Thursday, May 21, 2015


From Mark Thoma’s Economists Review ‘Links” (20 May): Blomberg Review HERE 
Justin Fox HERE writes:
“What’s Wrong With 'Mathiness' in Economics?”
Once upon a time economists made their arguments in long, discursive, often contradictory books about pin factories and newspaper beauty contests. Verbally oriented people like me tend to extol those days, but to most modern economists they were the dark ages.
In the 1940s Paul Samuelson of the Massachusetts Institute of Technology brought enlightenment, in the form of elegant mathematical treatments of the major concepts in economics. Most of these ideas were inherently mathematical anyway, he argued in the introduction to his “Foundations of Economic Analysis,” first published in 1947, which meant that trying to express them in narrative form involved “mental gymnastics of a peculiarly depraved type.”
Samuelson’s approach gave the discipline a, well, discipline that it had previously lacked, and enabled economics to make great leaps in coherence and rigor. It also made the field incomprehensible to laypeople, but that turned out to be more a feature than a bug. Economists were seen as possessing unique scientific knowledge, and came to play increasingly prominent roles in public life in the U.S. and elsewhere. 
There are some obvious limits to this approach. In his entertaining and enlightening new book, “Misbehaving,” University of Chicago behavioral economist Richard Thaler documents case after case of “theory-induced blindness” in which economists ignored interesting and important real-world phenomena because they didn’t accord with the dominant mathematical models. Since the financial crisis, the conviction that macroeconomics in particular has reached a sort of theoretical dead-end has gained ground even among mainstream economists."
This extract is from a longer piece critiquing an area of economics methodology with which I have been critical of for some time. Follow the link to read the longer piece by Justin Fox which comes from a Blomberg Review by an economist staffer and also follow the links in the piece to other relevant articles.
I am pleased to note two aspects. First, it discusses Paul Romer’s work in context, something I noted late in my Business School career on growth theory, by his shifting the emphasis away from post-war, Harrod-Domar type growth theory, as derived from a naked mathematical ratio, with little connection to reality. Romer concluded that instead of its tapering off in diminishing returns, growth could produce increasing returns from the extensive promotion of exogenous improvements all along its extensve production chains that make up modern economies. Even in Smith’s day, his account of the manufacture of the common labourer’s woolen coat showed just how extensive were the production links bith locally and across the national eocnomy, and also the international economy in the 1760s (WN I.ii.). This last seemed to me to be an obvious characteristic of the far more extensive and more complex actual productive processes in the real world today.  
The second welcome aspect of the articleis that also discusses the role of Paul Samuelson in diverting economics into the myth of the “selfish invisible hand” that somehow (always?) produces “public benefits” in his post-war mathematical work in his “Foundations of Economic Analysis” (1947) and then in his popular best seller, Economics: an analytical introduction (1948) that misled most of the economics-teaching profession on what Adam Smith actually wrote in Wealth Of Nations (myself included, until I smelt something not quite right in Samuelson’s coffee). 
I also wrote a paper: “Paul Samuelson and the Invention of the Modern Economics of the Invisible Hand” , History of Economic Ideas, vol. xviii, no. 3. pp. 105-19.

It seems to me that Justin Fox is well informed on what economists actually do. Thanks to Mark Thoma for linking to the Blomberg article - I suggest Bookmarking Mark’s regular daily services to keep up to date. 

