The Economist as Philosopher: Adam Smith and John Maynard Keynes on human nature, social progress...

discussion will be The Economist as philosopher Adam Smith on human nature social progress and economic change we are fortunate to have two economist philosopher historians with us to discuss this historical but timely topic the the names Adam Smith John Maynard Keynes maybe also Friedrich Hayek have are now reappearing on blogs and articles everywhere more as slogans and insults but the speakers today actually have much knowledge on these historical thinkers Lord Robert Skidelsky is emeritus professor of political economic political economy at the University of Warwick he is the lifetime peer since 1991 a member of the British Academy since 1994 he's on the board of director of numerous financial and non-financial companies recipient of numerous awards including the lionel gerber prize for international relations and the Council on Foreign Relations prize for international relations he is author of numerous academic articles and a long list of books perhaps most famously a three-volume biography of John Maynard Keynes his most recent book Keynes the return of the master is an outstanding account of the current economic crisis the intellectual and ideological bifurcation that it exposed and the relevance of Keynes ideas and understanding recent events this book is available for purchase up front and you should purchase it quickly because there are less books than people here in the audience Nicholas philipson is an ordinary fellow at the in history at the universe the event in burrow and in recent years a visiting scholar at numerous universities in the United States Germany and elsewhere he is editor of the New Oxford Dictionary of National Biography founding editor of the journal modern intellectual history president and former president of numerous societies he is one of the prominent scholars on the Scottish enlightenment and the intellectual the the thought the political economy thought of the 18th century his many books include a book on David the thought and life of David Hume and most recently Adam Smith and enlightened life which is also available for purchase so rush to get that as well that this the the book Adam Smith's an enlightened life is a very interesting very well written biography of Adam Smith which is not an easy historical thing to do because as you may not know but Adam Smith was very private individual and left behind actually destroyed many of his manuscripts so this required much historical archival work so I will the format will be will have short presentations by both of the professors will then have a discussion and finally will allow some questions from the audience I should note that this session is being recorded so in your questions please be polite clear and speak to the microphone thank you Nicola Phillips them please well thank you very much and welcome everyone to this conversation before I begin I am not in any sense of the word an economist and I would not want to give give rise to disappointment by anyone thinking but I spoke with any authority as an economist what we wanted to do the ceiling was really to carry on a conversation about Adam Smith and Maynard Keynes that Robert and I began a couple of years or so ago as an Edinburgh Festival and when I myself was in middle of trying to get my book on Adam Smith off of the ground and we began by contrasting our two our two economists contrasting the personalities of the two OCONUS because they really wear on all or all ordinary calculations of personality very different people indeed Smith reclusive and diffident eccentric and in fact a mother's boy he lived most of his life with his mother and he died shortly after she did as an intellectual he was a slow worker a slow thinker he paced his thinking slowly and his most startling characteristic I think was in his handling of the evidences of human behavior and economic behavior was immediately to think about particulars in systemic terms he he was known at his etre in his time and has remained known as a systematize err and it all of this is a striking contrast with maynard keynes Minar Keynes a much more upfront person equally formidable mother actually a much more sociable person than Smith a formidable person socially unlikely rather retiring Smith a libertine in many aspects of his life and as an intellectual a a much more pragmatic thinker I would say the Smith a man who was interested in theorizing the implications of specific events and and to do and doing so with more iconoclasm than Smith would ever have dreamt of Dean and we started off by realizing these two people perhaps the greatest economists the most powerful economic thinkers of the modern world did seem to stand in contrast with each other but when what went into it it was quite clear that these differences notwithstanding these two men have really very very striking characteristics in common certainly as far as their as their mental as their their intellectual profile their intellectual apparatus is concerned they were of course both more than competent mathematicians they were serious mathematicians but that in fact I think is something one would expect with people who were dealing with economic data much more surprising they both had serious interests in aesthetics and indeed in the performing arts and indeed one of the things that I am not even serious Smith scholars fully enough realize is that just after finishing the wealth of nations Smith sat down to begin a book on aesthetics it and although all that has survived of this is about 8,000 words have survived in forms of draught lectures if matter in my judgment there are the makings of a very very interesting impossible revolutionary aesthetic theory built into them but the thing but these these things by the way and we can talk about these things later if you would like but the important thing was their interest in philosophy in philosophy as a discipline which addresses itself to what in the 18th century people called the principles of human nature philosophy in the sense that moral philosophy is concerned with ethics and with questions about the ends of life in civil society about the attainment of happiness about even the principles of virtue they're interested in philosophy - for what philosophy can help you say about scientific explanation about the formulation of laws and general principles about human conduct and the operations of civil society and I think we came to very much to the conclusion that it were wrong to think of these as shared let us call them for the sake of ease philosophical interests which are simply part of the lumber of undergraduate education I mean that would be an obvious strategy to take when one was discussing philosophy and economics with our two people but we both came to the conclusion we may say something more about this later that you can't write these interests off as I say as part of as one of the chapters in the history of their early education these interests and these different levels of interest we found were constant throughout their lives as as intellectuals they are woven in in some way which we I think we rather want to talk about here they're woven into the fabric in some way which we must try and to find a bit more precisely of their economic thinking and it all of this raised in us the further question was what is the role in creative economic thinking of philosophy philosophy in its different branches is it are we dealing with a rather curious pair of biographical examples of powerful economic thinkers who happened to have an interest in these different layers of philosophy or is there something more more going on are we talking about the character of creative economic thinking in general whether or not it applies simply to these two people or applies further afield and we rather wanted to to try and open that subject up and later on to for you to help us with their own thoughts on these thinking there are on these problems so what we thought we would do was that we should