Fresh Air Blowing from Oxford

Nita Colaco writes in the Oxonian Review HERE:

“A cloud looms over Adam Smith’s legacy. The 18th-century scholar is best known as an unalloyed extoller of the market and an apologist for self-interest, a reputation stemming from two centuries’ mischaracterisation of his thought. In the last 50-odd years, this interpretation has been given new credence by economists of the Chicago School (George Stigler famously described his magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, as “a stupendous palace erected on the granite of self-interest”), by libertarian champions like Margaret Thatcher and Ronald Reagan, and by myriad others who associate him solely with free-market capitalism and self-interest.

The narrow popular perception of Smith hides a simple truth: the putative father of modern economics had a complex understanding of human nature. Indeed, sympathy and societal relations, not rational self-interest, lie at the heart of a work Smith himself considered “much superior” to Wealth of Nations: his Theory of Moral Sentiments.

Smith has been misrepresented for so long that the mere range of his writings often comes as a surprise. After his education at Glasgow and Oxford, he lectured and wrote on subjects from rhetoric to logic to astronomy. But it is his moral philosophy, as articulated in Theory of Moral Sentiments, that presents the greatest challenge to traditionally myopic interpretations of his thought. Published almost two decades prior to Wealth of Nations, Theory of Moral Sentiments celebrated its 250th birthday last year. In recognition of this occasion, and perhaps hoping to restore Theory of Moral Sentiments to the glory of its better-known cousin, Penguin Classics is releasing a special anniversary edition of Smith’s forgotten treatise, featuring an introduction by the modern-day economist-cum-public intellectual Amartya Sen.

Based on lectures Smith delivered during his time as Chair of Moral Philosophy at the University of Glasgow, Theory of Moral Sentiments is the bedrock of Smith’s intellectual project. Unlike Wealth of Nations, with its oft-quoted passage about the role of self-interest in commercial transactions, Theory of Moral Sentiments attempts to explain the motivations of human behavior, broadly construed. In characteristically lucid prose, Smith writes of people as inherently social creatures with a propensity for sympathizing with their brethren (a sharp break from the vision of mankind expounded by Hobbes, or even Rousseau, whom Smith admired). This natural human disposition leads to the formation of a moral sense: we approve of a person’s behavior to the degree that we sympathize with him.”

Comment
These opening paragraphs of Nita Colaco’s article are a gale of fresh air in the normal output on Adam Smith, particularly from US academe, regularly reviewed on Lost Legacy.

I recommend that you follow the link and read her article in full.

I do not quite agree fully with her references to the invisible hand metaphor, but I can say that she gets as close to my agreement as is possible.

Nita Colaco is reading for an MPhil in Economic and Social History at Lady Margaret Hall, Oxford. On this evidence, Adam Smith’s legacy will be in good, and safe, hands. (More please!)

Review Commentary No. 1: Milgate and Stimson's "After Adam Smith": a promising good read

Murray Milgate and Shannon C. Stimson, 2009.
After Adam Smith: a century of transformation in politics and political economyPrinceton University Press, Princeton, ISBN 978-0-691-14037-7

Murray Milgate, a fellow and director of studies in economics at Queen’s College, University of Cambridge, and Shannon C. Stimson, professor of political science and the history of political thought at the University of California, Berkeley, have co-authored a promising exhibition of scholarship in the history of economic thought, which has significant meaning for economists and political theorists – perhaps also policy makers – in the 21st century.

They tackle the relatively unexplored territory of what happened to political economy after Adam Smith died in 1790 that made the subject, and what replaced it, quite different by the last quarter of the 19th century (and, therefore, beyond, to what it has become today).

The gap, if there is one, which I think there is, has traditionally been filled with studied accounts of the theoretical ‘corrective’ process, considered inevitable in a new discipline, once the early authorities have passed on and new authorities have arisen in public esteem, seemingly correcting the early errors and sloppy concepts that no longer held sway or even respect.

Indeed, I have read both scholars and ‘young Turks’, who comment with unveiled and disparaging astonishment that Adam Smith, for example, did not take, what is now obvious to them, because of their graduate training, a very small step from where he left some of his prominent concepts. If Smith had done so, apparently he would have ‘saved’ the discipline a hundred years of frightful errors in a dead-end, made worse by the political consequences of the delay to new ideas ‘discovered’ in the 1870s, but apparently discoverable in the 1770s, or at least in the 1790s (Smith, we note died, in 1790).

These critics have in mind the example of his alleged ‘labour theory of value’ – more a ‘labour theory of muddle’ in my view – which, apparently, led to Karl Marx and , in the rather silly assessment of the ever-irascible Murray Rothbard, this meant Smith was to blame for the 20th-century’s horrors of communism! (“Against stupidity even the gods battle in vain’, Schiller)

Milgate and Stimson are not of that ilk. They have written a well-argued, mature approach to what happened in the broad discipline of political economy after Smith died. The period, of what they call the transition, which took place between the eighteenth-century discourse on commercial society and liberty of trade (Smith’s focus) and what these ideas came to exemplify in what is broadly known today as classical political economy and the science of politics.

Adam Smith was not the only memorable political economist of the eighteenth-century. The field is almost crowded with justly-memorable figures and with several-thousand lesser known and unknown figures in the healthy pamphlet culture that flourished for a hundred years before Smith’s Wealth Of Nations (Yale University has over 4,000 such pamphlets on economics, finance, and politics in its archives).

Smith wrote a synthesis of economic thought relevant to his main theme – a critique of mercantile political economy, the ruling political dogma at the time – and brought to the attention of his readers large parts of what he had taught his students about jurisprudence, including ‘police’, civic society, rhetoric, and moral sentiments, from 1748-51 in Edinburgh and 1751-64 in Glasgow.

In the first half of the 19th-century, Malthus, Ricardo, and Mill dominated British political economy and shifted its focus into new territories, which Milgate and Stimson note was quite a break from the direction in which Smith took, so much so, that they note that modern ‘left-right’ political histories that treat as a continuity the writings of Smith with modern welfare and neo-liberal politics are ‘anachronistic and misleading’. Adam Smith, the radical, however valid for the 18th century, in modern terms is unconvincing. The agenda has changed, as has the way we see social problems.

There is wide disagreement among modern commentators on what Smith was saying – see the journal literature for an overview and a sense of the differences. Milgate and Stimson explore what Smith meant and show how his idea of ‘perfect liberty’ in its market and government manifestations was developed and altered after him.

Economists were no longer talking about the same things. Take self-interest; it became “constrained optimisation” and “not only a component part of economic life in civil society but rather its only component. Where once stood Smith’s rich description of morally regulated, prudent behaviour described self-interested interaction – derived from a model of a socially constructed self – now stood a rational calculator of exclusively private costs and benefits” P6).

Milgate and Stimson open with Dugald Stewart, the son of Smith’s student friend, Michael Stewart, Professor of Mathematics at Edinburgh University, the chair that Dugald occupied before transferring to the Edinburgh Chair of Moral Philosopy, which in the fashion of the time, included political economy.

Dugald, they report, “altered Smith’s views on the input that political economy might have in both legislative practice and constitutional reform” by re-creating Smith as someone for whom “political economy was exclusively a science of the legislator” and which “had nothing to contribute to debates over forms of constitutional order”, especially in “revolutionary ways”.

Dugald Stewart had previous form in these matters, which might explain his motives for the shift. In January and March 1793, Dugald Stewart gave the eulogy at the commemoration of Smith’s life to the Royal Society of Edinburgh, coinciding inadvertently with social unrest in Scotland among the “inferior orders”.

