Monday, November 21, 2011

Mark Blaug and the Invisible Hand

Roger Backhouse has announced the death of Mark Blaug, an historian of economic thought, who influenced me, and many other young economists in the 1960s. His authoritative book, is still quoted regularly, particularly his great Chapter 2 in Adam Smith: “Economic Theory in Retrospect” [1962] 3rd edition, 1978, 2002, Cambridge University Press.

He also had many other publications in the scholarly. Roger Backhouse writes: “Ruth Towse has just given me the news that Mark died, peacefully at home, on November 18th. He had been very ill for the past year.”

I reprint below a post of mine on Mark Blaug from 28 April, 2010, on Lost Legacy, as my short tribute to Mark’s memory:

“Mark Blaug's Criticism of the 'Historical Travesty' of the Myth of the Invisible Hand”

Paul Walker, a regular reader of Lost Legacy, commented on yesterday’s post with a quotation from Mark Blaug’s, "Economic Theory in Retrospect", 5th ed. Cambridge: Cambridge University Press, which I think needs a wider circulation than would occur if left in the comments to a post. It is particularly apposite in regard to my new paper for the University of Richmond Summer Institute in June (working title): ‘Paul Samuelson and the Genesis of the Modern Economics of the Invisible hand Doctrine’.

"[ ... ] Smith's faith in the benefits of 'the invisible hand' has absolutely nothing whatever to do with allocative efficiency in circumstances where competition is perfect a la Walras and Pareto; the effort in modern textbooks to enlist Adam Smith in support of what is now known as the 'fundamental theorems of welfare economics' is a historical travesty of major proportions. For one thing, Smith's conception of competition was, as we have seen, a process conception, not an end-state conception. For another society, a decentralised competitive price system was held to be desirable because of its dynamic effects in widening the scope of the market and extending the advantages of the division of labour - in short, because it was a powerful engine for promoting the accumulation of capital and the growth of income."

Blaug, Mark 1996. Economic Theory in Retrospect. 5th edn. 60-1. Cambridge: Cambridge University Press.

Comment
I was unaware of this statement by Mark Blaug – and I applaud it warmly – though I purchased a copy of Blaug’s masterly survey of history of economic thought in the 1960s when I was a student, though the subject was not part of the curriculum for an Honours degree in economics – no surprise there then – (there were a few courses from Economic History, a different degree, that could be taken, which I did).

‘Tis a pity that I was unaware of Mark’s thought, which coincide with mine and derive from my quite independent reading since just before I retired in 2005.”

Postscript:
See also Mark Blaug on Adam Smith and the Invisible Hand in Palgrave Dictionary of Economics: Second Edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume HERE: http://www.dictionaryofeconomics.com/article?id=pde2008_I000220

Adam Smith employed the term ‘invisible hand’ twice in his published writings, and a considerable secondary literature has explored the multiple meanings he intended to convey by the use of this metaphor. I argue that, whatever he did mean, he certainly did not mean that competition or the market mechanism promoted efficiency: instead it promoted the growth of income, even for the poor.

Readers will recognise why I was impressed with Mark Blaug's scholarly publications and why they influenced me so much.

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5 Comments:

Blogger airth10 said...

"I argue that, whatever he did mean [by the invisible hand], he certainly did not mean that competition or the market mechanism promoted efficiency: instead it promoted the growth of income, even for the poor.”

It sounds as though Smith may have introduced the 'trickle down' effect and believed in 'supply side' economics.

4:02 p.m.  
Blogger Gavin Kennedy said...

airth

Not really. 'Trickle down' economics was a quip by an American President (or whoever wrote his speech).

The notion that adding to annual "revenue and employment" (production) benefited those, mainly poor labourers, in 18th-century Britain was a consequence of hiring some of them for employment. In poverty-stricken Scotland (and no doubt in USA, or China, or wherever) was regarded by Adam Smith, and rightly so, as a public benefit, whatever the private benefits of the already rich. This was real 'wealth', defined by Adam Smith as the annual output of 'necessaries, conveniences, and amusements of life', which output is added to by new investment from growth.

This is a settled principle of political economy and all economies prefer new investment in productive activity to the spending of net growth on mere revenue. Tax breaks for today's 'wealthy', their 'wealth' not necessarily generated by productive activity in Smith's sense, but by speculation, high-stakes gambling, and general prodigality, was not necessarily a public benefit, as outlined in Wealth Of Nations.

Your urge to make cheap political points obscures the valid economics. The lavish theft and spending by corrupt leaders of the revenues flowing from a county's oil, etc.,), e.g. Gaddafi's Libya, tin-pot African dictators, and assorted others, does not benefit the poor (except a few supine supporters) and holds back real growth in productive employment otherwise possible.

Gavin

5:06 p.m.  
Blogger airth10 said...

"Your urge to make cheap political points obscures the valid economics."

You know this is CRAP!

There is no point in taking any interest in what you write any more. You are too full of yourself.

5:44 p.m.  
Blogger Gavin Kennedy said...

airth

I am sorry you are taking a subjective attitude to my criticism of your sentence: 'Smith may have introduced the 'trickle down' effect and believed in 'supply side' economics.'

This was said by a US President and I took it as saying that Adam Smith believed in Reagan's contentious quip. I explained why I thought this was a wrong statement, especially in light of what happens when people argue for the validity of the assertion. Smith's view of productive activity never included the cynical view of seeing any good in prodigality by the wealthy

I called this behaviour 'a cheap political excuse' for what I regard as making a contentious political point.

I have spent considerable time explaining to you and re-explaining to you Smith's actual use of the IH metaphor and what he actually taught about metaphors and you keep offering new meanings, all of which ignore Adam Smith's words and teachings, as if I had said nothing.

FIne.

I am sorry to see you go.

Gavin

10:18 p.m.  
Blogger airth10 said...

Gavin,

Thank you. But the trouble with you Is that you are a stick in the mud (another metaphor). And you are totally wrong in saying I am trying to score political points. For what? I am not running for any office or trying to impress anybody. I am just exploring and obviously you don't like that.

3:23 a.m.  

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