Adam Smith's Lost Legacy

Dreaming Can Be Dangerous

2009-07-18T15:50:00.002Z

Joe Campbell writes an intelligent Blog, 2parse (HERE):

He has hit on something quite important. He has come up against a discontinuity in one of histories certainties: Adam Smith’s ideas, as taught by academia, are quite wrong. There is a lot missing in the modern image of Adam Smith and what he was about.

Smith did not speak of capitalism because the word was not yet invented in English; in 1854 William Thackeray used the word, capitalism, for the first time in English in his novel, The Newcomes (Oxford English Dictionary).

Joe offers his “modest proposal for the day:

“Tear down our capitalist system and replace it with a free market.”

“The two terms are usually used synonymously – and I’m sure I am guilty of this myself. But after a long night of fevered dreams about politics and policy … I woke up realizing there is an important difference between the two ideas. (Perhaps as my unconscious mind dredged up some forgotten piece of writing from years ago.)

“The free market is a commonsensical idea – as it is based on the values of competition, individual opportunity, and liberty. Adam Smith (from what I know of him) was only a proponent of this system – which he called “the system of natural liberty” – rather than a proponent of “capitalism” – a term he never actually used. Smith – arguing for this system – argued against government being used to prop up industries or to direct them. What he did not argue for though was “capitalism” as it has been understood for the past century. In many ways, the idea of capitalism evolved to defend our system from Marxist ideas – so it evolved to preserve the status quo rather than to describe an ideal system.

“… Our economic system though was created in an ad-hoc manner – and the ideology which grew up to defend it lacked any clear ideals. So, this ideology was defined then by what it opposed rather than a positive protection of certain principles. Capitalism then means less government interference, less centralized control of the means of production, less regulation. What this capitalism has created though is a rather unfree market – in which a small number of individuals own most of the capital – in which competition is thwarted by monopolistic practices, by bigger and bigger mega-corporations, by regulations proposed by the mega-corporations to keep out competitors, by bailouts.

Our capitalist system is based on valuing capital over labor, of separating mangement and labor from ownership, of limiting the liability of individuals for their actions in corporate environments, of externalizing as much cost as possible to the public commons, of profit over all things. It is hard to see what most of these principles contribute to the creation of a free market. Indeed, many of them undermine it – creating a closed market, profitable only for a princely few who have the capital.”

Comment
Much of Joe’s thinking is well motivated but he is confused because he advocates root and branch transformation in a long-established socio-economic system, and that isn’t going to happen.

The sheer impracticality of it is breathtaking.

What do several billion people do while the transformation is agreed, let alone undertaken, should the very remote possibility of securing agreement happens?

What will those who believe they may lose from the transformation do about what they see as a bleak prospect? Would the political system remain neutral? Who has got the deepest pockets?

For these reasons I think a reminder of Adam Smith’s philosophical stance – do nothing but observe everything – is in order. Start with the stability of the society and propose practical changes that will slowly and gradually take affect without de-stabilising justice and society’s good order. Try to change your corner of the world oveer time but not the whole world in one go.

Also, avoid sleeping on rich food or strong drink, and don’t take seriously anything you remember about ‘a long night of fevered dreams’, no matter who she or he is.

Adam Smith's Last Testament

2009-07-18T09:56:00.003Z

Martin Wolf writes (16 July) in The Financial Times’ “Economists' Forum”: HERE:

“If the government of the UK wishes to find a suitable motto, it should adopt the advice of a great Scot. “Great Britain should,” wrote Adam Smith in The Wealth of Nations, “…endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.” Smith offers wise counsel. The country’s circumstances are more mediocre than imagined two years ago. The question is how to respond.”

Comment
This quotation, from the very last paragraph of Wealth Of Nations, is quoted regularly on Lost Legacy and I am pleased that it has appeared on another Blog (I hope many more will follow too).

However, bear in mind that the paragraph was first published in 1776 and the long history of Britain since that year has been one of studiously and steadfastly ignoring Adam Smith’s 'last testament'.

Wealth Of Nations came out just after the Declaration of Independence by British colonists in North America, 4 July 1776. The British government, wise in their conceit (as Smith called it on another occasion in Moral Sentiments), advised the King to pursue a contest of arms with the distant rebels, some of whom had been trained in arms by his own army, and their leaders had been nourished on British philosophy, which they took seriously.

The seven years war against France had cost £125 million, no mean sum, as had other wars since the late 17th century. The rebellion was likely to cost a great deal too and the stakes were higher – the loss of the British colonies. Smith, typically, saw this prospective loss as an opportunity – to end dreams of empire and its contingent expenses, and its state-sponsored private mercantile monopolies and their protectionist strategies that curbed progress towards opulence by diverting capital away from its natural evolution (the gist of Book IV of Wealth Of Nations).

Well, King George III, flattered into anger with the colonists by the interested factions of monopolistic-minded mercantile privilege, chose ‘no surrender’ to the impertinence of colonial upstarts; offered nothing, and lost everything.

Out of gross folly, great prospects for progress to opulence were possible, but sadly events conspired to cause those who never learn to repeat their follies on a wider stage. Canada, a prize of war, joined other Caribbean islands, the shoddy spoils of mercantile adventurism in India, and the penal colony of New South Wales to presage the new, and greater British Empire.

Even the combined loss and abdication of that empire in mid-20th century, now a Commonwealth, which provided the opportunity for the narrative of adjusting to the “mediocrity of her circumstances”, was fumbled, missed and messed up.

Inheriting a prominent position at the top table – the UN Security Council – by force of arms against the Nazi-Japanese aggression, bolstered by close ties with the 50-odd Commonwealth countries, and playing beautifully the assumed role as a world leader (albeit in the shadow of the USA), though little of substance lies below the surface, has not (yet) forcedd the truth down the throats of those who manage (using the term loosely) the British state.

They won’t let go! That’s the problem: spare us from those imbued with a mission! Adam Smith advised their predecessors of the truth: divert considerable resources of labour and capital into unproductive ends and you hold back those productive ends that promote progress to opulence (metaphorically paid for by those at the lower end of the distribution of the annual produce of the necessities and convenience of life). Bankrupts can't help the poor; but a richer Britain could, both at home and abroad.

But they didn’t listen in the past, and neither are their descendants, yet.

So, let’s repeat Adam Smith’s last testament: Britain should “…endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.”

Two Professors Argue About the Invisible Hand - And Both Get it Wrong too.

2009-07-17T19:56:00.004Z

Dan Ariely, a behavioral scientist at MIT and the author of Predictably Irrational: The Hidden Forces that Shape Our Decisions, writes in Psychology Today HERE

“Irrationality is the real invisible hand”

Adam Smith first coined the term "The Invisible Hand" in his important book "The Wealth of Nations."

[No he didn’t! Smith first used words, ‘invisible hand” once in his essay on the History of Astronomy, began around 1744 and complete before 1758, and used it once again in Moral Sentiments (1759), and once later in Wealth Of Nations (1776).

Smith didn’t ‘coin’ the phrase at all. It was a well-known phrase going back to classical times (Ovid), and was widely used in the 17th and 18th centuries in both religious tracts, sermons and books, and in literary works (Shakespeare, Defoe, Voltaire and others.]

"With this term he was trying to capture the idea that the marketplace would be self-regulating."

[No he wasn’t. He used the term not in his discussion and analysis of markets (Book I and II of Wealth Of Nations), but in a discussion of the choice of export/importing versus investing in domestic businesses (Book IV of Wealth Of Nations on his critique of mercantile political economy). It had nothing to do with ‘regulating’.]

“The basic principle of the invisible hand is that though we may be unaware of it, an unseen hand is constantly prodding us along to act in line with what's best for the whole economy. This means that when this invisible hand exists, when we all pursue our own interest, we end up promoting the public good, and often more effectively than if we had actually and directly intended to do so. This is a beautiful idea, but the question of course is how closely it represents reality.”

[If Dan Ariely believes that “The basic principle of the invisible hand” represents reality he is totally mistaken. It was a metaphor Smith used only three times and he never said “that when this invisible hand exists, when we all pursue our own interest, we end up promoting the public good, and often more effectively than if we had actually and directly intended to do so.” That is a modern construction placed on the metaphor and has next to nothing to do Adam Smith].

“We are now paying a terrible price for our unblinking faith in the power of the invisible hand.”

[The only ‘terrible price’ is that of embarrassment among those economists who preached the above nonsense about the invisible hand, and, worse, believed that their invented roles for the metaphor were actually written by Adam Smith; they weren’t; and because professors of economics seldom read Adam Smith, except in clipped quotations, they did not realize what they were doing.]

“In my mind this experience has taught us that Adam Smith ‘s version of invisible hand does not exist …”

[Simply reading what Adam Smith wrote would have helped Dan and many others from making the mistake of believing what their tutors told them.]

“In Adam Smith's world the invisible hand was a wonderful force, and the fact it was invisible made no difference whatsoever.”

[The invisible hand was never in Adam Smith’s world in the form invented in mid-20th century by some economists who created the Chicago version of Adam Smith, while ignoring the Adam Smith born in Kirkcaldy, Scotland in 1723.]

“The irrational invisible hand is a different story altogether - here we must identify the ways in which irrationality plays tricks on us and make the invisible hand visible!”

[Yes, Dan has invented yet another version of Adam Smith – utterly ridiculous too – and talks nonsense.]

