Wednesday, October 01, 2014


A Blog Post With No Home
I found his extract on my desktop with no accompanying details, plus my, much longer original comments.  I post them today to clear space on my desktop, but they may be interesting to some readers.
“And if made policy, it is no longer simply unethical, but uneconomical as well, because of the fear, uncertainty, and even exuberance that arises among market actors, leading to misallocation of resources into unprofitable lines of production.
The questions are irrevocably linked. Even natural, inalienable rights—ethical concepts—are, for our purposes, best understood as constructs devised to protect the economic interests (the pursuit, use, and extension of life, liberty, and property) of individuals. They exist to help us avoid, and ultimately, resolve what are really economically motivated disputes.
As a “Soft” libertarian I find some interesting ideas present in this extract  as well as some dubious ones too; both require some careful revision. (presumably, referring to the whole article, now lost). 
The main issue for “soft libertarians”, including I believe, the ever pragmatic Adam Smith, is whether the “Clenched Fist and the General Welfare is a “symmetry” between “Adam Smith’s about self-interest unintentionally channeled into market organization”.  The “symmetry” is rather forced because Adam Smith did not say or imply that “self interest” is solely confined to “market organisation”.  Far from it. He applied it philosophically to “markets” and as a fundamental characteristic of humans because its existence pre-dates “market organisation”, and moreover, governments have operated in one form or another ever since property evolved many millennia ago, with a galaxies’ worth of unintended consequences.
All states had a duty to protect property from both the poor, as Smith mentioned in Wealth Of Nations, and also, and more frequently, from rival, rich men in violently disputed ownership of said properties and in attempts to exercise or overthrow rights related to primogeniture cultures. This latter source of disputed ownership within states is demonstrated across history. 
Coercion versus General Welfare, dramatised as a metaphoric clenched fist, is a loaded assumption.  Self-interest is not a passive moral force. Putting it such as: “The invisible hand, however, is open. It is able to do more, and better, than the clenched fist, without stifling progress in other areas” is to idealise self-interest as a morally neutral phenomena.  Smith identifies in Wealth Of Nations in Books I, II and III over 60 instances where self-interest consistently worked against the self-interests of the communities in which they occured.
We can surmise what would happen in societies without basic codes of conduct in human societies enforced by a justice system?  Consider, as a thought experiment, the hard-libertarian utopian vision of an economy without a state, and each person with having guns - the theory that ‘good guys with guns’ would protect individuals from ‘bad guys with guns’.  How would they know which was which? 
Autocratic states have been tried and by most standards failed.  The road to curbing autocratic power was not designed and applied. Fuedal kings did not let go of their absolute powers, enforced by armed bodies of men.  Some fell to violent revolutions and civil wars, others to invasions by other absolute powers.  In one case the Barons who ruled by the grace of the King’s pleasure, persuaded the king to introduce, albeit limited by the standards of absolutism, to curb his absolutist behaviours, if only slghtly at first.  But over a few centuries those modest relaxations of absolutism had unintended consequences that gradually widened the rights of those closest to him, and slowly, the rights of those below the Barons and the kIng, until they became entrenched rights of white male citizens too - females, black and Asian slaves rights came several centuries later - very recently in fact.
I refer, of course, to King John and the Runnymede compromise.  Whatever atrocities against human rights continued, once begun in the 13th century in England, the changes slowly widened as if unstoppable, like snow melting in the weakely flittering sunshine of liberty. 

To describe the world today as if government in the countries with the highest per capita incomes is synonimous with ‘oppresive corecion’ is pure hyperbole.  Oppressive coercion is more a characteristic of the world’s poorest countries.


