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)?

Adam Smith Favoured Publicly Funded Public Works

"KerPlonka" (HERE):

“Economic Miscellany"

“Given that infrastructure in Canada is generally agreed to be in bad need of some work, given the economic value infrastructure has, and given that even Adam Smith was in favour of certain kinds of infrastructure spending, this is a hell of a lot better than spending money on John Turner-style make work programs or government day cares or whatever.”

Comment
I was struck by the unnecessary word ‘even’ in front to Adam Smith: “even Adam Smith was in favour of certain kinds of infrastructure spending”.

Presumably ‘Kerplonka’ has little familiarity with the Adam Smith (born in Kirkcaldy in 1723) who was author of Wealth Of Nations (1776; Book V, to be exact).

Maybe he is more familiar with the ‘Adam Smith’ invented in Chicago in the 1950s, who is credited with all kinds of ideas he never held.

The Kirkcaldy Adam Smith, on the other hand, was very much in favour of public works and public institutions that facilitated commerce, which he considered should be funded by government in their construction, and that their management and maintenance should be funded by some combination of public and private monies, including by charges for those who used the facilities (with the rich paying more where practicable).

It is pleasing to see that the Kirkcaldy Adam Smith is coming to the attention of the good people of Canada. I hope their interest in the genuine article will continue.

Putting Chicago's 'Adam Smith' (not the one born in Kirkcaldy) to Ill Use

Combine a shallow knowledge of Adam Smith, his moral philosophy and his political economy, with a self-interested response to a perceived world crisis that is recipe for a totalitarian state that may be worse than the perceived problem, though it would create decades – possibly centuries – of sustainable work for, er, architects… unless, of course, it all ends in tears.

John Van Doren (architect) writes a literate Blog, The Sustainable Home, HERE:

So where does he get his image of the way the world works?

“In 1776, Adam Smith made some ground breaking observations about economic behavior and published An Inquiry into the Nature of Causes of the Wealth of Nations. Smith would argue that individuals, working in unfettered freedom for their own self interest, would collectively and via an “invisible hand” provide for the greatest common good. His work would provide the foundation for much of today’s economic theory and would father the concept of the “free market”.

“Adam’s work coincided with the birth our nation, and it is ironic, but not surprising that this Scottish moral philosopher, would become the patron saint of Wall Street. For many, the belief in the invisible hand of an unfettered free market would take on religious overtones and it would become the dominant sub-text in our American political discourse.”

“…However, free markets and their invisible hand are blind to these limits and will continue to grow out of self interest until the invisible hand of the underlying ecosystem adjusts out of its own self interest.”

Comment
Who said that modern economists and their fantasies about Adam Smith are only innocently mistaken? They are responsible for no doubt the well meaning John van Doren who believes his false views about what Adam Smith said (yet John can read Smith’s books for himself – they are available for a few dollars from the likes of Amazon, or for my account of his views, Adam Smith: a moral philosopher and his political economy, it is also available from the same source, er, for a few dollars more).

John gets his ideas about Adam Smith from 20th-century Chicago-trained economists not from Adam Smith’s books.

Chicago teaches his alleged laissez-faire advocacy not from Smith - he never used the words - and similarly, the alleged ‘invisible hand’ was a metaphor that he used only once in Wealth Of Nations to describe the consequences of risk avoidance among merchants contemplating engaging in foreign trade. His sole reference in Book IV of Wealth Of Nations was nowhere near his account of markets in Books I and II. And the religious connotations came from mid-20th century epigones, not Smith.

That John stretches the famous metaphor from it being invisible to it also being ‘blind’ is almost laughable, though sad.

I shall say nothing about John’s remedies for what he sees as unsustainable economics. They are just so, well totalitarian, almost a brief ‘treatment’ that could sell a Hollywood film script (well, he does live in Los Angeles) for a disaster movie, complete with sinister, all powerful government – perhaps a plot for another series of 24?

