Monday, September 01, 2014
Having wrestled most of the day when I wasn’t out walking for my daily dose, my other daughter came round to pick up the children and I mentioned my computer problem. She slipped out of the kitchen and came back minutes later to say it was “fixed”.
And so it was! So I may be back to 'normal' tomorrow.
To be blessed with one computer literate daughter is a comfort. But two? Now that’s a blessing indeed. And that’s before I mentioned it to my son.
My new Apple system with wireless is not functioning. Installed by my tech wizard-ess (?) it broke down the day after she embarked on her 2- week honeymoon in Mauritius.
Hence posting is going to be restricted. I have several letters to respond to, plus some papers to complete.
Moreover, I have just started writing the first chapter of an exciting new book on Adam Smith…
For now I am using an old laptop, with difficulty to match.
My health, stroke recovery regime, precludes sitting without regular exercise, plus grandparent duties for our grandchildren (parents all working). Hence time at a premium.
Please be patient but still visit Lost Legacy when you can.
Wednesday, August 27, 2014
LIBERTY REVIEW OF PETER FOSTER'S "WHY WE BITE THE INVISIBLE HAND"
LibertyReview Books connected to the Liberty Fund, the publisher of a magnificent collection of publications (at affordable prices) for scholars. Its most famous series, the authoritative, “The Glasgow Edition of the Works and Correspondence of Adam Smith”, initially funded and published by Oxford University Press as the hard-cover edition, from 1976 to 1983. Liberty Fund's soft-cover edition has an “absolutely must have” status Adam Smith scholars Liberty Fund also has many other authoritative titles on the history of economic and political liberty (send for Liberty Fund's catalogues).
The review article below about Peter Foster’s new book HERE is an excellent place to start from. Regular Lost Legacy readers will know of and anticipate my reservations about Peter’s take on the “invisible hand” mythology:
“Why We Bite the Invisible Hand: The Psychology of Anti-Capitalism.” Peter Foster. Pleasaunce Press. 2014
“In Why We Bite the Invisible Hand, Peter Foster delves into a conundrum: How can we at once live in a world of expanding technological wonders and unprecedented well-being, and yet hear a constant drumbeat of condemnation of the system that created it? That system, capitalism, which is based on private property and voluntary dealings, is guided by the “Invisible Hand,” the metaphor for economic markets associated with the great Eighteenth Century Scottish philosopher Adam Smith. The hand guides people to serve others while pursuing their own interests, and produces a broader good that, as Smith put it, is “no part of their intention.” Critics. however, claim that the hand is tainted by greed, leads to inequity and dangerous corporate power, and threatens not merely resource depletion but planetary disaster. Foster probes misunderstanding, fear and dislike of capitalism from the dark satanic mills of the Industrial Revolution through to the murky concept of sustainable development. His journey takes him from Kirkcaldy, the town of Smith’s birth, through Moscow McDonald’s and Karl Marx’s Manchester, on a trip to Cuba to smuggle dollars, and into the backrooms of the United Nations. His cast of characters includes the man who wrote the entry for “capitalism” in the Great Soviet Encyclopaedia, a family of Kirkcaldy butchers, radical individualist Ayn Rand, father of evolutionary theory Charles Darwin, numerous Nobel prizewinning economists, colonies of chimpanzees, and “philanthrocapitalist” Bill Gates. Foster suggests that the key to his conundrum lies in the field of evolutionary psychology, which offers to help us understand both why some of what Adam Smith called our complex “moral sentiments” may be outdated, and why so many of our economic assumptions tend to be wrong. We are hunter gatherers with iPhones. The Invisible Hand is counterintuitive to minds formed predominantly in small close-knit tribal communities where there were no extensive markets, no money, no technological advance and no economic growth. Equally important, we don’t have to understand the rapidly evolving economic “natural order” to operate within it and enjoy its benefits any more than we need to understand our nervous or respiratory systems to stay alive. But that also makes us prone to support morally-appealing but counterproductive policies, such as minimum wage legislation. Foster notes that politicians and bureaucrats — consciously or unconsciously — exploit moral confusion and economic ignorance. Ideological obsession with market imperfections, income gaps, corporate power, resource exhaustion and the environment are useful justifications for those seeking political control of our lives. The book refutes claims that capitalism’s validity depends on the system being “perfect” or economic actors “rational.” It also notes the key difference between capitalism and capitalists, who are inclined to misunderstand the system as much as anyone. Foster points to the astonishing rise in recent decades of radical, unelected environmental non-governmental organizations, ENGOs. Closely related to that rise, Foster examines with one of the biggest and most contentious issues of our time: projected catastrophic man-made climate change. He notes that while this theory is cited as the greatest example in history of “market failure,” it in fact demonstrates how both scientific analysis and economic policy can become perverted once something is framed as a “moral issue,” and thus allegedly “beyond debate.” Foster’s book is not a paean to greed, selfishness or radical individualism. He stresses that the greatest joys in life come from family, friendship and participation in community, sport and the arts. What has long fascinated him is the relentless claim that capitalism taints or destroys these aspects of humanity rather than promoting them. Moreover, he concludes, when you bite the Invisible Hand… it always bites back.
