The《Renaissance of Economics 》by reassessing ” An Inquiry into the Nature and Causes of the Wealth of Nations ” and “The Theory of Moral Sentiments” (Total three reports)

Institute of Economics for Humans(https://j-kk.org/)

 

★The《Renaissance of Economics 》by reassessing ” An Inquiry into the Nature and Causes of the Wealth of Nations ” and “The Theory of Moral Sentiments”

<the 2nd report> (Total three reports)

 

<Full-scale start of economics which treats the “Real world”>

Ancient Greece or Rome was not devoid of something which could be called physics. But, no one can deny that Sir Isaac Newton laid the foundation for the later development of modern physics.

Same as Newton, Charles Robert Darwin built the groundwork for the “Theory of Evolution” introducing a totally innovative concept of “Evolution”. (Evolution is a matter of course today, but in his time Christian view of the world prevailed: they believed that the human beings expelled from the Garden of Eden have been degrading and need to get back to the original perfect state.

Like Darwin, Adam Smith (though he is chronologically ahead of Darwin), organized views of the society and economy which had been chaotic before him and built a system by his cool and sharp analysis.

No one denies that he is a great figure who can be called “father of economics”.(His main occupation being a professor of moral philosophy, he had literally accomplished everything by himself from scratch.)

Adam Smith’s  ”scientific method” is mainly based on two elements: abundant data and observation on the spot(*) with sharp observant eyes.

(*) This is one of the most important part of “Toyota way”. “Toyota way” is to go to the site and think about the solution based on the facts. Toyota’s idea is that one can always find an answer to the problem on the site.

As to the abundant data, we should remember that this book was published in the first half of the Edo era (1603-1868), The era of Tokugawa shogunate) in Japan.

An Inquiry into “the Nature and Cause of the Wealth of Nations (Herein after referred to as “The Wealth of Nations”)” was first published in 1776 ( the fifth edition in 1789 was the last revision in his life).The eighth Shogun, Yoshimune Tokugawa, who is famous for his political and economic reform of Kyoho, died in 1751.In the 5th year of Anei (1776), Gennai Hiraga invented Elekiter (hand-operated electric generator) and the United States declared independence after winning the war of independence.

Collecting data recorded in this book in such an old time must have required a tremendous efforts, even though Europe at that time had achieved a high degree of cultural and economic development .his analysis backed-up by abundant data made this book highly persuasive.

The second element, to observe facts on the spot, is the core concept of Toyota production method, which urges even the president or an executive officer to leave the headquarters to make their judgement based on facts at the factories or dealers.

In this book, I am amazed by Adam Smith’s deep knowledge of business, trade and lives of ordinary people. He seemed to have jumped into the lives of ordinary people to make various research, and thanks to this, “human nature in the economic activities” was lively depicted.

By the way, the study theme of our institute inherits Adam Smith’s view point, that is to observe society or economy as human activities-i.e. economics for humans..

<You ought to see the real life.

Although by the middle of Edo era, a wonderful theory of economics was established in Europe, it has not developed but degraded in 250 years. The blame should go to Marxist economics and so-called modern economics.

As it is obvious to everyone (except some fanatic communists),that Marxist economics already failed, I will not argue about it.

The biggest mistake of modern economics is they try to understand human activities by mathematical formulae.

For example, we see no mathematical formula or equation in “The Wealth of Nations”

(Just to be sure, Adam Smith formed friendships with many natural scientists through private dinners or parties. So, it is difficult to imagine he was ignorant of formula or equation.).

Also, it is quite rare that Peter F. Drucker, Michael E. Porter, Warren E. Buffett use formula or equation in their books or talks. Of course, there is no need to use formula or equation to do business which is the essential part of economy. So, it looks ridiculous that modern economics uses abundant formulae or equations.

Especially, Buffett says that we only need addition, subtraction, multiplication and division for investment and that he would not have been successful if high level mathematics were required.

He is not only successful in investment but also he is an entrepreneur who has created by himself a corporate empire representing the United States. So, his words should be respected.

Also, if we have proper recognition that an economy is acts of humans, it becomes clear that only way to understand an economy is by observation.

In zoology, do they use formulae or equations to understand a society of apes which resemble most with humans? To understand their society, they do observation at first.

And they will repeat experiments as many times as possible ( Just for your attention, it is difficult to repeat under completely same condition, which is different from physics).There’s no formula or equation which can explain their society in one shot.

Therefore, there can’t be almighty equations which explain economy―activities of human society which is far larger and more complicated than that of apes― like those in Newton mechanics or theory of relativity.

