Wednesday, July 31, 2013

Adam Smith On Constitutional Liberty

“A Note on Constitutional Liberty”
G. Kennedy
From an early draft of Kennedy: “Adam Smith: a moral philosopher and his political economy”, 2nd edition, 2011, Palgrave Macmillan in Great Thinkers in Economics, Series editor. A. P. Thirwall. pp 49-51.
Constitutional liberty”
“Parliament, elected on a highly restricted franchise, by its control of the army’s finances, could prevent, or at least inhibit, the army being used to undo steps taken to ensure the general liberty of the king’s subjects. Lack of money, independent of parliamentary approval, limited a potential tyrant’s recourse to the armed intimidation of his subjects (the principle over which the English civil war had been fought). For Smith, a ‘system of liberty’ was a constitutional arrangement secure from the tyranny of king, parliament, judges, officials of the state or any private person. In eighteenth-century Britain, the system of liberty was the foundation of its government, which had been confirmed by ‘many Acts of Parliament’. While this was liberty by legal fiat and not by universal franchise, it was nevertheless in advance of what happened elsewhere, up to the Constitution of the United States of America. Consequently, he asserted that in Britain, with its liberties so entrenched, ‘every one would be shocked at any attempt to alter this system’ of liberty and such attempts ‘would be attended with the greatest difficulties’ (LJ 271).
Smith deliberated on threats to constitutional liberty potentially emanating from within the State, specifically in the form of the ‘Civil List’ covering the monarch’s personal expenses in support of the ‘dignity of his office’ – a euphemism for his extravagance on his personal and public life. Fortunately, instead of spending these monies on a standing army willing to do the sovereign’s bidding, kings chose to spend them on their personal extravagance. Smith writes, in the hands of ‘designing, vigorous and ambitious princes [the Civil List spent on a standing army] might give them an influence superior to that which the dependence on a few officers about the palace can bestow’. In Smith’s view, a few army officers, entertaining, cavorting and amusing the king, were insufficient to carry through a royalist putsch. Bluntly, a Civil List, though affording the Sovereign an all-expenses-paid free ride on the ‘dignity of his office’, inevitably corrupted tentative temptations to his dabbling at returning Britain to absolutism.
Other constitutional features also acted as barriers to tyranny. The courts of justice, for instance, secured the liberty of the people, and Smith details his confidence in the judiciary in six parts. First, judges held office for life, entirely independent of the king, and were ‘free and independent’ and accountable under law for their conduct. Self-interest prevented judges from acting unfairly against defendants if by such acts they would endanger the loss of their regular, and relatively high, personal incomes from their ‘profitable offices’, which would severely damage their reputations too. Crucially, nothing a king could offer the judges tempted them to act outrageously in his favour (LJ 271–272). Second, because judges had little power to explain, alter, extend or correct the meaning of laws, they had to, with ‘great exactness’, strictly observe the literal meaning of words as intended by parliament (LJ 275). Judges did not make the laws – that was parliament’s exclusive function – they enforced them, and in England, they interpreted the ‘common law’, a venerable process reflecting the way that laws evolved from past practices that had proved their worth from ancient usage.
Third, the Habeas Corpus Act (‘you may have the body’) was a ‘great security against oppression’. Before this Act, the Privy Council (appointed by the king) could put anyone they pleased into prison and detain him without trial for the uncertain duration of the king’s pleasure. By the eighteenth century, no judge would oppose the Habeas Corpus Act on pain of ‘infamy and a high penalty’. Habeas Corpus, asserted Smith, ‘will never be allowed to be repealed, as it would destroy in a great measure the liberty of the subject’ (LJ 272–273).
Fourth, juries heard the evidence and decided on the facts. Smith gave a brief history of the jury system from Magna Carta (the constitutional settlement regularising the relationships between the king and the barons, which enshrined a person’s ‘right to legal judgement by his peers’, not the king). He concluded that ‘the liberty of the subjects was secured in England by the greater accuracy and precision of the law’ and that the ‘courts of England are by far more regular than those of other [continental] countries’ (LJ 282, 284–286, notes 90, 7).
