A Reckless Optimist Writes

Pete Murphy posts on Five Short Blasts Forum HERE:
His recent post is on “Clumsy Trade Policy” and it expounds a new theory of ‘safe’ protectionism by weighting tariffs on manufactured goods by an index of the population of a country – the larger a country’s population the more the imposed tariff. It's not difficult to work out who he is aiming at.

His assurances are also predicated on a ‘hope’ and ‘assumption’, but not much more, namely that countries (I see Germany is included!) affected by a substantial fall in their exports to the USA would not retaliate.

History shows that there is no fire-safe way in which imposing tariffs is ‘safe’ from retaliation, and retaliation is more likely when there is economic distress, of which all affected parties are aware. It called a ‘beggar thy neighbour’ strategy. Moreover, all US trading partners will be aware of the aims of the policy – they read the US press, watch Fox News and CNN, and their diplomats keep tabs of Congressional Debates.

The open and obvious aim of such a tariff policy is to improve the fortunes of the US while necessarily worsening the economic performance of those upon which the weighted tariff policy would be applied.

Pete Murphy includes these assertions in his post:

“The problem is that we’ve held fast to our free trade policy for decades, in spite of the mountain of evidence that something is wrong - culminating in global financial collapse, without ever questioning why. We’ve taken the 18th century theories of Adam Smith, David Ricardo and others, fathers of free trade theory, at face value without ever researching factors that may limit their application - like population density, for example. And without an understanding of what makes free trade work in some instances while producing horribly skewed results in others, we then have a tendency to lash out at all trade. At least the blunt force application of protectionism would restore a balance of trade, but the U.S. Chamber of Commerce is correct in warning of backlashes.”

And:

“Any policy that moves us toward a balance of trade and restores manufacturing jobs is better than what we have now, but an elegant approach that’s rooted in logic can avoid the unnecessary collateral damage of a trade war that would only buttress arguments for a pendulum-like swing back to the opposite end of the clumsy trade policy spectrum.”

Comment
The trade policies of the US (which are not free trade) are not there because of what Adam Smith wrote in 1776 or David Ricardo wrote in 1817 (that gives far too much credit to them); they take their current forms because it is in the interests of the US to apply such policies.

I should think that international trade policy is the most researched area of economics imaginable, from all sides of the arguments about it, from people of significant standing in the subject, plus not a few ‘scribblers’ who believe they have spotted some missing element the theory and practice of internation trade (I remember as a student almost only having time to read the titles of all the books and articles written on the topic, never mind their contents) backed by endless econometric analyses, in what thousands of these lifetime-scholars did not manage to spot, in two or more hundred years.

International trade is highly political, and has been since medieval times. European countries went to war many times with neighbours over all kinds of issues, including the trivial and the momentous, and trade relations were often the cause of, first ‘jealousy of trade’, then angry resentment, and almost always in the spirit of mere speculation by scribblers about which side would ‘win’ as a result of the contest of arms, or a contest of those surrogate arms, called tariffs and retaliatory prohibitions. Trade wars are not a one round game.

Pete Murphy describes his proposal as “an elegant approach that’s rooted in logic”, which he assures readers “can avoid the unnecessary collateral damage of a trade war”.

It’s a safe bet he is wrong.

Sociability and Human Evolution

Darwiniana Blog (30 January) carries Freedom Evolves! Huxley’s Evolution #2: ‘We have discovered Huxley ’s evolution #2′ HERE:

“This ‘survival of the fittest’ aspect is, in any case, demonstrably false of man’s social experience, as the mechanism of cultural evolution. Thus extreme competition is met by the response of social law in the evolution of civilization, if not economy. And the place of Adam Smith here is entirely complex and misleading, this philosopher being a de facto source of a new ethics, even as his work is polarized between an economic and moral dimension. Survival of the fittest business firm is simply another process, as is the tonic of Olympiad sports competition. The issue of evolutionary causality in the study of the evolution of civilization has been so confused by assumptions of material causative motive, as in the imputation of economic determinism, that the real evolution of social cooperation seems to have been forgotten. In general, theories of evolution must themselves interact with the near future of all free action, in a confusion of external observer, and temporal participant, ‘acting out theory’.

Comment
“The issue of evolutionary causality in the study of the evolution of civilization has been so confused by assumptions of material causative motive, as in the imputation of economic determinism, that the real evolution of social cooperation seems to have been forgotten.”

Crude applications of evolution to economics systems are certainly flawed. Animal spirits of ‘red in tooth and claw’ competition, beloved of advocates of certain strains of corporatism, are toxic (to use a contemporary word in vogue) for the sciences of human behaviours.

I confess to not quite getting what John Lander (the author of the Darwiniana Blog) is on about in his claims for ‘eonic’ insight into these matters,especially with his apparent assertion that the Bible is ‘a document of interest,’ as police investigators call certain suspects, but I concur with his statement ‘the real evolution of social cooperation seems to have been forgotten’.

The sociability of primates, in particular the Hominine lineage through the evolution of about 18 species before Homo sapiens emerged dominant, is the key to understanding the crucial role that social co-operation – a set of behaviours, not genes – played in the biological evolution of our species over several million years.

I discuss this in my paper on the “Pre-history of Bargaining: an multi-disciplinary treatment, Part I”, which you may download from Lost Legacy’s Home Page (in red, at the top; just click and follow the link).

I am presently working on developing this paper and the research supporting it into a book-length treatment (title to be decided). Adam Smith, you may be assured, plays a major role in my approach, though most of today's epigones and their acolytes may not recognise the Adam Smith from Kirkcaldy. who was quite different from the so-called 'Adam Smith' from US academe.

Adam Smith is Innocent

Martin Hutchinson, writes on “How Beatniks, Pyromaniacs and Gangsters Caused the Global Financial Crisis" on the Monday Morning Blog (HERE), to which a Richard Williams posts this comment (29 January 2009):

“The point you seem to have taken very long to grasp is that deregulation, laissez-faire, free-market economics, etc. have never functioned. Free trade is a British hoax used to plunder its colonies. Adam Smith was recruited by Lord Shelburne to concoct the Wealth of Nations as a means of discrediting the American System, which has always been the adversary of the British System, the one that is now collapsing. Smith argued that individual selfishness and greed leads to the common good. In fact, national governments are the sole guarantors of the general welfare. Perhaps you ought to read Alexander Hamilton.”

Comment
Richard Williams puts modern spin of Alexander Hamilton’s protectionist policy writings for the new Republic, and on the German author, Friedrich List’s nationalist polemical work, The National System of Political Economy (1841). Fair enough. Any student of the period should read these and other works, and should make his or her mind up about the issues related to them.

However, Richard Williams extends his criticism of the period to what Adam Smith is alleged to have written and advised, which clashes with the known facts. Now this is not surprising because Smith’s legacy is subject to widespread distortion from many sources, not the least significant of which is the distortion emanating from modern economists who invented of a wholly mythical Adam Smith, some parts of which Richard Williams draws upon.

As for meetings between Smith and Lord Shelburne on the subject of colonies, in this case of the behaviour of Greek and Roman colonies in classical times (which he found, variously, acted independently, didn’t always contribute to the mother country, and were in states of rebellion).

Smith repeated some of this material in Wealth Of Nations. Far from ‘discrediting the American system’ (whatever that means), he wrote what history reported and what he observed about recent relations with the British colonies.

Smith’s analysis in Wealth Of Nations was not sympathetic to the aims of british legislators, and some of those who influenced them, as British governments moved towards suppression of the rebellion by British colonists. He suggested a compromise of a union of parliaments – full representation in the House of Commons and a contribution to the cost of defending the colonies from French and Spanish military interventions – Spain held territory to the south of the British colonies and the French held territories to the North and West, and both were present in the Caribbean and Central America.

From Britain’s point of view, the Cromwellian Navigation Acts were beneficial to Britain, an island that was dependent on access to and from the sea for its trade. That is a fact of geography and of commerce. Whether it was justified to monopolise trade to and from its colonies was always another matter.

Smith certainly did not think the British mercantile monopoly should continue, as he shows quite clearly in Book IV of Wealth Of Nations, in his polemic against mercantile political economy and its affects on trade with the British colonies in North America and British commercial exploitation through the East India Company and its Royal Charter.

How all this discredited the ‘American system’ in the 1760s is beyond me – it discredited the British mercantile system, not the ‘American’.

He advised Britain that it should have continued to improve agriculture as a generator of wealth (the ‘annual output of the necessaries, conveniences, and amusements of life’) before embarking on too rapid an increase in industry, which he considered was the natural course of development.

Given the new facts about an independent North America, them emerging, he advised the former colonies to continue trading for manufactured goods from the whole of Europe and not just Britain (to break the pernicious British trade monopoly, and utilize competition to reduce import prices and raise export prices), and as the country would grow even richer it should develop the import replacement sectors. This was his honest judgement of how any modern economy should develop naturally. It is cynical in the extreme to see this as a 'conspiracy' or a ‘hoax’.

Smith NEVER ‘argued that individual selfishness and greed leads to the common good’. These were the ‘licentiousness’ views of Bernard Mandeville (1731) , which Smith criticised in Moral Sentiments (1759), though ignorant Hollywood scriptwriters passed it off as Smith’s in the mouth of Geko, and it has been copied since by the uninformed media for readers who know no different.

Whatever the failings of ‘deregulation, laissez-faire, free-market economics, etc.’, these were not Adam Smith’s policies – he never ever used the words ‘laissez-faire’! That is an attribution that gained currency after he had died in 1790, particularly from the early 19th century onwards.

Smith made specific recommendations about the need for regulation (see his chapters in Wealth Of Nations dealing with problems in banking and his recommendations that the Government was the only safe agency for quality controls in stamping cloths and assaying gold and silver plate and bullion).

Smith favoured freer commerce, within the ambit of laws and justice. The numerous interventions of Government in social life, including commerce, were well founded in the 18th century, including the legalisation of town guilds (local trade monopolies), the Settlement Acts preventing the free movement of people around the United Kingdom, and the Apprenticeship Statute which pretended to guarantee quality, but which enabled Masters to ‘widen markets and narrow the competition’.

His recommendation for widespread public funding of education – a ‘little school’ in every parish – was an ambitious expansion of public expenditure, with parents paying something (even a penny) for the education of all children (a nascent voucher scheme?).

Finally, what are we to make of the allegation: “Free trade is a British hoax used to plunder its colonies”?

For a start, whatever British governments did from the 16th century onwards it was surely fortuitous that North America was settled largely by people largely from the British constitutional monarchy (1688) and not the Spanish, Portuguese, or French absolute monarchies.

It is unlikely that Richard Williams (of Anglo-Welsh descent?) would be able to write so despairingly about the running of, and the outcomes from, British colonies in North America. The Spanish and Portuguese colonies have not exactly performed as well, either economically or in terms of Liberty, as the former colonies performed when under British rule and since, when to a large extent, the institutional structures of the new Republic were formed from British theory (if not practice) in jurisprudence, moral philosophy, and civic justice.

Smith himself drew the favourable contrast between the state of affairs in the British colonies in America and the state of affairs in India under the East India Company on the eve of the Rebellion (not that the ‘Indians’ in North America prospered well from the benefits of Liberty any more than the Indians under The Company did any better).

But for ‘Free Trade to be a Hoax’ it would require some serious conspiracy naivety to link this to Adam Smith.

His historical observations in jurisprudence and his writings of a commercial society were largely ignored and were not implemented by British governments. Free trade remained an idea and not an actuality; he didn’t think a fully free trade society was likely ever to occur because of the need for some tariffs to raise revenue for government (there was no income tax in Britain while Smith was alive), and without customs revenue, governments would not function in their essential duties of defence, justice, public works and public institutions that facilitated trade (as the USA soon found out).

His last paragraph in Wealth Of Nations was to recommend that:

“Great Britain should free herself from the expence of defending those [colonial] provinces in time of war, and of supporting any part of their civil or military establishments in time of peace, and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances’ (WN V.iii.92: p 947; Edwin Canaan, 1937 edition, p 900, Random House).

Unfortunately, but probably inevitably, his advice was disregarded by all British governments, despite the great opportunity that the loss of the British colonies presented them with, enabling them to abandon the goal of Empire, world roles of imagined glory and unilaterally assumed responsibilities, refrain from embarking on fresh continental wars and from keeping old colonies, Canada, Caribbean, and not to embark on adding new colonies (Australia, 1788), Africa, India and Asia, and continuing with an ever deeper mercantile political economy, all refuted by Smith in futile detail in Wealth Of Nations.

‘Free trade’ was never a ‘hoax’ on Smith’s part. His thinking was ignored in practice, though his memory is only lauded in a theory he did not condone. That is measure of the British national tragedy right into the 21st century.

A Scientist Rejects Belief in Invisible Hands

Simon A. Levin writes on the Essential Talks (Docs) Blog HERE:

Simon A. Levin is the George M. Moffett Professor of Biology and director of the Center for BioComplexity at Princeton University, where he founded the Princeton Environmental Institute.

"Ecosystems and Socioeconomic Systems as Complex Adaptive Systems"

“Yet while we may believe in the “invisible hand” that according to 18th-century economist Adam Smith steers our markets, we can’t leave the environment up to fate, Levin says: “There is no invisible hand that guides or preserves the biosphere.”

Comment
Simon should know that Adam Smith said no such thing. His use of the metaphor of an invisible hand was not about how markets work (as outlined in Books I and II of Wealth Of Nations – where the metaphor is never mentioned).

He used the metaphor in Book IV of Wealth Of Nations, not about it ‘steering markets’; in fact, not about markets at all.

His single use of the metaphor was in relation to the consequences of the risk-avoidance of some merchants impelling them to invest their capital locally and not to take the greater risks of sending it abroad to such as the British colonies in North America.

Check it out in Book IV, chapter ii: ‘Of restraints upon the importation from foreign countries of such Goods as can be produced at Home’, pp 452-72.

Smith’s only reference to ‘an invisible hand’ is on page 456, after his full explanation of the merchant’s motivation, ‘he intends only his own security’, add the unintended consequences that as a result domestic output and employment are increased (the whole is the sum of its parts).

So not only are there no invisible hands guiding or preserving ‘the biosphere’; there ain’t one guiding or preserving markets either. That’s a modern myth invented in the 1950s by modern economists and believed now by many more who have not read the entire chapter ii in Book IV of Wealth Of Nations.

Smith on Equity

‘Michael’ writes the Urbane Scrumping Blog: HERE:

“I consider myself a belated child of the enlightenment and that Adam Smith is just a quantitative utilitarianist. I can never totally accept the utilitarian vision, being tempered by both Rawls and a belief in some values (like equity) that aren't easy to nail in a utilitarianst sense.”

Comment
Why does Michael bring Adam Smith into a criticism of utilitarianism?

He was concerned with the blatant case for equity in mid-18th-century Britain, given the subsistence standards, but little more, and then occasionally when demand rose and employers had no option but to increase wages.

He stated this specifically in Wealth Of Nations:

“Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society? The answer seems at first sight abundantly plain. Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.” (WN I.viii.36: p96; Edwin Canaan, ed. 1937; pp 78-9, Random House).

Smith wrote: ‘It is but equity, besides…’ seems clear to me, as if Smith expects the point he makes to be obvious.

Adam Smith and Nicolo Machiavelli

A student reader asks if I have anything on the connections, if any, between Niccolo Machiavelli and Adam Smith for a paper he is writing.

Unfortunately I do not at present. I compiled some extracts from Wealth Of Nations, Moral Sentiments and Lectures in Rhetoric and Belles Lettres, which may be relevant, or, presumably, he has already found.

For readers' information I post them below:

"Adam Smith: mentions of Machiavelli in Wealth Of Nations and Moral Sentiments and footnote on Lectures on Rhetoric and Belles Lettres

(Compiled by Gavin Kennedy)

Book III, Chapter IV
How the Commerce of the Towns Contributed to the Improvement of the Country

“Sometimes they have been introduced, in the manner above mentioned, by the violent operation, if one may say so, of the stocks of particular merchants and undertakers, who established them in imitation of some foreign manufactures of the same kind. Such manufactures, therefore, are the offspring of foreign commerce, and such seem to have been the ancient manufactures of silks, velvets, and brocades, which flourished in Lucca, during the thirteenth century. They were banished from thence by the tyranny of one of Machiavel's heroes, Castruccio Castracani. In 1310, nine hundred families were driven out of Lucca, of whom thirty-one retired to Venice and offered to introduce there the silk manufacture. Their offer was accepted; many privileges were conferred upon them, and they began the manufacture with three hundred workmen. Such, too, seem to have been the manufactures of fine cloths that anciently flourished in Flanders, and which were introduced into England in the beginning of the reign of Elizabeth; and such are the present silk manufactures of Lyons and Spital-fields. Manufactures introduced in this manner are generally employed upon foreign materials, being imitations of foreign manufactures. When the Venetian manufacture was first established, the materials were all brought from Sicily and the Levant. The more ancient manufacture of Lucca was likewise carried on with foreign materials. The cultivation of mulberry trees and the breeding of silkworms seem not to have been common in the northern parts of Italy before the sixteenth century.” (WN III.iii.19: pp 407-8)

Book III, Chapter IV

How the Commerce of the Towns Contributed to the Improvement of the Country

WN III.iv 24: Page 426:
‘Italy is the only great country of Europe which seems to have been cultivated and improved in every part by means of foreign commerce and manufactures for distant sale. Before the invasion of Charles VIIIth, Italy according to Guicciardin, was cultivated not less in the most mountainous and barren parts of the country than in the plainest and most fertile. The advantageous situation of the country, and the great number of independent states which at that time subsisted in it, probably contributed not a little to this general cultivation. It is not impossible too, notwithstanding this general expression of one of the most judicious and reserved of modern historians, that Italy was not at that time better cultivated than England is at present.’

with footnote reference 55, to Smith’s “Lectures on Rhetoric and Belles Lettres” [1763], ed. Lothian ii. 69-70, p 110: reference to Guicciardini (Venice 1738) Dela Istoria d’Italia, who with Machiavelli are described as the ‘two most famous modern Italian historians’. Machiavelli was especially admired, being ‘of all modern Historians the only one who has contended himself with that which is the chief purpose of History, to relate events and connect them withy causes, without becoming a party of either side’.

ARTICLE III

Of the Expence of the Institutions for the Instruction of People of all Ages

‘In the church of Rome, the industry and zeal of the inferior clergy are kept more alive by the powerful motive of self-interest than perhaps in any established protestant church. The parochial clergy derive, many of them, a very considerable part of their subsistence from the voluntary oblations of the people; a source of revenue which confession gives them many opportunities of improving. The mendicant orders derive their whole subsistence from such oblations. It is with them as with the hussars and light infantry of some armies; no plunder, no pay. The parochial clergy are like those teachers whose reward depends partly upon their salary, and partly upon the fees or honoraries which they get from their pupils, and these must always depend more or less upon their industry and reputation. The mendicant orders are like those teachers whose subsistence depends altogether upon the industry. They are obliged, therefore, to use every art which can animate the devotion of the common people. The establishment of the two great mendicant orders of St. Dominic and St. Francis, it is observed by Machiavel, revived, in the thirteenth and fourteenth centuries, the languishing faith and devotion of the catholic Church. In Roman catholic countries the spirit of devotion is supported altogether by the monks and by the poorer parochial clergy. The great dignitaries of the church, with all the accomplishments of gentlemen and men of the world, and sometimes with those of men of learning, are careful enough to maintain the necessary discipline over their inferiors, but seldom give themselves any trouble about the instruction of the people.” (WN V.i.g.2: pp 790-10 – repeats footnote above)

PART I
Of the Funds or Sources of Revenue which may peculiarly belong to the Sovereign or Commonwealth

“Princes, however, have frequently engaged in many other mercantile projects, and have been willing, like private persons, to mend their fortunes by becoming adventurers in the common branches of trade. They have scarce ever succeeded. The profusion with which the affairs of princes are always managed renders it almost impossible that they should. The agents of a prince regard the wealth of their master as inexhaustible; are careless at what price they buy; are careless at what price they sell; are careless at what expence they transport his goods from one place to another. Those agents frequently live with the profusion of princes, and sometimes too, in spite of that profusion, and by a proper method of making up their accounts, acquire the fortunes of princes. It was thus, as we are told by Machiavel, that the agents of Lorenzo of Medicis, not a prince of mean abilities, carried on his trade. The republic of Florence was several times obliged to pay the debt into which their extravagance had involved him. He found it convenient, accordingly, to give up the business of merchant, the business to which his family had originally owed their fortune, and in the latter part of his life to employ both what remained of that fortune, and the revenue of the state of which he had the disposal, in projects and expences more suitable to his station.” (WN V.ii.a.6: p 819) See footnote 8, quotes from Machiavelli History of Florence Book VIII, trans, London, 1851, pp 400-1

Mention of Machiavelli in Moral Sentiments:

“Mere imprudence, or the mere want of the capacity to take care of one's-self, is, with the generous and humane, the object of compassion; with those of less delicate sentiments, of neglect, or, at worst, of contempt, but never of hatred or indignation. When combined with other vices, however, it aggravates in the highest degree the infamy and disgrace which would otherwise attend them. The artful knave, whose dexterity and address exempt him, though not from strong suspicions, yet from punishment or distinct detection, is too often received in the world with an indulgence which he by no means deserves. The awkward and foolish one, who, for want of this dexterity and address, is convicted and brought to punishment, is the object of universal hatred, contempt, and derision. In countries where great crimes frequently pass unpunished, the most atrocious actions become almost familiar, and cease to impress the people with that horror which is universally felt in countries where an exact administration of justice takes place. The injustice is the same in both countries; but the imprudence is often very different. In the latter, great crimes are evidently great follies. In the former, they are not always considered as such. In Italy, during the greater part of the sixteenth century, assassinations, murders, and even murders under trust, seem to have been almost familiar among the superior ranks of people. Caesar Borgia invited four of the little princes in his neighbourhood, who all possessed little sovereignties, and commanded little armies of their own, to a friendly conference at Senigaglia, where, as soon as they arrived, he put them all to death. This infamous action, though certainly not approved of even in that age of crimes, seems to have contributed very little to the discredit, and not in the least to the ruin of the perpetrator. That ruin happened a few years after from causes altogether disconnected with this crime. Machiavel, not indeed a man of the nicest morality even for his own times, was resident, as minister from the republic of Florence, at the court of Caesar Borgia when this crime was committed. He gives a very particular account of it, and in that pure, elegant, and simple language which distinguishes all his writings. He talks of it very coolly; is pleased with the address with which Caesar Borgia conducted it; has much contempt for the dupery and weakness of the sufferers; but no compassion for their miserable and untimely death, and no sort of indignation at the cruelty and falsehood of their murderer. The violence and injustice of great conquerors are often regarded with foolish wonder and admiration; those of petty thieves, robbers, and murderers, with contempt, hatred, and even horror upon all occasions. The former, though they are a hundred times more mischievous and destructive, yet when successful, they often pass for deeds of the most heroic magnanimity. The latter are always viewed with hatred and aversion, as the follies, as well as the crimes, of the lowest and most worthless of mankind. The injustice of the former is certainly, at least, as great as that of the latter; but the folly and imprudence are not near so great. A wicked and worthless man of parts often goes through the world with much more credit than he deserves. A wicked and worthless fool appears always, of all mortals, the most hateful, as well as the most contemptible. As prudence combined with other virtues, constitutes the noblest; so imprudence combined with other vices, constitutes the vilest of all characters. “ (TMS VI.1. 16: pp 216-7)
Footnote 5: Machiavelli, Descrizione del modo tenuto dal duca Valentino nello ammazzare Vitelazzo Vitelli, Oliverotto da Fermo, il signor Pagol e il duca di Gravina Orsini."

