Saturday, July 30, 2016
Martin Conrad posts (23 April) in Barron’s HERE
‘EDITORIAL COMMENTARY’ plus my comments:
How The Wealth of Nations Made Us All Wealthier
Adam Smith’s great book pointed out the modern path to the enrichment of whole societies through cooperative self-interest.
“This year is the 240th anniversary of the publication of Adam Smith’s An Inquiry Into the Nature and Causes of the Wealth of Nations, the crown jewel of the Scottish Enlightenment and perhaps the single most influential book of the modern era. This work helped form our modern idea of practical progress and provided confidence that it could reliably be achieved. [GK: Hyperbole!]
Smith confronted a longstanding paradox: Despite centuries of intellectual achievement, culminating in Europe’s scientific revolution, the economic achievement of Europe was comparatively low, [GK: compared with where?] because the nature and causes of wealth were largely misunderstood.
In pre-industrial Europe, as much as half of the working-age population was chronically impoverished. These people were unemployed or underemployed. And average longevity was less than 40 years, as it had been for centuries and not much improved from classical Greece and Rome. How had Europe’s great potential economic wealth been wasted for centuries, and why?
Smith argued that man was an economic animal who, by his bargaining and exchanging in the marketplace, [GK: Exchange long preceded the “market place”] could benefit from the diverse talents and genius of all his fellow men. This led to his seminal theory that the most important source of wealth of a nation is not gold, silver, money currency, or even its land or natural resources, but “the skill, dexterity, and judgment” of its labor force.
We see this illustrated today by wealthy nations, such as Switzerland and Singapore, that possess modest amounts of land or natural resources but have grown rich by having educated, trained, productive labor forces.
Divisions of Labor and Money
Investment and extensive markets were necessary to unlock the wealth-generating power of that labor force. Agriculture provides the early model. A farmer tills, plants, tends his crop, then harvests and sells it, which is when he finally gets paid. But what does the farmer live on before he sells his crop?
Unless a farmer is financed by his own savings or someone else’s, there will be no crop, no new wealth, no work, for he must have money for him and his family to live on while he produces what he and others will consume.
This is the crucial role of investment; it makes productive work over long periods possible. Smith saw that investment was also “consumption at almost the same time by a different set of people.” The same money invested in a farmer’s production is also spent as consumption for a farmer and his family.
Smith also elaborated on the importance of the division of labor. His discussion of a pin factory, in which pin making had been divided into 18 specialized steps, each assigned to a single worker, is justly famous for showing the productive power of specialization. By this method, 10 workers produced 48,000 pins a day, an average of 4,800 per person, when previously a lone, untrained worker on his own could have made only a few a day. [GK: the pin factory was taken word for word from the French Encylcopedia which publisher lomg before Wealth of Nations; and widely circulated in France and other Eiropean countries, inclding Scotland].
By such methods, the formerly impoverished could be raised from dependence on charity to the dignity and rising productive power of their labor. Eventually, such productivity allowed the average workweek to be reduced from 70 hours or more towards about 50.
Amplifying Capital for Investment
But how could there be enough investment capital to finance employment and growth of farms and factories in traditionally poor societies with limited savings? Smith noted that free competitive markets enforced price discipline, mediating among consumption, investment, and savings. Because competition kept prices low, consumers could afford to save and consume, and producers were forced to gain their profits from higher volumes of goods and services sold, instead of from higher prices.
Producers could increase their profits by investing in more efficient methods for their businesses, thus lowering their costs and expanding their volume, and consumers’ savings from lower prices were then available to finance that rising investment. [GK: they also practised reducing competiion - tariffs and prohibitions, etc.]
As Smith was writing, this systematic growth model of economic life was combining with the discovery of cheap, efficient energy from coal and the technological innovations that grew out of Europe’s scientific revolution. [GK. This eventually happened long after Smith had died in 1790 and would have happened anyway if Smith had never lived] They produced the first Industrial Revolution, which ultimately made possible the modern world’s spreading prosperity.