start we should start off this discussion by having a look at the introduction of Keynes and of of Adam Smith to the business of philosophy and just to get a fix on just where they come from as people with powerful and continuing interests in philosophy and we will we will then take it from there and see where we get to Robert I think that's all is that all I need to say the things for you to add to that because I think you were going to start off with caves well I was going to start off with the Archbishop of Canterbury actually all right it's your turn um yeah I do think the two two men Adam Smith in Cannes Maynard Keynes former a fascinating biographical contrast uh and I think one couple of things that emerge I mean one was the Hedgehog and the Fox analogy which of course I think Hayek applied to himself but I think in in in this pairing uh maybe Smith is the hedgehog and Maynard Keynes is the Fox seeing one one big thing and the other person others seeing a lot of small things but sort of very very quickly eggs I mean I think Cain's all searches so one big thing the other thing was the huge rate range of these two people which I think has been lost today its before the age of specialization after all and and the idea of a well-educated economist was someone who was just well educated economics was something he did or she did usually it was he in the earlier period but but it was you know it was set in a much a much a much broader intellectual and cultural framework and I think both of them had an omnivorous curiosity I mean they just got interested in everything and of course being the the people they were they like to spin a theory out of it and I'm Smith Smith Adam Smith used his conjectural history as a technique for doing this but you know they wanted to get to understand how things had become what they were and and so it was the reverse of today's disciplines which are very very narrow and people will say I was doing a TV thing day and there was a professor of government and we were meant we were talking about oppressive government Oxford and we were talking about a subject which had economic and also political aspects to it and he said well I'm afraid we've reached the frontiers of my subject I I'm not going to say anything about that but I mean this you know I I was appalled quite frankly I've never thought frontiers were a particular barrier so the way my mind works and and and no doubt how it make lots of mistakes and consequence but now going back to the archbishop in a recent essay he called for a proper discussion of what wealth is for a wise grave seen as the Holy Grail economics he said he says claims to Vann earth the particular theory of motivation which trumps everything else that of self-interest rational self-interest underlies Adam Smith's invisible hand but economic exchange and then I quoting the archbishop is only one of the things that people do and that's that's a very important phrase that he uses only one of the things that people do and then he says why why are we here and he says it's to lead good and admirable lives and the quest for wealth has only a limited connection with that moreover maximization of wealth also calls for qualities which are the reverse of what is needed for goodness so we must recover the courage to speak about these things to speak about wealth and the pursuit of wealth in a moral and ethical framework now both Smith and Keynes did that and with Smith for him economic life wasn't just one of the things we do it was the main thing we do and it's the main thing we do because of the universal condition of scarcity what he called indigence and so basically self-interest was was something that was time because it helped us solve this problem of of self-interest it wasn't just self-interest there was also what he calls sympathy but indigence and necessity are the spur for improvement saving or parsimony comes to us from the womb I don't know where that see a you quote or a Smith quit it's in your book it's not me it's not past somebody comes from the womb self-interest is the motor of improvement and it produces private property which is the basis of the accumulation of capital and and and and the division of labor but it also but but it also produces other things commerce and the arts of exchange come out of the quest for wealth they are they they make men sociable and social abilities the basis of morality anyway so you get this base superstructure sort of idea in Smith with with with with self-interest as of the base as necessary to to get people out of poverty thus the progress progress in civilization depends on progress in opulence opulence is produced by self-interest mediated by sympathy self-interest is innate but sympathy is learned from from the experience of living with other people now interestingly Smith didn't tell us what he thought life would be like after opulence was reached I think he probably did have his utopia but he did believe that it was the material progress of mankind which created intellectual and aesthetic appetites so he must assume that Smith thought that one day economic life could simply become one of the things we do as as the archbishop said but it had yet that stage haven't yet arrived and been reached now to Cannes and I just want to take one strand of Cannes here which is something I've been thinking about and working about recently and that's his economic little si economic possibilities for our grandchildren Keynes did speculate on what life would or should be when we had reached a state of abundance and he thought we were very close to it this was written in 1930 his premise was that capital growth and improvements in technology were putting us within sight of solving the economic problem at least in the West a standard of living eight times as high as in 1930 would be achievable within a hundred years with a fraction of the effort with the fraction of the hours that people then worked most work in other words would be done by machines and so we would soon be in a position to abandon the morality a born of scarcity in other words smith's morality with the economic problem solve the grand blinds of the world and will yield their places and I quote change to the delightful people who are capable of taking direct enjoyment in things the lilies of the field who toil not neither do they spin and significantly Keynes said that once this point had been reached we would be free to adopt the sure and certain principles of religion and traditional virtue in other words self-interest would be irrelevant at that point in an era of abundance like justice self-interest would no longer make sense and so the whole basis of our institutions would would have to be transformed and we would all suffer a nervous breakdown society as a whole now in a sense you might say well Keynes was simply following on from Adam Smith and he was 150 years later and and and the world had just become much more opulent than it was in Adam Smith's day but there was one enormous difference from from Smith um Keynes did not see capitalism as benign only as necessary he was much more influenced by Mandeville and his fable of the bees Mandeville's account of capitalism as a system which hypocritically turned vices in two virtues and he had little little sympathy for Adam Smith's attempt to soften self-interest by the notion of sympathy and he would have agreed with Smith's contemporary Thomas Reid who called Smith's philosophy of sympathy a delusive device for wrapping up selfishness in impartiality so Keynes capitalism's only redeeming feature was the got us to abundance and for that we had to pay a very heavy price and I just want to end here with with a quotation from the economic gospel to our grandchildren which do show Keynes in his full flow and and and also reveal a great deal of the eloquence of his writing when we get to the state of abundance we shall be able to rid ourselves of many of the pseudo moral principles which have hag tritanus I'm sorry there's political incorrectness Hagrid knows by which we have exalted some of the most