Thursday, March 31, 2011

Reflective Thoughts on Smith's Essay on the History of Astronomy

I am presently working on the interesting subject of Adam Smith on religion. Some time back, after I had presented my paper, 'The Hidden Adam Smith in his Alleged Religiosity’, in Richmond University in 2009, and engaged in a debate in Sydney Australia in 2010, a friendly (Christian) correspondent remarked that my assertions on the doctrine of atonement betrayed my lack of theological knowledge. My knowledge, such as it was, of Christian atonement was based on a Scottish Presbyterian upbringing – a frightened child told in severe tones of having to account for all my sins, big and small, on the ‘day of judgment’.

Anyway, I asked for some bibliographic references on theology, which I pursued vigorously when received. One such was Alister Mcgrath’s ‘Christian Theology: an introduction (2005, 3rd edition, Blackwell), which is a comprehensive and detailed survey of theology from the early centuries of Christianity through to modern times. In essence, it is a history of the journey from the relatively simple message in the Sermon the Mount through to more complex ideas, such as the Trinity (God the father, Jesus the son, and Holy ghost, the spirit), on to further complications (too many to mention), represented by the ideas of Providence, the Elect, (familiar in Smith’s time), and to the splendours of Liturgy, vestments, religious art, and inevitably to variations of ‘liberation theology’.

I found it all very interesting. It complicates the orthodox picture of Smith’s role in the society he was brought up in. Theology dominated the discourse he had with those around him at the tail-end of several centuries of murderous contests for theological power (and purity), touching all levels of the established societies in Scotland, England, Ireland, and continental Europe.

It was as a young graduate student (1744-48) that Adam Smith began to move way from the shadow of the remaining dogmatic certainties of the time. The main clue of this drift away theologically (in the absence of a reliable literary trail) is available in Smith’s ‘intended juvenile’ History of Astronomy essay (posthumous 1795). Since then, the essay has been read mainly as an essay on the subject of its title alone, with hints at Smith’s youthful early thoughts on natural philosophy. This view does not explain Smith’s extraordinary measures from the physical manuscript when he completed it (c. 1758) to protect the essay from the fate of all of his other unpublished manuscripts which were burned on his direct instructions on his death bed in I790.

It can also be read as a secular challenge to the very core of religious belief (as I attempt to show in my ‘Adam Smith on Religion’, my chapter for a forthcoming ‘Adam Smith Handbook’, Oxford University Press, 2011). I quote from the essay in my book ‘Adam Smith: a moral philosopher and his political economy (1st edition, 2010 Palgrave):

Hence, the origin of Polytheism, and of that vulgar superstition which ascribes all the irregular events of nature to the favour or displeasure of intelligent, though invisible beings, to gods, demons, witches, genii, fairies” (EPS, 49).

This is normally accepted as a “spirited attack on primitive pagan religion”, or what Smith also called “the lowest and most pusillanimous superstition” EPS, 50). I suggest that it must have occurred to him that not much had changed in respect of the understanding of natural world from within the perspectives of that same “pusillanimous superstition” in the 1700+ years of Christian religion, especially in the bigoted ranks of the zealots.

It is certainly possible to reconstruct in that secular manner in the narrative embedded in Smith’s History of Astronomy essay.

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Tuesday, March 29, 2011

More On Ayn Rand and Opulent Critics of Capitalism


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A Correspondent writes regard a post I made in March 2009. As few current readers may have the patience to scroll back that far, I have reposted the original Post, with the question and my response.

I may have missed the point made by ‘illogicist’, for which I apologise, and would be glad to add clarification if this is required:

CORRESPONDENTS QUESTION:

"I do agree with you about the differences between Smith and Rand, and I am glad that it is being pointed out. I missed your point, however, on economic growth. Care to explain once more?"

By illogicist on Ayn Rand and Adam Smith Were Opposites on 28/03/11

MY ORIGINAL POST"

TUESDAY, MARCH 10, 2009
Ayn Rand and Adam Smith Were Opposites

Rod Dreber hosts Crunchy Con (‘conservative politics and religion’) HERE: to which two correspondents offer contrasting views:

Adam M. offers this comment:

From Alan Greenspan to Ayn Rand and way back to Adam Smith, there exists a type of social and economic Darwinism. "Don't give to charity, because the weak need to die out for the preservation and betterment of society" (feel free to accuse me of oversimplification, I am guilty). From Reagan to Bush I to Clinton to Bush 2, the model of Chicago Economics has had their fingerprints all over economic and foreign policies to the ultimate detriment of global economics and social welfare, working directly against redistribution of wealth, and the separation of social and economic classes.

Ayn Rand claimed that unmitigated greed was ultimately good for a society. It was needed in order that common wealth may be shared among those with the common greed. Alan Greenspan, a direct ideological descendant of Rand, claimed later there seems to be a serious flaw in his economic model. Unchecked greed has brought us all to the point where we are today. Irresponsible lending, borrowing, spending, and a lack of concern over our neighbor (whomever it may be) has flushed away life savings of those in search of the prototypical American dream
.”

To which Jon responds:

Re: From Alan Greenspan to Ayn Rand and way back to Adam Smith, there exists a type of social and economic Darwinism. "Don't give to charity, because the weak need to die out for the preservation and betterment of society"

Putting Adam Smith in the same class as Ayn Rand is like putting Mother Teresa in the same class as Torquemada. Smith was not any kind of Social Darwinist (And not just because Darwin was still some years in the future). He was in fact deeply suspicious of the machinations of the rich and powerful (very much on rank display in George III's England) and he was in favor of the public amelioration of the sufferings of the poor.


Comment
It is pleasing to see others correcting the usual parade of unchallenged attributions to Adam Smith which are not [only] erroneous, but also the exact opposite of his ideas, sentiments, and writings.

Smith throughout his writings showed an abiding passion for steps towards opulence as the only sure and certain means by which the families of the labouring poor – the overwhelming majority of society’s populations – would participate in the benefits of commercial society from the increased annual output of the ‘necessities, conveniences, and amusements of life’.

It is too fashionable in the opulent economies of the world to decry the importance of economic growth (ironically, and noticeably, in Blogs emanating from California) on some confused ideas of morality, as if being poor was a blessing, when in fact it is a curse, as any acquaintance with poverty – the absence of wealth – in large parts of the rest of the world would quickly be appreciated by those who, comparatively are rich beyond avarice, write those sanctimonious Blogs.

Good on ‘Jon’ for pointing out to ‘Adam M’ his grasp of the history of ideas leaves much to be desired.

“It is too fashionable in the opulent economies of the world to decry the importance of economic growth (ironically, and noticeably, in Blogs emanating from California) on some confused ideas of morality, as if being poor was a blessing, when in fact it is a curse, as any acquaintance with poverty – the absence of wealth – in large parts of the rest of the world would quickly be appreciated by those who, comparatively are rich beyond avarice, write those sanctimonious Blogs.”

MY ADDITIONAL COMMENT TODAY:

“California is one of the richest, per capital, places on earth. Many of the critics of economic growth live in a ultra-materially rich (‘beyond avarice’) community compared with the slums of Mumbai, the shanties of Africa and South America, and the likes of North Korea.

Productive labour growth, when capital is applied to it, is characterized by producing a net growth in revenue over and above costs and the extent to which the profits from that flow are re-invested in productive labour, and not prodigality (a feature I suggest that is part of the ‘opulent consumption’ of Californians), the growth cycle continues, bring more labour and capital into circulation. The ultra-poor of the world could do with large doses of growth from capital applied to their potential labour force and the only means of attaining this outcome is by setting to work productive labour in these places, from capital accumulated in these places, not by decrying capitalism in California as a model to be avoided by poor countries. The advocates against US capitalism makes their stance without leaving California (it’s too comfortable there), but not by going to these other places and exporting their capitalist knowledge to the poor communities on ‘show how’ missions, or mobilizing them for anti-capitalism.. Exporting anti-capitalist rhetoric helps to continue the impoverishment of the poor, and not to liberate it (and is cynically adopted by the rulers of these poor countries as an excuse for their failures, thought not for their insatiable corruption).”

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Sunday, March 27, 2011

A Brilliant Exposition of Adam Smith's Philosophical Method

J. D. Luedi writes (24 March) on the Stimulated Boredom Blog (HERE): and has published one of the most lucid explanations of Adam Smith’s philosophical method that I have read for many a year in scores of secondary sources. I cannot speak more highly of Luedi’s of account of an important aspect of Smith's intellectual creativity, largely ignored in the Republic of Letters.

Luedi’s main source is Smith’s essay, “The Principles which lead and direct Philosophical Enquiries illustrated by the History of Astronomy” (generally known as his ‘History of Astronomy’, which is widely believed among scholars to have been written from 1744 to around 1750 (or 1758), and kept, unmentioned by Smith, in a cabinet wherever he moved from 1751 until he died in 1790. (He only informed his good and intimate friend, David Hume, of its existence 21 years after he met him and after he had written most of it).

