Wednesday, March 17, 2010

Adam Smith Did Not Invent Capitialism

Stephen Collins, co-owner of Organic Business Strategies, writes (16 March) in Bloggertone (‘talking about business’) HERE

adamsmith RT @JohnNash Love the game. Let’s play it together. BFF”

“Adam Smith, Father of Capitalism, set forth in the world the greatest experiment man has ever encountered.

Smith brilliant in his understanding of true human nature. With this understanding, devised a system by which he focused the fallibility of man’s own nature to the betterment of society. This system allows for the human needs to be met while using this same nature as a mechanism for self-regulation and management.

With this said, there was an American in the 1950s who challenged the concept of “every man for himself”. John Nash, an economist and mathematician, is considered to be the “Father of Game Theory”.

Nash understood how a person would react given a certain set of circumstances. He theorized a person will always make a choice that gives him either the least pain or the greatest gain given the circumstances. By understanding this, the game can be manipulated for the betterment of all of the participants. This is somewhat esoteric, so enough of the history lessons…

… The combination of the greed of Adam Smith’s man with the sophistication of John Nash’s games (competition) will bring a synergy to your business that is un-deniable.

A harmless piece of editing?

Stephen Collins gets to the point later about his recommended business strategy for local business which would be hard to fault in practice and of which I would approve in general (in business schools itS called ‘co-opetition’, or at least was when I taught ‘strategic negotiation’). So, good luck to Stephen in his business ventures.

However, the paragraphs quoted above are historically and factually in error. They draw on popular myths about Adam Smith.

Smith did not “set forth in the world the greatest experiment man has ever encountered”. He observed the nature of the revival of commerce in mid-18th-century Britain and analysed what had happened in Western Europe, from the fall of 5th-century Rome, through to Europe’s recovery, approximately from the 15th century.

He did not invent ‘capitalism’ (or commerce). Smith, who died in 1790, did not know of the word ‘capitalism’; William Makepeace Thackeray used the word ‘capitalism’ first in English in a novel (The Newcomes) in 1854.

No single person, and certainly not a moral philosopher, invented or ‘set forth’ the ‘experiment’ of capitalism; such notions are quite ridiculous, if you think about what is suggested. Attempts to design social-economic systems almost always fail, as the more recent attempt at socialist planning in Russia and elsewhere have shown.

Therefore, Smith did not “devise a system’, fallible or otherwise.

As for John Nash, he did not invent “prisoner’s dilemma’ games; by whom is he ‘considered the father of game theory’.

Nash was a brilliant contributor to ‘games’ and suggested what people ‘ought’ to do in resolving their choices; but the whole point about Prisoner’s Dilemma is that it is a dilemma.

Having observed literally thousands of players engaged in PD games, I found that close to 90 per cent did not “always make a choice that gives him either the least pain or the greatest gain given the circumstances”. Quite the reverse!

Finally Adam Smith never, ever, endorsed ‘greed’ as a positive feature of ‘human fallibility’ – that suggestion belonged to Bernard Mandeville (“Fable of the Bees”, 1724) – nor did Smith see ‘greed’ as instrumental in the pursuit of self-interest.

Apart from this, I wish Stephen Collins well in his business ventures.

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Blogger affordable-resumes-writer said...

Excellent debunkery.

10:49 p.m.  

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