Wednesday, November 19, 2014


"Adam Smith and Milton Friedman on an Invisible Hand"
 Jadranko Brkic posts 18 SEPTEMBER on ‘SIP TV Freedom and Prosperity ’(libertarian network of alternative media in Western Balkans') HERE 
"People who intend only to seek their own benefit are led by invisible hand to serve public interest which was no part of their intention." - Adam Smith
"People who intend only to serve public interest are led by invisible hand to private interest which was no part of their intention." - Milton Friedman
The statement attributed to Adam Smith is phoney, i.e., made up. 
The statement attributed to Milton Friedman is also invented. 
Perhaps both were lost in translation?
Their nonsense is easily exposed.  
Protectionists and advocates of tariffs on imports seek to gain from reducing domestic competition and raising prices.  Adam Smith was adamant that both tariffs and protection legislation may have benefitted some domestic producers, but certainly did not “serve the public interest” - see his Wealth of Nations, Book IV.
Adam Smith understood that legislaters “seeking to serve” serving the “public interest” could be serving their own interests or the interests of specific groups at the expense of the interests of others (e.g., awarding lawyers  monopolies in some specialised activities.
People making false statements do not serve the public interest. 

Saturday, November 15, 2014


“How to Be Happy with Adam Smith: The Invisible Hand and the Lovely Man”
William Irwin, Ph.D., professor of philosophy at King’s College (Pennsylvania) reviews (14 Novenber) Russell Roberts on “How Adam Smith Can Change Your Life”. HERE 
“One might expect that a book titled How Adam Smith Can Change Your Life would provide helpful hints for achieving economic success. In particular, if one had just a passing acquaintance with Smith’s concept of the invisible hand, one would expect that Smith would absolve us from all feelings of obligation to others. After all, he famously says in The Wealth of Nations that “Every individual intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his original intention. By pursuing his own interest he frequently promotes that of society more effectively than when he really intends to promote it.”
In other words, “it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest.” Outside the family, on the larger economic scale, things work out well when we pursue self-interest. Bill Gates and Steve Jobs have improved the lives of millions of people they never met by pursuing self-interest. So we might expect How Adam Smith Can Change Your Life to tell us how we can do likewise."
William Irwin, presumably a professor imbued with a moral obligation to treat others in the Academy with respect for their written views, he is rather casual in his use of them. He quotes Smith’s actual words but tears them out of context, though probably innocently, he uses quotations he has read written by third-party modern economists. Smith never lost sight of the candid qualifications in his Works. In the first quotation William Irwin implies that Smith’s “every individual” intends “only his own gain” in all things, when Smith actually refers to an individual who acts to protect his capital rather than take the risks he perceives from sending it abroad.  This circumstance leads him to invest his capital locally. He is ‘risk averse’ as we would say today. From this perfectly understandable private motive, this individual acts to protect his capital, with the intention of avoiding the risks of personal loss. Smith uses the metaphor of “an invisible hand” to describe his actions in “a more striking and interesting manner” - as Smith described in his lesser known, but widely applied in his Works, from his “Lectures on Rhetoric and Belles Lettres” (1762-3) 1983,  p. 29, Oxford University Press.
One thing is also clear. The paragraph quoted goes on to make a general statement of Smith’s thinking on the consequence of actions that follow from people’s motives for initiating them. Their initial actions are ‘intended’, as are the ‘consequences’ of those actions. Smith used the ‘invisible hand’ to describe the effect of the motives for the agent’s actions. That is the limit of his use of the metaphor, and the intended outcome was the limit of intentions, because those intended actions also could have unintended consequences. This is where the sequence became muddled among modern economists (who do not always understand the use of metaphors) and readers who simply follow what professional economists assert publicly and unthinkingly imply that the  metaphor of the invisible-hand actively intends the unintended consequences!   If that was true of Smith’s use of the metaphor, it leaves unexplained how the ‘invisible-hand” metaphor knows about the unintended consequences.
Some theologically inclined economists and philosophers have a ready ‘explanation’ of sorts by asserting that the “invisisble hand” is the “hand of God”, which immediately raises difficult questions about its scientific basis and requires major shifts in human beliefs systems.
Moreover, William Irwin adds to his too slick misunderstanding of Smith’s argument by quoting another brief sentence from what was a fairly long argument; specifically: “it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest” (WN I.ii. 2: 26-27). 
I ask William, whose self-interest was Smith referring to? Not just the person “expecting her dinner” (the buyer) but from the potential sellers too, and his advice was directed at the buyer. Now, both individuals had a personal interest in the potential transaction and Smith’s advice to potential bargainers in such transactions (explained in the paragraph, not quoted by William) was to persuade them both that that they could not expect such a transactions from their “benevolence only”. They had to do more if they were “to prevail” and they could achieve this by showing them (the “other party”) that it was in their (“other party’s”) self-interest to transact with the customer on the terms she offers for the “butcher’s, brewer’s and baker’s (the sellers’ products). 
Smith sums up thus: “Whoever offers to another a bargain of any kind proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it ias in this manner that we obtain from one another the far greater part of the good offices which we stand in need of” (WN I.ii.2: p. 20).
I have taken much space to clarify Adam Smith’s meaning of self-interest that is lost in William’s misunderstanding of Smith’s (moral) political economy.  It is not about rampant selfish self-interest contrasted with moral relationships. By using persuasion, adequately covered in Moral Sentiments, people mediate their self interest through compromise, persuasion, exchange and “good offices” towards each other.