Henry Moore (“Hank”), a 23-year old libertarian blogger hailing from Montana, is the proprietor of The Libertarian Liquidationist. He is interested in politics and history and libertarianism since picking up Dr. Ron Paul's “The Revolution and End the Fed in 2009”, and in blogging since late 2011.  [The following is his entry for the Thorpe-Freeman Blog Contest, originally published at Notes on Liberty on May 22nd 2013, and The Libertarian Liquidationist on January 8th 2014]. Henry Moore posts on Liberty.Me HERE
“Ham-Fisted Coercion and Incompetence versus the Invisible Hand of Self-Interest”
A Tale of Two Hands
“I came across Gary Galles’ recent article in The Freeman about Leonard Read’s analogy of government coercion as a clenched fist, “ the Clenched Fist and the General Welfare.” I see a symmetry between this analogy and Adam Smith’s about self-interest unintentionally channeled into market organization, one that is so familiar to free market proponents and detractors alike that it is a common metaphor: the invisible hand.
Government coercion and market organization. Two very important concepts for any libertarian to master. Which one better provides for the general welfare? Smith and Read would contend the latter. The reasons for this are contained in the analogies. As Read and Galles point out, not much good can come from a clenched fist. Only violence and incompetence. It can punch. It can pound. That’s about it. What better description of government? Likewise, as Smith notes, the usefulness of markets is that they do better than government many of the noble things government tries to do, thereby rendering it redundant, if not unnecessary, in those areas. The all-too obvious fist of government regulations and mandates is no match for a more efficient, less obvious hand: self-interest."
The above Blog Post is almost pure ideology, devoid of contact with the real world.  It sweeps to one side the “violence and incompetence” of “punching and pounding” when used by mercantile-motivated self-interests enforcing trade-embargoes and prohibitions on behalf of dominant market-players, as happened when Europeans invaded foreign countries in the then undeveloped world from the 14th century.  The first things built by traders in distant lands were armed fortifications to protect the invaders from local harassment.  In these events the States played a role corrupted and influenced be local domestic market enterprises (East India Company, for example, with free shares and cash for legislators and politicians).
Modern markets also play their role in these grubby affairs and, for various reasons, do it “better than governments” on their own account, by “replacing open government collusions” to achieve “many of the IGNOBLE things that mercantile-influenced governments did in the past on behalf of their domestic businesses, often for a consideration, like Monarchist Honours and trinkets, as valued socially by the likes of ”Aldermen’s wives” over what Smith called their shuffles for “place”. In commercial matters, much of government legislation and diplomatic activities are directly related, not always openly, in favour of what today we call “big business” - Prime Ministers leading “trade missions” to China, for example.
The “clenched fist” of government coercion, however, is quite hyperbolic, especially nearer the top, and is more subtle and softer for holds all the occasional good it achieves, and downplays the great expense at which such good comes about, blaming its own inadequacies on the failings of “free” markets. The so-called invisible hand, for which there are multiple definitions, however, is mythical and does not exist. Supposedly, it is able to do more, and better, than the clenched fist, without stifling progress in other areas.
I agree that “what is unethical for an individual is also unethical for a group of individuals.” Outside the fantasies of perfect competition, universal morality is noble, but inconsistent with either market or state behaviours.
Adam Smith wrote his “Theory of Moral Sentiments” not because moral sentiments were shared and operated universally - they were’nt and didn’t.  He set the standards by which moral behaviour might be judged. Those standards evolved in practise though not universally in societies prior to the 18th century. The daily and life-time contests between moral and non-moral sentiments continue from his days to ours.  Nothing I have read on these questions has changed much up the 21st century, except that the richness of the tapistery of moral choices and their incidence is now probably more evident to us from our familiarity and direct experience of human behaviours, rather than from reading about them through the fog of previous times.
Self-interested behaviours are not a universal panacea for our mixed economies. Pure markets on their own or pure states in sole command are nowhere possible, nor experienced since before the classical period. Exchange has always existed among humans - it predates the earliest markets right back to human speciation from the common ancestors of the Apes. 

Today, states and markets exist everywhere.  Where one or the other dominates there are failings in both of them. That is why the appropriate balance may be best approached by following the pragmatic dictum of “markets where possible, the state where necessary”. 

Saturday, September 27, 2014


Behind The ‘Invisible Hand’: Why Economic Ideas Still Matter (2)
Paul Frimpong, Ch.E., Chartered Economist and the founder of Young Professional Economists Network (YPEN) and also a fellow of the Bastiat Society –Ghana:

"From the first edition, we saw the development of the ‘invisible hand’ theory by Adam Smith during the 18th century.