Peter Foster studied economics at Cambridge. After working at the Financial Times (London) he emigrated Canada in 1976, to the Financial Post, and became a senior editor. Since 1998, he has written for the National Post. He has won many prizes for his writings.
Lost Legacy welcomes reader’s opinions on Peter Foster’s “Why We Bite the Invisible Hand: The Psychology of Anti-Capitalism.”
I am prepared to tolerate the first part of Peter's title by putting it down to the high-standards of his journalism, in favour of the second part on “Psychology of Anti-Capitalism”.
People expecting perfection are often disappointed. Like Smith we should be pragmatic ….
Tuesday, August 26, 2014
SCOTTISH INDEPENDENCE AND ITS CURRENCY
Sam Bowman (Adam Smith Institute) posted (26 August) in the Yorkshire Post (England) a well-argued case for an independent Scotland’s banking system, post-independence. HERE (originally published on the Adam Smith Institute’s web site).
"Answer to Scots’ currency dilemma”
"In a new paper for the Adam Smith Institute, I offer a solution to Salmond’s problem. I argue that an independent Scotland should continue using the pound sterling without a currency union. Combined with a system of financial reform based on Scotland’s most successful period in economic history, this system of ‘adaptive sterlingisation’ could give Scotland a highly stable banking system and economy in the long run.
“lan I propose, they would continue to issue these ‘promissory notes’, but would be free to start doing so on a fractional reserve basis. This means that for reserves of, say, one billion pounds sterling, a bank may lend out notes worth two billion pounds in the expectation that not everyone would try to redeem their notes at the same time. Bank runs can be avoided by including an option clause in the notes, allowing banks to defer repayment at the cost of additional interest for the customer.
When Adam Smith wrote his Wealth of Nations, it was during a golden age for Scotland. This period, known as the Scottish Enlightenment, saw thinkers like Smith, David Hume and Robert Burns revolutionise the way we think about the world, and took place against a backdrop of stunning economic growth for Scotland, unrivalled before or since.
Smith singled out Scotland’s banks as one of the main factors in its 18th century flourishing. But this banking system was fundamentally different to ours: banks could not rely on bailouts from the state, had to make their own arrangements to access liquidity when funds were short, and were free to issue their own bank notes according to demand.
The result was one of the most stable banking systems the world has ever seen, and it was only wound up with the passage of a Banking Act in Westminster that was designed for England but needlessly imposed on the Scots as well.
An independent Scotland could reinstate this system while maintaining its use of the pound without permission from Westminster. Scottish banks already issue their own notes. These are backed on a one-to-one basis by one million and one hundred million-pound notes stored at the Bank of England.
Under the ‘adaptive sterlingisation’ pUsually, when people are worried about the future, they spend less, creating a vicious cycle leading to economic slowdowns. Giving Scottish banks complete freedom over note issuance would allow them to expand and contract the supply of money in accordance with their customers’ desire to hold cash, effectively creating an automatic stabiliser in downturns.