There is no contradiction in Adam Smith’s two books; there is no Das Adam Smith Problem. Those philosophers who believe there is a problem, do not know Adam Smith’s Works and rely on clipped paragraphs and second-hand, often ideological, interpretations that do not stand up to scrutiny.

Wednesday, November 12, 2014


Pankaj Ghemawat is the Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Barcelona, and posts (6 November) on the Harvard Business Review blog HERE 
“This small-numbers problem invalidates Adam Smith’s “invisible hand” mechanism in which good performance is supposed to be ensured by large numbers of competitors, none controlling more than a sliver of the market and none, therefore, with the power to jack up prices."
"What Economists Know That Managers Don’t (and Vice Versa)
Why did Jean Tirole win the Nobel Prize in Economics? Not for the highly-regarded work on
competition between small numbers of firms with which his career began more than thirty 
years ago but for more recent work on how carefully structured regulation can improve
performance relative to unbridled market forces. This is a reminder that serious students of 
market performance take market failures seriously.
But what many economists generally gloss over is a notion that I will argue is highly complementary to market failures: management failures. For policy-making purposes economists assume that all businesses act rationally in the pursuit of profits. The possibility that that might not be the case is generally ignored, or even when mentioned, quickly finessed."
Pankaj Ghemawat writes an interesting piece, in which he is interesting in some of his statements (not quoted above) about a new slant on what he distinguishes between ‘market failures’ and ‘management failures’ in modern economics. 
Neoclassical economists - those that came after classical economics - who down-played the human role in economics and imagined universal rules of perfectly ‘rational behaviour’, ‘profit maximisation’ and ‘socially optimal performance’.  The clue to the muddle of much of modern economics is in forgetting that “maximization is [only] a basic mathematical tool” and not a description of actual human behaviour in the real world, leading to exercises like “even if a firm doesn’t maximize profits, it can be treated, for the purposes of many of its interactions with the outside world, as if it does.”
Paul Samuelson got into similar muddle by enunciating almost as a quip of a general rule in the form of Adam Smith’s supposed use of the “invisible hand” metaphor in 1948 (“Economics: an analytical introduction”, McGraw-Hill), supposedly leading to a socially maximum output. He then spent over 50 years, across 19 editions of his best selling textbook, re-casting what the metaphor supposedly implied (see Kennedy, G. ‘Paul Samuelson and the Invention of the Modern Economics of the Invisible hand’, Journal of the History of Economic Ideas, no 3,  2010). This had disastrous results in the the teaching and practice of economics across the world. 
Perfect competition does not and never has existed and was unknown to Smith. Humans behave variously in all manifestations of human behaviour in all situations in which they act purposely.  Adam Smith did not say that humans behaved identically and with mathematical precision and by that behaviour, “good performance” in an economy was assured. The laws of gravity operate with mathematical precision, making gravitational precision predictable years, centuries even, ahead. How much a company will sell of its products this month is and remains unpredictable.
Whether such unpredictability is a ‘market’ or ‘management’ failure seems to me an uninteresting conclusion. More important, whether the ESE Business School in Barcelona can devise a programme that high paying managers will attend is a just and typical incident in the upper-echelons of the management team that runs the ESE Business School. I know the response well; I spent 20 years in the senior management team of Edinburgh Business School (Heriot-Watt University) and was a frequent guest lecturer at a dozen-plus others, here and abroad. 

The so-called debate between ideologues of both Left and Right is a phoney war.  One side calling for more markets and less government versus the other side which calls for fewer markets and more government.  Adam Smith was a pragmatist, not an ideologue. He never used the words ‘laissez-faire’, nor ‘capitalism’. His support for ‘Natural Liberty’ was for everybody. His approach is best summarised as ‘markets where possible; the state where necessary’.


