Imprudent Risk Takers Research Articles

On the Need for a Major Revision of Investopedia’s Article on Adam Smith

There is no Theory of the “Invisible Hand of the Market” in either of Adam Smith’s two major works, The Theory of Moral Sentiments (1759) or The Wealth of Nations (1776). Smith uses the terms on one page each of The Theory of Moral Sentiments and The Wealth of Nations as a literary devise only, as pointed out repeatedly by Gavin Kennedy over a twenty year period. None of the two references refers to market prices and wages moving up and down to clear markets. The Invisible Hand appears one time in The Theory of Moral Sentiments as a metaphorical device used to explain why the rich nobles must supply their mass of servants with the necessities of life because, if they did not do so, then they would not have any servants to serve them on a daily basis in a wide variety of tasks. This has been pointed out numerous times by Gavin Kennedy. The Invisible Hand appears one time in The Wealth of Nations, again as a purely metaphorical devise to explain why merchants choose the domestic or home trade as opposed to the international or foreign trade, given equal or nearly equal returns, where, according to Benthamite utilitarian criteria, they should be indifferent between the domestic and international trade. The answer, given by Smith, was that the merchants choose the home trade over the foreign trade because they have a greater knowledge of, and expertise and experience in, the home trade relative to the international trade. They have greater confidence in their decisions in the home markets because they have greater knowledge of the home trade and far less knowledge in the foreign trade. This argument is an early version of J M Keynes’s weight of the argument analysis in his A Treatise on Probability (1921) in chapters 6 and 26. Thus, merchants benefit the home country through their desire to avoid the risk, ambiguities and uncertainties of the foreign trade, although that was never their intention, which was strictly a private concern. Thus, the home country gains greater GDP, as if by an Invisible Hand, by decisions made by private merchants who never planned to benefit the home country by their decisions. Again, as pointed out by Gavin Kennedy, there is no Invisible Hand of the Market operating here to equilibrate returns at the margin, since Smith had already made it clear that the returns were equal or nearly equal in both the domestic and foreign sectors. Other quotations taken from the Wealth of Nation/Theory of Moral Sentiments to support the Invisible Hand of the Market claim fail to recognize that Smith’s rationale for maximizing behavior by the “sober” people is Smith’s Virtue Ethics approach, based on the Virtue of Prudence and not Jeremy Bentham’s Utilitarian view of the maximization of utility. In other words, just as a runner in The Theory of Moral Sentiments is planning on winning the racing competition contest and the first prize, so the sober people are planning to win the economic competition. So who is the creator of the Invisible Hand of the Market concept? The creator of the Invisible Hand of the Market concept is none other than Adam Smith’s great intellectual rival, Jeremy Bentham, whose utilitarian views Smith, as a virtue ethicist, had to completely and totally reject. Bentham’s oscillating pendulum model represents the first application of a physics/engineering physics concept in economics, where the pendulum at rest is identified with an optimal position somewhere on the boundaries of the static and dynamic production possibilities frontiers. Only exogenous, external, outside shocks can create temporary disequilibriums which will gradually be self correcting through the market mechanism, which serves to naturally absorb the shocks like a cars shock absorbers through changing prices and wages. Bentham asserts, in contradiction to Smith, that the economic system is internally harmonious, since there are none of Smith’s projectors, imprudent risk takers, or prodigals creating internal, endogenous shocks like speculative financial bubbles created with the aid of the private bankers.

Comparing Orthodox (N. G. Mankiw) and Heterodox (M. Zafirovski) Economist Views of Adam Smith, the Invisible Hand of the Market, and Laissez Faire: Both Views Completely Overlook the Very Severe Detrimental Impacts on the Macro Economy Created by Smith’s Upper Income Class Prodigals, Imprudent Risk Takers, and Projectors

The degree to which Adam Smith’s view, that the opulence of any nation at the macro level was the result of, and was determined by, large numbers of “sober” people practicing the Virtue of Prudence, which Smith demonstrated in Part VI of the Sixth Edition of The Theory of Moral Sentiments in 1790 was connected to the practice of the other Virtues of Self Command( a combination of Temperance and Courage combined), Justice and Benevolence, was ever understood by any economist was severely questioned by Gavin Kennedy in the 21st century. Kennedy argued, in his books, journal articles, and Blog, titled “Adam Smith’s Lost Legacy”, that practically no living economist understood Smith’s approach. This can be confirmed by analyzing the assessment of Adam Smith made by a highly recognized Orthodox economist, N. Gregory Mankiw, and the assessment made by a highly recognized Heterodox economist, Milan Zafirovski. Both authors agree completely that Smith’s views of the economic process were based on some kind of rational economic man concept, which resulted in Smith’s promulgation of his doctrine of The Invisible Hand of the Market leading to the need for Laissez Faire policies, which, with a few exceptions, would result in private self(ish) interest being turned into a social maximum that benefited all. Kennedy simply pointed out that Smith’s extensive and detailed discussions of the economic damages done by Upper-Income Class Prodigals, Imprudent Risk Takers, and Projectors required the government to impose preventive measures, laws, sanctions, and penalties against this category of powerful private citizens in order to prevent severe detrimental impacts such as depressions and inflations from hurting the sober people. Needless to say, there are no discussions about such a group of people in either Mankiw’s account or Zafirovski’s account. The conclusion reached is the same as the conclusion reached by G. Kennedy-there is no current economist who understands what it was that Adam Smith was stating led to the wealth and opulence of nations.