“The theory of ‘Invisible Hand’ states that if each consumer is allowed to choose freely what to buy and each producer is allowed to choose freely what to sell and how to produce it, the market will settle on a product distribution and prices that are beneficial to all the individual members of a community, and hence to the community as a whole.”
… Adam Smith in his 1776 book "An Inquiry into the Nature and Causes of the Wealth of Nations" states that:
"…every individual necessarily labours to render the annual revenue of the society as great as he can. He generally neither intends to promote the public interest, nor knows how much he is promoting it ... 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 society that it 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. I have never known much good done by those who affected to trade for the public good."
Individuals in a free market are expected, as rational beings, [to] maximize their own self-interest, and through a two way or multi-faceted interactions, the exchange of information in the markets enable each participant to be better off than when simply producing for himself / herself.
This means that in a free market, no regulation of any type would be needed to ensure that the mutually beneficial exchange of goods and services took place, since this "invisible hand" would guide market participants to trade in the most mutually beneficial manner.
Behind the ‘invisible hand’
Harvard economist Stephen Marglin argues that while the "invisible hand" is the "most enduring phrase in Smith's entire work", it is "also the most misunderstood."
Economists have taken this passage to be the first step in the cumulative effort of mainstream economics to prove that a competitive economy provides the largest possible economic pie (the so-called first welfare theorem, which demonstrates the Pareto optimality of a competitive regime). But Smith, it is evident from the context, was making a much narrower argument, namely, that the interests of businessmen in the security of their capital would lead them to invest in the domestic economy even at the sacrifice of somewhat higher returns that might be obtainable from foreign investment. …
… Behind the ‘invisible hand’ is just a philosophy and the belief that, perhaps, there are even profound forces that are working against the forces of demand and supply to establish a market efficiency– a ‘visible hand’.”
Regular readers of Lost Legacy will be familiar with why I consider Paul Frimpong’s general interpretation of Adam Smith’s use of the metaphor of “an invisible hand” is quite unrepresentative of Smith’s meaning.   All Smith said in fact was that a merchant concerned for the security of his capital  if he sent it abroad might instead choose to invest it ocally, which if he did, his action would add to domestic “revenue and employment”. The consequence of doing so was an arithmetic addition to the domestic economy, which he considered generally to be good outcome that was of public benefit to the community. 
The "Invisible hand"  quotation comes from Book IV of the Wealth Of Nations (p 456), which Book IV Smith described as his “violent attack” on the prevailing mercantile political eocnomy of Great Britain.  He said nothing at all about “Individuals in a free market” were “rational beings”, who “maximised their own self-interest”.
True, we can deduce that “markets enable each participant to be better off than when simply producing for himself / herself”, which is true as well as for every system by which people acquire their subsistence from nature in all previous “ages of mankind” from hunter-gathering, shepherding, farming, and exchange in markets because all benefited from the “division of labour” instead than living hermit-like and doing everything for themselves. Man depends on the co-operation of others, and always has, and likely, I venture to suggest, always will for the foreseeable future.
Whatever is meant by the “visible hand”, it does not mean that it is an antonym for the use of the “invisible hand” as a metaphor.  Like all metaphors, the “invisible hand” does not exist as an entity; it simply describes in a “more  striking and interesting manner” its “object” (see Smith ”Lectures on Rhetoric and Belles Lettres”, 1762, p. 29).  Its “object” in this case was the ‘hidden” motive in the merchant’s mind that prompted him to actions that had the intended consequences of making his capital more secure than exporting it facing the risks of sending it abroad.  But actions can also have unintended consequences too. In this case the original motivated actions of security can also add to “domestic revenue and employment”, which Smith regarded as a “public benefit”.
Some actions can have negative consequences too, such as pollution, higher prices, tariff wars and hostilities between countries. Indeed, Smith considered that the mercantile policies prevalent at the time did cause wars, invasions, large spending on wars and regime changes, let alone higher domestic prices, plus the absence of foreign-sourced products (French wines replaced by poorer quality Portuguese varieties). Whatever else it was, it was a long way from “the so-called first welfare theorem", or "Pareto optimality of a competitive regime”.
Stephen Marglin’s quoted observation that the “invisible hand” is the "most enduring phrase in Smith's entire work", is wrong and unintensionally misleading: the “invisible hand” “metaphor” was not “a phrase”, and only endures today because modern economists - in particular Paul Samuelson in 1948 - lazily picked out the phrase and have spread it around the profession since the 1960s, as if it was true. Marglin’s “observations” demonstrate that he does not understand the limited metaphoric purpose behind Smith’s use of it and his explanations are misdirected - it had nothing to do with 18th century theories of perfect competition or product distribution. 
Nor is there a “visible hand” - there are visible prices because no market can work without visible prices.  Markets have never been “perfectly competitive and state regulations are absolutely necessary. For example, Smith mentioned the need for state banking regulations and limits to interest rates, the absolute necessity for mandatory laws of justice, without which society would crumble.
Ideas matter, modern or ancient, except where they are wrong. 

Thursday, September 25, 2014


Nathan Goodman posts on “Students for Liberty” HERE
[Students For Liberty has grown into the largest libertarian student organisation in the world, which includes over 800 leaders that support over 1,350 student groups representing over 100,000 students on all inhabited continents.]

