Self-Interest and Copyright

William Patry writes the Blog, Moral Panics and Copyright Wars (‘a blog about copyright discourse’) which is about his book of the same name, published by Oxford University Press’ HERE:

“Adam Smith and the invisible hand of copyright” (22 August):

“Adam Smith’s theory was that “individuals were led in the pursuit of their own self-interest by an invisible hand to pursue the nation’s interest, but also that this pursuit of self-interest was a far more reliable way to ensure that the public interest would be served than any alternative,” especially government intervention. Joseph Stiglitz, however, rejoined that “the invisible hand often seemed invisible because it was not there.” (Page 98). John Maynard Keynes also rejected this view:

It is not a correct deduction from the Principles of Economics that
enlightened self-interest always operates in the public interest. Nor is
it true that self-interest generally is enlightened; more often individuals
acting separately to promote their own ends are too ignorant or too
weak to attain even these. (See pages 98-100 of the book).”

Comment
Copyright is the 'price' exacted by authors (and publishers) for potentially acting in the public interest (creating and publishing works which the public purchases from the publishers, a small portion of which goes to the authors).

Whether individual products are really in the public interest are separate issues – the bulk of books do not sell out their first printing; do not make a profit; often do not cover their costs; and sometimes do not cover their author’s advances (though some, such as David Hume’s, 1739-40 Treatise, ‘which dropped from the press stillborn’, but become a major contribution of philosophy and are still in print in the 21st century).

No alternative system of mobilising the efforts of authors, covering the financial risks of the publishers and, in the wider sense, serving the public interest, has been devised so far.

Besides setting the rules of copyright in laws, the state has a minimal role in deciding what may be written and published by laws on defamation, libel, plagiarism, inappropriate language and subject, the administration of which is subject to a legal process, not the executive (in non-totalitarian societies).

Where I may disagree with William is the above repetition of errors about Adam Smith’s views on self-interest, such as the false characterisation that Smith asserted: “individuals were led in the pursuit of their own self-interest by an invisible hand to pursue the nation’s interest”.

This was a specific, not a general, assertion by Adam Smith in a single instance in his 900-page, Wealth Of Nations (Book IV) in the case of some, but not all, merchants investing locally and in aggregate thereby increasing the annual output of “necessaries, conveniences, and amusements of life”.

This was occasioned by some, but not all, merchants being risk-averse about investing in foreign trade, as he states quite clearly in chapter ii, of Book IV. Their ‘risk-aversion’ led them to do so, which Smith capped with a well-know 17th-18th century metaphor of “an invisible hand” to give a more “striking” representation of the link between their risk-aversion and a nation’s interest. (Metaphors are not real!).

It was not a universal rule, though it has been made into one by modern economists, few of whom ever read Wealth Of Nations, and is passed around by repetition since the mid-1940s.

The idea that Smith’s understanding of self-interest led him to assert the easily refutable notion that a mystical entity intervenes in the economy to lead self-interest individuals to benefit the national interest is a insult to his scholarship.

He never said such a thing.

Indeed, in Books I and II of Wealth Of Nations he gives over 60 examples of self-interested actions in which individuals act in a manner contrary to the national (even local) interest.

Consider his suspicious opinions of the behaviours (many of which he documented) throughout Wealth Of Nations, including in Book IV, before and after the single instance of his use of the metaphor of “an invisible hand”, of “merchants and manufacturers”, “legislators” and those who influenced them, and national governments, and then explain these widespread behaviours, based on the self-interests of the individuals concerned, with the alleged statement attributed to Adam Smith that, somehow, individuals end up achieving something manifestly at odds with what they actually achieve.

Smith’s ideas about self-interest were not “nuanced”; they were starkly clear and did not include the attribution modern economists give to him. I concur with Keynes and Stiglitz in their quoted assessments.

Update:

William writes that he was quoting Stiglitz on Adam Smith's reference to the invisible hand.

That is not as clear the way the Blog is written, but I accept that William is innocent and Stiglitz is the guilty party.

Either way, the assertion that Smith wrote the ideas I criticise in my post remains an error of attribution by modern economists.

Real Wealth

From Airllelon’s Investing and Trading Blog, complete with video links to U-tube-style pieces by the author (HERE) I find this piece:

"Week in Review: The Death of Keynes Mercantilism?"

"It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country" - Adam Smith

For decades now, Keynes has been held as the pinnacle of "capitalist" thought, and the latest in the evolution of what started with Adam Smith.

There's only one tiny problem with that little concept.

Keynes was no capitalist. Keynes ideas are a direct descendant of everything that Adam Smith opposed. Keynes ideas are a descendant of Mercantilism. Capitalism isn't dying, because Capitalism hasn't been practised. Keynes Mercantilistic thoughts and theories are what are dying.

Keynes firmly supported concepts found in Mercantlism. Which is that government should work in partnership with private companies.

In a Capitalistic society, there can be no lobbyists.

In a Capitalistic society, governments do not work as partners with private industry.

In a Capitalistic society, private industries do not seek capital from the government when they are doing poorly."

Comment
To quote a phrase, “there’s only one tiny problem with that little concept”. The author of the piece goes on to recommending to readers that they buy silver, not gold, because silver is doing better at present, which is partly exactly what Smith considered was a central fallacy of ‘mercantile political economy’!

