Friday, December 13, 2013
Karen Hedwig Backman posts (10 December) on Daily Kos Here
“Counterfactual Theory and the Invisible Hand of Intelligent Design”
… According to David Lewis, if a and b are distinct events that actually occur, then b causally depends on a if and only if a were not to occur, then b would not occur either (1973a). If the match had not been struck, then it would not have lit. ...
But, but, what about the many times I have struck a match and the match has not lit. Varying circumstances caused this to happen, a damp environment which discourages fire, an abrasive surface for striking a match which is no longer abrasive, age and decay of the chemicals in the matches. Holy Cow! Just because you strike a match -- or friction it against a suitably rough surface -- does not mean that it will burst into flame.
But, but, what about the counter logic of counterfactual theory? I leap, like Zippy, into a wonderful fairyland of conjectural bewilderment.
In the matter of a and b and a causal relationship between the two, if the action of a occurs but b does not result, what about the logic of the invisible hand and intelligent design?
How did it all happen? Why must it be so damned uncertain? If a match is struck, or rubbed frictionally against an appropriately rough surface ... some matches are designed so that they only ignite when rubbed frictionally against a specific chemically treated surfaces, a markedly complex synergy which cancels out all a's as the cause of b. I concede that b can still occur if the proper circumstances of a occur but not always. That's as far as I'll go.
A possibility, but nothing so firm as a probability.
Intelligent design? Pishtah! Again, a possibility, remotely, but blind happenstance prevails. Once in a while even the universe makes sense and is momentarily certain.
I quote Karen Hedwig Backman’s short post because it deals tangentially with a debate I am having with an anonymous correspondent on “unintended consequences” and the metaphor of “an invisible hand”. Whereas the invisible hand as a metaphor addresses the hidden, thereby invisible, motives of those merchants who avoid foreign trade because of their perceived insecurity of their capital. When their capital leaves their own country it is out of their sight in foreign countries, of which they are less familiar with in respect of the honesty of the people they must rely upon abroad and the uncertain legal systems that they would necessarily depend upon to remedy any deficiencies in the probity of their overseas partners. Hence, they prefer to invest at home in “domestic industry, writes Adam Smith in Wealth Of Nations (WN IV.ii.1-10: 452-456).
I have long criticised modern interpretations of this paragraph and the assertions that follow about the ‘unintended consequences’ as mentioned by Adam Smith. These disputes narrow down to what the ‘invisible hand’ metaphor refers to.
I claim, following Adam Smith, that all metaphors, refer to their “objects”. Smith wrote of them thus: “Metaphors describe in a more striking and interesting manner their objects” in his Lectures on Rhetoric, delivered during November 1762 and December 1763) (Smith, Lectures on Rhetoric and Belles Lettres, 1983, p. 29. Oxford University Press). This definition and his examples conform to modern definition of metaphors in the definitive Oxford English Dictionary (and as far as I have been able to check in all English language dictionaries).
Clearly, the motives of the merchant’s insecurity are the “object” addressed by the metaphor of “an invisible hand”. It “describes in a more striking and interesting manner” the object. No amount of wriggling can get my anonymous critic off that hook.
The debate moved on to another line of attack, specifically Smith’s reference to “unintended consequences”, which my critic pretends to find a rescue for his/her crumbling position. My critic claims that the “invisible hand” is a metaphor for the ‘unintended consequence’ of the merchant’s motives. This is illogical; it gets the relationship the wrong way round.
The merchant’s motives are private, hidden and cannot be seen by others – they are “invisible” to others! But his actions, which are the consequences of the merchants acting on his invisible motives, are visible: they arithmetically increase “domestic revenue and employment”, as Smith says. What is visible is not comfortably expressed as a metaphor like “an invisible hand”.
To suggest, as some, like my anonymous critic does, that ‘an invisible hand’ leads the merchant to produce the “unintended consequences” identified by Adam Smith is to import into economics a wholly mysterious “intentional force” that deliberately creates the “unintentional consequences” of the merchant’s actions! A logical nonsense surely? I can only admire the cheek that is introduced into economics by this virtual theological invisible force, which nobody can see or measure.
The sequence, I suggest, is that the private motives of individuals lead them to actions and these actions, not their motives, lead their visible actions to the visible “unintended consequences”.
In Karen Hedwig Backman’s presentation of David Lewis’s logic: “if a and b are distinct events that actually occur, then b causally depends on a if and only if a were not to occur, then b would not occur either”.
Now, if the merchant’s insecurity was not present as the motive, he might export his capital in the “foreign trade of consumption” and most certainly the arithmetic increase in “domestic revenue and employment” that would occur if he had invested his capital domestically. In short, if a did not occur then neither would b – because if there is no motive, then there would be no action to avoid foreign investment, and consequently there would not be c, in this case, the “unintended consequences” of the action of investing in domestic industry.
