Friday, May 08, 2009

On Reducing Adam Smith to a Metaphor

Emanuel Derman writes in Emanuel Derman’s Blog: ‘ Economics as Economics’(7 May) HERE:

Last week I spent a day at the Perimeter Institute in Waterloo, Ontario. It's a sort of institute for advanced study devoted to theoretical physics, and they had a meeting on The Economic Crisis and its Implications for The Science of Economics (sic).

One thing occurred to me in connection with trying to create a workable economic theory. Everyone is motivated by analogies: economics as physics, economics as collective phenomena with phase transitions (cellular automota, agent-based theories, which sounds sensible) economics as a gauge theory with a local invariance group (which sounds beautiful but maybe overambitious), economics as evolution, economics as biology, economics as computational neurology.

But if you look at new theories that burst on the world successfully -- Darwin on the origin of species, Adam Smith on the invisible hand, Freud on the subconscious, Marx on capital -- they weren't driven by analogies. They looked at the world with fresh eyes and made up an explanation for what they saw. Not everything is a metaphor.”

Extraordinary thinking represented here, with deep irony too. Everything goes well for Emanuel Derman until his last paragraph.

Among ‘new theories that burst on the world successfully’, he includes Adam Smith. Allowing for a bit of hyperbole, we still have trouble recognizing that ‘Adam Smith on the invisible hand’ burst on the scene, which is more than a stretch of the imagination.

Adam Smith might be said to have ‘burst on the world successfully’, if by that is meant his Moral Sentiments and Wealth Of Nations, but ‘Adam Smith on the invisible hand’?

The invisible hand’ was hardly noticed for 100 years; some ‘burst’!

Worse, Smith who used the words once only in each book, certainly ‘looked at the world with fresh eyes and made up an explanation for what [he] saw’ but he did not use the ‘invisible hand’ as ‘an explanation for what [he] saw’.

Smith explained what he say, taking near on a million words in doing so.

Emanuel Derman, ironically is right: ‘Not everything is a metaphor’, but the invisible hand was a metaphor. It didn’t explain anything; it substituted for one!

Smith had already explained what he saw when he observed, analysed, and wrote about how markets worked in Wealth Of Nations (Books I and II). His use of the well-known, 18th-century literary metaphor, of ‘an invisible hand’ in Book IV, was not a ‘new theory’; it wasn’t even a theory, it was a simple metaphor, and was most certainly not comparable to, say, ‘Darwin’s Origin of Species, … Freud on the subconscious, Marx on capital’, or even Adam Smith himself on the nature and causes of the wealth of nations.

That 'Not everything is a metaphor' is absolutely right; so why does Emanuel Dearman reduce Adam Smith so precisely to the metaphor of 'an invisible hand'?



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