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Could Be a Good Sign

Announcing a book on ebook30.com by Karl Sigmund HERE

l"The Calculus of Selfishness" (Princeton University Press, 2010)

“How does cooperation emerge among selfish individuals? When do people share resources, punish those they consider unfair, and engage in joint enterprises? These questions fascinate philosophers, biologists, and economists alike, for the "invisible hand" that should turn selfish efforts into public benefit is not always at work.

The Calculus of Selfishness looks at social dilemmas where cooperative motivations are subverted and self-interest becomes self-defeating. Karl Sigmund, a pioneer in evolutionary game theory, uses simple and well-known game theory models to examine the foundations of collective action and the effects of reciprocity and reputation. Focusing on some of the best-known social and economic experiments, including games such as the Prisoner's Dilemma, Trust, Ultimatum, Snowdrift, and Public Good, Sigmund explores the conditions leading to cooperative strategies.

His approach is based on evolutionary game dynamics, applied to deterministic and probabilistic models of economic interactions. Exploring basic strategic interactions among individuals guided by self-interest and caught in social traps, The Calculus of Selfishness analyzes to what extent one key facet of human nature--selfishness--can lead to cooperation.”

Comment

Looks interesting. Appears to test the modern economists’ version of the invisible hand’. Grown up too. Doesn’t link the modern notion to Adam Smith. That’s better. Long may they keep it that way.

Why? Because Karl Sigmund has to justify the modern version version of the metaphor on modern terms and is not giving its notions unwarranted credibility by ascribing his ideas to Adam Smith.

Progress Report

Job done, at least the revision part.

I refer to the revised text for my paperback edition of Adam Smith: a moral philosopher and his political economy (Palgrave).

Biggest change is to the invisible hand chapter 12, which brings up to date my critique of the modern consensus among economists which attributes this metaphor to the market (usually associated with adjectives like 'miraculous' or 'mystical', with theological versions attributed to god, and all linked to a supposed idea that it leads 'selfish' individuals to pursue their self-interest/selfish desires that somehow works out to the public benefit.

Following debates with various scholars since 2008 I have revised and added to my case. I presented the gist of the hardback version to the History of Economic Societies conference, first in George Mason University (Fairfax VA) in 2007 and in History of Economic Thought conference in Edinburgh, Scotland, 2008, to luke-warm receptions in the main. Several scholars did give useful comments as well and others remain friendly but sceptical. Some have remained critical ever since of course. The paperback brings the arguments for and against up to date.

To this work for the book, I have added papers, two published in Econ Journal Watch, May and September 2009 (debating with Daniel Klein) and one soon to be sent for publication on the interesting 'centrality hypothesis' by Daniel Klein. My paper on the role of Paul Samuelson in developing the modern consensus on the modern version of the meaning of the invisible hand, unfortunately heavily linked to Adam Smith, is near completion, and I am modestly pleased with it. I shall circulate it to colleagues in April for their comments. I hope to have it published in a journal.

I have gone beyond criticising the misattribution of the metaphor as Smith's 'greatest idea', etc., to exploring a) what it actually meant for Smith, and b) the sloppy (there may be a more polite word for what happened but I cannot honestly think of one) derivation in modern economics of what it allegedly implied and what is taught on campuses to innocent students who are unlikely to check for themselves.

This boils down to my explanation (a) of what Adam Smith taught and contrasting it with (b) what modern economists have imputed, raising the question: 'how did you derive (b) from (a)?.

It's a fair challenge.

High Quality Letter in the FT

Raymond S. Franklin,
Queens College,
City University of New York writes to the Financial Times (29 March) HERE


"Self-interest motive has won the war"

“There has been a running debate over the years about the relationship between Adam Smith's Moral Sentiments and his Wealth of Nations , the former published before the latter. The debate has been identified as the “Smith Problem”. My conclusion related to this debate – empathy derived from Moral Sentiments versus self-interest derived from the Wealth of Nations – is as follows: Pure empathy, the ability to identify with the “other” – even at the expense of self – is rooted in family, friendship and community, that is, in the social sphere that is outside the commodification of relations that define the market. The economy, cut loose from the social and moral sphere, involves individuals producing, buying and selling for material gain without seeking to imagine the consequences of the individual’s self-interested actions. Such actions may end up being virtuous to the whole society, but the virtue was unintended.

