On Searching Through Cupboards, Undisturbed Since 1998

The sort out of my library of books continues.

This morning I began on some cupboards in the garage, shut since 1998, when we moved here and I came across some ‘lost’, though not forgotten, books on economic thought, many of which I have kept since the 70s, some of which I have regularly lamented ‘losing’. In that previous move from a big house, where I had a large-room lined with book shelves, to the currently ‘smaller’ house, my then ‘library’ was too big to accommodate, and about half of my library was shipped to France, the best parts of which are housed in glass-fronted cabinets to keep out the dust – the rest in boxes piled in our large bedroom.

The other half was sent to the current and recently sold house, and much of that half was partly stored (‘temporarily’) in boxes and in some garage cupboards. Since 1998, a fair amount of new books have spilled over in piles on the floor.

In short, my depleted library is now in a mess.

We move from here in December and I have a chance (or, of you prefer, I am under family orders) to sort the books out, to safeguard the good books, including those I work from, or intend to do so, and to dispose of the rest to charity shops around town.

Interestingly, among the ‘lost’ treasures that I found this morning was an 1843 edition of Wealth Of Nations, “with a Life of the Author” (Dugald Stewart’s eulogy to Adam Smith in 1793 delivered in 1793) and also “A View of the Doctrine of Smith, compared with that of the French Economists; with a method of facilitating the study of his works; from the French M. Garnier.” Published by Thomas Nelson, Edinburgh, ‘MDCCCXLIII’.

And no, M. Garnier doesn’t mention the ‘invisible hand’ as part of Smith’s doctrine.

However, this particular volume provoked a rather funny, in retrospect only, incident in the mid-80s. At the time, we rented accommodation for our French holidays and I used to take our kids, and those of anyone’s staying with us, to a chain resort called AquaCity on the Bordeaux coast, where they could play in a safe environment (patrolled by dozens of safety ‘wardens’, instantly recognisable in their leopard-patterned costumes) of flumes, pools, rides in large rubber tyres and water, water, everywhere. They loved it.

So did I, but not for the swimming; it was a perfect location for focussed reading, despite the background noise. I would sit down near the cafeteria, read my book, and the older kids would comeback roughly every half-hour to let me know and the little ones were safe – they knew where I was and I was left in peace to read.

Now, to be truthful, I was not quite into the spirit of AquaCity, in that when assured everybody was safe and enjoying themselves, I would sit under a small tree and read. I was, as always in those days, in a suit, tie and heavy shoes (a Business School habit). The temperature was usually in the 70s-80s.

On this particular occasion I was reading this very 1843 edition of Wealth Of Nations.

Absorbed as I was in Smith’s prose “Of the Expense of Defence”, I was oblivious to what was going on around me (my research interests were defence economics), until somebody began shouting nearby, so I looked up, and realised that s man on a nearby path was shouting at me in French. I caught a few words, but most was lost in excitable non-translation.

I looked either side of me for help and a couple nearby, said in English that the man was accusing me of looking at his wife! (She was about ten paces, half hidden behind him.)

But I was innocent. The entire AquaCity landscape was dotted with people, most in bathing suits, many in bikini’s and more than a few topless. After some more outpourings of vitriol, he stormed off, realising I was not French, and, no doubt considering the way I was dressed, as some sort of oddity, as well, in his mind, of me being a quasi-pervert (though why he attacked me I cannot imagine, when I could now see that he and his wife were parading around, as people of a certain age do in France, more than semi-naked).

Fortunately, most of the kids turned up just then, looking for their lunch and soft-drinks.

So, finding this ‘lost’ 1843 volume of the Wealth Of Nations today was worthy of note. It brought back that scene at AquaCity - we have often laughed at it at dinner parties since. But truly, I have missed that particular volume for twenty years or more. Finding it is a joy.

Looking through my copy today, I found a sentence in Book IV (page 188: WN IV.ii.30: 464-5), which I had marked in ink:

“As defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England”.

No other passages are marked in this manner. As defence economics was my main subject in those years, I consider this as evidence as to the sole object of my full attentions that day….