distasteful of human qualities into the highest virtues we should be able to assess the money motive at its true value the love of money as a possession as distinguished from the love of money as a means to the enjoyment and realities of life will be recognized for what it is as somewhat disgusting morbidity one of those semi criminal semi pathological tendencies which one hands over with a shudder to specialists in mental disease but that's when we have solved the problem but beware the time for all this is not yet for at least another hundred years we must pretend that fair is foul and foul is fair for foul is useful and fair is not avarice and usury and precaution must be our gods for a little longer for only they can lead us out of the tunnel of necessity into daylight so that's Keynes on capitalism the function of capitalism in in now the Archbishop Smith Keynes agree that wealth is simply a means to good life and that its pursuit should cease after abundance has been reached we're left with the question how much wealth do we need to live live wisely agreeably and well how much wealth will suffice to get us off the growth treadmill and to answer that an economist needs to become a philosopher an economics a philosophical as well as a mathematical project yes I mean the contrast of between Keynes as the economist of of abundance who can actually begin to theorize think it worth arising the consequences of abundance is the basis I think of a really very very interesting contrast with Smith Smith is not dealing with the world in which which whose productive resources can be described in terms of abundance Smith is a seen historically is the the philosopher and the economist who is confronted with the world whose dominant form of civilization feudalism is crumbling in and if it's crumbling for reasons that have relatively little to do with the intervention of princes politicians purpose of human action it is crumbling because of a change in behavior which it is extremely important for the 18th century that they should understand and the point about the reason for making this point is that Smith is philosopher the economist of improvement he never ever talks about the consequences of abundance he is talking about the consequences of a structural change an epochal change in the history of civilization which has as its roots a shift that is taking up a profound shift that is taking place in the productive capacities and resources of the world he's living in now this means what it's worth making this point and it's worth emphasizing this point because this in fact did not come over within a generation of Smith dying what is fascinating and it is starting to happen to Keynes now either is this speed with which classic texts of this sort which are written to explain particular phenomena and to try and derive a set of principles which will explain these phenomena do become they become detached from the historical circumstances which the philosopher is trying to explain and they become read in terms of what are seen to be their implication and therefore Smithson's becomes a dismal science a dismal science which in fact near manda villain science in fact now the interesting thing is although I mean I won't go into this here that one of the great targets of Smith Ian's economics it's one of the presences that he could never ever forget is the presence of Mandeville and that deeply cynical enormous Lee powerful and hilariously funny after all account of the workings of a of a productive economy in which people foolishly believe they're living in a state of abundance but the cynicism the brilliance and the sinister some of that toast to naked self-interest and the forms of morality and the delusions about truth about beauty about morality above all in which these have been brought into existence by by changes in the market now Smith is very very anxious and one of the major intentions of Smith as a philosopher and then as a jurist because he is an adjuvant our and latterly of a political economist is to face that particular challenge and again he has to do it in the same way of to deal with a different tack on the same problem jean-jacques Rousseau one of the most powerful and creative philosophers and social theorists of the later enlightenment who in the second discourse will in fact present human beings as becoming separated from themselves by the progress of civilization and the progress of Commerce so people become unrecognizable to themselves now this prospect the fear that commercial commercial behavior will do but it will make people unrecognizable to themselves and and that they will be gold and cheated into into delusions about the ethical value of what they're doing this is a this is a recurring target for Smith and I think it's very interesting at this stage in our discussion to bear in mind that when Smith was once asked you know where we were all heading he did in fact he may he was absolutely clear that he was not thinking in utopian terms at all he was only thinking in terms of the immediate consequences of the processes of economic change that he saw in work in Europe and in fact in the Empire the growing Empire around it and he was very very careful not to move further and that his disciples the first generation of disciples they certainly do they move beyond that very quickly and so does the first generation of his critics but again this is one of the fascinating problems that historians have to key to cope with the fate of texts when they're read by their first editors who wish to bring them up to date to make them relevant to a different sort of age it may be this it's the fate of every great text that it should be treated in this way now make just a point about method here I mean I think I think people did science in a different way I mean I think a lot of a lot of wasn't he didn't use induction as a way of coming to his to his conclusions but he wasn't it wasn't entirely deductive either I mean in other words the examples were regarded as part of the argument I mean where is now economics has become economic theories become purely deductive I mean you start with a set of axioms they're not obviously derived from anything certainly not from observation they're just there and then various attempts are meant to so prove them or disprove them and and but but there is no him there's very little empirical element in the creation of economic truth today whereas there was a huge amount that and that is why I mean you know I mean so much and he's brought out brilliantly in your book Smith's and observations on of human nature and were derived very much from observation of his own Miglia and particularly the Miglia of Glasgow and Scotland in the 18th century and then he used a lot of conjectural history I mean which was based on real history I mean is based on encyclopedic knowledge of other civilizations and climbs in order to get a general truth now we did I mean we don't do that today we do our science I would say that what economic suffers from is a surfeit of physics Envy it wants to be a natural science and therefore it wants to be in a position to to to proclaim truths Universal universally valid independent of time and space which is what it believes laws that believe apply to natural phenomena and as a result all that so sign of Smith which was curiosity about what was going on about different societies different cultures how they arrange their institutions differently and so all that's are dropped away and I think you already have this shift from Smith from Smith Ian science to to modern economics in in in Ricardo I mean that's really where it starts and then of course a mathematics it's more and more powerful and mathematics replaces history as the call and in philosophy as well as the core of the economics project so I think that's point one I think they then back to this very interesting contrast between scarcity and abundance the whole of classical economics was based on the idea of scarcity I mean that was its central root all the logic flowed from that and and definitely