Outside a currency union, Scottish banks would have no central bank acting as an unlimited lender of last resort to provide liquidity when they needed it.
Three Latin American countries – Panama, Ecuador and El Salvador – use the US dollar in a similar way. These countries have been praised by international institutions such as the International Monetary Fund and World Economic Forum (WEF) for the soundness of their banks. According to the WEF, Panama has the seventh soundest banks in the world.
Other bailout mechanisms should be removed too. Deposit insurance means that bank customers have nothing to lose if their bank fails, so banks have no reason to avoid risk.
Without deposit insurance, depositors would have a strong incentive to choose safe banks.
This proposal should not be seen as a panglossian case for independence. There are other issues at stake. … But removing bailout protections for banks and letting the market sort out money has worked before and should work again. If he is willing to look to economic history, Alex Salmond [Leader of the Scottish National Party and First Minister of the Scottish Government] may find an answer from his countryman Adam Smith: if you want prosperity and stability, get out of the way.”
[Disclosure: I am a Fellow of the Adam Smith Institute.]
The Scottish Referendum is drawing towards a close on 18 September, when 4 million-plus Scots voters go the Polls to answer 'YES' or 'NO' to the single question: "Should Scotland be an Independent Country?".
One of the main issues is on the currency in an independent country. The 'NO' campaign has taken the stance that Westminster will not allow and independent Scotland to be in a currency union with the rest of the UK (mainly England, of course, with tiny Wales and Northern Ireland remaining part of the rest of the UK).
The Bank of England, set up as a private bank in 1694 (one of its prominent founders was a Scotsman) when England and Scotland were in a union Crown under A Scottish King resident in England. The two countries formed a Union of Parliaments in London in 1707. The Bank of England was nationalised after the World War II as the whole of the UK’s central bank. Its most famous currency is the Pound Sterling.
The current argument is about the currency of an independent Scotland. Alec Salmond, leader of the Scottish National Party, is an economist, educated at St Andrews University, Fife, Scotland. He favours an independent Scotland in a currency union the the rest of the UK (rUK) because it is in the best interests of both parties. The UK party leaders have announced that they will not agree to a currency union with Scotland. Salmond considers this is a cynical bluff to frighten voters into supporting a ‘No’ vote.
He includes a commitment that an independent Scotland would be responsible for its proportionate share of the current UK’s historic National Debt and has budgeted it as annual debt payments into Scotland’s future, post-independence, annual commitments to the Bank. This too is controversial, because the UK parties in rejecting a currency union insist that Scotland continues to pay off the UK’s national debt but they do not agree that Scotland would continue to have its share of the National Assets of the B of E.
In response, Salmond warns that an independent Scotland that is denied its proportional share of the BoEs national assets cannot be expected to contribute its annual share of the National Debt. The ‘No’ camp’s leaders say that this amounts to a repudiation of a debt which would shock world bankers into bankrupting Scotland! This is an absurd assertion. Bankers understand basic book-keeping that is based on balancing columns of Assets with columns of Debts (invented in Italy) and highlighting whether the columns balance or not, as practised all over the world in commerce and in banks. If denied its share of the joint assets, Scotland cannot be expected to pays its share of the joint debts.
However, Sam Bowman highlights the options on currency for an independent Scotland and the technical details in plain English.
Incidently, I shall vote ‘YES’ in the independence Referendum.
GOVERNOR OF THE BANK OF JAPAN MISUNDERSTANDS MARKETS AND BLAMES THE INNOCENT ADAM SMITH
Jacob M. Schlesinger writinging (26 July) in ‘Real Time Economics’ in The Wall Street Journal HERE
“Kuroda Urges ‘Visible Hand’ to Raise Japan Wages”
“During Japan’s long, debilitating bout with deflation, basic market mechanisms broke down.
Fixing the machinery requires more than the traditional stimulus policies deployed to pump up growth, says Haruhiko Kuroda.
