Popularity Parade Counts for Not Much

Justin Wolfers writes in Freakonomics (15 March) HERE

“Hayek Propped Up by Government Intervention”

“… the Texas Board of Education [wants] to rewrite the high school curriculum in accordance with its conservative values.”
How do they plan to rewrite high school economics?

In economics, the revisions add Milton Friedman and Friedrich von Hayek, two champions of free-market economic theory, to the usual list of economists to be studied – economists like Adam Smith, Karl Marx and John Maynard Keynes
.
… There’s no doubt about the influence of Smith, Marx and Keynes; Friedman also belongs. But does Hayek belong on this list?

Let’s use data to inform this debate. I counted the number of references to each economist in the scholarly literature indexed by JSTOR, finding 30,708 articles mentioning “Adam Smith”; 25,626 articles mentioning “Karl Marx”; and 4,945 mentioning “John Maynard Keynes”. “Milton Friedman” sits easily with this group, and was mentioned in 8,924 articles.

But searching for “Friedrich von Hayek” only … 1561.

By the way, “Lawrence Summers” was mentioned … 2064.

This exercise suggests that Larry Summers is more influential than Hayek, and so I’m led to conclude that teaching “insights from Larry Summers” involves less of an ideological subsidy than teaching “insights from Hayek.

I’m not suggesting we do either, only that we set the bar for teaching economic ideas at a uniformly high level. If this cuts out Summers, it cuts out Hayek.

These data suggests that Hayek just doesn’t belong with Smith, Marx, Keynes, or Friedman. In fact, it seems that despite having enjoyed a much longer period to accumulate citations, he is still much less widely cited than Larry Summers. Sure, Hayek was an insightful economist. But insisting that high schools teach Hayek is a clear statement of ideology, not of economic science.

The message from the Texas Board of Education seems to be: If you can’t win in the marketplace of ideas, turn to government institutions to prop you up. I don’t think Hayek would approve.”

Comment
A fair point but hardly ideological.

If you checked JSTOR for the metaphor of an ‘invisible hand’ I wonder how many mentions it would get?

I’d check myself but I do not access…

Adam Smith is Innocent

Michael Tilley writes (14 February) for The City Wire HERE

"Anger management"

“The last gasps of the near-dead out-of-touch traditional media want us to believe greedy corporate bastards are the root cause for whatever ails us, but down deep we all rightly suspect that too many bureaucrats have perverted the movements of Adam Smith’s unseen hand.”

Comment
Michael Tilley writes fluently about the anger of people caught the financial crisis and uses his large stick to implicate Adam Smith and his ‘hidden hand’, which, presumably, he believes exists and operates as modern economists told us since the 1950s (precious few had heard of it before then, though Smith mentioned it once in Wealth Of Nations in 1776).

Tilley’s story line is that ‘too many bureaucrats have perverted’ Smith’s hidden hand, presumably by acting as if it didn’t exist or somehow preventing it working.

Well, story time over folks.

The people who first ‘perverted’ (a bit strong, but I’m quoting Tilley’s angry expression) ‘Adam Smith’s unseen hand’ were the very same modern economists who gave it to us 60 years ago, including our Nobel prize winners, though one, Joe Stiglitz recanted last December.

You see, Michael, Adam Smith never made the claims for ‘his’ hidden hand that were attributed to him 174 years later. He used a well known literary metaphor from the 17th-18th century to illustrate “in a more striking manner” what he had just described about the consequences of risk-aversion in some, but not all, merchants choosing between investing their capital in trading ventures abroad to Europe or the British colonies in the America’s and investing at home.

The more merchants who chose not to take the extra-risks of foreign trade and invested at home instead, the greater would be domestic capital investment and, in consequence, the larger would be domestic output on the well-known arithmetic rule that the whole is the sum of its parts.

Saying they were led by ‘an invisible hand’ to set off these consequences is far more ‘striking’ than explaining it accurately as he did before he used the metaphor. And that, Michael Tilley, is what a metaphor does (though I am sure you know that already being such a clear writer).

In short, Adam Smith is innocent; the financial traders and bureaucrats who caused the crisis did it all by their lonesome selves.

