Mythical Basis for a Theory

Linda Naiman writes at the Creativity at Work Blog HERE:

“Taking Responsibility for the Whole”

“Built into the concept of capitalism and free enterprise from the beginning was the assumption that the actions of many units of individual enterprise, responding to market forces and guided by the ‘invisible hand’ of Adam Smith, would somehow add up to desirable outcomes.

“But in the last decade of the twentieth century, It has become clear that the ‘invisible hand’ is faltering. It depended upon a consensus of overarching meanings and values that is no longer present. So business has to adopt a tradition it has never had throughout the entire history of capitalism: to share responsibility for the whole. Every decision that is made, every action that is taken, must be viewed in the light of that kind of responsibility.”

Comment
The “assumption” that market forces were “guided by the ‘invisible hand’ of Adam Smith” add up “to desirable outcomes” was not “built into the concept of capitalism and free enterprise from the beginning”.

That is a modern myth spread widely and repeatedly from the 1950s by modern economists (though it was earlier taught in the Chicago oral tradition from the 1930s). It was backdated to Adam Smith to give the myth high-level approval, as if he had made the metaphor of ‘an invisible hand’ a central theorem of his analysis of 18th century commercial markets (he never knew of ‘capitalism’, a word invented in English for the first time in 1854 – see Oxford English Dictionary).

Smith used the metaphor of ‘an invisible hand’ only three times in nearly a million words: once only in his Essay on Astronomy, written from 1744 to 1758, unpublished in his lifetime and published posthumously in 1795; once in Moral Sentiments, 1759; and once in Wealth Of Nations, 1776.

In no sense was the metaphor about “responding to market forces and guided by the ‘invisible hand”. In fact Smith discussed how markets worked in Books I and II in Wealth Of Nations without any mention of ‘an invisible hand’. That he is alleged to have done so is a myth – a sort of ‘academic campus myth’ like those ‘urban myths’ we hear so much about.

Modern economists blessed their mathematical models of general equilibrium with quasi-miraculous foundations and it was used also to proclaim the self-evident superiority of capitalist institutions and markets over the then prevailing counter-claims of the centralized planned economies of communist rivals.

Modern economists ‘over egged the pudding’, as we say in English. Markets are superior in most cases to non-market institutions and do not need the imaginary aid of so-called invisible hands, and certainly not associated with Adam Smith's isolated use of the metaphor, a wholly innocent victim of the purloining of his legacy.

That there may be a role for regulation, made on a case-by-case basis and not as a catch-all cop out, is quite consistent with Adam Smith’s moral philosophy and political economy.

Smith was NOT opposed on principle to intervention in some markets; his outright opposition to the forms of government inspired interventions from the 16th century in Britain through policies which he described as ‘mercantile political economy’ (many features of which remain active today) should not be taken as evidence for his general views on the levels of government promoted interventions.

Smith in Wealth Of Nations identified several important areas for government intervention – such as in banking regulations (even if it was contrary to his principles of ‘natural liberty’ when the security of people was at stake) - and in weights, measures, quality of cloths, gold and silver, the Mint, and post offices. He advocated public funding of in ‘public works’ (roads, bridges, canals, harbours, town cleanliness, and pavements) and in public institutions (education and aspects of health). He also advocated the separation of church and state.

His general policy is best summed as ‘markets where possible’ (operating under the justice system - an independent judiciary, Habeas Corpus, and trial by juries) and ‘public works where necessary’. Which is a far cry from the so-called ‘night watchman state’ (actually an idea of Ferdinand Lassell’s, the firebrand 19th century socialist, not Adam Smith’s).

Uncovering Crucial Aspects of Smithian Growth Theory

Tim Hartford, author of a new book (7 August) ‘Dear Undercover Economist’ (Little Brown), who blogs at the ‘Undercover Economist’ blog HERE, also writes a regular column at FT.com HERE: , yes a busy underground economist too (but then he is good at what he does).