The phrase “invisible hand” can easily evoke fanciful imagery of invisible hands magically manipulating the world. So it’s no surprise that many critics of laissez-faire, particularly on the left, misconstrue the concept as a form of magical thinking or religious fundamentalism. For example, Neil Douglas and Terry Wykowski allege that “market fundamentalists imagine that the market magically transforms market participants into moral agents who mitigate self interest through the ‘invisible hand’ as described by Adam Smith.”
But economists don’t argue that markets produce moral outcomes as a result of “magic.” Rather, they argue that the institutions associated with markets produce incentives and those incentives guide self-interested individuals towards socially beneficial actions. As Peter Boettke explains, Adam Smith did not argue “that the pursuit of self-interest will automatically translate into public benefits.”  To the contrary, Boettke points out:
The Wealth of Nations actually has plenty of examples in which the pursuit of self-interest can lead to socially undesirable options.”
[Boetttke quotes Smith’s comments on the poor teaching he expperienced in Oxford (1740-46)  compared to the lively teaching he received in Glasgow (1737-1740)].
“Boettke uses this emphasis on institutions to rephrase Smith’s invisible hand proposition as follows: “Individuals pursuing their own self-interest within an institutional setting of property, contract, and consent will produce an overall order that, although not of their intention, enhances the public good.” Under these conditions, social cooperation emerges that is a result of human action but not of human design.
This a step forward from the Paul Samuelson's version in his famous textbook, “Economics: an analytical introduction”, 1948, and 20 editions to 2010, McGraw-Hill, which popularised the “Invisible Hand” metaphor used by Adam Smith to assert that  Smith identified “public benefits”  came from “selfish actions, which I regard as absurd, because nobody reading Adam Smith could come to that conclusion. 
Boettke also points out that “The Wealth of Nations actually has plenty of examples in which the pursuit of self-interest leads to socially undesirable options.”  I have regularly tried to quantify this statement by reporting over 60 instances in Wealth Of Nations in Books, I, II, and III where Smith specifies the cases where ‘self-interested’ actions have led to negative outcomes for the public good.  I have added on occasion that the whole of Book IV of WN is, what Smith himself described in a letter to a correspondent, as his “violent” attack against the mistaken ideas of mercantile political economy.  Nobody who reads Book IV could possibly be misled on this point, yet so few senior economists, including Nobel Prize-winners, draw the appropriate conclusion that Smith never, ever, asserted that public benefits depended on the selfish intentions of people in markets.  Public benefits may arise from certain selfish motivated actions ('proud and unfeeling' landlords in one case he gives - in the very long run - but most cases in which motives initiate actions for intended consequences are  in the daily activities of the business of life that have morally neutral unintended consequences.
The longest journey to the truth is travelled in small steps and I am grateful for signs of movement, led by Nathan Goodman quoting the talented Professor Boettek (see his textbook, Living Economics, 2012).
I am not “leftist” on Adam Smith; not am I “rightist” either. I do not buy the “laissez-faire” myth. 
Smith never mentioned “laissez-faire” once. It is also has a dubious history from the start: the french merchant who uttered the words “laissez nous faire” on behalf of his merchant colleagues, said nothing about laissez-faire for his customers.  Indeed, when mill and mine owners in 19th-century England campaigned for “laissez-faire” they were trying to stop parliament from legislating against the employment of young children in factories with rapidly moving machines that took their limbs off in accidents, and, later, for free-trade in corn to reduce prices so employers could lower wages.  Smith favoured “Natural Liberty” that applied to everybody, not just employers.
Nozik came at the “Invisible hand” controversy with the less perverse idea of “invisible-hand explantions”, related to “unintended consequences”, which Smith also articulated upon. The roots of the Nozik’s ideas are found in 17th-century ideas from Cromwell, onwards through to Adam Ferguson, a contemporary of Smith’s, who wrote: “every step and every movement of the multitude, even in what are termed enlightened ages, are made with equal blindness to the future; and nations stumble upon establishments, which are indeed the result of human action, but not the execution of any human design.”
I have observed before that the Ferguson (Nozik) passage fits neatly with Smith’s on the “invisible hand”.  Both are about the consequences of the actions of people. 
Let me explain.
Smith used the “invisible-hand” as a metaphor from his teachings on metaphors from 1748-62 (see his “Lectures on Rhetoric and Belles Lettres”). He spoke of the motives of the merchant who avoided sending his capital abroad because of his perceived risks from doing so.  His motives (hidden from view to others) “led” him to an action: invest locally.  His action had intended consequences, specifically the security of his capital (he mentions this motive four times).  In so far that his investment safely adds to his profit, his intended consequences are realised.  However, his actions may also have unintended consequences which played no part in his risk-averse motives for his actions, but neverless those actions may also cause unintended consequences.
In the merchant’s case, his actions contribute to “domestic revenue and employment”, raising both for the public benefit. (higher domestic revenue and higher employment).
The merchant did not intend this outcome, but it happened neverthess, though it was not by his “design”.
Similarly in Theory of Moral Sentiments” (TMS IV.1.10: 184-5), the “proud and unfeeling landlord” cares nothing for his labourers (serfs, slaves, tenants or whatever), but he is neverthess motivated to feed them from part of the produce they produce for him from his land. His motives are selfish in the extreme and violent overseers makes sure their master’s wishes are met. The labourers are motivated to work his land by the overseers' violence, but mainly by the need to eat, without which they and their families would starve. Thereby the motives of the landlords and of the labourers coincide in their actions.  Without food the labourers cannot work the fields and without the labourers working the fields, the “unfeeling”  landlord’s “proud” greatness would terminate and everybody would be thrown in starvation
However, their actions have intended consequences (landlords have high living standards and power; the labourers have food for their families).  Smith’s use of the “invisible hand” metaphorically “describes in a more striking and interesting manner” its “object”, namely the hidden motivations of the parties for their resultant actions.  Neither has nor needs to have any views on the unintended consequences of their actions, but nevertheless those actions have unintended consequences, because their actions “advance the interests of society, and afford means to the multiplication of the species” (TMS IV.i.10: 185).
Now I have been explaining all this on Lost Legacy since 2005, so far with moderate results. Both “Leftist” and “Rightist” friends, readers, correspondents, and listeners at seminars on the History of Economic Thought and contemporary scholars have been unimpressed so far, to say the least. But I shall carry on because I am encouraged by small signs that some scholars are moving independently towards loosely similar conclusions.