A Distorted Version of History

John Kozy writes on Global Research.ca, Blog, 26 January (HERE):

‘Capitalism Snuffs out the Age of Enlightenment's Candle’

“Mercantilism initially became the dominant economic theory and its implementation was carried out by imperial conquest and exploitation, and Adam Smith's classical economics was introduced merely as a more efficient way of expanding national wealth. The successful adoption of classical economists can be attributed to him and John Locke and those self-seeking aristocrats who recognized the license to steal that it provided.

Both Locke and Smith lived in a class-structured monarchial England. Although they themselves were not aristocrats, they certainly were not commoners. Both had aristocratic benefactors. The first Earl of Shaftsbury, who became Lord Chancellor, became Locke's benefactor, and Locke became the secretary of a very powerful board. Adam Smith's patron was Lord Kames. Smith obtained a lucrative post as tutor to the young duke of Buccleuch. So although neither Locke nor Smith was an aristocrat, their close associates were and both benefited from and shared in the privileges of the aristocracy. Sociologists claim that people who have a similar location within a system of property relations develop other important similarities of thought, values, style, behavior, and politics. Since both Locke's and Smith's principal associations were with members of the aristocracy, they both acquired and attempted to preserve and perhaps further establishment values.

Although Locke has gained some standing as a philosopher while Smith has not (even though he was a professor of moral philosophy), Locke made a fundamental categorical mistake in his Second Treatise on Government which Thomas Jefferson was quick to notice. Locke named life, liberty, and property as natural rights. Even in Locke's England, society could at least try to protect the lives and liberty of even common people, but it could not attempt to protect their property since they had none. So Jefferson altered this list of natural rights to life, liberty, and the pursuit of happiness. Since, in most respects, only the English aristocracy held property, its protection became a protection of the status quo. And protection of establishment property even today is the fundamental reason for the distinction between those economic activities that are legitimate and those that aren't. That alone accounts for the difference between selling a consumer a product that is a dud, and a consumer's buying a product with a check that is a dud. The haves get to keep what they have while the have-nots get fleeced.

Smith, too, is an establishment philosopher. As Richard Reeb has pointed out in "An Historian on British History" (http://adamsmithslostlegacy.com/2008/12/historian-on-british-history.html)

"There were essentially two approaches that kings of the early modern nation states took toward the generation of national wealth. One supported acquisition of precious metals and hoarding them for national purposes ... Another view, favored in Britain, was that it was better to encourage merchants to build their fortunes with limited regulation, as a growing commerce funded government with minimal taxation. Adam Smith’s Wealth of Nations provided the most powerful argument for the second view of national wealth. The British government was no less tempted to commandeer the resources of the country than the Spanish, but Smith made a compelling case for laissez-faire (let them do as they please) as far more productive than national missions to exploit natural resources the world over to enrich the government’s coffers. Smith’s famous "invisible hand" was not blind to the avarice of businessmen (quite the contrary) but rather saw them as more efficient producers than any government could ever be." Smith's goal was not only to preserve the establishment but to make its economic avarice and exploitation more efficient. In effect, the adoption of classical/neo-classical economics not only succeeded, it extinguished the goals of the Age of Enlightenment and put an end to humanity's progress toward liberté, égalité, fraternité and what Lincoln so aptly expressed when he spoke of "a new birth of freedom" and a "government of the people, by the people, for the people." Not a single such government exists today, and our nation states, although slightly altered in form, mimic the monarchial states of seventeenth century Europe in which common people not only exist for the sake of the state and its institutions but are thought of as expendable.

Some economists may claim that this is mere happenstance, not a necessary result of the economic system, but that claim is vacuous. Under classical economics, individuals supposedly act in their own self-interest as economic agents who dedicate themselves to those economic activities that bring the greatest income. But if this were so, society would be impossible. No one would be willing to do the low-paying jobs that the existence of society requires. Who would be a minimum-wage sewer worker? Who would be a public school teacher? Who would be a nurse? Who would be an artist, a serious (as opposed to a popular) composer, a social worker, an ambulance driver, a fireman, a policeman, a janitor, a door man, a porter, an factory worker, an oil rig worker, a lumberjack, a garbage collector, a checkout clerk at a grocery store, a college professor in a public institution, or even a cleric? People would do most of these jobs only out of necessity, which means that the system impales its adherents on the horns of a dilemma. Either Classical economics is founded on the completely false postulate of economic self-interest or it must be designed so that the largest numbers of people in a society are never allowed to pursue their own self-interests as economic agents. (Anyone who believes that adopting a theory that impales its adherents on the horns of a dilemma is rational is delusional.) One economic aspect of this design is Smith's subsistence theory of wages. (Only a person with a low opinion of common humanity could even have proposed such a thing.)

John Locke, Adam Smith, and Classical economists snuffed out the Age of Enlightenment's candle! They brought human progress to a dead stop.


“Mercantilism initially became the dominant economic theory and its implementation was carried out by imperial conquest and exploitation, and Adam Smith's classical economics was introduced merely as a more efficient way of expanding national wealth.”

Comment
John Kozy sees the world through cracked glasses if he can write and believe that “Adam Smith's classical economics was introduced merely as a more efficient way of expanding national wealth”. By what social mechanism are such convenient arrangements between a system of government and an individual moral philosopher is ‘fixed’ politically?

Adam Smith independently observed, including reading widely and visiting people from all ranks of British 18th-century society, and wrote about what he observed without fear or favour to anyone. He was not a salaried hack, as implied by John Kozy.

“Both Locke and Smith lived in a class-structured monarchial England.”

Comments
From Canada it may look like that – at least for those lazy enough not to check their sources – but Smith lived all his life in monarchical Britain, and arguably, so did Locke since the crowns of England and Scotland were unified in 1604 and for just over 100 years there was a union of crowns consisting of Scotland and England. Since 1707 there was a union of parliaments creating both a united kingdom and a united parliamentary government within a constitutional monarchy.

It is a fair bet that John Kozy’s ancestors in the 18th century also lived in a ‘class-structured monarchical’ country (and he still does living in Canada), which does not in any way compromise his intellectual independence, any more than it compromised Locke’s (who suffered exile 1682-1688).

Smith’s intellectual independence is a fact too. His closest associates (example, Dugald Stewart) were investigated in 1793 by the legal authorities who were suspicious of Smith’s alleged sympathies with political dissenters against the government – the French Terror caused widespread fear and loathing of anything likely to promote unrest among the British labouring classes – the Wealth Of Nations was a likely prime exhibit for a proposed prosecution of his followers.

It’s interesting what a bit of context does for an empty narrative.

“Adam Smith's patron was Lord Kames. Smith obtained a lucrative post as tutor to the young duke of Buccleuch. So although neither Locke nor Smith was an aristocrat, their close associates were and both benefited from and shared in the privileges of the aristocracy.”

Comment
‘Lord’ Kames was not an aristocrat. He was Henry Home, a jurist, who on his appointment to the bench took the honorary title of ‘Lord’, as is still the custom. He was also an accomplished man of letters (Historical Law Tracts, 1758; Essays on Morality and Natural religion, 1751; Sketches of the History of Man, 1774), which apparently counts for nothing with John Kozy. Benjamin Franklin also met Lord Kames – perhaps he was ‘guilty’ of whatever too?

Smith’s appointment as a tutor to ‘the young duke of Buccleuch’ was arranged by the duke’s stepfather, Charles Townshend, the then Chancellor of the Exchequer (of the Boston ‘tea tax’ fame) who had read Smith’s Moral Sentiments and was impressed.

But in what manner Smith ‘benefited from and shared in the privileges of the aristocracy’ is not said. Smith never had a vote under the then franchise; he lived frugally (no carriage-and-four for him), and he was scornful of ‘trinkets, baubles, and contrivances’. His only ‘treasure’ was his library.

“Since both Locke's and Smith's principal associations were with members of the aristocracy, they both acquired and attempted to preserve and perhaps further establishment values.’

Comment
Guilt by association is unbecoming of discourse, more suited to tabloids and cynics (and well practised by totalitarian states). If John Kozy has read Smith’s Moral Sentiments (1759) he would know that Smith found ‘establishment values’ somewhat lacking when set against the standards set by moral philosophy. He was also deeply sceptical of the manner in which sovereigns, legislators and those who influenced them behaved.

There are enough quotations available in his books for ‘witch-hunter’ inquisitors to make a case that Smith, for the paranoid, was a dangerous radical. I suggest the John takes a look. True, Smith observed that the ‘distinction of ranks’ was important for social stability, as was justice and the rule of law. He had enough knowledge of what happened in history, recent and ancient, when instability reigned, the lower ranks came off worse, and the upper ranks were replaced by people who behaved the same, and often worse.

“In effect, the adoption of classical/neo-classical economics not only succeeded, it extinguished the goals of the Age of Enlightenment…”

Comment
Neo-classical economics is modern and is not related to Adam Smith or anybody writing within 70 years of his death in 1790. By then the Age of Enlightenment had passed with the deaths of those who made it possible (despite, of course, their insidious associations within British society, a paradox left unexplained amidst John Kozy’s bile).

Even Adam Smith’s Wealth Of Nations was cast aside, except for occasional genuflection in vague remembrance, though hardly ever read, as the British and North American economies carried on versions of mercantile political economy, colonialism, protectionism, jealousies of trade, wars for trivial ends, monopolies, and such like.

In its place, a spurious ‘laissez-faire’, falsely attributed to Adam Smith, was practised, allegedly, and a false ‘small government’, also attributed to Adam Smith, became the watchword on the 19th century, as military expenditures continued to climb and ‘non-intervention’ was practised brutally for those merciless in face of pestilence, famine, the factory system, and ignorance.

“One economic aspect of this design is Smith's subsistence theory of wages. (Only a person with a low opinion of common humanity could even have proposed such a thing.)”

This is so absurd as to be risible. Adam Smith did not propose any such thing. He observed what was going on; he did not propose such a policy (except if wages were below subsistence). The subsistence wage was the fact of the time, imposed by those employers who saw low wages as a means of disciplining labourers to work long hours to make ends meet. Smith identifies the proponents of such ideas and argues against them.

He railed against the combinations of the masters, ‘conducted with the utmost silence and secrecy’, and described the combination of workmen as ‘defensive’. (Wealth Of Nations, I.viii.13: p 84)

He also added:

“Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society? The answer seems at first sight abundantly plain. Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged” (WN I.viii.36: p 96)

May I respectfully suggest that John Kozy read Chapter 8, Book I of Wealth Of Nations before he asserts notions that tend to undermine this reader’s faith that he knows of what he talks about.

He refers above to a post in Lost Legacy (from which I am grateful). I suggest he reads more of our posts, and at least get his account of Adam Smith and his role as a man of letters straight.

"John Locke, Adam Smith, and Classical economists snuffed out the Age of Enlightenment's candle! They brought human progress to a dead stop."

Comment
Excuse my astonishment at this absurd sentence.

Who were the leading lights in the Enlightenment in Britain?

Why, the very same Adam Smith, Lord Kames, Joseph Black, James Hutton, John Simmons, Dr Reid, William Robertson, Adam Ferguson, Colin Maclaurin, James Millar, and such like, and all of them known to, or who mixed with, Adam Smith in the Royal Society of Edinburgh and the Royal Society of London - Smith was a fellow of both - and many of them attended his famous Sunday dinners at Panmure House, Edinburgh for intellectual conversations.

If John Kozy really believed that Adam Smith (and John Locke, though wrong period) "snuffed out the Age of Enlightenment's candle" he is either on the brink of a sensational career of Nobel-Prize potential ahead of him if he can prove it, or he is worthy only of sad commiseration.

Wha's Like Us?

David Lindsay (‘Pro-Life, Pro-Family, Pro-Worker, Anti-War') HERE(25 January):

‘A Hardy Son of Rustic Toil’

One is that he and Scotland do not quite fit. Or, rather, did not. His sheer genius turned a culture bipolar between Calvinism and Enlightenment rationalism into one conducted within a triangle with the Westminster Confession and its staunchest upholders in one corner, the likes of Adam Smith and David Hume in another, Robert Burns (and also, later, Sir Walter Scott) in the third, and most people somewhere in the middle.

And another is that his writing in Scots identified him in his time as falling within a category mostly comprised of Episcopalians and such Catholics as there were in the eighteenth-century Lowlands. He maintained good relations with both, even if it is true that he had little or nothing in common with either beyond a hostility both to rationalism and to Calvinism (or at least, in the Episcopalian case, to the Westminster variety of it). And those hostilities not only formed his own rural proto-Romanticism, but then went on to inform, not least through him, the Mediaeval and Jacobite nostalgia of the Episcopalian Scott.

Indeed, Burns entered Continental intellectual life via the Scots Catholic seminaries in exile. Such seminaries serving these islands have a great deal to answer for. Among very much else, they also introduced football to the Iberian Peninsula.”

Comment
David Lindsay writes of Robert Burns, of course, which readers unacquainted with Scottish history may not realise until his name is mentioned, and if even they realise of whom David speaks, many would be perplexed by the depth of his historical associations into which he places Burns’ life in mid-18th century Scotland.

What a tangled web of bloody strains and passions Scotland was in those days!

It echoes still of these in the present, the most violently destructive, or at least most threatening, of them now subdued; the population is larger, the certainties of the old loyalties are more ephemeral; the old battles are almost forgotten or, at best, dimly remembered; and the venerable firebrand warriors of the creeds, passions, and hatreds, are no more.

Scotland has moved beyond them, nostalgia for its past and people, at its most potent on one or perhaps two days a year, but even then it never rise beyond a few limp gestures of empty defiance, despite, or because of, the drink and the almost pathetic nursing of national sentimentality posing as solidarity.

Of Adam Smith and David Hume, they were of a mind that saw reason as the slave of the passions, and Smith, we know, signed the Calvinist Confession of Faith in 1751 to conclude his election as a professorial member of Glasgow University (the Cathedral located conveniently next door).

We also know he chose not to be ordained at Oxford into the Church of England and serve his times as an Episcopalian Church Minister in Scotland. We also know he was not a Jacobite, though he was a friend of several, and that he had stiff things to say about the Roman Catholic Church and 'papist' priests and their ‘superstitions’.

Smith also “entered Continental intellectual life” but not through any roots of it in Scotland, except from its books of which he read aplenty in French, Italian, and the ancient Greek and Latin; however, he met, mixed with, and was stimulated intellectually by, those intellectuals who frequented the Salons of Paris, in particular the Physiocrats and their daring économistes, not forgetting Voltaire in Geneva.

David Lindsay writes an evocative piece, probably of most marked relevance to those who know their Scottish history, and Lost Legacy congratulates him for it. Link and read it today on Burns' Birthday.

Smith's Theory of Value

Isaac Moorehouse writes in The Prometheus Institute Blog an interesting article on Adam Smith’s theory of value HERE (23 January):

“Was Adam Smith wrong?’

”Indeed, Adam Smith, in his depiction of the division of labor in a pin factory and his timeless prose on the invisible hand and the self-interest of the butcher, offers some of the greatest explanations and defenses of capitalism ever written, even some 230 years later. I consider Smith a great thinker, and a hero of liberty. That doesn’t mean he was never wrong; particularly when it comes to the question of value.

Smith’s thoughts on the derivation of value in his Wealth of Nations laid the groundwork in this area for later thinkers like David Ricardo (another brilliant mind who was right about many other things) and eventually Karl Marx.

Smith essentially, though somewhat confusedly, argued that the value of any good was ultimately derived from the amount of labor it took to produce. Money or commodity prices reflected only the nominal but never the real value of a good. In this way he described the different prices of different goods as a simple formula:

“If among a nation of hunters, for example, it usually costs twice the labor to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer.” (The Wealth of Nations, Book I, Chapter VII)

Smith elaborated further by describing other costs of producing a good, including the role of the entrepreneur and capitalist and the profits they require.

The problem with Smith’s analysis is not that the cost of production has no link to the value or money price of a good – indeed, the two are closely connected. He merely had the relationship backwards.

In reality, prices reflect the money equivalent of the value a buyer places on a good. That is to say, an individual who wishes to have a good places an entirely subjective value upon that good as compared to other goods, and the difference is typically expressed in terms of money. If in Smith’s example no one cared for beavers, the cost of killing a beaver wouldn’t matter; the beaver would sell for little or nothing. There is no one value of a good, but each individual values each good differently, as compared to other goods. It is the same for Smith’s supposedly changeless measure of value, labor. An hour of the same kind of labor may be valued (or disdained) to different degrees by different people.

It is for this reason that price is merely the reflection of the amount of money an individual was willing to give up to obtain a given good in the most recent exchange.

However, Smith was correct in seeing a relationship between the cost of production and price: Once a producer or entrepreneur has an indicator of what someone was willing to pay for a good, he can speculate how much others will be willing to pay in the future. He may be incorrect, but he will start with an estimate based on past experience and hope to get an equal or higher price. It is the estimated price (which reflects the value others place on the good) that will dictate how much he can spend on production.

Smith correctly saw that the various costs which go into production must be paid by the sale price of the final good. What he failed to see is that the costs of production do not create the price of the final good or imbue it with some objective value, but that the subjective value that each consumer places on the good sends signals backwards to producers and tells them how much they can expend on production without suffering a loss.

That Smith saw the factors which go into the production of a good as the cause of the price, rather than the effect, may seem like a small error. But economics, like all attempts to study the behavior of human beings, is a subtle science which requires great attention to the correct logical progression of actions. A misunderstanding between cause and effect can be fatal.

Comments
“Adam Smith, in his depiction of the division of labor in a pin factory and his timeless prose on the invisible hand and the self-interest of the butcher, offers some of the greatest explanations and defenses of capitalism ever written, even some 230 years later.”

Comment 1:
‘his timeless prose on the invisible hand and the self-interest of the butcher” is problematic. He used this particular metaphor once and it becomes ‘timeless prose’.

Compare his use of another metaphor: ‘The judicious operations of banking, by providing, if I may be allowed so violent a metaphor, a sort of waggon-way through the air; enable the country to convert, as it were, a great part of its highways into good pastures and cornfields, and thereby to increase very considerably the annual produce of its land and labour’ ( WN II.ii.86: p 321).

This metaphor is surely more important than the invisible hand, yet it is not regarded as a ‘theory’, or a ‘concept’. Nor is it, surprising, regarded to offer a great explanation.

“Smith essentially, though somewhat confusedly, argued that the value of any good was ultimately derived from the amount of labor it took to produce. Money or commodity prices reflected only the nominal but never the real value of a good. In this way he described the different prices of different goods as a simple formula:

“If among a nation of hunters, for example, it usually costs twice the labor to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer.” (WN I.vi.1: p 65)

Comment 2: This is the first of several misunderstandings of Smith on value, which is shared with many economists and many more casual readers.

Smith discusses society before the ‘accumulation of stock and the appropriation of land’, that is in primitive society when the only factor of production (using modern terminology) is the labour of the hunter. There are no owners of capital stock and no owners of land. How is the exchange value to be determined in these circumstances. The two hunters have only the products of their hunting endeavours available for exchange.

The exchange value of each item, Smith argues, can only be determined by how much of one item is exchanged for the other. It is the ratio of beaver/deer or what amounts to the same, the deer/beaver exchange ratio that is to ‘higgled and bargained’ by the two hunters. Nobody else is involved, because nobody else has any claim on the property of the two hunters.

Smith asserts that the only variable relating one good to the other is the time (effort) required to acquire the kill.

Because both hunters are in the same position, turning to each hunter’s subjective value, either as ‘buyer’ or a ‘seller’ (actually which is which?), is not a solution – that is a recipe for a long haggle! On its merits, whatever exchange ratio they settle upon, their ‘toil and trouble’ (a phrase Smith uses elsewhere for a different purpose) is likely to be an important consideration.

“In reality, prices reflect the money equivalent of the value a buyer places on a good. That is to say, an individual who wishes to have a good places an entirely subjective value upon that good as compared to other goods, and the difference is typically expressed in terms of money. If in Smith’s example no one cared for beavers, the cost of killing a beaver wouldn’t matter; the beaver would sell for little or nothing. There is no one value of a good, but each individual values each good differently, as compared to other goods. It is the same for Smith’s supposedly changeless measure of value, labor. An hour of the same kind of labor may be valued (or disdained) to different degrees by different people.

It is for this reason that price is merely the reflection of the amount of money an individual was willing to give up to obtain a given good in the most recent exchange.”

Comment 3
In bargaining transactions neither the buyer nor the seller unilaterally determines the outcome of the eventual bargain, but Isaac Moorehouse tends to present his critique of Smith from the buyer’s point of view. He has also introduced money into the transaction, which represents an entirely different mode of subsistence from that of crude transactions between hunters before other owners came into Smith’s account of exchange value.

