SUPPLY AND DEMAND IN MARKETS WORK FROM VISIBLE PRICES NOT INVISIBLE HANDS!

Professor Yingxu Wang, University of Calgary, President, Int’l Institute of Cognitive Informatics & Cognitive Computing (ICIC), posts HERE

“Was the classical illustration of Adam Smith’s invisible hand shown upside down between the curves of demand and supply in economics textbooks?”:

“The conventional model of textbooks (Figure a) [Frank, 1997; Slavin, 1988; Park et al., 2001; Brue, 2001; …] has confused the relationship of the curves of demand (D) and supply (S) from the very beginning. It’ll be straightforward and mathematically consistent by interchanging both curves in order to rationally and rigorously explain the mechanism of the invisible hand in fundamental market behaviors (as shown in Figures b, c and d). For details, see “Toward Formal Models of the Theoretical Framework of Fundamental Economics,” Fundamenta Informaticae, 90(4), 443-459 [Wang, 2009].”

Comment

Professor Wang seeks to demonstrate the existence of an “invisible hand’ using mathematics.  However, he is wasting his talents.  There is no “invisible hand”.  Nor did Adam Smith claim there was an invisible entity called or describable as “invisible”.  

The derivation of (always) VISIBLE prices is crucial to how markets work and how supply and demand are reconciled.

From Smith’s time, the “invisible hand” was and remains a “figure of speech” that “describes in a more striking and interesting manner” the hidden motives of real agents (people) that cause them to take or contemplate actions for their intended ends.  (See Adam Smith, “Lectures on Rgetoric and Belles Lettres”, 1762-3, published by Oxford University Press, Oxford, p. 29).

Smith added that the intended actions (not their motives!) of agents may have “unintended consequences”, and in his three only uses of the metaphor of an “invisible hand” he illustrated the linked process that showed how an agent’s “intended consequences” from their motivated actions may have “unintended consequences”. (See Adam Smith’s: “History Of Astronomy” (posthumous) 1795; “Theory of Moral Sentiments” 1759, p. 184-5; and “Wealth Of Nations” 1776, p. 456).