Saturday, May 16, 2015


Miriam Cosic, an author and critic, posts (16 May) in The Australian: “David Graeber’s Utopia of Rules tackles bureaucracyHERE 
Consider how radical Adam Smith’s “invisible hand” was in its day.”
Let’s be clear: Adam Smith’s supposed “invisible hand” was certainly neither “radical”, nor widely known in his day beyond it long=standing use by theologians, ‘hand of God’ preachers, and some imaginative authors (Horace, Shakespeare, Defoe, Voltaire, Walpole). Smith’s use (on only two occasions) of the metaphor while he was alive (1723-90). His use was totally ignored by his contemporaries. 
After he died in 1790, it was revealed that Smith had referred to the metaphor for a third time in his unpublished manuscript (“History of Astronomy”), referring to the Roman pagan God, “Jupiter”. Hence no one in “his day” had noticed it. He had written "Astronomy" between 1744-58 and it was first published, posthumously, by his literary executors in 1795. Together, his three uses of the “invisible hand” metaphor were largely ignored in print through to 1875, and, similarly, hardly mentioned in print through to the 1940s. I have produced evidence of an oral tradition at Cambridge (England) of its use at faculty level in mid-19th century (see my chapter in "Propriety and Prosperity: new studies on the philosophy of Adam Smith, eds. D. Hardwick and L. Marsh. "The Invisible Hand Phenomenon in Economics", pp. 198-222. Palgrave-Macmillan, 2014.
I assume Miriam Cosic is back-projecting the supposed “radical use” of Adam Smith’s “invisible hand” in “its day” from its astonishingly wide use nowadays by ideologues (and their critics) since the last half of the 20th and 21st centuries, compared to its near total absense in Smith’s “day”.
Adam Smith’s use of the “invisible hand” had nothing to do with “radical’ (or 'reactionary') politics. It simply metaphorically describes the motives of human actions in two specific cases. First, the agent’s “proud and unfeeling landlords” in agriculturally-based feudal regimes in “Moral Sentiments”) and risk-averse merchants avoiding foriegn trade in “Wealth Of Nations”, which actions could also have unintended consequences that may have beneficial (or non-beneficial) outcomes for their quite different societies.
Since Samuelson’s “Economics: and analytical introduction” (1st edition, 1948, thru to his 19th edition, 2010) Smith’s use of the metaphor has been transformed into the idea of society being guided by a mysterious, even “miraculous”, invisible hand that somehow (intentionally?) brings about public social benefits from the “selfishness” of agents to produce "public benefits". In plain fact, there is no actual “invisible hand”. It was a metaphor for individual motivated actions by agents. It is not a guiding entity of any kind.

Market economies function through VISIBLE prices and cannot function without them.

Saturday, May 09, 2015


Monique Spence posts (8 May) in The Cayman Reporter HERE
“The Future of the Cayman Islands Part III”
Economics, Politics, Geo Political Economics”
“Adam Smith’s ‘Wealth of Nations’ first published in 1776 is considered a precursor in the Liberal Economics Theory. Adam Smith dispersed the idea of a “national economy” in which nation’s determined economic conditions, and instead advocated replacing the “national” economy with a “cosmopolitical or world-wide economy.” Writers such as Friedrich List and Alexander Hamilton wrote critiques of the underlying of Smith’s Liberal concepts.
Liberal economists believe that the political and economic realms are separate, and that they should remain separated, so that political elements interact independently and without influence over the economic realm, which itself acts independently and separately of the political realm. This is the foundation for the ideas of the “free market” and the often quoted Adam Smith phrase, “the invisible hand of the free market,” which was only mentioned once in the entire volume of the Wealth of Nations. The ascension of liberal theorists marked a separation in the academic and theoretical studies, in which Political Economy was separated as a field, and saw the emergence of Political Science and Economics as separate studies.
The is extracted from a critique of British foreign policy towards the recently independent USA (follow the link - worth a read). Modern versions of his views deserve scepticism as they are often unrepresentative.
Monique is right to refer to the fact that the “invisible hand” is only mentioned once in Wealth of Nation (and once only in his Theory of Moral Sentiments) and in neither case was it related to the “free-market”.
Indeed, after Smith died in 1790, the “invisible hand” was mentioned in print only a couple of times until 1875, and then a few other times in print up to the 1930s. However, after 1948 it began to be widely quoted as “the invisible hand of the free market” and mis-credited to Adam Smith.
It was wrongly attributed to Adam Smith (as was “laissez-faire”, another idea Smith never mentioned) and declared to be a “foundation idea” of his. It was not.

Monique is on the right track and the rest of her essay is interesting.

Friday, May 08, 2015


I received this message from Professor T. Ziliak of Roosevelt University, Chicago, this morning and post it on Lost Legacy as a contribution to discussion.

I have no thoughts on the issues involved but I am sure that George Mason will respond in due course and we can all learn something from the clash of ideas.

You can find the Roosevelt ideas HERE.

Let’s keep the debate good natured and learn from it.

I have a great deal of respect for scholars (and freinds) at GMU and I hope and expect the debates will teach something to all of us - I still think they are wrong on the invisible hand - but in the round they are excellent ambassadors for Adam Smith’s ideas, escpecially on TMS.

