A Case for Reading Warren Samuel's Last Book
Matt McCaffrey (currently a PhD
candidate in economics at the University of Angers, and the editor of
Libertarian Papers) writes (19 April) in the International Business Times HERE http://www.ibtimes.com/articles/330669/20120419/regulation-free-markets-economy-labor-competition-entrepreneurs.htm
“ Market Will Solve It”
“Again, the problem
often stems from loose metaphors. Take Adam
Smith's famous "invisible hand," for instance. Try explaining to the
passers-by that we don't need legal restrictions on market
activities because there is an invisible hand that will sort it all out. You're
far more likely to inspire your own commitment to the local mental health center than social change. This is why
it is necessary to constantly remind ourselves exactly what it is we mean when
speaking in such metaphors.
Smith wasn't positing the
existence of some all-seeing economic force
which would magically solve problems. All he meant was that the division of
labor (and thus, the market) makes it in
everyone's interest to serve the interests of others. So even when we talk about competition in the market, we're really
talking about a powerful form of social cooperation.”
Comment
There I
was thinking that Matt McCaffrey was doing great in his article criticizing the
over-use by modern economists of ‘loose metaphors’ like the invisible hand,
when he added “all he (Adam Smith) meant” was ….etc., and went off the rails.
True,
Matt didn’t add the usual nonsense among modern economists about “selfishness
leading to public benefits”, which is an improvement, but his reference to the
“division of labour” is quite out of place, though I understand what he meant.
The
metaphor used by Smith was confined to the specific case of a merchant trader
who felt insecure trading abroad, hence for that reason he traded
“domestically”, and this had the consequence that domestic capital investment
increased by the amount of his capital (i.e., the whole is the sum of its
parts). He only intended his own security, but this intention, was
metaphorically defined by Smith as the merchant being “led by an invisible
hand” (we cannot see inside his head), but its consequence was that it added to
‘annual revenue and employment”, which in Smith’s view was a public benefit.
Metaphors
describe their objects in a “more striking and interesting manner’ and the
object of Smith’s use of the IH metaphor in this case is clear; it is the
merchant’s insecurity. The “invisible hand” as a metaphor does not exist in
reality. There is no “invisible hand”!
All
modern (post 1940) attempts to explain the “invisible hand” as a metaphor for
markets, supply and demand, the division of labour, the price system, and any
of a dozen other assertions are pure inventions, as are their attributions to
Adam Smith. He mentioned the IH metaphor only once in Wealth Of Nations in Book
IV when dealing with “mercantile political economy”, and never mentioned it in
Books I and II where he covered in detail how markets and the division of
labour, etc.
Recent
frustrations with modern claims for the invisible hand notwithstanding, there
is no substance to these assertions in relation to Adam Smith. The recent, and last,
work of Warren Samuels “Erasing the Invisible Hand: essays on an elusive and
misunderstood concept” (Cambridge University Press, 2011) documents in detail
the dead-end that belief in the existence of an invisible hand became for
modern economics after 1948. I recommend to Matt McCaffrey that he consult it.
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