The consequent trials of those perceived to be the leaders of the bouts of unrest took place in the heightened social tensions where the “superior orders” took fright, so to speak at the events in revolutionary France. Hanging, prison and transportation followed for the guilty.

The legal establishment took a closer look at intellectuals, such as Smith, whose Wealth Of Nations may have been supposed among the legal minds of the day (let’s be clear they were not radically-minded men; reactionary would hardly exaggerate their inclinations) to have contributed to the social unrest.

Smith was dead but Dugald Stewart was alive, and was making controversial public speeches, albeit to the staid fellows of the RSE and not the ignorant and easily stirred up ‘mob’. Think of Smith on the combination acts, his hostility to “merchants and manufacturers”, and his intemperate remarks about landlords (though actually making clear they behaved “like all men”) who preferred to “reap where the never sowed”.

Dugald escaped judicial punishment, largely by assuring his legal interrogator that Smith had no ambitions to alter the existing constitutional order. He saved himself, but also moved Smith away from his legacy, just enough to start the long transformation of his original ideas into what they became 50 years later.

I shall say more about this episode in future review/commentaries on Milgate and Stimson’s fascinating account, as I go through chapter by chapter.

You can order it from Amazon and follow my account and comments. Your opinions are also welcome.

An Economist Speaks Up for Adam Smith's Legacy

David Smith writes in Economics UK.com HERE: and adds a most interesting postscript to an article:

“Don’t expect too much blood from Darling’s Axe”

“Sometimes I feel obliged to defend the family name. On the Today programme, my former colleague John Cassidy, interviewed about his book How Markets Fail (Penguin, £25), blamed the free-market economics of Adam Smith, adopted uncritically by Alan Greenspan.

You might have thought, listening, that Smith’s ideas had been discredited by the credit crunch. That, however, is far from the case. Were Smith alive today, he would have been as critical as the bankers, and the failure to regulate them properly, as anybody.

In fact, as Cassidy makes clear in the book, Smith was even more sceptical of the motives of bankers as of most businessmen. He thought banks should not issue notes to speculative lenders and regulating them was as necessary as building party walls to prevent fires spreading. So don’t blame Smith. Blame those who misinterpreted him.”

Comment
I wouldn’t put it differently myself.

The Very Best Short Summary of Adam Smith's Life and Work (Longish Post)

Chris Berry, Professor of Political Theory at University of Glasgow is a leading expert on the life and work of one of the University of Glasgow's most famous academics, Adam Smith.

He has created a 10 minute talk (HERE), published by the University of Glasgow, that describes the making of the man, the global significance of his writing and explains why Smith's work still resonates with us today:

“ADAM SMITH IN 10 MINUTES”
“Adam Smith was born in Kirkcaldy in 1723. He entered Glasgow University at the early - but for the time not unusual - age of fourteen.

He studied logic, metaphysics, maths and later Newtonian physics and moral philosophy under some of the leading scholars of the day. In 1740 Smith was awarded a Snell Scholarship (which is still in existence today) to study at Balliol College, Oxford. Smith preferred Glasgow, however, because Oxford’s curriculum was antiquated and he thought the teachers were lazy since, in contrast to Glasgow, their salary did not depend on the number of students taught.

After a period of freelance lecturing, Smith returned to Glasgow University, first as Professor of Logic in 1751 and then a year later as Professor of Moral Philosophy, a post he held until he left academia in 1764.

The mid-eighteenth century saw a period of intense intellectual activity, known as the Scottish Enlightenment. Universities were key players in this outburst of enquiry, with Glasgow a major force. Smith himself is of course the figure of overwhelming historical significance. But he was not alone. Smith’s fellow professoriate included pioneering chemists William Cullen and Joseph Black, as well as engineer and inventor James Watt who also worked at the University). Another historically important figure is a pupil of Smith’s, John Millar. Who became Professor of Jurisprudence and the author of a key work in what we would call historical sociology.

The seeds of Smith's two great books were sown in his professorial years. The Theory of Moral Sentiments appeared in 1759 and drew on his lectures. It went through six editions in his lifetime. Smith’s intellectual range as a lecturer was extensive. Beyond courses in philosophy and jurisprudence he also discussed history, literature and language. He maintained his interest in science and wrote an essay on the history of astronomy. This is notable not only for the breadth of Smith’s knowledge but also as an attempt to link the development of different astronomical accounts to a basic human propensity to seek order.

Although his second great book the Wealth of Nations was published in 1776 we know that he had already considered many of its leading themes at Glasgow as he lectured on as he put it: 'those arts which contribute to subsistence, and to the accumulation of property, in producing correspondent movements or alterations in law and government'. In 1787 Smith was elected Rector of the University and in a letter of thanks remarked that he remembered is professorial days as 'by far the most useful and therefore as by far the happiest and most honourable period of my life'.
If Smith of popular repute is the ‘father of capitalism’, the advocate of ‘market forces’, the enemy of government regulation and believer in something called the ‘invisible hand’ to produce optimum economic outcomes then he would be a disappointed parent. All his work is deeply steeped in moral philosophy. Indeed the simple fact that the final edition of the Moral Sentiments containing extensive revisions appeared in 1790, the year of his death, tells us is that Smith’s commitment to the moral point of view endured alongside and beyond the publication of the Wealth of Nations.

The Moral Sentiments is a leading example of a particular approach to moral philosophy – one that regards it not as sets of rationally or Divine ordained prescriptions but as the interaction of human feelings, emotions or sentiments in the real settings of human life. In many ways it is a book of social and moral psychology. What we can call economic behaviour is necessarily situated in a moral context. But more than that the key theme of the book is an opposition to the view that all morality or virtue is reducible to self-interest. Indeed his opening sentence declares that everyday human experience proves that false, he writes: "How selfish soever a man may be supposed, there are evidently some principles in his nature which interest him in the fortune of others, and render their happiness necessary to him, though he derive nothing from it except the pleasure of seeing it".
Our morality is founded on certain truths about human nature. Everyone is capable of sympathy, or fellow-feeling, and that ability enables us to imagine what we would feel if we were in the situation of another and, once we have made that imaginative move, we can then judge whether those feelings are appropriate. We have to learn about ‘situations’ but Smith believes that happens because humans are social creatures.

Smith illustrates the natural fact of human sociality by likening society to a mirror. It is this responsiveness to others - pleasure in their approval, pain in their disapproval - that Smith used to explain why the rich parade their wealth while the poor hide their poverty. The rich value their possessions more for the esteem they bring than any use they get from them and it is this disposition to "go along with the passions of the rich and powerful" that establishes the foundation for distinctions of status. And it is this desire for esteem that explains the incentive, we all possess, to better our condition. This is one of the links between the Moral Sentiments and the Wealth of Nations. In many ways the moral interactions Smith describes in Moral Sentiments bear on the practices that characterise his contemporary commercial society. The very complexity of that society meant that the bulk of inter-personal dealings were with strangers.

A ‘society of strangers’ is a commercial society which Smith identifies in the Wealth of Nations as one where 'everyman is a merchant'. A commercial society's coherence - its social bonds - do not depend on love and affection. You can coexist socially with those to whom you are emotionally indifferent. As Smith famously said:

“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. We address ourselves not to their humanity but to their self-love and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens”

Nothing in this means that Smith is denying the virtuousness of benevolence. When Smith came to write the Wealth of Nations he made it clear that the ‘wealth’ lay in the well-being of the people. This covered not only their material prosperity but also their moral welfare. Accordingly he thought to be in poverty is to be in a miserable condition and commerce is to be praised for improving human life.
The great achievement of the Wealth of Nations was to discern the principles of order in the seeming chaos of commercial or market behaviour – it wasn’t random, it could be reduced to some simple principles. It was for this reason that Smith was described as the Newton of political economy. It is no idle fact that the full title is Inquiry into Nature and Causes of the Wealth of Nations.

