Tuesday, January 05, 2016


Susan Willett, director of trust services Old North State Trust, LLC. North Carolina , posts (4 January, 2016) for her chartered trust company, HERE 
Understanding Psychology Helps Investors In A ‘Rational’ Market”
“Since the time of Adam Smith in the 1700s, economists have talked about the “invisible hand” of the market. It’s a powerful concept, and a useful one. But the idea that  "the marketplace always operates perfectly has some very real limitations.
Understanding Adam Smith is probably a more important necessity than understanding Psychology (the ‘wisdom of crowds’, etc.) given Susan Willett’s erroneous opening statement about Adam Smith.
FACT: “economists” have NOT ‘talked about the ‘invisible hand’ of the market” since “the time of Adam Smith in the 1700s”.
While Smith was alive (1723-90) there were no published comments by economists (or anybody else) and no evidence that anybody noticed, let alone “talked about the ‘invisible hand’ of the market”.  
In fact, comments by anybody on Adam Smith’s reference to the “invisible hand” of the market were extremely rare while he lived (I have found no trace of any actual refreneces while he was alive) and very few after he died until the mid-20th century. I have traced one comment in the 1830, by the Scottish Presbyterian Minister, Thomas Chalmers, in the 1830s, unsurprisiingly in a wholly theological context, and only a handfull in the 1870s.
This paucity of references anywhere to Adam Smith’s single reference to “an invisible hand” in Moral Sentiments (1759) and also once only in Wealth of Nations (1776) is quite remarkable. Only after Paul Samuelson’s famous introductory textbook (Economics: an introductory analysis, McGraw Hill) was published in 1948 (and its 19 editions and 5 million sales to 2010) did 'the invisible hand' enter popular (and scientific!) discourse. From then on references to it became, first a trickle and then a flood. Today, references to Smith’s “invisible hand” of the market are in the Tsunami range.

Susan Willett's unfounded claim that “economists have talked about the “invisible hand” of the market” since “the time of Adam Smith” is, to say the least, unfounded and wholly untrue, betraying her actual knowledge of Adam Smith and the history of economic thought. to be very slim. 
Moreover, Adam Smith never said anything about his use of the metaphor as referring to “an invisible hand’ of the market”.  That bit of Susan’s article is wholly made up by modern epigones of Smith and believed who have never read him.
Lastly, Smith never said that ""the marketplace always operates perfectly". He was regularly critical of how "merchants and manufacturers" tried to manipulate markets for their own advantages.


Post a Comment

<< Home