Adam Smith, America, & Argentina

[Verrocchio]

Re: Adam Smith, America, & Argentina

The parallel that jumps out at me is this. The U.S. has spent the last half century in an era of prosperity, with increasingly wealth abundant for the average citizen.

However we (I'm an American) have done it with borrowed money. Now the bill is coming due.

If we follow in Argentina's footsteps, our GDP has peaked and will stagnate for the next 35 (or whatever) years, which will be punctuated by a series of crises. The U.S. will go from a first world society to a third world society.

P.S. -- Metalman's link to EJ's Argentina article Does USA 2009 = Argentina 2001? Part I: Falling economy reaches terminal velocity is more useful than my comment.

This general parallel (debt-financed boom followed by bills to pay but little or no means) should be obvious to iTulip participants with a passing acquaintance with Argentine economic history, even me. I was looking for an outline of the multiple parallels as suggested by another poster who wrote that the parallels with the USA should be obvious.

[rjwjr]

Re: Adam Smith, America, & Argentina

It wasn't entirely a Republican operation. The Dems controlled Congress for a big chunk of that period.

The point is, it doesn't matter anymore who is in "power". The Dems and Repubs all seem to be making the same failed policy decisions.

[c1ue]

Re: Adam Smith, America, & Argentina

The problem with economic dilettantes who quote Adam Smith is their ignorance.

These individuals usually quote:

Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.


The Wealth of Nations, Book IV Chapter II

But Adam Smith spoke of the invisible hand on several occassions including the above, but also including:

The rich ... divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made, had the earth been divided into equal proportions among all its inhabitants.

The Theory of Moral Sentiments, Part IV Chapter 1

Why is this important? Because in this quote there is an implicit assumption that the rich and poor with division - through the invisible hand - into some equitable distribution. Yet is this true?

I say the evidence is underwhelming to say the least.

The corollary I draw from this is that Adam Smith assumed some inherent balance between the rich and poor, between the competing firms and interests in a given field, etc etc such that an equitable sharing out would occur.

Should said equitable sharing not be occurring - as ever increasing levels of wealth distribution would seem to indicate - then clearly the 'invisible hand' doesn't work at all times.

To close, another quote:

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.

The Theory of Moral Sentiments, Part I Section I Chapter I

Yes, where indeed is the happiness of the majority in the actions of the oligarchy today?

[Chris Coles]

Re: Adam Smith, America, & Argentina

I disagree. My understanding is that Adam Smith believed that individuals should pursue their own self-serving interest, and in so doing, this would best serve the interest of the nation..

I have to come down on C1ue's side with regard to Adam Smith and quote from the Introduction to his 1776 book The Wealth of Nations;

“The number of useful and productive labourers, it will hereafter appear, is everywhere in proportion to the quantity of capital stock which is employed in setting them to work, and to the particular way in which it is so employed.”

In a very real sense, we are relearning ideas that have been available for debate for more than two centuries.

What everyone has failed to recognise it we are not in a true Capitalist system. Every time we got close, instead of turning to a capital based solution, we get into a credit based solution. Every time we replace capital with credit, the whole thing, eventually, collapses.

Turning to the opening of this thread, the newspaper quoted was the Daily Telegraph from London. So, while the author was credited with American associations, he was in fact writing about the UK economy. He made an allusion to the way forward being to reduce wages by a reduction of the minimum wage and another war against unions. So the first thing to ask is how the devil do you increase prosperity for the nation by a further reduction of prosperity to be carried by the majority of the population?

Some of you may remember that I had started a couple of threads on this subject and now I have taken the bulk of what I have written over the last three decades and put together a Free PDF Book: The Road Ahead from a Grass Roots Perspective. You may download a copy from www.chriscoles.com/page3.html

My argument is that job creation, not credit; is the primary driver of prosperity and I set that out in chapter 2, page 25 onwards.

Turning back to Adam Smith. Let us assume he is correct and that it is true that:

“The number of useful and productive labourers, it will hereafter appear, is everywhere in proportion to the quantity of capital stock which is employed in setting them to work, and to the particular way in which it is so employed.”

