Sunday, April 13, 2014
Peter Foster’s new book is announced in Canada Free Press (“Because without America There is no free world”) HERE
‘Why We Bite the Invisible Hand: The Psychology of Anti-Capitalism’ published by Pleasaunce Press, Toronto on 1 May.
In the publisher’s promo we read:
“Hunter Gatherers with IPhones”
“In Why We Bite the Invisible Hand, award-winning journalist and author Peter Foster delves into a conundrum: How can we at once live in a world of expanding technological wonders and unprecedented well-being, of improving health and longer lives, and yet hear a constant drumbeat of condemnation of the system that created it?
That system – capitalism – is guided by the “Invisible Hand,” the metaphor for economic markets associated with the great Eighteenth Century Scottish philosopher Adam Smith. The hand guides people to serve others in the pursuit of their own interests, and produces a broader good that, as Smith put it, is “no part of their intention.” Critics however claim that the hand is tainted by greed and exploitation, leads to inequity and dangerous corporate power, and threatens not merely resource depletion but planetary disaster.
Foster, with Adam Smith as his constant reference point, probes misunderstanding, fear and dislike of capitalism – and political exploitation of those feelings—from the dark satanic mills of the Industrial Revolution through to the murky concept of sustainable development.
His journey takes him from New Jersey in the wake of Superstorm Sandy, through Kirkcaldy, the town of Smith’s birth, Moscow McDonald’s, Karl Marx’s Manchester and Ayn Rand’s Hollywood.
He refutes claims that capitalism’s validity depends on the system being “perfect” or economic actors “rational.” He also notes the key difference between capitalism and capitalists, who are inclined to misunderstand the system as much as anyone.
Corporations, he points out, can usually only become dangerous through government favour. Moreover, if big business is to be condemned, it should be not for flinty-eyed devotion to profit maximization, but for falling for subversive notions such as corporate social responsibility and sustainable development, and agreeing to beg for “social licence” from radical, unelected environmental non-governmental organizations, ENGOs, whose own political power has soared in the past two decades.
Related to the rise of the ENGOs, Foster deals with one of the biggest and most contentious issues of our time: projected catastrophic man-made climate change. He notes that while this theory is cited as the greatest example in history of “market failure,” it in fact demonstrates how both scientific analysis and economic policy can become perverted once something is framed as a “moral issue,” and thus beyond debate.
Foster’s book is not a paean to greed, selfishness or radical individualism. He believes that the greatest joys in life come from family, friendship and participation in community. What has long fascinated him is the relentless claim that capitalism destroys these aspects of humanity rather than promoting them.
Moreover, he concludes, when you bite the Invisible Hand… it always bites back.”
The first thing I noted in the announcement is its relaxed writing style, full as it is with witty metaphors, similes, allusions, hyperboles, and sharp nuances. Combined they entice the reader towards the message: I ought to buy the book or at least drop the promo headliner into conversations for social affect: “hunter gatherers with iphones” Hence, my Blog headline above - I bet it grabbed your attention!
But what of the substance of the offering of Peter Foster’s new book, “Why We Bite the Invisible Hand: The Psychology of Anti-Capitalism’?
The promo says it all: “capitalism – is guided by the “Invisible Hand,” the metaphor for economic markets associated with the great Eighteenth Century Scottish philosopher Adam Smith. The hand guides people to serve others in the pursuit of their own interests, and produces a broader good that, as Smith put it, is “no part of their intention.”
There is no “invisible hand” guiding people to serve others. Nor is the invisible hand a metaphor for “people” serving others in pursuit of their own interests”. In Smith’s writings the metaphor described the action that followed from a person’s motives, which had intended consequences (the immediate purpose motivating the action) that, in turn, sooner or later may have unintended consequences, for good or ill, on the individual or the society of individuals.
There is nothing necessarily benign in the consequences, intended or unintended, that follow from the actions of peoples’ motives. From the actions of people motivated to smoke cigarettes, the immediate consequences of those addicted to tobacco may be a sensation of relaxing their craving sensations; later they could suffer the unintended consequences of cancers to the body and shorter life-spans. Society generally may enjoy the beneficial side affects of lower taxation from the tax and duties paid by addicted smokers, net of the increased health spending occasioned by treating smokers in hospitals (for which health employees and medical businesses may benefit), though the diversion of funds to treat them may cause reduced attntion to other medical problems of non-smokers . Not to mention the consequential personal costs of deeply felt grief at the early death of one’s children, spouses, or parents and grandparents, and dear friends.
