WEBVTT 00:01.850 --> 00:04.020 Prof: So Adam Smith. 00:04.019 --> 00:07.549 And this is what I want to rush quickly through. 00:07.550 --> 00:12.810 His life--we don't really know all that much about his life, 00:12.812 --> 00:17.542 and it is not as colorful as Jean Jacques Rousseau. 00:17.540 --> 00:20.140 And then his major contributions: 00:20.138 --> 00:25.168 his theory of self-interest and how self-interest is related to 00:25.174 --> 00:28.674 the common good, his labor theory of value, 00:28.669 --> 00:32.659 his idea of distribution of value between labor capital and 00:32.659 --> 00:35.519 rent, and finally (what is the most 00:35.521 --> 00:39.541 often cited) with his theory of the invisible hand. 00:39.540 --> 00:44.740 So here it is, Adam Smith. 00:44.740 --> 00:48.450 About his life, he was born in 1723 in 00:48.449 --> 00:53.059 Scotland, Kirkcaldy, just outside of Edinburgh, 00:53.062 --> 00:56.072 which is a beautiful city. 00:56.070 --> 00:58.980 If you did not visit it yet, I recommend that you do. 00:58.980 --> 01:01.380 He entered the University of Glasgow, 01:01.380 --> 01:05.520 and interestingly at that time, in the mid-eighteenth century, 01:05.519 --> 01:10.049 for reasons which is beyond me, next to Paris and in a way 01:10.045 --> 01:13.935 London, Edinburgh was the center of the 01:13.944 --> 01:16.354 Scottish Enlightenment. 01:16.349 --> 01:23.279 Then he also went to Oxford, in Balliol College, 01:23.280 --> 01:30.360 and in 1751 he was appointed at the University of Glasgow as a-- 01:30.360 --> 01:34.880 Glasgow I would not recommend as a tourist destination, 01:34.879 --> 01:37.359 by the way > 01:37.360 --> 01:42.850 --he became a professor of logic, and then he became a 01:42.849 --> 01:47.819 professor of moral philosophy, believe it or not. 01:47.822 --> 01:48.862 Right? 01:48.860 --> 01:52.820 The person who is known about self-interest and the invisible 01:52.819 --> 01:56.719 hand, his major first job was professor of moral philosophy, 01:56.715 --> 01:57.635 of ethics. 01:57.640 --> 02:00.440 And, in 1759, he published a book, 02:00.441 --> 02:04.941 the book called The Theory of Moral Sentiments, 02:04.941 --> 02:07.491 which is a book on ethics. 02:07.489 --> 02:13.219 Well we will see this is a big issue, whether this book was 02:13.215 --> 02:17.505 written out of expediency; he wrote it just because he 02:17.510 --> 02:20.800 wanted to justify that he's a professor of moral philosophy 02:20.800 --> 02:24.600 and he didn't really believe in it because he was an economist, 02:24.598 --> 02:29.108 a rational choice economist, or was he really a moralist? 02:29.110 --> 02:34.690 That's one of the big questions I think what scholars on Adam 02:34.687 --> 02:36.637 Smith are debating. 02:36.639 --> 02:39.729 He traveled in Europe, and this may have been a 02:39.729 --> 02:41.609 turning point in his life. 02:41.610 --> 02:45.270 He meets Voltaire and Quesnay, a major economist of his time, 02:45.268 --> 02:48.438 and other representatives of French Enlightenment. 02:48.440 --> 02:53.900 And French Enlightenment may have actually influenced him and 02:53.901 --> 02:59.001 pushed him, after the return of Glasgow, to Kirkcaldy for 02:58.997 --> 03:01.497 awhile; he went back and that's where 03:01.498 --> 03:04.808 he mainly wrote The Wealth of Nations, and that's the most 03:04.808 --> 03:05.738 important book. 03:05.740 --> 03:11.980 But I think in order to understand Adam Smith, 03:11.979 --> 03:15.369 we have to come to terms with the apparent tension between 03:15.372 --> 03:18.592 The Theory of Moral Sentiments and The Wealth 03:18.587 --> 03:19.717 of Nations. 03:19.720 --> 03:23.350 Is this the same author, or these are two different 03:23.353 --> 03:24.083 authors? 03:24.080 --> 03:27.180 Is it the same theory, or there are two different 03:27.182 --> 03:28.802 theories offered to us? 03:28.800 --> 03:31.130 And that's I think very complicated. 03:31.129 --> 03:33.439 He passed away in 1790. 03:33.440 --> 03:36.460 Well I wanted to find you some figures about--pictures about 03:36.456 --> 03:37.016 his life. 03:37.020 --> 03:41.790 The only thing what I could find is a memorial on the site 03:41.785 --> 03:46.465 where the house stood in Kirkcaldy, where he wrote The 03:46.466 --> 03:48.636 Wealth of Nations. 03:48.639 --> 03:51.509 So it's not only Yale University which is turning 03:51.512 --> 03:54.592 buildings down; even the British do turn all 03:54.592 --> 03:57.762 buildings down, even if they should not have 03:57.763 --> 03:58.353 done so. 03:58.352 --> 03:59.092 Right? 03:59.090 --> 04:03.160 It would be so nice to visit the house where The Wealth of 04:03.163 --> 04:04.933 Nations was written. 04:04.930 --> 04:09.420 But if you go to Kirkcaldy, well you can visit that site 04:09.415 --> 04:11.125 and to have a look. 04:11.128 --> 04:14.878 Okay, so as I said, Adam Smith seemed to have two 04:14.875 --> 04:15.495 faces. 04:15.500 --> 04:22.100 Regularly, normally today, if you take economics classes, 04:22.100 --> 04:27.060 he is presented as the person who is advocating the 04:27.062 --> 04:32.722 self-interested individual and a committed theorist of the 04:32.721 --> 04:37.041 self-regulating markets, of the invisible hand-- as 04:37.038 --> 04:40.878 little government as possible, pursue just your self-interest, 04:40.875 --> 04:44.405 and your self-interest will lead to the common good. 04:44.410 --> 04:48.270 So he is the sort of inspiration for neoclassical 04:48.269 --> 04:52.689 economics and rational choice theory, and methodological 04:52.692 --> 04:55.752 individualism, to put it this way. 04:55.750 --> 04:59.510 But he has this book, The Theory of Moral 04:59.511 --> 05:03.271 Sentiments, in which he is writing about 05:03.273 --> 05:08.263 sympathy as an important motivation for human action. 