Monday, July 24, 2017

GREED IS NOT GOOD

UTPAL KUMAR write in Daily O (23 June) HERE
“Dharma of business: The roots of commerce in India”
Donald R Davis Jr's book holds the key to moral economy, something the world has been eagerly looking for.
Morality has been another constant phenomenon. Here, Davis reminds that Adam Smith, whose "hidden hand" theory is often put forward to justify the greed-is-good argument, believed in moral economy and his initial juxtaposition on economy and morality has been distorted. …
… “There emerged a series of economists in the US in the 20th century who mystified the economy and believed that it was an autonomous entity. They said there was no need to worry about morality because the market magically converted greed into good,” he says. “I think Smith would have been shocked to see his idea being distorted so much.”
Also, unlike the Western model, all businesses in India are personal. “We are often told in the professional arena that it’s not personal. But the Dharmashastras tell us that the business will flourish more if there’s a personal touch and a sense of belonging involved.”
Davis blames the West for creating this sense of distrust among Indians for their indigenous way of doing business, and instead blindly aping the US. “My colonial predecessors inculcated a sense of stigma among Indians about their local laws, languages and customs. This also explains why Sanskrit finds so little support and patronage in the country of its birth.”
COMMENT
Another addition to the growing pile of daily evidence that the world is gradually waking-up to the wholly made-up, mid-20th century misreading, of Adam Smith’s singular usage of the “invisible hand” metaphor in Wealth of Nations. The great error was initiated by Paul Samuelson (1948) and promoted by Milton Friedman from the 1950s. They both carried immense prestige among economists with their Nobel Prizes. 

Whatever else they were justly respected for they were both wrong about ‘greed is good’ economics. It is time to call them out.
We owe it Adam Smith and his legacy.

Sunday, July 23, 2017

AN END TO 'GREED IS GOOD' ECONOMICS?

Donald R Davis Jr posts (23 July)  The Dharma of Business talks about the history of commerce in India. HERE
“This latest book throws light on the roots of business in India”
“Morality has been another constant phenomenon. Here, Davis reminds that Adam Smith, whose 'hidden hand' theory is often put forward to justify the greed-is good argument, believed in moral economy and his initial juxtaposition on economy and morality has been distorted. "There emerged a series of economists in the US in the 20th century who mystified the economy and believed that it was an autonomous entity. They said there was no need to worry about morality because the market magically converted greed into good," he says. "I think Smith would have been shocked to see his idea being distorted so much.”
COMMENT
At least David R Davis Jr exposes the modern distortion of Adam Smith’s use of the metaphor of the ‘hidden hand’/ invisible hand in modern economics. For that alone congratulations!
think (hope?) there is a slowy emerging trend to abandon Paul Samuelson’s/Friedman’s 1948/1950s distortion of the post-war that ‘Greed is good’ economics.

From such signs, I am increasingly optimistic that the modern distortion of Adam Smith’s ideas will largely be universally discredited before too long. (I am 77 …).

Saturday, July 22, 2017

MAKING IT UP AS YOU GO ALONG!

John T. Kennedy (NO RELATION!) posts (22 July) in STEELMIT HERE 
“The Invisible Hand of Spontaneous Corruption”
“In The Wealth of Nations, Adam Smith observed that markets spontaneously generate unintended order, as if an invisible hand were at work in the free market. He identified self-interest of the individual as the animating force of this invisible hand, "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."
I submit that there is another invisible hand, one by which government spontaneously generates unintended disorder. The animating force of this invisible hand is the same; each individual participant in government is naturally motivated by self-interest. But while self-interest leads to beneficial cooperation in a free market, it quickly leads to corruption when the same individuals wield coercive control through government.”
COMMENT

A clear example of making it up as you go along. Wherever he got the above muddled ideas from it most certainly was not from Adam Smith, nor from his Wealth of Nations.