What a host of complications and, sad to say, outright fantasies, that would be avoided if only modern economists wedded to “invisible hand” theology would carefully read Adam Smith’s words and not jump to their unwarranted conclusions.
Evolution and Homo economicus?
Peter E. Earl** posts on Evolution and homo economicus HERE
“Why evolution wouldn’t favour Homo economicus”
Economists traditionally have assumed that all decisions are taken by weighing up costs and benefits of alternative courses of action. In reality, people seem to make their choices in at least three ways, and which way they use depends on the kind of context in which they are choosing. They can choose in a programmed manner; they can exercise free will after thinking carefully about the potential consequences of choosing one action rather than another; and they can simply delegate their choices to others and go with the social flow without really considering alternatives or where what they are doing might lead.
There seem to be good evolutionary reasons why humans have ended up with more than one way of choosing.
By being able to deliberate rather than merely follow existing decision rules, humans have been able to come up with innovations that enable them to thrive and reproduce, adapting to new environments as they do so.
But the capacity to deliberate is also potentially disastrous if a person can become immersed in a problem that cannot be solved rapidly. While attention is concentrated on one problem, the person may be overwhelmed by unnoticed external or internal threats. It is therefore vital that people have programmes that will kick in — as unmet basic needs do — to over-ride deep thought and ensure they make choices swiftly enough to avoid disaster.
Such choices may not involve consideration of alternatives — either in detail, or even, at all — but merely the application of a very simple rule. Prejudices and check-lists may enable people to make choices swiftly rather than become ending up paralysed as they try to consider the pros and cons of alternative possibilities. In a social setting, acceptance of suggestions from others enables the group to make something happen in the limited time available, so it is no wonder that those whose deliberative tendencies threaten to cause their peers to ‘lose the moment’ get labelled as ‘party-poopers’.
The capacity of humans to engage in deliberation is potentially disastrous for their reproductive success. Others species reproduce by following their instincts, in other words, by operating in a programmed manner. Humans are in a position to reflect on the costs and benefits of engaging in sexual activity, so their free will potentially can overcome any primitive programmed sexual urges. Cool reflection could lead to decisions to abstain: birth is dangerous for women, and the short-run burden of having children may vastly outweigh their long-run potential to provide support for elderly parents.
For humans to populate the planet as successfully as they have done, they needed to evolve something that would get in the way of such a view of sex and reproduction. That ‘something’ seems to have been the almost uniquely human ability to experience sexual pleasure. This had to be of an intense but fleeting kind that could not be stored in the memory and replayed in the imagination but was only available by repeating the sexual act.
Intelligence and the ability to experience intense sexual pleasure are, in evolutionary terms, a winning combination for the human race. The former makes it possible to cope with the Malthusian pressures that follow from the latter frequently overwhelming cool logic. Evolutionary fitness is also helped by inherited dispositions to find children cutely alluring while, in terms of social evolution, we should not be surprised that the societies that thrived in primitive times were patriarchal ones. The risks of childbirth would give women greater pause for thought than men about whether to allow sexual urges to be turned into action.
An evolutionary perspective on choice does not merely point towards a plurality of ways of choosing and to why humans are equated to enjoy sex rather than viewing it as at best a ridiculous activity and at worst as potentially disastrous in its consequences. An evolutionary perspective also provides reasons for doubting that humans would end up having the kinds of preference orderings that economists commonly assume. Being willing always to make tradeoffs is not conducive to survive if one’s body has a set of basic physiological needs that are hierarchically ordered. Moreover, when people are in a position to meet their basic needs, being unwilling to consider many kinds of goods (as in’I don’t like …’) gives them identities that facilitate social and economic coordination as well as reducing the choice problem to manageable proportions.”
**Peter E. Earl is Associate Professor of Economics at the University of Queensland, Brisbane, Australia. His Cambridge PhD was on behavioural economics but was completed long before it became fashionable to mix economics with psychology, and he coedited the Journal of Economics from 2000-2004. His research focuses mainly on how people and organisations try to cope with problems of information and knowledge. He has just finished co-authoring a book about the work of GLS Shackle and is currently engaged in a major project on how Australian consumers choose their mobile phone connection services. He is the author of the paper ‘The robot, the party animal and the philosopher: an evolutionary perspective on deliberation and preference’ in the Cambridge Journal of Economics.
Interesting approach but it seems to downplay the roles of experience. There is nothing like observed or told about close-run behavioural incidents that threatened disaster and are stored in an expanded capacity for memory.
