Thursday, August 26, 2010

A Marxist the Invisible Hand and Capitalism

It was bound to happen – the myth of the invisible hand has given comfort to modern economists and to legislators and those who influence them, but it also become a hostage to fortune for neoclassical economists, because sooner of later the alleged powers of the metaphor would be found wanting in practice and they would be clobbered, where not mocked, by those who believed what they had been told about the invisible hand (a fairly predictable experience in the recent crisis).

Moreover, those few of us who have read what Adam Smith actually wrote and then contrasted with what has been claimed by some modern economists (Nobel Prizes winners among them). Lost Legacy has been plugging away trying to right the wrong done to Adam Smith’s legacy.

Below, is the comfort expressed by a self-declared Marxist (David Ruccio) who uses my academic case against the myth of the invisible hand to clobber capitalism, predictably. HERE:

DR: Take a course in neoclassical economics or listen to a neoclassical economist and you’ll soon learn of the magic of the invisible hand. And you’ll learn that the invisible hand was Adam Smith’s great contribution to modern economic thought.

Much of the rest of Smith is discarded or simply ignored. The labor theory of value. The role of trust and sympathy in allowing markets to operate. The need for public education in a world in which labor is often reduced to drudgery. And so much more.
But the invisible hand remains. The problem is, the invisible hand is an idea that Smith only invokes twice in his main texts—once in the Wealth of Nations, and once in the Theory of Moral Sentiments.

And, as Gavin Kennedy has been arguing, the invisible hand is a metaphor was not about markets, regulated of otherwise and in none of the three cases that he uses it was it about markets. The belief that he did refer to markets is a wholly invented myth by modern economists from the 1950s. [The third example Kennedy refers to is in Smith's Astronomy.]
Why does it matter? According to Kennedy:

GK: “If you insist that the ‘invisible hand’ is real, actual, or has content, you take on a wholly fictitious metaphysical idea (‘the hand of God’ or such like construction), which is theology not economics.

“My assertion that the metaphor was not used by Adam Smith in relation to markets is based on the close reading of his uses of it. Samuelson and others asserted that it was elated to markets, without a scrap of textual evidence – its is not mentioned in Books I and II of WN, which deal in detail with the workings of markets. Also, his use of it was hardly mentioned by political economists, while Smith was alive, nor for long after he died. Strange for a cardinal principle?”

“And that’s what we’ve been getting in recent years: a theology of free markets, justified by a powerful metaphor—the invisible hand—for which neoclassical economists have worked to invent a tradition beginning with Adam Smith

This is part of my beef with invisible hand myth. It erects a wholly unsupportable expectation on a very thin reed, which was bound to disappoint its true believers and those innocents who relied on its supposed benefits (no wonder the metaphor is appropriated regularly by theologians).

That a Marxist is hostile to the myth is not surprising; the myth obscures the real power of bottom-up markets which have done more good for humanity than all the top-down state-sponsored tyrannies that have existed since ancient times.

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