Wednesday, July 30, 2008

Quoting a Dodgy Source About Adam Smith Does No Favours to an Author's Assertions

Hardly a day goes by without somebody waxing lyrical about what Adam Smith means by the metaphor of 'an invisible hand' and from their misunderstanding making a case for this or that observation of modern economies. Hardly a day goes by without me responding to their views in

F.D. Zigler writes in MoneyThoughts Blog HERE:

"A Visible Hand Is Needed

Invisible hand is the term used by Adam Smith to describe the natural force that guides free market capitalism through competition for scarce resources. According to Adam Smith, in a free market each participant will try to maximize self-interest, and the interaction of market participants, leading to exchange of goods and services, enables each participant to be better off than when simply producing for himself/herself. He further said that in a free market, no regulation of any type would be needed to ensure that the mutually beneficial exchange of goods and services took place, since this "invisible hand" would guide market participants to trade in the most mutually beneficial manner

Adam Smith (baptized June 16, 1723 – July 17, 1790 [OS: June 5, 1723 – July 17, 1790]) was a Scottish moral philosopher and a pioneering political economist. One of the key figures of the intellectual movement known as the Scottish Enlightenment, he is known primarily as the author of two treatises: The Theory of Moral Sentiments (1759), and An Inquiry into the Nature and Causes of the Wealth of Nations, commonly known as The Wealth of Nations (1776). Smith is also known for his explanation of how rational self-interest and competition, operating in a social framework which ultimately depends on adherence to moral obligations, can lead to economic well-being and prosperity. His work helped to create the modern academic discipline of economics and provided one of the best-known rationales for free trade. He is widely acknowledged as the "father of economics".

The above two paragraphs I borrowed to make a point. Adam Smith was a Scottish moral philosopher who lived in the 18th century and never saw the likes of Wall Street. Had Adam Smith lived to see what technology has permitted markets to do today, I seriously doubt that he would have insisted that no regulation was necessary because an “invisible hand” would guide market players to trade in the most mutually beneficial manner.

It is my opinion, that if Adam Smith could come back and see how the capital markets operate today, and given the size of the markets today, that he would say it is time for the “invisible hand” to become visible.”

The main problem with the author’s ‘borrowed’ two paragraphs is that they do not represent anything like what Adam Smith said either about invisible hands or commercial markets.

The arrival at ‘rational self interest’, and ‘an “invisible hand” [that] would guide market players to trade in the most mutually beneficial manner is mythical to say the least, and was invented by mid-20th-century economists to add a respectable gloss or aura to their eloquent mathetmatical models (no people!) of general equilibrium (which, of course, bore no resemblance to the real world).

Those interested in the genesis of Adam Smith’s use of the metaphor an invisible hand on the two occasions he referred to it, once each in Moral Sentiments and Wealth Of Nations (his single use in the History of Astronomy paper had nothing to do with economics, let alone markets: it was a pagan 'pusillanimous superstitition'), may obtain a copy of my paper: ‘Adam Smith and the invisible hand: from metaphor to myth’ by introducing themselves and mailing me ‘gavinaTnegwebDoTcom or may scroll through the archives here in Lost Legacy and selected any of a hundred posts on the subject,

These facts make redundant what Adam Smith would think of Wall Street today, especially if you start from the wrong premiss.

Oh, and by the way, Adam Smith was NOT 'baptized June 16, 1723'; he was baptised on 5 June 1723. Why the dodgy source used by F.D. Zigler, should have any credibility for the meaning of the invisible hand metaphor when it gets such a simple and well known fact wrong, raises questions as to why he quotes from it.


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