Gold, silver, and cash money are not wealth in Smith’s eyes. They are illusionary wealth by being stored claims on the real wealth. They do not create wealth in themselves. Hording gold or silver will not add to the wealth of nations.

Wealth according to Adam Smith was the ‘annual output of the necessities, conveniences, and amusements of life’, or the real goods and services of consumption, and working capital.

Revenues from engaging in productive work can be spent on final consumption or re-invested in future productive employment; the balance between these ends determines whether growth in the next period’s annual output of real wealth occurs.

Too much prodigality in consumption and too little in re-investment is not good for an economy, or the people in it. Hoarding metallic ‘symbols’, such as gold and silver is a psychological comfort to individuals but does nothing for the economy. Printing more money is not a substitute for generating the means to produce real wealth when it is disconnected from the real economy; too much printing leads to inflation, not more real wealth (see Zimbabwe).

Strong boxes, protected vaults, brim full of gold and silver, are sterile unless part of the great wheel of circulation that puts to work real resources, primarily labour, capital, and work in progress.

Adam Smith did not write about ‘capitalistic’ society – that came later in the mid-19th century. Long before the commercial entities in the 19th-20th-21st centuries sought governmental help for whatever mess they were in, powerful entities in ancient times sought relief of various kinds from their states, usually in the form of retribution against former clients and competitors, punitive expeditions, revenge missions, armed interventions and lucrative supply contracts. Emperors, kings and ‘strong’ leaders, also sought help from traders – sometimes as excuses to intervene with neighbours in pursuit of plunder and tribute, and colonies and empires.

What is needed by those who write about the ‘perils’ of modern capitalism and modern states is a little more historical knowledge beyond what they apparently misunderstand to be the unique behaviour of the current age. Unless they are only interested in selling their 'solutions'...

Adam Smith and Keynes

Susan Lee writes on a ‘A Keynsian Halloween’ in Forbes.com, 24 October HERE:

“Keynes' central (and disputable) insight was that markets were not self-correcting during economic downturns. He rejected Adam Smith's idea that businesses, when they found they were holding too much inventory, would drop their prices. Lower prices would then entice consumers back into the market and the economy would perk up again.

Instead, Keynes argued that downturns could become protracted. When faced with too much inventory, businesses would cut back production and lay off workers. Since the unemployed wouldn't have money to spend, the economy could stagnate at low levels of production and employment.”

Comment
A bit unfair to Adam Smith, who was not in a position to speak of what all businesses would do, as might be inferred from what we know of a modern market economy. Dearth and feasts in his day came from agriculture and not the relatively small commercial sector, itself separated into local impacts only.
Notions of ‘managing an economy’ were two centuries later.

Even with this qualification, Susan Lee’s contrast between Smith and Keynes (surely ‘Keynesian’ and not ‘Keynsian’?) is not quite right. Smith spoke of what a seller would do in a local market – too many apples on the barrow would lead to a fall in price per apple.

Even if that local example of a seller’s reaction to a lack of buyers was extended to the entire country, it would still lead to a drop in prices. To suggest it wouldn’t is to deny experience.

Whether this would revive the economy or not is not an issue addressed by Adam Smith, though it might be addressed by post-Smithian economists who, across the board, claimed Smith authored their versions of economics popular from Mill, Marshall, and the neo-classicals, when clearly he didn’t, as a reading of Wealth Of Nations shows.

When Smith discussed ‘the natural and market Price of Commodies’ (WN.I.vii.pp 72-81), he followed his argument through as market prices fell. Landlords would withdraw their land as rent income fell; as wage income fell, labourers would look for other work; and employers would withdraw from that line of activity as prfots fell (WN I.vii.13: pp 74-5), and eventually market prices would adjust to their ‘natural rate’.

Smith discusses at length the effects on price of changes in ‘effectual demand’; he does not discuss general slumps in demand across all commodities; but for what he does discuss, his ideas are broadly correct. By the early 20th century, Keynes moved the discussion well beyond the simple effectual local demand ideas of Smith.

Indeed, late 19th century economists generalized Smith’s arguments pertaining to local market conditions into strong assertions about ‘laissez-faire’ as if they were Smith’s views (he never mentioned laissez-faire) and adopted the policy of leaving markets to solve the trade cycle, as if this was Smith’s view. The epigones were responsible for this turn of events.

Keynes, brought up, so to speak, with this so-called Smithian package, struck out in a different direction (‘The End of Laissez-faire’, 1926) and went on in the General Theory (1936) to prescribe solutions as he saw them for a stricken economy and not just a reaction by a market-stall holder of too many apples left over near closing time in a street market.

Hence, Susan Lee ascribes to Smith a view that he did not articulate about a condition he did not face and credits to Keynes a criticism he had no business making in regard to Adam Smith, but he did have grounds for his criticism if directed at contemporary 20th century economists. She should have written:

‘He rejected the contemporary idea popular among his contemproaries that businesses, when they found they were holding too much inventory, would drop their prices.’

As in so many other areas of economic commentary by columnists and professional economists, including Nobel Prize winners, they attack an innocent man for the doctrinal sins of his successors.