Among the “very simple rule[s]” humans learn are basic habits such as avoiding wandering alone in thick-bush or high grass conditions or today carelessly crossing a busy road, without thinking about or observing what might be loitering nearby or likely to happen.
Better to stay in groups of observant relatives, preferably with heavy clubs and spear-like projectiles, and using vocal chords of learned and easily recognisable warning calls (near relatives like apes have developed such calls), or listening to advice from the experience of others and from observation, and of course, fear.
To engage in prolonged deliberation “is potentially disastrous for their reproductive success”, but so is a reckless inability to deliberate about risks. Moreover, the change in sexual access from that experienced by our near relatives, the chimpanzees, played a significant role. Female humans changed their physiological reproductive access from a few days only (Estrus) to daily availability, except for a few days per month (periods), which reduced the near monopoly of females by Alpha males only who were strong enough to beat off rivals, and made way for wider male access. This widened the available gene pool on a regular basis, other than from brute strength and dimorphism.
It is not just “an evolutionary perspective [that] also provides reasons for doubting that humans would end up having the kinds of preference orderings that economists commonly assume.” The idea of “preference orderings” is suspect – try asking random people in the street about their “preference orderings”, especially those that were made up by modern economists in recent decades, rather than observed for millennia, also known as history. The “X, Y, Z” rankings than give potentially contradictory paralytic answers suggests at least in university classrooms that they are common, so relying on such rankings for life and death (or sex) choices are unlikely to be an evolutionary stable survival code and, not surprisingly, “is not conducive to survive if one’s body has a set of basic physiological needs that are hierarchically ordered.”
Humans in the forest in small groups, separated by vast distances, were many millennia away from “when people [were] in a position to meet their basic needs” in potentially dangerous environments where, for example, taking a wrong direction (travelling north instead of south, say) towards floods, volcanic fires or desertification events, that could wipe out some bands and its learned memories in what became an unforeseen tragedy.
That the human speciation survived is a remarkable event – DNA science suggests the human species population dropped remarkably at one, perhaps more than one, point in time, before it recovered and expanded. Other pre-human speciations simply passed quietly from the scene or were absorbed into the human DNA lineage (Neanderthals, for instance, which now are just a trace sequence, plus some bones).
Homo economicus was and remains a late 19th century fictional hypothesis, and not a part of the actual human behavioural history, which behaviour is far more messy than the Homo economicus and rational choice theory credits, and therefore not really part of economic explanations of how real world humans lived and live in.
Still, its good to learn that Professor Peter Earl is one modern economist who thinks beyond the box. More please.
Thursday, December 12, 2013
Markets Enable Much More than the Arithmetic of GDP
The most Important Long Article of 2013 is published in “Democracy Journal” (“a journal of ideas’ HERE
[Hat Tip once again to Mark Thoma’s “Economists View” Blog for listing it among his daily items in his “Today’s Links”, a selection of relevant articles around the world. Readers of Lost Legacy should bookmark Mark’s Blog and scan his daily selection for “Hat Tips”.
The article is by Nick Hanauer & Eric Beinhocker posts in “Democracy Journal” (“a journal of ideas’.
Eric Beinhocker is Executive Director of the Institute for New Economic Thinking INET@Oxford research program at the Oxford Martin School, University of Oxford, a member of the Said Business School at Oxford, and a Visiting Professor of Economics at Central European University. He is the author of The Origin of Wealth. 2006.]
"What prosperity is, where growth comes from, why markets work—and how we resolve the tension between a prosperous world and a moral one.
“For everyone but the top 1 percent of earners, the American economy is broken. Since the 1980s, there has been a widening disconnect between the lives lived by ordinary Americans and the statistics that say our prosperity is growing. Despite the setback of the Great Recession, the U.S. economy more than doubled in size during the last three decades while middle-class incomes and buying power have stagnated. Great fortunes were made while many baby boomers lost their retirement savings. Corporate profits reached record highs while social mobility reached record lows, lagging behind other developed countries. For too many families, the American Dream is becoming more a historical memory than an achievable reality.
These facts don’t just highlight the issues of inequality and the growing power of a plutocracy. They should also force us to ask a deeper set of questions about how our economy works—and, crucially, about how we assess and measure the very idea of economic progress.
How can it be that great wealth is created on Wall Street with products like credit-default swaps that destroyed the wealth of ordinary Americans—and yet we count this activity as growth? Likewise, fortunes are made manufacturing food products that make Americans fatter, sicker, and shorter-lived. And yet we count this as growth too—including the massive extra costs of health care. Global warming creates more frequent hurricanes, which destroy cities and lives. Yet the economic activity to repair the damage ends up getting counted as growth as well.
