Monday, May 17, 2010

253: Adam Smith (1723 – 1790)

The story begins with mercantilism, the dominating economic theory and practice in the early ages in Europe. The basic idea is that the state gains dominance and power by becoming as rich as possible.

That means that the state has to control all trade and tries to achieve to export more than to import. Therefore the own industry is promoted and financially supported while import is strongly discouraged through the use of import taxes.

Adam Smith, a Scottish philosopher, left us among other things two important books. The "Theory of Moral Sentiments", drawn from his course of lectures, was published in 1759 and "An Inquiry into the Nature and Causes of the Wealth of Nations". (1776)

Especially the second book had a great impact and marked the end of mercantilism. The Theory of Moral Sentiment is written in the finest tradition of the Scottish philosophers, where David Hume may be regarded as the initiator.

If fact in those days, certainly stimulated by the development of scientific method, as demonstrated by Newton, every scientist tried to understand Nature and its laws.

Also the moral philosophers tried to get hold of human nature and its "laws". This gave rise to a specific kind of philosophical anthropology. What makes human nature moral. Where does morality come from?

Hobbes had already opened the debate by pointing at the extreme selfishness of the human being. His views were not adopted by Hume, who saw the basis of morality in the "sympathy" for your fellowmen.

Adam Smith embraces the Newtonian process of scientific experimentation and explanation. Moral rules are akin to the laws of physics; they can be discovered. According to him, our sentiments give rise to approval or condemnation of a moral act.

What is most interesting is, that virtue ethics is strongly supported in those days along with an optimistic view on the nature of the human being.

The human being is intrinsically good. And according to Smith, humans have a natural love for society and can develop neither moral nor aesthetic standards in isolation.Based on this positive idea of mankind, Smith develops his ideas on economics, on how the state should be organized.

An Inquiry into the Nature and Causes of the Wealth of Nations is partly a description of the actual conditions of manufacture and trade in Smith’s own time, partly a history of European economics,

and partly recommendations to governments. Smith opposes the mercantilist beliefs that money is wealth and that the best economic policy for a country is the retention within its borders of as much gold and silver as possible.

"The annual labour of every nation", says Smith, " is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations."

Human society is as natural as the people in it, and, as such, Smith rejects the notion of a social contract in both of his books. There was never a time that humanity lived outside of society,

and political development is the product of evolution (not his term) rather than a radical shift in organization. The state of nature is society for Smith, and, therefore, the rules that govern the system necessitate certain outcomes.

Smith saw the state as a natural proces in which we could discover natural laws. Not all the gold which a state owns brings wealth but labor brings wealth, Smith argues. The more one labors the more one earns.

This supplies individuals and the community with their necessities, and, with enough money, it offers the means to make life more convenient and sometimes to pursue additional revenue.

Smith believes that a commercial system betters the lives for the worst off in society; all individuals should have the necessities needed to live reasonably well.

As he explains, there are only three proper roles for the sovereign: to protect a society from invasion by outside forces, to enforce justice and protect citizens from one another,

and “thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain.

The government's intervention in this process of labor, production and trade should be kept small. And Smith believed as stated in The Wealth of Nations that the creation of “universal opulence which extends itself to the lowest ranks of the people”

