Monday, December 05, 2016


Last week I was delighted to sign a contract with a major publisher for my new book on Adam Smith, of which more details will be forthcoming in due course.
This has been in progress to some extent while I was working on a long paper a year or more ago but ill-health prevented me finishing it. 
At the time several readers of Lost Legacy wrote asking if they could obtain a copy, which I was delighted to confirm. However, I had to put that project aside recently both because of my health and because I was already envisaging my undertaking a more ambitious project of a full book.
Recently that project has been underway and I was modestly pleased with some draft chapters which, as I revised them, I decided to submit a proposal for new book, genuinely containing new material that deserves a wider readership.
My Blog, has continued throughout recent months and shall do so in the immediate future, though on a slightly new basis. I shall not be commenting daily on the flood of media and scholarly articles, spurious claims and assertions about the so-called invisible hand as attributed wrongly to Adam Smith. One problem is the number of suspicious websites emanating from Russia (ru) that claim to be about the invisible hand but with suspect provenance.
Frankly, my attention is to be directed elsewhere, while I write my new book’s manuscript over the next six months. 
I shall post brief headline statements about things I notice on the web. 
However, to the positive. My new book will round off my scholarly endeavours on Adam Smith. I shall post news of the progress of The Book on Lost Legacy from time to time…. 

Gavin Kennedy

Tuesday, November 29, 2016


Phineas Harper posts (28 November) on dezeen HERE 
"It is time to stop listening to Patrik Schumacher"
“Giving a keynote lecture slot at the World Architecture Festival in Berlin, Schumacher unveiled an urban vision of hyper-exaggerated "laissez faire" economics with total faith placed in "the market" to solve all conceivable problems. It came across like a satire of Hayekian economic theory, distorted to grotesque absurdity and applied without nuance to modern cities, except he meant it. …
… It is on economics where Schumacherism really falls apart. Ben Clark, a London-based urban designer whose paper on funding new cities was awarded a Wolfson Economics Prize by the right-of-centre think tank Policy Exchange, takes a dim view.
"It's economically illiterate" argues Clark. "If laissez faire politics is his thing, Patrik Schumacher should try learning from the likes of Adam Smith, godfather of 'the free market'. Smith never saw the 'invisible hand' of the market working alone, and had a sophisticated understanding of the role of the state. In his seminal text the Wealth of Nations, Smith recommends using some of the rents within cities to pay for public services, for example. Simply privatising and deregulating absolutely everything down to the last park and street as Schumacher proposes is sheer market fundamentalism, and will only intensify our current crisis."
I don’t know why Phineas Harper is so worried about Patrik Schumacher's wacky ideas. There is no way that the entire world’s architecture is going to change so radically any time this or in the next century.
Meanwhile, Adm Smith was not ‘the godfather of the free market’.
Others beside Smith were writing about similar ideas around the same time: for example:
The National Gain (Swedish title: Den nationnale winsten) is the main work of the Finnish scientist, philosopher and politician Anders Chydenius, published in 1765. In this thesis Chydenius argues in favour of free export trade rights for the province of Ostrobothnia and lays down the principles of liberalism and the free markets - for example, free trade and industry - eleven years before Adam Smith in The Wealth of Nations (1776).’ [Apologies: haste required that I quoted from Wikipedia! ]
There were other pioneers in France too, though they went off track in seeing agriculture as the only productive sector. 
Only because modern economists have invented a narrative for Adam Smith that places him at the centre of their political fantasies do they laud him as ‘god father’ with ‘an invisible hand’ too.

Smith’s actual and laudable role deserves credit. He does not need invented worship of the kind regularly produced by modern media, nor does he need adulation from people who have not studied - let alone read his Works.