Then we have to see this as a particular problem related to the need to provide equity capital as the foundations upon which we build a business that in turn, creates employment. In which case, we need two things to create prosperity. The first is classic equity capital to provide the foundations and then, and only then, secondly, do we need credit for the WORKING CAPITAL, (please excuse the shout), which we use to pass the materials from supplier through production to the final customer. What keeps happening is we use credit for both purposes and credit can never replace that first stage foundation; equity capital.

As I point out in the chapter I refer you to:

You do not have any functioning mechanism to create enough jobs.

Until everyone recognises we cannot have prosperity without everyone becoming prosperous; nothing will change and the economy will continue to collapse. and to that end I turn you to chapters 10 and 11 also.

[Kcim67]

Re: Adam Smith, America, & Argentina

I disagree. My understanding is that Adam Smith believed that individuals should pursue their own self-serving interest, and in so doing, this would best serve the interest of the nation.

Part of our disagreement may be on how you define "interest of the nation". I define it as having the strongest and most vibrant economy possible. If you define "interest" as striving for equality of outcome (redistribution of income, high taxes, nanny state), rather than equality of opportunity then that is where we may disagree. Adam Smith is more a "survival of the fittest" mentality in my opinion, which doesn't sit well with many "feel good" individuals whose heart is in the right place, but whose economic ideas are misguided and, over time, hurtful to a nation by making it economically weaker. In this help-the-non-productive-at-the-expense-of-the-productive utopia, what is happening now is a natural conclusion.

And by the way, I consider the oligarchs that are receiving unfair bail-outs at the expense of all taxpayers to be in the category of the non-productive. They should have been left to fail. They give a bad name and an unwarranted bad reputation to the millions of productive, honest, hard-working business people in the productive economy. They are larger parasites than the lazies that sit around all day and collect government hand-outs. There is no place for either of them in an Adam Smith economy.

This is the part that always seems to get me and the part which most every laissez faire capitalist always ignores. It seems to me that Darwinisim arises if not exactly with Adam Smiths ideas then out of the same basic principles both are, as most reasonably minded people can see interlinked in some sense and here's the rub Darwinism is the true reality, total survival of the fittest, evolution by natural selection laissez faire style and when we say laissez faire we mean ABSOLUTE laissez faire NO RULES none ZIP ZERO the biggest hardest smartest Mother****** in the yard takes and gets exactly what he wants as long as he can defend it and stay alive. The rules don't just start in the financial / business economic world they are all prevalent. You cannot demarque where intervention starts or doesn't. The very sole ability to realise your potential to be productive or not is not even free, I could be a highly productive and profitable poppy grower................................i hate ranting

[WildspitzE]

Re: Adam Smith, America, & Argentina

My understanding is that Adam Smith...

I posted this before somewhere around these parts, perhaps many of you will find it interesting:
http://mises.org/resources/2691

"...
The mystery of Adam Smith, then, is the immense gap between a monstrously overinflated reputation and the dismal reality. But the problem is worse than that; for it is not just that Smith's Wealth of Nations has had a terribly overblown reputation from his day to ours. The problem is that the Wealth of Nations was somehow able to blind all men, economists and laymen alike, to the very knowledge that other economists, let alone better ones, had existed and written before 1776. The Wealth of Nations exerted such a colossal impact on the world that all knowledge of previous economists was blotted out, hence Smith's reputation as Founding Father. The historical problem is this: how could this phenomenon have taken place with a book so derivative, so deeply flawed, so much less worthy than its predecessors?

The answer is surely not any lucidity or clarity of style or thought. For the much revered Wealth of Nations is a huge, sprawling, inchoate, confused tome, rife with vagueness, ambiguity and deep inner contradictions. There is of course an advantage, in the history of social thought, to a work being huge, sprawling, ambivalent and confused. There is sociological advantage to vagueness and obscurity. The bemused German Smithian, Christian J. Kraus, once referred to the Wealth of Nations as the 'Bible' of political economy. In a sense, Professor Kraus spoke wiser than he knew. For, in one way, the Wealth of Nations is like the Bible; it is possible to derive varying and contradictory interpretations from various — or even the same — parts of the book. Furthermore, the very vagueness and obscurity of a work can provide a happy hunting ground for intellectuals, students and followers. To make one's way through an obscure and difficult tract, to weave dimly perceived threads of a book into a coherent pattern — these are rewarding tasks in themselves for intellectuals. And such a book also provides a welcome built-in exclusion process, so that only a relatively small number of adepts can bask in their expertise about a work or a system of thought. In that way they increase their relative income and prestige, and leave other admirers behind to form a cheering section for the leading disciples of the Master.

