1232: Adam Smith on stocks and bonds...

 At the dawn of capitalism, we meet Adam Smith, and what I find the most interesting of his ideas is that wealth isn’t gold in a vault.

  

In his view, wealth is, as he said, "the annual produce of the land and labour". To be rich means to possess a lot of money. 

 

However, to be wealthy means to possess a lot of means of production. Your money can eventually be depleted, but production is a continuous process.

  

And here begins the story of making money, and the story of making money with money. The latter is an interesting point.

   

Historically, and you can even find it in the Bible and the Quran, in some way, we feel uncomfortable with the practice of making money with money.

  

That was then. I think that today, nobody in the world of finance has an explicit moral problem with it.

   

However, let's get back to Smith. You have money, buy a stock. That is all the effort you perform, and afterwards you collect your profits.

   

You did nothing immoral. Maybe you even did something good for society. By participating, you made large-scale projects possible.

   

You were even willing to take the risk of losing your money if, for instance, the VOC ship never returned, but you made global trading possible.

  

Yet Adam Smith was somewhat skeptical as he wrote: “The directors of such companies… being the managers rather of other people’s money than of their own, 

  

it cannot well be expected that they should watch over it with the same anxious vigilance.”

  

Smith was even more critical of government debt, that is, of bonds issued by the state. 

  

He observed that modern states increasingly financed wars and spending through bonds rather than taxes.

   

While this made war easier politically, Smith saw it as dangerous. It postponed costs to future generations. Just think of the 800 billion debt of the US to China.

 

He thought that it could encourage fiscal irresponsibility, like ...let's do it. We put out bonds and thus collect the money for our plans.

It concentrated wealth in the hands of creditors. He wrote that public debt had "enfeebled every state which has adopted it.”

  

To put it exaggeratedly: Smith might see this as a form of the US is, in fact, financing China with the huge interest payments it is obliged to.

 
And there we get again at the core of Smith's worries about making money with money. Finance could become a mechanism for living off interest rather than producing value.

  

If Smith looked at today’s financial system, he would likely ask, for instance: Why are profits increasingly detached from production?

  

Or he would ask: Why are losses socialized while gains are privatized? Do you recall the banking crisis of 2008, and the huge amount of taxpayer money that was used to save the world of finance?

  

If Smith were to return to our age, I guess he would wonder. This was not his idea of capitalism: a stock-market civilization, a debt-driven economy, or a system dominated by speculative finance.

  

He envisioned: production before finance, labor before paper wealth, markets serving society, not ruling it.

This tension between productive capitalism and financial capitalism will be at the heart of our next focus.

 Main Sources:

MacMillan The Encyclopedia of Philosophy, 2nd edition

Routledge Encyclopedia of Philosophy, 1995

http://www.iep.utm.edu/

 http://plato.stanford.edu/contents.htm

Glyn Davies:  The History of Money (2002)

 Jürgen Georg Backhaus: Handbook of the History

of Economic Thought (2012)

TABLE OF CONTENT -----------------------------------------------------------------  

  1 - 100 Philosophers                                              9 May 2009  Start of

  2 - 25+ Women Philosophers                              10 May 2009  this blog

  3 - 25 Adventures in Thinking                               10 May 2009

  4 - Modern Theories of Ethics                              29 Oct  2009

  5 - The Ideal State                                               24 Febr 2010   /   234

  6 - The Mystery of the Brain                                  3 Sept 2010   /   266

  7 - The Utopia of the Free Market                       16 Febr 2012    /   383

  8. - The Aftermath of Neo-liberalism                      5 Sept 2012   /   413

  9. - The Art Not to Be an Egoist                             6 Nov  2012   /   426                        

10  - Non-Western Philosophy                               29 May 2013    /   477

11  -  Why Science is Right                                      2 Sept 2014   /   534      

12  - A Philosopher looks at Atheism                        1 Jan  2015   /   557