Adam Smith’s ‘Prudent Man’ of the Theory of Moral Sentiments and the ‘Frugal Man’ of the Wealth of Nations Are One and the Same Man: Economists Fail to Grasp That the Conduct of Smith’s Prudent Man and His Frugal Man Must Always by Necessity Come Before Any Actions by Smith’s ‘Benevolent’ Man

It is simply impossible for benevolence to precede prudence because it is prudence that allows one to create a surplus that can be used later for benevolence. One can’t give what one does not have. Sympathy without the application of prudence first is simply a completely ineffective sentiment. Only prudence allows one to follow up sympathy with actions. One can imagine a poor Good Samaritan with no horse, no wine, no oil, and no bag of silver coins having sympathy for the badly beaten and robbed traveler on the very dangerous road to Jericho, but, because of his imprudent behavior in the past, not being able to act benevolently. The Good Samaritan would then go down in history as the Sympathetic Samaritan, who could take no actions of any importance to mitigate the sufferings of the beaten man. Economists have horribly misconstrued Smith’s story of the baker, brewer and butcher. The baker, brewer and butcher can’t possibly act benevolently in the future unless they can earn an economic profit in the present. It is absurd to expect the baker, brewer and butcher to practice benevolence if they are suffering losses or just breaking even. They have no surplus or bag of silver coins to give away to others. The baker, brewer and butcher must first practice prudence (self love) before they can help others. They must win the economic race first before they can even consider doing anything for others. Apparently, economists have badly confused altruism with benevolence. Altruism is not benevolence and it is not a virtue. The expectation that the baker, brewer and butcher should give away their products for free or at a greatly reduced cost to others is not benevolence. It is altruism. Altruism, except in highly unique and rare circumstances, is universally condemned by all spiritual leaders and guides precisely because it violates, for example, Christ’s second law that one must love your neighbor as you love yourself, which is prudence. Smith’s first book,The Theory of Moral Sentiments ,is his general theory of how humans should act. This general theory is based on the application of Five virtues. Prudence is ALWAYS the first virtue. Then temperance and courage, self command (self control) are practiced so that one is satisfied when his needs,not his wants, are met. Shrewdness, Frugality, Parsimony and Saving allow one to create a surplus by controlling one’s wants. The next virtue is the recognition of the importance of justice, followed finally, in last place, by benevolence. Smith’s second book, The Wealth of Nations, deals only with the economic race for an economic profit and the macroeconomic value of the sober (prudent) citizens, as opposed to the malevolent and detrimental behavior of the prodigals, imprudent risk takers, projectors, and British East India Company. ALL prudent citizens do their utmost to win this race in exactly the same manner that the runner in The Theory of Moral Sentiments does his very best to win the race in which he is taking part against others. There is no role for benevolence when one is preparing for, training, practicing, and then running the foot race. Similarly, there is no role for benevolence in an economic race. The Wealth of Nations deals with the economic race. Of course, AFTER both races have been won, one can practice self command, justice, and benevolence, but NOT BEFORE.

The Fundamental, Macroeconomic Problem Is Not Uncertainty, Which Knight Stated Can Be Dealt With by ‘Estimates’ and Which Keynes Dealt With by ‘Interval Valued Probability’ and ‘Conventional Coefficients’: It Is the Continued Presence of Adam Smith’s Upper Income Class ‘Prodigals, Imprudent Risk Takers, and Projectors’ (Keynes’s Rentiers and the ‘…Forces of Banking and Finance…’) and Their Negative Impacts on the

The Fundamental, Macroeconomic Problem Is Not Uncertainty, Which Knight Stated Can Be Dealt With by ‘Estimates’ and Which Keynes Dealt With by ‘Interval Valued Probability’ and ‘Conventional Coefficients’: It Is the Continued Presence of Adam Smith’s Upper Income Class ‘Prodigals, Imprudent Risk Takers, and Projectors’ (Keynes’s Rentiers and the ‘…Forces of Banking and Finance…’) and Their Negative Impacts on the

Why Didn’t P. Oslington’s Invisible Hand (the ‘Providential Hand of God’) Prevent the Destruction of the Scottish Macro Economy by the Projectors, Imprudent Risk Takers, and Prodigals in 1772 after the Ayr Bank Collapse?

P. Oslington’s (2012) Invisible Hand (the ”providential hand of God”) is viewed by him as the providential hand of God, who is watching over the macro economy of Scotland to make sure that nothing evil befalls the Scottish economy. The problem is that Oslington is completely oblivious to the collapse of the Ayr bank in 1772, which resulted from massive financial speculation in land engaged in by British East India Company connected borrowers whose bubble collapsed in 1772, ushering in a four year depression in Scotland and a worldwide recession. Oslington never mentions the national and international, coercive economic power of the British East India Company, which dominated the English economy for well over 200 years. Oslington never mentions Smith’s great concerns about the very negative economic impacts on society as a whole of the prodigals, imprudent risk takers, and projectors that Smith discussed extensively on pages 279-341 of the Modern Library (Canaan) edition of the Wealth of Nations with the foreword of Max Lerner. Oslington never mentions the Ayr bank collapse, a direct result of extensive land speculation by British East India Company borrowers, which resulted in the collapse of the Scottish economy from 1772-1776. G. Kennedy made it quite clear that it is simply impossible for any type of “Invisible Hand” to be operating to maximize economy wide benefits for all in the face of such groups of upper income class citizens, such as the prodigals, imprudent risk takers, and projectors, unless their economic activities are heavily constrained or suppressed by government action by a government that is independent of entities such as the British East India Company. The idea of an Invisible Hand is a necessary condition for the acceptance of Laissez Faire. Nowhere in the Wealth of Nations (WN;1776) is there a single mention of “laissez faire”, a concept Smith was well aware of from his interactions with the French Physiocrats in the 1760’s. The reason why there is no mention of laissez faire is because Smith rejected completely any kind of metaphysical, as opposed to metaphorical, view of a Invisible hand as some kind of Wizard of Oz.

