Thursday, October 31, 2013

A Tale of Two Philosophers

From today’s (31 October) Stumbling and Mumbling Blog HERE
Against Forecasts”
“Karl Marx: “the philosophers have only interpreted the world, in various ways: the point, however, is to change it”
Adam Smith: “those who are called philosophers or men of speculation, whose trade it is, not to do any thing, but to observe everything; and who, upon that account, are often capable of combining together the powers of the most distant and dissimilar objects.” (WN Book 1, chapter 1, paragraph 9).
May I ask: of the two approaches, which philosophy did the least material and human damage to the world: the philosopher who interpreted it and tried to forcibly change it, or the philosopher who observed everything and did nothing?”

Adam Smith on Self-Interests, Not Greed

 A correspondent to an earlier post on the "Greed is Good" fallacy prompts a longer reply than is possible in the Blog comments facility.  Here is my response:
The “Butcher, Brewer, and Baker” quote is often used as the reference by those who believe mistakenly that self-interest is a synonym for “greed”.
This view reveals a total misunderstanding of what Adam Smith meant by “self interest”.
In fact, the very sentence quoted actually advises the customers of the “butcher, brewer, and baker” on how to bargain with the said shopkeepers offering to sell their meat, beer and bread:
But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self–love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. 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 is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. 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 interest. We address ourselves, not to their humanity but to their self–love, and never talk to them of our own necessities but of their advantages” (Wealth Of Nations, Book 1, chapter 2, paragraph 2).
Greedy self-interested customers who demanded that the sellers supply their meat, beer, and bread at low prices for no other reason that they did not wish to pay the price the greedy sellers demanded would go home hungry and the greedy sellers would fail to sell anything.
Smith’s views were clear: we are in “almost constant occasion for the help of[(our]brethren, and it is in vain for [us] to expect it from their benevolence only. [We] will be more likely to prevail if [we] can interest their self–love in [our] favour, and shew them that it is for their own advantage to do for [us] what [we] require of them”. 
Of course the same is true for solely self-interested greedy “butchers, brewers, and bakers”!  They will prevail only if they “lower their” price demands to what their customers “can go along with”.  For both self-interested buyers and for self-interested sellers they must mediate their self-interests to arrive at successful transactions.
The process by which they mediate their self-interests is by persuasion, as outlined by Adam Smith in his “Theory of Moral Sentiments” and how that is best achieved in negotiations or bargaining exchanges is explained in the sentence immediately before the “butcher, beer, baker” example: “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 is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.” (Wealth Of Nations, above).
I hope this is made clear by tutors at Harvard University and that you also make it clear in your classes too.
Greed is not good!  That is the opposite of what Adam Smith taught.

