Reclaiming Adam Smith

adam smith, Amartya Sen, The theory of moral sentiments, wealth of nations

I came across the FT article by Sen (see below). In this vein see also Sen’s Adam Smith and the Contemporary World:

This paper argues that many of Adam Smith’s insights, particularly those in his Theory of moral sentiments, have a relevance to contemporary thought about economics and ethics that is currently underappreciated. In economics, for example, Smith was concerned not only with the sufficiency of self-interest at the moment of exchange but also with the wider moral motivations and institutions required to support economic activity in general. In ethics, Smith’s concept of an impartial spectator who is able to view our situation from a critical distance has much to contribute to a fuller understanding of the requirements of justice, particularly through an understanding of impartiality as going beyond the interests and concerns of a local contracting group. Smith’s open, realization-focussed and comparative approach to evaluation contrasts with what I call the “transcendental institutionalism” popular in contemporary political philosophy and associated particularly with the work of John Rawls.

and his New Statesman article. For a rejoinder, see Dan Klein.

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Adam Smith’s market never stood alone

Financial Times (London, England) – Wednesday, March 11, 2009
Author: Amartya Sen

Exactly 90 years ago, in March 1919, faced with another economic crisis, Vladimir Lenin discussed the dire straits of contemporary capitalism. He was, however, unwilling to write an epitaph: “To believe that there is no way out of the present crisis for capitalism is an error.” That particular expectation of Lenin’s, unlike some he held, proved to be correct enough. Even though American and European markets got into further problems in the 1920s, followed by the Great Depression of the 1930s, in the long haul after the end of the second world war, the market economy has been exceptionally dynamic, generating unprecedented expansion of the global economy over the past 60 years. Not any more, at least not right now. The global economic crisis began suddenly in the American autumn and is gathering speed at a frightening rate, and government attempts to stop it have had very little success despite unprecedented commitments of public funds.The question that arises most forcefully now is not so much about the end of capitalism as about the nature of capitalism and the need for change. The invoking of old and new capitalism played an energising part in the animated discussions that took place in the symposium on “New World, New Capitalism” led by Nicolas Sarkozy, the French president, Tony Blair, the former British prime minister, and Angela Merkel, the German chancellor, in January in Paris.The crisis, no matter how unbeatable it looks today, will eventually pass, but questions about future economic systems will remain. Do we really need a “new capitalism”, carrying, in some significant way, the capitalist banner, rather than a non-monolithic economic system that draws on a variety of institutions chosen pragmatically and values that we can defend with reason? Should we search for a new capitalism or for a “new world” – to use the other term on offer at the Paris meeting – that need not take a specialised capitalist form? This is not only the question we face today, but I would argue it is also the question that the founder of modern economics, Adam Smith, in effect asked in the 18th century, even as he presented his pioneering analysis of the working of the market economy.Smith never used the term capitalism (at least, so far as I have been able to trace), and it would also be hard to carve out from his works any theory of the sufficiency of the market economy, or of the need to accept the dominance of capital. He talked about the important role of broader values for the choice of behaviour, as well as the importance of institutions, in The Wealth of Nations; but it was in his first book, The Theory of Moral Sentiments, published exactly 250 years ago, that he extensively investigated the powerful role of non-profit values. While stating that “prudence” was “of all virtues that which is most helpful to the individual”, Smith went on to argue that “humanity, justice, generosity, and public spirit, are the qualities most useful to others”.*What exactly is capitalism? The standard definition seems to take reliance on markets for economic transactions as a necessary qualification for an economy to be seen as capitalist. In a similar way, dependence on the profit motive, and on individual entitlements based on private ownership, are seen as archetypal features of capitalism. However, if these are necessary requirements, are the economic systems we currently have, for example, in Europe and America, genuinely capitalist? All the affluent countries in the world – those in Europe, as well as the US, Canada, Japan, Singapore, South Korea, Taiwan, Australia and others – have depended for some time on transactions that occur largely outside the markets , such as unemployment benefits, public pensions and other features of social security, and the public provision of school education and healthcare. The creditable performance of the allegedly capitalist systems in the days when there were real achievements drew on a combination of institutions that went much beyond relying only on a profit-maximising market economy.