“A ‘visible hand,’ is necessary” in particular to prod companies to lift worker pay, a crucial element for sustainable growth, the Bank of Japan governor declared in a weekend speech at the Federal Reserve’s annual Jackson Hole, Wyo. symposium.
Mr. Kuroda certainly isn’t the first central banker to discuss alternatives to Adam Smith’s “invisible hand” of the free market. During the emergency response to the 2008 financial crisis, the Fed and others smashed any number of taboos. …
In conventional “invisible hand” logic, prices are dictated by supply and demand. In the labor market, that means falling unemployment should force companies to raise wages to secure workers as they become more scarce. In the U.S., Ms. Yellen is focused on maintaining an easy monetary policy to reduce the persistent “slack” in the job market, on the assumption that once the slack disappears, wages will then naturally rise. …
And he suggests the Bank of Japan’s 2% inflation target become that “visible hand,” the benchmark framing labor negotiations. Management and unions should set wages around the assumption that the BOJ meets its target, which, of course, would in turn make it easier for the BOJ to hit that target in a sustainable manner.”
When senior international bankers regularly chase a phantom illusion about “Adam Smith’s invisible hands”, we don’t have to look far for the causes of problems in the economies they think they are, or ought to be, managing.
Even the notion that “conventional invisible hand logic” (whatever that means), behind supply and demand, which together dictate prices is a weird way to describe the role of prices in markets.
No market can function without VISIBLE prices. No EXHANGE of GIFTS, reciprocated FAVOURS OR SOCIAL OBLIGATIONS, can function without mutually understood (often cumbersome) social conventions of RECIPROCITY, no human society has ever functioned without the human disposition to EXCHANGE.
Modern commercial markets using VISIBLE PRICES are the most EFFICIENT manifestation of THE HUMAN PROCLIVITY for EXCHANGE, compared to all their social predecessors (see anthropology, archeology, sociology, and other social sciences).
So where does Smith’s use the metaphor of an “invisible hand” fit into Haruhiko Kuroda’s, a governor of the Bank of Japan no less, thinking about markets? What does this mysterious entity do? Where did it come from? What is it describing?
As Adam Smith NEVER said anything about “an invisible hand” of markets (in fact his first reference to the metaphor of “an invisible hand” was applied to a non-market economy (Adam Smith: Theory of Moral Sentiments, 1759).
His second use of the “invisible hand” metaphor described “in a striking and more interesting manner” (Adam Smith: Lectures on Rhetoric and Belles Lettres, 1762) the risk-averse motivations of a merchant deciding to invest his capital locally rather than risk his capital abroad (Adam Smith: Wealth Of Nations, 1776).
Moreover, in a pothumously published essay he used the “invisible hand” to describe the pagan, pusilanimous superstitions of Roman citizens about their imagined, stone-god Jupiter, whom they believed fired thunderbolts from his finger at enemies of Rome during wild storms - hence they were motivated to stay indoors during such storms (Adam Smith, History of Astronomy, 1795, posthumous).
I respectfully suggest that Haruhiko Kuroda re-visits both basic economics ON THE ROLE OF PRICES and the history of economic thought ON THE MYTH OF AN "INVISIBLE".
Monday, August 25, 2014
TIM WORSTALL AND PAUL WALKER ON ECONOMISTS AS NICER PEOPLE , COOPERATORS, AND BARGAINERS
Tim Worstall, writing (24 August) in The Adam Smith Institute Blog HERE
demonstrates once again why he is among the very best of consistent authors around today in journalism on Adam Smith’s moral philosophy and economics. He understands Adam Smith almost perfectly.
Here is an extract from today’s (Tim’s and Paul’s) offerings: you can read the rest by following Tim’s link above and Paul’s link below: Paul Walker’s “Anti-Dismal” Blog HERE (another excellent daily read which you can bookmark too):
[TW]: “Economists are morally superior beings, scientifically proven that is” and “A lovely paper discovered by Paul Walker over in the land where Kiwis live standing on their heads:
[PW]: Does an economics education affect an individual’s behavior? It is unclear whether differences in behavior are due to the education or whether those who choose to study economics are different. This issue is addressed using experimental evidence from the Trust Game where trusting and reciprocating behaviors can be measured. … Thus, economists play well with others and these social preferences are not taught in the classroom.’