On the Impossibility of Adam Smith Being an Advocate/Apologist of Laissez Faire and the Invisible Hand: Smith Recognized the Dangers of the Upper Income Class Prodigals, Imprudent Risk Takers, and Projectors and Their Connection to Financial Crises Pointed Out by Gavin Kennedy

Gavin Kennedy expended a great amount of energy and time over a period of many years trying to get economists to actually read what Smith had written in its entirety through his books ,academic articles and Blog, titled Adam Smith’s Lost Legacy. Kennedy’s reasoning is impeccable. If economists were to actually read what Smith had actually written in The Theory of Moral Sentiments (6th ed.,1790) and The Wealth of Nations (1776) completely, then they would no longer be misled by numerous works claiming that Adam Smith was an advocate of Laissez Faire and a believer in the Invisible Hand. These claims were based on small parts of both books, taken out of context, that ignored major parts of Smith’s analysis, such as Smith’s analysis of the negative impact on the macro economy of a segment of the Upper Income class Smith called “prodigals, imprudent risk takers, and projectors. Kennedy would be greatly shocked to find a paper published by a M. Zafirovski ,appearing in the September,2019 issue of the Journal of Economic Issues, that, repeatedly, over and over again, claimed that Adam Smith was a fanatic believer in Laissez Faire and proponent of an Invisible Hand doctrine that claimed that microeconomics greed would be turned into macroeconomic benefits for everyone as long as there was no government interference. Smith’s Wealth of Nations is a shockingly misread book because the vast majority of economists are trying to link Adam Smith’s analysis to Smith’s great intellectual enemy ,Jeremy Bentham, who is the real developer and propagator, if not the originator, of both Laissez Faire and the Invisible Hand, which he spent his entire life trying to advance as he worked to increase the international power of the British East India Company. Thus, D. Ricardo ,J.B. Say, J. Mill, J.S. Mill ,and Nassau Senior are the students and followers of Bentham, not Smith, since they opposed Smith’s interest rate control laws and bank loan constraints ,that would be imposed by a central bank in order to protect the “sober” people, practitioners of virtue ethics, from the prodigals, imprudent risk takers, and projectors, who are practitioners of utilitarianism. There is no mention in Zafirovski’s article of Smith’s implicit recognition that the British East India Company had gained control of the English government, the influence of Jeremy Bentham on Ricardo, Say, J. Mill, J S Mill and N Senior, the worldwide power of the British East India Company, Smith’s warnings about the dangers for society as a whole of the behavior of the prodigals, imprudent risk takers, and projectors, Smith’s support of usury laws and credit restriction, and Smith’s acknowledgement that bank loans made to prodigals, imprudent risk takers, and projectors would be wasted and destroyed, hence endangering the economic well being of society, as occurred in Scotland in 1772 with the collapse of the Ayr bank after its extension of huge loans for land speculation to British East India Company connected borrowers led to a depression in Scotland and recession in Europe.

The Virtues of Prudence and Self-Command, not Jeremy Bentham’s Max U or the Invisible Hand of the Market, is Adam Smith’s Foundation for the Wealth of Nations

The Theory of Moral Sentiments (1759; 1790) is the foundation for the Wealth of Nations(1776).Smith recognized, like all other major spiritual and moral teachers, that Prudence is the most important virtue because nothing can be accomplished without it being applied successfully first. The virtue of Prudence applies in all facets of life. However, there were individual philosophers who rejected virtue ethics. One such individual was Jeremy Bentham (another was Karl Marx). Bentham sought to replace Smith’s Virtue Ethics with his Principle of Maximizing Utility. Bentham argued that only his principle of maximizing utility could support the study of ethics. Bentham attacked Smith’s Virtue Ethics approach in 1787 in the same fashion as J.Viner attacked Smith’s Virtue Ethics in 1927. Both Bentham and Viner argued that • Smith’s The Theory of Moral Sentiments (virtue ethics) is very flawed • Smith’s support of interest rate control laws and skewing of bank credit to the sober people and away from the prodigals,imprudent risk takers, and projectors (Bentham was a strong supporter and employee all his life of the major projector company, the British East India Company, which started the American Revolutionary War) was very ill advised • Smith’s analysis of the macroscopic impact that the prodigals, imprudent risk takers ,and projectors have on an economy,endangering the sober people, was incorrect because the prodigals, imprudent risk takers, and projectors were really just innovative entrepreneurs pursuing their own self interest • Smith never actually made a single advance in the field of economics (political economy) in his lifetime as all of the parts of his theory were already available from other, earlier sources, which he failed to acknowledge properly and cite Smith responded to Bentham’s two pronged attack in 1787 by rewriting major parts of the The Theory of Moral Sentiments so that its virtue ethics message would be fine tuned in order to target legislators and government officials, which would counter the utilitarian message of Bentham’s Defense of Usury and The Principles of Morals and Legislation. There was now a clear cut choice between two completely different ethical systems upon which to build capitalism. Smith envisaged a completely different approach to capitalism than Bentham. Like the inhabitants of Augustine’s Earthly City and Heavenly City,there were two opposing groups, the middle class sober people, who practiced virtue ethics, and the upper class projectors, imprudent risk takers, and projectors, who practiced utilitarian ethics. The proper role of government was to use legislation, law and sanction to prevent the upper class projectors, imprudent risk takers, and projectors from damaging the middle class, sober people. The Smith and Bentham views about the correct evolution of capitalism over time are as different as night and day. A major confusion among economists, except G.Kennedy, since Smith’s death in 1790,is to confuse the operation and impacts of the virtue of prudence with the Invisible Hand. It is simply impossible for any Invisible Hand of the market to conceivably operate unless the sober people completely dominate the political, economic, social and institutional levers of power. Smith’s comments about the Invisible Hand in Part IV of the Wealth of Nations are simply a repetition of his comments in The Theory of Moral Sentiments (1759; 1790), about the racer in a running competition always doing his very best to win the race, being applied to those engaged in a comparable economic race doing the best they can to sell their particular products. This brings out a positive response from their competitors, who also run and train harder. This positive interactive feedback effect is referred to metaphorically as an invisible hand, although it is actually the result of all of the sober people simultaneously applying the virtue of prudence. None of this has anything to do with Bentham’s Max U utilitarian approach. Once the gain, profit, or savings has been won, it is now time to apply the Virtue of Self Command (the Virtues of Temperance and Courage) to invest to expand one’s business.The correct choice is not financial manipulation , stock market speculation or conspicuous consumption, but investment in physical durable capital goods, worker training,and inventories of intermediate parts and materials.Business success now allows one to apply the final virtues of justice (fairness, equity), magnanimity and benevolence as worker wages and benefits can be increased.The result is opulence for all.

