Wednesday, July 29, 2015


I regularly receive comments from readers, which are always welcome. Most are published, excepting those inviting readers to sex contacts (we were ‘bombed’ a few years back, hence the use of Moderation) and those that are commercial with no connection to the History of Economic Thought. 
In this connection I would welcome readers passing on news of new books and articles on Adam Smith and others, which I would feature on Lost Legacy.
A recent readers from 2007 comments on my post of 20 September, 2007: “A Misleading Quotation Exposes the Ignorance of the Quoter”
I re-post a couple of paragraphs from my original post.  They encapsulate my ideas from the early days of “Lost Legacy”.  I think they are still relevant.
“Those hunting societies in Europe and the Near East 8,000 to 10,000 years ago, after the last ice-age, that formed small settled societies, developed civil governments among which problems they faced was who lived where in the settlements. This required the invention of the role of private property. Without such a concept they could never have developed shepherding (Adam Smith’s second age of mankind) to solve the elementary problem of who owned which deer, sheep, pigs or cattle, and they would never have gone on to develop agriculture (Adam Smith’s third age of mankind), from which, as they say, the rest is history.

Now there may be some (I’ve certainly met a few) who regret the long run consequences of that fateful decision of individuals to abandon relying on hunting towards the end of the ice-age and starting mankind, unknowingly and unintentionally, to create the recent history of mankind as we know it. There are even some still surviving who would welcome the end of property, though they wish to retain all the appurtenances of civilisation at the same time. I admire their self-sacrifice of the lives of billions of humans, including themselves, who would never have been born if the ragged survivors of the last ice-age had reverted to hunting as many did in the rest of the world and were found in the same state they were in when the descendants of the pastoral and farming tribes found them from the 15th to the 18th century.”

Tuesday, July 21, 2015


A former student of mine at Edinburgh Business School, where I taught the MBA Business Negotiation Elective from 1989-2005, has written (20 July) in The Times of Malta HERE: 
“Its All Greek to Me”:
“In my student days I followed closely the writings of Gavin Kennedy, professor at Edinburgh Business Schools.
In his book, The New Negotiating Edge, he writes: “Many authors present negotiating as a choice of manipulative ‘tactics’ and aggressive ploys, delivered by the so-called ‘tough’ wise guys: the red style. In the real world negotiation is not so simple. No matter how ‘tough’ you try to be, waiting round the corner is a tougher guy.”
Here is a short piece I wrote coincidentally earlier today for my former company’s (Negotiate Ltd) Blog:
“The Greek Negotiations: Between a Rock and a Hard Place".
Does the dragging out of the negotiated conclusion, as typified by the long-saga of the Greek-EU negotiations, have interesting lessons for everyday business negotiations?
As with cease-fire and peace negotiations between countries at war, neither side aims to end-up as the loser. Hence, long-drawn out negotiations between warring parties tend to change track due to the each side’s changing fortunes on the battlefield. Sudden successes/reverses in their battlefield fortunes stiffen resistance or weaken their earlier demands, prolonging their negotiations.
Likewise, debtors have problems proportionate to their impossible or unfair creditor’s demands, but their creditor’s demands lose force if their debtors are so broke that they refuse to pay anything at all. Their creditors lose everything if their debtors walk away from their creditor’s demands and their debtors will walk if the pain of near bankruptcy is only marginally less worse that their total bankruptcy.
Negotiators realise these shifting, subjectively-judged boundaries to which they and their partners are bound, and which can be reflected in their mutually threatening rhetoric that might shift one side or the other to react negatively, even if mutually self-destructively, in the heat of a defiant moment. 
The sudden resignation of Yani Varouakis, the Greek Finance Minister, signalled a shift in the deadlock in favour of the EU, and a pending Greek climb down to their resignation of accepting other terms they might otherwise have gotten if the prospect of a unilateral default to the mutual detriment of both parties had remained on the table. 
During the negotiations each side had the comfort that the otherside will also be damaged by a default, but when default is immiment, each side is only concerned with the cost to themselves from their own electorate. The cost to the other side is of little comfort domestically.

Greece blinked first. Therefore, its pain continues for the foreseeable future. What its electorate will think of the severe consequences in a few months or years is unknown, as is the real cost of their blinking.”


John Halsted (15 June) HERE 
12 Things Pagans Should Know About the Pope’s Environmental Encyclical”
“Yesterday, the Pope’s historic environmental encyclical was published.  The document is almost 200 pages long, which means that most of us won’t read it, at least not all of it.  So here are 12 things Pagans should know about the Pope’s environmental encyclical …
9.  The Pope calls for a “radical change” in our understanding of the economy and progress.   (¶ 171)  He condemns the “deification” of the market” (¶ 56) and a “magical conception of the market” (¶ 190) (referring apparently to the “invisible hand”).”

