Tuesday, November 29, 2016
Phineas Harper posts (28 November) on dezeen HERE
"It is time to stop listening to Patrik Schumacher"
“Giving a keynote lecture slot at the World Architecture Festival in Berlin, Schumacher unveiled an urban vision of hyper-exaggerated "laissez faire" economics with total faith placed in "the market" to solve all conceivable problems. It came across like a satire of Hayekian economic theory, distorted to grotesque absurdity and applied without nuance to modern cities, except he meant it. …
… It is on economics where Schumacherism really falls apart. Ben Clark, a London-based urban designer whose paper on funding new cities was awarded a Wolfson Economics Prize by the right-of-centre think tank Policy Exchange, takes a dim view.
"It's economically illiterate" argues Clark. "If laissez faire politics is his thing, Patrik Schumacher should try learning from the likes of Adam Smith, godfather of 'the free market'. Smith never saw the 'invisible hand' of the market working alone, and had a sophisticated understanding of the role of the state. In his seminal text the Wealth of Nations, Smith recommends using some of the rents within cities to pay for public services, for example. Simply privatising and deregulating absolutely everything down to the last park and street as Schumacher proposes is sheer market fundamentalism, and will only intensify our current crisis."
I don’t know why Phineas Harper is so worried about Patrik Schumacher's wacky ideas. There is no way that the entire world’s architecture is going to change so radically any time this or in the next century.
Meanwhile, Adm Smith was not ‘the godfather of the free market’.
Others beside Smith were writing about similar ideas around the same time: for example:
“The National Gain (Swedish title: Den nationnale winsten) is the main work of the Finnish scientist, philosopher and politician Anders Chydenius, published in 1765. In this thesis Chydenius argues in favour of free export trade rights for the province of Ostrobothnia and lays down the principles of liberalism and the free markets - for example, free trade and industry - eleven years before Adam Smith in The Wealth of Nations (1776).’ [Apologies: haste required that I quoted from Wikipedia! ]
There were other pioneers in France too, though they went off track in seeing agriculture as the only productive sector.
Only because modern economists have invented a narrative for Adam Smith that places him at the centre of their political fantasies do they laud him as ‘god father’ with ‘an invisible hand’ too.
Smith’s actual and laudable role deserves credit. He does not need invented worship of the kind regularly produced by modern media, nor does he need adulation from people who have not studied - let alone read his Works.
Saturday, November 26, 2016
SELF INTEREST IS NOT SELFISHNESS!
Mark van Vugt is a professor of Evolutionary, Work and Organizational psychology at the VU University Amsterdam and a research associate at the Institute for Cognitive and Evolutionary Anthropology at the University of Oxford. HERE (Originally published at New Scientist}
“Why the Invisible Hand from Biology is Better Than the Invisible Hand from Economics”
“The notion that economics and business are all about competition and self-interest is alluring but wrong
…“It is true that the basic Darwinian principles of variation, selection and retention can be invoked to understand the survival of different firms. Although not a purely Darwinian process – due to mitigating factors such as government regulations – the predictions have proven alluring to many economists. That’s because at first sight they bolster three pillars of neoclassical economics: one, that economic actors are self-interested; two, that self-interest leads to public goods (the famous “invisible hand” coined by the father of modern economics, Adam Smith); and three, that together these lead to market optimisation. However, applying this clichéd Darwinian reasoning leads to a paradox: firms are by definition groups of individuals, and therefore competition between firms implies selection among groups, not individuals. This undermines the three pillars above and instead predicts the emergence, at the individual level, of pro-group “altruistic” behaviour instead of selfishness. …
There has been much talk recently of introducing Darwinian explanations into economic behaviour. Interesting as this is, its problem is that 19th-20th ideas about ‘rational utility maximisers’ are way off course as explanations’ and certainly are not idea presented by Adam Smith in the 18th century. Hence, dragging Adam Smith into this modern debate is erroneous.
The error comes down to the infamous misreading by Paul Samuelson (Noble Prize Winner) in his off-hand ‘clever’ remark that the Smith’s reference to an ‘invisible hand’ was about ‘selfish’ motives leading to ‘public benefits’. This remark was not ‘clever’. it was factually wrong.