Killing ‘Homo Economicus’ (Jeremy Bentham) Is Much, Much, Much, More Easier Said Than Done: Only the Smith – Keynes Inexact Measurement Approach Can Neutralize the Strong Attraction of Bentham’s Mathematical Rational Utility Maximization Model

The tremendous attraction and allure of Bentham’s original rational, utility maximizing, calculator model, which Bentham wrote out in plain English so as to capture as large an audience as possible, to economists has been greatly underestimated by the opponents of the ‘Homo Economicus’ model, which was the creation of Jeremy Bentham in 1787, the same year that he launched his attacks on both Adam Smith’s The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776). Benthamite Utilitarian ethics allows a practitioner to appear to be a hard scientist because he/she will be using a lot of equations and numbers, what can be called mathematical benefit – cost analysis, in his/her argument, as opposed to the user of duty ethics or virtue ethics, who will not be using any such mathematical approach. Bentham‘s shrewd, in depth understanding and grasp of the desire for approbation, recognition, and applause on the part of economists, who wanted to be held in the same regard as physicists, leads directly to the neoclassical economics of Max U, which is simply a mathematical translation of Bentham’s already completely worked out concept of a rational calculator, adding marginal utility and diminishing marginal utility to utility maximization. New neoclassical economists then added the rational expectations-real business cycle-Dynamic stochastic General Equilibrium approach, based on the Normal and Log Normal probability distributions, which extends Bentham’s basic static pendulum-oscillation, external, exogenous shock model to intertemporal analysis. Bentham recognized that Smith’s emphasis on an inexact, interval valued, imprecise approach to probability, due to the fact of uncertain evidence (1776,pp.105-113,228-245,419-423,714), had to be undermined if his utilitarian ethics approach, based on precise and exact utility maximization, was to succeed in replacing Smith’s Virtue ethics approach. Bentham similarly recognized that he had to attack and neutralize Smith’s emphasis on the internal, endogenous threat to the macro economy that came from a certain segment of the upper income class that Smith labelled as prodigals, imprudent risk takers and projectors, in order to replace Smith’s virtue ethics emphasis on the virtues of prudence and temperance, which directly conflicted with Bentham’s emphasis on utility maximization and claim that the love of money was an insatiable desire of all men. The virtues of prudence and temperance require the complete total rejection of any insatiability assumption. J. M Keynes, following Smith’s approach, put forth a nearly identical version of Smith’s original inexact approach to measurement that was based on Boole’s upper – lower probabilities approach. Keynes’s inexact approach to probability in Part II of the A Treatise on Probability, and statistics in part V, which he used in the General Theory as the foundation for his liquidity preference theory of the rate of Interest, which he called approximation in chapter 4 of the General Theory, directly challenged the neoclassical followers of Bentham (Jevons, Marshall, Pareto, Cournot, Walras, Frisch, Tinbergen), who relied on an exact, precise approach to probability and statistics. Killing ‘Homo Economicus’ (Jeremy Bentham) can only be accomplished by adopting the Smith- Keynes inexact approach to measurement in order to challenge the Classical-Neo Classical-New Neo Classical exact approach to measurement. Max U collapses if the probabilities are not precise and exact, so that they sum to one, where the whole is the linear, additive sum of all of the individual parts. Currently, there is no credible, intellectual threat from any heterodox school of economics to Bentham, a genius with an IQ estimated to be in the 180-200 range, who could be compared to Lord Sauron of Mordor in the Lord of the Rings Trilogy.

Adam Smith (Virtue Ethics) Against Jeremy Bentham(Utilitarian Ethics): Two Completely Different, Conflicting Types of Capitalism Result From Their Distinct Ethical and Economic Positions

Adam Smith's ethical concerns and recommendations for behavior, based on a rock-solid foundation of Aristotelian Virtue Ethics, leads to a completely different, conflicting type of capitalism then that advocated by Jeremy Bentham's egoistic, act utilitarianism, which forms foundation for Benthamite Utilitarian ethics. The ethical and economic divide separating Bentham and Smith is so wide that no compromise or synthesis is possible regarding their two systems. Both Bentham and Smith recognized this. Bentham's two 1787 books, Defence of Usury and The Principles of Morals and Legislation, represent a direct, but subtle, attack on Adam Smith. Smith responded to Bentham's attack on The Theory of Moral Sentiments by spending all of his energy over last three years of his life strengthening and revising his The Theory of Moral Sentiments in order to strengthen Part 6 of that book in order to withstand, counter and repel Bentham's attack. Bentham, always conniving, devious, cunning, sly, and tricky master of intrigue that resulted from his lifelong commitment and service to British East India Company, on surface would always compliment Adam Smith as one who was the father of political economy, a great master, and a writer of consummate genius. Bentham's attacks on Smith's foundation of virtue ethics, which was based on impartial spectator and role of sympathy, take place in chapter 2 on pp.8-25 of The Principles of Morals and Legislation. Bentham cleverly misrepresents Smith's emphasis on sympathy by criticizing all systems based on sentiments relating to sympathy and antipathy. Smith's system has nothing to do with antipathy. At end of chapter 2 in The Principles of Morals and Legislation, Bentham makes it clear that no other concept except utility, can ever serve as foundation for ethics. Bentham's attack on Wealth of Nations takes place in his Defence of Usury, where Bentham attempts to challenge Smith's demonstration that major cause of macro instability, bubbles, deflation, and inflation is economic power of some members of upper-income class that Smith described as prodigals, projectors, and imprudent risk takers. The prodigals, projectors, and imprudent risk takers, such as John Law, British East India Company, and Bentham himself, were able to obtain bank loans in order to carry out their speculative plans involving financial manipulation of land or real estate. Smith's analysis of Ayr bank collapse in 1772 showed how massive loans made by bank directors to British East India Company connected individuals for land speculation led to a four-year depression in Scotland. Smith thus separated prudent, sober, middle class merchants and tradesmen, who produced and consumed physical goods and services, from upper-class speculators and financial manipulators associated with British East India Company, by far most powerful economic force in world in 17th and 18th centuries, whose get rich quick schemes were purely speculative and involved financial manipulation. The prodigals, projectors, and imprudent risk takers thus represented an internal, endogenous threat to macroeconomy. This directly conflicted with Bentham's pendulum model, based on constant oscillations (negative feedback) between happiness and unhappiness that only allowed for exogenous, external threats to macroeconomy, as well as creating havoc with Bentham's representation of all consumers as utility (preferences, tastes) maximizing individuals and all producers as profit (capital, labor technology, entrepreneurship) maximizing individuals. Smith, as he did with Sir James Steuart, effectively refutes Bentham's attack on sentiments-impartial spectator-sympathy approach without mentioning Bentham by name. The real advocate of Invisible Hand-self adjusting, pendulum model is Bentham and not Smith. G Kennedy has forcefully demonstrated that an Invisible Hand economy can't have any prodigals, projectors, and imprudent risk takers in it or it will break down at macro level. The existence of such individuals simply means that there is an internal, endogenous impact, which generates positive feedback that moves economy farther away from any optimal equilibrium over time. All other writers on Adam Smith have mistakenly followed Jevons, Sedgwick, and Viner in foisting a pendulum model on Smith that Smith entirely rejected. Any claim that Smith's system of ethics and economics is based on an Invisible Hand, resulting in a self-correcting, self-adjusting pendulum model, where market prices and wages automatically convert private greed into a social macroeconomic optimum for all participants, has badly confused Smith with Bentham.

