Friday, November 17, 2017


Jeffrey Snider, the Chief Investment Strategist of Alhambra Investment Partners, a registered investment advisor, posts (17 November) on Real Clear Markets: HERE
“Trying to Make It a Legitimate 'Science', Economists Achieved the Opposite”
[Economics now publicly chastises as it tries as it tries to degrade the most significant markets on the planet] is perhaps a case study in the unraveling of a theory.  The contradiction is just too good to ignore.
And it is a very simple case of not being able to see the forest for the trees.  Central banks around the world claim they are normalizing monetary policy for the first time in a decade because their respective economies have finally healed more than enough to warrant some normalness.  Several of them, including the Fed and now the Bank of England, are raising rates to that end.
Yet, in doing so they are increasingly perplexed, visibly miffed even, at what little respect for their power is being displayed practically everywhere.  Inflation is coming, they say. Growth is picking up, they say.  With those can only be higher rates….
That’s true.  If inflation was to actually accelerate along with economic growth and opportunity, bond rates especially at whatever long end would be rising.  Each yield curve would steepen first in doing so, and then flatten as the process wound down into full recovery and an actual rather than imagined economic boom.
Yield curves are flattening, alright, only at the start of the process rather than at its end.  It’s this that has central banks, and the media, nearly apoplectic.  Central banker after central banker says things are working and getting better, and that because of this they will raise the short end of each curve. The bond market reply isn’t that central bankers are wrong about what they will do, it’s more so that markets don’t care one bit because they are wrong about why they will do it. …
… The problem is science. What I mean by that is Economics can never really be one, at least not in the same way as physics or whatever other hard science. The scientific process is about observation, replication of results, and predictability.  Any hypothesis must be observed, verified by results that anyone else can replicate, and lead to predictable outcomes. 
For Economics, what truly counts as an observation? What actually happens inside any economy down to the smallest one is unobservable. We know that transactions and trading takes place, but there is no possible way to track and measure every single thing that occurs.  Even if it was possible to track all of it, there is no clear method for aggregation and then useful analysis. Thus, any economic observer is always at the start forced into short cuts to try to make sense of Adam Smith’s invisible hand. (GK my emphasis)
..In short, bonds are calling the inflation/growth bluff.  And why wouldn’t they?  We’ve heard all this before, several times, and often in just as emphatic terms as now....
...The chief difference between that conundrum and this one, though, isn’t just numbers.  ...
...Rather than listening to the market, central bankers and economists are telling everyone else not to. This is extremely odd given that rational expectations demands respect for market prices.  We know from history, however, especially the crisis history over the last ten years, that central banks don’t actually operate based on market reality but instead theoretical market “reality.”…
Rather than turn it into a truly scientific process, however, the focus on mathematics has inverted the whole of it. The mathematics have become all that matters to an Economist, so that without it he can make no sense of anything that doesn’t fit.  The main part of any scientific process is falsification, but in Economics there can be none. The models have become more real than reality. …
More evidence that some economists are becoming wary of the accepted (imposed?) models that are   celebrated within the discipline and are repeated in the popular media.
The irony is that the celebrated quality standards that count for promotion and prominence in economics are now those of higher mathematics supposedly replicating reality. Hence, the mindless celebration of the "invisible hand", the wholly misunderstood metaphor used once by Adam Smith in Wealth of Nations, which sat unrecognised in his now famous textbook for 60 years by those who read and wrote about it from its last edition (1789) until the 1850s. Even then it was another generation before a brilliant mathematical economist, Paul Samuelson) misinterpreted Smith's metaphor, supposedly as the most significant theoretical contribution to 20th century economics in his 1948, textbook., and misled generations of economists (and their students) to repeat his error.

Thursday, November 16, 2017


Professor Emeritus, John Hill, posts (16 November) on Boston Globe:
Automation can benefit us all, but first let’s bid laissez faire adieu” 
L. Rafael Reif’s “Transformative automation is coming — the impact is up to us” (Opinion, Nov. 10) is laudable. But without a significant change in the political economic mind-set of this country, a smooth transition will be difficult to attain. Reif seems aware of the difficulty when he writes: “Whether the outcome is inclusive or exclusive, fair or laissez-faire, is up to us.”
Unfortunately, our economic mind-set is poisoned by the myth of laissez-faire. For well over a century, American capitalism has been based on the fake news that Adam Smith, the so-called father of capitalism, advocated laissez-faire. Smith never used the term. In fact, he advocated capitalism with justice, liberty, and equal opportunity. Smith also wrote that increased productivity, due to the division of labor, made it possible to spread wealth to the lowest ranks of the people. Automation could benefit everyone in society if Smith’s moral capitalism were combined with Reif’s proactive and thoughtful reinvention of work.
John E. Hill

Absolutely right!  Professor John Hill knows the truth about Adam Smith's ideas.