Fifth, the House of Commons had the power to impeach the king’s ministers for acts of maladministration, which ‘secures the liberties of the subjects’, because impeached ministers can be removed from office. Sixth, the frequency of elections was ‘also a great security for the liberty of the people’ because, unless the representative serves his country or ‘at least his constituents’, he will be in ‘danger of losing his place at the next election’. The more frequent these elections, the more dependent were parliamentary representatives (LJ 273).
For these reasons, Smith asserted that Britain’s constitutional arrangements in the mid-eighteenth century ‘secure[d] the liberty of the subjects’. He believed that liberty was closest to perfection in his times (but well short of it by today’s standards). He considered England’s parliamentary elections were less corrupt than Scotland’s (which is not saying much by modern standards) (LJ 272–273).
While in modern terms these are fairly modest protections of liberty, their absence may compromise the effectiveness of markets in securing general opulence, though their absence does not prevent it. Moreover, government policies could also compromise popular opulence. Smith illustrated the essential point that the existence of constitutional liberty does not of itself secure general opulence. Governments and other institutions (a dominant religion) may also pursue policies detrimental to national opulence. The establishment of the institutions of liberty are not a conscious one-way process; they could and did relapse, falter, stall and disintegrate in some countries. Today, however, those countries with credible claims to establishing degrees of liberty since the eighteenth century have incorporated versions of, and of course additions to, Smith’s six characteristics of constitutional liberty.” 
GK Comment:
Space necessarily forced a severe truncation of this important section of my second book on the 2nd edition, paperback, on Adam Smith.
Nevertheless, it gives an insight into Smith’s thinking on “Constitutional Liberty”, a necessary component for understanding Smith’s teachings on “natural liberty”, which is usually pushed aside by “hard Libertarians” of of Adam Smith fans. From closely studying Adam Smith’s entire corpus I am by conviction a “soft Libertarian” (and also an appointed Fellow of the Adam Smith Society, London).
To appreciate Adam Smith on Liberty (“natural and constitutional”) it is necessary to read his “Lectures On Jurisprudence” [1762-3 and “1766”], published by Oxford University Press, 1983 in the “Works and Correspondence of Adam Smith”, 6 volumes, of which “LJ” is volume 5). 
Smith lectured on “Jurisprudence” at Glasgow University from 1752-63.  Recollect that Smith switched in 1744, during his Oxford MA course under his Snell Exhibition from Glasgow at Oxford (1740-46) from his original course that led to “Ordination” into the Church of England into Oxford’s “Juris” course (Archives of Baliol College, Oxford that I examined in 2009). 
Moreover, at Glasgow as the Professor of Moral Philosophy Adam Smith began teaching Glasgow’s “Jurisprudence” course and established such a reputation in that field that he was awarded Glasgow’s higher degree of LL.D in 1764 (which duly appeared on the title pages of his two books for several years. 
He did not publish his teachings on Jurisprudence but he did advertise his intentions in 1759 to publish a such work (‘the theory of the rules by which civil governments ought to be directed”) until it became obvious he was not going to complete that editing task just before he died in 1790, for which he apologised. 
His unfinished manuscript was burnt on his instruction to his Executors shortly before he died. However, notes of his Lectures were discovered in 1895 in Oxford belonging to an Edinburgh advocate.  These were published in 1895, edited by Edwin Canaan, a leading authority on Adam Smith whose edition of the Wealth Of Nations is still in print (Random House).  Later, in 1958, John Lothian, then a Reader at Edinburgh University, discovered a document in a county house sale in Aberdeenshire for auction.  These quite clearly are another version of Smith’s “Lectures On Jurisprudence” which were written by two or more anonymous students as they were delivered by “Mr Smith”. Professor Lothian published these in 1958, along with Smith’s “Lectures on Rhetoric and Belles Lettres”.
All this is by way of establishing the credibility of the Lectures provenance.  Also, given that large sections of the Lectures also incorporate materials that appeared in the ‘Wealth of Nations”, their provenance is regarded as “safe”.
In the extract above from my book I show Smith’s teaching on the role of “Constitutional Liberty” as an integral part of his teachings relating to “Natural Liberty” (a philosophy associated with Grotius and Samuel Pufendorf and widely taught in Scottish and many European universities in the 18th century).
Gavin Kennedy
Emeritus Professor
31 July 2013 

