THE INVISIBLE HAND:Who is the Third Who Walks Always Beside You?

What are the roots that clutch, what branches grow
Out of this stony rubbish? Son of man,
You cannot say, or guess, for you know only
A heap of broken images, where the sun beats,
And the dead tree gives no shelter, the cricket no relief,
And the dry stone no sound of water. Only
There is shadow under this red rock
(Come in under the shadow of this red rock),
And I will show you something different from either
Your shadow at morning striding behind you
Or your shadow at evening rising to meet you;
I will show you fear in a handful of dust…. ( T.S. Eliot, The Wasteland )

Many men cried, as many still do, that Adam Smith offers an apologia for unconscionable aggrandizement by the heartless rich at the expense of the helpless poor. But only those who have not read him can think him inhumane, or cynical, or an apologist for a dog-eat-dog order. It was Adam Smith, not Karl Marx, who warned: “No society can flourish where the far greater part of its members are poor and miserable;” or castigated a social order in which “a mother who has borne twenty children” sees only two survive; or said that mass production would brutalize men’s minds unless the government prevented it through energetic public education; or showed how road tolls help the rich “at the expense of the poor.”

"In fact Chomsky has done this in his commentary when he reference Adam Smith. He attempts to compare Adam Smith’s depiction to today free marketers and it would appear that Smih’s version is more benign. The problem with this rhetoric however is that it obscures (a Chomskyian trait) the TENDENCIES of the system and obscures how these tendencies operate to create social, political, economic and environmental PATHOLOGIES. The tendency on the Left has been to shy away from Marxian analysis and thus has opened the door to such rhetorical arguments like “corporatism” or “fascism” coming from the LEFT. For example the Chomsky interview with Christopher Hedges whereby Chomksy views the Tea Party as akin to Weimar Germany. This is totally ridiculous (especially coming from the world’s most renowned intellectual)..."

In “The Wealth of Nations” Adam Smith gave the world a new and witty and literate perception of the dismal science. But what would he have said about Microsoft and Warren Buffet?…

1776. It was the best of times, but in the main, it was by far the worst of times. Farmers, driven off the land so that sheep could graze or aristocrats ride to hounds, were whipped, or branded for vagabondage. Poverty was accepted as a natural, indeed inevitable, part of the natural order and the divine will. Britain, it was assumed, needed an ample supply of the impecunious: especially those with strong backs, grateful hands and ignorant heads. “Nothing requires more to be explained than trade!” complained Dr Johnson. By trade he meant that immense, unstudied structure of production, commerce and calculations that economics embraces. It was this world, this semi-feudal order that extended from the Caucasus to the Atlantic, that Adam Smith dissected, clarified, and revolutionized. Other theorists had meditated on isolated portions of economic life, but Smith attacked the nuclear concept of wealth itself: wealth is not gold and silver, as accepted doctrine took for granted, but the total sum of a nation’s resources and skills and production.

George Catlin. Five Points 1827. Free, unregulated competition, Smith audaciously argued, converts "the private interests and passions of men" into consequences "most agreeable to the interests of the whole society" - as if by an Invisible Hand, and despite the intentions of rapacious landlords, greedy merchants, mendacious traders, or ruthless profiteers.

“Humanity is the virtue of a woman, generosity that of a man. …I have never known much good done by those who affected to trade for the public good. …Man is an animal that makes bargains: no other animal does this – no dog exchanges bones with another. …No complaint is more common than that of a scarcity of money…No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable….On the road from the City of Skepticism, I had to pass through the Valley of Ambiguity. …The real tragedy of the poor is the poverty of their aspirations. …This is one of those cases in which the imagination is baffled by the facts….” ( Adam Smith )

Adam Smith:We cannot be sure what he looked like: the best portrait of him was probably painted after his death. He is described as having been of middle height, "full but not corpulent," with large grey eyes that beamed with benignity. He was a shy man, embarrassed with strangers and inattentive to ordinary things. He was deeply devoted to his mother, and never married. After his mother died, a maiden cousin looked after him: someone had to, for the professor was notoriously absentminded. He once brewed bread and butter, instead of tea. He walked fifteen miles down country lanes, still in his dressing robe, absorbed in some problem. On another occasion, he fell into a pit because he had not looked where he was going. He would stride along in his breeches and broad hat talking to himself, entirely blind to his surroundings, consumed by concentration on some intellectual question.