Our economic policy discussions are nearly always focused on making us wealthier and on generating the economic growth to accomplish that. Great debates rage about whether to raise or lower interest rates, or increase or decrease regulation, and our political system has been paralyzed by a bitter ideological struggle over the budget. But there is too little debate about what it is all for. Hardly anyone ever asks: What kind of growth do we want? What does “wealth” mean? And what will it do for our lives?
The Price of Everything, the Value of Nothing
The most basic measure we have of economic growth is gross domestic product. GDP was developed from the work in the 1930s of the American economist Simon Kuznets and it became the standard way to measure economic output following the 1944 Bretton Woods conference. But from the beginning, Kuznets and other economists highlighted that GDP was not a measure of prosperity. In 1959, noted American economist Moses Abramovitz cautioned that “we must be highly skeptical of the view that long-term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output.”
In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known issues such as the fact that GDP does not capture changes in the quality of the products (think of mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent in the home). The commission also cited evidence that GDP growth does not always correlate with increases in measures of well-being such as health or self-reported happiness, and concluded that growing GDP can have deleterious effects on the environment. Some countries have experimented with other metrics to augment GDP, such as Bhutan’s “gross national happiness index.”
Our issue isn’t with GDP per se. As the English say, “It does what it says on the tin”—it measures economic activity or output. Rather, our issue is with the nature of that activity itself. Our question is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity of our society.”
And so much more. Normally I am skeptical of such articles but I urge readers to persevere and read on (it’s several pages long in 3 sections), but I believe Nick Hanauer & Eric Beinhocker have finally written a piece worth reading by modern economists (and not just us new modern classical economists – also those among the neoclassical “rational expectations” crowd to test their convictions by reading on).
“we now understand that markets can be far from efficient, people are not always rational, and the economy is a complex, dynamic, evolutionary problem-solving system—more like an interdependent ecosystem than an efficient machine. This recent Copernican-like shift in perspective provides a powerful new framework for understanding how and why capitalism works, what wealth truly is, and where growth comes from. This twenty-first-century way to understand economics allows us to understand capitalism as an evolutionary problem-solving system. It allows us to see that the solutions capitalism produces are what create real prosperity in people’s lives, and the rate at which we create solutions is true economic growth. This perspective also allows us to see that good moral choices will be the ones that create true prosperity. …
Prosperity Isn’t Money, It’s Solutions
… the idea that prosperity is simply “having money” can be easily disproved with a simple thought experiment. (This thought experiment and other elements of this section are adapted from Eric Beinhocker’s The Origin of Wealth, Harvard Business School Press, 2006.) Imagine you had the $38,001 income of a typical American but lived in a village among the Yanomami people, an isolated hunter-gatherer tribe deep in the Brazilian rainforest. You’d easily be the richest Yanomamian (they don’t use money but anthropologists estimate their standard of living at the equivalent of about $90 per year). But you’d still feel a lot poorer than the average American. Even after you’d fixed up your mud hut, bought the best clay pots in the village, and eaten the finest Yanomami cuisine, all of your riches still wouldn’t get you antibiotics, air conditioning, or a comfy bed. And yet, even the poorest American typically has access to these crucial elements of well-being.
And therein lies the difference between a poor society and a prosperous one. It isn’t the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being—like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these “solutions” to human problems—things that make life better on a relative basis—that makes us prosperous.
This is why prosperity in human societies can’t be properly understood by just looking at monetary measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems.
These solutions run from the prosaic, like a crunchier potato chip, to the profound, like cures for deadly diseases. Ultimately, the measure of a society’s wealth is the range of human problems that it has found a way to solve and how available it has made those solutions to its citizens. Every item in the huge retail stores that Americans shop in can be thought of as a solution to a different kind of problem—how to eat, clothe ourselves, make our homes more comfortable, get around, entertain ourselves, and so on. The more and better solutions available to us, the more prosperity we have.
The long arc of human progress can be thought of as an accumulation of such solutions, embodied in the products and services of the economy. The Yanomami economy, typical of our hunter-gatherer ancestors 15,000 years ago, has a variety of products and services measured in the hundreds or thousands at most. The variety of modern America’s economy can be measured in the tens or even hundreds of billions. Measured in dollars, Americans are more than 500 times richer than the Yanomami. Measured in access to products and services that provide solutions to human problems, we are hundreds of millions of times more prosperous.
[And much more … Read it all and post a comment on your Blog and/or on Lost Legacy.]
I have long been sceptical about the sloganised belief that the middle-class, let alone those at the bottom ends of the incomes' scale, are poorer than their grandparents and getting poorer, while the rich are getting richer The very poor of other countries with less developed economies still take great risks to escape where the come from to migrate to the richer economies in the most developed democratic market economies ("warts and all"). It was ever thus since the 18th century, illustrated by the rural population moving to the awful (by our standards today) towns and cities, and abroad to colonies more in expectation of "better lives", than in certain relief.
