Wednesday, April 22, 2009

Maxedoutmama joins the fray

Maxedoutmama’ posts a most interesting and imaginative explication of Adam Smith’s views related to the current financial crisis (HERE):

I Digress: Taking a break from the somewhat grim global economic news:

”I always feel embarrassed to use a non-journalist's name when I am pointing out that someone's assertions are lunatic, so I won't cite the author's name. Instead, I will confer a charitable anonymity by using the sobriquet "Wonder Dummy" for the author henceforth.

The basic theme of Wonder Dummy's post:

‘Adam Smith first coined the term “The Invisible Hand” in his important book “The Wealth of Nations.” With this term he was trying to capture the idea that the marketplace would be self-regulating. The basic principle of the invisible hand is that though we may be unaware of it, an unseen hand is constantly prodding us along to act in line with what’s best for the whole economy. This means that when this invisible hand exists, when we all pursue our own interest, we end up promoting the public good, and often more effectively than if we had actually and directly intended to do so. This is a beautiful idea, but the question of course is how closely it represents reality.

Do you recognise the author whom ‘Maxedoutmama’ quotes? I posted my criticism of him yesterday (Clue: he’s at Duke University).

Maxedoutmama’ continues:

Of course the answer to the question is preordained by this careful miscast of Adam Smith's main assertion. That assertion is that economic efficiency is best for the economy, and that economic efficiency can best be attained by not interfering with prices in the marketplace. In fact, I suspect that Wonder Dummy has never read Adam Smith. I prefer to be charitable and assume that Wonder Dummy is not knowingly lying in order to lend credence to a meme that is currently popular, if completely wrong.”

And she recommends reading Adam Smith’s Moral Sentiments and Wealth Of Nations:

If you want to find out what Adam Smith (1723-1790) really said, you can find most of his writing online….Adam Smith was no superficial thinker, and his economic musings were not based on an unrealistic view of mankind… To which I must add … my favorite Adam Smith quote:

‘What can be added to the happiness of the man who is in health, who is out of debt, and has a clear conscience?

To which she adds a remark about Dan Ariely’s transmutation of the invisible hand into ‘government debt’:

What a surprise. In fact, those who have actually read Adam Smith know that the "invisible hand" is used in the context of government control of trade, specifically, protectionist tariffs against foreign goods. The discussion is found in Chapter 2 of Book IV "Of Systems of Political Economy" …

“In short, this is about what governments can and cannot accomplish. Chapter 2 begins as a discussion of government-granted monopolies to domestic industries, and continues as an explication of the harm that such monopolies cause to the general welfare

The rest of the post by ‘Maxedoutmama’ is on the details in the chapter which mentions the metaphor of an invisible had and the causes of the current crisis, and you should read it in detail (follow the link above).

While enjoying the skewering of Dan Ariely’s version of the invisible hand, I have reservations about Maxedoutmama’s version too. The survey of the build-up to the singular use of the invisible hand metaphor demonstrates that she has read Wealth Of Nations, which is an improvement on Dan’s version.

However, it neglects the specific details of the risk-aversion of those merchants who prefer the home trade to foreign trade. In doing so, it swaps a more realistic role for The Metaphor for the unrealistic and imaginative role accorded to it by Dan Ariely.

Thus, though more authoritative that Dan’s, ‘Maxedoutmama’s version is too close to the orthodox version, and also implicitly accepts some role for The Metaphor, when in my opinion it is just a literary metaphor.

However, congratulations to ‘Maxedoutmama’ (she seems to have the rhetorical punch of Deirdre N. McCloskey, of the University of Illinois) for her valiant efforts against Dan’s error.

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