But 5 million sales later of Samuelson’s textbook, ‘Economics’ (McGraw-Hill) and several generations of Econ 1010 students believed the libel with all the passion of evengelical zealots and spread it intio the general media, as evidenced in this Evonomic’s paper. (Confession: Samuelson’s book was the set text in my first year student days in the 1960s).
Since 2005, on my retirement, I have waged a struggle to clear Adam Smith of what is intellectully a gross libel.
Mark van Vugt continues:
…The core idea is that while individuals may indeed pursue their own self-interest, they also have a suite of evolved psychological adaptations that – as if led by an invisible hand – steer their self interest to align with the good of their firm or even their wider society. But it is the hand of Darwin, not Smith.” …
An arguable proposition (s simile) but not helpful. Smith’s proposition in Wealth of Nations was quite different. He referred to a merchant who was concerned that sending his goods for sale in foreign countries was an avoidable risk (unfamiliarity with the honesty of foreign merchants and the probity of foreign legal conduct).
Hence the merchant preferred to sell his products locally where he knew those he dealt with and felt secure of domestic legal redress should he be deceived. See WN: IV.ii.1-10. pp 452-6: check it out and think about it!
The metaphor was about the merchant being led by his intended private and invisible motives for his actions to secure his intended consequence - the relative security of his domestic transactions.
However, in addition to his personal motive there were unintended consequences from his domestic investment: his invested capital added to domestic “revenue and employment”. Now Smith asserts that such a consequence was a local “public benefit”. Moreover, such positive unintended consequences were common, though NOT inevitable from all such domestic transactions.
The motivated domestic actions of merchants could produce innstead domestic disbenefits from the motivated actions of domestic merchants, and he gives numerous specific examples throughout Wealth of Nations. For example when merchants clamour for tariffs on foreign imports - even outright prohibitions - they narrow domestic competition and raise domestic prices and their profits.
Now the question for Mark van Vugt is why he interprets Smith’s (singular) example of his use of the metaphor on ‘an invisible hand’ as being about his ‘selfish’ conduct when Smith’s example was about the merchant’s solely prudent conduct?
Has Mark understood Smith’s use of the metaphor (in fairly common use in the 17th-18th centuries; it was not ‘coined’ by Smith)?
Mark van Vugt continues:
“…The fact that people work at all may lie primarily in the selfish motivations of employees, as Adam Smith recognised, but there will often be a vast area of common ground in which the interests of individual employees converge with those of their firm and the wider society. But the hand that guides humans to help each other by helping themselves appears to be the result of evolution – not Homo economicus.”
When and where did Adam Smith ‘recognise’ that people work for ‘selfish reasons? Is Mark serious?
The alternative for most people from not working is penury and starvation.
Did Darwin, let alone Smith, really argue that animals hunted or gathered food for “selfish” reasons?
Is Mark aware that the use of ‘Homo Economicis’ is a modern concept, not Adam Smith’s?
Where is this ‘hand that guides humans?”
Metaphoric expressions do not exist independently of their ‘object’ in its context.
There is no ”invisible hand” in fact. See Adam Smith’s “Lectures on Rhetoric and Belles Lettres”, p. 29.
Friday, November 25, 2016
PRICES DELIVER YOUR TURKEY NOT A MYSTERIOUS POWER
Jeff Jacoby posts (27 November) in The Boston Globe, 2003, ‘Giving thanks for the ‘invisible hand’:
“The Invisible Hand delivered your turkey”
“Adam Smith called it “the invisible hand” — the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many. Out of the seeming chaos of millions of uncoordinated private transactions emerges the spontaneous order of the market. Free human beings freely interact, and the result is an array of goods and services more immense than the human mind can comprehend. No dictator, no bureaucracy, no supercomputer plans it in advance. Indeed, the more an economy is planned, the more it is plagued by shortages, dislocation, and failure. …
… So yes, thank the Invisible Hand for your turkey.
But you still have to carve it. Unless, of course, the Invisible Hand pre-carved it for you because you are too damn lazy and willing to pay a little extra.”
