Relevant and even prescient commentary on news, politics and the economy.

A Nation of the Non-productive?

By Noni Mausa

A Nation of the Non-productive?

Over on Brad deLong’s blog, I tossed off a comment. Thought it was a throw-away, but is it really?


Now and then for fun, I dip into the Wealth of Nations. Here’s a snippet from the beginning of Chapter III:

““A man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude or menial servants. The labour of the latter, however, has its value, and deserves its reward as well as that of the former. But the labour of the manufacturer fixes and realizes itself in some particular subject or vendible commodity, which lasts for some time at least after that labour is past. It is, as it were, a certain quantity of labour stocked and stored up, to be employed, if necessary, upon some other occasion. That subject, or, what is the same thing, the price of that subject, can afterwards, if necessary, put into motion a quantity of labour equal to that which had originally produced it. The labour of the menial servant, on the contrary, does not fix or realize itself in any particular subject or vendible commodity. His services generally perish in the very instant of their performance, and seldom leave any trace of value behind them, for which an equal quantity of service could afterwards be procured.”

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The Kennedy-Webb Colloquoy on Liberty and Private Property: Want to make it a Seminar?

by Bruce Webb

Scottish Professor Gavin Kennedy is the blog-proprietor of ADAM SMITH’S LOST LEGACY and a new (and continuing?) contributer to Angry Bear, most recently with Spare Us From the Invisible Hand. In an earlier post by Gavin Adam Smith in a Broader Legacy I responded to one of our regular Angry Bear glibertarians and rather than disrupting Prof. Kennedy’s thread further took it to my own post at the Bruce Web Adam Smith and Glibertarianism which in turn led to some back and forth between Prof. Kennedy and me on ASLL and the Bruce Web with two posts from Gavin and two from me including Marx, Smith and the Ages of Man.

The discussion was initially about the development of private property and its relation to both liberty and rising consumption/population levels as that is seen developed in the works of Adam Smith. In the course of the discussion it appears that Prof. Kennedy and I have radically diverging views not only on the underlying nature of pre-historic, ancient and some current economic modes of production but also on how those resolve themselves in the conceptual conflict of ‘liberty’ vs ‘democracy’.

It is all rather a departure from the more numeric analysis typical of Angry Bear, but for those interested in history, economic history in relation to modes of production, the economic and philosophical thought of Adam Smith feel free to jump in at either or both sites. In an upcoming post I am going to add some discussion of ‘democracy’ as it relates to the development of English Land Law, where the latter was marked in large part by its suppression of the former. Hints so far are that Prof. Kennedy and I are coming at this last question from totally different perspectives. Which may reflect fundamental differences between the British historical view of democracy and that expressed in the American Declaration of Independence. We’ll have to see how it goes.

Got ideas to share?

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Adam Smith in a broader context

by guest poster Gavin Kennedy

(Rdan-A reader comments on the Research Agenda post on Adam Smith. The comments could not handle the volume of text, so I took the liberty of putting up the comment and the response. Good work guys):

The reader suggests Mr. Gavin consider the following quote and his explanation:
Adam Smith in the Wealth of Nations

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

(Reader then comments on the above quote he provided…)

Society is made up of individuals. The sum product in terms of goods and services produced by society is the output of the economy. If everyone is producing as much as they can individually, whether it be teacher, truck driver, artist, investment banker, or Michael moore, then collectively the economy is producing at an optimal level. Individuals are motivated by maximizing the things they want such as earning money, getting the satisfaction of teaching children, or making movies with a social concious while making money. Its what motivates us as individuals that is the invisible hand as opposed to some dictator or monarch trying to direct the economy and telling us all what to produce and how we are to be employed. Adam Smith was trying to offer an alternative to the tyranny and brutality of royalty. The liberals in my view want to dive is back to the days when the central authority such as the king called the shots. Us and the progressive right say not thank you…

Mr. Kennnedy responds below the fold: Research Agenda

As always with ideas from the 18th century, they are bit more complicated than they seem at first, and in what they have become to mean in the 21st century, as with the invisible hand metaphor, which after 60 years of truncated quoting and misapplying of it, its original innocence is almost lost in myths.

The partial quotation you make from the paragraph in Wealth Of Nations eliminates the actual context of which Smith wrote (WN IV.ii.9: 456). Indeed, in the truncated form you offered, the immediately previous eight paragraphs are also important (WN IV.ii.1-8: 452-55).

I urge you to read them. Should you do so, you will realise that Smith was not making a general statement about society’s “output of the economy”; he was writing about the effects on national output arising from the risk-avoidance of some, but not all, merchants who prefer to invest domestically rather than abroad because of the greater risks of overseas trade (all explained in paragraph 6, page 454) and also specifically identified in the invisible hand paragraph 9: “he intends only his own security”.

The actual “rule” that Smith, incidentally an accomplished mathematician, speaks of, is the arithmetic rule that “the whole is the sum of its parts”, in this case, the greater the number of merchants investing locally, the greater the national output and the resultant employment and “progress to opulence”.

My contributions on Adam Smith are made as an educator, not as a propagandist for this or that interpretation of Adam Smith’s writings. I cannot comment on the role of “liberals” or “progressives”, as the Atlantic divides the meanings of these words so much that they have come to mean their opposites on both sides!

Thank you for commenting on my contributions.

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Norman Borlaug, Michael Jackson, and the Invisible Hand

by cactus

Norman Borlaug, Michael Jackson, and the Invisible Hand

When Adam Smith described the concept of laissez-faire capitalism, he argued that it was not just efficient but moral. As long as everyone acted in their own self-interest and the government did not interfere, the Invisible Hand would guide market forces toward the best possible outcome for society. Its generally accepted that this doesn’t always work in the presence of externalities; someone (i.e., government) has to be there to ensure that people don’t exercise their right to swing their fist beyond the start of other people’s noses.

But there is another problem which seems to be less highly recognized, namely that the whole concept of the Invisible Hand itself is bull$#^&. As an example, I’m writing this a few minutes after reading about the death of Norman Borlaug. He was a Nobel Laureate who developed disease-resistant and fast growing crops. Depending on who you ask, his work saved the lives of somewhere between a quarter of a billion and a billion people. So far. If we don’t all die in some sort of cataclysm in the next fifteen minutes, that number will only grow.

Now consider another person recently deceased – Michael Jackson. I believe Jackson was finally buried some time last week. Aside from being known the world over, Jackson was very wealthy, despite his clear incompetence with money. He probably made at least one dollar for every life saved by Norman Borlaug, so far. Norman Borlaug, on the other hand, to the best of my knowledge, did not. Furthermore, this discrepancy in income is very, very, very hard to attribute to government interference.

Which means, there are two possible alternatives:

1. Michael Jackson did more positive things for the world than Norman Borlaug.
2. Michael Jackson did less positive things for the world than Norman Borlaug.

There is no third option. None. Now, I think very, very few people, even die-hard Michael Jackson fans, when presented with numbers like “a quarter of a billion lives saved so far” would agree with option 1. Which leaves option 2. And if option 2, then the Invisible Hand is bull$#^&. Which means capitalism doesn’t work or is immoral. That does not imply any other philosophical system would work better, mind you, but trusting the market to do its thing provides perverse results.
by cactus

UPDATE by Ken:

I mentioned this in comments, but I think it’s worth embedding here, too, as context for Norman Borlaug:

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