In Smith’s first published example in his Theory of Moral Sentiments (1759) the “proud and unfeeling” landlord was motivated to supply his slaves, serfs, or labourers from the produce they laboured upon in the landlord’s fields – who couldn’t do otherwise, for without food the labourers could not work. Likewise, the labourers in slavery, serfdom or free, laboured in the landlord’s fields in order to feed themselves and their families, for without food they could not live.
Smith made the further observation that beyond the intended consequences of the motivated actions of both the landlords and their labourers there was the intended consequences of the propagation of the species, one of the ends of ‘nature’, despite the death rates of under-fed labourers, sick wives and infants, plus the social ‘accidents’ of life in the feudal centuries.
Similarly, in Smith’s second example of the use of the metaphor on “an invisible hand” in Wealth Of Nations (1776), where he described the motivations of a merchant who, because he felt foreign trade had too many risks and because he therefore avoided sending his capital abroad, he preferred to act by investing his capital at his perceived lower risk in the domestic economy. Again a merchant’s motives of insecurity led him to his intended actions (safer to invest locally) and in doing so he necessarily added to domestic investment. His motivations (lower the risks of investment) led to his intended actions (invest locally) and in consequence his actions had intended consequences. By adding to domestic investment the insecure merchant also added to domestic “revenue and employment”, which were public benefits in what today we would call higher GDP.
Since Smith’s time his metaphor for the above examples, “an invisible hand” has become a virtual religion because it has become a mythical allusion way beyond anything contemplated by Smith’s innocent use of metaphor. Briefly, there is no actual invisible hand operating in “markets”.
Metaphors “describe in a more striking and interesting manner” what they are describing. We know that this is the case with Smith’s use of the “invisible hand” metaphor because the description of the role of metaphors in the English language comes from page 29 of Adam Smith’s “Lectures on Rhetoric and Belles Lettres” that he delivered at Glasgow University in 1762-3. Moreover his lecture corresponds to the definitions in the Oxford English Dictionary (1973).
In Smith’s case the “invisible hand” metaphor described the motivated consequences of the actions of “unfeeling’ landlords and “risk averse” merchants whose initial motivated actions had unintentional consequences that happened in their case to be on balance beneficial. Of course, a moments reflection will show that the initial motivations for an action can lead to unintended consequences detrimental to the initial actor and, also, detrimental to others, and in some cases, detrimental to society at large.
Believers in the mythical interpretation of Smith’s use of the metaphor of “an invisible hand” – used only three times in all of Smith’s Works or Correspondence – seldom, if ever, consider the possible detrimental personal and social consequences of motivated actions in general. A short acquaintance of everyday motivated actions would inform Believers that their evident trust that there is “an invisible hand” actually operating mysteriously – even miraculously – in markets to ensure harmony and beneficial outcomes everywhere for everybody is ridiculous. Adam Smith never claimed there was such an entity.
Peter Foster play a different tune. He writes well and no doubt with the best of intentions in his polemical defence of his views on capitalism – of which this post is not a direct criticism - but in doing so he weakens his case by alluding to the myths of the invented “invisible hand” of the 20th century and he libels the actual meanings of Smith’s innocent use of a metaphor in the 18th century.
By the way: how do you “bite” something that is invisible and, anyway, is only a metaphor?
Thursday, April 10, 2014
UNNECESSARY COMPLICATION TO AN ALREADY NON-SENSICAL MYTH
Kevin T. Jackson on “Virtuosity in Business: Invisible Law Guiding the Invisible Hand” (University of Pennsylvania Press), 2011 HERE
“The recent global financial crisis raises pressing issues that are not exclusively economic. The health of the economy, Kevin T. Jackson contends, reflects the moral health of the wider culture: ethics must be considered along with economics to understand world markets, especially now that globalization and other forces have increasingly complicated the regulation of transnational corporate conduct. "Virtuosity in Business" calls on businesspeople and ethicists to expand their thinking by stressing the profound relevance of philosophy to business and economics.
"Virtuosity in Business" shows that ethics has been the overriding problem for business and that it is the only enduring solution. Drawing on a variety of philosophical sources, including Aristotle, Thomas Aquinas, and Jean-Paul Sartre, Jackson applies the concept of virtue to the competitive realm of the marketplace. Virtuosity, in all realms of human endeavor, is not merely a display of technical skill or adherence to conventional norms.
The invisible law of virtuosity, which discourages misconduct and rewards good corporate citizenship, guides ethical firms and wise entrepreneurs toward greater success by playing a constructive part in the human enterprise. A pioneering work in the contemporary philosophy of business, "Virtuosity in Business" revivifies business ethics to address concerns arising from the global financial crisis, such as restoration of faith in the market, respect for human rights, and environmental sustainability.”