James Otteson on Karl Marx v. Adam Smith

James Otteson conducts a lesson for students on Adam Smith and Karl Marx HERE

James Otteson's lecture/tutorial was at the 2010 FEE Home School Debate Tournament on "Karl Marx v. Adam Smith"

Follow the link and watch the video for a lively seminar for students.

It's not meant to be deep and authoritative and links explicit details of the experiences of Soviet socialism and the dreadful crimes against humanity practised in the former and current socialist/marxist states, a methodology with which I am not too comfortable intellectually. As a first pass it's OK, but the ideas of Marx and Engels are not linked directly to ideas as interpreted by people decades after the founders of Marxism had died, anymore than the ideas ascribed to 'Jesus' are represented by the pageantry and wealth of the main Christian Churches centuries later. However, that's a quibble.

Otteson's account of Smith's ideas is fair enough (except for the his nuanced mythology of the "invisible hand'!) and his listeners appear enthusiastic in response to his enthusiasm (always a necessary aspect of lecturing).

Jim Otteson is an original contributor to Adam Smith studies: see his Adam Smith’s Market Place of Life, 2002, Cambridge University press.

Against Stupidity Even the Gods Battle in Vain

Robert Vienneau writes the authoritative blog, Thoughts on Economics
HERE

"Anti-Intellectualism Among Mainstream Economists"

I find these comments to be anti-intellectual:

John Quiggin rejects the Austrian school of economics on the ground that partisans of that school discuss political philosophy and the epistemology and methodology of economics.

Roberto Perotti critizes Post Keynesians and neo-Ricardians on the grounds that they don't spend their time exclusively constructing formal models and estimating correlations. (I used Google's translation feature. Sergio Cesaratto answers from a Sraffian perspective.)

Commentators at Mark Thoma reject discussions about what Adam Smith wrote.

I thought the point of scholarship was to attempt to make true statements. If somebody makes an untrue statement about what Keynes or Adam Smith said, one should correct them. This is not to say that that the fact that Keynes or Smith advocated something or other is a justification for policy. I think a historically accurate representation of an old text entails quite a bit of contextualization in terms of its time. To apply policy conclusions to our time would require recontextualization in contemporary terms, as well as empirical work.

I would think different scholars, even within a discipline, would find different questions of interest. Some economists argue for a supposed freedom to choose. Shouldn't some then be legitimately allowed to explore old texts or methodology or whatever? If Thomas Kuhn was somewhat correct, wouldn't one expect more discussion about methodology when the defining paradigm in a field has so obviously broken down, as today among mainstream economists?”

Comments
A timely reminder from Robert Vienneau of the duty of care of academics for the way they treat ideas of other people.

Along with the absolute right – of every person - to create, deduce, or induce – even invent – ideas, moral rights to not include the absolute or relative right of anybody to assert or ascribe to anyone else that they hold this or that set of ideas. That is a sign when embedded politically (and often associated with) a totalitarian state or of theological tyranny.

In my case above, quoted from Mark Thoma’s excellent Blog, many of the comments made about my article by his readers were certainly “anti-intellectual”, and where these were from graduates or well- informed, self-learners my reaction was one of incredulity at their displays of ignorance. Nothing to do with Mark Thoma, of course.

A Perspective of State Interventions

Gary Lipow writes in Grist (‘a beacon in the smog”) HERE

“Historically U.S. infrastructure, the basis on which this nation developed, was never some magical response to supply and demand.”

The Erie Canal would not have been built without rights of way given away to the builders. Land given to homesteaders and farmers made us one of the world's great farming nations. Railroads were built because the great railway companies were granted land a mile out from their tracks to compensate for construction costs. Or think of the telegraph, one of the first types of public infrastructure to receive not only grants of rights of way, but massive direct public cash subsidies. And it is worth remembering that none of this was built on empty land; American Indians were slaughtered or driven away for every one of these things. Much of the work on that stolen land was done by slaves. I can't imagine a "green tax" that could have compensated for that. …

… Adam Smith, the inventor of the term "the invisible hand" favored fire regulations, free public education, building safety codes, and (in emergencies) wage and price controls. As someone concerned with supporting an infant capitalism, and overthrowing the remnants of feudalism, he would have laughed at the idea of capitalism without a strong state. And yes, Adam Smith was overoptimistic about the ability of such regulation to contain the dark side of capitalism. But, given when he wrote, he may be excused his errors, especially since even then he was a far clearer thinker than the fuzzy headed right wing libertarians who consider themselves his true heirs today.

