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Adam Smith and the Invisible Hand: From Metaphor to Myth

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Abstract

Adam Smith and the ‘invisible hand’ are nearly synonymous in modern economic thinking. Adam Smith is strongly associated with the invisible hand, understood as a general rule that people in realising their self-interests unintentionally benefit the public good. The attribution to Smith is challengeable. Adam Smith’s use of the metaphor was much more modest; it was re-invented in the 1930s and 1940s onwards to bolster mathematical treatments of capitalism (Samuelson, Friedman) and to support innovative analysis by associating the metaphor with ‘spontaneous order’ (Hayek). The effect has been to ignore insightful explanations about how markets function as a process in favour of semi-mystical beliefs in imagined outcomes, wrapped in an isolated 18th-century literary metaphor, which does not explain anything.

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... That the invisible hand metaphor was not essential for Smith's writings can be seen in at least two ways. First, Smith only uses the metaphor three times throughout all his writings: once in Wealth of nations, once in Moral sentiments, and once in History of Astronomy [Kennedy, 2009]. If it had been an essential part of his economic theory, it is curious that he uses it so sparsely. ...
... This is also suggested by figures 4.1 and 4.2, where we see that the use of "invisible hand" has gained popularity from the mid-20th century, and that the increase cannot be fully explained by a general increase in publications concerning Adam Smith. Samuels [2008, p.185], Kennedy [2009], andSamuels [2011, ch.8] all argue that the use of the invisible hand metaphor from the 1940s onwards can be linked to the ideological promotion of capitalism and laissez-fair economy as a response to totalitarian regimes. This can, for example, be seen in the writings of Hayek, who -in his famous book The road to serfdom from 1944 -argues that the rise of Nazism in Germany was not due to Germans being "evil" but rather to preceding socialist policies and planning attempts. ...
Thesis
In this thesis I argue that one way scientific descriptions can become self-fulfilling is by promoting social norms among the people they are disseminated to. Identifying this mechanism will enable us to change unwanted social implications caused by it. To make the argument, I rely on the definition of social norms given by Bicchieri [2006] in The Grammar of Society and use the case of microeconomics as it is presented in university textbooks. Thus, the aim of the thesis is to argue that one way microeconomics can be self-fulfilling is by promoting a social norm of self-interest - and often narrow self-interest - via its textbooks and university teaching practices. To do this, I first use the current empirical findings to argue that the dissemination of the rationality assumption as it is presented in microeconomics textbooks can make microeconomics self-fulfilling. Second, I conduct a historical analysis to show that the claims that greed and self-interest are beneficial have been a part of modern economics from its beginning and still is today. I then discuss why the rationality assumption is a part of contemporary microeconomics and analyse how it is presented in standard textbook models today. Here, we see that even though some of the models can account for other-regarding preferences, the textbooks do not mention this fact. Instead, they present the rationality assumption as focusing on self-interested preferences only, and justify it as being both descriptively plausible and normatively desirable. Finally, I use the above analyses to argue that microeconomics textbooks and teaching practices can change people’s behaviour by making them follow a social norm of self-interest in economic situations. I end the thesis by presenting the results of an empirical study designed to test this argument.
... According to scholars who hold this view, the market can operate efficiently with little or no government interference. This view can be found in the laissez-faire approach of economists such as Francois Quesnay and Adam Smith in the late 18th century, all the way to neoclassical economics in the mid-1970s and new classical economics in the 1980s (Kennedy, 2009;Lin, 2011;Pally, 2004). Second, government policies are crucial in stabilising economic growth. ...
... This approach assumes that the price mechanism regulates market supply and demand; hence, a free market without government intervention would be most efficient in terms of resource allocation and production. The market is seen as an 'invisible hand' that regulates supply and demand within an economy (Kennedy, 2009;Lin, 2011). The 20th century witnessed a growth of the welfare state supported by Keynesian theory, which argued that government monetary and fiscal policies play an important role in economic growth (Pally, 2004). ...
Article
A supply-side structural reform (SSR) has been carried out in China since late 2015, with a view to reducing overproduction in selected products such as coal, iron and steel. This paper examines whether the development of international tourism in China could support SSR, using an multi-methods approach that combines an econometric model and a computable general equilibrium model. It finds that the development of tourism can reduce the outputs of overcapacity industries and reallocate surplus labour to tourism-related industries. The calibration of 30 provincial CGE models demonstrates that the impact of tourism on reform in provinces with severer industry overcapacities is much stronger. This study contributes to the literature on the spillover effects of tourism on non-tourism sectors through its combination of econometric and CGE models. Practical implications are also presented.
... In so doing, we must tread carefully. Much misrepresentation of Smiths work has its source in an overemphasis on the metaphor of "an invisible hand" (Kennedy 2009), and Smith himself, in an essay on scientific explanation, writes disparagingly of those who fall for the temptation of letting a nice analogy become the "great hinge" upon which everything in a "system" turns (1982,42). ...
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Can a set of musical metaphors in a treatise on ethics reveal something about the nature and source of moral autonomy? This article argues that it can. It shows how metaphorical usage of words like tone, pitch, and concord in Adam Smith's Theory of Moral Sentiments can be understood as elements of an analogical model for morality. What this model tells us about morality depends on how we conceptualise music. In contrast to earlier interpretations of Smith's metaphors that have seen music as an aesthetic object, this article sees music as a practice. Understood in this way, the analogy allows us to see morality too as a practice––as moral tuning. This in turn reveals a novel answer to the intractable problem of conventionalism: moral autonomy consists in the freedom inherent in the constant need to interpret and reinterpret the strictly formal ideal of perfect propriety. https://onlinelibrary.wiley.com/doi/abs/10.1111/meta.12319
... The function of this type of metaphors is to enable the audience to visualize unknown or complicated phenomenon or concept. Among this type, we find Adam Smith's 'the invisible hand', which explains the implicit mechanism resulting in the phenomenon that free markets lead to efficient outcomes as if by an 'invisible hand' (Kennedy, 2009). Other types of metaphors serve only to clarify and explain unfamiliar concepts. ...
Conference Paper
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Economics is a field of knowledge that has witnessed a major shift after the World War II and the Cold war: new terms, concepts and idioms appear every day. This has influenced English language resulting in a business terminology in accelerating progress. In order to remain updated, researchers in this domain have to read and learn directly in the original language of publication that is to say English; this is the reason why English for business and economics has been introduced in business departments in order to help students reading and writing in English to promote both research and publication. However, teaching English for business at the university faces several problems: the most important one is that language teachers are usually General English teachers and not specialists in the field of business, thus their capacity to understand and meet the needs of business students is less than the capacity of an economist. In the other hand, business teachers at the university generally are not capable to teach English language. This paper aims at discussing the main characteristics of business language both in English and Arabic, especially those resulted from translation from English into Arabic. Additionally, it aims at discussing the challenges of teaching business English at the Algerian universities especially those related to the capacity of the teacher and the needs of students.
... Much misrepresentation of Smith's work has its source in an overemphasis on the metaphor of 'an invisible hand' (G. Kennedy, 2009), and Smith himself, in an essay on scientific explanation, writes disparagingly of those who fall for the temptation of letting a nice analogy become the 'great hinge' upon which everything in a 'system' turns (1982, p. 42). ...
... While Smith sparked the debate, he was not at all specific about the nuanced signals of a hand metaphor and thus overlooked some of the power variations that could assist interactionist understanding of forces at work. Kennedy (2009) believed that Adam Smith used the invisible hand as a casual metaphor failing to take it as far as he should in his theorizing. In this context, we contend that the thumb aligns with the control and coercion of materials, time and people through the resource base of technology, and the little finger links to money and promissory factors, which are the economic powers that Adam Smith was cognizant of in the invisible hand metaphor. ...