It is that time of year when the above fairy tale is pulled out of the files and posted on the worldd’s print and web media.
It is of course a nonsence that there is an actual ‘invisible hand’ (God’s or whatever “mysterious power” is called up to mystify the working of markets).
MARKETS can only work by the VISIBLE prices inherent in markets - and cannot work at all without their VISIBILITY.
Miss-applying Adam Smith’s use of a metaphor by generalising it into a mysterious role in markets, while ignoring the many occasions in which the actions of people do not lead to socially benign outomes.
Many such incidents discussed by Adam Smith in Wealth of Nations, are ignored by advocats of a mysterious ‘hand’ like Jeff Jacoby, and the editors in The Boston Globe, who every year re-cycle a pernicious political myth and discredit the scholarly integrity of Adam Smith.
Wednesday, November 23, 2016
NOT ALL MARKETS ARE MORAL
“The Decline of Economics and the Rise of Donald Trump”
“The gist of early economics was to study the ultimate
mission of the state and the individual. Adam Smith, the
founder of economics, was a professor of philosophy and
ethics. Smith never taught any economics courses in his
lifetime. When he raised the concept of the “invisible hand,”
he paid more attention to the moral factors behind the
market. He believed that the market is moral because
everyone promotes the progress and development of social
interests in the pursuit of their own interests.”
However, I dispute specific Ma Guangyuan’s assertions:
‘Smith never taught any economics courses in his lifetime’
I think this is somewhat misleading. Nobody in Britain taught
economics as we know it today while Adam Smith taught at
Glasgow University from1751-63.
The subject of ‘economics’ at the time was mainly addressed in
books on ‘political economy’ or buried in other courses.
Smith’s Wealth of Nations was published in 1776 some 13 years
after he had long ceased to teach, but had continued to study and
write his longest and celebrated Wealth of Nations.
However, he did teach courses on Jurisprudence during 1749-63
(roughly about the evolution of laws and governance) which
included some lectures on political economy’.
For example on Tuesday 29, 1763, Smith taught economics, one
section of economics text covers six pages in his Lectures on
Jurisprudence (in 1763, pp.), all of which appeared verbatim 13
years later in the Wealth Nations in 1776 (pp. 341-49).
I do not recognise what Ma Guangyuan has in mind for the
significance of his assertion.
In respect of the statement "in the pursuit of their own interests", it
should be remembered that the "pursuit of their own interests"
was not a general statement of their morality, because self-
interested actions can also be in pursuit of selfish interests as with
lobbying for tariffs and outright bans on imports from which 'jealousy
of trade' consequences followed.
Tuesday, November 22, 2016
QUICK BITS no. 16
“This view is shared by anti-globalisation group Attac, which warned that “the invisible hand of the markets is naturally no greener than it is social or just”.
An idea that is particularly resonant in Marrakesh. In this oasis that marks the border between northern Morocco, where agriculture can flourish, and the arid southern part of the country, the shortage of water is ever more keenly felt.
It has not, however, stopped the city from constructing its ninth golf course; a project that demands enormous quantities of water. Golf courses also increase the value of the surrounding buildings, further demonstrating the weaknesses of Adam Smith’s “invisible hand of the market”.
And it shows just how necessary regulation is in driving climate action, even if the road is not always easy. The influence of lobbying on the European Commission’s directives is a case in point.”
ALINE ROBERT announces that ““the invisible hand of the markets is naturally no greener than it is social or just”.
FACT: there is no “invisible hand” of the markets. That is a modern myth, usually, though wrongly, atttributed to Adam Smith in the 20th century and at variance with that which Smith wrote in the 18th century.
FACT: Moreover, the golf case in question is wholly erroneous for allegedly demonstrating “the weaknesses of Adam Smith’s “invisible hand of the market”.
Again Smith’s use of the metaphor of ‘an invisible hand’ did not refer to ‘markets’ particularly.
Saturday, November 19, 2016
ITS A LIVING...
