Thursday, January 10, 2008

Football Teams Are Not Guided By an Invisible Hand

Well, it’s quite sad really. A myth manufactured in the 20th century about a single 2-word metaphor placed near the end of a 900,000 word two-volume work from the 18th century, is transposed into a statement about the fortunes of a sports team! Worse, the author (a self proclaimed ‘economist’) gets the metaphor wrong in so far as it is claimed to represent Adam Smith’s considered judgement about how economies work.

Relievedebtor’ posts in Architecture + Morality (‘musings on architecture, politics, economics and religion’ (here) a piece on ‘The Patriots: Putting Adam Smith to the Test’:

One of the basic tenets of free-market capitalism is this: if we excel in our own small corner of the world, others will benefit along with us. Adam Smith called it the Invisible Hand, the force that allowed the butcher, baker and brewer to flourish as they practiced their craft while providing valuable services to others. Now this is, of course, macro economics at a very micro level, and it doesn’t take into account an enormous amount of variables: unforeseen incentives and changes in the market, government interference and regulation, the unpredictable nature of people themselves, among others. But this age-old doctrine seems to have worked pretty well in America, at least according to Milton Friedman, Ronald Reagan, and well, myself. And not only in America, but pretty much anywhere free markets are encouraged and the rule of law defended, be it Hong Kong, Chile or Estonia. Yes, when people practice their craft legally and honestly, others benefit alongside them. That this simple doctrine works as well in a small town as internationally speaks to its simple truth and the universal nature of incentives….

… But what about Adam Smith’s theory? Does it really work, or is it just a simple fantasy that may work in theory but never in practice? Let the Patriots [an American ‘football team] help answer the question. … I can think of no better example than the New England Patriots to put Adam Smith’s much maligned theory to the test. So let’s consider who else has benefited from the Patriots’ success, besides the fans, owners and businesses in and around New England, which in and of itself counts for quite a few people…

Maybe the question should be, who hasn’t benefited from the Patriots’ success? I can’t think of anyone, from retailers to the league to big-time television. Adam Smith, from my point of view, has been proven right yet again.”

Comment
It may be a basic tenet of a version of comments about ‘free-market capitalism’ but Adam Smith didn’t say anything about capitalism (a word invented in English in 1854 –Smith died in 1790) and he didn’t say anything about the version of the ‘invisible hand’ alleged to have the effects claimed for it by modern economists associated with American academe.

Take this for a fabrication: “Adam Smith called it the Invisible Hand, the force that allowed the butcher, baker and brewer to flourish as they practiced their craft while providing valuable services to others.”

Anybody who hasn’t read Wealth Of Nations (which amounts to almost everybody!) might be surprised to discover that ‘the butcher, baker, and brewer’ appear in chapter 2 of Book I (page 26-7) and his sole reference to ‘an invisible hand’ appears in chapter 2 of Book IV (page 456) with no overt or covert connection to each other.

The connection was invented in the 20th century; nobody made the connection – including Adam Smith – before then (hostage to fortune: somebody might come up with a reference which I would be delighted to see).

Relievedebtor actually spots the flaw in the so-called invisible hand theory that was invented and widely taught and reported with the academic authority (including by Nobel prize-winners):

Now this is, of course, macro economics at a very micro level, and it doesn’t take into account an enormous amount of variables: unforeseen incentives and changes in the market, government interference and regulation, the unpredictable nature of people themselves, among others.

I was excited to read the next sentence because it seemed to supply the counter-evidence: ‘this age-old doctrine seems to have worked pretty well in America’. But the rest of the sentence deflated my excitement quickly: ‘at least according to Milton Friedman, Ronald Reagan, and well, myself’. In short, no evidence at all; only fallacious assertions.

As for the Patriots, the fortunes of competing sports teams are part of the fascination of competitions. I can safely assert that there is no invisible guiding force determining which team does best at the end of a season.

My own football team, Heart of Midlothian in the Scottish Premier League, now languishes 11th out of 12 clubs half way through the season. The reason is very visible: the owner insists on picking the teams and won’t let the coaches do so; he even picks which players are substituted during a game, including by telephone when he is not present, and it is seldom that the same team plays two games in a row.

Adam Smith had nothing to say about that at all, and what he did say (not what many people say he said) said nothing about the fortunes of the Patriots either.

5 Comments:

Blogger Ian Rose said...

Adam Smith was surely intelligent enough to know to put experts in charge of their expertise. Hearts are in such a terrible position now clearly because a businessman with no real knowledge of football is making matchday decisions. Vlad has been a disaster for you Hearts, and you're better rid of him, even with his billions.

9:55 pm  
Blogger Gavin Kennedy said...

Ian, you're so right. I did not renew my corporate season ticket this year in protest.

I'll go back - if we have a club to go back to - when a proper coach/manager is in place and is left to do his job without silly interference from the owner.

10:20 pm  
Blogger relievedebtor said...

Gavin,
I appreciate the link and the comments. If the blogging world acts as anything, it can perform an editorial function, which you have done for my article. So I appreciate you taking the time.

