Tuesday, September 16, 2014

CHYDENIUS, AN EARLY PIONEER ON ECONOMIC EXCHANGE BEFORE ADAM SMITH

“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.”
Comment

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

ANNOUNCEMENT

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

LOONY TUNES NO 102

1 
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.”
2
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).
3
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?

4


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.”

5

Marshall JevonsThe Mystery of the Invisible Hand: A Henry Spearman Mystery”. Princeton University Press  HERE
http://www.periplus.com/p/9780691163130/the-mystery-of-the-invisible-hand-a-henry-spearman-mystery?path=1
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.”
Comment

Go on -You’ve gotta smile…

Wednesday, September 03, 2014

RON BAKER REALLY KNOWS AND UNDERSTANDS ADAM SMITH ON THE INVISIBLE HAND AND MORE

Ron Baker posted (1 September) this excellent,and welcome article on Linked In HERE 

Ron Baker started his CPA career in 1984 with KPMG’s Private Business Advisory Services in San Francisco. Today, he is the founder of VeraSage Institute, a think tank dedicated to educating professionals internationally.
 He writes: 
“The Invisible Handshake”
“In Oliver Stone’s 1987 movie Wall Street, the Nietzschean anti-hero Gordon Gekko proclaims, “greed, for lack of a better word, is good,” as if greed is the pinnacle of virtue for businesspeople.
This view is commonly attributed to Adam Smith’s famous invisible hand; but like most conventional wisdom, it is more conventional than actual wisdom, since Adam Smith never claimed that greed was good.
In fact, the term is properly credited to Bernard Mandeville (1670-1733), a Dutch psychiatrist and pamphleteer. In his work The Fable of the Bees [1714], Mandeville claims that “private vices are public benefits.” Adam Smith, in his mostly forgotten book The Theory of Moral Sentiments, disagreed with this, calling it “wholly pernicious” and the thesis “erroneous.”
Yet, who subscribes to the view that greed is good? Taken to the extreme, it would prevent anyone from starting a family––indeed, it would be a dagger in the heart of family life, marriage, friendship, partnership, entrepreneurship, and brotherhood.
Helplessness may be the only truly universal human experience, since all of us pass through infancy. The human race would not have survived one generation if every person acted as if he were unconnected to any other person. Most parents would die for their children, and this is not even considered heroic behavior but rather ordinary.
The Forgotten Adam Smith
Long before economics became a formal discipline, economists were known as moral philosophers. Smith wrote The Theory of Moral Sentiments, published in 1759––seventeen years before his more famous Wealth of Nations––wherein he theorized that moral sentiments are emotions or feelings––as opposed to pure logic––about right and wrong.
Taken together, these works attempted to integrate economics and moral behavior, since Smith thought there is no conflict between economic thought and moral philosophy. In the long run, the public interest depends on private virtue.
While many cite the writings of Smith as proof of capitalism’s selfishness and greed, his views were much deeper and more nuanced than simple self-interest. He dealt with human nature and psychology in The Theory of Moral Sentiments, which also studied human feelings and acts of benevolence. In the opening paragraph he wrote:
How selfish sovereign man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him though he derives nothing from it, except the pleasure of seeing it. …The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it."  ....
 [Plus so much more ... follow the link]
Comment
That is all I feel able to post in order not to trepass on Ron Baker’s copyright or risk my reputation for fair dealing.   However, I would love to publish it on Lost Legacy because it is so close to what Lost Legacy has been arguing, almost alone, for 13 years that I am resisting shouting out loud that “We are not alone”! 
If we ran a competition for the best article on Adam Smith and what he was about in the whole of that time since Adam Smith’s Lost Legacy, Ron Baker would win it hands down.
So I urge readers to follow the link above (it worked 15 minutes ago) and see how close Ron Baker is to my interpretations of Adam Smith.

Naturally, I have some small caveats (I’m an incureable scholar on details!) but they do not alter my judgement of Ron’s achievement.    

