By: Brian Harrisson

Author’s note

The argument herein was originally included in an essay submitted for publication in an international humanities journal, but was subsequently deleted for reasons of space limitation. Although the argument was ranked lower than others remaining for purposes of that essay, it is nevertheless regarded as important and so is made publicly available on this site, to readers. If the essay is not published this paper will be removed from the site. If the essay is published this paper will be modified to include the name of the journal to which it refers.

The argument

The notion of the efficient free markets with minimum government involvement, an important precept underlying the current neoclassical paradigm, had its genesis in the ideas of Adam Smith (1723–1790), the preeminent Worldly Philosopher[i] who in his renowned book The Wealth of Nations wrote inter alia, about how individuals working in their own self-interest benefit their society through his so called invisible hand effect:

He [every individual] generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. [para] 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 is no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. (Smith, 2010: 240)[ii].

His book provided one of the foundations for classical and later neoclassical economics. In interpreting Smiths work orthodox theorists ignored the philosophical context of his work, set out in his book, The Theory of Moral Sentiments (Moral sentiments). Smith had always made clear that government should be strong in umpiring the great game of the market economy[iii]. The need for a meaningful role for government in the economy is also reflected in Smith’s notion that “If justice is removed, the great, the immense fabric of human society…must in a moment crumble into atoms”. (Bolderman, 2007: 1). Smith also said:

The wise and virtuous man is at all times willing that his own private interests should be sacrificed to the public interest of his own particular order of society… He is at all times willing, too, that the interest of that order or society should be sacrificed to the greater interest of the state or sovereignty, of which of which it is only a subordinate part. (Smith, undated [1759]: 204).

Braham (2006: abstract) pointed out that:

 Contrary to belief among many economists and libertarian philosophers, Smith’s idea of justice was not simply the protection of a person’s property rights but also a protection from violation of their human dignity’… and …’protecting a person’s dignity turns out to be …a matter of protecting their material livelihood and the opportunities to develop their mental and moral capabilities…

It is clear that Smith envisaged an active role for Governments in society and the economy to ensure, inter alia, the achievement of justice. In contrast, orthodox economic theorists of the time portrayed a different picture of his ideas. They used those parts of Smiths thinking that suited the propertied classes while ignoring his thinking and concern for moral sentiment and justice expounded in his book Moral sentiments (Bolderman, 2007:19-20). This misleading portrayal is reflected in the older classical economic ideas and continues to be reflected in the modern version of those ideas, referred to as the ‘neoclassical economic paradigm’.

Economic theorists of old also distorted the ideas of the utilitarian philosophers. Bentham (1748–1832), used the phrase ‘greatest happiness of the greatest number” to describe utilitarianism (Titus and Smith, 1974, 124). Mill (1806–1873), accepted Bentham’s notion and argued that human beings are not satisfied with utility that represents the pleasures of the body or that resulting from the acquisition of things, but by those defined by higher pleasures of the mind (Titus and Smith, 1974: 124). Economic theorists distorted these ideas in two ways. First they portrayed utility as an individual quality driven quality reflected in the behavior of ‘Homo Economicus’ (whose rational self-centered behavioral patterns are assumed to be typical of players in markets. This contrasts with the social/community focused quality that Bentham intended. Second they portrayed utility as self-satisficing pleasure obtained from the consumption of goods and services, rather than from pleasures of the mind as visualized by Mills.

The distorted utilitarian ideas still form part of the neoclassical framework. When the selectively filtered ideas of the Worldly Philosophers are combined with the orthodox normative[iv] approach to economics (a value laden concept in itself), the system of neoclassical economics can be perceived as being based on a series of arbitrary constructs derived as much from the prejudices and values of theorists sympathetic to the propertied classes, as from empirically derived evidence. This approach hardly represents a sound foundation on which to build a science of economics in the spirit of Physics, as orthodox economic theoreticians aspire to do. Such models can be expected to produce unreliable real world projections and policy actions that favor the modern day version of the property classes.

The outcomes from the economic events in the USA during the period of neoclassical dominance (1981 to 2008) are consistent with these expectations. The answer to the question, represented by the essays title, is likely to be, yes.

20 July 2014

 

 

Endnotes

 

[i] Heilbronner (1991) used this term to describe the great economic thinkers.

[ii] Smith’s original book was published in 1776 under the title of ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ and is generally referred to by its shortened title ‘The Wealth of Nations’. The publisher Capstone refers to the edition as ‘a selected edition for the contemporary reader.

[iii] See forward by Butler pp vii and viii in, Smith (2010)

[iv] Normative economics is concerned with judgments about ‘what ought to be’ in contrast to positive economics which is concerned with ‘what is’ (Bannock and Baxter, 2011: Normative economics)

 

References

Bannock G and Baxter RE (2011), The Penguin Dictionary of Economics. London: Penguin.

Boldeman L (2007) Cult of the market: Economic fundamentalism and its discontents. Canberra: Australian National University Press.

Braham M (2006), Adam Smith’s concept of social justice. Mimeo, Institute of Socio Economics (IAW) University of Hamburg. Available (consulted January 9 2014) at: http://www.excellentfuture.ca/sites/default/files/Adam%20Smith%27s%20Concept%20of%20Social%20Justice.pdf

Heilbroner R (1991), The Worldly Philosophers. London: Penguin Books.

Smith A (2010) The Wealth of Nations (A selected edition for the contemporary reader with an introduction by Tom Butler-Bowdon) Capstone, Chichester UK

Smith A (undated), The Theory of Moral Sentiments. (City, State and publisher not shown. Book printed in USA)

Titus HH and Smith MS (1974) Living issues in Philosophy. New York: D Van Nostrand Company.

 

 

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