05:08.259 --> 05:12.759 And is this just a concession to his job, or is there 05:12.757 --> 05:18.197 something deep in him which also saw the need for a helping hand 05:18.204 --> 05:20.804 by the public authorities? 05:20.800 --> 05:25.610 That's the big puzzle we have to struggle with. 05:25.610 --> 05:29.080 Well there are other people who are more qualified to give you 05:29.084 --> 05:31.654 the most authentic interpretation of Smith. 05:31.649 --> 05:34.499 I'll try to do my best. Okay? 05:34.500 --> 05:38.730 Well and indeed The Wealth of Nations looks like about 05:38.730 --> 05:42.470 self-interested individuals and the invisible hand. 05:42.470 --> 05:45.860 I will present you enough citations that you see it. 05:45.860 --> 05:49.540 I will also show you why it is possible. 05:49.540 --> 05:55.160 Some of Smith's interpreters will suggest that this is the 05:55.158 --> 05:58.068 same Mill, and in fact The Wealth of 05:58.065 --> 06:01.375 Nations is just an extension of The Theory of Moral 06:01.375 --> 06:04.105 Sentiments, rather than a contradiction to 06:04.112 --> 06:04.332 it. 06:04.329 --> 06:07.129 This is not the majority view. 06:07.134 --> 06:07.794 Right? 06:07.790 --> 06:11.590 Today, among economists in particular, the majority view is 06:11.593 --> 06:15.593 that you should not really pay much attention to The Theory 06:15.593 --> 06:17.433 of Moral Sentiments. 06:17.430 --> 06:22.840 The Wealth of Nations gives you the real source 06:22.836 --> 06:26.806 and inspiration, and this is what guides 06:26.814 --> 06:29.574 neoclassical economics. 06:29.569 --> 06:33.279 But you may find some economists who disagree, 06:33.279 --> 06:38.809 and you will find a number of political philosophers who will 06:38.812 --> 06:44.442 disagree and will say that this is not the real Adam Smith who 06:44.437 --> 06:49.137 is presented to you by neoclassical economists. 06:49.139 --> 06:52.589 And I don't want to take a position in this. 06:52.589 --> 06:58.559 I'm not sufficiently a Smith scholar to be able to do so. 06:58.560 --> 07:01.170 But I will present you the argument both ways, 07:01.170 --> 07:04.420 and you can make up your mind where you stand on this. 07:04.420 --> 07:07.820 So The Theory of Moral Sentiments--just very 07:07.817 --> 07:09.377 briefly what this is. 07:09.379 --> 07:13.899 He does ask the central question: How can we make moral 07:13.899 --> 07:14.819 judgment? 07:14.819 --> 07:20.419 How can we tell good from evil, good for bad? 07:20.420 --> 07:24.660 Well it's a very important issue and question. 07:24.660 --> 07:30.100 Many founding theorists of modern social theory were 07:30.096 --> 07:32.226 dealing with this. 07:32.230 --> 07:36.200 The most important one, we will talk about him at 07:36.199 --> 07:40.249 great--in fifteen minutes--is Frederick Nietzsche, 07:40.252 --> 07:43.632 of course; the genealogy of morals. 07:43.629 --> 07:48.929 This is the central question: Where does our conception of 07:48.930 --> 07:51.350 good and evil come from? 07:51.350 --> 07:54.050 But Adam Smith already here asked this question, 07:54.050 --> 07:55.950 and he said, well "what's the 07:55.947 --> 07:57.037 solution?" 07:57.040 --> 08:01.370 That inside you there is an inner person. 08:01.370 --> 08:03.400 You are two people. 08:03.399 --> 08:07.429 You act, and there is somebody inside you who is watching you, 08:07.425 --> 08:11.185 and that inside you will tell you, "You did something 08:11.189 --> 08:13.599 wrong; that was not the right thing to 08:13.596 --> 08:14.156 do." 08:14.160 --> 08:19.950 And I think you should be able to relate to this. 08:19.949 --> 08:21.649 I can. 08:21.649 --> 08:25.589 There is very often inner self, in myself, which tells me that 08:25.593 --> 08:28.893 was a mistake I did, that was a foolish thing I did, 08:28.889 --> 08:30.829 I should not have done so. 08:30.829 --> 08:39.749 I know people who have a very small impartial internal 08:39.750 --> 08:41.770 spectator. 08:41.769 --> 08:46.539 I know people who have very great difficulties telling ever 08:46.537 --> 08:48.507 that I made a mistake. 08:48.509 --> 08:52.459 There are some people who always blame others if things go 08:52.464 --> 08:53.024 wrong. 08:53.019 --> 08:58.289 Well I think they have a moral problem, I would say. 08:58.289 --> 08:59.899 So what about yourself? 08:59.899 --> 09:03.919 You may have a moral problem if your inner self never tells you 09:03.924 --> 09:07.044 that you were wrong, and you are always liking to 09:07.042 --> 09:09.512 blame others if things went wrong. 09:09.509 --> 09:13.079 Then you have a problem, an ethical problem; 09:13.080 --> 09:15.660 at least this is Adam Smith's argument. 09:15.664 --> 09:16.214 Right? 09:16.210 --> 09:18.880 Simple and persuasive. 09:18.879 --> 09:24.779 Then he says--this is something which is kind of inspired by 09:24.778 --> 09:27.978 Hobbes--we are led by passion. 09:27.980 --> 09:30.970 But now he is not emphasizing fear. 09:30.970 --> 09:33.290 He said, "also by sympathy." 09:33.288 --> 09:36.508 That's crucial, and that's the crucial notion 09:36.505 --> 09:41.105 for those who emphasize that in fact Adam Smith in The Wealth 09:41.111 --> 09:45.431 of Nations is the same Adam Smith as in The Theory of 09:45.426 --> 09:47.396 Moral Sentiments. 09:47.399 --> 09:51.249 Because Adam Smith, those who argue for one Adam 09:51.249 --> 09:54.279 Smith rather than two Adam Smiths, 09:54.279 --> 09:59.189 say that he has a theory of humans which is a sympathetic 09:59.192 --> 10:00.862 theory of humans. 10:00.860 --> 10:04.220 What drives us, that we have sympathy for 10:04.220 --> 10:08.670 others, other people's sympathies, that in interacting 10:08.672 --> 10:12.872 with others we are seeking other people's sympathy. 