Counter Economics

Who Was Adam Smith?

Adam Smith was an economist who lived in the 1700s in Scotland had a great influence on economics through the writing of his book The Wealth of Nations. This book is quoted frequently by business majors and by conservatives as an explanation for how to setup an economic system. His most common quotation is…

It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. – Adam Smith

One really has to wonder why this paragraph is so compelling. For instance, if someone else were to write a book that contained a paragraph that stated that cheating is good. In fact, let’s take a crack at it ourselves.

It is not from the benevolence of the used car dealer that we purchase cars with rolled back odometers, the oil executive that we receive environmental degredation, or the PR specialist that we receive false information, but from regard for their own self interests. – CounterEcon

The statement above is as true as the paragraph by Adam Smith, it simply focuses on the negatives of self interest. One can find both positive and negative outcomes of selfish behavior, but no sane adult would propose that only positive outcomes sprout from self interest. However, this seems to be the conclusion those that quote this paragraph from A Wealth of Nations seem to have arrived at. If Adam Smith actually thought this, he would not have been the thinker that he was.

US President’s Prefer Adam Smith

And this quote, or even a much shortened version has been used to justify all manner of deregulation and self dealing. In effect, it is philosophical and high minded cover for acting selfishly or in a greedy manner. It has become very fashionable to talk about Adam Smith and it seems to lend instant credibility to the individual. Recent presidential candidate Senator John McCain, stated that if given only one book to read when stranded on a desert island he would read.

If I could only choose one book, I might choose “Wealth of Nations” by Adam Smith, because we may be entering some pretty shaky economic times, and I think that`s probably one of the most seminal works concerning how the economy of the nation and the world functions.

We very much doubt that given John McCain’s history, and his simple minded view of the world combined with his short temper – indicative of impulse control issues, that he could either complete the reading of, or understand The Wealth of Nations. In any case, John McCain is not much of a reader. This would be akin to Dan Quale stating he would like to read a medical book on Biochemistry. It is not going to happen. (This problem of barely literate US presidents goes back for some time. George W Bush could not name any books he read when asked by a reporter several years ago. Ronald Regan was well known for having a low reading ability, could not read the reports given to him and would read Reader’s Digest and confuse articles in it with his CIA briefings. This is not so much snobbery as pointing out that people who can not read the necessary material can be easily controlled by others as they rely upon everything second hand.)

Its an interesting question, why would John McCain recall a book that is extremely unreadable due to the writing at the time (1700s) and a book writen before economics was a formalized area of study, especially when far more approachable books in economics are readily available?

Lets be honest, these men are not readers. As long as we choose leaders who lack the depth and background in the topics they govern, we will continue to get broken and illiterate policies. Intelligence and subject matter expertise are not critical simply for the purposes of status (i.e. the ivy league graduate repeatedly stating that he went to Harvard, which is of little practical consequence as Bush also went to Harvard.) but because knowledge often leads to better outcomes.

Why Reading Adam Smith is Unlikely

The problem is that Adam Smith’s work is very very highly quoted, but very very lightly read. The Wealth of Nations is a 900 page book, and extremely difficult to read. This is primarily because it is written in a dated prose, which seems circuitous by our standards. However, most MBAs and other people that quote Adam Smith, do not have the patience, the time or the reading ability to actually read Adam Smith, and therefore, this quote that you see above it all that the vast majority of people know about Adam Smith.

The end result is that Adam Smith’s work is greatly oversimplified and misunderstood. Adam Smith did not say that all that is needed is self interest in order for an economy to perform well. In fact Adam Smith wrote in a time when Economics was not even a profession, (as he was in some ways considered the father of it) instead Adam Smith is referred to as a “moral philosopher.” Adam Smith’s is so misrepresented, and is so known to be misrepresented among people educated on this topic that there is actually a book about how he is misrepresented called Adam Smith’s Mistake, published in 1990.

http://www.amazon.com/Adam-Smiths-Mistake-Kenneth-Lux/dp/087773593X

Intellectuals and Economists on the Misrepresentation of Adam Smith

Some prominent Economists such as Joseph Stligliz pointed that left to their own devices markets will produce too much of things that hurt other people (such as pollution) and too little of things that help other people (such as research – unlike what is presented in advertising, most research is still funded by the government, private companies have no interest in basic research, and much less interest in any research they can not immediately monetize.)

Noam Chomsky, a very serious intellectual, has repeatedly complained about the misuse of Adam Smith’s work. This quotation is also from Adam Smith, though never quoted. The invisible hand, he wrote, will destroy the possibility of a decent human existence

..unless government takes pains to prevent” this outcome, as must be assured in “every improved and civilized society.” It will destroy community, the environment and human values generally – and even the masters themselves, which is why the business classes have regularly called for state intervention to protect them from market forces

Don’t allow those who can barely read complex writing to misuse Adam Smith to justify policies that only benefit the wealthy at the expense of everyone else. The Theory of Moral Sentiments, also by Adam Smith is filled with discussion on how to create a just society and the importance of the government to help make this so.

There are other areas that Adam Smith showed concern for an overemphasis upon work and division of labor caused a tunnel vision causing negative spillover effects on the other portions of a person’s life.

Misappropriation of Adam Smith

Large numbers of quotes made by Adam Smith which are distinctly opposed to the concentration of economic power are never brought up. In fact, Adam Smith supported unions, and where is this ever noted in discussions about him. See this post for more details on his stance on this topic.

http://counterecon.com/2009/12/12/adam-smith-favored-labor-unions/

What To Do

Question the knowledge of Adam Smith by people that use the “invisible hand” comment. Here are a few questions that are likely to flummox a person attempting to brandish the credibility of a long dead author they know nothing about and who’s books they have not read.

1. What other parts of The Wealth of Nations do you know about?
2. Did Adam Smith ever talk about the downsides to the invisible hand?
3. Are you familiar with Adam Smith’s The Theory of Moral Sentiments where he talks about how important it is to build a just and fair society?
4. If everyone acts selfishly, does this sound like it will result in good outcomes? If I only look out for my interests and ignore yours and everyone else’s, would this make you happy?

If you would like to read Adam Smith, his work is available in PDF format here.

http://www.pdf-search-engine.com/the-theory-of-moral-sentiments–pdf.html

References

http://en.wikipedia.org/wiki/Invisible_hand

http://adamsmithslostlegacy.com/2008/02/adam-smith-is-innocent.html

http://adamsmithslostlegacy.com/2008/02/senator-mccain-chooses-to-read-wealth.html