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 1st report (Total three reports)

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 1st report> (Total three reports)


<Dark Ages of Economics after the death of Adam Smith

Adam Smith’s works had a quite large influence over the modern society.

In fact, most self-professed “economists” and “economic experts” have called themselves Adam Smith’s successor.

However, those so-called successors did not understand properly what Adam Smith meant. They interpreted it to suit their purpose distorting the true meaning and spread their theories around the world.

Not to mention the Marxian economics the theory of which was already “over”, the modern economics overuses meaningless mathematical formulae to confuse people.

No need to argue the uselessness of Marxian economics, when we look at the miserable situation of many countries around the world controlled by the Communist Party with Marxist theory. There isn’t any single successful case.

As to capitalist countries (developed countries), we have never heard that “the modern economics made conspicuous contribution to the development of a national economy”. Rather, “economic forecasts” or “policy proposals” are no different than oracles delivered by a shaman.” They are like fortune-telling, far less accurate than predictions of earthquake.

Economics after Adam Smith was in a miserable situation comparable to that of the Dark Ages absolutely ruled by the Church (Catholic Church and its factions) after the great prosperity of Greece and Rome.

In the Dark Ages, the great scientific and rational spirit in Greece and Rome was lost and the cult-like Christianity dominated and brainwashed people with violence (including burnings and tortures).

Freed by Renaissance

 Fortunately the “Renaissance” that started from Italy in the 14th century and continued until about the 16th century gave us a clue to get out of the dark era.

But, even in the 18th century when Smith lived, inquisitions were often held, and the victims of cruel torture by the Church, dismemberment and burning existed.

At such a time, it was a very courageous act that Smith wrote and published this book based on rational and scientific spirit. Although we should succeed this valuable property properly, its contents were distorted and passed down to us, as I mentioned above.

It was just like people was forced to believe “the Ptolemaic system” by the Church in Europe in the Middle Ages, although the “Copernican theory” was a matter of course in the Greek Roman age.

In the economics after Adam Smith, just like “the Ptolemaic system “, the belief that “godlike scholars and politicians” will make the economy in good shape prevailed. Of course such idea is wrong.

They are no different from ordinary human beings. The correct “Copernican theory of economics” is that “no one can arbitrarily control complicated events (Complexity) such as an economy or society”

Fortunately, recent developments in natural science, the development of communication means such as the Internet has made it possible to check the correctness of the “Copernican theories of economics and society” by experiments.

Research on Self-similarity, Phase transition, Criticality, Fluctuation, Delay, evolution theory, biology, behavioral economics , etc., not to mention Complex system are greatly contributing to prove the correctness of the “Copernican theories of economics”

Also, the development of the Internet has enabled to record “connections among people” as communication data, which have been invisible to date, and to play a very important role in scientific verification.

We can now perform quite easily social experiments which used to require a large amount of money and labor at low cost.

<Economy and society which should be understood as “movies” rather than “still pictures”>

 ”An Inquiry into the Nature and Causes of the Wealth of Nations” (Hereinafter referred to as “The Wealth of Nations”) is famous for Adam Smith’s book, today. But, “The theory of Moral Sentiments” had far more influence on the world then.

Before the details of “connection among people, i.e. “network”, are revealed by the Internet, Smith recognized the importance of “network” with his unique observing eyes. In other words, he explained clearly the mechanism and functions of a society and economy by the word “sympathy” in the “The Theory of Moral Sentiments”

“Sympathy” is a quite ingenious means of network connecting the human brains, and society moves in the direction that this network points by itself.

For example, snow or sand grains accumulate to a certain “critical point” beyond which they cause avalanches. In human society, too, when “sympathy through the network of brains exceeds a critical point, suddenly (social) change will happen. In other words, social and economic movements are caused by transmission of “sympathy”, a network system of human brains. They are not controlled by a specific social policy or by a great person.

If it looks so, it is just a coincidence.

From Sir Isaac Newton to Albert Einstein and Niels Henrik David Bohr (the quantum theory), natural scientists have studied the nature as if they take snap shots of phenomena in the world. But it is only a moment of constantly changing real world like a movie, just like a “frozen world” in a SF movie in which time is halted.

It’s necessary to watch “movies “to understand the real moving world. In other words, “flow of time”, i.e. “history”, is an important part of this Renaissance.of Economics.

Today’s science, such as Complex system Similarity, the birth and growth of living creatures, evolution and genetic alternation are now stepping into the theme of “flow of time”, i.e. “history”. And that is also the tailwind for the “Renaissance of Economics”.

I will discuss here the “true meaning” of two voluminous work of Adam Smith, i.e. “The Wealth of Nations” and “The Theory of Moral Sentiments” which are the origin of the “Renaissance of Economics”, taking into account of its actual situation. .