13  - EVIL, a philosophical investigation                 17 Apr  2015   /   580                

14  - Existentialism and Free Will                             2 Sept 2015   /   586         

15 - Spinoza                                                             2 Sept 2016   /   615

16 - The Meaning of Life                                        13 Febr 2017   /   637

17 - In Search of  my Self                                        6 Sept 2017   /   670

18 - The 20th Century Revisited                              3 Apr  2018    /   706

19 - The Pessimist                                                  11 Jan 2020    /   819

20 - The Optimist                                                     9 Febr 2020   /   824

21 - Awakening from a Neoliberal Dream                8 Oct  2020   /   872

22 - A World Full of Patterns                                    1 Apr 2021    /   912

23 - The Concept of Freedom                                  8 Jan 2022    /   965

24 - Materialism                                                      7 Sept 2022   /  1011

25 - Historical Materialism                                       5 Oct 2023    /  1088

26 - The Bonobo and the Atheist                             9 Jan 2024    /  1102

27 - Artificial Intelligence                                          9 Feb 2024    /  1108

28 - Why Am I Here                                                 6 Sept 2024   /  1139

 

The Discussion

[13:17] .: Beertje :. (beertje.beaumont): Thank you Herman

[13:17] Max Chatnoir: Yikes!  Do we really owe 300 B to China???

[13:18] Particle Physicist Bejiita (bejiita.imako): Smith's vision might have been good but unfortunately the greed came ad ruined it all

[13:18] Max Chatnoir: The US "we"

[13:18] Particle Physicist Bejiita (bejiita.imako): including tax boney bailing out the billionaires

[13:18] Particle Physicist Bejiita (bejiita.imako): tax money

[13:18] herman Bergson: 800 billion, Max

[13:18] Max Chatnoir: Good grief!

[13:19] herman Bergson: and another so many billions to Japan

[13:19] Max Chatnoir: If we're in that much debt, could they just call it in and make us China?

[13:19] herman Bergson: Well,they could sell the bonds and this destroy US economy

[13:20] herman Bergson: But it is more complicated....not that simple

[13:20] Particle Physicist Bejiita (bejiita.imako): well Trump is busy already with doing that so

[13:20] Päivi (nicolesteel): EU has the same capacity to ruin US economy by selling off bonds.

[13:20] Stranger Nightfire: they don't because there is so much interdependence

[13:20] herman Bergson: But China could put some pressure on the US by threatening to sell lots of bonds

[13:20] Stranger Nightfire: when it comes to international finance, it is indeed a very tangled web we have woven

[13:21] herman Bergson: Yes, Stranger,that is what I mean...

[13:21] Particle Physicist Bejiita (bejiita.imako): aah

[13:21] herman Bergson: This web is incredible....

[13:21] herman Bergson: only a few on this planet really understand how it works

[13:22] herman Bergson: Adam Smith would have a heart attack, if he were here now

[13:22] Particle Physicist Bejiita (bejiita.imako): indeed true

[13:22] Particle Physicist Bejiita (bejiita.imako): its a greedy mess, everything

[13:22] Particle Physicist Bejiita (bejiita.imako): at momet

[13:22] Particle Physicist Bejiita (bejiita.imako): not at all his vision i guess

[13:23] Particle Physicist Bejiita (bejiita.imako): corporate CEOS hoarding everything

[13:23] Particle Physicist Bejiita (bejiita.imako): and an insane US president cheering on

[13:23] herman Bergson: Smith saw the dangers of corruption and money hoarding

[13:24] Stranger Nightfire: Similarly i suspect that the US could destory China with a massive cyber attack and they could do the same to the US

[13:24] Stranger Nightfire: but the blowback economically would be self-destructive

[13:24] herman Bergson: I wouldn't be surprised Stranger...