In the following issue of Psychology Today (HERE)

David Hirshleifer, who holds the Merage Chair in Business Growth and a professor of finance and economics at the Merage School of Business at UC Irvine responds to Dan Airely with this blast (equally wrong but for different reasons):

“To Dan Ariely, the invisible hand---the market force that gets people to help others, even when that is no part of their intention---is a pleasant fantasy.”

[Yes it is, but David suffers from the same condition]

“The most elegant statement of the idea he's whacking comes from Adam Smith himself:

“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. 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.”

[This quotation comes from Book I (chapter 2) of Wealth Of Nations and is often quoted as being about the invisible hand, and usually is mistaken in their interpretation of what it is about. It is really about the bargaining that occurs throughout commercial market economies.

Smith advises you to barter for your dinner by addressing not your own needs, but by addressing the needs of the sellers.]

You can read the rest of Dan’s and David’s articles by following the links. However, you won't learn much about Adam Smith's use of The Metaphor.

Another Inaccurate Claim About Adam Smith and Charles Darwin

2009-07-15T19:38:00.003Z

W.C. Hayward, Editor of the Blog, Undismalization (‘towards a rational, constructive, non-ideological dialogue on economics and pubic policy') HERE
writes (14 July):

“The Flaws of Quasi-Darwinist Arguments for a Pure Laissez-Faire System”

“Adam Smith, having published The Theory of Moral Sentiments, in which the theory of “the invisible hand” first appears, precisely a century before Darwin’s Origin of the Species, created a model involving a “selection process” in the realm of commerce that could be said, from an analogous perspective, to anticipate Darwin’s theory of natural selection in the realm of biology.”

“Since Darwin, however, links between laissez-faire and Darwinist thinking have appeared frequently, at least in popular parlance, with the survival-of-the-fittest concept supporting the premise that a pure laissez-faire system is more efficient because it is more natural.”

Comment
Adam Smith did not have a ‘theory of an invisible hand’ in his Moral Sentiments (nor anywhere else). Whether such a non-existent theory by analogy ‘anticipated’ Charles Darwin’s theory of ‘natural selection in the realm of biology’ is also suspect.

As is ‘at least in popular parlance, with the survival-of-the-fittest concept supporting the premise that a pure laissez-faire system is more efficient because it is more natural.”

Natural selection is by definition ‘natural’, but ‘laissez-faire’ is certainly not, at least in the common understanding of being ‘natural’. Laissez-faire is anything but ‘natural’. Like Hobbes’s ‘state of war’ of ‘all against all’, laissez faire has never existed, anywhere on the planet throughout the history of the human race, at least as far as we can judge, even deep into pre-history; it certainly left no traces found by anthropology, so far.

Adam Smith was quite critical of Dr Quesnay , the French economiste, whom he admired so much, on the subject of what is often taken to be about laissez-faire (though Smith, familiar with the term laissez-faire never used the term at all):

“Some speculative physicians seem to have imagined that the health of the human body could be preserved only by a certain precise regimen of diet and exercise, of which every, the smallest, violation necessarily occasioned some degree of disease or disorder proportioned to the degree of the violation. Experience, however, would seem to show that the human body frequently preserves, to all appearances at least, the most perfect state of health under a vast variety of different regimens; even under some which are generally believed to be very far from being perfectly wholesome. But the healthful state of the human body, it would seem, contains in itself some unknown principle of preservation, capable either of preventing or of correcting, in many respects, the bad effects even of a very faulty regimen. Mr. Quesnai, who was himself a physician, and a very speculative physician, seems to have entertained a notion of the same kind concerning the political body, and to have imagined that it would thrive and prosper only under a certain precise regimen, the exact regimen of perfect liberty and perfect justice. He seems not to have considered that, in the political body, the natural effort which every man is continually making to better his own condition is a principle of preservation capable of preventing and correcting, in many respects, the bad effects of a political œconomy, in some degree, both partial and oppressive. Such a political œconomy, though it no doubt retards more or less, is not always capable of stopping altogether the natural progress of a nation towards wealth and prosperity, and still less of making it go backwards. If a nation could not prosper without the enjoyment of perfect liberty and perfect justice, there is not in the world a nation which could ever have prospered. In the political body, however, the wisdom of nature has fortunately made ample provision for remedying many of the bad effects of the folly and injustice of man, in the same manner as it has done in the natural body for remedying those of his sloth and intemperance.”
(WN IV.ix.28: 674-5)

What Smith is saying is that an economy can tolerate quite severe distortions in its purity of function without collapsing into disaster and that if a society, as most were and are, was supposed not to prosper unless if enjoyed ‘perfect liberty and perfect justice’ the evidence of the history human societies contradicts the assertion because ‘there is not a nation in the world which could ever have prospered’.

In short, perfect liberty and perfect justice – about as close as we can get to what now passes for laissez-faire – does not support “the premise that a pure laissez-faire system is more efficient because it is more natural”. It isn’t natural; indeed it would be most unusual, even unnatural, should laissez faire be established anywhere and anytime.

Attempts to link laissez-faire to Darwin’s natural selection, of which there has been a spate of them recently, falls at the first essential hurdle of empirical evidence.

The rest of W.C. Hayward’s piece makes an interesting case about the current condition in the USA (follow the link to see how much of it you agree with), but that is separate from his assertions about Darwin’s and Smith’s ideas.

Darwin’s books and notes form a formidable body of evidence for natural selection (he didn’t get everything quite right, but he took major steps forward before the world knew anything about inheritance, genetics and the genome).

Attempts to forge a link with Darwin and Adam Smith on the grounds quoted above ultimately fail because they create so-called analogies with their ideas, mostly fanciful.

There is a connection however; both took an evolutionary approach to change and in a future post I shall discuss the forms that they took.

Too Clever By Half on Smith and Darwin

2009-07-14T08:59:00.002Z

Nitish Grover (FCA, AICPA Intl Associate) writes (13 July) in the Blog of the Gersham, Lehrman Group (‘Intelligently connecting institutions and expertise’) HERE, a piece on “The Invisible Hand, Trumped by Darwin” in the New York Times (discussed on Lost Legacy yesterday):

Nitish Grover writes a witty (speaking loosely) piece to the theme: “Charles Darwin, Adam Smith, Accounting and Financial Rules”. He gives an 8-step analysis, which is more than tendentious in my view.

“1.The invisible hand has always been there in accounting and in the development of financial products.”

Nitish does not explain how ‘an invisible hand’ manifests itself in accountancy (but then Adam Smith only mentioned it once in Wealth Of Nations where it is clearly a metaphor not an actual entity.]

“2. Natural selection (Darwin) speaks of adaptability and change. The invisible hand refers to a population of businessmen doing the right thing for a selfish motive.”

[Hold it! Where does Adam Smith speak of ‘selfish motives’ having anything to do with The Metaphor of ‘an invisible hand’? He does no such thing, which leads me to ask if Nitish has read Wealth Of Nations or has relied merely on a summary of modern interpretations, plus a couple of Hollywood films (‘Wall Street’, ‘Beautiful Mind’, and perhaps those scriptwriters influenced by Ayn Rand).

The traders mentioned in connection with The Metaphor were those who were risk averse to sending their capital across to the British colonies in North America (the Atlantic was dangerous to small ships, the people they dealt with in the colonies were not known to them, the local courts were an unknown element, though based on British Law, and their goods were out of their sight). Consequently, they preferred to invest locally, which on the arithmetic of the whole is the sum of its parts, each risk averse trade increased local investment larger than it would be if these traders joined the non-risk averse traders who did business in the colonies. How is risk-averse behaviour ‘selfish’?]

”3. While the invisible hand and the selfish motive are driven by greed the process of natural selection is slower and driven by the environment.”

[It gets worse! Now they are driven by ‘greed’. Nitish confuses Adam Smith with Bernard Mandeville (1724) and the ‘Fable of the Bees’, a common enough misattribution to Smith who regarded Mandeville as ‘licentious) (see his Moral Sentiments, 1759). Nobody who reads Wealth Of Nations would make that elementary mistake.]

“4. While the invisible hand has a short term perspective the natural selection is more strategy driven.”

[The Metaphor has no perspective at all – it's imaginary, not real. Darwin did not instill ‘strategy’ into natural selection; individual adaptations can develop to a series of short-term events – a regular food declines, alternatives are tried by some individuals, some new habits become more regular, which may solve one problem – survival – but may induce others that become terminal. Natural selection works on the individual and does not have foresight, nor does it always and inevitably ‘progress’ (former sea creatures can evolve into land creatures, and much later return to the sea).

Hominids that failed to adapt to the growing nutrition needs of a growing brain, remained with smaller brains, lived for a million years or more as a species and then died out as the environment changed or bigger brained hominids out competed them. Has Nitish actually read Darwin? Does he understand Darwin’s theory of natural selection? He hasn’t read Smith and I suspect he hasn’t read Darwin either.]

5. Accounting standards have evolved more over a period of natural selection and due process (Darwin).

[Economic behaviour has also evolved over long periods. Exchange behaviours did not suddenly turn into bargaining behaviour. They went through a series of changes from ‘gift behaviour’, through voluntary reciprocation (the ‘quasi-bargain’), reciprocation enforced by sanctions, to bargaining proper (‘If you give me X then I will give you ‘Y’ – or the simultaneous exchange). This process is no different than that of ‘accounting standards’, except that the evolution of bargaining took much longer, measured in millions of years, not just millennia – has Nitish ever read any anthropology?]

