Monday, May 28, 2007

When 'Heterodox' is 'Orthodox' And Both Are Wrong

Mark Thoma writes the Economist’s View Blog, and today (28 May) he heads a long extract from ‘Hip Heterodoxy’, by Christopher Hayes, The Nation as: “The Hip Heterodoxy Meets Herd Mentality and the Neoclassical Mafia”. He is, of course, absolved from any implied association with what follows.

In Christopher Haye’s post I find this:

Classical economics refers to the theories laid out by Adam Smith and David Ricardo in the eighteenth and nineteenth centuries, which emphasized the power of the "invisible hand" of the market...

A hundred years after Smith, a group of "neoclassical" economists came along and added ... that humans are rational, utility-maximizing agents with fixed preferences, that they make decisions "at the margins" and that the mechanisms of supply and demand ... will lead to a general equilibrium whereby resources are allocated efficiently.”

Economics is a divided discipline with the largest number by far in the neoclassical camp and a smaller group, representing a wide range of stances, in what is described as the ‘heterodox’ camp (actually a camp with many fire sites, with varying numbers from 1 to more than 1, but less than vastly large, huddled trying to keep their ideas warm and spirits up).

The more snobbish of the neoclassical economists look down on the heterodox few, shaking their heads with disdain, and mutter something about them ‘not understanding’ neoclassical theorems, with hints that they are 'not intelligent enough' to do so. I barely exaggerate.

If Christopher Hayes is representative, as I believe he is, he has one thing in common with the neoclassical high caste in one thing. Like them to a last person, he does not understand Adam Smith (I’ll leave Ricardo out of this), if he believes that Adam Smith ‘emphasised [note the gross exaggeration] the power of the "invisible hand" of the market...’. I have not met yet a neoclassical economist who would disagree with that statement.

That an instance of a single event – his use of the metaphor of an invisible hand in Wealth Of Nations, Book IV, ii.9: page 456 – can become by osmosis an example of him ‘emphasising’ the invisible hand, and in ‘markets’ to boot, I find extraordinary.

At least for anyone who both knows for what use Adam Smith put the metaphor to work only three times (once each in Wealth Of Nations, Moral Sentiments and History Of Astronomy) in all his works, articles, essays and correspondence (approximately a million words), but never about markets, and also what the word ‘emphasised’ actually means.

Who then ‘emphasized the power of the "invisible hand" of the market’? It wasn’t Smith, that’s for sure.

It’s probably been mentioned a million times (perhaps many times more) in the works articles, essays, papers, and correspondence of the mainstream neoclassical economists, which is 997,000 times more frequent than it was used by Adam Smith.

And the same neoclassical economists, who look down on their ‘heterodox’ cousins, always use the metaphor in connection with markets! Now that’s interesting. I wonder if an empirical test for association would show us something about being neoclassical and not understanding Adam Smith, even if it did not show a causal connection in either direction?

It seems 'you can't have one without the other', as the song puts it.

And the neoclassical misattribution of the metaphor of an invisible hand is clear example of the habits of an organised mafia, so on one count, among others, Thoma is correct in his headline.


Blogger The Cynical Libertarian said...

I'm going to university in September to study economics. I don't know what my essays will be about, but I know for damn sure I won't mention Adam Smith in any of them, lest the wrath of his Lost Legacy befalls me! :P

1:02 am  
Blogger Gavin Kennedy said...

Young enough to be starting university and already a 'cynic'!

Be assured that the version of Adam Smith you most likely will be taught, and expected to reproduce in your essays, will be quite different from the Adam Smith who was born in Kirkcaldy in 1723.

So your graders will be satisfied with Chicago Adam Smith.

As for your essays earning the 'wrath' of Lost Legacy, I shall note your point. Perhaps, I should be more patient and conduct myself more as an educator than a 'wrath maker'.

Thanks for your post and your implied advice.

9:49 am  

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