Sunday, May 20, 2012

405: The Utopia of the Free Market - Adam Smith

The ideas of Ayn Rand in her utopia "Atlas Shrugged" (1957) can hardly be called original. Like she borrowed almost literally the ideas on property from John Locke (1632 - 1704), thus she took the ideas of Adam Smith (1723 - 1790) on self-interest too.

Adam Smith, a philosopher of the Scottish Enlightenment like his contemporary David Hume (1711 - 1776), was a brilliant observer.

In 1759 he published his "Theory of the Moral Sentiments". Not some metaphysical treatise on ethics, but an attempt to deduce from observation general moral principles.

The same approach we find in his famous "An Inquiry Into the Nature and Causes of the Wealth of Nations" from 1776.
You really should read it, or at least a few chapters.

You will be amazed and become a witness of the first steps into a market society, the first attempts of mass production, the division of labor,

and the immense important discovery by Adam Smith, that the value of products depends on  the labor that is put in. Thus, the real commodity of value in an economy is labor.

It is really exciting to read his observations and interpretations. His style is clear and very readable. At the end of the lecture I'll give you information where to find "The Wealth of Nations" as it is usually called.

An example: -quote
In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. 

But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only.

He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. (p.16, An Inquiry Into the Nature and Causes of the Wealth of Nations,1776,  Adelaide edition 2008)
- end quote

By the way, did you notice the expression "every other race of animals"?  We have to wait for Darwin at least another 100 years. Did Smith see th human being already as an animal among animals, only a more special animal?

And then on the next page probably the most often quoted passage: - quote

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. 

We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens.
- end quote

Ayn Rand couldn't get it better. A clear statement that the basic drive of the human being is self-love, or, as she preferred to call it: self-interest.

Just listen to this: - quote
I find it remarkable that our ideas about the beneficence of competition have remained essentially unchanged since the time of the Enlightenment, when they were first formulated. 

This was mainly due to one man: Adam Smith. In a sense, the history of capitalism and the competitive market is still the story of the ups and downs of the ideas of Adam Smith.
- end quote

From the biography of Allen Greenspan (2007). He may be right within the context of the primitive economy of the utopian Atlantis in "Atlas Shrugged", but for the rest he looks at Adam Smith too much with his Randian Objectivist glasses.

As I said in the beginning, Adam Smith writes as a brilliant observer, but an observer of HIS time. He generalizes, what he observes in the period of 1768 to 1778, the time he worked on "The Wealth of the Nations". But to make it into general economic laws, like Greenspan suggested, is one a step too far.

As I promised you, I'll tell you where to find this book for free. There are two great places of free ebooks of world literature in many fiefs: and the University of Adelaide, Australia.

If your print routine has that option, you can print the book to .PDF format.

If you have the opportunity you definitely should at least page through Book One of "The wealth of Nations". You will be amazed and impressed.