Wednesday, October 30, 2013

Hitting the Bull's Eye With Uncanny Accuracy

Jag Bhalla posts (13 July) in Scientific American HERE
“Science’s Mobile Army of Metaphors”
“Metaphors are our shortest stories. They are economical explanations that shape our understanding (itself a “mobile army of metaphors”). But badly mixed metaphors from physics and biology animate economics, creating “confusion’s masterpiece.” Another Shakespearean phrase, “invisible hand,” is partially to blame.
Science’s theories—its verifiable stories—also use metaphors. Some are loose analogies, others formal models. Orthodox economics abuses both kinds, misapplying oversimplified evolutionary ideas, like survival of the fittest, within an ill-fitting framework from physics. Its conceptual skeleton is: rational self-interest in competitive markets, led by an invisible hand, creates the best social equilibrium.
Adam Smith made “invisible hand” famous. He first used the phrase in his History of Astronomy: “nor was the invisible hand of Jupiter…employed,” to mean that nothing supernatural was needed to explain physical phenomena. Smith lectured on Shakespeare, and likely knew the phrase from Macbeth (misdeeds are hidden by night’s “bloody and invisible hand”).
But “invisible hand” emergent equilibria in economics, evolution, and physics are crucially different. Self-organization—parts spontaneously creating ordered wholes—seems “natural.” But it’s usually also dumb. Humans can do better.
Evolution’s “invisible hand” story, typically sold as biology’s great “unregulated” competitions (thereby ignoring widespread cooperation) produces unintelligently designed results and regularly delivers foreseeable disaster. Narrowly self-interested competition in biology doesn’t guarantee efficient outcomes. And it can be as dumb as trees in economics. Social coordination can be less wasteful and more productive, if intelligently done.
General Equilibrium theory in economics was developed under the guidance of a physicist, Josiah Gibbs, who Einstein called “the greatest mind in American history”. Gibbs invented statistical mechanics to describe the behavior of large ensembles, like gases. Its metaphoric appeal for economics is obvious. However the “invisible hand” equilibria of physics emerge from parts interacting with uniform predictable consistency. But people aren’t like gas particles or biological billiard balls. We evolved behavioral flexibility and complex interdependent variable reactions.
Newton’s science is, metaphorically and fundamentally different than Darwin’s. Newton’s systems have clockwork causality; they converge on mechanically calculable patterns. Physicists have invented powerful mathematical tools for predicting their development and specific results. But Darwin described an open, generative, and divergent process with less predictable effects. Its general shape is describable by the mathematical methods of physics, but its specific outcomes aren’t so predictable (e.g. evolution, unlike anything in physics, needs game theory).
Evolution gave us capacities for intelligence, foresight, and social coordination. With these we can avoid the dangers of dumb “invisible hand” self-organization. It fits not our nature to ignore them. Such sub-natural metaphors of human nature exclude what’s best about us.”
There is hardly anything I would disagree with this post in “Scientific American”.  It hits the bull’s eye with uncanny accuracy.
I would add what I hope is an helpful observation.
While the use of the metaphor in Shakespeare’s MacBeth is correct, the history of the “invisible hand” metaphor goes back much further to classical and medieval times (See Emma Rothschild, “Economic Sentiments: Adam Smith, Condorcet and the Enlightenment”, 2001, pp. 116-56, Harvard), and John Harrison, “Adam Smith and the History of the Invisible Hand”, History of Ideas, 2010).   The metaphor was widely used in Smith’s times, often by preachers, using it theologically (including Hugh Blair, a popular sermoniser, and close friend of Smith’s).
However, the main thrust of Jag Bhalla’s column is an excellent account of the use of metaphors in science and highly relevant to Smith’s use of this particular one (and its misplaced use by many modern economists).

Monday, October 28, 2013

Adam Smith Never Believed That "Greed is Good" and Economics Students Who Act As If They Should Be Greedy Are Woefully Misled By Their Tutors

Thomas Mucha, editor of Global Post, with an MA from Chicago, writes a report on why Economists are horrible, horrible people. So says science
In short: economists don't feel bad about acting in their self-interest because — well — the economic theories tell them that they should be selfish.”
I wonder to what extent this bold assertion is a product of Chicago economics, post-Samuelson, who was a student there in the 1930s, and also the product of several decades of advancing the theories of “self-interest” as being an endorsement of “selfishness”? There are daily reports across the media and throughout academe of direct statements to that affect from mainstream neoclassical economics, complete with endorsements of this mistaken theory allegedly based upon the writings of Adam Smith in Wealth Of Nations. The "Greed is Good" theme played well until recently and gave legitimacy to this tendentious and immoral, view of economics, even though credit as the source for such ideas belongs to Ayn Rand, and not to anything written by Adam Smith.
I accept the bold treatment of the specific research among behavioural theorists, though I can question, what in my view are the tendentious assertions made by neoclassical economists often identified as the source of assertions lauding the unintended benefits of selfishness. The claim that selfishness leads to public benefits (which we can trace to a view advanced by Samuelson in 1948) is not found in Adam Smith.
Empirically, the high scores in the survey of current economics students that consistently differ (marginally) from other students are certainly indicative of real differences between them, either in their pre-dispositions in general attitudes (causing some students to avoid the subject) and in their post-course, learned differential dispositions from what they are taught (“maths makes economics a hard science”). 
I can think of several causes of such dispositions, such as the need in modern neoclassical courses for prior ability in maths to do well in the subject, lauded by proud faculty as the necessary gateway to tenure and high, post-graduation salaries in business.   But if the “selfish = self-interest” fallacy is embedded in the “hard science” presumption then the supposed association reinforces the difference between the participants in the survey.
However, the view that ‘selfishness is consistent with Adam Smith on “self-interest”’ is manifestly unwarranted and is not supported by anything that he wrote in any edition of “Moral Sentiments” (1759) or in “Wealth Of Nations” (1776).  If you think you know differently, please feel free to post a comment to that affect.
The claim that Adam Smith ever said anything in praise of “selfishness”, even in a pragmatic and regretful acceptance of it, is wholly unwarranted.  Unfortunately such notions are widespread in US academe, particularly since Samuelson’s textbook, “Economics: an analytical analysis”, was first published in 1948, p 36  (McGraw-Hill) and in its 19 editions to 2010 and was studied by 5 million students, few of them who read or thought about Adam Smith. (See Kennedy, G. 2010. “Paul Samuelson and the Invention of the Modern Economics of the Invisible Hand”, History of Economic Ideas. Vol. xviii, no. 3, pp 105-19).

