Tuesday, November 27, 2012

Thanksgiving Dinners No Thanks to the Invisible Hand


The Whited Sepulchre HERE 
Adam Smith called it “the invisible hand” — the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many."
Comment
If a scientist suggested there was a “mysterious power” acting in a system, they would be expected to explain how it worked.  In economic systems we are assured above that there is an invisible  “mysterious power” at work, but nobody can explain what it is or how it works,or why it needs to be invisible.   There certainly is no mathematical term ever offered for it in the most advanced mathematical modelling, or even in the simplest. 
 It’s just asserted to be there in the economy, entitled the “invisible hand” and attributed allegedly to Adam Smith.  Brilliant minds assert its existence; some of them defend the supposition angrily when asked what it is and what it does.
Yet, from what we know of markets we know for certain that they operate by very visible prices.   There is nothing invisible about a price.   No market can work without visible prices; no employee would work without a visible remuneration (outside slavery); nobody would buy much without knowing the price and nobody would sell much if their prices were not disclosed.   They would certainly demand payment in visible cash if none was forthcoming.
In the British Ministry of Defence items were withdrawn from the stores by requisition orders and nobody knew the costs of the items, either when issuing them or requisitioning them.  Then the MOD ordered that every item in the stores were to be  labelled with its cost.  That alone was radical; the outcome was predictable, fewer items were requisitioned.  The visible acquisition cost (from MOD's suppliers)  was a surrogate for the supplier's price, and rising costs in supplies competed with rising costs elsewhere in the defence budget, crucial when Supply departments had run out of their budget.
Nobody needed to envisage an invisible hand to explain the mystery.  Nor do we need such a “mysterious power” to explain the events leading to Thanksgiving.  Expected higher demand for turkeys, leads to anticipation of higher revenue if you are anywhere involved in the turkey supply chain months before November, and higher demand times the quantity of whatever you are selling at the anticipated prices, is enough to activate you do your bit for Thanksgiving dinners, including all the associated products and services. This phenomena is called markets at work and the means are visible prices.  
As for Adam Smith's alleged involvement in the "mysterious invisible hand", please consult multiple posts on Lost Legacy.

4 Comments:

Blogger airth10 said...

It is not easy to explain the phenomenon of the market place. That is why people tend to explain it as a mystery or as an invisible hand. And it has to do with far more than just prices, that's for sure. Anybody can fix a price. Yet there is a vagueness and weirdness about the whole thing, like quantum mechanics.

10:23 p.m.  
Blogger The Whited Sepulchre said...

Professor,
Thanks for the link and for the traffic.
I've bookmarked your site for future reference.
Thanks again!

Allen Patterson
The Whited Sepulchre Blog
Fort Worth Texas

2:38 a.m.  
Blogger Gavin Kennedy said...

airth
Thanks for your comment.
I am certain that market must have visible prices; I also certain that they do not need "invisible" entities that nobody can explain what they do.
Physics students can explain quantum mechanics to you.
Nobody, even the most talented of economists has ever explained what the IH is or does, or show it working, even in the most sophisticated of maths.
Gavin

8:52 a.m.  
Blogger Gavin Kennedy said...

White Sepulchre
Welcome to Lost Legacy and greetings from Edinburgh, Scotland.
Gavin

8:54 a.m.  

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