Another step towards good sense and historical accuracy about Adam Smith’s political economy. Spread the news ...

Monday, November 06, 2017


Writing and preparing my manuscript for my 'Authentic Account of Adam Smith' has brought to my attention the new world of modern publishing.
After 25 books since my graduation everything has changed and my first book, The Military in the Third World (Duckworth).
No more writing a book and sending its manuscript to a publisher and sitting back, awaiting the proofs for final correction and leaving the rest to the publisher, who arranged the printing, binding and delivery of finished books to the market.
Now the finished electronic book is sent back to the writer for final corrections and then sent back to the publisher for final production.
Sounds simple. 
A giant leap forward to the new technology.
Published books, from single copies, to large print runs all to order.
No more warehouses full on unsold books. Electronic storage only of the master copy.  Books sold per copy, all published and printed to order, or sent as single electronic copies - even single chapters - to cash supported orders.
I had no idea of what I was taking on when I agreed to the contract terms this time round.
Well, my final electronic manuscript is with the publisher's printer. I await the final verdict.
I expect more work to be required.
In the meantime, Lost Legacy Blog will resumed its commentary on passing events associated with the historic Adam Smith and his modern scholars. 

Saturday, November 04, 2017


"Adam Smith (Critical Lives) by Jonathan Conlin
Overview: Universally acknowledged as the father of capitalism, the eighteenth-century Scottish thinker Adam Smith is best known for his "invisible hand" theory. This theory argued in favor of setting individuals free to pursue their self-interests for the good of all and has helped to make Smith's name synonymous with unfettered free market capitalism. In this book, Jonathan Conlin rescues Smith from the straight-jacket of economics, reattaching the "invisible hand" to Smith's philosophy of ethics.
As Conlin shows, Smith rooted our instincts to trade in human psychology. Analysing the contrasts he saw between the industrialising Scottish lowlands and the clan-based pastoralism of the Scottish highlands—as well as the contrasts between the ideas of contemporary thinkers such as Jean-Jacques Rousseau and David Hume—Smith advanced a system of ethics founded on sympathy. Weaving together Smith's life and ideas, Conlin shows how the latter anticipated much more recent developments surrounding behavioural economics, virtue ethics, and social inequality. Ultimately, Conlin argues, Adam Smith offers us a set of tools to face today's challenges and become better and happier human beings.
Genre: Non-Fiction, Biographies & Memoirs.HERE 
From the blurb above I am inlcined, half seriously, to challenge Conlin’s inclusion of his book in the non-fiction category of recent publications.
Whatever Smith’s popular reputation - mainly made by ill-informed, non-readers of his Works - he was not the ‘father of capitalism’ (whatever that means), nor was he “best known” - by whom, on what basis? - for his so-called “invisible hand theory”. 
Adam Smith’s contemporaries said virtually nothing about his ultra-limited use of a literary metaphor of an ‘invisible hand’. 
Moreover, those political economists who published their major books on political economy, while discussing in great detail, Adam Smith’s two major Works, ‘Moral Sentimens’ (1759) and ‘Wealth of Nations” after he had died in 1790, said not a word about the ‘invisible hand’ throughout most of the 19th century. 
The modern image of Adam Smith and the romance of the ‘invisible hand’ is a purely 20th-21st century invention, led by Paul Samuelson, beginning in 1948 in his basic 101 Economics Text book, through 19 editions to 2010,  and 5 million plus sales. From Samuelson, a brilliant mathematical, Nobel Prize winnning economist, but a poor reader of Adam Smith, the romance of the Invisible Hand began and has spread across the discipline and thoughout the mass media.
Whatever, Conlin ‘weaved together’, they were not the ideas of Adam Smith, born in Kirkcaldy, Scotland in 1723, who died in Edinburgh in 1790. They appear to be ideas circulating across the mass media and the myths spread by literate publicists on University campuses, who should know better by checking their sources. 
Incidently, ‘capitalism’ is a word first used in print in th 1830s, 40 years after Smith died in 1790. Moreover, commercial markets began to appear centuries earlier in Europe and Asia, before Adam Smith was born in 1723. 
Seriously, if Smith had continued his Ordination studies at Balliol College and had become a Priest in the Church of England as was intended, we would never have heard of him. However, commerce would have continued to develop towards capitalism without the many blessings of Smiths genius, more or less exactly as it did, quite independently of Wealth of Nations

