Monday, May 24, 2010

On the Genesis of the Invisible Hand Myth from the 1950s No. 5

Richard B. McKenzie and Gordon Tullock, Modern Political Economy: an introduction to economics, 1978, p. 111-12. McGraw-Hill, New York.

The ‘invisible hand’ passage is quoted at the head of chapter 7 and the sub-heading of the section is:

‘The Invisible Hand of the Market’.

[Mercantilists] were very skeptical that the “invisible hand of the market” could satisfactorily deal with such complex issues’ (p. 112).

‘Consumers get more of what they want at a lower price. In this way, the drive of self-interest acts like an “invisible hand”, guiding social order to an accumulation of improvements in social welfare
’ (p. 112).

I first bought and read McKenzie and Tullock in the mid-1970s and was very impressed with it. It was not used as a textbook for a course, though I recommended it to students as supplementary reading. Hence, I was disappointed to look through it again for this exercise.

The ahistorical statement about ‘mercantilists’ being ‘skeptical’ is a sign of the author’s detachment from reality – they knew nothing about the “invisible hand of the market” and would only know of the ‘invisible hand’, if they knew anything at all about it, as an expression used by theologians and in church sermons through the 17th and 18th centuries. In fact, nobody knew of the “invisible hand of the market” – not even Adam Smith! – until it was invented as an idea in the 20th century by modern economists.

As for ‘the drive of self-interest acts like an “invisible hand”’, that was part of the modern invention, which, be clear, is absolutely fine; it’s the attribution of these ideas to Adam Smith which is the target of Lost Legacy.

Out of respect for the two authors I shall refrain from further comment.

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