I recall an Australian descendant of Irish forebears who was driven off the land who announced he intended to return to Ireland on a short visit to see where his great grandparents came from. He intended, he said, to visit the descendant of the landlord who had cruelly treated his grandparents and "shake his hand" in gratitude. Without that scandalous act he would have been born in Ireland with its current living standards and without the much better Australian standards, swopping a hovel for a modern house in Victoria with decades of the Aussie life that he and his family now enjoyed. Nick Hanauer & Eric Beinhocker's article provides a plausible explanation for what markets with democratic government and the rule of law actually achieves. It's more than just about quantitative GDP.
Tuesday, December 10, 2013
The Future in Economics
“For the last half-century, the world's leading universities have taught microeconomics through the lens of the Arrow-Debreu model of general competitive equilibrium. The model, formalizing a central insight of Adam Smith's "The Wealth of Nations," embodies the beauty, simplicity and lack of realism of the two fundamental theorems of competitive equilibrium, in contrast to the messiness and complexity of modifications made by economists in an effort to capture better the way the world actually functions. In other words, while researchers attempt to grasp complex, real-world situations, students are pondering unrealistic hypotheticals.
This educational approach stems largely from the sensible idea that a framework for thinking about economic problems is more useful to students than a ragbag of models. But it has become burdened with another, more pernicious notion. As departures from the Arrow-Debreu model become more realistic, and thus more complex, they become less suitable for the classroom. In other words, "real" microeconomic thinking should be left to the experts.”
Paul Seabright raises a common conversational issue among economists as examiners of their students, at least as I see it, in standard teaching assignments. There is nothing like a formal model to supply examinable content. As the degree course moves from first to final year, they search to find a "reliable"and assured way to sort of the chaff from the wheat, and to grade tightly among the wheat.
Arrow-Debreu general competitive equilibrium models are in this set of suitable “tough” tests. The student who persistently asks questions of the model’s relevance to the real world is suspected of innumeracy and marked down as unsuitable for economics. In the 1970s, I published "Mathematics for Innumerate Economists" (Duckworth) to address the needs of students in danger of being left behind or, worse, dropping out. The numerate student who appreciates the beauty of the maths and its poetic description of an imaginary world is marked up for potential membership of the elite.
These "the Emperor is naked” moments expose nascent fault lines in the so-called the proud boast that “economics is a hard science” along with physics (though physicists are known to smile indulgently at the assertion). At least, theoretical physicists theorise about the behaviours of sub-atomic particles that bear some clear resemblance to their real behaviours, as shown in the work of today’s winner of a Nobel Prize, Professor Higgs (Edinburgh University).
Nobody has shown, nor probably ever will show, how the GE in a real economy conforms to the extra-subjective fantasy of its predictions that are claimed for it. Yes, I know that Nobel Prizes were awarded for the “proofs” of GE, and no doubt the prize-winners were of the highest scientific quality, but did/can GE theory ever past the tests of experience? Where Professor Higgs is different is that his Nobel Prize was awarded only after the particle was located by experimental work. Meanwhile, Professor Hawkins awaits, literally at death’s door, because his work on Black Holes cannot be verified experimentally.
The plain fact (endlessly verified by observation) is that “the messiness and complexity of modifications made by economists in an effort to capture better the way the world actually functions” is how the economic world operates. I do not believe that economists do best by turning to non-complex modeling of economies, or the parts therein, that are unreal beyond measure, to the sacrifice of trying to understand how economies in human societies have emerged and evolved in history, both ancient and modern.
I have noted several authorities dismissing Adam Smith’s Wealth Of Nations on the grounds that it is far too long (!) and allegedly could be reduced in size and improved in readability, by a competent graduate student. Without being cheeky, I have recommended to such impatient, narrowly educated, “know alls” that to understand economics it is necessary to research and understand how the economy got to where it is. As to where it is going, I also recommend that they step aside from the prediction business.
Economics is not like physics – the future of humans in societies is unknowable, whereas the physics of plant Earth even up to several million years ahead is knowable, at least in outline.
Sunday, December 08, 2013
Short Report on Lost Legacy Blog Readers’ Stats
Short Report on Lost Legacy Blog Readers’ Stats
Since March 2005 Adam Smith’s Lost Legacy Blog has had a total of 629,415 Visits who made 888,415 Page Views.
In that period the total number of posts was 3,215.
The reader figures for this past week to 7 December were 2,248 Visitors who made 2,983 Page Views.
