European Tribune - Community, Politics & Progress.

Adam Smith on Banking

by Migeru
Fri Oct 10th, 2008 at 07:25:26 AM EST

In The Wealth of Nations, when discussing Banking reform in Scotland in the latter part of the 18th century, Adam Smith had the following to say

To restrain private people, it may be said, from receiving in payment the promissory notes of a banker for any sum, whether great or small, when they themselves are willing to receive them; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty, which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respect a violation of natural liberty.

More below the fold.

Just so it cannot be said that I take the consecutive paragraph out of context.

But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.

. Home
. About
. Contact
. New User Guide
. FAQ
. ET Editorial Guidelines
. Search
. Search (Google)

Username:
Password:

. Make a new account
. Reset password

Adam Smith on Banking | 32 comments (32 topical, 0 editorial, 0 hidden)

Don't worry... (4.00 / 4)

...it's not Socialism.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Oct 10th, 2008 at 07:25:56 AM EST

Re: Don't worry... (4.00 / 3)

You're not allowed to actually read Adam Smith. You have to sit in class and hear the bullshit story of Adam Smith like the rest of us. Only then have you earned the right to read his work and see the bullshit story for what it is!

WHEEEEEEEEEEEEEEEEEEEEE!!

by Drew J Jones (myfriends@thisispancakes.com) on Fri Oct 10th, 2008 at 07:29:00 AM EST
[ Parent ]

Re: Don't worry... (none / 1)

You forgot the bit where they take in the room at the back of the Economics faculty building and blindfold you and play strange sounds at you.

by Metatone (metatone [a|t] gmail (dot) com) on Fri Oct 10th, 2008 at 08:41:30 AM EST
[ Parent ]

Re: Don't worry... (none / 0)

I didn't want to scare him off.

WHEEEEEEEEEEEEEEEEEEEEE!!

by Drew J Jones (myfriends@thisispancakes.com) on Fri Oct 10th, 2008 at 09:46:33 AM EST
[ Parent ]

Re: Don't worry... (none / 0)

You think I'm going to enrol in an Economics degree at this stage?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Oct 10th, 2008 at 10:22:16 AM EST
[ Parent ]

Re: Don't worry... (none / 0)

Oops, did I skip a step? We read extended sections in History of Economic Thought, and most of us read the whole thing anyway ... and sections from TMS as well.

When is the earlier part where someone stands in front of class and explains what Smith would have meant to have said if Smith had had a strong wish to be published in today's AER? Is that in an undergrad econ course?

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Sun Oct 12th, 2008 at 10:21:18 AM EST
[ Parent ]

Why does Adam Smith (4.00 / 10)

hate freedom?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (jeromeguillet@yahoo.fr) on Fri Oct 10th, 2008 at 07:52:21 AM EST

Re: Adam Smith on Banking (4.00 / 2)

Smith was amazingly clear sighted, as was John Stuart Mill. When economics came to be a university subject, taught by professors holding endowed chairs, those professors had to be highly selective in what they chose to teach from their works. Else those who had endowed their chairs would become upset. To complicate matters even further, both are very readable.

It has been suggested that the academic economists in the second half of the 19th century introduced mathematical models derived from discarded theories in physics so as to provide their discipline with scientific prestiege. I would suggest that it had another practical purpose: to provide sufficient material to distract their students from reading very deeply into Smith or Mill and coming up with alarming ideas.

If sanity be culturally normative, then by the norms of this culture I claim insanity.

by ARGeezer (ARGeezer at eurotrib.com) on Fri Oct 10th, 2008 at 10:15:56 AM EST

Re: Adam Smith on Banking (none / 1)

Add Keynes and you get a triumvirate of very readable English Liberals that don't get read.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Oct 10th, 2008 at 10:21:48 AM EST
[ Parent ]

Re: Adam Smith on Banking (none / 0)

Keynes's Economic Consequences of the Peace was dead-on insightful and compellingly readable. Amazingly, it is all of his I have read. I haven't used calculus since college, dogged out differential equations, but did ace abstract algebra, (Piano's Theorems,etc.) Quality of instruction mattered greatly for me in math. Which of Keynes works would you recommend I read next?