To be continued…

The Discussion

[13:23] herman Bergson: Thank you
[13:23] Kime Babenco: Thanks Herman
[13:23] herman Bergson: Got a URL of the Archive you mentioned Penelope?
[13:23] Debbie Dee (framdor): Thanks herman
[13:23] Merlin (merlin.saxondale): Its good for us when things are out of copyright
[13:24] Lizzy Pleides: Thank you Professor
[13:24] Debbie Dee (framdor): Yes - like open knowledge.
[13:24] herman Bergson: Yes Merlin.....there is so much available now...
[13:24] Penelope Apparatchik (penelope.grau):
[13:24] herman Bergson: thnx Penelope
[13:25] Merlin (merlin.saxondale): yeah thanks doll
[13:25] herman Bergson: Besides that Google is digitizing books too, but I dont know a URL for what Google is doing
[13:25] Kime Babenco: My first notion about something mentioned... Humans are animals, is a bit extreme... I think... Of course we are biological and have a natural feeling to survive... But it's not comparable I think
[13:25] Lizzy Pleides: i found this: The Project Gutenberg website is for human users only. so its not for animals, isn't it?
[13:25] Penelope Apparatchik (penelope.grau): tugs Lizzy's braid from behind
[13:25] Merlin (merlin.saxondale): For some animals... us
[13:25] Penelope Apparatchik (penelope.grau): (Lizzy, behave!)
[13:26] Debbie Dee (framdor): In what way are we not animals, just with big brains?
[13:26] herman Bergson: is remarkable that Smith already assumed that th ehuman being belongs to the animal kingdom
[13:26] Jaelle Faerye: oh who said we had big brains?
[13:26] herman Bergson: I cant read it otherwise
[13:26] .: Beertje :. (beertje.beaumont): so not for me Lizzy? being a 'Beer'?
[13:27] herman Bergson: It surprised me at least....his words
[13:27] Merlin (merlin.saxondale): Some of these apparent philosophical arguments are just arguments about the meanings of words
[13:27] Kime Babenco: Not only... behaviour... as well... And we don't have such as called animal instinct... A lower feeling of intuition maybe, if not mislead by the brains
[13:27] Lizzy Pleides: he was far ahead of his time
[13:27] herman Bergson: Let's keep it a bit serious and to the point plz
[13:27] Penelope Apparatchik (penelope.grau): yes, Prof is trying to make a legitimate point
[13:27] Merlin (merlin.saxondale): who's not serious
[13:27] Penelope Apparatchik (penelope.grau): it's very worth discussing
[13:28] herman Bergson: Most important point in his Wealth of the NAtions is the fact that he clearly stated that labor is the real value of things
[13:28] Mick Nerido: Productivity advances make nations wealthier...
[13:28] Debbie Dee (framdor): So one way we are different is self interest motivates our actions
[13:28] .: Beertje :. (beertje.beaumont): maybe he was not far ahead of his time..maybe we are oldfashion in thinking of the free market
[13:28] Penelope Apparatchik (penelope.grau): but Prof, doesn't that lead directly to Marx, yes?
[13:28] herman Bergson: Yes Penelope....
[13:29] herman Bergson: and in fact to our time too.....
[13:29] Penelope Apparatchik (penelope.grau): AND to Ayn Rand"
[13:29] herman Bergson: we have the "rule" that everybody should work....
[13:29] herman Bergson: those who can but do not work we call unemployed…
[13:30] Mick Nerido: or inherited there wealth
[13:30] herman Bergson: so employment is a great value of the free market
[13:30] Debbie Dee (framdor): Strange idea.... surely we would be better off with less stuff and more philosophy?
[13:31] herman Bergson: Fact is that in the utopia of Thomas More working was a must too....laziness was forbidden...
[13:31] Merlin (merlin.saxondale): I think that is a silly attitude
[13:31] herman Bergson: well full employment has become a believe of our times....
[13:31] .: Beertje :. (beertje.beaumont): the people who are unemployed are not nessecarely lazy
[13:31] Penelope Apparatchik (penelope.grau): oh I see where Prof is going
[13:31] Penelope Apparatchik (penelope.grau): but Prof
[13:32] Mick Nerido: Goes back to Adam and Eve...
[13:32] Merlin (merlin.saxondale): It reminds me of the workplace boss that just looks to see if you are busy
[13:32] Debbie Dee (framdor): But say we all had friday off - then it wouldn't be laziness - just scaling our efforts better.
[13:32] Penelope Apparatchik (penelope.grau): surely this kind of ethic predated the 1700's?
[13:32] Merlin (merlin.saxondale): and not at what you achieve
[13:32] Merlin (merlin.saxondale): I like efficiency
[13:32] Merlin (merlin.saxondale): economy of effort if possible
[13:33] herman Bergson: full emplyment was not an idea in the Middle Ages at all...
[13:33] Ana (anasyro): i think these questions put in the discussion can be better anwered by using some of the more actual analysts of our habermas and the tradition that was the basis of his writings