In ‘early and rude society’, labour certainly was the unambiguous property of the labourer. He shared it with nobody else. Natural Law theory, incidentally, also dictated this to be the case (though such a theory carried no weight in such times). Ian states that “each individual values each good differently” – absolutely correct and that very essence of the bargained transaction never changed before and after the invention of money.

But I think Ian has made the same conclusion that most readers come to in the rather confusing switch back and forth among ‘early and rude society’ and those modes of subsistence, which came later in historical time, where other property owners were present.

In short, too much is made of the labour theory of value (LTV) implied in Smith’s example of the hunters. And, again briefly, there is some confusion with Smith’s use of the phrase, ‘toil and trouble’ as a psychological de-motivator, with its possible (though unintended) meaning as a sort of ‘embodied’ component of the so-called inherent value of an owned product of other property owners, landlords, labourers and stock holders.

No product, beyond ‘rude’ society has inherent value; there is only exchange value – what each party is prepared to give to get whatever else in transacted with the other. It is only in ‘rude’ society that their labour is the value of a product in exchange as far as the parties to the transaction are concerned. It is what each argues for that counts towards their subjective perception of what their own product is worth in exchange for the other’s product.

Societies moved on to the existence of property owned by others. The landlord owned the forest and all that was in it, and charged what we call rent for her permission to hunters or farmers to enter her land. The stock owner (provider of subsistence and tools) charged labourers (deducted from wages) for whatever they needed to complete their work that replaced the capital stock he had laid out, plus his profit, otherwise there was no point advancing his stock to one labourer merely to have that amount returned and nothing more – when he preferred to advance his stock to other labourers to have it returned plus a profit.

In the transactions to sell the products of the owners of the factors, land, labour, and stock, sellers are mindful of the costs that must be met for successive transactions (if they lose out in money terms, they withdraw from future transactions) and the buyers, unconcerned, because unaware, with the sellers’ costs are focussed on acquiring products that they value more than what they give up to acquire them. The ratio of what is given up to what is acquired is the exchange value of the product. Careful reading of the relevant chapters (not strings of quotations, often out of context) shows that this is Smith’s theory of exchange value and not some crude version of LTV.

“Smith correctly saw that the various costs which go into production must be paid by the sale price of the final good. What he failed to see is that the costs of production do not create the price of the final good or imbue it with some objective value, but that the subjective value that each consumer places on the good sends signals backwards to producers and tells them how much they can expend on production without suffering a loss.”

Comment 4
In societies beyond ‘rude’ subsistence, Smith did not have a cost of production theory. He offered the psychological motivation of people preferring and thereby labouring to acquire the means of buying – money from rent, wages or profits – what they required or fancied because from such transactions they avoided the ‘toil and trouble’ of making them for themselves, contrasted with the hunter in the forest who laboured for his families food, for their animal-skin clothing, and for their wooden shelters. He didn’t have enough time in a day to do more than that which satisfied his and his families immediate needs.

The social evolution of ‘truck, barter, and exchange’ where it was established as a behavioural habit began to widen the availability of goods that saved them the ‘toil and trouble’ and simultaneously raised their subsistence quality.

The avoidance of the toil and trouble of making all the things they wanted was the true worth to them of other people’s products, and, crucially, what became available to them in ‘higher’ modes of subsistence which became by many quanta far more numerous than ever was available in the forest.

Brad Delong calculated that the differences between the ‘toil and trouble’ facing the Yanomamo tribe of stone-age hunters, who live beside the Orinoco River in South America, compared to the modern-age tribes of New Yorkers, who live along the Hudson River in North America, was worth in modern money about $90 for the Yanomamo hunters and about $36,000 for New Yorkers. In modern retailer’s Stock Keeping Units the Yanomamo hunters access several hundred SKUs; New Yorkers access tens of billions of SKUs (quoted in my Adam Smith: a moral philosopher and his political economy, pp105-6, Palgrave Macmillan, 2008).

The Language of Marxism

‘Roger Gatham’ writes Limited, Inc. HERE:

“Marx and the devil 2”

“What Adam Smith, in the true eighteenth-century manner, puts in the prehistoric period, the period preceding history, is rather a product of history.”

Comment
A classic example of Marxist mystical prose that means different things depending on how how you read it. Capital is full of them – see Surplus Value, Labour Theory of Value – and it creates the semi-religious feel throughout his writings. Cod intellectualism at its worst; discussed endlessly by graduate thesis writers – to be fair, Roger Gatham comments on the phenomenon in his piece - impressing others with the evidence that they understand Marx's thinking and the listeners stare in bewilderment, and if impressionable, with adoration.

January's Lost Legacy Prize

Neuromesh Blog HERE:

“The fact is, most people can’t be trusted to simply take a fair share of the resources available. Adam Smith’s ‘invisible hand’ is a fallacy, the idea that a free economy where people act in their own interest will be led by an invisible hand that guides them towards the good of the whole. Economic theory has been led by this (or at least, hidden behind it while pretending to believe it) for a hundred years, but constantly we’re reminded that humans acting in their own self interest will do it unsustainably.”

Comment
‘The fact’ is that Adam Smith never made the claims for his single use of the metaphor of ‘an invisible hand’ in Wealth Of Nations that have been asserted on his behalf by the economics discipline, including Nobel Prize winners, particularly since the 1950s with the triumph of the mathematical proof of general equilibrium theory, and by propagandists for the capitalist alternative to Soviet communism throughout the Cold War.

Incidentally, capitalism was so superior in economic welfare for the mass of the population, even with a not too good record, that the calamities occasioned by central planning never was never likely to catch up to be near as good, that it is ironic that economists became lyrical about a mystical disembodied hand that was, and remains, redundant in explaining how markets work (and communist planning doesn’t) and was unnecessary to be required such a role.

For Adam Smith the invisible hand was a mere metaphor for the consequencs of risk avoidance.

So Neuromesh is right.

The Goods and Bads of 'Do Something' Government Interventions

David Glen Cross writes in The Daily Banter Blog HERE: an angry piece that races along, dripping its anger in every sentence. Here is an indicative taste:

“Economics the Hard Way”

“Adam Smith and his “Wealth of Nations,” written in the leading colonial power over two centuries ago, wrote of ethics and the higher aspirations of man while England ruled one third of the world as a hereditary empire. Smith’s rights of man could be condensed down to the rights of wealthy Englishmen.”

“But to name any economist is to have another thrown in your face, like Keynes, Friedman, or even the ridiculous Ludwig von Mises, who espoused individualism over the wellbeing of city, state or national interests. Individualism uber alles, or I got mine so screw you. Defying centuries of human evolution and returning to the days of whichever monkey got to the bananas first, he believed that was the only monkey who deserved to eat. These economists go out of their way to deal in the theoretical and never ever postulate negative consequences to their own theories. Of course they believe that their theories have no negative consequences; they speak instead of economic dislocation or short-term economic distress.

It is ironic that in ancient times rulers dealt in absolutes and not in the theoretical. Pharaoh stored grain against famine because it was his duty to do so. Caesar passed out bread and coin to the poor because famine brought riots and riots brought fire, fire that would exceed ten times the cost of the bread and coin.

Today, economists would calculate the least amount of bread and coin necessary against the cost of fire and ruin. But all economic theories are true and all are false. While there is plenty, they are true; when there is not, they are all false.
Any system that fails to supply the most wealth into the most hands is a failed system. History proves it again and again and that is a fact and not a theory. So as I dabble in human economics, I count not the empty houses but the people made empty by these theories. Theories that fail by leaving out the most important component in economics, the wellbeing of the people. This singular failure is the root cause of most of the world’s misery, of war, rebellion and revolution.

It has fed the guillotine, the gallows, and the pike on Tower Hill. That’s learning economics the hard way.”

Comment
It’s beneficial to be brought down to earth occasionally by the voice of the angry past.

Consider, however, that sentence in the penultimate paragraph I quoted above:

“Any system that fails to supply the most wealth into the most hands is a failed system.”

On that basis, every system known to mankind that has ever existed, failed, sometimes severely, often outrageously, and on a few occasions in a few spaces on Earth, marginally. Among the marginal failures we have the relatively opulent areas of the world in the last two centuries during what is known as ‘capitalism’ in its various forms.

I define ‘marginal failures’ as almost reaching general opulence but from continuing long-standing distortions remaining in society, both in the economy and the body politic, while absolute poverty has been eliminated as much as is practically possible, the distribution of relative poverty still leaves those at the very bottom alienated and in despair (anger is a sign of post-recovery of moral strength), as much from tragic events, addictions of various kinds from social, personality, and mental problems, random incidents of the lottery of mindless violence and unsought for tragedy, and the many failings of personal responsibility that may be are impossible to eradicate in any society of humans.

Taking the first paragraph: “Smith’s rights of man could be condensed down to the rights of wealthy Englishmen”, I accept it as a point of view, presumably by a US citizen, but it is, in my humble view, more than a little unfair to Adam Smith, who, incidentally, being Scottish, would hardly be overly concerned with “to the rights of wealthy Englishmen”.

Smith’s Wealth Of Nations is studded with examples of his concern with the rights of the poor majority of British society, most of whom were badly treated labourers, tenant farmers and landless farmhands, with corresponding poverty-level, subsistence only, incomes.

Smith’s mocking contempt for the rich and powerful is only restrained by the necessary proprieties of public discourse in mid-18th-century Britain. It may be taken for granted by David Glen Cross that under US law he is free to write and speak as he pleases to a degree that was not enjoyed by Adam Smith and fellow professors.

That is one of the benefits of liberty, still almost unique in the entire world 232 years later. And bad as life was for David’s parents and grandparents, and during his own childhood years, those of us who taken more dispassionate view of the whole world, have to note, out of respect for hundreds of millions who do not live in North America or Europe and a few other places, the sort of rotten lives lived by the poor in the 1930s US depression illustrated eloquently by David, have been and still are the permanent lot of all of them (except the kleptocratic, hopefully jail-bound, refuse who form their governments and administer their crummy tyrannies).

I include the paragraphs about David’s opinions on Ludwig von Mises, Pharaoh, Caesar, (the last mentione killed a million ‘French’ Gauls in his invasion and sold another million into slavery), and he, or more accurately his successors, financed the bread and circuses for the plebian mobs in Rome from selling millions into slavery, on which basis I would probably choose some other examples as ‘do something’ governments).

But I enjoyed reading David Glen Cross’s punchy and trenchant post, and suggest you do so too (while retaining some modicum of perspective).

Perpetrators of Myths Mislead Generations of Students, Some of Whom Grow Up to (mis)Advise Legislators

Craig Emerson, a federal Minister for Small Business, Independent Contractors and the Service Economy, reveals the source of those spreading the myth of the invisible hand in The Australian, HERE:

‘Education essential to reform’

‘The Hawke government was acutely conscious of the imperative of good economic policy in delivering socially progressive policies. Whether all members of the Hawke and Keating cabinets recognised it, the intellectual basis for public policymaking by these Labor governments had its genesis in Adam Smith's work on the benefits of open, competitive markets guided by an "invisible hand".

Though Smith advocated interventions such as state-owned public schools for children of the poor, anti-monopoly legislation and progressive taxation, he is often misrepresented as a champion of business against the interests of working people.
In truth, he was a champion of the people, especially the underprivileged. The deregulatory, pro-competitive policies of the Hawke and Keating governments laid the foundations for an unbroken period of unsurpassed prosperity, starting in 1991.

Not many Hawke and Keating cabinet ministers would have waded through Smith's Wealth of Nations or his Theory of Moral Sentiments, but Smith's intellectual legacy was carried forward and expanded in public policy formulation during the Hawke-Keating era by leading economic thinkers such as Ross Garnaut (Bob Hawke's office), Barry Hughes (Paul Keating's office), senior economists in the Prime Minister's Department, Treasury and Finance, and the Productivity Commission.

The invisible hand cited by Smith can be detected in the deregulation policies of the Rudd Government. But beyond the worthy ambition of fashioning the Australian market into a seamless national economy by getting rid of unnecessary, overlapping federal and state regulation, how much more pro-competitive policy work remains to be done?’

Comment
Sadly for Craig Emerson’s assertions, ‘the intellectual basis for public policymaking by these Labor governments [DID NOT HAVE] its genesis in Adam Smith's work on the benefits of open, competitive markets guided by an "invisible hand", because Adam Smith did not have any theory of an invisible hand.

It was used once in Wealth Of Nations, as a simple metaphor for what he took several pages to explain how risk aversion impelled some merchants to refrain from the risks of overseas trade (with the British colonies in North America), which in consequence motivated them to invest their capital locally in Britain and, thereby, to increase domestic capital investment (the whole is the sum of the parts, etc.,) and this meant British domestic output and employment was larger than it would have been if these particular merchants were not so risk-averse.

Those other British merchants who did conduct trade with and investments in the British colonies and elsewhere abroad, somehow did so despite a supposed invisible hand tryin to lead them elsewhere - they sought the higher profits available from their choice, under the protection of Cromwell's Navigation Acts and the presence of the Royal Navy (courtesy of British taxpayers).

The notion that Smith had a ‘theory’ of ‘an invisible hand’ leading all players in markets to act in pursuit of their self-interests and raise annual output and annual employment is a myth, invented (‘made up’ would not be too strong a charge) by advocates of pro-corporate capitalism, then becoming rampant in the USA in the 1950s.

Adam Smith’s works did not require invisible body parts to illustrate how competitive markets worked.

I agree that “Not many Hawke and Keating cabinet ministers would have waded through Smith's Wealth of Nations or his Theory of Moral Sentiments” – they had to take the authoritative assurances of “leading economic thinkers such as Ross Garnaut (Bob Hawke's office), Barry Hughes (Paul Keating's office), senior economists in the Prime Minister's Department, Treasury and Finance, and the Productivity Commission” that the myth was true.

There is a high chance that these doyens of the Australian economic profession had not read Smith’s books either (they probably took it that Wealth Of Nations said something quite different to what they believed having taken it on trust from their tutors - students tend only to read what is examinable!).

Adam Smith was certainly not “a champion of business against the interests of working people” and Craig is absolutely right to make this clear.

Smith’s intellectual arguments, and personal warmth for the growth of commercial society, were driven by the conviction that growth across agriculture, industry and specific, targeted public expenditure, such as defence, justice, and public works and public institutions, would assist the spread of opulence, especially to the labouring poor and their families, albeit slowly and gradually, but steadily too, if legislators and those who influenced them were careful not to approve monopoly schemes to narrow markets and restrict competition, not to indulge in spasms of ‘jealousy of trade’, protectionism, forming loss-making colonies and conducting wars for trivial ends (i.e., not for defensive purposes only).

Introducing, a mystical or miraculous force at work in markets detracts from the real and detailed policy measures that may required from time to time to ensure steady growth, competition, and liberty for all, and not just for the amoral ends of privileged monopolists and their cronies.

An Economist Confines Adam Smith to the Bathroom

Stray Silvers writes the Stray Silver’s Blog (‘updated Tuesdays and Thursday’) 22 January, from Victoria, British Columbia, Canada HERE:

“The economics of a simpler time - a reading list for reformers”

“Some of you may wonder why Adam Smith didn't make the cut.”

[GK: he chose works by Malthus, Ricardo, and Mill]

”I quite enjoyed the Wealth of Nations - enough to re-read it several times. However, despite having some wonderful passages, as a complete text, it's mostly of historical interest. The book is too wordy for its own good, and extremely repetitive. The topics Smith covers are better dealt with in Mill and Malthus, who also correct a few of the pioneer's most obvious errors. Smith had a few specific axes to grind with respect to events that were important at the time and are now obscure, leading to very long stretches of boredom for the modern reader.

The Everyman edition of the Wealth of Nations, which I own, includes notes on the side of each paragraph summarizing its content. If you buy such a print edition, then Smith makes fantastic bathroom reading... flipping the book open to a random page and reading a paragraph or two at a time is a joy. Reading it through, though, as a cohesive work? Not so much.”

Comment
Chacun à sans goût.

However, Wealth Of Nations is not a textbook on economics; it is a critique, by an articulate and well-read moral philosopher, of mercantile political economy as operated by governments from the 15th century towards a fragile commercial society, as it was and as it was recovering in the 18th century, from the destruction of commerce following the Fall of Rome in the 5th century.

It was not a book of principles of political economy and should not be read as such. When it is read as a ‘principles’ text, the reader is likely to be misled overall, and the modern economist (impatient know-alls as they are educated to become) will retire as disillusioned as they are disoriented, which seems to be the case with Stray Silvers (truly, I mean this in the most respectful of ways).

Mercantile political economy was ‘full’ of policy errors which in Adam Smith’s view distorted the production of wealth – the annual output of ‘the necessaries, conveniences, and amusements of life’ – with detrimental effects on the potential spread of opulence to the majority of the British population in mid-18th century.

Stray Silvers correctly notes that these matters are ‘mostly of historical interest’, but I differ from his assessment of their value today, respectfully, by asking to what end would we study history as economists?

In my humble opinion, given that many of the policy questions that affect today’s society arise from similar mercantile policies examined by Adam Smith and are worthy of study for their modern relevance:

‘jealousy of trade’, hostility to potential trading partners; tariff protections, despite fifty years of GATT, WTO, and regional customs unions and ‘free trade’ areas;
corporate business monopoly-type behaviours based on sheer scale and intimacy with Big Governments;

restrictions on competition (public monopolies turned into private monopolies);
Big Governments on a scale not envisaged in Smith’s day but with the same outcomes when legislatures are influenced by special interest groups, well-funded by their beneficiaries;

calamitous social and economic policies (echoes of the Elizabethan policies of Statute of Apprentices, Settlement Acts; Guild monopolies);

mass regulations that often don’t work, and the absence of regulation where it is needed;

wars and preparation for wars, beyond the needs of legitimate defence;
‘failed states’ with kleptocracy in place of civil governments, based on liberty and justice in many parts of the world;

and a near total failure to spread opulence by wealth creation, rather than so-called ‘poverty relief’, despite a century of increasing opulence from economic growth when the world has an unprecedented and impressive record of technological progress.

These not just ‘a few specific axes [for Adam Smith] to grind’, nor were they solely ‘with respect to events that were important at the time and are now obscure’.

Many of these same policies are still with us and seem likely to remain so, despite Nobel Prizes being awarded to modern economists for their versions of their contribution to the ‘progress’ of our discipline, though much of their work, replicated in faculties across the world, are about imaginary economies that do not exist and which are absent of human beings, who resist representation by mathematical variables.

I suppose, however, it is a step in the appropriate direction that Stray Silver recommends people should read Malthus, Ricardo, and Mill. But I am not happy that Smith is left to the confines of the bathroom.

Reading snippets of Smith is what has got us into this mess in the discipline; too much to say about an imaginary world that doesn’t exist (and which legislators and those who influence them do not understand), and too much to say about what Smith never advised (laissez-faire, night watchman states’, ‘leave everything to an invisible hand’, corporate entities are best left alone – even when ‘bad’ they miraculously turn out to be the ‘best’ for society; ‘greed is good’ and selfishness is a virtue).

And that’s the problem. In the bathroom, readers may miss what Adam Smith actually, most of it contrary to what he actually wrote and advised, but when senior economists repeatedly advise governments, legislators, corporate leaders, public opinion formers, interest groups and the general public, that the policies they themselves made up, but which they insist authoritatively are attributed to Adam Smith, whose reputation they have lionized, if not credited with sainthood (‘high priest’ founder of economics, and such tripe), in the sure knowledge that few will actually read his Moral Sentiments and Wealth Of Nations (including some, perhaps, in their bathrooms), they get away with the Big Lie, but the rest of us pay, one way or another, for their intellectual treachery.

Misreading Adam Smith, I hope Accidentally

From the Princeton University press Blog, announcing a new economics title HERE:

“Adam Smith, Meet Captain Hook: The Upside of Pirate Greed” by Peter Leeson

“In 1776 Scottish moral philosopher Adam Smith published The Wealth of Nations. In it, he described the famed “invisible hand.” According to Smith, individuals pursuing their self-interests are led, “as if by an invisible hand,” to promote others’ interests as well.

Your grocer, for example, wants to serve his own interest—he wants to make money. But to do so he must serve your interest as well. He must provide you with the highest quality groceries at the lowest possible price or you’ll patronize a competitor that does instead. The grocer doesn’t care about you, of course; he doesn’t even know you. He cares about himself, but in serving himself he serves you too.”

Comment
Peter Leeson, BB&T Professor for the Study of Capitalism at the Mercatus Center at George Mason University and author of the new book, The Invisible Hook: The Hidden Economics of Pirates and he also blogs at The Austrian Economists, is almost right and spoils the accuracy of his interpretation of the grocer’s pursuit of his self-interest in serving her customer’s self-interest, which in turn serves hers.

Yes, we serve our self-interest best in exchange by serving the interests of others.
But, I am not sure of his accuracy of interpretation in his first paragraph:

“According to Smith, individuals pursuing their self-interests are led, “as if by an invisible hand,” to promote others’ interests as well.”

That is not what Adam Smith wrote. He did not write anything about “as if by an invisible hand”. The quotation marks around this statement suggests that Adam Smith wrote those words; he most certainly did not.

There is no ‘as if’ attached to ‘led by an invisible hand’. Peter Leeson has added them and incorrectly wrapped them in quotation marks.

Also the way the sentence is written implies that Adam Smith was making a general statement applying to all individuals in all cases; he wasn’t.

He wrote about a specific set of individuals (some but not all wholesale merchants) whose risk aversion to foreign trade led them to prefer to deploy their capitals in their domestic locality, despite the higher monopoly-driven profits from trading with the British colonies in North America under the protection of the Navigation Acts, enforced by the Royal Navy.

These individual decisions meant domestic annual product was higher than it otherwise would be, and because the whole is the sum of its parts, the domestic economy, and resulting employment and output, were greater than they would otherwise be.

Having explained all this clearly and adequately, Smith summarises his explanation, with the well-known 18th-century literary metaphor of ‘led by an invisible hand’ (WN IV.ii.9: 456), which applied in this one specific case and ‘in this, as in many other cases’, but not all cases, as the over 70 examples he mentions along the way of self-interests not being beneficial to society in Books I, II and III of Wealth of Nations.