Nitish's items 6 thru 7 and 8 are meaningless. I said his article was ‘witty’ but perhaps it was more ‘clever’ than witty, but its cleverness was more entertaining than instructive.

[Disclaimer: the Gersham, Lehrman Group disclaim any responsibility for the contents of its authors' articles]

Was Adam Smith Trumped by Charles Darwin?

2009-07-13T13:40:00.004Z

Thomas McQuade writes (12 July) in Think Markets (‘A blog of the NYU Colloquium on Market Institutions and Economic Processes’) HERE:

“Frank and Stein

In a recent opinion piece in The New York Times (“The Invisible Hand, Trumped by Darwin?”), Robert H. Frank proposes that Charles Darwin, not Adam Smith, should be seen as the real intellectual founder of the discipline of economics. He claims that Smith’s most famous idea – that the competitive pursuit of individual self-interest can redound to social good – is but a special case of Darwin’s more general picture of competition in which individual benefit sometimes does, but often does not, benefit the larger group. The sort of competition for which the invisible hand does not work well is, he says, where the competition is for relative gain, i.e., when the rewards depend on relative performance, and people gain by bettering each other rather than by bettering nature.

The problem with Frank’s argument is his careless deployment of the analogy between human beings interacting in a highly structured social environment and animals in general interacting in an environment of considerably less social complexity. He is ignoring the effects of human institutions in constraining self-interested behavior. And compounding the error, he appears unable to distinguish between those institutions which provide constraining feedback and those which undermine and deflect such feedback.

The economic problem at hand is not, as Frank characterizes it, competition based on relative performance versus competition based on absolute performance. It is competition constrained by negative feedback versus competition freed from normal constraints. Successful social institutions, as well as providing positive incentives for personal gain, incorporate negative incentives for straying very far from conventional expectations. The interplay between these opposing forces can make for stable growth of the societal activity in question. It is the reason why science has been such a spectacularly successful social enterprise, and why markets, despite being set about by all sorts of monetary and regulatory interventions which weaken the feedback, have greatly increased human wellbeing.

Frank points to “the recent economic wreckage”, an instance of what can happen when “greedy people trade for their own advantage in unfettered private markets”, as evidence for his contention. Unfettered markets, if they existed, could certainly display greed, herding behavior and other “inefficiencies.

Adam Smith’s contention was that the pursuit of self-interest, constrained by appropriate social institutions, would be much more effective at producing societal wellbeing than actions which purported to aim at that wellbeing directly. And “appropriate” does not involve the overriding of constraining incentives. That is why so much of The Wealth of Nations is taken up with analysis and criticism of the social institutions of Smith’s day. Frank predicts that, 100 years from now, economists will point to Darwin as the owner of the shoulders they are standing on, not Smith. Let me make a competing prediction: that 100 years from now economists will look back and wonder how so many of their predecessors could have been so superficial in their appreciation of Adam Smith and, as a result, could have so completely misunderstood the economic events they lived through.

Comments
I think Thomas McQuade is closer to the truth than Robert H. Frank. In this month of celebration of Charles Darwin’s Origin of Species (1859), it is natural that writers look for new angles on both Adam Smith and Charles Darwin would compare with the banking crisis uppermost in our minds.

Robert Frank chooses to pit Darwin against Smith (albeit that Frank’s is a version of the Chicago Adam Smith rather than the Adam Smith born in Kirkcaldy in 1723). Even Frank’s contest for the supposed title of ‘the real intellectual founder of the discipline of economics’ is quite spurious (Smith was awarded the title today by others and with the supposed prestige of ‘inventing capitalism’ and or of being the ‘high priest of capitalism’, or similar hierarchical nonsense).

Frank writes: “Smith is celebrated for his “invisible hand” theory, which holds that when greedy people trade for their own advantage in unfettered private markets, they will often be led, as if by an invisible hand, to produce the greatest good for all. The invisible hand remains a powerful narrative, but after the recent economic wreckage, skepticism about it has grown. My prediction is that it will eventually be supplanted by a version of Darwin’s more general narrative — one that grants the invisible hand its due, but also strips it of the sweeping powers that many now ascribe to it.” (New York Times: HERE)

Smith is ‘celebrated’ by Frank for the invented reasons of modern economists (post-war in the late 1940s), not for what Smith actually wrote in Wealth Of Nations or Moral Sentiments. Smith never alluded to ‘selfish reasons’ and ‘greed’ (that was Bernard Mandeville, whom Smith described as ‘licentious’ in Moral Sentiments. Smith was made into a cartoon image by Hollywood script writers (‘Wall Street’ and ‘Beautiful Mind’). He certainly never claimed that “greedy people” will “often be led, as if by an invisible hand, to produce the greatest good for all” and it belittles Frank's credibility for him to claim that he did.

With such glaring errors about Smith, Frank's claims for Darwin are immediately suspect.

“The central theme of Darwin’s narrative was that competition favors traits and behavior according to how they affect the success of individuals, not species or other groups. As in Smith’s account, traits that enhance individual fitness sometimes promote group interests. For example, a mutation for keener eyesight in hawks benefits not only any individual hawk that bears it, but also makes hawks more likely to prosper as a species.”

Comment
At least Frank gets Darwin right. Of elks, Frank writes: “For instance, a mutation for larger antlers served the reproductive interests of an individual male elk, because it helped him prevail in battles with other males for access to mates. But as this mutation spread, it started an arms race that made life more hazardous for male elk over all. The antlers of male elk can now span five feet or more. And despite their utility in battle, they often become a fatal handicap when predators pursue males into dense woods.”

But is this not the same with Smithian competition? An individual exploits a handy source of raw materials, disregards the environmental damage, and enjoys prosperity for a while. He runs out of the resource, or the owners of the resource site impose heavy taxes, or take the resource over and run it themselves. Local maxima need not be higher than competitive maxima.

Frank: “Ideas have consequences. The uncritical celebration of the invisible hand by Smith’s disciples has undermined regulatory efforts to reconcile conflicts between individual and collective interests in recent decades, causing considerable harm to us all. If, as Darwin suggested, many important aspects of life are graded on the curve, his insights may help us avoid stumbling down that grim path once again.

The competitive forces that mold business behavior are like the forces of natural selection that molded elk. In each case, we see instances of socially benign conduct. But in neither can we safely presume that individual and social interests coincide.”

Comment
Frank notes that the “uncritical celebration of the invisible hand by Smith’s disciples has undermined regulatory efforts”, but which ‘disciples’ is he talking about? (Note the religious overtones of ‘disciples’).

The Kirkcaldy Adam Smith was quite clear on the need for regulations (or ‘police’ as they were called then) where ‘merchants and manufacturers’ misbehaved (see Smith’s discussion on regulating banks to curb the behaviours of ‘bold projectors’, WN II.ii.56-7: 304).

His reputation as a believer in ‘laissez-faire’ ideology is undeserved (he never used the words ‘laissez-faire’). Smith was no extreme ‘libertarian’, but he believed firnly in Liberty, tempered by the negative virtue of Justice, without which society would ‘crumble to atoms’; TMS II.3.4: 86).

How much of Adam Smith has Robert Frank actually read recently? He is, after all, an economist at Cornell, and a visiting faculty member at the Stern School of Business at New York University.

Frank adds: “The uncritical celebration of the invisible hand by Smith’s disciples has undermined regulatory efforts to reconcile conflicts between individual and collective interests in recent decades, causing considerable harm to us all.”

I would agree, but the ‘invisible hand’ celebrated by modern economists, many of them proud to wear the title of ‘disciple’ of the Chicago Adam Smith, is actually a crown of thorns: he never had a ‘theory’, a ‘concept’, a ‘doctrine, or a ‘paradigm’ of ‘an invisible hand’ (fir him it was a mere metaphor), and while such people, and the people they influence (for good money), parade their version of it to limit some regulations, they also have used their influence to continue the mercantile regulations, which Smith railed against in the 18th century, and which blight modern economies through various forms of protectionism and tariff policies, and they lower world living standards both at home and abroad, particularly in poorer countries.

Thomas McQuade ends his review of Frank’s article with a a comment on Frank's prediction that:

“100 years from now, economists will point to Darwin as the owner of the shoulders they are standing on, not Smith. Let me [Thomas McQuade] make a competing prediction: that 100 years from now economists will look back and wonder how so many of their predecessors could have been so superficial in their appreciation of Adam Smith and, as a result, could have so completely misunderstood the economic events they lived through.”

I completely agree with Thomas McQuade and give a thumbs down for Robert Frank.

A Bit of 'Calvinist' Nonsense - Surely Not Serious?

2009-07-11T08:21:00.004Z

Peter Thompson writes in Comment is Free, The Guardian, UK HERE:

Calvin, Weber and the vanishing mediator - The question: Why won't Calvin die?

“The purposeful order of the world in natural law is the religious equivalent of Adam Smith's doctrine of the invisible hand.”

Comment
Now we have: “Adam Smith's doctrine of the invisible hand”! What doctrine?
Where is it spelled out as a ‘doctrine’?

Should we take Peter Thompson seriously?

He finds a Calvinist explanation among the Chinese Communist Part leaders who ordered the Tiananmen Square massacre, and writes: “The future of British capitalism was made safe by Cromwellism and its defeat of Catholicism …”.

Perhaps there is an affinity between Thompson and the interpretation of a metaphor as a Panglossian explantion of everything resulting from all behaviours (odious as well as sublime) that result in the best of all possible worlds whatever evil has caused them. This is truly extreme neoclassical exculpation of all and any behaviours of states or businesses.