I think he did invent (or at least promote) a fundamental error that explains why the role price can play in replacing other forms of regulation is often overlooked. He thought of price as reflecting a balance between supply and demand. To some extent price does reflect those things. But price also reflects power. In Adam Smith's time, price often reflected the ability to kill people, seize their land by force, and then work that land with slaves. Today the price of a pound of rice reflects in part the Haitian market for that rice developed by applying financial pressure to a series of Haitian governments, and forcing them to destroy their domestic capacity to produce their own rice.”

Comment
I shall ignore on this occasion the error about “Adam Smith” being “the inventor of the term "the invisible hand" ‘ (see Lost Legacy posts passim) and focus on his articulate charges about the roles of the state in development.

Gary Lipow is correct to balance the over enthusiasm for the ideals in the US Constitution, its defects in its application shrinking in significance compared with the history of the European states, including Britain at the time. To a significant extent, the evolution of the basis of liberty, as noted by Smith, within Britain, was a contributory factor to the ideals manifested in the US Constitution; they were not invented by Congress.

Lipow adds more to the theme of the paragraph I have quoted and it is worth considering in the light of this week’s debate on the relative size of the state in practice. Aside from Lipow’s presentation of the politics of state regulation, he does make some powerful points about the role that the state – any modern state – plays in everyday matters like urban development, roads (parking!) and the infra-structure that Smith outlined as the proper role of state (Wealth Of Nations, Book V).

It makes quite a list and I urge you to follow the link. If you are put off by Lipow’s political partiality, don’t be; in the kernal of what he says there is a general truth, worth considering when debates about the size of the state commence.

A Good Idea for a Celebration, But...

College of Charleston holds an annual ‘Adam Smith Week’ (8 March), which, normally, I would welcome handsomely for its educational mission (details HERE) .

John Stossel , the talented free markets’ advocate, is to speak during it, so it will do some good.

But, wait, what’s this?

“Adam Smith is one of the most recognizable figures in economics, and his contributions to the fields of philosophy and economics are still relevant today,” says Pete Calcagno, associate professor of economics and Director of the IPCM. “His concept of the invisible hand is considered the classic statement on laissez faire capitalism.”

Comment
Oh dear! Pete Calcango manages to perpetuate two myths which are slurs on Adam Smith’s life work, simultaneously in a single sentence.

By whom is the “concept” (sic) of an “invisible hand” considered ‘the classic statement on laissez-faire capitalism”?

Not by Adam Smith, whose works show the metaphor (not a concept) to refer to feudal (not capitalist) landlords feeding the “thousands whom they employ” (they had no real choice but to do so); see Moral Sentiments (1759) TMS IV.ii.10: 184; and to some, but not all merchants who were risk-averse and concerned for the security of their capital and in consequence preferred to invest locally rather than abroad, which, on the arithmetic rule that the whole is the sum of its parts, added to national output; see Wealth Of Nations (1776) WN IV.ii.9: 456.

Lost Legacy urges students (and, clearly, staff tutors too!) to look up the only two references to “an invisible hand” that Smith makes in his two main books.

They do not amount to a “concept” and had nothing to do with “laissez-faire” (words that Smith never used), nor to “capitalism” ( a word invented in English in 1854 by Thackeray; Smith died in 1790).

Absolute Nonsense About Adam Smith and the Invisible Hand

The Zippy Cart team write in their Blog the following nonsense HERE:

“The InvisibleHand name comes from economist Adam Smith’s theory, that suggests people will make rational economic decisions when they have perfect information available to review. This is true today,”

Comment
Speechless!

Where do they get such nonsensical inventions from? Certainly not in anything Adam Smith wrote.