Edward D. Kleinbard posts (10 November) a 9-page essay in Commonweal HERE 
This interesting, long essay fails on two grounds; first, it misinterprets Smith’s alleged religiosity by ignoring his biographical details in the context of the 18th-century inhibitions on acadmics expressing views that differed from the dominant Calvinistic theology of the times, and secondly, it ignores completley Smith’s teachings on the role of metaphors in the English language.
My focus today is not on Smith’s use of the ‘invisible hand’ metaphor, of which I usually comment several times a week. Instead, it is on the metaphoric meaning of Smith’s use of the ‘impartial spectator’. 
Turning to the “impartial spectator”, Smith in his ‘Theory of Moral Sentiments’ (1759; 6th edition, January 1790 - he died in July 1790) describes and discusses in detail of an inner-voice in all of us that acts as our judge of our conduct towards others. We learn from that ‘voice’ from a young age from parents, guardians, relatives, school pals and acquaintances, and others who observe us. Living in societies, rather than alone like an Hermit in the forest, other people in society act as a metaphoric ‘mirror’ of our conduct, and from them we learn which behaviours are acceptable or not in the ‘great school of self-command’. Much of our internal thinking about our behaviour is ‘hidden’ and is not articulated openly or truthfully to others.  But our ‘impartial spectator’ sees all and we learn which behaviours and motives are acceptable and which are unacceptable and, should we forget the difference, our ‘impartial spectator’ reminds us, even if we try to repress, ignore or deny it. Our nagging inner voice never shuts up. Smith’s ‘impartial spectator’ was a metaphor for a complex phenomenon that all experience from participating in families in societies. 
As a metaphor the ‘impartial spectator corresponded to Smith’s teachings on Rhetoric from 1748-51 in Edinburgh in private lectures at Edinburgh Philosopical Society rooms. He establishd his reputation among those who attended one or more (including professors from Glagsow University who informally visited). In 1751 he succcessfuly applied for the Chair of Logic at Glasgow and, a year later, he was appointed the Professor of Moral Philosophy. Throughout his professorship he delivered each year his 30-lecture series on Rhetoric until 1764. A set of student notes of these lectures were published in 1983 by Oxford: Smith, A. “Lectures on Rhetoric and Belles Lettres” (LRBL). The best biography of Adam Smith is by Ian S. Ross, “The Life of Adam Smith”, 1976, 2nd ed. 2010, Oxford University Press.
Smith’s biographical details are significant because they are not widely known. Many scholars have not read his ‘Theory of Moral Sentiments’, let alone heard of his ‘Lectures on ‘Rhetoric and Belles Lettres’, and consequently they insufficiently understand the significance of Smith’s teaching on metaphors, resulting in widespread errors in their assertions about them, especially in his famous use of the metaphors of the ‘invisible-hand” and, as crucially and less famous, the “impartial spectator”.
To write on  Smith’s thinking without first studying his ‘Lectures on Rhetoric’ is too common among many of those who pontificate about his Works and meanings.  It leads them to crass mistakes of interpretation, all too common even among some senior scholars.
Metaphors are common in everyday literature and speech.  Smith writes: 
“In every metaphor it is evident there must be an allusion betwixt one object and another”. … [No Metaphor] “can have any beauty unless [it] gives the due strength of expression to the object to be described and at the same time does this in a more striking and interesting manner” (LRBL, p. 29).
Applying Smith’s definition of the role of metaphors in the English language to the ‘impartial spectator’ there certainly is “an allusion between one object (our internal dialogue with ourselves) and another (our consciousness of our internal ‘voice’ self-assessing our conduct). And, like all brilliant metaphors, the ‘impartial spectator’, describes its object - our private internal judgements of our conduct - “in a more striking and interesting manner”.
I shall reinforce Smith’s assertion by quoting from Hugh Blair, Smith’s contemporary, who eventually took over Smith’s public Rhetoric lectures in Edinburgh, and subsequently moved his lecture series into Edinburgh University as its first Professor of Rhetoric (Ross, 1976, 2011). Hugh Blair’s exposition of the role of metaphors expands Smith’s spartan definition (and both correspond to modern uses of metaphors, see Oxford English Dictionary, 1983, 2nd ed. Vol. IX, p 676): 
“When I say of some great minister ‘that he upholds the state, like a Pillar which supports the weight of a whole edifice’.  I fairly make a comparison; but when I say of such a minister “that, he is the Pillar of the state,” it is now become a Metaphor. The comparison betwixt the Minister and a Pillar is made in the mind, but is expressed without any of the words that denote comparison. The comparison is only insinuated, not expressed: the one object is supposed to be so like the other, that, without formally drawing the comparison, the name of the one may be put in place of the other: “The minister is the Pillar of the state.” This therefore, is a more lively and animated manner of expressing the resemblances which imagination traces among objects. There is nothing which delights the fancy more, than this act of comparing things together, discovering resemblances between them, and describing them by their likeness. The mind, thus employed, is exercised without being fatigued; and is gratified with the consciousness of it own ingenuity. We need not be surprised, therefore, at finding all Language tinctured strongly with Metaphor.” (Blair, 1787, pp. 372-73, Lectures of Rhetoric and Belles Lettres. 3 vols. 3rd Ed. London and Edinburgh.  Strahan, Caddel, and Creech).
Edward Kleinbard turns to the ‘impartial spectator’  after dismissing modern misinterpretations of the ‘invisible hand’ metaphor, with which I readily concur.  For example, he writes: “Smith’s famous invisible hand has today become a dead hand, stifling meaningful debate over the roles of government and private markets. … Smith never intended his metaphor of the invisible hand to become synonymous with an omniscient and efficient Mr. Marketplace. Specialists have known this all along, but the caricature version of Smith continues to distort our policy discourse.”
However, Edward goes on to make theological interpretations of Smith’s “Moral Sentiments” free from the constraints that Smith wrote under. Edward doesn’t have such constraints (though, unhappily, if he lived in some other countries he would be disposed off for his views). This thought would get him closer to Smith’s world.  The three Glasgow Professors (Professors Simson, Hutcheson and Leechman - all orthodox Christians - two were also ordained) immediately before Smith’s tenure were brought before the Glasgow Presbytery on charges of teaching ideas unpalatable to the Christian Calvinist zealots who dominated university teaching. 
Smith’s students were all at least formally confirmed as Christians and the majority of his readers were also likely, in the main, also to be similarly inclined.  To read TMS as if it was a candid expression of Smith’s own beliefs is as unwise as it is inaccurate.  Space precludes me elaborating on these statements here and they will be discussed in a new book that I am writing currently. I mention, for instance, that Smith gave a detailed lecture on how humans developed their lives compared to animals and their increasing differences without mentioning at all the events in the Eden Garden (Smith, Lectures on Jurisprudence, 1763, pp. 330-9).