Monopolists, protectionists, slave drivers, polluters, ands their ilk are part of a Calvinist providential plan to create God's heaven on Earth! Is there no end to superstitious credulity?

Adam Smith Did Not Make Predictions

2009-07-11T07:48:00.004Z

The Daily Reckoning HERE: carries an post, “Bubble Deniers”, by Bill Bonner, co-author of three New York Times best-selling books, Financial Reckoning Day, Empire of Debt, and Mobs, Messiahs and Markets:

“Long gone are the days when economists thought deeply about how life actually works. Adam Smith, Adam Ferguson, Anne-Robert Turgot - the great “moral philosophers” - all died hundreds of years ago. Since then, the trade has gone bad. They’re all numbers guys now. An economist, of the modern variety, is a statistician…an extrapolator…and a mountebank.* If numbers go up two months in a row, he predicts they will go up another one. He rarely stops to ask whether his numbers really make any sense. Instead, he merely adds them up and rolls them out. Thus - at the bubbly top in 2006 - he was he able to describe the likelihood of default on a certain derivative instrument as a “Six Sigma event” without laughing. A Six Sigma event happens once every 2,500,000 days. Then again, when the Bubble of 2002-2007 popped, they happened once a week.

The blogs are full of chatter on the subject. What good is the economics profession, asks Paul Samuelson, if it cannot foresee the biggest single economic event in at least a quarter-century?”

Comment
I agree with the broad sentiments of Bill Bonner with a few caveats.

There are an enormous number of economists working today and it is more than likely that some of them did warn about the pending bubbles before ‘sub-prime’ entered financial discourse. Popular books of the pending stock market crash, like a stopped clock are likely to be right at sometime.

Paul Samuelson, characteristically, hits the nail on the head: why did the economics profession fail to “foresee the biggest single economic event in at least a quarter-century?”

Partly, the answer is that large as it is, economists are not members of a unified science. Many economists focus solely upon in-doors experiments, with real people, or imaginary experiments with equations.

Some do not look out of their windows at all and in fact have been carefully groomed not to do so; most do not look over-the-fence at what closely aligned disciplines are doing or have done (think of sociology, psychology, anthropology and, above all, history), and they suffer promotion-withholding disdain from colleagues if they do so, and are disregarded by the sniffy-nosed severity of those who form tenure committees that pass over anyone showing evidence of a lack of disciplinary-defined gravitas.

For those who master the black arts of econometrics, only as good as the data they sometimes painfully collect, or the harder tests of stratospherically higher mathematics and their fateful misunderstandings of the real world, despite their mastery of their imaginary worlds without humans in them, the result is largely the same - neither the colourful future they arrogantly believe they see (with pay-cheques to match) nor the black-and-white past they virtually invent are connected to the real world.

Prediction in modern economics is the Holy Grail (more like the Devil’s Jest). Adam Smith avoided making predictions; he observed, as was the rightful duty of a moral philosopher, and reported to all who would read his books. He stuck to the humble arts of an influencer; he was not a man hawking a career-winning system.

He held on to humble hopes that legislators and those who influenced them would think about his observations and, slowly and gradually, they might adopt measures to change some of their and their predecessors’ behaviours a step at a time.

His sense of history (surely the great laboratory of human experience), based on a remarkable understanding of the whole range of human behaviours across and at all levels of society throughout history and the present, lowered his expectations as to what was tolerable by ‘so weak and imperfect a creature as man’, contrasted with what was possible if the world perfectly conformed to utopian imaginations, where the people in it behaved impeccably as ‘rational maximisers’ in the manner the out-of-touch theorists believed they would (give-or-take a few heroic, not to say fool-hardy, assumptions). Ironically, Smith is described today as such a philosoper in the image of today's 'rational maximisers!

Readers perplexed by the crisis should consult ‘The Recession: causes and cures’ (2009) by David Simpson, a classical economist. It is available from the Adam Smith Institute: www.adamsmith.org

New Book On Smith by Ryan Hanley

2009-07-10T08:14:00.003Z

James Otteson, professor of philosophy and economics at Yeshiva University in New York, writes (9 July) in his personal Blog, James R. Otteson, PHD HERE:

“This Just In: An Excellent New Book on Adam Smith”

"I just received my advance copy of Ryan Patrick Hanley's excellent new Adam Smith and the Character of Virtue . I know it's excellent because I had an opportunity to read it in manuscript. In fact, the back cover of the dust jacket leads off with a blurb from me, which reads, in part, that Hanley's book is "one of the most important books on Smith in more than a decade."

Believe me, praise like that does not come easily from me. Everyone interested in Smith scholarship should read the book.”

Comment
I have had the pleasure of listening to a couple of lectures by Ryan Hanley on themes from Smith's Moral Sentiments. He is an authority and a very clear one at that. And Jim Otteson is a good judge of Smithian scholarship too.

Some people obfuscate Smith’s remarkably clear Moral Sentiments behind a veil of deep philosophical jargon, but Ryan is not one of them. He speaks at a brisk, but clear, pace, adding in short quotes from Moral Sentiments or pithy references, always with a page number attached from his memory. It is a performance to watch and listen to and audience members to whom I have spoken all remark on his high quality and authority which is a pleasure to listen to and learn from.

My order for his book will be in the post as soon as an address is available. I recommend that yours is too.

NB: I do not agree with all of Ryan’s conclusions about all aspects of his presentation of Smith’s ideas. Heaven forbid – we are good-natured scholars and I recognise polished talent when I come across it – so read and learn!

Interesting Reading List and a Surprising Exclusion

2009-07-10T07:57:00.002Z

Mark Blyth, Professor of International Political Economy
at Brown University writes in Chicobilly and Other Stories HERE:

“WHAT TO READ ON STATES AND MARKETS”

Summary -- An annotated Foreign Affairs syllabus on states and markets.

“As governments around the world have responded to the global economic crisis, questions about the appropriate relationships between states and markets are once again a matter of intense public and policy debate. As the discussion proceeds, the subject's long history is worth bearing in mind. The canonical authors one might think to start with --Adam Smith and Karl Marx -- are not actually all that helpful. Smith's writings on the state should be read against his indictment of the mercantilist system, not in relation to the modern world, and Marx's writings on the state, despite some notable epigrams, are also not particularly relevant to the contemporary era.”

Comment
“Smith's writings on the state should be read against his indictment of the mercantilist system, not in relation to the modern world” is almost correct in so far as it rises beyond the modern (pathetic) assertion that because Adam Smith was severely critical of how 16-18th century government interventions that imposed mercantile policies on behalf of small private monopolies (originally with the best of intentions but soon corrupted by their anti-competitive behaviours), it followed, argued the epigones, that all state interventions were bad, for which they claimed Adam Smith said so. He didn't.

Hence, the myth of the ‘night-watchman state’ became a shibboleth of modern proponents of modern laissez-faire economics.

Ironically, the actual phrase, ‘night watchman state’, indulged in by some over-enthusiastic propagandists of what they call laissez-faire, was a popular utterance of the 19th-century firebrand socialist, Ferdinand Lasselle, when mocking market-minded politicians for not establishing the strongest possible (socialist) state imaginable.

A reading of Wealth Of Nations (Books II, IV and V) shows that Smith's, often biting, criticisms of mercantile state policies did not preclude appropriate roles for a state (predicated on Liberty and Justice), or, as we might put it, ‘markets where possible, state interventions where necessary’).

Follow the link to read Mark Blyth’s recommended reading list – not quite what I would have selected. Also, given that the mercantile state is still with us in many respects, I would think Wealth Of Nations would be an admirable choice too.

Deception About Adam Smith

2009-07-09T17:36:00.003Z

Marivic Butod writes in Thinking Made Easy (it seems to be an essay supplier for Asian students) HERE: “International Business”

“The market economy seems a very effective type of economy as it offers economic freedom, and limited government intervention in terms of trade. It has been reported that it follows theory of Adam Smith, that of the free market economy, where the allocation of resources is determined by the ‘invisible hand’ of the price mechanism, and is commonly associated with capitalism”.

Comment
If this is typical of the quality of Thinking Made Easy essays, I despair for the thousands of Asian students who are indoctrinated with extravagant myths that Adam Smith said anything like “the allocation of resources is determined by the ‘invisible hand’ of the price mechanism”.

I offer Marivic Butod a thousand dollars if he can cite from Smith’s Wealth Of Nations 1976, or Moral Sentiments 1982, any sentence that Smith wrote in the Glasgow Edition (published by Oxford University Press), where Smith makes such a statement as the ‘invisible hand of the price mechanism’.

That, of course, excludes secondary sources by modern economists who make similar assertions about Smith to Marvic Butod's. Like Marivic Butod, they haven’t read either Wealth Of Nations or Moral Sentiments.

Of course, thinking is made easy if you can just make it up, charge for it, and nobody is the wiser among innocent customers. Caveat Emptor.

Adam Smith on the Role of Labour

2009-07-09T10:57:00.002Z

John Michael Greer writes the Archdruid Report HERE: on ‘The Wealth of Nature’ (8 July):

“Adam Smith, who set the whole ball rolling with his The Wealth of Nations, started that book with the following sentence: “The annual labor of every nation is the fund which originally supplies it with all the necessities and conveniences of life.” It does not seem to have occurred to Smith that the annual labor of a nation would be utterly useless without the natural raw materials, goods, and services – in the language suggested in last week’s post, the primary goods – that enable labor to be done at all, by making human life possible in the first place and by providing all that labor with something to labor on. Certainly it has occurred to very few of his successors.”