Modern Inventions About an Invisible Hand Have Nothing to do with Adam Smith

Robert Dysell writes (7 March) in the Planner Fed Blog (HERE)

”Generation 1: the fallacy of individuality”

“Even hard nosed economists have woken up to the fact that the overly simplistic Adam Smith’ principals of the ‘invisible hand’ in business have led to a collective failure of financial systems commonly known now as the ‘the recession’.”


Comment
The so-called “the overly simplistic Adam Smith’ principals [sic] of the ‘invisible hand’ in business” do not appear in anything written by Adam Smith.

The elevation of the metaphor of ‘an invisible hand’ to that of a ‘principle’ is a wholly invented notion, which became popular – even ubiquitous – among modern economists from the 1950s in the USA and is now pandemic across economic departments around the world.

Ironically, since the recession, the whole notion of an invisible hand guiding markets has been challenged as if it had anything to do with Adam Smith.

Smith’s two mentions of an invisible hand in Moral Sentiments (1759) and in Wealth Of Nations (1776) had nothing to do with markets at all – that it was his part of the myth.

In Moral Sentiments, Smith referred to feudal landlords’ absolute necessity of feeding their servants, retainers, and peasants (they wouldn’t last the winter without food), which had nothing to do with (non-existent) markets.

In Wealth Of Nations, Smith referred to some, but not all, merchant traders preferring to invest locally where they felt more secure rather than invest abroad where they did not know the people they dealt with as well, and nor were they as familiar with the probity and impartiality of the legal system in foreign countries (apart from the risks of sea travel and the reliability of shipping). Risk-avoidance drove most of them to invest locally. Again, this had nothing to do with how markets work.

Modern economists made the metaphor of an invisible hand into its own object, whereas metaphors refer not to themselves but to their object. Yet, in both cases in Smith’s usage, described above, the metaphor was about necessity and the avoidance of risk.

With the apparent failures of economists in the current recession, Adam Smith is blamed for the misuses of a metaphor, not be him, but by leading modern economists.

'Joe Stiglitz Slaps the Invisible Hand'

Tyler Durden quote Joseph Stiglitz in City Index (‘The next way to trade’)
HERE

“Joe Stiglitz Slaps The Invisible Hand”

"The theories that said that markets work perfectly were all based on very simplistic models of perfect competition and perfect information. My own work we show that the reason that when there is asymmetric information, the reason that the invisible hand often seemed invisible, was that it wasn't there. And I don't think today anybody would claim that the pursuit of self-interest by bankers, which is sometimes called greed [don't tell the screenplay writer for Wall Street] has led to the wellbeing of all of society. And yet this was the central notion taught in almost every graduate school in the country."

Comment
At last the myth of the ‘invisible hand’ is under challenge from a much wider range of sources than Lost Legacy, which since 2005 has been ploughing a lonely furrow.

The consequences of the invention of the modern role for the metaphor on ‘an invisible hand’ were not trivial.

As thousands of graduate economists acted on the belief of the
beneficial role of ‘an invisible hand’, no mater what the motives of the individuals – from a false sense of altruism through to pride in their greed – modern economists taught that it was all for the good of the community.

Pollution, protectionism, graft, fraud or exploitation of children are not necessary processes for a commercial society to thrive. It does matter when wrong ideas are invented and falsely justified by linking them to the name of Adam Smith who taught quite the opposite.

Adam Smith and Laissez-faire Debate at Economists' View

Since Mark Thoma published on Economists' View my post of Adam Smith and Laissez-Faire last week, there has been quite number of comments from his readers.

Lost Legacy followed up that post with a discussion around my second post, which Mark Thoma also published. I think the contributors to the second post were more informed in their posts - by no means did they all agree with Lost Legacy's take.

