October 3, 2011
To Adam Smith (1723-1790)
Your fantasy World
You are the founding father of our field of economics.
You were attempting to establish the, then new, discipline
of economics, as a science – specifically, a science operating
according to laws similar to those of the physical world
recently identified by Sir Isaac Newton (1642-1727).
You decided that profit was what prompted the behavior
of individuals, much like gravity prompts the movement
of the planets. So simplifying life, you could present us
with an imaginary society in which individuals, separate
and unconnected, are moved only by self-interest.
Your world is one in which individuals who exchange
possessions, do so solely because each has decided that
the transaction is to his material advantage. It is a fantasy
world – without either emotions or indebtedness, both
of which have played such a large role in human history.1
And in addition, you arrogantly certify that the transactions
of these individuals, based only on material possessions
and the selfish calculation of their own interest, without
regard for any others, are bound, by the workings of God
(the invisible hand, Providence) to serve the greater good.2
Islam disappeared
You had in your personal library the Latin translations of
the works of Persian writers, such as Ibn Sina (“Avicenna”)
(980-1037), Abu Hamed al-Ghazali (1058-1111), and
Nasir al-Din al-Tusi (1201-1274), all of whom described
how the market
functioned in medieval Islamic societies.3
It was a market operating according to its own internal
laws, largely independently of governments, genuinely
free in the sense that it was not either created by the
government nor backed by its army, police or prisons.
Contracts were backed only by the integrity of the signer.
For Ibn Sina (“Avicenna”), a compartmentalized
(“segmented”) treatment of the economic aspects
of life, was incompatible with the “holistic”
principle of learning, with its emphasis on the organic,
functional relations between parts and wholes.4
Like you, Abu Hamed al-Ghazali thought that exchange
is a natural outgrowth of human rationality and speech,
As illustration, he used the fact that animals, such as dogs,
do not exchange one bone for another. You yourself
use that very same illustration, but without attribution.5
In his Ihya (The Revival of religious Sciences), arguing
in favor of the division of labor, al-Ghazali used the
example of a needle factory, where it takes 25 different
operations to produce a needle. You make the same
argument, using the same illustration, without attribution.6
Al-Ghazali conceptualized money as created to facilitate
transactions. It is a symbol, a unit of measure, used to assess
the value and grades of goods. Precisely its lack of usefulness
in itself, and lack of any particular feature other than value,
are what enables it to serve as the medium of exchange.
“Money is not created to earn money,” said al-Ghazali.
“(Entering a monetary transaction to obtain
even more
money), is the equivalent of kidnapping a postman.” You
yourself differed and approved of usury, but do not mention
either al-Ghazali, or reasons for the difference of opinion.7, 8
Al-Tusi saw the division of labor as an extension of mutual
aid – “When men . . . aid each other, each one
performing
one of these . . . tasks . . . then the
means of livelihood are
realized . . . ” For you, the division of labor is in pursuit of
individual advantage. You make no mention of al-Tusi.9
You must have known that zakat, a tax which the wealthy
imposed on themselves, specifically to aid the needy,
had been initiated by the Prophet Mohammed himself,
and had become one of the five key pillars of Islam. You
do not mention this evidence of a social conscience.10
You must have known that the ban on gharar (the forbidding
of any speculative, overly risky or deceptive sale, and
any “zero” sum transaction) dates back from the Qur’an,
and is part of Shari’ah (Islamic law). You yourself approve of
speculation, without mentioning the principles of Islam.11, 12
Untruth about Shopkeepers
At the time you were writing, most English shopkeepers
were still conducting their business on credit. Why do you
describe them as selfish?
– “It is not from the benevolence
of the butcher, the brewer, or the baker,
that we expect
our dinner, but from their regard to their own
interest.”13
An unusal Definition of private Property
Around 100 B.C.E., in the waning days of the Roman Republic,
as slaves totaled
40 percent of the population, the word libertas
(liberty) changed its meaning from “not being a slave,” to “the
power of the master.” Freedom was the power (the right) of
the dominus (slave owner) to do what he liked with his property.
No other tradition makes the possession of slaves the basis
of property law, because doing so makes exceptions of all
non-slave property. For instance, if I own a chainsaw, there
are only a limited number of things I can do with it inside my
home, and almost nothing I can do with it outside my home.
As medieval jurists in the West were well aware, property is
a relation between people. One man’s right is another man’s
obligation. An owner’s right to a thing entails an understanding that
all other persons will refrain from interfering with this possession –
a right held, as English law puts it, “against all the world.”14
As your definition for property, you used that of Rome –
absolute power over one’s possession. You must have been
aware that the definition implies a society which consists of
isolated, self-contained beings, and that it also conflates the
concepts of “owning property” and “possessing political power.”
