Saturday, June 22, 2013

Markets Work Because Prices Are Visible!

Jonathan Rogers, read Politics, Philosophy and Economics and graduated from Oxford University. He is currently Asia’s chief analyst on credit for International Finance Review.  Today he posts “The soul-searching behind China’s cash crunch. HERE
He included the following careless remark
Of course, as economist Adam Smith observed, the market’s hand is invisible, and the best we can come up with by way of explanation for last week’s price action is that there were simply more sellers than buyers.
That is pure journalism, and sloppy journalism too, and poor economics, let alone philosophy.   I did not include politics in my assertion because nothing in politics surprises me.  However, I have long held a high opinion of Oxford’s PPE graduates.  Indeed, over the years some graduates and scholars at Oxford have expressed levels of agreement with Lost Legacy.
So, Jonathan Rodgers making sloppy claims that “Adam Smith observed, the market’s hand is invisible” surprises me.
For a start, Adam Smith never linked the “invisible-hand” metaphor to “the market” in any of his published Works.  Why then does Jonathan Rogers, en passant almost, link the IH metaphor to markets and claim Adam Smith’s authority for doing so? Many modern economists also make the same claim and also many other erroneous claims, but graduates of PPE are thoroughly trained not to make sloppy claims about verifiable facts.  
So I ask again: where did Adam Smith link the IH metaphor to markets?  In Books I and II of Wealth Of Nations, where Smith makes an exhaustive analysis of markets, there is no mention of “an invisible hand”.
Smith does discuss, again in detail, the role of prices in markets and one clear characteristic of prices is their very VISIBILITY!  Indeed, we can go further and say that markets would never work except by visible prices! 
Invisibility is the kiss of death to markets.  Jonathan knows that, and so did Adam Smith, which is why Smith never made such a sloppy statement, ever.
Jonathan Rogers, should know that too.


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