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.

A Clear Understanding of Adam Smith in Huffington Post

Klunk posed in Can.politics an article written by David Sloan Wilson HERE

The original article is from Huffington Post HERE

“The Invisible Hand is Dead. Long Live (Smart) Regulation”

“The invisible hand metaphor originates with Adam Smith in The Wealth of 
Nations (1776). Bernard Mandeville made a similar point with his Fable of 
the Bees (1705), which fancifully describes human society as a wondrously 
productive bee hive, even though each bee is as selfish as can be.

Smith was critical of Mandeville and presented a more nuanced view of human 
nature in his Theory of Moral Sentiments (1759), but modern economic and 
political discourse is not about nuance. Rational choice theory takes the 
invisible hand metaphor literally by trying to explain the length and 
breadth of human behavior on the basis of individual utility maximization, 
which is fancy talk for the narrow pursuit of self-interest. For the general 
public, unfettered competition has been turned into a moral virtue and 
"regulation" has become a sin.”

…. For those who wish to learn more about how economics is going beyond rational choice theory, I recommend a book titled Moral Sentiments and Material Interests: The Foundations of Cooperation in Economic Life (2006), edited by Herbert Gintis, Samuel Bowles, Robert T. Boyd, and Ernst Fehr. Gintis, Bowles, and Fehr are eminent economists while Boyd is an eminent evolutionary anthropologist, illustrating how integrative the new economic theory has become. I have also written an essay titled "The New Fable of the Bees" that explores the theme of this blog in more detail.”

Comment
There is much more as well. David Sloan Wilson (professor of biology and anthropology at Binghamton University, part of the State University of New York) is pretty-well informed about Adam Smith and his actual writings (and Bernard Mandeville’s too; plus recent work by behavioural economsts) and I highly recommend that you follow the link. It’s a short lesson in Adam Smith’s legacy.

If I have a criticism, it is that David Sloan Wilson accepts the modern invention of the invisible hand by default but criticizes it on its phony merits. But what is a small blemish in a fine article?

NB. The Huffington Post appears to be pretty consistent recently in its appreciation of Adam Smith from Kirkcaldy, compared to the usual North American version of Adam Smith, ‘alive and well and living in Chicago’ (George Stigler, 1976).

Long may it continue!

Adam Smith Bargaining

Leslie Budd, Reader in social enterprise at The Open University Business School, writes (18 March) in Open.2 Net HERE

“Lap dancing around the regulations”

Like difficult customers, businesses frequently complain about regulation, and point to apparently nonsensical examples. Yet one of the paradoxes is that not only does regulation often sustain the competitive environment, but also allows businesses to follow their own self-interest.

The notion of self-interest is most frequently associated with Adam Smith’s The Wealth of Nations, perhaps one of the most misinterpreted books in history. In his previous work The Theory of Moral Sentiments, he pointed out that if individuals do not have a ‘moral sentiment’ with counterparts in economic exchange then their self-interest will not be realised and just prices will not ensue. Regulation frequently substitutes for moral sentiment in market economies.”

Comment
Adam Smith famously advised those who sought to acquire the ingredients for the menu for their dinners – from the “butcher, the brewer, and the baker” (an 18th-century diet?) – that they should address the self-interests of said “butcher, brewer, and baker” and not their own (WN I.ii). Readers of isolated quotations normally miss this advice.

Leslie Budd puts this well by drawing attention to Smith’s work, Moral Sentiments (1759), which he paraphrases. I offer my own assessment of Smith’s Moral Sentiments on bargaining from my Adam Smith: a moral philosopher and his political economy (Palgrave Macmillan 2008):

“In negotiation, both of us transact not because we like or love each other (though that is not precluded), but because we want something from each other. The negotiated decision settles the terms of exchange. The transaction transforms selfishness into a mutually wilful exchange. Each of us, in the content of our offers, exhibits our unselfish sides.
Even in the many negotiations where a degree of ‘sweetness and light’ is present, different solutions necessarily lie on the table. We bargain because we favour different solutions. We start with our different valuations and we reach for ‘an agreed valuation’ by bargaining towards a different solution. The process highlighted in Moral Sentiments corresponds to what bargainers do.

