1778-90) and later I am chairing a session at the opening of a exhibition at the National Library of Scotland of Adam Smith’s Works and associated manuscripts, which is to be addressed by Professor Chris Berry, of Glasgow University, where Smith was a student and professor, and later, rector. Chris Berry is currently the co-director of the Adam Smith Research Foundation.

History of Economics Society Annual Meeting (York University, Toronto) 3

The first session I attended today was ‘Plato, Aristotle (and Marx?)’. It is becoming clear that a respectable number of contributors are interested in the philosophical links in the history of economic thought, including in Adam Smith’s work.

Anna Greco took Plato’s republic as the theme of ‘Economic Effectiveness and Economic Efficiency’ (largely about the different perspectives on the division of labour of Plato and modern economics) and Spenser Pack reported on Aristotle and his ‘difficult relationship with Modern theory’ from which I learned a lot about what I had previously known very little. He showed strong philosophical links between Aristotle and Smith. Robert Urquhart advanced a proposition of ‘Marx as a Left Aristotelian’ and made good case for his hypothesis. I found this session the most interesting and clearest intellectual survey. The discussion was equally good (those speaking occasionally dropped into conversation mode and I could not hear them well, or in some parts at all).

The plenary session on, ‘Why do Historians of Economics Hate Social Studies of Science?’ struck a chord with me. I have long been suspicious of disciplinary boundaries (in some cases, Iron Curtains), where excursions into or visitors from other disciplines might help economists conduct their studies better. I could not imagine Adam Smith’s work being so productive of insights if he had written solely within the strict boundaries of modern social science, or at least as it is practised in some areas by colleagues.

The major problem of this session was the familiar one that speakers from the floor tended to speak conversationally, though there were mikes present but they were not used. What is it with the coming generation of academics that they prefer to speak and not be heard than get up and go to a mike? Some members of the audience shouted advice to ‘speak up’ and were ignored (I didn’t do this at any meeting). ‘Twas a pity’, as was the failure of speakers to repeat or summarise the inaudible questions or comments in reply.

Next up after lunch – in my case a cup of coffee (decaf) and a Danish - was Maria Pia Paganelli whose paper was on ‘Approbation and the Desire to Better One’s Condition in Adam Smith’. This was presented well and her argument was solid. She took the usual assertion among modern economists of Adam Smith supposedly stating that in the search for approbation (praise), people’s self interests would have social benefits, and she showed that this conclusion was unsustainable in many cases, using a simple graphic.

I followed with my paper on Smith’s theory of bargaining, showing how his tentative view that the ‘propensity to truck, barter, and exchange’ appears to have been prevalent in pre-history, first as reciprocation, and that this evolved into bargaining, which Smith described as the conditional proposition (‘If you give me what I want, then I will give you this that you want’). My work in bargaining since 1972 completely concurs with the significance that Smith attached to the conditional proposition (largely mised by colleagues). This allows for an interpretation of the famous paragraph about the ‘butcher, the brewer, and the baker’ that is different from common interpretations among main stream economists, including, sadly, among some historians of economic thought.

In the next session, I chose to attend a fascinating discussion of ‘The Economics of Altruism’, which was presented by Steven Medema (‘Creating a Paradox: self-interest, civic duty, and the evolution of the theory of the rational voter’; Alain Marciona (‘Altruism and Rescue Law’) and Phillipe Fontaine (‘Beyond Altruism’). I have never been happy with the use made of word like ‘altruism’ in social sciences generally. It’s not that I have an alternative word for the phenomenon of altruism so much as it requires the observer to know what’s going on in the mind of the ‘altruist’, which is a feat beyond human capacity. However, the session was interesting, as were the questions. The speakers spoke up and the quietest, Phillipe Fontaine, was audible because I was sitting at the front.

Sandra Peart’s Presidential Address (‘We’re all “Persons” now: classical economists, on marriage, the franchise, and socialism’) was of the standard I have come to expect from her – you can see why she held the presidency of the society this past year. She also seems – from observation – to be popular across the board.

I missed the full-booked HES Banquet (I had a headache – quite a stressful day – but I gave my paid-for ticket to a delegate for his wife, and wondered if that was an example of altruism?).

The morning of the last day was devoted to ‘David Hume’s Political Economy’ and this session consisted of presentations by four of the authors of a new book of the title (Routledge, 2008, edited by Carl Wennerlind and Margaret Schabas). The papers were ‘The Historical Context of David Hume’s Political Economy’; ‘David Hume on Value, Manners and Morals’; David Hume’s Monetary Thought: theory and applications’; and ‘The reception of David Hume’s Political Economy in France.’ There was considerable unanimity among the authors and I shall order a copy as the book is now out – each presenter waved a copy with pride to prove it. (If there had been a flyer for it I would ordered one).

Smith and Hume were friends, as is well known – Hume kept a room for him to stay when he (rarely) visited Edinburgh (1766-73). Smith did not treat his friend well on at least two occasions: when Hume applied for a chair in Glasgow University – most assume it was for the Chair in Logic, but I believe it may have been for the Chair in Moral Philosophy in 1751, which Smith was gathering support for his own candidacy.

He wrote to a University colleague, William Cullen, his famous words: ‘I should prefer David Hume to any man for a colleague; but I am afraid the public would not be of that opinion; and the interest of the society will oblige us to have some regard to the opinion of the public’, which damned him with faint praise [Correspondence, No. 10, p 5-6, November 1751].