The History of Astronomy essay only saw the light of day when Smith authorized his executors, Joseph Black, an early contributor to chemical science, and James Hutton, regarded by many to have been a major founder of what became the science of geology, to arrange for its publication after he died a week or so later. He ordered he rest of his papers to be burned without their inspection in Panmure House, Edinburgh, to the intense chagrin of scholars today.

Black and Hutton complied with Smith’s wishes, and they edited and published the HOA Essay in 1795. Oxford University Press published it in ‘Essays on Philosophical Subjects’, as volume 3 of the Glasgow Edition of the Works and Correspondence of Adam Smith in 1980.

Luedi’s essay, “The Structure Behind Adam Smith”, is a clear and, I believe, mainly accurate account of Smith’s early exposition of his philosophy. Here are its opening paragraphs and I urge readers of Lost Legacy (especially students) to follow the link, download and read it all, no matter how much they feel at present that Smith’s History of Astronomy (HOA) in its original form is a trifle beyond them, or that it is not germane to their study of his other works. Luedi prose and hisaccount is not ‘beyond them’ but it is very germane to Smith’s moral philosophy and his political economy.

“The Structure Behind Adam Smith” by J. D. Luedi (2011):

“The works of Adam Smith touch upon various topics, and his magnum opi The Wealth of Nations and The Theory of Moral Sentiments, are important works in the realms of politics/commerce and morality, respectively. These works along with Smith’s more obscure writings are seen by most as separate treatises, evidence of his pluralistic philosophy, and at times even contradictory. This perceived inconsistency is given voice by ‘Das Adam Smith Problem” – a term coined by several 19th century German thinkers. I endeavour to explain Smith’s theory of systems and intellectual paradigms, as illustrated by the History of Astronomy in The Principles Which Lead and Direct Philosophical Enquires. Smith describes his notion of systems via four terms; namely Wonder, Surprise, Admiration and the Imagination. It is these terms and the framework which they form, that underpin Smith’s work, and which demonstrate the theoretical consistency evident in his writing.

Smith’s conceptualization of how intellectual paradigms or ‘systems’ come about and maintain their strength, draws heavily on his insights pertaining to the workings of the human mind, and its influence on how we interact with and qualify the universe. The central factor in Smith’s analysis is the role played by the imagination. Smith appears to use imagination, partially in its original sense, yet also as a synonym for our inner stability; our notion / feeling of inner continuity. According to Smith, it is the imagination which exerts the greatest influence over an individual, as opposed to facts or reason, when determining whether a worldview is embraced and perpetuated. Smith references the power of this process by stating “how easily the learned give up the evidence of their senses to preserve the coherence of their imagination.” The preeminence enjoyed by the imagination, is due to the importance attributed to its maintenance, namely in the constant efforts which need to be undertaken in order to sustain a state of tranquillity.

Smith identifies sentiments not reason, as the instigators of this internal turmoil, and describes the state of the imagination via three terms: wonderment, surprise and admiration. These three sensations are in turn the manifestations of our perception of the outside world, and how we internalize the various events and phenomena of the universe. Wonder comes about when we are encountered with strange and foreign objects or instances, which we are unaccustomed with, and which as a result we cannot compartmentalize into our range of understanding; even if we are forewarned of any impending novelty. Smith uses the example of loadstones and iron to demonstrate how upon seeing the forces of magnetism at work, an individual would witness “an impulse…conjoined to an event…which according the the ordinary train of things…he could have so little suspected it to have any connection.” Surprise is felt, when we encounter familiar objects in anachronistic or unexpected circumstances, such as when “we are surprised at the sudden appearance of a friend, whom we have seen a thousands times, but whom we did not imagine we were to see then.” Lastly comes Admiration, which is the least potent of the three, and which arises when we perceive familiar objects, and when our only consideration of them is merely our certainty of our expectations of them.”
Wonder and Surprise influence the emotions which we feel, since instances which cause them interrupt the equilibrium of the imagination. Smith views any occurrence which tampers with the tranquillity of the imagination as disruptive, whether the wonderment or surprise unleashed by said event results in despair or euphoria. A quick succession of emotions, leads due to its unexpectedness, to great internal turmoil. When two emotions succeed each other, that are each-other’s opposite, the greatest effect is felt, as “when a load of sorrow comes down upon the heart that is expanded and elated with gaiety…its seems…almost to crush and bruise it, as a real weight would crush and bruise the body.” Such a perturbed and tempestuous imagination, is a dangerous entity, and such a succession can “so entirely disjoint the whole frame of the imagination, that it never after returns to its former tone and composure;” potentially causing frenzy, madness and death. Smith illustrates this point with the story of Thrasimenus, a Roman lady who whilst in the midst of despair over the loss of her son; slain in battle, promptly dies from joy when he returns unexpectedly. The unexpected nature of such a succession causes the heart “to be doused” with emotion. Unexpectedness leaves the heart unprepared, for anticipation of an object, in turn allows “the emotion which that object emparts [to be] to a degree evident…and its effect on the individual is lessened.”

Comment
The rest is lucid and reads well. You should read the first three sections of the 1980 edition History of Astronomy Essay (again if you have already read it) with J. D. Luedi’s exposition in mind. It will open your mind to aspects of Smith’s philosophical method that you not have appreciated fully.

I have different views on the meaning Smith intended in his use of the invisible hand metaphor, as presented by J. D. Luedi, which I shall comment on in another post. For the moment read Luedi’s presentation, learn a lot and enjoy it immensely. It is well worth your time and trouble.

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Saturday, March 26, 2011

Interesting Question on the Authenticity of Smith's Lectures on Jurisprudence

From The New Republic (HERE):

Adam Smith: An Enlightened Life
by Nicholas Phillipson


A Book Review by Yuval Levin: "Morals and Markets"

There are times when Phillipson's conjectures go too far. An entire chapter is devoted to a series of lectures on jurisprudence that we do not actually know whether Smith delivered. Phillipson assumes he did, and builds too much on the assumption.”

Comment
I reviewed Nicholas Phillipson’s excellent study of Adam Smith on Lost Legacy when it came out. On the whole Yuval Levin’s review is also excellent, except for the three sentences above, of which I am curious as to the basis for his assertion “that we do not actually know whether Smith delivered” the Lectures on Jurisprudence. This may be just a throw-away line in a book review to give it cod scholarly status.

What we have is the discovery (1895 - Edwin Canaan and the second in 1958 (John Lothian) in two separate multi-volumes of manuscripts claiming to have been taken down verbatim in 1762-3, known as “LJ(A)”, (Smith’s last teaching year at Glasgow University) by an anonymous student, or students, and another manuscript, known as “LJ(B)”, dated ‘1766’ (when Smith was in France and returning to London), in much more polished prose, that follows similar themes, suggesting editing by a student, or some other, though almost definitely from the same source.

In both versions, there are extensive passages that parallel passages in Wealth Of Nations. Both documents were published in 1978 as “Lectures On Jurisprudence” by Oxford University Press, as a volume V in the ‘Glasgow edition of the Works and Correspondence of Adam Smith’ (also reproduced by Liberty Press), and edited by foremost Smithian scholars of the 1970s, Ronald L. Meek, David D. Raphael, and P.G. Stern.

Smith’s actual lecture notes were burned on his instructions just before he died in 1790, though he had promised his readers that he was writing a (third) book on Jurisprudence to join his other two, Moral Sentiments and Wealth Of Nations. Each lecture in the LJ(A) student notes is dated and from casual content he refers to his other lectures on moral philosophy to those students listening to him.

Most scholars consider the evidence for the authenticity of Lectures on Jurisprudence as compelling. If Yuval Levin has other information, I for one sure would like to hear from him to consider his claims.

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A Lesson in Scholarly Ranting

Brad Delong, US doyen of the economics bloggers, writes (25 March) (HERE):

Is Adam Smith Partly an Economist, or Wholly a Moral Philosopher?”

“Tiago at History of Economics Playground reacted very negatively to an AEA Annual Meeting presentation by Robert Shiller and Virginia Shiller:

Bad job « History of Economics Playground: Imagine I write a paper on Behavioral Macroeconomics making off the cuff observations about the latest financial products and how my bank manager frames that information, and noting my friends and neighbors’ flight to safety or to risk on the flimsiest of whims. Imagine I make no reference to secondary literature, or to methodology as I approach the questions. Were I then to submit this piece to general appreciation, say get Robert Shiller to referee it. How do you think he would assess my effort?

I am sure we would be fast and dirty in telling me to do something else with my time.

I have not written a paper on Behavioral Macroeconomics and have no intention of doing so. But Shiller has written a working paper, kind of on the history of economics (Cowles Foundation Discussion Paper No. 1788 – Economists as Worldly Philosophers). There is no thread to the argument, no understanding of context, and zero references to the vast body of work by historians on his subject. The working paper, I am sure, will get plenty of readers, downloads and comments. But were I ever to referee it, I would be fast and dirty in telling him to do something else with his time.