As this modern economic system compounded wealth, it vastly expanded the middle class and gradually resulted in the widespread development of political democracy.
Smith’s theories and observations also began the destruction of slavery, a universal institution throughout all of history. He destroyed the self-interest that motivated slavery by showing that economies based on it could not profitably compete with those based on a free, motivated, trained labor force.[GK. Again would have happened without Smith’s WN]
Smith used the metaphor of the “invisible hand” to represent the efficiency of individual action in pursuit of self-interest that collectively constitutes the instinctual wisdom of the crowd and works most commonly and effectively in free, competitive markets.[GK. Smith’s purpose was more limited]
By 1900, rapidly developing economies had expanded their populations’ life spans by more than a decade, to an average of 48 years, more than 20 years greater than longevity in the rest of the world. In the 20th century, they added another 20 to 30 years to people’s lives and were wealthy enough to help transform the less-developed nations, eventually doubling or tripling average life spans there.
These principles that enabled much of the world to escape its traditional Malthusian trap still show their power. In 1950 oil-rich Venezuela was more than three times as rich per capita as South Korea. Yet by 2011 this relation was nearly reversed as capitalist South Korea’s per capita GDP was nearly three times that of Hugo Chavez’s Venezuela, despite several years of $100-a-barrel oil.
This most practical, effective utopian philosopher [GK. Nothing utopian about Adam Smith - he described what he researched in history, not what he predicted - he did not make prediction!]has been so successful because his system works well with people—not as they morally should be, nor as he wanted them to be, but for people just as they are, which was good enough. Adam Smith described the way to harness intellectual capacity and instinctual ambition for the common good. We live and thrive today in mostly his world. [GK. Much as I admire Adam Smith’s contributions these last sentences amount to gross ‘hero worship’ ]
must update li class name
MARTIN CONRAD is the chief investment strategist at C.I.G., a private investment group. He posts in Barron’s HERE http://www.barrons.com/articles/how-the-wealth-of-nations-made-us-all-wealthier-1461385474
Martin Conrad, chief investment strategist at CIG group] eulogises a modern assessment of Adam Smith (1723-90), quite embarrassing to the facts. Smith was by most measures a talented and path breaking theorist - he did not walk on water. He carefully analysed the past history of humankind through various stadial events - broadly, ‘savagery’ through to Hunting, Shepherding, Farming and Commerce. He did not make predictions of the future - except one prediction in respect of the new states formed in the former colonies in North America where he predicted they would be the wealthiest in the world by the 1870s].
Smith did not describe the “economic achievement of Europe” as “comparatively low” as there was little to compare it with in 1770; the Netherlands were growing economically and so were the southern counties of England (Scotland’s northern ‘Highlands’ remained backward compared to parts of the central lowlands - Glasgow and Edinburgh.
Martin Conrad writes: “Smith argued that man was an economic animal who, by his bargaining and exchanging in the marketplace could benefit from the diverse talents and genius of all his fellow men.” Yet Smith wrote in his Lectures on Jurisprudence (1763) and partly in Wealth of Nations (1776) that “exchange” was a human trait that differentiated the species from all other animals and had done so since humans first appeared (evolved?) deep in pre-history. The “market place” did not appear until comparatively recently and was not the main source of “bargaining and exchange”. The trait was universal, which once market relations appeared they became dominant characteristics.
Smith’s example of the Pin Factory was taken verbatim from the French Encyclopedia published in Paris long before WN in 1776. Smith did not invent the division of labour.
“Conrad: producers could increase their profits by investing in more efficient methods for their businesses, thus lowering their costs and expanding their volume, and consumers’ savings from lower prices were then available to finance that rising investment”. Smith wrote much more on the misbehaviour of “merchants and manufacturers” who engaged regularly in seeking to reduce competition through tariffs and prohibitions, licences, and political interferences, so they could raise prices and generate higher profits.