[13:24] bergfrau Apfelbaum: @ Mutual dependencies: that's wonderful.... everyone trusted each other, and it worked... cant it just continue like that? ....with all its ups and downs. just like in a partnership... sigh

[13:25] Particle Physicist Bejiita (bejiita.imako): indeedd Bergie

[13:25] Particle Physicist Bejiita (bejiita.imako): if it was so

[13:25] Particle Physicist Bejiita (bejiita.imako): sadly its not

[13:25] Particle Physicist Bejiita (bejiita.imako): esp at this moment

[13:26] herman Bergson: Well Bergie, do't be too depressed...most of the times the criminals are just a 5% of the totla of people that act honestly and in mutual trust

[13:26] herman Bergson: The problem is that you only need ONE fool to destruct a lot for many

[13:26] herman Bergson: Just look at the White House

[13:27] herman Bergson: America has lost a lot of friends...

[13:27] Particle Physicist Bejiita (bejiita.imako): Exactly, as u said before most people are ok

[13:27] herman Bergson: Europe connects to India, bypassing the US

[13:27] herman Bergson: eyc.

[13:27] herman Bergson: etc

[13:27] Particle Physicist Bejiita (bejiita.imako): but that doesn't help when a few evil oes can cause so much damage

[13:28] Particle Physicist Bejiita (bejiita.imako): like with ICE and also look now at Iran, 1000s dead after the protests

[13:28] Particle Physicist Bejiita (bejiita.imako): :(

[13:28] Particle Physicist Bejiita (bejiita.imako): it feels like evil always win irl and the good forces win only in movies and fairytales :(

[13:29] herman Bergson: No Bejiita...if evill always wins we wouldnt be here

[13:29] Päivi (nicolesteel): the good side always win. It can take some time but it will be so

[13:29] herman Bergson: We win...all the time...

[13:29] bergfrau Apfelbaum: It does not depress me 🌈 i am just annoyed by the kindergarten. right at the top.... directly below God.... I've been on this beautiful Earth for a long time. and there's always been at least one war somewhere in the world

[13:29] herman Bergson: I totally agree with you, Paivi

[13:30] Particle Physicist Bejiita (bejiita.imako): well i hope really something turns

[13:30] herman Bergson: There never has been peace on earth Bergie....

[13:30] Stranger Nightfire: if we are talking about world governments or giant international corporations there simply are no good guys

[13:30] herman Bergson: I mean total peace

[13:31] Stranger Nightfire: We live in a world of villains

[13:31] herman Bergson: weird, isn't it Stranger?

[13:31] Particle Physicist Bejiita (bejiita.imako): OOOOKAY!!

[13:31] Particle Physicist Bejiita (bejiita.imako): it is

[13:31] Particle Physicist Bejiita (bejiita.imako): indeed

[13:31] Particle Physicist Bejiita (bejiita.imako): its 2026, shouldnt be like that

[13:31] Particle Physicist Bejiita (bejiita.imako): i say

[13:32] herman Bergson: I think the biggest evil is SELF-INTEREST.....that is where eventually everyone goes for

[13:32] herman Bergson: and those who don't we call Saints

[13:32] Particle Physicist Bejiita (bejiita.imako): like the Iranian regime, stuck still in the 13th century, murdering anyone daring to oppose and demand freedom

[13:32] Particle Physicist Bejiita (bejiita.imako): regime

[13:32] Particle Physicist Bejiita (bejiita.imako): since 79

[13:32] Particle Physicist Bejiita (bejiita.imako): things like that

[13:33] Particle Physicist Bejiita (bejiita.imako): as said, its 2026

[13:33] herman Bergson: And this self-interest is driven by the insecurity of man..his fear to die....to lose his comfort zone....

[13:34] herman Bergson: We may have a mind, but we are emotionally rather unintelligent....

[13:35] herman Bergson: IQ versus EQ

[13:36] .: Beertje :. (beertje.beaumont): some have no EQ and no IQ

[13:36] bergfrau Apfelbaum: lol die wappler!

[13:36] .: Beertje :. (beertje.beaumont): ツ

[13:36] herman Bergson: right! ㋡

[13:38] .: Beertje :. (beertje.beaumont): i mean some one else:)

[13:38] herman Bergson: You never canmiss, Beertje

[13:38] .: Beertje :. (beertje.beaumont): his name not to be mentioned

[13:39] herman Bergson: Voldomor....