Comment
As is not uncommon, John has only quoted part of Smith’s sentence from Wealth Of Nations, which gives a misleading impression of Smith’s meaning; Here are the full sentences:

“The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.
According therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniencies for which it has occasion.” (WN introduction, 1-2: 12)

John’s zeal to promote his environmental theory to his readers distorts Adam Smith’s legacy to help John to make his case that nature is the true wealth of nations. I shall not argue with John over his theory; I shall explain Smith’s meaning in his full sentences.

In ‘rude’ society – wandering bands of gatherer–scavengers (long before big-game hunting was practised) – with all of nature in its ‘pristine’ condition, hominines and humans still had to labour to acquire the bounties of nature. Apples did not just fall of trees into the mouths of indolent humans, nor did berries and plants make their way to the stomachs of those dependent on what they could find the eat by walking to, searching around, and the plucking of food, which even among the most abundant of sources, still required effort.

As always, labour was divided unequally even in the egalitarian societies of these small (in number) wandering human bands: females fed themselves and their children; males fed themselves. This longstanding arrangement (shared by our primates cousins) gradually faded as habits changed from the growing importance of brain changes (in both sexes) and opportunist scavenging gave way to determined searching for scavenged leftovers and, millennia later, to deliberate hunting of bigger game.

All this labour was aimed at acquiring the ‘necessaries and conveniences of life’. These very necessities and conveniences were products of nature, and rightly revered by John, but none of them would be of significance to human beings (or, indeed, to animals and living things generally) without the intervention of some forms of energy by agents wishing to utilize them.

Directed energy to some end is embodied in Smith’s use of the term, ‘labour’. By the mid-18th century, Britain was fairly well institutionalised to procure and distribute not only the bounties of nature, but also the fruits of human labour, which by then was hardly a relatively passive stroll in Eden’s mythical garden (which, if you read Genesis carefully, you will find God insisted Adam and Eve worked in the Garden before the ‘fall').

Moreover, in the 18th century there were now many millions (tens of millions including China) of humans on the planet, engaged in various forms of labour from, gathering-hunting tribes across large swathes of the Earth, through shepherding societies in central Asia, and farming societies across Europe, India, China, and Central America, until (‘at last’) the appearance of commercial societies in Western Europe.

Hence, Adam Smith’s introductory two paragraphs graphically illustrate the human differences in their societies, across all the ranges of their organisations, technologies, technical cultures and life-styles, characterised by their labour applied to their environments.

John asserts that it “does not seem to have occurred to Smith that the annual labor of a nation would be utterly useless without the natural raw materials, goods, and service … that enable labor to be done at all, by making human life possible in the first place and by providing all that labor with something to labor on.” Nature was left completely alone through billions of years without human labour manifesting itself. It will no doubt go on for billions of years after humankind is extinct.

To say that Adam Smith ‘set the whole ball rolling’ with Wealth Of Nations is absurd. If he had never lived, or had been lost in obscurity, the impact of human labour on the environment, for good or ill, would have continued to happen in Smith’s times, as had happened in past millennia, and will continue in future millennia.

Adam Smith was a moral philosopher, who observed from whence human society had emerged (‘rude society’) and the significance of its recent history, especially from the Fall of Rome. He prescribed no bold plans (he was not ‘a man of system’), and nor was he an ideologue. He reported on what he observed for readers to make what they wanted of his books.

Which of course, is what John has done, though it would be better if he reflected first on what Smith actually said rather than assert about what did or did “not seem to have occurred to Smith”.

From the Department of Thinking Aloud.

2009-07-07T20:40:00.003Z

Sitting on 1,950 posts since Lost Legacy started in February 2005, I wonder sometimes where the Blog is going.

Is it a one-way street? On occasion we attract comments from some readers; mostly we don't, though, to be fair, I often get comments direct to my address, almost all of which are interesting and constructive, or asking for copies my papers.

I am about to start on my third book on Adam Smith, but I haven't started looking for a publisher, or even done more than sketched out a few themes, though what is there looks solid and worthwhile.

My paper on 'The Hidden Adam Smith in his Alleged Religiosity', presented in the University of Richmond (Virginia) and the University of Colorado in Denver in June, appears to have been well received (OK, a few colleagues had reservations), and I have been encouraged to write it as a possible journal article.

I am also about the complete my response to Dan Kline's critique of my paper on 'Adam Smith and the Invisible Hand: from metaphor to myth', which appeared in the May 2009 issue of Econ Journal Watch (for the Sepember issue).

This is quite a lot of academic, rather than merely polemical, work, which is prominent presently in Lost Legacy.

Which should get most of my attention? That's my dilemma.

I don't need to focus more on more serious academic work on Adam Smith for career reasons - I am retired and therefore don't need recognition for promotion or 'tenure' reasons, the latter of which I regard as a pernicious job-protection scheme, though it started in the UK to protect non-conformist academics from the prejudices of the dominating established Churches of England and Scotland, but which long ago lost its way as well as it original reason.

How true, much like mercantile political economy started in England as a crude form of commerical development and soon degenerated into the creation of monopolies and protection schemes against the interests of unimpowered consumers.

I want to continue researching but with no particular purpose in mind, other than it interests me; I want to continue Lost Legacy because I feel the injustice of our discipline to Adam Smith's legacy and angry that many colleagues just look the other way, though they do, as they should, know better.

I would be grateful for any advice from readers, either as comments on Lost Legacy or in correspondence to the address on the Blog's mast head.

Amartya Sen: Exponent of Adam Smith's True Legacy

2009-07-06T20:49:00.003Z

An editorial in the Times of India is worth reading in full ">HERE:

“In an article, 'Capitalism beyond the Crisis', Amartya Sen has argued that the present economic crisis demands a new understanding of older ideas, such as those of Adam Smith and Arthur Cecil Pigou. He draws attention to the fact that, while Smith showed the market economy's usefulness, his analysis went beyond leaving everything to the market's invisible hand. He viewed the usefulness of capital and markets within their own sphere and at the same time saw, contrary to the popular perception, the need for other institutions, such as sound mechanisms for financial regulations. He was aware, for example, of the need for state regulation to protect citizens from what he called "prodigals and projectors" who took excessive risks in their pursuit of profit.”

Comment
Amartya Sen is always worth reading and I recommend that you follow the link and see how Sen develops his argument by bringing Max Weber into play:

“In the last pages of The Protestant Ethic, he notes: "The idea of duty in one's calling prowls about in our lives like the ghost of dead religious beliefs." He adds: "In the field of its highest development, in the United States, the pursuit of wealth, stripped of its religious and ethical meaning, tends to become associated with truly mundane passions, which often actually gives it the character of sport."

Sen writes with surprising agility and deep commitment to social changes within markets where possible and with public funding where necessary.

There is no call to protect Adam Smith’s legacy from economists like Amartya Sen. He embodies Smith’s true legacy in everything he writes.

Mythical Basis for a Theory

2009-07-04T18:23:00.004Z

Linda Naiman writes at the Creativity at Work Blog HERE:

“Taking Responsibility for the Whole”

“Built into the concept of capitalism and free enterprise from the beginning was the assumption that the actions of many units of individual enterprise, responding to market forces and guided by the ‘invisible hand’ of Adam Smith, would somehow add up to desirable outcomes.

“But in the last decade of the twentieth century, It has become clear that the ‘invisible hand’ is faltering. It depended upon a consensus of overarching meanings and values that is no longer present. So business has to adopt a tradition it has never had throughout the entire history of capitalism: to share responsibility for the whole. Every decision that is made, every action that is taken, must be viewed in the light of that kind of responsibility.”

Comment
The “assumption” that market forces were “guided by the ‘invisible hand’ of Adam Smith” add up “to desirable outcomes” was not “built into the concept of capitalism and free enterprise from the beginning”.

That is a modern myth spread widely and repeatedly from the 1950s by modern economists (though it was earlier taught in the Chicago oral tradition from the 1930s). It was backdated to Adam Smith to give the myth high-level approval, as if he had made the metaphor of ‘an invisible hand’ a central theorem of his analysis of 18th century commercial markets (he never knew of ‘capitalism’, a word invented in English for the first time in 1854 – see Oxford English Dictionary).

Smith used the metaphor of ‘an invisible hand’ only three times in nearly a million words: once only in his Essay on Astronomy, written from 1744 to 1758, unpublished in his lifetime and published posthumously in 1795; once in Moral Sentiments, 1759; and once in Wealth Of Nations, 1776.

In no sense was the metaphor about “responding to market forces and guided by the ‘invisible hand”. In fact Smith discussed how markets worked in Books I and II in Wealth Of Nations without any mention of ‘an invisible hand’. That he is alleged to have done so is a myth – a sort of ‘academic campus myth’ like those ‘urban myths’ we hear so much about.

Modern economists blessed their mathematical models of general equilibrium with quasi-miraculous foundations and it was used also to proclaim the self-evident superiority of capitalist institutions and markets over the then prevailing counter-claims of the centralized planned economies of communist rivals.

Modern economists ‘over egged the pudding’, as we say in English. Markets are superior in most cases to non-market institutions and do not need the imaginary aid of so-called invisible hands, and certainly not associated with Adam Smith's isolated use of the metaphor, a wholly innocent victim of the purloining of his legacy.

