Saturday, November 21, 2009

Markets and Panglossian Invisible Hands

Scott Cooney, author of Build a Green Small Business: Profitable Ways to Become an Ecopreneur (McGraw-Hill) writes a slanted piece in Triple Pundit (‘people, planet, profit’) HERE: “Paul Hawken on the State of the Markets”:

To those that argue the efficient market hypothesis, based on Adam Smith’s theory that the ‘invisible hand’ of the markets will right our course and get us on a path to clean energy, Hawken responded that not only has this not occurred, but that the theories of the free market are even arguable at best. “Markets prove most of the people wrong, most of the time,” he said. Otherwise, they wouldn’t function. It’s a bit like Vegas.”

Scott’s article primarily is about environmental change, of which I have no comment, and while I have no particular sympathy with the “efficient market hypothesis”, or the rest of the apparatus of the omaginary mathematical markets without humans – a successor to the imaginary market beliefs of something vague called “Providence” inhabited by invisible gods and other superstitions – I am fairly certain, as I can be, that Adam Smith had little to do with any of them.

He certainly did not associate the invisible-hand metaphor with “markets”.

By observation, people make mistakes. Some people are sometimes “wrong” – have to be, otherwise how would a market work if everybody made the “right” decision, perfectly adjusting their efforts with infinite velocity to ever changing signal?

Adam Smith recognized these actualities in noting that ‘projectors’ who make mistakes and lose their capital (or anybody else’s) are in the same unproductive role of the prodigals. Losers of their capital do not reproduce their costs plus a profit, that is, they are unproductive.

Paul Hawken makes his case against markets by misquoting Adam Smith and attributing to him views out of context, which he did not hold. Paul believes certain of Smith's epigones, who justify their fantasy world of mythical general equilibrium outside of any known society of human beings, by trying to give their fantasies authority by linking them to the wholly innocent Adam Smith. They might as well call in Dr Pangloss for support.

[Apologies for not supplying references here, but my Adam Smith library (Glasgow edition of the Works and Correspondence of Adam Smith, Oxford University Press) is in another place - temporarily].

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