Here is the gist of the article from Steve on the Hayek debate:

“Rap to Take on Smith and Hayek”

“The economics department at George Mason University has long been known for its scholars affiliated with the Austrian School, which includes many devotees to the work of F. A. Hayek. And while Hayek might be old-school, one Mason economist, Russell Roberts, has built a huge YouTube fan base with videos about the theories of Hayek and his rival John Maynard Keynes. While both economists' views are given time in the videos, many think the content favors Hayek.
Here's the first of the George Mason videos:

At Roosevelt University, an economics and social justice class taught by Stephen T. Ziliak decided it was time to challenge the George Mason view of the world. So this week, the class is unveiling a rap video in which an economics class based on traditional free market-oriented ideas leaves students texting or falling asleep -- until they rebel against that orthodoxy. They get in some swipes at Ivy League professors (and the “dude from George Mason”).
Some of the lyrics:
It’s clear your markets are free of justice
Looks like your supply curve needs some adjustments
We need benevolence and sympathy in the mix
These textbooks are corruptin’ our moral sentiments
We need O.G.s in here, like Smith, Marx and Lerner
Heterodox economics is the real table turner
Get back to the real world, no catallaxy
Spontaneous order, can’t put me in a Cadillac, see?
Check Ferguson, Garner and Rodney King too
People can’t work when they face black ’n’ blue!

We reached out for a review to Roberts at George Mason. He says he's sticking to his views, and suggested that his view of Adam Smith, for example, is quite different from that of the Roosevelt students. “The irony is that I don't like the economists' obsession with efficiency. There's nothing about that in Adam Smith,” said Roberts. “Smith cared a lot about justice, as you can see in his first book, The Theory of Moral Sentiments….  Having said that, Smith did believe that economic liberty was a good thing and that many government interventions served only to help vested interests. When we look at the world around us and we see economic tragedy -- high unemployment, for example, or poor economic opportunity in, say, Baltimore -- the fundamental question is whether we have too much capitalism or not enough, too much government or not enough.”

Ziliak responded: "Roosevelt students do not believe that Smith was all about efficiency and mindless applications of the invisible hand; we are pointing out throughout the song that Smith's Theory of Moral Sentiments is needed to combat textbooks claiming such. Likewise we are pointing out that Hayek's so called victory in the rap videos (and in Mason economics) leaves no room for social justice of any kind."

Tuesday, May 05, 2015


Soul Curry” post  The Times of India HERE
I writhed in pain as if an invisible hand hit me on the face.
Ziyad Abdelfattah, a Columbia College Senior, posts (1 May) in Columbia Spectator HERE
"They are bound in place, forced to look at a wall straight ahead of them, on which a series of dancing shadows are cast from behind (by what Adam Smith would later call an “invisible hand”).
Ali Express: “smarter shopping better living” Advertisement HERE 

Wardrobe cabinet drawer handle in the dark hall cabinet shoe invisible hand flat surface mounted handle furniture hardware” US 23.80.
Jeremy Williams, writer, project developer and freelance journalist, posts (10 March) HERE

“… Michael Jacobs in his book The Green Economy. He suggests that attached to the invisible hand is an invisible elbow. “Elbows are sometimes used to push people aside in the desire to get ahead. But more often elbows are not used deliberately at all; they knock things over inadvertently.


Readers will know that Edinburgh Business School at Heriot-Watt University was acquired by the Businesss School with a view to a complete restoration of Adam Smith last surviving home in which he lived with his mother, Margaret Douglas Smith, and his aunt, from 1778-1790.

The latest of the regular reports on the detailed progress of Panmure's restoration is attached.  It is most encouraging. Pogress is slow for two reasons. A great deal of structural work is required by the various historical departments of the City of Edinburgh Council and each step of restoration reduces the funds that have been collected so far from private and institutional donors in Scotland, England, the USA, Hong Kong,  and elsewhere.

The next phase is a major amount of work to turn Panmure House into a working environment for world-class education and research location focussed on modern economics (broadly conceived) including the use of teaching and research technology and the associated fields of behavioural studies, with, of course, historical work related to Adam Smith.

