Saturday, December 16, 2017


John Keller (USA) posts (15 December) on 71 Republic HERE 
Adam Smith – Truly an Invisible Hand?
Although Adam Smith argued and developed the Theory of the Invisible Hand, it is important to note that is not his entire theory.
For decades politicians have quoted Adam Smith’s work, The Wealth of Nations (1776), an essay reaching over 500 pages on economic and political philosophy, that came up with the theory of the invisible hand of the market, with no government intervention and the adaptation of laissez-faire economics to support their political positions, but was Adam Smith truly the free hand economist politicians suggest?
It is true that Adam Smith developed the theory of the invisible hand of the market or the free hand as many will refer to it. He writes in the Wealth of Nations:
“He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention.”
Although businessmen don’t naturally intend to develop their community, but rather their own enterprise, they do it as a result of the invisible hand. By improving their enterprise they can buy in greater bulk and lower the cost for consumers (Law of Supply and Demand which Adam Smith also develops in his book), by raising more revenue could invest in employee wages which would, in turn, put more money into the hands of consumers and stimulate the economy. As a result, Smith argued that the government should stay out of spending your earnings:
“The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with most unnecessary attention but assume an authority which could safely be trusted to no council and senate whatever, and which would nowhere be so dangerous as in the hands of man who have folly and presumption enough to fancy himself fit to exercise it.
Based on these two quotes the idea that Adam Smith is a laissez-faire economist would be a sound and reasonable conclusion making it justified that he is presented in this manner by politicians: but they leave out the second part of his theories contained within The Wealth of Nations, the need to provide social welfare.
No society can surely be flourishing and happy of which by far the greater part of the numbers are poor and miserable.
Yes, Adam Smith is arguing for the Invisible Hand of the market to regulate the economy, but he also deems it necessary for the poor to be taken care of. Society must be measured by the member of suffering and to have a great society the poor must be relieved of their miseries. Adam Smith furthers that for such a measure the wealthier members of society should pay higher taxes, he writes:
It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
Adam Smith actually argues for a progressive tax code – contrary to the tax plans the Republican party, the most often to quote Adam Smith, support. As a final warning Adam Smith argues to keep businessmen out of office and positions of power:
“The interest of [businessmen] is always in some respects different from, and even opposite to, that of the public… The proposal of any new law or regulation of commerce which comes from this order… ought never to be adopted, till after having been long and carefully examined… with the most suspicious attention. It comes from an order of men… who have generally an interest to deceive and even oppress the public”
Although Adam Smith argued and developed the Theory of the Invisible Hand, it is important to note that is not his entire theory. This article was to dispel the myths and misquotes of Adam Smith and to inform people of the lies and propaganda of many politicians.
John Keller’s post in 71 Republic appears to be in a Libertarian site, which should be praised for its presentation of Adam Smith’s use (just once) of the “invisible hand” metaphor in his Wealth of Nations.
Much of John Keller’s argument is sound, though some parts of it is not. Broadly speaking the “invisible hand” was not a theory, certainly in the meaning of a theory. It was metaphoric. Adam Smith knew the difference because his classes of ‘Lectures on Rhetoric and Bellers Lettres” was his longest running lecture subject from 1748 to 1763. His Rhetoric lectures established his academic reputation, despite his non-graduation when he left Balliol College (Oxford).
Remember he resigned in Professorship in Moral Philosophy at Glasgow in order to research and compose is Wealth of Nations, which took him 13 years to 1776.
Readers should put his singular use of the metaphor of an ‘invisible hand’ in Wealth of Nations into perspective, by realising the fact of his use of the famous metaphor was virtually ignored by all of his colleagues and subsequent readers, including senior academic scholars, who read and commented upon his major Work,both while he was alive (to 1790) and for long afterwards throughout the 1800s to the 1870s. 
Indeed, comments on the “invisible hand” by almost all academic economists remained absent well into the late 1940s when Paul Samuelson published his famous textbook, Economics, in 1948 (19 editions, multiple translations, 5 million sales (plus the used book market). From the 1960s, Samuelson’s version of Smith’s singular use of the ‘invisible hand’ metaphor went unbiquitous - or ‘viral’ as we say today - across the world.
John Keller’s assesssment is close to being accurate in his identifying Smith’s meaning behind his use of the metaphor of an ‘invisible hand’ and he is certainly closer to Smith’s intentions than most interpetations by almost all modern economists. Let us pause just there to elaborate on that statement:
He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention.” (WN IV.ii.9. p 456)
Yes. Clear enough. But what did the merchant do? He invested his capital in “domestic industry”. He hired labour for wages and spent capital on materials, machinery, power, and related processes, operated by waged labour for public sale. What was the relevant consequence of his actions?
Obviously, he unintenionally added his capitla expenditures to domestic investment! Simple! No mystery here! In fact ,so blindingly obvious that Smith did not need to elaborate on his point. Unintentionally, the merchant’s actions ‘promoted an end’ that was ‘no part of his intentions’. The ‘invisible hand’ is purely metaphoric. Adding his capital expenditure to gross domestic expenditure inescapably  is a direct domestic benefit. It is not a theory; it is a fact. 
Domestic capital expenditure is the sum of all such expenditures in all time periods in an economy. In fact, that assertion is inescapably the consequence of all individual expenditures. There are no mysterious ‘invisible hands’ at work in market economies. 
From here it took from 1776 to 1948 for academic economists (post-Samuelson) to discover a ‘theory’ of ‘invisible hands’ supposedly at work in the world’s economies, to which were added elaborations of various complexities into its alleged mathematical roles, plus a sub-set of theological meanings, all missed by Adam Smith and his readers (including Ricardo and such like) in their commentaries throughout the  18th, 19th and 20th centuries to 1948.
Keller writes:
“By improving their enterprise they can buy in greater bulk and lower the cost for consumers (Law of Supply and Demand which Adam Smith also develops in his book), by raising more revenue [they] could invest in employee wages which would, in turn, put more money into the hands of consumers and stimulate the economy.”
Keller believes he is describing Smith’s ‘theory of an invisible hand’. He isn’t. He is describing the consequences of aggregate economic activity. When I was an undergraduate in the early 1960s it was called the ‘multiplier’ by Keynes (then all the rage in micro-economics).
Lastly, and incidently, note these lines from Keller’s essay: 
“the idea that Adam Smith is a laissez-faire economist would be a sound and reasonable conclusion making it justified that he is presented in this manner by politicians: but they leave out the second part of his theories contained within The Wealth of Nations, the need to provide social welfare.
Adam Smith was never a ‘laissez-faire’ economist. He never used such words, though they were known throughout his life-time. He was a advocate of ‘natural liberty’, as he mentioned in Wealth of Nations. 
Overall, I commend John Keller’s article as a vast step towards improving on the usual ideas of modern economists about Smith’s use of the ‘invisible hand’ metaphor. 