Just a thought…

Sunday, October 15, 2017


Dennis C. Rasmussen, The Infidel and the Professor: David Hume, Adam Smith, and the Friendship that shaped Modern Thought”. Princeton University Press, 2017.
Dennis Rasmussen has written an excellent account of a neglected aspect of the intellectual stimuli associated with enduring changes in philosophy, political economy and, eventually, in the practice of science, from a period known as the Scottish Enlightenment.
Of course, the European Enlighenment was occasioned by a much wider geographical spread of many individuals than just the two above, albeit central figures, of David Hume and Adam Smith. But their intellectual relationship was a central factor that helped to determine the nature and consequences of what others in England, France, Germany, Holland, Scandinavia and Europe’s universities were doing separately and together.
Rasmussen captures to details of Hume’s and Smith’s contributions to Enlightenment thinking in a uniquely two-levels account. The main text is clear cut, stating the historical facts in clear manner as to what each believed. Hume, of course, was mostly controversial in his critique of the prevailing religious dogma and he attracted the ignorant hostile reactions of Church members. Smith, his junior by 12 years, and publically beyond suspicion as an apparently orthodox Christian believer in public, though in fact, privately he was a sceptic too. It took sometime for the pair to disclose privately to each other the philosophical basis for their mutual scepticism, and their quite different behaviours in the face of the hostile politico-religious environment of the times the lived in. 
The other levels of their relationship are revealed in Rasmussen’s use of an informative 50 pages of end notes for scholars interested in the supporting evidence for his assertions. Reading the main text together with the end-notes reveals the depth of Rasmussen’s scholarship. It also explains why he as written such an intensely interesting book about an intellectual relationship between two men at the centre of the Scottsh Enlightenment.
For all the things that Hume and Smith had in common intellectually they also had much that was so different. Hume took on the burden of establishing the empty philosophical basis of the dominant Christian religion of his times. His candour enraged extremist Christian believers. Pathetic attempts to drive Hume out of the Church of Scotland failed, not least because those who knew him well realised he was not an emissary of Satan, but a man of gentle scholarship and impeccable social manners and modest behaviour.
Here I would add some comments on Adam Smith whose conduct in the crisis of Hume’s decline and death in 1776 remains somewhat inexplicable in Rasmussen’s authoritative and otherwise excellent account.
Clearly, Smith wanted to playdown Hume’s insistence that he would not change his views on religion as he approached death, which religious persons’ anticipated would be dealt with by God severely in respect of Hume’s disavowal that there was a God.  Hume, of course, did not recant. 
My point here is that Rasmussen does not explain Smith’s role in Hume’s near-death discussions. I have suggested elsewhere that Smith’s views on religion and the existence of God are explainable and were discretely close to David Hume’s ideas .
See my two published papers: 1):  Gavin Kennedy, Journal of The History of Economic Thought (JHET, 2011. “The Hidden Adam Smith in his Alleged Theology”, September, pp 385-402; and 2): and in The Oxford Handbook of Adam Smith, 2013, “Adam Smith on Religion”, pp 464-8, OUP.  
Basically, Smith hid his views on religion from his mother, a devout Christian who had brought her only son up in a like manner. Adam would never do anything to upset his mother even at some personal cost in his relations with others. His partial amendments to his last edition of Moral Sentiments (1790) show clearly his private non-religious ideas, as amended in public statements after his mother had died.

Rasmussen’s ‘The Infidel and the Professor’ in my view is the best authoritative scholarly book on David Hume and Adam Smith published in the last 5 years. It is destined to be the classic book of those times.

Thursday, October 12, 2017


Rene E. Ofreneo posts (11 October) on Business Monitor HERE 
The trouble is that the welfare state system has been eroding.  Economic globalization and the shift in economic thinking favoring free-wheeling neo-liberal economics are the culprits. The welfare state system is even on the brink of collapse in some European countries due to the global financial crisis, with the Austerians managing to control the levers of policy-making. This, in brief, is the reason the debates on the future of the capitalist system have been intensifying, not easing.
One of those engaged in the global debates is Prof. Robert Reich, US labor secretary under President Bill Clinton. In Saving Capitalism (2016), Reich argued for the need to reform America’s corporate system in order to save capitalism “for the many, not the few”. He demolished the old argument of “free traders” seeking less government role in business and in shaping the economic directions of society, stating that no “free market” is possible without government.  Further, he pointed out that the “invisible hand” in the market is not really that invisible; it “is connected to a wealthy and muscular arm” of the corporations.  Those who argue for free market are the ones trying to influence the market for themselves. Reich went on to outline how the American big corporations and their CEOs are able to manipulate the market and the politicians, monopolize products ranging from agriculture seeds to ICT data, hollow out manufacturing by outsourcing everything, organize business to maximize returns to shareholders, and minimize taxes for the rich.  An ex-Cabinet man, Reich concluded that the so-called free market system is really an alliance between Wall Street and Washington.
So what is Reich’s proposed alternative?  A return to Keynesian model of development where the government leads in designing, organizing and enforcing the market to meet the needs of the many, not the few.  He also argues for a fairer sharing of present and future wealth, not through a simple higher taxation for the rich but through an assurance that every citizen shall have a basic decent income.
Is this vision of economic governance possible in America?  In Europe? In the Philippines?  The answer lies in the collective hands of the millennials and the next generation.”
Professor Paul Reich is a product of his the economics that his generation absorbed from Paul Samuelson’s economics, which in turn were misappropriated from a misreading of Adam Smith’s singular use of the two metaphoric words, ‘invisible hand’, in his Wealth of NationsRene E. Ofreneo, the author of the above piece adds to the speculative confusion, with his politics that says nothing about the solutions to the identified problem. 
I think it is time to anticipate a theme in my Authentic Account about what Adam Smith actually meant in his use of the ‘invisible hand” metaphor. So later today I shall publish a brief extract from my explanation on Lost Legacy.