The geographical spread of Lost Legacy readers were:
North America 46%
Onwards to the first 4,000 posts!
Thursday, December 05, 2013
Once More on Laissez-faire Historically was Never About Natural Liberty
I am somewhat perplexed by regular debates with ultra-free market advocates, who react to my criticism of those who refer to Adam Smith as an advocate of “laissez-faire”. As my opposition to linking Adam Smith to “laissez-faire”, which opposition is solely based on my reading of Smith’s actual writings on Natural Liberty, which give a quite different and richer account of Smith’s views on liberty in markets than the lazy acceptance of the misleading repetition in the 19th century, and since to the 21st century, of Smith’s so-called credentials as an early advocate of “laissez-faire”. This continues to perplex me.
Worse, some commentators go on to accuse me of therefore necessarily preferring government intervention to free markets! I do not prefer states to markets, nor do I prefer vice versa. It depends, as it should do, on the issue and its circumstances. As usual in policies for actual societies that exist, and did in history, once you step outside the assumed pristine niceties of the imaginary world of mathematical abstractions or angelic theologies and their models of how economies supposedly work, at least in a mathematical universe that does not exist, or in the universe of theology, life in all its complexities butts in. There are no easy choices as represented in the sloganising of the two opposing sides. There are no perfectly well-behaved markets, either among the supposedly well-behaved individuals in them, nor well-behaved governments brim full of well-behaved politicians running them. So hoping to replace one system totally with better well-behaved people from the other system is pure fantasy. Reality ain’t like that. Wake up and smell the odour!
The sins of omission and commission common to individuals in societies since our ancestors left the forests are not something new. The history of the human acquisition of morality is one of long-standing imperfections in practice and, realistically, humans en mass have never been perfect, and are likely to remain so. I read a philosophical book long ago on the 'perfectibility of man', and concluded man may be perfectible, one at a time, but never everybody simultaneously!
Some political theories (anarchism, primitive communism) look nostalgically to an imagined distant past of small bands “at one” with nature in the forest and plains, as if those distant times enabled small groups to live in peace and enjoy their near-perfectly moral codes in circumstances where they operated in a long-lost communist-type harmony, summed as “from each according to his ability, to each according to his needs” (example, David Graeber in ‘5000 Years of Debt’). These ideas have a “fall of man” in an “Eden Garden” allegory about them.
Ideologues on both sides of today’s divide between “collectivist”, no markets, in large states (of course managed by a large-class of collectivists), versus “laissez-faire” giant corporations competing (and colluding!) in global markets across the planet (of course managed by a large-class of managers for their owners). Both are congenitally totalitarian in their outlook and practises. Collectivists thrive on class struggle politics, which always create “ideologically sound” apparatchiks, who in time turn on each other. Laissez-faire corporations thrive on ensuring their bit of the laissez-faire action dominates competitors (even while colluding with rivals on occasion), often tempted into illegality.
Collectivist political theory and practice is hypersensitive to doctrinal dissent (read their biographies of their bitter political struggles!). Laissez-faire political theory and practice is hypersensitive to signs of rival advances and retreats in market shares (read their biographies of their market competitions, described in one such as “balls-braking competitiveness"!).
Hence, when I mention the history of laissez-faire economics, which has always been about how one-sided it has been since the words were first expressed by M. Le Gendre in 1680, a lowly merchant, complaining about the French government inspectors who tightly regulated town markets and from whom he wanted to be left alone (“laissez-nous- faire” – leave us alone). He spoke on behalf of fellow merchants, - remember Smith’s words on their social conversations turning to how to raise prices. But who spoke on behalf of his customers?
When corn-merchants were threatened in the 1840s by politicians with the repeal of the Corn Laws, they clamoured for “laissez-faire” (or rather, their political representatives did, while representing industrialists keen to lower money wages). They did not seek “laissez-faire” for workers who were destined to have their wages cut. Neither did Mill and Mine owners who fought hard to hold onto their 12-hour days and their employment of very young children and adult women on low wages for dangerous work, all summed in the cry for “laissez-faire” for themselves, but not for their labourers, who did not have a vote anyway or rights to organise to join unions.
Into these debates of long ago, I am often criticised for my disassociating “laissez-faire” from Adam Smith. He never used the words, nor endorse its usual one-sided meaning. Sometimes, Smith's endorsement of “Natural Liberty” is cast against me as if laissez-faire” and “Natural Liberty” have the same meaning for Smith. They didn’t. Smith endorsed Natural Liberty philosophy, which was Natural Liberty for all, not a pick and choose one-sided option for a few. Smith, of course, did not advocate nor expect, the full implementation of Natural Liberty as a pre-condition for economic reforms or changes; in fact Smith specifically rejected such thinking as “utopian” in the extreme.