That there may be a role for regulation, made on a case-by-case basis and not as a catch-all cop out, is quite consistent with Adam Smith’s moral philosophy and political economy.

Smith was NOT opposed on principle to intervention in some markets; his outright opposition to the forms of government inspired interventions from the 16th century in Britain through policies which he described as ‘mercantile political economy’ (many features of which remain active today) should not be taken as evidence for his general views on the levels of government promoted interventions.

Smith in Wealth Of Nations identified several important areas for government intervention – such as in banking regulations (even if it was contrary to his principles of ‘natural liberty’ when the security of people was at stake) - and in weights, measures, quality of cloths, gold and silver, the Mint, and post offices. He advocated public funding of in ‘public works’ (roads, bridges, canals, harbours, town cleanliness, and pavements) and in public institutions (education and aspects of health). He also advocated the separation of church and state.

His general policy is best summed as ‘markets where possible’ (operating under the justice system - an independent judiciary, Habeas Corpus, and trial by juries) and ‘public works where necessary’. Which is a far cry from the so-called ‘night watchman state’ (actually an idea of Ferdinand Lassell’s, the firebrand 19th century socialist, not Adam Smith’s).

Uncovering Crucial Aspects of Smithian Growth Theory

2009-07-04T15:06:00.003Z

Tim Hartford, author of a new book (7 August) ‘Dear Undercover Economist’ (Little Brown), who blogs at the ‘Undercover Economist’ blog HERE, also writes a regular column at FT.com HERE: , yes a busy underground economist too (but then he is good at what he does).

Try this for example:

“Why getting complicated increases the wealth of nations”

One of the defining characteristics of the modern economy is that it’s awfully complicated. Even a fairly humble product such as a shirt might incorporate cotton from west Africa, oil from Indonesia to make the polyester in the button (manufactured in China), and designs sketched out by an Italian using American computer software.”

Comment
Tim paraphrases Eric Beinhocker, author of The Origin of Wealth, quoting Brad Delong’s (www.J-brad-delong.net)
calculation of the relative balance of access to product complexity of tribes people among the Yanomamö living by the Orinoco River compared with the New Yorker tribes people living by the Hudson River. Brad estimated the ‘income’ gap as $90 for the Yanomamö compared to $36,000 for the New Yorker.

Putting this into product complexity terms and using the retailer’s Stock-Keeping Units’ measure (SKUs) of access to available product types, this equates to a few hundred – several thousand at the most generous estimate – SKUs available to the Yanomamö tribes compared to several ‘tens of billions’ available to New Yorkers. See Beinhocker, E. D. 2006, The Origin of Wealth, Evolution and Complexity and the Radical Re-Making of Economics, Harvard Business School Press, Boston, pp 8-11 [Recommended, but ignore Beinhocker’s quoting the myths about Adam Smith’s ‘invisible hands’].

“This would probably not have surprised Adam Smith, who emphasised the importance of specialisation as a source of the wealth of nations. Specialisation and complexity are closely linked: an economy with more specialists is one that requires more teamwork and more distinct interactions between individual activities.”

Comment
Adam Smith most certainly would not have been surprised.

Consider the issues raised by the complexity and abundance of SKUs of high significance in Adam Smith’s treatment of the division of labour and its necessary entwining with complex specialisation.

While the ‘pin making’ example in Wealth Of Nations has achieved world-wide recognition (though its accuracy is under challenge from the French economist, Jean-Louis Peacelle; see his 2006 article: ‘Adam Smith’s use of multiple references for his pin-making examples’, European Journal of the History of Economic Thought, 13:4, pp 480-512), the far more significant attention that Adam Smith gave to the manufacture of the labourer’s common woolen coat in Wealth Of Nations (WNI.11: pages 22-23) is almost totally neglected today.

Yet, Smith identified the complexity issue long before it attracted much attention until recently. I compiled a small table (in my Adam Smith: a moral philosopher and his political economy, 2008, Table 6.1, page 106, Palgrave Macmillan, Basingstoke) to illustrate Smith’s insightful realisation of the importance of comparative complexity for relative wealth experience in different economies, and indirectly why some economies are wealthy and other poor, from observation of:

‘the accommodation of the most common artificer artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! how much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world! What a variety of labour too is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labour is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brick-maker, the brick-layer, the workmen who attend the furnace, the mill-wright, the forger, the smith, must all of them join their different arts in order to produce them. Were we to examine, in the same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears next his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen-grate at which he prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afforded a very comfortable habitation, together with the tools of all the different workmen employed in producing those different conveniencies; if we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.”

Tim recognises that identifying complexity, or ‘round about’ supply chains “is not the way that most economists think about what makes countries rich. It is not that they disagree, simply that they tend to focus on more easily measurable aggregates, such as the total stock of capital and labour.”

To which we could lay a heavy responsibility on ‘most economists’ for their modern notions as to what is important in their subject area. By neglecting the appropriate starting point of their inquiries – such as, Wealth Of Nations, for example, they became fixated with “more easily measurable aggregates, such as the total stock of capital and labour”, and cannot see the wood for the trees (or vice versa!), or, if you like, the are still looking under the lighted lamp-post and not in the darker alley.

If you consider Allyn Young’s seminal article in the Economic Journal, 1928: (‘Increasing returns and economic progress, vol. 38: pp 527-42; available HERE:), you will see how the complexity of the supply chain and the increasing sub-division of specialised production right-along the chain, mainly quite independent of the final destination of the complex products, makes possible the ever widening abundance of SKUs that become available to their populations.

Smith noticed this in his concluding paragraph in Wealth Of Nations, Book I, Chapter 1: pages 23-24:

“Compared, indeed, with the more extravagant luxury of the great, his accommodation must no doubt appear extremely simple and easy; and yet it may be true, perhaps, that the accommodation of an European prince does not always so much exceed that of an industrious and frugal peasant, as the accommodation of the latter exceeds that of many an African king, the absolute master of the lives and liberties of ten thousand naked savages.”

Tim Hartford’s article should be read to see how he links this Smithian view to modern differences among exporting countries active in world markets today. It is well worth reading.

Sam Fleischacker Wins Prestigious Award

2009-07-03T14:51:00.002Z

Brian Leiter announces in Leiter Reports: a philosophy blog HERE carries this great news:

“Fleischacker Wins 2009 Gittler Award from APA

Samuel Fleischacker (Illinois/Chicago) has won the 2009 Gittler Award from the APA for work in philosophy of the social sciences for his 2005 book On Adam Smith's Wealth of Nations: A Philosophical Companion (Princeton University Press).”

Comment
Sam Fleischacker’s deserved award from the American Philosophical Association is great news for those interested in restoring the legacy of Adam Smith’s from the mess it has been dragged into by modern economists since the 1950s.

And it took a philosopher to do it!

Modern economists have for so long believed in the Chicago 'Adam Smith', who has little in common with the Adam Smith who was born in Kirkcaldy in 1723. Chicago's version is almost unrecognisable to anybody with the slightest acquaintance with Moral Sentiments (1759) or Wealth Of Nations (1776).

I am personally very pleased for Sam Fleischacker, having met him on several occasions at academic conferences. He is a formidable authority on Adam Smith’s moral philosophy and his political economy.

I read his “Adam Smith's Wealth of Nations: A Philosophical Companion” (Princeton University Press) with great enthusiasm and the further I read into it, his understanding of the real Adam Smith became ever more evident.

If any serious student of Adam Smith wants to read an authoritative, intellectual and engaging account of Wealth of Nations, then an investment in his ‘companion’ text cannot be bettered.

Economists need not be put of by prejudices against philosophers and their overly stylistic reputations (from which Sam is exempted) and philosophers need not be repelled by his treatment of a subject matter outside his professional discipline; both will learn a lot more than they anticipate.

The American Philosophical Association deserve our congratulations for awarding their prize to someone who has done much to restore Adam Smith’s legacy.

Myths About Charles Darwin and Adam Smith

2009-07-03T13:07:00.004Z

Len Hart writes the The Existentialist Cowboy Blog HERE:
and posts an article “H. L. Mecken Covers the ‘Monkey Trial’ “, in which includes the following:

“Interestingly, the term "survival of the fittest" was never used by Darwin”

“Evolution is often considered to be so true as to be trivial: what survives survives. Critics of Darwin will often cite the tautology though it does not support them; it supports Darwin. Species which survive pass on their genes as well as mutations. This is quite beyond debate. Every farmer who has bred for specific characteristics knows the truth of it. And every cowboy will tell you that if you kill a slow roach, you improve the breed. Evolution! Adaptation! Natural Selection! Some of the more subtle critics of "Darwin" say that "survival of the fittest" is a circular argument: the fittest are those who survive, and those who survive are deemed fittest. There are problems with that:

1. Darwin never used the term "survival of the fittest"! That dubious honor belongs to Herbert Spencer, a "Social Darwinist" who never understood Darwin, nor was he "social"!

2. Even if the term "natural selection" is more properly substituted for the bogus term "survival of the fittest", the argument is circular only if the invalid conclusion that "only the fittest survive" is added! The invalid value judgment –survival of the fittest –is falsely attributed to Darwin.”

Comment
I am not wholly in disagreement with Len Hart’s article (on the Scope’s Trial) but in the interests of protecting Charles Darwin’s legacy (much like I strive to protect Adam Smith’s legacy, Len Hart (NO DOUBT IN GOOD FAITH) distorts Daewin's legacy.

