PROFESSOR KIRMAN'S PROMISING JOURNEY
Alan Kirman, professor emeritus of Economics at the University of Aix-Marseille III and the Ecole des Hautes Etudes en Sciences Sociales. He is also a member of the Institut Universitaire de France.
He posts (29 August) on Evonomics HERE
“Although in fields such as statistical physics, ecology and social psychology it is now widely accepted that systems of interacting individuals will not have the sort of behaviour that corresponds to that of one average or typical particle or individual, this has not had much effect on economics. Whilst those disciplines moved on to study the emergence of non-linear dynamics as a result of the complex interaction between individuals, economists relentlessly insisted on basing their analysis on that of rational optimising individuals behaving as if they were acting in isolation. Indeed, this is the basic paradigm on which modern economic theory and our standard economic models are based.. It dates from Adam Smith’s (1776) notion of the Invisible Hand which suggested that when individuals are left, insofar as possible. to their own devices, the economy will self organise into a state which has satisfactory welfare properties.
Yet this paradigm is neither validated by empirical evidence nor does it have sound theoretical foundations. It has become an assumption. It has been the cornerstone of economic theory although the persistent arrival of major economic crises would seem to suggest that there are real problems with the analysis.”
I like the journey that Alan Kirman clearly is undertaking. My only quibble is his assertion that “Adam Smith’s (1776) notion of the Invisible Hand which suggested that when individuals are left, insofar as possible. to their own devices, the economy will self organise into a state which has satisfactory welfare properties.”
This reads something much more into Smith’s use of the metaphor of ‘an invisible hand’ than is justified by his exact reference in Wealth of Nations, Book IV) consistent with his teachings on Rhetoric in his Lectures on Rhetoric and Belles Lettres (1762-3; 1983, Oxford University Press).
There was no notion in Smith’s day of degrees of what is called ‘perfect competition’, nor of “satisfactory welfare properties” (Pareto, 20th century).
There certainly are “real problems with the analysis” prevalent in 21st century economics.