Sunday, October 27, 2013

Lonny Tunes no. 86

VMTurbo is taking its economic scheduling engine, inspired by Adam Smith's "invisible hand", to more clouds and more devices.
Think of it as the invisible hand of Adam Smith, finding the right price for a unit of capacity through laws of supply and demand, and then using that data and a market of buyers who crave resources but are limited by their budgets and service-level agreements to allocate resources.”
Barry Ritholtz asks HERE
Why does the invisible hand want to slap you across the face? Because it belongs to a douchebag, apparently.” Also HERE 

Friday, October 25, 2013

A Little Apparent Erudition Can Be Misleading

Saranya Kapur posts, surely tongue-in-cheek, non-sense: “Studying Economics Can Turn You Into A Horrible Person” on Business Insider (Australia) HERE
Self-interest motivates Adam Smith’s invisible hand, but economists may be taking it way too seriously.
A blog post by Adam Grant in Psychology Today explores how economics majors are, on average, awful human beings. Grant quotes a study by three Cornell professors which provides evidence that economists are less charitable, more deceitful and less likely to be concerned with fairness.
From the post:
“Along with directly learning about self-interest in the classroom, because selfish people are attracted to economics, students end up surrounded by people who believe in and act on the principle of self-interest. Extensive research shows that when people gather in groups, they develop even more extreme beliefs than where they started. Social psychologists call this group polarization. By spending time with like-minded people, economics students may become convinced that selfishness is widespread and rational ― or at least that giving is rare and foolish.”
So it’s not really the economists’ fault. Spending hours debating the pros and cons of an economic theory will just do that to a person.”
Reading the cited reference HERE I found it  hard to recognise Adam Smith in Saranya Kapur’s presentation in her piece, though I have reservations about the source quoted, which interestingly concludes:
These observations do not challenge the obvious importance of self-interest as a human motive. But they do suggest the need for a richer model of human behavior, one that explicitly recognizes that people who hold cooperative motives often come out ahead.
The modern idea of self-interest, particularly in the “selfish” mode, is quite different from Adam Smith’s writings in both Moral Sentiments and Wealth Of Nations to which I refer regularly on Lost Legacy. 
See TMS and various references and accounts of how people conduct their discussions associated with the behaviour of persuasion as an essential element of inter-personal relations and to WN I.ii in reference to Smith’s original and still highly relevant ideas on bargaining.
Self-interest, to repeat a regular feature on Lost Legacy. Is not about selfishness.  The idea of economics self-interest being about selfishness got widely repeated due to Paul Samuelson conflating self-interest as selfishness in his now classic textbook, “Economics: an analytical introduction” (McGraw-Hill, 1948), recently reaching 19 editions in 2010, the year that Samuelson died after a distinguished academic career at the top of theoretical economics (winner of a Nobel Prize), and crucially, as the first, and probably the best, modern economics textbook author too.
Close to 5 million readers were introduced to economics using his textbook (myself included in 1965) and his conflation of selfishness and self-interest is now endemic and worse, it is not often examined, except regularly on Lost Legacy, of course.

