From sentiment alone to wealth

Adam Smith (1723-1790) is best known for his pioneering work of economics, The Wealth of Nations (1776). But the book that actually propelled him to fame was The Theory of Moral Sentiments, published in April in 1759.

It was a sensation, and it made Smith into hot intellectual property. That's because moralists had been struggling for centuries to work out the principles that made some actions morally good and others morally bad. To clerics, the answer was obvious: the word of God. And believers relied on the clerics' moral authority to guide them. Skeptics, on the other hand speculated about whether we had a sixth sense, a 'moral sense' that would guide us towards good. And so it went on.

Smith's breakthrough was to place our moral judgements as a matter of our deep psychology as social creatures. Human beings, he argued, have a natural 'sympathy' (today we would say 'empathy') for each other, particularly those nearest to them. That empathy enables them to understand how to adjust and moderate their behaviour in order to win the favour of others and preserve social harmony. It is the basis of moral judgements about behaviour, and the source of human virtue.

Writing exactly a century before Charles Darwin's The Origin of Species (1859), Smith was not sure why such beneficial social behaviour should prevail. He put it down to providence: today we would put it down to evolution.

The Theory of Moral Sentiments was an intellectual sensation, a best seller. Churchmen, of couse, did not like it very much. But it impressed Charles Townsend, a leading intellectual and senior member of the British government (roughly the equivalent of the Chancellor of the Exchequer today). He sought an introduction to Smith through their mutual friend, the philosopher David Hume (1711-1776). Townsend immediately hired Smith, on a salary of £300 a year for life, to be tutor to his stepson, the young Duke of Buccleuch. It was a small fortune. And it gave Smith the independence and experience to start writing the world for which he is best remembered today: The Wealth of Nations.

Seriously, of all the ludicrous things to worry about in the economy...

That Amazon's a pretty large company is true, that it's made Jeff Bezos very rich is also so. It's also possible to worry about all sorts of things in the economy. True, we tend to worry more about the amount of everything swallowed by the maw of government than others do but still, there are, we agree, real and valid bits and pieces to worry about.

That Amazon competes with other businesses really isn't one of those worries, but it's being claimed as one

But the consumer trust it has built up does not reflect the damage the company does to competitors, partners and workers, according to Khan. “Only looking at a consumer side of a business power is totally ludicrous. It slices the human in half, not looking at them as a worker, producer or supplier.”

Well, as Adam Smith did point out - the sole purpose of production is consumption after all - that is the way w should think of the economy and matters economic. From the point of view of the consumer, what benefits them. But there's a doubling down on this bad idea here:

Without regulation, Amazon will “continue to extract wealth that other businesses are creating”, Khan added.

That's entirely what we want the company to be doing of course. That lust for profit leads to experimentation in how to extract it from us. Another name for which is innovation. Successful innovation - that which extracts excess profits from us - breeds its own competition. Thereby bringing profit down to normal levels, leaving us out here with the consumer surplus of the innovation bred out of the experimentation.

That's actually the point of the system, that some small fraction of the value generated sticks to the entrepreneurs and the capitalists - just enough to get them to keep on keeping on -  while we consumers gain near all of the benefit. Exactly what has made us all so stonkingly rich by any historical or global standard. 

There are even things which made this modern world which we can and should complain about but why this one? Businesses competing with each other make us rich? We're going to whine about that? 

Happy Birthday DNA!

65 years ago two Cambridge scientists looked at their watches and realized they could just make it to the Eagle pub in Cambridge before closing time. They had just cracked one of science’s great problems, and for their friends they drew in beer on the pub table the double helix shape they had understood to depict the structure of the DNA molecule. On 25th April, 1953, 65 years ago today, their paper appeared in Nature magazine, and the world changed.