[13:39] .: Beertje :. (beertje.beaumont): smiles...

[13:39] herman Bergson: That was it for today ...

[13:39] bergfrau Apfelbaum: lol @ voldomor

[13:39] herman Bergson: Thank you all again for your participation...

[13:40] .: Beertje :. (beertje.beaumont)Thank you for teaching us

[13:40] herman Bergson: Class dismissed...

[13:40] Particle Physicist Bejiita (bejiita.imako): ㋡

[13:40] bergfrau Apfelbaum: thank you for the interesting time! Herman and class

[13:40] Particle Physicist Bejiita (bejiita.imako): aaa yes

[13:40] herman Bergson: Enjoy your upcoming weekend...and stay healthy

[13:40] Particle Physicist Bejiita (bejiita.imako): ㋡

1231: The Invisible Hand...

 The Invisible Hand. It is one of the most famous metaphors in the history of economic thought, introduced by the Scottish philosopher and economist  Adam Smith  (1723–1790).

  

In a previous lecture, I discussed the ideas of the Physiocrats, economic thinkers in France, who flourished between the 1750s and 1780s.

  

They were philosophers of society who offered a comprehensive vision of wealth, governance, and human flourishing derived from a deep belief in a harmonious natural system.

  

They were firmly convinced of natural law, the natural order, and this was reflected in their basic economic convictions. 

   

Smith could relate to that idea and introduced his metaphor of the Invisible Hand. It is a metaphor, not an elaborated theory of economics. 

   

But the basis stood: to some extent, a belief in harmonious natural laws that guided and controlled the economic processes in a society, as the Physiocrats claimed.

   

Smith's mechanism is more specifically about the systemic outcomes of human psychology, like self-interest and sympathy, and institutions like free markets and competition, not a pre-ordained natural harmony. 

   

Smith used the phrase "invisible hand” only three times across all his published works:

  

In "The Theory of Moral Sentiments" (1759), he describes how the rich, in pursuing luxury, inadvertently distribute necessities to the poor as if by an “invisible hand.”

  

It may be me, but doesn't this sound similar to Ronald Reagan's belief in a trickle-down economy? There is a difference, however, and we'll get to that in the coming lectures.

  

Smith's "invisible hand" is a descriptive metaphor about systemic emergence, while "trickle-down economics" is a prescriptive and highly contested political theory about tax policy. 

  

It was also a reaction against mercantilism with its state-controlled trade and protectionism. Smith argued for freer markets, division of labor, and thus more efficient production of goods, and limited government intervention.

   

You might say that this introduced the basic ingredients of capitalism and liberalism in politics. Smith saw unintended social benefits from individual actions.

  

He argued that when people pursue their own interests within a system of property rights, competition, and justice, they often benefit society without intending to do so.

  

On the one hand, self-interest became the guiding economic principle, which would work fine in a society, due to the alleged natural laws that guided everything as an Invisible Hand.

  

You don't need excessive government meddling in market exchanges, although Smith yet recognized necessary roles for the state, like in defence, justice, or public works.

    

Adam Smith’s “invisible hand” emerged from Enlightenment thinking about spontaneous order in society. It stood for a decentralized, emergent order in contrast with the visible hand of the Mercantilist state, which stood for centralized control.

   

It was a poetic way of describing how decentralized individual decisions can generate systemic social benefits, a core insight that later shaped classical and modern economics.

  

Thank you for your attention again...

