On Regulation
Johann Hari a columnist writing in the Independent (UK) HERE
this article:
“The Banks Have Not Been Reregulated by Our Corrupt Politicians. So Get Ready for the Next Crash”
“Many people predicted that the invisible hand of the market would push the economy over a cliff.”
Comment
I’d call it selective memory syndrome. However, of what this so-called ‘invisible hand of the market’ consists remains a mystery.
Long since Cantillon described how markets work (1755) and Adam Smith came to similar conclusions in while writing Books I and II of Wealth Of Nations in Kirkcaldy I1767-73), which was published in 1776, the way markets worked was widely known.
At no time did Adam Smith write about, or apply, the invisible-hand metaphor to markets, as discussed many times - and relentlessly- on Lost Legacy, but no apologies for that).
That he did is pure invention, as is the related invention that Smith opposed all regulations. Ironically, he specifically suggested that banks should be regulated in the face value of the promissory notes they issued (Wealth Of Nationa, Book II.ii.94: 324) though he admitted this would be a “gross violation of natural liberty”.
[Given what we may call the “iron law” of regulation – ‘one regulation is always followed by another’, I do not doubt if circumstances caught the attention of Adam Smith, his life-long pragmatic tendency would have addressed them, perhaps in favour of necessary regulation.]t
It is to be hoped that Johann Hari would acknowledge this.
this article:
“The Banks Have Not Been Reregulated by Our Corrupt Politicians. So Get Ready for the Next Crash”
“Many people predicted that the invisible hand of the market would push the economy over a cliff.”
Comment
I’d call it selective memory syndrome. However, of what this so-called ‘invisible hand of the market’ consists remains a mystery.
Long since Cantillon described how markets work (1755) and Adam Smith came to similar conclusions in while writing Books I and II of Wealth Of Nations in Kirkcaldy I1767-73), which was published in 1776, the way markets worked was widely known.
At no time did Adam Smith write about, or apply, the invisible-hand metaphor to markets, as discussed many times - and relentlessly- on Lost Legacy, but no apologies for that).
That he did is pure invention, as is the related invention that Smith opposed all regulations. Ironically, he specifically suggested that banks should be regulated in the face value of the promissory notes they issued (Wealth Of Nationa, Book II.ii.94: 324) though he admitted this would be a “gross violation of natural liberty”.
[Given what we may call the “iron law” of regulation – ‘one regulation is always followed by another’, I do not doubt if circumstances caught the attention of Adam Smith, his life-long pragmatic tendency would have addressed them, perhaps in favour of necessary regulation.]t
It is to be hoped that Johann Hari would acknowledge this.
Labels: Adam Smith on Regulation, Invisible Hand
2 Comments:
Not that it makes a lick's worth of difference. But if you're going to distinguish between when Smith wrote WN and when it was published, you might indicate that Cantillon wrote his treatise before 1734 (date of his mysterious "death"/"murder"/whatever in a London fire). It was circulated privately, mostly in France (where Hume may have been exposed to it?) for nearly two decades before it was published.
Keep up the impossible fight!
Yes, I am aware that Cantillon's manuscript circulated after he wrote it from 1734. We know also that Smith read it (he quotes Cantillon in Wealth Of Nations and, as Mark Thornton reminds us, he appears to have used it also (his editors thought so too; they identify 37 instances of similar ideas in WN).
My point was that market ideas were known for longer than WN from 1776 - Smith also taught them from 1751-64 at Glasgow as a subject within his Lectures On Jurisprudence. There was no need to mystify about how markets work.
The invisible hand metaphor refers to a specific group of merchants reacting to a specific concern that the 'domestick trade' was more secure than the foreign trade, which motivated them to trade locally.
There was no invisible handing guiding all merchants behavior in markets. If there was then the insecurity of the merchants specifically indentified by Smith would not have been mentioned.
Thank you enabling me to make this point.
Gavin
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