Adam Smith did not found the science of economics, but he did indeed create the paradigm of the British classical school, and it is often useful for the creator of a paradigm to be inchoate and confused, thereby leaving room for disciples who will attempt to clarify and systematize the contributions of the Master. Until the 1950s, economists, at least those in the Anglo-American tradition, revered Smith as the founder, and saw the later development of economics as a movement linearly upward into the light, with Smith succeeded by Ricardo and Mill, and then, after a bit of diversion created by the Austrians in the 1870s, Alfred Marshall establishing neoclassical economics as a neo-Ricardian and hence neo-Smithian discipline. In a sense, John Maynard Keynes, Marshall 's student at Cambridge, thought that he was only filling in the gaps in the Ricardian-Marshallian heritage.

Into this complacent miasma of Smith-worship, Joseph A. Schumpeter's History of Economic Analysis (1954) came as a veritable blockbuster. Coming from the continental Walrasian and Austrian traditions rather than from British classicism, Schumpeter was able, for virtually the first time, to cast a cold and realistic eye upon the celebrated Scot. Writing with thinly veiled contempt, Schumpeter generally denigrated Smith's contribution, and essentially held that Smith had shunted economics off on a wrong road, a road unfortunately different from that of his continental forbears.

...

The division of labour
It is appropriate to begin a discussion of Smith's Wealth of Nations with the division of labour, since Smith himself begins there and since for Smith this division had crucial and decisive importance. His teacher Hutcheson had also analysed the importance of the division of labour in the developing economy, as had Hume, Turgot, Mandeville, James Harris and other economists. But for Smith the division of labour took on swollen and gigantic importance, putting into the shade such crucial matters as capital accumulation and the growth of technological knowledge. As Schumpeter has pointed out, never for any economist before or since did the division of labour assume such a position of commanding importance.
...

"

[WildspitzE]

Re: Adam Smith, America, & Argentina

This is the part that always seems to get me and the part which most every laissez faire capitalist always ignores. It seems to me that Darwinisim arises if not exactly with Adam Smiths ideas then out of the same basic principles both are, as most reasonably minded people can see interlinked in some sense and here's the rub Darwinism is the true reality, total survival of the fittest, evolution by natural selection laissez faire style and when we say laissez faire we mean ABSOLUTE laissez faire NO RULES none ZIP ZERO the biggest hardest smartest Mother****** in the yard takes and gets exactly what he wants as long as he can defend it and stay alive. The rules don't just start in the financial / business economic world they are all prevalent. You cannot demarque where intervention starts or doesn't. The very sole ability to realise your potential to be productive or not is not even free, I could be a highly productive and profitable poppy grower................................i hate ranting

I'm not sure I followed all of that post. That said, I think that what rjwjr was trying to convey with his use of "is more a "survival of the fittest"" language is a competitive process where certain traits are rewarded vs others, and that such process would result in the well being of the entire group in general. Akin to natural selection, where in that case certain traits are rewarded with survival.

I don' think that any sentient advocate of competition in economics, even the most "laissez-faire" that I know, and I know some hard-core ones, would advocate that such competitive process needs to or would ideally happen within anarchy (no rules). All would agree that in order for such economic system to function property rights would need to be protected, and thus, it presupposes rules and a role for government.

[Chris Coles]

Re: Adam Smith, America, & Argentina

This is the part that always seems to get me and the part which most every laissez faire capitalist always ignores. It seems to me that Darwinisim arises if not exactly with Adam Smiths ideas then out of the same basic principles both are, as most reasonably minded people can see interlinked in some sense and here's the rub Darwinism is the true reality, total survival of the fittest, evolution by natural selection laissez faire style and when we say laissez faire we mean ABSOLUTE laissez faire NO RULES none ZIP ZERO the biggest hardest smartest Mother****** in the yard takes and gets exactly what he wants as long as he can defend it and stay alive. The rules don't just start in the financial / business economic world they are all prevalent. You cannot demarque where intervention starts or doesn't. The very sole ability to realise your potential to be productive or not is not even free, I could be a highly productive and profitable poppy grower................................i hate ranting

Only go out and try it from scratch without ZILCH HELP FROM ANYONE.

