Make Believe Allegories and Mythical Metaphors Mislead Students
Peter Boettke writes on Coordination Problem Blog HERE
“The confusion occurs because folks confuse the claims about the market order generating through the invisible hand mechanism an order that would result had an omniscient and benevolent being decided to order the economy, with the ability of a social planner to assume the role of the omniscient, omnipotent and benevolent being.
The invisible hand proposition is of course the bold analytical claim of mainline economics from Adam Smith onward --- the private property market economy operating within a system of freedom of contract embodied in the rule of law with its array of prices and lure of profit and penalty of loss, will guide the decisions of the multitude of economic actors such that resources will be allocated to their highest valued use, that least cost technologies will be employed, and that all the potential gains from trade will be exploited. The agitation of the market will be ceaseless if left alone until the point where these conditions are met. In the end, God could do no better. Or as Edwin Cannan put it: “The reason why it pays to do the right thing – to do nearly what an omniscient and omnipotent benevolent Inca would order to be done – are to be looked for in the laws of value.”
Two Comments on the Blog:
First: two correspondents commenting on the above views of Peter Boettke write: Gene Callahan (of whom I know absolutely nothing) writes: “The invisible hand proposition is of course the bold analytical claim of mainline economics from Adam Smith onward..."How many times does Gavin Kennedy have to show that Smith had no "invisible hand mechanism" before people stop claiming he had one?”
To which “Daniel Kuehn” responds:
“Gene - That passage isn't the ace in the hole people treat it as. It's a funny little passage if people take the time to read it. Kennedy's done a good job pointing that out. But on the broader point he seems far too strenuous to me. If Smith had only written his first three chapters we'd pretty much have what people attribute to the invisible hand passage. So practically speaking I don't think there's much harm in the misreading of the invisible hand passage itself.”
I could leave it there because “Gene” says it well, so I shall not comment on the mythical IH metaphor as per usual. I shall confined my remarks to what Peter Boettke makes of the IH with hos colleague Daniel Klein. Much of Peter's methodological argument seems to parallel what Daniel Klein wrote recently in his new book “Knowledge and Coordination: a liberal interpretation” (2012), which I reviewed for “The Adam Smith Review”, no. 8 (due out any time soon).
In it, Daniel Klein (2012) uses the IH Metaphor in the shape of an allegory, including Edwin Cannan’s “omniscient and omnipotent benevolent Inca”, reincarnated by Daniel in the form of “a superior being named Joy who is invisible and who beholds a vast economic order … Joy issues instructions, or requests, cooperatively, to each market participant spelling out the ‘right thing’ to be done. Joy tells Brdget, the baker, that perhaps she should advertise he confection. Within the allegory, Joy communicates these instructions to Bridget. … Within the allegory, Bridget, who is sensible to Joy’s benevolence and ethical wisdom and who feels entrusted to advance what Joy finds beautiful, follows not maket signals, but Joy’s communications embraced voluntary by Bridget, from what Smith calls her sense of duty – she enters if I may say so, into the sentiments of that divine being (TMS: 270) – and these communication tell her to take actions rather like the actions that the market signals would lead he to take.” (Klein, 2012: 222).
Now I found these allegorical arguments of Daniel Klein (and to some extent Edwin Canaan, ed., WN, 1904) absolutely astonishing, even beyond comprehension. Daniel devises an allegorical approach, rather then the IH, of which we had a scholarly debate as members of the Academy in 2009, 2010 and 2011, in the end agreeing to disagree (though I should say I learned a lot from those debates because David is a brilliant exponent of Adam Smith’s moral philosophy and his political economy).
But this allegorical approach leads off into a world of make-believe in which he has “Bridget”, an entrepreneurial baker, listening to “disembodied voices in the night”, deliberately instructed not to follow market signals, but, instead obey, trance like, to "Joy", this “benevolent being’s” instructions that turn out to produce the very same results that would have been obtained if Bridget had followed the market signals that “Joy” instructed her not to follow but to listen to her instructions instead!
My question remains (directed to Peter Boettke, Daniel Klein and “Gene” too), exactly what clarification does the “Joy” allegory bring to the study of and our understanding of how markets work through very visible price signals that improves on what Adam Smith described in Books I and II of Wealth Of Nations?Or is this merely an effort aimed at keeping the fantasy of the IH metaphor alive and well?