Saturday, October 18, 2008

Aline van Duyn Understands Adam Smith on the Invisible Hand

Aline van Duyn writes (17 October) in FT.Com HERE:

Adam Smith’s “invisible hand” has been replaced in the world financial system by a very visible government fist.

The theory by the famous 18th century economist was originally part of a discussion about domestic versus foreign trade. It has since been applied to markets more generally. It suggests that, in a free market, an individual pursuing his own self-interest will make choices which will also tend to benefit the entire community

At last! A true statement about Adam Smith’s only use of the metaphor of an invisible hand and, importantly, the extension of it since (from mid-20th century) by others who imply it was from Smith’s writings.

In fact, Smith showed that individuals pursuing their own self interest may make choices that will benefit the whole community, but, on the other hand, and in a significant number of cases, such as pollution, fraud, monopoly, high prices, narrowing the competition, politically motivated taxation and subsidy policies, trade protection, prohibitions, import barriers, sanctions, wars for ‘frivolous ends’, colonies and ‘jealousy of trade’ – all of which initially are the ideas and actions of individual decision makers – cannot be said to be for the ‘benefit of the entire community’.

In Books I and II of Wealth Of Nations Adam Smith gives over 50 examples of individuals not acting for the ‘benefit of the entire community’, while in Book III and IV the numerous cases of non-socially beneficial actions of individuals that he discusses form the core of their content.

Remarkable! Aline van Duyn understands the dangerous role that modern versions of the invisible hand explanations have in policy discourse today, to which the critics of open markets and trade harmony are subjecting under the guise of mocking the myths of invisible hands with withering fire all across the media.

Cynics, like the one I quoted from only this week (in my response to Joseph Stiglitz in the New Statesman (UK)), who asserted that Lost legacy’s persistent efforts to correct those who have misused Adam Smith’s Legacy and who created and sustain the myth of the invisible hand, are more than complacent; they are complicit in their cynicism.

The truth is found by reading what Adam Smith wrote in his works and correspondence. The truth will out, despite the cynics...the struggle for the truth continues.



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