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.

Adam Smith Quotations Out of Context

Maureen Tkacik writes in Vanity Fair (18 December) Here:

“Ponzi Nation: What Spitzer, Madoff, Geithner, and Adam Smith Can Teach Us About Our Own Mass Stupidity”

“The scale and simplicity of the Madoff scam seems to be moving the conventional wisdom in a sober new direction: We all fooled ourselves somehow by believing vast wealth could be easily generated. But here is a bit of actual wisdom, courtesy of Adam Smith:

“But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin”.

Luckily for America, profits are expected to be pretty low this year.”

Comment
Beware of Adam Smith quotations from authors who do not give a source; it usually signifies that they have not read Wealth Of Nations or Moral Sentiments. OK, so it’s only Vanity Fair, but the habit extends to economists writing in media publications too.

For the record, it’s from Wealth Of Nations at WN I.xi.p: p 266, or Canann,1937 ed. pp 249-50.

However, Adam Smith is discussing long term trends in the fundamentals of economies not annual fluctuations. So ‘pretty low’ profits for ‘this year’ are, well, meaningless in terms of the quotation. But Maureen Tkacik is in the good company, so to speak, of many professional economists who quote (but probably don’t read) Smith, Ricardo, and Marx, on the same theme of the rate of profit falling with economic prosperity.

Some have even found 'evidence' that this signifies the terminal decline of capitalism. Adam Smith saw the decline in the rate of profit as evidence of prosperity, which he never confused with a decline in the absolute amount of profits in a society.

If real wages rose secularly over the trend, this was the ‘spread of opulence’ that he welcomed; necessarily, if real wages rose as a trend then profit rates would fall as real incomes transferred from capitalists to labourers. Look at what he says a few lines down from the out-of-context quotation from Maureen above:

“Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects, than with regard to the latter. Their superiority over the country gentleman is, not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction, that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.” [WN I.xi.p.10: p 267; Canaan, p 250]

If real wages decline in the USA that is because those concerned among modern day 'merchants and manufacturers' are persudaing legislators and those who influence them to bias the tax system and to narrow the market for their products.

I am most grateful to Vanity Fair for provoking me to add a little knowledge to Lost Legacy’s weekly output.