Tuesday, July 30, 2013

Make Believe Allegories and Mythical Metaphors Mislead Students

Peter Boettke writes  on Coordination Problem Blog HERE
The confusion occurs because folks confuse the claims about the market order generating through the invisible hand mechanism an order that would result had an omniscient and benevolent being decided to order the economy, with the ability of a social planner to assume the role of the omniscient, omnipotent and benevolent being.
The invisible hand proposition is of course the bold analytical claim of mainline economics from Adam Smith onward --- the private property market economy operating within a system of freedom of contract embodied in the rule of law with its array of prices and lure of profit and penalty of loss, will guide the decisions of the multitude of economic actors such that resources will be allocated to their highest valued use, that least cost technologies will be employed, and that all the potential gains from trade will be exploited.  The agitation of the market will be ceaseless if left alone until the point where these conditions are met.  In the end, God could do no better.  Or as Edwin Cannan put it: “The reason why it pays to do the right thing – to do nearly what an omniscient and omnipotent benevolent Inca would order to be done – are to be looked for in the laws of value.”
Two Comments on the Blog:
First: two correspondents commenting on the above views of Peter Boettke write: Gene Callahan (of whom I know absolutely nothing) writes: “The invisible hand proposition is of course the bold analytical claim of mainline economics from Adam Smith onward..."How many times does Gavin Kennedy have to show that Smith had no "invisible hand mechanism" before people stop claiming he had one?”
To which “Daniel Kuehn” responds:
Gene - 
That passage isn't the ace in the hole people treat it as. It's a funny little passage if people take the time to read it. Kennedy's done a good job pointing that out. But on the broader point he seems far too strenuous to me. If Smith had only written his first three chapters we'd pretty much have what people attribute to the invisible hand passage. So practically speaking I don't think there's much harm in the misreading of the invisible hand passage itself.”
My comments
I could leave it there because “Gene” says it well, so I shall not comment on the mythical IH metaphor as per usual.  I shall confined my remarks to what Peter Boettke makes of the IH with hos colleague Daniel Klein.  Much of Peter's methodological argument seems to parallel what Daniel Klein wrote recently in his new book “Knowledge and Coordination: a liberal interpretation” (2012), which I reviewed for “The Adam Smith Review”, no. 8 (due out any time soon).
In it, Daniel Klein (2012) uses the IH Metaphor in the shape of an allegory, including Edwin Cannan’somniscient and omnipotent benevolent Inca”, reincarnated by Daniel in the form of “a superior being named Joy who is invisible and who beholds a vast economic order … Joy issues instructions, or requests, cooperatively, to each market participant spelling out the ‘right thing’ to be done. Joy tells Brdget, the baker, that perhaps she should advertise he confection.  Within the allegory, Joy communicates these instructions to Bridget. …  Within the allegory, Bridget, who is sensible to Joy’s benevolence and ethical wisdom and who feels entrusted to advance what Joy finds beautiful, follows not maket signals, but Joy’s communications embraced voluntary by Bridget, from what Smith calls her sense of duty – she enters if I may say so, into the sentiments of that divine being (TMS: 270) – and these communication tell her to take actions rather like the actions that the market signals would lead he to take.” (Klein, 2012: 222).
Now I found these allegorical arguments of Daniel Klein (and to some extent Edwin Canaan, ed., WN, 1904) absolutely astonishing, even beyond comprehension.  Daniel devises an allegorical approach, rather then the IH, of which we had a scholarly debate as members of the Academy in 2009, 2010 and 2011, in the end agreeing to disagree (though I should say I learned a lot from those debates because David is a brilliant exponent of Adam Smith’s moral philosophy and his political economy). 
But this allegorical approach leads off into a world of make-believe in which he has “Bridget”, an entrepreneurial baker, listening to “disembodied voices in the night”, deliberately instructed not to follow market signals, but, instead obey, trance like, to "Joy", this “benevolent being’s” instructions that turn out to produce the very same results that would have been obtained if Bridget had followed the market signals that “Joy” instructed her not to follow but to listen to her instructions instead!
