Sunday, April 19, 2015


Edward Chancellor posts (17 April) in Breaking News HERE
“Back in the 18th century Adam Smith established economics, according to Desai, as a combination of philosophy, history, economic theory and some practical policy advice yet modern economists, while adept at mathematics, lack Smith’s intellectual breadth. In particular, they are largely ignorant about economic history and know even less about the intellectual development of their own discipline.
As a result they fail to learn the lessons of history. 
Desai suggests that many of the flaws of economics derive from the attempt to turn the subject into a science; a development he traces back to the father of economics, David Ricardo, who theorised that the economy tends naturally towards equlibrium. Such a balanced state can be modelled mathematically with ease, allowing economists to satisfy their “physics envy”. As Desai points out modern economists are wedded to mathematical models, despite the models’ reliance on highly unrealistic assuptions about the real world.
I came acros this piece while browsing through the web this morning - taking a short break from preparing my new paper: “Adam Smith on “Self Betterment, Self-Interest, the Invisible-Hand metaphor and Intended and Unintended Consequences” - and thought it would interest readers.
In the mid-1970s, I attended several seminars at LSE (I was lecturing at Brunel University and National Defence College at the time) where, on occasion, I heard Professor Meghnad Desai of LSE (now retired) enthusiastically contributing to the various seminar topics. He struck me as an academic with his feet on the ground. I certainly agree with his quoted views above.
Working on my new paper, I cannot help but agree with Deasai’s general criticism of modern economists for their near total neglect of history and their almost total reverence for mathematical models with little connected relevance to the real world now or thoughout the history of the human species. Smith’s historical approach was richer in relevance and enabled him to write authoritatively about real people’s behaviours influenced and affected by their interactions with other real people, as the real people of history demonstrated.  Be clear too, that Desai was far from being innumerate and could ‘mix-it’ with his mathematically-minded collegues, of which LSE at the time abounded. (I published three text-books based on my lectures to undergraduates: 'Mathematics for Innumerate Economists' (1982); 'Invitation to Statistics, 1983, and "Defense Economics", 1983).
I have spent four days re-reading Wealth Of Nations - with side-forays into his “Lectures on Jurisprudence” and “Moral Sentiments” - while I went over my previous red-dotted paragraphs in his texts where Smith referred to the behaviours of a cast of self-interested players and how they behaved under such stimuli, when confronted by choices of economic and political importance to themselves (it is not a pretty sight). 
The general impression over the centuries that Smith covers is not attractive to those who believe, despite the evidence of millennia, never mind today, that people are and have been imbued with a matchless sense of humanity, qualifying their descendents, especially  in modern economies, to behave in the manner assumed by abstract mathematical models. You can measure and appreciate the regular and predictable behaviours of atoms, but, alas, not people.

I shall also take this opportunity to explain my few posts recently, despite a queue of possible posts I have lined up for Lost Legacy. My paper is taking all my attention at present and may do so for a few weeks more. It is progressing well and I am happy with its general approach. It requires knitting together without adding too much new material.