Their discovery has formed the basis of much medical and biological science since that time, and illustrates yet again Popper’s insight that the future is inherently unpredictable because we cannot predict what discoveries will be made, or what their significance will be. Those who tell us that history is unfolding toward its inevitable destiny cannot deal with that fact or handle its

Crick and Watson’s discovery has enabled us to reach into the very structure of life itself and to tinker with it in ways previously thought inconceivable. It is a timely reminder among many that the “ultimate resource” is human ingenuity and creativity. Julian Simon wrote a book under that title.

There are those, many of them, who love to wallow in the problems facing humanity, and to write tomes of despair about the bleak future that we face. And there are those like Crick and Watson who push humanity’s envelope further out and who make possible what was impossible before.

Happy birthday, DNA, and congratulations to all those who work to give us an unlimited future in which, instead of limiting our aspirations, we fulfill them.

We're very amused by this illogic about food banks

Food bank usage is up and at least a part of this rise is being blamed upon the roll out of Universal Credit. We're willing to believe that this might be true even if we aren't convinced of it. It's the next piece of logic that amuses us:

However, food banks in areas where the full universal credit service had been in place for 12 months or more were four times as busy, recording an average 52% increase in the number of three-day emergency food packages distributed.

The trust said many universal credit claimants had come to food banks after long waits for payment and administrative problems pushed them into debt, ill health and rent arrears.

“This completely unacceptable. We need to move towards a UK where no one needs a food bank’s help, not a country where charity provision is the only defence from utter destitution,” said Emma Revie, the trust’s chief executive.

We have a problem therefore we must get rid of the system which solves our problem.

For note what the claimed problem is. Not that Universal Credit isn't generous enough, but that it's incompetently delivered. Well, we can believe that, yes. We've thus got this other system, this charitable one, which makes up for that incompetence. We'd rather consider the problem solved at that point.

But the claim here is rather different, isn't it? The government is incompetent at handing out free money therefore we must rid ourselves of that other, charitable, system which makes up for government incompetence. By, presumably, giving the job to that incompetent governmental system. Government fails so government must do more!

Well, yes, that would all be amusing, wouldn't it, if it weren't for the pain and grief yet more government incompetence intruding into the lives of the poor would cause. Food banks, the Trussell Trust, they actually work at alleviating want. Great, isn't that what we want?


Today saw the launch of a new initiative by the Telegraph. 

Refresh is a policy discussion forum, run on social media, with the express aim of reinvigorating support for free markets in Britain. Opinion across much of the UK’s political spectrum is turning against free markets, and young people in this country are continually painted as only being interested in left-wing solutions. Refresh rejects this kind of thinking. It is apolitical, instead it focuses on how capitalism can be harnessed to improve living standards, create freedom and unleash the potential of individuals.

Refresh exists primarily to promote good policy and ideas that, if put in place by governments in Britain, would have a real and positive impact on this country. It challenges closed thinking with radical ideas that cut against the political grain.

Run by Helena Horton and Daniel Capurro at the Telegraph it is a truly refreshing idea to try and persuade the young of the benefits of the free market – not by bribes or gimmicks, not by appeal to identity, but by ideas and argument. Something set out excellently by Lee Rowley MP today

We're proud to say that we're part of this. Reaching out to the next generation by presenting them with ideas that will change this country. Specifically aimed at, and written by, those under 35 years of age our writers will be directly engaging and persuading Britain's youth. We're going to see more and more pieces written by ASI staff and friends over the next few months.

But to get you in the mood, here's a piece by Matt Kilcoyne on how it's not it is not capitalists that have led to our broken housing market, but the state – by imposing rationing.  

And here's Sophie Jarvis explaining why, if the Tories want to rebuild the entrepreneurial spirit in Britain, they might need the self-starting, meritocratic, liberty-loving and wealth creating attitudes that immigrants bring to the country. 


Varoufakis makes Marx's mistake- underestimating markets

Yanis Varoufakis has favoured us, in The Guardian, with another of those pieces which just insists that Marx was right. You know, sure, it's hasn't happened for 150 years and counting as yet but it's sure right around the corner today.