Englewood Staff post (18 November) HERE
Wall Street Retreats to End Week; How Did This Stock Fare: Southwest Airlines Co. (NYSE:LUV)
“The closing price represents the final price that a stock is traded for on a trading day. It’s the most up-to-date valuation until trading begins again on the next day. However, most financial instruments are traded after hours, which means that the the closing price of a stock might not match the after-hours price. Regardless, closing prices are a useful tool that investors use to quantify changes in stock prices over time. The closing prices are compared day-by-day to look for trends and can measure market sentiment for any security over the course of a trading day.
Stock exchanges work according to the invisible hand of supply and demand, which determines the price where stocks are bought and sold. No trade can occur until someone is willing to sell a stock at a price that another is willing to buy it at. When there are more buyers than sellers, the stock price will rise because of the increased demand. Conversely, if more individuals are selling a stock, the price will decrease.
On any given trading day, supply and demand fluctuates back-and-forth because the attractiveness of a commodity’s price rises and falls. Because of these fluctuations, the closing and opening prices are not necessarily identical. A number of factors can affect the attractiveness of a stock in the hours between the closing bell and the next day’s opening bell. For example, if there is good news like a positive earnings announcement, the demand for a stock may increase, raising the price from the previous day’s close. It follows that bad news will negatively affect price.”
The first paragraph tells us that (‘closing’ and ‘after hours’) VISIBLE prices convey valuable information that may prompt decisions to buy, sell or stick with previous decisions.
The second paragraph describes the way VISIBLE prices work as the ‘invisible hand of supply and demand, which determines the price when stocks are bought and sold. In other words, it simply repeats the first paragraph with a spurious repetition of the first paragraph on VISIBLE prices.
ENGLEWOOD Staff writers are paid for repeating themselves and for manifestly kidding their readers that they are ‘in the know’ about the economics of ‘supply an demand’, blessed with their knowledge about ‘an invisible hand, which boils down to something that is conveniently invisible!
That’s why staff writers require their high salaries to write such guff.
Lastly, from the basement scriblers we are informed that ‘good news’ (an expectation of ‘positive news’), VISIBLE prices will rise!
Moreover, if there is ‘bad news’ (an expectation of ‘negative news’), VISIBLE prices will fall!
Of course, investors do not stay awake all night and all day. They pay VISIBLE charges for others to do so in day shifts and night shifts.
It’s a living for those supplying such services for VISIBLE charges.
Their cousins make their living too at racetracks …
Tuesday, November 15, 2016
QUICK BITS no 15
ch`ndini posts (November) on WR Word Reference HERE
“The invisible Hand is simply the thudding fist of the powerful’
As in baseball, it is easy for all the participants in the economy to convince themselves that their participation is what matters, that they are the authentic creators of value, that their effort is what ought to be rewarded most handsomely. And everyone has a point. But while we can rely on economics to do some of the work of sorting out who deserves what, we are kidding ourselves if we think the invisible hand can be entrusted to handle the whole job. Left alone, the invisible hand is simply the thudding fist of the powerful. It would be wonderful if things were otherwise, but they aren’t.
it is not easy to understand the underlined part. what is this "thudding fist" and "the powerful" here? does it mean: the invisible hand (of economics) is only a powerful factor (affecting income distribution). it would be wonderful if we dont rely only on economics, but unfortunately we have no other choice?
If ch'ndini tries to explain a metaphor (invisible hand) with another metaphor (thudding fist) he/she creates a muddle.
There is no actual invisible hand. Neither is there a thudding fist.
There are billions of exchange transactions each day. Many have beneficial consequences; many others have detrimental consequences.
Saturday, November 12, 2016
ONE STEP FORWARD, SEVERAL STEPS TO GO
Under the headline: “Meet the real Adam Smith”, Carlos Navarro makes some interesting points, which I was pleased to read, though I have some corrective comments:
“… Adam Smith’s moral philosophy was simple enough. He rejected as unnatural the two conflicting philosophies of his day, that social order could be achieved only by means of a strong dictatorship or by promoting a Christ-like brotherly love among the citizenry. He realistically held that humans at bottom were selfish creatures, concerned primarily with their individual survival. Thus, the only way to assure social stability was by allowing them to freely exchange labor, goods, and services for profit. If you have something that I want and I have something that you want, and if no king or deity prohibits us from trading what we want from each other, and if whatever those wants are, are not harmful to society, then despite our religious and political differences, whether we like each other or not, we can live in harmony. And if others approach us with better deals, then, to maintain our trading relationship, we would have to trump our competitors with even better deals. Taken at a mega level, it was clear to Smith that the whole of society, as if guided by an “invisible hand,” would benefit from this competition.”