On J. M. Keynes’s Application of His IS-LM (LP) Model in His Reply to Viner in His Article the General Theory of Employment in February, 1937: Keynes Emphasized the Horizontal, Completely Elastic Range of the LM (LP) Curve

Keynes used his IS-LM(LP) model to reply to Viner’s claims that he had drastically overestimated the role that liquidity preference played in the macro economy in explaining the events of 1929-1933 in the world economy. Viner claimed that liquidity preference could only play a very minor role in impacting the economy as a whole. This amounts to the claim that financial manipulation and stock market speculation can play a role that is, at best, of very minor significance. Viner’s assessment is identical to his claim made in his Journal of Political Economy paper in 1927 that Adam Smith’s criticisms of projectors, imprudent risk takers and prodigals, as illustrated by the very negative impact of the British East India Company on Scotland’s economy in the 18th century, could, at best, play only a very minor role. Viner’s answer was identical to that of Jeremy Bentham, who claimed that Smith’s projectors, imprudent risk takers and prodigals were really just inventors and innovating entrepreneurs. The government authorities should never interfere in the markets for any reason, should “be quite”, and “stay out of the sunshine” of the private sector economy. Of course, this Benthamite Utilitarian creed, taught at the University of Chicago’s Economics department in the 1920’s, is why American government authorities did nothing in the years between 1929-1933 to stop the Great Depression. They had been taught Laissez Faire from University of Chicago economists. Everything was supposed to improve by itself on its own. The economy was guaranteed to recover only if government did nothing. Viner’s argument, then, is that it is impossible to have a liquidity trap (Keynes’s absolute liquidity preference).Keynes challenged Viner’s argument using IS-LM(LP)analysis in his reply in February, 1937. Keynes emphasized in his reply to Viner in February,1937, that he was very concerned about the highly elastic range of the LM(LP) curve. Keynes combined this with an emphasis on the highly inelastic range of the IS curve, as Keynes’s IS curve is the opposite of Viner’s ,since, given Viner’s highly inelastic LM(LP) curve, he needs an IS curve that is highly elastic in order to get “…a small decline in money-income would lead, as stated above, to a large fall in the rate of interest.” Keynes thus is very concerned with the parameters of the IS-LM(LP) curves, although he clearly views the major problem with the IS curve as being its instability and shift ability, due to the impacts of confidence on mec calculations involving expectations. Keynes not only provided the first IS-LM model, but also explicitly considered the elasticity of the curves as well both in the GT in 1936 and in the GTE in 1937. Paul Krugman’s twenty five years of emphasis on the necessity of basing macroeconomics on IS-LM(LP) is correct. A minor point is that it is primarily Keynes, and not Hicks, who was responsible for the explicit development and application of the IS-LM(LP) model. Keynes would, of course, also point out the necessity of grounding IS-LM(LP) on a foundation involving some type of D-Z model.

Adam Smith’s Very Brief Mention and Discussion of the Invisible Hand, In His <i>The Theory of Moral Sentiments</i> and <i>The Wealth of Nations</i>, Was Not Intended to Provide Any Theoretical Foundation for Any of His Analysis: Smith Regarded the Invisible Hand as an Unimportant <i>Obiter Dicta</i> Used for Metaphorical Purposes Only

Adam Smith’s Very Brief Mention and Discussion of the Invisible Hand, In His <i>The Theory of Moral Sentiments</i> and <i>The Wealth of Nations</i>, Was Not Intended to Provide Any Theoretical Foundation for Any of His Analysis: Smith Regarded the Invisible Hand as an Unimportant <i>Obiter Dicta</i> Used for Metaphorical Purposes Only

On J.M. Keynes’s Complete Rejection of Marshall’s Ricardian, Utilitarian Approach to the Theory of the Rate of Interest in the General Theory