[13:33] herman Bergson: subsistance economy then prevailed
[13:33] Ana (anasyro): somehow we try to connect existential issues with functional ones
[13:33] Merlin (merlin.saxondale): I've heard they had quite a nice life in those days, lots of leisure time
[13:33] Ana (anasyro): and that does not explain the dynamics between them
[13:34] herman Bergson: Our situation is now quite different from Adam Smith's situation....
[13:34] Mick Nerido: The wealthy in Spain for example distain manual labor...
[13:34] herman Bergson: But his analysis is so basic and clear
[13:35] Kime Babenco: Being employed or having a job is a very elastic expression... One can work for a company, or themselves... A fixed salary working from 9 to 5 , or running a business... Or feeling to be part of it ... Inspiration... Not ?
[13:35] herman Bergson: Yes Mick....manual labor has been disdained tot 1700 or so....
[13:35] Ana (anasyro): bye...have fun
[13:36] Mick Nerido: The unemployed are the new serfs
[13:36] Kime Babenco: I am not promoting any kind of job...
[13:37] Debbie Dee (framdor): serfs used to work though!
[13:37] herman Bergson: I still have no understanding of how to look at our present situation...
[13:37] herman Bergson: this so called free market, which Smith saw emerge in his time.
[13:38] Kime Babenco: As I already told in a previous meeting... The world has seen already the end of communism... and today we are facing that capitalism is not working either
[13:38] herman Bergson: So if you have the at least a few chapters of book one of The Wealth of Nations….
[13:38] Kime Babenco: Not in the way we have had so far
[13:38] herman Bergson: and compare it with our present situation
[13:39] herman Bergson: true Kime
[13:39] herman Bergson: so many are looking for a new answer....
[13:40] herman Bergson: From Tea Party to Keyens
[13:40] WAINSCOT reports: Fred123 Aiten is on your land now!
[13:41] Debbie Dee (framdor): Any answer has to address over population and over consumption fairly
[13:41] Debbie Dee (framdor): external drivers that never existed before
[13:41] Lizzy Pleides: the answer can only be a more authoritarian system with more rules
[13:41] herman Bergson: yes....but look at the situation in Greece....
[13:41] herman Bergson: a situation I don't understand at all....
[13:41] Kime Babenco: WE have to find a middle way... a common way... Of course it's a bit normal that someone who works very hard earns more than someone who is unemployed and not even trying to find a job.... But on the other hand, a society is rewarded on what it does for the weak ones... = human society... Otherwise we are animals = survival of the toughest
[13:42] herman Bergson: On the one hand you have had decennia of governments that cheated...
[13:42] herman Bergson: manipulated figures and took the money from the EU
[13:42] herman Bergson: on the other hand there is the population that voted for their governments...
[13:43] Jaelle Faerye: bye all I have to run
[13:43] herman Bergson: and now Greece is forced by the EU to severe financial reductions...
[13:43] Lizzy Pleides: the greece don't admit that they cheated
[13:43] herman Bergson: and the people is protesting.....
[13:44] herman Bergson: as if there is a people that is in its rights and a goverment that isnt...
[13:44] Kime Babenco: It's not only that: The financial first rule is that stock holding is the highest risc to earn money... Governments should have never rescued any bank... only paying those people who had save their money there... Not the risc takers
[13:44] herman Bergson: The country is deeply corrupt...
[13:44] herman Bergson: and they don't admit it
[13:45] herman Bergson: Their tax system and its civil servants are corrupt...
[13:45] Fred123 Aiten: can still listen from outside
[13:45] herman Bergson: these are know facts
[13:45] Merlin (merlin.saxondale): <- quietly listening
[13:45] herman Bergson: I realy don't see how to solve such a situation
[13:46] .: Beertje :. (beertje.beaumont): i presume we..that means the EU..are loosing our money to Greece
[13:46] Mick Nerido: Greece will leave the EU
[13:46] Lizzy Pleides: in Greece they stop working at the age of 55, in France 60 and in Germany 67
[13:46] Kime Babenco: Yes, very probably... try to bring them for justice... would be hard... costs even more and will not help... Freeze all their families goods and accounts in any country... (if possible !!!)
[13:47] herman Bergson: Netherlands 65
[13:47] Debbie Dee (framdor): South-Africa 65
[13:47] .: Beertje :. (beertje.beaumont): greece is going to bankruptcy
[13:47] herman Bergson: Just the idea of stopping at 55.....we already have problems financing 65
[13:47] herman Bergson: Hello Your Majesty
[13:48] QueenOfNorway Alex raises hand
[13:48] Kime Babenco: That's an idea of when people lived for average as long as 65 years
