Sunday, February 28, 2016
Dave Begel, contributing writer, reviews a play, ”The Invisible Hand" at The Rep which is described as an unflinching and unique look at the influence of capitalism. (27 February) by Pulitzer Prize playwright, Ayad Akhtar, HERE
“A chilling look at the consumption of capitalism a thrill at The Rep.”
“The title Akhtar chose is from the "Wealth of Nations" written by Adam Smith and published in 1776. The concept of the invisible hand is a simple one as explained on Investopedia.
"Smith used the metaphor of the invisible hand to refer to the guidance and benefit society receives when individuals act in their own self-interest when trying to make money. According to Smith, when consumers are left to freely choose what they want to buy, and businesses are left to freely decide what they want to sell, the self-interest of both will lead to decisions that result in good prices and the right products in the economy and marketplace. As a result, Smith argued that no government intervention is needed. We simply have the invisible hand of economic self-interest to guide us.”
The problem with Ayad Akhtar’s theme for his play is that it is based on and albeit common fallacy, not of Adam Smith’s, but of the modern 20th-century economists who misinterpreted Smith’s correct use of metaphors in what he decribed as his “perspicuous writing”. Among the offenders there was Paul Samuelson from 1948 onwards (and, later, several other Nobel Prize winners) who invented a narrative, partly in celebration of booming modern US capitalism and its political celebrations, when flushed with victory over Nazi Germany and Imperial Japan, apparent amidst the post-war economic boom that they believed heralded the victory of capitalist economic policies over the failures of rigid state-run Soviet socialism.
Investipedia’s account is quite spurious.
Smith’s Wealth of Nations is full of detailed criticism of the actual behaviours of “merchants and manufacturers”. He did not enunciate such a role for the “inivsible hand” metaphor, and he definitely saw a role for government intervention by regulations to protect consumers and the population from misguided citizens and governments in an economy, though nothing like on the scale of intervention common today and certainly he was highly critical of government sponsorship of “mercantile political economy” as operated in 18th-century Britain.
Smith did not describe a ‘perfectly competitive’ economy nor did he suggest we could do without government interventions (“party walls” in buildings to prevent the spread of fires; actions to mitigate the spread of of “noxious diseases”; sponsorship of school education in “every parish”; construction of roads; public cleansing of towns; light houses for navigation; and many other interventions.
The “invisible hand” metaphor was not about the sufficiency of “economic self-interest” “to guide us”. That is a modern construction and not Adam Smith’s.
Saturday, February 27, 2016
MISLEADING ASSERTIONS ABOUT THE INVISIBLE HAND
Andrew Carl Bosworth at Sichuan University in Chengdu, China, posts on “Multipolar Future”: complexity, national autonomy, individual sovereignty, neutrality, balance of civilizations” HERE
“Olde-tyme classical economists often talked about the wisdom of the market, the “invisible hand.”
Quote: “In economics, the invisible hand is a metaphor used by Adam Smith to describe unintended social benefits resulting from individual actions. The phrase is employed by Smith with respect to income distribution (1759) and production (1776).”
This a false hypothesis. The fact is that the “invisible hand: was hardly mentioned by “classical economists” who lived after Smith died in 1790. Indeed, the invisible hand” metaphor was not mentioned by anybody while Smith was alive and when his two books, Moral Sentiments (1759) and Wealth of Nations(1776) were published and circulating in Europe and North America.
Most readers appear not to have noticed his use of the fairly common expression of the “invisible hand”, circulating among theologians and preachers in the 17th and 18th centuries (see the great Calvinist orator, the preacher, Thomas Chalmers, in 1836, who, almost alone mentions Smith’s use of the IH.
For Smith, though, he used the invisible hand as metaphor, not as a descriptive proper noun. The first mentions of the IH and Adam Smith appear in the 1870 (5 mentions) amd later from the 1890s, mentions appeared intermittingly until Paul Samuelson included the IH in his famous textbook on economics (19 editions and 5 million sales to 2010). From then on the modern phenomenon of linking Adam Smith to the modern version of the IH, took off exponentially, to many hundreds of thousands per year and continues daily today.
The quote from a classical textbook is a modern construction of events and not an historical one. ‘Providence’ reported Smith in TMS divided the land between humans; history records a different sequence of events, reported more accurately by Richard Cantilon: “It does not appear that Providence has given the right of possession of Land to one man preferably to another; the most ancient Titles are founded on violence and Conquest” (Cantillon: Essay on the Nature of Commerce, 1730-34/1931).