In Wealth Of Nations Smith mildly chastises Dr Quesnay, the French Physiocrat, and some of his followers who took an extreme stance on the establishment of the full physiocrat programme that nicely illustrated the folly of the extreme collectivists and extreme “laissez-faire” believers, whom I keep bumping into today:
“Mr. Quesnai, who was himself a physician, and a very speculative physician, seems to have entertained a notion of the same kind concerning the political body, and to have imagined that it would thrive and prosper only under a certain precise regimen, the exact regimen of perfect liberty and perfect justice. He seems not to have considered that in the political body, the natural effort which every man is continually making to better his own condition, is a principle of preservation capable of preventing and correcting, in many respects, the bad effects of a political economy, in some degree, both partial and oppressive. Such a political economy, though it no doubt retards more or less, is not always capable of stopping altogether the natural progress of a nation towards wealth and prosperity, and still less of making it go backwards. If a nation could not prosper without the enjoyment of perfect liberty and perfect justice, there is not in the world a nation which could ever have prospered. In the political body, however, the wisdom of nature has fortunately made ample provision for remedying many of the bad effects of the folly and injustice of man; in the same manner as it has done in the natural body, for remedying those of his sloth and intemperance” (WN IV.ix.28. 674).
I suggest both sets of ideologues should, though most probably will not, which I confess was my own temperament until I learned better, take Smith’s message on board and act accordingly.
Let’s not see everything in ideological terms. The debate is not about totally free markets versus total government control. A step towards one side or the other should be judged on its merits in the existing circumstances and not against a metaphorical scale of one-sided weighting.
That is why I suggest that our guiding principle should always be: “markets where possible, state where necessary”.
If that guiding principle offends either set of ideologues, I am sorry for them in their present moods. In time, perhaps they may learn to accept the realities to which Smith alluded in his chastisement of his friend, Dr. Quesnay, in 1776, and my efforts on Lost Legacy to set Smith’s record straight.
Monday, December 02, 2013
Robert Vienneau Reveals More Details of the Manchester Students Unrest With Neo-Classical Monopoly
Robert Vienneau’s Blog,”Thoughts on Economics” (2 Dec) HERE
carries an interesting post that includes good information on the search for a new economics syllabi at Manchester University (England) that adds greatly to the information in my post last week on Lost Legacy. I append Robert’s information sweep below:
Economics students aim to tear up free-market syllabus, by Phillip Inman, in the Guardian, 24 October 2013.
Letters: Reconnecting economics and real life, in the Guardian, 25 October 2013.
Economics students need to be taught more than neoclassical theory, by Zach Ward-Perkins and Joe Earle, in the Guardian, 28 October 2013.
Mainstream economics is in denial: the world has changed, by Aditya Chakraborthy, in the Guardian, 28 October 2013.
Economics lecturers accused of clinging to pre-crash fallacies, by Phillip Inman, in the Guardian, 10 November 2013.
Teaching evidence-based economics, by Michael Joffe, in the Royal Economic Society Newsletter, October 2013.
University economics teaching to be overhauled, by Phillip Inman, in the Guardian, 11 November 2013.
Letter to the editor from the Post Keynesian Study Group, 18 November 2013.
Leter to the editor from the Association for Heterodox Economics, 21 November 2013.
Keynes's new heirs: Britain leads a global push to rethink the way economics is taught, in the Economist, 23 November 2013.
By the way, Ian Steedman, a leading Sraffian economist, was at the University of Manchester not too long ago. And, I believe, he did supervise a number of doctorate theses from students at Manchester. So the closing of the doors to form the current monoculture happened only over the last decade, I guess.
I urge readers of Lost Legacy to follow the link to Robert Vienneau’s Blog and read his thoughts regularly. They are always interesting and challenging sometimes too. He has his finger on the pulse of serious economists and serious economics.
Friday, November 29, 2013
Why Markets Prepare for Thanksgiving and Christmas
“Thanksgiving and plenty” article by Tom Dennis in “Grand Forks Herald” HERE
“Our opinion: Visible evidence of the invisible hand”
“And all of it testifying to the power of the free market — to Adam Smith’s world-changing insight from 1776, which holds that if a man simply is left free to pursue “only his own gain,” then “he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention” — namely, the gain and good of society as a whole.
Today, we Americans remain largely free to pursue our own interests. The invisible hand, through its still-mysterious alchemy, smelts the base metal of that effort into 24-carat societal gold.”
This time last year I reported on Lost Legacy on an initiative in our local Butcher shop in respect of the Christmas turkey market that mirrored the annual thanksgiving in the US celebrations regarding how retail shoppers can be assured that turkeys are ready in sufficient numbers for consumers expecting to find them in their local shops for these festivals in which demand is expected to be higher than normal.