Article
Purpose The purpose of this paper is to develop a nuanced interpretative frame that can help global managers with recommendations to avoid misapplied power with group and organizational situations. Design/methodology/approach Embodied metaphor is applied in analysis of the theory-praxis nexus to reconceive the bases, processes and resources associated with group and organizational power. Identified are patterns of relations in organizational bases and circuits of power, as expressed through literal and symbolic aspects of human hands and fingers. The paper does not revolve around gesticulations; instead focusing upon a novel, meta-cultural development of touchlines of the human hand, revealing conceptual relationships with the implementation of influence. Findings A differentiated understanding of the touchline powers of technology, information, self-awareness, relation to others and access to money can respectively improve decisions and actions. Insights are provided in the areas of controlling people to achieve objectives, demeaning others, managing change and resistance for personal gain, negotiating contracts, advancing personal interests and coordinating reward or punishment. Research limitations/implications Choosing one metaphor may contribute to the exclusion of other perspectives, however, the embodied nature of the hand and touchlines tends to cross cultures and may assist further research to address the embedded nature of abuses of organizational power. Originality/value The contribution is in the theory-praxis nexus to assist global managers in addressing the risk of potential misuse of power and influence in organizations and to respond to calls for ancient indigenous epistemological systems to assume a role in contemporary management studies.
Article
The main references of the social sciences and humanities are texts. Texts are the means by which social scientists communicate their ideas and the means through which we, as readers, access those same ideas. Consequently, reading can be regarded as one of the main tools in the social sciences and ultimately the cornerstone of academia. This minisymposium takes the idea of reading and reading practices as its central focus. More specifically, the minisymposium demonstrates a variety of ways in which the reading process is complex, varied, and subject to many influences. In addition to this shared consideration of reading practices, articles in this minisymposium are united in their discussions of Adam Smith. It is through the means of interrogating readings and receptions of Smith that each article brings to the fore a different aspect of the reading process. The four articles contained within the minisymposium were first presented in May 2020 at an Adam Smith workshop funded by Newcastle University's Political Philosophy Cluster, and they each represent a continuation of the contemporary revisionist discussions on Smith—put forward by the likes of Glory Liu, Warren Samuels, and Amartya Sen—that criticize and revise dominant interpretations of Smith's works. The articles offer a diverse range of thoughts on the complex and multifaceted nature of the reading process, on how we might interrogate our own reading practices and those of others, and, ultimately, why doing so is beneficial and worthwhile.
Chapter
Werhane, joined by her co-author David Bevan, argues that Smith was not, as some have thought, a radical individualist allegedly eschewing social relationships as sidelines in our individual development. Referring to texts in The Theory of Moral Sentiments, the authors demonstrate that according to Smith, “we are utterly social by nature and indeed, cannot manage without one another” (Bevan and Werhane 2015, p. 331). Without extensive social interactions each of us would be mute and we would have no sense of ourselves as individuals. Smith contends that as human beings we develop our personalities, our values and ourselves as conscious moral beings only when we have social contacts with others. This “inexorable sociality,” as the authors call it, allows exchanges and self-development out of which emerge our consciences. But the conscience is not merely an inevitable outcome of sociality. It emerges when each of us realizes that we are more than how others see us. We then begin stepping back from our social selves to act as impartial spectators of our own behavior and values as well as those of others.
Chapter
In this chapter, we see that their philosophy affect the economics of David Hume and Adam Smith. Hume’s economics is imbued with his cyclical vision of history and institutional Darwinism. As in all his social philosophy, the final goal of Hume’s economics seems to be to explain how a common world is created from private and subjective elements. On the other hand, Smith tends to withdraw the historical and psychological influences of his treatment of economic policy. This is closely related to the Smithian believe in a common reality and on natural freedom. Hume raised the problem of growth from the skeptical perspective of the survival of society, Smith’s vision is more optimistic. Hume attempts to morally justify “existing” institutions from a certain fear of change; Smith campaigns for freeing the maximum creative capacity of men. We pinpoint two main contrasting theories between Hume and Smith in money issues: the specie-flow mechanism and the bank-notes issuance.
Article
Adam Smith's ethical concerns and recommendations for behavior, based on a rock-solid foundation of Aristotelian Virtue Ethics, leads to a completely different, conflicting type of capitalism then that advocated by Jeremy Bentham's egoistic, act utilitarianism, which forms the foundation for Benthamite Utilitarian ethics. The ethical and economic divide separating Bentham and Smith is so wide that no compromise or synthesis is possible regarding their two systems. Both Bentham and Smith recognized this. Bentham's two 1787 books, Defence of Usury and The Principles of Morals and Legislation, represent a direct, but subtle, attack on Adam Smith. Smith responded to Bentham's attack on The Theory of Moral Sentiments by spending all of his energy over the last three years of his life strengthening and revising his The Theory of Moral Sentiments in order to strengthen Part 6 of that book in order to withstand, counter and repel Bentham's attack. Bentham, always the conniving, devious, cunning, sly, and tricky master of intrigue that resulted from his lifelong commitment and service to the British East India Company, on the surface would always compliment Adam Smith as one who was the "the father of political economy," a "great master," and a "writer of consummate genius." Bentham's attacks on Smith's foundation of virtue ethics, which was based on the impartial spectator and the role of sympathy, take place in chapter 2 on pp.8-25 of The Principles of Morals and Legislation. Bentham cleverly misrepresents Smith's emphasis on sympathy by criticizing all systems based on sentiments relating to sympathy and antipathy. Smith's system has nothing to do with antipathy. At the end of chapter 2 in The Principles of Morals and Legislation, Bentham makes it clear that no other concept except utility, can ever serve as the foundation for ethics. Bentham's attack on the Wealth of Nations takes place in his Defence of Usury, where Bentham attempts to challenge Smith's demonstration that the major cause of macro instability, bubbles, deflation, and inflation is the economic power of some members of the upper-income class that Smith described as prodigals, projectors, and imprudent risk takers. The prodigals, projectors, and imprudent risk takers, such as John Law, the British East India Company, and Bentham himself, were able to obtain bank loans in order to carry out their speculative plans involving financial manipulation of land or real estate. Smith's analysis of the Ayr bank collapse in 1772 showed how massive loans made by the bank directors to British East India Company connected individuals for land speculation led to a four-year depression in Scotland. Smith thus separated the prudent, "sober", middle class merchants and tradesmen, who produced and consumed physical goods and services, from the upper-class speculators and financial manipulators associated with the British East India Company, by far the most powerful economic force in the world in the 17th and 18th centuries, whose get rich quick schemes were purely speculative and involved financial manipulation. The prodigals, projectors, and imprudent risk takers thus represented an internal, endogenous threat to the macroeconomy. This directly conflicted with Bentham's pendulum model, based on constant oscillations (negative feedback) between "happiness" and "unhappiness" that only allowed for exogenous, external threats to the macroeconomy, as well as creating havoc with Bentham's representation of all consumers as utility (preferences, tastes) maximizing individuals and all producers as profit (capital, labor technology, entrepreneurship) maximizing individuals. Smith, as he did with Sir James Steuart, effectively refutes Bentham's attack on the sentiments-impartial spectator-sympathy approach without mentioning Bentham by name. The real advocate of the Invisible Hand-self adjusting, pendulum model is Bentham and not Smith. G Kennedy has forcefully demonstrated that an Invisible Hand economy can't have any prodigals, projectors, and imprudent risk takers in it or it will break down at the macro level. The existence of such individuals simply means that there is an internal, endogenous impact, which generates positive feedback that moves the economy farther away from any optimal equilibrium over time. All other writers on Adam Smith have mistakenly followed Jevons, Sedgwick, and Viner in foisting a pendulum model on Smith that Smith entirely rejected. Any claim that Smith's system of ethics and economics is based on an Invisible Hand, resulting in a self-correcting, self-adjusting pendulum model, where market prices and wages automatically convert private greed into a social macroeconomic optimum for all participants, has badly confused Smith with Bentham.
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Chapter
The purpose of this chapter is to explain the role of the market in Douglass North’s thought. As Krul shows, while North was not a straightforward free market theorist, he nonetheless idealized a certain view of the market and used it as a benchmark for analyzing all historical societies. While also discussing earlier criticisms of North’s approach, Krul points to the importance of social contract theory and a pessimistic outlook on social cooperation as sources for North’s idealization of markets. An important part of the discussion is the role of Adam Smith, who functions for North as proof of both the virtues of well-ordered markets and of the difficulties of achieving them.
