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.

Better to Be Aproximately Right Than Absolutely Wrong

Shaun Snapp writes Counter Economics (‘The Site of Investment and Financial Industry Criticism) HERE:

He has been influenced by Chomsky and Naomi Klein and has been reading Lost Legacy too. He is by profession a financial analyst, not a professional economist.

I do not necessarily agree with everything that Shaun Snapp articulates, but I think he understands Adam Smith’s actual legacy more clearly than many academic economists. For that alone he deserves a wider readership. Here is a sample:

“Intellectuals and Economists on the Misrepresentation of Adam Smith
Some prominent Economists such as Joseph Stligliz pointed that left to their own devices markets will produce too much of things that hurt other people (such as pollution) and too little of things that help other people (such as research - unlike what is presented in advertising, most research is still funded by the government, private companies have no interest in basic research, and much less interest in any research they can not immediately monetize.)

Noam Chomsky, a very serious intellectual, has repeatedly complained about the misuse of Adam Smith’s work. This quotation is also from Adam Smith, though never quoted.

The invisible hand, he wrote, will destroy the possibility of a decent human existence “unless government takes pains to prevent” this outcome, as must be assured in “every improved and civilized society.” It will destroy community, the environment and human values generally – and even the masters themselves, which is why the business classes have regularly called for state intervention to protect them from market forces”

Don’t allow those who can barely read complex writing to misuse Adam Smith to justify policies that only benefit the wealthy at the expense of everyone else. The Theory of Moral Sentiments, also by Adam Smith is filled with discussion on how to create a just society and the importance of the government to help make this so.
There are other areas that Adam Smith showed concern for an overemphasis upon work and division of labor caused a tunnel vision causing negative spillover effects on the other portions of a person’s life”.

Comment
Read the article (follow the link) and scroll through some of the others. I am encouraged by evidence, like this, that a wider appreciation of Adam Smith’s legacy – as he wrote it, and not how some people invented it in the 1950s – is underway and, hopefully, will permeate throughout the media, eventually.

Thought for the Day - 3

One benefit, at least, of not being able to work for a few days, which included not reading my email alerts on Adam Smith across the world’s media, is the time it created for reflection. Not that this produced much retained sense; more a dream-like flow of unrelated thoughts, among which were strings of thoughts about roosting chickens.

There is a debate underway among historians of economic thought on whether economists really need to study the history of ideas in what we may loosely term our discipline. Those economists who take the view that the history of economic ideas really has nothing to do with modern economics, point to it being unnecessary for ‘real scientists’ to read the works of Isaac Newton, and his lesser luminaries, so why bother with Adam Smith and the rest?

My views on this debate (I have not joined in, so far) are predictable. The physical world is fairly constant – each and every carbon atom is assumed to behave the same way, and has done so through the ages, and unless that changes in known circumstances, its properties and relationships with other atoms are not expected to change. Knowledge gains in hard sciences build upon earlier knowledge gains, and future knowledge gains continue the process.

Turning to economics – part of human sciences – it is quite different. We hardly know about past economic history; even recent history is controversial and is wll sshort of arriving at a settled view. There are political views of economic behaviours – as far as I know, we do not have ‘leftwing’ or ‘rightwing’ carbon atoms – and we do not have a settled view on what constitutes economic society or on what would constitute a society that could be said to be the basis for all further societies without (controversial) changes.

As economics was derived from political economy, shedding within a century, philosophy, sociology, anthropology, history, politics, psychology, and such-like, though, unfortunately not shedding mysticism, idealism, utopianism, and, eventually, all traces of real human beings, an imaginary world has replaced the real world.

Now, that there were great gains from this process is not disputed, of course, but questions arise as to the costs in what the great ‘gains’ do not explain. Apart from which there is genuine concern about the usefulness of the abstract when directed at policy-making in real human societies. Even among the most mathematically-oriented of economists there is no agreement as to whether policy A is ‘better’ than policy B (or policy C to Z).

It is not as if modern economists are better fitted in 2009 to understand (stepping down from ‘to advise’) than their predecessors, already starting down the road we’ve travelled, in 1909 (or for that matter 1809). The current ‘global crisis’ has not produced a consensus among the brightest in our profession (Nobel prize winners stand on opposite sides with different prescriptions) as what should be (could be) done, even if the players in the mix of, say, the G20 were minded to accept whatever advice the equations would give them.