On the other hand they could be a PR piece for his being hired as an architect to design one of his utopian ‘villages’ to give him a ‘sustainable’ life style.

Young Economists Appreciate the Adam Smith Born in Kirkcaldy

My Google search produced news of an interesting Blog (HERE:)

Undergraduate Economist ‘(‘Perspectives of an Economics Student’), with a post (13 June) from Alex M Thomas in India:

“On the ‘Invisible’ Adam Smith”

“This post mainly deals with the common misconception about Adam Smith, whose name is known to all students and professors of Economics; the misconception being the notion that he advocated laissez-faire. Sadly, his works are not as known. (Though the names of his two major works are widely known) So, this post tries to makes visible what is commonly invisible regarding Smith.

In the Indian Schools, textbooks in Economics associate him with the ‘wealth definition’. In Frank ISC Economics, which is authored by D K Sethi and U Andrews, Adam Smith is supposed to have defined Economics as “A science which enquires into the nature and causes of wealth of nations.” Definition is “a concise explanation of the meaning of a word or phrase or symbol”. [Dictionary.com] Adam Smith has never defined Economics i[n] the afore mentioned way. Is it ‘right’ to teach such ideas? Isn’t it against the ethics of academics? A large number of students are programmed in such a way in school, whereby their notion of economics is constituted only by neoclassical economics. Plurality in economics has been totally done away with. Teachers teach what is printed in the textbooks. No questions are asked.
Also, it is not surprising to see classical economists (Smith, Ricardo, Malthus, etc) being seen as ‘classical’ or rather irrelevant, because of either their naive assumptions or their bad theories.

The primary focus of this blog post is to argue that Adam Smith never advocated Laissez-faire. Let me put forth two instances where such a misconception has been put forth.

The following paragraph was published in The Hindu Young World, a widely read Indian Newspaper.

Adam Smith’s fundamental proposition was that a free market is a self-regulating mechanism and tends to produce the most desirable types and quantities of goods.
The second instance is from Economy professor, an online dictionary of economics.
Adam Smith’s fundamental argument was that individuals should be allowed to pursue their own private economic interests as much as possible and so long as they do not violate basic principles of justice.

Smith called this the invisible hand of the market - although everyone is acting in their own self-interest, they are led to achieve the good of all as if by an invisible hand of economic forces. Therefore, outside interference will inevitably lead to disaster. This became known as laissez-faire economic policy.

In fact, there is very little evidence to state that Smith advocated ‘free markets’ through stating the importance of self-interested behaviour. Also, he viewed individuals as a part of the society and not like an individual that is cut off from the society - the Homo economicus. Sen rightly points out that “it is precisely the narrowing of broad Smithian view of human beings, in modern economies, that can be seen as one of the major deficiencies of contemporary economic theory.” [Sen, A.K. 1987: Economic Behaviour and Moral Sentiments. On Ethics and Economics. OUP].

Comment
I am encouraged that recently graduated students have picked up on the central message of Lost Legacy. Recently, I corresponded with an graduate economist from Oxford University. It augurs well for the future.

In the preface to Adam Smith’s Lost Legacy (Palgrave Macmillan, 2005) I opined the wish that:

‘…by the third centennial aniversary of Wealth Of Nations in 2076, the distinguished participants will convene to celebrate what Adam Smith actually intended and not merely to recount the fables created by those who misappropriated his legacy. That is my motive for writing Adam Smith’s Lost Legacy.’

Whether the participants do so depends on what young economists do during their careers, especially in research and teaching.

Given the increased longevity now being experienced in the world, expected to be experienced across a wider population in the coming decades, it is possible that some of you reading this in your early 20s will attend the 2076 anniversary. It’s down to you to ensure that they celebrate what the Adam Smith who was born in Kirkcaldy in 1723 actually believed and wrote about and not the ‘Adam Smith’ from empty hologram invented in Chicago’s 54th Street in the 1950s.

Congratulations to Alex Thomas for his post. I have bookmarked his site to follow his progress.