I regard Peter Boettke as moving slightly in the proper direction, i.e., towards Adam Smith’s perceptions on untended consequences.

Wednesday, September 24, 2014


Tim Worstall posted (21st September) on the Adam Institute Blog HERE 
This is a thought provoking, 5 paragraph article on Poverty Traps by Tim Worstall, which I highly recommended, both as a post and as a worth your while Blog site.
“Three hundred years ago all countries were poor. Now some countries are not poor and some countries still are. It’s thus logically certain that it is possible to escape whatever poverty traps there are. For some places have done it. It’s also equally true that there must be things that prevent that economic growth from happening for some places haven’t had that economic growth. Thus we can assert, without possibility of contradiction, that sure, there are poverty traps but there’s nothing inevitable about them at all. It is possible to escape for some have done so.”
Poverty has long been with the human race, and so has the comparative well-off status of a minority of every population in history.  
Some leftist political theorists argue that little has changed since early society.  Marx called it the “class struggle” and advocated the radical changes he considered were necessary for  affluent economies to be created by design that would bring about equality.  He (and Engels) steadfastly refused to provide details of the design of the societies that would bring the promised equality about, other than the seizure of power by the proletariat in violent revolution.  Lenin transcribed that blank sheet into the necessity of an armed-vanguard of the proletariat to enforce the will of the dispossessed against the violent resistance of the bourgeosie.  Recent history has shown the awesome consequences of the implementation of the schemes of Marx, Engels, Lenin, Stalin, Mao, Kim, and assorted Eastern Europeans apparachicks, Third World “Liberators” - all dictators, and others.
The facts are evident.  For almost almost all human history per capita incomes remained stubbornly below the rough equivalent of $1 a day per person.  Some social scientists disregard these facts and find in their versions of the deep past of human history, mandatory altruism, equality (women included?), and all living within the sustainable limits of the enironment, as the common-lot of humanity, until, that is, the rise of per capita incomes in a smallish corner of North-West Europe from the 17th-18th century, driven by the re-appearance of early-types of market transactions that had largely disappeared in the collapse of the Western European Roman Empire in the 5th century and the triumph of barbarian warlords, later evolving into feudalism.
From this period in the late 15th century, per capita incomes began to rise comparatively, in historical terms, at first slowly, three centuries later, steadily and cumulatively doubling.  They continued to do so as market relations spread,  creating an unprecedented rise in living standards.  Wealth spread unequally up and down the social scale, as before, but for the universal poverty-stricken majority the evolutionary process produced the richest majority of millions that had never been experienced on earth before, since the speciation of the Apes from a common ancestor, to what became eventually, c.200,000 years ago, the Homo sapiens, who now dominate the Earth.
Moreover, billions of humans are now experiencing living standards never before experienced in terms of education, health standards, daily food consumption, high levels of the consumption of necessaries, and of conveniences, longer life spans, mobility across the planet, spending choices and such like.  If you have lived through three generations of your family you know what real austerity meant compared to your grandchildren.
Of course, these affects are unequally spread, but the point is that they are spreading across the board at an historically astonishing rate, including within the life-times of those still in poverty (consider China, India, Brazil and parts of Africa untouched hitherto by freer markets and public spending previously diverted to endemic corruption).
Of course, its not all roses, sweetness and light, and freedom from fear and insecurity, let alone freedom from endemic fanaticism and plain ignorance.  There is still a long way to go; hundreds of millions are still trapped in appalling levels of poverty, insecurity, persecution, untreated diseases, local wars, injustice, the absence of freedom in place of slavery, corruption, and such like. 
This makes the elimination of poverty the main priority.  I am convinced for all these reasons that poverty is the most important target for this and the next century, even more important than the hopeless elimination of inequality by confiscatory destruction, inevitably by violence, of the so-called 1 per cent - it'll spread much lower down the incomes scales.  
Those tens of thousands of desperately poor migrants from the impoverished and war-torn South who seek a preferred life among the ‘poor’ of the rich countries, put our relative ‘poverty’ into perspective. Few poor in the rich countries risk their lives to migrate to the poor countries.   

