In my coffee break, as the wind howls and the rain lashes down outside the window, I got absorbed in the chapter of on rhetoric and character. It concerns Smith’s less well-known book, .
[amazon_image id=”0199605068″ link=”true” target=”_blank” size=”medium” ]The Oxford Handbook of Adam Smith (Oxford Handbooks in Economics)[/amazon_image]
The author of this essay, Jan Swearingen, traces Smith’s views about the importance of rhetoric – the way someone communicates – as an indicator of character to classical authors. I learn that Cicero prescribed, “The cultivation of virtue through an education emphasizing self-control, moderation and civilized verbal behaviour,” and that Scottish education in Smith’s time was strongly geared towards the teaching of verbal or rhetorical style. For Smith in the , humans as social beings constantly and strongly influence each other, often via verbal communication. A virtuous character could be internalized through an appropriately clear and straightforward style. Language and moral sentiment are learned together.
[amazon_image id=”0143105922″ link=”true” target=”_blank” size=”medium” ]The Theory of Moral Sentiments (Penguin Classics)[/amazon_image]
This is fascinating in many ways. One currently on my mind is the emphasis all employers place on the importance of communication skills, and their lack in young people. Another is my firm belief that people who truly understand something can explain it clearly. I also read recently Albert Hirschman’s . It also, of course, relates to the very interesting notion of performativity – the capacity of language to amount to action in some circumstances.(My Tanner Lectures in 2012 discussed this in the context of economics.)
I’ve got no idea what modern scientific evidence says about the causality if any between language and character but Smith’s notion that language and ‘moral sentiments’ are so tightly bound is intuitively appealing.
There are really two separate books rubbing shoulders in by Norbert Häring and Niall Douglas.
One of them is a clear and well-made case that modern economics has been in error in ignoring the part played by institutions, politics and power relations in actual economies. It has chapters covering the acquisition and abuse of power by the financial services industry, the distortion of business in the interests of executives rather than customers, employees or shareholders, and the increasing concentration of the US economy through merger waves. Although many or most professional economists who work in business or regulators or consultancy have always been well aware of institutional detail, I think it is fair comment that academic economics overlooked the reality of markets and economies for too long. I’d also add that this has been changing quickly, with the rise over 20 years of institutional economics, behavioural economics etc (see ) – but there is further to go.
The second book within this set of covers is more tendentious. It is a history of economic methodology in the first chapter (I must say, I’d have put this at the end if I’d been the author). While the authors land some punches, and make some good points about the way theory shapes reality (see my Tanner Lectures on this question of performativity), they are too conspiracy theorist about it. The original spin-meister Edward Bernays is wheeled out, along with the Inside Job accusations that the financial crisis came about because some economists were paid to write a report by the Icelandic government. Although many economists in universities do paid consulting work – and should certainly declare it when they publish their work – I don’t believe there is signficant distortion of what gets published as there seems to be in the case of pharma companies and medical research. The economists simply have a much wider choice of options, and are not beholden to one set of powerful business interests. There would be something interesting to say, nevertheless, about the narrowing of economic research as published in mainstream journals – I just don’t believe it’s as crudely marxist as suggested here. Similarly, the way economic theory and practice developed from the 1940s to 1980s was certainly bound up with the wider ideological/political climate (like any social science discipline is sure to be), but not in such a purposive way. I think the messy sociological reality of the profession would be far more interesting to understand than the ideological, top-down assertions presented in this book.
Still, it’s an interesting read. The argument that marginalism, the refusal to compare individuals’ utility and rational choice added up to the inevitable demotion of interest in economic institutions is quite interesting. Besides, I’m all in favour of economists continuing to introspect for at least as long as the world economy remains in such a fragile state.
[amazon_image id=”0857284592″ link=”true” target=”_blank” size=”medium” ]Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards (The Anthem Other Canon Series)[/amazon_image]
The possibility that economic theory is ‘performative’ – that the theory creates the reality – has long fascinated me. I talked about it in my Tanner Lectures earlier this year. Donald Mackenzie of Edinburgh University has long related the concept to the financial markets. It was with what I thought was some dramatic hyperbole that I described financial economics as , on the rampage still despite the crisis. Melodramatic because at that time – although I had read Mackenzie’s and , Robert Harris’s thriller , and a few articles about the 2010 Flash Crash, including this one also in Wired, not to mention some regulatory reports and specialist algo trading publications – even so, high frequency trading hasn’t been dominating the headlines.
Now we have had, of course, the Knight Capital meltdown. I’ve also come across some other things well worth reading, among them Scott Patterson’s excellent (which I reviewed here),a new Wired feature, Raging Bulls, and among several by Felix Salmon this blog post with an astounding animation showing the growth of high frequency trading. On my list too is Sal Arnuk’s .
[amazon_image id=”B0085AQS3A” link=”true” target=”_blank” size=”medium” ]Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio[/amazon_image]
I do sincerely hope financial regulators are not too busy fretting about their failures to limit the credit boom to pay attention to the next financial disaster. Algo trading is how it’s going to happen. Besides, as Patterson’s book makes clear, there is no efficiency gain here; this is a zero sum game in which algo traders win and investors (you and me) lose.
[amazon_image id=”1847940978″ link=”true” target=”_blank” size=”medium” ]Dark Pools: The rise of A.I. trading machines and the looming threat to Wall Street[/amazon_image]