…Hot news: Nouriel Roubini says there’s a 40 per cent chance of a double-dip recession. Apparently, a 43 per cent chance is too high and a 38 per cent chance two low. The number is 40. Dr. Roubini is a professor at New York University. But he also runs his own shop of economic consulting, so he has a very keen interest in keeping his name in the headlines. There’s lots of money at stake, not to mention fame and glory.

How do you keep your name in headlines? By reminding everyone you got it right and therefore, it’s implied, you will get it right again and again. But that’s not enough: You also have to design your comments to attract attention. Dr. Roubini is good at it, but he isn’t alone. …

Nouriel Roubini. Teddy bear? "I also wonder how much money Dr. Roubini made shorting the housing catast

e that he so spectacularly called. Not enough to stop working hard, clearly. Lots of economists have gotten one call right and dined out on it for a long time. Few, in my experience at least, have gotten two big, bold calls right. And anyway, it’s easy to make a prediction; it’s a lot harder to do it with great conviction."- Fabrice Taylor

As to Adam Smith’s economic thought a policy. Here, a sharp and obvious distinction must be made between what was important in 1776 and what is important now. The first is very great; the second, save in the imagination of those who misuse Smith as a prophet of reaction, is much less so. The business corporation, which Smith deplored , and the wealth that accumulated in consequence of his advice combined against him. But first we must consider his meaning in 1776.

Nadia Weiner:"Although Adam Smith is often quoted, the so-called "Father of Economics" has rarely been read, either by his detractors or his admirers. Consequently he is often misunderstood. Smith, who made such a strong stand against the protectionist mercantile system of trade of his day, devoted over ONE THIRD of his masterpiece An Inquiry into the Nature and Causes of the Wealth of Nations, to discussing the subject of government revenue and the methods by which it may be best collected, including new taxes. This is not generally known."

Smith’s economic contribution to his own time can be thought of as falling into three categories: method, system and advice. The second, overflowing onto the third, is by far the most important. As to method, Smith gave to political economy, later to become economics, the basic structure which was to survive almost intact for the next century and a half. This structure, in turn, was more important than what it enclosed. Although Smith’s treatment of value, wages, profits and rents was suggestive and often incisive, it was, in all respects, a beginning and not an end. So it was regarded by Ricardo, Malthus and the two Mills.

To feel much for others and little for ourselves; to restrain our selfishness and exercise our benevolent affections, constitute the perfection of human nature. …Virtue is more to be feared than vice, because its excesses are not subject to the regulation of conscience. …With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches. …Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”

John Heartfield collage. George Soros: Instability extends well beyond financial markets: it affects the values that guide people in their actions. Economic theory takes values as given. At the time economic theory was born, in the age of Adam Smith, David Ricardo, and Alfred Marshall, this was a reasonable assumption, because people did, in fact, have firmly established values. Adam Smith himself combined a moral philosophy with his economic theory. Beneath the individual preferences that found expression in market behavior, people were guided by a set of moral principles that found expression in behavior outside the scope of the market mechanism. Deeply rooted in tradition, religion, and culture, these principles were not necessarily rational in the sense of representing conscious choices among available alternatives. Indeed, they often could not hold their own when alternatives became available. Market values served to undermine traditional values.

“…Technical analyst Robert Prechter drew lots of eyeballs and gasps when he said last month that the Dow would fall below 1,000 (this a mere decade after James Glassman and Kevin Hassett’s Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market made waves – remember that staggering piece of foresight?).