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Adam Smith was very consistent in both the Wealth of Nations and in The Theory of Moral Sentiments concerning the role of self interest in both books. Like all advocates of virtue ethics, the first virtue to be mastered had to be the Virtue of Prudence, which required that the necessary condition of being able to take care of one’s self and family first, one’s self interest, had to be met first before any other virtue could be satisfactorily mastered and applied. Smith assumed that readers of the Wealth of Nations had previously read his The Theory of Moral Sentiments first, so that they understood that the butcher, brewer, and baker all had to succeed financially first before they could consider the interests of others second. Only after a clear and large surplus had been built up by the butcher, brewer, and baker from their small businesses would it be possible to meet the interests of others through benevolence. There is simply no contradiction or inconsistency between Smith’s position, made all through the The Theory of Moral Sentiments, that prudence is the most important virtue and that all other virtues come second or after prudence (self interest). Smith though it obvious that we get our dinner from the prudent behavior (own interest or self love) of the butcher, brewer, and baker and not from the virtue of Benevolence because Benevolence can only be practiced if the butcher, brewer, and baker has been successful in his business in amassing a surplus. The butcher, brewer, and baker can’t practice Benevolence if they are suffering losses or merely breaking even. It is the Utilitarian economists of the 18th, 19th, 20th, and 21st centuries who created the myth that Smith had been inconsistent and/or had made contradictions in the two books, because these utilitarian economists rejected Virtue ethics and sought to place Bentham’s conflicting definition of self(ish) interests in place of Smith’s self interests in the Wealth of Nations. This was accomplished by the deliberate misinterpretation of the butcher, brewer, and baker quotation to support their claim that Smith had created an Invisible Hand of the Market force, to replace Hobbes’s government force, as the force that was the social institution that regulated the conflicting self(ish) interests of all citizens in the pursuit of the virtue of justice, so as to prevent the war of all against all. Utilitarian economists claimed that Smith’s Invisible Hand of the Market was a natural force, whose results were due to completely voluntary exchange actions, whereas government force was unnatural and involuntary. Smith’s mythical Invisible Hand of the Market became the natural reconciler of all conflicting self(ish) interests. Thus, there was really no need for government at all.
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Augustine’s argument about the failure of wealth to insure one’s happiness is very similar to Adam Smith’s position except that Augustine compares a lower income or middle income class citizen with a rich citizen while Smith compares a lower income class citizen,or poor citizen, with a rich citizen. The conclusions of Augustine and Smith are very similar. Wealth and riches can’t make you happy. This conclusion is directly opposite to the conclusion reached by Jeremy Bentham’s utilitarian ethics that the more material goods you own, the more happy you will be. Augustine's treatment of the issue of happiness was nor surpassed until one considers Smith's WN and Keynes's work in the GT and The End of Laissez Faire.
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Smith’s use of the “Invisible Hand,” as pointed out by Gavin Kennedy, is a metaphor provided for the great percentage of readers of the Wealth of Nations whom Smith realized would not be able to grasp the nature of his argument, which was about the ambiguity-uncertainty aversion of the majority of 18th century English business men. Gavin Kennedy has pointed out that the term, “Invisible Hand,” had nothing to do with Laissez Faire, free markets, free trade, Natural liberty, etc., for Adam Smith. Smith’s argument is an application of his very advanced decision theory that regarded the standard mathematical laws of the probability calculus as a special case that had only limited applicability in the real world. In general, applications of the mathematical laws of the probability calculus required a complete information set that was rarely satisfied. Smith realized that probability, nevertheless, had to be taken into account. Smith advocated an interval valued approach to the use of probability under conditions of uncertainty/ambiguity. Smith made great use of the concept of uncertainty. Uncertainty for Smith dealt with the quality of the information base upon which the probabilities were being calculated. Smith generally defined risk in the Wealth of Nations as an inexact and/or indeterminate estimate not based on the mathematical laws of the probability calculus. Risk could be calculated exactly only in conditions where there was a very high quality of evidence over which there were no conflicts and/or disputes of assessment regarding the relevancy of the data. Smith’s major conclusion in Part IV of the Wealth of Nations is that businessmen are ambiguity and/or uncertainty averse. The quality of the information, data, or knowledge upon which the probabilities, which would be interval estimates, is a second factor that is completely independent of the probability estimates themselves. Only in a limiting case, where the evidence is great, stable, and invariant over time, as in the case of deciding to become a shoemaker, would the probability estimates be point estimates. Smith completely rejects the ethics and decision theory of Jeremy Bentham, as well as all approaches built on it, such as the Subjectivist (SEU-Subjective Expected Utility) approaches of Frank Ramsey, Bruno de Finetti, L J Savage , Milton Friedman .and modern Bayesians, such as Patrick Suppes.
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There can’t be too much self-interest or self love, Prudence, for Adam Smith (or Aristotle, Aquinas, Augustine, Buddha, etc.). Without prudent conduct and behavior at the individual level, nothing else is possible. Prudence is the bedrock foundation upon which all other virtues are build. There can be no successful display of courage, temperance, self command, justice, beneficence, benevolence, charity, concern for others or the interests of others, without prudence having been practiced successfully first. Economists, especially, have very great difficulty with Adam Smith’s The Theory of Moral Sentiments and The Wealth of Nations because economists have been raised and trained as Benthamite Utilitarians in their earlier years as undergraduate and graduate students. They thus end up reading Smith only after they have already been exposed to and digested Bentham’s contrary view of self interest, which directly conflicts with Smith’s Virtue ethics approach. Bentham was an acknowledged practitioner and enthusiastic advocate of egoist behavior. There are no other interests except self(ish) interests for the egoist. Bentham sought to destroy Virtue ethics. Utilitarianism as a school of ethics is in direct conflict with Virtue ethics because it claims that only the future monetary consequences of actions matter. Understanding Adam Smith requires rejecting Utilitarianism completely. Maximizing one’s Utility, where money is used as a proxy by Bentham for one’s utility, means exactly what it states-accumulating the most amount of money for oneself and no one else. Smith never incorporated any form of utilitarianism into his ethical approach. Economists generally fail to grasp that, while only consequences matter for utilitarians, Virtue ethicists include consequences as one aspect of many that must be analyzed and considered.
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Adam Smith introduced the dangers of the projectors initially on pages 114-115 of the Wealth of Nations. He introduced the dangers created by the Imprudent risk takers and Prodigals on pages 279-340 of the Wealth of Nations while expanding his assessment of the dangers of projectors. Smith discussed the very real dangers that these upper income class citizens created by their economic behavior to the rest of society. Smith was very explicit. He asserted that every prodigal was an enemy of the state. Smith was no less scathing in his discussions of the roles of Imprudent risk takers and Projectors in creating negative, detrimental outcomes for the economy as a whole. Smith realized that it was the Projectors, Imprudent risk takers and Prodigals who were the primary cause of inflation, followed by deflation and depression or recession, as their speculative undertaking collapsed in the long run. The main threat to capitalism is not external, exogenous shocks, but internal, endogenous shocks caused primarily by upper income class Projectors, Imprudent risk takers and Prodigals, who are able to obtain bank loans, finance or lines of credit to leverage their debt positions many times over. The implications of Smith’s extensive discussions are that there is no such entity as an Invisible Hand of the Market that transforms the private, greedy and self centered activities of the Projectors, Imprudent risk takers and Prodigals at the microscopic level into social benefits for all at the macro level. G. Kennedy was the first to explicitly point out the contradiction involved in asserting that Adam Smith had some concept of an Invisible Hand that was operating in an economy that was subject to internal, endogenous shocks from inside the economy. Smith’s policy view is that laws need to be passed to prevent these categories of citizens from imposing their periodic destruction behavior on the rest of society. The idea that Smith believed that there was an Invisible Hand that would correct this problem, as G. Kennedy has pointed out, is a myth. Unfortunately, this myth is what modern economics is based on. If there is no Invisible Hand of the market to deal with the problem of Projectors, Imprudent risk takers and Prodigals, then only extremely heavy government regulation can safe guard the public and sober people from the behavior of the Projectors, Imprudent risk takers and Prodigals. The entire free market is put into jeopardy by the behavior of the Projectors, Imprudent risk takers and Prodigals operating under the mask of freedom ,natural liberty and choice. Smith made it very clear that all prodigals were the enemies of the people who reduce annual GDP by their profligate, wasteful spending on Smith's worthless trifles, ornaments, toys and trinkets.