Briefly, we need more funding to complete the project.  The attached paper shows the quality of the restoration work undertaken so far. Please read and pass around to your contacts. Copies of the original are available from: Betsy Dorfman Edinburgh Business School: 

May 2015
page1image2184 page1image2352 page1image2520 page1image2688 page1image2848
Work on the external conservation of Adam Smith’s Edinburgh home, which started in late July 2014, is now complete. During that time, the contractors, Ashwood Scotland Ltd, were busy organising the work packages and the specialist sub-contractors required to complete this
phase of the project. The works undertaken included the strengthening and re-slating of the existing roof, replacing or indenting the large areas of defective stonework, including rebuilding the two main chimney stacks and replacing the rotten 1950’s timber sash and case windows.
The roof strengthening work has been achieved by inserting new rafters alongside the original 1690’s pine rafters. This approach has enabled us to keep the original historically significant timbers in place. Whilst doing this work we have taken the opportunity to raise the 1950’s ceiling ties to their
original level. This will enable us to recreate the original ceiling profile.
The strengthening work was completed in November. Work has since progressed on installing new lead watergates and flashings, new cast-iron rainwater goods and re-slating the entire roof. The re-slating work has been undertaken using the best of the original scotch slates made up with matching secondhand slates.
Prior to work starting on site, Ed Kelly, the project architect, undertook a visual inspection of the stonework to identify the likely
level of

Once the
had been
and the
removed a more detailed examination of the stone-work was undertaken with the specialist stone contractor, Nicolas Boyes Stone Conservation Ltd. As anticipated this revealed several areas of stonework to be in very poor condition.

page1image18792 page1image18960

A few of the stones on the South facing crowstepped gable had been bored into by “mortar” bees. The bees had created a series of small burrows in the stone, some of which still contained honey.
Other areas of walling had been built using a very soft mudstone. This had become badly eroded, the erosion having been accelerated by the use of rich cement based mortars in the 1950s restoration work.
the paneled interiors, they will significantly reduce the energy requirements of the completed building.
Because of the historic significance of Edinburgh’s Old Town and of Panmure House itself, we have been required to undertake a detailed archaeological investigation of the building. This work has been carried out by Addyman
page2image7776 page2image7944
The original chimney stacks had been reduced in height during
Archaeology who have now completed their recording and assessment of the development of Panmure House. The report can be viewed on line at
Although not part of the Panmure House project, we are very keen to continue working with colleagues in the City of Edinburgh Council, our neighbours, Edinburgh World Heritage and local stakeholders to build support and funding for the Lochend Close landscaping proposals that were illustrated in a previous newsletter.
Funds raised for the
conservation works
included a grant of
£154,000 from
Edinburgh World
Heritage and
generous donations
from the Global
Philanthropic Trust
and several
individual supporters from the US and Hong Kong. We are now seeking funds to enable us to complete the third and final phase of the Panmure House project. This will involve the creation of the new reception area and the fitting out and furnishing of the original building ready for the formal opening planned for May 2017.

We are very grateful to the Garfield Weston Foundation who recently awarded the project a grant of £150,000 towards this final phase.
the major conservation significantly
the appearance of the building. The main chimneys have now been completely rebuilt

designed to seventeenth
profiles and proportions and fitted with heritage sealed double glazed units and integral draft proofing. Coupled with the new insulation that will be installed behind

1950s scheme, changing
match century
and restored to their original height and profile.
A large number of cracked and deeply eroded stones around the existing window openings have also been replaced using new dressed sandstone.
page2image28544 page2image28712
Sturrocks Joinery of Forfar made and installed the new sash and case windows. The windows have been
If you would like to contribute to the final phase of the Panmure House project, or would like more information, please contact