I read this as Tiago policing the subdisciplinary boundaries: nobody working in the history of economic thought has any business writing about finance or behavioral macro, and nobody working in finance or behavioral macro has any business talking about how looking at the history of economic thought informs what the future of economics should be.

So I asked:

So what is it in the working paper by Robert Shiller and Virginia Shiller that you think is wrong?

Tiago responded:

You want me to referee it? Someone missed the point of my post.

Economics appears somehow ready formed and fully bounded from the beginning. Take this: “Adam Smith was a professor, not of economics but of moral philosophy. His The Theory of Moral Sentiments, first published in 1759, was a mixture of philosophy, psychology, and economics.” — the anachronism of the statement makes me cringe.

A reference to a Baltimore Sun article to announce the emergence of economics departments? What about saying something about the importation of the German Research University or the context of the Progressive Era shaping standards of expertise and advocacy and trust in numbers.

And then the whole thesis is pants. Economists never stopped being “worldy philosophers” even if the public sphere has changed and become less accepting of certain brands of generalists — vide a forthcoming conference and special issue of History of Political Economy on Public Intellectuals in Economics (shameless self-plug).

I could go on ad nauseum. Nearly sentence by sentence.”

[There is much more in the link.]

Comment
Memo: if you do not know your history of economics well, especially about Adam Smith, Ricardo, Mill, Marx, and the neo-classical big players, stay your urge to pontificate about the subject.

This is Brad Delong at his polemical norm. His post is much longer, so follow the link to get the idea of what he is on about.

He tears into Tiago with scalpel-like precision and gives a master-class on scholarly demolition of a hasty and exaggerated outburst from Tiago.

Lesson 101: write not in haste; take time to reflect. Put the offending piece down and come back to it several hours, or, better still, a day or two, later.

Even much better, respond in underplayed and softly vocalised prose, where less is more, unless you are sure, very, very sure of your command of the subject you are disputing.

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Thursday, March 24, 2011

Kaushik Basu Responds to My Review of His Book

Kaushik Basu is the author of “Beyond the Invisible Hand: groundwork for a new economics”, 2010, (ISBN 978-0-691-13716-2; see Amazon), which I reviewed on Lost Legacy last November. He has posted the following comment on Part 3 of my review and I repost it below because most readers do not scroll back to earlier posts and check for subsequent comments, four or more months later. (It is the policy of Lost Legacy to always report criticism of any of its posts in the interests of scholarly fairness.)

Beyond the Invisible Hand challenges readers to fundamentally rethink the assumptions underlying modern economic thought and proves that a more equitable society is both possible and sustainable, and hence worth striving for. In Beyond the Invisible Hand, Kaushik Basu lays bare the implications of this gross misrepresentation of Smith’s theory which, he argues, has resulted in hampering our understanding of how economies function, why some economies fail and some succeed, and what the nature and role of state intervention might be. Kaushik Basu

Comment:
In the interests of fairness and to avert any suggestions or impications that I was unfair to Kaushik Basu’s book with my critique of his treatment of Adam Smith’s use of the invisible hand metaphor, I quote extracts from each of my three-part review below. Also note my measured praise for his book, tempered with my critique of the linking of the modern myths about the IH Metaphor to Adam Smith’s much restricted and specific uses of it on the two occasions in which he used it.

Part One (HERE):

I am reading a most interesting and, from the point of view of Lost Legacy, a most significant book. I refer to Kaushik Basu’s new book, published this month by Princeton University Press, “Beyond the Invisible Hand: groundwork for a new economics” (ISBN 978-0-691-13716-2; see Amazon).

“What makes it so interesting to me is its approach. It accepts, indeed celebrates, the Adam Smith ‘myth’, namely the one created by modern economists from the 1950s, that Adam Smith’s use of the metaphor of the “invisible hand” was a “great idea” directly linked to the modern derivation of the Welfare Theorems embedded in mathematical theories of general equilibrium (Arrow, Debreu, etc.). Basu does this without in any way realising or accepting that this myth is itself a myth …

… Its author has stepped towards my criticism of the modern myth, albeit without accepting my position on it, by showing that the modern myth has misled economists into confusing their models with reality (the economy does not function as their maths appear to indicate) and by re-drafting what is closer to what really happens (which “entails a leap of imagination”), he will show where the “Invisible Hand Theorem” ceases to hold, and why. I shall report on how he sets about this, because Basu’s book is the first serious study of the modern myth related to the ‘Invisible Hand’ I have seen anywhere
.”

Part Two, (HERE):

I shall return to these issues as I read on. Basu's comments in these fields are worthy of your attention, and I continue to commend his new book to readers.”

Part Three (HERE):

Beyond the Invisible Hand: groundwork for a new economics by Kaushik Basu, 2010, Princeton University Press.

“Basu’s section in Chapter 3 on “Methodological Individualism” is worth reading by all neo-classically-trained economists. Individual utility functions do not simply aggregate across the society, which facilitates the mathematics but not an understanding of the real world. However, the reader should ignore the gratuitous linking of Adam Smith to the theories Basu justly criticises.”

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Wednesday, March 23, 2011

A Blogger Gets Adam Smith Right on Earthquakes in China

Gary Fine writes (17 March) in the Deliberately Considered Blog
HERE:

On Moral Sentiments in Shaky Times”

After quoting the full paragraph in which Adam Smith discusses the ‘man of humanity’s behaviour and his ‘little finger” in his parable of the earthquake in distant China, Gary Fine concludes:

But this realization is not for Smith a moral desideratum. He, rather, recognizes how our passive feelings revel in what does not affect us. This passage presents the predicate for the remainder of the paragraph. Smith is not coldly cynical – Ayn Rand in a kilt – but he knows that our emotions do not define us to the exclusion of our ethical reflection. “It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct.” This is mind filtered through morality. The inhabitant in the breast provides the wisdom that the imp in the heart can not trump. Or so is Smith’s hope. Our emotions may discount distant suffering and make otherness a justification for inaction, but it is the recognition of the honorable and the noble that makes us worthy. Smith wisely recognized that our presumptuous passions can be bettered by active engagement. Smith, I choose to believe, would not be cross with our cynical distancing and would not believe that it will be overwhelmed with the soft power of humanity alone, but rather our good works and best deeds occur when our world – near and far – is deliberately considered.”

Comment
If Gary Fine get it absolutely right in his assessment of what Adam Smith was actually saying, why can’t those many other quotation junkies who get it absolutely wrong do so too?

So, congratulations to Gary Fine for his correct understanding of Adam Smith’s legacy. It bodes well for the future.

[Postscript: I liked the other post by Gerald Dayan too: "Voice of dissent should always be welcome in debate" (follow the link and scroll down the past posts link, but note among his commentators on the article, some do not seem to accept the liberty principle enunciated in the post).

This is a common scourge in debates from contributors of both left and right bloggers, who seek to have (in this case Fox News) silenced for its biases. I do not watched Fox News regularly though it is among my Sky News TV channels, as is Al Jerzeera, and it also bookmarked on my Internet connections. I exercise my right not to view them, but would not dream of having Fox News, or any other channel, silenced by State authorities.]

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A Budding Sociologist Writes Sense on Adam Smith

Dan Hirschman, who writes ‘A (budding) Sociologist’s Commonplace Book’ (HERE):

"The Passions of Adam Smith: Self-Interest, Sympathy and Societal Good"

[which he considers (far too modestly) that it “may be of wider interest … to one or two of you out there” - it is “part of an independent study on the history of economics”. ]

Adam Smith did not believe that man was solely motivated by self-interest. The first sentence of The Theory of Moral Sentiments (TMS) makes the case quickly enough: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.” In this brief essay, I will explore Adam Smith’s conception of human nature and human motivation with a focus on the role of sympathy and conflicting passions. I will then connect Smith’s microfoundations (to use an anachronism) to his arguments concerning the relative efficacy of markets and states in producing socially beneficial outcomes. Drawing on Viner (1927), Coase (1976), Rothschild and Sen (2006) and Kennedy (2009), I argue that Adam Smith was not a naïve proponent of laissez-faire, and never argued that an “invisible hand” automatically coordinates economic activity to produce optimal results when left alone (see Kennedy 2009). Rather, Smith focused on the institutions that channel self-interest into beneficial or injurious outcomes (Rosenberg 1960). Smith did argue that in many cases where contemporary governments attempted to manipulate trade, they did so in error, but he also left open three tremendous roles for government: maintaining property rights, establishing justice, and building public works. The introductory quote to this essay comes from Adam Smith’s first major work, first published in 1759. Another, much more famous quote, is often seen as being in contradiction to this first principle, “It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.” (Wealth 15) The inconsistency between the seemingly self-interested, rational, “truck, barter, and exchange” man of Wealth contrasts with that of the sympathetic man of TMS. 19th century German scholars termed this Das Adam Smith Problem, and argued that the two books should be read separately. More recent scholarship (especially the incredibly influential Viner 1927) has argued that Wealth is misread. A closer reading of even this passage about the brewer and the baker shows that it follows a more nuanced treatment of the problem of coordination in a society characterized by the Division of Labor: “In civilized society he stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons… [M]an has almost constant occasion to for the help of his brethren, and it is in vain for him to expect it from their benevolence only.”