Smithian Competition Confirmed

Laura Fitzpatrick asks: “Are Humans Actually Selfish?” in
TIME (HERE)

“In his new book The Age of Empathy: Nature's Lessons for a Kinder Society, primatologist Frans de Waal uses a variety of studies on empathy in animals to debunk the idea that humans are competitive to the core.

Given all the science that tells us about empathy in animals and in ourselves, why do you think the idea persists that at bottom we're competitive backstabbers?

It was established at the beginning of the Industrial Revolution, when probably it was useful to have a picture of humans as competitive and to base the capitalist system on that image. And in doing so, a lot of political ideologues and economists started to forget that we are also a highly social species. The founder of economics, Adam Smith — to his credit — did realize that if you build a system completely on competitive principles it would not work very well.

What happened a year ago on Wall Street is exactly an example of what Smith was warning [about]. Society is not really made to be a purely competitive operation. And I think we have learned that lesson, but I don't know for how long. The whole argument that nature is red in tooth and claw, and for that reason society ought to be like that, is flawed. Because nature is not like that. If you look at our close relatives, you see animals who survive by cooperating. Yes, there is competition; there is dominance, hierarchy. They sometimes fight. They sometimes even kill each other. But they stick together because they survive together much better than alone.”

Comment
I’ve already commented this week on Frans De Waals’ new book this week, but it occurs to me that I have something to add in a comment on the context of ‘competitive’ in human relationships.

It has long been projected that Adam Smith favoured competition, as if he had written nothing about co-operation. Yet, in the first chapter of Wealth Of Nations he describes the long, and complex supply chain that eventually produced a common labourer’s woolen coat. Nobody was in charge of the supply chain – members of it may not have known, nor did they need to do so, anybody a link or two ahead or behind their place in it. Yet it functioned, if not effortlessly, well enough to provide the consumer with a woolen coat. This required, if not conscious co-operation, at least effective and consequential co-operation.

Buyers along the chain are not in competition with their suppliers; they are in competition with the set of other buyers, as are the set of all suppliers in competition with the set of other suppliers. The failure to appreciate this simple fact misleads many, including, too many, economists who mistakenly attribute to competition vices it never had.

Take the parable of the buyer in contact with the “butcher, the brewer, and the baker”. Most readers of the paragraph containing the parable, who have not read and understood Adam Smith in his books, Moral Sentiments and Wealth Of Nations, go hopelessly adrift in concluding that there is a clash of self-interest between the buyer of his dinner and his suppliers. They even quote it as evidence of their error in not understanding self-interst in Smith's lexicon!

Bargainers make and receive offers, which Smith states clearly as a conditional proposition:

“Give me that which I want, and you shall have this which you want” (WN I.ii.2: 26).

In short, the offers each makes are statements of potential exchanges they would accept. Until they find an offer acceptable to both of them, there is no deal.

The negotiation process is ubiquitous in commercial markets. Demanding everything for yourself and ignoring the demands of the other party is self-defeating.

In fact, Smith identifies how they reach a bargain a few lines further on:

“We address ourselves, not to their humanity but to their self-love, and never talk of our own necessities, but of their advantages.” (WN I.ii.2: 27)

In short, we have to persuade them (not force them), which is an entirely different image in practice to that of high-energy competition.

Over many years, I have extolled the virtue of competing with our rivals, not our customers.

Humans are not “competitive to the core” (a blatant misunderstanding among too many Homo-economicus thinking economists); we are social animals and, because of language, more so than our primate cousins.

The Wall Street Journal, which carried a similar report (thanks Brian) on Frans de Wall’s work, (“Tracing the Origins of Human Empathy” by Robert Lee Hotz HERE
ends with:

"They crossed the bridge with empathy, to realize something that is completely exotic to them," says Dr. Danziger. "True empathy is the ability to imagine how others are feeling, especially people who are not the same as you."

Most humans will recognise themselves in this observation. Smith also would appreciate the conclusion as confirming his 18th-century assertion Moral Sentiments.