He identifies basic principles such as the human propensity to ‘truck, barter and exchange’ that he argues underlies the division of labour but says that this depends on a market and that requires some institutional structures like those that uphold justice such as government and how that in turn mutually relies on principles of public finance.

All of this is placed by Smith into a historical narrative. In his Glasgow lectures he had outlined an account of four stages of social organisation focused around the characteristic form of economic endeavour – hunter-gatherer, herder, farmer, commerce - and in the Wealth of Nations he gives a set-piece account of the transition from the farming to commerce. This process of social change was not brought about by deliberate human policy. This fact reveals for Smith a general truth about social life, namely, that it is pervaded by unintended consequences. This supports the widely-held view of Smith as an opponent of attempts to direct ‘the market’ but, in fact, what he really opposes is the attempt to direct individual’s activities, their ‘natural liberty’ to pursue their own ends in their own way. This is itself a ‘moral’ position and Smith never abandons that perspective.
In the opening chapters of the Wealth of Nations, he celebrates the productiveness of the division of labour with the example of pin-makers but later notes that those whose lives were spent performing a "few simple operations" were rendered "stupid and ignorant" and were incapable of "forming any just judgment concerning many even of the ordinary duties of private life". The 'morality' into which these individuals are socialised is defective; the 'mirror' in which they see themselves reflects back to them to their "mutilated" condition. This is the probable course of events, says Smith, unless "the public" takes remedial steps by instituting a subsidised system of elementary schooling. This example clearly illustrates how Smith's social and moral theories cannot be fully understood in isolation and must be seen as a whole.
Adam Smith’s legacy has had global impact and it is fitting that the work of a world-historical figure was forged in this world-class University.”

Comment
This short article is a measure of the quality Professor Chris Berry’s intellect and balance. He is without doubt the clearest scholar writing on Adam Smith today. He covers all of Smith’s scholarly range and shows its continuity and cross-linkages. What a breath of fresh-air is in Chris Berry's treatment of the "invisible hand"!

Professor Berry is the director of the Adam Smith Research Foundation at Glasgow University, which aims to promote and sustain research within the UK, European and international arenas. The Foundation promotes the engagement of staff in key policy debates and in shaping policy for the future. It provides the environment in which to foster further links between the Faculty's disciplines and supports the development of interdisciplinary research both within and beyond the University.

The Foundation seeks to honour the Enlightenment legacy of Adam Smith (1723-1790) with independent, original research that impartially advances utility and enhances social happiness or well-being in the Information Age.

The Foundation's five research themes are:
• Public policy, governance and social justice
• Work, ethics and technology
• People, places and change
• Macroeconomics, business and finance
• Legal and political thought

Professor Berry’s commitment to both the historical scholarship of the Scottish Enlightenment and to modern applications of moral and social science to contemporary issues, problems and situations,is a great credit to his and Scottish scholarship. If his approach and understanding of Adam Smith’s Legacy was the general approach across academia, and predominant among Smithian scholars, then Adam Smith’s Lost Legacy would have less to do.

A Lost Legacy Open Book Discussion (II).

After Adam Smith: a century of transformation in politics and political economy, 2009, Murray Milgate and Shannon C. Stimson, Princeton University Press, Princeton and Oxford.

There is no doubt that the popular (and academic) portrayal of the lifetime-works of Adam Smith is quite at odds with the actual contribution of the Adam Smith born in Kirkcaldy in 1723. It’s as if a completely new persona was invented bearing limited resemblance to him or his surviving works (sometimes referred to on Lost Legacy as the 'Chicago Adam Smith').

I sometimes wonder if anything similar happened to other historical figures from the ancient worlds of Greece and Rome – spectacularly in the case of Jesus – and the thousands who stand out in the great Pantheon of those who are known to us today for their places in the history of human endeavour.

We have The Glasgow Edition of The Life and Correspondence of Adam Smith, from Oxford University Press (and the low cost Liberty Fund editions): The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth Of Nations, plus his extant essays, The History of Astronomy (1744-<1758) and Origins of Language (1761). To these we have surviving student notes of his lectures, Jurisprudence (1762-63) and Rhetoric and Belles Lettres (1763), plus the surviving Correspondence of Adam Smith, and, most important, the definitive biography, The Life of Adam Smith (1996, 2nd ed. 2010) by Ian S. Ross.

We ought, therefore, to be pretty sure as to what constitutes Adam Smith’s oeuvre, but instead of his works being a model of pure scholarship, they are riven by contrary, incompatible, and mutually exclusive opinions as to what he wrote and what he meant, much of it advanced by scholars of indisputable integrity.

However, there is even considerable doubt as to the exact words he used to express his ideas, despite the ready availability of all of his works to whomsoever wishes to consult them – sadly, many scholars pontificate with the certainties of the highly opinionated, who clearly have not read his works for themselves or have forgotten what they may claim to have read years ago.

Now, something must have happened in the 219 years that separate his death from today. It’s not all down to elementary scholarly slackness. Ideas about the past, and the people who lived through them, do not form in a vacuum. Adam Smith – contrary to trite media assertions – did not write his books as veritable bibles; he was not the ‘high priest’ of economics; he did not ‘invent’ capitalism; not was he the manic believer in ‘laissez-faire’, and other similar nonsense (Smith neither used the word ‘capitalism’, nor ‘laissez-faire’).

Readers influence the accepted meanings of what an author writes (see, for instance, Willie Henderson, Evaluating Adam Smith: creating the wealth of nations’, 2006, Routledge). Smith's readers are no exception, and because Adam Smith’s name is often quoted (excessively so today) in support of, or as the problem of, current controversies in the (mis)management of economies, it adds to the intellectual – and popular – confusion as to what credence should be given to this or that declamation on one side of the other of those making the noise, which passes for political discourse in this first decade of the 21st century.

Lost Legacy readers will know that I am researching at present the origins of the spread of the notion of an actual (or metaphorical) “invisible hand” in the teaching of economics since the 1940s. From that teaching came forth consequential policies in business and government as students graduated and entered the “ordinary business of life”, and applied their teachers’ wisdom, either within society generally or in their own teaching careers. A conceptual virus spreads like the biological kind.

Earlier this year, I discussed Steven G. Medema’s excellent, The Hesitant Hand: taming self-interest in the history of economic ideas (Princeton University Press), which covered a slice through history from Adam Smith to 20th-century welfare economics. This fits well with what I am about to undertake with the book by Murray Milgate and Shannon C. Stimson, which takes a broader sweep through the first hundred years from Adam Smith to the end of the 19th century.

It short, Milgate and Stimson have studied how the “grand ideas” that are attributed to Adam Smith are “as much the product of the gradual modifications and changes wrought by later writers”, such that we “are much the heirs of later images of Smith as we are of Smith himself”. I concur with Milgate and Simson in at least this brief survey of their book (I have yet to read the details, which I shall share with you over the next week or so).

I consider from reading their introduction that this is an important quest for all scholars and students of Adam Smith. If their method is correct, and it substantiates their hypothesis, the similar hypothesis embedded in my current research will have stronger foundations.

I, and many readers of Lost Legacy, have lived through the last half of the 20th century, in which “the gradual modifications and changes wrought by later writers” on the unchanged original exposition of the ideas of Adam Smith lie in pristine innocence in his texts. Therefore, we can compare and contrast his original ideas with the “later images of Smith”, which are often a long way from those we read in the works written by “Smith himself”.