10:12.870 --> 10:13.880 Right? 10:13.879 --> 10:16.699 We try to please people. 10:16.700 --> 10:19.510 We want to impress people. 10:19.509 --> 10:24.049 We want to have a reputation; we want to have a good 10:24.053 --> 10:24.643 reputation. 10:24.639 --> 10:27.119 We want to act honorably. 10:27.120 --> 10:29.940 So we are seeking sympathy. 10:29.940 --> 10:33.890 We have a sympathy--we have an understanding of other people's 10:33.885 --> 10:37.245 human conditions--but we are also expecting others to 10:37.250 --> 10:39.000 understand us and value us. 10:38.998 --> 10:39.708 Right? 10:39.710 --> 10:44.000 And I think this is a very important and intriguing idea, 10:44.000 --> 10:48.000 which I will show, try to show you later on, 10:48.000 --> 10:51.920 may not be completely inconsistent by the idea that 10:51.918 --> 10:55.918 seeking self-interest is leading to the common good. 10:55.916 --> 10:56.696 Right? 10:56.700 --> 11:03.020 Because indeed, if self-interest implies that I 11:03.020 --> 11:09.480 also want others to respect and evaluate me, 11:09.480 --> 11:13.900 the self-interest also implies that I want to do good to 11:13.897 --> 11:14.617 others. 11:14.620 --> 11:18.210 This is in your self-interest, that you can say at the end of 11:18.214 --> 11:20.734 the day, "I am a good person." 11:20.730 --> 11:25.130 Then, in fact, pursuing these self-interests 11:25.125 --> 11:31.255 may not be all that different from the common good because it 11:31.259 --> 11:33.099 is inside you. 11:33.100 --> 11:35.900 And this, I think, is the way how he is being 11:35.903 --> 11:36.353 read. 11:36.350 --> 11:41.320 And he introduces the notion for the first time of the 11:41.323 --> 11:47.523 concept invisible hand in The Theory of Moral Sentiments. 11:47.519 --> 11:51.989 But here the invisible hand is not what you are told Adam 11:51.988 --> 11:55.338 Smith's theory of the invisible hand is. 11:55.340 --> 11:58.320 It's not the laissez-faire free market. 11:58.320 --> 12:00.940 It's the hand of God. Right? 12:00.940 --> 12:06.640 God guides us to have a proper balance between passion and 12:06.639 --> 12:12.539 sympathy, and that is somehow God's will, what we follow. 12:12.538 --> 12:16.378 In fact, I will talk about this later on. 12:16.379 --> 12:21.689 A big deal is made out of Adam Smith's theory of the invisible 12:21.690 --> 12:22.300 hand. 12:22.298 --> 12:25.518 The term, the word, invisible hand, 12:25.518 --> 12:29.488 the term, comes up three times in his work. 12:29.493 --> 12:30.443 Right? 12:30.440 --> 12:35.600 And in each time he's using it in a different meaning. 12:35.600 --> 12:40.220 The way how we understand invisible hand comes from a 12:40.216 --> 12:42.786 section once, in one sentence, 12:42.793 --> 12:45.993 in The Wealth of Nations. 12:45.990 --> 12:51.620 And in fact it is specifically about foreign trade and 12:51.616 --> 12:56.326 international trade, not about the role of the 12:56.327 --> 13:01.137 government in domestic affairs, but it's about free trade, 13:01.144 --> 13:02.974 free international trade. 13:02.970 --> 13:07.330 And this is the context in which he's using the invisible 13:07.328 --> 13:11.848 hand, as it is being interpreted mostly today by Adam Smith 13:11.845 --> 13:12.615 theorists. 13:12.623 --> 13:13.483 Right? 13:13.480 --> 13:15.180 So it's intriguing, isn't it? 13:15.178 --> 13:19.338 Watch yourself when you are coining a term because a term 13:19.341 --> 13:23.951 occasionally can stick and then it will be always attributed to 13:23.951 --> 13:27.271 you, even if you use it once in your 13:27.273 --> 13:27.703 life. 13:27.700 --> 13:28.300 Okay? 13:28.298 --> 13:30.938 Well The Wealth of Nations. 13:30.940 --> 13:34.110 Well these are kind of the Table of Contents. 13:34.110 --> 13:38.310 He writes about the division of labor and determination of 13:38.306 --> 13:40.806 prices, accumulation of capital. 13:40.808 --> 13:44.138 He writes about the evaluation of societies: 13:44.138 --> 13:48.548 hunting, raising agriculture, and commercial societies. 13:48.548 --> 13:52.828 He never used the term capitalism; 13:52.830 --> 13:57.020 modern economy was commercial industrial society for him. 13:57.019 --> 14:01.749 And then he offers a criticism of mercantilism. 14:01.750 --> 14:04.900 That's where he offers an argument for free international 14:04.900 --> 14:07.940 trade, and that's where he introduces the notion of the 14:07.940 --> 14:09.010 invisible hand. 14:09.009 --> 14:13.569 And then something is on taxation, what I will not talk 14:13.565 --> 14:14.235 about. 14:14.240 --> 14:16.820 So self-interest and the common good; 14:16.820 --> 14:21.490 one of the big issues we have to discuss when we are faced 14:21.494 --> 14:22.974 with Adam Smith. 14:22.970 --> 14:27.210 And the arguments are if you are interacting with each other, 14:27.206 --> 14:29.036 do not expect benevolence. 14:29.043 --> 14:29.683 Right? 14:29.678 --> 14:33.818 Do not expect that somebody else will be charitable to you. 14:33.820 --> 14:36.680 There is also saying if you are seeking 14:36.678 --> 14:40.738 self-interest--specifically in the citations I have; 14:40.740 --> 14:43.000 for instance, choosing your employment. 14:43.000 --> 14:45.910 If you chose it rationally, this will be in the common 14:45.913 --> 14:46.303 good. 14:46.298 --> 14:49.658 And I will try to explain why you seeking self-interest in 14:49.655 --> 14:53.005 finding the job which is best for you is also the best for 14:53.013 --> 14:53.723 society. 14:53.720 --> 14:57.140 And then he says, well the individuals are the 14:57.143 --> 15:01.483 better judges of their own interests than any statement or 15:01.480 --> 15:02.470 lawgiver. 