GRAVITY IS NOT A FORCE ANALOGOUS TO MARKET PRICES

Peter Alexander Meyers Professor of American Studies at the Sorbonne Nouvelle in Paris. publishes a review (3 February) in Huffington Post HERE http://www.huffingtonpost.com/peter-alexander-meyers/the-invisible-hand-conver_b_6590420.html

“For one side, the Invisible Hand is the first bad idea of economics. For the other, as Blinder puts it, "the invisible hand is one of the great thoughts of the human mind" and adds that "every mainstream economist" sees things this way. Of course, this is easily proven wrong. So he calls forward another familiar line of defense. Behind a bit of coy hesitation, economics is made out to be a "real" science. The Invisible Hand is compared to the law of gravity. Of course, this too is absurd. But it does re-open a perennial discussion.

When is our knowledge true? We know that the law of gravity operates wherever physical mass is present. The Invisible Hand cannot refer back to any such singular and general condition. It can have predictive value only in a much more limited domain. Insofar as any such domain exists in the real world today, it arose from a particular convergence of social and historical facts that only came into existence in the early 19th century. Even if no one creates it or controls it, the Invisible Hand is an outgrowth from human history and action.

So any analogy between gravity and market forces is not simply wrong. It misleads by suggesting that we look for the wrong kind of knowledge and do so in the wrong place.”

Comment

The above is an extract from a long article posted on Hufffington Post, discussing Alan Blinder’s review of Jeff Madrick's book, Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World. This is receiving much attantion in the review media at present and has been in a pile of pieces I noted for ASLL but have been too busy to post. 

The reference to the alleged similarity, even an analogous property, between gravity and market forces is so often quoted that I find it incredible that obviously literate and numerate senior economists can find grounds to argue about it. There is no  gravitational force analogously operating in markets.

Coincidently, this week I received a confirmation from the editors of Economic Thought that my paper “Adam Smith’s Use of the ‘Gravitation’ Metaphor” is to appear in the March issue (Economic Thought 4.1: x-xx, 2015), in which I address the kind of contentions of relevance to the debate between Profs Binder and Madrick and, in effect, dismiss their takes on gravity as analagous to “invisible hands” head-on. While I was discuss in my paper a mother and quite separate debate from a different author who linked his idea that linked gravity to Smith's on Natural and Market prices, i reject such ideas in  paragraphs in my paper such as:

“All bodies with mass exert gravitational pull on all others, but not all of them have the same mass or exert the same degree of mutual attraction that draws them physically towards each other or holds them in regular orbits. It does not follow that Smith’s use of gravity as a metaphor described an observed or plausible [Newton's, Aristotle's or Empedocles'] gravitational relationship between market and natural prices, either of which were sometimes above or sometimes below the other’s prices, as described in WN.”

Gravitation is rule bound, absolutely predictable long into the future, while relationships between Natural and Market prices, for example, are unpredictable, rhetoric bounded exchanges, between people. Smith spoke of gravity in a purely metaphoric sense, analogously to how he spoke of "an invisible hand". 

When my paper is published later this month I shall provide details of how to obtain it on-line.

There is a lot more I could say about Professor Madrick’s views on Adam Smith, but my unfinished paper awaits my attention …