Allowing for publishers’ blurb-writers who are not the books authors and whose knowledge of the origins of the modern myth of the “invisible hand” is next to nothing, this is an extraordinary version of the now standard myth.
Instead of merely having a ‘mysterious’ and “miraculous” entity guiding the vast complexities of the modern economy, we have something described as “virtuosity guiding the invisible hand”!
Er, what guides “virtuosity” that in turn guides the entity known as the “invisible hand” and what does the “invisible hand” do?
How do these imaginative entities operate - in tandem or sequence? How do they communicate?
Wait! Is ‘virtuosity’ a subjective property of a player – say, a player in markets, who adopts “virtue”, the necessary content of “virtuosity”, to guide her behaviour in markets, which in turn controls her, or somebody else’s, “invisible hand”?
Markets operate by VISIBLE prices – they cannot work without them - and this construction does not add clarity to an already perfectly clear construct, specifically that markets work through visible prices.
Perhaps should have posted it in our regular column of "Loony Tunes"?
Monday, April 07, 2014
THE ANSWER IS BOTH, NOT ONE OR THE OTHER
Joseph Stiglitz (3 April) posts on “Social Europe” HERE
“Reforming China’s State-Market Balance”
“No country in recorded history has grown as fast – and moved as many people out of poverty – as China over the last thirty years. A hallmark of China’s success has been its leaders’ willingness to revise the country’s economic model when and as needed, despite opposition from powerful vested interests. And now, as China implements another series of fundamental reforms, such interests are already lining up to resist. Can the reformers triumph again?
In answering that question, the crucial point to bear in mind is that, as in the past, the current round of reforms will restructure not only the economy, but also the vested interests that will shape future reforms (and even determine whether they are possible). And today, while high-profile initiatives – for example, the government’s widening anti-corruption campaign – receive much attention, the deeper issue that China faces concerns the appropriate roles of the state and the market.”
Stiglitz confronts the dominat issue that has contrary remedial policies for adherents of the idealogical “solutions” to the question that he asks of “the deeper issue” facing China” (and every other country) of “the appropriate roles of the state and the market.”
China’s “deep” question is not unique. The same question dominates all countries that exist, or can exist anywhere since Homo sapiens walked upright out of the African bush.
The division of labour was not invented in a ‘pin factory’; it appeared long ago with early humans because of wide natural variations in human abilities; some were good at tracking food, especially sources of meat, other weren’t as good; some were better at making stone tools or woodern weapons to secure food; others good at making fires and securing night-time stopping places; and so on across the skill sets that separated small groups of humans from nature and what was necessary for their survival. Some, albeit, minmal co-operation within the separated groups trumped short-sighted selfishness in others. Humanity was never given a free-pass to survive on Earth for ever, or at all.
It was ever thus. And still is. Today the first few thousand of the human species is now 7 billion strong and counting. The false question is not whether we rely on state or market provision; we are bound to have both. Of course, we can have 'too much' of one and 'too little' of the other.
The argument is about the appropriate balance for both, because human societies need both and, I would venture to suggest in our high-tech complex societies, they cannot subsist for long with all of one (state provision, say) and no markets, or vice versa, except in the fantasies of those who are not paying attention either to the present arrangements or to history plus so-called ‘pre-history’, which is 'written' in the physical remnants of the past that passed away where we find their skeletal remains amidst their self-created detritus.
ANOTHER SWEEPING CLAIM ABOUT THE CAUSE OF THE INDUSTRIAL REVOLUTION
Stuart Jeanne Bramhill reviews “The Wealth of Nations by Adam Smith Abridged Version” by Laurence Dickey, Professor of History, University of Wisconsin-Madison (Hackett Publishing 1993) and adds somewhat controversial comments on Adam Smith’s Wealth Of Nations HERE “Reclaiming Adam Smith”: “Contrary to conservative claims, Adam Smith was a liberal who argued for government intervention to ensure economic growth and “general prosperity.” I find it intriguing that he attributes Britain’s global economic dominance to “division of labor” and a superior agricultural system. Despite an entire chapter in Book I on the origin of money, he makes no mention of the role of English banks in creating money (which started in 1666), which kick started the industrial revolution.”
Comment: The abstract excites my interest. But before I proceed to look at Stuart Jeanne Bramhill’s Review, I wonder why the much earlier banks founded in today’s Netherlands and in Italy centuries earlier than 1666 did not ‘kick start the industrial revolution’ too?