I and the idea of abundance sort of never occurred and it's interesting how an attained what Keynes did was to say well let's think about not just in terms of utopia but let's let's talk about a surplus of resources at various points rather than a scarcity of them what sort of economics do you get out of that and I mean you've got out of that you've got the general theory as a matter of fact but what's happened today is that we've reverted to scarcity economics I mean Osborn is a classic scarcity economist we don't have enough money to do these things the fact that there is a rather large surplus of our news resources is not something a thought that I think ever occurs to him or or if it does they're not really surplus in some way we are at full employment actually in some way and therefore we're in a world of scarcity so you have this sort of break in economics and now I think the dominant mood is a staircase scarcity prudence saving back to the womb of saving and and out of this we will scramble out of the hole which extravagance has brought us into yes I mean the we come back again to the really fascinating question this is what sort of laws if any can be derived and the thing is but it's it's one thing to say that there are no laws relating to the human service surface sciences that can be will conform to a standard definition of what a law is but that doesn't actually solve the problem because it raises the question of what sort of systemic thinking is illuminating and be useful and I think one of the things things I've come to realize about Adam Smith relatively recently actually is just how far his account of economic behaviour economics is rooted in a much wider enlightenment preoccupation with easy possible to derive a science of man a science of human behavior in all its aspects moral political aesthetic religious and if so what sort of science is it and this is one of the great great projects of the Enlightenment and many ways one of its roots is in Thomas Hobbes it's Hobbes who does something that matters hugely to the Scots and matters hugely to Adam Smith and that is to suggest that you cannot apply the laws of experimentation and hypothesis and conclusion to the seller are open that you would apply to the Natural Sciences to the human sciences the problem of creating a science of a species to which you are belong to which you belong and which you are trying to observe requires a completely different sort of discipline and it was Hobbes who did something that I don't think has been widely enough appreciated by scholars of the Enlightenment to suggest that actually the key is lies in the discipline of geometry and Euclidian geometry particularly proceeding as Robert was saying by hypotheses and then developing by means of illustration of hypotheses or axioms which have the purpose of giving of increasing the truth value in rhetorical terms at least of the proposition you're proceeding from now that is the interesting thing and I think there is a lot more to be found out about this is precisely what sort of discipline this is what sort of science is it and this of course was the challenge that Smith's successes first they refused to accept that this was anything more than offering plausible hypotheses I mean one of Smith's formidably and terrifyingly bright students in the early 19th century was so patronizing about Smith it simply wasn't true he simply said you know this is terribly elegant it's a beautiful it's a beautiful hypothesis it'll do for the vulgar but it's not nearly good enough for an age in which we expect to be able to formulate laws about the workings of the market and laws about about politics and I think what Smith's project does is it raises the question of what sort of science is is it that he is pursuing but it is certainly not as Robert was saying anything doesn't begin to resemble the sort of science which we would recognize and indeed Smith himself was extremely cautious I mean to wonder is he's cautious about any form of prediction and it raises the question of what then does this sort of an enterprise do and in my view what Smith doesn't miss brings to mind I suspect close to Keynes is to say the most you could do is you could formulate hypotheses which will appeal to the truth sense of a target audience in his case an audience of politicians of effectively eighteenth-century civil servants and will and will in fact be taken as a useful way of thinking about policy options in a situation in which the economy is moving in ways that no one had anticipated which has no history behind it as a guide and what is being offered is a way of discussing particular policy problems within the framework of a general hypothesis which is open for governor's to accept or reject I think that's very important it raises a very crucial question how one does a subject like economics Kings was a great believer in using ordinary language I mean that was a philosophical commitment as well he used what I call highbrow ordinary language he used very little maths he was a good mathematician and he was a bit but he didn't use maths and he rather like Alfred Marshall his teach they believed math should be for the Penda sees and you know anyone who wanted to but he believed very very strongly that you should understand everything in English or the language of the country before you write down a single equation you should know exactly what you were trying what what it meant in language then you if you wanted to make it more precise or develop it in an interesting way you you could do that and that convention really lasted right through the close of the classic economics period but it sort of it started to disappear with Ricardo I mean if you read Ricardo's principles which of course you've all done you will you will notice that it's crying out to be mathematics I really but but whether it was because they didn't have the maths to do it Ricardo didn't have the maths to do it or because he also believed in in in in the need to communicate with with with with with other people I don't know but the the math math and math and matters ation of economics really started with the marginalist revolution in the 1870s and and and and the doctrines of the subjective utility and then calculus became central to to the economics maths that that you all now those do economics now now all know about but this idea of ordinary language is that economics is so rhetorical discipline in in the view of Smith and indeed of Keynes it must appeal to some intuition in in in your in your in your in your audience and your target audience that's what gave it its truth truth value and now you have such a disconnect between economics and and the intuitions of ordinary people not not a complete disconnect I mean I think there there are there are strong connections I mean someone like you know Osborne does connect in some way with certain very powerful intuitions which is that the government is like a household let's think about a household let's think about a household economy and and you you know there's this there's a great deal of that but it's the whole where presentation is remote from from the way people think about business slide and also the the the the sort of figure set up which is Homo economicus economic man driven entirely by self-interest and maximizing his utilities is is something not most people don't recognize in themselves and if you actually tried to if you actually said that is actually what you'll like and that's if you don't know it you know you better do an economic schools then you'll realize exactly what you are like I mean they they don't recognize themselves and that and what small lot of behavioral economics now has also challenged that view and in infinity but but yet without that sort of view you don't have anything very very hard and and that's that's why that's why classical near the new classical economics fear behavioral economics because it sort of opens up the whole story of human nature in a way that was closed down by the scarcity perspective and the self-interest that's sort