My question remains (directed to Peter Boettke, Daniel Klein and “Gene” too), exactly what clarification does the “Joy” allegory bring to the study of and our understanding of how markets work through very visible price signals that improves on what Adam Smith described in Books I and II of Wealth Of Nations?
Or is this merely an effort aimed at keeping the fantasy of the IH metaphor alive and well? 

Politics Short on Facts About Adam Smith

Roger Hines, retired high school teacher and former state legislator,
posts “Socialism’s Goal Shared Poverty” in the Cherokee Tribune HERE 
1. “In [Wealth Of Nations] this much heralded treatise which, happily, is still on the reading list in most college economics classes, Smith sets forth an explanation and defense of the principles of capitalism. …
2. “What produces groceries is Smith’s idea of a free citizen growing food in his privately owned field and selling it to a willing buyer. Another free citizen down the road does the same thing. Buyers of food will go to the citizen whose product and price they like. Competition will incline the two sellers to improve their product and their price. Such unfettered economic practice of free people Adam Smith referred to as “the Invisible Hand.” …
3. "Not so incidentally, the full title of Adam Smith’s work was “An Inquiry into the Nature and Causes of the Wealth of Nations.” It was not propaganda for capitalists, but a sincere examination by a humble professor of moral philosophy who desired that all people prosper. It was first published in 1776 and was embraced by a brave and honorable group of nation builders 3,000 miles away from Smith’s native Scotland.”
In the rest of the article, Roger Hines, indulges in a knock about style attacking “socialists” in the USA, who apparently dominate the universities and public life, including the thinking of the President, on which politics I abstain, as regular readers will know, of not intervening or commenting on the politics of countries that I do not vote in.  This is a self denying ordinance that limits me to commenting only on the country in which I do vote, namely, Scotland, presently part of the United Kingdom of Great Britain and Northern Ireland.  To read his anti-socialist views, follow the link above. Taking the extracts of Roger Hines’s views that I selected above and upon which I choose comment, I shall say the following”
1. Adam Smith’s “Inquiry into the Nature and Causes of the Wealth of Nations” may be on the reading lists of most college economics classes” but I doubt if very many students read it through.  And, I add, very few of the tutors, including the professors, will have read WN either.
2. A somewhat stylised assumption of the nature of private property in farmers’ fields known to Smith in the 18th century.   Through his widowed mother’s family, the young Smith would have known her family’s circumstances, as they were fairly major farmers just outside Kirkcaldy where he lived from his birth until he was 14 and went to Glasgow University. 
Most of Scotland was owned by major titled landowners, who held feudal titles based of primogeniture and entails, with feudal titles as court-favoured dignitaries with electoral rights to vote. Some of them leased their lands to sub-tenants who farmed on their own account.  Their produce net of their own subsistence and that of those working for them, would supply food products to the inhabitants of small towns nearby.  In turn they would buy products in nearby towns and labour services from artisans and merchants importers of foreign products, Some landowners would also invest in other products of their lands, such as the minerals they mined. Coal was relatively significant in Fife at the time, (as was iron ore, etc., for smelting).  Farming required products processed in small workshops of individual artisans, and related agricultural products such as wool, linen, leather and such like.
The notion of “free citizens” engaging in trade is idealistic.   What they could manufacture was governed by laws and regulations imposed locally by privileged guilds of artisans and merchants.
The “unfettered economic practice of free people” was not quite as rosy a picture as Roger Hines imagines. And Adam Smith was very well aware of that circumstance and wrote much criticizing the absence of what Roger Hines imagines was the case in Smith’s time. 
3. His claim that Adam Smith referred to “free trade” as “the Invisible Hand” is absolutely and categorically untrue and more a testament to the gullibility of modern economists of the neo-classical school.
Roger Hines’s peroration is summed by his asserting that Wealth Of Nations “was not propaganda for capitalists”.   At least we can agree on that. 