Try this for example:

“Why getting complicated increases the wealth of nations”

One of the defining characteristics of the modern economy is that it’s awfully complicated. Even a fairly humble product such as a shirt might incorporate cotton from west Africa, oil from Indonesia to make the polyester in the button (manufactured in China), and designs sketched out by an Italian using American computer software.”

Comment
Tim paraphrases Eric Beinhocker, author of The Origin of Wealth, quoting Brad Delong’s (www.J-brad-delong.net)
calculation of the relative balance of access to product complexity of tribes people among the Yanomamö living by the Orinoco River compared with the New Yorker tribes people living by the Hudson River. Brad estimated the ‘income’ gap as $90 for the Yanomamö compared to $36,000 for the New Yorker.

Putting this into product complexity terms and using the retailer’s Stock-Keeping Units’ measure (SKUs) of access to available product types, this equates to a few hundred – several thousand at the most generous estimate – SKUs available to the Yanomamö tribes compared to several ‘tens of billions’ available to New Yorkers. See Beinhocker, E. D. 2006, The Origin of Wealth, Evolution and Complexity and the Radical Re-Making of Economics, Harvard Business School Press, Boston, pp 8-11 [Recommended, but ignore Beinhocker’s quoting the myths about Adam Smith’s ‘invisible hands’].

“This would probably not have surprised Adam Smith, who emphasised the importance of specialisation as a source of the wealth of nations. Specialisation and complexity are closely linked: an economy with more specialists is one that requires more teamwork and more distinct interactions between individual activities.”

Comment
Adam Smith most certainly would not have been surprised.

Consider the issues raised by the complexity and abundance of SKUs of high significance in Adam Smith’s treatment of the division of labour and its necessary entwining with complex specialisation.

While the ‘pin making’ example in Wealth Of Nations has achieved world-wide recognition (though its accuracy is under challenge from the French economist, Jean-Louis Peacelle; see his 2006 article: ‘Adam Smith’s use of multiple references for his pin-making examples’, European Journal of the History of Economic Thought, 13:4, pp 480-512), the far more significant attention that Adam Smith gave to the manufacture of the labourer’s common woolen coat in Wealth Of Nations (WNI.11: pages 22-23) is almost totally neglected today.

Yet, Smith identified the complexity issue long before it attracted much attention until recently. I compiled a small table (in my Adam Smith: a moral philosopher and his political economy, 2008, Table 6.1, page 106, Palgrave Macmillan, Basingstoke) to illustrate Smith’s insightful realisation of the importance of comparative complexity for relative wealth experience in different economies, and indirectly why some economies are wealthy and other poor, from observation of:

‘the accommodation of the most common artificer artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! how much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world! What a variety of labour too is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labour is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brick-maker, the brick-layer, the workmen who attend the furnace, the mill-wright, the forger, the smith, must all of them join their different arts in order to produce them. Were we to examine, in the same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears next his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen-grate at which he prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afforded a very comfortable habitation, together with the tools of all the different workmen employed in producing those different conveniencies; if we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.”

Tim recognises that identifying complexity, or ‘round about’ supply chains “is not the way that most economists think about what makes countries rich. It is not that they disagree, simply that they tend to focus on more easily measurable aggregates, such as the total stock of capital and labour.”

To which we could lay a heavy responsibility on ‘most economists’ for their modern notions as to what is important in their subject area. By neglecting the appropriate starting point of their inquiries – such as, Wealth Of Nations, for example, they became fixated with “more easily measurable aggregates, such as the total stock of capital and labour”, and cannot see the wood for the trees (or vice versa!), or, if you like, the are still looking under the lighted lamp-post and not in the darker alley.

If you consider Allyn Young’s seminal article in the Economic Journal, 1928: (‘Increasing returns and economic progress, vol. 38: pp 527-42; available HERE:), you will see how the complexity of the supply chain and the increasing sub-division of specialised production right-along the chain, mainly quite independent of the final destination of the complex products, makes possible the ever widening abundance of SKUs that become available to their populations.

