Adam Smith's Mistake

Adam Smith's Mistake One of my favorite econ books. Written by a non-economist so eaier to read than most econ books. Focus of the book is on Adam Smith's self-interest thesis. This is NOT anti-Adam Smith but an excellent analysis of the limits of free markets. The solutions presented are interesting but not as strong. I consider this book a must read for anyone with an interest in economics.

This book's title is very similar to Duncan Foley's recent(2006) book on Adam Smith.Both titles are extremely misleading and inaccurate.Nowhere in the Wealth of Nations(1776) does Smith define self interest as greed.Self interest arises due to the social context of a person's job.A human being's particular specialization(comparative advantage)provides him(her) with a source of revenue that allows him(her) to benefit from the specific needs of the rest of society for his skill while he(she) is able to benefit society as a whole by providing a service or skill that the rest of society needs. Self interest manifests itself only in the context of the interactions and feedbacks that occur between the person and the rest of society.The individual has two goals,one primary and the other secondary , that are not inconsistent and that do not qualify as greed or selfishness.The first goal of the butcher,brewer,blacksmith, or baker is to provide a product or service that other members of society want or need in order that it will generate a revenue source that will allow him to care for himself and his family.His concerns with himself and his family,and all of the stresses and strains of making sure that they are provided for,leads the individual to have sympathy for the similar experiences that all of the rest of the other members of society are also experiencing. However ,this is not selfishness.The second goal is to promote the existence of institutions(government) that will allow the harmonious development and expansion of the Invisible Hand(comparative advantage +division of labor+ self interest) process over time(economic growth and extension of the market). Smith is acutely aware,however,of the dark side of the Invisible Hand.The daily tasks of providing and making a living as the specialization(division) of labor becomes finer and finer will lead to a profound tunnel vision(one's self interest degenerates into selfishness and corrupts completely the moral foundations of the entire society) on the part of all workers that results in severe negative spillover impacts in all other areas of life(social,political,economic[workers lose the capability to make constant marginal improvements over time in the types of machinery and tools that they work with ],moral,intellectual,martial).This is what Smith is talking about on pp.734-741 of the WN(Modern Library[Cannan]edition). Smith essentially wrote his new Part VI in the sixth edition of the Theory of Moral Sentiments(TMS) in 1790 in order to provide a theoretical foundation supporting his claim that it is necessary to promote moral virtue as a general policy(implemented through education and religious instruction)because it would generate positive spillover impacts on society as a whole.This last part is needed because the first 5 parts of TMS basically deal with the role of the impartial spectator, a mental construct ,that generates sympathy when making judgements on an individual basis.Part VI

Seldom if ever does one come across a book, so succinct, so seductive and so persuasive in its analysis and treatment on what constitutes the core and foundation of the subject of modern economics. Tracing its development to the times of Adam Smith (and earlier) and the subsequent edification of his work by the motivated self interests of Malthus, Ricardo and others, Lux lays bare the corrupting and narcissist venality of a depraved era that was fashioned into respectability, to spawn the cataclysmic upheavals of the past three centuries, spanning countries and continents of planet earth.Kenneth Lux argues forcefully that Adam Smith's thesis 'The Wealth of Nations' is but a clarion call to Greed, despite Smith's original intentions to the contrary.Long after this 'mandate for greed' was absorbed into the fabric of accepted social behaviour and instituted as the norm for legally sanctified economic intercourse, the nations of the world convulse rapaciously with the disproportionate spread in wealth. And the ecosystems of the planet, its air, its earth and its water tether on the brink of collapse.With the keen insight of the psychologist Kenneth Lux offers a glimmer of redemption from the present dismal state of affairs... "temper 'self interest' with 'benevolence' and things can become very different" he counsels. He does not claim originality for this idea, a truism to be found in all the old books of wisdom. Something mankind has lost sight of and is in urgent need of rediscovery.Sadly this book by Kenneth Lux "Adam Smith's Mistake: How A Moral Philosopher Invented Economics And Ended Morality", Shambhala 1990, is out of print and out of stock. A few second hand copies retail at three times the original cost!

Kenneth Lux's and Mark A. Lutz's collaborative and individual efforts should be more widely known, especially among Left Intellectual circles, and that they aren't is quite a shame.It's also a pity such an earthshattering book as this is now out of print, for it diagnoses the rot at the core of Classical Neoliberal economics so eloquently and plainly. It is a strongly ethical critique that lays bare a critical mistake in the reasoning of Adam Smith...a mistake that has been siezed on by all subsequent Neo-liberal "classical" economists and is the only thing they care to remember about Adam Smith...It was joked once on NPR that Adam Smith couldn't get a job in todays' business press because he'd be percieved as "too lefty". This is actually quite true...if, as Noam Chomsky has pointed out, anyone would actually bother to mull thru the whole of Smith's works. But no, what gets lached on to is the selfishness doctrine (Smith's Mistake) as the key economic engine, and all of Smith's moral reservations and other conscientious handwringing are forgotten/rendered mute by this mistake...and it is upon this mistake that the whole unjust real-existing capitalist world order has been built and continues to rest. "So?" you might say, "Marx already did this in Das Kapital". Well, yes, but not quite. Lux knows about Marx, of course, and has a few humanistic/ethical choice barbs to toss his way also.Although Lux does not use this language to describe his position, his solution to the dilema does basically come from the anarcho-syndicalist circles of Spain (both during and even, covertly, AFTER the Spanish Civil War), plus a little Gandhi & MLK thrown in for good measure. That summary is a bit too pat, and it's hard to summarize briefly and still do the book justice; JUST READ IT. You will never look at economics quite the same ever again.All in all a fine book that has pride of place on my bookshelf. Worth conducting an "out of print" booksearch for, by all means.