Welcome to Liberalism…

The Discussion

[13:20] herman Bergson: So much on Adam Smith
[13:21] oola Neruda: that sounds very logical... and proper
[13:21] hope63 Shepherd: its a saddening thought that we study the ancient greeks and the greeks don't study guys like smith:)
[13:21] Gemma Cleanslate: it does but then does it work
[13:22] herman Bergson: Yes oola, what is remarkable is the positive belief in the effects of the free market on society
[13:22] Gemma Cleanslate: that premise is a bone of contention here all the time
[13:22] herman Bergson: Even the lowest in society will benefit of it, he claims
[13:22] oola Neruda: i like the maintaining of public institutions...
[13:22] Gemma Cleanslate: should
[13:22] Kiki Walpanheim: hi rodney
[13:22] Rodney Handrick: hi kiki
[13:22] Bruce Mowbray: Yo, Rod.
[13:22] herman Bergson: Hi Rodney
[13:22] Rodney Handrick: hi bruce
[13:22] Rodney Handrick: hi Herman
[13:23] oola Neruda: like the national gallery, the smithonian and the library of congress
[13:23] herman Bergson: Yes such institutions a private person could not afford, like schools , hospitals..etc
[13:23] herman Bergson: Musea..yes
[13:23] Gemma Cleanslate: :-)
[13:23] herman Bergson: But what is interesting in Europe in these days...
[13:24] Gemma Cleanslate: but they first place they take money from when they need it is those very public places
[13:24] Gemma Cleanslate: especially schools
[13:24] herman Bergson: Postal Services and Public transportation (bus, train) for instance were all owned by the state...
[13:24] Kiki Walpanheim: how much intervention is much...
[13:24] herman Bergson: and now they all have become privately owned businesses...
[13:24] oola Neruda: you are right gemma
[13:24] Gemma Cleanslate: yes
[13:24] herman Bergson: Yes Kiki...that is the point...
[13:25] Kiki Walpanheim: is postal service in the US privately owned too
[13:25] Gemma Cleanslate: yes
[13:25] Kiki Walpanheim: oh...
[13:25] hope63 Shepherd: not all.. ups....
[13:25] Gemma Cleanslate: but still connected to the government in some way
[13:25] Kiki Walpanheim: oh....
[13:25] Rodney Handrick: quasi-government
[13:26] herman Bergson: Here we have developed a firm belief in the effects of the market...
[13:26] Gemma Cleanslate: here i think it is toooooo firm
[13:26] herman Bergson: Even healthcare and hospitals have become privately owned businesses....with a disastrous effect
[13:26] oola Neruda: here also
[13:26] Gemma Cleanslate: yes
[13:27] Gemma Cleanslate: and the disaster is so so visible
[13:27] Kiki Walpanheim: like price floors, ceilings, minimum wage.... intervention preventing monopoly to ensure competition...
[13:27] herman Bergson: They say the market and competition will lower the costs...
[13:27] Rodney Handrick: you folks in Europe may have to bail us Americans out
[13:27] Gemma Cleanslate: lololo
[13:27] Kiki Walpanheim: and there are private schools too....
[13:27] Gemma Cleanslate: after we finish all out bailouts
[13:27] herman Bergson: Well.... a lot is owned by Chinese capital too
[13:28] oola Neruda: the market and competition was part of our american problem
[13:28] oola Neruda: no regulations
[13:28] oola Neruda: few
[13:28] herman Bergson: Yes..and here it doesnt work either
[13:28] herman Bergson: except for the greedy bankers
[13:28] Bruce Mowbray: So, what would Adam Smith say about cartels and monopolies?
[13:29] oola Neruda: is that supposed to be part of protecting the people from each other?
[13:29] Kiki Walpanheim: i think america has regulations on cartels , monopolies
[13:29] hope63 Shepherd: well.. didn't work in state owned services. like the old soviet union.. its a complicated and complex matter
[13:29] herman Bergson: I dont think he would approve that Bruce...
[13:29] Rodney Handrick: that's the point it's about greed!
[13:29] hope63 Shepherd: but oola is right about regulations.. key word.