Smith noticed this in his concluding paragraph in Wealth Of Nations, Book I, Chapter 1: pages 23-24:

“Compared, indeed, with the more extravagant luxury of the great, his accommodation must no doubt appear extremely simple and easy; and yet it may be true, perhaps, that the accommodation of an European prince does not always so much exceed that of an industrious and frugal peasant, as the accommodation of the latter exceeds that of many an African king, the absolute master of the lives and liberties of ten thousand naked savages.”

Tim Hartford’s article should be read to see how he links this Smithian view to modern differences among exporting countries active in world markets today. It is well worth reading.

Sam Fleischacker Wins Prestigious Award

Brian Leiter announces in Leiter Reports: a philosophy blog HERE carries this great news:

“Fleischacker Wins 2009 Gittler Award from APA

Samuel Fleischacker (Illinois/Chicago) has won the 2009 Gittler Award from the APA for work in philosophy of the social sciences for his 2005 book On Adam Smith's Wealth of Nations: A Philosophical Companion (Princeton University Press).”

Comment
Sam Fleischacker’s deserved award from the American Philosophical Association is great news for those interested in restoring the legacy of Adam Smith’s from the mess it has been dragged into by modern economists since the 1950s.

And it took a philosopher to do it!

Modern economists have for so long believed in the Chicago 'Adam Smith', who has little in common with the Adam Smith who was born in Kirkcaldy in 1723. Chicago's version is almost unrecognisable to anybody with the slightest acquaintance with Moral Sentiments (1759) or Wealth Of Nations (1776).

I am personally very pleased for Sam Fleischacker, having met him on several occasions at academic conferences. He is a formidable authority on Adam Smith’s moral philosophy and his political economy.

I read his “Adam Smith's Wealth of Nations: A Philosophical Companion” (Princeton University Press) with great enthusiasm and the further I read into it, his understanding of the real Adam Smith became ever more evident.

If any serious student of Adam Smith wants to read an authoritative, intellectual and engaging account of Wealth of Nations, then an investment in his ‘companion’ text cannot be bettered.

Economists need not be put of by prejudices against philosophers and their overly stylistic reputations (from which Sam is exempted) and philosophers need not be repelled by his treatment of a subject matter outside his professional discipline; both will learn a lot more than they anticipate.

The American Philosophical Association deserve our congratulations for awarding their prize to someone who has done much to restore Adam Smith’s legacy.

Myths About Charles Darwin and Adam Smith

Len Hart writes the The Existentialist Cowboy Blog HERE:
and posts an article “H. L. Mecken Covers the ‘Monkey Trial’ “, in which includes the following:

“Interestingly, the term "survival of the fittest" was never used by Darwin”

“Evolution is often considered to be so true as to be trivial: what survives survives. Critics of Darwin will often cite the tautology though it does not support them; it supports Darwin. Species which survive pass on their genes as well as mutations. This is quite beyond debate. Every farmer who has bred for specific characteristics knows the truth of it. And every cowboy will tell you that if you kill a slow roach, you improve the breed. Evolution! Adaptation! Natural Selection! Some of the more subtle critics of "Darwin" say that "survival of the fittest" is a circular argument: the fittest are those who survive, and those who survive are deemed fittest. There are problems with that:

1. Darwin never used the term "survival of the fittest"! That dubious honor belongs to Herbert Spencer, a "Social Darwinist" who never understood Darwin, nor was he "social"!

2. Even if the term "natural selection" is more properly substituted for the bogus term "survival of the fittest", the argument is circular only if the invalid conclusion that "only the fittest survive" is added! The invalid value judgment –survival of the fittest –is falsely attributed to Darwin.”

Comment
I am not wholly in disagreement with Len Hart’s article (on the Scope’s Trial) but in the interests of protecting Charles Darwin’s legacy (much like I strive to protect Adam Smith’s legacy, Len Hart (NO DOUBT IN GOOD FAITH) distorts Daewin's legacy.

