ADAM SMITH’S LOST
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The market, explains Hayek
is “the result of human action but not of human design.” I agree wholeheartedly with that statement. The problem comes next when we try to explain how the processes of human action become the outcome known as market solutions.
I am not convinced that the concepts of 'spontaneity', or 'invisible hands', in their modern guises (since the 1950s) advance science as an explanatory mode for understanding complex fields like markets, social change, and social evolution.
The problem I have with ‘spontaneity’ is in its inadequacy for explaining how markets work; it substitutes a conclusion (spontaneity) for a process. In its ‘invisible hand’ guise, I have criticised it on Lost Legacy for its mystical tones. It is a particular target for my criticism of modern attributions to market forces, though in fact, markets have been well understood since Adam Smith’s
days. He did not need, nor did he use, an ‘invisible hand’ non-explanation to analyse market exchanges through price signals in Books I and II of Wealth Of Nations
, though modern economists slip the metaphor in at every opportunity and, today, many believe that the metaphor of 'an invisible hand' is the explanation.
Human action in markets has history behind it. The propensity to ‘truck, barter, and exchange’ did not appear spontaneously; it was not an innate faculty that humankind were born with. It emerged over untold millennia and, in a sense, it still is emerging in its contests with that prime alternative to voluntary exchange, that of violent plunder, theft, and coercion, which I have attempted to explain in my papers, The Pre-History of Bargaining
, Parts I and II; and about which I may soon be re-writing into an accessible book.
People learn, as they do in most cases of human-to-human exchanges, to barter and exchange through processes like mutually beneficial reciprocation (‘quasi-bargaining’), Gift exchanges common to all human cultures, and the simultaneous exchanges of modern bargaining, all of which have a long history and pre-history. I agree with Jim Otteson
that people are engaged in exchange across a wide variety of social fields (Otteson, J
. 2002: Adam Smith’s Market Place of Life’
, Cambridge University Press).
Human knowledge is passed on and absorbed by generations in all aspects of life, which need not mean that lessons once learned are adopted, but neither do they need to re-invent everything in the knowledge base. But humans are thinking actors as well, and the proclivity of trying to ‘improve’ how they and others act is ever present, not least because any form of human action has positive and negative outcomes (if only in the opinions of some observers).
My main consideration in this post is not to present a new theory. That themes of modern ‘explanations’, such as ‘spontaneous order’, and, to an extent, that of the attribution to Adam Smith
of what modern economists call the ‘invisible hand’ phenomenon, do not explain, indeed obfuscate, what Adam Smith
stated was the purpose of philosophical science, namely, to reveal the ‘connecting principles of nature’, which ‘abounds’ with:
‘events that appear solitary and incoherent with all that go before them’… ‘by representing the invisible chains which bind together all these disjointed objects, and endeavours to introduce order into this chaos of jarring and discordant appearances, to allay this tumult of the imagination, and to restore it, when it surveys the great revolution of the universe, to that tone of tranquillity and composure which is both most agreeable in itself, and most suitable to its nature
’ (Adam Smith
: 'History of Astronomy'
, II.12: pp 46-47).
General themes, such as ‘spontaneous order’ and ‘invisible hand’ explanations move away from science in my, necessarily, humble view, in contrast to Smith's
use of the example of uncovering the ‘connecting links’ with his parable of the loadstone under the table actually moving the pieces of iron on the table, which an uninitiated observer thinks are moving miraculously on their own! But once explained by the physics of magnetic fields, the ‘miracle’ (such as an invisible hand explanation) disappears (Smith
, 'History of Astronomy'
, II.5 p 40, 42), but when it is left unexplained, notions of ‘mystical’ orders and ‘invisible’ body parts, take on a credibility of their own
In Moral Sentiments
and Wealth Of Nations
, on the two occasions only where he uses The Metaphor of an invisible hand, he explains the cause of the supposed 'miracle' first and introduces The Metaphor last. I think the science of the explanation is more important than The Metaphor, and I offer the thought that we should concentrate on the science, not The Metaphor.
Taking my analysis of Adam Smith's
two cases (the Astronomy incident of the Roman god Jupiter, is sui generis
), I have shown exactly what Smith
indicated were the causes of the so-called invisible hand 'events'. In Moral Sentiments
, the landlords did what they could not avoid doing in three ways: first, they used some proportion the food output from their land for their own consumption (not all of which went into their limited stomachs - they could also 'sell' some amount of the food output for purchasing other goods that were not restricted by the size of their stomachs - jewellery, fancy clothes, artefacts, and luxuries, or their consumption of their profits); secondly, they used another proportion of the output for next year's sowing (no seeds, no food); and thirdly, they paid some of their output as the subsistence for their peasants and their families to survive the winter to do next season's farming, herding, and so on. All fully explained; no 'invisible hand' at work; we can see the loadstone!
In Wealth Of Nations
, he described how the psychological state of degrees of risk-avoidance led some wholesale merchants to trade with the colonies for compensating higher profits, under a regime of the monopoly Navigation Acts and the power of the Royal Navy; and he described the circumstances that led some other merchants to invest locally, even for lower, or not much less of the same profits, which added to national output (because the whole is the sum of its parts – the more parts the larger the whole). Again no need for an invisible hand, except as a metaphor, which is the proper use of metaphors (Adam Smith: Lectures in Rhetoric and Belles Lettres
Briefly, I think the science of the explanation for events is far more important than the themes of 'spontaneous order' and the metaphor if an 'invisible hand'. I offer the thought that we should concentrate on the science and not the themes.
Labels: Invisible Hands, Spontaneous Order