Thursday, October 24, 2013

'Max U' v Behavioural Economics

Jason Brennan writes (23 October) “Extreme Austrian Apriorism as the No True Scotsman Fallacy” [Allegedly the practice of wearing a kilt without undergarments”!!] (attracting 31 comments) on Bleeding Heart Libertarians  HERE 
Brennan writes:
“I was at a conference a few years ago on Austrian vs. Chicago-school economics. Here’s a conversation I had with an Austrian economist, whom I won’t name here. I’ll just call my interlocutor “Austrian Dude”.
Brennan: “What do you think of behavioral economics that purports to show people often act irrationally in the market?”
Austrian Dude: “That doesn’t pose a problem for economics. Economics is a priori.”
Brennan: “But doesn’t it show that people don’t often act in the way your theory describes?”
Austrian Dude: “No. You see, there’s a difference between behavior and action. Action is defined as…[insert a summary of Mises's “Human Action” here]. But what Frank and others are describing is behavior, not action. Economics tells us how human beings act, but behavioral economics is just describing behavior.”
Brennan: “… But this doesn’t save you from behavioral econ. Instead, it leaves open, as an empirical question, whether actual human beings in the real world are better described by your a priori theory of human action or by behavioral economics. If your theory doesn’t account for actual human behavior very well, then it’s impotent to defend real life markets, and you shouldn’t advocate libertarianism in the real world on the basis of your Austrian economics.”
In short, extreme apriorism ends up being a version of the No True Scotsman Fallacy.
PS: I’m not here defending behavioral economics, nor am I taking a stance on what follows from behavioral economics. (In fact, I think behavioral economists tend to jump to policy implications in an intellectually lazy way. See Frank’s embarrassingly bad book The Darwin Economy for a collection of nonsequiturs.)
I cannot comment on the subtleties of Austrian Economics, parts of which I agree with, other parts I do not, but it seems to me that “Austrian Dude” makes much of a distinction without a difference and from the 31 comments to the original post nothing much is clearer.
The basic issue is whether ‘action’ as described in the rational economist’s model/ theory/ or whatever, represent the reality of what happens in an economy. I remain suspicious that it does not.  It matters because an “ought’ is not an ‘is’, and therefore expecting the rational economist’s model to explain what is going on, as opposed to what is supposed to happen in a ‘Max U-world’ is surely a triumph of hope over experience.  Worse, betting real money on it - especially when it the money and livelihoods of other mostly innocent people – is a recipe for a series of failures waiting to happen.
Also I can only endorse Jason Brennan’s comment on Frank H. Roberts “The Darwin Economy: Liberty, Competition, and the Common Good, Princeton University Press. Though I would focus on Frank's its criticism of Adam Smith, mainly for his interpretations of Smith’s actual political economy, especially in respect of Smithian ‘self-interest’ and perhaps for not fully appreciating his moral philosophy, but also for not really appreciating Darwinian evolution evidenced in his parallel between social evolution of human behaviour and the far longer time-scale of biological evolution of species (see HERE and HERE  etc.,)

From Lost Legacy Archives, 2008

While Waiting for Dinner in an Edinburgh Library …
I was early for a dinner-discussion [on the renovation of Panmure House] last night with several scholars [including Ian Ross, author the definitive biography of Adam Smith, 1975, 2nd ed. 2011, Oxford University Press; Chris Berry, editor of the Handbook on Adam Smith, 2013, Oxford University Press; Craig Smith, co-editor of the Handbook, 2013; each in their academic fields, highly knowledgeable about the moral philosophy and political economy taught by Adam Smith. Inevitably, while waiting, I scanned the crowded bookshelves, mainly of 18th and 19th century well-bound volumes of books related to Edinburgh.
I came across such a 3-volume set and recognised the author as a friend of Adam Smith and the man who replaced him, after he had delivered his series of private lectures, sponsored by Henry Home, lawyer friend (later Lord Kames, a distinguished Enlightenment author and Scottish judge) and James Oswald (a close friend and a rising star in British politics at Westminster). These lectures were on several subjects, including Rhetoric and Belles Lettres, delivered to a ‘respectable auditory’ from 1748-51 in Edinburgh, from which Smith earned a fee of £100 per winter term (not bad for an unemployed Glasgow and Oxford graduate - though no trace of his actual formal graduation at either place is proven) - near to, but not in or by him on the faculty of Edinburgh University [as recently persistently claimed by people in the University]. His audience consisted largely of that university’s students of law and theology, and the general public. His lecture series established his academic reputation with the professors at Glasgow [some of whom visited Edinburgh to hear them].
When Smith was appointed a Professor of Logic at Glasgow University, he finished off that winter’s lucrative lecture course, thus delaying the start of his Glasgow lectures to the following winter term, and he handed over the lucrative private lecture series and subjects to his friend, Hugh Blair, who was soon to commence a successful career as a lecturer in Rhetoric at Edinburgh University (and who became a popular Edinburgh Sunday preacher too). Blair asked Smith for his notes on Rhetoric to get him started and Smith obliged.
Hugh Blair became a popular lecturer at Edinburgh and he expanded Smith’s Rhetoric lectures, making the subject his own, and they were published in 1827. They read well and they are in a more polished style in comparison to the student notes of Smith lectures under the same title. Few traces can be found of Smith’s original text in his “Notes of Dr Smith’s Rhetorick Lectures”, found in a manor-house sale in Aberdeenshire by John M. Lothian (1896-1970) in 1961 (and published by him as Lectures on Rhetoric and Belles Lettres Delivered in the University of Glasgow by Adam Smith, Reported by a Student in 1762-63 (Nelson, 1963). These Notes were re-edited by J. C. Bryce (and A. S. Skinner) and published as Lectures on Rhetoric and Belles Lettres for the Glasgow Edition of the Works and Correspondence of Adam Smith by the Oxford University Press in 1983 (Liberty Fund, 1985).
I opened Hugh Blair’s three-volumes and out of curiousity looked them over, until the other dinner guests arrived. Turning the pages, I became curious to see how he presented his chapter on metaphors, a subject of great interest to me today because of the elevation of Smith’s use of the invisible-hand metaphor into an invented fantasy way, way beyond anything meant by Smith when he used the now famous metaphor once only in each of Moral Sentiments (1759), Wealth Of Nations (1776) and (posthumous) in his History of Astronomy (1795).
I noted down some sentences from Hugh Blair’s account, as below:
Hugh Blair, Lectures on Rhetoric and Belles Lettres, 3 volumes, London. Vol. 1, Lecture XV: Metaphors:
Metaphors are:
founded entirely on the resemblance which one object bears to another … it is no other than a comparison, expressed in an abridged form.
When I say of some great minister ‘ 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 a pillar of the state’, it has now become a metaphor. The comparison betwixt the minister and a pillar is made in the mind, but it is expressed without any words that denote comparison. The comparison is only insinuated, not expressed, the object is supposed to be so like the other, without formally drawing the comparison; the name of one may be put in place of the other” (pp 342-3).
This literary explanation given by Hugh Blair of the role of metaphors corresponds well with Adam Smith’s rougher spoken words, but clearly meant the same (as it still would today).
See Adam Smith, Lectures on Rhetoric and Belles Lettres, Oxford University Press in 1983 (Liberty Fund, 1985), p 29.
[I re-publish these on Lost Legacy today as they may be interest to recent readers.]

