Wednesday, June 28, 2017

INTERESTING BUT PARTLY FLAWED HYPOTHESIS

RAHUK MATTHAN  posts (28 June) on LIVE MINT HERE
http://www.livemint.com/Opinion/oqXSrwt7z9jXRM7D5g1DoI/The-future-of-ownership.html
“The future of ownership
India has the unique opportunity to stand at the very forefront of the future of mobility
Ownership is central to modern economic theory. Adam Smith saw property as the means for providing for physical needs—both at the level of the individual and society. He believed that if ever there was a dissonance between private ownership of property and the interests of society as a whole, the “invisible hand” would correct the imbalance. As a result, the ownership of property is not only central to our existence, in many ways, it represents the aspirational goals of our lives. It has become the basis on which we measure our success—in terms of where we live, the property we own, the clothes we wear and the cars we drive.”
Comment
Interesting speculation by Rahuk Mattan. I am not so sure of his background-thesis that personal property is a relatively recent socially accepted phenomenon. Even in primitive tribal societies the notion of our exclusively owned hunting grounds were apparently observed, along with capital punishment for other tribes intruding upon them (See Vancouver’s accounts of his 18th-century voyages to the North-west coast and islands off North-west America).
This paragraph in Rahuk Matthan's otherwise interesting article caught my attention:
“Adam Smith saw property as the means for providing for physical needs—both at the level of the individual and society. He believed that if ever there was a dissonance between private ownership of property and the interests of society as a whole, the “invisible hand” would correct the imbalance.”
On what authority did Rahuk Mattan compose this paragraph? It certainly does not come from anything Adam Smith wrote, either about private property or about his singular us of the invisible hand metaphor, which was on a different subject altogether.

This invented error spoils what is otherwise an interesting hypothesis about the future of the private ownership of automobiles, especially in the technical age of driverless vehicles and ‘Uber' services.

Tuesday, June 27, 2017

ADAM SMITH'S UNIQUE REFERENCE TO THE BARGAINER'S CONDITIONAL PROPOSITION

Morgan Liddick posts (27 June) in The News Virginian HERE
OPINION: Pay for My Own Train Ticket? Perish the thought?
“Wherein lies the problem with much of modern America: we all want the best, fastest, most convenient everything – and we want someone else to pay for it.
A capitalist economy works efficiently to determine what people really want, as opposed to what they say they want. As Adam Smith explained, free markets do so by following the principle ”give me what I ask, and I will give you what you desire.” Simple, elegant, functional and ultimately fair, this exchange cares not one whit about the age, race, sex, status, occupation, connections or politics of either party.
On the other hand, government interference in markets has perverse effects: it introduces inefficiency, noise and friction, distorting economic signals and making it harder to determine true values and costs. “
COMMENT
Morgan Liddick deserves a prize for his utilising a most neglected idea enunciated by Adam Smith, but largrly ignored by modern economists, specifcally Smith’s pioneering assessment of the roles of ‘truck, barter and exchange’ in the opening chapters of the Wealth of Nations; specifically (WN I.ii.1-5. pp 25-30).
However, notwithstanding his reference to Adam Smith’s insights, I am not convinced that he has properly understood to what Smith referred.
Long after the “propensity to truck, barter, and exchange one thing for another was utilsed uniquely by human beings in the deep pre-history of our species, it was applied across the species in all of the modes of associated with human history. Even the Bible opens with the breach of bargaining faith by Adam and Eve in the Eden Garden.
In short, exchange behaviours are not unique to a “capitalist economy’, nor specifically only to markets.  Smith notes that the “exchange propensity” functioned long before ‘capitalism’ (a word first used in 1833). Exchange was “one of those original principle of human nature” and a “necessary consequence of the faculties of reason and speech” that are unique to our species (WN I.ii.1-2 p. 25).
The notion that a “capitalist economy works efficiently to determine what people really want, as opposed to what they say they want” is pure fantasy. That capitalism can be more efficient than non-capitalist and pre-capitalist economies is broadly true; that they are always faltless is less certain. And anyway, long before capitalism, people bargained with each other in exchange transactions, using what Smith described as persuasion by speech to: 
‘interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this, Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is this manner that we obtain from one another the greater part of the good offfices that we stand in need of.” (WN I.ii.2. p 26)
This is the clearist statement of the negotiator’s conditional proposition (IF-THEN) that I have found in my 40-year academic career teaching negotiation skills internationally.
Morgan Liddick’s version is somewhat different:” ”give me what I ask, and I will give you what you desire.” He also limits it to a unique feature of capitalism when in fact the bargainer’s conditional proposition is as old as human history.
Free markets do not, and arguably never have, operated in the real world. Smith understood this and indeed makes many references to the behaviour of ‘merchants and manufacturers’, who in his day, (and still in ours), colluded with each other and with governments to introduce the very same ‘peverse effects” that he deprecates, such as tariff charges and outright prohibitions on foreign imports, and regulatory controls to reduce competition.
In short, there are no “free markets” and arguably there never has been. In fact, “merchants and manufacturers” individually and through their trade associations have been the authors of much of the restrctive legislation that governments have enforced on their behalf.
However, I applaud Morgan Liddick’s relatively unique reference to the conditional proposition as explified by Adam Smith in 1776. Readers who want to find out more about exchange conditionality can read about it in my recently re-issued paper-back: 
Kennedy on Negotiation
(1998; paperback 2016)

