Sunday, December 31, 2017


Heather McGreggor, Dean of Edinburgh Business School, has announced (31 December) that Panmure House, former Home of Adam Smith from 1788 to 1790, in Edinburgh, is close to raising the final tranche of the necessary funds to complete its restoration which  was commenced in 2005. Below is the text of the official announcement of this excellent news.

Latest News about restoration of Panmure House where Adam Smith (1723-1790) lived from 1778-1790.
How Hong Kong helped restore Adam Smith’s former home in Edinburgh to create venue for the world’s greatest minds to meet
Panmure House, the only surviving residence of the 18th century economist, is being turned into a hub for the latest academic thinking thanks in part to fund-raising in Hong Kong led by Bank of East Asia’s David Li. 
Keith Lumsden, founder of EBS – the graduate school of business of Heriot-Watt University in the same city – was an economist and passionate supporter of Smith’s ideas, and couldn’t bear to see the property go to waste. He arranged for EBS to buy it in 2008, and five years later led a fundraising drive to raise money to restore the house, which included a trip to Hong Kong.
“Keith came out with the Duke of Buccleuch, a prominent supporter of the Panmure House restoration campaign,” says Andrew Burns, manager of the management office of Hong Kong’s Bank of East Asia (BEA). “His great-great-great-grandfather was mentored and taught by Adam Smith and he regaled us with some fascinating stories.”
Two dinners in Hong Kong hosted by David Li Kwok-po, a knight and the chairman and chief executive of BEA, helped drum up support for restoring the 17th-century house. This included re-slating the roof, conserving the exterior stonework, and replacing the timber sash and casement windows.
“The single largest number of donors came from here and they were all convened by David Li,” McGregor says. “It would not be an exaggeration to say that this project would not even have got this far without the help of David Li. Hong Kong has been the most supportive community in the world.”
But while that initial drive paved the way for the exterior of the house to be repaired, there was little follow-up and the project floundered. Then McGregor came along. A former investment banker, she was also known as “Mrs Moneypenny” after her entertaining weekly column in the Financial Times that ran from 1999 to 2016, in which she memorably referred to her three children as Cost Centres #1, #2 and #3.
In her column, Mrs Moneypenny came across as a doer. McGregor is much like that in the flesh, epitomising the saying: “If you want something done, ask a busy person.”
“I started [as executive dean] on September 1 and we broke ground [on Panmure House] on October 12,” McGregor says.
Determined to get the project underway – so that they could make the most of a favourable currency exchange and get started before construction costs increased – McGregor decided to borrow the money to complete the renovation and then ask people to help repay the loan. She is hoping to raise £1 million (US$1.3 million) and the university will contribute on a matching basis.
This is why she was in Hong Kong: first to thank donors and show them how far the project has progressed, and then to raise more funds.
But why should Hong Kong care about an old building in Scotland? There are plenty of reasons, which start from back when Hong Kong was ceded to the British in 1842.
“The radical ideas that flowered in 18th-century Scotland changed the way the world thought and acted, and Panmure House sat at the heart of it all,” McGregor says. “When Hong Kong was founded as a trading colony, it was a time when Adam’s memory and ideas were very current.”
There are also strong business ties between Scotland and Hong Kong, and there remains a strong Scottish presence in the city. “So many companies were founded by people coming here from Scotland. The whole of HSBC is essentially a Scottish bank. All the major hongs [foreign traders] here had huge Scottish representation,” McGregor says.
McGregor also has strong Hong Kong connections – it is where she married her Australian husband and earned her PhD from the University of Hong Kong (HKU). Since university professors often wear the academic robes pertaining to their highest degree, she spends a lot of time in HKU robes
The renovation of Panmure House is due to be completed in September 2018 and McGregor has big plans for the building – including bringing some of the world’s greatest minds and biggest thinkers to Edinburgh.
“Every year we want a Nobel Prize winner to come to Panmure House. And we want visiting scholars to come, and PhD students from Hong Kong,” McGregor says.
The house will not serve as a residence, but is being set up so that it is part of the university. The two large rooms on the ground floor will serve as space for lectures, exhibitions and public talks. Of the two smaller rooms on the upper floor, one will be set aside for a Nobel Prize winner or other academic to study for short periods of time, and the other will accommodate two PhD students.
McGregor hopes to create something similar to The Friends of Cambridge University in Hong Kong, a group founded by Li in 1981. The group established and manages a scholarship fund that has since supported 170 Hong Kong students to do their undergraduate degrees at Cambridge University. McGregor hopes a similar scheme could regularly bring Hong Kong students to Edinburgh to do their doctorate degrees.
“I would like people to come from Hong Kong, go to Edinburgh and come back and say, ‘I did six months or a year of my PhD research at a desk in the house where Adam Smith lived’,” she says.
Smith entered university at a young age, earned his undergraduate degree at the University of Glasgow and got a postgraduate scholarship to study at Oxford University. McGregor is so familiar with the details of his life that she talks about him as though he were a personal acquaintance. “I feel like I’ve known him,” she says.
She laughs as she recounts a letter Smith wrote to Scottish philosopher David Hume about his European grand tour with Henry Scott, the third Duke of Buccleuch.
“Adam wrote to David Hume saying how bored he was. ‘Here we are, another day in Florence, another painting.’ He liked to surround himself with people and debate big ideas, and I don’t think endless culture was doing it for him,” McGregor will serve as She hopes to continue that tradition of bringing great minds together to ponder great ideas.
“The important thing about a heritage asset is that it is used in a way that you could only use that building – and we’ll be doing that by bringing these incredible thinkers from all over the world,” McGregor says.
“I hope that the association with Hong Kong continues for many years, and one of the ways I hope that happens is by creating a scholarship for people to come and study there. I would want to have it for Hong Kong nationals who got through their first degree here and then would like to come and do their PhD with us.”