It doesn’t matter to Mr. Prechter that the earnings of the Dow companies – 30 of the biggest and brightest public companies in the world – would have to be ravaged like never before and trade at a price-earnings ratio that you could count on one thumb….”

Adam Smith was a good if disrhythmic talker, but a better listener, who soaked up information and insights from the conversation of others. He loved poetry and could recite classics from English, Latin, Greek, French, and Italian without a flaw. He was profoundly influenced by David Hume and Hume's writings and thinking; they were close friends; and Smith was at Hume's deathbed and wrote a moving account of the philosopher's last hours.

Thus, as one example, Smith held that the supply of workers would increase “pari passu” with an increase in the sustenance available for their support. Ricardo translated this thought into the iron law of wages; the rule that wages would tend alwaysto fall to the bare minimum necessary to sustain life. And, Malthus, going a step further, adduced his immortal conclusion that people everywhere would proliferate to the point of starvation. Smith was left far behind.

For Smith, the structure he gave to economics and the explanation of economic behavior that it contained were only steps in the creation of his larger system- his complete view of how economic life should be arranged and governed. Thjis was his central achievement. It provides a set of guiding rules for economic policy that are comprehensive and consistent without being arbitrary and dogmatic.

Johann Zoffany. 1780. It was a breathtaking revelation of the grand design that is hidden within the mundane, workaday world of production and trade: the best guarantor of men's welfare, and the rock on which rests man's freedom, is - the profit system. Smith even offered the startling judgement that Britain's colonies and slave labour were more of an economic disadvantage than asset. Smith illustrated this complex and paradoxical theme with matchless ingenuity, with a ceaseless cascade of facts and reasoning and analytic tours de force. And all that rolling, relentless argument came to focus on one conclusion: government should get out of, and keep hands off, the economy.

The Smithian system requires that the individual , suitably educated ,be left free to pursue his own interest. In doing so, he serves no perfectly, but better than by any alternative arrangement, the common public purpose. Self-interest or selfishness guides men, as though by the influence of an unseen hand, to the exercise of the diligence and intelligence that maximize productive effort and thus the public good. Private vice becomes a public virtue.

“…And he’s probably more long today, since he charges $20 a month for his newsletter. It’s not ridiculous to surmise that his subscriber list got a nice boost after he got all that attention with his bold and terrifying prediction.

Mr. Prechter might not have any real ability to predict the stock market (he could make a billion bucks with very little down making that kind of an outlier bet without telling anyone). But he understands human psychology: Most investors, according to studies, prefer an extreme and unusual forecast to a moderate prediction. The idea is that the person making such a forecast is more credible; he must have done his homework to go out on a limb like that, right? In any case, it pays off…”

Vulture Capitalists. "Mr. Prechter is convinced that we have entered a market decline of staggering proportions — perhaps the biggest of the last 300 years. The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. Robert Prechter Elliot Wave Theory Robert Prechter extraordinary forecast is based on some mathematical formula he invented, which is based on his version of the Elliott Wave theory — a technical approach to market analysis. The article does not go into details of the formula used but my guess is Robert Prechter is the only one who understands it."

In pursuit of private interest, producers exploit the opportunities inherent in the division of labor. Combined with the division of labor is the natural propensity of man “to truck, barter or exchange.” The freedom of the individual to do his best both in production and in exchange is inhibited by regulation and taxation. Thus the hand of the state should weigh on him as lightly as possible.

There follows Smith’s special case against internal, monopolistic, or international restrictions on trade. The case against international barriers gains force from the fact that both well-being and national strength derive not from the accumulation of precious metal, as Smith’s mercantilist precursors had held, but as Smith in effect said- from the productivity of the labor force. Given an industrious and productive labor force, in the most majestic of Smith’s arguments, the supply of gold will take care of itself.

