Tuesday, March 06, 2007

Non-Sense About Invisible Hands and Competition

The Charleston Gazette (‘the state newspaper’), 6 March. Edward Peeks (former business editor of the Charleston Gazette), posts on “Wal-Mart making world history” (of which I have no disagreements) a couple of passages on Adam Smith that manages to link the usual non-sense about ‘his’ invisible hand with regulating ‘competition’:

ADAM SMITH wrote “The Wealth of Nations,” the bible of capitalism, in the late 18th century. He left a lasting belief that the marketplace is regulated by the law of supply and demand, and by the “invisible hand” of competition.”


But nothing like that in the good ol’ USA, where the “invisible hand” is strongest in the marketplace — unless China were to shake down the stock market.”

If Smith ‘left a lasting belief that the marketplace is regulated by the law of supply and demand”, which arguably he did, along with several contemporaries, why would he need a metaphor to regulate it called the ‘invisible hand’, which I anything else would mystify how markets work?

I don’t expect Edward Peeks to know the answer, because Edward is only repeating what students are taught by those who should know the answer. Which underlines the points made on Lost legacy regularly, specifically that Adam Smith knew how markets worked (Books I and II of Wealth of Nations) and used the metaphor in Book IV to ‘explain’ the phenomenon of individual motivations in matters of risk aversion leading to higher rates of capital formation than would have occurred if the individuals had sent more of their scarce capital abroad. This had nothing to do either with how markets work or with competition.

I shall say nothing about Wealth Of Nations being, good grief, a 'bible of capitalism'.

[Read Edward Peeks at: http://wvgazette.com/section/Opinion/200703059]


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