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The tremendous attraction and allure of Bentham’s original rational, utility maximizing, calculator model, which Bentham wrote out in plain English so as to capture as large an audience as possible, to economists has been greatly underestimated by the opponents of the ‘Homo Economicus’ model, which was the creation of Jeremy Bentham in 1787, the same year that he launched his attacks on both Adam Smith’s The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776). Benthamite Utilitarian ethics allows a practitioner to appear to be a hard scientist because he/she will be using a lot of equations and numbers, what can be called mathematical benefit – cost analysis, in his/her argument, as opposed to the user of duty ethics or virtue ethics, who will not be using any such mathematical approach. Bentham‘s shrewd, in depth understanding and grasp of the desire for approbation, recognition, and applause on the part of economists, who wanted to be held in the same regard as physicists, leads directly to the neoclassical economics of Max U, which is simply a mathematical translation of Bentham’s already completely worked out concept of a rational calculator, adding marginal utility and diminishing marginal utility to utility maximization. New neoclassical economists then added the rational expectations-real business cycle-Dynamic stochastic General Equilibrium approach, based on the Normal and Log Normal probability distributions, which extends Bentham’s basic static pendulum-oscillation, external, exogenous shock model to intertemporal analysis. Bentham recognized that Smith’s emphasis on an inexact, interval valued, imprecise approach to probability, due to the fact of uncertain evidence (1776,pp.105-113,228-245,419-423,714), had to be undermined if his utilitarian ethics approach, based on precise and exact utility maximization, was to succeed in replacing Smith’s Virtue ethics approach. Bentham similarly recognized that he had to attack and neutralize Smith’s emphasis on the internal, endogenous threat to the macro economy that came from a certain segment of the upper income class that Smith labelled as prodigals, imprudent risk takers and projectors, in order to replace Smith’s virtue ethics emphasis on the virtues of prudence and temperance, which directly conflicted with Bentham’s emphasis on utility maximization and claim that the love of money was an insatiable desire of all men. The virtues of prudence and temperance require the complete total rejection of any insatiability assumption. J. M Keynes, following Smith’s approach, put forth a nearly identical version of Smith’s original inexact approach to measurement that was based on Boole’s upper – lower probabilities approach. Keynes’s inexact approach to probability in Part II of the A Treatise on Probability, and statistics in part V, which he used in the General Theory as the foundation for his liquidity preference theory of the rate of Interest, which he called approximation in chapter 4 of the General Theory, directly challenged the neoclassical followers of Bentham (Jevons, Marshall, Pareto, Cournot, Walras, Frisch, Tinbergen), who relied on an exact, precise approach to probability and statistics. Killing ‘Homo Economicus’ (Jeremy Bentham) can only be accomplished by adopting the Smith- Keynes inexact approach to measurement in order to challenge the Classical-Neo Classical-New Neo Classical exact approach to measurement. Max U collapses if the probabilities are not precise and exact, so that they sum to one, where the whole is the linear, additive sum of all of the individual parts. Currently, there is no credible, intellectual threat from any heterodox school of economics, for instance,the economics and philosophy departments at Cambridge University ,England, to Bentham, a genius with an IQ estimated to be in the 180-200 range, who could be compared to Lord Sauron of Mordor in the Lord of the Rings Trilogy.
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The degree to which Adam Smith’s view, that the opulence of any nation at the macro level was the result of, and was determined by, large numbers of “sober” people practicing the Virtue of Prudence, which Smith demonstrated in Part VI of the Sixth Edition of The Theory of Moral Sentiments in 1790 was connected to the practice of the other Virtues of Self Command( a combination of Temperance and Courage combined), Justice and Benevolence, was ever understood by any economist was severely questioned by Gavin Kennedy in the 21st century. Kennedy argued, in his books, journal articles, and Blog, titled “Adam Smith’s Lost Legacy”, that practically no living economist understood Smith’s approach. This can be confirmed by analyzing the assessment of Adam Smith made by a highly recognized Orthodox economist, N. Gregory Mankiw, and the assessment made by a highly recognized Heterodox economist, Milan Zafirovski. Both authors agree completely that Smith’s views of the economic process were based on some kind of rational economic man concept, which resulted in Smith’s promulgation of his doctrine of The Invisible Hand of the Market leading to the need for Laissez Faire policies, which, with a few exceptions, would result in private self(ish) interest being turned into a social maximum that benefited all. Kennedy simply pointed out that Smith’s extensive and detailed discussions of the economic damages done by Upper-Income Class Prodigals, Imprudent Risk Takers, and Projectors required the government to impose preventive measures, laws, sanctions, and penalties against this category of powerful private citizens in order to prevent severe detrimental impacts such as depressions and inflations from hurting the sober people. Needless to say, there are no discussions about such a group of people in either Mankiw’s account or Zafirovski’s account. The conclusion reached is the same as the conclusion reached by G. Kennedy-there is no current economist who understands what it was that Adam Smith was stating led to the wealth and opulence of nations.
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There is no Theory of the “Invisible Hand of the Market” in either of Adam Smith’s two major works, The Theory of Moral Sentiments (1759) or The Wealth of Nations (1776). Smith uses the terms on one page each of The Theory of Moral Sentiments and The Wealth of Nations as a literary devise only, as pointed out repeatedly by Gavin Kennedy over a twenty year period. None of the two references refers to market prices and wages moving up and down to clear markets. The Invisible Hand appears one time in The Theory of Moral Sentiments as a metaphorical device used to explain why the rich nobles must supply their mass of servants with the necessities of life because, if they did not do so, then they would not have any servants to serve them on a daily basis in a wide variety of tasks. This has been pointed out numerous times by Gavin Kennedy. The Invisible Hand appears one time in The Wealth of Nations, again as a purely metaphorical devise to explain why merchants choose the domestic or home trade as opposed to the international or foreign trade, given equal or nearly equal returns, where, according to Benthamite utilitarian criteria, they should be indifferent between the domestic and international trade. The answer, given by Smith, was that the merchants choose the home trade over the foreign trade because they have a greater knowledge of, and expertise and experience in, the home trade relative to the international trade. They have greater confidence in their decisions in the home markets because they have greater knowledge of the home trade and far less knowledge in the foreign trade. This argument is an early version of J M Keynes’s weight of the argument analysis in his A Treatise on Probability (1921) in chapters 6 and 26. Thus, merchants benefit the home country through their desire to avoid the risk, ambiguities and uncertainties of the foreign trade, although that was never their intention, which was strictly a private concern. Thus, the home country gains greater GDP, as if by an Invisible Hand, by decisions made by private merchants who never planned to benefit the home country by their decisions. Again, as pointed out by Gavin Kennedy, there is no Invisible Hand of the Market operating here to equilibrate returns at the margin, since Smith had already made it clear that the returns were equal or nearly equal in both the domestic and foreign sectors. Other quotations taken from the Wealth of Nation/Theory of Moral Sentiments to support the Invisible Hand of the Market claim fail to recognize that Smith’s rationale for maximizing behavior by the “sober” people is Smith’s Virtue Ethics approach, based on the Virtue of Prudence and not Jeremy Bentham’s Utilitarian view of the maximization of utility. In other words, just as a runner in The Theory of Moral Sentiments is planning on winning the racing competition contest and the first prize, so the sober people are planning to win the economic competition. So who is the creator of the Invisible Hand of the Market concept? The creator of the Invisible Hand of the Market concept is none other than Adam Smith’s great intellectual rival, Jeremy Bentham, whose utilitarian views Smith, as a virtue ethicist, had to completely and totally reject. Bentham’s oscillating pendulum model represents the first application of a physics/engineering physics concept in economics, where the pendulum at rest is identified with an optimal position somewhere on the boundaries of the static and dynamic production possibilities frontiers. Only exogenous, external, outside shocks can create temporary disequilibriums which will gradually be self correcting through the market mechanism, which serves to naturally absorb the shocks like a cars shock absorbers through changing prices and wages. Bentham asserts, in contradiction to Smith, that the economic system is internally harmonious, since there are none of Smith’s projectors, imprudent risk takers, or prodigals creating internal, endogenous shocks like speculative financial bubbles created with the aid of the private bankers.