Adam Smith's Use of Metaphors

Evelyn Pyburn writes a guest commentary for Big Sky Business Journal HERE:

“Don’t Give Up on Markets”

“The financial meltdown has led many people, especially politicians, to blame the problem on market failure and to jump on the regulatory bandwagon. Though the problems on Wall Street are much more related to regulated markets than free markets, the call is for more regulation to fix failed regulation. Couple this with the fact President-elect Obama and a Democratically controlled Congress are unlikely to embrace Adam Smith’s notion of the invisible hand, and we can expect the anti-regulatory sentiment born in the Reagan administration to wane quickly.”

Comment
It’s better not to “to embrace Adam Smith’s notion of the invisible hand”, that way they only drop a metaphor that had nothing to do with anything Adam Smith wrote about markets.

Markets work without disembodied hands of unknown relevance, as Smith explained clearly in Wealth Of Nations in Books I and II. There is not need for mystical explanations for how markets work. Smith certainly didn’t link markets to quasi-spiritual influences in his use of a well-known 18th-century literary metaphor of ‘an invisible hand’.

Another metaphor he used had to do with the ‘operations of banking’ in the form of their “providing, if I may be allowed to use so violent a metaphor, a sort of waggon-way through the air” [(WN II.ii.86: p 321).

I wonder what the epigones of the mid-1950s would have done if they had read that far in Wealth Of Nations and had picked on that metaphor to describe the mysterious role of banking to “enable the country to convert, as it were, a great part of its highways into good pastures and corn fields, and thereby increase very considerably the annual produce of land and labour”?

An Economist Confines Adam Smith to the Bathroom

Stray Silvers writes the Stray Silver’s Blog (‘updated Tuesdays and Thursday’) 22 January, from Victoria, British Columbia, Canada HERE:

“The economics of a simpler time - a reading list for reformers”

“Some of you may wonder why Adam Smith didn't make the cut.”

[GK: he chose works by Malthus, Ricardo, and Mill]

”I quite enjoyed the Wealth of Nations - enough to re-read it several times. However, despite having some wonderful passages, as a complete text, it's mostly of historical interest. The book is too wordy for its own good, and extremely repetitive. The topics Smith covers are better dealt with in Mill and Malthus, who also correct a few of the pioneer's most obvious errors. Smith had a few specific axes to grind with respect to events that were important at the time and are now obscure, leading to very long stretches of boredom for the modern reader.

The Everyman edition of the Wealth of Nations, which I own, includes notes on the side of each paragraph summarizing its content. If you buy such a print edition, then Smith makes fantastic bathroom reading... flipping the book open to a random page and reading a paragraph or two at a time is a joy. Reading it through, though, as a cohesive work? Not so much.”

Comment
Chacun à sans goût.

However, Wealth Of Nations is not a textbook on economics; it is a critique, by an articulate and well-read moral philosopher, of mercantile political economy as operated by governments from the 15th century towards a fragile commercial society, as it was and as it was recovering in the 18th century, from the destruction of commerce following the Fall of Rome in the 5th century.

It was not a book of principles of political economy and should not be read as such. When it is read as a ‘principles’ text, the reader is likely to be misled overall, and the modern economist (impatient know-alls as they are educated to become) will retire as disillusioned as they are disoriented, which seems to be the case with Stray Silvers (truly, I mean this in the most respectful of ways).

Mercantile political economy was ‘full’ of policy errors which in Adam Smith’s view distorted the production of wealth – the annual output of ‘the necessaries, conveniences, and amusements of life’ – with detrimental effects on the potential spread of opulence to the majority of the British population in mid-18th century.

Stray Silvers correctly notes that these matters are ‘mostly of historical interest’, but I differ from his assessment of their value today, respectfully, by asking to what end would we study history as economists?

In my humble opinion, given that many of the policy questions that affect today’s society arise from similar mercantile policies examined by Adam Smith and are worthy of study for their modern relevance:

‘jealousy of trade’, hostility to potential trading partners; tariff protections, despite fifty years of GATT, WTO, and regional customs unions and ‘free trade’ areas;
corporate business monopoly-type behaviours based on sheer scale and intimacy with Big Governments;

restrictions on competition (public monopolies turned into private monopolies);
Big Governments on a scale not envisaged in Smith’s day but with the same outcomes when legislatures are influenced by special interest groups, well-funded by their beneficiaries;

calamitous social and economic policies (echoes of the Elizabethan policies of Statute of Apprentices, Settlement Acts; Guild monopolies);

mass regulations that often don’t work, and the absence of regulation where it is needed;

wars and preparation for wars, beyond the needs of legitimate defence;
‘failed states’ with kleptocracy in place of civil governments, based on liberty and justice in many parts of the world;

and a near total failure to spread opulence by wealth creation, rather than so-called ‘poverty relief’, despite a century of increasing opulence from economic growth when the world has an unprecedented and impressive record of technological progress.