None of this should surprise a reader of the manifesto. “Society as a whole,” it argues, “is more and more splitting up into two great hostile camps, into two great classes directly facing each other.” As production is mechanised, and the profit margin of the machine-owners becomes our civilisation’s driving motive, society splits between non-working shareholders and non-owner wage-workers. As for the middle class, it is the dinosaur in the room, set for extinction.

At the same time, the ultra-rich become guilt-ridden and stressed as they watch everyone else’s lives sink into the precariousness of insecure wage-slavery. Marx and Engels foresaw that this supremely powerful minority would eventually prove “unfit to rule” over such polarised societies, because they would not be in a position to guarantee the wage-slaves a reliable existence.

It's a fair old prediction, certainly. But a little earlier Varoufakis tells us:

While celebrating how globalisation has shifted billions from abject poverty to relative poverty,

That is, the wage slaves have done damn well out of the arrangement. As absolutely any examination of historical and current day living standards will tell us.

The reason why is, of course, that Marx underestimated the power of markets. Especially that for labour. He was aware of how it was monopsony - not that the word existed back then but this is what he meant  by monopoly capitalism - in the purchase of labour which would immiserate the workers. We've not have such monopsony, they're not immiserated.

Further, as long as we maintain a market economic system we're not going to have monopsony and thus we're not going to have the immiseration.

Markets are more powerful than Marx thought they were, than Varoufakis thinks they are. Which is why the working classes today are richer than any bourgeois of Karl's time, richer in fact than any bourgeois or even capitalist of any earlier era. That power of markets to ensure that the new created wealth of capitalism flows to us as workers and consumers is also why there's no coming crisis nor revolution.

How excellent, we can entirely dump the concept of ethical investment

As we all know there's a certain social pressure on us all to invest only in those industries or companies that are morally sound. This is something we should indeed do of course, we should use our own interactions in a market economy to increase our utility. Knowing that we're not doing bad is an increase in such utility and thus we should invest, just as we buy or otherwise act, according to our tastes.

It's a little different when we forced to do so according to the morals of another but still.

However, there's always that feeling that we're giving up income by doing so. Thus this is good news:

Ethical investors make more money than those who look purely at financial measures, according to a major new study.

Environmental, social and governance (ESG) issues have typically been deemed to be fashionable but bad for business. This is because “ethical” ­investors have to limit the number of companies which they can back, losing some opportunities for profit.

But a Deutsche Bank study of more than a decade’s worth of data could turn that situation on its head, showing companies that can pass an ESG test are typically better bets than those which fail.

ESG is of course a set of the morals of others that we are urged to conform to. There's an entire industry trying to persuade us to do so as well. The great thing about this news being that we can toss the entire concept.

For the only reason we are urged by those social pressures to conform to this set of moral standards about investment is because of that worry, that fear, that income will be lost by doing so. If no income is lost, if this claim is true that in fact more income is made, then we don't need the moral insistence, do we? We don't even need the moral classification itself.

For if ESG investing makes more money then everyone will invest in an ESG manner without being urged to. We can just leave the lust for gelt and pilf to do the work without the branding, the advertising, the suasion or anything else.

That ethical investing makes more money means we don't have to have that concept of ethical investing, doesn't it? 

Someone's always got to pay, don't they?

If one group are to get more than another must get less. This is true even if the economy is growing - even if all are gaining more it's still true that what is being added to the incomes of one group isn't being added to that of another. When it's sharing out more for all of course it's much easier, more peaceable, than when we're fighting over a fixed pie. As, when and for example, there's a legal insistence upon higher wages for one specific group:

The care of more than 13,000 elderly and vulnerable Britons could be thrown into turmoil after one of the biggest providers of home care visits in the UK warned it would go bust unless creditors backed a rescue plan.

Allied Healthcare, which has contracts with 150 local authorities and also provides out-of-hours services for the NHS, is asking for breathing space on its finances after cashflow problems that have been triggered in part by an £11m bill for back pay owed to sleep-in care workers.

