Monday, January 19, 2009

A Classic Spoiled by Mysticism

‘Chief’ posted (18 January) on Tragedy of the Commons (HERE):

the text of the near brilliant, but slightly flawed, short outline of the powers of markets, identified by Leonard Read’s essay “I, Pencil”, as a process of disconnected coordination, without planning, central directions, or anything other than human beings acting, reacting, and pro-acting, to opportunities signalled by prices, rumours, and probabilities.

Chief, however, tops his post with a short paragraph by Milton Friedman, complete with his mystical allusions to the metaphor of an ‘invisible hand’, which detracts from the ordinariness of human endeavour, as if markets contain pure and innocent spirits, sometimes attributed to the will of a living Deity.

Friedman’s introduction spoils the softer power of Read’s ‘I, Pencil’, leaving it trapped in what Adam Smith had called ‘Surprise and Wonder’ but well short of ‘Admiration’, which comes from knowledge, the final step of human understanding (See Adam Smith, posthumous, ‘The Principles which lead and direct Philosophical Enquiries; illustrated by the History of Astronomy, [1744-58: 1795], in Essays on Philosophical Subjects, pp 5-129; 1980, Liberty Press).

‘Savages’ claimed their lives were ruled by invisible beings in everything they could not understand. Philosophers, wrote Smith, uncover the ‘connecting’ and ‘invisible links’ of events and, as a result, science marches on.

Milton Friedman and Leonard E. Read, both of whom made outstanding contributions in their writings, in this matter, however, both of them unintentionally led their readers away from understanding towards mysticism, only a step of two away from what Smith called ‘pusillanimous paganism’.

They became responsible in part for an unscientific sediment in political economy which wraps the ordinariness of human markets that are perfectly understandable within economics and without invisible body parts.

Markets operate without the mumbo jumbo of divine purpose (an unholy notion, I would have thought, linking the honest man from Galilee with the global market economy), and without the widespread populist belief in, not the simple literary metaphor used by Adam Smith for another purpose (see Lost Legacy passim), and without actual ‘invisible hands’, as if they really exist in the world in general and in markets in particular.

You can (and should) read Leonard Read’s ‘I, Pencil’ HERE:

Leonard E. Read (1898-1983) founded FEE in 1946 and served as its president until his death.

"I, Pencil," his most famous essay, was first published in the December 1958 issue of The Freeman. Although a few of the manufacturing details and place names have changed over the past forty years, the principles are unchanged.

'I, Pencil' reported that his ‘official name is "Mongol 482." My many ingredients are assembled, fabricated, and finished by Eberhard Faber Pencil Company’

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Blogger michael webster said...

You will probably like this short note by Samuelson.

"Arguably this general notion might be traced back to Adam Smith’s legendary Invisible Hand, which led society unconsciously
to achieve the maximal “general good.” Individual avarice, under market checks and balances, achieved this happy
state. Amore sophisticated version of the same idea came in the 1890s from Pareto (1896–97) and Barone (1908), long before
Arrow-Debreu breakthroughs. Pareto deduced the mathematical theorem that the determinative equations of Walrasian
general equilibrium mimicked exactly the maximizing welfare conditions for utopias."

Perhaps economists should talk about markets, matching mechanisms with rules, as opposed to the market.

There is nothing invisible about rules or regulations.

2:37 pm  
Blogger Gavin Kennedy said...


Many thanks for the reference, which is an inteesting insight into some old debates.

Pail Samueson did much to propagate the myth of the invisible hand (his Economics text went to 13(?) editions, influencing tens of thousands of economists, on and off campus.

I consider the search for a general equilibirum theory a diversion (it misled growth theory, for instance).

I agree we should start over by recognising decentralised markets (plural) and how they actually operate, rules softly bound, with intrusions from formally disconnected events and nominally connected events (governments, agencies, politics, lobbyists, protest NGOs, and the stuborn behaviours of people).

In Smith's world he did not expect, nor find, that 'society unconsciously
achieve[d] the maximal “general good”, nor did he postulate how it might.

3:23 pm  

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