Monday, June 30, 2014

ASK A QUESTION AND GET MY BRIEF ANSWER: No. 1

Question
I was asked today if the “invisible hand” existed and, of course, offered the view below. I kept it short because I was not sure whether the recipient was an economist, an historian, or of school-age.
My answer
No it does not exist.  It was a metaphoric expression used by Adam Smith to, as he put it, “describe in a more striking and interesting manner”, the hidden motives of individuals whose self-interested actions have intended beneficial consequences for them, but such actions by individuals may also have unintended consequences, sometimes benign and sometimes malign, for others.  Examples include businesses producing consumables that customers want and enjoy that may make society better off. Businesss persuading governments to impose tariffs, say, may reduce competition and raise prices, making consumers worse off.  The metaphor of “an invisible hand’ is now widely applied without care to imply some mysterious entity, consciously acting in markets to bring about benefits to everybody. Whereas governments and businesses that ignore pollution, say, may make everybody worse off.

Gavin
Note:  New Series:
Should readers have (short) Questions on any aspect of Adam Smith's Works, send them in and I shall give my brief answers.

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