In fact, Smith analyses how prices are determined, how markets work, and how the ‘great orders’ go about their business without mentioning ‘an invisible hand’ at all.

Professor Peter Leeson should have written his sentence as:

“According to Smith, SOME individuals pursuing their self-interests are led IN MANY BUT NOT ALL CASES, “by an invisible hand,” to promote others’ interests as well.”

By generalising Smith’s thinking in the manner he did, Professor Leeson repeats the mantra of some ultra-conservative-minded propagandists for State Corporate Capitalism (which they are perfectly entitled to assert in their own names), but their assertions are their own and have nothing to do with Adam Smith.

Adam Smith On State Expenditures and Interventions

A correspondent asks:

“I'm still puzzled as to where Smith draws the line with regard to government intervention. In Book V, Chapter I, he talks about justice, defence and public works but it seems that he has a wider application for the state in market matters. I'd be very interested to hear your viewpoint on this.

To which I replied:

Yes, it is widely believed, even by some top academic economists, especially on Blogland, that Adam Smith favoured small government, often represented by the phrase, the 'night watchman state', which in fact was coined in the late 19th century by a firebrand socialist.

I have posted this list from my book, Adam Smith: a moral philosopher and his political economy' (2008, pp 247-48, Palgrave Macmillan):

"● The Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’; (WN464)
● Sterling marks on plate and stamps upon linen and woollen cloth (WN138-9)
● Enforcement of contracts by a system of justice; (WN720)
● Wages to be paid in money, not goods;
● Regulations of paper money in banking; (WN437)
● Obligations to build party wars to prevent the spread of fire; (WN324)
● Rights of farmers to send farm produce to the best market (except ‘only in the most urgent necessity’);(WN 539)
● Premiums and other encouragements to advance the linen and woollen industries’; (TMS185)
● ‘Police’, or preservation of the ‘cleanliness of roads, streets, and to prevent the bad effects of corruption and putrifying substances’;
● ensuring the ‘cheapness or plenty [of provisions]’; (LJ6; 331)
● patrols by town guards, fire fighters and of other hazardous accidents; (LJ331-2)
● Erecting and maintaining certain public works and public institutions intended to facilitate commerce (roads, bridges, canals and harbours); (WN723)
● Coinage and the Mint; (WN478; 1724)
● Post office; (WN724)
● Regulation of institutions, such as company structures (joint stock companies; co-partneries, regulated companies); (WN731-58)
● Temporary monopolies, including copyright, patents, of fixed duration; (WN754)
● Education of youth (‘village schools’, curriculum design); (WN758-89)
● Education of people of all ages (tythes or land tax) (WN788);
● Encouragement of ‘the frequency and gaiety of publick diversions’; (WN796)
● The prevention of ‘leprosy or any other loathsome and offensive disease’ from spreading among the population; (WN787-88)
● Encouragement of martial exercises; (WN786)
● Registration of mortgages for land, houses, and boats over two tons; (WN861, 863)
● Government restrictions on interest for borrowing (usury laws) to overcome investor ‘stupidity’; (WN356-7)
● Laws against banks issuing low-denomination promissory notes; (WN324)
● Natural liberty may be breached if individuals ‘endanger the security of the whole society’; (WN324)
● Limiting ‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’ turning into ‘famine’); (WN539)
● Moderate export taxes on wool exports for government revenue; (WN 879)

Jacob Viner concluded, unsurprisingly, that Adam Smith was not a doctrinaire laissez-faire advocate.

[From Viner, J. 1928. ‘Adam Smith and Laissez-faire’, In ‘Adam Smith, 1776-1928: Lectures to Commemorate the Sesquicentennial of the Publication of Wealth Of Nations, p 53, August M. Kelly, Fairfield, NJ; I provided the references to Wealth Of Nations.]

Second Question:

“How exactly does Smith make a distinction between permissible and unacceptable government intervention? I could justify some of this divergence by considering that much of his criticism of government involvement stems from actual experience rather than theoretical reasoning (which, if used, could rule out regulation all together!). What's your take on it?”

Smith, remember, wrote (Book V) of ‘public works and public institutions’ that ‘facilitated commerce’. It was, and I think, remains, an empirical test, not a theoretical outcome. Markets do not work because of theory, or ‘rational thought’, or who wrote books about it.

He didn’t sit down and think great thoughts about gaps in knowledge from his appreciation of the explanations of others and himself of real world events. That is the way of ‘shamans’, priests and inventors of religious explanations, with everything they cannot explain shunted into the mysteries of ‘invisible beings’ or gods.

The pure theory of markets, such as neoclassical economics and general equilibrium as much that it is meritorious, but it is a theory not a description of how markets actually work.

The players in markets are real human beings, not variables that operate within narrow confines of deterministic mathematics. Consider how Smith chided some of the Physiocrats (mentioning Dr Quesnay by name) for their apparent insistence that the ‘political body would thrive only under a precise regimen, the exact regimen of perfect liberty and perfect justice’… ‘if a nation could not prosper without the enjoyment of perfect liberty and perfect justice, there is not in the world a nation which could ever have prospered’. (WN IV.ix.28: p 674)

The message is clear: start with the history, how things arrived at their present day circumstances and arrangements, and observe how they operate, drawing on lessons of how they worked, more or less, well in the past and what that teaches us selectively about what works and what doesn’t, assemble general principles that seem to be of practical benefit to assumed goals, and apply them to current events and trends.

Of course, everything depends on the selection and the objectives. Machiavelli, the Italian political practitioner drew on history to show how rulers ruled in the past and selected common aspects that could apply to rulers in his present (1500s), where the objective function was to remain ‘safe’ in power.

Smith’s objective function was how an economy, the State, and the people, could spread opulence from commerce to the nation, especially the poor majority, drawing on how nations remained stable (justice and the distinction of ranks), became prosperous (the desire of people to ‘better themselves’) given as much freedom to do so (Liberty) without it degenerating into monopoly, restrictive protectionism, and opulence for a minority using their political influence over the State, while leaving the poor as they had been left throughout all history as serfs, slaves, and penurious labourers.

Smith believed that a commercial society was the best opportunity for continual growth and the spread of opulence, and showed in his critique of mercantile political economy, as it had operated since the 15th century and was operating up to the Fall of Rome in the 5th century, what changes might be made by the legislature to let commerce do its work as speedily as was practicable in the real world and not in some kind of impossible utopia.

He was not an ideologue. His understanding of history demonstrated what was possible among real men as they were, not ideal ‘guardians’ of public interest who usually made everything worse than it need be.

Hence, his proposals for ‘public works and public institutions’, which were written in is inimitable style, were apparently quite modest (the incorrect ‘take’ on them by laissez-faire ideologues), though they added to a level of state expenditure that was actually quiet ambitious, with separately argued cases for the items listed by Jacob Viner in 1928 above, which together extended the agenda of appropriate expenditure by a classical liberal state (and even one ran by quite illiberal personnel).

A Conservative MP is Correct

Julian Brazier MP contributes to The Cornerstone Group Blog (HERE)

‘Financial integrity key to stability’

“I’d like to make another point, however. How did we ever allow ourselves to get to a position where bankers could legally bet the house on risky deals? Answering that question is likely to take a long time and solutions may be slow coming, but part of the answer has to be moral. Adam Smith wrote a book about the importance of personal ethics before he wrote the Wealth of Nations. If we continue with the cult of celebrity, where megabucks are worshipped and integrity is sidelined, we will not find our way back to the kind of stability which earlier generations took for granted.”

Comment
Julian Brazier is right, of course. That was Adam Smith's intention when he published Moral Sentiments in 1759 and Wealth Of Nations in 1776. This were publsihed separately but they do not contain separate content.

Smith also lectured on ethics and jurisprudence, which happened to contain large parts of what became Moral Sentiments and Wealth Of Nations (sometimes verbatim). He taught to the same materials to the same students in his same classes at Glasgow University from 1751-64.

The view that Wealth Of Nations was a later construction than Moral Sentiments is not true (see his Lectures in Jurisprudence [1762-63] 1978, Liberty Press, Indianapolis). I discuss this in my: Adam Smith: a moral philosopher and his political economy, Palgrave Macmillan, 2008 and in numerous posts of Lost Legacy.

Smith didn’t change his mind when composing Wealth Of Nations (1764-76), nor did he ‘forget’ what he had published in Moral Sentiments; he didn’t take morality out of political economy.

That incorrectnotion was accomplished by some 19th-century German authors (the so-called “Das Adam Smith problem” – more accurately called ‘Das Deutsch Problem’), and was spread by modern US economists, who hadn’t bothered to read either his Lectures or Moral Sentiments, or, in the latter case if had they read it, they clearly didn’t really understood it, or Adam Smith's philosophy.

A New Reader, Perhaps?

MSR (Owings Mill, Maryland) HERE:

MSR posts twice in response to Lost Legacy’s post: 12 January: “Corporate Capitalism and Legislative Interests”

“Adam Smith redux

Gavin Kennedy at Adam Smith's Lost Legacy, a site I was unfamiliar with but which, based on my short perusal so far, is a site well worth reading, has a comment on my earlier post about Adam Smith. Gavin's comments are correct, I agree with what he has to say, although I believe that my main point still holds.

Basically, the passage I quoted went on at some length to the effect that the merchant and manufacturer are much better situated in knowledge and experience than are either the laborer or the country farmer to manipulate government policy to his or her advantage. Gavin's point was that while that was perhaps quite true in Smith's day, it is much less so today. All three of Smith's orders of men are today quite savvy at manipulating government policy to their advantage.

I did not mean to suggest that the merchant's and manufacturers still have that advantage as a general rule. My intended points were two fold. One point was that Smith's claim that the interests of the merchant and manufacturer are more often than not at odds with the interests of society as a whole and the general welfare of the nation. Adopting the policies and proposals of this order of men and women without very careful scrutiny is as foolish a move today as it was in Smith's time.

Yet we have spent much of the past eight years doing exactly this foolish thing. Secondly, I wanted to advance Smith's other point that the proposals of the merchant and manufacturing class should be met with long study, close scrutiny and a healthy dose of skepticism. I would agree with Gavin's commentary to the extent of saying that the important practice is to address all proposals from any part of society with a healthy dose of critical review.”

and

“I mentioned earlier that I liked the blog "Adam Smith's Lost Legacy" and I do. For example, I came across the following post wherein Gavin Kennedy argues for one of my preferred changes to the tax code. Gavin is writing about the UK tax system specifically, but the same principal applies to the US standard deduction. I believe that tax cuts should be considered, even in this time of recession, but the appropriate form of those cuts is an increase in the standard deduction. Get folks at the lower end of the income distribution off the income tax rolls. Such tax cuts would be a stimulant to the economy. When tax cuts are discussed it seems to me that the only form of cuts considered are changes in the tax rates. But a rise in the standard deduction should be a part of any progressive policy proposal.”

Comment
Yes, a clarification between friends is always helpful for civil discourse...

A Fair Question: how many economists and biologists have read Darwin and Smith's Works

Paul Walker, a regular reader of Lost Legacy in Christchurch New Zealand Blogs at: Anti-Dismal ('A blog on all things to do with economics and related subjects') HERE:

“Shocked but not surprised

Tyler Cowen over at Marginal Revolution writes in a posting Blogging *The Origin of Species*,

“That is a worthwhile endeavor and you will find the blog here. Nonetheless I was shocked (but not surprised) to read the following:

“Evolutionary biologist John Whitfield is reading Origin for the first time and writing about it, chapter by chapter.

I would ask Tyler, if he is shocked but not surprised to learn that a biologist hasn't read Darwin, then how shocked, but not surprised, would he be to discover that few economists have read Adam Smith?”

Comment
I hope many more economists will read both Moral Sentiments (1759) and Wealth Of Nations (1776) in this 250th commemorative year for the publication of Moral Sentiments.

It is also the 250th commemorative year for the publication of Darwin’s Origin of Species, a book well worth reading.

I read it in 2000 while preparing my ‘Pre-History of Bargaining’ ms (you can read my paper, “The Pre-history of Bargaining: an inter-disciplinary treatment, part I”, by clicking on the link (in red) on the Lost Legacy Home Page).

I plan to re-read Darwin’s Origin of Species this summer, and his other books developing this theme as applied to Natural Selection and Sex, and his book on facial gestures among humans and other animals.

A Blogger Attacks Others for Not Knowing Their Adam Smith, but Doesn't Know Him At All

‘Rogue109’ writes on Peach Pundit Blog (‘Fresh political pickins from the Peach State’ Here:

“Some Georgia State Senators do not understand market economies of scale or the impressive, positive results of true capitalism”

A comment from a reader challenges this assertion, to which ‘Rogue109’ replies assertively:

“Your analysis of Adam Smith is incorrect. Smith believed in the “invisible hand” of competition that allowed businesses which were the most competitive and profitable to win the day. By freeing up markets and not parsing out contracts to certain groups irrespective of competitive bidding, the very goal of keeping as many hands in the market is achieved, which is what appears to be odinseye2k’s and your goal. This legislation would go against the very ideals you espouse.”

Comment
I have no comment on the Georgia State Senators or their proposals, but it is 'Rogue109' who does “not understand market economies of scale or the impressive, positive results of true capitalism”, especially as he appears to believe that “Smith believed in the “invisible hand” competition that allowed businesses which were the most competitive and profitable to win the day.”

Adam Smith certainly believed in competition – he wrote about how competitive markets worked in Books I and II of Wealth of Nations, but, alas for ‘Rogue109’, Smith never said anything about ‘invisible hands’ in his full account of how competitive markets worked.

Moreover, ‘Rogue109’ cannot supply any quotation from Books I and II (or Books III, IV and V for that matter) which mentions ‘an invisible hand’ in connections with markets, competitive or otherwise.

To make it easier for ‘Rogue109’ to find Smith’s only reference to an invisible hand, he/she will find it on page 456 of Book IV, chapter 2, paragraph 9.

Should he take the trouble to look it up, he/she will discover that Smith was not talking about markets at all, nor what would make “profitable to win the day”.

In fact he was describing how some merchants would be willing to sacrifice profits, not maximise them, by investing locally rather than in foreign countries.

Selective Consciousness of the Evils of Slavery

Brad Delong’s Blog: Grasping Reality With Both Hands HERE, 14 January:

“Modern Liberalism and Libertarianism: An Economist's View” contains a most interesting piece by Brad, followed by an intelligent comments column from his readers.

Brad states in his text:

‘on issues of the persistence of "unfree" labor--Adam Smith expected the imminent collapse of slavery, but ending slavery took a war, and the market economy in America did not appear to be doing very much at all to undermine Jim Crow...”

Roger Koppl, an alert reader (a worthy person, obviously, and more than welcome to comment on Lost Legacy) posted a comment:

"Adam Smith expected the imminent collapse of slavery."

“Huh?
Smith lamented, "This institution therefore of slavery, which has taken place in the beginning of every society, has hardly any possibility of being abolished." Though unproductive in Smith's eyes, slavery persists because of the "love of domination and tyrannizing." (Lectures; 1762-3, 114-117, pp. 186-187 of my Glasgow edition.

Comment
Excellent use of evidence to contradict a careless (Brad DeLong is too good an economist, who normally knows exactly what Adam Smith, and many others, wrote, for him to be absolutely ‘wrong’ in an aside by one of the busiest Bloggers on the Internet – Brad runs several Blogs simultaneously, as well as a heavy teaching and research programme.

But Roger Koppl is right and Brad, alas, is, er, not.

Public comment in Britain and North America, aided by endless television repetitions that ‘slavery’ means the ‘slave trade’ from Africa to the USA, is almost completely blind to the fact that slavery from Africa to the Arab Middle East, classical Europe, and all countries to the East, persisted for thousands of years (note the number of African slaves in ancient Egypt) long before America was ‘discovered’.

The appalling practice of slavery was widespread in Eastern Europe and Russia at the time Smith was writing Wealth Of Nations, and Smith was pessimistic that it would ever be abolished.

The camel-led slave-trading 'trains' that left sub-tropical Africa to cross the Sahara, hardly penetrate public consciousness in the way that the African slave ships, made visual by film and television, which only show of the lesser, and shorter in calendar time (though no less evil), slave trade to America.

Not only were Arab traders active in the overland slave trade, they were often the local slave agents active in supplying slaves to slave trading ships from Europe for the American and Caribbean markets.

When the American market was closed eventually by the self-imposed political action of the governments of the USA, Britain, and other European countries, the Arab slave traders continued their despicable trade north across the Sahara, and by sea along the East African coast.

Big Corporations May Not Find a Solution, But It Will Be Found

Evert Cilliers posts on the 3 Quarks Daily Blog (HERE), 15 January:

“Who is the biggest King of Fraud -- Bernie Madoff or Henry Paulson? A common sense discussion in layman's language of our casino capitalism, skeevy CEOs and Pollyanna Psychosis”

“The system helps them in their cheating ways, too. In the mature capitalism of the industrialized world, where near-monopoly corporations produce too much stuff for us to buy, while the monied elite keep the earnings of the regular wage slaves down to the minimum they can get away with, you can't expect Adam Smith's “invisible hand” to help make sensible choices about where to invest capital.

Not that you ever can anyway. For example, big corporation capitalism is not going to choose to invest in green energy; they're making too much money off oil.”

Comment
Evert Cilliers misapplies Adam Smith’s use of the metaphor of ‘an invisible hand’ leading some, but not all, merchants to invest their scarce capital locally and not in the more profitable overseas trade with the British colonies in North America, which other merchants, less risk averse were activel engaged in under the monopoly accorded to them by the British Navigation Acts and from legislation prohibiting foreign competition with the colonies.

Those who did trade abroad made greater profits from accepting greater risks; those who preferred to invest locally earned smaller profits but added their bits to national output, making it larger than it would otherwise be.

Smith regarded this behaviour as better for the British economy.

Having explained all this and why (the whole is the sum of its parts) the invisible hand metaphor was about the effects of risk aversion; it had nothing to do with markets.

If risk aversion caused them to “make sensible choices about where to invest capital”, they didn’t need an invisible hand to lead them!

If “big corporation capitalism is not going to choose to invest in green energy; they're making too much money off oil” it may not be decisive (though most of the Big Oil companies are investing a proportion of their research budgets in alternative energy sources, as well as the Big car makers (I saw one car product on “Top Gear” TV a week or so ago, demonstrating a fashionable-looking saloon car that is powered by hydrogen, driving around Los Angeles freeways, and very smart it looked too).

Innovation does not necessarily come from the current main players in any product line; new start ups, in iconic suburban garages apparently, can create whole new industries outside the Big Corporations. Think of IBM and Apple or IBM and Microsoft. Also, aviation did not come from the research budgets of the railroad industries, nor automobiles from horse and traps.

Who knows – or, importantly - who needs to know - what inventors, innovators, or creators of the ‘next big thing’ are working away diligently, including on new forms of energy, who have no connection with Big Corporate Capitalism and unsupported by large dollops of tax funds aimed futiley at ‘picking winners’.

Market opportunities feed through, what Schumpeter called, ‘the perennial gale of creative destruction’ to replace what exists with something better. There is a large market opportunity available in new energy sources. Be sure they will be found – without aid from a mystical, disembodied invisible hand, and without State intervention.

A Classic Spoiled by Mysticism

‘Chief’ posted (18 January) on Tragedy of the Commons (HERE):

the text of the near brilliant, but slightly flawed, short outline of the powers of markets, identified by Leonard Read’s essay “I, Pencil”, as a process of disconnected coordination, without planning, central directions, or anything other than human beings acting, reacting, and pro-acting, to opportunities signalled by prices, rumours, and probabilities.

Chief, however, tops his post with a short paragraph by Milton Friedman, complete with his mystical allusions to the metaphor of an ‘invisible hand’, which detracts from the ordinariness of human endeavour, as if markets contain pure and innocent spirits, sometimes attributed to the will of a living Deity.

Friedman’s introduction spoils the softer power of Read’s ‘I, Pencil’, leaving it trapped in what Adam Smith had called ‘Surprise and Wonder’ but well short of ‘Admiration’, which comes from knowledge, the final step of human understanding (See Adam Smith, posthumous, ‘The Principles which lead and direct Philosophical Enquiries; illustrated by the History of Astronomy, [1744-58: 1795], in Essays on Philosophical Subjects, pp 5-129; 1980, Liberty Press).

‘Savages’ claimed their lives were ruled by invisible beings in everything they could not understand. Philosophers, wrote Smith, uncover the ‘connecting’ and ‘invisible links’ of events and, as a result, science marches on.

Milton Friedman and Leonard E. Read, both of whom made outstanding contributions in their writings, in this matter, however, both of them unintentionally led their readers away from understanding towards mysticism, only a step of two away from what Smith called ‘pusillanimous paganism’.

They became responsible in part for an unscientific sediment in political economy which wraps the ordinariness of human markets that are perfectly understandable within economics and without invisible body parts.

Markets operate without the mumbo jumbo of divine purpose (an unholy notion, I would have thought, linking the honest man from Galilee with the global market economy), and without the widespread populist belief in, not the simple literary metaphor used by Adam Smith for another purpose (see Lost Legacy passim), and without actual ‘invisible hands’, as if they really exist in the world in general and in markets in particular.

You can (and should) read Leonard Read’s ‘I, Pencil’ HERE:

Leonard E. Read (1898-1983) founded FEE in 1946 and served as its president until his death.

"I, Pencil," his most famous essay, was first published in the December 1958 issue of The Freeman. Although a few of the manufacturing details and place names have changed over the past forty years, the principles are unchanged.

'I, Pencil' reported that his ‘official name is "Mongol 482." My many ingredients are assembled, fabricated, and finished by Eberhard Faber Pencil Company’

Free Capitalism and Free Markets

C. Rick Koerber, of Free Capitalist Blog, discussed on Lost legacy, on Wednesday last (“Origins of the Word 'Capitalism'), has responded with a long commentary HERE:

My criticism of Rick Koerber’s article by focussed on the generality of his statements about the ‘Origins of the Word Capitalism’, which suggested a lack of specific knowledge of its origin and conclusively failed the report its origins, the presumed purpose, at least to this reader, of the article. It also offered a number of misleading origins, including that of Adam Smith’s role.