Adam Smith certainly was critical of the existing UK power structures and the prevailing religious domination of public life, (see my paper: ‘Adam Smith on Religion’, 2010, in Berry, Paganelli, and Smith, eds. Oxford Handbook of Adam Smith, Oxford University Press).
I am not sure that Smith can be associated with Carlos Navarro’s assertion that “He realistically held that humans at bottom were selfish creatures, concerned primarily with their individual survival.
The much quoted opening paragraph of Smith’s Theory of Moral Sentments (1759) explicitly contradicts this assertion and states:
“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.” (TMS I.i.1: 9) Humans, said Smith explicity, were not “at bottom … selfish creatures.” They were inherently also moral creatures.
“Therefore, the main, if not the sole, role of government, according to Smith, was to assure that the competition was free and fair, and, moreover, that the competitors were imbued with a moral conscience, for otherwise the competition would degenerate into the law of the jungle. In his calm, philosophical voice, Smith noted how in his day the overlong terms of apprenticeship (a form of slave labor), the local restrictions against laborers from outside communities, the collusion among wealthy owners of land and capital to set prices, the stashing of bank gold deposits in private coffers and covering withdrawls with unsecured paper notes –stealing the gold, in effect– were, among other ruses, preventing the “invisible hand” from working its magic.”
““Therefore, the main, if not the sole, role of government, according to Smith, was to assure that the competition was free and fair, and, moreover, that the competitors were imbued with a moral conscience, for otherwise the completion would degenerate into the law of the jungle. In his calm, philosophical voice, Smith noted how in his day the overlong terms of apprenticeship (a form of slave labor), the local restrictions against laborers from outside communities, the collusion among wealthy owners of land and capital to set prices, the stashing of bank gold deposits in private coffers and covering withdrawls with unsecured paper notes –stealing the gold, in effect – were, among other ruses, preventing the “invisible hand” from working its magic.”
Carlos Navarro has made up most of these two paragraphs, Smith NEVER said anything about “preventing the “invisible hand” from working its magic.”
In fact he NEVER mentioned anything about the invisible hand “working its magic”.
Smith used “an invisible hand” metaphorically, see Smith’s Lectures on Rhetoric and Belles Lettres (1762-3/1963) Oxford University Press.
Overall Carlos Navarro's article is a step in the right direction, but it has several more steps to go.
Friday, November 11, 2016
QUICK BITS no. 14
Jerry Schuitema posts (11 November) in Money Web (South Africa)
“Living in a slimes dam”
“We are surrounded by parasites and desperately in need of governance purification.
“…Now, if I had said that in a Moneyweb article (as I have countless times), some readers would have argued: “the creation of value for yourself creates value for others.” That has been a traditional assumption around capitalism for many decades, citing Adam Smith’s “invisible hand”, which, especially since the Milton Friedman era, has been presented as a grabbing claw driven by self-gain, from which crumbs “trickle down” in sufficient quantities to fill the outstretched hands of the masses.”
Neatly credits the discreditable post-Samuelson invention of the modern version of Adam Smith's modest use of the metaphor of 'an invisible hand', as spread by Milton Friedman.
Thursday, November 10, 2016
A MOST USEFUL BLOG SOURCE FOR ECONOMISTS
BECKY HARGROVE, near Houston, Texas, manages a most useful Blog, ‘the intentional market place’, of special interest to economists. HERE
She posts from 61 established Blogs by other economists (the list is so long I may have miscounted!).
I have bookmarked it.
I hope that by accessing the list regularly it improves the focus of Lost Legacy from its present dominance of comments on the wider, non-specialist general media.