An ‘agreed valuation’ requires co-operation. Enmity hinders, but does not necessarily preclude, agreement. One-way compromises are seldom acceptable. The movement from their original solutions becomes each party’s contribution to the joint agreement. My approval of your modified opinions is to adopt them; to disapprove is to reject them (TMS17).
Walkouts, denigrating rhetoric and angry threats cloud the air if bargainers let loose their passions which, in the absence of empathy, distort their perceptions. [The bargainer becomes aware that only by ‘lowering his passion to that pitch’ which the other party ‘is capable of going along with’ can he hope for a ‘concord of the affections’ as a prelude to the harmony flowing agreement (TMS22). And that is true for both parties. Smith says that each ‘must flatten the sharpness of his natural tone, in order to reduce it to the harmony and concord with the emotions of those who are about him’. What each feels is never exactly the same because they both view their own interests from different vantages, but by lowering expressions of their self-interests to make them more acceptable and to meet the other side’s movement, both sides review their passionate (often extreme) stances, looking at them in some measure with the eyes of the other party.”

Think BA strike talks these past months. Of course, add political opportunism by the Union leaders – in the past big strikes just before a General Election tend to be ‘settled’ on their perceived affect on the polls.

Adam Smith Bargaining

Leslie Budd, Reader in social enterprise at The Open University Business School, writes (18 March) in Open.2 Net HERE

“Lap dancing around the regulations”

Like difficult customers, businesses frequently complain about regulation, and point to apparently nonsensical examples. Yet one of the paradoxes is that not only does regulation often sustain the competitive environment, but also allows businesses to follow their own self-interest.

The notion of self-interest is most frequently associated with Adam Smith’s The Wealth of Nations, perhaps one of the most misinterpreted books in history. In his previous work The Theory of Moral Sentiments, he pointed out that if individuals do not have a ‘moral sentiment’ with counterparts in economic exchange then their self-interest will not be realised and just prices will not ensue. Regulation frequently substitutes for moral sentiment in market economies.”

Comment
Adam Smith famously advised those who sought to acquire the ingredients for the menu for their dinners – from the “butcher, the brewer, and the baker” (an 18th-century diet?) – that they should address the self-interests of said “butcher, brewer, and baker” and not their own (WN I.ii). Readers of isolated quotations normally miss this advice.

Leslie Budd puts this well by drawing attention to Smith’s work, Moral Sentiments (1759), which he paraphrases. I offer my own assessment of Smith’s Moral Sentiments on bargaining from my Adam Smith: a moral philosopher and his political economy (Palgrave Macmillan 2008):

“In negotiation, both of us transact not because we like or love each other (though that is not precluded), but because we want something from each other. The negotiated decision settles the terms of exchange. The transaction transforms selfishness into a mutually wilful exchange. Each of us, in the content of our offers, exhibits our unselfish sides.
Even in the many negotiations where a degree of ‘sweetness and light’ is present, different solutions necessarily lie on the table. We bargain because we favour different solutions. We start with our different valuations and we reach for ‘an agreed valuation’ by bargaining towards a different solution. The process highlighted in Moral Sentiments corresponds to what bargainers do.

An ‘agreed valuation’ requires co-operation. Enmity hinders, but does not necessarily preclude, agreement. One-way compromises are seldom acceptable. The movement from their original solutions becomes each party’s contribution to the joint agreement. My approval of your modified opinions is to adopt them; to disapprove is to reject them (TMS17).
Walkouts, denigrating rhetoric and angry threats cloud the air if bargainers let loose their passions which, in the absence of empathy, distort their perceptions. [The bargainer becomes aware that only by ‘lowering his passion to that pitch’ which the other party ‘is capable of going along with’ can he hope for a ‘concord of the affections’ as a prelude to the harmony flowing agreement (TMS22). And that is true for both parties. Smith says that each ‘must flatten the sharpness of his natural tone, in order to reduce it to the harmony and concord with the emotions of those who are about him’. What each feels is never exactly the same because they both view their own interests from different vantages, but by lowering expressions of their self-interests to make them more acceptable and to meet the other side’s movement, both sides review their passionate (often extreme) stances, looking at them in some measure with the eyes of the other party.”

Think BA strike talks these past months. Of course, add political opportunism by the Union leaders – in the past big strikes just before a General Election tend to be ‘settled’ on their perceived affect on the polls.