Singular explanations for the ‘industrial revolution’, itself a process lasting more than a century, are often suspect. For a detailed scholalry examination of the process by which per capita incomes rose from the historical norm of less than $1 a day towards $150 a day in commercial/capitalisr societies I suugest preliminary reading should include Deidre McCloskey’s volumes: “Bougeois Virtues’ (2007) and ‘Bourgeois Dignity: why economics can’t explain the modern world’ (2010) - plus a couple more volumes to come, published by Chicago University Press.
I shall comment further on Bramhill’s Review later.
ASK A QUESTION AND SOMEBODY SOMEWHERE KNOWS THE ANSWER
On 23 February, 2009 I asked readers of Lost Legacy a question which had stumped me regarding an obscure phrase:
“A Query for Wordsmiths
Does anybody know what William Magee, Bishop of Dublin, may have meant in 1809 by the words ‘scolists and whitlings’?”
Does anybody know what William Magee, Bishop of Dublin, may have meant in 1809 by the words ‘scolists and whitlings’?”
I didn’t receive an answer and the quesiton faded from my mind. Last Month, out of the blue so to speak, a reader (Michael Horn) answered my query and I post his answer below:
“I think Magee's title was Archbishop of Dublin.
Being intellectually arrogant, I had to have a crack at the question that you posed five years ago, so I may as well submit it, belatedly.
“Scolist” is a typographical error for “Scotist”, the name given to the philosophical and theological system or school named after John Duns Scotus, a Catholic priest (c.1265-1308). The error probably arises via faulty character recognition of scanned pages of old books.
If you Google the words “Scolists and Thomists” you will see many examples where “Scolist” is obviously intended to be “Scotist” – for example”
• “Dominicans, the Franciscans, the Benedictines, the Scolists, the Thomists, the monks . . .”
• “His opposition to Thomas gave rise to the parties called Thomists and Scolists (q. v.), whose controversies became peculiarly warm, when Scotus declared ...”
These documents were originally printed in a font type that character recognition software misinterprets. In many cases where the print is an image of the original, although the search engine finds the word “Scolist, the image of the word is “Scotists”. Look at, for example:
A History of the Church: From Its Establishment to the Present Century books.google.com.au/books?id=RdcTAAAAYAAJ Charles Constantine Pise - 1830 - Church history... surnamed the subtle doctor, whose speculative opinions were opposed to those of S. Thomas : and hence the origin of the Scolists and Thomists. (2) Spondan ..
On the matter of “whitling”, I am unsure, but I will venture a possible meaning – it should be "witeling", one tormented in hell. It is sometimes used by computer-gamers and writers of other-world fantasies to mean a devil.
The words “wight, white and “wite” are easily confused. One of the number of related meanings for the word “wite” is “Punishment, penalty; pain inflicted in punishment or torture, especially the torments of hell. If you take the meaning “punishment in hell”, then adding the suffix “ling” would mean souls consigned to be punished in hell, as the suffix is used in the sense that it is used in words like “Earthling”and “sibling” (“sib” means family in Old English). As an aside, in Dutch the word for "white" is "wit" pronounced "vit" and the adjective is "witte" pronounced vitta, so a "witteling" means an albino.
Here again, character recognition software may throw up a word that a spellchecker flags as wrong, and then an earthling with indifferent language skill decides what the word should be. As with “Scolism”, Archbishop Magee may not have written “whitling”. If you can find a scanned image of those words, it may be worth checking what was actually printed originally.
PS I enjoyed reading Adam Smith's Wealth of Nations when I was in my early 20s, and I have in the intervening fifty years read it twice again. I have only read about a hundred books in my 60-year reading life, so to have read a weighty tome thrice says something about the quality of the author. I have never read any of Friedrich Hayek's writing, but I listened to two lectures that he gave, which seemed to put him in the Adam Smith camp. Hayek had experienced much officious interference in Austria in his younger days where he witnessed the negative effects of rent controll, and unlike Keynes, he did not favour an economic system run by officials. Via the Adelsaufhebungsgesetz of 1919 (Law on the Abolition of Nobility) Von Hyek and Von Mises last the “Von” in their surnames – so much for officiousness. I have not thought much about it, but I think the most meaningful difference between Hayek and Keynes was that the latter had a naive trust in the goodwill of officialdom, as one may expect from an Etonian whose Civil Service career started in the India Office, whereas Hayek mistrusted them.”