Saturday, November 26, 2016


Mark van Vugt is a professor of Evolutionary, Work and Organizational psychology at the VU University Amsterdam and a research associate at the Institute for Cognitive and Evolutionary Anthropology at the University of Oxford. HERE (Originally published at New Scientist}
“Why the Invisible Hand from Biology is Better Than the Invisible Hand from Economics”
The notion that economics and business are all about competition and self-interest is alluring but wrong
“It is true that the basic Darwinian principles of variation, selection and retention can be invoked to understand the survival of different firms. Although not a purely Darwinian process – due to mitigating factors such as government regulations – the predictions have proven alluring to many economists. That’s because at first sight they bolster three pillars of neoclassical economics: one, that economic actors are self-interested; two, that self-interest leads to public goods (the famous “invisible hand” coined by the father of modern economics, Adam Smith); and three, that together these lead to market optimisation. However, applying this clichéd Darwinian reasoning leads to a paradox: firms are by definition groups of individuals, and therefore competition between firms implies selection among groups, not individuals. This undermines the three pillars above and instead predicts the emergence, at the individual level, of pro-group “altruistic” behaviour instead of selfishness. …
There has been much talk recently of introducing Darwinian explanations into economic behaviour. Interesting as this is, its problem is that 19th-20th ideas about ‘rational utility maximisers’ are way off course as explanations’ and certainly are not idea presented by Adam Smith  in the 18th century. Hence, dragging Adam Smith into this modern debate is erroneous.
The error comes down to the infamous misreading by Paul Samuelson (Noble Prize Winner) in his off-hand ‘clever’ remark that the Smith’s reference to an ‘invisible hand’ was about ‘selfish’ motives leading to ‘public benefits’. This remark was not ‘clever’. it was factually wrong. 
But 5 million sales later of Samuelson’s textbook, ‘Economics’ (McGraw-Hill) and several generations of Econ 1010 students believed the libel with all the passion of evengelical zealots and spread it intio the general media, as evidenced in this Evonomic’s paper. (Confession: Samuelson’s book was the set text in my first year student days in the 1960s).
Since 2005, on my retirement, I have waged a struggle to clear Adam Smith of what is intellectully a gross libel.
Mark van Vugt continues:
…The core idea is that while individuals may indeed pursue their own self-interest, they also have a suite of evolved psychological adaptations that – as if led by an invisible hand – steer their self interest to align with the good of their firm or even their wider society. But it is the hand of Darwin, not Smith.”
An arguable proposition (s  simile) but not helpful. Smith’s proposition in Wealth of Nations was quite different. He referred to a merchant who was concerned that sending his goods for sale in foreign countries was an avoidable risk (unfamiliarity with the honesty of foreign merchants and the probity of foreign legal conduct). 
Hence the merchant preferred to sell his products locally where he knew those he dealt with and felt secure of domestic legal redress should he be deceived. See WN: IV.ii.1-10. pp 452-6: check it out and think about it!
The metaphor was about the merchant being led by his intended private and invisible motives for his actions to secure his intended consequence - the relative security of his domestic transactions.
However, in addition to his personal motive there were unintended consequences from his domestic investment: his invested capital added to domestic “revenue and employment”. Now Smith asserts that such a consequence was a local “public benefit”.  Moreover, such positive unintended consequences were common, though NOT inevitable from all such domestic transactions.
The motivated domestic actions of merchants could produce innstead domestic disbenefits from the motivated actions of domestic merchants, and he gives numerous specific examples throughout Wealth of Nations. For example when merchants clamour for tariffs on foreign imports - even outright prohibitions - they narrow domestic competition and  raise domestic prices and their profits.
Now the question for Mark van Vugt is why he interprets Smith’s (singular) example of his use of the metaphor on ‘an invisible hand’ as being about his ‘selfish’ conduct when Smith’s example was about the merchant’s solely prudent conduct?
Has Mark understood Smith’s use of the metaphor (in fairly common use in the 17th-18th centuries; it was not ‘coined’ by Smith)?
Mark van Vugt continues: 
“…The fact that people work at all may lie primarily in the selfish motivations of employees, as Adam Smith recognised, but there will often be a vast area of common ground in which the interests of individual employees converge with those of their firm and the wider society. But the hand that guides humans to help each other by helping themselves appears to be the result of evolution – not Homo economicus.”
When and where did Adam Smith ‘recognise’ that people work for ‘selfish reasons? Is Mark serious?
The alternative for most people from not working is penury and starvation. 
Did Darwin, let alone Smith, really argue that animals hunted or gathered food for “selfish” reasons?
Is Mark aware that the use of ‘Homo Economicis’ is a modern concept, not Adam Smith’s?
Where is this ‘hand that guides humans?”
Metaphoric expressions do not exist independently of their ‘object’ in its context.

