A Good Case for Markets Spoiled by Misuse of Quotations

Walter E. Williams posts (18 February) ‘Economic Miracle’ in The Patriot Post (‘the conservative journal of record’) HERE:

“Adam Smith, the father of economics, captured the essence of this wonderful human cooperation when he said, "He (the businessman) generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. ... 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." Adam Smith continues, "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. ... By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." And later he adds, "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."

If you have doubts about Adam Smith's prediction, ask yourself which areas of our lives are we the most satisfied and those with most complaints. Would they be profit motivated arenas such supermarkets, video or clothing stores, or be nonprofit motivated government-operated arenas such as public schools, postal delivery or motor vehicle registration? By the way, how many of you would be in favor of Congress running our supermarkets?”

Comment
While agreeing with much of the content of Walter E. Williams’s article, I am bound to say that he also exposes that he has never read Wealth Of Nations from which he quotes.

This is obvious from his lack of context to his quotation of the famous and sole ‘invisible hand’ paragraph from page 456 in Book IV of Wealth Of Nations, which doesn’t quite say what he alleges it does. But leave that alone. It is an error that many (most?) people make and I have answered it many times on Lost Legacy.

However, he then says: ‘And later he adds, "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”, which is on page 27 of Book I, that is 235 pages earlier than page 456, and is by no means ‘later’. Clearly, Walter has never opened a copy of Wealth Of Nations, otherwise he would not have made such a crass error.

Is this important? Well, it is indicative that Walter relies on ‘popular’ versions of the misuse of The Metaphor, which are usually quite wrong.

I have read prominent economists, of unimpeachable standing, join the invisible hand paragraph (there is only one in the entire Wealth Of Nations written by Adam Smith) to the ‘butcher, brewer, and baker’ paragraph as if they appear together.

Even then, they miss the point Smith makes in the ‘butcher, brewer, and baker’ example: Smith advised those seeking their dinner to appeal not to their own self-interests, but to address themselves to the self-interests of the ‘butcher, brewer, and baker’. In short: you serve your own self interests by serving the self interest of others, which is not how most economists conclude from what is plainly written there.

But, this paragraph has nothing to do with The Metaphor of ‘an invisible hand’ as Smith used it, nor anything to do with how the numerous authors before and contemporary with Smith used it (download my paper, Adam Smith and the invisible hand: from metaphor to myth, from Lost Legacy’s home page, in red).

Caveat Emptor - The Quote Suspect

‘Trent’ posted ‘Maturity and Money’ on ‘Easy Simple Side Money’, allegedly (caveat emptor!) "
A place for the little guy to learn how to make a couple bucks on the side.’
HERE:

"The one absolute requirement of a money manager is emotional maturity. If you don’t know who you are, the stock market is an expensive place to find out.
- Adam Smith

I ran across that amazing quote from Adam Smith (an 18th century economist that’s often seen as the father of modern economics) the other day at the library and it’s stuck with me."

Comment
Wherever ‘Trent’ got this spurious quotation from it was not from Adam Smith (1723-90).

I suggest Trent's readers ask him to check the library he says he got it from – someone may be conning him, which in the money advice business could be fatal for his readers’ wealth.

Adam Smith On Selfishness and Public Spirit

Roland Patrick lets go on Let’s Fly Under the Bridge HERE: with at The Kansan (Thomas Frank: author of ‘What’s the Matter with Kansas?’) with “What's the Matter with Frank?” in a warm debate between them both on the ‘crumbling US infrastructure’ (roads, bridges, and highways).

Roland Patrick states in his piece:

“Well over two centuries ago Adam Smith explained, in Wealth of Nations, how the public got what they needed, and it wasn't usually through 'public service'. It was by appealing to the selfish interests of producers of food, clothing and shelter. i.e., by offering money in return.”

Comment
If your are going to quote from Adam Smith (or, indeed, anybody) you ought to get the quotation correct. Slipping in the word ‘selfish’ before interests is, er, naughty. There is quite a lot of difference between ‘self interest’ and ‘selfish interest’.

You may be selfish as your fancy takes you, but that’s no way to engaged with other people. Selfishness begets selfishness. But in exchange transactions, especially when bargaining for something, Adam Smith made it clear exactly what is involved:

‘But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. 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.’ (WN I.ii.2: p 26-7)

You get what you need, not be being selfish but by interesting their [NOT your] self-love in his [NOT your] favour, and show them that it is for their [NOT your] own advantage to do for him [You] what he [You] requires of them [Him].