Far from a supposedly heavenly arrangement, the agricultural systems that flourished for millennia up to Smith’s times were based on the mutual, often violent, dependence of the landowners on their serfs, slaves, peasants, and labourers - who were the source of their “greatness’ - and their labourers depended on their oppressive Lords - the source of their sustenence from a share of the products of their labour. Without serfs, the landlords would soon perish; without landlords, the serfs would soon starve. But their mutual dependence worked, subject to events - invasions, plagues, famines, wars and environmental disasters. Moreover, Smith drew the conclusion that the long-term consequence was one of the “propagation of the species”.
Turning to the IH in Wealth of Nations we find a too general interpretation of Smith’s use of the IH metaphor by Andrew Carl Bosworth: He writes: the “phrase” (?) describes “the unintended social benefits resulting from individual actions.” This is far too general an interpretation, though very common in modern textbooks and lectures.
In WN, Smith is discussing a singular case of a merchant who is concerned about the risks to his capital if it is sent abroad, out of his sight and control, and into the hands of a foreign legal system of which he is unsure of its probity. In response, this merchant invests his capital locally where he is surer of the integrity of the legal system, where he knows the other merchants with whom he deals and is confident of the independence of outcome if he has cause to seek legal redress.
However, by acting to protect his interests he intends only his security but in doing so he unintentionally also adds his capital to “domestic revenue and employment”, which is a “public benefit”, albeit outwith his singular intentions.
There is nothing about the IH describing the “unintended social benefits resulting from individual actions” as a general rule. This is an extraordinary and unwarranted assertion by Andrew Carl Bosworth (and by those who generally assert Smith’s singular example into a general rule).
Indeed, Book 4 of WN, containing the singular use of the IH metaphor in the above example, there are several dozen examples of the intended motivated actions of merchants (and government ministers) in which the outcomes, documented by Adam Smith, are clearly against the interests of consumers, and other merchants, and actually present a mortal threat to the broader interests of the society of which they are members, including inter-country relations and escalating tensions leading to retaliatons, blockades, and outright warfare, which were all too common in the 18th century.
Smith regarded his analysis in Book 4 as a “violent” criticism of his country’s foreign trade mercantile policy. The invisible hand metaphor did not “describe unintended social benefits resulting from individual actions” as a general rule. Individual actions could and still can provoke violent responses and widespread social suffering too, hence it could not have been a “general rule” of Adam Smith's.
Friday, February 26, 2016
Loony Tunes no 130
“the invisible hand of peace” HERE
“The Invisible Hand and the Order of Nature - LSE. HERE
Social Media Week HERE
“Invisible Hook”: Phenomenon or Misapplication” (Feb 24) HERE
“Ghost writer that the Invisible Hand were a Foot.” HERE
LOONY TUNES no. 129
“The top-10 contributions of democratic socialism”
“Adam Smith’s invisible hand is giving a lot of Americans the invisible finger.”
“Harry Potter and The Invisible Hand: Utility Maxima”
In Money Science HERE
“The Invisible Hand of Laplace: the Role of Market Structure in Price Convergence and Oscillation.”
From: “Free-Books HERE
“Adam Smiths invisible Hand In A Velvet Glove”
Peter Radford posts (25 February) in BullFax (‘Real World Economics') HERE http://www.bullfax.com/?q=node-what-would-smith-say
“Summer vacation is winding down, I have spent a great deal of time
reading papers and books and not enough time doing useful things, so
naturally I am continuing to bellyache about modern economics.
Perhaps its that ‘end of summer feeling’, but suddenly I feel bad for
Adam Smith. I really do.”
Friday, February 19, 2016
LOONY TUNES no. 128
Yahoo Answers HERE
“Where does the invisible hand meets the iron foot?” (sic)
Sir Ronald Cohen posts (17 February) on The Chartered Management Institute, “The Enthralling Rise of the Purpose-Driven Enterprise” HERE
“With the advent of the social impact bond, the thinking began to reverse, I think in a really fundamental way; so fundamental that if Adam Smith were around today, he’d be talking not just about the invisible hand of markets but the invisible heart of markets.”
Adam Smith NEVER mentioned, let alone talked about, the “invisible hand of markets”. That is an invention of modern economists, particularly since Paul Samuelson (1948), which has become a religous belief in the profession and in the general media. Deriving the “invisible heart of markets” from a myth is truly sad and ignorant.
