Smith, Adam – Page 2 – artdiamondblog.com

Americans Resented Being Kept as a Captive Market

(p. 300) This suppression of free trade greatly angered the Scottish economist Adam Smith (whose Wealth of Nations, not coincidentally, came out the same year that America declared its independence) but not nearly as much as it did the Americans, who naturally resented the idea of being kept eternally as a captive market. It would be overstating matters to suggest that the exasperations of commerce were the cause of the American revolution, but they were certainly a powerful component.

Source:
Bryson, Bill. At Home: A Short History of Private Life. New York: Doubleday, 2010.

Samuel Johnson Saw Benefits of Free Markets

(p. A19) In “A Journey to the Western Islands of Scotland,” an account of his travels with James Boswell through the Hebrides in 1773, Johnson vividly described the desolation of a feudal land, untouched by commercial exuberance. He was struck by the utter hopelessness in a country where money was largely unknown, and the lack of basic material improvements–the windows, he noticed, did not operate on hinges, but had to be held up by hand, making the houses unbearably stuffy.

He was even more struck by the contrast between places where markets thrived and those where they didn’t. In Old Aberdeen, where “commerce was yet unstudied,” Johnson found nothing but decay, whereas New Aberdeen, which “has all the bustle of prosperous trade,” was beautiful, opulent, and promised to be “very lasting.”
Johnson also understood that what Smith would later call the division of labor was instrumental for human happiness and progress. “The Adventurer 67,” which he wrote in 1753 at the height of a commercial boom (and 23 years before Smith published “The Wealth of Nations”), delights in the sheer number of occupations available in a commercial capital like London.

For the full commentary, see:
ELIZA GRAY. “Samuel Johnson and the Virtue of Capitalism; The great 18th century writer on commerce and human happiness.” The Wall Street Journal (Fri., Sept. 11, 2009): A19.

Do Not Apologize for Your Pursuit of Happiness

(p. A17) There is a whiff of hypocrisy here. Mr. Obama, who made $4.2 million last year and lives in a $1.65 million house bought with the help of the indicted Tony Rezko – and whose “elegant suits” and “impeccable ties” made him one of Esquire’s Best-Dressed Men in the World – disdains college students who might want to “chase after the big house and the nice suits.” Mr. McCain, who with his wife earned more than $6 million last year and who owns at least seven homes, ridicules Mr. Romney for having built businesses.

But hypocrisy is not the biggest issue. The real issue is that Messrs. Obama and McCain are telling us Americans that our normal lives are not good enough, that pursuing our own happiness is “self-indulgence,” that building a business is “chasing after our money culture,” that working to provide a better life for our families is a “narrow concern.”

They’re wrong. Every human life counts. Your life counts. You have a right to live it as you choose, to follow your bliss. You have a right to seek satisfaction in accomplishment. And if you chase after the almighty dollar, you just might find that you are led, as if by an invisible hand, to do things that improve the lives of others.

For the full commentary, see:
DAVID BOAZ. “Our Collectivist Candidates.” The Wall Street Journal (Weds., May 28, 2008): A17.

Keynes Was Relying on the Invisible Hand of the Market in 1946

Source of book image:
http://www.tbpcontrol.co.uk/TWS/CoverImages_0/074/757/0747579857.jpg

(p. B7) As Mr. Kynaston sets his scene, what immediately becomes clear is that the recent past is not so recent. “Britain in 1945. No supermarkets, no motorways, no teabags, no sliced bread, no frozen food. … No launderettes, no automatic washing machines, wash day every Monday, clothes boiled in a tub, scrubbed on the draining board. …Abortion illegal, homosexual relationships illegal, suicide illegal, capital punishment legal. White faces everywhere.” And with all those white faces was the single overwhelming, blanketing fact of deprivation, a bare-bones existence. Britain had just prevailed in a struggle for its very survival, but victory never looked so grim.
. . .
The Labor Party won the 1945 election in a landslide on a promise of national planning. The debate now was how far to take socialism, with the Laborites divided between the hell-bent nationalizers and the more market-oriented Keynesians. In 1946 Keynes himself admitted (though privately) that “I find myself more and more relying for a solution of our problems on the invisible hand” of the market, “which I tried to eject from economic thinking 20 years ago.”
. . .
Almost invisible in Mr. Kynaston’s sparkling panorama is a sign of what was to come. One Conservative politician was out of step not only with Labor’s policies but even with the prevailing views of her own party. Margaret Roberts was just about alone in condemning the welfare state as “pernicious,” destructive of the national character. In 1951, a year after Labor’s second postwar electoral victory, she got married. Her husband’s name was Thatcher.

For the full review, see:

Barry Gewen. “Books of The Times – In Postwar Britain, the Grim Face of Victory.” The New York Times (Thurs., June 12, 2008): B7.
(Note: ellipses within the Kynaston quote are in the original; ellipses between paragraphs are added.)

Income of Rich “Largely Invested in the Tools and Knowledge of Production”

In the passage below, Nobel-Prize-winner Vernon Smith brings our attention to an intriguing passage from Adam Smith’s “The Theory of Moral Sentiments” (1759).
In the development of new products from the process of creative destruction, new products sometimes start out as expensive, and are only purchased by the rich. This allows the new industry to survive until economies of scale, and more efficient production techniques are achieved. Eventually, as efficiencies are achieved, prices decline. An example would be the early years of the development of autmobiles. (One source for this example is Blue Ocean Strategy, pp. 193-194).

(p. A20) . . . the income of the rich is largely invested in the tools and knowledge of production, which provide future long-term value for everyone: “The rich only select from the heap what is most precious and agreeable . . . though they mean only their own conveniency . . . [and] . . . the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements.”