I have often seen the denial that Charles Darwin ever used the term: ‘survival of the fittest’; the statement's origins is more often associated with Herbert Spencer, yet Darwin mentions to ‘survival of the fittest’ several times in his book, The Descent of Man and selection in relation to sex, 1871, John Murray, London.

An example, one of several, is found in Chapter IV, “Of the Manner of the Development of Man from Some lower Form” (page 157 in the photoreproduction Princeton University Presss edition, 1981):

“In an area as large as one of these islands, the competition between tribe and tribe would have been sufficient, under favourable condition, to have raised man, through the survival of the fittest, combined with the inherited effects of habit, to his present high position in the organic scale.”

It is interesting to see myths that become "facts" merely by repetition as they spread round the world with an ease which are contrary to the real facts.

Clearly, the epigones re-presenting Darwin’s ideas, are like the epigones who have represented Adam Smith’s ideas since the 1950s, who have not cared to read the authors they imply they quote from with authority (in Adam Smith’s case some of the perpetrators of the myths received the accolade of Nobel Prizes).

It's best to remember that ther 'patron saint' of all students everywhere is St Thomas, also known as 'doubting Thomas'. I always warned first year students, and on occasion reminded final year students' never to trust what they were told by their lecturers, but always check for themselves by reading all references they asserted to justify their claims about what others were supposed to have written.

What's Happeneded to my Google Search Tool?

I have returned to Edinburgh and almost recovered from jetlag, to realise, eventually, that my main source of comments on how people (many of whom should know better because they must have read Adam Smith's 'Moral Sentiments' and/or 'Wealth Of Nations' before pontificating about what he wrote about, but clearly haven't) is a google search tool, which appears to have been turned off by my absence in the USA.

Perhaps a technically-minded reader would explain what likely has
happened to my interrupted service?

I shall make enquiries and get back to commenting as soon as possible.

Update: something is beginning to re-appear, plus I re-registered for the service, so it may start duplicating...

Light Blogging for a Couple of Days

Returning from Denver to Scotland via Newark to arrive Tuesday am.

Light blogging envisaged until sometime on Tuesday. If I get a connection via wireless during 4 hour layover at Newark I'll send a message.

I much enjoyed the two conferences that I attended and I return with several ideas for my next book on Adam Smith (yes, another one!), which I think will create a bit of interest.

First, a draft, then a whole lot of research among the papers held in various locations in the UK. Then a publisher and a viable book deal.

The theme is now formed; execution is the harder part (but the most enjoyable).

Peer Review This Morning

I am presenting my paper, 'The Hidden Adam Smith in His Religiosity' (an initial response to Lisa Hill's 'The Hidden Theology in Adam Smith', 2001) to the 'Smith, Morality, and Religion' session of the 26th Annual Conference of the History of Economics Society, in Denver, Colorado.

This is a real test of my thesis that Adam Smith was not a Christian, though a regular attender with his mother of his local Kirk in Edinburgh, was not a Providentialist (though he often used its language), and was not a Deist, though he never expressed any degree of explicit atheism. He was probably agnostic, being unable to explain what was increasingly clear that the religious accounts of the 'final cause' of the world and everything in it were inadequate as an explanation.

Smith, of course, was not informed about Darwin's theory of natural selection, of Mandel's theory of inheritance, or of genetics and Watson and Crick's 'double helix'. From 1785 Smith was aware from his friendship with James Hutton, the geologist, that the age of the Earth was much older than Bishop Usher's Biblical date of 2004 years. The Earth had 'no vestiges of a beginning, no prospect of an end' said Hutton.

In the absence of a credible alternative explanation, though theology, rooted in 'pusillanimous superstition' (his History of Astronomy) was impregnable until evidence emerged, Smith wrote in a barely discernable code that hid his doubts, a not unreasonable protection against the Presbyterrean zealots then prowling across Scottish society searching for heresy, aspostacy, and signs of atheisim.

I shall report on how my colleagues receive my paper.