However, I have published my contrary theses and interpretations in two publications:  see Kennedy, 2010.’The hidden Adam Smith in his theology’, Journal of the History of Economic Thought, vol. 33, no 3, and Kennedy, 2013. ‘Adam Smith on Religion’, pp.  464-84. in The Oxford Handbook of Adam Smith, ed. Berry, Paganelli, and Smith, Oxford University Press. Meanwhile, readers may note that in his last, 6th edition of TMS Smith made major and significant changes of tone and on his use theological language throughout, including the removal of overtly Christian terminology.   He was declining as he finished it in January1790 and anticipated his early death. If he remained a Christian believer it is unlikely that he would have made so many changes in his language if he believed he was soon to meet his maker and face the final judgement.

Tuesday, November 04, 2014


I found this piece on my desktop in an unused, open file, dated, 27 October, but I have no idea from where it came or by whom it was written (I refer to him/her as the Author - if you recognise who wrote it or where its from, please let me know in the comments). 
It happens to combine two threads I have recently been discussing: first, gravity as a metaphor in Adam Smith’s ‘Wealth Of Nations’ (to appear, hopefully in ‘Economic Theory’, an online journal, edited and refereed by economists as: “Adam Smith’s Use of the “Gravitation Metaphor”, in a couple of months; second, my regular comments on Smith’s use of “an invisible hand” as a metaphor for motivated actions of agents, which may have unintended consequences that may add or detract from human welfare.
The Author’s notions that “gravity” and “invisible hands” as related similies/ metaphors stretches credulity by giving a scientific gloss to his/her notions about Smith’s use of the ‘invisible hand’ as a metaphor with a somewhat tortured resemblance, “more comparable to natural selection, where complexity and design arise in nature from spontaneous order without the assistance of an outside agent.”  
From there the Author claims that “market forces allow individuals within the market place to seek their own rational self-interests through voluntary trade and labor”. There is no explanation of the assertion that people “seek their own rational self-interests”, when even casual observation sees individuals expressing their many different “self-interests” in market relationships that can be wildly different in content and scope from a common sense of “rationality”.
For the Author to argue that either gravity or magnetism equate to “invisible hands” does not imply “that they are “magical” is precisely what is implied. The Physics of gravity is pretty well understood in science.  As a force it can be measured and movements associated with gravity can be precisely predicted well in advance, to a thousandth of a second.  Now do that with ‘invisible hands’! Market forces, in the guise of the “Invisible Hand of the Free Market”, says the Author, can be “empirically observed, tested, and researched”.  Oh Yes?  Is the Author sure? Even in the higher maths of General Equilibrium no mathematical term appears for “the Invisible hand”! 
Moreover, there is nothing invisible in market forces!  They operate soley by VISIBLE prices! Market cannot work without visible prices, so what role is left for an invisible hand?
So when we look back to how far we have come from the economics of the Forest life of the hunters and gatherers 40,000 years ago (in Europe and Africa) to where we are in the developed market economies today it is plain silly for the Author to suggest we thank the ‘invisible hand”.  It played no role in the Forest, or in Agriculture or in the emergence of markets from classical times. 
It was a metaphor for the motives of individuals who acted in pursuit of their intended consequences, and some, but not all, of those intended consequences also could have unintended consequences that could in turn have benefitted society, sometimes generations of people, even centuries and millennia later.

We call this history and pre-history and modern sciences - archeology, anthropology, natural and social sciences, and so on - can identify a great deal about particular causes of events, without turning to mythical “invisible hands” or God explanations, that explain nothing.