of threat that comes out I think comes out of Adam Smith you see I mean III do I love Adam Smith in a way but I do think he'd there were certain things he didn't do quite right I I think his view and torch extent was his view of human nature actually formed by the the milieu in which he in which he grew up Kirkcaldy then Glasgow than you know the merchant elites of Scotland in the 18° mother did you get I didn't know and he's in personality as you say rather reclusive self-sufficient never married no family no children I mean this is psycho bio and psycho biography is one of those delicious party pastimes that one can engage in because everyone can have a go at it there is absolutely no way whether you can know whether you're talking nonsense or not but it is absolutely irresistible you should do it you should try it sometime at some stage but um what made Adam Smith tick is something I'm afraid I've one reads my book and in the hope that I will give them some insight into what made Adam Smith tick and whether he was dropped on his head or not his child and the the influence of his dreaded mother I failed they would be disappointed because I just it was just no way we finally get into that but what you can get into is Smith's enormous sensitivity to the language in which ordinary human beings disgust let's say it would you start with the question of moral judgment you know when we if we see something going on if I'm talking to one of you and you know we see something going on over there which is rather strange we automatically find ourselves passing judgments or offering judgments which we may correct and all the rest of it we are judgmental people and what Smith does is he appeals to the ordinary business of exchange of social exchange the exchange of ideas of sentiments in whatever form they take and the thing is that the examples he gives are quite deliberately fashioned to be examples which people will recognize that they they they crop up in books there part of all the ordinary discourse about morality about economic behavior and so forth and the the intention of this is entirely inclusive it seems to me what Smith is not trying to do is to say that philosophy is out here and you are over there he is trying to say what we are doing what I am trying to do is to get you to attend to one or two aspects of your behavior which you will recognize from these examples and what I want to do is to encourage you to just press the theoretical implications of what of the this sort of observation of ordinary life and to press into it a bit further and Smith sometimes does it and he's criticized for it by pressing so far into these that people begin to think well you know this is this is bordering on implausibility but that intention is a common characteristic of his method of reasoning and I think what lies at the root of it is something that is well worth taking account of with Smith in whatever form one reason and whatever text one reads he is the great student of exchange the phenomenon of human exchange is the thing that matters it's not self-interest purely and simply it is the process of exchange which we all know we all recognize we all engage in it from the moment we're born to the moment when we die and he's interested in the consequences of that exchange for the formation of the personality the civic personality actually because Smith really only seriously writes about people who live in civil societies and this is a this is I think one of the engaging things about Smith you if you can speak 18th century ease and it's not as all that difficult and you can get into the shell of Smith's original readers and you can understand the ordinary conversational world that they live in Smith is not a difficult philosopher the because as I say the intention is to appeal to your own experience the fact that we've got a history historical gulf between them and us is something that can be perfectly well bridged by the business of learning a different language I mean you know which a lot of us learn to do anyway it's a language it's a language problem but the inclusivity of this and the and Smith's determination to present economic behavior as another aspect of the business of social exchange it is central it's absolutely central but it's also limited because why well because you can start from a different premise which is I know not think of people as individuals but as I say starters members of communal communities who feel bound to act in certain ways by by ties of kinship or religion or whatever you may take that as being central kinship it's not clear that you move from self-interest to exchange what are you exchanging you know I mean well in a sense in a trivial sense we're always exchange we're exchanging ideas I mean presumably even in family is there some conversation but broadly speaking broadly speaking you know there are certain duties that people might feel they have as being by virtue of being members of of of of a certain group and that doesn't involve exchange except in a trivial sense when where does it come from there where does what the sensibility of the sense of duty how do how does the small child learn a sense of duty the small child learns a sense of duty bad being born into that family and therefore seeing he's far away so the being presented with with with certain duties and obligations and rewards and punishments appropriate to that status his status and in the family or the group the family itself is not an independent unit I mean when Margaret Thatcher said there no such are there only individuals and their families you know there's no such thing as society well society is also a code word for community but you can start from a different premise and the fact is that the Chinese do start from a different premise a different idea of human nature a different idea of how how individuals fit in to a structure different from Adam Smith it seems to me I don't know I may be wrong about this that Adam Smith starts with the individual and then derives a whole lot of relationships from the inescapable sort of individualist premise if you can't be an individual in isolation unless you're Robinson Crusoe you live with other people you you you you you form ways of living with other people which involve exchanges it's a reciprocal thing but then there's another you know it's where you start from and he started in a particular place and I think it's a very valuable place to start from but it's not the only place you can it doesn't give you it doesn't explain everything about you and they trust it i I'm not actually sure quite how far they're disagreeing on the Smith you take on this I mean you are absolutely right to say that we are born as single entities I mean one of the things that you know never gets published with the wealth of nations Smith's extraordinary remarks about the human species that we have thrown into the world as indigence that we belong to the the most defenseless animal species there is we have no natural strengths we have we have no resources for natural protection we die unless we learn to cooperate and that is and that that that image of need and necessity and where it leads he talked about in his lectures to Glasgow students in the 1750s and 60s and you can follow them in his lectures on jurisprudence and I think myself one of the puzzles is why doesn't he put that in the wealth of nations when all his account of human behavior stems from it but he decided not to which is very interesting but the point is we are certainly born but what does it mean to say we're born as individuals because one of the cardinal characteristics of Smith's theory of exchange is to raise the question of how do we get the sense the feeling that we are a distinct individual a self and his theory absolutely British moral theory absolutely brilliantly shows how in the course of common life in education as a result of education in the family education in the community we acquire a sense of otherness and which allows us to think of ourselves as having to negotiate a place within that other and