Review Commentary No. 6: Milgate and Stimson's "After Adam Smith"

Murray Milgate and Shannon C. Stimson's "After Adam Smith; a century of transformation in politics and political economy”, Princeton, Princeton University Press 2009

[My series of review commentaries has been delayed unavoidably due to domestic upheavals mentioned in recent announcements. I am now almost back to normal, though my library appears to be missing several volumes.]

Chapter 7 is on Thomas Malthus (1766-1834), whose name is immortalized. He intervened with a polemic in the 1790s on the revolutionary fervour of the likes of Britain’s William Godwin (1756-1836) and France’s Condorcet (1743–1794). The latter admired Adam Smith, whose Enlightenment association with the radical Frenchman, however, caused judicial enquires to be made in 1793 about Smith’s possible role in spreading unrest among British labourers in the shadow of the French Terror.

Malthus raised the issue of population exceeding the capacity of an economy to sustain living standards and Milgate and Stimson take us through the issues clearly for the most part. However, I sensed an orthodox treatment of the so-called ‘Malthusian’ vision as representative of economics as the ‘dismal science’, crowned with the ‘classic statement that this came from Carlyle’ (122), without their explanatory comment, as if it referred to Malthus.

The origins of the ‘dismal science’ accolade, regularly awarded to economics, classical and modern, had little to do with Malthus, and Milgate and Stimson should have taken the opportunity to say so. I refer readers to a paper by David M. Levy and Sandra J. Peart: “The Secret History of the Dismal Science. Part I. Economics, Religion and Race in the 19th Century” HERE which sets out the real story of economics becoming known as the ‘dismal science', wich they show had nothing to do with a description of Thomas Malthus:

‘While this story is well-known, it is also wrong, so wrong that it is hard to imagine a story that is farther from the truth. At the most trivial level, Carlyle's target was not Malthus, but economists such as John Stuart Mill, who argued that it was institutions, not race, that explained why some nations were rich and others poor. Carlyle attacked Mill, not for supporting Malthus's predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was this fact—that economics assumed that people were basically all the same, and thus all entitled to liberty—that led Carlyle to label economics "the dismal science." ‘

Given the status of Carlyle, I think no opportunity should be taken to refrain from repeating the canard of the ‘dismal science’ in relation to Malthus, or, if it cannot be resisted, then at least economists should mention from whom – and WHY - the label originated. Carlyle’s ‘dismal science’ article was called ‘The N-----‘ Question, in one edition and in others, the less offensive title of ‘The Negro Question’ (though the contents are equally offensive).

Milgate and Stimson make a clear presentation of the evolution of the population ideas of Malthus in the various editions, without getting bogged down in the intricacies of Malthus’s argument.

I noted one interesting gem among these pages, namely that Malthus in the Quarterly Review for 1824 ‘maintained, like Smith, that in the presence of positive profits, exchangeable value was no longer determined by the quantity of labour employed to obtain them’ (132). This is a view I have expressed for some years. Smith did not have a labour theory of value except in ‘rude’ society, before the emergence of property and capital – but I have been unable to convince many others, so far.

What I also found fascinating was the Milgate and Shannon’s discussion of Malthus on ‘unintended consequences’ (133-35) and the distinction between ‘unintended’ and ‘unforeseen’.

They write that people are not relieved “of moral authority for their actions for “ignorance and inattention” and add that “Smith has also placed accountability ‘to God and his fellow creatures’ at the centre of an individual’s character as a moral being’ (giving the reference as ‘(1976 -85, 6:52) (134), which I could not find. However, I am familiar with an alternative reference, from which paragraphs were moved and some dropped for the 6th edition (1790), including the following:

“[3] A moral being in an accountable being but an accountable being, as the word expressed, is a being who must give an account of his actions to some other, and that consequently must regulate them according to the good liking of this other. Man is accountable to God and his fellow creatures. But tho’ he is, no doubt, principally accountable to God, in the order of time, he must necessarily conceive of himself as accountable to his fellow creatures before he can form any idea pf the Deity, or of the rules by which the Divine Being will judge of his conduct.”) (TMS III.3: page 135, footnote 1).