Which Adam Smith Was Wrong?

Shaun Grovers writes the Schlog blog (HERE):

"ADAM SMITH WAS WRONG"

"At the dawn of the Industrial Revolution, during the Age of Enlightenment, Adam Smith wrote Wealth of Nations. It’s earned him the title “father of economics” and it greatly influenced the founders of America with its argument that free market capitalism was the best economic system available for a society prone to selfishness.

Adam Smith wasn’t just an economist. In fact, at the time, economics wasn’t its own field yet. The best I can figure it was a branch of philosophy mixed with sociology and even a little religion. Adam Smith, for instance, was a professor of Moral Philosophy at the University of Glasgow - not some mathematician or finance guru working as a prof in a business school. That doesn’t discredit him, of course, but it’s something to keep in mind when reading his thoughts: They’re as much a prescription for morality or theology as they are for business practices.

“Adam Smith believed, for instance, that in order for a free market society to prosper, individuals must look out for their own self interests foremost. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Comment
Smith’s observation was that individuals are ‘self-interested’, an assessment with a long pedigree in classical philosophy long before Smith taught his students. But that was not the problem in itself. The main problem was that people depended upon others, mostly unknown others, for their daily sustenance.

Long gone in Europe were the days when individuals sought whatever they could get for themselves from gathering fruits, roots, insects and birds’ eggs in the forest in ‘rude’ societies that were common before farming and shepherding (and still were common in 18th century experience over much of the world, with a few remnants still found today).

Society was more complex (though fairly simple compared to now) and without mutual dependence, largely from the division of labour and the propensity to exchange, common to all people in Europe, and in the ancient stone civilisations of China and India, the mass of the population would soon suffer grosser privations than was already common. There was not enough subsistence available to support distribution by such benevolence as was present to allow everybody, or a majority, to rely on benevolence for their daily survival. It wasn't that benevolence was wanting so much as it would never feed enough people alone.

Smith addressed the prospects for commercial societies (he didn’t use the word ‘capitalism’ nor have knowledge of the 19th century phenomenon), which if allowed to operate without the oppression of existing state-supported monopolies it would continue the spread of opulence to the majority of the population.

Shaun Grovers jumps into assumptions about what Adam Smith said quite clearly and differently, both in Moral Sentiments (1759) and Wealth Of Nations (1776). Smith did not have an idealistic view about human behaviour – he was an observer of how people actually behaved and not how they might behave in an imaginary utopia.

Moreover, Smith dealt in relatives, not absolutes. It wasn’t that the ‘butcher, brewer, and baker’ would behave like perfect boy scouts; given the chance – particularly the opportunity provided by monopoly, a common enough condition under the Guild system that had controlled the supply of food and necessaries in most towns since the 16th century – the butcher, brewer, and baker would behave exactly as Shaun concludes in the substance of his article. The trader would pay more than likely “an unjust wage to his workers, lying about the quality and origins of his products, making promises for immediate gain with no intention to keep them, etc,” and much worse besides.

The Smithian antidote to monopoly is competition, not as an idealistic model, but as the best known remedy to selfish behaviours emanating from monopoly.

The Acts of Parliament that created state-granted monopolies, which often fostered private cartels and 'conspiracies' against the consumers, were often orginally awarded with good intentions (and we know to where those roads lead), and had by mid-18th-century Britain become barriers to commercial growth, jobs and good health.

Smith’s critiques of such government interventions was severe (see Book IV of Wealth Of Nations) – so severe that modern readers often generalise incorrectly his specific remarks about 18th-century government interventions as his supposed opposition to all government interventions, which is far from the case, as regularly discussed on Lost Legacy.

Shaun writes:

“Adam Smith, like I said earlier, came up with his ideas during the Age of Enlightenment - a period characterized in part by radical optimism about the human spirit, denying that all men are born spiritually powerless and corrupt. Ronald Reagan sounded a lot like a modern day Adam Smith sometimes. He was very inspiring but very wrong when speaking about the inherent goodness and strength of mankind: “A people free to choose will always choose peace” or “I know in my heart that man is good” or “There are no constraints on the human mind, no walls around the human spirit, no barriers to our progress except those we ourselves erect.”