How we got from what Adam Smith wrote to what modern economists assert him to have written is an interesting study in the history of intellectual dilution. Murray Milgate and Shannon C. Stimson may have written the first part of that history; we shall discuss that proposition over the next week or two.

Modestly, I would hope that I can emulate their work, as I tackle the intense dilution of Smith’s work in the second-half of the 20th century, which dilution began, almost tentatively, in the late 19th century.


[Thanks to Robert Vienneau, who hosts the Thoughts on Economics Blog HERE: http://robertvienneau.blogspot.com/, drew my attention to Milgate and Stimson’s new book in a message commenting on Lost Legacy earlier this month.]

October Lost Legacy Prize Won by Kieran O'Hara - also a nominee for the 2009 Annual Prize

Kieron O'Hara, UK Centre for Policy Studies writes (25th October) in Gov Monitor HERE:

“Capitalism And The Decline In Trust Of Our Markets”

“Smith has not been well-served by commentators whether admiring or hostile. He was neither the apostle of ‘greed is good’, nor the evangelist of free markets as the ideal resource allocation mechanisms at all times. In fact, his careful and lengthy examinations of human motivation, The Theory of Moral Sentiments and The Wealth of Nations still contain important lessons for our time.

It is particularly interesting that free market economics is widely blamed for the decline of trust throughout society, because rereading Smith reminds us how once upon a time the spread of markets was thought beneficial because it helped spread trust.

Our understanding of markets has fragmented since the days of Smith. Economists see them as mechanisms for optimally allocating resources, while sociologists see them completely differently as exchange mechanisms that tend to overwhelm other types of connection that hold societies together. … But Smith himself saw them as both social and economic. Their two different aspects could not be separated out.

Participation in markets helped people internalise the norms of socially-beneficial behaviour, spreading habits of trust and trustworthiness. They used pre-existing trust mechanisms, such as respect for contracts, the rule of law, sound money and a work ethic, and brought them all together in a perfect storm, magnifying their individual effects and transmitting trustworthy behaviour, self-discipline, moderation and stability across society.

Smith denied that markets could rest on selfishness (as many on the left maintain they do). Markets do indeed rest on self-interest, but that is not the same as selfishness. My self-interest is not simply the sum of my preferences at the moment (as many on the right will say it is). I am not the sole determinant of my self-interest; society makes a contribution too.

Whichever is the case (and they are not mutually exclusive), the knee-jerk reaction to blame market economics for the increase in individualism and the decline in trust is mistaken. Instead, following Smith, we should deduce that markets function less well, and are treated with more suspicion by consumers, when trust has declined for independent reasons."

Comment
Without doubt Kieron O'Hara deserves the October 09 Lost Legacy Prize for the best article on the Internet on Adam Smith (I would put it in for the best article on Smith in the year, but we must wait and see over November–December).

I am not prepared to risk overstepping the copyright conventions by publishing the whole article (though “it is better to ask for forgiveness than for permission”, as the Jesuits used to say).

The article is "COPYRIGHT © 2002 - 2009 Policy Dialogue Media Group International, INC. All rights reserved."

It can be read in full
HERE:

I strongly recommend that your follow the link and read Kieran’s full argument (and pass the news on to your readers and Twitter sites. It is astonishingly brilliant compared to the normal daily dross put out in the media, including by top economists.

Congratulations to Kieron O’Hara for showing his understanding of Adam Smith, and to Gov Monitor for publishing it.

A Smithian View of History

Bruce (11 October ) at the Bruce Web – history, politics, myth HERE [Please follow the link as our debate is "parallel" rather than direct (I am not sure exactly what Bruce is debating with me, so I have offered an alternative perspective of history, which I think I share with Adam Smith.]

"Hi Bruce

I shall offer some comments on your article: “Adam Smith and Glibertarianism: history vanished into the memory hole”, first stating I am not sure to whom you address your remarks and,adding, I do not share your narrower view of history than Adam Smith’s, nor (on a lesser scale of philosophical symmetry) mine.

Applying class analysis to history, especially where it is informed by back-projecting 19-21st century consciousness, is limiting. If the mass of people in the distant past were deprived of the category, “democracy” as an idea, they were unaware of it. Athenian “democracy” disenfranchised women and slaves; in its modern context, glimmers of democracy appeared in Cromwell’s England (Levellers) and in late 18th century British colonies, and in Britain and France. Until then, the issue of “Liberty” was more important and, in my view, liberty still is more important than democracy – the former cannot be other than self-evident, the latter often is a sham (as recent and current examples show).

In Smith’s Lectures on Jurisprudence (1762-63) he gives a very clear account of the very ‘slow and gradual’ political evolution of liberty: Magna Carta, trial by jury, independent judiciary, rule of law, Habeas Corpus, through the absolute monarchies of the ‘allodial’ and ‘feudal’ disorders of Europe from the fall of Rome in the 5th century to the Constitutional Monarchies after the English civil war, 1740-60, and the ‘Glorious Revolution’, 1688.

A lack of democratic consciousness runs right back to and throughout pre-history and, incidentally, so does a lack of consciousness about property. The discovery of “property” was a revolutionary idea enabling a minority of the world’s tribes to move to rising population levels from the population-limiting mode of subsistence of the forest and rivers in which, well past the 18th century, the absence of private property among the majority of the world’s tribes in the vast land-mass of Africa, south Asia, Australia, the Pacific and the Americas, held their human populations in check. Tribal populations before property, and many of them afterwards, unaware of the phenomenon of property lived on in their subsistence modes. Both property and non-property societies were oblivious of each other’s existence until relatively recently.

Whilst their concepts of property were primitive and were confined to tribal properties, they were firmly resistant to other tribes intruding on “their” particular territories, but without their having clear concepts of property they could not evolve into early civic societies, based on laws, that were practiced over millennia. The group and individual violence common in many such primitive regimes of ‘tribal’ property is well documented in anthropological studies. Marxists idealise the ‘forest’ mode of subsistence as “primitive communism”, but it certainly had a bloody record among populations over hundreds of millennia, with women mainly suffering as victims and ‘war’ booty, and men suffering early and violent deaths (proportionally greater than well-known, so-called “murder capitals” in modern times).

Shepherding and agriculture (Smith’s 2nd and 3rd ages of man) gradually brought more sophisticated forms of property, first from tribal towards extended familial property forms and then towards individual families, and finally to inheritable personal properties. With such local property forms the need for resolving disputes emerged, many of them violent. Societies with individual property forms developed fairly high forms of civic society, at least for short periods, and while the annual distribution of “the necessaries, conveniences, and amusements of life” remained skewed, the long accumulations of stone-civilisations spread across Europe and the north Asian landmass, while not much changed elsewhere.
Into this world of cycles of civilisation and barbarism, with accumulating knowledge amidst “pusillanimous superstition”, and slow growth in total “GDP” (for want of a better term), though fairly constant per capita GDP (the surplus creamed off and directed to stone monuments, the detritus of such is scattered across the Euro-Asian landmass), Bruce introduces a conceptual apparatus to judge past epochs as if such concepts are applicable or remotely relevant to the past generations involved, or to modern generations, about what is called “history” (none of which we can change, experience, or even remedy now).

The distant past is, well, distant. The terrible crimes of oppression, genocide, sexual dominance, shaman-led atrocities, wholesale slavery, conquest, and ignorance, cannot find a remedy, a balm or an anti-septic comfort, nor can they be “revenged” (by whom on whom?). We are not just the descendants of noble savages, ignoble tyrants, and human saints. There are now six billion (and counting) where two millennia ago there were 100 million, and a couple of hundred millennia ago there may have been 50,000 or fewer.