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Análisis de la relación entre los preceptos del Antiguo Testamento y el concepto de mano invisible. Se presentará la hipótesis de que el concepto de mano invisible está implícito en la Tora (Pentateuco). El trabajo concluye que el razonamiento de la teoría económica que sostiene que las decisiones que toman los hombres en pos de su propio interés, tienen consecuencias benéficas para la sociedad si se cuenta con un marco institucional adecuado, y que el resultado se alcanza a pesar de que es ignorado por el hombre, fue expresado en la Tora 3000 años antes que los iluministas escoceses (Smith, Hume y Ferguson) con el naasé ve nishmá (haremos y oiremos, Éxodo 24:7) y el conjunto de normas que conforman el libro del Pacto. Y que el concepto de mano invisible ayuda a comprender la recompensa prometida al pueblo si se cumplen las mitzvot (preceptos bíblicos).
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Jeremy Bentham’s Utilitarian tracts The Principles of Morals and Legislation and In Defense of Usury contains an explicit attack on Adam Smith’s The Theory of Moral Sentiments and The Wealth of Nations on pages 8-23 in chapter Two of The Principles of Morals and Legislation, as well as on pages 167-168 and 187-188.Bentham argues repeatedly on these pages that all systems of moral philosophy based on sympathy and antipathy are flawed. Bentham’s conclusion is that ethics can only be based on the principle of utility alone and nothing else. Smith’s The Theory of Moral Sentiments is based on sympathy ,but not antipathy. However, the major foundation for The Theory of Moral Sentiments is the virtue of prudence, since ,without prudence, sympathy can’t be backed up with actions and none of the later virtues can be successfully implemented. Bentham’s Utilitarian maximizing utility concept has nothing whatsoever to do with the virtue of prudence and is intended to replace virtue ethics completely .If Utility maximization were related to,or a form of, prudence alone, then it would have been subject to Smith’s withering attacks in The Theory of Moral Sentiments on all ancient philosophies that were based on Prudence alone, such as those expressed by the Stoics, Cynics, and Skeptics. That would mean that Bentham’s Utilitarianism was merely a variation on a theme that argued Prudence alone was the only virtue and mean that there was nothing original or innovative in Bentham’s utilitarian ethics. Smith realized that Bentham’s position had nothing to do with prudence at all and was a system of thought that sought to ink psychological egoism explicitly to the possession of money alone as the only criterion for ethical consideration and action. Bentham’s major innovation,then, was to claim that money alone was the best measure of ,or proxy for,the successful maximization of utility since all men loved money for money’s sake alone all the time. This entails that all actions always lead to results that lead to an increase in one’s monetary, pecuniary or financial position or situation in life. Happiness and success in life are then functions of the capability of a decision maker to accumulate more money over time. . Smith successfully decimated Bentham’s attack on virtue ethics and repelled his attempt to undermine the virtue of prudence in the Sixth edition of The Theory of Moral Sentiments .Unfortunately, Smith’s metaphorical and incidental use of the term, Invisible Hand , one time in both books allowed Benthamite Utilitarian economists to seek to transform the self interest (shrewdness, frugality, parsimony, saving) of the virtue of prudence, expressed in the The Theory of Moral Sentiments by the example of an athlete using maximum and sustained effort( practice, training ,preparation, intensity, concentration, etc.) to win a racing competition and in The Wealth of Nations by the brewer,baker ,and butcher using maximum ,sustained effort to win an economic competition,as being a rejection of the virtues of benevolence and magnanimity .Nothing could be further from the truth, as winning both the racing and economic competition first, by winning the prize or making an economic profit or gain, is a necessary condition that must take place before one can engage in the virtues of benevolence and magnanimity second. Just as there is a division of labor and specialization of function in the economic realm,the application of the different virtues also is divided up and specialized in actual application. Adam Smith’s example of running a race emphasized the fact that, when preparing and training and running the race, the only virtue that could be applied was the virtue of prudence. It is simply impossible to train for and run a race to win if the racer is considering the interests of the other competitors in the race besides his own. In fact ,it is an oxymoron to argue that the racer needs to be simultaneously concerned about how he finishes the race and how others may finish the race .It is only after he has finished the race and won(lost) that the virtues of temperance, justice(fairness),benevolence and magnanimity can come into play. So it is also in the economic competition in the market place. It is the virtue of prudence that is especially applicable in the economic competition in the same manner that it was applicable in the racing competition .However, after the competition in the market place has been won(lost),the other virtues are to be deployed . It is a very severe error is to assume that Smith’s prudence is Jeremy Bentham’s maximizing utility. They are not the same and there is no connection between the two .Economists err because they have confused and conflated Smith’s virtue ethics conception of self interest with Jeremy Bentham’s conflicting utilitarian conception of self interest.
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The common view among economists is that Adam Smith’s technical and economic analysis in the Wealth of Nations (1776) was not original and/or had been borrowed, much without proper credit or citation being made to the original authors. Smith’s contribution was taking the works of others and integrating it into a systematic whole. This claim is demonstrated to be false. Much of Adam Smith’s work in the Wealth of Nations was highly original and creative. Smith’s work on decision theory, interval valued probability, the uncertainty versus risk divide, and his understanding of who the primary contributors were to the problems of deflation and inflation in the macro economy placed him at least 150 years ahead of any of his contemporaries. It was left to John Maynard Keynes and Joseph Schumpeter to equal and surpass Adam Smith’s contributions to economic theory and decision theory.
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It is simply impossible for benevolence to precede prudence because it is prudence that allows one to create a surplus that can be used later for benevolence. One can’t give what one does not have. Sympathy without the application of prudence first is simply a completely ineffective sentiment. Only prudence allows one to follow up sympathy with actions. One can imagine a poor Good Samaritan with no horse, no wine, no oil, and no bag of silver coins having sympathy for the badly beaten and robbed traveler on the very dangerous road to Jericho, but, because of his imprudent behavior in the past, not being able to act benevolently. The Good Samaritan would then go down in history as the Sympathetic Samaritan, who could take no actions of any importance to mitigate the sufferings of the beaten man. Economists have horribly misconstrued Smith’s story of the baker, brewer and butcher. The baker, brewer and butcher can’t possibly act benevolently in the future unless they can earn an economic profit in the present. It is absurd to expect the baker, brewer and butcher to practice benevolence if they are suffering losses or just breaking even. They have no surplus or bag of silver coins to give away to others. The baker, brewer and butcher must first practice prudence (self love) before they can help others. They must win the economic race first before they can even consider doing anything for others. Apparently, economists have badly confused altruism with benevolence. Altruism is not benevolence and it is not a virtue. The expectation that the baker, brewer and butcher should give away their products for free or at a greatly reduced cost to others is not benevolence. It is altruism. Altruism, except in highly unique and rare circumstances, is universally condemned by all spiritual leaders and guides precisely because it violates, for example, Christ’s second law that one must love your neighbor as you love yourself, which is prudence. Smith’s first book,The Theory of Moral Sentiments ,is his general theory of how humans should act. This general theory is based on the application of Five virtues. Prudence is ALWAYS the first virtue. Then temperance and courage, self command (self control) are practiced so that one is satisfied when his needs,not his wants, are met. Shrewdness, Frugality, Parsimony and Saving allow one to create a surplus by controlling one’s wants. The next virtue is the recognition of the importance of justice, followed finally, in last place, by benevolence. Smith’s second book, The Wealth of Nations, deals only with the economic race for an economic profit and the macroeconomic value of the sober (prudent) citizens, as opposed to the malevolent and detrimental behavior of the prodigals, imprudent risk takers, projectors, and British East India Company. ALL prudent citizens do their utmost to win this race in exactly the same manner that the runner in The Theory of Moral Sentiments does his very best to win the race in which he is taking part against others. There is no role for benevolence when one is preparing for, training, practicing, and then running the foot race. Similarly, there is no role for benevolence in an economic race. The Wealth of Nations deals with the economic race. Of course, AFTER both races have been won, one can practice self command, justice, and benevolence, but NOT BEFORE.