Comment
I do not know where Shaun got these ideas from, but they certainly were never expressed by Adam Smith. This leads me to ask if Shaun has actually read Smith’s works, or is he confined to what others have said that the wrote, plus a few quotations out of context?

“Adam Smith was wrong. Free market capitalism might just be the best economic system the world has ever seen. I assume so, but what do I know about economics? I’m a musician. But it doesn’t produce the rosy results Smith argued it would either. A society full of Smith’s imaginary butchers will not benefit the whole of society because the butcher is not inherently good and self-regulating. He does not naturally pay a living wage to his workers. He does not naturally keep his promises. He does not naturally tell the truth at all times. He’s just like me. And just like you. If we serve ourselves with no outside restraints placed upon us, we’ll cheat to get more and horde what what we get while the distance between us and the have nots widens.”

Comment
Having set up an imaginary straw man and called him ‘Adam Smith’, Shaun concludes that ‘Adam Smith was wrong’. What astonishing insight! Sadly, what nonsense too. It’s not that Shaun is deliberately misleading; he is simply uninformed.

And finally:

“Adam Smith’s error may come from his understanding of God. Adam Smith is believed to have been a deist - someone who thinks “The Great Architect” built the universe but then walked away from it, never to return, never getting mixed up in human affairs, never entering the human heart, never putting on skin and becoming a man for man’s sake, never sending Spirit to guide and teach, never to lead his People to be creators of equality and justice and, well, regulation.”

Comment
Shaun here is interesting. Many make similar interpretations of Smith’s alleged ‘Christianity’ and his alleged providential tendencies, and his alleged Deism, but not as clearly as Shaun does.

However, this would take a lot longer to respond to at this time. I am presently in Denver to read my paper, ‘The Hidden Adam Smith in his Theology’ (in part a response to Lisa Hill’s 2001 paper, ‘The Hidden Theology in Adam Smith’).

Readers interested in the current draft of this paper, which answers in some measure the ideas expressed in the paragraph in his article, should send an email to me: gavin at negWeb dot com.

In sum, Shaun Grovers’ article is interesting but flawed by a reliance on the writings of others (mainly ‘rightwing’ Reagonites it seems who describe a fictional Adam Smith invented in Chicago from the 1950s; though he is not enamoured with the ‘leftwing’ either) and not on the work of the real Adam Smith, born in Kirkcaldy in 1723.

There is a world of difference between these two Adam Smiths, and knowing the differences is important, as well as fairer to the Adam Smith born in Kirkcaldy.

Property Rights the Solution, Not the Problem

‘Dan’ at Migrations Blog (HERE): writes: ‘Tragedy of the Commons Still Has Meaning’

“ “The Tragedy of the Commons” is an influential article written by Garrett Hardin and first published in the journal Science in 1968. It’s one of those pivotal articles at the dawn of the environmental and conservation movements, which describes a dilemma in which multiple individuals acting independently in their own self-interest can ultimately destroy a shared limited resource even when it is clear that it is not in anyone’s long term interest for this to happen. [He?] challenged the philosophical assumption of Adam Smith that decisions reached individually will be the best decisions for an entire society and advocated “social arrangements” that produce responsibility. These arrangements might include some form of “mutually agreed upon coercion”, although perhaps “coercion and incentives” more accurately describes his intentions.

Today, the strongest criticisms of the environmentalist and conservationist political stances, advocating regulatory measures and incentives for directing human industry, are still being voiced by the intellectual descendants of Adam Smith. These critics – Libertarians – continue to take the position that anything benefiting individuals in a competitive economy is good, and any hindrance of those liberties is bad, even when scientists indicate that the opposite is the case.”