It is often overlooked that Smith did not take the pure market mechanism to be a free-standing performer of excellence, nor did he take the profit motive to be all that is needed. Perhaps the biggest mistake lies in interpreting Smith’s limited discussion of why people seek trade as an exhaustive analysisof all the behavioural norms and institutions that he thought necessary for a market economy to work well. People seek trade because of self-interest – nothing more is needed, as Smith discussed in a statement that has been quoted again and againexplaining why bakers, brewers, butchers and consumers seek trade. However an economy needs other values and commitments such as mutual trust and confidence to work efficiently. For example, Smith argued: “When the people of any particular country has such confidence in the fortune, probity, and prudence of a particular banker, as to believe he is always ready to pay upon demand such of his promissory notes as are likely to be at any time presented to him; those notes come to have the same currency as gold and silver money, from the confidence that such money can at any time be had for them.”

Smith explained why this kind of trust does not always exist. Even though the champions of the baker-brewer-butcher reading of Smith enshrined in many economics books may be at a loss to understand the present crisis (people still have very good reason to seek more trade, only less opportunity), the far-reaching consequences of mistrust and lack of confidence in others, which have contributed to generating this crisis and are making a recovery so very difficult, would not have puzzled him.

There were, in fact, very good reasons for mistrust and the breakdown of assurance that contributed to the crisis today. The obligations and responsibilities associated with transactions have in recent years become much harder to trace thanks to the rapid development of secondary markets involving derivatives and other financial instruments. This occurred at a time when the plentiful availability of credit, partly driven by the huge trading surpluses of some economies, most prominently China, magnified the scale of brash operations. A subprime lender who misled a borrower into taking unwise risks could pass off the financial instruments to other parties remote from the original transaction. The need for supervision and regulation has become much stronger over recent years. And yet the supervisory role of the government in the US in particular has been, over the same period, sharply curtailed, fed by an increasing belief in the self-regulatory nature of the market economy. Precisely as the need for state surveillance has grown, the provision of the needed supervision has shrunk.

This institutional vulnerability has implications not only for sharp practices, but also for a tendency towards over-speculation that, as Smith argued, tends to grip many human beings in their breathless search for profits. Smith called these promoters of excessive risk in search of profits “prodigals and projectors” – which, by the way, is quite a good description of the entrepreneurs of subprime mortgages over the recent past. The implicit faith in the wisdom of the stand- alone market economy, which is largely responsible for the removal of the established regulations in the US, tended to assume away the activities of prodigals and projectors in a way that would have shocked the pioneering exponent of the rationale of the market economy.

Despite all Smith did to explain and defend the constructive role of the market, he was deeply concerned about the incidence of poverty, illiteracy and relative deprivation that might remain despite a well-functioning market economy. He wanted institutional diversity and motivational variety, not monolithic markets and singular dominance of the profit motive. Smith was not only a defender of the role of the state in doing things that the market might fail to do, such as universal education and poverty relief (he also wanted greater freedom for the state-supported indigent than the Poor Laws of his day provided); he argued, in general, for institutional choices to fit the problems that arise rather than anchoring institutions to some fixed formula, such as leaving things to the market .

The economic difficulties of today do not, I would argue, call for some “new capitalism”, but they do demand an open-minded understanding of older ideas about the reach and limits of the market economy. What is needed above all is a clear-headed appreciation of how different institutions work, along with an understanding of how a variety of organisations – from the market to the institutions of state – can together contribute to producing a more decent economic world.

The Consciousness Chronicles

consciousness, Daniel Dennett, mri, neural correlates, neural networks, neurobiology, neuron, neurophilosophy, Neurophysics, neuroscience

Check out Nick Day’s documentary recorded at the annual Toward a Science of Consciousness conference.

Clash of the Titans: When the Market and Science Collide

extended cognitive systems, extended mind, liberalism, libertarianism, liberty, philosophy of social science, political philosophy, science, scientific publishing, spontaneous orders

Coming soon the first of three papers I’ve co-authored with Dave Hardwick, this one due in Advances in Austrian Economics, Vol. 17

ABSTRACT

Purpose/problem statement – The two most successful complex adaptive systems are the Market and Science, each with an inherent tendency toward epistemic imperialism. Of late, science, notably medical science, seems to have become functional or subservient to market imperatives. We offer a two-fold Hayekian analysis: a justification of the multiplicity view of spontaneous orders and a critique of the libertarian justification of market prioricity.

Methodology/approach – This paper brings to light Hayekian continuities between diverse literatures – philosophical, epistemological, cognitive and scientific.

Findings – The very precondition of knowledge is the exploitation of the epistemic virtues accorded by society’s manifold of spontaneous forces, a manifold that gives context and definition, to intimate, regulate, and inform action. The free-flow of information is the life-blood of civil (liberal) society. The commoditization of medical knowledge promotes a dysfunctional free-flow of information that compromises notions of expertise and ultimately has implications for the greater good.