Comment
I strongly recommend that you follow the link to this excellent, and well-written essay. It is well worth you time. I do not agree with all of it (some references to Karl Polanyi, for example, over whom Dan and I have exchanged our views on Lost Legacy in the past), but I do agree with most of it.

Dan’s treatment of the supposed contradiction between Moral Sentiments and Wealth Of Nations is masterly.

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Tuesday, March 22, 2011

Visible Prices Determine Markets, Not An Invisible Hand

Khalid Fayaz writes (22 March) for Greater Khashmir HERE

Politics defines economy: Political stability determines economic strength

“To achieve this outcome, the economy has to coordinate transactions among these firms, as well as between firms and consumers or simply we can say to achieve this outcome, the economy should have free market. Because market economies achieve this coordination through market prices. That is, market prices are the instrument with which the invisible hand (of Adam smith) of the market-place brings supply and demand into balance.”

Comment
A post that exposes the utter redundancy of the myth that ‘an invisible hand’ makes markets work. What does this ‘invisible hand’ add to the very visible prices in markets leading people to buy, sell, or negotiate in markets? What does the invisible hand metaphor do?

It does not explain any more than the standard explanations for the role of prices, clearly stated by Adam Smith in Books I and II of Wealth Of Nations, and he did not mention anything about ‘an invisible hand’ while he did so.

It is a myth – an invention – of the 1950s, led by Paul Samuelson on his popular text, Economics: an introductory analysis, 1948, p age 36, (4½ million sales over 19 editions, and scores of copies in other economics texts).

Kahlid Fayez is simply repeating what modern economists have copied from Paul Samuelson wrote about mixed capitalist economies and what Oscar Lange wrote about socialist planning In 1936 and 1947)

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Sunday, March 20, 2011

Not a Future Irish Finance Minister, then?

From Kevin Denny at Geary Behavioural Economics Blog (HERE)

Scroll down to two entries: “Standards in Mathematic” and “Standards in Mathematical Literacy” for a laugh (don't worry, even mathematically near illiterate will smile).

Peter’s student exam paper answers are hilarious - alright, worthy of a chuckle, at least.

Kenny Denny’s (the examiner’s) comment (‘Very funny Peter”) is worthy of a smile too. No cigars for Peter, though.

A Debate on the Invisible Hand Continues in Economic Affairs

A Scholarly debate is published in the latest issue of Economic Affairs, the quarterly Journal of the Institute of Economic Affairs on the significance of the Smith’s use of the metaphor of the invisible hand.

Severe copyright restrictions by the publisher, Wiley-Blackwell, preclude me offering web copies.
I have taken a paragraph from each contributor’s article (including my own) to provide a flavour of the debate.

Daniel Klein and Brandon Lucas:

[Our] reading of Smith supports the notion that Smith deliberately placed ‘led by an invisible hand’ at the centre of his tomes. We have not, here, argued the larger interpretation. We have argued only certain matters related to the claim that centrality was deliberate [.]

Daniel B. Klein and Brandon Lucas: “In a word or two, placed in the middle: the invisible hand in Smith’s tomes, Economic Affairs, 2011, March, vol. 31, March 2011: 43-52

Gavin Kennedy:

“While Klein and Lucas’s praiseworthy research on Thucydides and centrality contributes to our understanding of some on Smith’s ideas on rhetoric, physical centrality itself does not lead directly to our understanding of what Smith meant by the IH metaphor. Quoting as their sources from the Talmud and modern theories of ‘esoteric’ and ‘exoteric’ distinctions (Strauss, 1952; Minowitz, 2009), plus a host of other scholars, does not shed light on Smith’s teachings on the proper use of metaphors. Neither, in fact, do the many authors before Klein and Lucas, who following Lange (1946) and Samuelson (1948), trace what they call the ‘invisible hand doctrine’ of Adam Smith without mentioning Smith’s teachings on metaphors. It is as if they discuss Shakespeare’s ‘Hamlet’ without mentioning the ‘Prince of Denmark’.”
Economic Affairs, 2011, March, vol. 31, March 2011: 53-55

Craig Smith:

I remain unconvinced by the deliberate centrality thesis; just as I remain unconvinced that Smith’s use of the metaphor was an intentional naming of his core theoretical observations. If this were the case I would expect to find the metaphor appearing with greater frequency in his work as a sort of leitmotif tracking the profusion of unintended consequence style analyses in all of his writings. But his does not means to say that the lovely phrase cannot be made use of as a generic name for a certain form of social theoretic observation and the use of this in support of a policy of natural liberty. I am not convinced that Smith deliberately placed the invisible hand at the centre of his books but I am certain that it lies at the heart of his thinking.’

Craig Smith, “A comment on the centrality of the invisible hand”, Economic Affairs, 2011, March, vol. 31. No. 1, 58-59.

Ryan Hanley:

“Now, if Smith’s use of the invisible hand could be shown, say, to have violated a tenet of the Westminster Confession, or say, to have used the invisible hand in a positive light in the exact middle of Kapital – these would be real finds. But as it stands, I can’t quite how Smith’s attitude to the invisible hand fits Strauss’s criteria.”

[Strauss is an authority the use of English literature and its grammar, who is extensively quoted by Daniel Klein and Brandon Lucas.]

but in the end, I can’t quite shake the suspicions that this sophistication the TMS is not Talmud, [a 2,000 years-old religious text, also quoted by Klein and Lucas.] and that the centrality is best demonstrated not by counting leaves in a physical text but is best demonstrating a concept’s substantive primacy in the system under study – the only centrality that ultimately matters.”

Ryan Hanley, “A comment on the centrality of the invisible hand”, Economic Affairs, 2011, March, vol. 31. No. 1, 60-61.

GK:
When Daniel Klein sent me an early copy of his paper (with Brandon Lucas), I was impressed, and said so (because scholars must always submit to the facts), with the evidence the physical centrality of Smith’s two uses of the IH metaphor in Moral Sentiments and Wealth Of Nations.

However, I was not impressed with the conclusions that Klein and Lucas drew from these physical facts to the wider issues of Smith’s meaning in using the IH metaphor, which Klein has argued for in other published exchanges between us since 2009, after we met at Balliol College, Oxford, commemorating Smith’s publication Moral Sentiments in 1759.

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Wednesday, March 16, 2011

A New Ally Joins the Struggle for Smith's Meaning of the Invisible Hand Metaphor

Wayne Norman. writes the interesting Ethics For Adversaries Blog (here):

“The Hesitant Hand: what Adam Smith did and didn’t say about government regulation, corporate lobbying, and CSR

Comment
I was pleased (OK, I was very pleased) to see how Wayne Norman assessed how modern economists have misread Adam Smith’s use of, and the meaning of, the metaphor of ‘an invisible hand’.

He is almost spot on in noticing exactly the context in which the IH metaphor is used in Wealth of Nations (WN IV.ii.1-9: 452-56). I say ‘almost’ because in support of his excellent argument he misses a small, but highly significant point, that would add traction to his own argument.

To explain: look at the part of paragraph 9 he quotes from:

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can”.

Upon this, Wayne makes his main point:

But not only is it inefficient to restrict imports of goods produced more efficiently abroad, it is usually unnecessary. Business people prefer to keep an eye on their investments and to be able to trust the people they deal with, so they will naturally, even other things not equal, invest domestically”.

In short, Wayne narrows Smith’s concerns about the fact that some merchant traders are concerned with the risks to their foreign investments and thereby prefer to invest domestically. But this leaves open the case where some, perhaps many, traders still invest in foreign trade, despite the risks. And just as domestic investment gains from the investment of traders who invest domestically, it loses from the foreign investment of those traders who invest abroad.

The net effect of these investments, domestically or foreign, determines the arithmetic total of domestic investment, which is the indicator of which Smith considers is the potential public benefit of increased domestic investment that is led by “an invisible hand”, or, in this context, that is led by the risk aversion of some, but not all, traders.

It is not that “every individual” invests locally and the consequence follows, because clearly many individuals do not invest domestically, but those who do, have this effect.

In short, the “every individual’ statement, when taken as a general statement is incorrect both in the context of the paragraph 9, and the previous 8 paragraphs – Smith keeps referring to “domestick” investment – and therefore cannot mean that he refers to ’every individual” as a general rule – and it is incorrect in fact (Britain also exported abroad – and invested in the Royal Navy to protect its interests at sea).

However, I am more than happy to accept Wayne Norman’s formulation of the problem posed by the modern misuse of Smith’s use of the IH metaphor’ having made my point.

I shall also enroll Wayne Norman in Lost Legacy’s Roll of Honour for those who write to correct the errors of the epigones who invented the modern nonsense about Adam Smith on perfect markets, general equilibrium, and Pareto’s Welfare theorem.