Whether or not those workers should be paid while they sleep isn't the point. Just as, today, our point isn't whether the minimum wage should justly rise or not. It's just an insistence that someone, somewhere, has to pay that higher cost. Or, of course, the jobs won't exist and those supposedly getting that higher pay will get none.

Which is an important point. Legislatively raise wages by £11 million and some, one or another, employers will go bust. Or, customers - here the taxpayers - must pay more. Noting who loses does rather change the joy doesn't it? As opposed to the usual political stance of only considering who wins.

World Bank states the obvious - unions outraged

An interesting little tale here. The World Bank states the blindingly obvious and unions, as a result, are outraged. The point being made is that minimum wages, protections for labour, can be "too high." Too here meaning high enough to damage both employment prospects and the economy in general. Therefore such wages and protections should be lower to the benefit of all. It's really not an outrageous thing to say at all:

A working draft of the bank’s flagship World Development Report – which will urge policy action from governments when it comes out in the autumn – says less “burdensome” regulations are needed so that firms can hire workers at lower cost. The controversial recommendations, which are aimed mainly at developing countries, have alarmed groups representing labour, which say they have so far been frozen out of the Bank’s consultation process.


The WDR draft says: “High minimum wages, undue restrictions on hiring and firing, strict contract forms, all make workers more expensive vis-à-vis technology.”

That second is obviously true, there's a "too high" level. But the important part of all of this is the bit "developing countries." Take the examples of India or Bangladesh (as one of us did just recently) where as much as 85% of the labour force is outside that formal economy. Where, this meaning the same thing, that 85% of the labour force have no protections at all from such legislation. Indeed, they're locked out of that formal economy by the costs of hiring labour into it.

It would be better if the protections, the costs, were lower so that more of the population could enjoy them, no?

The unions are outraged, of course they are, because they work for their members. Which, in those developing countries, means only those in that formal sector. So what about the nation as a whole, so what about the workers, it's our workers and ours only that we care about. Which is fine, of course it is, but we do need to remember that they do work only for their own members.

It is possible for the protections on offer to formal labour to be too high. A useful method of working out when that is being that the vast majority of the working population can't get hired into formal labour because of the costs of doing so. Thus, and ineluctably, things would be better if the protections were reduced. As the World Bank is saying and as the unions, those representatives of formal, and only formal, labour are complaining about.

Quite the most stunning piece of research we think

We're told that Waitrose is to install health food police. In fact, they're going to train their shop assistants to be helpful:

Once trained up by qualified nutritionists, shop assistants will advise and direct customers who ask towards healthier choices on the shop floor free of charge.

For example a shopper deciding on a meal to cook for supper might be advised to buy quinoa instead of rice, Waitrose said.

They will also be trained to suggest recipes to shoppers, and advise them on how to read food labels and where they can find reliable sources of nutrition information.

It's entirely true that the British police are famed for what they'll do if asked - like tell the time. However, a fairly important point about police - as opposed to these assistants - is when they'll intervene if not asked. We're not, for example, being told that there will be barks of "Oi, you! Fattie! Step away from the ice cream, drop the frozen pizzas" which is what a police approach would entail.

However, what sparks our interest is this most stunning piece of research:

Research shows that shoppers tend to reach for unhealthy options in supermarkets if they do their shopping while hungry.

For example participants in a Cornell University who were hungry purchased more high-calorie products, the researchers found. 

Well, yes, we rather think that's how hunger works isn't it? It's a signal to the body that it needs more calories. Time to go off and hunt or gather some more, the hungrier we are the more and denser the calories should be.

That is, this isn't an error, this is the point. We're more than a little worried at people not getting this. Not just about food and hunger, but more generally, people missing the point. For example, we're often told QE failed because it raised asset prices. But then the point of QE was to raise asset prices to make investing in making more assets more attractive. That is,  raising asset prices was the point of QE.

We really do think we'd all be better off is rather more people got the basic point of what it is that we do. You know, like hunger prompts us to eat? It's a pretty useful little signal in fact....