Wednesday, January 19, 2011

Using the Invisible-Hand Myth to Bash Markets

Charles Sullivan writes in Bear Market News Blog (HERE) (from something in the Guardian UK newspaper):

Capitalism, Market Fundamentalism, and the Duplicitous Meanings of Democracy

Private ownership of the means of production and the invisible hand of the market are two key components of modern capitalism. In reality, there is no ‘invisible hand’ of the market, as the proponents of free market capitalism contend. If there were, the global banking system would have collapsed long ago. We have only to lift the cloak of secrecy for the human fingerprints of manipulation to become plainly visible. A small cadre of the elite is manipulating everything.”

This is from a leftish Blog that believes the ‘ruling class’ runs everything, so it is not exactly a recantation from those responsible among academic economists for the myth of ‘an invisible hand’, leading even ‘selfish’ capitalists and as selfish consumers to the wonderful miracle of benefitting society, and to the even more miraculous outcome of perfect harmony between what suppliers supply and consumers want to consume.

The Left does not believe in the invisible hand (at least not since Oscar Lange tried to adopt the idea (circulating in Chicago in the 1930s) in 1938 and 1946 that it was something claimed by Adam Smith for free markets (It wasn’t, but that’s another and longer story), which in Lange’s view could be better performed by socialist planning in the Soviet Union, and in post-war Poland, later taken over by the Red Army.

This was followed by a staunch, rival claim from Paul Samuelson (of Chicago and MIT) in 1948 that the ‘invisible hand’ was Adam Smith’s “central idea”, applicable to perfect-market economies and, later, allegedly proved by Arrow and Debreu in advanced General Equilibrium mathematics.

Since then, the myth of Adam Smith’s ‘invisible hand’ has spread like a meme into the unthinking intellectual apparatus of graduate economists and the media/political/lobbying hordes who pass for informed opinion.

That the invisible-hand does not exist is not disputed on Lost Legacy. It never existed, and Smith’s use of the metaphor had nothing to do with what the post-late 1870s academics made of it.

That the invisible-hand had anything to do with the current crisis in state-managed capitalist economies is disputed. Metaphors do not have operational roles in the real world. Asserting that they do, literally is nonsense and an ideological alibi, in Bear Market News, to bash markets.

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