Paul B. Farrell posts (31 October) on Market Watch HERE 
He writes: 
1. Adam Smith’s moral capitalism guided by the Invisible Hand of God
“ … Capitalism is guided by an Invisible Hand that Adam Smith refers to in his classics as the “Deity,” “Providence,” the “Author of Nature,” and “God” roughly a hundred times using references common in the 18th century, language clearly confirming that Smith was referencing the “Invisible Hand” of God as the power driving the new capitalism.” …
…2. Ayn Rand, free-market capitalist, atheist, narcissist
“… Candidate No. 2 is Ayn Rand, atheist and also patron saint of what Jack Bogle calls “mutant capitalism” in his “Battle for the Soul Of Capitalism.” Today, Rand’s mutant capitalism is the core belief system guiding the psychological behavior of Republicans, the Big Oil sector, social conservatives, energy billionaires like Koch Bros, Wall Street bank CEOs, and climate-science deniers. …
“…The only one real election is the one between the only two real candidates that count. They will determine the balance of power, Adam Smith vs Ayn Rand with two totally opposite versions of capitalism, one moral, the other godless. This is the only election that matters this century. These are the only two candidates. They control the fate of America.
I referred to Paul B. Farrell’s 31 October post a few days ago when discussing Halloween, but l leapt over his ideas about Adam Smith and religion.
Adam Smith had won a Snell Exhibition (scholarship) to Oxford University in 1740 and on graduation promised to join the established Calvinist Church of England as a priest, and serve in Scotland within the Episcopalian (Church of England) confession.
In the event, Smith changed his mind and withdrew from the academic route to ordination in 1744, by switching his studies to Jurisprudence. In 1746 he left Oxford and travelled home to his mother’s house in Kirkcaldy to seek employment as a tutor. 
Clues to his loss of faith are revealed in an essay he composed from 1744 on ‘The History of Astronomy’ (published posthumously on his instructions in 1795). This cannot be conceived as a theological treatise. Its account of the long process of theological fantasies under pagan influence and superstition to the realisation through science of the Earth’s place in the Universe, suggests its personal sugnificance in his decision to switch careers at Oxford.  It also contains his first refrence to  the  “invisible-hand” metaphor, specifically identified as the “invisible hand of Jupiter”, the main pagan god, who was believed by the credulous to fire thunderbolts (visible lightning!) at dissaffected citizens in the Roman Empire.  How Paul B. Farrell fits this allusion into Christianity could be revealing.
The 6th and final edition of Adam Smith’s ‘Theory of Moral Sentiments’ published in January 1790, just months before he died in July 1790, is certainly revealing because if he was a Christian believer it was a strange testiment for someone who believed, acccording to Paul B. Farrell, that he was about to meet his maker.  Consider the manner in which Smith edited out many of the last edition's removal or modified its thelogical phraseology in the first 5 editions of Moral Sentiments. 
I have discussed these changes and their implications in my paper: “The Hidden Adam Smith in his Alleged Theology”, ‘Journal of the History of Economic Thought’, 2011. Vol. 33, No. 3, pp. 1-18. This was my reply to Lisa Hill’s, “Hill, L. 2002. ‘‘The Hidden Theology of Adam Smith.’’ European Journal of the History of Economic Thought 8 (1):1–29.) 
A longer version of my ideas was published in Chris Berry, Maria Paganelli, and Chris Smith, eds. 2013. ‘The Oxford Handbook of Adam Smith’, Oxford University Press: ‘Adam Smith on Religion’. Part VI, pp. 464-84.
Paul B. Farrell, safely esconsed in the 21st century democratic USA seems not to appreciate the extent to which competing religions dominated all discourse in the late-18th century and the extent to which critics of these prevailing orthodoxes had to compose their books to avoid reprisals for challenging them. Smith was no exception when writing his books. 
Even on its own merits, Farrell’s assertions do not confirm his premiss.  Smith did not link the ‘invisible hand’ to “God as the power driving the new capitalism”. Smith never mentioned ‘capitalism’, a word that was first used in English in Thackery’s novel, ‘The Newcomes’ in 1854. Smith discussed ‘markets’ that had been operating in classical Greece and Rome and Europe (5th century BCE). He did not even mention what we know today as the ‘industrial revolution’. He discussed the pros and cons of the conduct of ‘merchants and manufacturers’ (overall he did not think much of their behaviour).
Moreover, his use of the ‘invisible hand’ metaphor was covered in purely secular terms, and never as the ‘hand of God’.  In his use the ‘invisible hand’ was a metaphor for the motives of ‘proud’ landlords who exchanged food from their fields for their labourers (serfs, slaves, or whatever) who laboured to produce it.  The landlords greatness and power rested upon the labourers who were compelled to work his fields. The labourers worked the fields in exchange for food resources and shelter.
However, beyond the intended consequence of their exchange (food for labour/labour for food) there was also an unintended long-term consequence of agriculture in the form of the ‘propagation of the species’.  Population in agriculture continued to grow with increasing production that promoted wider exchanges and economic (unequal) benefits.  Hence, Smith’s comments on the higher standards of living for all participants in agriculture compared to those confined to hunting and gathering in the forest.
On Ayn Rand there is no comparison with Adam Smith with her lack of belief in religion and her beliefs in selfishness as a virtue in ‘capitalism’.  Smith was associated with the philosophy of Natural Liberty - for all, not just employers and politicans - and he was not religious in so far as ‘revealed’ religion was concerned. 

Whatever Paul B. Farrell’s complaints about “mutant capitalism [as] the core belief system guiding the psychological behavior of Republicans, the Big Oil sector, social conservatives, energy billionaires like Koch Bros, Wall Street bank CEOs, and climate-science deniers” it sounds very much like ideological ‘politics’ of which Adam Smith did not express views. Given Smith’s critique of Bernard Mandeville, I am pretty certain he would have had nothing positive to say about Ayn Rand’s ideology. 

Monday, November 03, 2014


I sent this letter to The Scotsman (Edinburgh) yesterday that may be of interest to Lost Legacy readers.
Robert Burns, of course, is a classic Scottish lierary icon, weel known to readers of poetry.  What is less well known is Burns shared an admiration for the moral philosophy of Adam Smith.  Robert Burn’s father gave to his son a copy of Adam Smith’s ‘Theory of Model Sentiments’, of which he read and was also sympthetic.
To the editor:
Michael Fry’s [contemporary Scottish historian] reference to Robert Burns and Adam Smith in the Scottish Enlightenment.  It brought to mind their compatibity in moral philosophy.
Smith wrote: “This self deceit, this fatal weakness of mankind, is the souce of half the disorders of human life. If we saw ourselves in the light in which others see us, in which they would if they knew all, a reformation would generally be unavoidable. We could not otherwise endure the sight.” (Smith, “Theory of Moral Sentiments” (1759).
Compare this with Burns famous lines (1785):
“O wad some Power the giftie gie us 
To see oursels as ithers see us! 
It wad frae mony a blunder free us, 
An' foolish notion.”
We know Burns had read Smith’s “Moral Sentiments” and may have drawn poetic inspiration from it. 
An important element that made the Scottish Enlightenment distinctive was the close overlapping, linked contacts among its contributing members in and around Edinburgh during those heady decades.

Emeritus Prof. Gavin Kennedy.”