You can follow the debate on Economists View by linking HERE:

feed://economistsview.typepad.com/economistsview/2010/03/adam-smith-was-not-a-laissezfaire-ideologue/comments/atom.xml

Enjoy some good contributions by readers of Economists' View: economistsview.typepad.com

More of Adam Smith's Views of State Actiity

Scott Sumner, who taught economics at Bentley University for the past 27 years, earned a BA in economics at Wisconsin and a PhD at Chicago. His research has been in the field of monetary economics, particularly the role of the gold standard in the Great Depression. He also writes a lively Blog, The Money Illusion (“A slightly off-center perspective on monetary problems”) HERE

“Adam Smith did favor laissez-faire”

“Mark Thoma recently linked to a Gavin Kennedy post that argued Adam Smith did not favor laissez-faire. I don’t agree. The evidence cited was a one page list of government interventions that Smith favored. The US, by contrast, has enough government interventions to fill a New York City phone book, if not a small library. And the US is regarded by the Europeans as “unbridled capitalism.” Even Hong Kong intervenes in far more ways than Adam Smith contemplated. Of course Smith was not an anarchist, he did favor some government intervention in the economy. But relative to any real world economy, his policies views were extremely laissez-faire.”

“I see this as a common cognitive bias. The Gavin Kennedy list posted by Thoma certainly looks impressive, but when you think more deeply about the issue it is a trivial set of policies. I’m reminded of what happens when I discuss Singapore, which usually ranks number two in the world in lists of economic freedom. People will often respond by telling me about all the ways the Singapore government intervenes. My response is “so what?” They could intervene in a 1000 different ways and still be vastly more laissez-faire than the US government. Laissez-faire is a relative concept, and always has been. I’ve read The Wealth of Nations, and Adam Smith is clearly a pragmatic libertarian.”

Comment
“The evidence cited was a one-page list of government interventions that Smith favored.”

Yes, that’s why Viner listed the numerous examples of government interventions. They amount to a lot more than can be summarised a single page and the compromise notions that Smith was laissez-faire in the meaning of the term.

Smith never used the phrase ‘laissez-faire’. His association with the idea was an invention in the 19th century and was widely promoted by modern economists from the mid-1950s. About this time Smith was also widely promoted as the author of the notion of there being “an invisible hand” in the market. Both inventions are false.

We can agree that Smith was pragmatic about policies but whether he was a pragmatic libertarian remains problematical.

It’s not clear why the items in the list from Smith’s Wealth Of Nations and hi Lectures on Jurisprudence are “trivial” in Ron Sumner’s opinion, other than when he looks around the incomparably richer 21st-century United States than were the 13 British colonies in 1776 when Smith was writing.

There were hundreds of miles of inter-city roads in need of construction and repair; scores of harbours that needed to be built and dredged; thousands of bridges in need of construction; hundreds of towns that need to be paved and have street lighting in place; thousands of ‘little school’ constructed and staffed with state-registered teachers; scores of palliative care hospitals established for those afflicted with ‘loathsome diseases’; scores of depots for stamping clothes with government quality marks; a network of post-offices established and organised; and likewise for all the other activities that Smith envisaged should be funded and managed by the state.

In practice this took near on a century to be introduced in Britain. Set against the size of commercial society in 18th-century Britain, the state sector was not ‘trivial’ in any meaningful sense. Nor is it today. On one thing we surely can agree: neither 18th-century Britain with its colonies in North America was not a laissez-faire economy nor are the 21st-century territories that descended from them.

Adam Smith was not a laissez-faire ideologue.

Another False Attribution to Adam Smith

The Rev. Darcey Laine (Religious Task Force for a Living Wage) in Star Gazette HERE

“Adam Smith wrote about the "invisible hand of the market," which guides the free market to produce an optimal result for all. Today it often seems that the market has become the only guide to morality for our society.”

Comment
Where – anybody – did Adam Smith write about the “invisible hand of the market”?

Modern economists in the 1950s began writing about the “invisible hand of the market”, but Adam Smith decidedly did not.

Does anybody know which economist first asserted that he did?

What Adam Smith Actually Identified as the Appropriate Roles for 18-century Governments

Andrew B. Busch writes (3 March) in the CNBC Guest Blog HERE

“Busch: Following The Father of Modern Economics”

“The father of modern economics supported a limited role for government. Mark Skousen writes in "The Making of Modern Economics", Adam Smith believed that, "Government should limit its activities to administer justice, enforcing private property rights, and defending the nation against aggression." The point is that the farther a government gets away from this limited role, the more that government strays from the ideal path that will ensure the fastest path towards the creation of "universal opulence" or wealth for workers.

