Thursday, January 29, 2009

A Scientist Rejects Belief in Invisible Hands

Simon A. Levin writes on the Essential Talks (Docs) Blog HERE:

Simon A. Levin is the George M. Moffett Professor of Biology and director of the Center for BioComplexity at Princeton University, where he founded the Princeton Environmental Institute.

"Ecosystems and Socioeconomic Systems as Complex Adaptive Systems"

“Yet while we may believe in the “invisible hand” that according to 18th-century economist Adam Smith steers our markets, we can’t leave the environment up to fate, Levin says: “There is no invisible hand that guides or preserves the biosphere
.”

Comment
Simon should know that Adam Smith said no such thing. His use of the metaphor of an invisible hand was not about how markets work (as outlined in Books I and II of Wealth Of Nations – where the metaphor is never mentioned).

He used the metaphor in Book IV of Wealth Of Nations, not about it ‘steering markets’; in fact, not about markets at all.

His single use of the metaphor was in relation to the consequences of the risk-avoidance of some merchants impelling them to invest their capital locally and not to take the greater risks of sending it abroad to such as the British colonies in North America.

Check it out in Book IV, chapter ii: ‘Of restraints upon the importation from foreign countries of such Goods as can be produced at Home’, pp 452-72.

Smith’s only reference to ‘an invisible hand’ is on page 456, after his full explanation of the merchant’s motivation, ‘he intends only his own security’, add the unintended consequences that as a result domestic output and employment are increased (the whole is the sum of its parts).

So not only are there no invisible hands guiding or preserving ‘the biosphere’; there ain’t one guiding or preserving markets either. That’s a modern myth invented in the 1950s by modern economists and believed now by many more who have not read the entire chapter ii in Book IV of Wealth Of Nations.

Labels:

3 Comments:

Blogger Don said...

In Smith's sense, is the Paradox Of Thrift a result of an invisible hand, only in reverse. By saving, the consumption is decreased.In other words, could the invisible hand result in the Paradox of Output in Smith's example?

Don the libertarian Democrat

2:31 am  
Blogger Gavin Kennedy said...

Thanks Don
I don't think so. For every 'paradox' there is an explanation (as with the original use s of the metaphor: Jupiter's invisible hand' is the credulous beliefs of Roman citizens; delusional rich landlords it was their confusing the beauties of ownership with the imperative that their labourers/serfs/slaves/retainers had to consumer a sufficient amount of his food in order to survive to work for hum again; in Wealth Of nations the merchants were driven to invest lcoally by their risk-avoidance from the higher risks, despite the higher profits, of foreign trade.

In short, the invisible hand was not mystical, dismebodies or a 'Godly' spirit.

In thrift, the revenue receiver 'saves' some portion to invest in interest earning (productive) lending; the borrower of the saving uses them by spending on productive uses, which generates employment and purchases equipment, buildings, materials, to earn profts, part of which return to the savers.

Whether consumption is 'decreased' is moot; they could spend it; refrain from spending and hide in a box; refrain from spending and lend it for profitable interest earnings. Smith said they would be prodigal if they chose the fiest option; 'crazy' if they chose the second; and 'normal' if they chose the first.

Motivations can be identified and the 'paradox' vanishes, and with it 'invisible hands'

3:16 pm  
Blogger Don said...

Thanks Gavin.

Don

1:35 am  

Post a Comment

<< Home