Research limitations/implications – While we accept that there are irresolvable tensions between these epistemic magisteria we are troubled by the overt tampering with the spontaneous order mechanism of medical science. The lessons of Hayek are not being assimilated by many who would go by the adjective Hayekian.

Originality/value of paper – On offer is a Hayekian restatement (contra the libertarian view typically attributed to Hayek) cautioning that no one spontaneous order should dominate over another neither should they be made conversable. Indeed, we argue that the healthy functioning of a market presupposes institutions that should not answer to market imperatives.

Hayek: born on this day

cognition, cognitive closure, cognitive science, constructivism, distributed cognition, distributed knowledge, hayek, liberalism, liberty, philosophical psychology, philosophy of social science, qualia, rationalism, social constructivism, social epistemology, social ontology, socialism, sociocognition, spontaneous orders

How to Think Seriously About the Planet: The Case for an Environmental Conservatism

conservatism, environmentalism, political philosophy, roger scruton

Roger Scruton’s latest.

Some reviews:

The Independent

THE

The Guardian

The Monthly

The Scotsman

The Times

Financial Times

The Literary Review

New Statesman

Knowing-how and knowing-that

epistemology, Jason Stanley, knowing how knowing that, philosophy of mind, ryle, social epistemology

Jason Stanley one of the leading writers on this topic has this piece in the NYT. Here is a copy of Jason’s paper that reignited interest in the topic and has since generated quite a large body of literature. (The featured photo here is of course by Steve Pyke).

Cognitive Opening and Closing: Toward an Exploration of the Mental World of Entrepreneurship

philosophy of economics, philosophy of mind, philosophy of social science, the sensory order, Thierry Aimar

Here is Thierry Aimar’s intro to his paper for Hayek in Mind.

