Monday, May 26, 2008

Mike Gorski Understands the Metaphor on An Invisible Hand

Mike Gorski writes and interesting take on the metaphor of the invisible hand in the neighbourhood blog, Seattle Post Intelligencer – USA, HERE:

At least it afforded the opportunity to catch up with some folks that used work in town or live in town. And from there I lamented on both the invisible hand of the market and good news, bad news jokes. The origin of the invisible hand is pretty clear, you can read about it in Adam Smith's The Wealth of Nations and marvel at its subsequent misuse. There is no clear bloodline as to where the Good News, Bad News joke started and bored itself into our culture.

Even though Adam Smith intended the use of his imagery of the invisible hand of the market to make a point regarding foreign trade, it has since been usurped to either mean that the market knows best or that the market operates with a certain caprice, depending on your particular political philosophy. In the case of DuPont, it moves stealthily to provide for our community what our micro-economy will bear. It seems absurd to outsiders that six square miles can lay claim to two manicurists, two dentists, two gas stations, three coffee shops, three sub shops, three pizzerias, and four east Asian eateries


Mike Gorski gets the invisible hand closer to what Adam Smith intended. Congratulations to him! I spend time on Lost Legacy correcting misinterpretations of Adam Smith's use of the metaphor,by professional economists, point out, it is in Book IV of Wealth Of Nations, on mercantile political economy and not in Books I and II, which deal with how markets in commercial economies work without mentioning anything about invisible hands.

Yet modern economists continually assign to the metaphor an exalted status - some actually believe it is something real and not an isolated metaphor, in this case of risk avoidance by merchants contemplating the uncertainties of foreign trade with the British colonies in North America and choosing to invest domestically, thus increasing domestic annual product (the whole is the sum of its parts: increase parts of domestic investment then domestic production necessarily rises by the laws of arithmetic).

Mike Gorski writes a nice story too, which you should read via the link above.



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