It is possible to hope that the two spheres of Smith, the moral (empathic) and economic (self-interest driven) could co-exist in some form of equilibrium. But, in my view, this was never demonstrated adequately and constitutes the “Smith Problem”.
Jumping forward to the present, it is clear in my judgment that the economic self-interest motive, dominant in the economic sphere of life, won the war. The institutions of the market have overwhelmed and penetrated the social spheres of life. Even the nuclear family, via, is viewed as a production unit with a division of labour and implicit prices in the way husbands, wives and children relate to each other.

Although I wish Mr Rifkin success, the idea of establishing an “empathic civilisation” at this juncture in history is singularly utopian”.

Comment
Raymond Franklin’s short letter is of remarkably high quality. The separation of the social from the economic sphere was well stated elsewhere by Karl Polanyi (1944: The Great Transformation), who rooted the separation in ‘capitalism’ and ‘markets’.

Smith did not separate them in this manner. In both sectors (in so far as for the sake of argument, I accept this distinction) the immediate awareness of individuals of others follows a similar pattern. We are closest to our immediate household kin (‘family, friendship and community’ – though Smith put it as family, friends and acquaintances, and the rest as strangers), whereas in markets we are directly involved in direct transactions with sellers/buyers and then with untold numbers of anonymous people in demand-and-supply linked chains. In both cases, we are dependent in many ways with the anonymous strangers, whom we know not, nor need to do so, and because of society we walk amidst strangers without flinching.

Franklin asserts that our social relationships are “outside the commodification of relations that define the market” (a Polanyi-type expression, hinting at a Marxist vocabulary), yet they share similar degrees of anonymity. We do not know nor need to know, from whom our daily, monthly, annual sustenance – material or emotional – comes from, yet each is equally important. Where family, friendly and acquaintances, and economic relationships break down they cause similar crises in personal circumstances.

We are sustained by normality in relationships in 'both' spheres, including the fact that in both the anonymity of distant participants is an essential (and productive) contributory factor in normal life (without it we would back in the wood-age). The market has not changed essentially the empathetic part of personal life – it has existed as long as humans lived in social groupings (in common with other primates). The elevation of the market to a separate entity is an invention of the imagination. It is not unique in history (see Morris Silver’s 1995 rebuttal of Polanyi’s thesis in ‘Economic Structures in Antiquity’).

There were anonymous ‘strangers’ even in a small tribe; more so in nearby tribes, and extremely so when unhappy events unfold from anonymous invading strangers from unknown lands, few of whom sought "to imagine the consequences of the individual’s self-interested actions’ upon those they visited with their ‘rapine and violence’.

The fact that “Nobel Prize-winning Gary Becker” advanced views about the “nuclear family”, while interesting as a scholarly exercise, does not in itself mean that the ‘market’ has in fact invaded the relationships between a husband and wife, and others.

There is no “Adam Smith problem” in English or German.

Questioning the Myth of the Invisible Hand

Dave Cohen writes (27 March) for Decline of the Empire HERE


“Invisible Hand Goes Missing”

“For most of the last 3 decades, many influential economists embraced a theory that justified wholesale theft by the Finance industry because the magical powers of Adam Smith's Invisible Hand would always result in greater "efficiency" in the economy. It's as if Homo sapiens had suddenly stumbled upon a miraculous potion— this was framed as the efficient market hypothesis. Drinking this cleansing kool-aid would enable us to see clearly that Gordon Gekko was right, unfettered greed is good. Hundreds of years of economic history, and thousands of years of human history, could simply be tossed out the window. Move on, nothing to learn there.”

Comment
Yes, that just about sums up where the myth of the invisible hand has taken modern economics and Adam Smith’s good name with it.

Of course, Adam Smith did not say any of the things about the metaphor of ‘an invisible hand’ that is attributed to him, as pointed out on Lost Legacy scores of times.