[13:30] herman Bergson: Yes Hope.... and I relate that to the philosophical do we define human nature...
[13:30] oola Neruda: and greed... keyword
[13:30] herman Bergson: as intrinsically bad or good...
[13:30] hope63 Shepherd: smile.. i would say neither nor:)
[13:30] herman Bergson: I think the former Soviets started with BAD...the individual is bad...greedy and selfish by nature
[13:31] herman Bergson: Where Adam Smith says...human nature is basically good
[13:31] Kiki Walpanheim: well....USSR.......even if you assume ppl are NOT greedy and run on that assumption...people still are selfish...they could find ways to get around to it..
[13:32] oola Neruda: i know some chinese from the communist point of view...
[13:32] Kiki Walpanheim: I think what adam smith tells is....taking advantage of ppls' self interest
[13:32] Bruce Mowbray: The Enlightenment - upon whose philosophical view the US was supposed founded - thought that human nature was basically good. . .
[13:32] herman Bergson: Yes Bruce....
[13:32] Rodney Handrick: this is true Bruce
[13:33] Kiki Walpanheim: or....adam smiths does NOT consider selfish interest as immoral
[13:33] oola Neruda: they felt that with assigned work.. that you would be paid for regardless... and maybe did not care to do... little chance for change or advancement
[13:33] Kiki Walpanheim: in this way, human nature is good
[13:33] hope63 Shepherd: smith you say
[13:33] oola Neruda: there was little reason to either work hard... or hope...
[13:33] Rodney Handrick: the fly in the ointment was slavery...but that was economics as well
[13:33] oola Neruda: and this made progress ... not happen like it could
[13:33] oola Neruda: the dedication was not there
[13:34] Kiki Walpanheim: communism is assume everyone works for the market is amusing everyone works for their own self interest
[13:34] herman Bergson: Smith sees selfishness as a social drive eventually
[13:34] hope63 Shepherd: isn't it?
[13:34] Kiki Walpanheim: and competition is seen as a drive for promotion too
[13:34] Rodney Handrick: the governor should be ethics
[13:35] herman Bergson: Yes Kiki.....but in their ethics the Scottish philosophers saw morality based on sympathy for your fellowmen...
[13:35] Kiki Walpanheim: selfishness plus competition...which seem to be bad at first sight, could be led to the good
[13:35] Kiki Walpanheim: oh.....
[13:36] hope63 Shepherd: very christian thought-morality is love tho neighbor..
[13:36] Kiki Walpanheim: the intervention on cartels and monopoly is to prevent firms from cooperation...but competition instead...
[13:36] herman Bergson: yes...but according to Smith this selfishness functions in a cant be have to care for your fellowmen to make things work
[13:36] Gemma Cleanslate: so many cannot grasp that idea
[13:36] oola Neruda: and not build bridges to nowhere
[13:36] Bruce Mowbray: I "selfishly" create the Ford Motor Company -- and in the process, create work for millions...
[13:36] Kiki Walpanheim: or....encourage competition...and prevent too much cooperation
[13:37] herman Bergson: yes Bruce that's the way
[13:37] hope63 Shepherd: care for your fellowmen should read care for those who are in the production line..
[13:37] hope63 Shepherd: that didn't happen..
[13:37] oola Neruda: ahhh unions
[13:37] herman Bergson: No Hope....and that is the problem Marx will point at
[13:37] Bruce Mowbray: I wonder what Smith would have thought about labor unions.
[13:37] Rodney Handrick: the problem with Ford is that he thought he was a savior of the masses
[13:38] Rodney Handrick: *with
[13:38] Kiki Walpanheim: it's about...when you work....are you thinking about self interest/benefit, or ...benevolence....
[13:38] Gemma Cleanslate: well if he saw what was happening with out unions i think he would have encouraged them
[13:38] herman Bergson: Yes Kiki
[13:38] Kiki Walpanheim: i think communism is to assume ppl work for benevolence....
[13:39] Kiki Walpanheim: perhaps...