And that’s the rub. The players do not behave as the mythical Homo economicus prescribes, and neither do all the other players in all the levels below them. The aggregates in an economy, however expressed neatly in well-behaved functions, do not capture what the models require of them. And their authors are impotent to make them do so.

It is not as if we are talking about wildly improbable outcomes from clearly defined categories (the effect of heat on molecules of a specific quality as taught in Physics 101). For a ‘hard science’, surely we can expect a straight answer to a simple operation like ‘quantitative easing’ and its likely affect on activity? My colleagues among the historians of economic ideas are debating, hotly, just now about what constitutes money. Unlike, the physicists, who agree on the role of gravity, modern economists are not so sure about the venerable role of money.

No wonder, that ideas of modern economics fall foul to the barely understood ideas of past economists, where they are not simply made up (as has been the fate of Adam Smith among many modern economists who assert his so-called ideas shamelessly without reading him). We may not need to read Newton’s Principia to add to the knowledge base (so far it has not let us down, though it has been improved upon safely because its foundations were so strong), but where did our ideas about money, for instance, come from, and where may our ideas about money be built on less secure foundations than the ‘certainties’ we were taught recently?

I leave these thoughts for the thoughtful readers of Lost Legacy.

A Reply to a Commentator

My post yesterday, which I attributed to ‘anon’, apparently comes from a ‘gk’, or ‘Gary’, from Knoxville, Tennessee, though I did not notice his initials when I commented, for which I apologise. His initials, in small type, are easily missed (at least by me).

I shall reply to his comments in general terms – a blow-by-blow critique of them would probably cause deeper friction than is expressed in his response in the Lost Legacy comments, and which are much enhanced on his Blog (HERE): As an educator, I have no interest in causing friction when there is an opportunity to learn something.

I accused Gary of appearing not to have read Wealth Of Nations in respect of Smith’s use of The Metaphor of ‘an invisible hand’. His critique of President Obama’s misuse of The Metaphor was not/is not the subject of my post; I do not comment on another country’s politics).

My interest is in defending Adam Smith’s legacy, which, in my view Gary has not understood, and no wonder. Almost the entire body of US (and UK’s) academe misrepresents Adam Smith’s use of The Metaphor (see earlier posts since 2005 on Lost Legacy), including the worthy encyclopaedias and internet dictionaries cited by Gary – of which Wikipedia is particular notorious).

This misrepresentation began in the early 1950s as economists reacted to the assault on ideas about Western capitalism emanating from the Cold War (but ‘hot’ in places), with Soviet communism. The contest between communist planning and market capitalism was in the forefront of these debates, as Western European economies, with several social-democratic parties in government, and large communist parties in France and Italy, hotly contested which economic system was appropriate.

Economics textbooks, such as Paul Samuelson’s, introduced a modern version of the metaphor of ‘the invisible hand’ and credited it, under Adam Smith’s name, as being his ‘theory’ of markets, which markets were (and are) superior to state planning. These textbooks gradually became the norm across academe, training hundreds of thousands of students in beliefs that markets were guided by an ‘invisible hand’ to lead to optimum solutions of problems of market resource allocation and efficiency, in contrast to the manifest failings of Soviet State planning, and Western social-democratic ‘nationalisations’.

What became of The Metaphor (unintentionally, I am sure) in the rest of the 20th century was a belief, widespread to be sure, that markets had a ‘mystical’ ingredient in them that made them superior – in some recent versions, the invisible hand has become the ‘Hand of God’ – which is wholly ridiculous if linked to Adam Smith and the Wealth Of Nations.

Moreover, the modern myth of the invisible hand, mentioned only once by Adam Smith, and then not about how markets work, is based in part of a paragraph in a chapter about a specific issue (risks in the colonial trade), as if it was a major element in Adam Smith analysis of commercial society. It was, in fact, nothing of the sort.

I have made this case regularly on Lost Legacy (follow the ‘invisible hand’ label, including on my comment on Gary’s post), and in my books; ‘Adam Smith’s Lost Legacy’, 2005; and ‘Adam Smith: a moral philosopher and his political economy’, 2008, both by Palgrave Macmillan.