I have often seen the denial that Charles Darwin ever used the term: ‘survival of the fittest’; the statement's origins is more often associated with Herbert Spencer, yet Darwin mentions to ‘survival of the fittest’ several times in his book, The Descent of Man and selection in relation to sex, 1871, John Murray, London.

An example, one of several, is found in Chapter IV, “Of the Manner of the Development of Man from Some lower Form” (page 157 in the photoreproduction Princeton University Presss edition, 1981):

“In an area as large as one of these islands, the competition between tribe and tribe would have been sufficient, under favourable condition, to have raised man, through the survival of the fittest, combined with the inherited effects of habit, to his present high position in the organic scale.”

It is interesting to see myths that become "facts" merely by repetition as they spread round the world with an ease which are contrary to the real facts.

Clearly, the epigones re-presenting Darwin’s ideas, are like the epigones who have represented Adam Smith’s ideas since the 1950s, who have not cared to read the authors they imply they quote from with authority (in Adam Smith’s case some of the perpetrators of the myths received the accolade of Nobel Prizes).

It's best to remember that ther 'patron saint' of all students everywhere is St Thomas, also known as 'doubting Thomas'. I always warned first year students, and on occasion reminded final year students' never to trust what they were told by their lecturers, but always check for themselves by reading all references they asserted to justify their claims about what others were supposed to have written.

What's Happeneded to my Google Search Tool?

2009-07-02T18:41:00.003Z

I have returned to Edinburgh and almost recovered from jetlag, to realise, eventually, that my main source of comments on how people (many of whom should know better because they must have read Adam Smith's 'Moral Sentiments' and/or 'Wealth Of Nations' before pontificating about what he wrote about, but clearly haven't) is a google search tool, which appears to have been turned off by my absence in the USA.

Perhaps a technically-minded reader would explain what likely has
happened to my interrupted service?

I shall make enquiries and get back to commenting as soon as possible.

Update: something is beginning to re-appear, plus I re-registered for the service, so it may start duplicating...

Light Blogging for a Couple of Days

2009-06-29T03:28:00.003Z

Returning from Denver to Scotland via Newark to arrive Tuesday am.

Light blogging envisaged until sometime on Tuesday. If I get a connection via wireless during 4 hour layover at Newark I'll send a message.

I much enjoyed the two conferences that I attended and I return with several ideas for my next book on Adam Smith (yes, another one!), which I think will create a bit of interest.

First, a draft, then a whole lot of research among the papers held in various locations in the UK. Then a publisher and a viable book deal.

The theme is now formed; execution is the harder part (but the most enjoyable).

Peer Review This Morning

2009-06-27T11:19:00.003Z

I am presenting my paper, 'The Hidden Adam Smith in His Religiosity' (an initial response to Lisa Hill's 'The Hidden Theology in Adam Smith', 2001) to the 'Smith, Morality, and Religion' session of the 26th Annual Conference of the History of Economics Society, in Denver, Colorado.

This is a real test of my thesis that Adam Smith was not a Christian, though a regular attender with his mother of his local Kirk in Edinburgh, was not a Providentialist (though he often used its language), and was not a Deist, though he never expressed any degree of explicit atheism. He was probably agnostic, being unable to explain what was increasingly clear that the religious accounts of the 'final cause' of the world and everything in it were inadequate as an explanation.

Smith, of course, was not informed about Darwin's theory of natural selection, of Mandel's theory of inheritance, or of genetics and Watson and Crick's 'double helix'. From 1785 Smith was aware from his friendship with James Hutton, the geologist, that the age of the Earth was much older than Bishop Usher's Biblical date of 2004 years. The Earth had 'no vestiges of a beginning, no prospect of an end' said Hutton.

In the absence of a credible alternative explanation, though theology, rooted in 'pusillanimous superstition' (his History of Astronomy) was impregnable until evidence emerged, Smith wrote in a barely discernable code that hid his doubts, a not unreasonable protection against the Presbyterrean zealots then prowling across Scottish society searching for heresy, aspostacy, and signs of atheisim.

I shall report on how my colleagues receive my paper.

Which Adam Smith Was Wrong?

2009-06-26T16:33:00.004Z

Shaun Grovers writes the Schlog blog (HERE):

"ADAM SMITH WAS WRONG"

"At the dawn of the Industrial Revolution, during the Age of Enlightenment, Adam Smith wrote Wealth of Nations. It’s earned him the title “father of economics” and it greatly influenced the founders of America with its argument that free market capitalism was the best economic system available for a society prone to selfishness.

Adam Smith wasn’t just an economist. In fact, at the time, economics wasn’t its own field yet. The best I can figure it was a branch of philosophy mixed with sociology and even a little religion. Adam Smith, for instance, was a professor of Moral Philosophy at the University of Glasgow - not some mathematician or finance guru working as a prof in a business school. That doesn’t discredit him, of course, but it’s something to keep in mind when reading his thoughts: They’re as much a prescription for morality or theology as they are for business practices.

“Adam Smith believed, for instance, that in order for a free market society to prosper, individuals must look out for their own self interests foremost. “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.”

Comment
Smith’s observation was that individuals are ‘self-interested’, an assessment with a long pedigree in classical philosophy long before Smith taught his students. But that was not the problem in itself. The main problem was that people depended upon others, mostly unknown others, for their daily sustenance.

Long gone in Europe were the days when individuals sought whatever they could get for themselves from gathering fruits, roots, insects and birds’ eggs in the forest in ‘rude’ societies that were common before farming and shepherding (and still were common in 18th century experience over much of the world, with a few remnants still found today).

Society was more complex (though fairly simple compared to now) and without mutual dependence, largely from the division of labour and the propensity to exchange, common to all people in Europe, and in the ancient stone civilisations of China and India, the mass of the population would soon suffer grosser privations than was already common. There was not enough subsistence available to support distribution by such benevolence as was present to allow everybody, or a majority, to rely on benevolence for their daily survival. It wasn't that benevolence was wanting so much as it would never feed enough people alone.

Smith addressed the prospects for commercial societies (he didn’t use the word ‘capitalism’ nor have knowledge of the 19th century phenomenon), which if allowed to operate without the oppression of existing state-supported monopolies it would continue the spread of opulence to the majority of the population.

Shaun Grovers jumps into assumptions about what Adam Smith said quite clearly and differently, both in Moral Sentiments (1759) and Wealth Of Nations (1776). Smith did not have an idealistic view about human behaviour – he was an observer of how people actually behaved and not how they might behave in an imaginary utopia.

Moreover, Smith dealt in relatives, not absolutes. It wasn’t that the ‘butcher, brewer, and baker’ would behave like perfect boy scouts; given the chance – particularly the opportunity provided by monopoly, a common enough condition under the Guild system that had controlled the supply of food and necessaries in most towns since the 16th century – the butcher, brewer, and baker would behave exactly as Shaun concludes in the substance of his article. The trader would pay more than likely “an unjust wage to his workers, lying about the quality and origins of his products, making promises for immediate gain with no intention to keep them, etc,” and much worse besides.

The Smithian antidote to monopoly is competition, not as an idealistic model, but as the best known remedy to selfish behaviours emanating from monopoly.

The Acts of Parliament that created state-granted monopolies, which often fostered private cartels and 'conspiracies' against the consumers, were often orginally awarded with good intentions (and we know to where those roads lead), and had by mid-18th-century Britain become barriers to commercial growth, jobs and good health.

Smith’s critiques of such government interventions was severe (see Book IV of Wealth Of Nations) – so severe that modern readers often generalise incorrectly his specific remarks about 18th-century government interventions as his supposed opposition to all government interventions, which is far from the case, as regularly discussed on Lost Legacy.

Shaun writes:

“Adam Smith, like I said earlier, came up with his ideas during the Age of Enlightenment - a period characterized in part by radical optimism about the human spirit, denying that all men are born spiritually powerless and corrupt. Ronald Reagan sounded a lot like a modern day Adam Smith sometimes. He was very inspiring but very wrong when speaking about the inherent goodness and strength of mankind: “A people free to choose will always choose peace” or “I know in my heart that man is good” or “There are no constraints on the human mind, no walls around the human spirit, no barriers to our progress except those we ourselves erect.”

Comment
I do not know where Shaun got these ideas from, but they certainly were never expressed by Adam Smith. This leads me to ask if Shaun has actually read Smith’s works, or is he confined to what others have said that the wrote, plus a few quotations out of context?

“Adam Smith was wrong. Free market capitalism might just be the best economic system the world has ever seen. I assume so, but what do I know about economics? I’m a musician. But it doesn’t produce the rosy results Smith argued it would either. A society full of Smith’s imaginary butchers will not benefit the whole of society because the butcher is not inherently good and self-regulating. He does not naturally pay a living wage to his workers. He does not naturally keep his promises. He does not naturally tell the truth at all times. He’s just like me. And just like you. If we serve ourselves with no outside restraints placed upon us, we’ll cheat to get more and horde what what we get while the distance between us and the have nots widens.”

Comment
Having set up an imaginary straw man and called him ‘Adam Smith’, Shaun concludes that ‘Adam Smith was wrong’. What astonishing insight! Sadly, what nonsense too. It’s not that Shaun is deliberately misleading; he is simply uninformed.