Dealing with poverty is far more important than inequality. 
Tim Worstall makes the point eloquently, as per usual.


The ‘Invisible Hand’ Is in Your Pocket
Jim Freeman in ‘The New Presence revue’ quotes from Solon HERE 
“In economics, the invisible hand is the term economists use to describe the self-regulating nature of the marketplace. The invisible hand is a metaphor coined by the economist Adam Smith. Once in The Wealth of Nations and other writings, Smith tried to show that, in a free market, an individual pursuing his own self-interest tends to also promote the good of his community as a whole through a principle that he called “the invisible hand.” He argued that each individual maximizing revenue for himself maximizes the total revenue of society as a whole, as this is identical with the sum total of individual revenues.”
Hold on a minute, Smith did not say that “an individual pursuing his own self-interest tends to also promote the good of his community as a whole”.  He gave many examples of individuals “pursuing his own self interests” who could and did work against the “public interest”, such as when they lobbied legislatures to impose tariffs on imports, or worse, ban certain imports all together, a not uncommon feature of politics in 18th-century Britain (or indeed since).  Such self-interested behaviours worked directly against the consumers’ self-interests, who, as a result of tariffs and prohibitions, faced higher prices of domestic produce and the absence of certain legitimately produced foreign goods altogether.  In fact, the whole of Book IV of Wealth Of Nations is a critique of mercantile political economy, demonstrating the opposite of Jim Freeman’s assertions.
In the case Smith discussed where he used the ‘invisible hand’ metaphor  (once) he discussed the consequences of investing domestic capital in the domestic economy that necessarily added arithmetically to the quantity of domestic investment and that additional domestic investment added to domestic “revenue and employment”, which was a public benefit. If all merchants followed that self-interested advice there would be few imports of goods, perhaps at lower prices than domestically protected prices.  As foreign trade can raise domestic consumption and incomes abroad, it results in slower overall growth of world economies, which curbs innovation and living standards in both economies more than necessary. Book IV if WN is Smith's polemic against the economic consequences of 'mercantile political economy' prevalent in 18th century Europe.
Now the process Smith described by using the famous metaphor is the direct link between the motives of the domestic merchant who feared the risks of sending his capital abroad and losing it because his capital once out of his sight and his direct control in foreign jurisdictions where local business practices were different to those domestically and the people on whom he trusted, were less well-known than his neighbours, it was avoidable by his refraining from foreign commercial ventures, but helped to impoverish the world economy.  
The metaphor of “an invisible hand”, as with all metaphors in English, described the merchant’s private motives of insecurity in a “more striking and interesting manner” (Smith’s “Lectures in Rhetoric and Belles Lettres”, 1762-3, page 29).  The hidden motives (risk aversion) of the merchant led him to his actions of investing locally and those actions had the unintended consequence (driven by the actions led by merchant’s motives) of arithmetically adding to domestic “revenue and employment”, and lowering "world revenue and employment".
Clearly, Adam Smith did not try “to show that, in a free market, an individual pursuing his own self-interest tends to also promote the good of his community as a whole through a principle that he called “‘the invisible hand’.  He had no such a “principle” called “the invisible hand”.  Moreover, Smith did not “coin”  the “invisible hand” neither as a metaphor nor  as a “principle”.  The metaphor was in fairly common use in the 17th and 18th centuries, mainly, though not solely in theological contexts.  It also appeared in Shakespeare, poetry, general fiction (Defoe), political speeches and philosophy.

Jim Freeman, of Solon, should think again and try to cease being influenced by modern 20th and 21st century economics and modern politicians sharing an ideology. His article in Solon is quite long (12 pages +) and it makes similar errors throughout (follow the link to Solon).

Tuesday, September 16, 2014


“Before Adam Smith There Was Chydenius” by Gary Galles, professor of economics at Pepperdine University, posts in Ludwig von Mises Institute HERE 
"On my first day back in the classroom this fall, I was reminded that entrepreneurial alertness applies to ideas and insights as well as profits.