If sanity be culturally normative, then by the norms of this culture I claim insanity.

by ARGeezer (ARGeezer at eurotrib.com) on Fri Oct 10th, 2008 at 12:47:10 PM EST
[ Parent ]

Re: Adam Smith on Banking (none / 1)

I enjoyed The General Theory. There's no calculus in it, despite (or maybe as a result of) Keynes being a mathematician.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Oct 10th, 2008 at 04:53:00 PM EST
[ Parent ]

Re: Adam Smith on Banking (none / 1)

You Might also enjoy this: A letter to Roosevelt regarding his reconstruction and reform -the start of the new deal. It reveals a slightly different side of Keynes--more of the applied than the theoretical--and has relevance for today--in spades.

Grabbing what you can, as John Ruskin said, isn't any less wicked when you grab it with the power of your brains than with the power of your fists.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Oct 10th, 2008 at 10:22:54 PM EST
[ Parent ]

Re: Adam Smith on Banking (none / 0)

Wonder what it would cost to really rebuild the railroads, to 21st century standards.

Grabbing what you can, as John Ruskin said, isn't any less wicked when you grab it with the power of your brains than with the power of your fists.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Oct 10th, 2008 at 10:24:40 PM EST
[ Parent ]

Re: Adam Smith on Banking (none / 0)

Not that much I'd bet. A few hundred billion dollars.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid (arvid.hallen at gmail.com) on Sat Oct 11th, 2008 at 09:04:07 AM EST
[ Parent ]

Re: Adam Smith on Banking (none / 0)

19th century railroads went really everywhere -indeed many have disappeared. Except they may get needed again... That's an infrastructure that would be expensive to rebuild.

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Sat Oct 11th, 2008 at 11:17:38 AM EST
[ Parent ]

Re: Adam Smith on Banking (none / 0)

How expensive per 100 kms? DoDo?

You can't be me, I'm taken

by Sven Triloqvist on Sat Oct 11th, 2008 at 11:19:39 AM EST
[ Parent ]

Re: Adam Smith on Banking (none / 0)

Depends where, too. Some trains were built in very mountainous parts of France where a high speed line would be entirely made of tunnels and bridges...

(That's what would be needed for a straight Paris-Barcelona line, for example.)

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Sat Oct 11th, 2008 at 11:39:59 AM EST
[ Parent ]

Re: Adam Smith on Banking (none / 1)

I presume that in the US you could re-lay some of the cross state rail lines much cheaper than in heavily populated Europe which requires a lot of new infrastructure.

You can't be me, I'm taken

by Sven Triloqvist on Sat Oct 11th, 2008 at 11:53:18 AM EST
[ Parent ]

Re: Adam Smith on Banking (none / 1)

TGV on flatland is very roughly 10 million euros per km. Might be twice as much now that we've had raw material and construction booms, but that'll change with the recession. Which makes this an excellent contracyclical stimulus. Better have all those people laying rails than being unemployed.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid (arvid.hallen at gmail.com) on Sat Oct 11th, 2008 at 12:07:42 PM EST
[ Parent ]

Re: Adam Smith on Banking (none / 0)

Dodo, where are you when we need your expertise?
For the US, it's a keynsian stimulus that would be less difficult politically to implement than health care creation (only a few thousand truckers would be immediately impacted, and the auto/truck guys could build TGVs under license (after a startup period)--might even impact dying Detroit in a positive way.

Grabbing what you can, as John Ruskin said, isn't any less wicked when you grab it with the power of your brains than with the power of your fists.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Sat Oct 11th, 2008 at 03:25:48 PM EST
[ Parent ]

Re: Adam Smith on Banking (4.00 / 2)

Lemme give a very rough, but differentiated estimate:

Branchlines: renew/rebuild 140,000 km @ $1.4 million/km = $200 billion
Suburban railroads/rapid transit: build/rebuild 70 networks (all urban areas > 500,000) of an average 200 km (sum: 14,000 km) @ $14 million/km = $200 billion
Mainlines: renew 100,000 km @ $5 million/km = $500 billion
High-speed lines: new construction of 20,000 km @20 million/km = $400 billion

In addition,

Light rail: build/rebuild 150 networks (all urban areas > 200,000) of an average 50 km (sum: 7,500 km) @ $26.7 million/km = $200 billion
Subway/metro: build/renew 70 networks (all urban areas > 500,000) of an average 50 km (sum: 3,500 km) @ $282 million/km = $1 trillion

Altogether $2.5 trillion. Could be significantly less if projects are well-managed (taking lessons from Spain), much more if incompetently and in a very corrupt way. That's a helluva' lot of money, then again, it would not have to be spent in a single year. Compare say an annual $250 billion (assuming a ten-year crash programme) to the annual $600 billion for the military and the one-off $700 billion for bank rescue.

