Saturday, December 04, 2010

The Invisible Hand Myth is No Answer to Sarcasm About 'Stamp Collecting'

I have regular correspondence on Adam Smith with readers across the world. When I do not post on Lost Legacy it does not mean that the campaign to recover his legacy is stopped. Far rom it. My correspondence continues also when I am posting here. What follows is from an email to a correspondent (the salutations at the beginning and end are deleted).

Smith’s prestige carries his use of the IH metaphor to its identification with unintended consequences, but what exactly does the IH do and how does it do it? Silence.

Hence, its supposed roles as the ‘IH of the market’, ‘self-interest’, ‘price mechanisms’, ‘supply and demand’, even something described as ‘magical’, deprive it of content.

If the consequential outcome of something is caused by everything, I fear for a ‘science’ that says so. It reduces or raises economics to theology. It denudes Adam Smith’s rhetoric to folk-lore. Science is supposed to be lot more specific.

It is the widespread ignorance of the long gap between Smith’s use of a popular 17th-18th century metaphor and its promotion to his ‘greatest idea’ in the 20th century that might explain why so many scientific names adopted the modern myth so wantonly and might explain why they endorsed these unwarranted claims without checking for themselves how the IH metaphor was promoted so successfully after Samuelson gave it such a boost in his Economics text (1948-2010).

None of the advocates of the IH myth have checked Smith’s writing on metaphors in Lectures On Rhetoric and Belles Lettres (1983 [1762-3], none so far have answered my observations on these points, none explain the long silence of Smith’s 18th-century contemporaries and his 19th-century critics (up to the 1870s), and none explain why very few early 20th-century economists (to the 1940s) raised the subject at all.

Poor David Hume’s fate of his great ‘Treatise…’, as he put it, ‘falling still born from the press’ in 1739-40, and Adam Smith’s fate to become, in the late 20th-century, world famous c.200 years after he died in 1790, not for a mass readership of his magnum opus, Wealth Of Nations, nor his Moral Sentiments (which he considered his ‘better’ book), but fame for the IH metaphor, without any recognition of his clear identification of the metaphor's ‘objects’, specifically, in Moral Sentiments, the mutual and absolute dependence of feudal landlords and their peasant serfs on the absolute necessity of labour for subsistence and subsistence for labour, and in Wealth Of Nations, the consequence of insecurity for their capital felt by some, but not all merchants, who preferred to invest locally rather than abroad. One led to the 'propagation of the species' (TMS) and the other (WN) to the increase in aggregate 'domestick revenue and employment' (not to general equilibrium).

Only because leading scholars among economists (Nobel prizewinners included) endorsed the misleading assertions about Adam Smith's view, which constitutes the IH myth, was it accepted by co-scholars in other disciplines without question. This was a breach of normal scientific caution, which would search for the documentary evidence to support what their economist colleagues claimed. The interpretations leading from the IH myth are convenient for advocates of mathematics in economics as a basis for claims to be a 'hard science' compared to other social sciences, but still dismissed by top physicists as akin to 'stamp collecting'.



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