Smith had no connection to allusions to ‘Homo Economicus’, Gordon Gekko’s ‘greed is good’, ‘efficient markets hypotheses’, or notions of ‘equilibrium’. In fact, the invention of Adam Smith from Chicago has hardly any connections with the Adam Smith from Kirkcaldy.

If more people came to realise this it would be much better for the practice of economic management and understanding.


It would be a start of Dave Cohen was to get up to speed on the derivation of the myth of the invisible hand, which has nothing to do with Adam Smith's use of the popular 17th-18th-century metaphor on two occasions only in his books, once in Moral Sentiments, 1759, and once in Wealth Of Nations, 1776 and neither case was about markets - I exclude his singular use of the metaphor in a student essay written when he was a student at Oxford on 'pusillanimous superstition' about Astronomy, 1744-50.

First Hurdle Cleared

The Edinburgh City Council planning committee has approved by an unopposed vote the plans of Edinburgh Business School, Heriot-Watt University for the renovation of Panmure House (1690), Adam Smith's home in Edinburgh from 1788 until he died in 1790.

This is a welcome move, though one of many necessary before work can begin, on the actual renovation, which may cost up to several millions of pounds to complete. The architect's plans, include the construction of a glass atrium across the front of the 'L'-shaped building, and it looks great too. This will provide access to both floors, including for those disabled, in keeping with sensible public policy.

As each step occurs, I shall keep Lost Legacy informed of progress.

New Smithian Classic Published

I have just received a newly published copy of the Theory of Moral Sentiments by Adam Smith, 6th edition, 1990.

What you may ask is so remarkable about that?

This edition is published by Penguin Classics ($17 US and £10.99 UK) well within most student budgets. It is introduced by Amartya Sen in a typically erudite and relevant manner (for 'old hands' and beginners) and it edited by Ryan Hanley, as good as it gets in a modern Smithian scholar, who know Moral Sentiments inside-out and back-to-front.

I've heard Ryan twice now at seminars on Moral Sentiments and came away from both both educated and astonished at his insight (his End Note are a treasure chest in their own right.

Whoever thought of giving cameo/bio notes on everybody mentioned in Smith's text is a publishing genius. They bring the text to life.

I recommend readers to purchase a copy - I have absolutely no personal interest to declare! - because it lifts Smithian scholarship, and old and new readers, to a new level.

The Penguin edition 2-volume of Wealth Of Nations, edited and introduced by Andrew Skinner is also exceptionally good quality.

On Misleading Humanities Students

“Mr. Smith” writes (23 March) for the Humanities course at Huron High School in Ann Arbor Michigan HERE:


‘The Invisible hand”

Adam Smith's complex and influential writings on philosophy, politics, and economics contain, among other concepts, his metaphor of an "invisible hand," the natural process by which an equilibrium or homeostasis is reached in everything from chemistry to economic, from biology to politics. This force directs human activity without the knowledge or consent of individuals, and thus merely self-centered actions are finally seen as part of the cosmic harmony.”

[He then summarises the quote from Adam Smith on the ‘rich and unfeeling landlord’ eating well and being ‘led by an invisible hand’ to feed the ‘thousands whom they employ’ and thereby advancing ‘the interest of the society, and afford means to the multiplication of the species’ [Moral Sentiments IV.ii.10: 183]. Next he adds his commentary by way of an illustration of a rich man in a restaurant, concluding:

‘The rich man's excess expenditures will have furnished the wages by which several poor people will have purchased their food.

‘Thus, even if an individual were purely selfish, and had no desire to aid others, his economic activity will, in fact, provide wages which effectively distribute wealth among his countrymen.’

[This leads him to the invisible hand’s role in leading individuals to enhance aggregate output and its related employment (I know these are counting the same thing)]

‘By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.’ [Wealth Of Nations, IV.ii.9: 456]

Finally asserting: ‘attempts at economic altruism do not nudge the society toward equilibrium points, but it is precisely at those points that benefit and utility for every person in that society is maximized.’