The fact is you cannot do that. Not one of you.

We have prospered as a species exactly because we learned to understand the value of cooperation. No, I do not mean some sort of socialism, I mean that, within the structures of setting out to win, we work together to achieve something none of us can achieve alone.

I wrote this December 2006:

A Christmas Thought

When you next go to the opera, think about why you are there? When we enjoy another person singing or dancing, we gain enjoyment, not because of what we see, rather, from what we cannot achieve ourselves. Whatever our pleasure, it is in knowing that we are looking at something we cannot do for ourselves alone. Our modern civilisation has been constructed upon the fact that we earn our pleasures in life from a lot of other individuals combining their input to our lives to make the whole better. We are completely interdependent with each other for the success of our lives.

But, imagine, now, we have shackled the artist to the easel, they become our slave. In so doing, we lose sight of the fact that it is the very freedom of spirit of the artist to draw and paint exactly what they feel that creates great art. A shackled artist cannot do that. Nor can we become that artist, or singer. Every one of us excels at what we do when we are free so to do.

The investment of capital has today become a feudal world of control and order where everyone has to become shackled from first contact. New business creator’s lives are now ordered, confined by strict rules of engagement and rigid thinking. But, such rules suit a line manager. True leaders in any community are the free thinkers; individuals that can lift all our eyes from the daily toil and state the obvious. Such leadership should be visible at all levels of society, not just at the very top. Today, much of society is leaderless and shackled. As a result, we have a demotivated uncivilised general population. You only need to see the young people drinking themselves senseless with binge drinking here in the UK to see this as a reality.

The true aiming point of any civilisation is surely to unshackle the lives of as many as possible? We are not here to make a profit without also leaving everyone we touch in a better state. No community saves its money for the savings institution to improve itself at the expense of the saver.

We need to find a way forward that makes it possible for everyone to be able to live full lives unshackled to the utter stupidity that we cannot be permitted to be both free and successful.

Civilisation surely demands everyone is left free to pursue their lives as they think fit? We must recognise that if investment is not civilised, and the recipient is not left free, we are living in a feudal rather than a civilised society.

Please, think about that.
The individual that thinks they can ride roughshod over the backs of everyone else sooner or later comes to discover that they need others to help them. That is the truth of being a successful Human Being. Particularly a CIVILISED human being. Civilisation means more than just the money you can stuff in your pocket.

[Verrocchio]

Re: Adam Smith, America, & Argentina

Indeed! I would add that people today fail to take into account Smith's view of the world -- that of an 18th century intellectual who spent most of his life in Scotland. His lectures and books were based on observations he made of the world in which he lived, yet some seize upon his thoughts as if they have universal applicability. If he were here among us today, he would no doubt find this flattering, but, I would imagine that as a participant in the Scottish Enlightenment, he would also find this phenomenon troubling.

[flintlock]

Re: Adam Smith, America, & Argentina

The problem with economic dilettantes who quote Adam Smith is their ignorance.

These individuals usually quote:



But Adam Smith spoke of the invisible hand on several occassions including the above, but also including:



Why is this important? Because in this quote there is an implicit assumption that the rich and poor with division - through the invisible hand - into some equitable distribution. Yet is this true?

I say the evidence is underwhelming to say the least.

The corollary I draw from this is that Adam Smith assumed some inherent balance between the rich and poor, between the competing firms and interests in a given field, etc etc such that an equitable sharing out would occur.

Should said equitable sharing not be occurring - as ever increasing levels of wealth distribution would seem to indicate - then clearly the 'invisible hand' doesn't work at all times.

To close, another quote:

Yes, where indeed is the happiness of the majority in the actions of the oligarchy today?

Not to defend Adam Smith necessarily, but I doubt he envisioned the "Poor" of today, with two cars, flat screen TVs, internet access and 50 lbs overweight.

In historical perspective, the "poor" of today would seem pretty well off by the standards of Smith's era. So in a sense, they are "sharing" in the wealth.

But I do agree Adam Smith's invisible hand is not the answer people portray it to be.

[flintlock]

Re: Adam Smith, America, & Argentina

It wasn't until after his death that the bills came due, and the consequences of his policies became apparent.

I think this is pretty much the MO for all politicians today.