Back-projecting modern indignation onto that past is an awesome vision. Who knows which “crimes” and degrees of “culpability” were shared by which individuals in the ancestors of each of us? Who knows who, among the past populations aided and abetted any of the “crimes” of their fellows, whether chasing and killing interlopers from other tribes on “sacred land”, or stole their women, or swung the lash or the sword at the defenceless “spoils of war” and unspeakable domination, right up the modern genocides of Nazism or Stalinism?

A Smithian perspective is somewhat less ambitious, and more to the point. It is to study the past to learn how the present came about; to neither condemn nor praise it, but to understand it, and to offer advice in areas where changes may be made to improve the lot of those unable to prosper humanely under the current regimes of the current plenty.

Property made some societies in the mainly Northern latitudes incomparably more opulent that the majority of the rest of the world’s population; attacking, perhaps destroying, the basis of that opulence is to act as if property never happened, or that it should have happened differently. That it didn’t happen differently is sufficient warning that what didn’t happen couldn’t happen. No examples of societies without property, "fairly" or “unfairly” distributed, managed to create the technologies and knowledge levels of those with property. Searching for evidence of seething masses of revolutionary inspired “soldiers” held down by perfidious state functionaries is as futile as it is fictional.

I think understanding such awesome facts is a proper prelude to understanding how and why we might move, slowly and gradually, towards societies more in line with the sentiments, oft expressed by Adam Smith, where those who sustain and co-operate in the progress towards opulence share in the resultant growth in “the annual output of the necessaries, conveniences, and amusements of life”.

[My 2008 book, Adam Smith: a moral philosopher and his political economy, (Palgrave Macmillan) gives a more detailed account than I managed to squeeze in here.]

Elinor Ostrom - An End to Homo Economicus?

Mario Rizzo writes (13 Oct) in Wall Street Pit HERE and Here:

“Elinor Ostrom and the Relevance of Economics”

“In fact, I would venture the guess than most economists had not heard of her before the prize was announced yesterday morning.

Two reasons for this are that her degree is in political science and she has written for publications outside of the mainstream economics journals. Additionally, her work, by and large, lacks the high degree of mathematical formalism now so characteristic of economics.

Yet the Nobel Prize Committee has done a great service to economics and the greater social-scientific community. When a well-known economist receives the prize little is gained apart from the recognition of a job well done and perhaps some wider public recognition. I do not think that great contributions are made in any discipline because of the incentive effects of an improbable prize. However, in this case the Nobel Committee has brought extraordinary work to the attention of an economics discipline that has become excessively specialized and, perhaps increasingly irrelevant to the real world, as Paul Krugman and others have recently suggested.

Professor Ostrom’s work is highly relevant to important issues in economic development, common-pool resources, the development of social norms, and the solution of various collective action problems. Her work is also methodologically diverse. She uses experimental methods, field research, and evolutionary game theory. She is not afraid to draw on various disciplines when appropriate: economics, political science, evolutionary psychology, cultural anthropology and so forth.

“She is a very worthy intellectual descendant of Adam Smith who realized that the study of trade based on self-interest needed to be supplemented by a broader view of humankind – individuals capable of the so-called “moral sentiments” like honesty, benevolence, and loyalty, as well as the standard vices.”

“The central problem on which her employment of the notion of “thick rationality” can shed light is what she calls “social dilemmas.” These are circumstances in which interacting individuals can easily succumb to maximizing their short-term interests to the detriment of their long term interests. To return to our irrigation example, suppose farmers share the use of a creek for irrigation. They face a collective problem of organizing to clear out the fallen trees and brush from the previous winter. Each farmer would like to have the others do it. There are incentives to free-ride on the “public spiritedness” of others – however, everyone may think this way and nothing will get done. Ostrom finds that cooperation will often take place while the “thin” theory of rationality predicts that it will not. She finds that factors such as face-to-face contact (likely when there are small numbers), the equality of each farmer’s stake in the benefits of irrigation, and the ease of monitoring the farmer’s contribution to brush removal all make the likelihood of cooperation greater.”

Comment
If, like me, you are unfamiliar with the new Nobel Prize winner, Elinor Ostom’s work, you should start by reading this short piece by Mario Rizzo. It is a continuation of Adam Smith’s approach to moral philosophy and political economy.

It also rejects the sanitized neo-classical formalism, locked into abstract maths and non-human theories of rationality, but which claims “scientific” status despite the evidence that little of it applies to the real world and real humans – and when it is applied and policy conclusions are drawn from it and tried, they fail miserably, as the billions spent on development have shown from their unspecified, though visible and obvious, unintended outcomes.

From what I have read so far, Adam Smith’s legacy is safer in Elinor’s hands than almost the entire discipline of modern neo-classical economists put together.

Excellent Questions on Adam Smith's Thinking

Scott Beaulier reports on The Economic Way of Thinking HERE

“A Night of Enlightenment”

“Jim Otteson's talk here at Mercer last week was titled "The Scottish Enlightenment on the Promise and Peril of Commercial Society." Jim gave us a wonderful overview of the Enlightenment (with particular emphasis on Adam Smith). According to Otteson, the promise of commercial society was material abundance and greater freedom of choice; Smith, the great empiricist, speculated about the causes of economic abundance, and, with hindsight, his conjectures appear to have been on the mark.

While I got to spend plenty of time with Jim while he was in town, there were still a number of questions I never got to ask him while he was in town.”

[Scott lists the questions he didn’t get to ask Jim, but does not appear to offer any suggested answers, which is a great pity as they are good questions and Jim Otteson is an excellent source for good answers]

The Questions:

“(1) As a philosopher and historian of economic thought, what does he (Otteson) think of the literature that says Adam Smith was no liberal (in the classical sense)?

Many respected historians of economic thought have painted a picture of Smith as someone other than Mr. Laissez Faire. Along with some recent and carefully thought through history of thought pieces, there's also Murray Rothbard's attack on Smith.

(2) In Otteson's Adam Smith's Marketplace of Life, the "Das Adam Smith Problem" is reconciled by saying a model of self-correction is present in both of Smith's major books, The Wealth of Nations and The Theory of Moral Sentiments. In fact, Otteson pushes the idea to say a market-like model is present in Smith's ideas about aesthetics and language, too.

While I find the Otteson argument persuasive, I worry about the mechanisms in the "market for morality." They are less clear than the signals sent by profit and loss in formal markets.

(3) Can you tell us a bit about ways Smith's friendship with Hume influenced Smith's views of economics, politics, and religion?

(4) What are we to make of Smith taking a job as commissioner of customs of Scotland late in his career?

(5) How much stock do you place in the happiness research results mentioned above and discussed in your presentation?

(6) What would Smith think about the economic imperialism (e.g., the law & economics revolution, the economics of the family, etc.) that has occurred in our discipline?”

Comment
If I hear any more about answers to these questions I shall post the link on Lost Legacy.

Failign that I shall post my answers to them, though I would prefer to read Jim's answers too.

Examples of Adam Smith's Lost Legacy

From the World Most Popular 20th century Textbook:

“Smith’s message said in effect:

‘You think you are helping the economics system by your well-meaning laws and interferences. You are not. Laissez-faire; let be; hands off. The oil of self interest will keep the economic gears working in almost miraculous fashion. No need to plan. No sovereign need rule. The market will answer all things’

Smith never did prove the truth of this. Indeed, until the 1940s, no one yet knew how to prove – or even to state properly – the kernel of it in Adam Smith’s invisible hand doctrine.”

Paul A. Samuelson and William D. Nordhaus, 1985. Economics: An introductory analysis, 12th edition, p 760

Comment
Pure imagination on Samuelson and/or Nordhaus’s part!