Comment
Adam Smith did not write that ‘decisions reached individually will be the best decisions for an entire society and advocated “social arrangements” that produce responsibility.’

This idea, along with the myth of ‘his invisible hand theory’ is an idea that was invented by some modern economists, and propagated since the 1950s by people who have not read Smith’s Wealth Of Nations (1776) or his earlier book, Moral Sentiments (1759).

Dan appears to be one such miss reader of Adam Smith, who gives over 60 examples in Books I, II, and III of Wealth Of Nations, of the malign consequences of individual decisions and their detrimental outcomes for the entire society. Indeed, Book IV of Wealth Of Nations is, what Smith called, a ‘very violent attack’ on the individual decisions of the legislature (and those who influenced its members) in the mercantile political economy, both in domestic and foreign trade, since their initial interventions of governments in the economy from the 16th century.

It is amazing how the notion, honestly presented by Dan I don’t doubt, that Adam Smith wrote anything remotely like
that which he has been credited with since the 1950s by theorists of general equilibrium and neoclassical economics, such as Milton Friedman, Paul Samuelson, most Noble prizewinners and almost all economics tutors in the US and UK. The simple remedy of reading all of Smith should correct the error, instead of relying on a few quotations.

The Tragedy of the Commons by Garrett Hardin was an excellent essay, spoiled by his main obsession in the essay about population growth. He set out to prove the not difficult idea that successive population increases on a fixed area would deplete the natural resources beyond a sustainable state. Diminishing returns (Ricardo) had established such a conclusion in 1817.

Hardin’s excellent point was that the over-exploitation of any natural resource – such as the ancient ‘commons’ of pre-commercial society – would inevitably exhaust the resource, particularly where the resource, like the old commons, was open to all to use.

The proper conclusion, not discussed by Hardin, was to introduce prices for access by removing its ‘free’ status. Each free user is not constrained to limit his use, but would be if property rights were introduced. Of course, this is anathema to most environmentalists, who regard commercial pricing as the cause of the problem when in fact it is the solution.

Thus, when Dan draws on the experience of open, free, access to the fish stocks of the world by whoever has access to fishing boats (which is just about everybody with access to the world’s oceans), he misses the main point of the tragedy of the commons – the free access encourages some – it doesn’t take many – boats to over-fish, which is what has been happening for decades among all fishing fleets of all sea-going nations.

The proper response to the tragedy of the fishing stocks – property rights – is articulated by ‘the intellectual descendants of Adam Smith’, though I suspect Dan’s selection of the people who fulfill his version of who these individuals are may not be the same people that Lost Legacy would identify.

At Last! Great Sense on the Current Crisis!

Dr Madsen Pirie, of the Adam Smith Institute (London) reports on an analysis of the current recession, written by Professor David Simpson: The recession – whodunit? (HERE)

A publication the Adam Smith Institute is particularly proud of is The Recession – Causes and Cures by Dr David Simpson. Dr Simpson was Economics professor at Strathclyde, and then economic advisor to Standard Life. His piece is short, eloquent, and utterly convincing. It forms a crucial part of our counter-attack on the facile but common notion that it was greedy bankers who brought about our downfall.

Not so. Dr Simpson methodically traces the bust's causes to the previous credit-fuelled boom instigated by governments and their central bankers. There were indeed bankers who made foolish (rather than greedy) decisions, and who read risks wrongly. But they did so amid a sea of cheap money which governments had flooded onto them. The asset-price bubbles (which are now bursting or deflating as markets correct the errors) resulted from interest rates deliberately kept too low for too long.

The best way to treat a bust is to avoid it altogether by not stoking up the antecedent boom, but given a bust, the treatment should be lower corporate and personal taxes. These should be financed by spending cuts, not by borrowing which signals future tax rises. And the policy-makers who oversaw this crisis should be replaced.

The book is a terrific read, and puts its whole case in fewer than 40 pages. It is both compelling and convincing. Do read it. (HERE)

[Disclosure: I am a Fellow of the Adam Smith Institute]