Routledge,  London and New York

Sunday, June 25, 2017

TODAY'S INVISIBLE HANDS

1
On Language Change: The Invisible Hand In Language HERE
2
Asha Speckman posts (25 June) on Business Live
HERE
Market may drive Reserve Bank 'back to basics'
Central banks are often unpopular, but they hold the line”
Chris Stals, the man at the centre of South Africa's deepest political and economic crisis in modern history, has warned of the "invisible hand" that could force an errant government back to basic economic market principles. …
… Stals said he appreciated the need for the current government to intervene in the economy and market system (given the political past) but "even with very substantial interventions for good political and social reasons, never forget the principles of a market economy ... the invisible hand is going to work. If you apply restrictive measures in the economy, it's going to affect demand and supply.”
COMMENT

Yes, such restrictive measures will work through changing VISIBLE prices, not by a so-called invisible hand!

Saturday, June 24, 2017

WILL WE SEE HIS LIKE AGAIN?

The Guardian posts (23 June) an obituary of Donald Winch, the celebrated and much appreciated intelllectual economist and historian in HERE
Donald Winch obituary
Historian of economics keen to examine theories in their original contexts
In his book, Adam Smith’s Politics, Donald Winch showed that the Scottish political economist was far from being an advocate of unrestricted laissez-faire.
The market fundamentalism that has swept the Anglo-American world in recent decades likes to claim the 18th-century Scottish political economist, Adam Smith, as its intellectual godfather. But as Donald Winch, who has died aged 82, demonstrated, in his 1978 book Adam Smith’s Politics and in subsequent writings, this appropriation of Smith’s name misrepresents his purposes and his achievement.
As Winch showed, far from recommending unrestricted laissez-faire, Smith’s book The Wealth of Nations analysed the potentially damaging effects of market relations on civic virtue, emphasising the “mental mutilation” that factory labour can inflict, and even musing on the politically educative effects of a citizen militia. Smith was not endorsing an unrestrained individualism: rather, he was, along with figures such as his close friend and fellow philosopher David Hume, exploring the character of “commercial society” as part of a wider inquiry into the nature of law and government in modern states.
Winch’s account of Smith’s larger intellectual project was typical of the scrupulous scholarship that made him one of the world’s leading historians of political economy. Having been educated as an economist, Winch never lost his mastery of even the most technical aspects of economic theory. But he combined this with a subtle form of intellectual history that returned such theories to the thick texture of assumption and debate in which they were originally formed.
COMMENT
In respect for The Guardian’s copyrights and its request for others not to reproduce its material, therefore, I shall not copy its obituary in full. It is well worth your while to read it by following the link above.
Donald Winch had an extraordinary degree of influence on scholars for his writings on Adam Smith, notably, his Adam Smith’s Politics,  (1978) which I read after I read Wealth of Nations for the first time. I also heard him speak many years later at a History of Economics seminar and had a short conversation with him. 
Donald Winch had a quiet way of speaking. Of particular note, he did not endorse the modern habit of asserting that Adam Smith advocated laissez-faire. I entirely agreed with Donald Winch on that subject - I regularly mention on Lost Legacy (yesterday, in fact!) my disappointment at how some (most?) modern economists and sloppy journalists continue to insist on laissez-faire being associated with Adam Smith’s political economy.
There is a disconnect between the original source that advocated laissez-fare for themselves - market traders - in the late 17th century and their heirs and successors as large factory employers of labour in the 19th century. They also cried ‘laissez-faire’ against regulations requiring safety measures for high-speed machinery to protect employees (mainly women and very young children). The employers and their paid spokes-people demanded laissez-faire for themselves.