When asked by Hume to arrange for the publication of his essay on Natural Religion when it was clear he was dying in 1775-6, Smith 'refused' and Hume was disappointed in this treatment and his correspondence shows his disappointment with Smith, who feared repercussions from society. Hume wrote, ever the diplomat, ‘I think, however, your Scruples groundless’ (3 May), and later that day, in a different letter, he wrote: ‘After reflecting more maturely… I have become sensible … of your situation’ [Correspondence: Letters Nos. 156, pp 194-5 and 157, pp 195-6].

The last plenary session was a practical teaching session: ‘Advancing the History of Economics in and out of the classroom’. Kirsten K. Madden gave a spirited address illustrating her ‘Interpretive Question Cluster Discussion Technique in a History of Economic Thought Course’. I was impressed with her message and illustrations.

Years ago, Heriot-Watt economics department introduced the ‘TIPS’ programme to Scottish economists and I believe it achieved improvements in performance in both faculty and students. That it could (would?) economise on faculty resources was a major barrier to its adoption by the departments who tried it. Tenured faculty engage in restrictive labour practices as much as the most unionised plants. But that is an old wound and I won’t go there.

Bruce Caldwell finished the conference with an exciting report on the new Centre for the History of Political Economy in North Caroline (Duke). This could have an impact on the recruitment of faculty prepared to add ‘HOPE’ courses to their curricula in mainstream departments. We shared a cab to the airport during which he gave me more details of his intentions.
…

So that was HES 2008. On the whole a good conference. I met many new faces and heard some excellent treatments. HES 2009 is to be in Denver, Colorado. If I am able to attend I shall do so.

Robert J. Samuelson's Take on Adam Smith

Robert J. Samuelson writes a Newsweek piece on “
“The Spirit Of Adam Smith: We Could Use It, Because (Contrary To Myth) He Tried To Balance Government And The Market”:

“Liberals are so protective of government that they cannot concede the great power of Smith's "invisible hand." Self-interest is not simply greed, selfishness or narcissism. If properly constrained, it is an immense force for social good, and much human progress stems from the independent exertions and creative energies of individuals and enterprises. Liberals recoil at this notion because it deprives them of the power, social status and psychological gratification of seeming to deliver (through government) all the trappings of the good society.”

Comment
Nomenclature: ‘Liberals’ in the USA and the UK have different meanings. But the point that Samuelson is a good one: there are enormous rewards – status, pay and jobs for highly regulated societies – for people employed in politics, NGOs, public agencies, lobbyists, think tanks, and consultancies.

“Meanwhile, conservatives are so contemptuous of government that they cannot admit that it is often more than a necessary evil. It creates the legal and political framework without which tolerably free markets could not survive. It also supplies the collective services--from defense to roads--that the private market doesn't and deals with the market's unwanted "excesses.'' Smith realized that government produced these benefits, but many conservatives who cite him seem oblivious to their existence or importance.”

Comment
Samuelson’s honest confession in not having read Wealth Of Nations raises questions about his justiifcation of his conviction of "the great power of Smith's "invisible hand." The sole reference to an invisible hand is buried in Book IV and Samuelson probably relies on references to it without realising that it had nothing to do with markets.

“I don't claim to have read Smith's "The Wealth of Nations' (1776) from cover to cover. But anyone who doubts the complexity of his thinking ought to plunge into a short but superb intellectual biography by historian Jerry Muller of Catholic University (""Adam Smith in His Time and Ours,'' Princeton University Press). In it, he demolishes the stereotype of Smith as an anti-government zealot. That image founders on one fact: Smith served for years as a bureaucrat, Scotland's Commissioner of Customs. He collected import duties, then the government's largest source of revenue. The job was akin to the head of the IRS today.

Smith's theories explained changes that had already occurred. In 18th-century Britain, feudalism had collapsed. Farm production rose, as did living standards. In England, people felt ashamed to go without shoes; in France, being shoeless was still common. Blankets, linens and ironware became common in England. Smith attributed the new wealth to the triumph of the market: buying and selling. Before, food was mostly consumed by those who produced it or their feudal lords. Manufacturing was also transformed. "Goods once produced laboriously at home--clothes, beer, candles ... furniture--could now be purchased,'' writes Muller.
The market multiplied wealth, Smith reasoned, because it led to economic specialization: the "division of labor" that--through more knowledge, experience and customized machinery--raised production. None of this was planned. It flowed (as if by an invisible hand) from the striving of sellers to maximize their wealth. "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner" Smith wrote memorably, "but from their regard to their own interest.'' ….Government's ability to cripple the market appalled Smith. "The Wealth of Nations" aimed to fortify legislators against "the pressures of economic groups'' for special privileges, Muller says. But Smith's skepticism of government wasn't a revulsion for it. He "enjoyed the work'' as customs commissioner, writes Muller. This was not hypocrisy, because Smith saw three vital roles for government: a) providing defense, b) ensuring justice and protecting property, and c) building roads, canals, harbors--"infrastructure.'' Government had to be properly financed.

Nor did Smith believe that wealth was all that mattered.”

Comment
True, in the modern sense of ‘wealth’, but not in his original sense, where he defined wealth as the annual output of the ‘necessaries, conveniences, and amusements of life”. He saw the raising of living standards of the majority of the poorer members of society as being accompanied, and caused by, engagement through employment as a means to make society more mannered, more gentle and more educated the civilising virtues, and less brutalised, less ignorant, and less likely to be misled by fanatics.

On the whole this is a fair treatment of Smith's views and of its lack of support by 'Liberals' and 'Greed is Good' Conservatives. I also recommend Jerry Muller's Adam Smith in his time and ours, but I would suggest that reading Wealth Of Nations and Moral Sentiments might be the bets place to start from.