Sunday, March 28, 2010

Questioning the Myth of the Invisible Hand

Dave Cohen writes (27 March) for Decline of the Empire HERE

“Invisible Hand Goes Missing”

“For most of the last 3 decades, many influential economists embraced a theory that justified wholesale theft by the Finance industry because the magical powers of Adam Smith's Invisible Hand would always result in greater "efficiency" in the economy. It's as if Homo sapiens had suddenly stumbled upon a miraculous potion— this was framed as the efficient market hypothesis. Drinking this cleansing kool-aid would enable us to see clearly that Gordon Gekko was right, unfettered greed is good. Hundreds of years of economic history, and thousands of years of human history, could simply be tossed out the window. Move on, nothing to learn there

Yes, that just about sums up where the myth of the invisible hand has taken modern economics and Adam Smith’s good name with it.

Of course, Adam Smith did not say any of the things about the metaphor of ‘an invisible hand’ that is attributed to him, as pointed out on Lost Legacy scores of times.

Smith had no connection to allusions to ‘Homo Economicus’, Gordon Gekko’s ‘greed is good’, ‘efficient markets hypotheses’, or notions of ‘equilibrium’. In fact, the invention of Adam Smith from Chicago has hardly any connections with the Adam Smith from Kirkcaldy.

If more people came to realise this it would be much better for the practice of economic management and understanding.

It would be a start of Dave Cohen was to get up to speed on the derivation of the myth of the invisible hand, which has nothing to do with Adam Smith's use of the popular 17th-18th-century metaphor on two occasions only in his books, once in Moral Sentiments, 1759, and once in Wealth Of Nations, 1776 and neither case was about markets - I exclude his singular use of the metaphor in a student essay written when he was a student at Oxford on 'pusillanimous superstition' about Astronomy, 1744-50.



Blogger Michael Kruse said...

Just letting you know that I think you intended a link in the first line but it didn't appear. I hate it when that happens. :-)

3:42 pm  
Blogger Gavin Kennedy said...

Hi Michael

Silly me! I have now deleted the original reference so I cannot make amends; only my offer of apologies.

It wasn't noticed by me, otherwise I would have corrected it.



2:36 pm  
Blogger Keith said...

4:12 pm  

Post a Comment

<< Home