Thursday, December 14, 2017


Laurent Bouvier, managing director and global head of industrials at UBS Investment Bank, posts (14 December) on FINANCE LONDON HERE
“Industrials sector must learn that more competition brings more risks
Basic economic theory about competition is flawed, which poses problems as technology changes the way goods are produced”
As a natural born capitalist, I embraced from the youngest age the economic theory from Adam Smith. Self-interest acts as an economic motivator whilst that motivator is held in check by competition through free-market policies. Self-interest and competition complement each other to produce wealth through the “invisible hand”. How could anyone possibly disagree?
According to such traditional economic theories, the optimal level of competition from an economic efficiency point of view is maximum competition. Industry participants must compete for all the resources alongside the entire value chain. They must capture the hearts and minds of suppliers, talented employees, customers, governmental institutions and capital providers - relentlessly. Only the fittest survive. It is a matter of natural selection.
Laurent Bouvier, with his albeit impressive employment record at the heart of capital, is also, when more closely examined, in a muddle. There is no ‘free market’, there are well established regulatory interventions, and participants do not necessarily ‘behave” themselves. Moreover, he seems a bit starry-eyed when it comes to Adam Smith’s ideas, possibly over selective about what he described his ideas, not least of which is his version of Smith’s use of the ‘invisible hand’ metaphor.
Bouvier is mistaken as to where the problem lies in over-simplified theories of competition. Certainly not with Adam Smith’s account, though it certainly does lie with modern, post-Samuelson’s invented presentations of Adam Smith’s ‘invisible hands’ and all that guff.
Smith was quite clear. People can compete in markets, or they can manipulate them. Both phenomenon co-exist and always have. Any study of the evolution of markets reveals open competition and hidden collusion, plus manipulation. Courts of law have been dealing with cheating, dishonesty and
outright criminality in markets since way back when they appeared many millennia ago in various parts of Europe and the Middle and far East; and expanded rapidly from the 16th century.
There are consequences of human actions, best understood without rose-tinted vision. Smith’s single reference in Wealth of Nations to ‘an invisible hand’ was not a magic bullet setting competitive prices. It simply meant than from the actions of producing a product in a market environment (honest or corrupt) there is an immediate consequence: the expenditure of the actors necessarily, and consequentially, adds to domestic aggregate demand for the resources used in productive activity through their  purchases of inputs and hiring labour.