15:02.470 --> 15:05.600 As little state as possible--that's where it is 15:05.596 --> 15:09.266 coming from, and we will see how he argues the case. 15:09.269 --> 15:11.759 So do not expect benevolence. 15:11.759 --> 15:18.879 Okay, this is a very frequently cited sentence from Adam Smith. 15:18.879 --> 15:24.169 It's not in the text I assigned for this course. 15:24.168 --> 15:27.848 Well, "It is not the benevolence of the butcher, 15:27.850 --> 15:32.550 the brewer, or the baker that we expect our dinner from, 15:32.548 --> 15:38.228 but the very self-interest of the butcher." 15:38.230 --> 15:44.240 I go to the restaurant, I do not expect the cook to 15:44.236 --> 15:51.566 prepare me a good meal because I need a good meal and I expect 15:51.565 --> 15:53.965 the cook to like me. 15:53.967 --> 15:55.287 Right? 15:55.288 --> 16:00.438 I want him to cook a good meal because then I will give a tip. 16:00.440 --> 16:04.790 It is in the self-interest of the waiter to serve me well and 16:04.794 --> 16:06.324 serve me good food. 16:06.320 --> 16:10.580 Otherwise I will not go back again and I will not give a tip. 16:10.580 --> 16:12.050 I will punish. 16:12.048 --> 16:16.808 It is appealing to the self-interest of the person for 16:16.813 --> 16:21.313 whom I expect something, and not is benevolence. 16:21.308 --> 16:27.708 Well he said well we address ourselves not to the humanity of 16:27.707 --> 16:33.677 the people, not to their self-love, but we want people to 16:33.679 --> 16:36.559 take advantage of this. 16:36.558 --> 16:39.518 This is an interesting issue, by the way, even in everyday 16:39.515 --> 16:39.875 life. 16:39.879 --> 16:44.959 I'm sure in this room there are people who think about this 16:44.962 --> 16:46.192 differently. 16:46.190 --> 16:49.940 Just to give you a very personalized example. 16:49.940 --> 16:54.370 My wife occasionally tells me, "This person is not a good 16:54.370 --> 16:58.660 friend of yours because this person only calls you when that 16:58.658 --> 17:00.618 person needs you." 17:00.620 --> 17:03.400 And this does happen. 17:03.399 --> 17:07.739 And my answer always is--and I think in this way, 17:07.740 --> 17:10.570 deep in my heart, I'm a Smithian--"I don't 17:10.566 --> 17:13.496 want friends, I don't want anybody, 17:13.497 --> 17:18.317 who do not see an advantage in interacting with me. 17:18.318 --> 17:24.768 I want people who actually act out of self-interest seeking my 17:24.772 --> 17:26.362 relationship. 17:26.358 --> 17:31.428 It will be a bad relationship if my friends always think that 17:31.432 --> 17:35.412 it cost them to talk to me, and they do not benefit from 17:35.414 --> 17:37.024 the relationship with me." 17:37.016 --> 17:37.426 Right? 17:37.430 --> 17:42.550 I don't want my children just to act out of love and sort of 17:42.548 --> 17:45.238 be a pain in the neck for them. 17:45.239 --> 17:46.019 Right? 17:46.019 --> 17:51.329 I want my children to see that having me as a father is 17:51.327 --> 17:53.487 beneficial for them. 17:53.490 --> 17:56.230 That's a good relationship. 17:56.230 --> 18:00.740 Good relationships are always based on self-interest. 18:00.740 --> 18:06.100 You don't want to have a lover who does not enjoy being your 18:06.102 --> 18:06.832 lover. 18:06.828 --> 18:14.278 Therefore you want people acting out of self-interest. 18:14.278 --> 18:18.208 And I think that's what he's getting at here. 18:18.210 --> 18:23.220 He said even the beggar--here actually the citation says, 18:23.220 --> 18:26.740 "The beggars are the ones who are dependent only upon 18:26.736 --> 18:27.966 benevolence." 18:27.970 --> 18:30.600 But then he qualifies it, he says, "But even for the 18:30.599 --> 18:32.619 beggar it is not quite true." Right? 18:32.618 --> 18:35.758 The beggar will make some tricks in which, 18:35.759 --> 18:39.659 in fact, actually will appeal to your self-interest, 18:39.663 --> 18:43.113 that you are a charitable person or what. 18:43.109 --> 18:45.069 Now self-interest in employment. 18:45.068 --> 18:47.538 He said well it's a very good example. 18:47.538 --> 18:50.118 He said when you are choosing an occupation, 18:50.123 --> 18:53.193 of course you want to have a big job, you want to be 18:53.188 --> 18:53.788 well-paid. 18:53.788 --> 18:54.448 Right? 18:54.450 --> 18:59.260 Those of you who are an economics major, 18:59.259 --> 19:04.089 you may want to have some nice job at some brokerage firm in 19:04.090 --> 19:07.850 Wall Street, and with a Yale Bachelor's 19:07.851 --> 19:12.521 Degree you would like to earn $100,000.00 a year. 19:12.522 --> 19:13.402 Right? 19:13.400 --> 19:16.940 But why would you earn $100,000.00? 19:16.940 --> 19:21.860 Because the employer gets a lot out of these skills what you get 19:21.857 --> 19:24.867 out of Yale, and therefore it will be in the 19:24.872 --> 19:28.622 interest of the society that you get the highest possible salary 19:28.615 --> 19:32.475 because you make the greatest contribution to the common good; 19:32.480 --> 19:35.620 otherwise you would not be paid that high. 19:35.623 --> 19:36.163 Okay? 19:36.160 --> 19:40.030 So therefore you will try to find that occupation in which 19:40.025 --> 19:42.665 you get the highest possible reward, 19:42.670 --> 19:46.110 but you will get only the highest possible reward because 19:46.107 --> 19:48.807 you make the utmost contribution you can, 19:48.808 --> 19:51.638 with your talent, with your hard work, 19:51.640 --> 19:54.670 and with your skills, to the common good. 19:54.670 --> 19:56.680 This is Adam Smith's argument. 19:56.680 --> 19:59.320 It's a persuasive argument actually. 19:59.317 --> 19:59.917 Right? 19:59.920 --> 20:07.060 Well I can go on; it's not all that important. 