Conrad: “As Smith was writing, this systematic growth model of economic life was combining with the discovery of cheap, efficient energy from coal and the technological innovations that grew out of Europe’s scientific revolution.” Realisitically, all this would have happened even if Smith had not written WN; it did not require Smith, or anybody else, to notice what was going on independently of authors decades before the 18th century. There was nothing utopian about Adam Smith’s ideas. He described what was going on in the economy quite independent of his research, Neither did Smith make predictions.
Adam Smith did not describe “the way to harness intellectual capacity and instinctual ambition for the common good”. Nor do we “live and thrive today in mostly his world”. So much happened after Smith died that he would have been astonished at many events, though probably not so surprised at the continuing ability of humans to mess up what they do compared to what they could do or might have done.
Friday, July 29, 2016
WEAKNESSES OF 'RADICAL CENTRISM'
Deev Murphy posts (27 July) on Mumbles from a Radical Centrist HERE
"Adam Smith's capitalism married money with morality."
"NEWS FLASH! Adam Smith saw capitalism as drawing together economics & morality. He did not see it as an bare-knuckled, no-holds-barred approach to accumulating masses of money while leaving masses of victims in our wake. In his world-shaking The Wealth of Nations, he laid out his theory that rational self-interest & free market competition are the best path to a nation's economic prosperity. While his book laid the foundation of modern economics, he would have been horrified at the idea of making money for the sake of wealth alone.
Smith wasn't a dewey-eyed idealist. He realized that for every wealthy person, there were hundreds of poor ones, but saw the wealthy therefore had a natural obligation to help lift up the lives upon which their fortunes were based:
“It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”
For a start, the opening sentence jars on anybody who knows anything about Adam Smith. ‘Capitalism’ did not exist either as word or as a social phenomenon while Smith was alive (1723-90). It was first used in English in 1854 by Thackeray in his novel, The Newcomes (Oxford English Dictionary).
“Adam Smith saw capitalism as drawing together economics & morality.”
Smith’s Wealth of Nations (1776, in eight editions to 1789) he did not have theory of “rational self-interest & free market competition”.
He described the emergence of commmercial society in north-west Europe over many centuries. Self-interest, yes, but attaching ‘rational’ to it came much later in the 19th century, along with such inventions as ‘homo economicus’ and adorning it with increasingly complex mathematics is a post- late 19th-century and major 20th-21st century, diversion from the real world as described by Adam Smith to a fantasy world lauded by modern economists and the awarders of Nobel Prizes. Smith, incidently, was competent at mathematics and pursued his interests in maths with several profesorial colleagues.
“While his book laid the foundation of modern economics, he would have been horrified at the idea of making money for the sake of wealth alone.”
Others, beside Adam Smith, laid the ‘foundation[s] of modern economics’ all the way through to Alfred Marshall. Smith wrote about the history of human economies, not their future. He reported on several current and past developments but did not make predictions. Overall he was aware of many deficiences in political economy and was suspicious of the conduct of ‘merchants and manufacturers’ in such matters as their favoring (clamouring!) for domestic tariffs and prohibitions on imports, and government policies of hostility towards European colonial policies which competed with British colonial ventures (hence the Navigation Acts introduced in Cromwell’s times and the cause of warfare in the 18th century).
Lastly, ‘wealth’ was not regarded as money or gold. Smith regarded the output of produced goods as wealth and not mere gold or silver.
Smith never said anything about ‘business people’ being ‘led by an invisible hand’. Has Deev Murphy actually read ‘Wealth of Nations’, or perish the thought, Smith's Theory of Moral Sentiments (1759)?
Thursday, July 28, 2016
LOONY TUNES no. 155
“Calling government social programs the “invisible hand,” a recent Stockton University study indicated that 60 percent of New Jersey residents said they had never benefited from one. In reality, according to the study, 68 percent of those very same respondents had participated in one or more programs. They just didn’t consider them government social programs.”