The recipients of incomes become spenders in the economy. Labour spends it wages, owners of inputs that sell, spend their sales receipts, and the economy continues in successive rounds of expenditures. The process was dubbed by Smith as a metaphoric invisible hand. He could have descred it as the circular flow of income, albeit less impressive as a metaphor, and perhaps also not as impressive in terms of ‘Belles Lettres’ - remember his ‘Lectures on Rhetoric’ included ‘Belles Lettres’ (fine writing) in his title and text..

Saturday, December 02, 2017


JOHN AUTHERS  posts (1 December) on Financial Times HERE 
Momentum and Value keep markets randomly efficient
Are markets efficient? And if so, in what way? Some will find this question irritating. This week saw the world’s biggest stock markets hit fresh all-time highs, despite widespread perceptions that the economy is in miserable shape. Stocks have trundled upwards in an almost straight line all year, oblivious to the alarm in the world. Efficient?
And there is the rise of bitcoin, the digital currency. It has no intrinsic value. And yet the price of one bitcoin has passed $10,000 this week, having risen more than 1,000 per cent in 12 months. It then went on to pass $11,000, before taking a dive towards $9,000. In what possible way is this efficient?
There is also irritation with academics’ efficient markets hypothesis (EMH). Easily made to sound ridiculous, EMH holds in its strongest form that markets go on a “random walk”. The market swiftly assimilates all known information about a stock, so that share prices simply walk randomly in response to news. The price is always right. Friday’s very sharp response across global markets to a report that the former national security advisor Michael Flynn was prepared to testify against President Donald Trump rammed home that markets move very swiftly to discount any news. 
In its hard form, EMH does not pass muster. The big US tech companies that have led the world for years dipped by almost 4 per cent on Wednesday, when there was no new news. The price could not have been right at all times. And nobody could possibly claim that the market for bitcoin is efficient.
In the absence of strong fundamental anchoring forces, investors tend to under-react to news and/or take cues from past price changes.
But market efficiency has more to be said for it than that. First, it implies that it is impossible to beat the market. And experience shows that beating the market is indeed very difficult.
Second, in the very long term markets do get the price right. Historians have shown that over the decades, the returns on stock markets move roughly in line with the growth in the economy.
And if markets are so inefficient, why is it that the invisible hand seems to do a better job than government planners have yet managed to do?
What a lot of agonising over not very much at all. Moreover, ending with a speculation based on a fantasy that the mysterious non-entity of an imaginary ‘invisible hand’ does what it is believed to do, so it doesn’t matter anyway.
Highly-paid, highly-talented and highly-trained mathematicians pore over the data looking for that competitive edge to beat their rivals to the, hopefully, predicatable influence that can make them even richer, or worthy of a Nobel Prize - until somebody comes up with better equations.

Is this the best use of an economist’s time?

