Friday, March 09, 2018

Good Essay but Flawed

Eva Schlunke posts (9 March) on PCES a ‘Guest Post’: ‘Dr Smith’s Prophylactic

This readable essay is typical of its type, where its author summarises what she believes is an honest presentation of Adam Smith’s life and contributions to 18th-century social and intellectual life and its eventual absorption into the history of ideas.
From his townhouse window in Glasgow, overlooking a crowded marketplace, he watched people and pondered their motivations. He was curious, and he was there, a spectator at the delivery of the birth of the industrial revolution.”
Eva starts of her account revealing her imagination, not historical facts. Smith did not live in a Glasgow town house. As a student he lived on campus or in rented accommodation, which was an impressive set of buildings besides Glasgow’s Cathedral. As a Professor he also lived on campus in Professor’s Close with his mother and aunt. Neither accommodation overlooked a ‘crowded market’ though they were sited not far away. 
Smith’s road from his Glasgow professorship was certainly direct but lasted 10 years in all. I discuss the circumstances in my new book, ’An Authentic Account of Adam Smith’, Palgrave Macmillan, 2018 (blatent plug!).
Eva is an honest summariser but crams vast sweeps of history into short events. The ‘Industrial Revolution’ long postdated Adam Smith, who died in 1790. ‘Capitalism’ was unknown while Smith was alive - the word itself was first used in 1833 in an obscure English newspaper and much later in Thackery’s novel, The Newcomes.

Modern authors should be careful when back-projecting modern ideas onto much earlier events. Apart from these quibbles, Eva Schlunke’s article is timely datewise and appropriately welcome as a memorial to a major intellectual event in the history of poltical economy.

Thursday, March 08, 2018


My rather complicated recent/current illness continues with new twists and turns. Currently the initial storm phase has passed (hopefully) and remedial help will improve my condition by starting soon.
Its a potentially serious blood disorder for which interventions are required.
The most obvious problem is one of maintaining attention to various projects plus my own writings.
Several projects are on my desk still awaiting my appropriate attention.
I hope the affected editors forgive me by inability to focus the appropriate level of attention they require and deserve.
Nobody is more disappointed than I am, I can assure readers and editors.
Hopefully this period may correct itself sooner rather than later.
Very best regards.
Gavin Kennedy

Wednesday, February 14, 2018




On Kennedy’s Literary Proof of the Impossibility that Smith had a ‘Theory of the Invisible Hand of markets’ in The Wealth of Nations, by Michael Emmett Brady, California State University, Dominguez Hills, Carson, California, 
Abstract- G. Kennedy carefully examined the conflict that Smith covered in The Wealth of Nations brought about by Upper Income citizens that Smith classified as “ Projectors, Imprudent risk takers, and Prodigals” . Their behavior led to very detrimental , negative outcomes in the macro economy as a whole.
Invisible Hand that turned the self interested, self serving interests of the Projectors, Imprudent risk takers, and Prodigals into benefits for society as a whole. Instead, there was massive bankruptcy , economic decline,and depression. Kennedy’s literary proof has been ignored, as has Smith’s extensive discussion of this problem in The Wealth of Nations
The reason for this may be that most modern economists have forgotten how the use of the English language can be applied to provide an effective economic analysis of an economic problem as demonstrated by Smith. A separate paper provides a purely mathematical treatment on this problem. It is available at SSRN. [Electronic copy available at:] 
That article translates Smith’s analysis of the impact of Projectors, Imprudent risk takers, and Prodigals on the macro economy into mathematics. 
Section 1.Introduction 
Adam Smith analyzed the impact in The Wealth of Nations(WN,1776) of a group of individuals he classified as Projectors, Imprudent risk takers, and Prodigals. Smith introduced the ”projectors “ on pages 114-115 of The Wealth of Nations (Modern Library(Cannan) Edition).He returned to them again on pp.279- 341.We will cover Smith’s neglected, but highly relevant analysis of the impact this particular group of individuals has on the economy as a whole.Section Three will cover Kennedy’s demonstration that no Invisible Hand could possibly be at work in any kind of situation where such a group is free to practice their own self interested actions. … 
,,, Section 3.Kennedy’s demonstration of the Impossibility that any such “Invisible Hand” Theorem can be ascribed to Smith 
Kennedy needs only one of the Adam Smith quotations from Section two above to make his point : 
“To restrain private people, it may be said, from receiving in payment the promissory notes of a banker for any sum, whether great or small, when they themselves are willing to receive them; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty, which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed. .(Smith,1776,p. 308). 
Kennedy draws the following conclusions: 
A too liberal a lending policy, whether from fraud by borrowers(S & L-junk bonds scheme,Dot.Com scheme, Sub prime mortgage banked bonds scheme) or from the false beliefs of bankers,was ruinous of the general interest of society…”(Kennedy,2008,p.110) 15 
“The self- interests of these players worked directly against the best interests of everyone affected by their actions. His frankness about imprudent behavior shows awareness that private interests are not always conducive to the good of society. If this point were understood among modern economists, the consensus that Smith had a ‘theory of the invisible hand of the markets ’leading to harmony would be heard no more.”(Kennedy,2008,p.110). 
Section 4. Conclusions 
The claim that Adam Smith had an Invisible Hand Theorem that postulated that individual self interested,self serving decisions ,made at the microeconomic level, were transformed by market mechanisms into societal or social benefits for all at the macroeconomic level,is false .It is false because Smith’s sixty pages of discussions in the WN from pages 279-340,related to self interested,self serving decisions, made at the microeconomic level by projectors and prodigals ,shows that this kind of behavior DOES NOT lead to societal or social benefits for all at the macroeconomic level,but to depression and the destruction of the banks unless bailed out by tax payers. 
Kennedy is the only academic who has carefully sifted these pages of the WN.The only way that Kennedy’s literary proof,based directly on Smith’s own assessment of the Ayr bank’s collapse,as well as his great knowledge of other projectors ,such as the British East India Company’s ultimately failed projects in Africa,India, and the United States and John Law, is to, like West and Viner, try to sidestep the problem.
Naturally, I am obliged to Michael Emmett Brady for publishing his analyses of the modern misperceptions of Adam Smith’s reference to the ‘invisible hand’ metaphor that has acquired the unique status of a cult figure in modern economics since Paul Samuelson launched his erroneous theory on the world in 1948.
Readers can also sample Brady’s quality arguments on the invisible hand by following the link, and also read his thorough analyses of Keyne’s General Theory in a series of his papers ipublished in SSRN. [Electronic copy available at:]