Sunday, May 03, 2015


Today’s Sunday Scotsman (3 May) publishes a new poem by CHRISTINE DE LUCA, the Edinburgh Makar, who was appointed in 2014 to the City’s prestigious poetry post’.
Poet imagines new work by Smith’s Invisible Hand”
The excesses of the free market would shock Adam Smith if he were alive today, claims the Edinburgh Makar in a new poem:
“Christine De Luca, in her verse, The Invisible Hand, suggests that the 18th century economist, whose Wealth Of Nations defined classical economics, would have felt compelled to write a new treatise redefining capitalism for the global era.
The poem was prompted by Smith’s statue in the Royal Mile, which was unveiled in 2008 and paid for by private subscription organised by the Adam Smith Institute, a leading policy think tank.
The 10ft bronze statue, by sculptor Alexander Stoddart, a stone’s throw from St Giles’ Cathedral, shows Kirkcaldy-born Smith with his right hand partly covered by his academic gown. This pays homage to Smith’s theory of “the invisible hand” of the free market, a central tenet of his work, written in 1776.
De Luca’s first poem as Edinburgh Makar, The Morning ­After, about Scots waking up the day after the independence referendum needing to find a way of living together no ­matter how they voted, won widespread acclaim.
Of her latest work, she said: “I was really pleased to see a statue to Adam Smith appear. I knew very little about him other than that he was a giant in economics, indeed, the father of economics.
“I don’t claim to know much about economics, but Smith believed the measure of a nation’s wealth was not how much there was but how you use it for the good of all.
“It seems to me that capitalism has got out of kilter. Greed and lack of regulation allow some people to get extremely wealthy, draining away from the rest of us. I think Smith would be shocked at these excesses of capitalism and would not think that was what he meant in his writings.
“He had a big analytical brain and if he was sitting down today with a blank sheet of paper I think he’d be writing a new treatise looking at all the functions of government and central banks saying these need to be regulated for the good of all.”
Dr Eamonn Butler, director of the Adam Smith Institute, said of the poem: “It’s a nice, sympathetic portrait of Adam Smith, but the economics aren’t quite right. Globalisation is nothing new – Smith himself in 1776 pointed out that even the ‘rough woollen coat’ of a ‘day-labourer’ involved the labour of thousands of people, across many continents. And are we missing the Invisible Hand by which our self-interested market transactions actually produce mutual benefit? A little, but only because markets are being distorted by politicians who mistakenly think they can do better. But the best laid schemes o’ rodents and ­rulers gang aft agley.”

The Makar’s New Poem:

“To a monument: The Invisible Hand
You must have had a natty tailor – that coat:
cuffed, collared and buttoned to perfection.
Your draped cloak softens it, protects from winds
of close and wynd. Those buckles must have cost
a bob or two as well, and your full wig.
Where you stand you can
almost see Kirkcaldy: cornerstone of character where
you learned the basics, built on them brilliantly;
where you saw men paid in nails, their work
a cannie commodity for barter.
That gaze hides much:
a soft heart, perhaps a nervous disposition.
More than likely you soldiered on with just
your widowed mother: there seems a touch
of melancholy in your stance.
But you were wedded
to debate, enlightenment; thrust your learning
through the engine of your diverse faculties, built
sound new theories – PolEcon we called it in the 60s.
You reasoned that hoards of gold, alone,
are no true measure 
of a nation’s wealth; that Productivity and GDP
can measure Systems. Your Wealth Of Nations, that weighty bible of free market Capitalism, set out the links: competition, self-interest, prosperity.
But you were also grounded 
in Philosophy; wrote of Beauty, Order, Harmony; 
of Good and Evil; knew the underpinnings of morality, of faith. Your writing was plinthed on the invisible hand,
the hand that seeks the greatest good for all.
That plinth has gone now.
Would you be shocked? Would you be writing
a new treatise, re-defining Capitalism for this
Global era? You look east, well above our heads;
your vision still clear as a bell”.
Christine De Luca
I was moved to re-produce this piece from The Scotsman (copyright reserved) because of its content in respect fo Adam Smith where his statue stands opposite the original building which in Smith’s day was the Customs House in which he was a Commisioner of Customs and the Salt Duty, and (now the City’s governing Chambers) 
I can see where Christine is coming from as a graduate of Edinburgh University in the late 1960s, when they still taught “PolEcon” but were in the midst of transposing the traditional syllabi into America’s plain ”Economics 101”, teaching the moderne “invisible hand” and all that and linked by a singular metaphor (used by Smith twice for a different purpose, that was hardly mentioned in print from his death in 1790 through all the way to 1875), and then more of less ignored until the Cold War.
By the 1960s, following Samuelson’s “Economics: an analytical introduction’ (1948), Smith’s lonely “invisible hand” metaphor was transposed into his most central and important idea, until today you can hardly read anything about Adam Smith’s nearly one million published words that does not mainline on the supposed “theory” that economies are run, managed and, as often, screw-up because of an imaginary “invisible hand”, that is either saving or destroying the economy depending on which epigones you follow. His use of the metaphor had a much more restricted role to that implied today.
Smith’s last decade was characterised by relative affluence with his pension from his service to the Duke of Buccleugh plus his annual salary as a Commissioner. But Smith lived frugally and gave away most of his income to penurious relatives and on buying books for his extensive library. He also socialised a lot in various drinking clubs in Edinbugh, particularly at the “Oyster Club’ (a.k.a. ‘Adam Smith’s Club’) near the Grassmarket”.
Smith knew nothing of “capitalism” (a word invented in the 1870s) and he never mentioned “laissez-faire”. Nor did he ever link the “invisible hand” to a role seeking “the greatest good for all”.  
Christine’s poem is excellent for all that. She is to be praised for her poetic work and for the discussions she may provoke, especially for casting her creative scan over some of Smith’s ideas from his “Theory of Moral Sentiments” (1759) and "Wealth of Nations"  (1776). In this latter work he set out the case for serious criticism of international state-sponsored empire-building by powerful militarily protected trade-exploitation of other economies, usually accompanied in the 17th and 18th centuries by large-scale warfare by superior arms and the ambitions of feudal hierarchies in Europe and then World Wars as the empires collapsed.
Smith’s political economy can be summarised, non-ideologically, as “markets were possible, the state where necessary”. Much else written about Adam Smith are fantasies wedded to modern politics.

