Monday, February 28, 2011

What Does the Modern Invisible Hand Add to Visible Prices in Markets?

Lisa Szefel writes (28 February) a review, in Cutting Edge (HERE), “The Age of Fracture: An Intellectual of America and the Twentieth Century”, of The Age of Fracture by Daniel T. Rodgers. Harvard, 2011:

Rodgers argues that in the 1940s and 1950s, social scientists and political philosophers established the terms of the debate on a range of issues concerning the self and society, obligations and justice, morality and destiny. To these postwar intellectuals, ideas had severe consequences, contexts and nature constricted human action, and history loomed very large indeed. While the turmoil and chaos of the 1960s caused tremors, it was not until the quakes of oil embargoes, unemployment, and inflation in the 1970s, that fault lines in this ideological consensus emerged. Into this breach, a lexicon of microeconomic principles, which had been forming for decades in libertarian circles that stressed agency, contingency, and reason emerged, promising solutions to seemingly intractable problems of disco-era stagflation. Instead of focusing on property and production, workers and owners, these economists celebrated instead the slight of (an invisible) hand that produced wealth and fostered the virtues of competition.”

At least Daniel T. Rogers does not ascribe the “invisible hand” doctrine invented by post-war Modern economists to Adam Smith.

But that does not save that doctrine, while welcomed by Lost Legacy, from critical scrutiny. It moves the criticism to another level, including asking of what does the so-called invisible hand contribute to the known workings of the market.

Among these long known working is the irreducible fact that market transactions are signaled and negotiated by very visible prices. Indeed, markets cannot work without that visibility.

So what then does an imagined invisible hand bring to the known workings of markets?

The silence and obfuscation from proponents of the modern invisible hand doctrine in not answering the question is itself a condemnation of the doctrine, which ought to be embarrassing to its proponents, many of whom are in the highest ranks of the discipline.

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