Sadly, Donald Winch is now gone. As we say in Scotland: Will we ever see his like again?

Sunday, June 18, 2017

THERE IS NO ACTUAL INVISIBLE HAND! SMITH FAVOURED NATURAL LIBERTY FOR ALL

Andy West is a sports, culture and politics writer originally from the UK and now living in Barcelona, posts (18 June) on MALAY MAILONLINE HERE
"EU overcomes the invisible hand’s paralysis
The main significance of this development is that it was very much a political victory rather than a case of consumers benefitting from the supposed “invisible hand” of the marketplace.
That famous phrase, coined by the hugely influential 18th century Scottish economist Adam Smith, claims that inefficiencies or inequalities within a free and open market will always be ironed out.
If something is wrong with the system, according to the theory, it will quickly be put right by a producer who would benefit both himself and purchasers by providing a better deal.
The idea that the market “looks after itself” has inspired generations of laissez-faire policies, with champions of the free market believing the chief task of government is to encourage open commerce by staying well out of the way.
It’s a nice idea and largely it works: if a biscuit manufacturer, for example, is charging 10 units of currency for its biscuits but a competitor can take advantage of new technology by reducing the price to eight units without reducing the quality, they will do so and will consequently gain more customers, who will also benefit from paying the lower price. Everyone wins.
The world of commerce often follows this path, meaning that products become better and cheaper for consumers as years go by. Unfortunately, however, it doesn’t always work so cleanly because no market is truly free, open or efficient. …
… The main significance of this development is that it was very much a political victory rather than a case of consumers benefitting from the supposed “invisible hand” of the marketplace.
That famous phrase, coined by the hugely influential 18th century Scottish economist Adam Smith, claims that inefficiencies or inequalities within a free and open market will always be ironed out.
If something is wrong with the system, according to the theory, it will quickly be put right by a producer who would benefit both himself and purchasers by providing a better deal.
The idea that the market “looks after itself” has inspired generations of laissez-faire policies, with champions of the free market believing the chief task of government is to encourage open commerce by staying well out of the way.
It’s a nice idea and largely it works: if a biscuit manufacturer, for example, is charging 10 units of currency for its biscuits but a competitor can take advantage of new technology by reducing the price to eight units without reducing the quality, they will do so and will consequently gain more customers, who will also benefit from paying the lower price. Everyone wins…
….The world of commerce often follows this path, meaning that products become better and cheaper for consumers as years go by. Unfortunately, however, it doesn’t always work so cleanly because no market is truly free, open or efficient.”
COMMENT
Andy West is misled and thereby misleads..
“That famous phrase, coined by the hugely influential 18th century Scottish economist Adam Smith, claims that inefficiencies or inequalities within a free and open market will always be ironed out.”
Adam Smith did not “coin” the “invisible hand”. He used a fairly common 16th-18th century, mainly, theological notion of God’s “invisible hand”, metaphorically to make a simple point, specifically that a merchant unwillinging to trade with foriegn businesses of unknown probity, who is thereby personally motivated to invest instead in his domestic economy, makes profits for himself (personal gain) and thereby and unintentionally also benefits the domestic economy from which other citizens also benefit.

Andy describes a general assertion that “Adam Smith, claims that inefficiencies or inequalities within a free and open market will always be  ironed out.”   Smith made no such assertion, nor was it consequential. Andy is  mistaken.

There is no “invisible hand of the market”. Andy follows with pure propaganda:
The idea that the market “looks after itself” has inspired generations of laissez-faire policies, with champions of the free market believing the chief task of government is to encourage open commerce by staying well out of the way.”
“Laissez-faire” is often attributed to Adam Smith, though he NEVER used the two words in his Works or Corrrespondence. Indeed, they were and are one-sided assertions about leaving business leaders alone to run their affairs without legislative or labour force “interferance”. The one-sided nature of laissez-faire was illlustrated in the 19th century political disputes that dominated UK Parliamentary debates. (employment of women and infants unprotected in dangerous machine environments; 14 hours of work a day; Factory Acts in “dark, satanic mills”, etc.). 

Smith advocated “Natural liberty for all, not just for Mill Owners. 