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The following assessment of Adam Smith's approach to economics is completely erroneous, but would be a very exact and accurate description of Jeremy Bentham’s utilitarian approach to economics: "How do you get your dinner?" That is the basic question of economics. When economist and philosopher Adam Smith proclaimed that all our actions were motivated by self-interest, he used the example of the baker and the butcher as he laid the foundations for "economic man." He argued that the baker and butcher didn't give bread and meat out of the goodness of their hearts. It's an ironic point of view coming from a bachelor who lived with his mother for most of his life ― a woman who cooked his dinner every night.” (Marcal, K., 2017). The University of Chicago Economics Department approach is based on the philosophy of Jeremy Bentham’s rational utility maximizer, as set out by Bentham in 1787 in his The Principles of Morals and Legislation and in his Defense of Usury. This approach never had anything to do with the Virtue Ethics approach of Adam Smith in either The Theory of Moral Sentiments or The Wealth of Nations. In fact, both books by Bentham are direct, but subtle, attacks on Smith’s The Theory of Moral Sentiments and The Wealth of Nations. Bentham rejected Virtue Ethics completely. Smith rejected utilitarianism completely. Smith emphasized the second of Jesus Christ’s two necessary and sufficient laws for living a happy life-first, Love your God and second, love your neighbor as yourself. A longer summary of this second law would be to love your neighbor as you love yourself. Loving yourself always comes first. Loving yourself, or self love or self interest, is what is involved in the most important virtue of all, Prudence, because, unless you love yourself first, it is quite impossible to love anyone else. Smith argued that the baker, brewer, and butcher supplied their goods based on the virtue of prudence. It is a very severe error to regard altruism, which states that you only should love your neighbor, as a virtue because altruism directly contradicts Christ’s, as well as all other spiritual teachers and messengers position, about the importance of the self. In general, except in extreme, very unique circumstances, altruism is a vice, because it promotes the neglect of self love. A severe confusion about the virtues of benevolence and magnanimity, which can only be practiced after, and never before, the virtue of prudence has been successfully accomplished, and altruism, can be seen in all of Gary Becker’s work at the economics department at the University of Chicago. Becker’s work, as well as that of G. Stigler and M. Friedman, follows directly from Jeremy Bentham’s utilitarian claim that only the maximization of utility (Max U) can serve as the foundation for the study of ethics. Bentham’s Max U philosophy is directly opposed to the virtue of prudence. Bentham argued that the only way of measuring utility is to substitute the amount of money gained in any interaction or action involving others. All transactions and interactions are judged from a purely pecuniary or monetary nature alone ,and all involve the love of money for money’s sake: “But at all times, every man, more or less, loves money…But if a man, by his love of money…For take men throughout if a man loves money to a certain degree to-day it is probable that he will love it, at least in equal degree, tomorrow.” (Bentham, 1787, pp.167-168, ft.2). Thus, Bentham’s one and only rule, that is consistent with his entire life’s commitment to psychological egoism, is to love yourself only or only consider yourself at all times. Adam Smith totally rejected both Bentham’s position and the Chicago school of economics, which is built completely on a foundation of Bentham's Max U. All of the work of Friedman, Stigler, and Becker is merely a series of footnotes to Bentham’s theory and the Max U model of rational economic man, combined with Bentham's oscillating pendulum model, where only exogenous, outside shocks can create disequilibriums, which will naturally dissipate by themselves overtime so that no government actions are ever required at any time to restore equilibrium. Such actions merely delay the self correcting swing of the pendulum toward equilibrium. Over the last two and one half centuries, Benthamite Utilitarian economists have labored unceasingly to combine Smith’s virtue ethics approach to self love and self interest, based on Jesus Christ and all other spiritual teachers and messengers, with Bentham’s directly conflicting concept of self interest and self love based on egoism. This has led to the gross canard that Smith believed in the Invisible Hand of the Market and Laissez Faire economic policies, operationalized through Max U thinking concerning Bentham’s rational economic calculator model, that happiness is only a function of the amount of money accumulated over one’s life. Nothing could be more false. Alone among economists, only Gavin Kennedy (2005, 2008, 2012) recognized that Smith completely rejected the Invisible Hand of the Market and Laissez Faire. The fact that all economists fail to see the close connection between the theoretical structures of the work of Adam Smith and Keynes is unfortunate,since the parallels between their theories and policy proposals are extremely close .Recognition of these close parallels leads directly to the conclusion that Keynes's GT is simply a continuation and development of the WN .
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The Theory of Moral Sentiments (1759; 1790) is the foundation for the Wealth of Nations(1776).Smith recognized, like all other major spiritual and moral teachers, that Prudence is the most important virtue because nothing can be accomplished without it being applied successfully first. The virtue of Prudence applies in all facets of life. However, there were individual philosophers who rejected virtue ethics. One such individual was Jeremy Bentham (another was Karl Marx). Bentham sought to replace Smith’s Virtue Ethics with his Principle of Maximizing Utility. Bentham argued that only his principle of maximizing utility could support the study of ethics. Bentham attacked Smith’s Virtue Ethics approach in 1787 in the same fashion as J.Viner attacked Smith’s Virtue Ethics in 1927. Both Bentham and Viner argued that • Smith’s The Theory of Moral Sentiments (virtue ethics) is very flawed • Smith’s support of interest rate control laws and skewing of bank credit to the sober people and away from the prodigals,imprudent risk takers, and projectors (Bentham was a strong supporter and employee all his life of the major projector company, the British East India Company, which started the American Revolutionary War) was very ill advised • Smith’s analysis of the macroscopic impact that the prodigals, imprudent risk takers ,and projectors have on an economy,endangering the sober people, was incorrect because the prodigals, imprudent risk takers, and projectors were really just innovative entrepreneurs pursuing their own self interest • Smith never actually made a single advance in the field of economics (political economy) in his lifetime as all of the parts of his theory were already available from other, earlier sources, which he failed to acknowledge properly and cite Smith responded to Bentham’s two pronged attack in 1787 by rewriting major parts of the The Theory of Moral Sentiments so that its virtue ethics message would be fine tuned in order to target legislators and government officials, which would counter the utilitarian message of Bentham’s Defense of Usury and The Principles of Morals and Legislation. There was now a clear cut choice between two completely different ethical systems upon which to build capitalism. Smith envisaged a completely different approach to capitalism than Bentham. Like the inhabitants of Augustine’s Earthly City and Heavenly City,there were two opposing groups, the middle class sober people, who practiced virtue ethics, and the upper class projectors, imprudent risk takers, and projectors, who practiced utilitarian ethics. The proper role of government was to use legislation, law and sanction to prevent the upper class projectors, imprudent risk takers, and projectors from damaging the middle class, sober people. The Smith and Bentham views about the correct evolution of capitalism over time are as different as night and day. A major confusion among economists, except G.Kennedy, since Smith’s death in 1790,is to confuse the operation and impacts of the virtue of prudence with the Invisible Hand. It is simply impossible for any Invisible Hand of the market to conceivably operate unless the sober people completely dominate the political, economic, social and institutional levers of power. Smith’s comments about the Invisible Hand in Part IV of the Wealth of Nations are simply a repetition of his comments in The Theory of Moral Sentiments (1759; 1790), about the racer in a running competition always doing his very best to win the race, being applied to those engaged in a comparable economic race doing the best they can to sell their particular products. This brings out a positive response from their competitors, who also run and train harder. This positive interactive feedback effect is referred to metaphorically as an invisible hand, although it is actually the result of all of the sober people simultaneously applying the virtue of prudence. None of this has anything to do with Bentham’s Max U utilitarian approach. Once the gain, profit, or savings has been won, it is now time to apply the Virtue of Self Command (the Virtues of Temperance and Courage) to invest to expand one’s business.The correct choice is not financial manipulation , stock market speculation or conspicuous consumption, but investment in physical durable capital goods, worker training,and inventories of intermediate parts and materials.Business success now allows one to apply the final virtues of justice (fairness, equity), magnanimity and benevolence as worker wages and benefits can be increased.The result is opulence for all.