[TW]: “However, this does pose a problem for us as we try to explain it to others. For we’re, in some manner, captivated by those very examples of playing nicely together than the market offers us. We can see how competition is the method by which we decide who to cooperate with and that the vast majority of economic activity isn’t in fact competition at all, it’s cooperation. The seemingly vast and impersonal market itself is simply a description of how we all, the many billions of us, choose to cooperate to our mutual advantage … our task is to get across the points about such cooperation to those who simply do not have those same basic beliefs about human behaviour that we do. No wonder it sometimes comes out as a dialogue of the deaf: we don’t get what they don’t believe at root, that humans are naturally cooperative beings and markets are the way that we do this.”
The paradox that human co-operation is manifested best in market behaviours is the great divide between those favouring markets where possible, the state where necessary and those, ideologically, favouring only markets and its ideological opposite, those favouring only the state.
Why? For two reasons. First, because states without open markets, as per socialist ventures, the latest being Venezuala, and earlier totalitarian, experiments with total communist states (Soviet Union, Mao’s China, North Korea), were and are avoidable disasters, and second, because markets without states are hard-libertarian/anarcho fantasies.
Adam Smith, writing long before socialism and anarcho-libertarian fantasies were postulated as possible, viable alternatives to each other. He never used the words ‘laissez-fare’, yet his epigones today miss-apply those two words to his name. He also cautioned against requiring as a necessary, pre-condition for prosperity by establishing “the exact regimen of perfect liberty and perfect justice”. Smith commented that if true, “there is not in the world a nation wich could ever have prospered” (WN IV.ix.28: 674). Book III of Wealth of Nations is a “violent’ (his word) polemic against the doctrines enshrined in mercantile political economy. Moreover, he demonstrated his suspicions, indeed contempt, for the “merchants and manufacturers” throughout Wealth Of Nations who dominated the emerging 18th-century, market economies, and also his contempt for “crafty” politicians, and state legislators, who managed, often corruptly, the States of Europe.
Smith was even-handed in his pragmatism, not an ideologue. He wrote of the necessity for both markets and the state for modern economies. That is why (as a ‘soft-libertarian’) I prefer to argue for “markets where possible, the state where necessary”.
Markets depend on co-operation for markets to work; states are necessary for justice to prevail. The modern, misguided perception that bargainers are in competition with each other - what one gains the other loses, because it is a zero-sum game - is profoundly wrong. It is also misleading and at odds with Adam Smith’s expressed views on bargaining (WN I.ii.2: 26-7), which an important consideration if you are relying on quoting Smith to support your contrary assertions.
Two absolutely at odds bargainers are not seeking to maximise their utilities (supposing we accept for a moment the modern notions of self-interested, utility maximisation which inevitably means deadlock). Bargainers seek to exchange what they have for what they want, by trading under the auspices of the conditional proposition: “If you give me some of what I want, then I shall give you in exchange some of what you want”.
The terms of their exchange are arrived at through conversation, using persuasion, mutual consideration of each others expressed wants, offers (TMS) and mutual fexibilities in their offers, and movement between different packages. What one party ‘gains’ is not matched by the other’s ‘losses’ because bargainers want different things - the both ‘give to get’.
John Nash was closest among modern economists writing on bargaining in postulating that the agreed deal, in a mathematical sense, was not a plus or minus of their realised ‘gains’ and ‘losses’ (should they achieve a settlement), but the product of their mutual gains from bargaining. Each values what they gain from bargaining, minus their losses, but as they value the exchanged items differently, both settle by exchanging things they value less for what they value more (however ‘value’ is defined by each separately).
To explore this idea from Adam Smith more fully, see my non-technical, exposition in my book: “Kennedy On Negotiation” [the publisher’s chosen title, not mine!] 1. ‘Prologue’, pp. 1-20, Gower. 1998. (Note: I ran negotiating workshops in various business schools, in Scotland, England, Europe, Asia, Africa, USA, Canada, China, S.E. Asia and Australia, from 1973-2005 until my retirement).