It won’t solve the problems of the world’s economies, but it will remove one area of muddled modern thinking about its causes.

Wednesday, October 11, 2017


David Bernstein posts (10 October) on The New York Times a conversation with Muhammad Yunus, the Bangladeshi founder of the Grameen Bank and recipient of the 2006 Nobel Peace Prize, HERE 
M.Y.: The capitalist system is based on a fundamental flaw, on misinterpretation of human beings. In capitalist theory, it is assumed that man is entirely driven by self-interest. That’s definitely not the description of a real human being. Human beings are selfish, and at the same time they are equally selfless, if not more. They want to help others. Adam Smith wrote this in “The Theory of Moral Sentiments.” He was a professor of philosophy. He was interested in morality. Then he wrote a completely different book that talked about self-interest and the “invisible hand.” The first book was forgotten. He never integrated the two books.
D.B.: If we integrated these ideas, what would be the implications?
M.Y.: Capitalism is all about options. But in the economic system, there is only one kind of business: business to make money — and it’s made more extreme by saying it produces best results when one maximizes profit. When we introduce the selflessness of people in the business world we get another option. Alongside conventional business, we add another type of business that will allow us to express our selflessness through business. The exclusive goal of this business, which I call social business, is to solve people’s problems. My book is full of examples of this.”
Another conversation where the participants discuss the real world as if their definitions of the real world describe reality - almost as if the economy they call capitalism listened to definitions and acted accordingly.
This error is profound. It sits alongside the absurd notion that Adam Smith “invented’ or somehow ‘created’ what we now call capitalism (a word first used in the 1830s - Smith died in 1790.
Even the sequence referred to by the conversationalists above is suspect. Muhammad Yunus wants to give capitalism a ‘social conscience” and thereby change human behaviours. He is building a false perspective based on a leaking boat. Adam Smith certainly wrote two books in two different episodes in his life, but not divided in the manner that Mohammad Yunus imagines. 
Moral Sentiments (1759) was appropriate at the time because Adam Smith was a Professor of Moral Philosophy. The subject that became economics did not yet exist. Smith’s other academic subject was Jurisprudence. He developed a strong teaching interest in Jurisprudence - the laws that governed human personal and necessarily, also, their social behaviours.
It was from this background that Adam Smith resigned his Chair at Glasgow University and spent ten years or more researching and writing Wealth of Nations based on what had been happening for centuries and had continued to happen in what we now call the economy, on a far wider scale in the late 18th crentury in North-West Europe. 
The Wealth of Nations (1776) and subsequent editions to 1789, addressed that transformation from the predominantly landed property economy to a market economy. It did not ‘invent’, nor create, capitalism. Nor did it ‘talk about’, ’self-interest’ and the “invisible hand” in any special manner.
 Indeed, Smith’s singular, once only, reference to “an invisible hand” in Wealth of Nations’ was ignored by Smith’s contemporaries and for much of the 18th century too by the many authors who wrote extensively about Adam Smith’s ideas contained in Wealth of Nations. Remarkably, major 18th-century and 19th-century economists when quoting from Wealth of Nations and addressing the ideas contained in or adjacent to the very paragraph that mentioned the ‘invisible hand’ did not mention nor comment on it their remarks.
The fact is that the so-called ‘invisible hand’ was ignored by his contemporaries and by his  successors! The significance of the ‘invisible hand’ is a wholly 20th-century phenomenon invented by Paul Samuelson n 1948.

Unfortunately, Muhammad Yunus, has been misled by those modern economists educated post-1948 into the modern myth of Adam Smith’s ‘invisible hand’, as has David Bernstein.