This was withdrawn for the 6th edition, as part of extensive revisions Smith undertook to Moral Sentiments that had the effect of diluting many of the religious passages to make TMS more secular and less religious. Malthus was quoting from earlier editions of TMS [See my “The Hidden Adam Smith in his Alleged Theology”, January 2010). HERE:

Milgate and Shannon fail to discuss, what ought to be perhaps, a mystery of the absence in Malthus of mentions of Adam Smith’s use of the “invisible hand”, if modern economists are correct in their assertion that this was Smith’s great idea, concept, or paradigm. The absence of discussion of the metaphor in Malthus, who had read Wealth of Nations closely, is worthy of discussion. They refer instead to references to the metaphor appearing in the works of evangelical Christian economists, such as Thomas Chalmers (136).

To date, I have not looked closely at these references (they cite Chalmers, 1832, On Political Economy, in connexion with the moral state and moral prospects of Society, Glasgow: Collins). In this context, Milgate and Stimson introduced me A. M. C. Waterman (1991) Revolution, Economics, and Religion, Christian political economy, Cambridge University Press). A sign of a great book is when it prompts readers follow lines of enquiry on issues of interest; I am sure that historians of economic thought will also find many prompts in this book of a similar kind.

They give some explanation for Malthus not mentioning the invisible hand: ‘Malthus could not longer make use of the invisible hand (nor indeed any other classical economist) as Smith had done – a felicitous metaphor for informing ordinary people’s perceptions of market society’ (137). They suggest it was because Malthus, ‘writing nearly a quarter of a century after Smith, and from within a more fractious political and economic context, Malthus could not make use of the invisible hand’ (137). Extraordinary is one word for the validity of this proposition. Waterman is quoted as saying that “Malthus “formulated an ‘invisible hand theorem’ in regard of ‘moral restraint’ as a form of an ‘unintended consequence’. Highly imaginative springs to mind! And nothing to do with Adam Smith’s use of the metaphor in my considered view.

I liked the reference to Malthus (1803) wishing to amend Smith’s syllabi for the parish schools to include ‘the simplest principles of political economy’ to ‘reading, writing and account’ (138).

In summary, Milgate and Stimson will enlighten readers who are currently confined to the mechanics of the population problem and, perhaps, will draw them into wider reading – it has me!

If I may recommend to those interested in the deeper significance of the population debate, I would suggest reading Greg Clarke’s, A Farewell to Alms: A Brief Economic History of the World (Princeton Economic History of the Western World) (Princeton University Press, 2007).

[I shall next report on Chapter 8 Utility, Property, and Political Participation next.]

Adam Smith Did Not Invent Capitialism

Stephen Collins, co-owner of Organic Business Strategies, writes (16 March) in Bloggertone (‘talking about business’) HERE

“adamsmith RT @JohnNash Love the game. Let’s play it together. BFF”

“Adam Smith, Father of Capitalism, set forth in the world the greatest experiment man has ever encountered.

Smith brilliant in his understanding of true human nature. With this understanding, devised a system by which he focused the fallibility of man’s own nature to the betterment of society. This system allows for the human needs to be met while using this same nature as a mechanism for self-regulation and management.

With this said, there was an American in the 1950s who challenged the concept of “every man for himself”. John Nash, an economist and mathematician, is considered to be the “Father of Game Theory”.

Nash understood how a person would react given a certain set of circumstances. He theorized a person will always make a choice that gives him either the least pain or the greatest gain given the circumstances. By understanding this, the game can be manipulated for the betterment of all of the participants. This is somewhat esoteric, so enough of the history lessons…

… The combination of the greed of Adam Smith’s man with the sophistication of John Nash’s games (competition) will bring a synergy to your business that is un-deniable.”

Comment
A harmless piece of editing?

Stephen Collins gets to the point later about his recommended business strategy for local business which would be hard to fault in practice and of which I would approve in general (in business schools itS called ‘co-opetition’, or at least was when I taught ‘strategic negotiation’). So, good luck to Stephen in his business ventures.

However, the paragraphs quoted above are historically and factually in error. They draw on popular myths about Adam Smith.

Smith did not “set forth in the world the greatest experiment man has ever encountered”. He observed the nature of the revival of commerce in mid-18th-century Britain and analysed what had happened in Western Europe, from the fall of 5th-century Rome, through to Europe’s recovery, approximately from the 15th century.

He did not invent ‘capitalism’ (or commerce). Smith, who died in 1790, did not know of the word ‘capitalism’; William Makepeace Thackeray used the word ‘capitalism’ first in English in a novel (The Newcomes) in 1854.