Friday, October 31, 2014


Gary Belsky posts on TIME (Money Magazine) HERE
"The Father of Economics Was Also the World’s First Self-Help Guru — And Can Improve Your Life!"
"Adam Smith, the 18th century Scotsman best known for writing The Wealth of Nations, is widely misunderstood. His insights into technology, ambition, and friendship that are as relevant today as they were in 1759.
In his new book, How Adam Smith Can Change Your Life, economics popularizer Russell Roberts explores what may be the world’s first self-help book, which is all the more remarkable for its author: Adam Smith, a.k.a., the18th century Scotsman known as the father of economics. But Roberts—host of the popular podcast EconTalk—focuses on Smith’s mostly forgotten book The Theory of Moral Sentiments, illuminating Smith’s insights into technology, ambition and friendship that are as relevant today as they were in 1759." 
Here are five surprising takeaways by Gary Belsky from his research.
1. Adam Smith is widely misunderstood.
2. Adam Smith was a Buddhist in the making.
3. Adam Smith understood consumers—in the   21st century.
4. Adam Smith was the first behavioral economist.
5. Adam Smith just wanted you to be happy.
Come on. Take a few minutes to follow the link and read how Gary Belsky summarises, briefly, what Russell Roberts makes of Adam Smith’s Moral Philosophy. It is in fact recognisably Adam Smith’s moral philosopy in modern American English.  It might prompt you to read Smith 1759 book on ‘Moral Sentiments if you have not done so yet.
After all Russell Roberts admitted elsehwere that he had bought a copy of Smith’s “Theory of Moral Sentiments” (Liberty Press) and left it on his book shelf unread for 30 years!  
Now that Russell has finally read it, he makes his interpretations of Adam’s work admirably relevant to all readers, many of whom have also not yet read Smith’ s neglected earlier other work.

I could also add that many modern economists have not read Smith’s Wealth Of Nations (1776) either.  That’s why there are more myths about Adam Smith’s political economy than is sensible or safe to leave them influencing policies today.


Paul B. Farrell posts (31 October) on Market Watch HERE 
Halloween’s midterm-election monsters are killing capitalism”
Yes, bad news, lots. And the future gets worst: Affordable health-care repeal? GOP Senate? Weak recovery? Dream Act? Ebola? ISIS? Bush III? Fear oozes from media. Nasty news. Creepy cable.
In desperate times like these, truth is rare: Nobel economist Joseph Stiglitz sees a scary Frankenstein capitalism ideology in “Freefall: America, Free Markets, and the Sinking of the World Economy” ... Thomas Piketty’s “Capital in the 21st Century” is a mausoleum of misleading data ... a relentless unstoppable negative trend is undermining global capitalism ... the inequality gap is widening ... democracy is on life support ... 67 billionaires already own half of the world’s assets ... by 2100, with 11 trillionaires at the top, capitalism will rule the global economy, 10 billion souls ... until a revolution burns in our spirit. …
… Why the relentless Halloween horror story, every year, why the midterm madness? Because Ayn Rand’s “mutant capitalism” (as Jack Bogle calls her narcissistic godless atheism) destroyed the moral foundations of Adam Smith’s Invisible Hand economics that made America great the first two centuries after 1776. And because Ayn Rands’s mutant capitalist economics is vacuous, empty, hollow without Adam Smith’s “Moral Sentiments.”
And soon Ayn Rand’s mutant capitalism will self-destruct, taking with it the Big Oil energy industry and the GOP.
Paradoxically, this Halloween chaos also opens the way for a paradigm shift ... to economic enlightenment in a post-capitalist world that reinstates morality, the Greater Good and the Invisible Hand back into our politics, our economics, our culture.
Ayn Rand’s role in economic thought is grossly exaggerated. She made a living from being a controversial and a Hollywood script writer and novellist. She preached ‘selfishness’ as a moral choice upon which she erected her pro-capitalism and feminist stances (both admirable objectives in themselves) but misled her passionate (in all senses of the word) supporters.  Up close and personal she does not appear, at least to me, to have many redeeming features. Her influence on market philosophy was less than benign. 
Of Paul B. Farrell I know nothing and I am not sure what exactly his article in Market Watch (of which I also know nothing) is about. 
Our grandchildren are out and about tonight, as was and is traditional in Scotland (long before it re-appeared across in the colonies), and as I was at their age too.  A bit of fun, lightly pretend scary, to which our wilder shores of religious zealotry used to denounce as ‘devil worship’ that fortunately no longer attracts draconian punishments.

Donate your pennies/cents, sweets and such like generously.  It’s part of children growing up and it also promotes adult employment and 'capitalism'. 
'Killing capitalism'?   Lighten up Paul! 


Christine Lagarde, Managing Director, International Monetary Fund, in her Acceptance Speech for Foreign Policy Diplomat of the Year Award, 29 October, Washington, D.C.
“Africa: Economic Diplomacy and the Need for a New Multilateralism”
… “Future Challenges and the New Multilateralism
… “One thing is certain: 21st Century challenges demand global solutions.
…. “The model of Adam Smith's "invisible hand"--where pursuing one's own self-interest would also serve the collective interest--requires solid institutional underpinnings, such as the rule of law, a currency, a competition watchdog, to name a few.
On the international scene, these underpinnings are more tentative. Multilateral institutions such as the UN and the IMF have provided a global framework for the cooperation of sovereign states, and they have served their purpose well.
Yet, to me it looks more and more as if Adam Smith's model is being turned upside down.
What do I mean?
Given the high degree of interconnectedness in the modern global economy, many of the challenges we face represent a collective threat, and call for a collective response. Rather than collective good arising out of self-interested action, it is only by acting collectively that an individual country's self-interest can be achieved.
Christine Lagarde, once hailed as the great hope of the IMF on her appointment, clearly brought with her a lot of ideological baggage drawn from the deep pool of modern IMF economist-believers in the almighty “invisible hand”, falsely attributed to Adam Smith, as the opiate of most economic policy wonks. The other lot among the leftist, big government proselitizers(?), denounce the IH believers with the same fervour that their high-priests denounce markets and capitalism. Lagarde obviously has mastered her brief to avoid provoking controversy.
Lagarde suggests bridging the gap between the stand-offs common in economic discourse today - ‘markets not governments’ versus ‘governments not markets’ - with nods to both theologies, while legitimising the “model of Adam Smith's ‘invisible hand’ with the “solid institutional underpinnings” by “acting collectively” so “that an individual country's self-interest can be achieved”. 
This is a master example of drafting just enough anodyne wording to baffle readers with empty waffle that means next to nothing. I once served as a member, later chairman, of the UK’s Standing Committe for Social Science in UNESCO, and witnessed many examples of such skilled drafting by civil servants, written to avoid antagonising friends and allies of the UK in the United Nations in the depths of the Cold War.