20:07.058 --> 20:09.368 Now this is very important too, I find. 20:09.368 --> 20:12.428 "Individuals are the better judge of their own 20:12.433 --> 20:15.073 interests than anybody else." Right? 20:15.068 --> 20:19.778 And well this is I think again extremely important, 20:19.778 --> 20:25.148 and I'm sure this classroom is divided fifty/fifty percent 20:25.147 --> 20:26.837 along these views. 20:26.843 --> 20:27.883 Right? 20:27.880 --> 20:34.700 He said well the individuals in the local situations are simply 20:34.700 --> 20:41.300 better judges to what is their interest than any statement or 20:41.298 --> 20:42.288 lawgiver. 20:42.288 --> 20:43.498 Right? 20:43.500 --> 20:47.470 People should judge for themselves what they want and it 20:47.472 --> 20:51.162 should not be a government which imposes it on them. 20:51.156 --> 20:51.876 Right? 20:51.880 --> 20:54.890 This is a big debate right now, for instance about the 20:54.887 --> 20:57.497 healthcare insurance, the healthcare reform. 20:57.500 --> 21:00.390 Should we let it up to people to decide whether they want to 21:00.387 --> 21:01.707 have an insurance or not? 21:01.710 --> 21:06.060 Should we expect people to be individually responsible for 21:06.064 --> 21:09.354 themselves, to take charge of their life? 21:09.348 --> 21:12.898 Or should it be the government, or should it be a statesman, 21:12.904 --> 21:15.504 the lawgiver, the Congress who takes care of 21:15.497 --> 21:16.157 people? 21:16.160 --> 21:20.910 And he clearly takes a position no, I think people are the best 21:20.911 --> 21:22.981 judges of their feelings. 21:22.980 --> 21:26.280 Now the labor theory of value. 21:26.279 --> 21:28.739 And let me rush through of it. 21:28.740 --> 21:29.910 This is important. 21:29.910 --> 21:34.030 His point of departure comes from John Locke, 21:34.028 --> 21:38.238 as we have seen, and it is leading directly to 21:38.239 --> 21:39.549 Karl Marx. 21:39.548 --> 21:44.088 Karl Marx radicalizes his position, but the point of 21:44.092 --> 21:47.122 departure is clearly Adam Smith. 21:47.118 --> 21:50.178 And the argument about the labor theory of value: 21:50.176 --> 21:52.786 the labor is the measure of all values. 21:52.788 --> 21:55.568 And then he said, "The whole produce belongs 21:55.565 --> 21:56.775 to the labor." 21:56.779 --> 22:00.009 And so far Marx completely agrees with him; 22:00.009 --> 22:03.319 and we will see when we will be discussing Marx. 22:03.318 --> 22:07.348 But then he departs from it because he asks the question, 22:07.353 --> 22:10.453 where does the profit and rent come from? 22:10.450 --> 22:15.440 Marx asked this question as well, and he says exploitation; 22:15.440 --> 22:18.800 those who earn profit exploit the workers. 22:18.798 --> 22:21.598 But Adam Smith has a different view. 22:21.598 --> 22:26.578 He says well those who will lend capital and those who offer 22:26.580 --> 22:29.790 land also deserve part of the value. 22:29.788 --> 22:33.688 Now let's see how this contradiction can be resolved, 22:33.692 --> 22:35.872 how he's dealing with this. 22:35.868 --> 22:40.008 How can that all value is created by labor and belongs to 22:40.009 --> 22:43.349 the laborer, and nevertheless the capitalist 22:43.346 --> 22:47.656 pockets profit and the landowner pockets rent for the land? 22:47.660 --> 22:54.960 Then here this is very much John Locke: "The value of 22:54.963 --> 23:02.143 any commodity belongs to the person who possesses it, 23:02.140 --> 23:11.480 and if it is not for use or consumption but exchange, 23:11.480 --> 23:14.700 then the value of this commodity is equal to the amount 23:14.702 --> 23:17.512 of labor which has to be put into this." 23:17.509 --> 23:19.479 "Labor is therefore," he said, 23:19.480 --> 23:23.220 "the real measure of the exchangeable value of all 23:23.220 --> 23:24.470 commodities." 23:24.465 --> 23:25.085 Right? 23:25.088 --> 23:28.728 Commodities can have a use value, they can be very useful, 23:28.729 --> 23:32.559 and they can have very little labor in it, like fresh air; 23:32.558 --> 23:38.348 though by now we know fresh air needs quite a bit of labor too. 23:38.352 --> 23:39.102 Right? 23:39.098 --> 23:41.538 But the exchange, how the exchange it, 23:41.544 --> 23:43.794 will be guided, according to Smith, 23:43.790 --> 23:44.650 by labor. 23:44.650 --> 23:47.360 Few people accept today the labor theory of value; 23:47.359 --> 23:49.499 Smith or Marx, no matter what. 23:49.500 --> 23:52.040 And it belongs to the whole laborer. 23:52.038 --> 23:53.928 This is a very interesting argument. 23:53.930 --> 23:57.720 He said--and this is again John Locke-- 23:57.720 --> 24:01.270 "The property of every man is his own labor, 24:01.269 --> 24:05.969 and therefore every value is created by this labor, 24:05.970 --> 24:12.070 and therefore it has to belong to the person who owns the 24:12.074 --> 24:13.604 labor." 24:13.598 --> 24:14.938 "But." 24:14.940 --> 24:19.800 he said, "this is true for societies before capital is 24:19.798 --> 24:24.658 being accumulated and before land is privately owned." 24:24.657 --> 24:25.577 Right? 24:25.578 --> 24:29.228 So this is really an argument for ancient societies, 24:29.231 --> 24:33.531 without capital accumulation and without private ownership of 24:33.529 --> 24:34.459 the land. 24:34.460 --> 24:37.590 In these conditions, if there is no capital 24:37.586 --> 24:40.636 accumulation and no private ownership, 24:40.640 --> 24:44.160 land is commonly owned, then the whole produced labor 24:44.164 --> 24:45.864 belongs to the laborer. 24:45.858 --> 24:49.598 This is where he, Marx, will depart dramatically 24:49.597 --> 24:51.027 from Adam Smith. 24:51.029 --> 24:53.779 So where does the profit and rent come? 24:53.779 --> 24:58.409 Well are capitalists simply exploiting the workers? 