On Smith's Rejection of Laissez Faire ''And the Magical Working of Markets Guided by the Invisible Hand ': The 'Malign' Impact of Projectors, Prodigals and Imprudent Risk Takers on the Sober People in the Macro Economy

Abstract

Adam Smith introduced the dangers of the projectors initially on pages 114-115 of the Wealth of Nations. Smith then offered a detailed analysis on pp. 279-341 of the dangers created by prodigals and imprudent risk takers, as well as projectors. The financial capabilities and influence of these categories of upper income class citizens, especially if they are bankers or financiers themselves, completely vitiates the claims made about Adam Smith believing in an Invisible Hand, Laissez Faire, or the magical workings of markets. With the single exception of G. Kennedy (2008), I can find little or no discussion among economists who write on Adam Smith about what can transpire if such individuals get access to bank credit of if the bankers themselves are Projectors, Prodigals and Imprudent Risk Takers. The apparent reason for this omission, except for Kennedy, appears to be an overwhelming acceptance by economists of Jeremy Bentham’s utilitarian critique of Smith’s criticism of the prodigals, projectors, and imprudent risk takers. Supposedly, Smith was incorrect and misguided in his singling out of these categories of individuals, who Bentham claimed were just inventors and business innovators bringing new products into existence. Economists writing on Smith have also universally (except G. Kennedy) mixed up Bentham with Smith on the issue of ethics. Virtue ethics and utilitarian ethics are completely, opposite systems of ethics and moral philosophy. Not only do they not mix, but they are in direct conflict with each other. It is impossible for a proponent of Virtue ethics to accept utilitarianism. Similarly, economists writing on Smith have mixed up Bentham and Smith on the issue of the application of the calculus of probability to conduct. Bentham believed in the application of the mathematical laws of the probability calculus to ethics and economics. Smith’s view was generally that it was not possible to apply the mathematical laws of the probability calculus to ethics and economics. Smith viewed the virtues as being absolute. Either you were honest, which is a combination of the major virtues of courage and justice ,or you were not honest. Period. There was no such thing for Smith as being 75 % honest and 25 % dishonest. You are a man or woman of your word or you are not a man or woman of your word. Trust is analyzed exactly in the same manner by Smith. People who are prudent and honest can be trusted. There are no such probabilities as being 87% trustworthy and 13 % untrustworthy. Bentham’s utilitarian ethics approach is completely different from Smith’s virtue ethics approach. Bentham’s approach would involve carefully calculating what one thinks the probabilities(odds) of success or failure for one’s self are of being honest or forthright in an particular case or not. For Bentham, being honest is not an absolute. It is strictly relative to whether or not the telling of the truth in a particular instance is beneficial (detrimental) or not. Similarly, lying can be beneficial (detrimental) or not, in terms of the future financial success that could be gained (lost) for each individual faced with a choice of lying or telling the truth. Evensky, Hanley, Paganelli, and Fleischacker want to believe that there is a role for the Invisible hand of the Market to play in the WN (1776) and TTMS (1759). Kennedy has shown that there can be no such role at all. The existence of projectors, prodigals or imprudent risk takers, who can create international financial crises, such as they created in 1772-1773 that resulted in a four year depression in Scotland, directly contradicts the belief that there is an invisible hand that transforms the malign, micro behavior of the projectors, prodigals or imprudent risk takers into benign social benefits for all.