Comment
‘Mr Smith’ (NOT Adam Smith!) is woefully wrong on both of his presentation of Adam Smith’s use of the metaphor of ‘an invisible hand’. He advances his own idea that the ‘invisible hand’ is ‘an equilibrium or homeostasis [that] is reached in everything from chemistry to economic, from biology to politics’. Fair enough, providing ‘Mr Smith’ is clear to his students that this is his own assignment of meaning to the metaphor of ‘an invisible hand’ and NOT Adam Smith’s.

The rich farming landlord in Adam Smith’s parable in Moral Sentiments (7159) had nothing to do with a rich man in a restaurant in a market society where the circulation of revenue affects all involved.

Adam Smith’s point was that the rich landlord was ‘led by an invisible hand’ to feed the ‘thousands he employed’; the invisible hand was a metaphor for the absolute necessity that he did so, otherwise they would not last the winter to repeat their tasks next season, and the rich landlord would lose cease to be rich. He had no choice but to act in this manner, whatever his state of selfishness or vileness of his behaviour. That the poor were fed (at least to survivable subsistence) was a consequence of necessity forcing rich landlords to deliver some of their output back to the toilers.

Turning to the merchants who add to an economy’s total output, the context is quite clear: all merchants face a choice of investing their capital abroad (export-imports and acquiring foreign assets) for profit, or investing their locally for profitable purposes. It’s a crucial difference. Some merchants (but NOT all) feel that foreign trade and investment involves greater risks above the normal ones of investing at home, and the degrees of risk-avoidance vary among individual merchants. Hence, some invest only at home for ‘their own security’.

Adam Smith’s point is that the home investors, feeling more secure than their colleagues trading or investing abroad, by investing locally they add to the total of local investment, making the WHOLE greater than it would be if they had sent their capital abroad. This simple consequence follows the arithmetic rule that: the WHOLE is the SUM of its PARTS.

Adam Smith used the metaphor of ‘an invisible hand’ to make this point in what he called (from his Lectures in Rhetoric an Belles Lettres’ [1763], 23 November 1762, Lecture 6.66; 29) ‘a more interesting and striking manner’. That is what metaphors are used for: ‘to give the due strength expression to the object to be described’. In short: the ‘invisible hand’ is not its own object; it gives due strength to its object.

In Moral Sentiments, the object of the metaphor of ‘an invisible hand’ is the absolute necessity, whatever the ‘unfeeling’ landlord’s lack of concern for his ‘brethren’, for him to provide subsistence for his ‘toilers’.

In Wealth Of Nations the object of the metaphor of ‘an invisible hand’ is the absolute unavoidable consequence of those merchants who invest at home, for whatever reason, including their risk-avoidance, of their adding to aggregate national output (and thereby employment of labour), which in terms of ‘spreading opulence’ is a public benefit.

Only the lazy reading of these two instances, mainly from isolated quotations, torn our of their contexts, leads to spurious conclusions about Adam Smith’s use of a well-known 17-18th-century metaphor.

[My forthcoming paper on the ‘Origins of the Modern Misconceptions of the Invisible Hand Metaphor’, for presentation at the Summer Institute on the History of Economics, Richmond University, Virginia, in June 2010, addresses these issues.]

A Lady Doth Impress Not at All

Francesca Sidoti writing in SavingsGuide.com
HERE:

“When it rains you should read up on finances”

“I’m not quite delusional enough to believe I would sit down and read Adam Smith, though I suspect it would be very impressive at dinner parties to reel off quotes about the invisible hand.”

Comment
Francesca is a kidder. She wants to impress people with her knowledge of financial economics and gives an impressive list of names she wants to read: Skidelski’s biography of Keynes to which is added Amartya Sen, Karl Marx, and Paul Krugman. Impressive? Yes.

But she gives her game away by opening with Adam Smith and being able “to reel off quotes about the invisible hand”. Oh, dear.

There is only one reference to the invisible hand in Adam Smith’s Wealth Of Nations and another one in Moral Sentiments. There no multiple quotes about the invisible hand in Smith.

Francesca didn’t know that – apparently – and fails to impress Lost Legacy. Presumably the editors of ‘Savings Guide” didn’t know either. Shame.