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Tuesday, March 15, 2011

Adam Smith's Lecturing Technique By One of his Students

“There was no situation in which the abilities of Mr Smith appeared to greater advantage than as a Professor. In delivering his lectures, he trusted almost entirely to extemporary elocution. His manner, though not graceful, was plain and unaffected;
and, as he seemed to be always interested in the subject, he never failed to interest his hearers. Each discourse consisted commonly of several distinct propositions, which he successively endeavoured to prove and illustrate. These propositions, when announced in general terms, had, from their extent, not unfrequently something of the air of a paradox. In his attempts to explain them, he often appeared, at first, not to be sufficiently possessed of the subject, and spoke with some hesitation. As he advanced, however, the matter seemed to crowd upon him, his manner became warm and animated, and his expression easy and fluent. In points susceptible of controversy, you could easily discern, that he secretly conceived an opposition to his opinions, and that he was led upon this account to support them with greater energy and vehemence. By the fulness and variety of his illustrations, the subject gradually swelled in his hands, and acquired a dimension which, without a tedious repetition of the same views, was calculated to seize the attention of his audience, and to afford them pleasure, as well as instruction, in following the same object, through all the diversity of shades and aspects in which it was presented, and afterwards in tracing it backwards to that original proposition or general truth from which this beautiful train of speculation had proceeded’ (in Stewart, Account …, in EPS, 275-6).

Comment
John Millar, Professor of Law at the University of Glasgow, former pupil and long- time friend of Adam Smith, quoted by Dugald Stewart, in his Biographical “Account of the Life and Writings of Adam Smith, LL.D”, which formed his eulogy to Adam Smith before the Royal Society of Edinburgh, 1793, and published in first in the Royal Society’s Transactions, volume 3, 1794, and also appeared in every edition of Moral Sentiments throughout the 19th century. It was republished in Essays On Philosophical Subjects (1980) as volume III of the Glasgow edition of the Works and Correspondence of Adam Smith, pages 265-351.

I have posted this extract from the first biography of Adam Smith because it is related to the extract, quoted below of Adam Smith’s parable of an imagined Chinese earthquake that is reported in Moral Sentiments (1759).

It demonstrates Smith’s lecturing technique, used to effect to make his philosophical comments legible to his student listeners and his readers, which should be borne in mind when considering the importance of this (and many other) examples of this method in his books.

Carelessly stopping a quotation after the first few sentences of a paragraph can lead to misleading conclusions about Smith’s actual views that do not reflect the main points of his discourses. This is often seen clearly in the erroneous notions that often proliferate in modern media and even (shame on them) among modern scholars about Adam Smith's actual views.

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Monday, March 14, 2011

A Market Oracle Miss-Speaks

Garry North wrtes in The Market Oracle Blog (HERE)

Because the Lord helps those who help themselves, the hard-working person is seen as part of a productive economy. This economy rests on the combination of God's providence and hard work. While Adam Smith's famous invisible hand persuaded some intellectuals for a century or so, 1776–1875, the general public assumed that there really is an invisible hand guiding the process of productivity. This legitimized every man's labor.”

Comment
Gary North is quite mistaken. The period from 1776 when Adam Smith used the invisible hand metaphor (IH metaphor) in Wealth Of Nations (only once, though he had also used it before (once only) in Moral Sentiments in 1759), to a century later in 1875, is distinguished by the fact that hardly anybody – intellectuals, ‘famous’ or otherwise – referred to it. We know this because I have challenged several dedicated scholars (of impeccable reputations as intellectuals) to list them and the result has been pathetically few.

They have singularly failed to discover more than a small handful – in fact two only between 1776 and 1856 – and a few in the period confined to the 1780s – 1900. The IH metaphor appeared in the oral tradition at Cambridge (UK) and a few lecturers at Chicago (USA) (according to Paul Samuelson when he was an undergraduate there), but the IH metaphor seldom appeared in print in economics texts or journal articles (but see two prominent examples: Arthur Pigou’s Welfare Economics,1922 and, Alexander Grey’s 1930 text, The Development of Economic Doctrine) until the post-war decades, primarily following Paul Samuelson’s wildly successful Economics: an introductory Analysis (1948 and the 19 editions to 2010).

What Garry North means by the “the general public assumed that there really is an invisible hand guiding the process of productivity”, or when they assumed this is not clear, but if he refers to the period 1776-1875 (or even the period 1875-1960) he is quite wrong.

However, after Oscar Lange (1938 and 1947) and Paul Samuelson (1948) introduced the IH metaphor – labeling it as Adam Smith’s ‘famous’ metaphor – and their works, particularly Samuelson’s – which reached a widespread public as a popular Economics 101 (and Economics 101-plus) university text – which was copied as Adam Smith's metaphor into hundreds of other author's texts, and then, as the millions of graduates spread out into public life, the media, and across the world, so the IH metaphor acquired traction in popular public discourse.

[To sample the modern phenomena of the ubiquitous IH metaphor, take ‘Google Alerts’ for a week or two …]

Gary North might care to rethink his assertion in The Market Oracle.

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Saturday, March 12, 2011

Adam Smith on Earthquakes and his 'Little Finger' Parable

With the awefull Japanese earthquake in the news, I expect a flurry of Blog reports misquoting Adam Smith on the ‘Chinese Earthquake’ parable that appeared in Moral Sentiments (1759) four years after the Lisbon Earthquake of 1755 that caused a public debate on its causes – the Catholic Bishop said it was God’s anger at the sins committed by the residents of Lisbon, a notion mocked by Voltaire in his novel, Candide.

I thought it appropriate to comment early, rather than await the inevitable flurry of posts from the “Book of Instant Quotes from Adam Smith for Any Day’s Media Topics for Columnists Needing to Appear Erudite While Mocking Markets”, and feel obliged to respond with what Adam Smith actually said instead.

The normal Smith on Earthquakes version goes something like this:

Adam Smith famously wrote of 'a man of humanity in Europe' who would not 'sleep tonight' if 'he was to lose his little finger tomorrow' but would 'snore with the most profound security' if a hundred million of his Chinese brethren were 'suddenly swallowed up by an earthquake, "because" he had never seen them.”

Left like that the quote can be misleading, as I have commented several times on Lost Legacy over the past few years. However, try this:

But for us in today’s relentless 24-hour News-Cycle TV world, the Chinese are no longer invisible, living at the outside edge of what David Hume called the concentric circles of our empathy. Last summer's earthquake in China, whose tragic aftermath was instantly transmitted onto our screens, was met by the rest of the world not with indifference but with empathy and a profound sense of moral obligation to the Chinese victims. It was globalization's finest hour’ (a more accurate quote from Jagdish Bagwati of Columbia University, New York

Regular readers may recall that I have commented on the misuses of this paragraph from Moral Sentiments on several occasions. The problem comes from reading only part of the paragraph and not reading all of it. [Confession: some years ago, Dean, Professor Sandra Peart, of the University of Richmond, Virginia, corrected me, politely, of course - Sandra is a paragon of scholarly good manners - on my earlier misreading of the paragraph.] **

Far from Adam Smith making his 'little finger' point and leaving it as quoted, he goes on to say:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connexion with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment. He would too, perhaps, if he was a man of speculation, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general. And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquillity, as if no such accident had happened. The most frivolous disaster which could befal himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him, than this paltry misfortune of his own.

Most commentators stop there and do not read on, and thereby jump to the wrong conclusions. Smith, they conclude asks: “if ‘the man of humanity’, obsessed with saving his ‘paltry’ finger, of which he is highly emotional about, could save ‘his brethren’ in China from the earthquake disaster, but only at the cost of losing his little finger, what would he do?”

Well, if he rolls over and snores after dreadful news of an earthquake it’s obvious: he keeps his little finger! But does he?

Read on and I think you will agree that what Smith says next turns the whole, somewhat cynical, assertion he begins with on its head, and treats us to one of his thunderous affirmations of the moral spirit, which he finds in human kind when exposed to the society of his fellows:

To prevent, therefore, this paltry misfortune to himself, would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them? Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it. But what makes this difference? When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble? When we are always so much more deeply affected by whatever concerns ourselves, than by whatever concerns other men; what is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct. It is he who, whenever we are about to act so as to affect the happiness of others, calls to us, with a voice capable of astonishing the most presumptuous of our passions, that we are but one of the multitude, in no respect better than any other in it; and that when we prefer ourselves so shamefully and so blindly to others, we become the proper objects of resentment, abhorrence, and execration. It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the natural misrepresentations of self-love can be corrected only by the eye of this impartial spectator. It is he who shows us the propriety of generosity and the deformity of injustice; the propriety of resigning the greatest interests of our own, for the yet greater interests of others, and the deformity of doing the smallest injury to another, in order to obtain the greatest benefit to ourselves. It is not the love of our neighbour, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble, of the grandeur, and dignity, and superiority of our own characters.” (TMS III.4.4: pp 137-38)

The whole (very long) paragraph is an example of Smith, the educator, at work (Moral Sentiments [1759] was based on the lectures on ethics that he taught at Glasgow University (1751-64).