what is powerful about this is that Smith is able to take the idea of self interest and self love that very very powerful image that every every conservative American economist will have of the just the the invincible individuality of the rational human being he actually said well actually we owe our sense of selfhood to social experience the self that is interested is actually if you like a social creation it's something we acquire in the course of time well yeah I think yeah I agree that's our that's our that's our tradition I think in some other traditions we acquire our sense of self by virtue of being born in in a certain place in a certain in a certain hierarchy yeah you you made it's a very interesting point we what what we what we should understand is that we die unless we cooperate yeah what about dying because we cooperate which was certainly been one of the many you know many many very very important experiences often then you seen negotiate our place in the family somehow I didn't think that's what happens I didn't think people do negotiate their place in the family I think their ascribed a place in the family sometimes they they they they leave the family because they don't want that place and you know I get the language of negotiation I agree it's a very common language and it's used a great deal we negotiate our place in a society doesn't seem to be right it's it's a bit it's a bit too much sort of almost a market language being applied to relationships where the market language is inappropriate and the market language is of course inappropriate because I mean you know a fully competitive market people don't know each other at all they they negotiate purely in money terms but Rob I think it's exactly the reversal that the the language of exchange is something taken from moral philosophy and applied to the market as an economic phenomena it's not the other way around it is not in modern economics oh well yeah of course I know know he can enjoy I would you know now a great deal of economic but you know the imperialism of economics is a well-attested and well recognised at every single thing that has been dealt with by other disciplines other studies is being is being taken over by economics and by the the central economic paradigm and certain stops explained everything so you know maybe it started in a different when I think it did I think economics was an aspect of philosophy now philosophy is an aspect of economics so I'd like to give the audience an opportunity to ask some questions I'll please ask questions don't make speeches or pronouncements and we'll take questions three three at a time and actually I'll I'll I'll kick off with a with a question and which in what ways would you say the thinkers you have written on are misrepresented or their ideas misrepresented in modern discourse well I don't know I think textbooks always misrepresent ideas they leave out what's not essential to the immediate purposes of a textbook in that all all the thinkers thoughts that have been somehow don't fit in to the main chain of the textbook are basically eliminated say you get a version of Keynes that's taught which is as as made as compatible as possible with the mainstream or dominant economic macroeconomics and and all those bits that don't fit in you simply don't know about for example people don't know that that that Keynes attached absolutely central importance to uncertainty and used it as an explanatory device for all all all all all decisions involving investment and future looking decision-making people don't know that another way I think in which textbooks distort the thing is to have what they call alternative approaches having actually set out the truth the true approach there's then always sections on alternative approaches I mean about liberal liberal liberal ISM intolerance but we're also taught quite firmly that we needn't spend too much time on the alternative approaches because they certainly won't necessarily get you a good degree and when gets you into the MBA program now I mean that that is that is the way that's the way it's done everyone knows it's done some teachers are much better than that but I think that is actually how works a textbook approach is inevitably distorted that's true and I agree I agree with all of that the other thing is to look at how much of less it in my case Smith is read Smith is increasingly in textbooks reduced to books one and two of Wealth of Nations three four five in perhaps advanced classes but when when is his moral philosophy red when it is jurisprudence read very seldom indeed when is his aesthetics read never the answer to that now though you might say why does that matter isn't what really matters isn't the legacy which we have to understand contained in book one's books one and two of the wealth of nations and the answer is well you I see you know you obviously see the point of that but think of the language in which it's written not just simply the that the the dictionary meanings of the words but the cultural meanings of the words because Smith is the most careful user of language that is nothing imprecise about Smith's language in 18th century terms and that's what gets lost so what you get is a Smith who has been imperceptibly translated into a language he had no knowledge of and couldn't have had any knowledge of and that must mean that his things are attributed to him like the notion of the self-interested individual that will simply not they did not represent what he was writing about now how much that matters to modern economics I leave that to economists was confined to eight weeks of a Cambridge term now that didn't mean he didn't make up for a lot of it and he you know like many people in those days he was asked to teach the theory of money said say read some books on money monetary theory and then started his lectures he didn't read Adam Smith till any Adam Smith till three years after he'd started teaching no then he did read out and Smith and I he always had a lot he always had a lot of respect for Adam Smith I don't think he got his moral theory from Adam Smith i I think that came from a different route and it came via via GE Moore at Cambridge I think I think Keynes is rebellion against against Adam against classical economics was Ricardo he said Ricardo was the big wrong turning in his view why exactly Ricard there was the wrong turning I didn't know because the scarcity perspective which Keynes really abandoned implicitly in his economics as a universal condition was there in Smith and Ricardo hardened it that the bit of Malthus he liked was malthus's short-termism in in that debate with Ricardo III I think he I think he his theory obtained his own theories of population fluctuated a lot broadly that's that's miles get back back there and after that well it seems to me there's a call from at least one of you to recontextualize do you objectify and D specialize the discipline of economics which has become somewhat fetishistic maybe at pseudo-scientific in its modern forms my question is to what end this sort of criticism I can think of two kind of general directions is there more meta theorizing to be done in a manner that integrates economics with moral theory or aesthetics or any of the other branches of philosophy or is what we need less meta theorizing and more sort of modesty and this makes me think of a thinker like Oakshott who says we have these different spheres of academic specialisms of socialism of let's say politics and economics and the objective is to make these spheres to understand that their incommensurable and not to try and join them together and maybe the same point could be made of culture in saying that we have different conceptions of what the individual is and how they come to be in a society that that is a really difficult question to address I think this is not a direct reply to you but one of the things that Smith is quite clear about as is David Hume actually who actually plays a part in this Scottish story of the the making of economics theory is that each age should produce a