Keynes was very clear in the General Theory that he was no longer a Marshallian economist. He was rejecting the Marshallian approach to economics, except at the microeconomic level as regards the theory of the firm, because it is based on utilitarianism. Keynes, like Adam Smith, completely rejected the consumer theory of utility maximization because it directly conflicted with the virtues of Prudence and Temperance. The basic assumption of utility maximization, that consumer wants are insatiable, is Jeremy Bentham’s position that Adam Smith and Keynes rejected because Bentham’s utilitarian position directly conflicted with the Smith-Keynes Virtue Ethics position. In its place, both Smith and Keynes argued that the upward sloping supply curve and downward sloping demand curve are simply the result of judicious, careful, circumspect, prudent and temperate behavior on the part of consumers and producers operating under conditions of partial uncertainty, whom Smith called the “sober” people. His famous discussion of the brewer, bread maker and butcher incorporates prudence as the first virtue that must be satisfied. However, there is another group of upper income class individuals who are not prudent and not temperate. Smith called these individuals imprudent risk takers, projectors, and prodigals. The directors of the British East India Company is Smith’s main example of this class of citizen. Keynes described these types of upper income class citizens as rentiers and speculators, who were supported by the forces of banking and finance, in chapter 12 of the General Theory. Keynes makes it very clear in the preface that he can no longer accept Marshall’s Ricardian approach to economics. Of course, Ricardo, like J. B. Say, J. Mill, J.S.Mill, N. Senior, and L. von Walras, were all Jeremy Bentham’s students: “I myself held with conviction for many years the theories which I now attack, and I am not, I think, ignorant of their strong points… When I began to write my Treatise on Money I was still moving along the traditional lines of regarding the influence of money as something so to speak separate from the general theory of supply and demand… We are thus led to a more general theory, which includes the classical theory with which we are familiar, as a special case.” (Keynes,1936,pp.ix-xi). Keynes completely rejected Marshall’s theory of the rate of interest, which was that M=L(Y), where Y =C+I, so that Aggregate Income=aggregate consumption + aggregate Investment. In its place, Keynes developed his Liquidity Preference Function on page 199 of the General Theory, L=(Y,r). Both constituents, the propensity to consume (Y) and liquidity preference (r), determine the equilibrium rate o interest, and not just Y or r separately. Keynes’s discussions in chapter 13 of the General Theory dealt only with a strict discussion of liquidity preference that Keynes isolated from chapter’s 8-12 ,which dealt strictly only with the propensity to consume. The misbelief, that Keynes’s theory of liquidity preference was specified as L=M(r), as presented on page 168 of the General Theory, has led to the mistaken belief that Keynes’s only break with Marshall was over the theory of the rate of interest, so that Keynes’s only major change was that L=M(r) was replacing Marshall’s L=M(Y). Keynes also rejected Marshall’s labor market analysis ,which considered that unemployment of resources had to be analyzed in this market. Given the correct theory of the rate of interest, Involuntary Unemployment was due to a deficiency in I in the aggregate(macro) output market and had nothing to do with a partial equilibrium analysis of the labor market under conditions of ceteris paribus. This deficient aggregate investment then led to a fall in the price of investment goods, so that the real wage, (w/p), would rise. This rise in the real wage was then mistakenly attributed, not to low investment good prices, but to high money wages, w, by classical, neoclassical, and modern economists. Keynes’s position was that his General Theory was given by M=L(Y,r). There are then two, separate, special theories-M=L(Y) and M=L(r). The Pseudo Keynesian or New Marshallian school (Joan Robinson, Austin Robinson, Richard Kahn, Cambridge University, England), which continued to base their analysis on Marshall’s overall approach, erroneously latched on to M=L(r), while the old Marshallian school, represented by Pigou, Henderson, Hawtrey, Harrod and Robertson, continued to argue that Marshall’s M=L(Y) was superior to Keynes’s M=L(r).

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

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.

J M Keynes on the Enemies of Capitalism: The Internal, Endogenous Threat to the Macro Economy from Wall Street Stock Market Speculators and Rentiers

J M Keynes carefully read Adam Smith’s The Wealth of Nations (1776) before he was 28. Of extreme importance to Keynes was Smith’s categorization of a group of upper income class citizens, whose speculative and financial interactions with the private banking industry created a very severe danger to the society as a whole, as being projectors, imprudent risk takers, and prodigals. Keynes’s description of Smith’s projectors, imprudent risk takers, and prodigals in the General Theory, as well as Keynes’s extremely important, early 1937 papers in the Eugenics Review and Quarterly Journal of Economics, is that Smith’s projectors, imprudent risk takers, and prodigals are Keynes’s Wall Street speculators and rentiers. It is the speculators and rentiers who are mainly responsible for the problems of inflation and deflation in the macro economy. Keynes realized that this destructive, casino-gambling type behavior that is so damaging to the macro economy is facilitated and financed by the “…forces of banking and finance”. Keynes’s Chapter Twelve analysis on pages 147-162 in the General Theory of the speculative dangers resulting from the financial behavior of Wall Street speculators and rentiers is identical to Smith’s pages 114-115, 279-341 discussions in the Wealth of Nations of the dangers from projectors, imprudent risk takers, and prodigals. Both Smith’s and Keynes’s analysis complements each other. Both Smith and Keynes could have given the exact, same, vastly superior analysis and policy advice to government officials facing the 2007-2009 Great Recession that would have been greatly superior to the type of very poor policy analysis provided by DSGE macroeconomists in the period 2006-2010. Both Smith and Keynes explicitly point out and analyze the malign impacts(see Kennedy, 2008) on the macro economy perpetrated by either Smithian projectors, imprudent risk takers, or prodigals or Keynesian speculators and rentiers. The role of government is to impose constraints on these categories of upper income class members so as to prevent them from harming the sober people by proactive laws, rules, and regulations. The obvious reason that DSGE macro models failed so egregiously is that there are no variables in their models representing the impacts of these types of decision makers on the macro economy over time. The reason for this misspecification modeling error by DSGE proponents is that they accept Bentham’s critique of Smith that there are no such individuals in the economy as Smith’s projectors, imprudent risk takers, or prodigals.

