Sunday, May 23, 2010

On the Genesis of the Invisible Hand Myth from the 1950s No. 4

Edwin Mansfield: Economics: principles, problems, decisions, 1974. Norton & Co. New York, pp 16-18.

‘Smith spent much of his life as a professor of moral philosophy at the University of Glasgow in Scotland.

[Inset: Quote from Book IV.ii. 9: Adam Smith on the “invisible Hand” and Specialization, page 17.]

‘(Smith) was among the first to describe how a free, competitive economy can function – without central planning or government interference – to allocate resources efficiently. He recognized the virtues of the “invisible hand” that leads private interests of firms and individuals toward socially desirable ends, and he was properly suspicious of firms that are sheltered from competition, since he recognized the potentially undesirable effects on resource allocation’ (p.18).

Smith spent 13 years as a professor at the University of Glasgow (1751-64) and died when he was 67 (1723-90), which does not amount to ‘much of his life’.

‘Efficiency’ was not central to Smith’s thinking, at least to the extent that it became important to 20th-century economists.

He did not recognize ‘the virtues of the “invisible hand”’. A literary metaphor is unlikely to be considered to have ‘virtues’, other than those associated with its suitability for adding ‘beauty’ to its object in a ‘more striking and interesting manner’ (Adam Smith, Lectures on Rhetoric and Belles Lettres, (1763, p 29).

These misleading ideas were passed onto innocent students in their thousands, many of whom repeated them to their students, their readers, their viewers and their voters. Hence, the almost irresistible false provenance of the invented myths about invisible hands that dominates our discipline. It wouldn’t matter except that people believed them and acted – or didn’t – as the cases may be in the second half of the 20th century and the first decade of the 21st.

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