My own pragmatic preference is for “markets where possible, the state where necessary”, a stance that would have been acceptable to Adam Smith, judging by his Moral Sentiments and Wealth Of Nations..


Marc Horn posts on Market Oracle (Financial Maekwts Analysis and Forecasting) HERE 
“Stock Market S&P Index MAP Wave Analysis Forecast”
“I have been looking for this for a while:
‘Over lunch at the Bank of England, Keynes tells Henry Clay of his hopes that Adam Smith’s ‘invisible hand’ can help Britain out of the economic hole it is in: “I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago’ (11 April 1946).
Still today we follow Keynesian economics where he himself shortly before his death felt that his theories were not the solution to our economic woes, but Adam Smiths invisible hand from the 1700’s was more reliable! Yet we persist to follow his economic theories despite his warning as our primary model almost globally!
But then again it suits those in power in our corrupt political systems – keep the people stupid and they are easier to control (rape and pillage would be a better description!) but the end game is always the same – revolution where the elite just change from one group to another… [by] doing everything possible to kill the dollar as the global reserve currency with its attitude of totally ignoring international law and applying the shear fact that you use US dollars for a transaction that they have jurisdiction and they will prosecute you if they feel they want to. … The only way people can overcome this is by using anything but the dollar! This in turn is imploding the global economy as Americans find it extremely difficult to open bank accounts outside of the US as they clearly are “tax avoiders” which is killing investment precisely when it is needed!

This is an example of Adam Smith’s invisible hand at work. …It is time to dramatically change the political system before it is too late! … We have failed lawyers running our countries with zero economic experience, supported by economic academics who also would not make it in the real world and also have zero experience! This is like going to a paediatrician if you want brain surgery.

The Euro will collapse because there was not a European debt as the US$ has. … This is another example of Adam Smith’s invisible hand at work. Politicians cannot overcome their self interest and acknowledge there are fundamental structural flaws in the Euro and will sooner lead to another war in Europe before admitting they are wrong because then their incomes and pensions will be at risk, but in their eyes that will be someone else’s mess to sort out once they leave office!”
Well what can we say? Marc Hom certainly writes with confidence.  Of his financial advice I have nothing to say, or his apparent suspicions of politicians, of whom I have no idea to who he refers.
However, of his assertions about Adam Smith’s supposed “invisible hand”, I can confirm Marc is wildly inaccurate about when the IH Metaphor is supposed to be “at work”.  Metaphors are never ‘at work’ because they are figures of speech that, in Smith’s case, in his three uses of the metaphor, he describes how motivated humans choose intentionally to act in pursuit of what they regard as their self-interests. Their actions have intended outcomes.  They also may have unintended outcomes. But the unintended outcomes are the result of the actions that led them to their initial actions.
That unintended outcomes can arise for good or ill are irrelevant to the original motives of the intended actions. This distinction is of paramount importance because 20th-century economists, contemplating Adam Smith’s use of the ‘invisible hand’ metaphor, leapt over the limited description of  the object of the metaphor, and extended it to unintended consequence of the subsequent events. In doing so they gave the “invisible hand” a mystical, even miraculous role as leading people to the unintded consequences of their initially limited intended consequence.  
In fact, this error brought a wholly theological element to the ordinary behaviour of human beings. Some entity - God say - was micro-managing the economy!  Hence, Marc comments three times with what he claims are “examples of Adam Smith’s invisible hand at work”. Not at all. They are three unexplained examples of the modern myth of the “invisible hand” asserted by Marc allied to a contentious semi-theoretical assertion about some vast malign conspiracy by ruling elites in modern states.
But just in case anybody follwing his analysis and associated advice he imposes the following legal cover against law suits for their losses:
“By using this MAP Wave Analysis (MWA)  you confirm that you are personally responsible for any and every decision you make based on any content found on this site.
You confirm that you have read and agree to abide by the Copyright and Intellectual Property Rights as stated .
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© 2014 Copyright Marc Horn- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.”

I say no more.
[NB. Nothing written in my comments cast any aspersions of any kind on the good and honest character of Marc Horn or the high quality of his financial advice based on the information available to him and the disclaimers he requires from users of his services.]