No single person, and certainly not a moral philosopher, invented or ‘set forth’ the ‘experiment’ of capitalism; such notions are quite ridiculous, if you think about what is suggested. Attempts to design social-economic systems almost always fail, as the more recent attempt at socialist planning in Russia and elsewhere have shown.

Therefore, Smith did not “devise a system’, fallible or otherwise.

As for John Nash, he did not invent “prisoner’s dilemma’ games; by whom is he ‘considered the father of game theory’.

Nash was a brilliant contributor to ‘games’ and suggested what people ‘ought’ to do in resolving their choices; but the whole point about Prisoner’s Dilemma is that it is a dilemma.

Having observed literally thousands of players engaged in PD games, I found that close to 90 per cent did not “always make a choice that gives him either the least pain or the greatest gain given the circumstances”. Quite the reverse!

Finally Adam Smith never, ever, endorsed ‘greed’ as a positive feature of ‘human fallibility’ – that suggestion belonged to Bernard Mandeville (“Fable of the Bees”, 1724) – nor did Smith see ‘greed’ as instrumental in the pursuit of self-interest.

Apart from this, I wish Stephen Collins well in his business ventures.

Popularity Parade Counts for Not Much

Justin Wolfers writes in Freakonomics (15 March) HERE

“Hayek Propped Up by Government Intervention”

“… the Texas Board of Education [wants] to rewrite the high school curriculum in accordance with its conservative values.”
How do they plan to rewrite high school economics?

In economics, the revisions add Milton Friedman and Friedrich von Hayek, two champions of free-market economic theory, to the usual list of economists to be studied – economists like Adam Smith, Karl Marx and John Maynard Keynes
.
… There’s no doubt about the influence of Smith, Marx and Keynes; Friedman also belongs. But does Hayek belong on this list?

Let’s use data to inform this debate. I counted the number of references to each economist in the scholarly literature indexed by JSTOR, finding 30,708 articles mentioning “Adam Smith”; 25,626 articles mentioning “Karl Marx”; and 4,945 mentioning “John Maynard Keynes”. “Milton Friedman” sits easily with this group, and was mentioned in 8,924 articles.

But searching for “Friedrich von Hayek” only … 1561.

By the way, “Lawrence Summers” was mentioned … 2064.

This exercise suggests that Larry Summers is more influential than Hayek, and so I’m led to conclude that teaching “insights from Larry Summers” involves less of an ideological subsidy than teaching “insights from Hayek.

I’m not suggesting we do either, only that we set the bar for teaching economic ideas at a uniformly high level. If this cuts out Summers, it cuts out Hayek.

These data suggests that Hayek just doesn’t belong with Smith, Marx, Keynes, or Friedman. In fact, it seems that despite having enjoyed a much longer period to accumulate citations, he is still much less widely cited than Larry Summers. Sure, Hayek was an insightful economist. But insisting that high schools teach Hayek is a clear statement of ideology, not of economic science.

The message from the Texas Board of Education seems to be: If you can’t win in the marketplace of ideas, turn to government institutions to prop you up. I don’t think Hayek would approve.”

Comment
A fair point but hardly ideological.

If you checked JSTOR for the metaphor of an ‘invisible hand’ I wonder how many mentions it would get?

I’d check myself but I do not access…

Adam Smith is Innocent

Michael Tilley writes (14 February) for The City Wire HERE

"Anger management"

“The last gasps of the near-dead out-of-touch traditional media want us to believe greedy corporate bastards are the root cause for whatever ails us, but down deep we all rightly suspect that too many bureaucrats have perverted the movements of Adam Smith’s unseen hand.”

Comment
Michael Tilley writes fluently about the anger of people caught the financial crisis and uses his large stick to implicate Adam Smith and his ‘hidden hand’, which, presumably, he believes exists and operates as modern economists told us since the 1950s (precious few had heard of it before then, though Smith mentioned it once in Wealth Of Nations in 1776).

Tilley’s story line is that ‘too many bureaucrats have perverted’ Smith’s hidden hand, presumably by acting as if it didn’t exist or somehow preventing it working.

Well, story time over folks.

The people who first ‘perverted’ (a bit strong, but I’m quoting Tilley’s angry expression) ‘Adam Smith’s unseen hand’ were the very same modern economists who gave it to us 60 years ago, including our Nobel prize winners, though one, Joe Stiglitz recanted last December.