24:58.410 --> 25:01.390 He said, "No, there is a distribution of 25:01.390 --> 25:04.300 value between labor, capital and rent." 25:04.301 --> 25:04.981 Right? 25:04.980 --> 25:12.430 And this is reasonable, because the capitalist offers 25:12.432 --> 25:17.202 capital in order-- in fact, advances capital to 25:17.200 --> 25:19.710 the laborer, takes risks with this 25:19.711 --> 25:23.711 advancement of the capital, supervises the labor 25:23.710 --> 25:29.690 process--and therefore it should claim some profit from capital; 25:29.690 --> 25:34.410 otherwise would be a fool not to advance its capital. 25:34.410 --> 25:38.790 And the same goes for land actually. 25:38.788 --> 25:43.118 Landowners also will have to give the land a site in which 25:43.115 --> 25:47.515 production takes place, and therefore they really 25:47.516 --> 25:52.366 should be able to collect some rent on this land. 25:52.369 --> 25:55.719 Well finally the invisible hand. 25:55.720 --> 26:00.310 There are three conceptions of this--I briefly pointed this 26:00.310 --> 26:04.190 out-- in The Theory of Moral Sentiments. 26:04.190 --> 26:08.870 He said this is really God which gives us a sense of 26:08.869 --> 26:13.459 sympathy and creates a balance between passion, 26:13.460 --> 26:19.090 desires, and hunger for more, and self-restraint to respect 26:19.085 --> 26:22.475 others and earn respect from others. 26:22.480 --> 26:23.450 Right? 26:23.450 --> 26:26.210 And then, of course, in The Wealth of 26:26.209 --> 26:30.099 Nations, this appears to be the free marketplace. 26:30.098 --> 26:34.528 And then finally he had a manuscript, History of 26:34.525 --> 26:38.415 Astronomy, and he said the invisible hand 26:38.420 --> 26:43.490 is the hand of Jupiter; the hand of Jupiter because 26:43.493 --> 26:48.083 people, as long as they are ignorant, 26:48.075 --> 26:51.325 phenomena-- lightening for instance, 26:51.330 --> 26:54.710 what they don't-- cannot explain--attribute to 26:54.710 --> 26:56.190 the will of Jupiter. 26:56.194 --> 26:56.794 Right? 26:56.789 --> 26:59.739 Superstition; the invisible hand is 26:59.737 --> 27:00.577 superstition. 27:00.584 --> 27:01.044 Okay? 27:01.038 --> 27:04.738 So what is fun, that three instances where the 27:04.740 --> 27:08.030 notion of the invisible hand is used, 27:08.028 --> 27:12.058 in each case a different meaning, and in none of the 27:12.055 --> 27:16.945 cases exactly the same meaning as we normally understand it. 27:16.950 --> 27:26.090 Okay, I think I'm now moving over to John Stuart Mill, 27:26.089 --> 27:30.229 and to utilitarianism. 27:30.230 --> 27:43.880 And he's a wonderful man and makes a lot 27:43.875 --> 27:58.565 of--<> 27:58.568 --> 28:06.228 Okay, so this is all about utilitarianism and liberty, 28:06.229 --> 28:14.899 and the long road from Jeremy Bentham to John Stuart Mill. 28:14.900 --> 28:20.010 Utilitarianism is a fundamentally important 28:20.007 --> 28:21.707 proposition. 28:21.710 --> 28:26.710 It informs modern economic theory, and it informs political 28:26.713 --> 28:32.243 and social theories which are in the kind of rational choice mode 28:32.236 --> 28:33.786 of theorizing. 28:33.788 --> 28:38.878 And the point of departure is Bentham, 28:38.880 --> 28:42.650 who in many ways is the Founding Father of 28:42.653 --> 28:46.643 utilitarianism, though he never used the term, 28:46.642 --> 28:51.542 and he influenced the life of John Stuart Mill in a major way. 28:51.538 --> 28:56.878 Mill's father was James Mill, quite an intellectual. 28:56.880 --> 29:03.920 He wrote a big three volume history of India and the British 29:03.923 --> 29:06.673 involvement in India. 29:06.670 --> 29:11.150 He met Bentham in 1808 and he fell in love with the theory of 29:11.153 --> 29:14.443 utilitarianism, and he asked him to supervise 29:14.441 --> 29:17.581 the education of his son--what he did. 29:17.578 --> 29:22.498 And sort of poor John Stuart Mill grew up under the influence 29:22.497 --> 29:26.757 of a very strong father and a very strong teacher. 29:26.759 --> 29:31.869 And he invented the term, John Stuart Mill, 29:31.868 --> 29:38.558 the term utilitarianism in 1822, at a very young age. 29:38.558 --> 29:42.598 Then he suffers a nervous breakdown. 29:42.598 --> 29:45.658 When you see what utilitarianism is, 29:45.656 --> 29:49.656 you will not wonder; I mean, if you are really a 29:49.659 --> 29:53.429 strict utilitarian, difficult to survive without a 29:53.432 --> 29:55.052 nervous breakdown. 29:55.048 --> 29:58.598 All right, so what is Bentham's theory? 29:58.598 --> 30:04.288 He published a book, The Principles of Morals and 30:04.286 --> 30:09.076 Legislation, in 1789, and there are some 30:09.080 --> 30:13.430 very important claims in this book. 30:13.430 --> 30:18.080 And at first instance they sound very reasonable, 30:18.077 --> 30:22.047 but he may be pushing his luck too far. 30:22.048 --> 30:25.958 He said, "Well we are created to seek pleasure and to 30:25.959 --> 30:29.079 avoid pain, and therefore if we can 30:29.076 --> 30:33.386 minimize the pain and maximize the pleasure, 30:33.390 --> 30:36.150 that's when we achieve the greatest happiness." 30:36.150 --> 30:39.140 That's what will be called utility. 30:39.144 --> 30:39.854 Right? 30:39.848 --> 30:43.778 So action is right if it is leading to happiness. 30:43.784 --> 30:44.444 Right? 30:44.440 --> 30:46.270 We all want to be happy. 30:46.269 --> 30:53.329 Okay, well and this can be actually quantified. 30:53.328 --> 30:55.968 The action is right, morally right, 30:55.970 --> 31:00.010 if the sum of pleasures minus the sum of pains, 31:00.009 --> 31:04.579 multiplied by the number of persons affected by action is 31:04.579 --> 31:05.319 positive. 31:05.315 --> 31:06.045 Right? 31:06.049 --> 31:09.059 Sounds reasonable, right? 