These not just ‘a few specific axes [for Adam Smith] to grind’, nor were they solely ‘with respect to events that were important at the time and are now obscure’.

Many of these same policies are still with us and seem likely to remain so, despite Nobel Prizes being awarded to modern economists for their versions of their contribution to the ‘progress’ of our discipline, though much of their work, replicated in faculties across the world, are about imaginary economies that do not exist and which are absent of human beings, who resist representation by mathematical variables.

I suppose, however, it is a step in the appropriate direction that Stray Silver recommends people should read Malthus, Ricardo, and Mill. But I am not happy that Smith is left to the confines of the bathroom.

Reading snippets of Smith is what has got us into this mess in the discipline; too much to say about an imaginary world that doesn’t exist (and which legislators and those who influence them do not understand), and too much to say about what Smith never advised (laissez-faire, night watchman states’, ‘leave everything to an invisible hand’, corporate entities are best left alone – even when ‘bad’ they miraculously turn out to be the ‘best’ for society; ‘greed is good’ and selfishness is a virtue).

And that’s the problem. In the bathroom, readers may miss what Adam Smith actually, most of it contrary to what he actually wrote and advised, but when senior economists repeatedly advise governments, legislators, corporate leaders, public opinion formers, interest groups and the general public, that the policies they themselves made up, but which they insist authoritatively are attributed to Adam Smith, whose reputation they have lionized, if not credited with sainthood (‘high priest’ founder of economics, and such tripe), in the sure knowledge that few will actually read his Moral Sentiments and Wealth Of Nations (including some, perhaps, in their bathrooms), they get away with the Big Lie, but the rest of us pay, one way or another, for their intellectual treachery.

Origins of the Word 'Capitalism'

Free Capitalist (13 January) HERE carries this post:

“What is the history of the term ‘Capitalism’?”

“The use of the term ‘Capitalism’ has a long history. Adam Smith, often referred to as the ‘father of capitalism’ was the first modern proponent of a comprehensive philosophy defending the entire package of basic principles related to individual liberty as an indispensable ingredient to a moral, prosperous, and free society. Smith, a Scottish moral philosopher published his Magnum Opus, “An Inquiry into the Nature and Causes of the Wealth of Nations” in 1776 about the same time the American Founders were declaring their independence from England.

The late eighteenth century is when the ‘philosophy of freedom’ took root for the first time in modern history. The American founders were heavily influenced both directly and indirectly generations of ancient philosophers and very powerfully by their proximate European intellectual predecessors such as Adam Smith, John Locke.

The core of their movement, the American Revolution, and the subsequent, rapid spread of freedom movements across the globe, was fueled by several basic principles be made popular by social, political and religious leaders who had come to a renewed or ‘enlightened’ view concerning the nature of individual man. These new views affected all spheres of human relations and were not restricted by politics, religious, or economic considerations alone.

Politically, the Founders referred to the ideas as ‘Republicanism.’ But, republics were not new on the world stage. What was new about the political achievement of the Founders was that for the first time in modern history it was advocated from a new, moral foundation-made possible by the post-enlightenment view that “all men” were “equal by nature” and that no man or group of men was “rightly entitled” to special moral privilege or consideration. Or, in other words, the longstanding tradition of cultural tyranny across the globe was challenged by a new view of individual man as the measure of all moral social interaction.

No man was required, according to this new view, to live primarily for another-as his slave, servant, serf or subject-being unjustly deprived of life, liberty or property by any other man or group of men claiming some supposed moral authority. This basic worldview was not restricted to use or meaning in the political discussions of the time but affected all elements of man’s relationships with other men and during the period of the American Revolution was often referred to simply as Americanism. The term, however, most consistently, effectively, and regularly used to define the entire body of thought related to this worldview, would later be coined as ‘capitalism.’