You see, Michael, Adam Smith never made the claims for ‘his’ hidden hand that were attributed to him 174 years later. He used a well known literary metaphor from the 17th-18th century to illustrate “in a more striking manner” what he had just described about the consequences of risk-aversion in some, but not all, merchants choosing between investing their capital in trading ventures abroad to Europe or the British colonies in the America’s and investing at home.

The more merchants who chose not to take the extra-risks of foreign trade and invested at home instead, the greater would be domestic capital investment and, in consequence, the larger would be domestic output on the well-known arithmetic rule that the whole is the sum of its parts.

Saying they were led by ‘an invisible hand’ to set off these consequences is far more ‘striking’ than explaining it accurately as he did before he used the metaphor. And that, Michael Tilley, is what a metaphor does (though I am sure you know that already being such a clear writer).

In short, Adam Smith is innocent; the financial traders and bureaucrats who caused the crisis did it all by their lonesome selves.

James Otteson on Karl Marx v. Adam Smith

James Otteson conducts a lesson for students on Adam Smith and Karl Marx HERE

James Otteson's lecture/tutorial was at the 2010 FEE Home School Debate Tournament on "Karl Marx v. Adam Smith"

Follow the link and watch the video for a lively seminar for students.

It's not meant to be deep and authoritative and links explicit details of the experiences of Soviet socialism and the dreadful crimes against humanity practised in the former and current socialist/marxist states, a methodology with which I am not too comfortable intellectually. As a first pass it's OK, but the ideas of Marx and Engels are not linked directly to ideas as interpreted by people decades after the founders of Marxism had died, anymore than the ideas ascribed to 'Jesus' are represented by the pageantry and wealth of the main Christian Churches centuries later. However, that's a quibble.

Otteson's account of Smith's ideas is fair enough (except for the his nuanced mythology of the "invisible hand'!) and his listeners appear enthusiastic in response to his enthusiasm (always a necessary aspect of lecturing).

Jim Otteson is an original contributor to Adam Smith studies: see his Adam Smith’s Market Place of Life, 2002, Cambridge University press.

Against Stupidity Even the Gods Battle in Vain

Robert Vienneau writes the authoritative blog, Thoughts on Economics
HERE

"Anti-Intellectualism Among Mainstream Economists"

I find these comments to be anti-intellectual:

John Quiggin rejects the Austrian school of economics on the ground that partisans of that school discuss political philosophy and the epistemology and methodology of economics.

Roberto Perotti critizes Post Keynesians and neo-Ricardians on the grounds that they don't spend their time exclusively constructing formal models and estimating correlations. (I used Google's translation feature. Sergio Cesaratto answers from a Sraffian perspective.)

Commentators at Mark Thoma reject discussions about what Adam Smith wrote.

I thought the point of scholarship was to attempt to make true statements. If somebody makes an untrue statement about what Keynes or Adam Smith said, one should correct them. This is not to say that that the fact that Keynes or Smith advocated something or other is a justification for policy. I think a historically accurate representation of an old text entails quite a bit of contextualization in terms of its time. To apply policy conclusions to our time would require recontextualization in contemporary terms, as well as empirical work.

I would think different scholars, even within a discipline, would find different questions of interest. Some economists argue for a supposed freedom to choose. Shouldn't some then be legitimately allowed to explore old texts or methodology or whatever? If Thomas Kuhn was somewhat correct, wouldn't one expect more discussion about methodology when the defining paradigm in a field has so obviously broken down, as today among mainstream economists?”

Comments
A timely reminder from Robert Vienneau of the duty of care of academics for the way they treat ideas of other people.

Along with the absolute right – of every person - to create, deduce, or induce – even invent – ideas, moral rights to not include the absolute or relative right of anybody to assert or ascribe to anyone else that they hold this or that set of ideas. That is a sign when embedded politically (and often associated with) a totalitarian state or of theological tyranny.

In my case above, quoted from Mark Thoma’s excellent Blog, many of the comments made about my article by his readers were certainly “anti-intellectual”, and where these were from graduates or well- informed, self-learners my reaction was one of incredulity at their displays of ignorance. Nothing to do with Mark Thoma, of course.

A Perspective of State Interventions

Gary Lipow writes in Grist (‘a beacon in the smog”) HERE

“Historically U.S. infrastructure, the basis on which this nation developed, was never some magical response to supply and demand.”

