Saturday, October 25, 2008

The End of Invisible Hands?

Hartmut Fischer and Bruce Wyndick (professors in the department of economics at the University of San Francisco) write in the San Francisco Chronicle, 24 October, with contribution from with their department colleagues, professors Jacques Artus, Michael Lehmann, John Veitch and Sunny Wong, HERE:

“Test your economic meltdown IQ”

“Greetings Economics 101 class. As you are well aware, we are living in perilous economic times. Adam Smith's invisible hand, which we studied with admiration in the first week of class, appears to have annihilated a significant portion of our economy. The crisis has entirely reshaped the presidential campaign just days before election day

Follow the link for the answers and then the questions in their article, but my interest is not in the intellectual ‘fall out’ from the financial crisis. It is in the seeming ‘confession’ that the professorial instructors teach (at least until the second week of term) the mythical theory of the invisible hand of the market, gratuitously attributed to Adam Smith, the moral philosopher, born in Kirkcaldy, Fife ( 1723-1790).

This attribution likely would offend many authors who used the invisible hand metaphor before Adam Smith (some of them were contemporaries of Adam Smith), because we know how possessive academics and literary figures are about their prior use of an idea, a phrase, or a metaphor.

Among these authors who have legitimate claims for the metaphor to be associated with their names we have:

Homer (Iliad, 720 BC); ‘And from behind Zeus thrust him [Hector] on with exceeding mighty hand’;

Horace, Fulminantis manus Jovis (‘The mighty hand of thundering Jove’);

Ovid of Caeneus at Troy: ‘twisted and plied his invisible hand,inflicting wound within wound’;

Lactantius (De divinio praemio, c.250-325): early use of ‘invisibilis’;

Augustine, 354-430AD, “God’s ‘hand’ is his power, which moves visible things by invisible means’;

Shakespeare, (1605) ‘Thy Bloody and Invisible Hand’;

Glanvill, J. 1661. ‘nature work[ing] by an invisible hand in all things’; ‘invisible intellectual agents’;

Voltaire (1694-1778) in (1718): “Tremble, unfortunate King, an invisible hand suspends above your head’; and ‘an invisible hand pushed away my presents’;

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 (1735) an “invisible hand” has sole power over “what happens under our eyes”;

Charles Rollin (1661-1741), whom Pierre Force describes 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”;

William Leechman (1755): ‘the silent and unseen hand of an all wise Providence which over-rules all the events all the events of human life, and all the resolutions of the human will’;

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 (1761) (a translator of Hume) refers to fresh water as “those basins of mineral water, prepared by an invisible hand”;

Walpole, H. 1764. ‘the door was clapped-to with violence by an invisible hand’

Reeve, C. (1778) ‘Presently after, he thought he was hurried away by an invisible hand, and led into a wild heath’. ”

[The sources of these references are listed in my paper: “Adam Smith and the Invisible Hand: from metaphor to myth”, presented at the History of Economic Thought, 40th Anniversary Conference, September, 2008: available for download; send for an electronic copy from: gavin AT negwebDot com)]

The professors from the University of California apparently inducted their innocent students into the myth that the metaphor had something to do with economics as taught by Adam Smith. So much were they enthused by the miraculous powers of the metaphor that they “studied [it] with admiration in the first week of class”.

Unfortunately, events apparently intruded because the mystical invisible hand now “appears to have annihilated a significant portion of our economy”, which is an amazing accomplishment for an entity that does not exist and never has existed, and particularly not in Adam Smith’s political economy.

That it exists, or not as the case may be now, was an invention of some modern economists from the mid-1950s who invented mathematical models to prove the existence of a theoretical general equilibrium in a mythical economy (Debreu and Arrow - for which they won their Nobel Prizes).

This myth passed through economics graduates and tutors like an infection, and was spread by politically motivated economists to politicians of a rightwards disposition until it quickly became a mantra for all kinds of ideological propositions that seemed to exculpate corporations and governments (two social structures that were never as non-aligned as its proponents implied) from responsibility for their conduct - whatever they did had social benefits in extreme versions, though clearly a counter-factual if they looked outside their windows.

That this was claimed to be done in the name of Adam Smith’s life’s work only had credibility because neither the originators of the myth nor its proponents actually read or were familiar with Adam Smith’s Works, which actually had no illusions about how ‘merchants and manufacturers’, even in the early stages of commercial economies, would behave when they aligned their interests with legislators and the people who influenced them.

This was true in Adam Smith’s lifetime – indeed, Wealth Of Nations includes a stern polemic against the ‘mercantile political economy’ which dominated British state-managed economic relationships – and it has been true ever since.

Since the western economies grew as they did to produce opulence on a scale never reached in history which, contrary to Karl Marx raised mass living standards to unprecedented levels, they have continued to practice much of the mercantile political economy criticised by the Adam Smith born in Kirkcaldy, though sadly lacking in the mythical world of the Adam Smith invented by economists in the environs of 59th Street, Chicago.

Clearly, the six good professors of the department of economics at the University of California, perhaps unwittingly, have been complicit in this deception. They can check this out by turning to the opening two books of Wealth Of Nations, which are about how commercial economies in Smith’s day operated without him making a single mention of ‘an invisible hand’. Strange!

They can also turn to Book IV, which contains the only mention of ‘an invisible hand’ in Wealth Of Nations (on page 456 of the Oxford University Press ‘Glasgow Edition’), which is also strange because Book IV.ii. is about the risk avoidance of some, but not all, merchants when choosing between sending capital abroad or investing it locally.

This ought to cause them to ponder how this was made into a convenient ‘theory of markets’ by overly zealous scholars seeking, dare I say, a ‘quantum of solace’ for their general equilibrium abstractions which are well short of confirming that such entities existed in the real world – a bit like the theory of the ‘ether’ to explain what ancient physicists did not yet understand’. And once they understood the physics they abandoned the theory of the ether.

I hope the same response will follow once our six economists understand how Adam Smith from Kirkcaldy understood how markets work - without invisible hands.



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