“Since the opening chapter of the course’s economics principles text calls Adam Smith the father of economic science, I told my class that he actually had multiple precursors in the study of economics. I mentioned the Spanish scholastics as an example. And having his precursors in mind primed me to discover another one I had been completely unaware of.
“After my class, I stopped by to visit a colleague I hadn’t seen all summer. Outside his office were copies of a pre-Euro 1,000 Finnish mark note and a pre-Euro 100 Austrian schilling note that I hadn’t noticed before … on the 1,000 Finnish mark note was Anders Chydenius (1729–1803). I said, “Who is that? I never heard of him.”
"My colleague told me just enough about Chydenius (1729–1803) to make me curious, particularly in mentioning that he wrote some very Smithian things before Smith. So I took a moment to check him out. What did I find? One article described him as “Scandinavia’s Adam Smith.” A review of his 1765 The National Gain (originally written in Swedish) stated that “Chydenius published this system of economic thought about ten years previous to the publication of Adam Smith’s epoch-making work. It is peculiar to note how well the ideas of this simple Finnish country parson coincide with those of the great Scottish economist.” Another article I found said “One of the most remarkable aspects of Chydenius’ analysis is how relevant many of his conclusions are to today’s political and economic debates.” My curiosity aroused, I had to look further.
"Chydenius was a country churchman in an outlying area of Finland (then part of Sweden). He did not read English or French (and the vast majority of his work was not translated into English until recently), and so he was unaware of the enlightenment discussions taking place in those tongues. He did not found a school, nor did he attract a group of followers. He was self-taught in economic matters and had no systematic methodological approach beyond common sense. He did not seek involvement in politics or look for power, but as Carl Uhr wrote, “when, on three separate occasions, he was a member of the Swedish-Finnish Parliament, it was the demands of his conscience which drove him to publish his opposition to a number of legislative proposals which seemed to him harmful and/or inequitable.” Briefly stated, it was his response to the inequities and waste of mercantilism that motivated his interest in economics.
"In Bruno Suviranta’s review of Chydenius’s best-known work, The National Gain, he described what tied together Chydenius’s writings on political economy as “all founded on the same constant idea of freedom.” Charles Evans wrote that “he expressed a classical liberalism as radical as any penned by familiar [contemporary] liberals.” Chydenius “pointed out repeatedly that individuals engaged in voluntary exchange would be rewarded for doing only those things that their neighbors wanted them to do. If each individual is doing only what his or her neighbors want, then the commonweal is served.” In other words, “peasants left to their own devices could run the economic activity of the nation better than the nation’s best and brightest in positions of authority.”
"So what did Chydenius write that Eli Heckscher could describe as reflecting a “simple exposition of the fundamental tenets of economic liberalism,” which “might readily have achieved international fame if at that time it had been published in one of the world languages”?
"For example, we see in The National Gain (1765) some of Chydenius’s insight in his critique of government efforts to “improve” the national economy by favoring some industries over others. Of course, it is impossible for the government planners to know which industries provide the greatest good for society.
[I]t is quite unnecessary for the Government to draw workmen from one trade to another by means of laws. Nevertheless, how many Statesmen are there that have busied themselves with this … either by force or by granting them privileges. … No statesman is yet found capable of stating positively which trade will give us the greatest National Gain. … [Economic freedom] relieves the Government from thousands of uneasy worries, Statutes and supervisions, when private and National gain merge into one interest, and the harmful selfishness, which always tries to cloak itself beneath the Statutes, can then most surely be controlled by mutual competition. …

… In Rural Trade (1777), Chydenius examines the problems of government-favors bestowed on certain industries, and the resulting distortions:
Why, then, do rulers take unto themselves a power which is not theirs?… petty princes busy themselves with dabbling in matters they do not understand in order to satisfy their own or someone else’s prejudices, or in blindly following some minister’s advice.
They gather together a great many of their subjects in separate flocks and bestow favors on them at the cost of the others, and these favors they elevate into fixed privileges.
"And on the matter of the relationship between labor and private property, Chydenius notes in Thoughts about the Natural Rights of Masters and Servants (1778) that “[T]he property of the poor is hardly anything else than … freedom to labor and earn their daily bread. If this right be denied a person or be curtailed … by force … then it is clear that his freedom voluntarily to seek work and thus earn his living has been impaired, and then his constitutional guarantee of freedom loses its meaning and value …”
“I especially resonated with Carl Uhr’s description of Chydenius as “imbued … by the vision that man, in seeking his own gain by specialization of labor and by exchange under an impersonal discipline of competition, would realize … the welfare and progress of society as a whole.” As a result, he was a “predecessor [of Adam Smith] who arrived independently at a conception of the essential nature and the virtues of an economic order based on freely functioning markets.” I only wish that, a quarter millennia later, more people shared Chydenius’s insight that, in Eli Heckscher’s words, “the only path to social harmony … was by free competition … all governmental intervention in the production and distribution of goods and services redounded sooner or later to the disadvantage of the great majority of the people.”

