The Ideological Fraud of Adam Smith, Beginning with the Pin Factory

SMITHThe first sign of Smith’s pin factory appeared in a course of lectures to his students in Glasgow in 1762 and 1763, more than a decade before the publication of his great book. The discussion of the pin factory began on March 28, 1763, while he was explaining to his Glasgow students the importance of the law and government:

They maintain the rich in the possession of their wealth against the violence and rapacity of the poor, and by that means preserve that useful inequality in the fortunes of mankind which naturally and necessarily arises from the various degrees of capacity, industry, and diligence in the different individuals. [Smith 1762 1766, p. 338]

In order to justify this inequality, Smith told his students that “an ordinary day labourer … has more of the conveniences and luxuries than an Indian [presumably Native American] prince at the head of 1,000 naked savages” (Smith 1762 1766, p. 339). But then the next day, Smith suddenly shifted gears, almost seeming to side with the violent and rapacious poor:

The labour and time of the poor is in civilized countries sacrificed to the maintaining of the rich in ease and luxury. The landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his exactions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full enjoyment of the fruits of his own labours; there are no landlords, no usurers, no tax gatherers …. [T]he poor labourer … has all the inconveniences of the soil and season to struggle with, is continually exposed to the inclemency of the weather and the most severe labour at the same time. Thus he who as it were supports the whole frame of society and furnishes the means of the convenience and ease of all the rest is himself possessed of a very small share and is buried in obscurity. He bears on his shoulders the whole of mankind, and unable to sustain the weight of it is thrust down into the lowest parts of the earth from whence he supports the rest. In what manner then shall we account for the great share he and the lowest persons have of the conveniences of life? [Smith 1762 1766, pp. 340 41]

Smith’s train of thought is confusing. First, the law is needed to constrain the fury of the poor; then the market provides for the poor very well; followed by the wretched state of the people who worked on the land the least fortunate of the workers. For his grand finale, after decrying the “small share” of the poor, Smith curiously veers off to ask what accounts for “the great share” that these same people have. His answer should come as no surprise to a modern reader of Adam Smith “The division of labour amongst different hands can alone account for this” (Smith 1762 1766, p. 341).

By March 30, Smith was confident enough about his success in finessing the challenge of class conflict that he became uncharacteristically unguarded in openly taking notice of the importance of workers’ knowledge:

But if we go into the work house of any manufacturer in the new works at Sheffield, Manchester, or Birmingham, or even some towns in Scotland, and enquire concerning the machines, they will tell you that such or such an one was invented by some common workman. [Smith 1762 1766, p. 351]

Read the entire article here

 

SMITH

Vietnam: Invitation to a Morass: Chapter 5 of the Matrix

The Matrix: An Exploration of the Dangerous Paradoxical Interactions

Between War, the Economy, and Economic Theory

Brief Introduction to the Introduction: The Paradox of the Matrix

What follows the introductory material is a chapter entitled:

Chapter 5: Vietnam: Invitation to a Morass.

The Matrix is an exploration of the intricate relationships between war, the economy, and economic thinking. Because of the complexity of our subject, we have tried to make our exploration more manageable by organizing our analysis around a simplified matrix, consisting of the natural world upon which life depends, together with the and three man-made subjects mentioned in the title, treated as separate pillars. Throughout history, the interrelations between these relationships have proved to be extremely dangerous, largely because of their paradoxical nature in which seemingly people in power confidently take actions that set off unexpected chain reactions with tragic consequences. The Matrix will explore that history in order to throw light upon the present.

Although people had already thought about economic matters in ancient times, the idea of an economy as a separate sphere of society had not yet developed. Instead, economic thinking was largely the domain of philosophers, such as Adam Smith, who was a professor of moral philosophy. Only later did economics become a separate subject of study. By the late 19th century, a few economists were beginning to frame their work as the science of economics ‑‑ a name intended to indicate an affinity with physics. Soon thereafter, supposedly scientific economic thinking acquired increasing authority, so much so that people often became convinced that they could disregard economic analysis at their own peril. Their fear may not have been well‑placed considering how often well‑regarded economic theories helped to create disasters.

The three pillars are intimately connected with one another. While the connections between war and the economy are more or less obvious, economists serve a peculiar role in linking the pillars of war and the economy by influencing the conduct of both war and management of the economy. At the same time, war, as well as economic activity, has influenced economic thinking. Read more »

introduction to the introduction of my new book

I would appreciate any feedback.

 

The Matrix

 

The Matrix: An Exploration of the Dangers of the Paradoxical Interactions between War, the Economy, and Economic Theory

 

Brief Introduction to the Introduction: The Paradox of the Matrix

 

Throughout modern history, the relationships between war, the economy, and economic thinking have been both paradoxical and dangerous.  Because of the wide-ranging nature of this exploration, we have organized our analysis of these relationships around a simplified matrix, consisting of the natural world upon which life depends and three man-made pillars: War, the Economy, and Economic Thinking.