31:09.058 --> 31:11.898 If more people are happy in society than unhappy, 31:11.900 --> 31:14.210 then the society does as well as it can. 31:14.208 --> 31:14.798 Right? 31:14.799 --> 31:17.949 That's really the argument. 31:17.950 --> 31:21.240 Well there are a couple of citations. 31:21.240 --> 31:24.150 I don't want to dwell on this too long. 31:24.150 --> 31:28.440 I will put it on the web; and it's not in the text I 31:28.440 --> 31:30.210 require from you to read. 31:30.210 --> 31:33.150 So, he said, "The two big masters are 31:33.146 --> 31:37.686 pain and pleasure"; somewhat a kind of similar 31:37.689 --> 31:39.749 argument to Hobbes. 31:39.750 --> 31:43.120 And he said, "An action may be said to 31:43.115 --> 31:47.275 be conformable with the principle of utility when the 31:47.284 --> 31:50.334 tendency is to augment happiness, 31:50.328 --> 31:56.468 and that is greater than to diminish it." 31:56.470 --> 31:57.970 And what is utility? 31:57.970 --> 32:03.460 "Utility is that principle which approves or disapproves a 32:03.463 --> 32:09.053 reaction to augment or diminish the happiness of the party whose 32:09.046 --> 32:11.696 interest is in question." 32:11.704 --> 32:12.684 Right? 32:12.680 --> 32:15.720 This is a notion of utility which is not all that far away 32:15.715 --> 32:18.215 what economists are using, even at this time. 32:18.220 --> 32:21.590 Then here comes something what I think nobody would accept now, 32:21.588 --> 32:24.108 that's simply--he said, "Well it's easy therefore 32:24.113 --> 32:25.163 to calculate it." 32:25.161 --> 32:25.591 Right? 32:25.588 --> 32:29.688 And I already pointed this out, you just count the number of 32:29.690 --> 32:32.610 people who are happy and who have pain, 32:32.608 --> 32:36.798 and count the number of people who are happy with it and have 32:36.800 --> 32:38.980 pleasure, and if more people have 32:38.981 --> 32:42.251 pleasure, the sum total of pleasure exceeds the sum total 32:42.250 --> 32:44.800 of pains, then you got the good society. 32:48.190 --> 32:52.600 Well John Stuart Mill--here he is. 32:52.599 --> 32:57.199 He was born in London. 32:57.200 --> 33:00.370 He never attended school; he was a lucky one. 33:00.368 --> 33:05.418 But not necessarily all that lucky because his teacher was 33:05.423 --> 33:09.403 Bentham and John Mill, who were tough people, 33:09.400 --> 33:13.800 and he had to start learning Latin and Greek when he was 33:13.798 --> 33:15.318 three-years-old. 33:15.318 --> 33:21.928 Well if there are anybody who is Asian-American in the room, 33:21.930 --> 33:26.190 Chinese, you may have to start actually to learn how to read 33:26.190 --> 33:28.790 and write in Chinese pretty early. 33:28.788 --> 33:33.258 But he did this with Latin and Greek which to my mind is a big 33:33.257 --> 33:37.137 easier than to learn all the characters in Chinese. 33:37.140 --> 33:39.620 Anyway, '22, he established the Utilitarian 33:39.615 --> 33:42.735 Society and invents the term utilitarianism. 33:42.740 --> 33:45.540 And then he suffers a nervous breakdown; 33:45.538 --> 33:48.938 I mean, two domineering people in his life. 33:48.940 --> 33:54.450 And then he also becomes very sort of unhappy with the 33:54.445 --> 33:58.385 expediency emphasis on utilitarianism-- 33:58.394 --> 34:03.594 instrumentalism, the coldness of the argument. 34:03.588 --> 34:09.268 He's actually becoming--becomes interested in poetry. 34:09.268 --> 34:14.628 And then he meets Harriet Taylor, a wonderful lady, 34:14.625 --> 34:19.225 and a friendship, a very close friendship is 34:19.231 --> 34:20.411 formed. 34:20.409 --> 34:26.359 Harriet Taylor was a fantastic intellectual, 34:26.360 --> 34:32.280 as far as we can judge; one of the very first radical 34:32.275 --> 34:37.435 feminists, and had a probably extraordinary impact on the work 34:37.442 --> 34:39.392 of John Stuart Mill. 34:39.389 --> 34:44.429 If he would have been a real feminist, he probably should 34:44.434 --> 34:49.214 have put on his work Harriet Taylor as a co-author; 34:49.210 --> 34:52.200 she probably co-authored this work. 34:52.199 --> 34:56.359 I mean, she was married, and this was an interesting 34:56.356 --> 34:58.716 triangle which did develop. 34:58.719 --> 35:02.949 I mean, in what way we don't quite know, but they were 35:02.947 --> 35:05.817 traveling together, the threefold; 35:05.820 --> 35:08.840 anyway, quite interesting. 35:08.840 --> 35:10.690 What can I say? 35:10.690 --> 35:15.680 Well '51, Mr. Taylor passes away, and then John Stuart Mill 35:15.681 --> 35:19.041 immediately marries Harriet Taylor. 35:19.039 --> 35:23.469 But unfortunately she has a very short life and dies after a 35:23.472 --> 35:24.752 short marriage. 35:24.750 --> 35:29.190 So his undisturbed happiness, to put it this way, 35:29.190 --> 35:34.370 did not last very long, and he died in '73 in Avignon. 35:34.369 --> 35:37.589 Now about the work, briefly. 35:37.590 --> 35:41.320 We'll be talking about three pieces of work On 35:41.322 --> 35:44.202 Liberty, Utilitarianism. 35:44.199 --> 35:48.959 I will not talk about his role as a member of parliament where 35:48.958 --> 35:54.108 actually he was one of the first advocates for female suffrage, 35:54.110 --> 35:58.780 which did not fly at that time, and he even lost re-election 35:58.784 --> 36:03.464 probably because he's advocating voting rights for women. 36:03.460 --> 36:06.980 And then he wrote, '69, Subjection of 36:06.976 --> 36:10.636 Women, which in many ways is a 36:10.637 --> 36:14.787 feminist book, quite a radical feminist 36:14.788 --> 36:20.328 book--a feminist book you can rarely read from a man, 36:20.329 --> 36:24.419 and especially not in 1869. 36:24.420 --> 36:29.450 Okay, so what are his major contributions? 