Ubiquitous Invisible Hand References

Another week-end and another long list of 'invisible-hand' alerts to read through.

I thought readers may like to know just how many mentions of the invisible hand there are in a week (I would put it in the high 90s, often more).

Now these alerts vary from direct quotations or discussion on economics, through to scores of unrelated subjects bounded only by the limitations of their authors' imaginations, as some of those included in my short extracts below show. Normally, I am selective and dump most of them.

But the point I am making is that the metaphor of 'an invisible hand' is as widely used today as it was among literate people in the 17th and 18th centuries, many of them before Adam Smith used it in twice in his two published books, Moral Sentiments (1759) and Wealth Of Nations (1776), plus once in his 'juvenile essay', published posthumously in 1795.

It was only with the new of interest in Adam Smith's use of the popular invisible hand metaphor in the late 1940s, that what became a proliferation gathered pace from the 1950s. It is now ubiquitous among modern economists and has spread out as the millions of readers of Samuelson's very successful textbook, Economics: an introductoy analysis, published in 1948 and now in its 19th edition, remembered the story of the invisible hand even if they forgot the economics, no matter where their career paths took them.

A selection from the first page of his morning's haul of invisible-hand references in the world's press:

1 Dianne Hardistry writes in Bakersfield.com HERE:

“Carlson came to the Treasury Department job with an MBA from Stanford University and years of experience in the banking industry. In between, she was a lobbyist in Washington, D.C., founded the business writing firm Invisible Hand LLC, served as the executive vice president of global government affairs for the Motion Picture Association of America and was a member of California Gov. Arnold Schwarzenegger's senior Washington staff.”

2 Damien Hoffman writes in Wall Street Cheat Sheet HERE:

“Michael Jackson's Invisible Gloved Hand Strikes Biggest Record Deal in History”

3 Alissa j. Rubin writes in The New York Times (19 March) HERE:

“In the shifting shadows of this often invisible war, where no one is sure who is lying and who is telling the truth, it seemed a reasonable way to resolve ..”

4 Daily Mail online, UK, 20 March here

“Joseph chief executive Sara Ferrero said:' 'He has been an invisible magic hand guiding me in this last two years. He will always be in my thoughts.'”

5 sikhsubculture writes in SikhNet (18 March) HERE:

“The future of Sikhism is threatened by Adam Smith's infamous invisible hand. Furthermore, attempts at regulating the vast and far flung patka market have failed as huge black markets in the backs of unscrupulous langar halls have taken ...”

6 John Langford writes (20 March) in Yahoo Research HERE:


“The Invisible Hand of Machine Learning”

7 Shubha (19 March) in Live Mint.com Lounge HERE:

“The invisible hand of audio engineers,”

8 Yair Ettinger writes (18 March) The invisible hand - Haaretz - Israel News HERE:

9 Monika Mitchell writes The Invisible Hand in Good Business International

Yet man is a funny beast Adam knew, and in case of a lapse in reason a guiding hand, “the Invisible Hand,” existed to override his less intelligent and ...

10 Wonkette DC gossip (20 March) HERE


GOP Congressmen Start Throwing Civil War References Around

“Also, if only there were no government interference with the marketplace, the miraculous workings of the invisible hand will ensure that virtue and hard work are rewarded, and dishonesty and laziness punished, and the markets will ...”

11 Chicago Breaking Business News (2o March) HERE:

“Fine, than the invisible hand will lead employees to look for better places to work and job seekers will not want to work for you. It's not all about keeping investors happy. You also need to keep employees happy or the ones you have ...”

12 The Last Psychiatrist: The Source Of Society's Ills writes (20 March) HERE:


“There's no "invisible hand" at work here. Wilkinson is not just another academic social policy theorist who references Marx; he is also the editor of the 2003 version of the WHO report on social justice. ...”

13 Victoria Yates writes on Jeremy Rifkin writes Writing From The Cafe HERE

'Empathy is the invisible hand – to empathize is to civilize, to civilize is to empathize' Rifkin

I have another 7 pages to read too, with more to come during Saturday.