The shocking earthquake in Smith’s time that had a dramatic affect on European men of letters occurred on 1 November 1755 in Lisbon, Portugal, and this probably inspired him to develop it as an imaginary Chinese example of the appropriate moral conduct. China in Smith’s day was about as far as you could get from Europe (it took a year’s sailing to get there from Britain and the same time to get back, plus the time spent there, while Lisbon was but a short day or two away. Distant China was about as far as you could get in popular imagination, which suited his example.

The clue is in his early reference to the ‘man of humanity’ who performed the subject of his questions about the little finger, and reading it leaves no doubt in a reader’s mind of Smith's low opinion of any such man preferring his little finger to the death of 100 million people.

In sum, the benevolent generosity of the genuine concerns and sacrifices to send assistance to the victims of the more recent earthquake in Japan does not contrast with Adam Smith’s parable of the reaction of an 18th-century ‘man of humanity’; the same passion for others is common to people both then and now. Those who seek to make an ideological point against Adam Smith (usually sneering about free markets as well), are mischievous, where not downright dishonest.

Professor Bhagwati’s broader point was that globalisation has not made people less caring than in more ancient times and it doesn't need a truncated 'little finger' example to make that point.

In fact, globalisation makes it easier to mobilise real resources (not just sympathy) and get them to Japan in hours and over prolonged period of days and weeks. This was impossible in the 18th century. By the time that news of the earthquake reached Europe from China, or New Zealand, it would be 'old news', well over two years old.

If you see any such misinterpretations of Adam Smith on Earthquakes and the ‘little finger’ paragraph, write or post a rebuttal in your own words (or mine) and certainly in Smith’s.

** Message for ambitious younger readers hoping to climb the ‘greasy pole’ of academe: try not to be shy of acknowledging the (inevitable) scholarly errors as you join the Republic of Letters in case your ‘rivals’ put you down. It is unedifying to see people refusing to acknowledge errors, worse, trying to deny them. Your ‘rivals’ will whisper against you anyway, but your seniors will note your sense of scholarly integrity and your defence of when you are right will impress your colleagues.

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Friday, March 11, 2011

In Memory of a Journeyman Economist

Paul Rubin posts (10 March 10) a moving account of the life of Jack Calfee (HERE) who died recently, aged 61. It is an account of what may be called, in the best traditions of our professional respect, the professional life of a journey-man economist, whose interests included advertising, markets for health, including pharmaceuticals, tort law. Follow the link for a biography of which any economist would be proud.

Jack Calfee, in Memoriam by Paul Rubin”

“The overarching theme of his research is that Adam Smith’s “invisible hand” works not only through prices, but also through information and through other subtle and non-obvious benefits of free markets.”

“In addition to his scholarly work Jack wrote innumerable policy papers and articles, and testified both before Congress and before regulatory agencies. Many of his policy articles appeared in AEI publications, but there were also op-eds in the many newspapers and magazines. Indeed, Jack’s final publication, an analysis of the costs of the Massachusetts health plan appeared posthumously in the Wall Street Journal, one of many publications in that newspaper.”

“everyone in America will be harmed because we have lost a wise and knowledgeable defender of the benefits of markets when they are under sustained attack.”


Comment
I have had no knowledge of Jack Calfee or his work before reading Jack Rubin’s account. He appears to have been a sound professional economist of whom it would have been a privilege to know, like several others whom I have met and grew to admire over the years, while stressing that I have not always agreed with them all professionally. The Republic of Letters is people by many citizens with whom we have our mutual professional differences – but these always should and must be separate from our admiration and love (a too rare ingredient of appreciation) of them.

Paul Rubin’s appreciation of Jack Calfee included this sentence:

“The overarching theme of his research is that Adam Smith’s “invisible hand” works not only through prices, but also through information and through other subtle and non-obvious benefits of free markets.”

I would agree with much of the sentence – and would have conveyed such a thought to Jack Calfee direct if I had known him – with a caveat on behalf of Adam Smith’s Lost Legacy.

Yes, markets are guided “through prices”, always the most visible aspect of markets, and yes they are also guided “through information and through other subtle and non-obvious benefits” and I would hope that more economists could be seen to emphasise that truth in their work.

But that does not account for Smith’s use of the 17th and 18th-century popular “invisible hand” metaphor, which was not applied to “markets” or “prices” by Smith and neither were his two uses of the invisible hand metaphor about the “benefits of free markets” in general (even remotely). There is a legitimate doubt about whether Adam Smith related the metaphor to markets at all.

This is the modern conundrum that has arisen from inventing a wide role for a ‘significant and more interesting” metaphor to suit modern thinking (and it must be said, including certain extreme ideologically motivated views of markets), which also rests on the shaky foundations of mis- (and non-reading) of Smith’s careful words. Alternatively, we could say, applying another metaphor used by Adam Smith, that the modern notion of the invisible hand is ‘suspended on the Daedalian wings’ of a post-late-19th-century literary inventions rather than the limited historical accuracy of the original context in either Moral Sentiments or Wealth Of Nations.

Jack Calfee appears to have done a great deal of interesting and useful work on regulated markets in modern North America, for which he should be rightly remembered. WE should bear that in mind in the coming weeks.

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Thursday, March 10, 2011

A Debate Among Friends Rumbles On

Many thanks to several regular readers for drawing my attention to the article in the Economic Affairs journal (Marc 2011) on Daniel Klein's hypothesis that the physical centrality of Adam's Smith's use of the invisible-hand metaphor (with my response). Earlier last year I was invited by the Economic Affairs Journal to write a response to Daniel Klein's paper, the original draft of which he had kindly sent to me much earlier (we are both members of the Republic of Letters, where the participants engage in 'arguments among friends'). I had also commented on Daniel's earlier draft article about his and Brandon's discovery, and we both published our early papers on the Social Science Research Network (SSRN - available free - google it).

The gist of my response was to accept the results of the detective work by Daniel Klein and his colleague, Brandon Lucas, namely that in both Moral Sentiments (from the 3rd edition) and in Wealth Of Nations for the first six editions, the metaphor appeared in the physical centre of each book (chapter 1, Part IV and chapter i2, book IV respectively). When facts are stated and corroborated by the evidence, scholars should submit to the facts, which I did.

However, the explanations of the facts and their consequences are still very much open to debate, which I do in my response to Daniel and Brandon's article, but their explanation for their results was not part of those facts. Specifically, they did not (nor has Daniel ever done) answer the counter-fact of Adam Smith's taught meaning of the role of metaphors in the English language and Rhetoric (see student notes of his Lectures on Rhetoric and Belles Lettres, [1763] 1983, Oxford University Press/Liberty Fund, page 29), or consult any text on English grammar, including that by Hugh Blair, who took over Smith's Rhetoric lectures delivered in Edinburgh, 1748-51 and delivered his version thereafter at Edinburgh University.

Metaphors are used to describe their object in a "more striking and interesting manner"; they do not exist as their own objects - there is no 'invisible hand' with the mystical or romantic properties usually ascribed to it by modern economists, such as that Smith's invisible hand, for example, referred to 'competitive market forces'.

Smith's use applies to: a) the unavoidable necessity of rich landlords, including those of a vile disposition, in feudal Europe having to feed their slaves, serfs and labourers, if only to maintain them in their ability to work his land; and b) the insecurity felt by some, but clearly not all, merchants who chose to invest locally in the 'domestick' economy rather than undertake the perceived greater risks of foreign trade, which raises 'the domestic national output of the necessities and conveniences of life', the whole being the sum of its parts (that is, nowhere near the heavy maths of general equilibrium, nor the deep philosophy of Daniel's arguments, including the Talmud.

In neither example is the invisible hand absolute and applicable to all - some 'vile' feudal lords treated the subsistence of their dependent serfs despicably, and some from their humanity and fed their slaves, serfs, etc., reasonably well (subject to abrupt change no doubt through the passing generations), and many merchants invested their capital locally for other motives than their insecurity, just as some merchants chose to invest abroad with alacrity and enthusiasm. Smith was making a 'striking and interesting' point with the invisible-hand metaphor about specific lords and specific merchants and the unintentional consequences of their behaviour.

Modern economists (post-Samuelson from 1948) attributed a whole tranche of invented meanings to Smith's use of the invisible-hand metaphor, such as, but not only, that it was about perfectly competitive markets, natural liberty, a version of Pareto's welfare theorem, supply and demand, and general equilibrium. All these inventions fall on considering the specific objects of Smith's two uses only of the invisible hand metaphor - the behaviour of feudal landlords in their (non-competitive) agricultural economies and some merchants in Mercantile (and also in anything but competitive) Britain. These facts are ignored in all the debates on the invisible-hand that I have had with Daniel Klein and (for example, but not only) David Friedman (see my statement above about scholars ' scholars should submit to the evidence...).