Sherry Shameer Cohen posts (26 July) on Broadway World HERE
BWW Review: THE INVISIBLE HAND in Westport
“The title refers to Adam Smith's explanation that the Invisible Hand guides free markets and capitalism, but it really takes on multiple meanings in the play. The invisible hand guides the money away from its intended destination and that manipulates global markets. The play is brilliantly written, but could be tightened a bit). David Kennedy's [Absolutely No Relation!] direction is a benign invisible hand, flawlessly guiding the complexities of the play. All the actors give first-rate performances and give their characters depth and credibility. No clichés here, even though some of it is predictable because we have known too many corrupt societies and too many acts of terrorism.
From a Blurb for a PODCAST featuring “veteran energy editor Ed Crooks of the Financial Times”:
“Is conventional, free-market economic theory really up to the task of energy transition and combating climate change? Can we let the so-called invisible hand of the market guide us through the troubled waters ahead, or will we need firm policy direction and deliberate, top-down planning to secure the best outcomes? How useful can free markets be, in transitioning us away from coal, and meeting our climate targets and securing enough carbon-free power to run our societies? Will they be any help at all in supporting technologies like carbon capture and sequestration, or geoengineering? Can negative discount rates help us pay for climate change mitigation projects? And what does the future hold for oil?”
Where did Ed Crooks get the idea from that there was “an invisible hand of the market”? It certainly was not from Adam Smith. How would Ed propose to organise “a firm policy direction and deliberate, top-down planning to secure the best outcomes?” Who will staff it - who will pay for it? And so on and on ad infinitum…
“THIS HOMEMADE FLYING CHAIR IS THE STUFF DANGEROUS DREAMS ARE MADE OF”
“I have tried to build something that makes you feel like an invisible hand taking you wherever you wish,” Borg says. “I had a few basic design criteria such as being able to haul it through an ordinary garage port without disassembling the craft and being able to drink a cup of coffee while flying” — although this latter point may have been asking a bit much."
Monday, July 25, 2016
LOONY TUNES no. 154
Nakey Blakey posts (20 July) HERE
“Sometimes I dream of saving the world; saving everyone from the invisible hand that controls us every day without us knowing it.”
Alper Ali Riza posts (24 July) on CM Cyprus HERE
“Beware the Ides of July”
“Makarios had been in power for fourteen years and loved to engage in brinkmanship. He naively gambled the fate of Cyprus with his famous letter to the president of Greece accusing ‘the invisible hand of Greece of seeking the elimination of my physical existence’, a pompous way of saying that the Greek government was planning to kill him and overthrow his government.”
Jayaike Ukoha-Kalus, an economics student of Babcock University, posts (20 July) on PROSHARE (“inteligent investing’) HERE
“In reality, not many people had been getting FX at the pegged exchange rate, as the two hundred and forty (240) year old invisible hand of Adam Smith remains at work over-time to make sure by all means that the market returned to, or reached equilibrium; ensuring that the real incapability of the CBN to provide FX was evident in the parallel market; the monster baby of the CBN.“
Adam Smith had nothing to do with ‘an invisible hand’ working for market equilibrium. That is a myth promoted by Paul Samuelson (1948). I DON’T BLAME JAYAIKE UKOHA-KALUS FOR THE ERROR: THAT RESPONSBILITY BELONGS TO WHOMSOEVER TEACHES THAT NONSENSE ABOUT ADAM SMITH AT BABCOCK UNIVERSITY (and whomsoever taught the same nonsense to the teachers).
Friday, July 22, 2016
LOONY TUNES no. 153
Jeff Guo (The Washington Post) in MY PALM BEACH POST (19 JULY) HERE
“The clearest proof yet that your job is killing you”
“In this case, we can blame (or thank) the invisible hand for doing the dirty work. The more or less random fluctuations in foreign economies provided an opportunity to observe what happens when people suddenly get a lot busier at work. Though this study focused on the Danish manufacturing sector, it covered both blue and white collar workers, so the results seem generalizable enough: Working too hard has health consequences. Our jobs really are killing us.”
Shane Obata (Rochardson GMP) posts (19 July) on SEE IT Market HERE
Higher Oil Prices Trigger Oil Production Increase”
“An interesting thing happened this week, total oil production rose for just the third time this year. The +0.68% oil production increase was the largest increase since last October. It’s not all that surprising; it’s simple economics. Higher prices begets greater supply.”