That some people believed this or that about origins of the word, capitalism, is no defence. The title of the article is specific: ‘Origins of the Word Capitalism’, and I expected a statement of what are verifiable facts of its origin somewhere in the article. But Rick did not state anything factual about the origin at all. Instead, he made misleading generalities about what others may have said, including Karl Marx, for example. This is what drew my attention and on which I commented.

My approach, as always, is educational; I stated the facts about the origins of the word, so that Rick and others could display command of the subject in future. Not knowing with whom I was dealing, but taking his statements at face value, I made no concession for his vague language and his failure to answer his own question.

I think clarity on these points is essential if he wants to promote market solutions to allocation and distribution issues in the 21st century. I added, for information, some facts about Adam Smith because it seemed to me that Rick did not appreciate his role.

Adam Smith did not write about ‘capitalist’ economies; he wrote about ‘commercial societies and markets’ (see his Lectures in Jurisprudence, [1762-63] 1978, and his Inquiry into the Nature and Causes of the Wealth Of Nations, [1776] 1976, Liberty Fund, Indianapolis, Indiana).

He did not even write a textbook on economics, mainly because there was no definitive and widely-agreed body of ideas suitable for a textbook treatment at the time (a discipline requires such a body of agreed material before it writes textbooks for wider study; by the time that body of knwoledge was acquired, the discipline had moved on from Adam Smith, at some cost in understanding).

Smith wrote a critique of the state-managed, mercantile society of mid-18th-century Britain and the consequences of the monopolistic British colonies of North America, with a subsidiary polemic against the activities of the Royal Chartered trading companies, then prevalent, especially the odious East India Company.

It should also be noted that the core ideas of Wealth Of Nations formed parts of his lectures to Moral Philosophy for students (aged 14-17) in his classes at Glasgow University from 1751-64. His main lectures were on ‘ethics’ and these appeared as his Theory of Moral Sentiments (1759), which I think, in its six editions, is a more significant book than Wealth Of Nations (five editions, while he was alive), because Moral Sentiments is about lasting themes for individuals in society, more so than his albeit brilliant polemic against 18th-century State-mercantile policies. But that is a personal opinion.

Because Smith did not mention the word ‘capitalism’, Rick and Seth argue that this, by itself, does not mean that he did not write about what became capitalism, per se. That is, of course, true. However, the fact remains that what he did write about was not the phenomena we now call capitalism.

The differences between his outlook and what happened after the influence of the popularly-called ‘industrial revolution’, was a long process.

It was characterized by an evolution of power-, not hand-, driven machinery. In Smith’s account he was concerned with ‘manufacturing’ in its original meaning, ‘by hand’. He did not foresee the evolution of what became the modern banking system of finance capital, nor an accelerating technological revolution (electricity, chemistry, etc.,) and what became eventually a mass-consumer market, associated with continuous increases in per capita income from sustained general economic growth, which changed many of the fundamentals in Europe and North America to an unrecognizable degree.

The agricultural sub-structure of the economies known to Adam Smith were subjected to major structural changes, from near dominance of society into agriculture becoming a minor segment of ‘GDP’, for example; from mainly local markets (fairs, market days, small shops) to ‘national’ and ‘world’ business–to-business markets, with movements of unimagined large capitals across Europe and the Atlantic, now the Pacific; from local ‘dearth’ of food (even famine) to general food security, but with national ‘depressions’ (‘business cycles’); the beginnings of ‘State macro-management’ of national economies, and to the continuation, but on an ever larger scale, of national capitalist producers with State political objectives, accompanied by substantial lobbying of legislators and people who influence them; extra-state activity of large trade unions, and protest-driven, populist political parties and powerful NGOs; all of which sum to a world vastly different from Smith’s concerns and horizons.

In Smith’s world. Government expenditure was dominated by military procurement; today, though in total much greater, it rarely rises about 7 per cent and mostly is under 3 per cent of GDP.

Indeed, Adam Smith did not predict forward to a possible future; he is characterized by ‘looking backward’ in his outlook; he was not in the prediction business. A rare ‘prediction’ that he made was on the prospects for the former British colonies in North America, while discussing the eventual outcome of a theoretical union between the mother country and its colonies, was that in ‘little more than a century [1880], perhaps, the produce of America might exceed that of British taxation’ (and, interestingly, the seat of the British government ‘would remove itself from’ London to the former British colonies) [ WN IV.vii.c.79: pp 625-26].

In the main, Adam Smith’s perspective was an historical account of how and why society, as it was, had developed in the manner that it did. The shadow of the Fall of Rome, and its affect on Western Europe, from 5th century, the ‘barbarian’ invasion and the destruction of functioning Roman markets, and their slow revival from the 14-15th centuries to the revived commercial societies on the 17th-18th centuries, were Adam Smith’s focus. His books are replete with classical references, both literary and historical.

To which Smith added long chapters on the negative affects of ‘mercantile political economy’, which dominated all European governments, but held back the natural ‘spread of opulence’, especially among the majority families of the labouring poor, matched by the perfidious monopolizing spirit of many ‘merchants and manufacturers’, feeding off the ignorance of the landlord aristocratic order, which dominated the legislature and those who influenced them from among the educated middle order.

People quote Adam Smith (selectively) who clearly have never read Wealth of Nations (otherwise they would know all of the above) and have never read Moral Sentiments (otherwise they would know about how societies are dependent on the quality of justice and the moral behaviour of its participants). Homo economicus, a late 19th century invention, played no part in Smith’s thinking, yet is attributed to him by careless commentators.

Hence, Lost Legacy reacts to expressions of, albeit unintentional, lapses from those who refer to his political economy as if it would be at home with modern State-Capitalist societies. True, the nefarious behaviours of which in kind, in many crucial areas, have hardly changed from the mercantile fallacies of Smith’s time.

If they read Wealth Of Nations at all they would recognize how modern States pursue the same fallacious policies of ‘jealousy of trade’ – hostility to trading partners – and protectionism. Why does Europe, and the even larger US, require tariffs against poorer countries’ exports with a political passion that is as absurd now as it was when Smith wondered why there were hostile tariffs against the import of a few Irish cattle, when even if all of them were sent to Britain it would hardly affect the British meat market? This is why Smith’s general critical approach has resonance today, if quoted carefully.

The quotation from Professor Mark Skousen is interesting in this regard:

“The main character is Adam Smith…[His] captivating philosophy of natural liberty and the invisible hand rapidly became the central character of modern economics as the industrial revolution and political liberty exploded on the scene, and create a new era of wealth and economic growth over the next two centuries."

Adam Smith, like all moral philosophy students of Scottish Universities at the time, was introduced to Natural Law philosophy, as enunciated in a direct line, by 17th century philosophers, Grotius and Pufendorf, and by 18th century, Carmichael, and Hutcheson. Natural Law was and remains a set of ideas of jurisprudence (how civil governments ‘ought’ to be managed).

Natural Law was not a part of ‘laissez-faire’, though it is often confused with it, and, incidentally, Adam Smith never used the words ‘laissez-faire’, though he was familiar with them and what they meant from his contacts with the French Physiocrats (1764-66). He often refers to the natural law theories of natural liberty, which underlay his jurisprudential theory of individual rights. He was not, however, a purist and insisted there were justified exceptions to natural liberty Wealth Of Nations [WN II.ii.94: p 324].

I am not convinced that the origins, content and application of what Professor Skousen calls the “captivating philosophy of natural liberty” is understood by him when he goes on immediately to link it to “the invisible hand” as part of that same ‘captivating philosophy’. It wasn’t and isn’t.

Smith’s singular use of the metaphor of ‘an invisible hand’, mentioned only once in Moral sentiments (TMS IV.10, p 184), and only once in Wealth Of Nations, (WN IV.ii.9: p 456) was not a ‘theory’, captivating or otherwise; it was a literary metaphor that had nothing to do with markets. (See Lost Legacy, passim, for scores of explanations of the alleged role of ‘an invisible that are miscredited to Adam Smith.)

The ‘invisible hand’ was ignored by commentators on his books, including Malthus, Ricardo, Mill, and Marx, and was only joined to economics discourse when leading economists used it to beautify their theories of the triumph of their analysis from the mid-1950s.

Finally, I was not commenting on Rick’s sincerity, nor his enthusiasm for ‘capitalism’, which I may share, though I prefer freer markets to ‘corporate capitalism’, as I prefer Liberty to democracy (many of the world’s ‘democracies’ are alien to Liberty.

Robert Burns and Adam Smith

“Robert Crawford interview: A Burns to believe in”, The Scotsman, 17 January, (Edinburgh, Scotland) HERE:

“Robert Crawford on Robert Burns”:

"People often pat Burns on the head as a 'heaven-taught ploughman', assuming he was an unlearned character," says Crawford, professorially leaning back against a wall of books in his St Andrews study. "But if I was to say to my students, 'Hands up which of you have read a major work of philosophy published in the year of your birth' I wonder how many would be able to do so. Yet Burns read Adam Smith's Theory of Moral Sentiments, published in 1759, and he knows it well because he refers to it several times. "O wad some Pow'r the giftie gie us/To see oursels as others see us" ... that's just a straight versification of something in Adam Smith.

Comment
At last, an authoritative guide to the great Scottish poet, Robert Burns!

Shoals of books have been written about him and we celebrate each 25 January with “Burns Suppers” about and beyond the land of his birth, from fairly formal suppers, with their strict rituals and order of events - piping in the Haggis, the ceremonial toast to the ‘chieftain of the puddin race’, delivered with appropriate deference in the ‘Guid Scot’s tongue’, the traditional ‘toasts to the lassies’, and the ‘immortal memory’. This followed by the obligatory meal of ‘haggis, neaps and tatties’, washed down with whisky (or other drink – in my case orange juice) and, as the evening progresses, it becomes more of a blur to most of those present, with Burns’ songs, sang with feeling by a lovely singer, with listeners thinking romantic thoughts (I’m trying not to be sexist) and the occasional inter-family feud breaking out.

For many years, if we are not going to a public ‘Burns Supper’, we have our private family one (plus any guests who happen to drop in). The traditional meal is followed by our version of the Supper’s verbal accompaniments in that everybody –guests included – must recite or read a Burns’ poem (copies provided from our old copy of 'The Poetical Works of Robert Burns, edited by The Rev. Robert Artis Wilmot, George Routeledge and Sons, London and New York, 1856). This year’s is planned for Sunday, 25 January, at our daughter's house nearby (we take turns).

However, let me refer to Robert Crawford’s reference to Burns junior reading Adam Smith’s Moral Sentiments. He received his copy from his father, and Robert Crawford is absolutely right to refer to Burns’ poem as about a subject discussed by Smith:

“"O wad some Pow'r the giftie gie us/To see oursels as others see us" ... that's just a straight versification of something in Adam Smith.”

In my 2005 book, Adam Smith’s Lost legacy (Palgrave Macmillan), chapter 10:

‘A Poem About a Louse’:

“One way to pass through your mind’s window into Smith’s theory of the impartial spectator is to start with a poem by Robert Burns:
‘O wad some Pow’r the giftie gie us
To see oursels as ithers see us!
It wad frae monie a blunder free us,
An’ foolish notion;’ (Burns, 2001: 130-2: To a Louse: On Seeing One on a Lady’s Bonnet at Church, 1786)

Translating Scots into English drains its poetic power: ‘We would save ourselves from many a blunder and foolish notion if only we could see ourselves as others see us.’

Robert Burns (or Burness) was born in 1759, the same year Smith published Moral Sentiments. He was a young contemporary of Adam Smith and, during the winter of 1786-7, Burns tried to meet him in Edinburgh but Smith was too ill to socialise, though they were at the same meeting of a Masonic lodge on at least one occasion. (Rae: 402) It is said that Moral Sentiments influenced Burns composition of the above lines. (Macfie, 1967: 66; Raphael, 1975: 89, n18)

Unlike Smith, who theorised about the consequences of imagining how other people in the persona of ‘impartial spectators’ might judge our behaviour, Burns wrote of our blindness to the perceptions of others and how our vanity masks our imperfections. In truth, others who weigh us in the balance find us wanting (as we do them). Powerful poetry indeed! On hearing Burns’ lines we often assume that his poem applies to others, not ourselves. How vulnerable we are to foolish and petty vanities!

Burns’ poem is a way into Smith’s ‘impartial spectator’. Both men would have agreed that ‘to see oursels as ithers see us’ expresses their different perspectives; Burns, pessimistically, reminding us of human frailty and its consequences, and Smith, optimistically, mapping how humans develop and maintain their moral senses. Smith, contrary to the poet’s assertion, says we do have the power ‘to see oursels as ithers see us’ and he explains how. We have this power, if we wish to use it, from what we may crudely describe as akin to a conscience (though it was much more) in a weak resistance to self-deceit.

Smith is explicit and his stance inspired Burns’ verse:

… self-deceit, this fatal weakness of mankind, is the source of half the disorders of human life. If we saw ourselves in the light in which others see us, or in which they would see us if they knew all, a reformation would generally be unavoidable. We could not otherwise endure the sight. (TMS III.4.6)

Burns’ editors (Messrs. Andrew Noble and Patrick Scott Hogg) comment that his poem:

‘should also remind us not to read “O was some Pow’r the giftie gie us/to see oursels as ithers see us!” as a piece of sententious sentimentality but Burns’ two line demolition of Adam Smith’s concept of the creation of [an] internalised spectator in his Theory of Moral Sentiments as a form of secular conscience adequate to controlling our materialism and social pretentiousness.’ (The Canongate Burns: the complete poems and songs of Robert Burns), edited by Noble, A. and Hogg, P. S., 2001. Canongate Books, High Street, Edinburgh).

These editors, Noble and Hogg, unlike Burns, forgot Smith on ‘self-deceit, this fatal weakness of mankind’.” (Adam Smith’s Lost legacy, pp 48-49, Palgrave Macmillan) Assuming they had ever read Moral Sentiments.

Meanwhile, I recommend that you read the interview with Robert Crawford HERE:

Note too: “The Bard” by Robert Crawford, is published by Jonathan Cape, priced £20. At this price it is accessible (try Amazon) and it promises to be the most authoritative biography of Robert Burns in print.

Note also the publication of “The Best Laid Schemes, Selected Poetry and Prose of Robert Burns”, edited by Robert Crawford and Christopher McLachlan, is published by Polygon, priced £12.99.

Labour in the 18th century

Keith Thomas, writes in the Independent (UK) (HERE)

'The Saturday Essay: “If only the devil did make work for idle hands...”

“On the other hand, work was widely admired as a divine activity, practised by God during the creation of the world and by Adam and Eve in Eden. It was a sacred duty and the source of all human comforts, creating wealth and making civilisation possible. It was a cure for boredom and melancholy and a remedy for vice. It was the only sure route to human happiness, bringing health, contentment and personal fulfilment. It structured the day, gave opportunities for sociability and companionship, fostered pride in individual creativity and created a sense of personal identity. Idleness could never make people happy; and the ideal society was one in which there was satisfying work available for everybody.

The classical economists took the first of these two views. Adam Smith agreed with Dr Johnson that every man was naturally an idler. It was axiomatic that human beings preferred leisure to work. Labour meant "toil and trouble". It was undertaken only for the sake of remuneration, what in North America is still revealingly referred to as "compensation". The object of working was to acquire wealth, and the object of wealth was to avoid having to work.”

However, Locke also believed that psychologically, "men cannot be perfectly idle; they must be doing something".

It was his 18th-century successor, David Hume, who did most to develop this insight. "Every enjoyment," he wrote, "soon becomes insipid and distasteful, when not acquired by fatigue and industry. There was no craving of the human mind more constant and insatiable than the desire for exercise and employment."

When Adam Smith declared that labour involved the worker only in "toil and trouble", he was thinking primarily of manual work. Indeed he explicitly said that it was only what he called "the inferior employments" that were performed solely for the sake of the money, thus conceding the possibility that other occupations could be rewarding in themselves. Nevertheless, Karl Marx had a point when he declared that Smith's view of labour as a curse was psychologically misconceived.”

Comment
I think Keith Thomas is slightly off centre in some of his remarks.

For instance, it was only with the expulsion of Adam And Eve that they had to work, it being fairly clear from the start that the Eden Garden was a paradise of sorts, where all their needs were provided for in the forest, where, as Smith put it, ‘The pulling of wild fruit can hardly be called an imployment’ (Lectures in Jurisprudence [1762-3] 1978, p 14, Liberty Press).

Before they left the paradise of the Eden Garden (a somewhat misleading appreciation of the realities of the lives of hunter-gatherers), Adam and Eve were told in no uncertain terms, ‘In the sweat of thy face shalt thou eat bread’[Genesis 3.v.19) (taking many millennia from the life of the forest to the labour of farming).

‘Labour meant "toil and trouble” ’is another slightly misleading take on Smith’s use of the phrase. In his discussion on the ‘real and nominal Price of Commodities’ he states that the ‘Real price of everything, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.’ He goes on to say that what something is really worth ‘is the toil and trouble which he can save to himself, and which he can impose upon other people’. And what ever is bought with money is ‘purchased by labour as much as what we acquire by the toil of our body. The money or those goods indeed save us this toil.’ [WN I.v.2.p 47; Edwin Canaan, 1937 edition, p 30-1]

The ‘other people’ are the sellers of what he wants. He labours to acquire money to save him the 'toil and trouble' of making the things he wants for himself. It is not the toil and trouble of wage labour that is decisive; it is the ‘toil and trouble’ of making what he wants himself, or, realistically, having to do without what he wants because he couldn’t make these things for himself – they are beyond both his reach and grasp.

This relates to Adam Smith’s basic observation that the hunters of North America were living in comparative poverty compared to the ordinary day labourer of Scotland in terms of their mutual possessions. The life of a hunter was hard enough to collect the few basic things needed in the hours he spent each day, without contemplating what else he might desire if they were in reach.

The notion of ‘toil and trouble’ is a psychological impulse – much like the desire to ‘better themselves’ – which impels labourers in a commercial society to seek work to acquire the goods that constitute their real incomes. Idleness was a problem for the very rich (anxious boredom with goods and each other was their main problem, as the novels of the 18th-19th centuries show), whereas for the very poor it was their anxieties from poverty, exacerbated by the intermittent absence of work, and suffering from the strange view among some legislators and those who influenced them that relieving poverty was an ‘inconveniency to the society’. (WN I.viii.36: p 96: Edwin Canaan, 1937 edition, p 78-9 )

The higher real incomes are, the greater the motivations to work well to acquire what their incomes can buy, to save them and their families the ‘toil and trouble’ of daily lives.

‘Tis a pity, as David Hume might have put it, that it took long enough for society to see the connection between what Adam Smith was talking about, when he lamented the short-sightedness of treating labouring men as little better than labouring cattle. It’s not that they were idle in the abstract, any more than slavery was basically inefficient (as well as inhumane). The slave who had ‘no other interest but to eat as much, and to labour as little as possible’ (WN III.ii.9: p 387; Edwin Canaan, 1937 edition, p 365;, is but a step or two away from the low-waged labourer, whose interest is to act as ‘idle’ as he can get away with).

Commentators in the 21st century might show some humility when discussing life in the 18th century (and, perhaps life today in an impoverished, failed states).

Stop Taxing the Poorest Incomes at 20 Per Cent

Joseph Stiglitz write in FT.com (via Economist’s View, Mark Thoma):

“Do not squander America’s stimulus on tax cuts

and

“Joseph Stiglitz: Just Say No to Tax Cuts”

“Do not squander America’s stimulus on tax cuts, by Joseph Stiglitz, Commentary, Financial Times”:

“As news of the US economy worsens, he worries about whether a stimulus could restart the economy ...”

“We are in uncharted territory in this crisis. But household tax cuts, except for
possibly the poorest, should have no place in the stimulus.”

Comment
It seems to me that Joseph Stiglitz does not emphasis the correct and moral policy. Across the board tax cuts may not be efficacious in the current climate, but the case for removing the poorest consumers from the taxation system is convincing.

Raising the personal, non-taxable allowance from about £6k to £16k (even higher) would largely be passed on in spending and stimulate the economy fairly quickly.

Reducing tax rates in the higher income brackets may not have an such an immediate, or lasting, effect.

The poor spend; they do not save much as a group. Legends of poor-pensioner, miserly ‘millionaires’ are news, when revealed, because they are so rare.

The majority, and their families, are poor already before taxation hits them, if they have jobs, and raising the tax threshold will not make them rich; only a little less poor.

It’s not that this change would ‘solve’ poverty. The moral compulsion for removal is that paying income tax (20 per cent, thanks to the ‘Labour’ government) when they already very poor is itself immoral.

Removal of the income tax from the very poor may mean that the richer would pay ‘proportionally’ more on their much larger incomes, which Adam Smith said was appropriate in other contexts, and not at the expense of the poor, ‘who are least able to supply it.’ [WN V.i.d.13: p 728; Edwin Canaan, 1937 edition, Random House, p 686]

A Left of Centre Thinker on Society's Welfare

Stuart Holland is quoted in the Casino Crash Blog, (14 January)HERE for something he wrote in Red Pepper magazine, “The world after Keynes”

After a typical trail through Stuart Holland-type, ‘big thinking’, he asserts that:

“It also means recovering the claim of Adam Smith that, in any competition, the welfare of society should cast the balance against all other motives.”
Stuart Holland is billed “as a leading architect of Labour economic programmes from 1972 to 1983.”

Stuart Holland was a Labour MP in the early 80s, who gave up a safe seat (Vauxhall) to join research bodies close to the administration of the European Community. He wrote, at the time, something to the effect that the most potent place to be to affect a social democratic reform programme was through Brussels as it gradually took over social legislation from the different national parliaments.

At the time too, Mrs Thatcher epitomized national governments’ resistance to the imposition from the EU of Statist solutions, in place of competitive markets (though she acquiesced in ‘privatisations’ that turned state monopolies into private monopolies, which side-stepped the consequences of competition).

Only recently, I was wondering what had become of Stuart Holland when I noticed his "Capital versus the Regions" (1976), among books I sent to a charity shop.