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Just as there is a division of labor and specialization of function in the economic realm, the application of the different virtues also is divided up and specialized in actual application. Adam Smith’s example of running a race emphasized the fact that, when preparing and training and running the race, the only virtue that could be applied was the virtue of prudence. It is simply impossible to train for and run a race to win if the racer is considering the interests of the other competitors in the race besides his own. In fact, it is an oxymoron to argue that the racer needs to be simultaneously concerned about how he finishes the race and how others may finish the race. It is only after he has finished the race and won(lost) that the virtues of temperance, justice (fairness), benevolence and magnanimity can come into play. So it is also in the economic competition in the market place. It is the virtue of prudence that is especially applicable in the economic competition in the same manner that it was applicable in the racing competition. However, after the competition in the market place has been won (lost), the other virtues are to be deployed. It is a very severe error to assume that Smith’s prudence is Jeremy Bentham’s maximizing utility. They are not the same and there is no connection between the two. Economists err because they have confused and conflated Smith’s virtue ethics conception of self interest with Jeremy Bentham’s conflicting utilitarian conception of self interest. Smith's imprecise approach to probability is in direct conflict with Bentham's precise approach.Once this is understood,it becomes obvious that Smith can't possibly be a utilitarian of any sort or kind.
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Adam Smith used the metaphor of an invisible hand to represent the instincts of human nature that direct behavior. Moderated by self-control and guided by proper institutional incentives, actions grounded in instincts can be shown to generate a beneficial social order even if not intended. Smith's concept, however, has been diluted and distorted over time through extension and misuse. Common misperceptions are that Smith unconditionally endorsed laissez-faire markets, selfish individualism, and Pareto efficiency. The author draws upon recent literature to clarify Smith's meaning and to discuss ways of improving its classroom presentation. The author argues that the invisible hand operates within a variety of institutional settings and that a number of arrangements are compatible with economic progress.
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Adam Smith is revered as the father of modern economics. Analysis of his writings, however, reveals a profoundly medieval outlook. Smith is preoccupied with the need to preserve order in society. His scientific methodology emphasises reconciliation with the world we live in rather than investigation of it. He invokes a version of natural law in which the universe is a harmonious machine administered by a providential deity. Nobody is uncared for and, in real happiness, we are all substantially equal. No action is without its appropriate reward – in this life or the next. The social desirability of individual self-seeking activity is ensured by the “invisible hand,” that is, the hand of a god who has moulded us so to behave, that the quantity of happiness in the world is always maximised.
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‘Look, my lord! See heaven itself declares against your impious intentions’ The Castle of Otranto (1764) is the first supernatural English novel and one of the most influential works of Gothic fiction. It inaugurated a literary genre that will be forever associated with the effects that Walpole pioneered. Professing to be a translation of a mysterious Italian tale from the darkest Middle Ages, the novel tells of Manfred, prince of Otranto, whose fear of an ancient prophecy sets him on a course of destruction. After the grotesque death of his only son, Conrad, on his wedding day, Manfred determines to marry the bride–to–be. The virgin Isabella flees through a castle riddled with secret passages. Chilling coincidences, ghostly visitations, arcane revelations, and violent combat combine in a heady mix that terrified the novel's first readers. In this new edition Nick Groom examines the reasons for its extraordinary impact and the Gothic culture from which it sprang. The Castle of Otranto was a game-changer, and Walpole the writer who paved the way for modern horror exponents.
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The abstract for this document is available on CSA Illumina.To view the Abstract, click the Abstract button above the document title.
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In this accessible book, Gavin Kennedy takes a fresh look at Adam Smith's moral philosophy and its links to his political economy and his lectures on Jurisprudence. The book provides a new analysis of Wealth of Nations, and argues that Adam Smith's intellectual legacy was completely transformed in the Nineteenth and Twentieth centuries by economists pursuing different agendas, to create ideas and policies that Smith did not advocate. It also provides a new explanation for the main mysteries about Smith's later life.
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In this paper, I want to disentangle some of the senses in which the hypothesis of rationality is used in economic theory. In particular, I want to stress that rationality is not a property of the individual alone, although it is usually presented that way. Rather, it gathers not only its force but also its very meaning from the social context in which it is embedded. It is most plausible under very ideal conditions. When these conditions cease to hold, the rationality assumptions become strained and possibly even self-contradictory. They certainly imply an ability at information processing and calculation that is far beyond the feasible and that cannot well be justified as the result of learning and adaptation.
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In this essay I want to disentangle some of the senses in which the hypothesis of rationality is used in economic theory. In particular, I want to stress that rationality is not a property of the individual alone, although it is usually presented that way. Rather, it gathers not only its force but also its very meaning from the social context in which it is embedded. It is most plausible under very ideal conditions. When these conditions cease to hold, the rationality assumptions become strained and possibly even self-contradictory. They certainly imply an ability at information processing and calculation that is far beyond the feasible and that cannot well be justified as the result of learning and adaptation.
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Adam Smith was a philosopher before he ever wrote about economics, yet until now there has never been a philosophical commentary on the Wealth of Nations. Samuel Fleischacker suggests that Smith's vastly influential treatise on economics can be better understood if placed in the light of his epistemology, philosophy of science, and moral theory. He lays out the relevance of these aspects of Smith's thought to specific themes in the Wealth of Nations, arguing, among other things, that Smith regards social science as an extension of common sense rather than as a discipline to be approached mathematically, that he has moral as well as pragmatic reasons for approving of capitalism, and that he has an unusually strong belief in human equality that leads him to anticipate, if not quite endorse, the modern doctrine of distributive justice. Fleischacker also places Smith's views in relation to the work of his contemporaries, especially his teacher Francis Hutcheson and friend David Hume, and draws out consequences of Smith's thought for present-day political and philosophical debates. The Companion is divided into five general sections, which can be read independently of one another. It contains an index that points to commentary on specific passages in Wealth of Nations. Written in an approachable style befitting Smith's own clear yet finely honed rhetoric, it is intended for professional philosophers and political economists as well as those coming to Smith for the first time.
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This account of Hume's philosophy, differs from other books on the subject in two ways. First, Hume's philosophy is set in the context of his whole life's work in the study of "moral subjects" that is areas such as psychology, history, political science and economics. The second approach of this book is that it examines systematically the drastic consequences of accepting not one but three Cartesian presuppositions as "the obvious dictates of reason" which "no man, who reflects, ever doubted". Basically, Hume's starting point in philosophy was the position Descartes reached in Part IV of the "Discourse"; a position quite incomparible with any science, whether moral or natural. The consequences drawn by Hume can, however, be turned round to provide arguments to refute those presuppositions, which are today still widely accepted.
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The same rule which regulates the relative value of commodities in one country does not regulate the relative value of the commodities exchanged between two or more countries. Under a system of perfectly free commerce, each country naturally devotes its capital and labor to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by rewarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labor most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilised world. It is this principle which determines that wine shall be made in France and Portugal, that corn sell be grown in America and Poland, and that hardware and other goods shall be manufactured in England…
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Adam Smith's Wealth of Nations has been among the world books for over two hundred years and has gathered a mythology, which does scant justice to the actual book. One reason for this was that the Wealth of Nations was one of a series of studies through which Smith hoped to complete his system of moral, social and natural philosophy.
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Acknowledgements Introduction 1. Self-interest as a first principle 2. Epicurean vs. stoic schemes 3. Self-interest and reason 4. Passions, interests and society 5. Interested and disinterested commerce 6. Self-interest and the public good Conclusion Bibliography Index.