However, I stand by my main points. First, I don't declare to be an economist at all, but am interested in the way economics work, and am generally convinced that free markets are the way to go. I'm actually a pastor, and feel I have a vocational duty to think economically, even if in limited capacity. And while I may not have gotten the page numbers correct, I don't think it's economic heresy to say that what influences the market, or markets, or what gathers and disseminates information is, for lack of a better metaphor, an Invisible Hand. No one, to my knowledge, is forcing the networks to cover every Patriots' game, forcing folks to watch them and buy merchandise, and the Patriots' competition to improve. They are doing so organically, not centrally directed to do so. If this is not an Invisible Hand, I really have no understanding of Smith.

My point was not that Adam Smith gave a hoot about the Patriots or any sports team. Instead, it was that, contrary to conventional wisdom and even common sense, others benefit when I excel at my craft. I used the Patriots because they're a clear examle of excellence. And while the NFL and fans of the NFL have bought the line that parity and mediocrity are what's best for the league, I say no. (They say this so every fan can expect that their team can make the playoffs next year, even if they lost 15 games this year. According to this socialist way of thinking, it expands the fan base. I say no, excellence expands the fan base.) Excellence has proven to be best for the league, financially, in terms of popularity, and for the product on the field.

Now, if I, as an arrogant American, lazily did not reference Adam Smith's great manifesto correctly, I beg forgiveness from defenders of all things Smith. I suppose I didn't make it clear enough that I did not agree with those who seek to "regulate" the league, and I used the Patriots as an example of why the league should encourage dominance and excellence, and not aim for universal mediocrity. This is fundamentally a free vs. anti-free market philosophical dispute. The NFL is not interested in a truly "free" league, and I think the Patriots show that they should be. This lack of regulation is what constitutes a free market, something I was pretty sure Adam Smith was in favor of, even if he never used the word "capitalism."

3:10 pm  
Blogger Gavin Kennedy said...

Hi RelieveDebtor

Many thanks for your explanation and comments. You have filled in some of the background to your piece about the Patriots. The gist of my complaint was that your allusion to the invisible hand, linked to Adam Smith, distorts what Adam Smith wrote. You are certainly not the first, and won’t be the last, to do so. This version of Adam Smith dominates American academe, and the media.

You wrote: “I don't think it's economic heresy to say that what influences the market, or markets, or what gathers and disseminates information is, for lack of a better metaphor, an Invisible Hand.”

You may, of course, write what you like and use what metaphors you like. My complaint about this misuse is the attribution of the invisible hand metaphor, universally to Adam Smith, especially when talking of economic issues, is misleading. It was a fairly widely used metaphor in literature and philosophy by the 18th century, as can be seen in this partial list of others using it:

● Homer (Iliad, 720 BC); ‘And from behind Zeus thrust him on with exceeding mighty hand’;
● Horace (65-8 BC), Ovid (Metamorphoses, 8 AD): ‘twisted and plied his invisible hand, inflicting wound within wound’;
● Lactantius (De divinio praemio, c250325): ‘invisibilis’; ● Augustine, 354-43, “God’s ‘hand’ is his power, which moves visible things by invisible means’ (Concerning the City of God, xii, 24);
● Shakespeare, ‘Thy Bloody and Invisible Hand’, (Macbeth, 2.3; 1605);
● Daniel Defoe, ‘A sudden Blow from an almost invisible Hand, blasted all my Happiness’, in Moll Flanders (1722); ‘it has all been brought to pass by an invisible hand’ (Colonel Jack, 1723);
● Nicolas Lenglet Dufesnoy said that an “invisible hand” has power over “what happens under our eyes”;
● Charles Rollin (1661-1741), described as ‘very well known in English and Scottish Universities’, said of the military successes of Israeli Kings “the rapidity of their consequences ought to have enabled them to discern the invisible hand which conducted them”;
● Charles Bonnet (whom Smith befriended in Geneva in 1765) wrote of the economy of the animal: “It is led towards its end by an invisible hand”;
● Jean-Baptiste Robinet (a translator of Hume) refers to fresh water as “those basins of mineral water, prepared by an invisible hand”.
● Voltaire (1694-1178) in Oedipe
(1718) writes: “Tremble, unfortunate King, an invisible hand suspends above your head’; and ‘an invisible hand pushed away my presents’;
● Professor W. Leechman (1706-1785) (1755): ‘the silent and unseen hand of an all-wise Providence.'
● Kant E.(1784) ‘Universal History’: ‘leads on to infer the design of a wise creator and not [the hand of a malicious spirit]’.

[I have deleted the references, though I can supply them easily to you – or anybody else.]

You write: ‘This lack of regulation is what constitutes a free market, something I was pretty sure Adam Smith was in favor of, even if he never used the word "capitalism." ’

Smith certainly did not favour regulation (except in clearly stated exceptions) and your supposition is correct. He was in favour of laws and justice.

There has to be some regulation within a sport just to arrange the fixtures and adopt the ‘laws’ of the game. But fixing the outcome, as appears in US ‘football”, is regrettable and has the deleterious affects that you highlight.

Smith preferred open competition, decided by the laws of the market, which would translate in sport to the laws of the games.

Of that we can agree. And thanks for commenting.
Gavin

5:01 pm  
Blogger relievedebtor said...

Thanks Gavin, I hav elearned much from your comments. Of course I do rely on the American academy, but never assume it is perfect, so I appreciate your thoughts.

5:46 pm  

Post a Comment

<< Home