KNOWLEDGE MANAGEMENT SPECIALIST MISSES THE POINT
Charles Dhewa, a “knowledge management” specialist in Zimbabwe posts (10th November) in The Herald HERE
“How agric markets reveal hidden characters”
“Unfortunately, farmers and other value chain actors who are not aware of these dynamics, always blame buyers yet there is an invisible hand influencing paterns and relationships”
In this closely argued piece Charles Dhewa describes in minute detail, how Zimbabwe’s multiple produce agri-business operates thoughout the year and across many products, regions and evironmental circumstances.
In short: a typical muti-product, multi-phased, multi-influenced, varying prouct market with varying lead-times, environmentally affected production processes dominated by uncertain outcomes for individuals trying to make a living out of it.
He asserts that it is all down to “an invisible hand” … without telling his readers what such an improbable entity actually does.
Its all down to visible prices that operate close to selling/ purchasing events, usually long after risky production decisions with limited scope for storage, have (or can), been made.
Monday, November 07, 2016
ANOTHER DEMAND TO KILL OFF THE INVENTED INVISIBLE HAND BY MODERN ECONOMISTS
David Sloan Wilson posts (6 September) on EVONOMICS HERE
“Invisible Hand: Why the Narrow Pursuit of Self Interest Always Fails”
“Regulation comes naturally for small human groups but must be constructed for large human groups.
“I hope that our economy recovers, but the time has come to declare its guiding metaphor dead. This is the metaphor of the invisible hand, which makes it seem as if the narrow pursuit of self-interest miraculously results in a well-functioning society.
The invisible hand metaphor originates with Adam Smith in The Wealth of Nations(1776). Bernard Mandeville made a similar point with his Fable of the Bees (1705), which fancifully describes human society as a wondrously productive bee hive, even though each bee is as selfish as can be.
Smith was critical of Mandeville and presented a more nuanced view of human nature in his Theory of Moral Sentiments (1759), but modern economic and political discourse is not about nuance. Rational choice theory takes the invisible hand metaphor literally by trying to explain the length and breadth of human behavior on the basis of individual utility maximization, which is fancy talk for the narrow pursuit of self-interest. For the general public, unfettered competition has been turned into a moral virtue and “regulation” has become a sin. …
… New theories are not good enough, however. We also need to change the metaphors that guide behavior in everyday life to avoid the disastrous consequences of our current metaphor-guided behaviors. That is why the metaphor of the invisible hand should be declared dead. Let there be no more talk of unfettered competition as a moral virtue. Cooperative social life requires regulation. Regulation comes naturally for small human groups but must be constructed for large human groups. Some forms of regulation will work well and others will work poorly. We can argue at length about smart vs. dumb regulation but the concept of no regulation should be forever laid to rest.”
David Sloan Wilson is getting more and more interesting on the subject of the “invisible hand” metaphor in modern economics, as presented by most economists folllowing the gross misreading by Paul Samuelson in 1948 and its completely fictitious further developments in fantasy by subsequent economists from then to today, much of it documented on Lost Legacy since 2005.
Mandeville has largely been ignored for his satire about the bees. Smith was robbed because his metaphor was easily expanded to cover the wider, and significantly changing modern economy and much inventive elaborations to take account of these developments, including those flowing from the mathematisation of economics subject to imposed theories of human rationality.
The assertion that the economy’s ‘guiding metaphor is dead’ is a bit previous, as we used to say when I lived as a schoolboy in London (long story of my youth, dragged out of Scotland via Leeds by my mother).
Bring it on, I say. Lets kill the brazen misuse of Adam Smith’s use of a popular 17th-18th century metaphor.
Thursday, November 03, 2016
WHAT ADAM SMITH MEANT BY HIS USE OF THE METAPHORIC INVISIBLE HAND
Tim Scott posts (2 November) on Dissident Voice (a radical newsletter in the struggle for peace and social justice) HERE
“Social Impact Bonds: The Titans of Finance as the Altruistic Merchants of Schooling and the Common Good"
“Up until then, what you had was a world of socially responsible investing where everybody paid lip service to the fact that we shouldn’t do bad things. But we didn’t really have the ability to deliver positive social returns. 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.”