A Bit Busy Since I Returned From France

I had not disappeared since Friday on my return to Edinburgh.
Quite of lot of work was waiting for me, including from my old day job at Edinburgh Business School and some mail messages creating chores that I had to deal with.  Also several items of correspondence via email.
So, back to Blogging.  Two pieces I had not finished in France, plus some new ones.

Friday, July 26, 2013

Charles Darwin and Adam Smith Had Much in Common

A regular correspondent (“airth”) to Lost Legacy drew my attention to an article that had not shown up in my Google Alerts service. 
I read it this evening and was struck by much in it of which I agreed, plus one or two irritating errors inevitable when anyone writes about a multi-disciplinary survey when he is an expert in one discipline but not in another.  I am sure I make elementary mistakes when I write with confidence about natural selection.
Now I have drawn your attention to this important subject and its interesting suggestions for modern economists to consider and improve their options by considering Darwinian evolutionary thinking and its potential for bringing economics more into relevance with the real world.
For now I shall leave you with these thoughts. Adam Smith’s thinking and writing was nothing like the modern image of his moral philosophy or is political economy (the subject of two books of mine: Kennedy, 2005. “Adam Smith’s Lost Legacy”, Palgrave-Macmillan; Kennedy, 2008. 2nd ed. 2010.  “Adam Smith: a moral philosopher and his political economy”, Palgrave-Macmillan).  I have a third book under way, entitled: “An Invisible Hand: a hasty and harmful conclusion”.
I strongly recommend that you follow the link HERE and read David Sloan Wilson’s article in full:
David Sloan Wilson posts in AEON on “A Good Social Darwinism”: Evolution has changed all we know about how humans behave, compete and co-operate. When will economics catch up?
I am preparing to leave France and I return to Scotland tomorrow, from where I will comment in more detail on its interesting ideas and also on its glaring misunderstandings of aspect of Adam Smiths and others writing in the classical liberal tradition until the discipline was captured by neoclassical ideologues under the guise of mathematical methods and the false theory of Homo economicus. 
David Sloan Wilson is on the right track but missing the real target for his critique.  
There is a classical tradition in economics that has always been more empathetic to an evolutionary approach (especially in the writings of Adam Smith and Hayek).  There are some neoclassical economists who, while ignorant of Adam Smith, are also muddled on Darwin too.
I shall return to this subject in Edinburgh over the week-end.

Bad 18th Century Laws Not Yet Buried in Louisiana in the 21st Century

Ben Kilpatrick reports in The Pelican Post (‘Louisiana News and Commentary’) HERE 
Louisiana embalmers and funeral directors among those seeking to bury consumers under a mountain of bad laws
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”― Adam Smith, from An Inquiry into the Nature & Causes of the Wealth of Nations
In Louisiana, it is illegal to sell a casket unless you are a licensed funeral director. Though making it illegal to sell what is essentially a fancy box strains credulity, no one had challenged the law prior to 2007 when, in a move intended to allow themselves to support their monastery and contemplative life, the monks of St Joseph’s Abbey began marketing to the public the coffins which they themselves had used for decades.
So what’s the problem with this? In the United States, the average metal casket costs nearly $2,300. On the other hand, the monks of St. Joseph’s Abbey sell two models of caskets – one costs $1,500 and the other costs $2,000. To put it simply, offering families a less inexpensive burial option allowed grieving families to make an economical and dignified choice in a time of need and great stress.
When they first announced their intention to sell caskets on All Saints Day of 2007, the monks did not mean to incur the wrath of the Louisiana State Board of Embalmers and Funeral Directors (LSBEFD), but that is precisely what happened. Slightly more than a month later, they received a cease-and-desist letter promising a number of dire penalties including fines and prison time. This was followed by a formal complaint filed by Boyd L. Mothe, Jr., the owner of several funeral homes in the West Bank area of New Orleans, that stated in part, ‘Illegal third party casket sales place funeral homes in an unfavorable position with families. They are quick to become defensive and threatening when they cannot get what they want.’ In other words, families become upset when they are forced to purchase a product they don’t want at a price they often can’t afford.
Over the next several years, the monks tried to change the laws.
After funeral directors showed up en masse, none of their proposed reforms even made it out legislative committee. In 2010, the Institute for Justice came to the aid of the monks and helped them to begin fighting back against those who would destroy their business in order to protect their own bottom lines”.
What need I add?
Smith said it all in the quotation from Adam Smith’s Wealth Of Nations that Ben Kilpatrick placed at the head of his article. (Do I detect someone of Scottish descent in the author’s name?)

