Cornell economist Robert Frank: The Adam Smith era is over. In the coming century, economists...

Cornell economist Robert Frank: The Adam Smith era is over. In the coming century, economists will embrace Darwin.

Comments

[nobby73]

Thank you for making this comment, this was exactly what I was going to say. Smith is taken out of context if you not consider this earlier work, which defines a code of ethics and behaviour for a fair society.

People are too quick to say Smith got it wrong, rather than thinking maybe they got Smith wrong.

On Jul 12 11:24 PM [e-mail] wrote:

> Those who would advance Adam Smith's economic treatise to the forefront;
> who espouse unrestrained free markets seem to overlook Smith's earlier
> and perhaps more important work, "The Theory of Moral Sentiments"
> which posits moral and ethical constraints on the behavior of individuals
> and groups. The "invisible hand" was to be guided not only by Darwinian
> survival of the fittest, but by the merit of action due to the effects
> it would have on the social fabric as a whole.
>
> Picking and choosing bits and pieces of a philosopher's work is certain
> to distort the meaning and usefulness of the theory. Witness the
> current global financial deleveraging problem and how the invisible
> hand dealt these cards. Seems a bit silly, no? Unrestrained and gamed
> markets - from money creation to securitization - shine a blinding
> light on the true nature of supposedly free markets where all participants
> are guided by ample information to mutually beneficial arms length
> transactions. Yes, a bit silly and a great bit more dangerous.

[puravidavid]

Those who would advance Adam Smith's economic treatise to the forefront; who espouse unrestrained free markets seem to overlook Smith's earlier and perhaps more important work, "The Theory of Moral Sentiments" which posits moral and ethical constraints on the behavior of individuals and groups. The "invisible hand" was to be guided not only by Darwinian survival of the fittest, but by the merit of action due to the effects it would have on the social fabric as a whole.

Picking and choosing bits and pieces of a philosopher's work is certain to distort the meaning and usefulness of the theory. Witness the current global financial deleveraging problem and how the invisible hand dealt these cards. Seems a bit silly, no? Unrestrained and gamed markets - from money creation to securitization - shine a blinding light on the true nature of supposedly free markets where all participants are guided by ample information to mutually beneficial arms length transactions. Yes, a bit silly and a great bit more dangerous.

[darrenlobo]

Mr. Frank seems to not know that monopolies only thrive because the govt creates & protects them. It is the govt's intervention that creates the Darwinian paradigm. An unfettered free market is a competitive one.

People should read Mises rather than Smith anyway.

mises.org/
fee.org/

[4rdvark]

Its important to remember that mechanics matter when you make an analogy to a natural phenomenon. The mechanical win in evolution comes from reproduction, it has nothing to do with the quality of life or function of the organism. The mold in your bathroom has won the evolutionary race every bit as much as the polar bear.

As for humans, the economic challenge in the first world is no longer to simply maintain the survival of the citizens to reproductive age. It is to provide the comforts and human growth of advanced civilization.

This is to say nothing of the means to this end, but rather, that it is a different end than natural selection.

[Anthony Breen, CFA]

Took econ 101 from him!

[Bud Wood]

The operative word is "unfettered" as in the author's description of unfettered private markets. It seems that current economic activities can't really be related to unfettered markets. There are artificially low interest rates, there are financial guarantees for those who are "too big to fail", plus other factors that skew any direction by an invisible hand. Further, any regulations are essentially defined by interested parties by their financing of elections.
My guess is that real transparency of the system could get us a lot closer to "unfettered".

[Jeff Nielson]

The author chose to take a VERY narrow view of Smith's body of work. Smith also wrote of the undesirable consequences of monopolies and oligopolies - and how they were INEVITABLE in "mature" capitalist economies IF government didn't exert a "strong hand" to prevent these monoliths from gaining control of markets.

Were Smith alive today, he would not need to alter his theories at all. He would simply point to a group of financial oligarchs who were able to COMPLETELY TAKE OVER government - and do what monoplies/oligopolies always do: squeeze the wealth out of the general population.

What is required (if the U.S. is EVER going to fix its problems) is to not only rid its itself of financial oligarchs, but completely rebuild a political system saturated with corruption.

[Vuke]

Thank you. This confirms my contention economists would profit from a little reading of philosophy. Any discipline that leads its adherents to nonsense needs a breath of fresh air now and then.

On Jul 12 03:09 PM derryl wrote:

" As far as I have seen, nobody has yet figured out a way to reconcile physical economics with money."

[derryl]

Vuke wrote,
"What, in Heaven's name, would anyone do with "unlimited monetary profits"?

Re-invest them? In what?"

Yes, this is one of the absurdities I noted. The Chinese are experiencing this right now with their holdings of US$: the only place to put them is in new US$ debt instruments.

The Austrians claim that gold or commodity based money would prevent the absurdities and damaging imbalances of credit and debt that are generated in fiat money systems but I am not convinced. As far as I have seen, nobody has yet figured out a way to reconcile physical economics with money.

[Vuke]

Your "monetized" economy has stayed afloat because unsound instruments have been created more quickly than they could be exposed. That era is now ending. While some aspects of it will remain functional attempting to blow it higher is no more efficacious than throwing fresh piles of money onto a Monopoly Board. What, in Heaven's name, would anyone do with "unlimited monetary profits"?

Re-invest them? In what?

On Jul 12 02:39 PM derryl wrote:

"We live in a monetized economy. The real economy is limited by physical constraints. The monetary economy is a numbers system that is limited only by the non-number "infinity". There can be unlimited money and monetary profits, but there cannot be unlimited physical production and unlimited excess of outputs over inputs. "

[derryl]

Actually Adam Smith did not expect the invisible hand to function in a moral vacuum inhabited by only economically rational players. He was describing a political economy, and he recognized that the state has a role to play in 'correcting' excessive concentrations of the economy's wealth. Neoliberals ignore this latter aspect of Smith's thinking.

A related point: Smith was essentially describing a barter economy where people produced and traded goods and services. Free enterprise economics as laid out by Smith and Ricardo accurately describes how these work to maximize everybody's economic wealth.

We live in a monetized economy. The real economy is limited by physical constraints. The monetary economy is a numbers system that is limited only by the non-number "infinity". There can be unlimited money and monetary profits, but there cannot be unlimited physical production and unlimited excess of outputs over inputs. Neoliberals conflate monetary economics with physical economics to generate absurdities.

[Vuke]

If future economists embrace Darwinism let us hope they also read Peter Kropotkin. While Darwin's genius focussed on nature and evolution Kropotkin looked more closely at social interactions.

Kropotkin concluded nature (and mankind) benefit more by increased cooperation rather than competition alone. Darwinism, applied to commerce, is often used to justify some of the uglier aspects of greed. Balance is needed and economists would do well to lift their eyes from their "science" and listen a little to philosophy.