“We’ve colloquially referred to this relationship as the “Ws”. Where oil prices will establish firmer upper and lower bounds and will trade within these newly established ranges. Rising oil supply will tilt the balance of the demand/supply dynamic and prices will likely fall in response. We’ve already begun to see this.
It’s the invisible hand at work. In our chart of the week, we’ve plotted U.S. oil rig counts which began to tick higher at the end of May, when crude approached $50/bbl. Over the past six weeks, the rig count has risen 10%.” [GK: My emphasis]
The first paragraph above states a simple experience of markets known for centuries: “Higher prices begets greater supply.” [!!!]
Then the killer obfuscation misusing the nonsensical so-called “invisible hand”: “It’s the invisible hand at work.” Graciously, we are spared the usual nonsense about it being an idea from Adam Smith.
Andrew Quentson posts ( July) on CNN.LA HERE
“The invisible hand of the market as indicated by the price may keep even dishonest actors in check, but the distortion of balance may lead to mistakes which gradually and slowly incentivizes a brain and capital drain to other blockchains, potentially leading to eventual decay.”
Markets work by VISIBLE prices. What possible role is there for “an INVISIBLE hand” metaphor?
ADAM SMITH IS INNOCENT OF THE CHARGE OF CAUSING ECO-COLLAPSE
Richard Smith posts (21 July) in TRUTH-OUT HERE
“How Individualist Economics Are Causing Planetary Eco-Collapse”
“Even with respect to the public interest of the economic welfare of society, Smith's thesis that the invisible hand of the market would automatically bring about "universal opulence which extends itself to the lowest ranks of the people" as "a general plenty diffuses itself through all the different ranks of the society" could hardly have been more mistaken. Two-and-a-quarter centuries after Smith wrote, global capitalist development has produced the most obscenely unequal societies in history, with half the world living on less than two dollars a day, billions of people living in desperate poverty, many times more than the entire population of the world in Smith's day, while a tiny global elite, even just a few hundred individuals, concentrate an ever-growing share of the world's wealth, which they lavish on "opulence" on a hitherto unimagined scale. On this breath-taking failure of social scientific prediction alone, Smith's economic theory ought to have been ridiculed and drummed out of the profession long ago, as such a comparable predictive failure would have been in the natural sciences.
With respect to the public interest of broader societal concerns, which today would include the environment, Smith's philosophy of economic individualism as the means to maximize the public interest -- the common good of society -- is not only completely wrongheaded, it's suicidal. And it is completely at odds with the world's scientists and scientific bodies who are crying out for a plan -- a plan to stop global warming, to save the forests, to save the fisheries, to stop ocean acidification, to detoxify the planet, to save the thousands of creatures from extinction, etc. But capitalist economists, even the most humane like Paul Krugman or Joe Stiglitz, are hostile to the idea of economic planning.
Adam Smith did not cause what Richard Smith accuses him of bringing about. He described the history of the political economy of the states occupying the north-west of Europe up to the mid-18th century. He made no predictions in his weighty tome (except that the newly independent colonies of the USA in 100 years [1870s] would be the most opulent country in the world), in Wealth of Nations (1776-thru to the 6th edition in 1789). His focus was on Europe - indeed, he was somewhat pessimistc that governments of Europe would continue their habits of mercantile political economy by corrupt state-franchised monopolies, hostile tariffs, outright prohibitions and, often, economic warfare, as often slipping into dynastic, physical warfare at great cost in human life, evidenced across Europe (and spilling onto the high seas in distant territories of claimed colonies and their native populations).
Richard Smith ignores history, he predicts the future and is imbued with a typical modern economist's blatant ignorance of what Adam Smith wrote in both Moral Sentiments (1759) and Wealth of Nations (1776). What he calls ‘capitalist economists’ who purvey an economics that has in fact little connection to Smith’s writings. Indeed, ‘capitalism’ was not a word known to Adam Smith (1723-90) and was first used in English in 1854.