[13:39] hope63 Shepherd: no kiki..
[13:39] herman Bergson: Smith pleaded for educationn in virtue....among them benevolence
[13:39] oola Neruda: i agree kiki
[13:39] Rodney Handrick: yes, education is paramount
[13:39] hope63 Shepherd: benevolence is possible if you could first fulfill your basic needs..
[13:39] herman Bergson: Yes Kiki and in that respect the human being is a bit overestimated, I guess
[13:39] oola Neruda: in all is paramount… agreed... in ALL
[13:40] Kiki Walpanheim: nods
[13:40] hope63 Shepherd: yes oola.. but what should one teach the kids..
[13:40] oola Neruda: ahhh you hit the hot spot hope
[13:40] herman Bergson: we have started with Adam Smith and his ideas...we might look into Liberalism as such the next time
[13:40] Rodney Handrick: case in point…finance should be taught from the elementary grades
[13:40] hope63 Shepherd: smile-- you noticed i'm back:)
[13:41] oola Neruda: and no child left behind is not hitting those abstract NECESSARY hot spots
[13:41] herman Bergson: well...they learn counting Rodney.. ㋡
[13:41] hope63 Shepherd: and spending lol
[13:41] Rodney Handrick: I don't think it was meant too oola
[13:41] herman Bergson: and arithmatics
[13:42] hope63 Shepherd: to keep the economy going:)$
[13:42] oola Neruda: smiles... to rodney... bunch of businessmen meddling and making schools into factories
[13:42] Bruce Mowbray: Public TV stations (PBS) in America are teaching business to children -- I love to watch their afternoon programs.
[13:42] Kiki Walpanheim: wonders what adam smiths thinks about protectionism too
[13:42] Gemma Cleanslate: lol oola
[13:43] Rodney Handrick: I don't think the world would be in the financial pickle it's in now if people had a basic knowledge of finance
[13:43] herman Bergson: He is against protectionism...
[13:43] Kiki Walpanheim: oh....
[13:43] herman Bergson: mercantilism is a kind of protectionism too
[13:43] Kiki Walpanheim: oh...
[13:43] herman Bergson: The labor creates the necessities...and all that is produced more is good for free trade
[13:44] Bruce Mowbray: Sure -- those taxes on imports "protect" the domestic production.
[13:44] Bruce Mowbray: Mercantilism.
[13:44] herman Bergson: exactly...
[13:44] oola Neruda: the industrial revolution was the first step toward schools as factories... at that time, the organization was helpful... but now it is destructive by it's being OVERDONE
[13:44] Gemma Cleanslate: never thought of that oola
[13:44] Rodney Handrick: I agree oola
[13:44] oola Neruda: misapplied or misunderstood
[13:44] Gemma Cleanslate: yes
[13:45] hope63 Shepherd: schools as factories' explain
[13:45] herman Bergson: you mean schools are now like factories oola?
[13:45] oola Neruda: you would not pay dentists in an affluent neighborhood and a challenged neighborhood by the number of fillings they don't have to do...
[13:45] Rodney Handrick: yes...still in the elementary grades
[13:46] oola Neruda: they want to pay teachers by how many students get certain grades
[13:46] oola Neruda: while charter schools skim off many of the students who would be getting those grades
[13:46] Bruce Mowbray: Passing the state-required tests is "our most important product."
[13:46] herman Bergson: Has been debated here in the NEtherlands too oola
[13:46] Gemma Cleanslate: called merit pay
[13:46] herman Bergson: education delivered a product
[13:46] oola Neruda: they teach to the tests ... not to the actual needs of the child or society
[13:46] Rodney Handrick: doesn't work unless the parents do their part
[13:47] Bruce Mowbray: agreed, oola.
[13:47] Gemma Cleanslate: forced to teach to the test
[13:47] herman Bergson: yes....very questionable ideas
[13:47] Bruce Mowbray: They have to in order to get funded.
[13:47] oola Neruda: right... but teachers are to blame if they don't learn... not conditions in the neighborhood/home
[13:47] oola Neruda: according to them