CommentThe response speaks for itself and I am most grateful for the effort of my correspondent, Michael Horn. At this distance, I am red-faced ashamed to admit, that I have forgotten why I was searching for the meaning of ‘scolists and whitlings’ in 2009. It was important to me at the time but some memory loss is both annoying and inconvenient.
Nevertheless, I am most obliged for the answer and for the short biographical history of Michael Horn, my correspondent. Such erudition and interesting commentary on Friedrich Hayek and Mises (and a footnote on Keyne’s attitude to ‘officialdom’ suggests a rich life in the Republic of Letters in his “60 year reading life” for a man in his “early 70s”.
Behind the veil of his modesty is someone whom I would be pleased to meet for a long conversation …
Saturday, April 05, 2014
Loony Tunes no. 94
“Protestation” posts (4 April) HERE https://twitter.com/Protestation/statuses/452285294356602880
“Adam Smith’s Invisible Hand Is at Our Throats”
Aldus Huxtable asks (6 October 2011) HERE http://www.experienceproject.com/question-answer/
‘Now Can You Show Me On This Doll Where Adam Smith's "invisible Hand" Touched You?’
Yingxu Wang (PhD, Professor, Calgary University) asks (15 September 2013) HERE
“Was the classical illustration of Adam Smith’s invisible hand shown upside down between the curves of demand and supply in economics textbooks?”
[The good professor’s answer is also loony because the ‘invisible hand’ does not exist; its a metaphor (but not for supply and demand curves!, and not an actual entity!]
‘Pro-active’ comments on Thought Leader (Mil & Guardian (South Africa) HERE
“Is it 18th century Adam Smith’s “Invisible Hand” or the “modern invisible hand” reaching into our century-influencing directions?”
Saturday, March 29, 2014
A LITTLE KNOWLEDGE IS MISLEADING
Philipp Gassner writes (29 Mar 2014 ) in Business Mirror (Philippines) HERE “Nature’s invisible hand: Simply complex”
“Marveling the resourcefulness of nature’s incredibly ludicrous and squandering inventions, one cannot help but wonder: what’s the point and how is this even possible? By sheer chance? Surely not.
Scottish economist and moral philosopher Adam Smith offers an answer. Exactly 238 years ago, on March 9, 1776, he published The Wealth of Nations.
In this fundamental work in classical economics, he illuminates how our incredibly complex, inventive and powerful economy works and developed—a similarly puzzling mystery to nature’s rich biological diversity.
In a nutshell: each enterprise is doing its best to prosper, yet without the “benefit” of a centralized planner. Something very simple—individual competition—results invisibly to our eye in something very complex—an efficient economy.
But how can Smith’s famous metaphor of the invisible hand of the self-regulating market explain our rich natural biodiversity? English naturalist Charles Darwin wondered too, and coined the term “Economy of Nature,” according to which life on Earth evolves without the guidance of a designer. Instead, in his book Origin of Species he explains the “invisible hand” of nature, better known as evolution.”
ADAM SMITH AND CHARLES DARWIN’S ideas from different perspectives have much in common. We know Darwin read “Wealth Of Nations” (he refers to it and it was taught at Edinburgh while Darwin was a student there). Smith did not develop a theory of how commercial entities were guide by an IH, nor did he develop a theory using the metaphor of an “invisible hand” that performed a co-ordinating role, including a ‘designer’, in a parallel fashion to “evolution”. Back projecting such ideas to Smith are anachronistic wishful thinking.
The IH metaphor referred to something else entirely and that such an idea is used today as an analogy for Darwinian evolution is, well, sad. In fact the entire economics discipline suffers from a category 1 error in regard to the IH metaphor.
Briefly, Smith taught Rhetoric as well as Moral Sentiments at Glasgow University. He defined metaphors as describing their “object” in a “more striking and interesting manner”, giving examples to his listeners (see Adam Smith’s “Lectures on Rhetoric and Belles Lettres”, 1762-3). The “object” is what is described by the metaphor.
Smith only used the IH metaphor 3 times throughout his entire published works, and his definition is confirmed still today in the Oxford English Dictionary, as well as most other English language dictionaries, not often read by economists.
In no case did he use the IH metaphor in reference to “competition”, individual or combined, or as a “co-ordinating role” or in a “complex economy”.
His first reference in his History of Astronomy (posthumous 1793 - written 1744-58) was to the belief of credulous Pagan Romans that their invisible God, Jupiter, fired thunderbolts at non-believers and enemies of Rome in, ironically, very visible and noisy, thunderstorms.