Thursday, July 25, 2013

Another Muddled and Hopeless Quest to Abolish Money

Hugh Macdonald (Chief Sports Writer) of The Herald (Glasgow) (7 July) reviews Felix Martin on “The Power of Money” HERE 
It is a source of some shame that this correspondent's philosophy of money is not primarily derived from the genius of fellow countrymen Adam Smith or John Law but instead from Neil Diamond, that singing sage, who advised the world that ''money talks, but it don't sing and dance and it don't walk''.
Those sceptics who doubt the verbal dexterity of money may be convinced by the deeply felt assertion that it always says goodbye to me.
He begins with a flourish, casually dismissing any notion that money was ever a substitute for the barter system. Money is a different beast entirely and it is necessary to understand its birth, growth and capacity to wound if economic problems are to be addressed in any meaningful way.
Martin bounds through his subject, casually throwing out fascinating observations on the Iliad, the Irish famine and quantum physics with the zest of a successful gambler tipping a casino doorman. However, the importance of the book should not be underestimated. It addresses matters that affect lives. Money, of course, is merely transferable credit. It has the curious quality that 97% of it does not exist in any physical form but this does not diminish its power to ravage the world with a devastating regularity.
The rhetoric of austerity, the reality of global hunger, the political squabbling over agendas all owe much to the awful truth that while most do not understand money, no one is able to control it.
The declaration of Thatchersim that the markets ''would decide'' was always imbecilic but the effects of that stance can now be viewed in their full 3D grotesqueness. This is a world where debt is parcelled together and people – educated people – queue up to buy it and then recoil in shock when it is revealed that snapping up the mortgages of a garage attendant in Louisiana who has seven properties, most made out of tar paper and costing a combined hundreds of thousands of dollars,  may not be the wisest investment.
The result of this state-approved madness is that capitalism causes huge disruption and money is the virus that paralyses us all .…
… This fate is elusive for most of the rest of us who are the victims of a system that is, at best, capricious and, at worst, so flawed that regular financial depression is not just to be guarded against but to be expected.
This is the most stark, brilliant and chilling central theme to Martin's extraordinary book. What if it is the system itself that produces crises?  What if money, which is only confidence in another form, does not deserve the faith we put in it? What if it is not just the corrupt or avaricious or incompetent human beings who are to blame but money itself and the unsustainable demands it makes on economies? …
… The first reverberations of the crash of the noughties had just been felt when this was said by a personality who looked at economics with a stunned incomprehension.
''I found a flaw. I have been very distressed by that fact. I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works."
This awful realisation was made by Alan Greenspan, the longest serving chairman of the Federal Reserve and perhaps the most influential and knowledgable figure about the workings of the global economy in the two decades leading up to the crash.
Not only did he not see the catastrophe coming but he fears the system's failures mean it must happen again. And again. Mr Greenspan is defeated and demoralised.” 
Allowing for the fact that the author of this review of “The Power of Money” by Felix Martin, is not a practicing economist and the author of the book is well qualified academically to be one, it is difficult to disentangle the reviewers erudite and articulate writing from what may be worthwhile or worse in Felix Martin’s ideas in his book.  Frankly I am not convinced.
That Felix Martin quotes from Alan Greenspan, a mainstream neoclassical economist of the first rank, whose personal surprise at the unfolding economic and banking crisis included a sort of retraction of his former belief in the modern invented myth of Adam Smith’s “invisible hand”, is revealing.  He didn’t retract anything about the theory of money so vividly expressed by Felix Martin.  I am not surprised. 
Martin has his own theories on money and unimpressive they are too.
Leaping across the millennia since the evolution of money in the late millennia of early history BCE right to “capitalism”, an unknown word in English until used by Thackeray in his novel the ‘Newcomes”, in 1854.  Hence long before “capitalism”, a distinctly original development in the evolutionary developments in nascent market economies since classical Greek and Roman times (and ancient Babylon, Egypt and China before then).  In short money and its roles have a long history in various regimes before the late 19th century (CE).
The thesis that Adam Smith was wrong about the long history of “Truck, Barter, and Exchange” (since the origins of the faculties of language and reasoning, WN I.i-ii) recently has been rehearsed several times recently, notably by David Graeber, an anthropologist, in his “5000 years of Debt” and is asserted too in this book by Felix Martin.
I think the assertion is not well founded. Hugh Macdonald  says Martin writes: “He begins with a flourish, casually dismissing any notion that money was ever a substitute for the barter system. Money is a different beast entirely and it is necessary to understand its birth, growth and capacity to wound if economic problems are to be addressed in any meaningful way”. I am sorry to assert that this is too hasty, even for “casually dismissing any notion that money was ever a substitute for the barter system.” 
Dr Graeber is also too hasty. Note that Smith was using 18th-century language to explain a fundamental notion of “exchange” throughout the millennia, of which not too much detail was known at the time.  Today, at the press of a few buttons massive details of many details of daily life in early human societies is knowable, none of it available to Adam Smith (or anybody else).  Smith was examining the long generation of relationships as he conjectured they evolved from the hunter-gatherer societies living still close to the exploration range and the few overseas settlements of Europeans at the time (Africa, the Americas).
He used the common words for exchange of effort for physical goods (“Trucking” – made illegal in 1822) and goods for goods (“Barter”) (still legal and widely practised). 
He also added the word “exchange”, widely misunderstood to be solely synonymous with “traded bargains” (e.g., Graeber, et al).  It isn’t solely nor predominantly synonymous with “trade”, nor does it necessarily have anything to do with traded transactions in market like environments.  Here the anthropological belief of some scholars has misled them into error about Adam Smith, not to mention all those modern economists who make similarly misleading conclusions (few of them have any idea of economic history, hardly taught now in universities, even in most economic departments).
In Smith’s works he deals with a great deal of historical context, in, say, his “Lectures on Jurisprudence”.  But also the historical context dominates in his History of Astronomy (first three parts); his Origins of Language; throughout both his Theory of Moral Sentiments and Wealth Of Nations.  In all his Works, exchange runs through them all.
It also is present significantly in most anthropological accounts, though many of the researchers seem to miss it, primarily I believe, because their attention is locked on “exchange” as bargaining alone. 
Even here they tend to characterise bargaining as an interchange in which one party “wins” and the other party “loses” (see Chris Stanford’s “The Hunting Apes: meat eating and the origins of human behaviour” (1999) – an otherwise worthy popular account.  Also the same error is broadcast in Graeber’s “5,000 Years of Debt”.  If true, why would anybody negotiate to “lose” regularly in a market economy?  Power dimensions would enforce the ruled into losing in social exchange, as they did, and unfortunately still do in totalitarian societies.
The error enables Graeber to characterise such exchange transactions as a man attempting to pay for his debts by his wife and children going into “debt bondage” to the creditor – including the effective prostitution of his wife and female children - as a “human economy” somewhat superior in his thinking to market exchanges!
Felix Martin’s overall picture of the “state-approved madness [that] is capitalism” allegedly causes huge disruption” such that “money is the virus that paralyses us all”. 
Yet at no time in the entire history of humanity did the pre-market societies raise living standard for the majority of the populations living in market economies to anything close to that (still) experienced in the so-called “austerity” few years in the current crisis. 
Indeed, the average income and access to technology of those earning it today makes them incomparably richer that the most powerful rulers of their predecessors through all the ages experienced by those same predecessors and their, often, quite vile rulers (Smith’s words for them!).
People blinded by ideology fail to see what is happening before their eyes - and as experienced in their own comparatively pampered lives, as ex-Yale and ex-Oxford graduates.