In modern society the term ‘Capitalism’ is used imprecisely and inaccurately. Many scholars suggest that the term ‘Capitalism’ and its related term ‘Capitalist,’ was first derived in the English vernacular from a translation of the pejorative term used by Karl Marx in the mid to late nineteenth century to describe the class of men he called the elite “bourgeois” society who owned and controlled “society’s capital resources.”

To students of the Founders, the philosophy of capitalism is the only moral system that guarantees to man his individual liberty, and therefore the only valid political, economic, and social standard for pursing prosperity and peace.”

Comment
I approached this article with a degree of optimism, unfortunately not justified by its content. It gives a distorted and in places inaccurate view of events, most particularly those associated with the origins of the word, capitalism and, to an extent, some characteristics of the foundation and first century of the American republic.

The word ‘Capitalism’ and its related term ‘Capitalist,’ were not “first derived in the English vernacular from a translation of the pejorative term used by Karl Marx” (though he certainly used them pejoratively in his writings).

‘Capitalism’ was a word and a phenomenon neither used by, nor known to, Adam Smith. Capitalism was a wholly late 19th-century experience. The Oxford English Dictionary (Vol II, p 863) locates its first usage in English in 1854 by William Makepeace Thackeray in his novel, The Newcomes.

Karl Marx published, in German, Das Kapital, in 1867 and subsequent translations introduced the word ‘capitalism’ to his readers some years later (Moscow's 'Marxist' editors during the Soviet era ‘interpolated’ the new word of capitalism into his works as if Marx himself had written it).

While Marx may have read Thackeray, it is unlikely that Thackeray read Marx in time to include the word, capitalism, thirteen years earlier in his novel.

Of the word ‘capitalist’, this was first used in English in 1792, by Arthur Young (Travels in France) and it was used by Turgot (in French) in his ‘Reflections on the Formation and the Distribution of Riches’ LXIII-IV, 1770.

If Adam Smith is ‘known’ as the ‘father of capitalism’, it is 20th-century accolade of which he knew nothing, nor, to be accurate, deserved. This is an example of projecting modern notions onto the past.

Technically “the American Founders were declaring their independence” from Britain, not England. Since the 1707 Act of Union between Scotland and ‘England and Wales’, the political entity of ‘England’ had ceased to exist and, as Scotland and England were already a single kingdom from the ascension of King James VI of Scotland to the English throne (he became King James I of the united kingdom) in 1604, which established the political entity of the ‘United Kingdom of Great Britain’.

I am loath to tread on the toes of sensitive patriots, but I think these sentences should be recast:

“What was new about the political achievement of the Founders was that for the first time in modern history it was advocated from a new, moral foundation-made possible by the post-enlightenment view that “all men” were “equal by nature” and that no man or group of men was “rightly entitled” to special moral privilege or consideration.”

and

“No man was required, according to this new view, to live primarily for another-as his slave, servant, serf or subject-being unjustly deprived of life, liberty or property by any other man or group of men claiming some supposed moral authority.”

If these statements are correct (I don’t think they are) there were some glaring deficiencies in their application in the new republic, which deficiencies lasted upt to the 'war between the states', and effectively operated in great measure up to the 1960s. I trust I do not need to elaborate…

Finally, Adam Smith did not write about ‘capitalism’ because it did not yet exist. The Wealth Of Nations is not an economics textbook.

It is a critique of the political economy of UK State power and its close relationships, through legislators and those who influenced them, with the new ‘order, of ‘merchants and manufacturers’, whose policies severely compromised the possibilities of the ‘commercial society’, which Smith wrote eloquently about.

Primarily this arose from their proclivity for state-sponsored monopolies, legal local monopolies in the Guilds, international monopolies from their Royal Charters (including in the British colonies of North America), in their chartered trading companies (of which the East India Company was the prime, and most disgraceful, example), their prejudiced policies arising from ‘jealousy of trade’, wars for trivial ends and domestic legislation, such as the Statute of Apprentices, the Settlement Acts, and one-sided laws against ‘combinations’.