            Although people had already thought about economic matters in ancient times, the idea of an economy as a separate sphere of society had not yet developed.  Instead, economic thinking was largely the domain of philosophers, such as Adam Smith, who was a professor of moral philosophy.  Only later did the economics become a separate subject of study.  By the late 19th century, a few economists were beginning to frame their work as the science of economics — a name intended to indicate an affinity with physics.  Soon thereafter, supposedly scientific economic thinking acquired increasing authority, so much so that people often became convinced that they could disregard economic analysis at their own peril.  That fear may not have been well-placed considering how often well-regarded economic theories helped to create disasters.

            For a long time, war, the economy, and economic thinking have deeply affected each other.  While the connections between war and the economy are more or less obvious, economists serve a peculiar role in linking the pillars of war and the economy by influencing the conduct of both war and management of the economy.  At the same time, war, as well as economic activity, has influenced economic thinking.

            In their effort to masquerade their ideas as a science, economists often label their theories as laws to implicitly identify their theories with sciences, such as physics.  Of all the so-called laws of economics, the law of unintended consequences, which originates in philosophy rather than economics, might be the most consequential.  For good reason, economists do not treat the law of unintended consequences as one of their technical laws, such as the law of supply and demand.  After all, the law itself is an admission of ignorance, which conflicts with the certainty of economic propositions.

            Instead, the law of unintended consequences is generally selectively invoked as a warning to those who might be tempted by policies that might interfere with the rational workings of markets that conventional economics presumes to be natural.  In contrast, the law of unintended consequences is rarely, if ever, invoked regarding the free play of unchecked markets.  Nonetheless, the combined effects of war, the economy, and economic thinking have had unintended consequences of catastrophic proportions.

            The law of unintended consequences becomes more important because of the paradoxical nature of the Matrix, which reflects the ancient concept of the unity of opposites, often associated with the ancient Greek philosopher, Heraclitus, who hinted at such unity, writing about bows: “Thy name is life, thy work is death.” (In Greek, both the bow, an important weapon at the time, and life were synonymously called bios.).  Two millennia later, the technology for casting church bells found a new use for what had been known as the “bell metal” in the production of cannons. The historian, John U. Nef, beautifully recaptured this new instance of Heraclitus’ irony: “The early founders, whose task had been to fashion bells that tolled the message of eternal peace contributed unintentionally to the discovery of one of man’s most terrible weapons” (Nef 1963, pp. 28). A similar unity of opposites concerns the mayhem of the battlefield, when lessons from battlefield medicine get taken up in general medical practice.

United Airlines’ bad behavior (revised)

 

Two employees from United Airlines recently arrested for stealing baggage from planes that were diverted from the San Francisco airport when the plane crashed there.  It reminded me of the awful experience that I had with United Airlines. A few years ago, I had about $500 worth of electronics stolen from my luggage.  I spent many hours trying to contact the appropriate parties at United,  Leading me through an interminable series of dead ends. I would call one party, stay on hold for quite a bit of time, finally gets through to somebody, who would tell me that I needed to call somebody else with authority, who would then tell me that I needed to call somebody else. Nor could I find a name and an address to which I could  have papers served.

Finally, somebody in authority contacted me to inform me that United was not responsible for the theft. I am attaching the letter that the company sent me.

 

united airlines kiss off

 

Paul Ryan, Anti-Poverty Warrior

On Saturday, the Wall Street Journal review section gave Rep. Ryan a chance to offer his opinion about the proper policy to fight property.  Brilliantly, Mr. Ryan put his finger on the key problem: the teachers’ union.  Who else has done so much to reinforce poverty than those dastardly teachers?

Questions regarding Gov. Brown’s multi-billion Twin-Tunnels Water Project

Is it not true that virtually every large public works project suffers from serious cost overruns?  Will the ballot initiative inform voters about the actual probable costs of this project?

 

Is it not true that the first Governor Brown, Jerry’s father Pat, constructed the first California Water Project with the understanding that large recipients of water would repay the state for the costs of delivering water?  Is it not true that they reneged on that promise?  Will the greatest recipients of water really pay their fair share this time?  Without some certainty, should the ballot initiative reflect the risk that the state will not be able to collect adequate repayments for its water?

 

Without guarantees of adequate repayments, should the ballot initiative reflect the risks?  For example, in light of the first reneging of the payment obligations, the state had to turn to other sources of funding.  It took money from the Tidelands Oil Fund to cover the failed promised payments, which required the California State system and the University of California system to initiate tuition hikes, which set off decades of spiraling tuition.

Does it make sense to send the water to the Central Valley to grow crops that would be unprofitable without huge federal payments and subsidized water?  For example, cotton is not particularly suited for semi-arid land.  Besides, such federal and state subsidies seem to violate trade agreements such as the WTO and NAFTA.

