Is Phil Mirowski Correct About Samuelson's Role in the False Attributions to Adam Smith About the Invisible Hand?
Brad
Delong posts on Washington Centre for Equitable Growth HERE http://equitablegrowth.org/author/bdelong
The Invisible Hand and the System of Natural Liberty
“The Conversation About Economic Growth with Equity that Washington
Should Be Having The Invisible Hand
and the System of Natural Liberty”
“So this morning I
am reading Phil Mirowski’s presidential address to the historians of economic
thought, and trying to keep my ire contained…
Mirowski has one
good point: that Paul Samuelson, in his Economics principles textbook, started or at
least greatly amplified the movement of economists citing Adam Smith’s
“Invisible Hand” as his summary statement of his belief in the magic of the
market–and that is not what the “Invisible Hand” did in Smith’s writings.[1]
Phil Mirowski: Does the
Victor Enjoy the Spoils?: Paul Samuelson as Historian of Economics:
“There are a number of articles repeatedly pointing out that Adam Smith
intended nothing resembling Pareto optimality or general equilibrium by his use
of the [invisible hand] metaphor; but Gavin Kennedy (2010) has demonstrated
that it was Samuelson’s 1948 introductory textbook that first ushered us down
that particular cul-de-sac…”
But Mirowsky takes
off from there and uses that as a springboard to say things that strike me as
completely false:
Phil Mirowski: Does the
Victor Enjoy the Spoils?: Paul Samuelson as Historian of Economics:
“The whole fallacious drive to recast Adam Smith as a proto-neoclassical… was
largely instigated by Samuelson….
Adam Smith was, in
order:
An
Enlightenment Scottish moral philosopher, a la David Hume…
A
contributor to the existing eighteenth-century literature on “Political
Oeconomy”…
The
founder of Economics, and an
extraordinarily strong believer in the efficacy, power, and natural justice of
the properly-structured and properly-regulated competitive free market.
But when he talked
about (3), he used not the metaphor of the “Invisible Hand”, but spoke instead
about the “system of natural liberty”.
Thus when Mirowski
says that Paul Samuelson erroneously painted Adam Smith as a
“proto-neoclassical… [when he actually] intended nothing resembling Pareto
optimality or general equilibrium”, it is Mirowski who is wrong, and not Samuelson
Here are five
examples of how Smith uses the concept of the “system of natural liberty”–and,
yes, it is something that he sees as something like general equilibrium, and
something he sees as like Pareto optimality:
[Brad
Delong cites the following from Adam Smith’s Wealth Of Nations for which the
references are below:
“(1) Adam
Smith: An Inquiry Into the Nature and Causes of the Wealth of
Nations, IWN Book V chapter 9. Pages: 663
(2)
Adam
Smith: An Inquiry Into the Nature and Causes of the Wealth of
Nations: (WN Book IV chapter
2 Pages 452-72
(3)
Adam
Smith: An Inquiry Into the Nature and Causes of the Wealth of
Nations: WN Book II
chapter 2: Pages 286-329.”
Comment
That the
distinguished Brad Delong and Phil Mirowski debate from a reference to my work on
naming Paul Samuelson as the origin of the modern, almost unanimous’ and false notion of Adam Smith's use of the metaphor on "an invisible hand", I confess it is pleasing to me. I shall
comment more when I receive and read Mirowski’s paper in the Journal of the History
of Economic Thought (full citation): Philip Mirowski (2013): “HES Presidential Address. Does the Victor enjoy the spoils? Paul Samuelson as
Historian of Economics”. Journal of the History of Economic Thought, vol. 35, pp
1-17.
7 Comments:
Would the world be a better place if Paul Samuelson had not "ushered us down that particular cul-de-sac" as Phil Mirowski mistakenly uttered?
A cul-de-sac is a dead end, leading to nowhere. This is not what happen to American economics after Samuelson supposedly misappropriated Smith's invisible hand metaphor. In fact it led to the greatest economic expansion ever.
I would say Samuelson's use of the metaphor was more akin to a rallying cry to get out there and achieve something, and to challenge the assumptions of communist economic policy.
The IH metaphor cultivates the individual rather than the group. And as somebody once said, "for best results, cultivate individuals, not groups". Having no 'invisible hand', communism cultivated groups.
@airth10
I think what you describe falls into what Gavin recently described as a "hard-libertarian/anarcho fantasies" or something along those lines.