[13:48] Gemma Cleanslate: and each group ... each year there is a very different composition
[13:48] oola Neruda: know a fourth grade child who had hangovers and missed a lot of what was going on in class
[13:48] Rodney Handrick: this is what is being overlooked oola
[13:48] Kiki Walpanheim: i think the prestige of an institution should not be too much related to the final test.....the achievement of alumni in the long run is far more important e.g.
[13:48] herman Bergson: I guess we are loosing our focus on the subject of today...
[13:48] oola Neruda: can the teacher be called to task for that
[13:48] hope63 Shepherd: education is a key problem in all the western countries..not just third world..
[13:48] oola Neruda: sorry ... prof
[13:48] herman Bergson smiles
[13:48] Gemma Cleanslate: i guess so lol
[13:48] Bruce Mowbray: Did Scotland/Europe have mass education in Smith's day?
[13:49] hope63 Shepherd: they try to find solutions butt don't seem to get the right one..
[13:49] Rodney Handrick: for example due to racial strife a high school recently spent one million ($) on security equipment
[13:49] herman Bergson: Education was an upperclass issue Bruce
[13:49] Bruce Mowbray: Perhaps Smith was assuming that everyone would be 'properly' educated.
[13:49] herman Bergson: yes...that was definitely an assumption....
[13:50] Kiki Walpanheim: i think how the state stardard test is defined is a noticable issue too
[13:50] hope63 Shepherd: could we call adam as the grandfather of global markets with his idea of the equalizing factor in the exchange with other states?
[13:50] Kiki Walpanheim: if the test result is only used as a reference....not highly correlated with college entrance/careers
[13:50] oola Neruda: yes... does not take learning styles into account
[13:51] herman Bergson: Back to Liberalism.....
[13:51] Kiki Walpanheim: and if the test only encourages kids to learn to read/write, and math...rather than shaping the kids into some model....then
[13:51] Kiki Walpanheim: then the test is not too bad
[13:51] oola Neruda: can you define liberalism professor
[13:51] Bruce Mowbray: ;-)
[13:51] Kiki Walpanheim: i spent too many years for the national college entrance exam....i hate it...
[13:51] herman Bergson: and the question to what extend it is acceptable that the state interferes with social processes like education, healthcare, free market etc.
[13:52] Rodney Handrick: "liberalism" a dirty word
[13:52] Kiki Walpanheim: tho it finished in the end...loads of years were spent with heavy study load....
[13:52] Gemma Cleanslate: lol yes
[13:52] hope63 Shepherd: kiki relax.. you made it:)
[13:52] Kiki Walpanheim: ;)
[13:52] Gemma Cleanslate: interferes or guides Herman
[13:52] Gemma Cleanslate: or regulates
[13:52] herman Bergson: Right Hope..she made it...also to the Philosophy Class ^_^
[13:52] Rodney Handrick: lol
[13:52] Kiki Walpanheim: ;-)
[13:53] Bruce Mowbray: haha
[13:53] herman Bergson: That is what we will investigate Gemma...
[13:53] Gemma Cleanslate: ok
[13:53] herman Bergson: So next lecture will be an elaborated view on liberalism in general..... does it hold or doesnt it...
[13:54] Gemma Cleanslate: ok
[13:54] herman Bergson: So may I thank you for you participation again ㋡
[13:54] Gemma Cleanslate: ♥ Thank Youuuuuuuuuu!! ♥
[13:54] Bruce Mowbray: THANK YOU, everyone!
[13:54] Qwark Allen: you welcome
[13:54] Kiki Walpanheim: Thank you professor and everyone
[13:54] Qwark Allen: ******* Herman *******
[13:54] Qwark Allen: and thank you
[13:54] Rodney Handrick: Thanks Herman
[13:54] Gemma Cleanslate: see you tuesday then
[13:54] Bruce Mowbray: See you all on Tuesday.
[13:54] herman Bergson: Till Tuesday!
[13:54] Qwark Allen: AAHH!!!
[13:54] Qwark Allen: ok
[13:54] herman Bergson: Class dismissed ㋡
[13:55] oola Neruda: thank you... have a great day/night class
[13:55] hope63 Shepherd: thanks herman.. nice lecture.. hope i can be back soon
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