Friday, December 01, 2017

Secularisation versus Theological Control of Academic Learning

Dr Mubarak Ali, a veteran historian and scholar, posts (30 November) on the International News: Medieval European Universities HERE 
In 387 BCE, Plato (d 348 BC) founded an Academy at Athens for the teaching of Philosophy. In this respect, he deviated from his teacher Socrates (d 399 BC), who preferred to impart philosophy by adopting the methods of dialogue and conversation. 
Greek philosophy was based on rationalism without any interference of deities. … Throughout the Roman Empire, Plato’s academy continued to be the centre of philosophy and students from all over the Roman Empire used to go there to study. 
In 311 CE, the Roman Empire converted to Christianity …In medieval Europe monasteries and cathedral schools emerged, which were controlled by the Church authorities. The curriculum was designed to strengthen religious beliefs. … 
Therefore, in twelve centuries, two universities emerged. One in Paris and the other in Bologna. 
Paris University became the centre of theology while Bologna focused on medicine and law. Both were completely under the supervision of the Church. …
Later on, 30 universities were founded throughout Europe. Latin was the medium of instruction in all these universities as these institutions were controlled by religious authorities. There was no academic freedom nor religious tolerance. Adam Smith (d 1790) who studied at Oxford, went on to say that he had learned nothing from his professors. According to Edward Gibbon (d 1794), he wasted his two (6!) years at Oxford. 
… The division of the Christian world between Catholics and Protestants also changed the character of the universities. The more radical change, however, occurred as a result of Enlightenment and the scientific revolution, which liberated the European universities from the clutches of the Church and gradually converted them into secular institutions. …
As the state surrenders its responsibility to ensure education, private universities are emerging as commercial institutions to educate students for the corporate sector. In many private universities, there is little to no emphasis on social sciences or humanities both of which are important elements of an enlightened education. Bereft of these subjects, students are taught IT and Management which make them into robot-like humans without feelings and sensibilities. When education remains no longer relevant to society it becomes a tool for exploitation which can then harm the cultural and moral values in society. 
The Enlightenment changed everything.
It reduced religious interference in university education and syllabii. It did not remove them altogther because democratic freedom also protects those individuals prone to remaining advocates of their theological creeds. Which is a principle not generally reciprocated by the theologicaly inclined.
What was then and now possible was the open contention of competing systems of thought. One thinks of the treatment by those religious academics who were instrumental in preventing David Hume from his appointment by both Edinburgh and Glasgow Unversities to become a professor at both Universities. 
More recently, Edinburgh named a new university building as the ‘David Hume Tower’, which can be seen as a sort of belated apology. This incident is well covered in an excellent recent book by Dennis C. Rasmussen, 2017, The Infidel and the Professor: David Hume, Adam Smith, and the friendship that shaped modern thought, Princeton University Press.

Monday, November 27, 2017


Fiscal Poicy in an Islamic Economy
“Every individual necessarily labors to render the annual revenue of the society as great as he can … He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention … By pursuing his own interests, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.”
Adam Smith’s believes that there is no need for external party to intervene in the market.
He believes that the market are capable of correcting itself because of the ‘invisible hand mechanism’, which is the the unobservant market force that helps the demand and supply of goods in a free market to reach equilibrium automatically.
He explained that an economy will comparatively work and function well if the government will leave people alone to buy and sell freely among themselves.
He suggested that if people were allowed to trade freely, self interested traders present in the market would compete with each other, leading markets towards the positive output with the help of an invisible hand.
Adam Smith’s use of the “invisible hand” was not a theory. It was a metaphor. Moreover his use was ignored until the 1880s, even by several prominent 19th century commentators who wrote extensive comments of his Wealth of Nations. It became widely referred to only after Paul Samuelson (Nobel prize inner) published his Economics textbook in 1948.
Adam Smith died in 1790, before even the word ‘capitalism’ appeared in English in the 1830s.
The modern ‘theory’ of “an invisible hand” is based on a myth. Smith's use was so obvious it was not commented on by any leading economists in the 19th century.
If a merchant invests capital in an economy he/she adds to aggregate domestic capital investment,which metaphorically is a social benefit from the expense of the investment, which automatically becomes income for those employed by the investment, which in turn adds to subsequent rounds of their expenditures. That is all Smith meant by his use of the metaphor.

