Adam Smith versus the invented 'adam smith'

Its not often that I read a piece with which I disagree across the board and also find something with which I do agree. 

As usual the source of my disagreement is a mixture of the writer’s education in Economics 101, where rotten myths about Adam Smith (1723-90) are implanted in innocent students’ minds that is based on a mythical ‘adam smith’ who never existed - yes, the one whom George Stigler assured his audience ‘was alive and well and living in Chicago”. The gullible believed him and preached the gospel according to the phoney ‘adam smith’ and their innocent audiences across the world in Econ 1 classes, then repeated the phoney mantra, including Nobel Prize winners.

“MIT scholar, Sandy Pentland posts (27 September) HERE 

“Big Data Is About People”

“Rational Behaviour Is Overrated”

“Pentland, says he often begins his talks discussing the “invisible hand” theory of economist Adam Smith, something familiar to most first year economic students. Smith claims that our economy and society is shaped by rational individuals competing for their own interests.

COMMENT

Disagree!

Adam Smith never had a theory of the “invisible hand”. For Smith it was a metaphor, which rhetorical metaphors he discussed in his “Lectures on Rhetoric and Belles Lettres’ (1762; 1983). For Metaphors there is an “allusion” said Smith (not a theory or an identity) between two ‘objects’.

Nor did he say anything about an economy ‘shaped by “rational individuals”, certainly not to any degree now common, since the economists writing in the 19th and 20th centuries assumed rationality and created mathematical models, as if people were strictly rational in a scientific sense. Once these fantasies became mathematicalsed, economics became locked into models of behaviour that portayed economic relations as if they were susceptible to rationality like in the physics sciences.

“That’s really the basis of democracy and markets, and this is how we run our world,” says Pentland. “It’s also social science a la 1680. We actually know we’re not fully rational but more importantly we’re not independent, and we’re not always greedy.”

COMMENT

Agreed!.

“The independence one is the big one,” he continues. “We actually talk to each other. That’s where you get bubbles and fads. That’s what culture is, it’s people agreeing on things together.”

“People’s opinions are more of a function of the people they interact with than they are of the stuff between your ears. We’re more social creatures than we are independent creatures.”

That means ideas, trends and beliefs spread through “friendship networks” argues Pentland.

“If you look at what people look at online, they look at the same things and they talk about the same things as the people they spend time with physically.”

“The thing that I’ve learned is we are neither ‘hive mind’ nor rational individuals.”

COMMENT

Agreed!