The common usage since the 1970s of the invisible-hand metaphor applies it in Adam Smith's name to many modern phenomena and then back-projects its ascribed properties onto Smith's two examples, which is a factual error as well as being, in my always humble, opinion a conceptual mess, because the facts of the feudal centuries do not correspond with any of the circumstances associated with the modern attributions, nor do the facts of what is meant by competitive economies as understood by the same modern economists.

At this point, for now, I rest my case.

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Wednesday, March 09, 2011

Error Upon Error is Still In Error

Adrian Pabst writes in the Telos Blog (HERE):


“Moralizing the Market?
Economies of Gift in an Age of Global Finance”

“…in anthropology it is argued that the idea of a purely self-interested homo economicus in pursuit of material wealth (central to Adam Smith's Wealth of Nations) reduces the natural desire for goodness to a series of vague, pre-rational moral feelings (as set out in his Theory of Moral Sentiments)….

… By contrast with the anthropological vision of homo economicus with "a natural propensity of truck, barter and exchange" (Adam Smith) that is central to modern economics, other traditions such as the Neapolitan and the Scottish Enlightenment defend a rival anthropological vision that views humans as "gift-exchanging beings" who form mutual bonds and organize society around the exchange and return of gifts
.”

Comment
For the record the idea of Homo economicus was invented a century after Adam Smith’s Wealth Of Nations and bears little resemblance to Adam Smith’s moral philosophy (Moral Sentiments) and his political economy.

Smith’s reference to “a certain propensity of truck, barter and exchange" (he said nothing about it being “natural”, with all that such a word implies). He speculated “whether this propensity be one of the original principles in human nature, of which no further account can be given, or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to enquire” (WN, page 25; as always on Lost Legacy, I refer to the Glasgow Edition, of 1976, published by Oxford University Press).

The key word is “exchange” and he gave it a far more general application than merely to trade. Indeed, as discussed in my second last post on ‘Smith and the Origins of Language’, the same principle of exchange relations was part of a common methodology used in all of his Works.

Modern economics has run into a side – if not a dead – end of making the whole focus of the ‘individual’ shrouded in the dubious mantle of Homo economicus. Smith was concerned with the relationships implicit and necessary for exchange to operate. It takes at least two individuals to engage in exchange, the root of human nature in societies (mankind has always lived in societies – as did, and still do, the primates, our genetic cousins, since the common ancestor speciated about 6 million years ago (that is, long before the theological fables of the Eden Garden and the Flood supposedly too place– about 4,000 years BCE).

A perfectly self-interested person cannot exchange – ideas, gifts, or items – with another perfectly self-centred individual, where each insists on their own solution to a distribution problem. They have to mediate their different solutions (at least two for each problem) for them to volunteer to accept a common solution. Smith explains this exchange process in Moral Sentiments (1759) and in his Considerations on the Origins of Language (1761), and in his Lectures on Jurisprudence (1762-3) and in Wealth Of Nations (1776).

To conflate conceptual inventions from the 1870s, and the neoclassical period, particularly in theories of General Equilibrium (from the 1960s), with Adam Smith’s philosophical methods is an error of fact, and of scholarship.

Adrian Pabst undermines his theological case by such erroneous assertions.

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Misusing a Strawman

Dr. E. Ann Clark, of the University of Guelph, writes (8 March) in the Counter Currents Blog (HERE):

The Future Is Organic: But It's More Than Organic!”

“Is this all the result of Adam Smith’s invisible hand - an inevitable and inescapable result of the unfettered free market or other universal principle in action - or is there more to it?”


Comment
The obvious question is seldom asked by most modern economists and, therefore, entrenching the mystical nonsense of a ‘magical’ invisible hand of no known actual content, hence no term for it in the most sophisticated of mathematical modeling known to our so-called, hard- science pretenders currently at the top of our top universities with their monopoly grip on our top journals –these same people also act as our top referees of the same journals.

(Incidentally, I read yesterday somewhere on Blog land that a leading physicist after a meeting with leading lights of the same top economists had remarked that he had ‘thought top physicists were arrogant until met these leading economists’. Having not met any top physicists - though I have met many top economists - I cannot comment on the veracity of his statement.)

How markets work is perfectly visible. Its called prices. This was all explained by Richard Cantillon and Adam Smith, and many others before and after.

Of course, top economists will respond that what makes people react to visible prices is their ‘self interests’, of which they will suggest you look over an Economics 101 textbook and – only if you can cope – read up on General Equilibrium theory to see why this answers your ‘101-level’ naivety (and if you can’t read the equations, they probably mutter under their breath, ‘flaming ignoramus’).

The problem with their certainties and their arrogant dismissal of your objections, it that the evidence that self-interest is not the whole picture of what makes people act in the multiple ways they do.

Far too much reliance is put on the catch all, simple same self-interest explanation for it to be credible. People, as Adam Smith, insisted, are not wooden pieces on a chessboard subject to the momentum imparted to them by a ‘man of system’ – people act on their own volition, and many people make for many individual motivating volitions (unlike the wooden chess pieces or the uniform reaction of individual atoms, here and elsewhere in the universe).

This sort of thinking leads to the obvious error of postulating that the self-interest of individuals, whether based on purer or selfish self-interests, somehow and miraculously works for the betterment of all. This is the crass consequence of some misinterpretations of the properties of the invisible hand.

Dr. E. Ann Clark’s assertion about the invisible-hand metaphor as the “unfettered free market or other universal principle in action” is based on a misinterpretation of what Adam Smith meant when he used the metaphor only once in Wealth of Nations in Book IV, and not in connection with markets. In fact that chapter in Book IV was about a context anything but an ‘unfettered free market’ (this was about the 18th-century mercantile protectionist Britain!).

Whatever the case that Dr Clark makes for changes in food production they do not need the phony straw man of modern economists. There is no invisible man of the market, unfettered or otherwise.

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Monday, March 07, 2011

NEW Interest in Smith's Origins of Language Essay Looks Promising

Edmund W. Schuster writes on his Blog in Cambrdge, Mass. 6 March (HERE):

‘Adam Smith and Language”

“I did not realize that Adam Smith did so much thinking about the origins of language. As an early aspect of his research, Smith reasoned through how words and language came into being as an essential part of human life.

Several of Smith's early ideas are evident in the version of the M Language brought forward by myself, Stuart Allen, and Ken Lee. In later posts I will show these linkages that we collectively developed independent of and without the knowledge of Smith's writings on the subject.”


Comment
Edmund W. Schuster writes a personable but technical Blog to do with higher-level computer languages (e.g., ‘the M Language’ reference, which is well beyond my ken) and his interest in Smith’s Essay On Language is from the technical (quasi-linguistic?) content of the 1961 Essay. However, his views on its early historical value may be interest to Smithian scholars, among whom I assume there may be some who are computer-language literate).

Adam Smith took an early interest in the origins of language, as did several other luminaries of the contemporary mid-18th century Republic of Letters, including Rousseau and

When Smith travelled in France between 1764-1766 he discussed the ideas on the topical 18th century question: ‘how did different languages evolve?’ (implicitly ignoring the Biblical fable of the Tower of Babel and dead-end side-issues of pronunciation).

Quite separately, he had published his own (and still much neglected) Dissertation upon the Origin of Languages in 1761 in an obscure and, after its first issue, a defunct publication: The Philological Miscellany, (1761: i. 440-79); one-volume only from Becket and Dehondt). Smith was probably frustrated by the absence of knowledge of his Essay by his French hosts.

One consequence was his determination on is return to London to see his Language Essay republished in the later the third edition (1767) of his popular first book, Moral Sentiments (1759). He remained in London for several months on his return, primarily to see to his social obligations to mourn with the young Duke of Bucleugh and his family over the death of his younger brother in Paris in 1766, but also to respond with his usual methodical labours to his publisher’s request for a 3rd edition of TMS.

Among other editorial changes and additions, Smith instructed his publisher to add his Essay on Languages to Moral Sentiments. Daniel Klein and Brandon Lucas of George Mason University, Virginia, suggests that Smith was motivated by a desire to arrange for the centralizing of the ‘invisible-hand’ paragraph in Part IV to accord with student notes of a paragraph in his university Lectures on Rhetoric and Belles Lettres (first published posthumously in 1983) by Thucydides, namely that the essence of the main and central idea of an argument was best placed in a few words in the centre of a narrative, in contrast to the ‘tiresome’ style of the earlier historian, Polybius (See: Daniel Klein and Brandon Lucas, “In a word or Two, Placed in the Middle: the invisible hand in Smith’s Tomes”, October, 2009), (HERE)

Klein and Lucas demonstrate that the additional 23 pages of the Essay (see pages 203-226 Lectures On Rhetoric had the effect of moving the famous invisible-hand’ metaphor to the physical centre of Moral Sentiments. The significance that they attribute to this contention, I have debated on Lost Legacy (2009-10 passim) and in my paper: The Centrality of the Invisible Hand in Smith’s Books: using a metaphor as an antidote to ‘tiresome’ and ‘less pleasant’ narrative styles. (HERE).