How this issue is handled will decide whether the country can more closely follow Adam Smith's prescription for growth and wealth creation or move farther away from it.”

Comment
Jacob Viner addressed the laissez-faire attribution to Adam Smith in 1928 in his “Adam Smith and Laissez-Faire” in the collection of essays published to commemorate the Sesquicentennial of the Publication of the Wealth Of Nations, reproduced by Augustus M. Kelly, Fairfield, New Jersey in 1968.

Here is a list of appropriate activities for government, which goes way, way beyond Mark Skousen’s extremely limited – and vague – 'ideal' government. That in itself is fair enough, if it is issued under Skousen’s name (everybody has a right to express an opinion), but he goes on to attribute his ‘ideal’ list to Adam Smith, which is not alright.

In fact, its downright deceitful, for which there is no excuse of ignorance (before attributing the limited ideal to Adam Smith we assume, as scholars must, that Skousen read Wealth Of Nations and noted what Smith actually identified as the appropriate roles of government in the mid-18th century.

But even if Skousen was in a hurry and without time to check through Smith’s two-volume tome (or the massive one-volume tome if he consulted the 1937 edition of Wealth Of Nations from Random House, New York, edited by Edwin Canaan), he, surely, was familiar with Viner’s 1928 essay, conveniently reprinted and widely available from Augustus Kelly from 1968?

No? Shame.

Here is a list extracted from Wealth Of Nations:

• the Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’ (WN464);
• Sterling marks on plate and stamps on linen and woollen cloth (WN138–9);
• enforcement of contracts by a system of justice (WN720);
• wages to be paid in money, not goods;
• regulations of paper money in banking (WN437);
• obligations to build party walls to prevent the spread of fire (WN324);
• rights of farmers to send farm produce to the best market (except ‘only in the most urgent necessity’) (WN539);
• ‘Premiums and other encouragements to advance the linen and woollen industries’ (TMS185);
• ‘Police’, or preservation of the ‘cleanliness of roads, streets, and to prevent the bad effects of corruption and putrifying substances’;
• ensuring the ‘cheapness or plenty [of provisions]’ (LJ6; 331);
• patrols by town guards and fire fighters to watch for hazardous accidents (LJ331–2);
• erecting and maintaining certain public works and public institutions intended to facilitate commerce (roads, bridges, canals and harbours) (WN723);
• coinage and the mint (WN478; 1724);
• post office (WN724);
• regulation of institutions, such as company structures (joint- stock companies, co-partneries, regulated companies and so on) (WN731–58);
• temporary monopolies, including copyright and patents, of fixed duration (WN754);
• education of youth (‘village schools’, curriculum design and so on) (WN758–89);
• education of people of all ages (tythes or land tax) (WN788);
• encouragement of ‘the frequency and gaiety of publick diversions’(WN796);
• the prevention of ‘leprosy or any other loathsome and offensive disease’ from spreading among the population (WN787–88);
• encouragement of martial exercises (WN786);
• registration of mortgages for land, houses and boats over two tons (WN861, 863);
• government restrictions on interest for borrowing (usury laws) to overcome investor ‘stupidity’ (WN356–7);
• laws against banks issuing low-denomination promissory notes (WN324);
• natural liberty may be breached if individuals ‘endanger the security of the whole society’ (WN324);
• limiting ‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’ turning into ‘famine’) (WN539); and
• moderate export taxes on wool exports for government revenue (WN879).

"Viner concluded, unsurprisingly, that ‘Adam Smith was not a doctrinaire advocate of laissez-faire’.

That [Viner] needed to write this 150 years after Wealth of Nations to remind 20th-century readers conclusively that it contained detailed and specific evidence of advocacy of breaches of laissez-faire, popularly attributed to him, suggests that a substantial drift away from important elements of Smith’s legacy had taken place among early-20th-century economists.

How could Smith be so closely linked with laissez-faire policies when he so clearly and explicitly was not?”

[The list and the comment is reproduced from my “Adam Smith: a moral philosopher and his political economy”, 2008, Palgrave-Macmillan.]