For the full commentary, see:
VERNON L. SMITH. “The Clinton Housing Bubble.” The Wall Street Journal (Tues., December 18, 2007): A20.

Bill Gates Misreads Adam Smith’s Theory of Moral Sentiments

Bill Gates speaking at the Davos meetings in Switzerland on January 24, 2008. Source of the photo: http://graphics8.nytimes.com/images/blogs/dealbook/davos2008/gates600.jpg

The German scholars used to call it “Das Adam Smith Problem”: how to reconcile the Adam Smith’s Theory of Moral Sentiments with his later Wealth of Nations. One alleged inconsistency is the advocacy of altruism in the former, and the advocacy of self-interest in the latter.

But a closer reading of The Theory of Moral Sentiments solves the problem. Smith thought a case could be made for altruism, but only toward those we know really well, which primarily meant one’s own family, and maybe also others in one’s community who one knows well. The reason is that altruism works only when we know very well the situation and values of those who we propose to help. Otherwise, we may end up doing more harm than good.

So when Gates embarks on global altruism, he should be careful in citing Smith for support.

The passage quoted below discusses Bill Gates’s interpretation of Adam Smith:

(p. A15) Key to Mr. Gates’s plan will be for businesses to dedicate their top people to poor issues — an approach he feels is more powerful than traditional corporate donations and volunteer work. Governments should set policies and disburse funds to create financial incentives for businesses to improve the lives of the poor, he plans to say today. “If we can spend the early decades of the 21st century finding approaches that meet the needs of the poor in ways that generate profits for business, we will have found a sustainable way to reduce poverty in the world,” Mr. Gates plans to say.

In the interview, Mr. Gates was emphatic that he’s not calling for a fundamental change in how capitalism works. He cited Adam Smith, whose treatise, “The Wealth of Nations,” lays out the rationale for the self-interest that drives capitalism and companies like Microsoft. That shouldn’t change, “one iota,” Mr. Gates said.

But there’s more to Adam Smith, he added. “This was written before ‘Wealth of Nations,'” Mr. Gates said, flipping through a copy of Adam Smith’s 1759 book, “The Theory of Moral Sentiments.” It argues that humans gain pleasure from taking an interest in the “fortunes of others.” Mr. Gates will quote from that book in his speech today.

Talk of “moral sentiments” may seem surprising from a man whose competitive drive is so fierce that it drew legal challenges from antitrust authorities. But Mr. Gates said his thinking about capitalism has been evolving for years. He outlined part of his evolution from software titan to philanthropist in a speech last June to Harvard’s graduating class, recounting how when he left Harvard in 1975 he knew little of the inequities in the world. A range of experiences including trips to Africa and India have helped raise that awareness.

In the Harvard speech, Mr. Gates floated the idea of “creative capitalism.” But at the time he had only a “fuzzy” sense of what he meant. To clarify his thinking, he decided to prepare the Davos speech.

For the full story, see:

ROBERT A. GUTH. “Bill Gates Issues Call For Kinder Capitalism; Famously Competitive, Billionaire Now Urges Business to Aid the Poor.” The Wall Street Journal (Thurs., January 24, 2008): A1 & A15.

One good article that discusses some of the issues in my initial commentary is:

Coase, Ronald H. “Adam Smith’s View of Man.” In Essays on Economics and Economists. Chicago: University of Chicago Press, 1995.

Source of the graphic: online version of the WSJ article quoted and cited above.

Schumpeter Not Invited to Milton Friedman’s Dinner Party

Rose and Milton Friedman. Source of image: the online venison of the WSJ article cited below.

Milton Friedman is one of my heroes. But my dinner party invitation list would include Hayek and Schumpeter in place of Marshall and Keynes.

If they were to throw a small dinner party . . . for Mr. Friedman’s favorite economists (dead or alive), who’d be invited? . . . he reeled off this answer: "Dead or alive, it’s clear that Adam Smith would be No. 1. Alfred Marshall would be No. 2. John Maynard Keynes would be No. 3. And George Stigler would be No. 4. George was one of our closest friends." (Here, Mrs. Friedman, also an economist of distinction, noted sorrowfully that "it’s hard to believe that George is dead.")

For the full interview, see:

TUNKU VARADARAJAN. "COMMENTARY: THE WEEKEND INTERVIEW; Rose and Milton Friedman; The Romance of Economics." The Wall Street Journal (Sat., July 22, 2006): A10.

Tom Peters: Over-the-Top Schumpeterian

Source of book image: http://www.amazon.com/gp/product/customer-reviews/078949647X/ref=cm_cr_dp_2_1/104-2835260-2878345?ie=UTF8&customer-reviews.sort%5Fby=-SubmissionDate&n=283155

Tom Peters became famous as the co-author of the business classic In Search of Excellence (1982). His Re-imagine! is exuberant, optimistic, exaggerated, and stylistically over-the-top. I find it fun, bracing, entertaining, and sometimes edifying. If you like the prose of The Cluetrain Manifesto and Gilder’s Telecosm, then you may also like Re-imagine!

Here is an early, very brief passage:

(p. 9) My overall vision, in brief: Business is cool. It’s about Creativity and Invention and Growth and Service. It’s about Adam Smith’s "hidden hand." And Nobel laureate Frederick Hayek’s "spontaneous discovery process." And economist Joseph Schumpeter’s "gales of creative destruction." At its best, it’s about building things that make life less burdensome than it was in medieval times. About getting us beyond—far, far, far beyond—the quasi-slavery of the Middle Ages, the indentured servitude of the first 150 years of the Industrial Revolution, and the cubicle slavery of the last three-quarters of a century.

Yes, business is cool.

(Or at least it can be.)

The citation to the book is:

Peters, Tom. Re-Imagine! London: DK, 2003.

(Note: the italics in the above passage appears that way in the original.)