Friday, June 16, 2017

ANNOUNCEMENT: NEW BOOK IS WITH THE PUBLISHER, MR PALGRAVE

I have completed the text of my new book, "AN AUTHENTIC ACCOUNT OF ADAM SMITH' (Palgrave, forthcoming) and it is with the publisher.
Regular blogging will commence forthwith.
Gavin

PROFESSOR OF ECONOMICS SHOULD CHECK THE FACTS

Vijay K. Marthur, Emeritus professor of economics, Cleveland State University, posts (15 June) on Huff Post HERE
Invisible Hands of Conservative Wealthy are Guiding Economic Policy”
Before Adam Smith wrote his most well-read book, The Wealth of Nations, he wrote The Theory of Moral Sentiments in 1759. In the latter book he argued that man (referring to a person) has the ability to make moral judgments even though he is naturally guided by self-interest. In their economic history book, Professors Robert Ekelund, Jr. and Robert Herbert argue that according to Adam Smith, “…moral judgments are typically made by holding self-interest in abeyance and putting oneself in the position of a third person.”
Adam Smith was an ardent advocate of property rights, division of labor and invisible hand of competitive market forces. For him these institutional arrangements, guided by self-interest, would create self-regulating forces to bring about robust economic growth and improved wellbeing of the society. Smith’s invisible hand proposition did not support the doctrine of merchant capitalists from 16th to 18th century Europe, called Mecantilists who, in alliance with the monarchy, were primarily interested in the accumulation of their wealth. Smith also promoted free trade and saw it as a vehicle for expanding markets. Ekelund and Herbert state that Smith was concerned about accumulation of wealth and its influence in a civil society. …“Adam Smith’s invisible hand proposition works in a competitive market, therefore he abhorred monopoly power.”
COMMENT
Professor Vijay K. Marthur uses modern scholars’ statements to amend Adam Smith’s use of a metaphor of ‘an invisible hand’ to mean something quite different from what Smith intended. Be clear, this habit is often used in modern scholarship and arrives at ideas quite different from Adam Smith’s.
There is no mention of “competitive forces” in relation to Smith’s metaphoric use of ‘an invisible hand’. Vijay Marthur’s assertion of “Adam Smith’s invisible hand proposition” had nothing to do with, and did not mention, “a competitive market” nor “monopoly power”.

Wharever happened to the legendary “fact checkers” that used to be employed in newspapers, let alone by university professors grading student essays orreading articles by colleagues?

ETHICS OF ATTRIBUTING FALSE IDEAS TO ADAM SMITH

WILLIAMS-M4 posts (14 June) in  Business Ethics HERE
This argues that instead of accounting for a living wage it would serve third world countries better if developed countries removed trade barriers and relaxed immigration restrictions. This improvement, according to Adam Smith, would come from the  the concept of the invisible hand mentioned in our book. “Each person’s individual and private pursuit of wealth results in the most beneficial overall organization and distribution of economic resources.” -Shaw. If developed countries allow this, you noticed reaped benefits on both sides and, given time, a decrease in the number of sweatshops in third world countries. First though, developed countries must allow third world countries to progress through developmental struggles so they can acquire capital and technology.”
COMMENT
It is not ethical to attribute an alleged inaccurate and untrue quotation to a named person which is in fact a complete fabrication.
Adam Smith NEVER said or wrote what is attributed to him by Williams-M4 above:
This improvement, according to Adam Smith, would come from the  the concept of the invisible hand mentioned in our book. “Each person’s individual and private pursuit of wealth results in the most beneficial overall organization and distribution of economic resources.” 
The words “invisible hand’” when used by Adam Smith (only once in Wealth of Nations (1776) and in all of its 5 editions to 1789) were a metaphor not a “concept”, nor were they a general statement as asserted by “Williams-M4” in a publication, laughingly called in this context: “Business Ethics”!
There is nothing ethical in purveying direct untruths, especially when easily verifiable, by consulting Adam Smith’s Works.

Shame on those reponsible for ‘Business Ethics’…

Wednesday, June 14, 2017

THERE IS NO INVISIBLE HAND

Rebecca Baird-Member (13 June) asks on Commercial Observer HERE
“Does Broadway Have Too Many Vacant Storefronts?”
“Empty storefronts can sap the vitality from a neighborhood if they are not reoccupied quickly,” Brewer said in a statement accompanying the survey. “The normal ‘invisible hand’ of capitalism—old businesses closing and new ones quickly replacing them—too often doesn’t seem to work in Manhattan. Almost every neighborhood seems to have a storefront that’s been vacant for years.”
COMMENT
Oh Dear! There is no “invisible hand of capitalism” … There is no natural, nor ordained, certainty that as “old businesses” close, “new ones” will “quickly”, or even slowly, replace them.

Which planet does Rebecca live on?  Samuelson’s ‘La, La Land’?
Zoning is political. Taxes are also set politically in such markets.  Empty shops warn-off potential renters.