Saturday, April 11, 2015


Don Boudreau in his regular Blog (9 April) HERE  raises an important fact from economic history, which is correct in what it criticises. You should follow the link for the economics of Don’s valid criticism:
“Crazy yet Immortal Economic Myths: Example no. 1”
To justify raising the minimum wage, Gary Jimenez alludes to the tale that in 1914 Henry Ford raised his workers’ pay to $5 per day so that he would earn more profits by dint of his workers spending their higher incomes on new Ford cars (Letters, April 9).  This tale is a myth.  Were Mr. Jimenez a better student of history he would know that Ford raised his workers’ pay in order to reduce worker turnover in his factories.”
Don provides the appropriate link to Tim Worstall’s post HERE  I hope readers follow the link to the academic rebuttal of Garry Jimenez’s fallacy, as picked up by Don.
My first job in Australia was at a car-manufacturer’s brand-new plant, then under construction and nearing production. I was assigned to the stores issuing tools and machine parts, tools, and accessories to the mechanics in exchange for authorisation chits signed by their foremen, and was also generally engaged in ”run about” message-taking across the production and administrative buildings.
I also looked round the manufacturing plant’s vast production lines, then partly busy with mechanics readying them for car production, between trips from the stores to deliver urgent items to the teams of mechanics, en route passing by notices banning photographs and showing my pass at ‘No Entry’ signs etc., and also dodging vigilant and surly security men. My interest was from pure curiousity and wonder and my sometimes unauthorised visits to departments which were in aid of my rushing delivery of urgent parts to 'friends' of stores. 
Over time I got to know many people and chatted about the wonders of modern car manufacture. One thing was made very clear to me that when the plant started producing cars it was to be a two-shift, non-stop operation geared to the demand for domestically produced cars (desgned and as operated in the UK - always referred to as ‘England’, never ‘Britain’). 
Recruitment of the line-workers and supervision were underway and training teams were everywhere. Many ‘Poms”- Australian slang for ‘English’-born migrants - had come over to Sydney on two-year contracts and were fairly open to loose conversation. I listened to the experienced migrant car workers and their accounts of what car manufacturing was like to work for in the UK. They all said that the pay was good but the work relentless. Whatever else happened the ‘line’ had to be kept moving. Stopping the ‘line’ was too serious to contemplate and they would recount stories of someone dying of a heart attack who was moved to the side while his place was taken by a ‘charge hand’ (lowest grade of supervision) and medics removed his body. Now this was my early experience of workers’- banter, partly made-up and grossly exaggerated to impress the innoncent (I was just 15).
But the image stuck with me, until years later, as a ‘mature’ student at  University in Scotland, I came across the story of Henry Ford’s raising of car-producers’ wages well above prevalent average workers’ pay rates, as if it was unexplainable. It did not strike me as odd or worthy of too much scepticism. I simply thought of those new Australian car production lines, plus all of their feeder lines of parts, large and small, simple and complex, all critical to produce a finished unit of output. 
The daily unit-output of completed cars was a critical indicator of performance. Anything that interrupted the flow of car bodies along those lines was a serious deficiency of hourly/daily output. The backlog of the flow of parts into and out of the stores was a visible rising cost of production for every minute of any idle time during working shifts, raising the unit costs of unfinished cars and causing the idle non-productivity of line labour, which struck at the profitability of the car-plant. 
Paying labour on stopped production lines because of the regular non-availability of labour from irregular absences was more expensive than paying higher wages, well-above the national norm to ensure, or at least mitigate, a much smaller scale of absences (closer to zero), so it made sense to set and keep the hourly rate high enough to ensure regular attendance. This all seemed logical to me aged 15 in a new Australian carplant, long, long before I went to university to study economics, aged 25. 
Gary Jimenez did not really need to “be a better student of history” to know better. He needs to observe human psychology. What he needed to do is work in a car plant and see its organisation and observe its vulnerabilities without knowing anything much about “history”, or much else, for that matter, except perhaps something about the human psychology of real, ordinary people, who are much smarter than they are often credited.

[For years later, I often replied, when asked by colleagues, even interview panels (for which I was told by a senior profesor that I “lived dangerously”), which univeristies I had attended, that I first graduated from the ‘University of Life’, and, then I went on to graduate from three Universities of ‘Academe’.]

Tuesday, April 07, 2015


Jundalisay (see Lost Legacy, Saturday 4 April) posts on Socioeconomic science HERE
Here is an interesting Q & A exercise contrasting Socioeconomics answers to a supply and demand question and answer from Mankiw’s big selling textbook, “Principles of Economics”.
Mainstream micro-economics teachers may like to comment.

Monday, April 06, 2015


“Government Intervention and the Invisible hand”
The “Invisible Hand” is a concept coined by Adam Smith that is used to define any force – be it social, political, or economic – that brings an unbalanced market back to equilibrium, the point in which the price-to-quantity ratio in any producer-consumer transaction is equitable for both parties” … and etc & etc.
Below is a short statement which I made to  some months ago HERE I replied: “No. It doesn't exist. It was a metaphoric expression used by Adam Smith to, as he put it, “describe in a more striking and interesting manner”, the hidden motives of individuals, whose self-interested actions have intended benficial consequences for them, but such actions by individuals may also have unintended consequences for them and others, sometimes benign and sometimes malign. Examples include businesses producing consumables that customers want and enjoy that may make society better off, while businesses persuading governments to impose tariffs, say, may reduce competition and raise prices, making consumers worse off. The metaphor of “an invisible hand’ is now widely applied without care to imply some mysterious entity consciously acting in markets to bring about benefits to everybody. Whereas governments and businesses that ignore poullution, say, may make everybody worse off.”
I would add after reading the imaginative account given by “nchanvez15” cited above that his supposed scholarly bibliography to his piece solely consists of:
“Ashraf N., Camerer C.F., Loewenstein G. “Adam Smith, Behavioral Economist.” Journal of Economic Perspectives—Volume 19, Number 3—Summer 2005—Pages 131-145. (accessed April 2, 2015).
Federal Reserve Bank of St. Louis. “The Role of Self-Interest and Competition in a Market Economy – The Economic Lowdown Podcast Series, Episode 3.” Federal Reserve Bank of St. Louis Web site. (accessed April 2, 2015).
Krugman, Paul. “Walmart’s Visible Hand.” The New York Times.March 2, 2015. (accessed March 31, 2015).
Samuelson, Paul A. “Chapter 7: Economic Behavior and Rationality.” Economics: An Introductory Analysis. (accessed April 1, 2015).
Tabuchi, Hiroko. “Walmart Raising Wage to at Least $9.” The New York Times. February 19, 2015. (accessed March 31, 2015).”
Impressive, yet not a single bibliograhical reference to either of Adam Smith’s two books that mention the “invisible-hand” metaphor, Theory of Moral Sentiments (1759) or Wealth Of Nations (1776). Surely the author, “nchanvez15”,  before writing so authoritively supposedly on “a concept coined by Adam Smith” would include in a supposed scholarly biography  the supposed source of his imaginative interpretation of what the supposed source is supposed to have coined?
The fact is that Adam Smith did not “coin the concept” as asserted by the authors cited in his so-called bibliography. The “invisible hand” was well-known long before Adam Smith was born in 1723 and long before he used in as an adult. It was popular with theologians who saw it as the “hand of God”, and by authors like Homer (Illiad), Horace, Shakespeare (Macbeth), Defoe (Moll Flanders), Voltaire, (1718), Walpole, (1764), Reeve (1778), and etc.
Among modern scholars, following Paul Samuelson and those in nchanvez’s alleged bibliography, the metaphor has become a myth, now deeply ingrained in public commentary and the media. 
Smith used it for quite modest purposes to “describen a more striking and interesting manner” (Smith: Lectures in Rhetoric and Belles Lettres, 1763), the hidden motives of human agents that lead them to act intentionally for a purpose.  Such actions produce intentional outcomes, which may also have unintentional consequences, that may or may not be beneficial for them and for society. 