I would add Michael Emmet Brady to the albeit slowly growing list of modern economists who are waking up to myths of the invisible hand within their subject as presented by the majority of their colleagues across the world.

Thursday, February 01, 2018


Allan Sleeman, Economics Department of Western Washington University, Bellingham, WA 98225, has written a draft paper that is very close to my own albeit somewhat muddled thinking on there being something wrong with traditional economic teachings on basic microeconomics, let alone Nobel Prize-winning maths constructs earning high incomes and prestige for their compilers. 
I used to deliver the S-D constructs to first-year students of economics long ago in the late1960s through for many years into the 1980s. 
I am not able to post  Alan Sleeman’s paper on Lost Legacy at the request of the author, but I recommend that teachers of economics contact Allan Sleeman to request a copy of it:
Yes, it is basic stuff but if there is something wrong with its ideas surely we should think about its wider implications?
I certainly have on and off in recent years, especially where the widespread use of mathematics is so prevalent, and worse, is taken so seriously by scholars and policy makers.

Perhaps I shall return to this subject in due course…

Monday, January 29, 2018


David Friedman’s comments on an old Lost Legacy Post (August 11, 2005):
Adam Smith:
"The expense of the institutions for education and religious instruction is likewise, no doubt, beneficial to the whole society, and may, therefore, without injustice, be defrayed by the general contribution of the whole society. This expense, however, might perhaps with equal propriety, and even with some advantage, be defrayed altogether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either the one or the other."
“Or in other words, some public funding of schooling is not unjust but an entirely private system is also not unjust and might even be preferable.”
And this week, 2018) from David Friedman:
"Smith in Book V of “Wealth of Nations” favoured state investment in defence (the ‘first duty of government’); justice (without justice society would ‘crumble to atoms’); public works for projects beyond private finance (roads, canals, harbours and bridges); education of youth (a school in every village)" Except that Adam Smith did not "favour ... state investment in ... education of youth." He has a very long discussion of the arguments for and against government involvement in education, in the course of which he raises a number of possibilities, including a modest subsidy to local schools--one paying only a minority of their costs. By quoting from the arguments for government involvement one can make it look as though that was the position his supported. By quoting from the arguments against ("Those parts of education, it is to be observed, for the teaching of which there are no public institutions, are generally the best taught") one can create the reverse effect. But his final on There are Regulations and Regulations: some help, others hinder
Resurecting a debate about the education of 18th century youth that ignores context is more than a trifle disingenuous in the 21st Century.
At the time, most children (mainly the poor) in England did not go to school at all. Illiteracy was widespread. In contrast, in Scotland, most children did go to school following the reforms from the 16th-17th centuries that established ‘little schools’ in every village, mostly funded by local government and parents, enthusiastically supported by the (protestant) Church of Scotland. Also parents were encouraged (in Church sermons - then an active social media). - to send their boy children to school at least to read and write simple language until 8 years old. Adam Smith in the 18th century went to the village grammar school until he was 14 near to where he was brought up by his mother in Kirkcaldy. (The space where it was then situated is now small carpark).
But private education was largely unavailable except to the relatively well-off. That remains true over much of the world as it did until the 1880s in the UK. 

David Freidman takes a narrow focus. Has he ever been poor - I mean really poor? I have and I can report that even very modest wealth is much better. My route out of poverty was education, almost all of it provided by the UK state and my own inner drive. 

Sunday, January 28, 2018


Ursula Onions posts on “amaze UI’ that includes includes a copy of my paper HERE , “Adam Smith and the Invisible Hand; from Metaphor to Myth”, under the heading:
‘There is no invisible hand Adam Smith’
This is part of an increasing trend across BlogLand for mentions of my conference paper to be made and for which I am grateful, whether they are supportive or critical.

The metaphor of an ‘invisible hand’ is a misreading of Adam Smith bt moderm 20th century economists, particularly lead by Paul Samuelson in his popular textbook, Economics, McGraw-Hill (1948 in 19 editio and 5 millions sales to 2010).

Saturday, January 13, 2018


Alex Massie's and Mike Norman's reviews of the excellent long biographical essay by Dennis Rasmussen on the academic and friendly relationship between David Hume and Adam Smith : The Infidel and the Professor, Princeton University, 2017, continues to receive excellent reviews.
I urge readers to order their own copies and/or to influence  purchases by their departmental/university colleagues.


Gavin Kennedy — Lost Legacy’s Stance of the Invisible Hand Is Endorsed by Mike Norman HERE

Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.