Monday, June 06, 2011

"Absent Clockmaker"?

A. R. Samson writes in Business World On Line HERE:

‘Fruit salad’

‘Economists like to correlate different sets of variables to come to a conclusion like when interest rates rise, inflation is expected to go down as a result. But it is important to group variables that are common and therefore do not taint the conclusion. For instance, a connection can be made between the schedule of a boxing match of the nation’s favorite sports icon leading to light traffic, lower mass attendance, and a drop in crime rate.

Another example of this fruity fallacy is the expectation that when there is an increase in money supply, the economically illiterate checks his savings passbook to wonder why his cash balances remain the same. Confusing macroeconomics with personal finance is yet another case of mixing apples and oranges.
Except if you count them both as fruits, apples and oranges are not supposed to be lumped together as if they are identical. Unrelated statistics being wrongly used together constitute the fallacy of mixing apples and oranges.

But like the economic ideas they usually illustrate, our two fruits seem to have dominated the metaphor for irrelevance. Economists do not easily switch imageries. Why is the "invisible hand" (driven by greed and selfishness with no regard for the common good) used as the image for a free market which is unfettered by regulations save supply and demand and perfect information? Why not use the philosopher’s favorite image of the "absent clockmaker" to represent the sometimes chaotic functioning of the universe as if no one is in charge?’

The short answer is that the misleading belief in ‘an invisible hand’, wrongly attributed to Adam Smith, is an invention, a myth, now endemic among many practicing modern economists, and, sadly, confirmed by some historians of economic thought who should know better (I’ve tried my best to refer them to Adam Smith’s texts, but, I suppose the attractive pull of their own modern agenda for what makes markets work is too much to forego).

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