The Erie Canal would not have been built without rights of way given away to the builders. Land given to homesteaders and farmers made us one of the world's great farming nations. Railroads were built because the great railway companies were granted land a mile out from their tracks to compensate for construction costs. Or think of the telegraph, one of the first types of public infrastructure to receive not only grants of rights of way, but massive direct public cash subsidies. And it is worth remembering that none of this was built on empty land; American Indians were slaughtered or driven away for every one of these things. Much of the work on that stolen land was done by slaves. I can't imagine a "green tax" that could have compensated for that. …

… Adam Smith, the inventor of the term "the invisible hand" favored fire regulations, free public education, building safety codes, and (in emergencies) wage and price controls. As someone concerned with supporting an infant capitalism, and overthrowing the remnants of feudalism, he would have laughed at the idea of capitalism without a strong state. And yes, Adam Smith was overoptimistic about the ability of such regulation to contain the dark side of capitalism. But, given when he wrote, he may be excused his errors, especially since even then he was a far clearer thinker than the fuzzy headed right wing libertarians who consider themselves his true heirs today.

I think he did invent (or at least promote) a fundamental error that explains why the role price can play in replacing other forms of regulation is often overlooked. He thought of price as reflecting a balance between supply and demand. To some extent price does reflect those things. But price also reflects power. In Adam Smith's time, price often reflected the ability to kill people, seize their land by force, and then work that land with slaves. Today the price of a pound of rice reflects in part the Haitian market for that rice developed by applying financial pressure to a series of Haitian governments, and forcing them to destroy their domestic capacity to produce their own rice.”

Comment
I shall ignore on this occasion the error about “Adam Smith” being “the inventor of the term "the invisible hand" ‘ (see Lost Legacy posts passim) and focus on his articulate charges about the roles of the state in development.

Gary Lipow is correct to balance the over enthusiasm for the ideals in the US Constitution, its defects in its application shrinking in significance compared with the history of the European states, including Britain at the time. To a significant extent, the evolution of the basis of liberty, as noted by Smith, within Britain, was a contributory factor to the ideals manifested in the US Constitution; they were not invented by Congress.

Lipow adds more to the theme of the paragraph I have quoted and it is worth considering in the light of this week’s debate on the relative size of the state in practice. Aside from Lipow’s presentation of the politics of state regulation, he does make some powerful points about the role that the state – any modern state – plays in everyday matters like urban development, roads (parking!) and the infra-structure that Smith outlined as the proper role of state (Wealth Of Nations, Book V).

It makes quite a list and I urge you to follow the link. If you are put off by Lipow’s political partiality, don’t be; in the kernal of what he says there is a general truth, worth considering when debates about the size of the state commence.

A Good Idea for a Celebration, But...

College of Charleston holds an annual ‘Adam Smith Week’ (8 March), which, normally, I would welcome handsomely for its educational mission (details HERE) .

John Stossel , the talented free markets’ advocate, is to speak during it, so it will do some good.

But, wait, what’s this?

“Adam Smith is one of the most recognizable figures in economics, and his contributions to the fields of philosophy and economics are still relevant today,” says Pete Calcagno, associate professor of economics and Director of the IPCM. “His concept of the invisible hand is considered the classic statement on laissez faire capitalism.”

Comment
Oh dear! Pete Calcango manages to perpetuate two myths which are slurs on Adam Smith’s life work, simultaneously in a single sentence.

By whom is the “concept” (sic) of an “invisible hand” considered ‘the classic statement on laissez-faire capitalism”?

Not by Adam Smith, whose works show the metaphor (not a concept) to refer to feudal (not capitalist) landlords feeding the “thousands whom they employ” (they had no real choice but to do so); see Moral Sentiments (1759) TMS IV.ii.10: 184; and to some, but not all merchants who were risk-averse and concerned for the security of their capital and in consequence preferred to invest locally rather than abroad, which, on the arithmetic rule that the whole is the sum of its parts, added to national output; see Wealth Of Nations (1776) WN IV.ii.9: 456.

Lost Legacy urges students (and, clearly, staff tutors too!) to look up the only two references to “an invisible hand” that Smith makes in his two main books.

They do not amount to a “concept” and had nothing to do with “laissez-faire” (words that Smith never used), nor to “capitalism” ( a word invented in English in 1854 by Thackeray; Smith died in 1790).