Thomas Aquinas (A.K.A. the Medieval Church, Canonists, Scholastics, and Schoolmen) and J M Keynes on the Necessity of Excluding Smithhs Projectors, Imprudent Risk Takers, and Prodigals From Receiving Any Bank Loans

J. M. Keynes had already recognized in his 1930 A Treatise on Money that the major cause of deflation and inflation problems at the macro level was the ability of Smith’s Projectors, Imprudent risk takers, and Prodigals, whom Keynes categorized as Wall Street connected speculators and rentiers (modern day hedge funds, private equity firms, and investment banks) in his General Theory in 1936, were the fundamental problem in a capitalist society because they diverted bank loans from investment in durable capital formation into the financial manipulation of paper claims in various stock and money markets. The General Theory makes it even clearer because it reiterates what he had said in both the A Treatise on Money and in the 1932 Symposium on Usury in the Economic Journal in response to Keynes’s decision to publish a 1931 article by Henry Somerville. Keynes heavily supported Somerville’s major point about the dangers of using bank loans to finance speculative debt leverage practices versus loans to finance the purchase of durable capital equipment. This is the same point made by Smith with respect to loans made to his three categories of upper-income class citizens that Smith labeled as Projectors, Imprudent risk takers, and Prodigals. Both Smith and Keynes were influenced by Aristotle. Keynes admitted that he felt that the arguments of the “ancients”, “Medieval Church”, and “Schoolmen” were also influential in his general conclusions, although he differed from them in some specifics. Smith also used the term “Scholastics” and “Schoolmen” several times in his The Theory of Moral Sentiments. By far the most prominent member of the Medieval Church, Canonists, Scholastics, and Schoolmen was Thomas Aquinas. Somerville, in his June 1936 article in The Commonweal, titled, Usury as a New Issue, argued for a connection between the views of Keynes and Aquinas specifically. He had originally pointed out in the December 1931 issue of the Economic Journal Keynes’s connection with the “canonists” in his A Treatise on Money. In March 1932, the Savings and Usury Symposium was held in the Economic Journal. Keynes essentially states what he latter restated in the General Theory in chapter 23 in 1936. Keynes’s view on the dangers to the macroeconomy of making loans to speculators and rentiers did not change from 1930 until the end of his life. Aquinas’s work on decision making under conditions of ignorance, risk, uncertainty, imperfect information, asymmetric information and imprecise/indeterminate, interval-valued probabilities puts him heads and shoulders above any contemporary thinker until Adam Smith’s Wealth of Nations was published in 1776. Aquinas’s contribution has not been correctly appreciated because of his realization that precise, mathematical, point estimates of both prices and probabilities are generally impossible. This thus greatly constrains the use of the mathematical laws of the probability calculus upon which both neoclassical and modern economics is built on.

Adam Smith on the Main Cause of Recessions and Depressions: Bubbles Resulting From Bank Loans and Credit Made Available to Projectors, Imprudent Risk Takers and Prodigals

Adam Smith recognized that there was a severe problem in all free market economies that no “Invisible Hand of the Market” could ever deal with effectively. Based on his readings of Plato (Socrates) and Aristotle, Smith explicitly identified a certain segment of upper income class individuals in The Wealth of Nations whose behavior greatly endangered the rest of society as a whole. Smith identified them specifically as Prodigals, Imprudent risk takers, and Projectors. These types of individual were described by Keynes as Wall Street speculators and rentiers in the General Theory. Marx used the term bourgeoisie to categorize them. Veblen called them Captains of Finance. Smith was very clear in The Wealth of Nations that the only solution was the proactive one that required the Government or Central Bank to prevent Prodigals, Imprudent risk takers, and Projectors from obtaining access to bank loans and credit in the first place. Smith’s solution was a version of the proverb that an ounce of prevention (credit restriction) is worth a pound of cure (bank bailouts). Without bank loans and credit, the Prodigals, Imprudent risk takers, and Projectors would be forced to rely on their own wealth to try to manipulate markets, such as land, real estate, stocks and other financial markets. This is precisely what they do not wish to do. They seek to use other people’s money to make money by financial manipulation only. Jeremy Bentham, who is the real founder of the Chicago school of economics, directly opposed Smith. Bentham believed that there was no role for government to play in the economy except the laissez faire one of “be(ing) quiet” and to “stay out of my sunlight”. Bentham desperately sought to discredit Smith’s position by redefining the term projector to mean innovator. This should not be surprising since Bentham’s fortune can be traced indirectly to the behavior of one of the greatest projector firms of all time, the British East India Company, in which he served. Bentham was thus opposed to any attempt by government at preventing the private behavior of the Prodigals, Imprudent risk takers, and Projectors from endangering the public. The problems that have surfaced since the late 1970’s in the American and world economies can be traced precisely to the same category of individual identified by Smith in 1776 in The Wealth of Nations as Prodigals, Imprudent risk takers, and Projectors.

Adam Smith on the Enemies of Capitalism: The Internal, Endogenous Threat of the Projectors, Imprudent Risk Takers and Prodigals to the Macro Economy

Adam Smith introduced the dangers of the projectors initially on pages 114-115 of the Wealth of Nations. He introduced the dangers created by the Imprudent risk takers and Prodigals on pages 279-340 of the Wealth of Nations while expanding his assessment of the dangers of projectors. Smith discussed the very real dangers that these upper income class citizens created by their economic behavior to the rest of society. Smith was very explicit. He asserted that every prodigal was an enemy of the state. Smith was no less scathing in his discussions of the roles of Imprudent risk takers and Projectors in creating negative, detrimental outcomes for the economy as a whole. Smith realized that it was the Projectors, Imprudent risk takers and Prodigals who were the primary cause of inflation, followed by deflation and depression or recession, as their speculative undertaking collapsed in the long run. The main threat to capitalism is not external, exogenous shocks, but internal, endogenous shocks caused primarily by upper income class Projectors, Imprudent risk takers and Prodigals, who are able to obtain bank loans, finance or lines of credit to leverage their debt positions many times over. The implications of Smith’s extensive discussions are that there is no such entity as an Invisible Hand of the Market that transforms the private, greedy and self centered activities of the Projectors, Imprudent risk takers and Prodigals at the microscopic level into social benefits for all at the macro level. G. Kennedy was the first to explicitly point out the contradiction involved in asserting that Adam Smith had some concept of an Invisible Hand that was operating in an economy that was subject to internal, endogenous shocks from inside the economy. Smith’s policy view is that laws need to be passed to prevent these categories of citizens from imposing their periodic destruction behavior on the rest of society. The idea that Smith believed that there was an Invisible Hand that would correct this problem, as G. Kennedy has pointed out, is a myth. Unfortunately, this myth is what modern economics is based on. If there is no Invisible Hand of the market to deal with the problem of Projectors, Imprudent risk takers and Prodigals, then only extremely heavy government regulation can safe guard the public and sober people from the behavior of the Projectors, Imprudent risk takers and Prodigals. The entire free market is put into jeopardy by the behavior of the Projectors, Imprudent risk takers and Prodigals operating under the mask of natural liberty and freedom.