It’s a two-way, not a one-way, street. It’s his self-interest you address, not your own. And you do this by using a conditional proposition, ‘If you..Then I’:

“Give me that which I want, and you shall have this which you want”

The important element of bargaining is to convince the other party how and why she benefits from the transaction. You have to be ‘other-centred’, not selfishly self-centred.

Nobody selling you a television would be successful if he told you that you should buy because he, the seller, will be able to afford a new car. The buyer wants to hear what benefits she gets from the deal, not what the seller gets, and the seller should tell her why it is beneficial to her not him for her to agree a purchase.

I am amazed how so many people, supposedly living in the most capitalist market place in the world, never seem to think about the numerous buying and selling transactions they must get involved in and how and why some went better than others. Even supposedly well-trained sales people remain ignorant of the basic principle of sales – link your product to the needs of the buyer, not your needs as a seller.

Adam Smith never recommended selfishness – in fact he criticises selfishness in his earlier book, Moral Sentiments, and repeats his anti-selfish message in the passage quoted above from Wealth Of Nations. And, by the way, contrary to common perceptions, Smith also had some positive things to say about ‘publicly-spirited men’:

“The same principle, the same love of system, the same regard to the beauty of order, of art and contrivance, frequently serves to recommend those institutions which tend to promote the public welfare. When a patriot exerts himself for the improvement of any part of the public police, his conduct does not always arise from pure sympathy with the happiness of those who are to reap the benefit of it. It is not commonly from a fellow-feeling with carriers and waggoners that a public-spirited man encourages the mending of high roads. When the legislature establishes premiums and other encouragements to advance the linen or woollen manufactures, its conduct seldom proceeds from pure sympathy with the wearer of cheap or fine cloth, and much less from that with the manufacturer or merchant. The perfection of police, the extension of trade and manufactures, are noble and magnificent objects. The contemplation of them pleases us, and we are interested in whatever can tend to advance them. They make part of the great system of government, and the wheels of the political machine seem to move with more harmony and ease by means of them. We take pleasure in beholding the perfection of so beautiful and grand a system, and we are uneasy till we remove any obstruction that can in the least disturb or encumber the regularity of its motions. All constitutions of government, however, are valued only in proportion as they tend to promote the happiness of those who live under them. This is their sole use and end.

From a certain spirit of system, however, from a certain love of art and contrivance, we sometimes seem to value the means more than the end, and to be eager to promote the happiness of our fellow-creatures, rather from a view to perfect and improve a certain beautiful and orderly system, than from any immediate sense or feeling of what they either suffer or enjoy. There have been men of the greatest public spirit, who have shown themselves in other respects not very sensible to the feelings of humanity. And on the contrary, there have been men of the greatest humanity, who seem to have been entirely devoid of public spirit. Every man may find in the circle of his acquaintance instances both of the one kind and the other. ….
In the same manner, if you would implant public virtue in the breast of him who seems heedless of the interest of his country, it will often be to no purpose to tell him, what superior advantages the subjects of a well-governed state enjoy; that they are better lodged, that they are better clothed, that they are better fed. These considerations will commonly make no great impression. You will be more likely to persuade, if you describe the great system of public police which procures these advantages, if you explain the connexions and dependencies of its several parts, their mutual subordination to one another, and their general subserviency to the happiness of the society; if you show how this system might be introduced into his own country, what it is that hinders it from taking place there at present, how those obstructions might be removed, and all the several wheels of the machine of government be made to move with more harmony and smoothness, without grating upon one another, or mutually retarding one another's motions. It is scarce possible that a man should listen to a discourse of this kind, and not feel himself animated to some degree of public spirit. He will, at least for the moment, feel some desire to remove those obstructions, and to put into motion so beautiful and so orderly a machine. Nothing tends so much to promote public spirit as the study of politics, of the several systems of civil government, their advantages and disadvantages, of the constitution of our own country, its situation, and interest with regard to foreign nations, its commerce, its defence, the disadvantages it labours under, the dangers to which it may be exposed, how to remove the one, and how to guard against the other. Upon this account political disquisitions, if just, and reasonable, and practicable, are of all the works of speculation the most useful. Even the weakest and the worst of them are not altogether without their utility. They serve at least to animate the public passions of men, and rouse them to seek out the means of promoting the happiness of the society.” (TMS IV.i.11: pp185-6)

This suggests to me that Adam Smith saw some advantages in certain public acts by men of ‘public spirit’ through their drive and enthusiasm for making where they reside a better place than living with a ‘crumbling infrastructure’ and accepting the failings of governments – not markets – with a helplessness born of unsocial and inhumanity for those who have to accept it because they know of no other way of life.