 Main Sources:

MacMillan The Encyclopedia of Philosophy, 2nd edition

Routledge Encyclopedia of Philosophy, 1995

http://www.iep.utm.edu/

 http://plato.stanford.edu/contents.htm

Glyn Davies:  The History of Money (2002)

 Jürgen Georg Backhaus: Handbook of the History

of Economic Thought (2012)

TABLE OF CONTENT -----------------------------------------------------------------  

  1 - 100 Philosophers                                              9 May 2009  Start of

  2 - 25+ Women Philosophers                              10 May 2009  this blog

  3 - 25 Adventures in Thinking                               10 May 2009

  4 - Modern Theories of Ethics                              29 Oct  2009

  5 - The Ideal State                                               24 Febr 2010   /   234

  6 - The Mystery of the Brain                                  3 Sept 2010   /   266

  7 - The Utopia of the Free Market                       16 Febr 2012    /   383

  8. - The Aftermath of Neo-liberalism                      5 Sept 2012   /   413

  9. - The Art Not to Be an Egoist                             6 Nov  2012   /   426                        

10  - Non-Western Philosophy                               29 May 2013    /   477

11  -  Why Science is Right                                      2 Sept 2014   /   534      

12  - A Philosopher looks at Atheism                        1 Jan  2015   /   557

13  - EVIL, a philosophical investigation                 17 Apr  2015   /   580                

14  - Existentialism and Free Will                             2 Sept 2015   /   586         

15 - Spinoza                                                             2 Sept 2016   /   615

16 - The Meaning of Life                                        13 Febr 2017   /   637

17 - In Search of  my Self                                        6 Sept 2017   /   670

18 - The 20th Century Revisited                              3 Apr  2018    /   706

19 - The Pessimist                                                  11 Jan 2020    /   819

20 - The Optimist                                                     9 Febr 2020   /   824

21 - Awakening from a Neoliberal Dream                8 Oct  2020   /   872

22 - A World Full of Patterns                                    1 Apr 2021    /   912

23 - The Concept of Freedom                                  8 Jan 2022    /   965

24 - Materialism                                                      7 Sept 2022   /  1011

25 - Historical Materialism                                       5 Oct 2023    /  1088

26 - The Bonobo and the Atheist                             9 Jan 2024    /  1102

27 - Artificial Intelligence                                          9 Feb 2024    /  1108

28 - Why Am I Here                                                 6 Sept 2024   /  1139

 

The Discussion

[13:15] herman Bergson: It may sound a bit abstract, perhaps

[13:15] herman Bergson: but the core belief of Smith was in sympathy....

[13:15] Particle Physicist Bejiita (bejiita.imako): The invisible hand sounds like another false promise to justify everything, because THAT clearly didt work

[13:15] Max Chatnoir: Thanks, Herman.   That might work if the production side includes higher salaries for workers.

[13:15] herman Bergson: He believed in a positive human being....man is good

[13:15] Particle Physicist Bejiita (bejiita.imako): the rich grab EVERYTHING

[13:16] herman Bergson: Yes, there is an imbalance these days

[13:16] James Argonaut: the invisible hand is certainly a poetic allegory for an emergent distributed control system.

[13:17] herman Bergson: His idea was that actions of individuals would also benefit society....

[13:17] Particle Physicist Bejiita (bejiita.imako): its just like with AI today. Microsifts CEO: "Stop call it AI Slop, lets call it a cogitive amplifier"

[13:17] Particle Physicist Bejiita (bejiita.imako): oo sure, Cognitive dumbifier maybee as we stop using our own brains and let AI do everything

[13:17] herman Bergson: For instance, when I buy a loaf at the bakery, the baker benefits from it and gets money to feed his children for instance

[13:18] Particle Physicist Bejiita (bejiita.imako): ah

[13:18] herman Bergson: And if you apply this effect on a national scale you can see what Smith meant

[13:19] herman Bergson: But it leans on the assumption that self-interest does not change into greed, I guess

[13:19] Particle Physicist Bejiita (bejiita.imako): yes

[13:19] Particle Physicist Bejiita (bejiita.imako): there must be so to say a win-win situation

[13:19] Particle Physicist Bejiita (bejiita.imako): fairness

[13:20] Particle Physicist Bejiita (bejiita.imako): for both customer ad producer

[13:20] Particle Physicist Bejiita (bejiita.imako): both

[13:20] herman Bergson: something like that, yes...