There is no ”invisible hand” in fact. See Adam Smith’s “Lectures on Rhetoric and Belles Lettres”, p. 29.

Friday, November 25, 2016


Jeff Jacoby posts (27 November) in The Boston Globe, 2003, ‘Giving thanks for the ‘invisible hand’:
“The Invisible Hand delivered your turkey”
“Adam Smith called it “the invisible hand” — the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many. Out of the seeming chaos of millions of uncoordinated private transactions emerges the spontaneous order of the market. Free human beings freely interact, and the result is an array of goods and services more immense than the human mind can comprehend. No dictator, no bureaucracy, no supercomputer plans it in advance. Indeed, the more an economy is planned, the more it is plagued by shortages, dislocation, and failure. …
… So yes, thank the Invisible Hand for your turkey.
But you still have to carve it. Unless, of course, the Invisible Hand pre-carved it for you because you are too damn lazy and willing to pay a little extra.”
It is that time of year when the above fairy tale is pulled out of the files and posted on the worldd’s print and web media.
It is of course a nonsence that there is an actual ‘invisible hand’ (God’s or whatever “mysterious power” is called up to mystify the working of markets).
MARKETS can only work by the VISIBLE prices inherent in markets - and cannot work at all without their VISIBILITY.
Miss-applying Adam Smith’s use of a metaphor by generalising it into a mysterious role in markets, while ignoring the many occasions in which the actions of people do not lead to socially benign outomes.

Many such incidents discussed by Adam Smith in Wealth of Nations, are ignored by advocats of a mysterious ‘hand’ like Jeff Jacoby, and the editors in The Boston Globe, who every year re-cycle a pernicious political myth and discredit the scholarly integrity of Adam Smith.

Wednesday, November 23, 2016


Ma Guangyuan posts (22 November) on The Epoch Times HERE
The Decline of Economics and the Rise of Donald Trump
The gist of early economics was to study the ultimate 
mission of the state and the individual. Adam Smith, the 
founder of economics, was a professor of philosophy and 
ethics. Smith never taught any economics courses in his 
lifetime. When he raised the concept of the “invisible hand,” 
he paid more attention to the moral factors behind the 
market. He believed that the market is moral because 
everyone promotes the progress and development of social 
interests in the pursuit of their own interests.”
Interesting viewpoint.
However, I dispute specific Ma Guangyuan’s assertions: 
Smith never taught any economics courses in his lifetime
I think this is somewhat misleading. Nobody in Britain taught 
economics as we know it today while Adam Smith taught at 
Glasgow University from1751-63. 
The subject of ‘economics’ at the time was mainly addressed in 
books on ‘political economy’ or buried in other courses. 
Smith’s Wealth of Nations was published in 1776 some 13 years 
after he had long ceased to teach, but had continued to study and 
write his longest and celebrated Wealth of Nations.
However, he did teach courses on Jurisprudence during 1749-63 
(roughly about the evolution of laws and governance) which 
included some lectures on political economy’.
For example on Tuesday 29, 1763, Smith taught economics, one 
section of economics text covers six pages in his Lectures on 
Jurisprudence (in 1763, pp.), all of which appeared verbatim 13
years later in the Wealth Nations in 1776 (pp. 341-49).
I do not recognise what Ma Guangyuan has in mind for the 

significance of his assertion.
In respect of the statement "in the pursuit of their own interests", it 
should be remembered that the "pursuit of their own interests" 
was not a general statement of their morality, because self-
interested actions can also be in pursuit of selfish interests as with
lobbying for tariffs and outright bans on imports from which 'jealousy
of trade' consequences followed.