I have also posted a downloadable paper, ‘Adam Smith and the Invisible Hand: from metaphor to myth’ on this site (it’s on the Lost Legacy Home page; click on the red lettering; scroll through to ‘Articles and Press’ and then click ‘The History of Economic Thought 40th Anniversary Conference at University of Edinburgh: Adam Smith and the Invisible Hand: from metaphor to myth: A Lecture by Gavin Kennedy’.

I did not on this occasion go into such detail in my comments on Gary, because the documentation supporting my assessments is widespread on Lost Legacy. I quote examples of the popular prior use in literature of the metaphor of an invisible hand, as follows (refs are in the above paper):

“ Homer (Iliad, 720 BC); ‘And from behind Zeus thrust him [Hector] on with exceeding mighty hand’; [12]

Horace, Fulminantis manus Jovis (‘The mighty hand of thundering Jove’); [13]
Ovid of Caeneus at Troy: ‘twisted and plied his invisible hand, inflicting wound within wound’;[14]

Lactantius (De divinio praemio, c.250-325): early use of ‘invisibilis’;

Augustine, 354-430AD, “God’s ‘hand’ is his power, which moves visible things by invisible means’;[15]

Shakespeare, (1605) ‘Thy Bloody and Invisible Hand’;[16]

Glanvill, J. 1661. ‘nature work[ing] by an invisible hand in all things’; ‘invisible intellectual agents’;[17]

Voltaire (1694-1778) in (1718): “Tremble, unfortunate King, an invisible hand suspends above your head’; and ‘an invisible hand pushed away my presents’;

[18]Daniel Defoe, ‘A sudden Blow from an almost invisible Hand, blasted all my Happiness’, in Moll Flanders (1722); ‘it has all been brought to pass by an invisible hand’ (Colonel Jack, 1723); [19]

Nicolas Lenglet Dufesnoy (1735) an “invisible hand” has sole power over “what happens under our eyes”;[20]

Charles Rollin (1661-1741), whom Pierre Force describes as ‘very well known in English and Scottish Universities’, said of the military successes of Israeli Kings “the rapidity of their consequences ought to have enabled them to discern the invisible hand which conducted them”;[21]

William Leechman (1755): ‘the silent and unseen hand of an all wise Providence which over-rules all the events all the events of human life, and all the resolutions of the human will’;[22]

Charles Bonnet (whom Smith befriended in Geneva in 1765) wrote of the economy of the animal: “It is led towards its end by an invisible hand”;[23]

Jean-Baptiste Robinet (1761) (a translator of Hume) refers to fresh water as “those basins of mineral water, prepared by an invisible hand”;[24]

Walpole, H. 1764. ‘the door was clapped-to with violence by an nvisible hand’[25]

Reeve, C. (1778) ‘Presently after, he thought he was hurried away by an invisible hand, and led into a wild heath’.[26]

Adam Smith had many of these books in his library. The invisible hand metaphor was a popular literary reference in the 18th century.

For Adam Smith, the metaphor came into use (only once in the entire volume) after he had succinctly explained in detail in Chapter 2: ‘Of Restraints Upon the Importation from Foreign Countries of Such Goods as Can be Produced at Home’, how merchant traders chose between using their capital in the export/import trade or using it in domestic investment. The key variable for them was the relative risks of both:

“Thus, upon equal or nearly equal profits, every wholesale merchant naturally prefers the home-trade to the foreign trade of consumption, and the foreign trade of consumption to the carrying trade. In the home-trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever necessarily brought home, or placed under his own immediate view and command.” (WN IV.ii.6: p451 or Edwin Canaan’s 1937 edition, p 421, Random House).

This is about risk avoidance, which Smith clearly identifies (‘he intends only his own security’), repeated in the passage that Gary quotes from:

“By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” (WN IV.ii.9: p 456; or in Canaan, p 423)

Now, any close reading of the whole chapter up to paragraph 9 shows what were Smith’s arguments. He identifies risk avoidance as the ‘trigger’ for the actions of some, but clearly not all British merchants, because many merchants traded with the British colonies in North America under the advantages of the British Navigation Acts, which gave British ships, crews, and owners of cargoes a monopoly on exports from Europe to the colonies and imports from the colonies to Europe, all enforced by the Royal Navy and at all British sea ports.

