Monday, January 22, 2007

Increasing Returns, Yes; 'Hidden Hands', No

A philosopher manages to combine an observation about ‘increasing returns’ with the usual false attribution by neoclassical economics of ‘an invisible hand’ to Smith, thus spoiling an interesting point of relevance to current economic debates, originating with Smith and Romer, on increasing returns.

Jerry Schmitt writes (American Thinker, 22 January, Berkeley, AZ, USA):

Biting the hand”

“Gordon Moore noted in 1965 that the density of transistors on integrated circuits doubles every two years reducing their cost by half. Mr. Moore is among those surprised at the accuracy over forty years of his eponymous "Law" - the results of which played a major role in the West's Cold War victory. But what kind of Law is it? A Law of Physics? A Force of Nature? No, it is an economic law - a visible manifestation of Adam Smith's "Hidden Hand". Moore's Law results every year like clockwork from intense, uncoordinated, costly, risky, ruthless yet lawful international commercial competition among companies such as Intel, Texas Instruments, AMD, IBM, Motorola, Sony, Hitachi, Matsushita, etc, etc. and a myriad of specialist supplier companies, including behemoths such as Applied Materials.”

Moore’s ‘law’ (more like an observation) is about costs, not necessarily computing power, and has he has noted himself, the finite limits would be reached at the atomic level. To call it ‘a visible manifestation of Adam Smith's "Hidden Hand", is going too far.

There is no ‘hidden hand’, nor an ‘invisible hand’, at work. Competition in markets (and wider, in society and throughout human history) is a well-known process, part of human social evolution, akin to but not identical with, Darwinian natural selection among biological phenomena. Mystifying a well-studied phenomenon with ‘invisible hands’, beyond the metaphorical level, is unnecessary and also risky in science. Philosophy has rejected explanations of natural phenomena that involve pagan belief in invisible gods; economists in the 20th century let these beliefs back into theories of markets. They serve no useful purpose.

[Read Jerry Schmitt's letter in full at:]


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