QUICK BITS no. 7

Bienvenido S. Oplas, Jr., head of Minimal Government Thinkers, a SEANET Fellow and member of the Economic Freedom Network (EFN) Asia, posts (24 May) in Business World Online HERE

“Political labels sometimes tend to create more confusion instead of clarifying things on philosophy and ideology. One reason for this is that certain advocates and campaigners of particular philosophies are themselves confused of what they are talking about, and yet they project to be the leaders and articulators of those political philosophies. …

… Classical liberalism was articulated and developed some 2-3 centuries ago, based from the writings of John Locke (“social contract” theory), Adam Smith (“invisible hand of the market”), David Ricardo (theory of comparative advantage), among others.”

Comment

After the lecture in paragraph one, we get a clear example of the author being “confused of what they are talking about” in paragraph 2.

Adam Smith NEVER said anything about “invisible hand of the market”.

Wrong guy, wrong century, wrong idea. Bienvenido S. Oplas, Jr is confused. 

He should lie down in a dark room and start again …

There is no actual “invisible hand’ in the market. It was a metaphor used by Adam Smith to describe the conequence of the motivated action by a merchant who chose intentionally to invest his capital domestically to protect it from the added perceived risks of investing it abroad. 

In addition to the intentional consequences of the merchant’s motivated actions, noted by Adam Smith, there could also be unintentional consequences, in this case, that the merchant’s capital added to “domestic revenue and employment”, which was a benefit to the public good. 

Smith, metaphorically, decribed the motivated actions of the merchant, as “an invisible hand” leading in this case to a public benefit. 

It was not evidence of the actual existence of “an invisible hand”, not least because the motivated actions of merchants could also lead to public disbenefits, such as when merchants were motivated to persuade governments to impose tariffs on imports - even prohibitions - which would be anti-competive by raising prices.

There is no “invisible hand” of the market. It is a myth created in the 1940s-60s by the likes of Paul Samuelson and others. Such a myth had nothing to do with Adam Smith’s clear case and only example of the ‘invisible hand” in his Wealth of Nations in Book IV, chapter 2, paragraphs 1-11, pp 452-56.