Jonathan B. Wight

The Treatment of Smith's Invisible Hand

Adam Smith used the metaphor of an invisible hand to represent the instincts of human nature that direct behavior. Moderated by self-control and guided by proper institutional incentives, actions grounded in instincts can be shown to generate a beneficial social order even if not intended. Smiths concept, however, has been diluted and distorted over time through extension and misuse. Common misperceptions are that Smith unconditionally endorsed laissez-faire markets, selfish individualism, and Pareto efficiency. The author draws upon recent literature to clarify Smiths meaning and to discuss ways of improving its classroom presentation. The author argues that the invisible hand operates within a variety of institutional settings and that a number of arrangements are compatible with economic progress.

Culture and Prosperity: The Truth about Markets: Why Some Nations Are Rich but Most Remain Poor

A witty and accessible tour de force that is immersed in the latest economic thinking, Culture and Prosperity is an indispensable guide to the world around us and destined to become a classic text for understanding the politics of globalization.Guided by the belief that a combination of lightly regulated capitalism and liberal democracy -- the American business model -- is not just appropriate for America at the dawn of the twenty-first century, but a universal path to freedom and prosperity, the United States is an unrivaled colossus seeking to remake the world in its own image. After a decade of successive market revolutions around the world, beginning with the collapse of the Berlin Wall and continuing in countries as diverse as Argentina and New Zealand, the effectiveness of the market economy as a route to prosperity and growth is not in question, but a more sophisticated appreciation of the strengths and limits of markets is urgently required.In this new and illuminating analysis of the nature and evolution of the market economy, John Kay attacks the oversimplified account of its operation, contained in the American business model and favored by politicians and business people. He even questions whether it offers an accurate description of the success of the American economy itself.In an absorbing argument that rewards close reading, and rereading, Culture and Prosperity examines every assumption we have about economic life from a refreshingly new angle. Taking the reader from the shores of Lake Zurich to the streets of Mumbai, from the flower market of San Remo to the sales rooms at Christies, John Kay reveals the connection between a nations social, political, and cultural context and its economic performance.

Adam Smith's Ethics and the “Noble Arts” 1

Abstract Adam Smiths character-based ethical system lays the foundation for his vision of the social and economic good. Within this system, the arts perform a critical role. Smiths essays “Of the Imitative Arts” and his Lectures on Rhetoric and Belles Lettres are useful companions to The Theory of Moral Sentiments in analyzing the mechanisms whereby literature and the arts excite moral development. The arts stretch the boundaries of imagination and perspective, stimulating self-awareness and self-reflective growth. When combined with rational thought, decision-making takes place through an internal dialogue in which this wider perspective weighs upon ones “impartial spectator” and becomes the background for action. According to this view, the arts provide positive externalities for society and should be encouraged through public policy. The arts promote a conversation that becomes part of the common goods of society, including that of science.

The Rise of Adam Smith: Articles and Citations, 1970-1997

In 1971, Kenneth Boulding posed a brazen question: “After Samuelson, who needs Adam Smith?” This was an apt query, coming a year after a scant two journal articles had focused on Smith or his work. Indeed, why should scholars bother to read or write about an eighteenth-century economist? An efficient market model of scientific progress suggested by George Stigler (1969) would hypothesize a linear flow of advancement such that new knowledge embodies all old knowledge worth keeping.1 If true, then “there is as little to be gained scientifically from reading old texts as there is from prowling old bookstores for undervalued rarities” (Anderson, Levy, and Tollison 1989, 174). As Stigler (1969, 218) concluded, “The economics of 1800, like the weather forecasts of 1800, is mostly out of date.”

Adam Smith on Instincts, Affection, and Informal Learning: Proximate Mechanisms in Multilevel Selection

Abstract Why do people give away knowledge in tutoring other peoples children or when mentoring junior employees? Neoclassical economists explain informal learning as rational behavior that arises out of enlightened self-interest. They can also justify it as acts that satisfy the agents preferences for the utility of others. By contrast, this paper shows that Smiths moral sentiments model anticipates a biological approach that explains additional and deeper motives for such exchanges. Instincts and emotions serve consequentialist ends because the ultimate causes of behavior are grounded in adaptations useful for survival and procreation. But man is largely innocent of this knowledge. The proximate causes of behavior—that is, the adaptive mechanisms actually at work in human society—are psychologically obscure—not left to the conscious mind. Social and moral capital develop through instincts and affection, and mentoring and collaboration are examples of social exchanges that arise from them.

Using Electronic Data Tools in Writing Assignments

One adding machine has been added to the department through the gift of a former student, RB. The use to which it has been put demonstrates the need for at least two other machines . . . Adding machines save time for students and thus make more time available for the mastery of theory. Students become familiar with the uses and practices as found in business offices.... Proficiency along these lines may add much to success in first jobs as well as helping in securing the first job.

Economics within a Pluralist Ethical Tradition

Ethical pluralism is the recognition that multiple ethical frameworks operate in social settings to solve problems of moral hazard. In particular, non-consequentialist considerations of duty and virtue operate to restrain self-interest and lower transaction costs in exchange, such as when asymmetric information exists. Positive economics has tended to rely exclusively on a behavioral model that assumes utility maximization, but this approach fails to give credit to the neglected foundations of duty and virtue. Consequences, duties, and virtues all play a role in sustaining businesses, for example, and in promoting the search for truth within the economic research community. Normative welfare economics can also benefit from understanding vertical and horizontal pluralism.

The Ethics behind Efficiency.

ABSTRACT The normative elements underlying efficiency are more complex than generally portrayed and rely upon ethical frameworks that are generally absent from classroom discussions. Most textbooks, for example, ignore the ethical differences between Pareto efficiency (based on voluntary win-win outcomes) and the modern Kaldor-Hicks efficiency used in public policy assessments (in which winners gain more than losers lose). For the latter to be ethically palatable, society must have in place basic institutions of justice, transparency, and accountability. Normative economics thus requires a pluralist approach that includes considerations of virtue and duty, closer to Adam Smiths Enlightenment conceptions. This surprising finding should embolden economics teachers to engage students with critical thinking problems that are controversial and relevant, and which better prepare students for a complex world.

Sociability and the Market

This paper addresses two classroom activities for exploring sociability and the role it plays in market and non-market allocations. Adam Smith’s moral sentiments theory provides a conceptual framework for understanding such behavior. In the Desert Island activity students have conversations about competing allocation methods (e.g., rationing, lottery, competition, brute force) that provide a backdrop for learning about market mechanisms and behavioral economics. Beginning students consistently pick egalitarian distributions that signal the implicit willingness to share for reasons that might be instinctual, reputational or other. Fairness in allocations mimics that found in the playing of the Ultimatum Game. The results suggest that economic instructors can successfully bring into the classroom concepts of sociability and the roles it serves in human institutions when introducing a new and different institution—the market.

Risk adjustment and hospital cost-based resource allocation, with an application to El Salvador.

Ignorance about the costs, case loads and case mixes of different hospitals within the public health system constitutes an important obstacle to reforming health care spending in many developing countries. National (tertiary) hospitals generally receive significantly larger budgets, per patient, than lower-level (district) hospitals. One reason for these differential allocations is the widely held belief that national hospitals treat persons with more difficult illnesses and persons who are more severely ill than do other, non-national, hospitals. This belief is but a presumption and one that warrants investigation. This paper analyzes expenditures among public hospitals in El Salvador over a 12-year period to address this question. While controlling for patient morbidity, outputs and other characteristics, district hospitals are found to be substantially underfunded relative to national hospitals. Four policy options to redress this situation are examined.