It had nothing to with social equilibrium, laissez-faire (words never used by Adam Smith!), the need for government regulatiions, or anything else claimed for it by today’s epigones.

Sunday, April 05, 2015


Tim Worstall is the best economics commentator on the Blog Universe around and he demonstrates why he is worthy of such praise over at the Adam Smith Institute’s Blog today HERE 
1. “Only government can screw up markets this badly” (5 April)
2. “Introducing the climate deniers at the Renewable Energy Foundation” (4 April)
3. “A most interesting argument about the housing market”(3 April)
I would love to republish his (trade-mark, short) pieces but you should follow the link - each should take you only about 90 seconds tops to read.

[DISCLOSURE: I am a Fellow of the Adam Smith Institute]


Astrode: The Invisible Hand Coffee Mug - 325 ml
Price: Rupees 332
Dr Robert Raguso of Cornel University posts HERE
“The “invisible hand” of floral scent in plant-pollinator interactions”
“I will highlight several recent manipulative studies, in which visual signals were tracked and controlled, to illustrate the unexpected (“invisible”) roles played by scent in otherwise well-studied model systems.”
Ron Brinson writes (5 April) for the Post and Courier (South Carolina) HERE 

“It’s like an invisible hand of exogenous influence guides the agenda away from practical users-pay solutions.”

Saturday, April 04, 2015


jundalisay has authored an interesting new Blog HERE:
“This is the public site of the new proposed science of socio-economics or ‘Smithonomics’ or ‘Political Economy version 2.0′ which is meant as an alternative to  economics.”
“Economic science was created in the 19th century by intellectuals who championed the cause of businesses, which is to maximize profits based on the paradigm of personal utility or pleasure for the benefit of the self. This is in stark contrast to the old science of the Political Economy which advocated to maximize the benefit of the whole society through proper government policies and regulation and was based on moral philosophy.
I pass the above on to readers in the interrests of reporting new developments among economists that may have some value. I am not endorsing the author’s approach or opinions.
Earlier last year I received messsages from jundalisay about th writing of a “simplified version of Wealth Of Nations and was asked to comment on some extracts, which I did. I generally welcome the simplified text of WN as a fair representation of Smith’s overall meaning and analysis. 
This year the author’s work has been taken further and I believe it is developing into a worthwhile project, though I am not sure where the interest in Venezuela is taking Adam Smith’s political economy and moral philosophy.

Like Adam Smith, I am fairly pragmatic and not ideological.  If you follow the link and read it for yourself, I would be interested in your views, first on its presentation of Smith’s ideas, secondly on the applications provided, and thirdly on its quo vadis orientations.

Wednesday, April 01, 2015

“Adam Smith on “Self Betterment, Self-Interest, the Invisible-Hand, Intended and Unintended consequences”. Gavin Kennedy
My new paper, as above, is nearing the home-straight as a first draft. It is taking up much of my time at present, leaving much less time for regular opinion pieces on Lost Legacy (you may have noticed…).

Those readers who would like to see my first draft when completed should drop me a note in the comments facility on Lost Legacy and I shall send it to them seeking comments, criticism and (polite) suggestions. Simply use the comments section on this post - I shall take a note of your email address, but not post your details on Lost Legacy, thus protecting your privacy.