 

Could one make the case that importing cotton from Africa, where farmers have trouble competing with highly subsidized American growers, might help to stabilize parts of the continent, which would reduce the incentives for continually increasing the costly level of the US government’s military entanglements in that part of the world?  Might cutting back on subsidized cotton production in the Central Valley be the first step in reducing military involvement in Africa?

 

Such a suggestion might admittedly seem to be a stretch but it serves as a reminder that the consequences of such a huge undertaking as the twin tunnels will have significant unintended consequences that will be unlikely to be presented to the voters in a ballot initiative.

 

The questions disregard a much larger question regarding the need to conserve water supplies, both locally and statewide.

 

Beijing Paper: Constant Capital, Accumulation, Sustainability, and Economic Theory

I would appreciate any comments about a paper I will present in Beijing.  I hope that the title describes the content.

beijing

Pity the 1%; The Ressurection of Ayn Rand

With the popularity of Vampire culture, you will certainly appreciate this over the top call to give back to the 1%.

 

 

http://www.forbes.com/sites/harrybinswanger/2013/09/17/give-back-yes-its-time-for-the-99-to-give-back-to-the-1/

Standing on Principle

I am continually amazed by the rhetorical use of principle and probability.  States’ rights are a perfect example.  To begin with, this concept first evolved as a tactic to protect the rights of slave owners, hardly a noble objective.  Since then, it has become almost synonymous with freedom.  States should have the right to determine who can and cannot get married.  The federal government has no business sticking its nose into such matters.  On the other hand, states’ right to legislate on marijuana use is routinely overruled.  Similarly, states’ right to control business abuses, such as the spreading of pollution, are routinely overruled by Congress, including strong upholders of states’ rights.

The probability of somebody being injured by a consumer product or an industrial process, such as fracking, are typically dismissed out of hand.  On the other hand, protection against terrorism is treated differently.  Richard Cheney offers an excellent example of that approach: “If there’s a one percent chance that Pakistani scientists are helping al Qaeda build or develop a nuclear weapon, we have to treat it as if it is a certainty in terms of our response,” Cheney said.”  Of course, the kind of actions that Cheney proposed greatly increase the probability of terrorism, which might be desirable in the sense that it offers a welcome pretext to build up the bureaucratic powers justified by such threats.

Appeals to probability are especially interesting because of the ease with which measures of likelihood can be easily manipulated.  Here is one of my favorite examples concerns Richard Thaler’s measure of the value of a statistical life, a measure that Thaler soon realized was a wildly underestimated.  This underestimation, meant that the cost-benefit analysis of workers’ protection was far more likely to prove unfavorable.  Here is a snippet from my Invisible Handcuffs book to show how creatively such analysis could be applied:

 “John D. Graham, a fervent opponent of regulation, who became President George W. Bush’s head of the Office of Management and Budget’s Office of Information and Regulatory Affairs, even went so far as to claim that spending money on regulations instead of vaccinating children is tantamount to “statistical murder.”   Ironically, I know of no case when the anti-regulators came out in support of any program to actually vaccinate children, perhaps preferring to be able to recycle vaccination as a straw man to wield against all regulation.”

How Greedy Workers’ Pensions Destroy the Economy, Or Not.

Let’s begin with one of these greedy workers.  Or maybe he was one of the people who fret about the workers’ pensions?

Maremont, Mark. 2013. “For McKesson’s CEO, A Pension of $159 Million.” Wall Street Journal (25 June): p. B 1.

http://online.wsj.com/article/SB10001424127887323998604578565491579124154.html

“Executive pension plans sometimes grow to a hefty size, amounting to tens of millions of dollars, as extra retirement cushions for long-serving CEOs.”

“Then there’s the record $159 million pension benefit of John Hammergren, the current chairman and CEO of drug distributor McKesson Corp. MCK –0.93% That’s how much he would have received in a lump-sum payment had he voluntarily departed on March 31, McKesson disclosed in its annual proxy filing on Friday.”

“Compensation consultants say it’s by far the largest pension on file for a current executive of a public company, and almost certainly the largest ever in corporate America. It’s also more than double the value of the 54-year-old Mr. Hammergren’s pension six years ago.

“Mr. Hammergren has been at McKesson for 17 years, 12 of them as sole CEO, so he is significantly younger and has a shorter tenure than most other executives who have accumulated large pensions.”

“A giant pension plan was at the heart of a controversy a decade ago over the pay package of Richard Grasso, former chairman of the New York Stock Exchange. An outside investigation found that Mr. Grasso had amassed pension benefits with a lump-sum value of $126 million.”

My mistake.  He was probably one of those who groused about workers’ pensions

Or How About the Big Money People who Handle their Pensions?

Braun, Martin Z. and Chris Christoff. 2013. “Detroit’s Pension Funds Dogged by Bad Deals.” Bloomberg Businessweek (28 July): pp. 42-44.

http://www.businessweek.com/articles/2013-07-25/detroits-pension-funds-dogged-by-bad-deals

They detail how the Detroit pension plans have lost more than $10 million on each of several deals with shady characters.

California also got snookered by similar crooks.

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