The issue for scholars is whether my contention that Smith’s decision to append his Essay On Language was the result of his decision to make it more widely available by including it in his popular Moral Sentiments (the first and second editions had sold out) and any consequence for the centrality hypothesis was purely accidental and incidental.

Fortuitously, his publisher had asked for a 3rd edition, which assured Smith of a wider audience for his Languages Essay. Klein and Lucas argue that Smith had more likely ordered its inclusion simply and deliberately to manipulate the physically centrality of the metaphor in the extended pagination, which they support by the non-coincidental physical centrality of the second use of the ‘invisible-hand’ metaphor in Wealth Of Nations from 1776.

Bear in mind that Smith had begun to lecture on Rhetoric from 1748 to 1751 in his privately sponsored lectures in Edinburgh. He continued his series on Rhetoric at Glasgow University through to 1763 (see Adam Smith, Lectures On Rhetoric and Belles Lettres, 1983, which contains a few pages on the origins of language, showing that his language theories were a significant part of his teaching: see the editor’s introduction to the Rhetoric Lectures, pages 23-27, which show the context for his continuing interest in the consideration of the grammatical origins of language, and also Smith’s essay ‘Of the origin and progress of language’, pages 9-13, with several other relevant though isolated comments throughout the Rhetoric lectures. These show Smith’s abiding interest in his original thinking.

According to the student’s notes of the Rhetoric lectures, he mentioned Thucydide’s suggestion on the rhetorical advantage of physical centrality (Rhetoric, Lecture XVII, 5 January pages, 1763, pages, 89-97). However, he made no comment on the centrality issue in his Essay On Language either in 1761, nor as it was republished in 1767.

The effect of inclusion of the Language Essay and other revisions was to bring the metaphor physically into a central place in the pagination of Moral Sentiments from 1767, and in all further editions in his lifetime to the 6th , and also thereafter, at least until the Glasgow edition was published in 1976, where it was moved by editorial decision in that series from Moral Sentiments to a separate inclusion in that edition’s Lectures On Rhetoric.

However, in the new Penguin edition of Moral Sentiments, edited by Ryan Patrick Hanley in 2009 (introduced by Amartya Sen), the Essay on Language (full title: ‘Considerations Concerning the First Formation of Languages, and the different Genius of Original and Compound Languages’ has been restored to it ‘proper’ place (pages 407-32).

Dugald Stewart, the son of Smith’s student and academic friend, the professor of mathematics, Michael Stewart, said in his eulogy to Smith delivered to the Royal Society of Edinburgh in 1793), that Smith considered the Language Essay very important in its own right:

“It deserves our attention, less on account of the opinions it contains, than as specimen of a particular sort of enquiry, which, so far as I know, is entirely modern in origin, and which seems, in a peculiar degree to have interested Mr Smith’s curiosity. Something very similar to it may be traced in all his different works, whether moral, political, or literary; and in all of these subjects he has exemplified it with the happiest success.”

(D. Stewart, [1793], “Account of the Life and Writings of Adam Smith, LL.D.” ed. I. S. Ross, 1980, p 292, in Essays on Philosophical Subjects” ed. W.P. Wightman and J. C. Bryce, 1980).

This insightful suggestion was followed up in James Otteson’s remarkable Adam Smith’s Market Place of Life, 2002, Cambridge University Press, in which he applied a simple model of Smith’s ‘particular sort of enquiry’ to others of his works (page 108). I discussed this model in my ‘Adam Smith: a moral philosopher and his political economy, 1st edition, pages 43-45 – unfortunately deleted for the 2nd edition for space reasons in the 2nd paperback edition).

Otteson applied a four-step model of the elements of Smith’s method to Moral Sentiments, Wealth Of Nations and the Language Essay (Otteson, 2002, 286). The four elements are 1: Motivating desire; 2: Rules Developed; 3: Currency; and 4: Resulting Unintended System of Order. I tried the model by applying it to Smiths’ Essay On Astronomy [1795] and to his Lectures On Jurisprudence [1763] (Kennedy, 2008, p 43, figure 2.2), I think successfully (though that is for others judge).

Otteson’s application to the Language Essay shows: 1. Desire to make mutual wants intelligible to each other; 2: Rules of Grammar, pronunciation; 3: Words, ideas and wants; 4: Communication through mutually intelligible languages (Otteson, 286).

I consider Otteson’s market (exchange model) a valuable tool for understanding what Adam Smith was about. It makes the Essay On Languages more deservedly more accessible than a mere isolated curiosity.

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Saturday, March 05, 2011

It's Time to Read Amartya Sen's Work

Angus Sibley writes in Spero News (HERE): on Amartya Sen, On Ethics and Economics (Blackwell, Oxford, 1988):

Made in India: Amartya Sen's good economics”

“My readers may recall that a year ago I quoted two present-day English writers, according to whom most economists deny that justice has any bearing on economic transactions.3 More than a century ago, the French historians Gide and Rist blamed three of the founding fathers of ''classical'' economics: Adam Smith, Jean-Baptiste Say and David Ricardo consider that man is motivated only by his own interests. They imagine him totally absorbed in the pursuit of gain.4 That is less than fair to Smith, who was in fact far more concerned with the morality and humanity of economic behaviour than is generally acknowledged. But posterity has neglected this aspect of Smith''s thought, preferring to focus its attention on the ''invisible hand'', whose infallibility was never claimed by Smith himself. As Sen observes, while some men are born small and some achieve smallness, it is clear that Adam Smith has had much smallness thrust upon him.5

Thus, even from its early days, economics has all too often been blind to the moral implications of its theories and policies. It has based itself largely on three assumptions:

(a) that human beings are primarily concerned with rational action designed to maximise their personal economic gains; that other motivations, leading to altruistic or non-rational actions, are of minor importance and can be ignored;

(b) that individual self-interested actions, carried out in the freest possible markets, are normally (not merely ''frequently'', as Smith put it,6) conducive to the general good;

(c) that the sole purpose of economic activity is to maximise the output of consumer goods and services with minimum input of human labour.

Sen, by contrast, is one of the rather few modern economists who have striven to involve economics with morality and justice, not merely with how to maximise capitalist wealth and consumer-pampering efficiency. In his view, there are two contrasting approaches to economics. There is the ''ethical'' approach which considers how to manage the economy so as to deliver ''economic justice'', an acceptable distribution of available resources. And there is the ''engineering'' approach, which considers how to generate goods and services as efficiently and profitably as possible. Sen accepts that both are necessary, but he deplores the inordinate dominance of economic ''engineers'' in the Western world ever since the eighteenth century.
My readers may recall that a year ago I quoted two present-day English writers, according to whom most economists deny that justice has any bearing on economic transactions.3 More than a century ago, the French historians Gide and Rist blamed three of the founding fathers of ''classical'' economics: Adam Smith, Jean-Baptiste Say and David Ricardo consider that man is motivated only by his own interests. They imagine him totally absorbed in the pursuit of gain.4 That is less than fair to Smith, who was in fact far more concerned with the morality and humanity of economic behaviour than is generally acknowledged. But posterity has neglected this aspect of Smith''s thought, preferring to focus its attention on the ''invisible hand'', whose infallibility was never claimed by Smith himself. As Sen observes, while some men are born small and some achieve smallness, it is clear that Adam Smith has had much smallness thrust upon him.5

Thus, even from its early days, economics has all too often been blind to the moral implications of its theories and policies. It has based itself largely on three assumptions:

(a) that human beings are primarily concerned with rational action designed to maximise their personal economic gains; that other motivations, leading to altruistic or non-rational actions, are of minor importance and can be ignored;

(b) that individual self-interested actions, carried out in the freest possible markets, are normally (not merely ''frequently'', as Smith put it,6) conducive to the general good;

(c) that the sole purpose of economic activity is to maximise the output of consumer goods and services with minimum input of human labour.

Sen, by contrast, is one of the rather few modern economists who have striven to involve economics with morality and justice, not merely with how to maximise capitalist wealth and consumer-pampering efficiency. In his view, there are two contrasting approaches to economics. There is the ''ethical'' approach which considers how to manage the economy so as to deliver ''economic justice'', an acceptable distribution of available resources. And there is the ''engineering'' approach, which considers how to generate goods and services as efficiently and profitably as possible. Sen accepts that both are necessary, but he deplores the inordinate dominance of economic ''engineers'' in the Western world ever since the eighteenth century.


Comment
This presentation of Amartya Sen’s thinking on contemporary economic theory is so good, I urge readers to follow the link and read the full article.

You should find much of what Sen was saying with which you agree, especially if you come at him with some prior knowledge of Adam Smith’s moral philosophy and political economy, and, most interesting, if you are willing to learn about that philosophical background from Amartya Sen’s presentation of his critique of the ideas and assumptions of modern economics as taught in most universities and as the result of the spread of it to political discourse, media commentary, and, probably more serious, into the behaviour and decision-making in the financial world and corporate governance.

Any comments on Amartya Sen’s ideas are most welcome.

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