John, a friend of mine, a professor of chemistry at Oxford (Balliol) with a keen interest in Adam Smith, drew my attention to the writings of Chydenius a few years back (apologies, unforgivingly, I have forgotten his surname).   On his prompting, I obtained a copy of the ‘National Gain’ and read it enthusiastically.  Cheydenius presents a ‘Smithian' account of an economy (market and state, before Adam Smith HERE

Typically, chattering epigones resort to hyperbole in respect of Adam Smith, making him out to be the “the first” modern economist and “founder”, “inventor”, “designer”   (etc.) of “capitalism” (a word first used in English in the 19th century by Thackeray, in his novel, ‘The Newcomes’).  Yet markets relations existed for thousands of years before Smith wrote his magnum opus, Wealth Of Nations, mainly as a critique of exisitng market relations.  North Americans love heroes, scholars should love the facts. Smith’s important role in developing the ideas of exchange relationships in human societies was more than enough to establish his historic significance without resort to Hollywood’s tinsel glitter.

Monday, September 15, 2014


Lost Legacy Readers will have noticed that I have been somewhat sparse in my posts recently.  

I regret this lapse, which primarily is caused by two unavoidable contingences.

The first contingency is that I have been working on the preparity phases of drafting and writing a new book on Adam Smith and I am about to move to the drafting of chapters phase.  This for me is exciting as it shapes my vague ideas for my third Adam Smith book. 

I started on my latest Adam Smith book a couple of months ago, and this past month I experienced what I call the ‘discovery’ of my “authorial voice” phase, which usually emerges as I try various drafting of topics and experimental ‘chapter’ themes, some several pages long.   For me, once my “voice” stage is clarified, it energises the tone and format of the writing of the text.  

The second contingency is that serious writing is up against my physio’s mandatory health regime - if stroke patients do not work at recovery of brain-muscle co-ordination, their physical decline continues. In my case, considerations of balance and too early fatigue is tackled by not sitting around at my desk for hours but of active exercise, particularly in the form of a regular target-exercise regime: twice-daily, 50 minute walks in the neighbourhood, supervised by my MapWalk app, and regular, short 15-minute walks throughout my house, circa every 50 minutes.

However, I am now going to schedule-in attention to Lost Legacy, primarily because I cannot help reading useable material daily that I wish to comment upon, from Loony Tunes materials, through to more serious travesties of injustice to Adam Smith’s legacy. I have also noticed what I think is a slightly increasing number of contributions from scholarly figures across the Net who express positive endorsements of authentic ideas of Adam Smith, quite independent of my views.  I wish to comment on these and spread the contact details when they occur.

The exercise regime shall continue. But my book will take longer, plus my co-respondence, refereeing and reviewing obligations. As these latter are usually about Adam Smith, they remain a pleasure, whatever their authors' views on Adam Smith

Gavin Kennedy

Thursday, September 04, 2014


How to Kill Markets and Add to Poverty
“Assisting the Invisible Hand: contested relations between market, state and society
by Wim Dubbink and W. Dubbink.  Issue in BusinessEthics
Modern liberal democracies are troubled by public problems in which the free market is no innocent bystander. It is therefore generally acknowledged that the market must be controlled. Assisting the Invisible Hand is an investigation into contemporary thinking on controlling the market, especially with regard to the problem of dealing with environmental issues.”
MYLES UDLAND on Business Insider HERE
A Thornburg Investment Management study of "real, real returns," which was alerted to us by Cullen Roche at Pragmatic Capitalism, shows how various costs eat into your stock market returns. Real, real returns take into account expenses (the man), taxes (Uncle Sam), and inflation (the invisible hand).
What invisible hand regulates the free market economy?  HERE What is a free market economy/
Answer: “an economy that operates by voluntary exchange in a free market and is not planned or controlled by a central authority.”

Comment: Such an imaginary economy has never existed anywhere at any time in history.    Surely economics should be about the real-world?


Lloyd Randall teaches philosophy and humanities at a community college. He posts on Ethics Beyond Compliance HERE 

Sometimes the invisible hand of the markets is all too apparent as it clutches us by the neck and strangles us slowly and painfully.”


Marshall JevonsThe Mystery of the Invisible Hand: A Henry Spearman Mystery”. Princeton University Press  HERE
Henry Spearman, the balding economics professor with a knack for solving crimes, returns in "The Mystery of the Invisible Hand"--a clever whodunit of campus intrigue, stolen art, and murder. Having just won the Nobel Prize, Spearman accepts an invitation to lecture at Monte Vista University. He arrives in the wake of a puzzling art heist with plans to teach a course on art and economics--only to be faced with the alleged suicide of womanizing artist-in-residence Tristan Wheeler. When it becomes clear that Wheeler had serious enemies and a murderer is in their midst, Henry Spearman is on the case.”

Go on -You’ve gotta smile…