A very long and erudite article by Tim Scott detailing the mess that the author sees in the treament by wealthy charities in their interventions for disadvantaged youths from non-white social groups in the USA. I have no expertise in this subject-area, but if it is half as bad as the author states then it is pretty bad indeed.
However, I do have some familiarity with the views of Adam Smith, of whom Tim asserts talked about “the invisible hand of the market”. The fact is Smith didn’t mention his reference to “an invisible hand” in that way. Modern economists and people who believe what modern economists assert, certainly speak that way.
Tim Scott extends the modern error of the now infamous metaphor, giving it a new twist: “the invisible heart of markets”.
Very clever, literary-wise, but still inaccurate.
Markets are social-constructs. They neither have hands nor hearts (nor ‘fists’, ‘boots’, ‘bludgeons’, or anything else physical). They work by VISIBLE PRICES and cannot work without them.
People generate motives and act accordingly in pursuit of them. Their MOTIVATED ACTIONS have INTENDED consequences (which may or may not be realised).
The metaphor Smith used (widely in use in the 1th-18th centuries, mainly but not only, with theological overtones), referred to those motivated actions leading to UNINTENDED consequences (hence Smith’s references to the motivated actions of the person being “led by an invisible hand” which actions caused their unintended consequences, sometimes of positive benefit to the public good (raising the annual output of goods/and services and employment) and sometimes of negative dis-benefit to the public good (tariffs and prohibitions and wars over 'jealousy of trade').
If we keep that distinction in mind, and its sequence, we can understand Smith’s use and meaning of his use of a metaphoric “invisible hand”.
Unfortunately, keeping the sequence and the unintended consequences of the motivated actions of people clear in our minds is not (yet!) common.
Wednesday, November 02, 2016
QUICK BITS no. 13
Don Pittis posts (2 November) on CBC News HERE
“He says the idea that intellectual property is guided by Adam Smith's invisible hand is simply absurd. Instead, he describes a world where international bodies hammer out intellectual property rules, and where leaders, surrounded by intellectual property advisers, fight for policy and standards that favour their own corporate champions.”
Well somebody is waking up to the need to ditch the modern avoidable error of misreading Adam Smith on his use of “an invisible hand”. That’s the good news. Problem is the problems of making money out of innovation remain, as Don Pittis shows.
QUICK BITS no. 12
Tim Winton posts 14 October in The Guardian newspaper HERE
Tim Winton on class and neoliberalism: 'We're not citizens but economic players’
“…The market doesn’t care about people, Winton argues, and neither is there any genius in it. “There’s no invisible hand,” he says. “And if there is one, it’s scratching its arse. …”
[Note: Tim is an Australian, a country well known for its often robust language.]
QUICK BITS no.11
Adam Curtis posts (November) in ARTFORM HERE
“What Ever Happened to Baby Jane?”
“It starts with Kissinger. His “constructive ambiguity” in Damascus scrambles the diplomatic process and inspires the widespread deployment of suicide bombers (funded by Assad) who, since they can’t assuage their sense of political despair, resort to blowing it up. Meanwhile, in New York City, a penniless municipal government is held hostage by the banks. So we see the twin curses of our age: the cruelties of austerity and the reversion to a nonpolitical politics, in which diplomacy is discarded and the public dismissed. This is the fake world: one where the mass sentiments of the Middle East can be skirted by Kissinger’s tricky wording, a world where a fickle Invisible Hand is either patting you on the head or giving you the middle finger.”
Tuesday, November 01, 2016
RICHARD HAUSEMANN AND THE INVISIBLE HAND
Ricardo Hausmann, is a former minister of planning of Venezuela and former Chief Economist of the Inter-American Development Bank.
He is also Professor of the Practice of Economic Development at Harvard University, where he is the Director of the Center for International Development, writes:
He is also Professor of the Practice of Economic Development at Harvard University, where he is the Director of the Center for International Development, writes:
“Of course, private-private coordination has been the essence of economics for the past 250 years. While Adam Smith started us on the optimistic belief that an invisible hand would take care of most coordination issues, in the intervening period economists discovered all sorts of market failures, informational imperfections, and incentive problems, which have given rise to rules, regulations, and other forms of government and societal intervention. This year’s Nobel Prize in Economic Sciences was granted to Oliver Hart and Bengt Holmström for their contribution to understanding contracts, a fundamental device for private-private coordination.