Well, this week I placed our family’s order for a 16lb (I still don’t understand kilo’s) turkey to be delivered for collection by myself. It’s my family’s “tradition” that I handle the ordering, pay for it, and deliver it to the chosen 'chef' on 23rd December in time for serving on 25th December – NB: my key role is the paying for it!
Thanksgiving in the US is usually accompanied by articles across the media celebrating aspects of the “miracle” of the market economy, by which they mean that a totally free market guarantees the appropriately certain delivery of turkeys to suit all tastes across the country, as it supposedly does for every other product that consumers wish and pay for it to happen.
This “miracle” is down to the mystical “invisible hand”, credited to Adam Smith, and which remains true today in that it happens annually without fail, because “self-interested” producers so arrange their affairs to make it happen, which benefits the public interest. It follows that if governments tried to do the same they would fail miserably.
I do not argue with the last bit about governments as economic managers. I do argue with the first bit, specifically that it is a “miracle” of an “invisible hand”. Markets, however, work by human actions and visible price signals. No producer in the supply chains needs “an invisible hand” to prompt them to act in their regular anticipation of a popular sales event. If they can’t get that right they will soon learn and adapt their behaviour or they will go out of business. Given the dates of major events are known year on year and they are incentivised by the consequences of not anticipating what everybody else knows, especially their potential customers, who direct their purchases by their own experience and by their family’s anticipation (children know when it’s a birthday or an annual celebratory feast which generates expectations – other kids learn and share what they know with other kids), it is not surprising that their excitement spreads such knowledge.
So the two sides of the market are present: sellers act to secure future sales and buyers act to anticipate future consumption. In all this I cannot see what role there is for a mysterious “invisible hand”, certainly not a “guiding” or “intentional” spiritual entity that nobody can explain, except those given to theology.
Some slide over this superfluous requirement for an “invisible hand” by associating it with Adam Smith to give it credibility, without realising Smith did not assert that the IH metaphor applied to “markets”, “prices”. “supply and demand”, “unintentional consequences”, or whatever else they imagine. He used the metaphor in his two (only) examples to described the “invisible” motives that caused the identified persons to act and those actions had consequences which the actors neither intended nor even necessarily thought about. The consequences were unintended.
For the turkey farmer he knows when he can sell an abundance of turkeys over the regular number throughout the year (in Scotland its at Christmas and in the US its at Thanksgiving ad Christmas). Hence they act to adjust their supply chains accordingly.
The “proud and unfeeling landlord” in Adam Smith’s example feeds his labourers each day because unless he does so, no amount of coercion can force dying labourers to labour after a few days without food. By feeding them his farmlands are laboured upon which is what he intended. But also by feeding them the “proud and unfeeling landlords” unintentionally enable the labourers to procreate their children and the population increases.
Smith’s point of his metaphor is that this long-term outcome is unintended though the landlords' motivation to secure short-term labour is invisible (we cannot see into the minds of others). That is why Smith described the role of metaphors is to “describe in a more striking and interesting manner” their “object” (Smith on "Rhetoric and Belles Lettres"). In the case of landlords he used the IH metaphor in “Moral Sentiments” (1759). Moreover, in this example there were no “markets”, “prices” or whatever in play.
These alleged meanings were added in the 20th century in popular economic discourse and teaching. Nobody while Smith was alive, nor from 1790 to 1875, mentioned or hinted about the modern invented meaning.
Tom states it thus: "world-changing insight from 1776, which holds that if a man simply is left free to pursue “only his own gain,” then “he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention” — namely, the gain and good of society as a whole".
The merchant is actually led by his motive, in the case Smith describes metaphorically in a "more striking and interesting manner", the merchant's feelings of insecurity if he trades abroad, to invest "domestically". There is no "invisible hand" guiding him - its metaphor - and certainly he is not "led by an invisible hand" to cause "unintended consequences" (how would an "invisible hand" intentionally cause "unintended consequences? Does it have foresight too?). The self-interests of merchants need not, and throughout history, have not been benign (Enron, and etc., anybody?). Add in what Smith called the "vile rulers of mankind" and the suffering of slaves, serfs, and powerless people, and the truth of Smith's humanitarian remarks, and the myth of automatic benignity is exposed.
I suggest that Tom Dennis and most modern economists are wrong in their strong beliefs in the invented notions of “invisible hands” in their associating such ideas to Adam Smith.
And Tom's rhetorical flourish of "still-mysterious alchemy, smelts the base metal of that effort into 24-carat societal gold” is starkly inappropriate as a generalisation.