Find out more about the project at

I have published three books on Adam Smith:
2005: Adam Smith's Lost Legacy, Palgrave-Macmillan
2008: Adam Smith: a moral philosopher and his political economy. Palgrave-Macmillan (Great Thinkers is Economics Series). 2nd Edition, 2010, and in paper back.
2018: An Authentic Account of Adam Smith. Palgrave-Macmillan.
There have also been several academic Journal articles and book chapters in edited academic books, plus, of course this Blog.

Saturday, December 30, 2017

An Authentic Account of Adam Smith Cleared for Publication in 2018

Good News for my article on the “invisible hand”:
Adam Smith and the Invisible Hand: From Metaphor to Myth” (2009) published in Econ journal watch 6(2):pp 239-263.
Up to December 20, 2017, it has been downloaded 500 times by readers HERE
A relatively minor event in the wider order of things but for me a significant target in my much smaller academic world.
I have noticed an increase in references to my arguments against the post-Samuelson myths of Adam Smith’s use of the now ‘infamous’ metaphor that distorts Smith’s literary intentions.
My new text, “An Authentic Account of Adam Smith” Palgrave-Macmillam, 2018, restores Adam Smith’s original arguments to clarify his clear intentions in 1776 (WN Book 4, Chapter IV, p 456).

If you want to read it, follow the link and /or acquire my new book, scheduled for publication in 2018 by Palgrave.