Friday, July 21, 2017

FAKE NEWS IN MODERN ECONOMICS

Sam Dumitriu writes (20 July) in the Adam Smith Institute Blog HERE
‘Fake News in The Guardian’
Democracy in Chains smears Nobel Laureate James Buchanan (amongst others) with deliberate misquotes and pernicious accusations of racism. It asserts that Buchanan sat at the centre of an elaborate academic conspiracy to undermine democracy and replace it with ‘a totalitarian capitalism’.
Of course, this isn’t the first time Monbiot’s been taken in by a BS Vendor who happens to share his political biases – he frequently cites Naomi Klein’s sloppy Shock Doctrine which proposed a similar right-wing academic conspiracy with Milton Friedman at the centre (thoroughly debunked by Johan Norberg at Cato).
Unlike Maclean herself, it’s not clear if Monbiot actually understands what public choice theory (the field where Buchanan made his name) is.
COMMENT
Read the whole article by following the link above.
I think it is important that when we read something of which we have some claim to understanding and with which we profoundly disagree with a contributor’s comments, that we are sufficiently confident of our case that we offer a corrective comment in the interests of scholarly clarity.
Clearly, Monbiot on this occasion falls far short of that minimal scholarly standard as shown by Sam Dumitriu.
This if not a new cause for my concern as the author of the LOST LEGACY BLOG. 
In fact, LOST LEGACY was founded to correct the FAKE NEWS that Adam Smith believed the modern post 1948, nonsense of ‘an invisible hand’ mysteriously guiding supply and demand in the market, causing economic equilibrium, and Pareto’s welfare theorems 1 and 2. 
Whereas for Adam Smith, it was a metaphor for the simplest of statements that by seeking personal gain from domestic investment and the employment of domestic labour, the inevitable consequence was that the merchant also, and necessarily, added to aggregate domestic investment and employment. That’s all!

[Disclosure: I am a (moderate) Fellow of the Adam Smith Institute]

Monday, July 17, 2017

NEWS OF NEW BOOK ON ADAM SMITH BY GAVIN KENNEDY

© 2017
An Authentic Account of Adam Smith
Gavin Kennedy

To be published by Palgrave-Macmillan, 1st September, 2017

This book is a textual criticism of modern ideas about the work of Adam Smith that offers a new perspective on many of his famous contributions to economic thought. Adam Smith is often hailed as a leading figure in the development of economic theories, but modern presentations of his works do not reflect Smith’s actual ideas or influence during his lifetime.
       Provides an informed survey of the existing corpus of Smithian studies, as well as a number of suggested original lines of further debate.
Though not written as a biography, it often draws on details of Smith's life in order to illustrate an authentic version of his works and the ideas that informed them
Makes extensive use of primary sources on Smith.

Gavin Kennedy believes that Smith’s name and legacy were often appropriated or made into myths in the 19th and 20th centuries, with many misconceptions persisting today. Offering new analysis of works on rhetoric, moral sentiments, jurisprudence, the invisible hand, The Wealth of Nations, and Smith’s very private views on religion, the book gives a new perspective on this important canonical thinker.

© 2017

Saturday, July 15, 2017

A TIMELY REMINDER THAT MARKETS CAN BE ENSLAVING OR LIBERATING

From an OP-ED in The News & Observer HERE
"Free markets, when idolized, demand sacrifice"
An idolatry is growing in the land and it could destroy our health. Idolatry is the worship of earthly things as though they were gods. In our case, the idol is the human idea of the sanctity of private markets. Evidence of this idolatry abounds in statements and images: “the invisible hand of the market”, “the magic of the market”, “the market is a bull”, “the market is nervous” or “exuberant” or “relieved.” Well-funded market missionaries use mass media, advertising, think tanks and, now, full-blown university programs to evangelize, to share their “faith in the market” and exhort us all to believe. The market’s high priests, the business news commentators, explain to us what the market is saying. We hang on their words because we are told that our well-being depends on it. This gleaming golden calf is compelling indeed.
But the “free” market is not a god to be worshipped. It is a tool which uses the supply-demand dynamic to allocate resources. It can be a useful tool. It has been used to accelerate economic growth and expand certain freedoms for many people. But it is only a tool. It must be harnessed and used in conjunction with other tools for the common good. Just as we need more than a power saw to build a house, we need more than private markets to uplift and strengthen our communities. Other essential tools include volunteerism, philanthropy, churches and other non-profits and democratic government. All are important. All involve human beings, so no tool is perfect. Yet, we are asked to believe that the market can do no wrong, that it is practically a sin to use the tool of our democratic government to regulate the market and provide health care for our community.”
[Read more here: http://www.newsobserver.com/opinion/op-ed/article161416873.html#storylink=cpy]
COMMENT

A contribution to balancing the exuberance of many public economists (including Milton Freidman, etc) when they idolise the “Market”, and their critics who denounce “Markets” as if they are the “Enemy”.