Smith never said anything like this “in effect” or otherwise.

Smith’s complaint about government was not about “well meaning laws and interferences” – he recognised the absolute need for laws and justice, without which, he said, society “would crumble into atoms” and “a man would enter an assembly of men as he enters a den of lions” (see Moral Sentiments, II.ii.3.3 & 4: 86).

He never said “Laissez faire; let be; hands off”. He never used the words ‘laissez faire’ anywhere in the near a million words he published. These words were uttered in 1680 by M. Le Gendre, a French merchant in Lyon, to M. Jean Baptiste Colbert, the French Minister of Finance.

He would never have said such a dangerous and seditious thing as “no sovereign need rule” in 18th-century Britain. Transportation would have been the least of his problems.

That such a popular textbook selling millions contained such twaddle is disappointing. No wonder the myths about Adam Smith are so widespread today.

[My comments do not detract from the huge debt economics as a discipline owes to Paul Samuelson.]

Chicago is a Long Way From Kirkcaldy

Simoleon Sense HERE contains this erroneous gem:

“The Profile Of Robert Shiller, Mr. Bubble” (via Yale Alumni Magazine)

They argue that flaws and excess are inherent to a market economy — and that they are not minor. “The economics of the textbooks seeks to minimize as much as possible departures from pure economic motivation and from rationality,” Akerlof and Shiller write. “Our book marks a break with this tradition. In our view economic theory should be derived not from the minimal deviations from the system of Adam Smith but rather from the deviations that actually do occur and can be observed.”

Comment
The problem with this gem is to which “system of Adam Smith” is Simeon Sense referring?

Is it the invented system of “pure economic motivation and from rationality”, otherwise known as the “Chicago Adam Smith” of post-1950s US academe, Nobel Prize winners and all, or is it the system of the Adam Smith born in Kirkcaldy, Fife, Scotland in 1723, as outlined in his "Moral Sentiments" (1759) and his “Wealth Of Nations" (1776)?

Was 'Capitalism' Designed by Adam Smith?

In a debate, so far conducted as an exchange of comments, I have made a longer comment than the system allows, so I have brought it a a post below:

I refer to my post and subsequent comments 'Beyond the Facts' with Antony North, below'

'This was not how capitalism was meant to be, originally devised by Adam Smith as a philosophy to go alongside thrift.'

My problem with this sentence is the part: “how capitalism was meant to be”.

Societies are not ‘meant to be’ (if so, who by? How does the ‘meant to be’ work?, etc.).

Societies are not ‘designed’ by any one person. All attempts at utopias fail; good intentions account for nothing; nobody
‘designed’ any previous society.

Gatherers engaged in certain behaviours which they inherited from their primate ancestors (the common ancestor of both hominines (hominids) and chimpanzees). They developed regional behavioural differences. The pre-history of primates and hominines show variations (east and west African chimpanzees, bonobo’s, and the lineage of hominines went through at least 18 different species before the human species emerged, 400,000 years ago). Homo sapiens also varied in their adaptabilities to local conditions.

Gatherers, opportunistically, also hunted small-sized animals (as do chimpanzees), later going after scavenged carcasses and, eventually hunted bigger game, assisted by primitive technologies – worked stones and wooden shaped weapons.

No individual designed these changes – those that worked assisted survival; those never tried left those who never tried at the inherited level of subsistence (for most hominid species, they had long histories, counted in hundreds of thousands of years before their extinctions).

Shepherding was picked up by minorities of local tribes, as was farming. The majority of gatherer-hunters/scavengers remained as they were as humans for most of the 400,000 year span lived by humans so far. As John Locke put it: 'in the beginning al the world was America’ (in reaction to the discovery by higher technology tribes of lower technology tribes still living as did our forebears in the forest). Even today, there are some isolated tribes still living off their surroundings as the whole world once lived.

The division of labour was not designed by anybody; it happened as individuals found it worked for them. Professor Frances Hutchison opined in his posthumous work, A System of Moral Philosophy (1755), that the leader divided up the tribe into separate jobs, which was solely from his imagination. Where did the leader get the idea from? Or was it discovered independently scores of thousands of times over and again across human societies?

Hence, I come back to the question of who invented capitalism, a question that must also explain how and why it took different forms across the globe among those human societies that had moved from pastoral subsistence to ‘towns and countryside’ and had survived and functioned in many different forms across Europe and Asia, from the Atlantic to China, with many examples of some societies collapsing (Mediterranean) or stagnating (India and China) and not sustaining (or reviving) into commercial societies, as happened in late-Medieval western Europe from the 15th century.

The rise of commercial civil societies in the 18th century is explained historically and how and why they went on into distinctive forms of capitalism from mid-19th century onwards.

Crediting an individual when there were many individuals thinking and contributing their ideas, is the folly of such assertions. Just because some key thinkers (Pufendorf, Chydenius, Quesnay, Cantillon, Turgot, List, Hamilton are less well known today is not a good reason to hand such a role to Adam Smith, who did not live long enough to codify how British capitalism (which evolved differently from Scandinavian, French, German, and US capitalism) evolved. Moreover, as much of his legacy had been heavily distorted, and confused with others (Mandeville, the Physiocrats, Ferdinand Lasalle, Marx, etc., - see my Adam Smith’s Lost Legacy, 2005: Palgrave-Macmillan) it is not difficult to rebut the idea that he ‘designed’ capitalism.

You ask: ‘Is it correct to say Smith devised his concepts within an ethic of thrift? I think so’.

I answer that it is a extreme generalization. ‘Thrift’ as you postulate is in Smith’s philosophy expressed as ‘frugality’, as opposed to ‘prodigality’.

Thackeray and others, (say, Trollope) noted the extravagant living of the upper-orders and saw the corruptions of the finance capital, which was the essence of late-19th century ‘capitalism’. Corruption was already evident in the South Sea Bubble, the East India Company, etc., in Smith’s time, in a relatively smaller–scale commercial society, and was more than evident in the decline of Rome. Adam Smith observed; he did not predict nor proscribe.

Capitalism evolved whatever Adam Smith or anybody else thought about the society they lived in. It has ever been thus; human nature is unchanging.

Adam Smith's Legacy Understood at the Top

Coincidentally, two correspondents of Lost Legacy both sent me emails this morning about the same article that appeared in The New York Times (19 August) by David Leonhardt: “Theory and Morality in the New Economy” HERE:

Leonhardt’s theme begins conventionally, judging by recent spates of articles assessing Keynes’s solution to depression versus the alleged views of Adam Smith, usually wrapped in nonsense about his supposed preference for ‘laissez-faire’ (a policy phrase he never mentioned), and absurd proposition that the US economy has pursued such a policy for several decades leading to the ‘credit’ (more likely ‘debt’) crunch.

But then, Leonhardt changes gears:

“Yet here is where the story becomes a little complicated. Six years ago, Bantam Classic published a mass-market volume of Smith’s 1776 masterwork, “The Wealth of Nations,” with an introduction by Alan B. Krueger, an economics professor at Princeton. Krueger argued that Smith’s modern image had become unhinged from his actual writings. “Smith was a nuanced thinker. He was not nearly as doctrinaire a defender of unfettered free enterprise as many of his late-20th-century followers have made him out to be,” Krueger wrote. “He recognized that human judgment was not infallible.”

Here is where I sat up and paid attention, and I was rewarded with the first article that I can remember these past months that demolished the myth that Adam Smith’s ideas were followed by US (and UK) governments in events leading to our present sorry condition. Alan Krueger plays his role in what follows.

