Tuesday, July 17, 2012

Good News, I Hope (Confirmed!)

Asad Zaman, International Institute of Islamic Economics, HERE
“Death of a Metaphor: The Invisible Hand”.
Abstract:      Models are representations of reality. They simplify and ignore many complexities in order to focus on certain aspects. With constant and repeated use, theorists sometimes confuse the model with reality. This leads to many types of errors. In this article, we argue that the metaphor of the invisible hand has become deeply entrenched in the ways of thinking about and framing of economic problems. This has led to overuse and abuse of the metaphor. Why this happened, what harm has resulted from it, and how it can be remedied is the subject of this paper.
Just received and welcome for that too!
Along with Warren Samuels’s recent (2011) book Erasing the Invisible Hand: Essays on an Elusive and Misused Concept in Economics, (Warren J. Samuels, Marianne F. Johnson, William H. Perry - 2011).  
This paper (and some others recently), indicate, I hope, that the case against the over-attribution to Adam Smith’s wholly innocent use of the metaphor of “an invisible hand” by, among others, including Nobel Prize winners, is now under critical examination and that the IH metaphor as a so-called defining concept, paradigm, or theory of markets, is challenged increasingly well beyond Lost Legacy.
I shall report more on Asad Zaman’s paper later when I have read it (I am on holiday and am being called for lunch en famille).
Postscript:  Asad's paper is well worth reading (follow the link).  It challenges the myth of "an invisible hand" from its present core in modern (Western) theory.  It is definitely worth reading. I  feel vindicated to an extent.  Much as I felt on reading Warren Samuels last book, referenced above.  
Asad tackles the IH metaphor from a slightly different angle to my own, but from a complementary direction.  It does not deny the role of metaphors - as I do not - but he explains that the IH metaphor has long past it 'use-by' date.  To some extent Asad is influenced by some 'new leftist' criticism of markets but this is only because some "rightist" ideological IH believers have gone far too far into the realms of imagination well beyond the appropriate claims of science.  
Asad seems to argue that the IH metaphor was produced as part of the secularisation of political economy from the 19th century away from pre-existing religious beliefs.  
I would suggest the belief in an actual invisible hand guiding markets, which was never a claim made by Adam Smith, was more like a return by post-Sauelson economists to beliefs in the mystical "pusillanimous superstitions", of which Smith wrote about as the prelude to philosophy among forest hunter-gatherers of pre-history see Smith's "History of Astronomy", 1795 posthumous).
However, there is more than enough common ground between us to welcome Asad's contribution to what I hope will be the beginning of an extensive re-appraisal of the entire "romance" of the myths of "an invisible hand" in economics.


Blogger airth10 said...

Asad Zaman makes and interesting point about metaphors as models and their use to simplify the world, often to our detriment.

I am thinking of another metaphor, the 'perfect storm'. It also simplifies. But it sure conjures up in those who understand the expression a phenomenal, complex occurrence.

What happened as result of the financial crisis of 2008 could be said to have resulted from a 'perfect storm'. It is a simple metaphor but it describes a complex event. Right away it is understood that the crisis of 2008 didn't occur out of one single act of selfishness but multiple acts of selfishness coming together. The system was overwhelmed with self-interest and selfishness. One reason is that the system designed to keep selfishhesses in check and counterbalanced was ignored or severely dismantled.

It is a complex world and the use of metaphors like IH to describe it sometimes does a disservice. But humans have tiny minds and small attention spans. We can only mange little pieces of reality at a time. Look how political campaigns are run. They usually deal with trivial and stupid stuff because that is what voters seem able or willing to process. Politicians and voters don't nuance stuff. Most times only metaphors will do.

The world just got to learn of a new metaphor, the Higgs boson or the God particle. It sure encapsulated a complexity that most humans will never understand. Hurray for metaphors.

1:55 pm  
Blogger Gavin Kennedy said...

Of course metaphors useful. That is what Adam Smith told his students in his Lectures on Rhetoric and Belles Lettres (1763)
The "describe" their objects in a more "striking and interesting manner" but they do not replace them. They are not the same as their objects.
Nobody believes that a statesman described by a metaphor as being the "pillar of the state" is an actual pillar!
Nor when Smith described a merchant, concerned for the security of his capital, who is "led" by his insecurity to prefer to keep his capital within his sight domestically, that he is "led" metaphorically by "an invisible hand", did this mean that there was an actual invisible hand operating in the economy.
In fact, no economist before 1875 claimed that Smith used the IH metaphor other than as a metaphor, which is a comment on the credulity of those modern economists who do believe that "invisible hands" do exist.

3:33 pm  
Blogger airth10 said...

Well, I think an invisible hand like thing exists, just like luck and freedom does.

Some people don't think luck or freedom exist, thinking those things are just illusions.

You are right. Some people take the invisible hand to literally. The invisible hand should been seen as a moderate thing.

The invisible hand is seen as unintended consequences or spontaneity. Lenin believed that spontaneity should be discouraged.

Ego is never mentioned when talking about self-interest. There is certainly the satisfying of ego involved in the pursuit of self-interest. Then there is the enlightened ego that learns to cooperate with other egos, like there is enlighten self-interest that learns to coexist with other self-interests. A sophisticated network of interaction develops out of the numerous clashes of egos and self-interests, spontaneously, as though led by something like an invisible hand.

Communism didn't cultivate self-interest. That is why it never established the deep penetrating and sophisticated systems like in the West, systems that could have reinvigorated it. Communism didn't have an enabler like an invisible hand to transformer self-interest into social gains.

5:13 pm  

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