A Malaysian Economist On the Invisible Hand
Hishamh, an applied and practicing economist in the Malaysian financial sector. writes on Economics Malaysia writes the Economics Malaysia Blog HERE:
“I’m not a free market fundamentalist, nor do I believe in the doctrine of self-correcting markets. To me, market failure is as likely an outcome as well-functioning markets – we are after all dealing with human beings who are fallible. There is no “invisible hand” that infallibly guides markets to the first-best outcome that maximises social value and welfare. On the other hand, the market mechanism is infinitely superior to the alternatives – so in that sense, [Former prime minister Tun Dr Mahathir Mohamad ] has it right. Markets need regulation to ensure that they remain efficient and fair.”
Comment
Hishamh is right on his assessment of the so-called ‘invisible-hand’ myth that has entrapped its believers among modern economists. Incalculable harm has been created by this gross distortion of Adam Smith’s use of this particular metaphor.
Markets are very visible – they would not work if they were invisible!
Whether markets would work without the rule of law, justice and competition is highly debateable. While libertarian in outlook, I am not an anarcho-libertarian. (Liberty is more important than democracy.)
I think we should be pragmatic in all things. ‘Men of System’, as Adam Smith called them, are dangerous meddlers, whether peddling so-called laissez-faire or statist-interventionist.
Much more sensible – and safer – to advocate and practice ‘markets where possible, state intervention where necessary’, which I believe is closer to Adam Smith’s legacy.
“I’m not a free market fundamentalist, nor do I believe in the doctrine of self-correcting markets. To me, market failure is as likely an outcome as well-functioning markets – we are after all dealing with human beings who are fallible. There is no “invisible hand” that infallibly guides markets to the first-best outcome that maximises social value and welfare. On the other hand, the market mechanism is infinitely superior to the alternatives – so in that sense, [Former prime minister Tun Dr Mahathir Mohamad ] has it right. Markets need regulation to ensure that they remain efficient and fair.”
Comment
Hishamh is right on his assessment of the so-called ‘invisible-hand’ myth that has entrapped its believers among modern economists. Incalculable harm has been created by this gross distortion of Adam Smith’s use of this particular metaphor.
Markets are very visible – they would not work if they were invisible!
Whether markets would work without the rule of law, justice and competition is highly debateable. While libertarian in outlook, I am not an anarcho-libertarian. (Liberty is more important than democracy.)
I think we should be pragmatic in all things. ‘Men of System’, as Adam Smith called them, are dangerous meddlers, whether peddling so-called laissez-faire or statist-interventionist.
Much more sensible – and safer – to advocate and practice ‘markets where possible, state intervention where necessary’, which I believe is closer to Adam Smith’s legacy.
Labels: Invisible Hand, Laissez-Faire, Libertarianism, Liberty
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