Friday, July 14, 2017

Three Examples of the Misuse of Adam Smith’s Literary Metaphor in Today’s Economic’s Advice

1
Laura Kreutzer posts (14 July) in Private Equity News HERE
Adam Smith and the Wealth of Limited Partners
The declining returns expected by some investors won't necessarily limit the flow of capital into private equity”
… Back in 1776, Adam Smith published his groundbreaking treatise, The Wealth of Nations, forming the foundation of classical economics and underscoring the importance of market forces, what he refers to as the "invisible hand," in driving supply and demand.
NOTE: May have been lifted from below…
2
Norma Cohen posts HERE
https://www.ft.com/content/c5aa195c-67a6-11e7-8526-7b38dcaef614
Beware when independent financial advice is not independent
Choice is futile in opaque markets only understood by specialists, writes Norma Cohen
“The other element of advice of course, is that it assumes that the body receiving it has choices to make. Choice is what Adam Smith described as “the invisible hand” that creates markets. Choice enables rewards to be delivered to producers of the best products at the best prices. Inefficient producers fail, and rightly so. …
…But when markets are so opaque that only specialists understand them, choice becomes meaningless unless accompanied by advice as defined by the Oxford Dictionary. Earlier this week, Nobel Prize-winning economist Angus Deaton, in a paper for the Royal Economic Society, said that the failure of the US healthcare market is akin to that in financial services. “Choice is unproblematic, and little recognition is given to the possibility that people might choose badly,” he wrote. “In such a world, well-informed consumers will drive out deceptive insurance policies, just as consumers will drive out financial advisers whose investment vehicles are designed to profit the advisers, not the investors.” Of course, that is not what happened in either the US or the UK and the results are unfolding rapidly. …
Norma Cohen is the Financial Times’ former demography correspondent and is a PhD candidate at Queen Mary University of London
3
Susan Kirwin posts on Cision HERE
http://www.newswire.ca/news-releases/headwinds-are-keeping-inflation-tame-but-only-temporarily-cibc-634242193.html
"Looking ahead, the compensation component should see further pressure, as it captures the lagged impacts of the recent tightening in Canadian labour markets on wage settlements," says Mr. Shenfeld. "In addition to that invisible hand of markets, higher minimum wages in Ontario, BC and Alberta will be kicking into labour costs in the next two years."
COMMENT
Three examples in this morning’s press (courtesy of Google Alerts).
1: “the "invisible hand," in driving supply and demand.”
2 “the invisible hand” that creates markets”.
3 “invisible hand of markets”.
All written by competent economists to be read in journals read by professional players in financial markets.
To what do the writers and their readers credit today’s ubiquitous invisible hand to do its supposed work? 
Three questions:
1 In what way is Adam Smith’s use of ‘an invisible hand’ related to 21st century markets? It was not a metaphor for supply nor demand in Adam Smith’s usage of it. Neither ‘supply’ nor ‘demand’ was mentioned by Smith.
2 Why did nobody, either among Smith’s closest collleagues while he was alive, nor among the major 19th-century political economists after he had died in 1790, mention or discuss the Smith’s use the ‘invisible hand’ in their own major works on political economy, published in the 19th century. They all failed to mention the invisible hand metaphor. Yet all of them commented in detail on Smith’s Wealth of Nations without them mentioning the so-called significance of Smith’s metaphor,  certainly until after the 1890s, when isolated mentions began to appear, without any of them claiming anything special about it.

3 Where did the modern obsession with Smith’s isolated reference to the ‘invisible hand’ appear from? We can date it precisely. Paul Samuelson claimed it was a reference to people’s ‘greed’ that affected their behaviour in markets in his popular textbook on Economics 101 published by McGraw-Hill in 1948. The false notion spread that ‘greed is good’, which was never an idea of Adam Smith.