Wednesday, November 21, 2007

Jedediah Purdy on the Invisible Hand (no 374)

Jedediah Purdy writes: Intellectual Climate Change: Preventing environmental disaster is just the latest of many supposedly, on Guardian Unlimited, 20 November, here.

Today's economic premise, made cliché in Adam Smith's "invisible hand", is that individual self-interest adds up to public interest, and when this doesn't work out, politics can step in to fix the imbalance. The classic imbalance is what economists call externalities, effects of your actions on others that you can ignore, such as the air pollution your car emits. And the classic fix is environmental regulation that re-sets the ground rules of the market to align personal and public interest.”

Jedediah Purdy brings Adam Smith into his article: ‘Today's economic premise, made cliché in Adam Smith's "invisible hand" ’, but unfortunately it may be ‘today’s cliché', but it had precious little to do with Adam Smith. He didn’t put forward a theory, a concept or a paradigm about the invisible hand doing all that is implied in its modern use.

It was a metaphor, specifically for risk avoidance, which Adam Smith used in Book IV, which was his tough critique of mercantile political economy, not his analysis of how markets work in Books I and II of Wealth Of Nations, which did not mention anything about disembodied hands, invisible or otherwise.

Even when Jedediah Purdy spots the fallacy – ‘when this doesn't work out, politics can step in to fix the imbalance’ – he doesn’t ask the obvious: ‘what happened to this miraculous invisible hand attributed to Adam Smith; is it there or is it not?’

Of course, this has nothing to do with Adam Smith because he never gave the metaphor this role. Indeed, in Books I and II, when discussing how markets work he not only made no claims that individual self-interest ‘adds up to public interest’, but in these two books he give 51 examples of where self-interested individuals damaged the public interest, the exact opposite, but not one example of where he even mentions the invisible hand.

A commentator on his Blog writes: "Today's economic premise, made cliché in Adam Smith's "invisible hand" ’.

‘Ah yes! Knowing that 18th Century Adam was the first one to come up with that cliché is educating indeed

Adam Smith did not even come with this modern cliché, never mind being the ‘first one’ to use it. It was a well-known metaphor in literature during the 17th and 18th centuries (Shakespeare, Defoe, and Voltaire, among others).


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