Wednesday, July 24, 2013

Emma Rothschild: an inspirational teacher on Adam Smith

Peter Berkowitzs recycles (17 July, 2013) a review he wrote in the New Republic. Here 
“From the stacks: “money and love: October 1, 2001”
[GK: Extracted; to read the long introduction to follow the link]
“Emma Rothschild believes that commercial life today and our attitudes toward it--particularly our openness and our enthusiasm and our sense of boundless possibility--correspond in crucial ways to the situation that was confronted by Adam Smith at the dawn of the era of liberal capitalism. This makes the moment ripe, she suggests, for a reconsideration of the achievement of the great eighteenth-century Scottish thinker; and this is the task to which she devotes the bulk of her interesting and learned book on the original understanding of laissez-faire, or free market, economics.
Smith, in Rothschild's account, has been badly misunderstood. According to the common caricature, he is a conservative, a crude enthusiast of laissez-faire economics, a "cold-souled enemy of the poor," "a relentless proselytizer of free enterprise," who engages in The Wealth of Nations (1776) in "an extended and relentless critique of government." In fact, Rothschild argues, there is nothing crude or relentless--or, she seems to want to say, conservative--about Smith's economics, or about the larger and quintessentially Enlightenment philosophical system in which he unfolded them.
The "`real' Smith," Rothschild argues, is simultaneously an economist and a moralist, who, in his other masterwork, The Theory of Moral Sentiments (1759), derived virtue from the passions, and discovered the ground of moral judgment in our natural sympathy for our fellow human beings, and in our imaginative capacity to adopt the perspective of an impartial spectator and to see things from their point of view. The real Smith is a progressive, a friend of the poor, for whom the relief of poverty is one of government's primary responsibilities. The real Smith is a comprehensive thinker who saw the close connection between sentiment and conduct, and to whom the disciplinary boundaries of contemporary intellectual life were foreign, because he understood that the spheres of human conduct-- economic, moral, political, religious--are interwoven and mutually dependent. The real Smith is a courageous philosopher who believed that commercial and liberal society would foster the ideal of an "unfrightened mind," and who developed his comprehensive account of human nature and human conduct without recourse to the certainties of religious faith or a fixed standard of human perfection.
In coming to understand the real Smith, moreover, one comes to understand much more than the principles of modern economic life. "To rediscover a different political economy," declares Rothschild, "is also to rediscover a different, and more open, enlightenment." Indeed, a larger aim of her study is to combat the image of "the cold, hard rationalist enlightenment." The real Enlightenment, or the best part of the Enlightenment, in Rothschild's judgment, champions a universal disposition, "a way of thinking and seeing," in which the mind is "undepressed and unneglected." And Smith, according to Rothschild, believed that "the universal disposition of enlightenment," which was a "disposition of universal discussion," both was fostered in economic life, which he conceived as "itself a form of discussion," and took economic life as one of its prime topics.
It is a peculiar feature of Rothschild's approach that she does not search for Smith's different political economy and Smith's different Enlightenment by means of an extended analysis of his major works. Instead, in the manner of the school of political theory that is associated with the University of Cambridge, where she teaches, she focuses on the economic and political disputes of the late eighteenth century in which Smith participated, and in which his ideas themselves became a subject of heated debate. The reasonable assumption behind this approach is that arguments and ideas ought to be studied in historical context. The conceit that cramps the assumption is that the study of the historical context is more challenging and more revealing than the sustained analysis of the books in which a writer develops his ideas.
With a wealth of detail, Rothschild sketches the forgotten lineage of selected concepts that are critical to Smith's system, and reconstructs the reception of Smith's ideas, and deftly guides the reader through debates whose terms and stakes are distant and unfamiliar. Her practical intention--"using the past to illuminate the present"--is admirable, though it is hardly a "now unfashionable possibility." Rothschild is a serious historian who brings to her call upon the past an extraordinary knowledge of it. What is most startling, for this reason, in her attempt to gain insight into the present by regarding Smith in historical context, is the comfortable familiarity of the Smith that she rediscovers, his conformity in salient respects to certain signature ideas of today's leading academic moralists.”
I came across Emma’s volume in Foyle’s Bookshop, Charring Cross Road, while on a short visit to London on Edinburgh Business School business, and started reading it on the train back to Edinburgh. This was in late 2003 while writing an early draft of my “Adam Smith’s Lost Legacy”, published in 2005, following publication of which I started this Blog (and, coincidentally, retired from Edinburgh Business School as Director of Contracts, mainly to create space to conduct serious research in the history of economics held in abeyance by my busy day job).
Emma Rothschild’s “Economic Sentiments” is an excellent study of Smith in context and also links his contribution to the Scottish end of the European Enlightenment, particularly in relation to the contributions of Condorcet and his circle in France (of whom I knew little at the time).
Rothschild’s chapter on the “invisible hand” was, of course, striking,  and was summed by her as an “ironic joke” on Smith’s part.  I thought then, as I said later, when she attended a seminar on Adam Smith at Balliol College, Oxford, at which I spoke briefly, that “if it was an ‘ironic joke’, I for one did not get the joke”.  This was possibly because I was not drilled in the Cambridge intellectual tradition.  Thankfully, she took my comments well and our paths have crossed since at other seminars, where she speaks well and authoritatively on Adam Smith - and at several levels above mine in her depth and broadness of knowledge of the 18th century.
I recommend that you read her “Economic Sentiments” (follow the link above) whatever your interest and level of knowledge of Adam Smith. She is a powerful exponent of her intellectual stature and also, in private, a patient and empathetic teacher.
Peter Berkowitzs deserves praise for recycling his 2001 review in the New Republic.