But much less attention has been devoted to public-public coordination. This is surprising, because anyone who has worked in government knows that coordinating the public and private sectors to address a particular issue, while often complicated, is a cakewalk compared to the problem of herding the cats that constitute the panoply of government agencies.
The reason for this difficulty is the other side of Smith’s invisible hand. In the private sector, the market mechanism provides the elements of a self-organizing system, thanks to three interconnected structures: the price system, the profit motive, and capital markets. In the public sector, this mechanism is either non-existent or significantly different and less efficient.
Richard Houseman did not get his view that “Adam Smith started us on the optimistic belief that an invisible hand would take care of most coordination issues” from anything that Adam Smith wrote. Housman got that ideas from economists educated as undergraduates by Paul Samuelson's textbook, Economics, (1948) who told them about Adam Smith believing that his example of a merchant, who invested his capital domestically because he did not trust unknown foreigners with his capital. By investing locally he sought to benefit his own interests but, unbeknown to him, by arithmetically adding to domestic capital locally he also unintentionally benefitted others.
Smith said nothing about it would “take care of most co-ordination issues”. That assertion is a modern gloss put on it by modern, 20th-century, economists, and subsequently believed by Richard Houseman in Venezuela.
The market failures that Richard Housman speaks of were known to Adam Smith, who often commented in his Wealth of Nations on the perfidious behaviour of “merchants and manufacturers” in 18th-century markets. However, he said nothing about “an invisible hand” ‘co-ordinating markets’.
Moreover, from the time when Adam Smith used the metaphor of “an invisible hand”, once only in Wealth of Nations, in 1776, it was just over 100 years later in the 1870s that some English economists at Cambridge re-discovered his use of the invisible hand and applied it generally to the whole economy. Once Paul Samuelson praised it as such another 70 years later in 1948, the myth of Smith’s ‘invisible hand” grew into a universal belief.
Richard Housman should reflect a moment on these facts and re-consider his passion for his untrue beliefs.
QUICK BITS, no. 10
Pavel Atanasov posts (1 November) on Scientific American HERE
“The Best Bet in Crowd Prediction: Research improves on prediction markets”
“In theory, the invisible hand will do its magic, efficiently aggregating all relevant information available to participants.”
In whose theory? What “magic” does the ‘invisible hand” do. This is cloud cookoo land, even in “theory”, and certainly no theory ever postulated by Adam Smith.
Are such assertions appropriate for the prestigious Scientific American?
QUICK BITS, no. 9
Joseph L. Shaefer posts (1 November, 2016) on investing.com
“The One Sector You Must Own In 2017”
“Right now, there is still a smidge too much supply, with more continuing to come on-stream, and too little demand, globally or in the US. But as long as cartels and governments are ineffective or distracted, Adam Smith’s Invisible Hand is at play in the gas and oil sector just as it is everywhere else.”
“Adam Smith’s Invisible Hand is at play in the gas and oil sector just as it is everywhere else”, but doing what exactly?
QUICK BITS, no. 7
LichJesus posts (31 October) on REDDIT HERE
AN ASTONISHING ADMISSION!
“Full disclosure, I haven't read Smith himself in any detail"
So admits “LichJesus” at the top of a very long piece pontificating in on what Adam Smith allegedly meant when he used the metaphor of “an invisible hand”.
I find that admission revealing of the sorrry state of what passes for the modern knowledge of Smith’s political economy.
Moreover, “LichJesus” continues his/her admission by adding:
“however I've read a lot of his philosophical successors so I'm hoping their/my answers line up with his.
Ordinarily, in my teaching days I was patient with students who made grossly incorrect statements about well-known, though In Adam Smith’s case not widely read authors, and suggest where the student might find the antidote to his or her demonstrated ignorance.
In this case, I’ll say nothing more …except note that "LichJesus" is at least very literate ...