36:29.449 --> 36:32.969 He redefines utilitarianism. 36:32.969 --> 36:33.849 Right? 36:33.849 --> 36:36.159 As I said, he found it too cold. 36:36.159 --> 36:39.949 He needed more sentiments. 36:39.949 --> 36:46.319 Poetry-- Harriet Taylor, gave him a sense of the world 36:46.315 --> 36:50.155 which is richer in sentiments. 36:50.159 --> 36:55.649 So he says, well there is higher happiness. 36:55.652 --> 36:56.702 Right? 36:56.699 --> 36:59.449 There is a lower level of happiness and there is a higher 36:59.449 --> 37:00.479 level of happiness. 37:00.480 --> 37:05.970 To have a good steak, well it is pleasurable. 37:05.969 --> 37:11.899 But to listen to the Ninth Symphony of Beethoven, 37:11.898 --> 37:14.738 it's greater happiness. 37:14.737 --> 37:15.847 Right? 37:15.849 --> 37:19.939 It's a higher level of happiness when you hear the 37:19.940 --> 37:23.530 concluding chorale of the Ninth Symphony. 37:23.530 --> 37:26.430 You are through the roof of pleasure; 37:26.429 --> 37:31.949 you have a higher level of happiness than eating a nice 37:31.954 --> 37:33.084 rare steak. 37:33.079 --> 37:33.999 Right? 37:34.000 --> 37:36.390 That's a higher level of happiness. 37:36.389 --> 37:41.349 And he said--and nobody argues it more forcefully than him-- 37:41.349 --> 37:45.289 "Individual liberty is the ultimate value, 37:45.289 --> 37:48.829 and expediency"--and you know what he means by 37:48.829 --> 37:53.219 expediency, that you get there by using the 37:53.224 --> 37:57.844 least means and you maximize the return-- 37:57.840 --> 38:03.350 "expediency cannot justify intervention against individual 38:03.347 --> 38:04.767 liberty." 38:04.769 --> 38:09.149 A very interesting issue; a very accurate, 38:09.150 --> 38:11.340 a very up-to-date issue. 38:11.340 --> 38:20.750 Just think about 9/11; this is exactly the problem of 38:20.753 --> 38:25.733 the 9/11--how much we can act against individual liberty in 38:25.728 --> 38:29.788 the name of expediency; how much we are willing to 38:29.789 --> 38:33.029 accept the limitations in individual liberty? 38:33.030 --> 38:38.520 And well we will see, he said, expediency is not to 38:38.518 --> 38:43.898 be ignored, but when the chips come down, he said, 38:43.896 --> 38:47.076 it is individual liberty. 38:47.079 --> 38:48.979 He's a libertarian, right? 38:48.980 --> 38:53.460 He is for the sanctity of the liberty of the individual, 38:53.460 --> 38:57.780 and he's the ultimate of British individualism and the 38:57.780 --> 39:01.040 sacredness of British individualism. 39:01.039 --> 39:04.859 And finally the third major contribution. 39:04.860 --> 39:09.200 He said women's legal situation resembles those of slaves; 39:09.199 --> 39:12.069 they are only worse off than slaves are. 39:12.070 --> 39:16.940 And he argues that in a very articulate way. 39:16.940 --> 39:19.930 And women should have equal rights in jobs, 39:19.931 --> 39:22.141 in public life, the same kind of 39:22.141 --> 39:26.561 education--total confrontation with Jean Jacques Rousseau. 39:26.559 --> 39:31.639 But he believes that in marriage they can create a 39:31.641 --> 39:34.651 friendship bond with males. 39:34.650 --> 39:38.360 Well Harriet Freedman did not quite agree with this. 39:38.360 --> 39:42.510 Though she married twice, she both times did it probably 39:42.512 --> 39:43.572 reluctantly. 39:43.570 --> 39:48.030 She did not believe in the institution of the marriage, 39:48.032 --> 39:50.432 though she did marry twice. 39:50.429 --> 39:56.329 Okay, well let me see whether I can still do this, 39:56.331 --> 40:03.801 his stuff on utilitarianism, and leave the rest for Tuesday. 40:03.800 --> 40:06.480 I think I have some three more minutes to go. 40:06.480 --> 40:11.350 The main themes in the work Utilitarianism is the 40:11.351 --> 40:18.481 concept of higher happiness; human beings have faculties for 40:18.478 --> 40:24.678 more elevated appetites than animals have. 40:24.679 --> 40:27.739 Then he talks about justice and legality. 40:27.739 --> 40:31.969 It's a very complex issue, but where he thinks that the 40:31.969 --> 40:35.809 law is a more restrictive notion than justice, 40:35.809 --> 40:38.919 and he stands for the idea of justice, 40:38.920 --> 40:46.700 and shows some contradiction between law and justice as such. 40:46.699 --> 40:50.609 And then he talks about justice and expediency--why justice 40:50.610 --> 40:53.510 cannot be simply explained by expediency. 40:53.510 --> 40:58.620 Well again something which speaks very much to the issues 40:58.619 --> 41:00.809 which are on our mind. 41:00.809 --> 41:07.869 Does expediency makes it just that you torture an Al-Qaeda or 41:07.871 --> 41:11.301 a prisoner, or a suspected Al-Qaeda 41:11.302 --> 41:16.422 prisoner, to get information out because this way you save lives? 41:16.420 --> 41:19.510 Some people will say, "Yes, this makes it 41:19.507 --> 41:20.397 just." 41:20.400 --> 41:23.080 Others will say, "No, it is unjust, 41:23.081 --> 41:26.851 and therefore expediency-- you should not use expediency 41:26.851 --> 41:30.871 that you get better information out from torture." 41:30.869 --> 41:36.829 Well I think I'll probably leave it here and then we'll 41:36.831 --> 41:39.261 continue it Tuesday. 41:39.260 --> 41:43.560 And I hope it got you up in speed-- 41:43.559 --> 41:48.269 utilitarianism and John Stuart Mill, 41:48.268 --> 41:52.908 and Adam Smith, and you see how actually John 41:52.911 --> 41:58.711 Stuart Mill and utilitarianism radicalizes one stream of 41:58.711 --> 42:04.721 thought which is in Adam Smith, but Adam Smith is not quite 42:04.719 --> 42:07.749 ready to go as far as Bentham went, 42:07.750 --> 42:12.910 and even not as far as John Stuart Mill went. 42:12.909 --> 42:14.529 Okay. 42:14.530 --> 42:20.000