Cracks in the Invented Invisible Hand Consensus?
I posted the following short comment on Daniel Kuen’s Blog, “Facts and Other Stubborn Things” HERE
Daniel writes: “Did you know that Smith's invisible hand and Arrow-Debreu General Equilibrium were the same thing?”
It is not clear to me just who Daniel in criticising
Daniel writes: “I don't see how you can read Smith as implying some optimal general equilibrium. Smith argues that by pursuing private interests, economic agents promote general welfare. This is obviously true whether a "perfect" Arrow-Debreu general equilibrium holds or not. Identifying the two with each other is a mistake. The contribution of Arrow-Debreu was to rigorously demonstrate the general equilibrium outcomes of a certain type of model of the market that is (rightly) widely in use. Any departure from that optimum ought not to be confused with a non-existence of the invisible hand forces that Smith referred to.”
The fact is that Smith's specific (only) reference in Wealth Of Nations referred to some, but not all merchants, from their concerns for the "security" of the capital if sent abroad in the "foreign trade of consumption", preferred to invest in "domestic industry" (mentioned four times by Smith, twice in the relevant sentence in para 9). Their 'insecurity" led them ti invest domestically and his had the "unintended" consequence that it added to domestic "revenue and employment" arithmetically: the whole is the sum of its parts. Smith considered this a public benefit. He didn't say anything beyond this. It said similar consequences applied in "many other" situations, without specifying them.
To suggest that this is a general unintended consequence of self-interested actions, leading to "Pareto Optima", "General Equilibrium", as many modern economists do, or that even "selfish" motives lead likewise, is an absurd attribution to Adam Smith. He details again and again how the "self-interested" actions of "merchants and manufacturers" lead to higher prices, less competition, and lower domestic employment in such “self-interested" policies as tariffs, protections, prohibitions, monopolists, colonial preferences, the one-sided Combination Acts, the Settlement Acts, Wages set by the magistrate allies of employers, established religions, Primogeniture, Entails, chartered Trading Companies, all of which self-interestes actions directly act against the general interest, Yet, daily - nay hourly - modern economists are reported, and media sources, continue to pour out nonsense about the existence of an invisible hand in, variously, the market, price systems, supply and demand, and so on.
That lay-people come to believe in such a fictitious "invisible hand" - let alone that credible figures from our ranks of economists also believe it - though cracks are appearing in the former monolithic consensus sparked of by Paul Samuelson from 1948 - is disappointing.
I look forward to their recantations of their apparent belief in the fiction of Adam Smith's so-called invisible hand.
PS: I posted my reply and afterwards,when preparing my post for Lost Legacy, I realised I had mistaken the thrust of Daniel's original post. The above is edited to make clear that I am criticising the thrust of modern economists, not Daniel's posted comments.