Sunday, August 24, 2014
PROFESSOR YINGXU WANG AND THE INVISIBLE HAND
Yingxu Wang (University of Calgary) posts on ResearchGate HERE
“Was the classical illustration of Adam Smith’s invisible hand shown upside down between the curves of demand and supply in economics textbooks?:
“The conventional model of textbooks (Figure a) [Frank, 1997; Slavin, 1988; Park et al., 2001; Brue, 2001; …] has confused the relationship of the curves of demand (D) and supply (S) from the very beginning. It’ll be straightforward and mathematically consistent by interchanging both curves in order to rationally and rigorously explain the mechanism of the invisible hand in fundamental market behaviors (as shown in Figures b, c and d). For details, see “Toward Formal Models of the Theoretical Framework of Fundamental Economics,” Fundamenta Informaticae, 90(4), 443-459 [Wang, 2009].”
I have noticed several posts around websites by Yingxu Wang, some of them referring to the “invisible Hand” mythology. The above is fairly typical, well stated, well supported by textual evidence from modern economists, though not, alas, from Adam Smith. That’s the main source of the problem.
Parenthetically, Adam Smith did not use the standard S-D diagram, pre- or post Marshall. The S-D diagram was popularised by Alfred Marshall in his weighty tome, “Principles of Economics”. 1890. vol. 1 [there was no volume 2], Macmillan, of which several editions were published to 1929. Maths minded textbook authors for many years have pointed out the ‘error’ noted by Wang of the labelling of the vertical and horizontal axes.
More important, Adam Smith never associated his use of the “invisible-hand” metaphor with market supply and demand theories. That strange notion came about later in the 20th century, primarily by Paul Samuelson (Economics, 1948, McGraw-Hill) and is now widely assumed to be true by repetition and Samuelson's academic authority.
Adam Smith in Wealth Of Nations did not relate his use of the “invisible hand” as a metaphor for working markets. He referred to the “invisible hand” as a metaphor for the actions of a merchant who considered that sending his capital abroad was too risky. Instead he was motivated to avoid his perceived risks by acting to invest his capital in “domestic industry”.
Smith’s use of the IH metaphor described the merchant’s intended, because motivated, actions and their consequences for the merchant. For the merchant domestic investment was more secure for him, given his risk-aversions.
However, the merchant’s actions also had unintended consequences of which the merchant was unaware. However, Smith noted his motovated intentions also led to unintended consequences. The unintentional consequences are not the subject of the invisible-hand metaphor which describes the intended motives that lead the merchant to act to avoid the perceived greater risks to his capital by investing abroad (mentioned four times).
Smith’s use of the IH metaphor conformed to his own teachings on the role of metaphors, namely to “describe in a more striking and interesting manner” their “object” (Smith, “Lectures in Rhetoric and Belles Lettres” (1762-3, p.29). In this specific case, the “object” of the IH metaphor was the motive that led the merchant intentionally to his actions, specifically to invest his capital domestically for his own security. However, in doing so, the merchant’s action, also had unintentional consequences, specifically in this case, the merchant’s domestically invested capital added to domestic “revenue and employment” (which would not be the outcome if the merchant invested his capital abroad). That unintended consequence, which was “no part of his intention” said Smith, could have public benefits.
He also added that there were “many other cases” where similar unintended outcomes could arise from quite separate actions where individuals intentionally acting for their own limited personal interests, could have unintended benefits for society as a whole.
Sensibly, Smith’s qualified reference in the IH paragraph (WN IV.ii.9: 456) to “in this and many ofher cases” also asserts that there are, and realistically could be, many other cases where individuals acting from other motives and intending “their own gain” engage in actions that may also “promote an end” which “was no part of their intention”, or realistically in the real world, that does not “increase domestic revenue and employment”, and also produces unintended outcomes that are not describable as “public benefts”.