Michael E. Miller reports (16 February) HERE In the Hamilton Spectator how Justin Keller, a ‘tech Bro’, manages to grossly offend large numbers of homeless, addicted and otherwise not at all like the middle-class other citizens of San Francisco.
“Internet explodes after S.F. ‘tech bro’ calls homeless ‘riff raff’
After comparing San Francisco's streets to a stock market, where "the wealthy working people have earned their right to live in the city," Keller begins to grapple out loud with the question of why Adam Smith's invisible hand hasn't already swept the homeless to somewhere else, out of sight.”
Friday, February 05, 2016
Loony Tunes no. 127
Posted (27 January) on Social Media Week HERE
“THE INVISIBLE HAND & IT’S VISIBLE EFFECTS IN THE WORKPLACE"
“Even though we may not be able to see the “Invisible Hand,” there have been very visible effects on the workplace in terms of how we interact with technology, our clients, and our coworkers.”
What a muddle!
Kim Reynolds posts (1 February) on Motor Trend
“Quicker than you’ll say Adam Smith, the automotive market’s invisible hand is about to hand a big chunk of its power to planet-spanning governmental edicts.”
Wayne Jett posts in TruNews (3 Feb) HERE
“Wayne Jett: Strong Dollar Fools Gold”
Wayne Jett is the managing principal of Classical Capital’s economic analysis and publishing. … In 1999 and 2000, he wrote a book called A General Theory of Acquisitivity to explain that Adam Smith’s “invisible hand” is actually a natural mechanism designed into each person, which efficiently allocates scarce resources to individuals able to use them most productively.
Wayne Jett is a fantasist. If each person is "designed" to "use ... scarce resources ... most productively" how is it that some succeed and many don't?
Tuesday, February 02, 2016
ADAM SMITH DID NOT "FOUND" MODERN CAPITALISM
Ron A. Rhoades, JD, CFP® is an Assistant Professor of Finance and the Director of the Financial Planning Program in the Gordon Ford College of Business at Western Kentucky University. posts (Feb) in RIA BIZ
“Part II: Tick, tick ... How FINRA tramples on 'settled' principles of the Supreme Court, and even Adam Smith, in its sanctification of two-hatted advice
“Even Adam Smith, said to be the founder of modern capitalism, knew that constraints upon greed were required. While Smith saw virtue in competition, he also recognized the dangers of the abuse of economic power in his warnings about combinations of merchants and large mercantilist corporations.
Smith also recognized the necessity of professional standards of conduct, for he suggested qualifications “by instituting some sort of probation, even in the higher and more difficult sciences, to be undergone by every person before he was permitted to exercise any liberal profession, or before he could be received as a candidate for any honourable office or profit.”
As seen, “Smith embraces both the great society and the judicious hand of the paternalistic state.”
In essence, long before many of the professions became separate, specialized callings, Smith advanced the concepts of high conduct standards for those entrusted with other people’s money.”
I suspect that Ron Rhoades is unaware of Adam Smith’s actual contributions to the history of ideas about commercial societies. For example, Smith was not the “founder of modern capitalism” - even the word ‘capitalism” was not yet used while he was alive, nor was it for many decades after he died in 1790. And when the word ‘capitalism’ was first used in 1854 it referred to a very different economic phenomenon to anything envisaged by Adam Smith in the 18th century.
Moreover, when Smith wrote about the emergence of commercial society from the long centuries of farming, he was looking backwards to the past and not to the future. (In fact Adam Smith seldom looked forwards to the future - he only made one prediction about the future in Wealth Of Nations when he offered the view that in a century after 1776, the new British colonies on the American coast would become richer in wealth and population than the then dominant economy of Britain!).
That according to Rhoades, he knew “that constraints upon greed were required because “While Smith saw virtue in competition, he also recognized the dangers of the abuse of economic power in his warnings about combinations of merchants and large mercantilist corporations” is only half the story. Smith’s portrayal of commercial society is replete with the examples of the “abuse of economic power” both among the rulers and their governments and in the actions of “merchants and manufacturers”, who colluded with the ‘rulers of mankind’ in their collective and individual abuses of their offices and commercial opportunities.
Commecial interests in practise sought to abuse ‘competition” by seeking monopolies, tariffs and outright prohibitions to narrow the competition and raise prices. These trespasses on competition were normal and to some extent they still are widespread.
Capitalism is not a manifestation of Adam Smith’s creation. It remains replete with the corruption of societies familiar to Smith and to the moral defects he identified in the history of human societies that he studied and wrote about. He was not the `’founder of modern capitalism”; he was a student of what came before it.