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ELH 66.3 (1999) 739-758 Few passages have been quoted as often as the following from Adam Smith's The Wealth of Nations (1776), in which he represents the self-regulating capacity of the market as "an invisible hand" inevitably plotting the economic process towards a final state of equilibrium: Although this figure of "an invisible hand" reconciling private and social interest has generated prolific citation and interpretation, it has never been subjected to a literal reading by linking it to the contemporary literary genre of the gothic novel, where it plays a prominent role as well. In the founding text of this literary tradition, Horace Walpole's The Castle of Otranto (1764), the reader also encounters "an invisible hand" causing a disjunction between an action's intention and its result. After the villain Manfred has declared to Isabella his "impious intentions" of "marrying" her, his attempt to assault her sexually is thwarted by an animated portrait that leads him to a chamber, whose door is then violently shut by an invisible hand: In Walpole's text, as in Smith's, the original intentions of actions are superseded by the intervention of an "invisible hand," but Smith represents the economic reconciliation of individual and social interest as the natural, ordinary course of events, whereas the frustration of Manfred's "impious intentions" is effected by supernatural rather than natural agency. This difference may seem to render the proposed linkage between political economy and the gothic novel implausible or negligible -- as if their interrelation were one of mutual rejection rather than exchange. Yet exactly this type of supernatural agency is conjured by Adam Smith's first use of the phrase "invisible hand," which does not, as one might expect, occur in his Theory of Moral Sentiments (1759) but even earlier in an essay on "The History of Astronomy." Smith describes here the origin of polytheism among "savages," locating it in irregular natural events like "comets, eclipses, thunder, [and] lightning . . . which exasperate his [the savage's] sentiment into terror and consternation." This "terror," which is treated by Edmund Burke -- citing the same examples -- as the source of the sublime, induces the "savage" to ascribe these events to "some invisible and designing power":
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This new edition of The Life of Adam Smith remains the only book to give a full account of Smith's life whilst also placing his work into the context of his life and times. Updated to include new scholarship which has recently come to light, this full-scale biography of Adam Smith examines the personality, career, and social and intellectual circumstances of the Scottish moral philosopher regarded as the founder of scientific economics, whose legacy of thought - most notably about the free market and the role of the state - concerns us all. Ian Simpson Ross draws on correspondence, archival documents, the reports of contemporaries, and the record of Smith's publications to fashion a lively account of Adam Smith as a man of letters, moralist, historian, and critic, as well as an economist. Supported with full scholarly apparatus for students and academics, the book also offers 20 halftone illustrations representing Smith and the world in which he lived.
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This study analyses the influence that Adam Smith's philosophy had on his Wealth of Nations, and reveals the unity in Smith's extensive system of morals, politics, and economics. It concludes that Smith was motivated by a political ideal, which was moral liberalism. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/0198292880/toc.html
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This book examines the influence that Adam Smith's philosophy had on his economics, drawing on the neglected parts of Smith's writings to show that the political and economic theories built logically on his morals. It analyses the significance of his stoic beliefs, his notions of art and music, astronomy, philosophy and war, and shows that Smith's invisible hand was part of a 'system' that was meant to replace medieval Christianity with ethic of virtue in this world rather than the next. Smith was motivated primarily by a political ideal, a moral version of liberalism. He rejected the political philosophy of the Greeks and Christians as authoritarian and unworldly, but contrary to what many economists believe, he also rejected the amoral liberalism that was being advocated by his countryman and friend David Hume. Far from being myopic about self-love, Smith arrived at his theories of free trade, economic growth, and alienation via his reinterpretation of Stoic virtue. Of interest to economists, philosophers, political theorists, sociologists and lawyers concerned with jurisprudence, this book is clearly written, and its innovations reveal the hitherto hidden unity in Smith's overarching system of morals, politics and economics.
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The Fortunes and Misfortunes of the Famous Moll Flanders / Daniel Defoe. Note: The University of Adelaide Library eBooks @ Adelaide.
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Why are some parts of the world so rich and others so poor? Why did the Industrial Revolution--and the unprecedented economic growth that came with it--occur in eighteenth-century England, and not at some other time, or in some other place? Why didn't industrialization make the whole world rich--and why did it make large parts of the world even poorer? In A Farewell to Alms , Gregory Clark tackles these profound questions and suggests a new and provocative way in which culture--not exploitation, geography, or resources--explains the wealth, and the poverty, of nations. Countering the prevailing theory that the Industrial Revolution was sparked by the sudden development of stable political, legal, and economic institutions in seventeenth-century Europe, Clark shows that such institutions existed long before industrialization. He argues instead that these institutions gradually led to deep cultural changes by encouraging people to abandon hunter-gatherer instincts-violence, impatience, and economy of effort-and adopt economic habits-hard work, rationality, and education. The problem, Clark says, is that only societies that have long histories of settlement and security seem to develop the cultural characteristics and effective workforces that enable economic growth. For the many societies that have not enjoyed long periods of stability, industrialization has not been a blessing. Clark also dissects the notion, championed by Jared Diamond in Guns, Germs, and Steel , that natural endowments such as geography account for differences in the wealth of nations. A brilliant and sobering challenge to the idea that poor societies can be economically developed through outside intervention, A Farewell to Alms may change the way global economic history is understood.
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The invisible hand is not a power that makes the good of one the good of all, and it is not any of a number of other things it is said to be. It is simply the inducement a merchant has to keep his capital at home, thereby increasing the domestic capital stock and enhancing military power, both of which are in the public interest and neither of which he intended. Smith's exposition discloses how his rhetorical sallies could disfigure his economics, confuse his argument for free trade, and make him play fast and loose with facts and the ideas of others.
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In the field of economics, perhaps the most important break with the past—one that leaves open huge areas for future work—lies in the economics of information. It is now recognized that information is imperfect, obtaining information can be costly, there are important asymmetries of information, and the extent of information asymmetries is affected by actions of firms and individuals. This recognition deeply affects the understanding of wisdom inherited from the past, such as the fundamental welfare theorem and some of the basic characterization of a market economy, and provides explanations of economic and social phenomena that otherwise would be hard to understand.
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William Grampp’s JPE article on Adam Smith is creative and provocative. It errs, however, by disparaging the invisible hand’s importance as a symbol of various economic processes that help societies prosper in ways that individuals neither intend nor comprehend. Four specific problems stand out. First, Grampp unsoundly tries to limit the relevance of the invisible hand within the Wealth of Nations to situations in which a merchant increases domestic capital and strengthens national defense. Second, Grampp presents an oversimplified account of WN’s treatment of international relations. Third he conspicuously misinterprets the trickle-down process of The Theory of Moral Sentiments, where Smith argues that an invisible hand promotes the welfare of the poor despite the greed of the rich. Fourth, by failing to plumb the connection between these two invisible hands—and by dismissing the relevance of a third invisible hand, which Smith elsewhere invokes to illustrate the superstitious outlook that pervades “primitive” societies—Grampp overlooks the complex interrelationships between Smith’s two books. Whereas WN presents the invisible hand in an atheistic context, the TMS version seems to be the hand of God; this religious contrast mirrors TMS’s more optimistic perspective on the poor and its more ambivalent evaluation of “riches and power.” Grampp is wise to stress the inconsistencies, puzzles, and exaggerations that Smith bequeathed to his readers. But some of Grampp’s criticisms are glib, and he deserves blame for trivializing the invisible hand. The three invisible hands, I argue, not only illuminate the rhetorical strategies that helped Smith influence institutions and public policies; they also signal his commitment to promoting curiosity and inquiry.
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Introduction Information economics has already had a profound effect on how we think about economic policy, and is likely to have an even greater influence in the future. Many of the major political debates over the past two decades have centered around one key issue: the efficiency of the market economy, and the appropriate relationship between the market and the government. The argument of Adam Smith suggested, at best, a limited role for government. The set of ideas that I will present here undermined Smith’s theory and the view of government that rested on it. I began the study of economics some forty-one years ago. At the time, it seemed to me that if the central theorems that argued that the economy was Pareto efficient - that, in some sense, we were living in the best of all possible worlds - were true, we should be striving to create a different world. As a graduate student, I set out to try to create models with assumptions - and conclusions - closer to those that accorded with the world I saw, with all of its imperfections. My first visits to the developing world in 1967, and a more extensive stay in Kenya in 1969, made an indelible impression on me. Imperfection of information, the absence of markets, and the pervasiveness and persistence of seeming dysfunctional institutions, like sharecropping, attracted my attention.
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The Invisible Hand, one of the Great Ideas of history and one of the most influential, is Adam Smith's most important legacy to macroeconomics, as to all economics. It is particularly important today as the ultimate inspiration for the New Classical Macroeconomics and for Real Business Cycle Theory. These are intellectual movements that engage many of the best brains in the profession, especially among younger cohorts and especially in the United States. They dominate the agenda even of theorists and econometricians who are skeptical or hostile to their methods and conclusions.