Much of Book IV of Wealth Of Nations discusses in detail the negative unintentional outcomes of mercantile political economy as practised across Europe. Smith’s fulsome critique of these negative mercantile outcomes are his testimony against the “merchants and manufacturers” who pursue legislation in support of their short-sighted preferences, tariffs, trade prohibitions, monopoly privileges, trade restrictions, and risky hostilities towards potentila trading partners.
Thursday, August 21, 2014
ONCE MORE ON POVERTY IS MORE IMPORTANT A PROBLEM THAN INEQUALITY
On the Adam Smith Blog (Adam Smith Institute HERE http://www.adamsmith.org/blog/)
Tim Worstall 20 August) posts on “What glories this capitalist free market thing hath wrought”.
It is quite briliant as we have come to expect from Tim Worstall. Follow the link and read why.
I posted the comment below on his piece”
“Tim and Deirdre are both right: poverty is a more important problem than inequality. It wasn’t the desire for equality that drove Homo Sapiens and their immediate predecessors to develop speech and toolmaking from which human consumer products evolved, lifting them, albeit marginally at first, from the norms associated with the consumption possibilities of animals in nature.
Adam Smith lectured on these great transformations, hindered as he was by no knowledge of evolution or the circumstances and the millions of years and hundreds of millennia of pre-history involved, and without direct knowledge of modern anthropology and basic archeology, hence his summary efforts could not be taken any further by his student listeners:
“All other animals find their food in the state they desire it and that which is best suited to their several natures, and few other necessaries do they stand in need of. But man, of a more delicate frame and more feeble constitution, meets with nothing so adapted to his use that it does not stand in need of improvement and preparation to fit for his own use” (Adam Smith (1762-3): Lectures on Jurisprudence, p. 334. vi.9).It was, and is still, the unrelenting power of those needs for improvement to fit human use that drove human progress and adaptation, or what Deirdre McCloskey calls the “Great Enrichment” that defines “the main fact and finding of economic history”, (including of course our pre-history).
RUSSEL ROBERTS TO SPEAK AT LSE ON "REAL STORY BEHIND THE INVISIBLE HAND"
The Real Story Behind the Invisible Hand
LSE public lecture: Date: Thursday 30 October 2014; Time: 6.30-8pm; Venue: Old Theatre, Old Building. Speaker: Russell Roberts
“Adam Smith gave the world the metaphor of the invisible hand, the most famous metaphor of economics. But he only used the phrase three times in his writings. And none of the uses reflect what the phrase has come to mean today--a justification of laissez-faire capitalism. Yet Smith is indeed a key figure in the idea of emergent order--order that is the result of human action but not human design. Ironically, his richest explanation of that concept may be found in his little-known masterpiece, The Theory of Moral Sentiments. His application there is not to our economic system, but to the very idea of civilization and culture. This talk explores Smith's concept of emergent order and its relevance for our conduct today and its potential to let all of us help to make the world a better place.”
Russell Roberts (@EconTalker), author of How Adam Smith Can Change Your Life, is a research fellow at Stanford University's Hoover Institution and the host of EconTalk, a weekly hour-long award-winning podcast. Previously, he was a professor of economics at George Mason University and founding director of the Center for Experiential Learning at the John M. Olin School of Business at Washington University.
Suggested hashtag for this event for Twitter users: #LSEASmith
This event is free and open to all with no ticket or pre-registration required. Entry is on a first come, first served basis. For any queries see LSE Events FAQ or contact us at email@example.com 0207 955 6043.
Media queries: please contact the Press Office if you would like to request a press seat or have a media query about this event, email LSE.Press.Events@lse.ac.uk. Please note that press seats are usually allocated at least 24 hours before each event.
At last! Slowly but surely the truth about the myth of the “invisible Hand” in modern economics is being presented, albeit not yet, within mainstream economics, but certainly now in some of the upstream flows of ideas into that large ocean of ideas that make up the modern, orthodox consensus.
I know of Russel Roberts entirely from my long-standing subscription to ECONLOG (Library of Economics and LIberty) HERE http://econlog.econlib.org Russel’s Blog carries running commentary on economic ideas, which are usually interesting because they debate modern themes and ideas about them.