And finally:

“Adam Smith’s error may come from his understanding of God. Adam Smith is believed to have been a deist - someone who thinks “The Great Architect” built the universe but then walked away from it, never to return, never getting mixed up in human affairs, never entering the human heart, never putting on skin and becoming a man for man’s sake, never sending Spirit to guide and teach, never to lead his People to be creators of equality and justice and, well, regulation.”

Comment
Shaun here is interesting. Many make similar interpretations of Smith’s alleged ‘Christianity’ and his alleged providential tendencies, and his alleged Deism, but not as clearly as Shaun does.

However, this would take a lot longer to respond to at this time. I am presently in Denver to read my paper, ‘The Hidden Adam Smith in his Theology’ (in part a response to Lisa Hill’s 2001 paper, ‘The Hidden Theology in Adam Smith’).

Readers interested in the current draft of this paper, which answers in some measure the ideas expressed in the paragraph in his article, should send an email to me: gavin at negWeb dot com.

In sum, Shaun Grovers’ article is interesting but flawed by a reliance on the writings of others (mainly ‘rightwing’ Reagonites it seems who describe a fictional Adam Smith invented in Chicago from the 1950s; though he is not enamoured with the ‘leftwing’ either) and not on the work of the real Adam Smith, born in Kirkcaldy in 1723.

There is a world of difference between these two Adam Smiths, and knowing the differences is important, as well as fairer to the Adam Smith born in Kirkcaldy.

Property Rights the Solution, Not the Problem

2009-06-25T15:56:00.003Z

‘Dan’ at Migrations Blog (HERE): writes: ‘Tragedy of the Commons Still Has Meaning’

“ “The Tragedy of the Commons” is an influential article written by Garrett Hardin and first published in the journal Science in 1968. It’s one of those pivotal articles at the dawn of the environmental and conservation movements, which describes a dilemma in which multiple individuals acting independently in their own self-interest can ultimately destroy a shared limited resource even when it is clear that it is not in anyone’s long term interest for this to happen. [He?] challenged the philosophical assumption of Adam Smith that decisions reached individually will be the best decisions for an entire society and advocated “social arrangements” that produce responsibility. These arrangements might include some form of “mutually agreed upon coercion”, although perhaps “coercion and incentives” more accurately describes his intentions.

Today, the strongest criticisms of the environmentalist and conservationist political stances, advocating regulatory measures and incentives for directing human industry, are still being voiced by the intellectual descendants of Adam Smith. These critics – Libertarians – continue to take the position that anything benefiting individuals in a competitive economy is good, and any hindrance of those liberties is bad, even when scientists indicate that the opposite is the case.”

Comment
Adam Smith did not write that ‘decisions reached individually will be the best decisions for an entire society and advocated “social arrangements” that produce responsibility.’

This idea, along with the myth of ‘his invisible hand theory’ is an idea that was invented by some modern economists, and propagated since the 1950s by people who have not read Smith’s Wealth Of Nations (1776) or his earlier book, Moral Sentiments (1759).

Dan appears to be one such miss reader of Adam Smith, who gives over 60 examples in Books I, II, and III of Wealth Of Nations, of the malign consequences of individual decisions and their detrimental outcomes for the entire society. Indeed, Book IV of Wealth Of Nations is, what Smith called, a ‘very violent attack’ on the individual decisions of the legislature (and those who influenced its members) in the mercantile political economy, both in domestic and foreign trade, since their initial interventions of governments in the economy from the 16th century.

It is amazing how the notion, honestly presented by Dan I don’t doubt, that Adam Smith wrote anything remotely like
that which he has been credited with since the 1950s by theorists of general equilibrium and neoclassical economics, such as Milton Friedman, Paul Samuelson, most Noble prizewinners and almost all economics tutors in the US and UK. The simple remedy of reading all of Smith should correct the error, instead of relying on a few quotations.

The Tragedy of the Commons by Garrett Hardin was an excellent essay, spoiled by his main obsession in the essay about population growth. He set out to prove the not difficult idea that successive population increases on a fixed area would deplete the natural resources beyond a sustainable state. Diminishing returns (Ricardo) had established such a conclusion in 1817.

Hardin’s excellent point was that the over-exploitation of any natural resource – such as the ancient ‘commons’ of pre-commercial society – would inevitably exhaust the resource, particularly where the resource, like the old commons, was open to all to use.

The proper conclusion, not discussed by Hardin, was to introduce prices for access by removing its ‘free’ status. Each free user is not constrained to limit his use, but would be if property rights were introduced. Of course, this is anathema to most environmentalists, who regard commercial pricing as the cause of the problem when in fact it is the solution.

Thus, when Dan draws on the experience of open, free, access to the fish stocks of the world by whoever has access to fishing boats (which is just about everybody with access to the world’s oceans), he misses the main point of the tragedy of the commons – the free access encourages some – it doesn’t take many – boats to over-fish, which is what has been happening for decades among all fishing fleets of all sea-going nations.

The proper response to the tragedy of the fishing stocks – property rights – is articulated by ‘the intellectual descendants of Adam Smith’, though I suspect Dan’s selection of the people who fulfill his version of who these individuals are may not be the same people that Lost Legacy would identify.

At Last! Great Sense on the Current Crisis!

2009-06-25T14:13:00.004Z

Dr Madsen Pirie, of the Adam Smith Institute (London) reports on an analysis of the current recession, written by Professor David Simpson: The recession – whodunit? (HERE)

A publication the Adam Smith Institute is particularly proud of is The Recession – Causes and Cures by Dr David Simpson. Dr Simpson was Economics professor at Strathclyde, and then economic advisor to Standard Life. His piece is short, eloquent, and utterly convincing. It forms a crucial part of our counter-attack on the facile but common notion that it was greedy bankers who brought about our downfall.

Not so. Dr Simpson methodically traces the bust's causes to the previous credit-fuelled boom instigated by governments and their central bankers. There were indeed bankers who made foolish (rather than greedy) decisions, and who read risks wrongly. But they did so amid a sea of cheap money which governments had flooded onto them. The asset-price bubbles (which are now bursting or deflating as markets correct the errors) resulted from interest rates deliberately kept too low for too long.

The best way to treat a bust is to avoid it altogether by not stoking up the antecedent boom, but given a bust, the treatment should be lower corporate and personal taxes. These should be financed by spending cuts, not by borrowing which signals future tax rises. And the policy-makers who oversaw this crisis should be replaced.

The book is a terrific read, and puts its whole case in fewer than 40 pages. It is both compelling and convincing. Do read it. (HERE)

[Disclosure: I am a Fellow of the Adam Smith Institute]

Adam Smith Did Not 'Invent' Capitalism

2009-06-24T15:35:00.003Z

Natasha Chart writes in Sustainable Food (HERE)
Natasha Chart writes in Sustainable Food (HERE)

‘Market Consolidation and Anti-Trust’

“It would have disgusted Adam Smith, the moral philosopher who invented capitalism, to see such powerful monopolies still running the show and claiming to be following the system he proposed to rid the world of mercantilism and all-powerful guilds.

Comment
We know what Natasha means but, for the record, Adam Smith did not ‘invent capitalism’.

The word itself was unknown in English until 1854 (Oxford English Dictionary) and Smith died in 1790. Smith wrote about ‘commercial society’, as practised in mid-18th century.

Moreover, societies are not ‘invented’ by anyone. They evolve of their own volition from the unintended consequences of the actions of individuals over long time periods. Attempts to ‘invent’ societies always fail (e.g., Marxist , socialist and other ‘utopias’, as, nowadays calls for a complete legislative change from modern capitalism to independent, local, entities), and end up with tyrannies unanticipated by their idealistic initiators.

Adam Smith was a philosopher who ‘did nothing, but observed everything’.

He was a fairly severe critic of the existing commercial arrangements of Britain, but also a very moderate realist about the prospects for major legislative changes in the near future. He believed tariff changes would only work if introduced slowly and gradually because of their disruptive consequences for the labourers affected by unemployment, and for the lack of will among legislators and those who influenced them, for example.

He did, however, propose the repeal of the mercantile Acts of the British Parliament, especially those pertaining to the ‘all-powerful guilds’, the Settlement Acts (preventing labourers leaving their parish to look for work in other parishes), the Apprenticeship Acts (preventing skilled and semi-skilled labourers from exercising their skills in places other than where the served their 7-years as apprentices, and preventing the easier spread of new technologies in 'apprentised trades'), and the legislative abuses of the Acts of Navigation (he agreed with the Act in principle when limited to ensuring that Britain had enough seamen and ships to defend it island from naval attack, but thought the all-embracing monopoly of the colonial trade (with North America and the Caribbean) was detrimental to Britain’s (and the colonists’) interests (see Book IV, Wealth Of Nations)

In the event, some of these changes were not affected until the mid (the Navigation Acts) and late 19th century (universal education provisions).

But, of Adam Smith ‘inventing’ capitalism, there is no evidence whatsoever. That he would see modern society as essentially unchanged from 18th century mercantile political economy that he knew so well (timid steps to free-trade in the major economies, like the US and Europe; predominant popular views associated with ‘jealousies of trade’ and beggar-thy-neighbour' popular policies; wars not for defence and often for indeterminate ends; and the dominant practises of local monopolies, etc.,) I do not agree with Natasha that he would be 'disgusted', or even surprised.

Smith well understood the foibles of people, especially in government and the legislatures. In probably the only prediction he ever made - the future supremacy of the USA's economy over all others by the late 19th century - he would feel vindicated
But 'disgusted' - I don't think so.