His second reference in Theory of Moral Sentiments (1759) was to “proud and unfeeling landlords” who fed their serfs, slaves and peasantry, with food from their landlords’ fields. With no other source of food, the serfs would soon expire from starvation and excessive labour; moreover, the landlord’s source of greatness would disappear without labourers. This exchange of food for work to produce more food arrangement enabled the landlords’ economy to function, on which their rule depended.
His third reference 0n Wealth Of Nations, (1776), was to those merchants who avoided trading abroad for fear of losing their capital to unscrupulous foreign traders and therefore they preferred to invest it locally in their “domestic industry” and thereby added to domestic output. Their “insecurity” helped to grow the economy.
The philosophical point Smith was making had to do with what agents (those who acted) were “led” to do. by their motives. He started with the plausible but invisible motives of the actors - we cannot see into the minds of other people. In these 3 cases the ‘credulous’ Romans, the ‘unfeeling’ landlords and the ‘insecure’ merchants. He then identified the (plausible) visible actions that followed: the ‘credulous’ cowered in fear during thunderstorms and remained at home; the ‘unfeeling’ landlords shared some portion of ‘their’ crops with their fieldworkers, and the ‘insecure’ merchants, invested their capital which necessarily added to the capital available to the domestic economy.
The actors’ motives “led” them to their chosen actions and were intended to produce their intended consequences - loyalty to Rome, sufficiently-fed labourers to undertake heavy field work, and to secure the profitable use of the merchants’ capital.
However, Smith added another set of consequences from the actions, which is important enough to be remarked upon by Smith, because this time the intended consequences of their initial actions also had “unintended consequences” from the agents’ motivated initial actions.
Superstitious Romans remained loyal to Rome, therefore this added to intended political stability from fears of lightening strikes (and also fewer Romans died from lightening strikes by their staying in doors than those careless enough to venture outside); field labourers laboured more effectively with regular food, which had ‘unintended consequences’ over the long run from continuous procreation of the species, and GDP was maintained at a higher level, long term.
Of course, unintended consequences were not always positive. If conspirators moved freely in defiance of the credulous beliefs about lightening strikes being other than random, they could, perhaps catch a garrison by surprise and seize power in a rebellion as happened in far away parts of the Empire (also see Shakespeare’s “Julius Ceasar’); if “unfeeling landlords” disregarded the quality of the serfs’ food or its amount, then health losses could cause labour shortages and a relative decline for an individual landlords’ “greatness”; and if domestic-focussed merchants also prevented any imports with lobbying for tariffs, they could slow GDP growth and weaken the economy, not strengthen it.
Now you do not get such analysis from modern economists who have invented wholly spurious interpretations on Adam Smith’s use of the “invisible hand” metaphor, worse they have invented a mythical entity that does not exist to be at work in an economy.
Visible prices play the co-ordinating role in economies. No economy can work without visible prices. Simple, eh?
THE ANSWER IS IN THE SOIL
Following comments by Michael Webster ( along standing regular reader of Lost Legacy, I want to explore the consequences for early and proto-humans in the long, so-called ‘pre-history’ of our species. We have a ‘marker’ species against which we can ‘measure’ human’ performance – the chimpanzees that stayed still in mid-Africa.
Archeology also provides our ‘history’ well beyond the written record that currently provides our very short literate ‘History’ (a few Millennia). I adopt a perspective of history that includes all of the detailed archeological record from the stone-age (the data is quite deep from the Lower Pleistocene (1 million BP) and nearly prolific from 500,000 BP, and then very prolific from 100,000 BP.
To the cases: humans slowly spread across Africa, and apparently so did pre-humans before them. Following water-courses (Nile), humans then crossed into Europe and eventually along the North Mediterranean coast and East. Daily movement in search of food was imperative with various strategies – locust style, casual mobile harvesting, small species hunting, seasonal visits, new food sources, group adult hunting, herd following, limited shepherding, limited plant gathering, seasonal settlements, sporadic farming, sporadic contact with other groups, including, eg. Neanderthals.
My brief point is that these traces required daily decisions for groups (family, extended families, larger groups) with thin margins for errors and violent disputes, especially amidst regular environmental and climate changes, which over millennia were ‘frequent’.
We cannot know for certain how decisions were reached; we can see in the records often buried in the ground, in caves, and in ‘middens’, how groups performed and details of their diets. Hence, on a results basis –brutal, no doubt – those that lasted for centuries or millennia, viably ‘solved’ the decision problem, others disappeared within the short-lifetimes of those who got it wrong. Moreover, those that got it right more often than wrong, left their record for us to ‘read’ in slowly changing organised encampments, even primitive structures and domestic living spaces, plus their ‘tools’.