The LTCM had many brilliant members including Nobel Prize winners for economics, Mr. Robert Marton and Mr. Myron S. Scholes, but failed in 1998.But, why economists stick to formulae or equations even now? It is because people respect what they can’t understand. They respect a person who neglects simple but important things and use skillfully what looks difficult but meaningless.

For example, it is not difficult to walk to the next building. But, if you walk on your hands with a cigarette in your mouth to the next building, you’ll receive great applauds—nonsense, of course.

Therefore, a scholar who uses a lot of equations that are difficult to understand for an ordinary person looks somewhat great.

<Mongolian mutual assistance association (in Sumo) and university faculty members>

Perhaps, Adam Smith may have foreseen that correct way of thinking would recede after his death and an age like dark medieval Christianity dominant one would come.

He was deeply concerned about a small number of people join together for their selfish common interest, like Mongolian Mutual Assistance Association which now attracts Japanese people’s attention (Although there’s no clear evidence, Japanese mafia may be behind it.)

Especially he expressed his worries about “Associations of commerce and industries”, which we call industry groups today, in “The Wealth of Nations”.

“Getting together for selfish interest” is almost an instinct of men. We can witness it not only in Sumo, but everywhere even today.

Although Smith was himself a professor of university, he criticized those who teach in the ivory tower.

In old civilizations such as ancient Greece, teachers (tutors) were traded in free markets. If there was a tutor with good reputation, he would be employed at a decent salary. And a tutor with bad reputation couldn’t find a job, that’s all. We may say that Japanese cram schools, tutors and preparatory schools of our time are something close to the above system. But, things have been changed by the emergence of universities.

Even if two men studied the same thing, the one who holds a diploma of university will be received more favorably to the society than the other without diploma. (Already in the time of Smith, degree of easiness to find a job depended on whether or not one had a university diploma or which university one graduated from.)

Under such circumstances, the faculty members hold huge power to decide whether or not to give a unit( or diploma ) to a student, and they will not undergo proper evaluation of their scholastic knowledge by the users (students or their parents paying the tuition fee).

Consequently, the quality of the faculty members degrades, as Smith asserted. Today’s universities have just such problems. In short, because university faculty members’ income and status are secured by university professors’ mutual assistance association, they corrupt.

<God’s invisible hand>

In fact, these famous words are not written in “The Wealth of Nations” at all. Originally, Smith wrote “led by an invisible hand”. But, a religious fanatic later added “the will of God” out of his own will. Moreover, the main theme of “The Wealth of Nations” is not “God’s invisible hand”.

It is true that Smith preferred autonomous economy moved by natural human activities, because a government pushed by aforesaid interest groups would introduce useless regulations damaging national wealth. But, he was not a supporter of “perfect laissez faire”.

For example, he thought it appropriate to restrict trade as far as national defense is concerned, because it is for the benefits of the whole nation. He kept realistic view to say that no matter how prosperous an economy is, it is worth nothing if the country is invaded by foreign troops. Though he said that government’s economic intervention had rarely positive effect, he thought fairly affirmatively such roles of a nation as “night watchmen”,.

The present situation in which only the phrase, “invisible hand of God”, is commonly known is a result of some sort of manipulation of impression.

For one thing, when fanatic Christians were the majority of the society, the Church may have intended to make people believe that after all ”God governs the world”.For another thing, it is a propaganda of Marxist economists and modern economists to cover up by this phrase the part of “The wealth of Nations” which contradicts their theories.

What Adam Smith wanted to say was that an economy and a society functions autonomously by the system of “sympathy”, which is mentioned in “The theory of Moral Sentiments”, and there is no need of extra politics or regulations.

For the dictatorship of the Communist Party which believes in Marxist economics or for the dominance of the modern economists who think they are the provider of proper economic policy, the conclusion that “ the best policy is to let the people act autonomously” is the worst possible thing .Because, it denies dictatorship or authority.

Adding “God’s” to “invisible hand” was therefore very convenient for them, because it enables them to make people believe that only they can find a “(divine) solution” .

★(End of the 2nd part. To be continued to the 3rd part)

★ (Responsibility for the wording of this article lies with :Hiroshi Ohara)

 

Please wait for the moment for the third English report.

Original Japanese report as below.

<The first>

研究論文:「国富論」と「道徳感情論」に還る【経済学ルネサンス】<第1回>(全3回)

<The second >

研究論文:「国富論」と「道徳感情論」に還る【経済学ルネサンス】<第2回>(全3回)

<The last>

研究論文:「国富論」と「道徳感情論」に還る【経済学ルネサンス】<第3回>(全3回)

 

 

 

 

 

 

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