“Smith was indeed a champion of individual liberty and worried about how governments might muck up an economy. But he also wrote that the goal of employers, “always and everywhere,” was to keep wages as low as possible. “When the regulation, therefore, is in favor of the workmen, it is always just and equitable; but it is sometimes otherwise when in favor of the masters,” he concluded. He supported a tax on luxury carriages and taxes on alcohol, sugar and tobacco. He said that “negligence and profusion” inevitably occur when corporate managers control shareholders’ money. And as the historian Emma Rothschild has noted, “The Wealth of Nations” uses the phrase “invisible hand” precisely once. In the 1,231-page Bantam edition, it appears on Page 572.”

Having set the scene, Leonhardt explores current commentary in the context of Adam Smith with which readers of Lost Legacy ought to be familiar. Here is a sample:

“The principles of laissez-faire capitalism were elevated to the status of religious scripture, with Alan Greenspan as high priest. In “The Cost of Capitalism,” Robert J. Barbera, a longtime Wall Street economist, notes that Greenspan and others confused the fact that market capitalism was the best economic system with the misguided notion that it was the perfect system.”

Read the full article in the New York Times for more examples, especially Leonhardt’s quotation from an interview he did with President Obama, who replied to a question by introducing Adam Smith into his answer:

“Adam Smith, at the same time as he was writing about the invisible hand, he was also writing about that moral sense — that human ecology — that allows a market to work: the sense that if I bring my goods into the market, someone is not going to hit me over the head; the sense that because I am trading with this guy often enough, that I know that the scales aren’t tampered with,” Obama said. “That compact that we make is not just legalistic. It has to do also with our politics and our culture, and when that starts eroding it inhibits economic growth as well.”

If the top understands the issues like that, supported, I hope, by diligent staff- work by those who influence the top and construct the policy options, then I for one find it encouraging.

Liberty and Property Require Civil Society

Thomas Brewton writes in AntiMisandry (‘curing feminist indoctrination’)(?) HERE:

“Adam Smith’s Wealth of Nations (published in 1776) demonstrated that wealth and higher standards of living emanated, not from the political state, but from the sum of individuals working in conditions of political liberty, most especially private property rights.”

Comment
Adam Smith did no such thing. Thomas Brewton seems to think that a ‘political state’ is separate from the ‘conditions of political liberty’ and the assurance of ‘private property rights’, which is absurd.

Now, of course, the majority of states in the history of the human species did not guarantee political liberty (most do not do so today) and many have a chequered record on guaranteeing private property rights, but you cannot have either condition without a civil society behind them.

And Adam Smith understood and made these points several times Moral Sentiments (1759), Lectures in Jurisprudence (1762-63) and Wealth Of Nations (1776).

In fact he went further in Wealth Of Nations to assure readers that despite his adherence to the principles of liberty, though they were sufficient conditions for prosperity, they were not absolutely necessary, though, of course, they were preferable:

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

Living standards and wealth (the annual output of the ‘necessaries, conveniences, and amusements of life’) have ‘prospered’ in many societies that were and are well short of liberty and the sanctity of private property; indeed, some of the worst oppressors and thieves of private property have also been the worst offenders in this regard.

Follow the link if you are curious about the rest of Thomas Brewton’s piece. He is a long-established contributor to the (ultra) conservative US press with strong opinions to match.

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).

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.

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.

Adam Smith and Capitalism

‘Gagdad Bob’ writes in One Cosmos HERE:

‘The Stone Age Economics of the Left: Who Would Jesus Bail Out?’

‘But Gress believes that such critical developments as liberty, democracy, and the free market weren't so much ideas as behaviors that people lived out and only later reflected upon, in the manner, say, of Adam Smith, or America's founders. In other words, no one invented capitalism, or liberty or democracy, and that's the point. These things had to first be lived and experienced in order to be valued in an abstract manner.’

Comment
Extracted from Gagdad Bob’s long article (worth reading for a different but intelligent view of the ‘cosmos’).

‘Gress’ touches on a theme I have commented upon several times in Lost Legacy. Some contributors to Blog Land refer to principle authors associated with path- breaking themes, such as Adam Smith and Wealth Of Nations for instance, which assert, erroneously, that he ‘invented’, ‘created’, or was somehow responsible for the emergence of ‘capitalism’.

This, more than the usual misattribution of the word ‘capitalism’ to Adam Smith, when, of course, the word itself was first used in English in 1854 in a novel, The Newcomes, written by William M. Thackeray, and Smith died in 1790.

The assertion that Adam Smith ‘invented’ capitalism is the main error. Smith did not invent anything; nor its it likely that anybody could invent a social phenomenon of such a scale. Indeed, attempts to ‘invent’ new societies with new ‘plans’, crafted for their assumed perfections that their authors consider valuable, but which have not been tried out for their practicality (I am thinking of Karl Marx and such of his ilk) have a poor track record.

Even trying to bolt on a set of social arrangement onto an existing social arrangement has had unintentional consequences, mostly negative (think of those religious preferences imposed on their societies).

‘These things had to first be lived and experienced in order to be valued in an abstract manner.’

I think ‘Gress’ or ‘Gagdad Bob’ (it’s not clear which or both) has got it right. Social trends (for ‘good or ill’) emerge for them to be ‘lived’ and ‘experienced’ for them to be set into social norms and last beyond being a fad among a few and to become a definite trend among many.

This is a more likely scenario for, say, the emergence of such defining trends as the ‘propensity to truck, barter, and trade’ (of much wider social application than mere commerce (Polanyi’s error), the division of labour (initially associated with natural degrees of ‘fitness’, physical, emotional, and intelligence), the behaviours of gift exchanges, leading to reciprocity norms and sanctions, and the emergence of shepherding, farming and property.

The earliest manifestation of these social changes within early, larger societies than the gatherer/scavenger small extended family bands led, of course, and inevitably, to the emergence of inequality, without which the emerging, social changes, designed by nobody, would not have taken root.

Adam Smith, a moral philosopher, was an acute observer and knowledgeable reader, who wrote about what he understood of how society from the earliest times had evolved, not always positively, to, ‘at last’, the age of commerce well before classical times. He refrained from commenting about what would happen beyond his own lifetime – that was for future legislatures to determine. He recommended changes to existing arrangements, particularly in the political economy of the mercantile practices of current governments across Europe.

He was not too optimistic that the necessary changes would be introduced. He was realistic enough to recognize that such changes would come about, if at all, ‘slowly and gradually’, because that is how they had come about in the past, and contingent, unanticipated events could as easily change things for the worse as for the better.

His Book IV of Wealth Of Nations should be read for how he approached the existing state of affairs right across British society. It is a remarkable tour de force on how he applied his observations to existing problem trends and how he applied his realism about the limitations of conscious human interventions on manifest missed opportunities to overcome major, and minor, obstacles to the approach to opulence within the existing norms of British society, upon which the unhappy plight of the overwhelming majority of the population depended for amelioration of their circumstances.

Only Slightly Disappointed

A correspondent writes to inform me that Dan Ariely is not a graduate economist but, in fact, he was a graduate in psychology (BA), cognitive psychology (MA), cognitive psychology (PhD) and Business Administration (PhD). Apart from his second PhD, he is not an academic economist, so I was wrong to be astonished that he wrote what he did about Adam Smith (it depends on how much history of economics he read on the business administration programme).

However, Duke University is home to one of America’s strongest centres for history of economics and very much the current ‘home’ of the subject. It publishes the leading academic, refereed journal, History of Political Economy (HOPE), regularly recruits graduate students for its PhD programmes.