For someone who claims a special line to God he shoild know the source of belief in “miraculous” invisible hands is a purely human belief on much the same scale of belief in Gods. In fact, the metaphor of the invisible hand was widely known among theologians and a few authors long before Adam Smith used it (twice + once as a noun on his Works) in the second half of the 18th century (see Peter Harrison, Journal of the History of Ideas, 2014).

[GK: My domestic emergency continues preventing my regular posting on Lost Legacy for now]

Thursday, July 09, 2015


JunDalisay posts (9 July) HERE  “Why Profit Maximisation is absurd”
“A key fallacy that is inseparably part of Economics is the idea of profit maximization. But the idea of maximization has its origins in Newton’s Calculus which in turn has its origins in Physics. Smith and Hume never mentioned maximization nor calculus anywhere in their writings on the political economy. In fact, the Wealth of Nations has no equations at all!  So how in the world did it enter and be so fundamental to Economics?
We trace its entry into economic thought through the marginal revolution, specifically with WS Jevons who combined JB Mill’s flawed utilitarianism philosophy (the pursuit of private pleasure) with Calculus.
“PLEASURE and pain are undoubtedly the ultimate objects of the Calculus of Economics. To satisfy our wants to the utmost with the least effort—to procure the greatest amount of what is desirable at the expense of the least that is undesirable—in other words, to maximise pleasure, is the problem of Economics.” WS Jevons
In essence, this combines a bad philosophy with a mathematical tool that is not meant for humans. Mathematics applies to physical, unconscious objects which have no free will, and not to human minds which can change drastically. Through math, you can predict precisely where a ball will fall, but you can never accurately predict a person’s actions, much less those of a society through numerical data. If the latter were possible, then there would be no such thing as recessions, wars, and terrorism. If the latter were possible, then it would mean everything in existence is predetermined, which in turn would destroy the need for existence.”

Read the article. It comes at Adam Smith from a different angle to 99% of others you will read.  I agree with much, but not all, of it but you may be less enthusiastic to read Smith from a different angle, especially on the modern post-1948, false assertions by Paul Samuelson of Adam Smith’s use and meaning of the invisible-hand metaphor.

Thursday, July 02, 2015


Each wedding anniversary I exchange a little poem with my wife, Patricia, plus the usual flowers, and we visit our favourite Edinburgh Italian restaurant, Il Costello, for lunch (we are often joined by the family).
Patricia’s poem this year happily knocked mine off the scales.  
It is relevant to the ethos of Lost Legacy:
“42 years ago today 
We were married and stayed that way.
Some think we are joined by a wedding band

But I know better - it’s the invisible hand!”

Sunday, June 28, 2015


Robert W. Parenteau HERE 
Worshippers of the almighty Invisible Hand”
“Is #Neoliberalism religion? Robert W Parenteau looks at this modern #fundamentalist ideology, from the latest issue of NI.
John Dickerson posts on Slate HERE 
The Man Blocking the Sidewalk So he can check his Phone and what to do about him”
“They halt as if an invisible hand is holding on to their belt loop”.
John Gaultier posts HERE 
on “Ferocious Conservative Activist’s Bulletin”.

Surely a claim worthy of a Oak Leafed Gold Cluster with Double Bars for Lost Legacy's NONSENSE ON STILTS award.

Thursday, June 25, 2015


Jason  (PolicyAnalyst at Center for Educational Freedom) posts, 24 June, HERE on “CATO on Liberty”
‘Educational Choice: Getting It Right”
“Of course, there’s nothing “magic” about the “invisible hand” of the market – it’s just a metaphor Adam Smith used to describe the process of spontaneous order, by which the voluntary actions of disparate individuals organically form a system that is the result of human action, but not human design.”
Jason is close and getting there as he nears the true meaning of Smith’s use the “invisible” hand” metaphor.
What is missing is recognition that the “voluntary human actions of disparate individuals” that  “organically form a system that is the result of human action, but not human design” are inclusive of both beneficial and non-beneficial consequences that may be intended or unintended by the human agents (example: ‘the road to Hell is paved with good intentions”).
 Adam Smith clearly was aware of the implications inclusive of this distinction. He both praised and deprecated the motivated human actions of individuals. In his two examples of his use of the metaphoric ‘invisible hand” in TMS (1759) and WN (1776) he referred to beneficial consequences (the “propagation of the species” (TMS) and “adding to domestic revenue and employment” (WN).
Some motivated actions have detrimental consequences, such as in pollution, tariffs, prohibtions, sanctions, ‘tragedy of the commons’, dynastic and religious wars, and restrictive  practices. He critiques some of the consequences of the behaviours of “merchants and manufacturers”, and of state governments and the “rulers of mankind”.
The “process of spontaneous ordershould be used sparingly otherwise Jason Bedrick introduces what he correctly denies in his clear statement that “there’s nothing ‘magic’ about the ‘invisible hand’ of the market” by slipping into his assertion something that would indeed be “magic” if it was described as “spontaneous order”

Moreover, the “invisible hand” metaphor was not solely about spontaneous order applied only to markets.  Smith’s reference to the behaviours of “landlords” in TMS, described by “an invisisble hand” applied long before “markets” appeared and also, probably. long before the “proud and unfeeling landlord” appeared in pre-history.