Those merchants who were more risk-averse than the exporters/importers willingly preferred the less risky domestic trade even if it was less profitable. It was this prior decision, fully explained by Adam Smith, which caused them to invest locally and, on the arithmetic law that the whole is the sum of its parts, by doing so it meant that local domestic investment was higher than it otherwise it would be, which benefited domestic capital formation and domestic employment as an unintentional consequence.

Now any reader who had followed Smith’s argument in the previous eight paragraphs had no difficulty in understanding Smith’s conclusion, but not all readers of political economy (then as now) follow every argument, which was important to Smith’s general critique of monopoly foreign trade, especially with the British colonies in North America and, to make sure he carried all his readers with him, he added at the end of his clear argument the metaphor of ‘an invisible hand’ leading them to do as they did on entirely on their own account under the influence of their risk aversion. His use of the metaphor of ‘an invisible hand’ meant nothing more or less than that.

Hence, when I read, as I do, 10-20 times a day from the world’s press and academic papers, assertions to the effect that Adam Smith was the first to identify the invisible hand and that he applied it to his political economy of markets (markets are discussed thoroughly in Books I and II without a single mention of the metaphor in any role at all), I quite often remind Lost Legacy readers of this fact.

Modern economists who make assertions about the invisible hand and associate it with Adam Smith are absolutely wrong to do so.

Smith is wholly innocent of involvement in the mystification of markets; their workings are understood, and were understood by Adam Smith. It insults his legacy to suggest otherwise.

Markets are superior to state-managed economies, including state-capitalist corporate economies, which presently dominate the West, and which enshrine monopolistic principles in place of the superiority of competition, which promote legislators, and those who influence them, to directing roles for which their capabilities are well-short of modest competence.

In that opinion I agree with Gary that governments are not as competent as markets; but this has nothing whatsoever to do with ‘hands’ that are ‘visible’ or ‘invisible’ or with anything that should be associated with Adam Smith.

Selfishness Is Never a Smithian Virtue

Theodore Roosevelt Malloch, author of Spiritual Enterprise: Doing Virtuous Business (Encounter Books), writes in American Spectator this week, ‘The Deeper Roots of Our Financial Crisis’ (11 February), HERE:

“Capitalism, the goose that laid our golden eggs over the past decades, brings about immense transformation, particularly in its globalized form. It is in nature as Adam Smith reminded us in his first book, The Theory of Moral Sentiments, written long before his better-known work, The Wealth of Nations, all about what he called "the moral sentiments." He himself distinguished between self-interest, which he promoted, and greed. Self-interest is both good and essential. Greed is always wrong and bad. The key difference is the former uses self-restraint, which obviously requires a moral code and a moral compass. There are moral preconditions in a market economy: the sentiments of sympathy, benevolence and compassion, of approval; disapproval and indignation, which underpin the social order and make it possible to engage in business in the first place. Human beings are not just profit-maximizers. They have moral scruples, personal commitments and the desire for happiness. These set limits to their plans for personal profit, and also stimulate them to pursue profit in ways that honor their higher values and generosity. Many companies, large and small, exhibit these; they live and conduct business by these values, in every industry and on every continent. I collected sixty examples in my recent book but there are thousands upon thousands.”

Comment
Adam Smith also taught his course in ‘Ethics’ (moral philosophy) in his public Edinburgh Lectures, 1748-51, and at Glasgow University, 1751-64. Much of their contents were written up as The Theory of Moral Sentiments (1759). It is also important to realise that he also taught his Lectures on Jurisprudence, which contained elements of his ‘political economy’ and parts of which were repeated verbatim in Wealth Of Nations (1776 – though essentially completed c. 1763-4).

I mention this to be sure that Theodore Roosevelt Malloch does not accidentally give the impression that Smith’s moral philosophy was in some sense an ‘early work’ that was different in moral tones from his Wealth Of Nations, published some years later. Smith’s Work, essentially, a part of his oeuvre was not a ‘second thought’ as exponents of the myth of the 19th-century, ‘Das Adam Smith problem’, still tout seriously today (I heard a paper claiming it to be a continuing problem in 2008!).