First of all, we will discuss “The Wealth of Nations” below.

<An action of advanced “exchange” which distinguishes human beings from monkeys>

What is the difference between humans and monkeys? It is a question that has vexed researchers in all fields of the world. It is also a topic that I am interested in since I was a child and I still can’t find an answer.

Many animals such as monkeys use a primitive tool (for example, a twig of a tree).It is well known that dolphins use a kind of language (sound waves) for their communication. Furthermore, the size of human brain is not uniquely or particularly large.

As to coins(tokens), if you teach a monkey how to use them, it will soon master it and exchange them with food or “prostitution” (a male monkey seeks mating with a female one in exchange for coins which are equivalent to food and the female accept it) , actively. It is often said that prostitution is the oldest occupation in the world. It may be true…

However, as Matt Ridley points out in his book,“The Rational Optimist”, exchanges done by human beings are not only those of equivalent things (which does not require conversion).

It is not unusual to see a monkey “scratches other’s back, after he received the same treatment”. But, we have never seen a monkey conducts advanced transactions such as getting his back scratched for 30 minutes in exchange for an apple. We can say that sophisticated exchanges which require such value conversion are behaviors specific to humans. Converting complex values is an extremely sophisticated intellectual activity, and it is an act specific to humans.

Also, exchanges done by humans include more sophisticated acts, i.e. “(virtual) postponement of exchange”.

In the above-mentioned、”The exchange by conversion”, in modern times, “money” plays a important role of intermediary in modern times. However, in “postponement of exchange “, money is something more important.

For example, let’s assume that 10 fish and a basket of wild vegetable are exchanged. Both of them will go bad, if they are not consumed immediately. So, the exchange is over.But, when salt and wild vegetables are exchanged, salt can be preserved. Therefore the person who have received salt can wait for an opportunity, not consuming it by himself, to exchange it for something different. This is the “postponement of exchange”.

By the way, soldiers’ wage in ancient Rome were paid in salt, because salt was a valuable thing (in most areas in the ancient world).In other words, salt played the role of currency. The etymology of a Japanese “ Sarari-man”, i.e. salaried worker(said to be used since the Taisho era), is “sal” which means salt by Latin, and this is the origin of English word, “salt”.

I would like to define the humankind as ‘Mane-Sapiens'(Money-sapiens) with respect to the topic of ‘the difference between man and monkey’. This is a word which I coined combining money and Homo sapiens. Whatever is the definition of advanced exchange, so long as the cultural standard that distinguishes man and monkey is money (advanced exchange), I think it reasonable to call humans that prosper by using it “Mane-Sapiens”.

<The source of the power of money is the “ability to purchase”.>

 The Wealth of Nations” was published in 1776, many centuries after the Roman era. In those days, coins made of silver, gold and copper are key players of the money. However, all the systems that form the basis of modern currency and financial transactions already existed. For example, banknote, bank overdraft, credit creation by financial institutions etc. (including undesirable items such as accommodation bills.

Adam Smith defines the fundamental value of these money basically as “the ability to purchase labor” (secondarily, the ability to purchase necessities such as cereals etc.) And the currencies now attracting attention of the people are those with no value (at least based on conventional criteria), i.e. crypto currencies.

Until the “Nixon shock” occurred in 1971, foreign government could exchange dollar bills for gold at any time (by fixed exchange rate). In other words, at least for the dollar, Greenbacks were not mere paper. It was a commodity with exchange value equivalent to gold.

After the Nixon shock, governments around the world have been printing notes with ( substantially ) no exchange value, and the world is inundated with dollars and other major currencies (bills).This castle on the sand has been existing for half a century, but I do not know what kind of development awaits in the future.

Will human beings who have acquired money which have freed from the spell of “exchange value” prosper further more? Or, will the bill with no “exchange value”, just a piece of paper, bring about a catastrophe greater than the financial crisis of 2007–2008 and banknotes become paper scraps? We cannot predict the future at all at this moment.

In addition, banknotes have at least “(implicit) government or central bank’s guarantee”, but crypto currencies such as bit coins which are spot-lighted now don’t even have it.It is like building a castle on the sand on another castle on the sand.

For example, there were times and places that shells and stones circulated as virtual currency. However, it is obvious that we cannot buy anything with such ancient virtual currency (seashells and stones) now.

Currency (money) is an important theme in ”An Inquiry into the Nature and Causes of the Wealth of Nations”. But, in any case, the essence of currency is to have “exchange value”. The”gold standard system” sounds old-fashioned, but I think that a currency without exchange value is nonsense.

It is not necessary to be exchangeable for gold, but guaranteeing some “purchasing power” should be the essence of currency (money).


(End of the 1st part. To be continued to the 2nd part)

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




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