Tuesday, June 23, 2009

On the 'Efficacy and the Efficiency of the Invisible Hand'

Du Won Kang writes in The Epoch Times (HERE): “Pathological Nature of Corporations Not Changed, Say Scholars
in which he has this piece:

“Mistakenly Invoking Adam Smith to Justify Amoral Pursuits”

“According to Ira Jackson, Former Director of Center for Business and Government at the Kennedy School of Harvard University, it is inappropriate for Friedman and others to so often refer to Adam Smith to justify the greedy and amoral pursuit of profits.

Jackson says, “Adam Smith... believed very much in the efficacy and the efficiency of the invisible hand and also wrote as a moral philosopher about the obligation and need for businesses to extend a helping hand… if we go back and actually read Adam Smith, we see that the author… in fact was a moralist himself.” (The Corporation, DVD)

According to Bakan, to base a social and economic system solely on self-interest and materialistic desire is dangerously fundamentalist. He says that this rests on “a distorted and incomplete conception of human nature” because self-interest and materialistic desire are parts of who we are, but not all.

Bakan adds, “No social and ideological order that represses essential parts of ourselves can last, a point as true of the corporate order as it was for the fallen Communist one


Comment
I am not familiar with Ira Jackson (though he has a pedigree of some standing), and I know nothing about Du Won Kang. That he writes, apparently:

Adam Smith... believed very much in the efficacy and the efficiency of the invisible hand and also wrote as a moral philosopher about the obligation and need for businesses to extend a helping hand… if we go back and actually read Adam Smith, we see that the author… in fact was a moralist himself”, suggests it has been a long time since he read Adam Smith, either in his Moral Sentiments (1759) or his Wealth of Nations (1776).

What Ira appears to have read recently, and throughout his distinguished career, are the assertions of most modern about what Adam Smith was supposed to have written, but didn’t.

Adam Smith never believed in “the efficacy and the efficiency of the invisible hand” and never wrote anything remotely like that in either of his books.

He only used the metaphor of ‘an invisible hand’ once each in those two books (and once in reference to the Roman heathen god, Jupiter, in his early essay on Astronomy, published posthumously in 1795). That make only three times in over a million words, and in none of these cases did his references have anything to do with markets.

Strange, given the modern claims of reputable economists, who should know better, plus the thousands of people who simply copy from Google the assertions of economists, that where Adam Smith writes about markets and how they work, such as in Books I and II of Wealth Of Nations, he never mentions the invisible hand at all.

The myth of the ‘efficacy and the efficiency of the invisible hand’, for myth it is, cannot be found in Adam Smith. It was an invention in Chicago in the 1930s and was spread widely from 1948 by (Chicago and Harvard graduate), Paul Samuelson in the 18 editions of his famous textbook, Economics, and by Milton Friedman and George Stigler in their numerous popular lectures and columns, until it is now believed to be true.

I suggest that Ira Jackson, and all other believers in the myth of the ‘invisible hand’, try reading Adam Smith’s Wealth Of Nations (Book IV, chapter 2, paragraphs 1-9, page 456).

They could also read my paper, ‘Adam Smith and the Invisible Hand: from metaphor to myth’ (HERE) in which I state the case for my assertions above.

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