One large study I found is Cyprian Broodbank’s “The Making of he Middle Sea: a history of he Mediterranean from the Beginning to the Emergence of the Classical World”, Thames and Hudson (via Amazon).
It is a conscious changing experience about Human deep history, grounded in science. It certainly put the modern debate – by implication – over the market versus state stalemate into perspective, at least for me.
Friday, March 28, 2014
RICARDO HAUSMANN ON STATES AND MARKETS
“The disappearance of Malaysia Airlines Flight 370 shows how wrong Smith was, for it highlights the intricate interaction between modern production and the state. To make air travel feasible and safe, states ensure that pilots know how to fly and that aircraft pass stringent tests. They build airports and provide radar and satellites that can track planes, air traffic controllers to keep them apart, and security services to keep terrorists on the ground. And, when something goes wrong, it is not peace, easy taxes, and justice that are called in to assist; it is professional, well-resourced government agencies.
All advanced economies today seem to need much more than the young Smith assumed. And their governments are not only large and complex, encompassing thousands of agencies that administer millions of pages of rules and regulations; they are also democratic — and not just because they hold elections every so often. Why?
By the time he published The Wealth of Nations, at the age of 43, Smith had become the first complexity scientist. He understood that the economy was a complex system that needed to co-ordinate the work of thousands of people just to make things as simple as a meal or a suit.
But Smith also understood that while the economy was too intricate to be organised by anybody, it had the capacity to self-organise. It possesses an "invisible hand", which operates through market prices to provide an information system that can be used to calculate whether using resources for a given purpose is worthwhile — that is, profitable.
Profit is an incentive system that leads firms and individuals to respond to the information provided by prices. And capital markets are a resource-mobilisation system that provides money to those companies and projects that are expected to be profitable — that is, the ones that respond adequately to market prices.
But modern production requires many inputs that markets do not provide. And, as in the case of airlines, these inputs — rules, standards, certifications, infrastructure, schools and training centres, scientific labs, security services — are deeply complementary to the ones that can be procured in markets. They interact in the most intricate ways with the activities that markets organise.
I do not intend to conduct a line-by-line polemic against Professor Hausmann’s rich tableaux of ideas, mainly because I agree with many of them. I prefer instead to place his ideas in context where I agree with him and why, simultaneously, I differ on aspects of his thinking, not least where I believe he misses important aspects of Adam Smith’s thinking, given the information he had in the 18th century that can be reframed today to bridge the initial gulf between Hausmann and me to a clearer understanding.
First, let us agree that all human societies have had some instrument in their arrangements that performed roles to which we attribute in the modern world to states.
In the simplest human groups, bands, tribes and such like, modern words like ‘government’, or ‘state’ can be misleading and missed when the governing ‘agency’ is not as visible as it is today. In short ‘states’ have always existed vested in a single individual or family or group of elders. Somehow, the group of hunters or gatherers each morning have to decide in which direction to go to hunt or gather their food. Anarchy has never been a viable survival strategy, though no doubt tried from time and circumstance.
Leaping forward, with population and economies emerging, the idea that markets can be perfectly free is illusionary, and therefore political, as is the opposite ideology that states can exist and grow without any vestige of markets. (Plundering neighbours is not a viable strategy). The empirical evidence is all around in performance (stagnant GDP/per head and in the ruins of past civilisations ran by oligarchies).
Only commercial markets have enabled civilisations to perform for a while, sometimes millennia long, and modern tourists can visit them as spectators and wonder at their stone detritus spread around the ancient world. But only democratic states with commercial sectors can subsist and grow in GDP/capita at the historically high levels experienced under what is called ‘capitalism' with entrepreneurial innovations, albeit in ‘managed markets’ when the ‘statists’ (social-democrats) turn to government and ‘freer’ markets when its the ‘(soft) Libertarians’ turn in government.
Stable democratic governments under the rule of law and justice (Smith’s initial thinking) work. The rest don’t.
So much I agree with Ricardo Hausmann. It would help if he would read Adam Smith and not be influenced too much by modern epigones as represented in the sentence of complex economies possessing “an invisible hand", which operates in markets. Bluntly there is no “invisible hand” as understood today. It does not exist and a moment’s reflection (OK, perhaps several moments) would show this.
Market prices … provide an information system that can be used to calculate whether using resources for a given purpose is worthwhile — that is, profitable.” But that has nothing to do with Smith’s “invisible hand” (see Lost Legacy passim). True markets operate by “prices” as Smith showed. What does an “invisible hand” metaphor add to this truth? And Smith never said it did.
