Sunday, January 06, 2013

Not Quite Right


Robert Nielson Blogs  at Opus LibertasHERE http://lobotero.com/2013/01/04/24736/
“The Flaw of the Invisible Hand”
“Introductions to economics usually start with gushing tales about the magic of the free market. It is usually stated that the free market allows everyone to get the best quality goods at the cheapest prices. The magical invisible hand guides everyone to the best place without any unnecessary government intervention. Below is a link to a video typical of the kind.”
Comment
There is no invisible hand.  It is a metaphor for why people in particular cases act as they do (Adam Smith gave only two specific examples).  The metaphor “describes in a more striking and interesting manner” its grammatical object (Smith Lectures on Rhetoric and Belles Lettres”, 1762-3, p. 29).
Paul Samuelson popularised the false idea  that ‘selfishness’ led to “public benefits”, attributing it to Adam Smith (Samuelson, Economics, 1948, p 36).   Five million readers later and the IH myth is now entrenched in public discourse.
Example, merchants seek protection from imports, preferring domestic monopoly – why? Because they are led by their self-interest.  This does not benefit the public.  The IH myth fails!

6 Comments:

Blogger Unlearningecon said...

In fairness, he did say:

"(I’ll ignore for the moment that it completely misrepresents what Adam Smith said)."

10:14 am  
Blogger Jonathan Finegold Catalán said...

What of the argument that Smith's "invisible hand" metaphor is similar to later concepts of "spontaneous order?"

10:32 am  
Blogger Jonathan Finegold Catalán said...

I wish I wouldn't have written that last question, given that all I had to do was look one blog post below this one.

10:34 am  
Blogger Gavin Kennedy said...

Hi Jonathan
Smith's use of a metaphor follows English language grammatical rules - he taught rhetoric from 1748 to 1763. It referred to specific motives leading to actions that had unintended consequences.
The idea of "spontaneous order" refers to events that took a particular form. It is not about motives. It does not identify what caused the events (they are "spontaneous"), which, in my view weakens the idea.
A metaphoric statement does not exist - it is a grammatical figure of speech - but good metaphors can be powerful images. Smith used a long standing popular metaphor in the 17th-18th century, especially among theologians (invisible 'hand of God'. You cannot see the motive, but you can see the consequence, which in Smith's two cases were not intended.
Gavin

12:54 pm  
Blogger Gavin Kennedy said...

Unlearningecon
Thanks for the comment but it is not clear what you mean.
If he did say that in the video, then well and good.
Gavin

12:55 pm  
Blogger Unlearningecon said...

Robert Nielson's original post has the passage you quote in full:

"Introductions to economics usually start with gushing tales about the magic of the free market. It is usually stated that the free market allows everyone to get the best quality goods at the cheapest prices. The magical invisible hand guides everyone to the best place without any unnecessary government intervention. Below is a link to a video typical of the kind. (I’ll ignore for the moment that it completely misrepresents what Adam Smith said). Its short and simple, but it is a simple argument. This is the typical free market argument with its claim that left alone it will bring the best world for everyone."

5:51 pm  

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