Thursday, October 30, 2014


Chris Thurman (30 October) posts on Business Day live (South Africa) HERE

“All that shimmers does not turn into gold”
“Markets are whimsical and moody. What this really means is that the traders who decide what happens to markets are whimsical and moody. They are certainly not sentimental. The activity on the JSE [Johanesburgh Stick Exchange] had nothing to do with the death of Senzo Meyiwa.
It was based on educated guesswork about external factors such as the US Federal Reserve’s possible revision of interest rates, and on responses to updates by SA’s big corporations.
Nonetheless, we cling to the idea that markets somehow reflect national or global sentiments (as opposed to creating or precipitating them). Indeed, through a strange process of personification we conceive of a single entity called The Market, which has the capacity to experience emotion.
It is something of a contradiction to proceed — on a misapplication of Adam Smith’s notion of the "invisible hand" — as though The Market is essentially a rational creature, acting in its own best interest, which is to turn individual selfishness to universal benefit. Market self-regulation actually comes at appreciable human cost. The Market survives cycles of boom and bust, but only because taxpayers, mortgage owners, pensioners and unwitting investors take the hit.”
Interesting observations by Chris Thurman.  He is right about it being a “misapplication Adam Smith’s notion of the invisible hand” and and the nonsense of the “market” that “has the capacity to experience emotion”. 
People who act in market relationships experience emotions, individually and collectively, and that is a big difference between people acting in market relationships and carbon and other atoms, which do not have or feel emotions. Atoms do not have intended consequences and neither do they cause unintentional consequences. There is nothing intentional in natural science.
Second Comment
I liked this paragraph too:
“…Still, despite the crystalline and epiphanic quality of many of the images, viewing the ocean in terms of The Market (or vice versa) also brings to mind Matthew Arnold’s poem Dover Beach, which describes the "tremulous cadence" of the waves as a reminder of "the turbid ebb and flow / Of human misery”.
As an undergraduate (1965-9) I was struck by Arnold’s 'Dover Beach' poem and it introduced me to the role of figures of speech and metaphors, which sparked my interest years later in 2003-5 when I contemplated the enigma of Adam Smith’s use and meaning of the “invisible hand” metaphor and its economics.
Its last three lines stuck in my mind throughout those intervening years and ever since:
“And we are here as on a darkling plain
Swept with confused alarms of struggle and flight,

Where ignorant armies clash by night” (Mathew Arnold (Dover Beach).


Kevin G. Hall, McClatchy Washington Bureau (October 29), reviews a new book on economics that is causig a stir HERE 

“New book slams economists, their theories and their forecasts” 
Jeff Madrick has a bone to pick with the economics profession, and that’s putting it nicely. Consider the title of his new book: “Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World.”
The book amounts to a broadside on modern economics and recently was critiqued by 2008 Nobel Prize-winning economist Paul Krugman, whose review appeared in The New York Times.
“Hardly any economists predicted the 2008 crisis – and the handful who did tended to be people who also predicted crises that didn’t happen,” Krugman noted, underscoring a central theme of the book – that the profession has a poor forecasting track record. “More significant, many and arguably most economists were claiming right up to the moment of collapse that nothing like this could even happen.”
Madrick is a longtime writer on economic matters for Harper’s magazine and a former New York Times columnist. He dropped by McClatchy’s Washington Bureau recently to discuss his book. Here are some of his thoughts, edited into a question and answer format.
Q: You question economists’ devotion to the famous “invisible hand,” the notion that in a free market absent of government intervention buyers and sellers find an agreeable price and self-regulate the economy. Why?
A: This book is about how economics has been oversimplified and increasingly they take good ideas, the invisible hand, and oversimplify them, and make them rules of thumb.
Q: You cite raising the minimum wage as an example of that. Economists doggedly insist that because of the invisible hand, raising wages will reduce the demand for workers. Research raises doubts on this. What’s your view?
A: That’s an example of the abuse of a good idea turned into a rule of thumb. My argument is that since the 1970s and certainly since the 1980s, economists have increasingly moved in this direction of making many good ideas and some not-good ideas into rules of thumb as a shortcut for thinking.
Q: You disagree with those who say the invisible hand got the U.S. economy back on track after the financial crisis. You think the stimulus program, while too small, helped reverse the steep economic decline of late 2008 and 2009. Why?
A: (The idea that) economies adjust with no help from the government, that wages, prices go down and people invest, that’s what drove economic thinking in the Great Depression – it’s just not true. The economy does not adjust itself. The economy is not one big invisible hand.”
So far so good. Nothing like evidential criticism to expose the emptyness of the prevailing concensus on the so-called invisible-hand (though Krugman is quite defensive - he still believes in the myth of the “invsisible hand” being more than a metaphor for something other than what he thinks it is for.
Forecasting the future is hubris. Economists have enough problems with understanding the past; economics is not like physics which can predict the next lunar eclipse with impressive accuracy and the eclipses that will occur in the next hundred years or more.  What they can’t do is predict what will happen to you next Friday; they can predict, with wide margins of error, what might happen to you. Human behaviour is full of surprises; the predictable laws of physics are dull in comparison.  Yet some economists think human behaviour is predictable and have theories of human behaviour that assume humans behave like the physics of atoms.
So hats off to Jeff Madrick! He’s not fooled by the Emperor’s new clothes cheer-leaders that dominate economics and award each other Nobel Prizes and hang on to the myths of the “invisible hand” that they falsely arttribute to Adam Smith.

Moreover this is the second incident of better sense this week undermining the prevailing ‘certainties’ of “an invisible-hand” ‘miraculously’ and ‘beningly’ running the economy.
I have no comments on the rest of Madrick's ideas.