Thursday, April 12, 2012

On Smith's Use of a Metaphor

univcfl wrote in response to Robi”: “Hello all,
 Here is a metaphor that I used yesterday in class while teaching Principles of Macro and explaining a stable equilibrium (I'm sure many of you have heard). Place a marble in a cereal bowl give it a shake and eventually the marble will come to rest at the bottom. This is stable because unless someone bumps into the table that the bowl is resting on the ball will remain in place. What force causes this - friction and gravity.
 The Invisible Hand is like gravity, it causes a persistent force that pushes forces towards an equilibrium. The problem is that the table the economy is resting on is never stable. Exogenous forces are constantly shifting prices affecting supply and demand. Does the difficulty of observing an invisible hand in the real world mean that the invisible hand does not exist. Obviously not, simply the effects of the invisible hand are very difficult to disentangle from the constant bombardments of shocks.

 Laboratory experiments, for example market tests - act like a vacuum and allow researchers to separate confounds which are difficult to separate with real world data.Comment “univcfl” writes/teaches with confidence which is a positive; he misunderstand metaphors, which relate to their objects, i.e., what they metaphorically “describe in a more striking and interesting manner”, as Adam Smith put it in his “Lectures on Rhetoric and Belles Lettres” [1762], delivered from 1747-1751 in Edinburgh, and from 1751-64, in Glasgow. Metaphors are not their own objects. Gravity was not strictly a metaphor – it exists as described in its physical laws (the ‘mutual attraction of two bodies is inversely proportional to the square of the distance between them’, much loved by teenage students over their sexual aspirations). No such physical laws have yet been shown in regard of ‘an invisible hand’. In fact, there has not been shown to be a term for the “invisible hand” in any equation in economics, purporting to explain its presence. Nor can there be – it does not exist. The marble will tend to arrive at the bottom of the bowl. That is caused by gravity! So is the moving table. Why use gravity as a metaphor to explain another metaphor? Why call the an invisible metaphor to explain disequilibrium in markets when we can explain markets by the behaviour of very visible prices? No market works with invisible prices! We don’t need an “invisible hand” to explain visible prices. “The Invisible Hand is like gravity, it causes a persistent force that pushes forces towards an equilibrium” is an assertion, unrelated to anything Adam Smith said about “an invisible hand” as a metaphor in either Moral Sentiments or Wealth Of Nations on the two occasions only where he used it. Claiming that the “invisible hand” is a metaphor for the price system, supply and demand, or markets is a convenient mystical allusion by modern economists. It is now ubiquitous across the profession. Nevertheless it is a myth. Whether markets, are driven by “a persistent force that pushes forces towards an equilibrium” is disputable. Smith, in Wealth Of Nations in Books I and II, analyses markets, prices, supply and effectual demand, but he does not mention “an invisible hand” at all. He uses gravity as a metaphor to show that markets prices approach equilibrium, but never gets or stays there. If the invisible hand metaphor was so significant, we must ask why he never mentioned its role in such a major context in his book? I think the reason is simple: “an invisible hand”, as asserted by modern economists, does not exist, nor did Smith believe it did. On the two occasions where he used it, their objects were clearly stated. In Moral Sentiments its object referred to agricultural economies from when “the land was first divided” (when some humans left the Forest), through the despotism of Babylon, Egypt, Greco-Roman times, and Central America, and onwards to the feudal and warlord European landlordism from the Fall of Rome 5th century to the 16th century. In these economies, it was imperative that the masters fed the “thousands whom they employed” for, otherwise, their slaves, serfs and peasants would not survive to labour on their fields. That absolute necessity was described metaphorically as “an invisible hand” leading the masters to provide at least the basic necessities for survival and procreation of each generation – no food, no labour (for the slaves, it was no labour, no food’). In Wealth Of Nations, Smith applied the IH metaphor to the case of those merchants who felt insecure about risking their capital in foreign trade, and their insecurity led them to invest locally, adding their capital to domestic activity (the whole is the sum of its parts). Their insecurity was described metaphorically as an invisible hand and how, unintentionally, it led to a public benefit. Metaphors, remember, “describe in a more striking and interesting manner” their objects, and both uses on both occasions clearly did their work well, though very few modern economists seem to have noticed. Unfortunately, modern economists were not paying attention in their English language and grammar classes. So when a new role for the IH metaphors, changed them into nouns, as appeared from the post 1940s, it satisfied the imperative need among western economists to strengthen their (well-founded) beliefs that markets and capitalism were superior to Soviet socialist central planning, then pressing the USA and Western Europe, via large communist parties threatening democracy, and social democratic parties experimenting with milder planning policies when in Government. The modern myth of “the” invisible hand” suited western economists, the media, and politicians, as something the Soviets did not have, and by definition could not, claim for their top-down central planning, which eventually failed in the 1990s. When Paul Samuelson’s “Economics” textbook appeared in 1948, a new allegedly Adam Smith’s invisible-hand trope took on a life of its own. From next to no notice of the metaphor, while Smith was alive, and virtually no mentions of it until 1875, and an isolated few mentions to the 1940s, were followed by widespread torrents of notice in western campuses and politics leading to tens of thousands of mentions of it through to the early 21st Century. “univcfl’s” post, sadly, is all too typical of the mysticism of much of modern economics.


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