People accept rubbish strewn streets, they are resigned to them; yet the same people could be mobilized by enthusiasm to start cleaning it up and keeping it clean.

In Smith’s time this civic duty was called ‘police’ (not the law and order kind - a later emaning - but cleaning up the streets), and a place was judged clean by the absence of rubbish and sewerage in its streets. Edinburgh’s Old Town was a filthy mess for many years, until some public spirited citizens demanded that the City Officers kept clean what the local people had cleaned up.

Misuse of a Quotation from Wealth Of Nations

Michael Dawson writes in Dissident Voice ('a radical alternative in the struggle for peace and social justice’ (HERE):

“We’re no. 28”

Does the flagship of big business society really prove the truth of Adam Smith’s famous claim that

“by directing that industry in such a manner as its produce may be of the greatest value, [the capitalist] intends only his [or her] own gain, and he [or she] is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his [or her] own interest he [or she]…promotes that of the society more effectually than when he really intends to promote it.”

For those actually willing to investigate and answer this question, the evidence is clear: Check out Mercer Consultants’ 2008 quality of life and personal safety survey results.

Mercer, which describes itself as “a global leader for trusted HR and related financial advice, products and services” that “has more than 18,000 employees serving clients in over 180 cities and 40 countries and territories worldwide,” finds that the top US city in its quality-of-life index is:
Honolulu, ranked #28”

Comment
I have not comment on the politics espoused by Dissident Voice (I only comment on the politics of the country I vote in, which is Scotland, UK).

However, I have an opinion on the misuse of a quotation from Adam Smith's, Wealth of Nations, which you will find at: WN IV.ii.9: p 456. I quote it accurately below:

“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. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

Note the unnecessary and misleading insertions of the words: ‘the capitalist’; ‘or her’, ‘or she’, and that ‘he or she’ missed one in the last part of a sentence.

Inserting the word ‘capitalist’, a word not invented in English until 1854 (Oxford English Dictionary), when it appeared in Makepeace Thackery’s novel, The Newcomes (Smith died in 1790), is discreditable when giving the impression that Adam Smith was commenting on an economic system called capitalism when he patently was not. I call this ‘rent a quote’.

Moreover Smith was not talking about an economic system or even a market. He was discussing a behaviour associated with risk avoidance on the part of some merchants who preferred the home trade to foreign trade with the British colonies in North America, which no longer existed after 1783, when the British colonists forced the surrender of the British army, and the country went on to become the United States.

I would also observe that the authors of Dissident Voice appear to live in California, one of the richest places on Earth, and to which millions, not to say billions, would be delighted to move to from where they are to avoid starvation, disease, and a quality of life far removed from the heady delights of California.

Is this a Correct Use of a Quotation?

Steven Malanga in City Journal writes (19 July) about “New Jersey’s Ruin - The state’s leaders seem determined to drive it off a cliff”.

“Adam Smith once wrote that there’s a “great deal of ruin in a nation,” by which he meant that it takes an awful lot of bungling by political leaders to bring down a powerful and prosperous state. Today, New Jersey pols are giving Smith’s thesis quite a test drive. They are steering the Garden State toward ruin at an astonishing pace, and no amount of bad economic news seems capable of deterring them.”

Comment
I am not sure of the situation in New Jersey, which Steven Malanga details in his piece (HERE), but the exchange between Smith and Sir John Sinclair, following the British surrender at Saratoga, involved the following words:

Sir John: ‘If we go on at this rate, the nation must be ruined.’

To which Smith replied: ‘Be assured young friend, that there is a great deal of ruin in a nation’

From Ian Simpson Ross (Smith's definitive biographer), 1995. The Life of Adam Smith, p 32, Oxford University Press; in Correspondence of Sir John Sinclair of Ulbster, i.390-1, and in Correspondence of Adam Smith, Letter no. 221, footnote 3, Liberty Fund, 19.

It may be that Smith was less concerned at the prospect of the government’s defeat by the British colonists in America than Sir John (see Wealth of Nations, IV.vii.c: 64-79: pp 614-26), than the enormous cost of maintaining colonial monopolies that diverted scarce capital away from productive investment, and thereby contributed to slower economic growth, and also distorted capital flows from more rapid growth in the UK in favour of a longer turn around of capital, from once every four years instead off two or three times a year if invested locally.

In this context I am not convinced that Steven Malanga has deployed the quotation from Smith with greater affect.

As for the good folks of New Jersey, whatever happens in the near future, there may be pain, but the losers from corrective changes are not going to give up policies that benefit them as things stand; however, capital flight is feasible for those hurt by the current policies. The current gainers may end up the future losers.