Sunday, November 26, 2017


BLOMBERG (19 February, 2016) HERE
Shell Game: Their Leveraged Derivative Trade Is The Market Fundamental (25 Nov. 2017)
Shell dominated Brent oil trading to such an extent that it moved the market even against global fundamental supply & demand.
Physical supply & demand fundamentals are insufficient in modeling a complex, dynamic system like global oil markets.
Leveraged derivatives create herding behavior, inter-connectedness, and price extremes.
In this article, we will examine a specific market event in which it is alleged that Royal Dutch Shell moved the global Brent price against the fundamentals of global supply and demand.
February 2017: Shell Shakes Up Oil Trading World
This Bloomberg article from 19 February 2017 discusses Royal Dutch Shell’s involvement in the Brent derivative market in April 2016. The article asserts that Shell was a buyer, sufficient in quantity, to move the market price contrary to the fundamentals of global supply and demand. Shell is the world’s largest oil trader, and as a result can amass leveraged positions that dwarf physical trade volume. Shell, like all large market participants, can accomplish this activity because the global crude oil market is a financialized, globalized, complex adaptive system. In such a system, their leveraged positioning (certainly amongst other inputs) IS the market fundamental. To understand this more clearly, we need to briefly look at classical economics and complexity economics.
Financial media, like much of consensus financial industry analysis, is guided by linear, deterministic cause and effect models, largely borrowed from classical physics. Additionally, the equilibrium paradigm is a borrowed concept from classical science especially relevant in attempting to explain price movement from fundamental supply/demand equilibrium or lack thereof (Adam Smith’s Invisible Hand as an example). Finally, reductionism (the idea that society and its institutions do not differ from its individual agents) rounds out the major pillars of what could be called classical economics. While this system and its derived models might have been sufficient in an era of predominantly industrialized economic activity, the development of modern globalization, financialization, and post-industrial economic activity (informational/technological) render classical economic models and thinking, at minimum, incomplete in adequately understanding capital flow and properly assessing risk in a complex adaptive system like the global crude market.
Unfortunately the rest of the article is behind a pay wall (a spreading habit in web posting, I note). Hence, I cannot comment on the phenomenon).
However, there is enough to suggest that the old tools of ‘suppply and demand’ diagrams are increasingly irrelevant. Recently, I have been given to questioning these former fundamentals in Economics, even classing some uses of S-D relationships as systemically flawed, especially in the case of Marshallian S-D 'cross' diagrams as taught and drawn endlessly in Economics 101 and believed in right throughout the profession.
Take this extraction from the above: “the equilibrium paradigm is a borrowed concept from classical science especially relevant in attempting to explain price movement from fundamental supply/demand equilibrium or lack thereof (Adam Smith’s Invisible Hand as an example).”
I would swap the statement in the above quotation:
“in attempting to explain price movement from fundamental supply/demand equilibrium or lack thereof” with “perporting” toexplain” price movement. There is no “supply/demand equilibrium”. Any way, how would participants in markets know that their agreed price was in a unique “equilibrium”? All agreements on price are in a sort of ‘equilibrium’ for that transaction but not for all transactions across all transactions.

On ‘Black’ Friday or ‘Cyber’ Monday where is the uniquely “equilibrium” price?
As for 'Adam Smith’s Invisible Hand as an example' I can only shake my head in despair ...

Friday, November 24, 2017

Report on Progress of "An Authentic Account of Adam Smith" November

My new book, "An Authentic Account of Adam Smith" is nearing publication, but it has someways to go before an actual date is announced.
As an author of 25 books I have not experienced the latest in publishing technology which my 'Authentic' book is experiencing.
Formerly, an author submitted a manuscript to a publisher and awaited the inevitable editorial queries from the publisher's staff assigned to the publishing process. 
The first task being to prepare the author's manuscript for a final version; the second task was to hand over the final edited manuscript to a printer; the final task was to print the final text, bind the pages into a book format and send copies of the newly printed book to booksellers, with finished stocks of the new book warehoused for future sales.
In the new process, the author's copy text is prepared by the publisher's staff, thoroughly edited until a printable copy text is created (inclusive of all author queries answered plus an Index supplied by the author) from which the book is printed, bound and made ready for delivery direct to cash purchasers.
Print runs can be singular copies only and sold direct to purchasers, or in varying quantity runs, again as per cash orders, i.e. no unsold stock stored in large warehouses.
The above is what I have surmised. No explanation has so far been supplied by the publisher, so some of my details above may be off the mark, for which I apologise.
Next step? I await final printed pages and any further queries that may have arisen. I shall keep readers informed, more for your general information on the grounds that readers who are already experienced authors or who are about to become one may also became aware of the pending revolution in the book publishing process.
I shall let you know of the next steps and my general impression of its advantages for authors and, of course, readers.