Richard writes of “Smith’s thesis” that “the invisible hand of the market “ which would automatically bring about "universal opulence which extends itself to the lowest ranks of the people" as "a general plenty diffuses itself through all the different ranks of the society”.
This is an absolute untruth about the invisible hand. It is not found in Wealth of Nations purveying the nonsense Richard accuses Smith of when he referred once to 'an invisible hand'. In fact the myth was created in the delusions of modern economists from circa 1870s and widely believed since Paul Samuelson published allegations to that effect in his widely read textbook, Economics, 1948, and in 19 editions to 2010 (5 million sales, plus second-hand copies). Samuelson’s prestige - Nobel prrize and all that - ensured the myth of Adam Smith’s use of the “invisible hand” metaphor is firmly entrenched in 21st century discourse (see my regular column, “Loony Tunes”, on Lost Legacy for derived nonsense about the modern phenomenon.
Adam Smith nowhere said anything about an “invisible hand” of the market, or supply and demand”, that would “automatically “ bring about "universal opulence which extends itself to the lowest ranks of the people” - which is a quote about something different.
On this point, we may note that Richard Smith seems to believe that nothing has changed since Smith wrote in respect of the vast mass of people who lived in dire poverty in the 18th century in north-west Europe and in absolute and worse relative poverty elsewhere in the world. The internet was invented long after Smith died! Living standards for the market economies are incomparably better off than their great, great great, etc., grandparents experienced. Mass migration from today’s poorer countries indicates that millions prefer the risks of migration from their really poor economies to join the ranks of the poorest in the richer (so-called ‘capitalist’) economies across the globe. World poverty is reducing, not increasing - nobody appears desperate to seek to migrate to North Korea or Venezuela and there is no rush of North America’s poorest to leave the US to live in Mexico.
Richard Smith alleges that we live in the most “obscenely unequal societies in history”, etc. Of course, there are wealthy individuals living far above in access to more products than the vast majority of the average citizens in the world’s richest economies. It was obvious too in all previous ages. Smith’s point about the lowly day labourer in his day was incomparably better off than an “African King, the absolute master of the lives and liberties of ten thousand naked savages” (WN.I.i.12. p. 24) is worth considering. That trend has continued but with the added quality that everything has been scaled upwards: there are declining numbers of people in abject poverty on the scale of 18th-century Africa (consider mobile/cell phone-usage today across the planet and across all social classes).
The ‘global elite’ of ‘even just a few hundred individuals’ dramatises Richard’s anger but it is not representative of a unique problem compared with all elites in history. They were always a relatively small number. If his hypothesis is correct and the world is headed to eco-collapse, then the survivor generations will have to repeat the history of our forebears - small groups led by petty Kings or Queens and the rest subject to the whims of the “masters (and mistresses) of the lives and liberties” of their rulers.
Fortunately, Richard is wrong - as he is about Adam Smith, a wholly innocent man of Richard’s ignorant charges.
Thursday, July 21, 2016
ANOTHER GREAT ARTICLE IN EVONOMICS
Professor David Sloan Wilson posts (28 January) on EVONOMICS HERE
“Failed Economics: Tyranny of Mathematics and Enslaved by the Wrong Theory”
“The strange world of modern economics”
Adam Smith (1723-1790) observed that people following their narrow concerns somehow combine to make the economy work well, as if guided by an invisible hand. …
…. When Adam Smith invented the metaphor of the invisible hand, he was saying that human economies are like bodies and beehives in this regard. …
… Smith did not say that people are entirely self-interested. That would come later, from his followers and disciples. He had a sophisticated and nuanced conception of human nature that he described most fully in his book The Theory of Moral Sentiments. According to Smith, people have genuine concern for others in addition to themselves. They have a sense of right and wrong that leads to the establishment of norms enforced by punishment. They are interested in their reputation as much as their monetary income, and so on. Shakespeare would have felt comfortable with Smith’s conception of human nature. People still responded primarily to their local social environment, so the invisible hand metaphor remained apt, but their preferences couldn’t be collapsed into a single generic concept of self-interest.