Smith’s canon that “The subject of every State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State” , could be taken as an enduring prescription for a proportional as distinct from a progressive income tax. In fact, Smith was speaking only of what seemed possible and sensible in his own time. he would have moved with the times. It might be added that his modest prescription gives no comfort to tax shelters, special treatment of certain investment classes, or those who believe they were intended by nature to be untroubled by tax collection. Numerous of the big rich in the United States and abroad would find even Adam Smith’s proportional prescription rather costly as compared with what they now pay.

The most interesting question concern,s Smith’s system- his rules for guiding economic life. What of that survives?Is economic life still guided in appreciable measure by the unseen hand of self-interest; in modern language, by the market? What has happened to the notion of the minimal state, and is it forever dead? And what of Smith’s plea for the widest possible market both within and between nations?

Zoffany. Noam Chomsky:This is true of classical liberalism in general. The founders of classical liberalism, people like Adam Smith and Wilhelm von Humboldt, who is one of the great exponents of classical liberalism, and who inspired John Stuart Mill — they were what we would call libertarian socialists, at least that ïs the way I read them. For example, Humboldt, like Smith, says, Consider a craftsman who builds some beautiful thing. Humboldt says if he does it under external coercion, like pay, for wages, we may admire what he does but we despise what he is. On the other hand, if he does it out of his own free, creative expression of himself, under free will, not under external coercion of wage labor, then we also admire what he is because he’s a human being. He said any decent socioeconomic system will be based on the assumption that people have the freedom to inquire and create — since that’s the fundamental nature of humans — in free association with others, but certainly not under the kinds of external constraints that came to be called capitalism.

In truth, time has dealt harshly with Smith’s system. On one important matter he was simply wrong: his underestimate of man’s capacity , perhaps with some social conditioning, for co-operation. Further damage was done by an institution, the business corporation, for which he saw little future and which, on the whole, he deplored. And his system was gravely impaired by the very success of the prescription he offered.

Madame Sosostris, famous clairvoyante,
Has a bad cold, nevertheless
Is known to be the wisest woman in Europe,
With a wicked pack of cards. Here, said she,
Is your card, the drowned Phoenician Sailor.
(Those are pearls that were his eyes. Look!)
Here is Belladonna, the Lady of the Rocks,
The lady of situations.
Here is the man with three staves, and here the Wheel,
And here is the one-eyed merchant, and this card,
Which is blank, is something that he carries on his back,
Which I am forbidden to see. I do not find
The Hanged Man. Fear death by water.
I see crowds of people, walking round in a ring.
Thank you. If you see dear Mrs. Equitone,
Tell her I bring the horoscope myself;
One must be so careful these days. ( T.S. Eliot, The Wasteland ) …

DAVID BARSAMIAN: One of the heroes of the current right-wing revival… is Adam Smith. You’ve done some pretty impressive research on Smith that has excavated… a lot of information that’s not coming out. You’ve often quoted him describing the “vile maxim of the masters of mankind: all for ourselves and nothing for other people.”

NOAM CHOMSKY: I didn’t do any research at all on Smith. I just read him. There’s no research. Just read it. He’s pre-capitalist, a figure of the Enlightenment. What we would call capitalism he despised. People read snippets of Adam Smith, the few phrases they teach in school. Everybody reads the first paragraph of The Wealth of Nations where he talks about how wonderful the division of labor is. But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be. And therefore in any civilized society the government is going to have to take some measures to prevent division of labor from proceeding to its limits.

This truism was, a century later, called class analysis, but you don’t have to go to Marx to find it. It’s very explicit in Adam Smith. It’s so obvious that any ten-year-old can see it. So he didn’t make a big point of it. He just mentioned it. But that’s correct. If you read through his work, he’s intelligent. He’s a person who was from the Enlightenment. His driving motives were the assumption that people were guided by sympathy and feelings of solidarity and the need for control of their own work, much like other Enlightenment and early Romantic thinkers. He’s part of that period, the Scottish Enlightenment.”

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