Thursday, December 28, 2017


Dr Clark McGinn, Harrow-on-the-Hill, Middx, UK (28 December) in the course of reminding readers of the Financial Times that Adam Smith had been a Professor of Moral Philosophy at Glasgow University, is slightly mistaken in respect of important aspects Adam Smith’s biographical details. HERE:
More to Smith than The Wealth of Nations
Sir, Of course David Wilson and William Dixon (Letters, December 21) are correct in reminding us that economics is an offshoot of moral philosophy. Adam Smith held the chair of Moral Philosophy in Glasgow University as he wrote The Wealth of Nations. …
Dr Clark McGinn
Harrow-on-the-Hill, Middx, UK
Adam Smith resigned his professorship in 1763 order to raise the funds that would enable him to research, and later to write, what became, more than a decade later, The Nature and Causes of the Wealth of Nations. He was no longer a Professor of Moral Philosophy while writing the Wealth of Nations.
The influence of his earler Theory of Moral Sentiments (1759), which was written during his Professorship at Glasgow, is evident in his later composition  of ideas in Wealth of Nations, written in his mother’s house in Kirkcaldy. In fact, reading both books is a minimal requirement for an understanding of Adam Smith’s contributions to 18th-century scholarship.
Here, I completely agree with Professor Clark McGinn’s assessment of the somewhat neglected role today of Adam Smith’s earlier Moral Sentiments and its affect on Smith’s Wealth of Nations.
There were also other influences from his university teachings equally neglected in modern scholarship. 
I refer to Adam Smith’s Lectures on Jurisprudence, delivered during his entire Professorial tenure at the University of Glasgow. He delivered Jurisprudence up to his last week of teaching in 1763. Moreover, Smith selectively introduced verbatim multi-page-length extracts from his Jurisprudence lectures direct into his Wealth of Nations long after leaving Glasgow. I welcome Dr Clark McGinn’s contribution.
I am encouraged also by the recent writings of Michael Emmett Brady, California State University, who has published his significant contribution in the Social Science Research Network (SSRN). See his paper: “Who Taught Paul Samuelson the Myth of the “Invisible Hand” at the University of Chicago? The most likely answer is Jacob Viner or fellow student George Stigler”. 

Taking Dr Clark McGinn’s letter in the Financial Times today with yesterday’s news of Michael Brady’s SSRN paper, are these signs that the tide of misinformation about Adam Smith is turning?

Tuesday, December 26, 2017


"Gavin Kennedy — Lost Legacy’s Stance of the Invisible Hand Is Endorsed by Mike Norman HERE

Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse."