If Adam Smith’s Wealth Of Nations was his magnum opus I am particularly impressed with his Moral Sentiments), it is one that is appreciated from its modern reputation and not from reading it in context.

And while I may sympathise broadly with the idea of a ‘free capitalism’, as opposed the state-capitalism and Big Government, I think the Free Capitalist Blog has some ways to go before it tops my daily reading list.

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 and 'Das Adam Smith Problem'

Ed Kaitz writes (1 November) in American Thinker (HERE):

“… Adam Smith Problem”

[Please note I only discuss Ed Kaitz’s ideas on ‘Das Adam Smith Problem’ here and shall not comment on the views of presidential candidates in line with the long-standing Lost Legacy’s self-denying ordinance to only discuss the political policies of people in the country in which I vote (Scotland, UK)]

‘German scholars in the nineteenth-century exercised a good amount of frustration over something they dubbed "das Adam Smith Problem." To the consistency-minded Germans the brilliant yet humble Scottish economist and "father of capitalism" had nevertheless left a rather dubious literary legacy: two monumental and influential books that seem to argue in radically divergent and quite insurmountable directions.

…in the first of Smith's books, The Theory of Moral Sentiments (1759), Smith makes a quite humane and often beautiful case for the power of human sentiment in the practice of social virtue. He binds humanity together at an extraordinarily deep level and demonstrates why "we sympathize with the natural resentment of the injured" when, for example, greedy industrialists "violate fair play" and "throw down" their competitors "in the race for wealth and honors." Indeed, Smith seems to foreshadow the bleak finale expertly captured by Orson Wells in his Citizen Kane when he argues that the twilight years of greedy men will be filled with thoughts of "terror and amazement" at their prior conduct and make them outcasts from "the affections of mankind".

Conversely, in his magisterial The Wealth of Nations (1776), Smith relentlessly drives another point: that our darker and asocial instincts of self-preservation, retaliation and competition nevertheless provide the potent and necessary ingredients to "rouse the industry of mankind." In short, in his commanding treatise on capitalism it is self-interest and utility, not benevolence and sympathy that can solve the problem of economic scarcity: "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." Indeed, what mystified German scholars was the quite sensitive and touching portrayal of human community in Smith's first book and statements like the following in his second: "It is his own advantage, indeed, and not that of society, which he has in view."

Similarly, to Smith, the only way to produce the public good is to not think of the public good! In his words: "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good." Self-interest then produces the public good through what Smith famously called "the invisible hand." More wealth is created for everyone when each thinks about his own interest. To Marx and Rousseau however this doesn't cut it since the very definition of morality is to think of others first, not yourself.

As a sentimentalist philosopher, Smith also noticed something quite remarkable about the human condition: we're all hard-wired with common sentiments concerning what constitutes fair competition and what appears to us as fraud or greed. We universally condemn the behavior of rapacious capitalists who "throw down" their competitors - they appear "detestable" to us. He recognized in his Theory of Moral Sentiments that the virtue of "justice" was required to keep these people in line with proper legislation. The danger however is that the lawgiver might "push" this legislation "too far" and "destroy liberty, security, and justice."

Why was Smith so concerned with preserving freedom? Because he understood that human sentiments like "beneficence" were only possible in a free society. In short, unlike justice, which can be extorted by force (threat of punishment), moral virtues like beneficence or fellow-feeling would completely disappear under something like socialism or communism: "Beneficence is always free, it cannot be extorted by force, the mere want of it exposes to no punishment; because the mere want of beneficence tends to do no real positive evil." Our common sentiment, in short, "approves" of fellow-feeling only if it has not been extorted by force. No one, says Smith, can force you to be a good neighbor - this has to be done freely.

Smith is interested in taking stock of human beings and finding out how to both preserve freedom and benefit society within the bounds of our given nature. Justice is there to force good behavior "to a degree" in a capitalist economy but we also need to recognize that the self-preservation instinct is the only dynamic engine for increasing wealth and avoiding poverty. But beneficence, freely given and not forced, serves as another check in the "race for wealth and honors." It is our common human sentiment says Smith that keeps us from looking "mankind in the face" and claiming that we prefer ourselves to all others.”