Monday, April 27, 2015


Harold Sare in Stillwater News Press posts (26 April) HERE 
“Inequality: The politics of economics”
Economic inequality, or better stated as economic income disparity, is a very complicated set of issues and has a long history over the past centuries. Early history reflects various societies’ acceptance of it, which gave it legitimacy.  In today’s world of constitutional democracies, politics has kept it alive and well, but really does not give it complete legitimacy.  
Adam Smith wrote about the “invisible hand” governing the private enterprise system, but those who quote Smith do not take into account that he also said, “People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” (The Wealth of Nations, Collier, 1902, p. 207)  This of course runs counter to the idea of the “invisible hand.”  
Harold Sare has got hold of a half-understood idea and runs with it to critique aspects of contemporary society. He presents a contempary notion of what Smith meant in reference to an ‘invisible hand’ “governing the private enterprise system”. Smith referred to the ‘invisible-hand’ three times only and on two of those three occasions it had nothing to do with “governing the private enterprise system”.
His first passing reference was to ancient Rome in his “History of Astronomy”, written by him between 1744-58, and referred to the “invisible-hand” of the Roman God, Jupiter.  This was a long time before “the private enterprise system, apart from refererring to pagan religious beliefs, and certainly not about the “private enterprise system”.
The second time was in reference to a “proud and unfeeling landlord” in agricultural societies “since providence divided the land” (i.e. a very long time before the “private enterprise system”) (see Smith ”The Theory of Moral Sentiments”, 1759).
The third - and last time - in Wealth Of Nations, 1776, referred to a risk averse merchant manufacturer avoiding send his capital abroad and investing it domestically instead, to avoid his perceived risks of letting it out of his sight. Again this was not about the “private enterpruse system” as a whole. Many other merchants and manufacturers invested both domestically and abroad and made profits from doing so. Moreover the foreign-trade averse manufacturers added their capital to “domestic revenue and employment”, which Smith regarded as a “public benefit”. Again, the “invisible-hand” that led the risk averse merchant to act in this manner was a specific  and not a general case “governing the private enterprise system”. This latter was a myth largely spread by Chicago scholars and such as Paul Samuelson from 1948.
With these facts it is an error to attribute to Smith ideas he never articulated.
I agree with Harold Sare that “those who quote Smith do not take into account” what Smith actually said. Nor do they know what he he meant when referring to “an invisible hand”. 
Both the extreme free-markets advocates and the statist advocates of extensive regulation by political disctats falsely quote Adam Smith in pursuit of their utopias.

Adam Smith broadly favoured markets where possible, the state where necessary, to which I would add on pragmatic grounds that poverty is a more serious (even more pressing) problem than inequality. Abolishing Poverty is a more fixable problem and within our reach, rather than the far longer-term problems of abolishing inequality and coping with its unintentional consequences.