ADVICE ON SCOTTISH INDEPENDENCE FROM TEXAS: THANKS BUT NO THANKS

Bryan Glass, a lecturer in Modern British Imperial History at Texas State University writes (3 September) HERE  
An independent Scotland would have to look to Adam Smith, not socialism”
“We are now barely two weeks away from Scotland’s referendum on independence. According to the latest polling, the No camp’s lead is disappearing fast. A Yes victory is becoming a realistic possibility. Yet the main argument in favour of independence that the Scottish population is threatening to accept is fundamentally flawed. It promises that state intervention can be maintained in an independent Scotland, and even increased through extra borrowing.”
Bryan asks :“how would Scotland survive after independence if the government is promising to continue offering Scots the same level of NHS spending, free prescriptions, free university and state pensions; not to mention a new proposal for free childcare? Where will the money come from to subsidise such high levels of spending? …
Smith holds the key
There’s no doubt that Scotland could be successful as an independent country, but the idea that there will be tons of money lying around to subsidise all of the social-democratic programmes promised by the SNP is pure fantasy. The Scots would be wise to turn to the thinking of one of their greatest minds, Adam Smith, and his magnum opus The Wealth of Nations when trying to build their new state.
If Scotland wants to survive and not come back begging the United Kingdom for a second chance at union, socialist ideology is not the answer. Hard work, enthusiasm and how the Scots embrace the free market will determine whether an independent Scotland succeeds or fails.
There must be a realisation that with statehood come sacrifices in terms of public expenditure. If the Scots are unwilling to budge on their public spending they must be open to creating as innovative and dynamic an economy as possible to feed this need for social welfare.
But if the economy takes a while to adjust as issues such as the currency used and EU membership are worked out, will Scotland spend itself into a level of debt from which it will never recover? That would lead to a flight of both capital and Scotland’s brightest minds, which are needed now more than ever."
Comment
One reason for me only commenting on the politics of the country I vote in is neatly illustrated by Bryan Glass above. Unlike in Texas, Scottish voters do not equate welfare state legislation, or state-funded, health provision with “socialism”, which to voters here smacks of ‘tea party’ extremist rhetoric.
Adam Smith supported the Union during his life-time and opposed Jacobite followers of the Stuart claimants to the UK monarchy as opposed to the Hanovarian Monarchy that successfuly took over the united Kingdoms of Scotland and England. From the Union of the separate parliaments in 1707, English foreign policy withdrew its trade restrictions on Scotland, brought it within the terms of the English Navigation Acts that policed trade with the Colonies in North America, and formed a United customs union. 
I should think most personages concerned with economic development at the time would have supported the Union.  However, that in itself does not mean that Adam Smith should be seen as an implicit advocate of the Union being set in stone for ever more, or for him to also support a UK withdrawal from the EU in an “In-OUT” referendum, which is scheduled to be next on the London Conservative and Unionist Governent’s agenda in 2016.
Being closer to the Scottish Independence debate than Bryan Glass, I know of no significant voices in the ‘Yes’ campaign who equate independence with forming a new socialist state or of irresponsibly financing a bloated welfare state. This latter experience was a feature of the last Labour Government (Prime Minister Gordon Brown and Chancellor Darling - both of whom are prominent leading activists in the ‘No’ campaign). 
Conservative Party ‘No’ activists intend that the UK will spend £100 billion on modernising the Trident submarine fleet and its Command and Control systems, for which there are no targets, can never be used, except to end civilisation, and is a waste of scarce resources, plus the other billions it intends to spend on future, even imminent, conventional wars in the Middle-East.  Scotland’s 10 per cent share of these UK spending plans could be put to better use in an independent Scotland.
Adam Smith advised that defence against invasion was a government’s ‘first duty’, not that it had a duty to invade other countries by participating in dynastic wars between competing European royal households.  The crumbling Royal dynasties are gone, and the war on terror is the direct result of, albeit well-intentioned, interventions in foreign countries and cultures, that have unintended but forseeable consequences, as Adam Smith might have put it.
We are well aware in Scotland of the historical significance of Adam Smith and of the details of his life and of his works. Bryan Glass may not appeciate these facts fully but nothing he writes above on the Scottish Referendum suggests to me that we should do other than vote YES.

Monday, September 01, 2014

ANNOUNCEMENT (UP DATE)

Announcement 2a

Good news! 
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.


Gavin

ANNOUNCEMENT


Announcement

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.

Gavin   

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.
Comment
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.”
Comment
[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.”
Comment
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).

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".