Sunday, December 24, 2017


Michael Emmett Brady, California State University, has written an excellent article on Adam Smith’s use of the’invsible hand’ metaphor, its intended meaning and its misuse by Paul Samuelson in his exceptionally successful Econ 101 textbook,  Economics, (1948, and another 14 editions to 2010, plus numerous translations, altogether upwards of 5 million copies sold, plus a lively second-hand used-book market). 
The wide circulation of Samuelson’s textbook, and his later prestige as a Nobel Prize-winner, created the modern myths of Adam Smith’s meaning in his use of ‘an invisible hand’ as a metaphor, that now dominates the disciplne and also dominates modern public media at all levels across all countries in the world.
Almost single-handedly, Paul Samuelson’s version of Adam Smith’s use of the ‘invisible hand’ metaphor dominates the economics discipline, both in academe and in popular media and discourse, since Samuelson published his textbook in 1948. In it he wrote:
“Even Adam Smith, the canny Scot whose monumental book, The “Wealth of Nations” (1766) represents the beginning of modern economics or political economy—even he was so thrilled by the recognition of an order in the economic system that he proclaimed the mystical principle of the “invisible hand” that each individual in pursuing only his own selfish good was led, as if by an invisible hand, to achieve the best good of all, so that any interference with free competition by government was almost certain to be injurious. This unguarded conclusion has done almost as much harm as good in the past century and a half, especially since too often it is all that some of our leading citizens remember, 30 years later, of their course course in economics. Actually much of the praise of perfect competition is beside the mark. As has been discussed earlier is a mixed system of government and private enterprise, as will be discussed later, it is also a mixed system of monopoly and competition. It is neither black or white, but gray and polka-dotted.
Samuelson, P. A. 1948, p. 36. Economics: An introductory Analysis. McGraw-Hill Book Company, Inc. New York.
Interestingly, Paul Samuelson in the same paragraph diss-associated himself from his own bold assertion but readers of his textbook have ignored the implications of him doing so:
This unguarded conclusion has done almost as much harm as good in the past century and a half, especially since too often it is all that some of our leading citizens remember, 30 years later, of their course in economics.” (Samuelson, 1948, p 36) 
Most economists ignore Samuelson’s partial disavowal and continue to repeat the original headline assertion about Adam Smith’s alleged proclamation of the:
mystical principle of the “invisible hand” that each individual in pursuing his own selfish good was led, as if by an invisible hand, to achieve the best good of all, so that any interference with free competition by government was almost certain to be injurious”. 
(Note the simile, 'as if' which corrupts Smith's actual metaphor).
Adam Smith is believed by Samuelson’s readers - that is about 5 million purchasers of his book, plus the large used-book market across its 19 editions - to have used the invisible hand metaphor to show a connection between the ‘invisible hand’ and market activity. (See Kennedy, G. 2010, ‘Paul Samuelson and the Invention of the Modern Economics of the Invisible Hand’. History of Economic Ideas, xviii/2010/3)
These believers included the top echolons of the economics profession across all of its schools and campuses, including Nobel Prize winners, holders of the most prestigious professorial Chairs, members of the editorial boards of the leading professional Journals, presenters at scholarly conferences, and graders of exam papers who were/are agreed on one thing, whatever their other academic differences, that Adam Smith’s alleged ‘invisible hand’ teaching was a significant historical contribution that is beyond challenge. In short, the false claims of Samuelson, and all those colleagues who accepted his assertions, dominates our scholarly work in economic theory and history. They are also in error.
However, all is not lost. In a paper by Michael Emmett Brady, California State University, published in the Social Science Research Network (SSRN) he takes giant steps to demolishing Samuelson’s myth. Michael Emmett Brady writes the most significant contribution to the invsisible-hand debate since 1948:
Who Taught Paul Samuelson the Myth of the “Invisible Hand” at the University of Chicago? The most likely answer is Jacob Viner or fellow student George Stigler” . 
Its author takes the invisible-hand debate onto another level. Brady’s paper is available free via:
I highly recommend that readers visit the SSRN web site and read Michael Brady’s paper.
There is no substitute for reading Michael Emmett Brady’s relatively short paper. It would be invidious for me to attempt to summarise that which is down-loadable in full from SSRN. I shall quote from Brady’s thoughtful contribution below, but I urge readers to follow his whole argument from its SSRN original:
“Consider Viner’s first quotation: 
”It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages ...” 
The confusion caused by this quotation usually stems from the failure of a reader of the WN, such as Viner, to understand that the self interest of the WN is the Prudence of The Theory of Moral Sentiments (TTMS,1759), which Adam Smith regarded as his most important contribution because the WN is built, contrary to assertions to the contrary by Viner, on the bedrock of TTOUtility. 
Smith would think it obvious to anyone that it is quite impossible for anyone, who has not applied the virtue of prudence first, to be able to exercise beneficence or benevolence because you can’t give to others what you do not have yourself. First, you must take care of yourself. This is also called self love by Smith because it will be futile to attempt to care for others if you can’t take care of yourself first. 
Viner’s entire article is continually marred by a steady series of errors made about TTMS (See Brady.2017.Viner’s Erroneous Understanding of The Theory of Moral Sentiments,forthcoming ,SSRN). 
Prudence is the virtue of accumulating wealth, also called a nest egg or surplus, over time by hard work, nose-to–the- grindstone, stick-to-activity, planning, parsimony, frugality, and efficient use of one’s resources, so as to maximise the return to one’s labours or business. “the butcher, the brewer, or the baker…” have families, wives, children, brothers, sisters, parents and relatives to raise, feed, clothe, house, educate, and help out occasionally. Profit maximising behaviour in one’s business is the virtue of prudence. It has nothing to do with the Utility maximising interpretation of self interest made by Jeremy Bentham. Therefore, if the “…the butcher, the brewer, or the baker,…” are not very successful, but are just making ends meet, it will be quite impossible for them to exercise benevolence. Thus, the successful application of the virtue of prudence is a necessary condition, but not a sufficient one, for the application of the virtue of benevolence (Charity to others).
Readers are strongly advised to read the entire short paper by Michael Emmet Brady HERE
I would add a further comment that vindicates our criticism of the modern misreading of Adam Smith reference to “an invisible hand” by Paul Samuelson, and all those who followed his lead uncritically. Consider this sentence from Samuelson 1948, p 36:
This unguarded conclusion has done almost as much harm as good in the past century and a half, especially since too often it is all that some of our leading citizens remember, 30 years later, of their course in economics.” (Samuelson, 1948, p 36).
This persuasive statement by Samuelson is quite “unguarded”, as well as revealing his limited appreciation of Smith’s use of the metaphor and ts influence on readers when first published and for many decades afterwards. Samuelson’s dating the influence of Smith’s use of “an invisible hand” in Book 4 of Wealth of Nations from 1776, was grossly misleading after WN was first published: “the past century and a half” from 1776 takes anonymous readers 150 years to 1926, add the past “30 years” this takes readers to 1956. 
However, it is a fact that next to nobody noticed Smith’s reference to ”an invisible hand” while Smith was alive, nor even for long after he died in 1790. His contemporaries ignored his use of the invisible-hand metaphor, as did the overwhelming bulk of 19th-century leading economic authorities until the1870s. The ‘invisible hand’ was ignored and taken as largely theological before and during Smith’s life time, not secularly as Smith used it. Whatever else was the effect of Smith’s secular use of the ‘invisible’ hand, Samuelson’s statements were factually wrong, though Samuelson’s  readers apparently were and remain none the wiser.
This fact leaves Michael Emmett Brady's readers well informed ahead of the spreading realisation that Adam Smith's casual use of the "invisible hand" did not proclaim a new or significant theory as presented by modern (post-1948) readers. In fact, Smith's "invisible hand" reference was fairly innocent: a merchant investing his capital in a domestic market simply adds to domestic aggregate investment without any needed pre-intention to do so. Surely, an obvious consequence of the merchant's actions, and by the non-reaction of Smith's contemporaries and later luminaries among major political economists, who studied and taught from, Adam Smith's Wealth of Nations until the end of the 19th century and beyond who ignored the supposed significance of the invisible hand. It took Samuelson's genius to give the invisible hand the (albeit, probably unintended) false significance it came to have from the 1960s, and continuing in 2017-18.
Michael Emmett Brady has done modern economics (and Adam Smith's political economy) a great service in his SSRN paper. 