Tuesday, November 22, 2016


Aline Robert  posts (21 November)   HERE
This view is shared by anti-globalisation group Attac, which warned that “the invisible hand of the markets is naturally no greener than it is social or just”.
An idea that is particularly resonant in Marrakesh.  In this oasis that marks the border between northern Morocco, where agriculture can flourish, and the arid southern part of the country, the shortage of water is ever more keenly felt.
It has not, however, stopped the city from constructing its ninth golf course; a project that demands enormous quantities of water. Golf courses also increase the value of the surrounding buildings, further demonstrating the weaknesses of Adam Smith’s “invisible hand of the market”.
And it shows just how necessary regulation is in driving climate action, even if the road is not always easy. The influence of lobbying on the European Commission’s directives is a case in point.”
ALINE ROBERT announces that ““the invisible hand of the markets is naturally no greener than it is social or just”. 
FACT: there is no “invisible hand” of the markets. That is a modern myth, usually, though wrongly, atttributed to Adam Smith in the 20th century and at variance with that which Smith wrote in the 18th century.
FACT: Moreover, the golf case in question is wholly erroneous for allegedly demonstrating “the weaknesses of Adam Smith’s “invisible hand of the market”.

Again Smith’s use of the metaphor of ‘an invisible hand’ did not refer to ‘markets’ particularly.

Saturday, November 19, 2016


Englewood Staff post (18 November) HERE
Wall Street Retreats to End Week; How Did This Stock Fare: Southwest Airlines Co. (NYSE:LUV)
“The closing price represents the final price that a stock is traded for on a trading day.  It’s the most up-to-date valuation until trading begins again on the next day. However, most financial instruments are traded after hours, which means that the the closing price of a stock might not match the after-hours price.  Regardless, closing prices are a useful tool that investors use to quantify changes in stock prices over time.  The closing prices are compared day-by-day to look for trends and can measure market sentiment for any security over the course of a trading day.
Stock exchanges work according to the invisible hand of supply and demand, which determines the price where stocks are bought and sold.  No trade can occur until someone is willing to sell a stock at a price that another is willing to buy it at.  When there are more buyers than sellers, the stock price will rise because of the increased demand.  Conversely, if more individuals are selling a stock, the price will decrease.
On any given trading day, supply and demand fluctuates back-and-forth because the attractiveness of a commodity’s price rises and falls.  Because of these fluctuations, the closing and opening prices are not necessarily identical.  A number of factors can affect the attractiveness of a stock in the hours between the closing bell and the next day’s opening bell.  For example, if there is good news like a positive earnings announcement, the demand for a stock may increase, raising the price from the previous day’s close.  It follows that bad news will negatively affect price.” 
The first paragraph tells us that (‘closing’ and ‘after hours’) VISIBLE prices convey valuable information that may prompt decisions to buy, sell or stick with previous  decisions.
The second paragraph describes the way VISIBLE prices work as the ‘invisible hand of supply and demand, which determines the price when stocks are bought and sold. In other words, it simply repeats the first paragraph with a spurious repetition of the first paragraph on VISIBLE prices. 
ENGLEWOOD Staff writers are paid for repeating themselves and for manifestly kidding their readers that they are ‘in the know’ about the economics of ‘supply an demand’, blessed with their knowledge about ‘an invisible hand, which boils down to something that is conveniently invisible! 
That’s why staff writers require their high salaries to write such guff.
Lastly, from the basement scriblers we are informed that ‘good news’ (an expectation of ‘positive news’), VISIBLE prices will rise!
Moreover, if there is ‘bad news’ (an expectation of ‘negative news’), VISIBLE prices will fall!
Of course, investors do not stay awake all night and all day. They pay VISIBLE charges for others to do so in day shifts and night shifts.
It’s a living for those supplying such services for VISIBLE charges.

Their cousins make their living too at racetracks …