"I have come to the conclusion, and I have thought a great deal on the subject, that there is a great deal more in the old classical doctrines than people are now willing to admit. It is not true that there is no ‘invisible hand’ as Marshall called it. The trouble is it’s such a damned slow hand. But there is no doubt that the deep currents of the economic system do run in the way in which the classical system suggested. The trouble is that, if you rely on them alone, you impose an intolerable strain.We need some drops of the classical medicine. They are essential to keep the long-run interests before us, even though we use new methods to tackle short-run problems. In fact, it will only be able to work in the long run if we do solve these short-run problems. We must devise new methods to supplement, not supplant, the doctrines of Adam Smith."
- John Maynard Keynes, 1946
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What's wrong with supplanting Adam Smith? Free marketers have been more willing to do it than non-free marketers.
ReplyDeleteJoseph Schumpeter once wrote an economics textbook without a single mention of any Anglo-American economist. All the exact same theories were there. Except they were attributed to continental European economists only, and if anybody wanted to allege Anglo-American precendent, he would find older dates for continental Europeans.
The truth is that Adam Smith owed much of his ideas to French, Spanish, German,.etc economists, but he did not give proper credit like a true gentleman. He also set the field some years backwards with ideas of Labour Theory of Value, even with other economists having been decades ahead of him in identifying it as dubious.
Plenty of what Smith said needs to be attacked fully, "supplementing" be damned. Gary North, an Austrian school-er, recently said that such ideas of "self interest" fail to explain why people have children or why people made the Brooklyn Bridge to last beyond their lifetimes. Just as much needed is an attack on his idea that businessmen are guilty until proven innocent and that they will always gather to conspire against the public (even Friedman is guilty of using anti-businessperson rhetoric to win over his opponents), especially since "monopolies" like General Motors never last and since all collusions are fragile and lead to price wars a la American airline industry post-deregulation by Carter Democrats.
What is wrong with even a giant like Smith is that he childishly considered himself a philosopher and tried to use his economics to justify his political doctrine of "Utilitarianism". Economists (including free marketers) hypocritically suggest businessmen stay out of politics and government, but they don't realize that the same applies to them, when they too have ulterior motives for which they exploit government.
Prateek, do you not feel the need to have any familiarity with a subject prior to lecturing others on it? Smith was NOT a utilitarian. He WAS a moral philosopher -- that, in fact, was what he was professor of. And, as Schumpeter notes, Smith did NOT have a labor theory of value.
ReplyDeleteI stand corrected with eggs on my face.
ReplyDeleteNo problems.
Strange, I reread my post, and it looks like I have gone back on the promise I made to myself months back to be reserved and cautious on everything I write or speak (internet or IRL), and after rechecking every strong claim, if so made.
ReplyDeleteMy regression to bad habits troubles me! ;)