But it is still surprising that a specialist in behavioural economics, which is justifiably critical of the rational Home economicus model, has not read what Adam Smith actually wrote in both Moral Sentiments and Wealth Of Nations, and appears to have accepted on trust what 20th-21st century ‘authorities’ claim were his ideas.

If a major figure is claimed to be the foundation of so-called rational economics and one’s major work is about developing a more realistic model of human behaviour, I would have thought it incumbent to read for oneself the original works and published papers.

Call me old fashioned but that’s my approach. When I taught undergraduate students in Economics I, many years ago, I often reminded them that St Thomas, the Doubter, was the patron saint of students. Should I ever visit the subject of behavioural economics, I would start with a long reading list before commenting on what has proceeded my interest or curiosity.

Smith in Glasgow '09 Conference Report

This was a stimulating conference (with only one or two duller bits) with about 70 participants (I was surprised at this attendance, as I envisaged it being packed). The format was conventional in that Plenary Lectures were interspersed with concurrent seminar sessions, which worked well in the two adjacent buildings (converted churches with imaginative use of space, easy flow for people and comfortable arrangements – Spartan, if functional).

First up was a concurrent seminar session that I chaired. Jeffrey Young of St Lawrence University presented ‘Justice, Property & Markets: economics as moral philosophy’. No surprise that I agreed with Jeffrey’s approach because it covered ground that I have addressed in my paper on the ‘Pre-history of Bargaining: multi-disciplinary treatment, Part I’ HERE.

Then Nerio Naldi (University of Rome La Sapienza) presented 'Rhetorical Influences on Adam Smith’s Analysis of Value and Prices in Wealth Of Nations'. He also announced that this is his last paper from a seven-year project and he has now switched to work on Samuel Pufendorf (who had enormous influence on the teaching of moral philosophy in Scotland in the 18th century). ‘Tis a pity because Nerio’s ideas on Smith’s value and prices were tantalising for me.

The first Plenary session was addressed by Nick Phillipson from the University of Edinburgh, whose final version of his intellectual biography of Adam Smith, he assured me, is almost off to the publisher for publication. Many people await Nick’s book, of which parts have been ‘trailed’ over the years (I last heard him lecture impressively on Smith in 2006 at Columbia University, New York). He too mentioned the influence of Pufendorf on Hutcheson and his student, Adam Smith, and how through Professor Robert Simson at Glasgow (Prof of mathematics) and his work of modern geometry, the Scottish moral philosophers ‘invaded’ territory normally ‘dominated of Christian theologians’.

Of note for me were Nick’s emphasis on Smith’s theory of language essay, which he included in editions 3, 4, 5, and 6 of Moral Sentiments, though dropped, ‘inexplicably’ by the Glasgow editors for the definitive bicentennial 1976 edition. As David Raphael, one of the editors of the Glasgow edition was present, I missed a serious opportunity to ask him the reasons for this omission, though we spoke several times during the conference.

I chose to attend the concurrent seminar session where Craig Smith presented his paper, ‘Adam Smith and the Dedicated Follower of Fashion’ (yes, from the 1980s song). This proved to be tour de force of Moral Sentiments on that species in society, mocked by Smith while recognising the important stabilising role of attention to attention-seeking personages in his day (as in ours). The chairman took Maria Carrasco’s paper (‘From Psychological to Moral Sympathy’) right away, and many participants were still queuing to speak at the close of the session.

The Plenary Lecture was from Professor J. Chandler (University of Chicago) on ‘Smith the Critic’, for which I took no notes. He concentrated on Smith’s rather obscure, short notes on literature and the imitative arts, saved from burning in 1790 by Professors Black and Hutton, and first published in 1795 in Essays on Philosophical Subjects. I confess, the lecturer’s themes, content, and conclusions were somewhat beyond me, though several contributors to the discussion were highly complimentary, so my lack of appreciation is probably my fault out of my ignorance.

Thursday concurrent seminars began (for me) with two excellent papers presented by Eugene Heath (SUNY) ‘Adam Smith and Ambition’ and Spiros Tegos (University of Crete), ‘The Demigod and the Superstitious Worshiper: the two sources of corruption of moral sentiments in Adam Smith’. In the debate, I linked some of the statements by the presenters to certain important biographical details about Adam Smith that shed light, in my view, on the subtleties of Smith’s well-quoted statements.

The Plenary Lecture was delivered by Tom Campbell, one of Glasgow’s own and author of Adam Smith’s Science of Morals (1971). He was extremely lucid and well prepared, and used extracts from Moral Sentiments to great affect, to support his subject: Adam Smith: method, morals and financial markets. I was struck by his Smithian approach to justice as ‘impartial resentment’ and particularly when he spoke of Smith’s religiosity in terms that left room both for the conventional assessment of Smith’s alleged Deism and for a more detached view (such as my own) of Smith’s ‘post-Deistic morals’.

However, he also presented the conventional assessment of the invisible hand in Smith’s books and I sought an early intervention in the discussion period, which the chairman, Professor Brodie (holder of Smith’s original Glasgow chair in logic), graciously called me first. I presented, briefly I hope, my critique of the modern interpretation of the invisible hand in Moral Sentiments and Wealth Of Nations (apologising for ‘getting the dissent out of the way for what I considered to be a brilliant lecture on Moral Sentiments’). Tom replied fulsomely, but not rancorously, and afterwards in conversation he asked to see my paper because he had not considered the implications of my critique in any depth before.

The last of the concurrent seminar sessions I attended were from a trio of excellent presentors and common debate and responses. Richard Boyd (Georgetown): ‘Smith on nationalism’; Fona Forman-Barzilai (UofC, San Diego): ‘Smith’s Anti-cosmopolitanism’, and Maria Paganelli (Yeshiva University, New York): ‘The moralising role of distance in Adam Smith: Moral Sentiments as a possible praise of commerce’; were in complete command of their subjects, with the audience in close attention. As younger members of the profession, they showed it is in good hands.

The last Plenary Lecture was by Amartya Sen, of whom little else besides superlatives can be offered. I last heard him conduct a post-graduate seminar in 1971 at seminar at Brunel University, West London, with astonishing style, empathy with the students, and complete clarity of expression. Only a physical change can be reported; his mind and modes of discourse is still beyond comparison, and like all truly praiseworthy individuals he showed no arrogance of tone, nor airs of disapproval under close questioning by members of the audience.

His theme was poverty and inequality, ‘prodigals and projectors’ (Smith’s phrase) and the limitations of rational choice theories, to which he is acknowledged to be a major contributor in his career, though he expressed reservations about the operational value of rational choice theory in the real world. In this, he is closer to Adam Smith’s approach – which he presented without dogma or the certainties of a ‘man of system’. A line, discussing the limitations of grand visions: ‘Some are born small, others do small things, and some have smallness thrust upon them’, caused wry smiles around those in the audience I could see.

He spoke of ‘transcendental institutionalism’, considering getting institutions right (social justice, for instance) to be a major priority, while recognising there were no ‘perfect’ solutions. He spoke of his early experience as a male in the feminist movement, mostly in relation to feminism where its absence has appalling consequences – more serious for women in the poverty economies than, I suspect, among women in the opulent world – in life expectancy, life treatment (mutilation was particularly noted) and alienation.

In the debate he showed everything that is good about his intellectual standing – listening to each question or point and methodically answering them with empathy for the truth, not for being ‘smart’. He made a very positive impression on everybody and many went to the front to ask, but mainly to listen, to the informal discussions he incited.

Of the conference arrangements, I consider them to have been excellent (whatever the panics out-of-sight below water!) and the Glasgow Adam Smith Research Foundation, led by Professor Chris Berry, demonstrated how to manage an academic conference without ‘tears’ or ‘pain’, at least for the participants.