Indeed, the society you offer us, is an aggregation of
individuals whose
interactions center on “trucking and
bartering” over material possession, each side coldly
calculating his
self-interest with “natural selfishness
and rapacity” and “vain and insatiable desires.” 2, 5, 15
A callous Society
You preferred cash to credit, because cash is impersonal and
assumes each side to be equal, independent and autonomous.
Credit implies a long-term, potentially cumbersome relationship.
But for the poor, “equality before the market” is ruthless
and violent, echoing Thomas Hobbes’ war of all against all.16
Working for the Wealthy
You were a stooge of the middle and upper classes, capitalists,
wanting their money to beget more money. You provided
them with a theory to alleviate their conscience, as they
increased their own wealth at the expense of the poor.
The world is a little more
callous because you were in it.
Notes
1. Graeber 2011, pp. 44 and 353-354.
2. Adam Smith. 1759. The theory of moral sentiment.
http://www.books.google.com/books?isbn1599865939. Accessed 10/07/11.
“The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more that the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom them employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species” (p. 232).
3. Graeber 2011, p. 438.
4. Ghazanfar 2003, p. 147.
5. Adam Smith, 1776. An inquiry into the nature and causes of the wealth of nations.
http://geolib.com/smith.adam/won1-02.html. Accessed 10/07/11.
“This division of labour . . . is . . . the consequence of . . . a certain propensity in human nature – . . . the propensity to truck, barter and exchange one thing for another . . . (It seems probable) that it (is) the necessary consequence of the faculties of reason and speech . . . It is common to all men, and to be found in no other race of animals . . . Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog (Book I, Chapter 2).
6. For Adam Smith, it was a pin factory and 18 separate operations to produce one pin (Graeber 2011, p. 279. Institute of Islamic Banking and Insurance undated, p. 1).
7. Quote in Graeber 2011, p. 281.
8. Adam Smith approved of usury but advocated usury laws which would limit interest rates, thereby promoting lending to “sober” borrowers (and, therefore, projects more advantageous to the country), rather than lending to “prodigals and projectors” (who would promote “fraudulent schemes”) (Jadlow 1977, p. 1. Smith 2011, p. 1).
9. Quote in Graeber 2011, pp. 279-280.
10. Zakat: Institute for Islamic Banking and Insurance undated, p. 1. Wikipedia 2011, p. 1
11. Gharar: Answers.com undated, p. 1. Institute for Islamic Banking and Insurance undated, p. 1. Napoleoni 2008, pp. 237-238. Wikipedia 2011, p. 1.
12. Adam Smith. 1776. An inquiry into the nature and causes of the wealth of nations.
http://geolib.com/smith.adam/won1-02.html. Accessed 10/07/11.
Smith rationalizes speculation on the basis that the speculator knows best because if his prediction fails, he loses money; and also because his speculative activities are a warning of which way prices will go, and are, therefore, of benefit to the community as a whole:
“If a merchant ever buys up corn . . . in order to sell it again soon after, . . . it must be because he judges that the market cannot be so liberally supplied through the whole season as upon that particular occasion, and that the price, therefore, must soon rise. If he judges wrong in this, . . . he hurts himself. If he judges right, he renders (the great body of people) a most important service. By making them feel the inconveniencies of a dearth somewhat earlier than they otherwise might do, he prevents their feeling them afterwards so severely as they certainly would do, if the cheapness of price encouraged them to consume faster than suited the real scarcity of the season . . . In other words, the corn trade, so far at least as concerns the supply of the home market, ought to be left perfectly free” (Book IV, Chapter 5, quoted in Roberts 2011, p. 1).
13. Quote in Graeber 2011, p. 335.
14. Graeber 2011, p. 205.
15. Adam Smith, 1776. An inquiry into the nature and causes of the wealth of nations.
http://geolib.com/smith.adam/won1-02.html. Accessed 10/07/11.
“As it is by treaty, by barter, and by purchase that we obtain from one another the greater part of those mutual good offices which we stand in need of, so it is this same trucking disposition which originally gives occasion to the division of labour” (Book I, Chapter 2).
16. Thomas Hobbes. 1651. Leviathan.
http://www.en.wikipedia.org/wiki/Leviathan, 2011. Accessed 10/07/11.
http://www.en.wikipedia.org/wiki/Bellum omnium, 2011. Accessed 10/08/11.
