Tuesday, February 28, 2017

PROFESSOR BASU IS MISTAKEN

Kaushik Basu posts (27 February) on The Wire HERE
Kenneth Arrow, Possibly the Most Important Economist of the 20th Century
“His next big breakthrough was in general equilibrium. Ever since Adam Smith’s famous book in 1776, economists have talked about the “invisible hand” – how competitive markets can coordinate the selfish pursuits of individuals to result in socially desirable equilibrium. Would this always be the case and when could we be sure that an equilibrium would actually exist? This was an enormous research agenda and many economists worked on it in the second half of the 20th century. But the big break came from the joint research of Ken Arrow and Gérard Debreu, published in Econometrica in 1954.”
COMMENT
Professor Basu is Incorrect to allege that: “Ever since Adam Smith’s famous book in 1776, economists have talked about the “invisible hand” – how competitive markets can coordinate the selfish pursuits of individuals to result in socially desirable equilibrium."
While Adam Smith was alive, no economists "talked about"/wrote about Adam Smith's use of the "invisible hand". 
Indeed, even his close family friend, Professor Dugald Stewart, who knew Adam Smith well and who lectured on Wealth of Nations at Edinburgh University in the 1800s and published his lectures, including the very passage with the "invisible hand", said not a word about the modern myth of 'an invisible hand' or its alleged significance. 
The same absence of comment applies to such as David Ricardo, Bentham, Mill  and the others who followed Smith. Only in the 1870s-1900s was there 5 mentions of the Adam Smith and the invisible hand' in disparate references in passing, one in a Fellowship paper at Cambridge (England) by a lawyer
Similarly to the 1940s. The main source of the 'selfish' interpretation came from Paul Samuelson in 1948 in his Economics, textbook, 5 million sales to 2010. It is now ubiquitous.

This does not, of course, distract from the significance of Kenneth Arrow, a real giant among the rest of us.

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