Thursday, June 18, 2015


David Warsh posts (10 August, 2014) HERE

“The Startling Story behind a Famous Footnote”

 Progress is a slippery word; but none can doubt that price theory, the preoccupation with markets that historically has at the heart of economics, has seen a great deal of elaboration in the least 75 years.  Jerry Green, of Harvard University, gave a graphic illustration when he travelled to Middlebury Colllege last fall to give a lecture on the history of the discipline. He carried with him a series of graduate micro texts.

He held up Microeconomic Theory: A Mathematical Approach, by James Henderson and Richard Quandt, the slim book (291 pp.) with which he began his graduate education in the 1960s. H&Q had made waves when it first appeared in 1958, Green noted. Earlier texts – The Theory of Price, by George Stigler, say, or Economic Analysis, by Kenneth Boulding -- derived mainly from Alfred Marshall’s 1890 classic, Principles of Economics. These literary expositions bristled with diagrams, but there were no equations. 

H&Q was just the beginning. In rapid order came Edmond Malinvaud’s Lectures in Microeconomic Theory (1972) and, in 1978, Hal Varian’s Microeconomic Analysis. In 1990 David Kreps introduced game theory and decision theory to the curriculum with A Course in Microeconomic Theory (850 pp.). The current best-seller, Microeconomic Theory, by Andreu Mas-Colell, Michael D. Whinston, and Harvard’s Green followed in 1995 (981 pp.). The first volume (584 pp) of Kreps’ magnum opus  Microeconomic Foundations appeared in 2012, dealing mainly with choice and competitive markets. Kreps promises a second volume on game theory and strategy and a third treating various advanced topics of incentives.

Understand, this is not really about textbooks at all.  The growth of knowledge has produced a series of correlative jobs in the world itself, not just teaching competition and cooperation in university departments and business schools, but  practicing in government offices, law firms, courts, and consultancies around the world. If it is regulated – or deregulated, unregulated, or re-regulated – it is a matter of microeconomics.

What happened? The post-war mathematization of economics stems in general from two epochal works, Foundations of Economic Analysis (1947), by Paul Samuelson, and, with a lag, The Theory of Games and Economic Behavior (1944), by John von Neumann and Oskar Morgenstern. But books are advertisements for particular programs seeking concrete results.  One mathematical adventure more than any other is said to underlay the expansion of microeconomics in the second half of the twentieth century: the proof, in 1952 or ’53 or ’54, of the existence of a competitive general equilibrium.

It had been intuitively obvious since Adam Smith that, in an economic system, everything depends on everything else, and thought possible, since Leon Walras, to calculate and measure such a system – in other words, to produce a blueprint to test against the world.  But proving that such a coherence is possible in the first place in a world of many competing individuals was the necessary first step to describing it in detail.  And, as Mas-Colell, of Pompeu Fabra Univesity, in Barcelona, has put it, the existence proof was “the door that opens into the house of analysis”
The mathematical proof of “General Equilibrium” operating in the real world required highly restrictive assumptions, acceptable to some economists, but not a proof of how GE could exist in the real world. If the assumptions do not or cannot exist in the real world the assertions remain tentative at best or irrelevant.
While rightly celebrated among mathematical economists GE receives scepticism from practical economists.
It had been intuitively obvious since Adam Smith that, in an economic system, everything depends on everything else, and thought possible, since Leon Walras (1801-1866) to calculate and measure such a system” but when GE is tested “against the world” it “produces a blueprint” of an imaginary, fanstasy world an one we do not live in.
The assumptions to make models of General Equilibrium work are not characteristic of a “real world”.  In the decades since Walras postulated the possibility of GE to model the real world, nobody has shown how GE represents the real world.
Reality is messy. Economies are untidy. Markets do not operating to the same schedules. Human organisations are open, not closed systems; the product cycles are not synchronised as second and third-hand (plus) markets demonstrate.

I believe Romer is realising these truths in economics - with more eloquence than I can muster - and so are particle physicists, the most mathematical of all who deal with models closer the reality than economics and with the advantage that particles do not depend on humans for their behaviours. 
Long after the extinction of the last human on Earth, hopefully after many millennia to come, those known and as yet unknown particles of matter will continue doing what they have always done, as if we had never happened - and to be fair, our time since we evolved will be but a blink of an eye.