Tuesday, February 17, 2009

A Myth Inside a Myth

Robert Stavins, writes The Myth of the Universal Market in Huffington Post, HERE:

Instead, self-interested producers and self-interested consumers meet in the market place, engage in trade, and thereby achieve the greatest good for the greatest number, as if "guided by an invisible hand," as Adam Smith wrote in 1776 in The Wealth of Nations. This notion of maximum general welfare is what economists mean by the "efficiency" of competitive markets.”

Er, no. Adam Smith did not use the qualifier ‘as if’ in front of “guided by an invisible hand”. In fact he did not write ‘guided by’: he wrote ‘led by’.

Neither did he address his single use of The Metaphor of 'an invisible hand' to “self-interested producers and self-interested consumers meet in the market place, engage in trade”. At least, I am referring to the Adam Smith born in Kirkcaldy in 1723 whose book, An Inquiry into the Nature and Causes of the Wealth Of Nations, was published in 1776.

Robert Stavins, writing on “The Myth of the Universal Market” may care to note he is ascribing to the Kirkcaldy Adam Smith a widespread, but nevertheless, absolutely wrong version (a real myth!) of a much misused popular 18th-century metaphor, which modern version was invented (not too strong a word) in the 1950s by many academic economists, including some Nobel Prize Winners.

From endless repetition since the 1950s to generations of students The Metaphor is now believed to be Adam Smith’s ‘theory’, ‘concept’, and ‘paradigm’ even. It is also common to add the wholly mythical qualifier, ‘as if’, which is totally absent from Adam Smith’s single use of The Metaphor in Wealth Of Nations (see WN IV.ii.9: p 456, Oxford University Press, or, page 423, in Edwin Canaan’s 1937 edition for Random House).



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