Having said this, I congratulate Theodore on his assessment of Smith’s clear understanding, and repeated statements of the difference between self-interest and selfishness.

This is the second time today that I have offered congratulations to an author on this subject, which certainly makes a change from almost daily having to chastise authors for eliding the two quite separate motivations of self-interest and selfishness, and worse, attributing the erroneous elision to Adam Smith.

Smith didn’t ever get confused on this matter. Those authors – sad to say, many of them economists – who do so, confuse Adam Smith with a predecessor, Bernard Mandeville (1734), whom Smith criticised in Moral Sentiments as ‘licentious’, and they exhibit the ignorance of the Hollywood script writer who had Gordon Gecko mouth the savage words, ‘greed is good’, or perhaps, like Alan Greenspan of the Ayn Rand school of selfishness, misread what Adam Smith actually wrote, perhaps relying on Ayn to be authentic.

That misleading ideas about Adam Smith are not unanimous, encourages Lost Legacy in its not so-lonely battle against the epigones.

Adam Smith is Innocent

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Interesting Views from India

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Adam Smith Was Not a Socialist Nor a Neo-Con

One of the more pleasing consequences of the current financial crisis and its recessionary tendencies is the greater interest in the works of Adam Smith, though, sadly, mainly to mock the false image of his ideas created by neoclassical economists from the 1950s, but also happily, in places, to take an interest in what he actually wrote.

One such example of somebody expressing curiosity about Adam Smith’s ideas is that of ‘wipeltz’, for example, who writes in Daily Kos, (‘the state of the nation’) 22 October, HERE:

‘wipeltz’ asks: ‘Adam Smith, socialist? The search for the Historical Adam’, followed by several quotations from Wealth Of Nations and one from Moral Sentiments, which he/she finds curious in view of Adam Smith’s reputation in the media and academe for his being installed on a pedestal by various figures, including Nobel Prize winners as an icon of laissez-faire, small government, and the ubiquitous ‘invisible hand’ that allegedly asserts that when anybody pursues their self interest, usually elided into ‘greed’ and selfishness’, by some mystical process they end up benefiting society as well as themselves.

Readers of Lost Legacy will recognize that ultra-libertarian ideas about Adam Smith and his political economy are often misleading.

Here is the comment I sent to Daily Kos in response to the questions by ‘wipeltz’:

First the good news for readers of KOS: none of the passages quoted by ‘wipeltz’ from Wealth Of Nations and Moral Sentiments were ‘possibly inserted much later, under the influence of [Marx's] Manifesto’, itself a very strange idea.

While the majority of economists have not read Wealth Of Nations, a small minority of scholars in each generation have read Smith’s Works closely and none have reported to my knowledge any such corruptions. We can state categorically that the worry that ‘Very possibly, some of the original text has been corrupted during its various editions’ is unfounded.

The Wealth Of Nations, published in 1776 and the five editions of it (1776, 1778, 1784, 1786, 1789) edited by Adam Smith before he died in 1790, are intact as he wrote them. The definitive six-volume edition of Adam Smith’s Works and Correspondence is known as the ‘Glasgow Edition’ and was published by Oxford University Press throughout 1976-83.

A popular priced, ‘exact photographic reproduction’ of the Oxford University Press volumes is published by Liberty Fund, Indiana. [I can assure any Kos readers who may suspect its integrity that no changes or omissions have been made in the Liberty Fund reprints.] An authoritative American edition of Wealth Of Nations was edited by Edwin Canaan in 1904 and reprinted in 1937 by Random House, and it is still widely used by scholars. My copy is kept on my desk for reading Canaan’s editorial footnotes.

Perhaps, one brief comment: while the actual text written by Adam Smith has not been altered, his ideas have largely been emasculated from their original meanings by modern economists from the mid-50s onwards. In particular in respect of ideas Adam Smith never advanced, such as laissez-faire (he never mentioned the words), a so-called ‘invisible hand’ explanation of how markets worked (only mentioned once in Wealth Of Nations and on a different topic), ‘small’ government (Smith had a relatively large public expenditure agenda), and ‘non-intervention’ in markets (Smith made several suggestions for intervention, including in banking).

I shall discuss the various quotations offered by ‘wipeltz’ in Daily Kos in a later post today.