Tuesday, July 23, 2013

How Not to Explain Economics to Anthropologists - and to Some Economists

From Rex in “Savage Minds Backup” on “How to explain anthropology to a physicist"
Science works by proposing and disposing of hypotheses. Hypotheses come from a lot of places: previous research results, modeling, inspiration, and plain old intuition. Our intuition is a good source of scientific hypotheses because our species has evolved to possess an implicit model of the natural world that allows us to move, eat, balance, and so forth. Of course, this model is not perfect nor is it explicit. Which is why we need science. Nevertheless, it is a good source of hypotheses, and our intuitions about where things go when we throw them are an excellent place to begin elaborating, say, a classical mechanical account of projectile motion, regardless of where in the world you are when you throw something. This is because physical laws operate uniformly on earth, modulo extremely advanced concerns in quantum physics or the philosophy of science.
I could not help thinking about how to explain the political economy of Adam Smith to a modern neo-classical economist let alone to an anthropologist, never mind the even more challenging difficulties of explaining it to a physicist.
Frankly, they just can’t get it.
Everybody being out of step except for the proverbial “Jock” (a well-worn phrase in the colloquial Scot’s culture of earlier generations) doesn’t quite capture the dilemma faced by many Smithian scholars, including those very few modern economists who have actually read Smith’s Works.
Smith turned his mind to scientific hypothesising in 1744 as a 21 year-old student at Oxford University, where he had some sort of life-changing experience causing him to drop out of his theology course leading to ordination into the Church of England in favour of the Juris course leading to the uncertain preferment of teaching.
All his life from 1744 Smith remained sceptical of Oxford’s academic culture where the faculty had “given up the pretence of teaching” and students largely were left to read alone and teach themselves, only obliged to attend prayers twice a day and a “lecture” once a week.
His life change took the form of his writing for his own satisfaction a long essay on the “History of Astronomy” (HOA), which he completed before 1758.  Thereafter he kept his essay in his bedroom bureau all his life and apparently told no one of its existence, including his close friend, David Hume, who first learnt of its existence in 1773, 22 years after they met in 1751. 
Moreover, his HOA, was saved from the destruction of almost all of his other essays, unfinished manuscripts and miscellaneous papers on his personal instructions a few days before he died in 1790. Therefore we may safely conclude that the HOA essay had special personal importance for Smith.
Most readers take the HOA at face value as a history of astronomy with some remarks at the beginning on “savage” and pagan ideas about natural events, many of them likely to frighten the ignorant into beliefs about malevolent invisible spirits, and gods tormenting those who annoy them, and generally ruling humans with lightning bolts and other disasters.
My own take on the HOA is that it signals when Smith ceased to believe in religious explanations for anything, except in the imaginations of the gullible, including the rigid beliefs of revealed religion.  In this latter, he was shocked to conclude that Calvinism shared the same basic theological "heresies" against human intelligence as the Catholic "superstitions" (while the Church of Scotland behaved better than Roman Catholics, and even better than the Church of England). 
While he had no problem with publically condemning the decadent ignorant superstitions of Roman Catholics – after all he was brought up in a Calvinist household by his religious mother whom he adored and could never hurt by revealing his changed views – he had a major problem of concealing his new philosophical conclusions from Calvinist zealots.  Hence, he went to the lengths he did to avoid saying or doing anything in public that would cause her embarrassment from any wilful behaviour on his part brought to her attention in the inevitable public controversies of doing so (his three predecessors as in the Chair of Moral Philosophy were each hauled before the zealots who dominated the Glasgow Presbytery).
Returning to the paragraph quoted from “Rex” above, I was struck by the sentence: “This is because physical laws operate uniformly on earth, modulo extremely advanced concerns in quantum physics or the philosophy of science.”
Yes, but what of social “laws”?  What of the dissimilarity of individual human behaviours?  Do these “operate uniformly on earth”?  Do people in the same family act “uniformly”, or in different generations, or in different cultures? 
We may expect a carbon atom to operate uniformly across the planet, or any other planet in this solar system or any other planet in any other solar system in the universe or any earlier or succeeding or preceding universe.   But of humans on this planet, now or earlier or in succeeding generations, can we assert or act upon the assumption of “uniformity”?  I don’t think so.
This means that observations may identify broad trends and possible or potential outcomes but the precision and endurance of possible conclusions that follow may not have the stability expected in physics across the universe.  Briefly, humans may and can “game” the system, either benevolently or selfishly, not necessarily immediately, but possibly later if not sooner.
This is not about denying the value of hypothesising, collecting data, and subjecting it to the usual statistical testing, and such like nor against experimenting with mathematical processes and such like.  I am against that science that comes to believe because something can be represented by maths that it is the real world.  
That Debreu “proved” that a general equilibrium solution can be “proved” is not proof of the proposition that therefore such a GE solution was possible in a real world economy. Worse, many modern economists believe with a frightening and sincere certainty that Adam Smith was near to saying so.  Fortunately for their lasting reputation, other modern economists, like Mark Blaug, robustly refuted such nonsense (Blaug unlike others had actually read and studied Adam Smith’s Works).
It remains my lasting disappointment that many anthropologists, whose work I read regularly, seem to have adopted the modern version of Adam Smith (on bargaining, self-interest, and even the invisible hand metaphor).  I do hope they do not look for mathematical “immutable” laws of human behaviour thinking that to do so is the route to “hard science”. 
I suggest that their reading of the first parts of Smith’s HOA might give them pause for thought.  The same goes for modern economists, though come to think of it some of them miss Smith’s point spectacularly (I am thinking here particularly of N. E. Aydinonat, 2008. The Invisible Hand in Economics: how economists explain unintended consequences, Oxford, Routledge).