Hobbes (1588-1679) conducts a thought experiment, placing people in a pre-social condition, and theorizes what would happen:
“The natural state of men, before they were joined in society, was a war, and not simply, but bellum omnium contra omnes (a war of all against all).”
References
Principal Reference:
Graeber, David. 2011. Debt – the first 5,000 years. New York, N.Y.: Melvillehouse.
Other References:
Answers.com, undated.
http://www.answers.com/topic/gharar. Accessed 10/06/11.
Gharar – an Islamic finance term describing a risky or hazardous sale where details concerning the sale items are unknown or uncertain. Gharar is forbidden by the Qur’an, which explicitly forbids trades that are considered to have excessive risk due to uncertainty.
Ghazanfar, Shaikh, Editor. 2003. Medieval Islamic economic thought – filling the “great gap” in European economics. Chapter by Shaikh Ghazanfar, “Links to Greek and Latin-European Scholarship.” New York, N.Y.: RoutledgeCurzon.
http://www.google.com/search?q=ghazanfar. Accessed 10/06/11.
“The primary focus was not the domain of economic aspects of life. Indeed, a “segmented” treatment of any discipline would not have been compatible with the prevailing “holistic” principle of learning. The Arab-Islamic thinkers never visualized solutions to economic problems strictly through the functioning of the free market, “invisible hand” approach. Administrative control through public policy and social intervention was always advocated in order to ensure social well-being and common good” (p. 147).
Hobbes, Thomas. 1651. Leviathan.
http://www.en.wikipedia.org/wiki/Leviathan, 2011. Accessed 10/07/11.
http://www.en.wikipedia.org/wiki/Bellum omnium, 2011. Accessed 10/08/11.
Institute of Islamic Banking and Insurance, undated. “Islamic Economics.”
http://www.islamic-banking.com/islamic-economics.aspx. Accessed 10/06/11.
Gharar: Gambling and the taking of undue risk; excessive uncertainty; hazard and deception; or a “zero sum” transaction in which one party must loose for the other to gain (p. 1).
Zakat: A religious or moral tax which those who can afford it impose on themselves (p. 1).
Jadlow, Joseph, 1977. “Adam Smith on Usury Laws.” Journal of Finance, Vol. 32, No. 4, September, pp. 1196-1200.
http://www.jstor.org/pss.2326522. Accessed 10/04/11.
“Despite his general advocacy of laissez-faire, Smith was a strong supporter of state-imposed price controls in one market – the market for loans. He supported usury laws. Smith opposed the prohibition of interest charges, but favored the imposition of an interest rate ceiling.”
Napoleoni, Loretta, 2008. Rogue economics – capitalism’s new reality.
http://www.google.com/search?pg . . . napoleoni. Accessed 10/06/11.
“Islamic activists, intellectuals, writers, and religious leaders have always upheld the prohibition of riba, the interest charged by money-lenders; and denounced gharar, which refers to any type of speculation. Under this belief, money must not become a commodity in itself to create more money” (pp. 237-238).
Roberts, Russ. 2011. “Adam Smith on gouging, Speculation, and political Economy.” January 21.
http://cafehayek.com/2011/01/adam-smith. Accessed 10/06/11.
Smith, Adam.
1759. The theory of moral sentiment.
http://www.books.google.com/books?isbn1599865939. Accessed 10/07/11.
1776. An inquiry into the nature and causes of the wealth of nations.
http://geolib.com/smith.adam/won1-02.html. Accessed 10/07/11.
Smith, Yves, 2011. “Economists debate Ethics in Economics – Adam Smith warned against subprime Lending.” September 11, 2011 (or April 6, 2009).
http://www.nakedcapitalism.com/2009/04. Accessed 10/04/11.
Adam Smith approved of usury but advocated usury laws which would limit interest rates, thereby promoting lending to “sober” borrowers (and, therefore, projects more advantageous to the country), rather than lending to “prodigals and projectors” (who would promote “fraudulent schemes”).
Wikipedia, 2011.
http://www.en.wikipedia.org/wiki, 2011. Accessed 10/03/11-10/09/11.
Zakat: A practice initiated by Mohammed himself.
“Islamic Economics in the World.”
Zakat: “The taxing of certain goods, such as harvest, with an eye to allocating these taxes to expenditures that are also explicitly defined, so as aid to the needy.”
Gharar: “The interdiction of chance . . . that is, of the presence of any element of uncertainty in a contract. The interdiction includes insurance contracts, and the lending of money without participation in the risks.”
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