Well, he turned up as a visiting professor at the University of Coimbra in Portugal. It is not evident how sure he is still of the role of the European Community.

He does not mention above how “the welfare of society” should “cast the balance against all other motives”. Whose version of the ‘welfare of society’ does the ‘casting’? Is it an injunction on legislators and those who influence them to consider the ‘welfare of society’?

I would appreciate some directions to find in Adam Smith’s Works where he says what Stuart asserts on his behalf.

I can think of several things that Smith said in this context, but nothing that suggests that a supra-state like the Economic Community should be charged to do so on our behalf.

Adam Smith’s critique in Wealth Of Nations of the state-managed commercial economy of the 18th century did not exude over-powering optimism that legislators and those who influenced were minded to act in such an exemplary manner even within the confines of a single (small) polity such as Britain.

His Moral Sentiments speaks of individual moralty and society's moral norms, but not of government's roles, other than in justice, but leaves open how "the welfare of society should cast the balance against all other motives".

I cannot see how the countries of the European Union, and the state-apparatus of Brussels, has moved us closer to such a morality, not least because the Commission's accounts have once again been refused approval by its accountants.

Economics for Dummies?

In a review in Business & Money Book Reviews Blog HERE:

Economics For Dummies ('which covers all the basics of micro- and macroeconomic theory') by by Sean M. Flynn, PhD, Assistant Professor of Economics at Vassar College, we are told that it includes:

“Basic theories such as Keynesian economics, the Laffer Curve, and Adam Smith’s Invisible Hand”.

Comment
If you are believe that ‘dummies’ need to know about the non-existent ‘basic theory’ of "Adam Smith’s Invisible Hand” then perhaps its author needs to first realize that:

a) Adam Smith did not have a ‘theory’ of ‘an invisible hand’ – it was a metaphor, not a theory;
and
b) that what passes among modern economists for the ‘theory of an invisible hand in markets’ is a wholly invented, fictional account, introduced by some overly-enthusiastic neoclassical economists in the 1950s, who saw general equilibrium as ‘proof’ of their theories – no harm in that, of course, as long as they remembered that real economies have people in them, not desiccated perfectly rational calculating machines.

I assume – hope! – that the so-called ‘theory’ of “Adam Smith’s in visible hand” is Sean’s “Chapter 17: Ten Seductive Economic Fallacies”.

Invisible Hand and Markets

John McMurtry, Professor Emeritus at University of Guelph, Canada, posts on Canadian Dimension (‘for people who want to change the world’) HERE:

“The Obama Crossroads: Neo-Liberal Coup or Responsible Government”

“No Roots in Adam Smith or the New Deal”

“Adam Smith’s vision of the free market did not envisage exporting toxic wastes to the poor to save rich polluters from cleaning up their act. When the market’s “invisible hand” was briefly annunciated by Smith, he was clear that the free market was only in “tangible goods useful to mankind”. The neoliberal school invokes Smith, but simply erases the productive economy from its models where only money coordinates count.”

Comment
If you wish to ‘change the world’, first you must understand history, both of ideas and practice.

The ‘invisible hand’ was no part of Adam Smith’s “vision of the free market”.

In fact it wasn’t anything to do with markets.

Its sole use on the single occasion in Wealth Of Nations that he mentioned it as a metaphor was to do with ‘risk avoidance’, not markets (see Lost Legacy, passim, or ‘everywhere’).

I am not sure what the ‘neo-liberal school’ means, especially as American English seems to have different meanings for ‘liberal’ (is it left or right, or both?) and the addition of ‘neo’ to both Liberal and Conservative seems to be a term of abuse.

Origins of the Word 'Capitalism'

Free Capitalist (13 January) HERE carries this post:

“What is the history of the term ‘Capitalism’?”

“The use of the term ‘Capitalism’ has a long history. Adam Smith, often referred to as the ‘father of capitalism’ was the first modern proponent of a comprehensive philosophy defending the entire package of basic principles related to individual liberty as an indispensable ingredient to a moral, prosperous, and free society. Smith, a Scottish moral philosopher published his Magnum Opus, “An Inquiry into the Nature and Causes of the Wealth of Nations” in 1776 about the same time the American Founders were declaring their independence from England.

The late eighteenth century is when the ‘philosophy of freedom’ took root for the first time in modern history. The American founders were heavily influenced both directly and indirectly generations of ancient philosophers and very powerfully by their proximate European intellectual predecessors such as Adam Smith, John Locke.

The core of their movement, the American Revolution, and the subsequent, rapid spread of freedom movements across the globe, was fueled by several basic principles be made popular by social, political and religious leaders who had come to a renewed or ‘enlightened’ view concerning the nature of individual man. These new views affected all spheres of human relations and were not restricted by politics, religious, or economic considerations alone.

Politically, the Founders referred to the ideas as ‘Republicanism.’ But, republics were not new on the world stage. What was new about the political achievement of the Founders was that for the first time in modern history it was advocated from a new, moral foundation-made possible by the post-enlightenment view that “all men” were “equal by nature” and that no man or group of men was “rightly entitled” to special moral privilege or consideration. Or, in other words, the longstanding tradition of cultural tyranny across the globe was challenged by a new view of individual man as the measure of all moral social interaction.

No man was required, according to this new view, to live primarily for another-as his slave, servant, serf or subject-being unjustly deprived of life, liberty or property by any other man or group of men claiming some supposed moral authority. This basic worldview was not restricted to use or meaning in the political discussions of the time but affected all elements of man’s relationships with other men and during the period of the American Revolution was often referred to simply as Americanism. The term, however, most consistently, effectively, and regularly used to define the entire body of thought related to this worldview, would later be coined as ‘capitalism.’

In modern society the term ‘Capitalism’ is used imprecisely and inaccurately. Many scholars suggest that the term ‘Capitalism’ and its related term ‘Capitalist,’ was first derived in the English vernacular from a translation of the pejorative term used by Karl Marx in the mid to late nineteenth century to describe the class of men he called the elite “bourgeois” society who owned and controlled “society’s capital resources.”

To students of the Founders, the philosophy of capitalism is the only moral system that guarantees to man his individual liberty, and therefore the only valid political, economic, and social standard for pursing prosperity and peace.”

Comment
I approached this article with a degree of optimism, unfortunately not justified by its content. It gives a distorted and in places inaccurate view of events, most particularly those associated with the origins of the word, capitalism and, to an extent, some characteristics of the foundation and first century of the American republic.

The word ‘Capitalism’ and its related term ‘Capitalist,’ were not “first derived in the English vernacular from a translation of the pejorative term used by Karl Marx” (though he certainly used them pejoratively in his writings).

‘Capitalism’ was a word and a phenomenon neither used by, nor known to, Adam Smith. Capitalism was a wholly late 19th-century experience. The Oxford English Dictionary (Vol II, p 863) locates its first usage in English in 1854 by William Makepeace Thackeray in his novel, The Newcomes.

Karl Marx published, in German, Das Kapital, in 1867 and subsequent translations introduced the word ‘capitalism’ to his readers some years later (Moscow's 'Marxist' editors during the Soviet era ‘interpolated’ the new word of capitalism into his works as if Marx himself had written it).

While Marx may have read Thackeray, it is unlikely that Thackeray read Marx in time to include the word, capitalism, thirteen years earlier in his novel.

Of the word ‘capitalist’, this was first used in English in 1792, by Arthur Young (Travels in France) and it was used by Turgot (in French) in his ‘Reflections on the Formation and the Distribution of Riches’ LXIII-IV, 1770.

If Adam Smith is ‘known’ as the ‘father of capitalism’, it is 20th-century accolade of which he knew nothing, nor, to be accurate, deserved. This is an example of projecting modern notions onto the past.

Technically “the American Founders were declaring their independence” from Britain, not England. Since the 1707 Act of Union between Scotland and ‘England and Wales’, the political entity of ‘England’ had ceased to exist and, as Scotland and England were already a single kingdom from the ascension of King James VI of Scotland to the English throne (he became King James I of the united kingdom) in 1604, which established the political entity of the ‘United Kingdom of Great Britain’.

I am loath to tread on the toes of sensitive patriots, but I think these sentences should be recast:

“What was new about the political achievement of the Founders was that for the first time in modern history it was advocated from a new, moral foundation-made possible by the post-enlightenment view that “all men” were “equal by nature” and that no man or group of men was “rightly entitled” to special moral privilege or consideration.”

and

“No man was required, according to this new view, to live primarily for another-as his slave, servant, serf or subject-being unjustly deprived of life, liberty or property by any other man or group of men claiming some supposed moral authority.”

If these statements are correct (I don’t think they are) there were some glaring deficiencies in their application in the new republic, which deficiencies lasted upt to the 'war between the states', and effectively operated in great measure up to the 1960s. I trust I do not need to elaborate…

Finally, Adam Smith did not write about ‘capitalism’ because it did not yet exist. The Wealth Of Nations is not an economics textbook.

It is a critique of the political economy of UK State power and its close relationships, through legislators and those who influenced them, with the new ‘order, of ‘merchants and manufacturers’, whose policies severely compromised the possibilities of the ‘commercial society’, which Smith wrote eloquently about.

Primarily this arose from their proclivity for state-sponsored monopolies, legal local monopolies in the Guilds, international monopolies from their Royal Charters (including in the British colonies of North America), in their chartered trading companies (of which the East India Company was the prime, and most disgraceful, example), their prejudiced policies arising from ‘jealousy of trade’, wars for trivial ends and domestic legislation, such as the Statute of Apprentices, the Settlement Acts, and one-sided laws against ‘combinations’.

If Adam Smith’s Wealth Of Nations was his magnum opus I am particularly impressed with his Moral Sentiments), it is one that is appreciated from its modern reputation and not from reading it in context.

And while I may sympathise broadly with the idea of a ‘free capitalism’, as opposed the state-capitalism and Big Government, I think the Free Capitalist Blog has some ways to go before it tops my daily reading list.

The Price of Wealth Of Nations - First Edition

In Rare Book Review (December 2008/January 2009) HERE:

“An Inquiry into the nature and causes of the wealth of nations by Adam Smith, London, W. Strahan and T. Cadell, 1776 first edition, in two volumes. Bound with Additions and corrections to the first and second editions of Dr. Smith's inquiry into the nature and causes of the wealth of nations. [London, W. Strahan and T. Cadell, 1784]. (HK $ 1,100,000)”

Comment
This amounts to £95,682.30 UK Pounds, which suggests the first edition of the Wealth Of Nations is increasing in value pretty fast.

In December, the price of a first edition was quoted at Sotheby’s as £68,000 and I saw an auction price of £72,000 for a first edition in mid-2008.

Of course, the condition of the various copies would influence the price, as well as market demand.

Wealth Of Nations when it was published on 9 March 1776 was sold at £1.16s.

A Surprise Invitation

Unexpected invitations can be exhilarating, as well as risky. Mine yesterday afternoon was both.

The US John Templeton Foundation has sponsored a 2-day meeting in Edinburgh of a small group of senior scholars interested and well qualified in “Adam Smith as Theologian”, some from the UK nnd the rest of Europe, many from the USA and Canada, and a few from Australia.

Judging from the agenda, this is an intensive, high-level seminar. The titles show the range and depth of the events:

Theological Readings of Adam Smith;
The Influence of Religious Thinking on the Smithian Revolution;
Divine Action, Providence and Smith’s Invisible Hand;
Theology and Natural Law Ethics;
A Divine Economy: assessing Adam Smith’s Theology;
Adam Smith’s Theodicy;
Man and Society in Adam Smith’s Natural Morality: the impartial spectator, the man in the system, and the invisible hand;
The Contemporary Developments of Adam Smith today;
A Visible Hand: modern lessons from Smith’s Theory of Moral Sentiments.

Yesterday afternoon, Paul Oslington, Professor of Economics at Australian Catholic University (Sydney), called me from the conference (held at the Royal Society of Edinburgh, in George Street – of which Adam Smith as a founder member in 1783), to invite me to a dinner that evening and to give a short biographical talk on Adam Smith in Edinburgh. Naturally I accepted.

Those readers following my post and the comments on Monday will be aware of my current research topic on the extent to which, if at all, that Adam Smith was a Deist.

Until I arrived at the dinner at Fisher’s, Thistle Street, one of Edinburgh finest restaurants (at least to my palate), I was unaware of the serious nature of the conference to which Paul was headed when I conducted him on the ‘Adam Smith Tour’ under the tender attentions of Edinburgh at its coldest, wettest, and windiest.

The John Templeton Foundation is a serious contributor to the dissemination of knowledge.

However, I was not there to discuss religion and Adam Smith, and I steered well clear of the topic, as propriety dictates (see Moral Sentiments - don't argue with your hosts!). I listened to diners discussing their academic work and observed their serious demeanours.

My short talk on Adam Smith’s time in Edinburgh was received reasonably well and I returned home feeling I had enjoyed a lovely evening with several strangers and the one or two whom I knew from History of Economic Thought Meetings, or from their writings on Adam Smith, feeling that with all of whom I could be friends.

The Republic of Letters is sometimes an illusive reality which is made real in such meetings.

Non-History of a Famous Economist

Politonomist - Kelowna,B.C.,Canada, writes “A History of Famous Economists”, HERE:

“1776 marks the beginning of what most consider to be the birth of economics - the legendary Scottish Adam Smith publishes his lassiez-faire-supporting-invisible-hand-equilibrium work, An Inquiry into The Nature and Causes of the Wealth of Nations - colloquially known simply as, The Wealth of Nations. The work is unquestionably canonical in economics, so much so that one economist we interviewed bravely claimed “it’s more important than the Bible; even to non-economists!”

Smith, in the Wealth of Nations proposed a disproportionate number of ideas about the organization and performance of markets that survive today - nearly 300 years later, and an economic revolution or two after the publication. The concept of an “invisible hand,” which Smith barely even mentioned in his book, is widely associated with the text and Adam Smith himself. The invisible hand referred to the market structure that simply appears to organize itself, and, furthermore the simple organization of a market, even after a catastrophic or unexpected economic crash - generally returning itself to pre-disasterous state with no intervention by a greater body, whatsoever.

The book is a difficult read for modern economists, so much of the knowledge extracted from it is passed along to future economists through other, more modernized theories. At the time, there was no field of economics, there was no conception of “capitalism,” and feudalism was still a rampant force leftover from the middle ages in Europe. Much of what is discussed in the book makes very little sense in a modern context - but still, the concept of an equilibrium market, where various negative forces may be applied, generally from interventionism and negative economic situations, holds strong to this day.

Many economists question whether classical economics is truly the foundation for neoclassical economics based on a number of common rejections - particularly the development of Smithian value theory, where a distinction is made between market price and natural price. If, for example, neoclassical economics is the current development of classical economics - when did each start and end? Economic historians do clearly define these periods, focusing on the response to other rejections, as we do here."

Comment
Parts of this summary are almost correct; others are not correct at all.

“Adam Smith publishes his lassiez(sic)-faire-supporting-invisible-hand-equilibrium work, An Inquiry into The Nature and Causes of the Wealth of Nations”

Smith did not support ‘laissez-faire’, nor did he express an “invisible-hand-equilibrium work” (wrong on both the “invisible-hand” and on “equilibrium”).

Wealth Of Nations is not “a difficult read for modern economists”, unless they are illiterate. True, it is a different read to the common modern textbook because it is not an economic textbook.

“The concept of an “invisible hand,” which Smith barely even mentioned in his book, is widely associated with the text and Adam Smith himself. The invisible hand referred to the market structure that simply appears to organize itself…”

The invisible hand was not a concept – it was a metaphor – used only once in Wealth Of Nations, which at a stretch could be deemed to be “barely even mentioned”, though why “Politonomist” doesn’t just say “once” is surprising.

The invisible hand metaphor when used once by Smith did not refer to “market structure” at all, nor was it about a structure that “appeared to organize itself”. If anything it conformed to the arithmetic rule that the ‘whole is the sum of its parts’.

Smith’s writing on markets did not have “the concept of an equilibrium market”; it noted that the market price would ‘gravitate towards' natural price, sometimes undershooting, sometimes overshooting which is not an equilibrium. Prices are determined by the ‘higgling and bargaining’ of real people who are not governed by pure rational thinking – that’s why they ‘higgle and bargain’!

“Much of what is discussed in the book makes very little sense in a modern context” can only be believed if the author does not realize what the Wealth Of Nations was about.

Much of what Smith wrote about is still with us – the damaging role of the State in a commercial economy, when its legislators and those who influence them were guided by false doctrine of ‘mercantile political economy ‘ (still with us!), monopoly practices (still with us!), tariff protectionism (still with us!), problems of balancing the needs of public expenditure and the ability to bear taxation (still with us - perhaps even worse today!), wars for unimportant ends (sometimes still with us!), and meddling and unnecessary interventions in micro-management of people’s lives, under the influence of politicians (still with us, only more so!).

It is not clear what is meant by “the development of Smithian value theory”.

If it is meant to be the distinction Smith draws between ‘natural and markets prices’, then this may misunderstand what Smith was on about; basically the difference between how buyers and a sellers observe their interests to the value in exchange – buyers are not interested in a seller's costs, only in price; sellers are interested in their costs because price must cover their costs plus a profit.

If it is about Smith’s theory of exchangeable value, this is probably the most misunderstood element of Wealth Of Nations, mixed up as it often is with a supposed Labour Theory of Value, which Smith did not extend to commercial society because of the role of property once mankind left the forests.

Adam Smith cannot be understood by reading modern accounts of what he is supposed to have written, plus quotations from him at second, or tenth, hand, often out of context.

Politonomist should, I respectfully suggest, read Wealth Of Nations (and Lost Legacy).

Belief, Whether True or False, Can Have Beneficial Effects

Among the many interesting papers presented at the Balliol Commemoration conference last week was one by Professor Ryan Hanley (Marquette University), which was beautifully delivered and a model of how to present to a seminar.

I shall pick up on one small aspect of it because it also arises in my current reading of Moral Sentiments with a view to my deciding to what extent, if any, was Adam Smith religious?

Ryan quoted from Moral Sentiments and I use the following as representative of his selection:

“For it well deserves to be taken notice of, that we are so far from imagining that injustice ought to be punished in this life, merely on account of the order of society, which cannot otherwise be maintained, that Nature teaches us to hope, and religion, we suppose, authorises us to expect, that it will be punished, even in a life to come. Our sense of its ill desert pursues it, if I may say so, even beyond the grave, though the example of its punishment there cannot serve to deter the rest of mankind, who see it not, who know it not, from being guilty of the like practices here. The justice of God, however, we think, still requires, that he should hereafter avenge the injuries of the widow and the fatherless, who are here so often insulted with impunity. In every religion, and in every superstition that the world has ever beheld, accordingly, there has been a Tartarus as well as an Elysium; a place provided for the punishment of the wicked, as well as one for the reward of the just.” [TMS II.ii.3.12: p 91]

and

“But upon the tolerable observance of these duties, depends the very existence of human society, which would crumble into nothing if mankind were not generally impressed with a reverence for those important rules of conduct.
This reverence is still further enhanced by an opinion which is first impressed by nature, and afterwards confirmed by reasoning and philosophy, that those important rules of morality are the commands and laws of the Deity, who will finally reward the obedient, and punish the transgressors of their duty.” [TMS III.5.2-3: p 163]

Comment
These are examples of Smith’s very careful use of language, which seems to me to be not saying what is normally attributed to him. Theologians draw upon such passages to assert that Adam Smith was religious and on a casual reading that may well be a view that has merit.

However, these, and many other statements on similar themes, are perfectly compatible with Smith not believing the intended message. He was writing while a professor at a protestant university in a decided atmosphere of compliance with revealed religion and for which there were severe consequences should he not do so. Even his tutor, Francis Hutcheson, ran into some trouble with the local zealots, who detected apostasy in his teachings while Smith was a young student and against which there were incidents of student ‘disturbance’ over the ridiculous charges (the Church court found Hutcheson innocent].

The wording of: “Nature teaches us to hope, and religion, we suppose, authorises us to expect, that it will be punished, even in a life to come”, is not definitive; ‘hope’, ‘to expect’, ‘even in a life to come’, are not wringing endorsements at all.

Nor is: “In every religion, and in every superstition that the world has ever beheld”. Linking ‘every religion’ with ‘every superstition’ is instructive; in his History of Astronomy, Smith refers to ‘pusillanimous superstition’, and by equating such language with ‘every religion’, Smith slips in a subtle signal.

Christianity, of course, adopted the Greek pagan religious, after-life places of “Tartarus as well as an Elysium” (Hell and Heaven), as well as their becoming the lucrative (for the clergy) doctrine of purgatory.

In the second quotation we note “further enhanced by an opinion” (not a fact”) “if mankind were not generally impressed with a reverence” to which deficiency they are “first impressed by nature, and afterwards confirmed by reasoning and philosophy”, that they “are the commands and laws of the Deity” to be finally confirmed, not on Earth, but in the ‘after life’, for which religion is the sole source for evidence that it exists (it fails the Humean experience test).

The point should be made that the belief in the after-life, in so far as it encourages suitable behaviour in this life, may well be of great benefit to society (on preventing it ‘crumbling to atoms’), but it is the belief that it is so, not necessarily that it is true that it is so. The one can be quite separate from the other; punishment in an ‘after lie’ does not need to be true for its beneficial effects from such a belief to be realized in this life.

I believe that Adam Smith was saying just that and his many other statements on these matters in Moral Sentiments suggest that my belief has credibility.

Adam Smith in Glasgow '09 Conference 31 March-2 April

The University of Glasgow, Adam Smith Research Foundation, hosts the "Smith in Glasgow '09 Conference", 31 March-2 April.

The provisional programme can be consulted HERE:


This promises to be a 'galaxy' of Adam Smith scholars from around the world.

Registration details are available: HERE

I shall report on the conference from time to time.