Keynes's Application of Virtue Ethics in the General Theory in Chapter 9

Keynes carefully and methodically devoted chapter nine of the General Theory to a detailed discussion of Virtue Ethics which is related to Adam Smith’s discussion in The Theory of Moral Sentiments. Both Virtues and Vices were considered by Keynes. The four main virtues in the Greek version of virtue ethics, as enunciated by Plato(Socrates) and Aristotle, were Prudence, Temperance, Justice and Courage or Fortitude. Temperance and Courage can be combined, as done by Adam Smith in The Theory of Moral Sentiments into the virtue of self command. Adam Smith’s and Keynes’s explicit use of an Aristotelian, Virtue ethics approach contrasts with the economic profession’s explicit reliance on utilitarian ethics only. It is not possible to create a synthesis between the two different approaches to ethics. Keynes and Smith agree with Aristotle that the primary, major problem at the macro level for an economy is the existence of a major sub group of upper income class individuals that Smith appropriately identified as projectors, imprudent risk takers and prodigals. These individuals violate the primary virtue of prudence by activities that can cause negative effects that impact the entire society. Smith proposes that this behavior be neutralized or mitigated by imposing restrictions on their ability to obtain bank credit and loans. Smith also believed that at the macro level the number of sober people (frugal, parsimonious, circumspect, careful) will significantly outnumber the projectors, imprudent risk takers and prodigals, so that their impact on the macro economy would be limited. This, of course, is similar to Keynes’s point that “Speculators may do no harm as bubbles on a steady stream of enterprise.” However, this all changes if enterprise and speculation switch places, so that “…the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” This is precisely the problem that has arisen in the American and world economies since the late 1970’s. Thus, speculation can be regarded as a vice and enterprise can be regarded as virtue. The point can be made even more directly. A world dominated by George Romney type investors leads to growth and prosperity, while a world dominated by Mitt Romney types, Bain Capital private equity firms, hedge funds, financial speculators and stock market manipulators leads to economic downturn and stagnation.

On Kennedy's Literary Proof of the Impossibility that Smith Had a 'Theory of the Invisible Hand of Markets' in the Wealth of Nations

G. Kennedy carefully examined the conflict that Smith covered in The Wealth of Nations brought about by Upper Income citizens that Smith classified as “Projectors, Imprudent risk takers, and Prodigals”. Their behavior led to very detrimental, negative outcomes in the macro economy as a whole. There was no Invisible Hand that turned the self interested, self serving interests of the Projectors, Imprudent risk takers, and Prodigals into benefits for society as a whole. Instead, there was massive bankruptcy, economic decline, and depression. Kennedy’s literary proof has been ignored, as has Smith’s extensive discussion of this problem in The Wealth of Nations. The reason for this may be that most modern economists have forgotten how the use of the English language can be applied to provide an effective economic analysis of an economic problem as demonstrated by Smith. A separate paper provides a purely mathematical treatment on this problem. It is available at SSRN. That article translates Smith’s analysis of the impact of Projectors, Imprudent risk takers, and Prodigals on the macro economy into mathematics.

Adam Smith's Analysis of the Good (Sober People) and the Bad (Projectors, Prodigals and Imprudent Risk Takers): The Proper Role of the Central Bank in Generating the Wealth of Nations Using the Visible Hand to Empower the Sober People by Using Targeted Bank Policy

Adam Smith, building on the work of Plato (Socrates) and Aristotle, who had analyzed the political, economic, and social conflict that engulfed Athens in the Fifth century B. C., identified two competing economic groups. These two were the (Middle Class) Sober people (merchants, small businesses, farmers) and the (Upper Class) Prodigals, Imprudent risk takers, and Projectors (financial speculators and manipulators, rentiers). The overall well being of the state over time required that the Sober people had to be able to maintain political and economic dominance over the Prodigals, Imprudent risk takers, and Projectors. Smith recognized that the Sober people used money mainly as a medium of exchange to engage in transactions that involved the production of consumer and producer goods over time. The purchase of producer goods was aimed at providing future consumer goods. Aristotle discussed this function and use of money as C-M-C’. Smith also recognized that the Prodigals, Imprudent risk takers, and Projectors did not generally use money for the production and consumption of present and future consumer goods. The Prodigals, Imprudent risk takers, and Projectors used money mainly for speculative purposes only. Aristotle had analyzed the misuse of money in terms of his discussions of M-C-M’ and M-M’. Aristotle recognized that society would end up with severe political, economic, and social problems, as occurred in Athens, if the Prodigals, Imprudent risk takers, and Projectors were to be able to dominate. The result would be a large decrease middle class and a large increase in the lower class. Aristotle did not know how to deal with this problem other than to condemn the uses of money that led to M-C-M’ and M-M’ results on ethical grounds that were related to the failure of such individuals to lead a virtuous life. Smith,on the other hand, saw how an independently functioning central bank could engage in banking policies that would strengthen the sober people and retard the influence of the Prodigals, Imprudent risk takers, and Projectors so as to allow the former to maintain dominance over the latter. The result would be economic growth and a growing, wealthy state. Economists who specialize on Smith have generally (Kennedy is an exception) ignored Smith’s 50 plus pages of exposition concerning the inherent dangers that will occur if Prodigals, Imprudent risk takers, and Projectors obtain the majority of bank loans and the Sober people are cut off from such loans, except at very high rates of interest. The result will be stagnant economic growth, increasing inequality, very low increases in the real wage, and a major decline in the middle class. Of course, neither Aristotle nor Smith would be surprised at what has happened economically since the late 1970’s, since they predicted exactly what has happened in the American and world economy 2,400 and 240 years ago, respectively. What is shocking is the nearly complete absence of any general understanding among modern day analysts and economists of the clear cut conclusions arrived at, first by first Aristotle and then by Smith. Keynes can be viewed as attempting to further explain, in a technical sense, what is already contained in the literary analysis in Aristotle and Smith.