By “invisible hand” Smith referred to the hidden and disparate motives of agents who act in accordance with their motives which “leads” them to act, nothing more! (The story of why modern economists came to believe in the myth of the IH see Gavin Kennedy, (2010): ‘Paul Samuelson and the Invention of the Modern Economics of the Invisible Hand’, History of Economic Ideas. XVIII (3) 105-19.)
Smith added that their motivated actions had both “intended consequences" and “untended consequences”, which seems to have confused some modern economists into believing this was the “invisible hand”.
Hausmann is absolutely right: “Profit is an incentive system that leads firms and individuals to respond to the information provided by prices. And capital markets are a resource-mobilisation system that provides money to those companies and projects that are expected to be profitable — that is, the ones that respond adequately to market prices.”
Again with VISIBLE prices there is absolutely no need for the metaphor of “an invisible hand” for markets and economies to work. But we need States to exist for markets to operate - liberty and justice and, where necessary, “regulations” for them to work safely and honestly.
That is why I present the necessary dual role of markets and government as: “markets where possible, state where necessary”.
On that basis, I can agree with Ricardo Hausmann as a SMITHIAN libertarian social democrat and I can recommend readers to read his blog post” RICARDO HAUSMANN, 28 MARCH, on Business Day Live HERE
From My NoteBook no. 24
"WHEN Adam Smith was 22, he famously proclaimed that, "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”
Ricardo Hausmann in "States need an invisible hand to fix their flaws” (26 March).
Dugald Stewart, AS Eulogy, read to RSE Jan-March 1793.
Smith born 1723; therefore aged 22 = 1745.
To show: 1755 paper written when Smith was 26 NOT 22.
Glasgow student = 1737-40 = aged = 14 - 17.
Oxford student = 1740-1746 = aged 17 - 23.
Edinburgh lectures = 1748 - 1751 = age 25-28.
Glasgow lectures = 1752 - 64 = age 28-40.
'Easy taxes' paper, ‘1755' - 6 years = 1749 = age 26.
- The ‘1755’ quotation from paper written by his ’scribe’ from Smith’s dictation for Edinburgh lectures in 1749. Smith was aged 26, repeated in Glasgow lectures 1752 - ?
- Smith was 22 in (1723 + 22) = 1745 and he was still at Oxford.
- Hence, Smith wrote ‘easy taxes’ paper at age = 26 = 1749, not 22.
As a new feature of Lost Legacy I shall post more 'From my Note Book' series of occasional jottings. These may interest scholars and promote critical comments and observations.
They are not intended to be critical or to have polemical content.
They are notes I make on a regular basis which do not appear on Lost Legacy but may promote readers to see what they can find on the issues and subjects.
For instance, I have just read Ricardo Hausmann on "States need an invisible hand to fix their flaws” (26 March) which has promoted some very useful thinking about current policy issues of which I intend to Blog about.
YOU CAN'T HAVE ONE WITHOUT THE OTHER
Anon on ‘Deft News’ (Linking News That Matters (26 March)
“The Invisible Hand of the Market vs. the Dead Hand of Politically-Motivated Regulation”
“What the invisible hand of free-market innovation giveth, the dead hand of politically motivated regulation tryeth desperately to take away.That’s the only way to describe what’s happening to three wildly innovative and popular products: the award-winning electric car Tesla, taxi-replacement service Uber and hotel alternative Airbnb. These companies are not only revolutionizing their industries via cutting-edge technology and customer-empowering distribution, they’re also running afoul of interest groups that are quick to use political muscle to maintain market share and the status quo. The invisible hand of free markets shouldn’t have to spend so much of its time slapping away the dead hand of political entrepreneurship.”
The “invisible hand” is given three roles: “free-market innovation”; “invisible hand of free markets”; and, of course, its role as used by Adam Smith, specifically the “invisible hand” of the agent’s motivations for the actions they take that have both intended consequences and, added Smith, the “unintended consequences” that this actions may cause. Nothing is mentioned about “innovation” nor “free markets”, or for that matter, “the Dead Hand of Politically-Motivated Regulation”.
I could generalise and assert that all human societies since the invention of farming and the following of deer, sheep, and other animals have been accompanied by some forms of ‘government’, whether tribal, individual, or, later, full blown states that set the boundaries of acceptable behaviour, a.k.a. laws and justice, including their instruments of power.
Remove all ‘regulations’ and they will inevitably return in some form or other.