*Traitor*, n.
A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.

by DoDo on Sun Oct 12th, 2008 at 07:32:47 AM EST
[ Parent ]

Re: Adam Smith on Banking (none / 0)

Is this for electrified?

You can't be me, I'm taken

by Sven Triloqvist on Sun Oct 12th, 2008 at 07:46:20 AM EST
[ Parent ]

Re: Adam Smith on Banking (4.00 / 3)

With the exception of branchlines, it was meant to be. But be aware that virtually all six of the per kilometre costs I gave could be both a fifth and five times of what I wrote.

*Traitor*, n.
A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.

by DoDo on Sun Oct 12th, 2008 at 10:35:55 AM EST
[ Parent ]

Re: Adam Smith on Banking (none / 0)

Thanks, Dodo. Helps.
And -yes, those are valid references, but they produce little long-term benefit--certainly no revenue-- unless by some miracle the shitpile suddenly turns into treasure.

Grabbing what you can, as John Ruskin said, isn't any less wicked when you grab it with the power of your brains than with the power of your fists.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Mon Oct 13th, 2008 at 05:19:13 PM EST
[ Parent ]

Re: Adam Smith on Banking (4.00 / 2)

What happens now to Economics faculties all over the United States?

When the University President comes calling for cuts, I propose he start with a retrenchment of the entire economics faculty, except for those who can say, "I was wrong," without gritting their teeth.

by Upstate NY on Fri Oct 10th, 2008 at 06:02:46 PM EST

Re: Adam Smith on Banking (none / 1)

Oh no, of course we'll need more economists to explain how the world is wrong

I'm tired of this backslapping, aint humanity great BS, we're a virus with shoes Bill Hicks

by ceebs (ceebs (at) eurotrib (dot) com) on Fri Oct 10th, 2008 at 06:09:31 PM EST
[ Parent ]

Re: Adam Smith on Banking (4.00 / 3)

The Guide is definitive. Reality is frequently inaccurate.

- Hitchhiker's Guide to the Galaxy disclaimer sticker.

Tory Bliar for ~~president~~ prison!

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Oct 11th, 2008 at 09:55:13 AM EST
[ Parent ]

Always inaccurate! n/t (none / 0)

You can't be me, I'm taken

by Sven Triloqvist on Sat Oct 11th, 2008 at 11:20:27 AM EST
[ Parent ]

Re: Always inaccurate! n/t (4.00 / 2)

Nah... Reality does occasionally get things right :-P

- Jake

Tory Bliar for ~~president~~ prison!

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Oct 11th, 2008 at 12:51:15 PM EST
[ Parent ]

Not all the Economics faculty was wrong ... (none / 0)

... just a large majority. The unanimity of the profession is a report coming from traditional marginalist economists, who rule out those who use approaches which allow them to arrive at different answers.

You would be left with a profession top-heavy with historians, historians of economic thought, political economists and development economists, where the minorities who refuse to draw inside the lines are substantially larger.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Sun Oct 12th, 2008 at 10:28:41 AM EST
[ Parent ]

Re: Not all the Economics faculty was wrong ... (none / 0)

From within such a shakeup, the new thinking begins.

If those on the margins are incapable of filling the vacuum, someone else will do it for them.

I have spoken to young economists who have felt threatened if they stepped outside a certain line. I'm imagining that ideologies may play a much lesser role in the near future, at least for the next 20 years or so.

by Upstate NY on Sun Oct 12th, 2008 at 11:55:49 AM EST
[ Parent ]

There are extremely few places where ... (none / 0)

... you can get graduate training where there is a group of economists who are comfortable working outside the traditional marginalist box.

One fewer than when I went to grad school, alas, as the University of Tennessee Econ department "tipped" the year after I graduated, and as far as I understand, the retired Institutionalist economists have been replaced by mainstream economists.

Indeed, it is striking that the toolkit of the New Institutionalists would be capable of roaming much further away from traditional marginalism, but most restrict their work to questions that can be translated back into the conceptual framework of traditional marginalism.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Sun Oct 12th, 2008 at 12:10:29 PM EST
[ Parent ]

Adam Smith on Banking | 32 comments (32 topical, 0 editorial, 0 hidden)

Go to: [ European Tribune Homepage : Top of page : Top of comments ]