The exciting ideas currently being posted on EVONOMICS are a pleasure to read and I srongly urge readers of Lost Legacy to follow the link and start re-thinking where we are in economics.
The ideas I have been trying to articulate since my book, Adam Smith’s Lost Legacy, (Palgrave-Macmillan) was published in 2005 are finally finding indirect re-inforcement in EVONOMICS.
Of course, as seem above they are not yet up to speed on Adam Smith’s use of the “invisible hand” metaphor. For example, he did not ‘invent’ the IH metaphor - it was widely in use from the 17th century, mainly in a theological context, though also in literature (Shakespeare, for example).
Smith’s use of the IH metaphor was sparing - once in Moral Sentiments (1759) and once in Wealth of Nations (1776). Note that his use was not metaphoric in his History of Astronomy (posthumous, 1795). Note also David Sloan Wilson refers to Smith’s singular use above “as if guided by an invisible hand” which is a simile, and not strictly metaphoric, as defined by Smith in his Lectures on Rhetoric and Belles Lettres.
David Sloan Wilson is correct in his description of Smith’s thoughts in Moral Sentiments, which link well with Smith's treatment in Wealth of Nations of the mutual dependence of each on all others as Smith noted:
“In civilised society [men] stand at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons… But man has almost contant occasion for the help of his brethren, and it is vain to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew them it is for their own advantage to do for him what he requires of them” (Wealth of Nations, WN I.ii.2. p. 26]
It is in this mutual dependence that human kind cannot be purely rational egoists whatever mathematicians may hve thought. Humans are not purely physical entities subject to the unchanging (Newtonian) laws of gravity, predictable over endless time. The are mutually inter-dependent and each must accommodate to joint decisions in bargaining processes (the subject matter of the immediately following paragraphs in Wealth of Nations, WN I.ii.2. pp. 26-27).
Having spent 35 years researching, studying Smithian bargaining, teaching, consulting, and writing at all levels and in several countries, I am conviced that the homo-economicus model is an absurdity. Associating Adam Smith with such ideas is a gross libel of an innocent moral philosopher. David Sloan, presumbly impressed by the near unanimity of most modern economists on their misinterpretation of Adam Smith, still claims that Smith’s use of the the invisible hand metaphor remains apt. It doesn’t and never was apt. Paul Samuelson misled generations of readers of his Economics (1948 and 19 editions). It is time to lay that myth to rest.
FOLLOW THE LINK AND START READING EVONOMICS REGULARLY!
Wednesday, July 20, 2016
QUICK BITS no. 22
Peter Isackson posts (15 July) in Fair Observer asks HERE
“Where Have All the Leaders Gone?”
“Nearly everyone perceives global capitalism as a well-organized system of control and no longer as the invisible hand promised by Adam Smith. This translates as a profound skepticism concerning the capacity of political parties to govern.”
Adam Smith “promised” no such thing. He used the metaphor of “an invisible hand” in reference to a merchant who invested locally because of his doubts about the honesty of foreign traders.
The metaphor of an “invisible hand” has nothing to do with how economies or how the market works.
It was about how the motives of an individual may cause him/her to an intentional action which also may have unintentional consequences.
There is no mention of ‘control’ or of ‘global capitalism’ - the word ‘capitalism’ and the phenomenon were unknown until 1854 (Smith died in 1790) -
Deepanshu Mohan posts (15 July) in Society HERE
“Economists Need To Stop Telling Us That We’re Selfish”
“The soaring instances of racial discrimination, adversities from global climate change, acts of terrorism, frequency in economic crises through speculative stock market crashes, debt, capital flight etc. all seem to bring out a common behavioural aspect that ties most of these recurring phenomena within/across nations today: a reflection of choices made by individuals in actions driven by a motivation to maximise their absolute self-interest while ignoring the consequences of such actions on the well-being of others.”