Thursday, December 21, 2017


“Five books for the investor or economist on your last-minute shopping list”

Economics for the Common Good by Jean Tirole
Translated by Steven Rendall (Princeton University Press, 2017), 576 pages, $37.95.

Jean Tirole, winner of the 2014 Nobel Prize in Economics, brings the dismal science back to the ethical questions and roots that led Adam Smith to transition from his first work, The Theory of Moral Sentiments, to his better known Wealth of Nations. The former attempted to deal with being self-centered; the latter created the “invisible hand” to explain how pursuit of self-interest can provide for common good.
I hope that JEAN TIROLE, a Nobel Laurate, will spend a little time reading Adam Smith before he repeats his awsome error in claiming that Adam Smith “created” the invisible hand to “explain how the pursuit of self-interest can provide for the common good”.
His assertion is so wrong on several levels that if Jean Tirole made similar errors in his mathematics he would embarras himself among his peers.

The fact that Andrew Allentuck did not pick up this awasome error is also not surprising. It reflects the state of modern economics and its lack of knowledge about both Adam Smith and the history of economics.

Wednesday, December 20, 2017


Good News for my article on the “invisible hand”:
Adam Smith and the Invisible Hand: From Metaphor to Myth” (2009) published in Econ journal watch 6(2):pp 239-263.
Up to December 20, 2017, it has been downloaded 500 times by readers HERE

A relatively minor event in the wider order of things but for me a significant target in my much smaller academic world.
I have noticed an increase in references to my arguments plus a growing number of other references critical of the prevailing consensus against the post-Samuelson myths of Adam Smith’s use of the now ‘infamous’ metaphor that distorts Smith’s literary intentions.
My new text, “An Authentic Account of Adam Smith” Palgrave-Macmillam, 2018, restores Adam Smith’s original arguments to clarify his clear intentions in 1776 (WN Book 4, Chapter IV, p 456).
If you have not read it yet, follow the link and /or acquire my new book.

Monday, December 18, 2017



Sunday, December 17, 2017


This morning, I read an arrticle on the considered thoughts of Ryan Patrick Hanley, the Mellon Distinguished Professor of Political Science at Marquette University, Wisconsin, USA. Over recent years I have met with, listened, read and discussed Ryan’s considered views on Adam Smith (and his considerations are always worth thinking about). In short, he is certainly worth his full professorial title.
I recommend that Lost Legacy readers follow the link and read the full piece from which I have extracted my comments. 
Incidently, congratulations to Strategy + Business for commissioning and publishing the interview.
Smith articulated what we now call free market theory: the ways in which an unfettered economy, like an “invisible hand,” as he famously put it, organizes the activities of self-interested individuals to foster the common good.”
That may be a version of “free market theory” since Paul Samuelson famously misunderstood in 1948 what Smith wrote in 1776, but it is rather idolised mistakenly by most modern economists.
Market economies, ‘fettered’ or ‘unfettered’ have unavoidable consequences that may ‘foster the common good’, or they may in fact and instead, foster the common bad, or some mixture in between. 
Smith’s metaphor is not necessarily describing metaphorically all the possible outcomes of all merchants’ actions from investing their capital in market activities. It may promote the ‘common good’ or it may not do so. 
The metaphor describes in an “interestng manner’ (Smith on Rhetoric) a necessary outcome of the merchant’s actions. Specifically that his expenditures necessarily add to domestic aggregate demand. Why? Because one person’s expenditure cannot have any other consquence, given that one actor’s expenditure is another’s income, which in turn, when spent by the initial receiver of the actor’s spending contributes to a society’s aggregate demand. 
Yes, that was Adam Smith’s simple point about the ‘invisible hand’ metaphor,which is so obvious - I have described it as ‘blindingly obvious’ - that literally nobody among Smith’s contemporaries, including his closest and intimate colleagues, and almost all of those 19th century political economists who wrote about his Wealth of Nations (Ricardo, etc), mentioned the invisible hand  even when quoting from the very paragraph containing the ‘invisible hand’! 
Certainly, none of them drew the assertion manufactured by Paul Samuelson in 1948 — without whom there would never have been the modern myth of an ‘invisible hand’ theory attributed to Adam Smith!
Nobody, nor any mysterious ‘force’ “organizes the activities of self-interested individuals “to foster the common good” in markets. There is at least two players in markets where buyers beget sellers, and sellers go onto beget sellers, and so on ad infinitum …
One person’s expenditure becomes other people’s consumption. This can foster the ‘common good’ but it can also instead foster the ‘common bad’, for example, by using ‘dirty’ manufacturing processes or dumping waste irresponsibly.
Whether successive rounds of expenditure are morally sound (Theory of Moral Sentiments) is a matter decided by observation. After all, in Smith’s example the very merchant involved directs his expenditure to the domestic market precisely because he did not trust the honesty of foreign merchants nor the probity of their legal systems. (WN IV.ii.9. p 456)

I recommend tthat you folllow the link and read the whole reference article because it contains an excellent account of the authoritative good sense of Ryan Patrick Hanley on Adam Smith.

Saturday, December 16, 2017


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

Thursday, December 14, 2017


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

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

Saturday, December 02, 2017


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

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

Friday, December 01, 2017

Secularisation versus Theological Control of Academic Learning

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