[13:20] herman Bergson: If this is the beginning of capitalism, then it started from rather positive ideas about human behavior

[13:21] Particle Physicist Bejiita (bejiita.imako): sell to many for a fair price and with good service, customers come back again and again and u get a good profit in the end

[13:21] James Argonaut: I think one of the most interesting things about the invisible hand, in terms of governance, is that, most prior systems were prescriptive; they laid into law their intention, and enforced it through active regulation.

The invisible hand theory actively built in a primary role for "emergent" behavior. Not behavior that is prescribed, but behavior that would naturally arise. 

Strong consideration of emergent behavior is fundamental to a system maintaining its survival.

[13:22] Max Chatnoir: What kind of behavior is emergent?

[13:22] herman Bergson: Yes James

[13:23] herman Bergson: behavior that automatically emerges, occurs as a result of other processes and behavior

[13:23] Max Chatnoir: for example?

[13:23] herman Bergson: Like some say that our mind is an emergent phenomenon....it emerges from the biochemical and electric activity in the brain...

[13:24] herman Bergson: That does not answer the question, how this process works exactly...

[13:24] herman Bergson: but we can't deny the existence of the mind and its relation to the brain

[13:25] James Argonaut: Yes. I think a more concrete example is, you send kids to school in order to learn, and you create a set of rules to govern student interaction. But because you are putting so many kids in close proximity, some of whom might be frustrated by mundaneness, kids might start bullying each other, etc.

[13:25] James Argonaut: That is the emergent behavior of putting children in close proximity under stress. It is not an intention.

[13:25] herman Bergson: so when people are treated fairly and buy their groceries for reasonable prices.....friendly social behavior in  the community might emerge

[13:26] Particle Physicist Bejiita (bejiita.imako): its what I would cause side effects, I guess

[13:26] Particle Physicist Bejiita (bejiita.imako): aaa indeed, that sounds probable for sure

[13:26] Particle Physicist Bejiita (bejiita.imako): everyone is happy

[13:27] herman Bergson: Like decent people suddenly become thieves

 in Wallmarkt, due to low incomes and unfair prices

[13:27] herman Bergson: Smith believed in the positive side of this story

[13:28] Max Chatnoir: So what emergent behavior produces fair incomes and prices?

[13:28] herman Bergson: Satisfied and friendly citizens that are not inclined to steal for instance? :-)

[13:28] Particle Physicist Bejiita (bejiita.imako): Like how i support my local pizzerias because they all make really nice pizzas each one with their own distinct style, have fair prices and the oes working there are very nice and social

[13:28] James Argonaut: Well, it 'can' produce fair incomes and prices, it does not mean it will. It depends on the conditions and society under which the doctrine is imposed.

[13:28] Particle Physicist Bejiita (bejiita.imako): That's one example for me

[13:29] Particle Physicist Bejiita (bejiita.imako): and I then come back for more

[13:31] herman Bergson: Well, Bejiita, come back here too and we'll see how this positive attitude of Adam Smith will evolve...

[13:31] Max Chatnoir: Imposed?

[13:31] James Argonaut: i think an interesting thing to consider is, the fringe conditions of the invisible hand. Under which conditions does the optimization point of the invisible hand create a race to the bottom?

[13:31] Particle Physicist Bejiita (bejiita.imako): :)=

[13:31] herman Bergson: Like a government does with Executive Orders, for instance...:-)

[13:33] herman Bergson: Guess it is time for a nice weekend now... ㋡

[13:33] Particle Physicist Bejiita (bejiita.imako): aah

[13:33] herman Bergson: So, thank you all again....

[13:33] herman Bergson: Class dismissed...

[13:33] .: Beertje :. (beertje.beaumont): Thank you Herman it was very interesting again

[13:34] Particle Physicist Bejiita (bejiita.imako): aha

[13:34] Particle Physicist Bejiita (bejiita.imako): true