I have not noted Russel’s interest in the ‘invisible hand’ controvesy before but very pleased to see he has now moved into it. Unfortunately travel for me just now is not feasible from Edinburgh to the LSE in London. I would have loved to attend and hear what he has to say - and, as interesting, his audience' reactions. From the above ‘abstract’ , Russel and I would agree on the subject and I am encouraged that he is taking his ideas to an important citidel of ‘IH idolitary’. Would that he could do so in US academe too, where ‘IH disease’ is rampant both across academe and in wider US public use.
If you can get to the lecture, follow the links above for tickets: firstname.lastname@example.org or call 0207 955 6043.
Saturday, August 16, 2014
FACT-CHECKERS NEEDED AT FORTUNE
Chris Matthews in “Fortune” 13 August, HERE writes:
“The 'invisible hand' has an iron grip on America”
CW: “There are few metaphors that have captured the American economic psyche as powerfully as the “invisible hand” of the market. The term, first coined by Adam Smith in 1759, is used to describe how the self-interested behavior of people in a marketplace leads to the greater good for all. No need to rely on concerted efforts of government or the church to direct commercial activity. If the proper economic and legal institutions are set up, we can all be made better if simply left to our own devices.”
Adam Smith did not “coin” the phrase ‘invisible hand’, nor was it a ‘phrase’ - it was and remains a metaphor that was regularly in use in the 17th and 18th centuries before Smith was born and for long afterwards.
Moreover, Smith used the metaphor only once in his 1759 book: Theory of Moral Sentiments and it did not refer to “people in a market place”. He was discussing an agricultural economy, akin to feudalism, where landlords owned the land and serfs, peasants, or landless labourers worked the landlord’s land and landlords in return fed them their necessaries from the farm’s produce. There was no marketplace in Smith’s 1759 example. In reality, of course, landlords used unsympathetic overseers to keep the labourers in order and to distribute produce to them.
CW: “Before Smith coined the phrase “invisible hand,” the discipline of economics didn’t even exist, which is likely why he is so revered by economists today. But while economists respect Smith for inventing the field, they are much less uniformly fond of the “invisible hand” and its sway over public discourse and policy.”
‘Political Economy’ in Smith’s times was incorporated under the older rubric of Moral Philosophy and Jurisprudence (both of which Smith taught at Glasgow University (1751-64).
The more fashionable subject of “Political Economy” came into fashion from Continental influence (Sir James Steuart: “An Inquiry into the Principles of Political Economy”, 1766) and for long afterwards throughout the 19th century (Ricardo, Malthus, and Marx) until Alfred Marshall published his weighty texbook “Principles of Economics” (1890), from which the modern title became common for the narrower discipline emphasising markets over governments.
That Smith is so ‘revered’ today has nothing to do wth the mention of the ‘invisible hand’, which was largely ignored while he was alive and hardly noticed after he died in 1790 and then until 1874, and seldom since until Paul Samuelson started that particular hare running in 1948. Mentions of the IH are now viral.
Only recently have economists become “less uniformally fond of the the “IH” metaphor”. Lost Legacy has tried since 2005 to undermine what “fondness” remains for attributing the invented properties attributed to the “IH” metaphor and for it being attributed to Adam Smith.
CW:Joseph Stigliz: “Adam Smith, the father of modern economics, is often cited as arguing for the “invisible hand” and free markets. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best…. [T]he reason that the invisible hand often seems invisible is that it is often not there.
In other words, markets are pretty good at allocating resources where they are most needed, but there are so many exceptions to this rule that these exceptions deserve as much attention as the rule itself.”
I am always pleased when a leading Nobel-winning, modern economist, with a vast popular readership, acknowledges the fiction of the “invisble hand”. I would be even more pleased if Chris Matthews, writing in the popular magazine, “Fortune”, used the legendary fact-checkers, supposedly abounding in US journalism, to clear up the other factual errors in his otherwise authoritative articles when referring to Adam Smith.