philosophy for itself and itself alone it's a very sceptical notion and they are both skeptical thinkers and that that is a view of philosophy which has built into it the notion that when philosophies get displaced over time they become the source of superstition and when you get superstition you get priests and you are into an enlightened world in which the source of corruption lies in priests craft of different sorts but that does not address your question of how then should economic activity be taught because and it's difficult to answer because you you might say exactly the same thing let's say about psychology how the rule that you are thinking about is actually a rule which says that we should theorize about human human behavior in general and and that any attempt to privilege out of the study of different aspects of human behavior is going to lead to some form of distortion well I think what one has to say is that that is right it is but that is what fault is about the science of man isn't that there's an unmanageable goal now the the making of science of any sort is going is going to lead to distortions which are caused by the sort of perspective that is taken on that on that science which will automatically like any perspective obscure what lies article of the scientists view sphere of vision and so there is no answer in my view to the problem you're raising except to say that I'm educated educated scientists in any branch will and actually do for goodness sake in a orful lot and or certainly in my experience they do try and make themselves familiar with at least the sort of things go god there's no there's no in other words there's no absolute recipe for what you're dealing with what your deep which are talking about other problems that science has built into it in any form and there once which only decent human skepticism and common sense can hope to circumnavigate could I could add to that skepticism is is a good good good word on which to end yes I I think economics ought to be much more modest I don't think it's achievements of about distance that bother other branches of study and when people say well of course they have look look I mean I had had had we not had economics that we would still be poor the world would be poor in fact some studies have shown this is one of them fascinating bits in hard Ron Chang's recent book you know I don't know if you've read 23 things they don't tell you about economics so negative correlation between the number of economists in a country and its rate of economic growth so but but but but maybe that's a debating point but but the point is that well there are achievements economic in economics and I think their births who have made the world I mean I think on the whole free trade is a product of thought as well as circumstance and that thoughts been eating economics if you say we'll look these are the achievements of economics to have speeded up the rate of growth in the world which may or may not be true what about the achievements of political theory we're a much more peaceful world than we were a thousand years ago and you know there been a lot of contributors to that in starting with Aristotle and Plato and now all the great political theories Locke in particular our government is government's are much less less savage in in the way they treat their subjects and that's not just because the merchant class came along and you know they couldn't treat them in quite the same way as they're treated the peasants it was also because there was a softening of forms of rule which which owed a great deal to political philosophy so economics claims it's it's it's it it it should be privileged as you said because it's hard it's hard in some way that that the others aren't and in some some limited respects that's true but once you introduce uncertainty is a general condition of existence economics loses its privileged place people do not have perfect information about the future in the way economic life takes place in real time not not in the form of completed transactions of equilibrium models so once you actually sort of take that into account that I don't I think the case for privilege in economics is is very weak and they should be a lot more modest and take a lot more responsibility for things that have gone wrong depressions and recessions are the economic equivalents of wars and if political thought should bear responsibility for those disasters then economies should be prepared to take some responsibility for the economic disasters that occur from time to time so we'll take we'll take a few more questions but after after the talk the the authors will sign sign books here so you can purchase the books out front but return to return here hi there thank you for a very interesting talk I just wanted to hear okay I wouldn't hear your thoughts on this Smith's famous line the division of labor is limited by the extent of the market now for me this has become one of most profound statements in economics and I won't hear your thoughts on that it's it is I mean the interpretation of what Smith what is meant by that is very interesting the notion of market in Smith's writing is very elusive when Smith first starts writing about economics as a branch of jurisprudence and the arts of government actually he talks of Burma Shave the rig which is in fact the provision of goods as you know as cheaply as possible and but the interesting thing is that the notion of the market having the extent to which we think of a market whether how far that is built into Smith's thinking is a very interesting question and it's one that would well and someone really ought to do some work on it it's extremely interesting question because there's a case for saying that the that when Smith talks about markets outside the books one and two of the of the wealth of nations he uses the term much more loosely as it applies to local markets in other words the local post feudal market or quasi feudal market now um is he then saying that the local quasi feudal market is a metaphor for the market as we have come to know it and if so what sort of metaphor is it well that is left very vague as it and it brings us back to what Rommel was talking about a minute ago and the notion that we talk at we talk about the economy and government as though we're talking about the household now something is happening to the language in that and the question is how precise is this movement in the language and either I don't know the answer to that except that I do not believe that there is a strict language of the market built into the wealth of nations I believe that the term has got a strong metaphorical and rhetorical appeal and I would very much like to know perhaps you do when the notion of market is tightened up it may well be with Ricardo actually but something but but the notion that we and if this line of the this line of thinking holds I think that what one can say is that Smith's thinking about the market has got a level of poetry in it it's based on what is familiar in the classic film of a Smith ian way and that is what is local and but nevertheless it is holding out larger prospects which has got everything to do with the distribution of resources but as I say that's that's very incomplete arts and I mean you probably know much more about this than me oh but it says it's a - I think it's a terrific problem yeah in the history of economics i I just like to add one thing to that obviously it's a chicken-egg problem in a way I mean you know the division of labor limited by the extent to the extent of market limited by lack of division of labor so so so really I think the way Smith escapes from it in in my interpretation is you have to have some exogenous source of growth which actually then creates a sufficient amount of market for the division of labor to to get going and that is something like a merchant class and some accumulation of stock which actually produces enough of a market to to to get the division of labor going so the division of labor is not the source of economic growth I mean I think