[13:48] Lizzy Pleides: hi queenie, take a seat:-)
[13:48] herman Bergson: Could be Kime
[13:48] QueenOfNorway Alex: oooops
[13:48] Kime Babenco: Remember the Beatles... "will you still love me when I am 64 ?"
[13:49] Qwark Allen: press shfit+arrow to get hand down
[13:49] .: Beertje :. (beertje.beaumont): ow..that 's óld!
[13:49] QueenOfNorway Alex: i cannot hear the audio
[13:49] herman Bergson: There is no audio Your Majesty....
[13:49] herman Bergson: We are the silent majority
[13:49] Merlin (merlin.saxondale): lol
[13:49] Qwark Allen: °͜° l ☺ ☻ ☺ l °͜°
[13:49] Qwark Allen: lol
[13:49] QueenOfNorway Alex: oh dear :)
[13:49] herman Bergson: Anyway…
[13:50] herman Bergson: try to get hold on The Wealth of NAtions and read a few chapters of book one....
[13:50] Kime Babenco: Yes
[13:50] herman Bergson: it helps to get a better understanding of the free market idea in 1778
[13:50] Debbie Dee (framdor): I think that all efforts to regain financial stability hinge on changing the model of free energy, ever expanding markets, and consumption. We can't eat our way out of resource depletion.
[13:51] herman Bergson: I agree Debbie.....
[13:51] Debbie Dee (framdor): ;)
[13:51] herman Bergson: The idea of everlasting growth is a myth
[13:51] Merlin (merlin.saxondale): YESSS
[13:51] herman Bergson: if that is our goal...growth...we are on the wrong track
[13:52] Merlin (merlin.saxondale): That was why I mentioned chain letters once
[13:52] Debbie Dee (framdor): Yet all efforts by government are about ramping up the growth again.
[13:52] herman Bergson: this earth is a finite can growth then be infinite?
[13:52] Merlin (merlin.saxondale): exactly
[13:52] Merlin (merlin.saxondale): People think it is like a balloon expanding. that everything can go on getting bigger
[13:53] .: Beertje :. (beertje.beaumont): and then ...POOF..
[13:53] Lizzy Pleides: nothing is infinite, ... the universe probably ...
[13:53] Merlin: hehe yes
[13:53] Debbie Dee (framdor): So how do we influence this, so that those in power see the problem correctly?
[13:53] herman Bergson: exactly Beertje
[13:53] Qwark Allen: not even the universe
[13:53] .: Beertje :. (beertje.beaumont): I think we need stability
[13:53] Merlin (merlin.saxondale): Well sorry to be gloomy but I think we have lost it
[13:53] Kime Babenco: When I was at school aged 14, someone asked why people in some countries choose for communism and not for free market... I understand a bit... they had free medicine , free food , and free education in such communist countries... In USA free health care is one step too far it seems
[13:54] herman Bergson: Well....we face a complex future.....
[13:54] Debbie Dee (framdor): Herman, I agree. But the planet will survive. The question now is how many people die off.
[13:54] Merlin (merlin.saxondale): young people do anyway
[13:54] herman Bergson: so let's continue with a next lecture on THursday....maybe then we get a little bit wiser then
[13:54] QueenOfNorway Alex: the growth problem we all need to start with ourselves to stop that craving... the "need" to buy new fashion clothes and shoes and everything fancier because fashion changes...
[13:55] Merlin (merlin.saxondale): This is exactly what James Lovelock says Herman
[13:55] Merlin (merlin.saxondale): mankind will survive as an animal
[13:55] Merlin (merlin.saxondale): as a species
[13:55] Merlin (merlin.saxondale): but not our society
[13:55] Debbie Dee (framdor): Sadly, the ones with the guns will win.
[13:56] herman Bergson: yes maybe we'll be decimated first....then there is room for growth again
[13:56] QueenOfNorway Alex: i think society can survive... and more easy in areas where they live off the nature
[13:56] Merlin (merlin.saxondale): a world over-run by tribes with war-lords in charge
[13:56] QueenOfNorway Alex: like where i come from... fishery...
[13:56] Mick Nerido: Thanks all bye
[13:56] Merlin (merlin.saxondale): But Alex.....
[13:56] Qwark Allen: think that soon we`ll be 9 billions
[13:56] Merlin (merlin.saxondale): You cannot have one part surviving along
[13:56] Merlin (merlin.saxondale): alone
[13:56] herman Bergson: We'll continue our discussion next Thursday....
[13:56] Merlin (merlin.saxondale): There would be too much pressure from everyone else
[13:56] herman Bergson: for now...thank you all for your participation....
[13:57] herman Bergson: class dismissed ^_^
[13:57] Kime Babenco: We all like to help when we see people in trouble on TV . But maybe it's the problem they are too many...
[13:57] Lizzy Pleides: Thanks to YOU!
[13:57] Qwark Allen: ¸¸.´ ¯¨.¸¸`**  **´ ¸¸.¨¯` H E R MA N ´ ¯¨.¸¸`**   **´ ¸¸.¨¯`
[13:57] Qwark Allen: thank you
[13:57] .: Beertje :. (beertje.beaumont): have a goodnight all

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