Wednesday, October 23, 2013

A Case of Entreprenurial Innovation

Of interest, perhaps, to historians of economic thought in modern debates about entrepreneurial innovation, Wayne Lewchuk authored this entry in the 0xford Dictionary of National Bibliography ( showing early 20th-century attempts at mass production in the nascent motorcar industry, then slowly developing in England at the Cowley, Oxford. 
Of particular interest is the key role of the innovator-engineer aligned with an entrepreneurial a business owner in conditions of a developing mass market for a new transport technology.   
He writes:
“Frank George Woollard, (1883-1957), developer of mass production, was born in London, the son of George Woollard, general steward to a firm of private bankers, and his wife, Emily Constance, nee Powell. He was educated at the City of London School and Goldsmiths and Birkbeck colleges. Between 1900 and 1905 he was apprenticed to Dugald Drummond with the London and South Western Railway (LSWR) at Eastleigh, Hampshire. There he was exposed to two factors that would shape his future career: he was involved in the design of an early motorized vehicle, the Clarkson Steam Omnibus, and he also witnessed the introduction of a crude assembly line in 1904 to manufacture all steel coaches. The cycle time on this line was seven and one-third hours, a factor which encouraged Woollard later in his career to consider flow production techniques in the British automobile industry despite relatively short production runs.
… During the First World War, he was responsible for the production of tank gearboxes, his first exposure to producing large numbers of standardized products. After the war, he supervised a contract to manufacture front and rear axles, and gearboxes for the Morris Cowley. Production was reorganized along flow lines to meet Morris's demands.
In 1923 Woollard left Wrigley to become director and general manager of the engine branch of Morris Motors Ltd. His first task was to reorganize the old Hotchkiss plant in Coventry. With the use of flow production assembly techniques, within a year output increased from 300 to 1200 engines per week. In early 1924 the machinery used to manufacture engine blocks, the heaviest and most complex component of an engine, was reorganized and placed in order according to the sequence of individual operations. Initially, the machines were linked with hand conveyors and workers manually pushed blocks between production stations. In late 1924 a bold step was taken towards automated production with the introduction of a hydraulic system which automatically moved blocks between stations, clamped them into fixtures, and sequenced the machines.
Woollard had appreciated that such a system offered advantages in the areas of planning and co-ordination, and in the control of labour, giving management more authority to set the pace of work. He believed that such control would be accepted by the workforce if it was accompanied by rising living standards. At the time, this was itself almost as radical a concept as the shift to automated production. Woollard's innovative use of automatic transfer machinery had to be abandoned because of failures in the electric, hydraulic, and pneumatic control mechanisms. However, he paved the way for Ford to implement a similar system in Detroit some twenty years later.”
Completely new production technologies for new consumer products can create whole new products (if successful in attracting consumer demand sufficient to attract capital and an appropriate workforce at least minimally profitable prices).
Entrepreneurs who identify and can exploit the means to supply such opportunities can thrive on their vision, but ‘many are called but few are chosen’, as old-style preachers used to warn their flock. The survivors come and go – think of the original computer giants in early computing power like DEC, Digital and IBM, or the smaller firms like Apple, Prime, Wang and also the many rivals to Microsoft.
Frank Woollard was in the engineering-led, early motorcar manufacturing industry.  He was also part of the beneficiaries from increasing-returns of innovation in both manufacturing processes and in product designs.
Nobody can plan dispersed innovation, especially not those in government-led committees – while the are sitting taking minutes of their meetings, the real world keeps turning and among the countless dispersed entrepreneurs in markets some are thinking ‘outside the box’, as they say.  Some few of them restlessly seize what they believe are opportunities, not just contemplating the ‘ifs’ of what they could have done, ‘if only’.
They just do it! 
That is the power of markets in free societies, though not necessarily those with utopian notions of so-called perfectly free-markets in Economics 101.