The "greatest economic expansion ever"? Yes, but that was back then and you could argue that much of that grew out of a middle ground between the the extremes of communism and homo economicus. More recently we had the big bubble and even bigger pop, both of which were supposedly impossible and blind-sided the economics profession. There were, however, some very entertaining excuses circulated by economists after the event to disguise the fact that the crash was created by the financial wizardry of the economists themselves, who, while hiding behind the veneer of academic respectability and regulatory probity, were in fact either running or well-paid lackeys of the private corporations at the heart of the meltdown. Shame not being an issue when trillions are at stake, the very same economists stepped in to rescue the situation using state offices and public money (so much for the magic market!) and in the process saved businesses that they themselves had a financial interest in. Normally this would be considered a conflict of interest, if not corrupt, but conflict of interest doesn't exist in the neo-classical fantasy world. The market fixes everything, eventually. And it's probably true that eventually enough people will stop drinking the Kool-Aid and figure out that neo-classical economics is hogwash. Not unlike communism, it's totalitarian, in the sense that totality of human existence is made subservient to 'the market' in accordance with a pseudo-scientific ideology.
@ Alan
I don't see it that way, as "hard-libertarian/anarcho fantasies" or whatever that means.
If anything, it's 'soft-libertarian/anarcho reality'.
@airth10
Whatever you call it, it is a manufactured reality. Neo-classical economics doesn't describe human behaviour or some independent reality (the so-called 'market'). Neo-classical economists' understanding of human behaviour is laughable naive. The members of the tribe strut around like peacocks proclaiming to be members of the only true social science while historians, philosophers and other social scientists snicker at the thought. It is more performative than descriptive. That is to say modern economics creates the reality i.e. the wizardry that creates the crashes and everything else that goes along with that. Neo-classical economics, particularly the modern variety, pervaded as it is by neo-liberalism, also creates new types of social reality and subjectivities i.e. homo economicus (the 'rational', self-interested individual). Adam Smith is claimed as the father of all this but one shouldn't take that claim too seriously. Invoking Adam Smith is mostly a political strategy. And I wouldn't take all the stuff about 'individualism' and 'freedom' too seriously either. Those terms have very circumscribed meanings in neo-liberalism. And the comparison with communism is misleading. The real question is whether the neo is an improvement on or a debasement of what came before.
Alan, you say -"Whatever you call it, it is a manufactured reality."
The thing is, you can't manufacture reality. That is why they call it reality. It's out there, in nature.
If you want a better term for it, it's Ultimate Reality.
The reason why communism collapsed and democracy/capitalism ascended is because the latter dealt with Ultimate Reality better.
Social relationships are made by people. Your experience is mediated by cultural beliefs.
You write "democracy/capitalism ascended". What makes you think the two go hand in hand? There are lots of places where capitalism has thrived under quite authoritarian and decidedly undemocratic regimes. Neo-liberals, such as Hayek, would take an authoritarian regime with neo-liberal economic policies over democratic government with socialist economic policies. As I wrote above, don't take the stuff about freedom too seriously. Understand what they mean. By freedom they mean the freedom of a rational actor to make economic choices in their vision of 'the market' and nothing more.
Also you keep bringing the discussion back to communism vs. capitalism. Who is debating in favor of communism or even socialism? My point, made at the end of my previous post, which you seem to have missed or ignored, is that that there are competing visions of liberal, market-oriented society. Neoliberalism is a very different animal than classical liberalism.
You ask what makes me think that capitalism and democracy go together.
Well, for optimum, successful governance you need both. They complement each other. They compete. In competition they develop and keep each other in line. Their togetherness comprises the DNA or the double helix of modern, legitimate governance. Oh, they can exist without each other but in the long run, for best results, you need both.
As someone once said, "Democracy is impossible without private ownership [capitalism] because private property - resources beyond the arbitrary reach of the state - provides the only secure basis for political opposition and intellectual freedom".
In the short run capitalism does not need democracy. But in the long run it needs the rule of law, the transparency and accountability that come with democratic institutions. Democracy also tempers the otherwise unruliness and high octane of capitalism, which if left on its own can be self-destructive and ruinous for all. It makes capitalism fairer and thus helps expand it.
I keep mentioning communism because it is an example of 'one helix' state. It had no internal contradiction or competition to keep healthy and alive, hence its collapse.
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