Contemporary analysis usually divides games of chance into three dimensions. In Machina and Schmeidler’s (1992) terms, this division can be viewed based on the example of an urn containing 90 balls of different colors, out of which an agent pulls a ball, of which he must ex ante guess its color to achieve a predetermined gain. If the agent knows that the number of red, white, and black balls is the same (30), he finds himself in a situation of risk: He knows the possible consequences and the probability distributions, that is, he has one in three chances of getting a ball of any particular color. However, if he knows that these balls are red, white, and black, but in indefinite proportions, he is confronted with situations qualified as uncertainty: The consequences are known, but the probability distributions are not. Yet again, if the agent knows there are 90 balls of different colors in the urn but does not know how many of these colors there are, he is in a state of incomplete information: The agent is unable to define the list of possible outcomes (situation of ambiguity) and can expect some surprises identifiable ex ante, as states of nature are identifiable. An extra dimension may be added to this distinction: If the agent has himself placed 30 red balls in the box, but he does not know what other elements of indefinite character and number there are in the box, nor the structure of gains or losses associated with various results, then we can consider that the agent is in a position of ignorance. Not only is he unable to define the list of consequences of the game, but he also does not know the distribution of events. The agent is able to define what he knows, but unlike the three previous cases, he cannot determine the scope and nature of what he ignores. The surprise is necessarily unexpected in the sense that the agent is unable to identify ex ante the possible states of nature. It is in this latter perspective that Kirzner (1973, 1979, 1982) argues that market actors face a phenomenon of ‘‘genuine ignorance,’’ reflecting their inability to know all the opportunities for exchange or profit available in an economy. At any point in time, each individual perceives only fragmentary aspects of social reality in which he participates, and not its other facets. Each exchange is made in ignorance of other exchanges performed at the same time; thus, there is no common knowledge of prices and no actor can perceive the whole. In a monetary economy, the consequences of these independent exchanges are mutually dependent. The implications of this genuine ignorance on the coordination of activities are thus considerable. Using the example of Schmeidler and Machina’s urn (1992) from the time when the consequences of a draw for each individual depend on the (unknown) number of elements (of unknown character) deposited in the ballot box by an (unknown) number of (unknown) people, the ability of such a game to produce a balance is at least questionable. The stakes of this phenomenon of ignorance compel us to identify its sources. These are not found in any complexity of information, neither in the cost of its acquisition nor in its treatment (deliberation) from a perspective of bounded rationality. They come from a more fundamental phenomenon of dynamic subjectivism. According to authors such as Kinder (1973, 1979, 1997) and Lachmann (1977, 1986), agents’ preferences, endowments, knowledge, and strategies should be defined as personal, unique. Therefore, each individual is a priori ignorant of how others evaluate goods and services. Economic analysis is not therefore based on a perfect, or even sufficient knowledge of actors to coordinate their activities. The diversity of actors’ preferences, interpretations, and expectations would certainly not be a problem if they were constants. A process of trial and error would lead to new learning, opening onto a price structure that would allow coordination. But this is in fact not the case because the individual performances would change continuously, according to an endogenous process, ultimately explained by ignorance or internal self-ignorance (Aimar, 2008a). As Hayek (1951a, 1951b) explained, the actor can only partially perceive the existing opportunities for satisfaction, for reasons related to the organization of the human brain and the tacit characteristic of knowledge. His conscious choices being ignorant of a portion of his subjectivity, he makes mistakes, expressed by disappointment with satisfaction. He undergoes a de facto internal discoordination, forcing him to change his representations to make his beliefs conform to the reality of his interior environment. But changing choices results in transforming his internal environment and de facto creates new unknown areas. The mind, constantly evading the consciousness’s desire to fully absorb it, makes the process of self-discovery never-ending. Thus, market discoordination, the result of genuine ignorance, is finally but an internal discoordination, consequence of a phenomenon of self-ignorance. It was around this phenomenon of genuine ignorance and its perverse effects on coordination between individuals that Kirzner introduced the theme of entrepreneurship. The entrepreneurial function, driven by the incentive of profit, is to discover unperceived opportunities. Mobilizing qualities of alertness, reflected in cognitive openness, it reveals previously hidden information. Through his discoveries being translated into new money transactions, the entrepreneur socializes his knowledge and contributes to pulling market activities toward coordination. He goes beyond reducing ignorance; he transforms ignorance into uncertainty. But according to Kirzner, a parallel mission of the entrepreneur is to organize already discovered opportunities in the form of firms’ production plans, in order to protect them from risk of obsolescence resulting from the volatility of data. In a dynamic world, discovery and exploitation of opportunity are then the two faces of entrepreneurship. The author argues that these two dimensions may be contradictory in the entrepreneurial mind. As much as discovery implies a cognitive opening to the outside, all exploitation of discovered opportunities is accompanied by elements of mental rigidity. These take the form of cognitive closure, thus opposing the entrepreneur’s perception of new opportunities. The aim of this contribution is to illuminate by the structure of this contradiction by economic analysis, to provide the means to verify it through experimental economics and to consider its extensions in terms of neuroeconomics. Our plan is this: After explaining the basics of the theory of entrepreneurship and the elements that determine its duality, we will define the bases for an experimental protocol likely to support our thesis of an opposition in the cognitive field between the relative strengths of discovery and the exploitation of opportunities in the entrepreneurial mind. The last section forms the conclusion.

Merleau-Ponty’s Phenomenology of Perception

Embedded, embodied cognition, embodiment, Merleau-Ponty, phenomenology, Phenomenology of Perception, situated cognition

New translation reviewed by Eran Dorfman

Sixty-seven years after its publication in French and fifty years after its first translation into English, the long-awaited new translation of Merleau-Ponty’s Phenomenology of Perception has finally come out. This classical work famously grounds experience in the body, showing how the latter conditions perception and action in various domains such as spatiality, temporality, language and otherness. Merleau-Ponty’s work, however, has been accused of many flaws in the last half-century: it would alternately be called a dull imitation of Husserl and/or Heidegger, a symmetrically opposed reproduction of Sartre’s Being and Nothingness, a conservative philosophy of the “subject” or finally an outdated attempt to deal with contemporary science. Nonetheless,Phenomenology of Perception has survived all these accusations, and this new translation proves its contemporary relevance, which continues to grow. The work seems to have a discrete yet long-lasting power that keeps inspiring new generations of scholars and practitioners from various and sometimes opposed traditions and disciplines. What is the secret of Phenomenology of Perception which attracts its reader despite the efforts it demands?

It was about a year ago that I visited Ponty’s grave at Père Lachaise.

The Oxford Handbook of Contemporary Phenomenology

phenomenology, philosophy of mind, situated cognitionWrite a comment

Apparently this major volume is to be released early next year.

Rupert interview on extended mind

Andy Clark, Chalmers, extended mind, externalism, john sutton, robert rupert

The VERY excellent Rob Rupert on naturalistic theories of mental content and no surprise – extended mind. Also with Jonno Sutton and Richard Menary sandwiched in between Rob. H/T to Ken Aizawa for the alert. Here is a link to my collection of  “Rupertiana“.