Corporate Capitalism and Legislative Interests

‘MSR’ writes the Constructive Interference Blog (‘for political and social commentary from the center left point of view) HERE (10 January):

"Adam Smith"
I found the final paragraph of the first book to be quite striking. It is my contention that much of today's discourse is seriously distorted by the near universal acceptance of some points which are, in fact, completely false. One of these is the idea that modern Conservative/Republican philosophy is strongly tied to the principals of free market capitalism as espoused by the like of Adam Smith. So the following quote, the last paragraph, as I say, of the first book in the Wealth of Nations is quite illuminating. He has just repeated his long running claim that there are three orders within society, those who make their income from the rent of land, those who do so by wages from labor and those who do so off the profit of stock. He discussed that the interests of the first two orders are tightly aligned with the interests of the Nation as a whole and with society in general. In other words, the prosperity of those two classes rises most with the general improvement in the prosperity of the nation as a whole. Of the third class, I quote:

“His [the person who lives off of wages from labor] employers constitute the third order, that of those who live by profit. It is the stock which is used for the sake of profit, which puts into motion the greater part of the useful labour of every society. The plans and projects of the employers of stock regulate and direct all the most important operations of labour, and profit is the end proposed by all those plans and projects. But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension, of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin. The interest of this third order, therefore, has not the same connexion with the general interest of the society as that of the other two. Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans an[d] projects, they have frequently more acuteness of understanding than the greater part of the country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion), is much more to be depended upon with regard to the former of those two object[s], than with regard to the latter. Their superiority over the country gentleman is, not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public[k], from a very simple but honest conviction, that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufacture, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the publick; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have upon many occasions, both deceived and oppressed it.” [WN I.xi.p10: pp 266-7; minor typos corrected].

I would say that the summary of the past eight years of American policy has been to adopt the Conservative/Republican policy of a slavish and servile devotion to all proposals of exactly that order of men whose proposal Mr. Smith says rather "...ought always be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention." Mr. Smith's advice on this score has most certainly not been taken.”

Comment
True, up to a point. Modern Big governments in Europe and North America are subjected to massive barrages of persuasion from special interest groups, and not just employers of labour. Legislators and those who influence them constitute formidable ‘industries’ in their own right, and operate on an unprecedented scale in terms of their funding and staffing.

In Smith’s day, the legislature was predominantly from the agricultural class of country gentlemen, hence his references to them being swayed more easily by the assumed “superiority” of merchants and manufacturers “over the country gentleman”, whose knowledge of trade matters were minimal, and who generally thought patriotically about foreign policy issues. The fewer influencers on behalf of the fewer ‘merchants and manufacturers’ had higher leverage for their notions about ‘narrowing the market’ to reduce competition than their numbers warranted.

Of course, since the 18th century this situation no longer obtains. Those professional advisors on behalf of the corporate interests of Merchants and manufacturers are well matched by the educated influencers of the farming interests of the country (though the percentage of GDP arising from agriculture and mining is now much reduced, but GDP is now much larger). Moreover, legislators – the professional politicians – now constitute a very powerful group of educated and well-supported advisory staff.

Corporate capitalism is a different phenomenon to the commercial market societies of 18th-century Scotland.

A Walk in the Rain and Wind

This morning I went to Edinburgh Airport to meet an Australian academic, Paul Oslington, a delightful companion (such as at the Balliol commemoration of the publication in 1759 of Adam Smith’s Theory of Moral Sentiments conference last week).

It has been a dreadful day in Edinburgh with high winds, steady rain and squalls, and biting cold. Paul is in Edinburgh for a conference on theology and economics, but the morning was set aside for a tour of Adam Smith sites in the High Street/Royal Mile that runs from the Castle down to the Palace of Holyrood, where Scotland’s Kings and Queens lived during the Summer months (the present Queen often does), when not in Edinburgh Castle when they were threatened by usurpers and assorted enemies.

As it happened, the plane was late due to some technical problems and it came in after the plane that was due to leave Heathrow two house later!

After checking into his hotel in George Street (the 2-day conference is in the Royal Society of Edinburgh building just across the road (which Adam Smith was a founding member in 1783 - he was alreayd a member of the Royal Society in London), we made our way to the High Street, parked the car, and then walked up the hill towards the new statue of Adam Smith, which readers may remember was unveiled by Professor Vernon Smith earlier in 2008. It was paid for by private subscriptions raised by the Adam Smith Institute.

With rain beating down in the strong wind, we examined the statue by Andrew Stoddart, the Scottish sculpter, noting its iconography, before crossing the the pathetic shelter from the rain of the Custom House building, now the Edinburgh Council building. I say ‘pathetic shelter’ because the rain spread over us in obedience to manic wind currents.

It was here that Adam Smith officiated a Scottish Commissioner of Customes and Excise from 1778 to 1790, four days a week, except when on business in London. This was no sinecure. The letter books and minutes of the Commission show his diligent attendance right up a few weeks before he died in 1790.

Emerging into the full force of the windswept High Street/Royal Mile, we walked downhill, past John Knox’s house to the Canongate Kirkyard where Adam Smith's remains are buried. His grave recently was tidied up, thanks to a large donation by a wealthy, publicly-spirited Canadian citizen (though the Town Council dithered for a couple of years before implementing his generosity).

As Panmure House, Smith’s residence in Edinburgh from 1788-90, is literally ‘over the wall’ from the Kirk and because he was buried there, it may be safe to assume that this was his local Church where he escorted his mother on Sundays until she died in 1784, aged 90.

Our last stop, was next door, to Panmure House, which we viewed from the outside in the rain (still falling heavily). Smith walked from Panmure House each workday up the hill to the Custom House. From just outside Panmure Close, he could see the volcanic remains in Holyrood Park, where it is said he walked each Sunday with his close friend, James Hutton, the geologist and author of The Theory of the Earth (1795), a book as foundational for geology as Wealth Of Nations became in commercial economies.

James Hutton and another close friend, Joseph Black, the chemist and discoverer on Latent Heat, were charged by Smith on his deathbed in Panmure House, to burn his unpublished manuscripts and lecture notes a few days before he died.

For this act they received Adam Smith’s thanks but not from the scientific community who were deprived thus of their access to the rich haul of ideas in Smith’s works. Fortunately Smith instructed them to save his unpublished essays on the philosophical method, in particular the ‘juvenile essay’, ‘illustrated by the history of Astronomy’, which they published pothumously in 1795. He commenced the History of Astronomy in 1744 while at Balliol College, Oxford and which, in my view, sets out his non-religious account of the philosophical method.

I left Paul to continue down the hill to have a look at the Scottish Parliament Building – which in my view is a monstrosity of bad taste, but politically of immense significance – while I drove home to a hot shower and a change of clothes.

[Should any readers who visit Edinburgh would like my ‘guided tour’ of the ‘Adam Smith sites’, drop me an email via Lost Legacy, and if mutully convenient, I would be delighted to share the time with you. However, I cannot guarantee the weather, though I can guarantee an enthusiastic and spirited commentary.]

Curious 'Facts' About Adam Smith - where did he graduate?

Professor Ian S. Ross, author of the definitive biography of Adam Smith ,(The Life of Adam Smith, Oxford University Press, 1995 (2nd edition is due in 2009) was among the distinguished persons attending the Oxford conference and I had several informative and friendly conversations with him. I also listened to his plenary talk and to his various interventions in the discussion sessions. All were of remarkably high quality.

I also had several questions of a biographical nature answered by Professor Ross. One of which called for my speedy correction to a possible error that I have made in respect of Adam Smith’s degrees (it being the duty of an academic to correct at the earliest opportunity any statement shown to be incorrect in the light of new evidence).

In my book, Adam Smith: a moral philosopher and his political economy, 2008, Palgrave Macmillan, I report on page 16:

“…which should dispose of claims that he had an MA from Glasgow (his MA was from Oxford)”

The facts now appear to be different. We know that Adam Smith did not graduate from Glasgow in 1740, before he left for Oxford on the Snell Exhibition, because it was a condition for the award of a place at Oxford that he arrived at Balliol College ‘without taking any Degree from Here or elsewhere’.

He arrived at Oxford in August 1740 without a degree. The records show that he did not graduate with his Oxford BA in 1744 with the rest of his class. He seems to have taken a rather unusual step of re-registering at Oxford as a law student in August 1744 and the records show this ‘side-step’.

It was explained to me that this may have been an administrative device to excuse Smith from taking the ordination course and to take a law course instead without leaving Balliol. At this time Smith was suffering from some sort of medical condition and may also have been disillusioned with his becoming a Minster. He remained at Oxford for two more years until the third week of August 1746, when he left and returned home to his mother’s house in Kirkcaldy, again without graduating, and without ever returning to Oxford.

Adam Smith was entered into the Glasgow University records as having an ‘AM’ degree without stating from where he graduated. In my book, I took this to be his Oxford degree on grounds that he had completed six years at Oxford. However, Ian Ross gave me his opinion that this was a Glasgow degree, possibly awarded for his years of study from 1737 to 1740 at Glasgow.

In the Glasgow University records, on 28 April 1749, there is a note of an “Intimation from the Master and Fellows of Baliol College in Oxford date the 15th April Current giving notice that there is one Exhibitioner to be elected into Mr Snell’s foundation – in room of Adam Smith A.M. who has resigned.”

I asked the Curator of Balliol about Smith’s degrees and she assured me that Smith was not awarded a degree from Oxford, otherwise it would have been entered in the records, and, interestingly, a clincher perhaps, Oxford had not adopted the Latin designations of either ‘AB’ or ‘AM’ degrees and had always referred to them as either ‘BA’ and ‘MA’. Now, Glasgow did use the Latin designations of ‘AB’ and ‘AM’, and therefore, the ‘AM’ entered in the Glasgow records must have been awarded by Glasgow.

My statement, therefore, is incorrect. Smith held a Glasgow ‘AM’, at least from 1749. It was probably awarded without formal examination. When the University appointed him a Professor of Logic, he was required to read to the assembled professors his Latin dissertation, 'De Origine Idearum’, as a ‘trial of his qualification’ before they formally appointed him.

Years later, Glasgow University awarded its Doctorate degree, LL.D. to Adam Smith on 21st October 1762:

“[The Faculty meeting] considering Mr. Adam Smith’s universally acknowledged Reputation in letters and particularly that he has taught Jurisprudence these many years in this University with great applause and advantages to the Society do unanimously resolve to confer the Degree of Doctor of Laws upon him and appoint a Diploma to be accordingly expeded for that Purpose.”

I am not 100 per cent clear that we have got to the bottom of these small details, but probably we have got as far as we can with those records that have survived.

You can read more in William R. Scott, Adam Smith as Student and Professor, 1937, Glasgow Jackson & Son; in Ian S. Ross, The Life of Adam Smith, 1995, Oxford University Press, and my book, Adam Smith: a moral philosopher and his political economy, 2008, Palgrave Macmillan.

You Could Not Make it Up

From the Statement That Says It All Department:

Thirty years ago, Harrison Cochran, heard this from an economics professor HERE:

“You all say you are for free enterprise, but you’re not. I’m the only one in the room really for free enterprise, because I’m a tenured professor.”

Comment
With a mind set like that it is a wonder that his university appointed him, let alone granted him tenure.

Best Conference on Adam Smith I Have Attended - So Far

I have just returned this evening from the 250th commemoration meeting of the publication of Adam Smith's Theory of Moral Sentiments (1759) held at Balliol College, Oxford Universary this week, and I shall re-commence blogging tomorrow (Saturday).

My wife is in the midst fo a 'flu attack, so my attention, of course, is directed to her; so posts may be short and sharp until she recovers.

The commemoration was organised by the International Adam Smith Society,which publishes the Adam Smith Review, a peer-reviewed, annual publication, of which issue no 4 is now available.

Readers may join the IASS by contacting the membership Secretary, Remy A. Debes (who presented an excellent paper) and he may be contacted : rdebesATmemphisdotedu or visit the Review's website: www.adamsmithreview.org

A demain

Attending a Conference - Without Internet Connections

I am leaving for Oxford University tomorrow to attend as a listening participant the following conference:

“The Philosophy of Adam Smith”

A conference to commemorate the 250th anniversary of The Theory of Moral Sentiments
January 6-8, 2009 - Balliol College, Oxford University.

Organised by the International Adam Smith Society and The Adam Smith Review.

“Although Adam Smith is better known now for his economics, in his own time it was his first book, The Theory of Moral Sentiments (1759), which established his reputation. Just as scholarly work on Smith has challenged the free market appropriation of Smith’s Wealth of Nations, so it has also come to appreciate the importance of Smith’s moral philosophy for his overall intellectual project. This conference, to be held at the college Smith himself attended from 1740-46, and at the beginning of the year marking the 250th anniversary of the publication of The Theory of Moral Sentiments, will provide an opportunity to re-evaluate the significance of Smith’s moral philosophy and moral psychology, the relationship between them and his other writings on economics, politics, jurisprudence, history, and rhetoric and belles lettres, and the relevance of his thought to current research in these areas."

***
From the delegates’ list it is a gathering of some of the leading Smithian scholars from around the World and the papers to be presented are a mouthwatering sample of the very best of current scholarship.

That it is to be held in Balliol College, Oxford, where Adam Smith spent six years (1740-46) earning his MA degree, is a special treat in itself. He went to Oxford to study to qualify for ordination into the Church of England and for a career as a minister in the Episcopalian Church of Scotland (the C of E affiliate church, north of the Border). He left Oxford before completing his course and resigned his Snell Exhibition (worth £40 a year) in 1749, and never returned to Oxford University.

It was while Adam Smith was at Oxford that, it is believed, he began to write sometime around 1744 what became is essay, ‘The Principles which lead and direct Philosophical Enquiries as illustrated by the History of Astronomy’, first published posthumously in 1795 by his Literary Executors, Joseph Black and James Hutton.

In my ‘Adam Smith: a moral philosopher and his political economy’, Palgrave Macmillan, 2008, I regard this first essay as a most important statement of Smith’s approach to his work, coinciding, while he was writing it, with his decision to resign from his preparation for a career in the Church and to become a moral philosopher.

I also suggest – which I am currently researching in detail – that this essay marks his first statement of his abandonment of the Church version of Christianity, followed up in Moral Sentiments with what amounts to a non-religious stance that was well short of Deism.

Unfortunately, my current laptop no longer connects to the Internet, so, unless I can make alternative arrangements in Oxford, I shall be unable to post on Lost Legacy (you may believe I shall every effort to find an Internet Café or such like). I shall be able to read messages and emails on my Apple i-phone.

I shall compile reports of the Conference for Lost Legacy, but I may be unable to post them until my return to Edinburgh on Friday.

Thank you for your patience at any absence enforced by failure on the technical side.

Tariffs Are No Answer

Three economists, Drs Raymond Richman, Jessie Richman, and Howard Richman, write the
Trade and Taxes Blog HERE:

“Balanced Trade will Create Jobs”

“While the bailouts have given financial enterprises some stability, they haven’t created a single job. During the last two decades we lost millions of good industrial jobs as a result of our huge trade deficits. By restoring our trade balance, we could create millions of good jobs. We can do this at very little cost. Indeed, the solution we recommend would earn hundreds of millions of dollars for the U.S. treasury. Moreover, the trade deficits are the result of mercantilist policies of foreign governments that are the antithesis of free trade. Under World Trade Organization rules, countries experiencing chronic trade deficits with another country are entitled to take remedial actions, such as tariffs and quotas. Free market forces to correct trade imbalances are practically non-existent.

Economic theory describes the mechanism for correcting trade deficits under a system of flexible exchange rates. In theory, the value of a country’s currency should rise when it is experiencing a chronic trade surplus and fall when it experiences a chronic trade deficit. China’s yuan, for example, is believed to be grossly undervalued relative to the U.S. dollar. If the yuan appreciated, Americans would have to pay higher prices for imports from China, while the Chinese would find the prices of American goods to have become cheaper. According to the theory, the U.S. would import fewer goods from China, and China more goods from the U.S. until trade is in balance. The system has not worked. Dr. Bernanke himself has said market forces were not succeeding in reducing the trade deficits because as the result of the huge flow of foreign savings to the U.S. the dollar remained overvalued. He suggested that foreigners should be encouraged to use their savings at home instead of sending them to the U.S. The trouble with his advice is that the trade surplus countries, particularly China but also Japan, Germany, OPEC, and many emerging economies adopt policies to perpetuate and grow their trade surpluses with us. They call their policies export-based development but we call it by its pre-Adam Smith name, mercantilism.

Incoming flows that are invested in new plant and equipment, like new automobile plants, have given employment to hundreds of thousands of American workers. But such investment was a small fraction of the flow of funds to the U.S. as a result of the trade deficits. The latter financed the irrational exuberance we experienced in the securities and housing markets without creating a single job. Indeed, the flow of funds to the U.S. weakened our own savings and investment.

Both the Japanese, until recently, and the Chinese limit imports from the U.S. by requiring prospective importers to obtain the permission of a government agency. In effect, they have been applying a form of import licenses in addition to exchange controls. Although the U.S. government has repeatedly sent missions to complain about such practices, jaw-boning has had little effect, none on Chinese policy. The purpose of international trade is to enable countries to exchange a bundle of goods they value less for a bundle of goods they value more. There is no reason to accept deliberate policies of foreign governments to deindustrialize the United States.

To bring trade into balance, we recommended in our book, Trading Away Our Future (2008) a system of Import Certificates similar to a proposal by Warren Buffett, which we believe violated the rules of international trade. In effect, our proposal would restrict imports by physically limiting the value of the total amount of goods that could be imported from any country with which we have chronic trade deficit. I now believe that to be a poor way of reducing the trade deficits. It would create a bureaucracy to auction off import rights and would inevitably become corrupted by our elected representatives in Washington. Instead, we recommend a cross-the-board tariff at a single rate, say 10 percent, applicable to China, Japan, Germany. OPEC, and other countries enjoying a chronic trade surplus with us. The result works just like flexible exchange rates are supposed to work.

It would act like a revaluation of the currencies of the countries with which we are experiencing chronic deficits. The price of imports from, say, China would rise, reducing our demand for imports from China. Countries could reduce the tariff by importing more from us. In the meantime, our tariff revenues would amount to billions of dollars.

We are left with no alternative except a tariff on all imports from these countries.”

Comment:
The unfairness complained of by the good Drs assumes that the US is a free trade economy. It isn’t. They argue that “trade deficits are the result of mercantilist policies of foreign governments”. However, the politics of foreign trade suffer from protectionist instructs everywhere, including in the USA.

“They call their policies export-based development but we call it by its pre-Adam Smith name, mercantilism”.

I thought this was promising until I got to this sentence. Adam Smith called these protectionist policies part of ‘mercantile political economy’ – he never used the word ‘mercantilism’ (he died in 1790); it is a late 19th-century German word, imported, if you like, into the writings of English speaking economists from then on. Moreover, the policies of mercantile-minded governments never went away from the 16th century onwards in some form or other, and they operate, still today, across the world. It’s called ‘beggar thy neighbour’.

This is illustrated in the article by the statement: “Free market forces to correct trade imbalances are practically non-existent”.

Yes, it’s a world wide phenomenon, against which the WTO is impotent. Governments everywhere cannot deliver free trade because of domestic politics, where these count, and won’t deliver free trade where domestic politics don’t. Governments of all kinds prefer the benefits of cross-border manipulation of exchange rates where they benefit their economies.

So, what do the three Dr Richman’s suggest as their remedy?

“we recommend a cross-the-board tariff at a single rate, say 10 percent, applicable to China, Japan, Germany. OPEC, and other countries enjoying a chronic trade surplus with us. The result works just like flexible exchange rates are supposed to work.”

They also conclude that:

“Balanced trade would create new investment opportunities.”

Oh dear! I assume most Lost Legacy readers will spot the weakness in their policy of imposing across the board US tariffs on all deficit trading countries.

Yes, the success of uch tariff impositions assumes there will be no retaliation by the countries concerned! And retaliation is almost inevitable.

Everybody can play the game of passing their existing, or future, trade problems onto their trading partners. After how many rounds of mutual ‘across-the-board-tariff impositions’, would it take for mercantile economies to slow down the world’s foreign trade? And how many jobs would that cost in America and elsewhere?

If, say, the US has a trade deficit in automobiles – because US consumers prefer the better value (for them) of buying imported models – it may be more sensible to require the US domestic car industry to start over and to dramatically improve its products (electric, hydrogen, and hybrid fuelled model, also tackling the oil deficit). Given an opportunity to enforce change on the US giants – no bail outs – the US government may be missing the golden opportunity to do just that.

However, all governments, including the supposed ‘free market’ US version, are subject to immense lobbying forces capable of influencing legislators where it hurts (loss of political power) and where it benefits (helping to keep them in power and, for some of them, in the living standards to which they have become accustomed).

It was ever thus.

In fact Adam Smith wrote all about it in Wealth Of Nations
in his critique of mercantile political economy (the ‘capture’ of legislators and those who influence them by the vested interests of some UK ‘merchants and manufacturers’) in his detailed analysis of Britain in the 18th century under governments run mainly by rich landowners, who followed the fallacies of the political economists of his day, because they didn't know any better.

Today, there is no excuse for such ignorance, unless you ignore the politcal dimension of political economy.

More on Foley's Folly

In a review Adam’s Fallacy by Duncan K. Foley (2006) on the Mediated Blog HERE: This comment caught my attention:

“The ‘fallacy’ as Foley describes it, is as follows: “Smith asserts the apparently self-contradictory notion that capitalism transforms selfishness into its opposite: regard and service for others.”

To which I posted this comment:

Adam Smith did not confuse self-interest with selfishness. He was a moral philosopher and not one given to sloppy thinking; his criticism of selfishness as a behaviour is set out in his book, The Theory of Moral Sentiments (1759), particularly his specific critique of the ‘licentious’ views of Bernard Mandeville (‘Private Vice, Public Virtue’, 1724), which many modern commentators confuse with Adam Smith’s.

In Wealth Of Nations, 1776, he explains that self interest in a commercial economy (he never used the word ‘capitalism’ – it was not invented in English until 1854) where everybody is dependent on the services of thousands of others for their ‘necessities, conveniences, and amusements of life’, requires them not to think only of their own self interest, but to address the self interest of others, i.e., to be ‘other’ not ‘self’, centred by mediating their mutual self interests.

Unless they do this they may go hungry – there not being enough resources to make relying on benevolence, or stealing, reliable behaviours for everyday civilised life.