the two things go together cumulation of capital and division of labor and in some way which isn't entirely clearly explains my view but I'm not sure anyone's done much better and that gets the growth process going question back there I'm hello good evening I came across this line recently which I I was just struck me in terms of its some remarkable sort of piercing observation and it made us from Adam Smith and he said and I quote with the greater part of rich people the greater part of rich people the chief enjoyment of riches consists in the parade of riches which in their eye is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves now do you think we are just permanently doomed to kind of oscillate between boom and bust because of our rapacious nature or do you think that the Keynesian czar really going to be in the ascendant for some time well I think that's also relative isn't it relative well I mean as I heard that it's something it's wealth or status is it and I mean once once you you you you have relative relative relative comparison of incomes then it seems to me that once become almost insatiable because the grass is always greener somewhere else and that's I think one of the big obstacles to the utopian idea that growth will come to an end because if it were a question of simply of satisfying basic needs or soar even comfortable some standard of comfort then you could imagine it'll slow down and and grind to a halt each other to a halt but if you're always comparing your position with someone else's and-and-and-and because someone has more than you you want that too and economists have written very interestingly about this in terms of positional goods and and and and and forced invade land also was brilliant on on wealth that's simply a status symbol status symbols are very very important do you actually want your your your acne or your I don't know wonderful 150 thousand pound car in order because you enjoy driving that sort of car for its own sake or is it because it obviously puts you in a different league from your someone else who only has a 50,000 pound car or a 30,000 pound car that's all names it's by Smith as well or just to add one thing there is an extremely sharp and depressing comments in the Theory of Moral Sentiments in which Smith says that greed status and all the rest of it is actually another invisible hand appearing from nowhere it actually works for the long-term good of society we learn because he will give us an explanation of why we admire people for their wealth for their status for their power and the reasons are entirely disgusting they are they present human beings as creeps who simply have a an acquired disposition which Smith explains brilliantly to do that sort of thing but he said again the invisible hand does funny things because without that capacity social deference a political obedience would be impossible and this is the price one pays for civilization and I think though this is an interpretation on my part and dream of legislating for this I think Smith is actually under no illusions that most of us are actually creeps we do what is fashionable we take our values from from the world in which we find ourselves we we spend our time competing for status and power with other people but nevertheless what he does show is that actually on a reasonable assumption it isn't actually impossible for people to build a moral life in which the only person they wish to impress is themselves and to live with themselves and that's one of the most powerful bits of smithy and ethics to say that the good people are basically people who are prepared not simply to be judged by others and to take their values from others as we all do from awful lot of time but actually have the capacity to look inwards away from the the hub of competitive life and ask how would they judge themselves and some of the most interesting and luminous moral theory which is as I say I think it's absolutely integral to understanding how Smith thinks a market can work beneficent li is that it actually is it really is possible for some people and perhaps more and more as you get a generation to get their generational changes to live with self-respect able to respect themselves as well as other people but the quotation you gave is absolutely superb one's a real classic so last last question I wonder if you could say just a little bit more about your thoughts about economics for our grandchildren because that seems you seem to be outlining a utopian vision from Keynes there which on the face of some of the things you've said it would be it would be naive and certainly more influenced by say contour say than Malthus and I was just wondering how you felt he came to believing that just to pick up on that as well so your your recent statement about human nature would make it seem that the end of scarcity at least perceived scarcity as well is more than a hundred years away if if you know there's these issues of status and relative relative wealth are important well that's that's the big problem that's a big problem with economic possibilities for our grandchildren we've grown at the rate which Keynes predicted in 1930 we're about four to eight we're about five times six times richer than we were that is in the developed world but he thought that our hours of work would come down and we'd take we would trade with trade consumption for leisure and we do we have up to a point but then the the relations become very very complicated between consumption and leisure and we haven't traded I mean we're still addicted to consumption and and that keeps the growth engine going now okay that's that's a problem I one of the reasons for that there are lots of institutional reasons but if you just take narrow narrow bits of the subject why haven't hours of work come down he thought you could actually get our our level of output and goods and services working much much less which country actually is closest to Keynes in that respect in in in in in the developed world the Netherlands now the Netherlands they work about half half the the hours per year that the Americans do just over half actually but their standard of living as measured by GDP per capita is very very similar British and and Americans are the workaholics in this sort of Galla of developed countries and and the Europeans on the whole seem to enjoy life more I will enjoy their leisure more so but what causes that it's not just I think that they have a healthier attitude to these things it's also that the way the trade unions work the way the laws work in France there was a legislation passed limiting the working week to 35 hours so all you can the state can do something about this to make it less utopian but there are certain and then there's also course advertising the immense immense power of advertising to stimulate once there's also the thought that new wants are created by the very process of app by it by affluence itself which weren't there and so there's a lot behind the consumption machine which means that people then go on working to satisfy wants which may be delusory in terms of the happiness it it brings them and delusory also in terms of making for an agreeable sensible and and good life and we know that we know we're sacrificing lots of things along the way but somehow we can't get off some people do get off and and and and they're brave and and and their spirit spirit of spirits we admire but on the whole keynes hasn't got there well i'm joined authoring a book called how much is enough the economics of the good life and that attempts to grapple with exactly the problem you raise well I'm sure you'd like to join me to thank Lord Skidelsky

Channel: LSE

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Keywords: LSE, London School of Economics, Public, Lecture, Event, Seminar, Nicholas, Phillipson, Professor, Lord, Skidelsky, Economist, Economy, Philosopher, philosophies, Adam, Smith, John, Maynard, Keynes, Keynesian, ideas, social, political, change

Id: kraBLXWrE2Y

Length: 87min 20sec (5240 seconds)

Published: Fri Jan 07 2011