Comment
Ed Kaitz is a gifted writer and college teacher (I can’t give more details as there appear to be several 'Edward Kaitz’s' in US universities and all are plausible candidates as authors of the American Thinker article, which appears to be right of centre in tone).

He does a reasonable job in his discussion of the issues involved in ‘Das Adam Smith Problem’, to which I make some observations for readers who may not be aware of the missing links in Ed Kaitz’s exposition.

The German origins of the ‘Das Adam Smith’s Problem’ in the last quarter of the 19th century come from a misunderstanding occasioned by the different dates of publication of Moral Sentiments (1759) and Wealth Of Nations 1776) and is often presented today as Smith having ‘changed his mind’ in the 17 years between publishing his two books. This is a wrong inference from the separated publication dates.

Students’ notes of Smith’s lectures (1762-3 and ‘1764’) at Glasgow University were discovered in 1895 and 1958 and show that he taught his classes both from lectures that became Moral Sentiments and lectures that became Wealth Of Nations to students in the same classes. Large sections of his Lectures in Jurisprudence (1762-4; published in 1978 by Oxford University Press) were taken verbatim into Wealth Of Nations, as were taken his classes in Ethics into Moral Sentiments. The ideas matured together, first as lectures to students and then as prose for his two books, and there were no contradictions between the two books despite the different dates of their publication.

Moreover, Smith revised both books in the different editions published after their publication: Moral Sentiments' editions: 1759; 1761; 1767; 1774; 1781; 1790) and Wealth Of Nations editions: 1776; 1778; 1784; 1786; 1789. These co-terminus editions, together with the fact that his lectures in the 1750s-60s were delivered to the same classes of students each year, show conclusively that there is no question of Adam Smith ‘changing his mind’ about moral motives and economic behaviours.

If his students had not noticed that ‘he seem[ed] to argue in radically divergent and quite insurmountable directions’ in his lectures, contemporary faculty colleagues would have noticed and commented, and more importantly, he would have noticed too. The imagined ‘problem’ was noticed by nobody until misinformed
faculty in Germany a hundred years later jumped to the wrong conclusions, by which time philosophy and political economy were quite separate disciplines, though for Scottish moral philosophers a hundred years earlier they were part of the same discipline.

Ed Kaitz explains why "we sympathize with the natural resentment of the injured" when, for example, greedy industrialists "violate fair play" and "throw down" their competitors "in the race for wealth and honors" and then neatly implies a switch from Smith’s discussion ‘Of the sense of Justice, of Remorse, and of the consciousness of Merit’ in Moral Sentiments (TMS II.ii: p 82) to what a casual reader would suppose is Wealth Of Nations, because Ed Kaitz continues ‘for example, greedy industrialists’, when in fact Kaitz is still quoting from Moral Sentiments. The fuller quotation below illuminates the distinction (not that Smith would probably have meant the same thing as Kaitz in introducing ‘greedy industrialists’as we know some of them from 19th -20th-century history today:

“Though it may be true, therefore, that every individual, in his own breast, naturally prefers himself to all mankind, yet he dares not look mankind in the face, and avow that he acts according to this principle. He feels that in this preference they can never go along with him, and that how natural soever it may be to him, it must always appear excessive and extravagant to them. When he views himself in the light in which he is conscious that others will view him, he sees that to them he is but one of the multitude in no respect better than any other in it. If he would act so as that the impartial spectator may enter into the principles of his conduct, which is what of all things he has the greatest desire to do, he must, upon this, as upon all other occasions, humble the arrogance of his self-love, and bring it down to something which other men can go along with. They will indulge it so far as to allow him to be more anxious about, and to pursue with more earnest assiduity, his own happiness than that of any other person. Thus far, whenever they place themselves in his situation, they will readily go along with him. In the race for wealth, and honours, and preferments, he may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should justle, or throw down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of.” (TMS II.ii.2.1: p 83)

That there are examples of ‘greedy industrialists’ in the recent past behaving in reprehensible manners, has nothing to do with Smith’s point about people who ‘justle’ and forego the patience of the ‘impartial spectator’. For an account of Smith’s theory of the ‘impartial spectator, see my Adam Smith: a moral philosopher and his political economy, 2008, Palgrave Macmillan).