Thus, people receive the means for their dinner, and much else besides, by offering others their daily bargains:

“He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.’ (Wealth Of Nations, II.ii.2: p 26).

For this fundamental misunderstanding of Adam Smith by Duncan Foley, a distinguished historian of economics (I have heard him lecture), I described his 2006 book in a review as ‘Foley’s Folly’.

Interesting Views from India

Sanjeev Sabhlock’s Blog (‘promoting liberalism and good governance in India’) HERE: contains “Unbridled capitalism?” (originally published in Freedom First, October 2008):

“Whatever else is true about capitalism, this much is clear that never did John Locke, David Hume, Adam Smith, J.S. Mill, Ayn Rand, F.A. Hayek, or Milton Friedman advocate unbridled capitalism or freedom. It seems that socialists like Marx and Nehru have badly sullied the reputation of liberty. The socialists have repeatedly alleged that capitalism caters to so-called ‘capitalists’ and gives them unbridled powers to exploit the weak. But that is totally false. Philosophers of liberty have always insisted that freedom comes with responsibility and justice. Adam Smith opposed mercantilism and monopolistic industrial interests. David Ricardo wanted more competition and free trade. Adam Smith and J.S. Mill advocated labour unions to face the economic power of the owners of industry.

By repeating lies against liberty long enough, socialists have made it appear that the system of natural liberty encourages corruption and things like the sub-prime crisis. But what are the actual facts? Capitalism begins by looking at human nature. The fathers of capitalism, Hobbes and Locke, pointed out that since human nature is far from perfect, some people will always try to cheat, mislead, and misuse their powers. So if anyone cheats, then systems of justice should catch and punish the cheats. Thus everyone must be held equally to account and no one is to be above the law. In this manner, by ensuring all crimes are punished, capitalist societies are today among the most ethical on this planet.

Capitalism is also a system of continuous improvement. Lessons from events like the sub-prime crisis are quickly learned and such events prevented from happening again. Some events are complex and finding their causes can take time; but overall, capitalism is a political and economic system founded on democratic choice, law and order, and continuous improvement. And since the governance of capitalist societies is built on the system of checks and balances advocated by Montesquieu and Thomas Jefferson, the concept of capitalism being unbridled simply does not arise!

We know from history that the rulers of the West did not like capitalism one bit since it insisted on equal freedom for all. Many people like Locke, Voltaire, Burke and Mill had to fight the vested feudal interests to win freedom for ordinary peoples everywhere.

And so our quarrel cannot possibly be with capitalism. Our quarrel must be with socialism. In socialist societies, based as the spurious concept of economic equality, state-sanctioned corruption is the norm. After having worked in the Indian and Australian bureaucracies for a total of 26 years I can say with confidence that there is almost no corruption in the West today. On the other hand, corruption is endemic in socialist India, where not one politician is completely honest and few bureaucrats completely so. For very fundamental reasons, no society can run ethically on the ideas of socialism. But did this eminent economist express concerns about ‘unbridled’ socialism? No! For capitalism has become the customary whipping boy. Protect the criminal and point fingers at the saint: that seems to be the norm.

Consider and compare, for a moment, how life is defended in India and in the West. Employers in India are, for all practical purposes, unaccountable for the safety of their workers. Hundreds, if not thousands of lives are lost in India every year in preventable workplaces ‘accidents’, even as capitalist societies like Australia have astonishing low rates of worker injury. While working for the safety regulator in the state of Victoria I found that not only are safety laws in the West strongly focused on employer accountability, but negligence is punished severely. If I was a mine worker I would be scared to work in socialist India but would happily work in capitalist Australia where my life is well protected.

So who is really unbridled? Who is really immoral? Is it socialist India – where the governments are totally corrupt, where industrialists are gifted monopoly powers by the corrupt state, and where lives of workers are treated with disdain – or is it the capitalist West where governments wage a systematic battle against all forms of corruption and irresponsible behaviour? Clearly, it is not capitalism but socialism we must be afraid of.

It is time that India looks at the facts. We must not be afraid to use the system of natural liberty which was invented by the Englishman John Locke just because it was invented in England. After all, the West happily takes advantage of Indian thinking by using the number system we invented. So let us listen to what Locke said.

Comment
There is a trend in India that favours greater freedom from both the State, and from modern versions of what Adam Smith lambasted as “merchants and manufacturers” (if you haven’t read Wealth Of Nations look it up in the index).

You won’t find much good said about some of these people who succumbed to seeking monopoly privileges for themselves, so they could ‘narrow the market’ and increase prices at the expence of consumers.

They were able to do this because legislators and those who influenced them were persuaded by ‘authorities’ on political economy who provided arguments for why it was beneficial to arrange legal protections for their measures to exploit consumers, and to punish other countries by preventing them trading with Britain on what today we call a ‘level playing field’.

The worst example of this form of commerce was beyond doubt the British East India Company, managed by what Smith would have recognised as a ‘parcel of rogues’ and their allies in Parliament.

Wealth Of Nations is not a textbook on economics, or a book about capitalism (a word in English not invented until 1854); it was primarily a critique of the British state-managed commercial society, run by rich landowners, who shared the spoils of office and the rewards of interest groups (sound familiar in India until recently?), and held back Britain’s early progress to the spread of opulence.

Empire and socialism were two other diversions from the road to opulence. Both undermined the British economy in terms of the Smithian target of contributing to the sum total of human welfare among the poorest majority of the country.

Sanjeev Sabhlock’s exposition of the recent past in India strikes a chord with any Smithian scholars, at least those who have read his books, and not just quotations from them, mostly torn out of context.

I have reservations about some of Sanjeev Sabhlock’s analysis, but it is broadly correct and where it is absolutely correct, it moe than makes up for those parts that need, perhaps, a bit of moderating.

Saturday Snippets

In MuniWireless HERE:

“EarthLink is back where it was - in good old dial-up - which continues to thrive in the United States because Americans are waiting for Adam Smith’s Invisible Hand and the miracle of the free market to bring high-speed (i.e. fiber) broadband service.”

Comment
They’re in for a long wait for metaphor, and ‘miracles’ anyway, according to David Hume, are ‘lies’.

Markets, on the other hand, are fully understandable phenomena and will work, assuming consumers want to buy what is offered for sale at the prices they are willing to pay, and the State and its search for ‘winners’, gets out of the way.

Crosscut.com (‘news of the great nearby’), HERE:

“Adam Smith’s invisible hand works best when the pickpocket’s hand isn’t also at work.”

Comment
The invisible hand metaphor doesn’t work at all because it is only a metaphor, not a real phenomenon. As for ‘pickpockets’, they are dealt with by the very real laws of justice that underpin all societies.

Booman Tribune (HERE):

"The invisible hand of Adam Smith seems to offer an extended middle finger to an awful lot of people"---George Carlin

Comment
When ignorance predominates, vulgarity asserts itself.

Who Has Not Read Wealth Of Nations?

Steve Ayers writes for CVBugle.com (Camp Verde Bugle - Camp Verde, Arizona, HERE:

"Credit market back to basics: Smaller community lenders see little change in loans"

”To understand how the American economy got in its latest mess you need to do two things.

First, brush up on the principles espoused in Adam Smith's economic masterpiece "An Inquiry into the Nature and Causes of the Wealth of Nations," specifically the chapters on supply and demand and the "invisible hand" of the marketplace.

Then go back in time about 10 years.”

Comment
You need to start with reading ‘Wealth Of Nations’, and not rely on quotations from it, as Steve Ayers seems to have done.

If he had read it, including “specifically the chapters on supply and demand”, he would know that there is no mention whatsoever in those chapters (they’re in Books I and II) of ‘the "invisible hand" of the marketplace’.

This may come as a surprise to Steve Ayers (and I apologise for sending him bad news during the festive season), but Adam Smith only used the well-known, 18th-century literary metaphor of “an invisible hand” once in the whole of the 5 books that make up the near on a million words of Wealth Of Nations.

The sole reference to ‘an invisible hand’ is in Book IV, chapter ii, paragraph 9, on page 456 of the Oxford University Press/Liberty Fund edition; or on page 424, of the Edwin Canaan, 1937 Random House edition). There are not other references to it in Wealth Of Nations.

Moreover the reference to ‘an invisible hand’ was not about ‘supply and demand’ nor about ‘the marketplace’. It was about the consequence of some, but not all, merchants preferring to invest their capital close to where they lived in the home economy and not like some others, who took the greater risks of investing it abroad in the British colonies in North America, despite in being more profitable to do so (due to the British monopoly of the export and import trade, which, ironocally, was to come to end shortly thereafter). In short, the metaphor is about risk aversion and not supply and demand.

Download my longer paper on the use of the metaphor from the Home page (in red): ‘Adam Smith and the invisible Hand: from metaphor to myth’ (2008), and see how a literary metaphor was transformed into a mythical ‘concept’, a ‘principle’, even a ‘paradigm’ by mid-20th-century academic economists.

The Past Year's Readers' Count

Lost Legacy’s annual figures for 1 January 08 to 1 January 09 on the Blogger Count are:

249,532 Unique Visitors and 1,130,218 Page Views.

These are about half of the ultra-popular ‘political’ Blog, Ian Dale’s Diaries (a kind of ‘benchmark, in UK Blogging).

But they are most encouraging.

Now, if a few more readers would acquire a copy of my 2008 book: Adam Smith: a moral philosopher and his political economy (Palgrave, Macmillan, July 2008), that would be really good news.

A Good New Year to One and All!

'Fair Trade' Made Possible by Globalisation

Mike Veseth, Robert G. Albertson Professor of International Political Economy at the University of Puget Sound, writes on the Wine Economist Blog on “Fair Trade Wine” (HERE):

“Fair Trade products attempt to use globalization to offset some of the negative potential effects of globalization. Global market forces can sometimes lead to the exploitation of natural resources and unskilled labor, for example. The “sympathy” that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.

“…because consumers are often better informed and more interested in the origins of and production conditions associated with wine than for most other consumer goods.”

“Wine enthusiasts are thirsty for information about where wines come from, who made them and how. Fair Trade provides this information in a way that informs, educates and potentially produces social and economic change.”

Comment
I do not think it is the case that ‘The “sympathy” that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.’

In fact, I am not sure that Adam Smith thought of “sympathy” quite in the way that Mike Veseth presents it. It is clear in Moral Sentiments that sympathy was both a general and a local phenomenon associated with how humans live in societies (as they always have).

We can be concerned about events that affect complete strangers, as well has have intense sentiments towards a close relative, with diminishing degrees of intensity as persons are more ‘distant’ in their relationship with us, for example, second and third cousins, through to strangers.

Indeed, that is how we would expect it to be. The circles of people with whom their immediate relationships overlap is an effective bonding force for society (of which the ‘six degrees of separation’ is a crude illustration). Your friends and acquaintances have their own and quite distinct friends and acquaintances, and, like the ‘little fleas’ in the poem, so on ‘an infinitum’.

Smith links these points well in Moral Sentiments, when discussing the connection between man the social animal, who knows a few others well and most others less well or not at all, and how this still stabilises society, both inter-personally and economically:

“It is thus that man, who can subsist only in society, was fitted by nature to that situation for which he was made. All the members of human society stand in need of each others assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy. All the different members of it are bound together by the agreeable bands of love and affection, and are, as it were, drawn to one common centre of mutual good offices.

But though the necessary assistance should not be afforded from such generous and disinterested motives, though among the different members of the society there should be no mutual love and affection, the society, though less happy and agreeable, will not necessarily be dissolved. Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.”

[TMS II.ii.3.1-2; 1872 ed. Kessinger Rare Reprints, pp 78-9;]

These remarkable, and not often noted, passages are the root of Adam Smith ideas about societies. Our need for the ‘assistance of others’ is universal, ever present, and unavoidable, no matter the size of our society or the age within which its acquires its means of subsistence.

Of course, from the vantage of the 21st century, our dependence on others is far greater that it was for the likes of Ghengis Khan in the 12th century – he was unaffected by the tribes of North America, Australia, and Western Europe – but in the global economy, developed since the 15th century onwards, ever wider and ever deeper circles of sentiment and influence have developed along the inter-twined influences of both “the agreeable bands of love and affection … drawn to one common centre of mutual good offices” and by “by a mercenary exchange of good offices according to an agreed valuation”.

It is the characteristic of commercial economies that their supply chains can operate without persons knowing much or anything about players two or a few links further on and back (and beside them) in any inter-locked supply chains that make up our mode of susbistence.

It is also not the case that the “sympathy that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.” It is the “a mercenary exchange of good offices according to an agreed valuation” that conveys the necessary information for markets to work.

By ‘good offices’ Smith means people exchanging services to each other, not necessarily confined to commercial transactions – there are no limits to exchange relations in Smith’s world, whether it is the development of language and conversation (think of today’s Internet), of political and religious ideas, of literature and arts, of information and knowledge and, in practice, almost all human activities.

The separation of consumers from producers, which almost always has been the case since individuals began to transact with relative strangers in the early, larger bands and then with complete strangers in other bands, and finally tribes and then ‘nations’, has always been the basic facility that ‘mercenary exchange’ made possible.

Exchanging wool for pewter in medieval Europe did not require intimate or any knowledge of who provided the merchants with the wool or the merchants with the pewter. The early humans who received stone ‘Venus’ figurines in exchange for decorative beads, say, most certainly did not know the members of a supply chain stretching hundreds of miles from where the stone originated.

Mike Veseth makes the interesting point that wine consumers are interested in “where wines come from, who made them and how”. This, of course, is the marketing message of ‘Fair Trade’ suppliers, who justify higher prices for wine because the original producers are in relative poverty and Fair Trade “provides this information in a way that informs, educates and potentially produces social and economic change”.

This is not an aberration of how markets work (always remember, exchange by markets is the fastest information processing method created by human societies), it is how any student of markets would expect them to work.

All along all supply chains, people make decisions to enhance their performance in their particular bit of it under the motivation of reducing their costs to enhance their supply capacity and increase or maintain their share of the profits.

When the spice trade showed such fantastic profits in medieval Europe, several seafaring nations competed (often bloodily) to identify the sources of spice and transport it back to Europe to sell at mark-ups that began at several thousand per cent.

Globalisation is the cause of well-meaning Fair Trade sympathies, not the enemy of them. The vast charitable NGOs conform to what Adam Smith expected from the ‘mercenary exchange of good offices’. He preferred, but did not expect in mid-18th-century Britain, that:

“Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy.”

But ‘should’ those conditions did not obtain, in their absence:

“Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.”

Mike Veseth, and Fair Traders, are not bucking the market, nor finding a new form of trade. They are finding another way, using the price mechanism, to enrich the “agreed valuation” for “the mercenary exchange of good offices”.

Indeed, it remains true still that the majority of consumers buying ‘fair trade’ products need to know nothing about the original suppliers or the others between them and the local supermarket, to complete their transactions to enjoy their wine. That is the power of global branding, which only globalisation makes possible.

Not Talking and Non-Debating on the Net

Over at Richard Murphy’s Blog, “tax and corporate accountability”, HERE:

There is a sort of ‘debate’ on “Tax Freedom Day for some”, a feature posted each year by the Adam Smith Institute that calculates when the ‘average’ taxpayer has paid all the income tax due for the year, which also ‘identifies’ when the rest of that imaginary person’s income is available for personal consumption and investment.

The headline date is slowly creeping deeper into the year as the government thinks up more way to reach into private purses, wallets and bank accounts. Yes, it’s a sort of ‘political hot potato’, embarrassing to the government and a supposed source of indignation to the Left.

I say ‘sort of debate’, because Richard Murphy and Tim Worstall, a Fellow of the Adam Smith Institute, the main protagonists are engaged in the Internet equivalent of not ‘talking’ to each other; or, at least Richard is ‘ignoring’ Tim, though Tim appear willing to discuss these issues with Richard.

[I should disclose that I too am a Fellow of the Adam Smith Institute - but I do not know if Richard is ‘not talking to me’.]

In the yesterday's ‘non-exchange’ between Richard and Tim, I offered three short paragraphs on one of the issues they are not debating, namely the taxation of the poor.

Briefly Richard favours taxing the income of the rich more and Tim favours not taxing the income of the poor at all. I agree with Tim. Whether the richer should be taxed more than the poorer is a separate issue, hence the 'debate' on Flat Tax.

Here is my brief contribution:

"Richard

Without diverting the discussion into that of ‘flat tax’, I think you should acknowledge that Tim, and others, including the Adam Smith Institute, propose that the poor be taken out of income tax altogether by raising the personal allowance (to £12,000 currently; higher if possible).

Lasting change in normal times should be in steps, not in great leaps, in Adam Smith’s view (including on tariff reductions).

What have you got against that reasonable and overdue proposal?

Gavin”

Markets and Morals

Mike Masnick writes on the market in techdirt (HERE):

“Free Market Capitalism, Moral Character And Doing Good All Work Hand In Hand” - from the can-we-get-over-this-already? Dept."

“I've never quite understood the complaints of some that free market capitalism somehow goes against morality or good deeds. As we've discussed in the past, moral questions shouldn't even come up at all in scenarios where everyone is better off. Moral questions only arise in scenarios where some are worse off and some are better off, and a decision needs to be made about who is worse off and who is better off. The nice thing about free market capitalism is that it tends to increase the overall pie, allowing a much larger number of people to be better off, and tends to do so in a more efficient manner than other systems…

… But, still, there are some who suddenly question whether or not the free market takes away a moral backbone -- but the only situations in which that would clearly be true are in cases of either outright fraud, or where you're dealing with a zero-sum game. In an economy that has the potential for growth, then one should encourage more growth to increase opportunities for everyone. There may be additional moral questions later concerning overall allocation, but increasing the wider opportunity, which is exactly what free market capitalism does, seems ridiculous to question.

In the end, it seems that some have this odd guilt associated with money -- as if because one person has made a lot of it that it somehow takes away from others. That's simply not true. Adam Smith, who wrote the original book on free market capitalism, The Wealth of Nations, only did so after first writing a book on morality, called The Theory of Moral Sentiment. Free market economics and morality go hand in hand. To think that they're mutually exclusive shows both a misunderstanding of morality and economics.”

Comment
I quoted from the piece because it encapsulates ideas that are going the rounds at present, though the confusion about ‘profit’ is of long lineage.

Wealth Of Nations is not about “free market capitalism”, except to those who have never read it.

It is critique of an 18th-century state-managed commercial society, governed by major landowners, and provides an historical analysis of how a growing commercial economy operates in that milieu.

The separate dates of their publication, Moral Sentiments, 1759, and Wealth of Nations, 1776, mislead many commentators, who are unaware that both of Smith’s books were based on his lectures on ‘Ethics’, ‘Rhetoric’ and ‘Jurisprudence’ to students at Glasgow University in the years 1751-64 (and previously mainly to University of Edinburgh students, off-campus in a winter series of public lectures from 1748-51).

Their main ideas were developed and delivered together (and definitely “go hand in hand”) to the same students each session [Adam Smith, Lectures in Jurisprudence, 1762-3, including ‘Early Draft of Wealth Of Nations’, 1763; Adam Smith, Lectures in Rhetoric and Belles Lettres 1763, Oxford University Press/ Liberty Fund].

Adam Smith wrote about how markets worked and was not confined to only writing about ‘free markets’. In fact, he criticized the French Physiocrats, whose economic models required and assumed ‘a state of perfect liberty’ (which nowhere existed, and certainly didn’t exist in absolutist France in the 1760s):

“Mr. Quesnai, who was himself a physician, and a very speculative physician, seems to have entertained a notion of the same kind concerning the political body, and to have imagined that it would thrive and prosper only under a certain precise regimen, the exact regimen of perfect liberty and perfect justice. He seems not to have considered that, in the political body, the natural effort which every man is continually making to better his own condition is a principle of preservation capable of preventing and correcting, in many respects, the bad effects of a political œconomy, in some degree, both partial and oppressive. Such a political œconomy, though it no doubt retards more or less, is not always capable of stopping altogether the natural progress of a nation towards wealth and prosperity, and still less of making it go backwards. If a nation could not prosper without the enjoyment of perfect liberty and perfect justice, there is not in the world a nation which could ever have prospered. In the political body, however, the wisdom of nature has fortunately made ample provision for remedying many of the bad effects of the folly and injustice of man, in the same manner as it has done in the natural body for remedying those of his sloth and intemperance.” [WN IV.ix.28: p 674; Canaan, ed 1937, Random House, p 638]

Smith did not write a treatise on a free-market economy; he did write on human behaviour – his theory of moral sentiments – but he had no illusions about the ‘perfectibility’ of men or society. He was no ideologue; no man with a mission to solve all problems.

He wrote frankly about ‘merchants and manufacturers’ (and the need never to legislate in their interests without the most careful scrutiny of their proposals), and about the limitations of the majority of the population (the labourers and their families), for as long as they remained uneducated (‘unless government take some pains to prevent it’ WN V.i.f.50: p 782), and about the landowners, who owned much and ran everything, and ‘like all other men’ (this part is often overlooked by those who quote the sentence), ‘love to reap where they never sowed’ [WN I.vi.8: p 67; Canaan ed. 1937 p 49, Random House].

Adam Smith was not writing about ‘free market capitalism’ and nothing that has happened to the governance and political economy of all societies, since his time, suggests that it would be worthwhile to pontificate on moral sentiments and modern markets as if something fundamental had changed.

People are no more nor less ‘moral’ than in Smith’s day (or in any other previous age or place) and economies are no ‘freer’ than they were in the 18th century.
If anything the State has grown from powerful governments into bigger and more powerful Governments, and they are susceptible, as they ever were, to the blandishments, false theories, and blatant sectional interests of powerful legislators and those who influence them.

That the discourse of public life is dominated by ideological assaults on the idea of freer markets, and the supposed blessings of ‘regulation’ by bureaucracies, instead of by the justice system, is a symptom of the misjudged tendency to blame markets, which are not free, for the failings from political interventions that are not capable.

Throwing good money after bad is a weakness of poor management; ever tighter regulation to cover the deficiencies of regulations that don’t work as intended is congenital to micro-regulators.

In business markets, incompetence is terminated by losses; in political regulation, incompetence is cushioned by the public purse.