Saturday, October 19, 2013

Loony Tunes no 85

Roland Boer writes “Stalin’s Moustache” Blog (Marxism, Religion, Politics, Bible, whatever …)  HERE
Does Adam Smith’s invisible hand = invisible penis?”
Hari Kondabolu posts HERE
The invisible hand of the market, my ass. That hand is white and wearing a ring with a conflict diamond on it.
Progress Michigan (“Powering Progress Together”) “Republicans are scared of the invisible hand that feeds them” HERE
What they really need is for the invisible hand to slap some sense into them.”

Friday, October 18, 2013

Some Basic Economics from Tim Worstall

Tim Worstall does it again (as he often does).  His comments on the economics of everyday discourse hit the target once again.  He posts (18 October) this in the “Pin Factory Blog” at the Adam Smith Institute HERE :
In which we catch the New Statesman being very silly”
The post leads with a photo of some demonstrators with a large placard on which the message: “Don’t Cut Tax the Banks”.
The message is that health workers and others like them produce useful services, while rich bankers are parasitic. Yet most people employed in the banks are fairly lowly paid (my son is one of them), while surgeons and top administrators in the NHS are well paid by any standard.  Tim goes for the economic nonsense supporting this attitude.
“Thus the value of banking is that we get to have a banking system. The value of the NHS is that it (occasionally) cures more people than it kills.** The value of Google is that we get to Google.
The value or contribution to us all of what people are doing lies not in the taxes they pay and not even in either the profits they make or the number of jobs they create. It is in the value to us of consuming their production. Any other measure of value will inevitably lead to the sort of nonsense that the New Statesman is peddling here.
Something that Adam Smith pointed out 237 years ago when arguing that the correct labour theory of value is the one that measures the value in use of something that has been produced: something we would rather hope that people would have grasped after all of this time.”
The basic economics highlighted by Tim are a valuable antidote to political posturing about some elements of financial trading behaviour that got out of hand recently and for which the world’s economies are still paying.
True, governments often spend taxation and borrowed funds unwisely and State direct managed activities are congenitally inefficient.  I have experience of both unwise ventures and inefficient activities. 
The old Property Services Agency was one such that was both.  It used to be said by users of the PSA’s services that if you wanted to find the most expensive way to undertake any project, big or small, then the PSA never let you down, and it always took the longest time to deliver the finished project.  A similar view applied to Direct Labour departments employed in local councils – then they privatized them, often with the same managements, and while some costs were cut (mainly in the excess labour they employed) it took a while to change its bad habits. But that led to some corruption and favouritism scandals in kick-backs from private contractors to some of the council people running them.
However, Tim is right: generally the value-added was still positive, the more so when action was taken about the inherent defects of taxation and borrowing misspending.
Adam Smith was extremely sceptical about public spending being efficient and that was long before government spending reached undreamt of levels of today.