Adam Smith: Why Decentralized Systems? Maria Pia Paganelli Trinity University, [email protected]
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Trinity University Digital Commons @ Trinity Economics Faculty Research Economics Department 2006 Adam Smith: Why Decentralized Systems? Maria Pia Paganelli Trinity University, [email protected] Follow this and additional works at: https://digitalcommons.trinity.edu/econ_faculty Part of the Economics Commons Repository Citation Paganelli, M.P. (2006). Adam Smith: Why decentralized systems? The Adam Smith Review, 2, 201-206. This Article is brought to you for free and open access by the Economics Department at Digital Commons @ Trinity. It has been accepted for inclusion in Economics Faculty Research by an authorized administrator of Digital Commons @ Trinity. For more information, please contact [email protected]. The Adam Smith Review Published in association with the International Adam Smith Society The Adam Smith Review Edited by Vivienne Brown Volume 2 Faculty of Social Sciences, The Open University, UK Book Reviews Edited by James R. Otteson Department of Philosophy, University of Alabama, USA Editorial Board Edited by Neil De Marchi (Deparbnent of Economics, Duke University,USA); Stephen Darwall(Department of Philosophy, University of Michigan, USA); Douglas Vivienne Brown Den Uyl (Liberty Fund, USA); Samuel Fleischacker (Department of Philosophy, University of Dlinois, Chicago, USA); Charles L. Griswold Jr (Department of Philosophy, Boston University, USA); K.nud Haakonssen (Department of History, University of Sussex, UK); Hiroshi Mizuta (Japan Academy, Japan); John Mullan (Deparbnent of English, University College London, UK);Takashi Negishi (Japan Academy, Japan); Nicholas Phillipson (Department of History, University of Edinburgh, UK); D.D. Raphael (Imperial College, London, UK); Emma Rothschild (King's College, Cambridge, UK); Ian Simpson Ross (University of British Columbia, Canada); Richard B. Sher (Department of History, New Jersey Institute of Technology/Rutgers University-Newark, USA); Andrew S. Skinner (University of Glasgow, UK); Kathryn Sutherland (St Anne's College, Oxford, UK); Keith Tnbe (King's School, Worcester, UK); Gloria Vivenza (Department ofEconomie, Societa, lstituzioni, Universityof Verona, Italy); Donald Winch (Graduate Research Centre in the Humanities, University of Sussex, UK). Books available in this series The Adam Smith Review (Volume 1) Edited by Vivienne Brown The Adam Smith Review (Volume 2) Edited by Vivienne Brown For latest information visit the web-site at: .adamsmithreview.orgwww Routledge I}� Taylor&mncts Group LONDONAND N� YORIC lASS Editorial First published 2006 The Adam Smith Review is a multidisciplinary arutual review sponsored by Routledge 2 Park Squue, MiltonParle.Abingdon, Oxon OX14 4RN by the International Adam Smith Society. 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A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested JSSN 1743-5285 ISBN 10: 0-41>-39460-0 (hbk) ISBN 10: 0-203-96636-5 (ebk) ISBN 13: 978-4-41S-39460-4 (hbk) ISBN 13: 978-4-415-39460-4 (ebk) 202 Lauren Brubaker should have sufficient respect for Smith the philosopher to assume that he isn't blind to his own critique of men of system (TMS VI.ii.2.7-18). Adam Smith We should thus pay close attention to his explicit indications of the natural limits of his own 'obvious and simple system'. Why decentralized systems? Smith was acutely aware of the problems facing the establishment of impartialjustice and religious and economic liberty. This awareness makes it all the more necessary to explain and defend the advantages and to Maria Pia Paganelli protect theachievements of these where they exist. Otteson and Smith are on the same side here, and that is the side of moderate liberalism. Smith is neither a traditionalist nor a libertarian. Liberalism is not well served by downplaying the difficulty of its realization by an overemphasis on unintended beneficial consequences. Once established.however, the advan tage of a traditional prejudice in its favor is not to be lightly dismissed. 'I have never known much good done by those who affected to trade for the public good' (WN IV.ii.9) James Otteson's book (2002) is a comprehensive and clear analysis of Smith's two worlcs - Wealth of Nations and The Theory of Moral Sentiments - and their relation. Otteson's detailed analysis shows how, forSmith, market systems and moral systems are similar. Both are gener atedby individual decisions. And bothgenerate unintended systemic social order. I think Otteson's analysis is correct. In this paper I develop one possible implication of Otteson's reading of Smith (that Otteson did not develop) aimed at justifying his Smith's position (as read by Otteson). Smithdescribes humanbeings as imperfect and notperfectible. Given all their biases, delusions and mistakes, bow can individuals live together, be virtuous, andprosper? In both TMS and WN, Smith answers that individ ualsdo notknow what is bestfor them and/orfor �iety, butwith a decen tralizedp rocess of trial and errorthey develop successfulrules of behaviour and/or institutions that allow them to achieve their goals as well as, unin tentionally, socialorder. Thequestion this paperasks is: was Smith accurate in describing how, aiming at something other than social order, individual decisions unintentionally and spontaneously generate social order? The answer I offer is yes. Smith's implicit model of social order works because it focuses on how to minimize the consequences of mistakes and imperfectionsin societyrather than on how to createthe best social system. I Why decentraUzed systems are preferred to centralized systems in theory and in practice A decentralized system is a system in which there are many autonomous and independent decision centres, as many as the number of individuals (or groupsof individuals) present in the system. Individual decision centres choose accordingly to individual costs and benefits. The well-being of the system may not be taken into account individually, and the decision centres 204 MariaPia Paganelli Adam Smith: why decentralizedsystems? 205 may not be coordinated. A centralized system is a system in which there ( all men areself-interested and self-centred? What if nobody is either perfect is one (or few) decision centre(s), the decisions of which are for the entjre or perfectible? Using a centralized system under non-ideal conditions system. causes disasters (A�. A decentralized system does not (B.J. Similarly, if Borrowing the concept fromrobust statistics (Mosteller and Tukey 1977), I all individuals are basically perfect, there is no need for leadership, as a robust system is a system that minimizes catastrophic results under non all, being perfect, know what is best to do. Perfect social harmony is ideal conditions, even if it may not be the most efficient system under achieved effortlessly. But what would happen to a social order designed ideal conditions. It asks the questions: what is the worst that canhappen? for perfect individuals, if the individuals turn out to be imperfect and not How is it avoidable? A fragile system is a system that collapses under perfectible? non-ideal conditions, even if it may be the most efficient system under ideal conditions. It asks: what is the best that can happen? How is it Authority . would nowhere be so dangerous as in the hands of a man achievable? who had folly and presumption enough to fancy himself/it to exercise it. ' Decentralized systems tend to be robust. Decentralized systems mini (WN IV.ii.lO) mize catastrophic results if there is a mistake, because of their very decentralized nature. Decisions