Ed Kaitz states ‘we're all hard-wired with common sentiments’, which may express Kaitz' view but it isn’t Adam Smith’s. The notion that we are born with a moral sense was that of Smith’s tutor, Professor France Hutcheson, among others, which Smith explicitly rejects in Moral Sentiments.

People learn about what others will go along with as part of their socialization (as we term it today), starting with the chastisement from parents and other adults, and then in the ‘great school of self command’, our school fellows, and on throughout our experience until we become mature adults. Other people set the boundaries of our behaviour, as we do theirs, which is Smith's very point about impartial spectators.

Hence, the notion that “what constitutes fair competition and what appears to us as fraud or greed” and that “We universally condemn the behavior of rapacious capitalists who "throw down" their competitors - they appear "detestable" is Ed Kaitz’s interpretation (to which he is entitled) but it was never an assertion of Adam Smith in either of his books.

Similarly to assert that Smith believed that ‘moral virtues like beneficence or fellow-feeling would completely disappear under something like socialism or communism’, is a construction too far if meant as a belief of Smith’s. Neither ‘socialism or communism’ had any meaning for Smith in the 18th century; these horrors were a long away ahead, which Ed Kaitz is perfectly entitled to articulate but not to enroll Adam Smith (who died in 1790) into his beliefs, though I agree with Ed’s sentiments.

Ed Kaitz quotes from Moral Sentiments that each man “naturally prefers himself to all mankind, yet he dares not look mankind in the face, and avow that he acts according to this principle”. If the immediately preceding sentences from the same section of Moral Sentiments are read we can see Ed's spin on these words is unjustified:

“There can be no proper motive for hurting our neighbour, there can be no incitement to do evil to another, which mankind will go along with, except just indignation for evil which that other has done to us. To disturb his happiness merely because it stands in the way of our own, to take from him what is of real use to him merely because it may be of equal or of more use to us, or to indulge, in this manner, at the expence of other people, the natural preference which every man has for his own happiness above that of other people, is what no impartial spectator can go along with. Every man is, no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so. Every man, therefore, is much more deeply interested in whatever immediately concerns himself, than in what concerns any other man: and to hear, perhaps, of the death of another person, with whom we have no particular connexion, will give us less concern, will spoil our stomach, or break our rest much less than a very insignificant disaster which has befallen ourselves. But though the ruin of our neighbour may affect us much less than a very small misfortune of our own, we must not ruin him to prevent that small misfortune, nor even to prevent our own ruin. We must, here, as in all other cases, view ourselves not so much according to that light in which we may naturally appear to ourselves, as according to that in which we naturally appear to others. Though every man may, according to the proverb, be the whole world to himself, to the rest of mankind he is a most insignificant part of it.” (TMS II.ii2.1: pp 82-83)

Finally, Ed Keitz asserts:

“Conversely, in his magisterial The Wealth of Nations (1776), Smith relentlessly drives another point: that our darker and asocial instincts of self-preservation, retaliation and competition nevertheless provide the potent and necessary ingredients to "rouse the industry of mankind." In short, in his commanding treatise on capitalism it is self-interest and utility, not benevolence and sympathy that can solve the problem of economic scarcity: "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."

This is a misreading of the paragraph in Wealth Of Nations (WN I.ii: pp 26-7) – a misreading widely shared by the majority of economists (and philosophers) who quote it. Smith actually enjoins readers to serve the self interests of others, in this case the ‘butcher, brewer, and baker’, in order to serve their own self interests (food for themselves and their families). Be other-directed and not self–directed!

The ultimate selfishness is to expect our necessary sustenance from others, free, gratis, and for nothing! Who will give the butcher, the brewer, and the baker things that they and their families need in food, clothing and shelter, let alone the objects considered necessary for a decent living standard? Smith observed, he did not preach.

If Ed Kaitz reads Adam Smith’s books as he wrote them and as he taught his students for years before, he will really understand why ‘das Adam Smith problem’ is a fantasy created by some talented people who didn’t understand his ideas, nor did they know about the context from which they were generated.