Wednesday, April 26, 2017
“The Invisible Hand of Peace Impact Factor:3.387 Ranking:International Relations 2 out of 85 Political …”
The American Lawyer
“So here's the question: Are women flocking to those low-rent areas out of choice or is there an invisible hand that steers them there? “
“However, now Washington's assistance is required.”
“When the legendary economist Adam Smith wrote of an “invisible hand” leading us all to a better society, he was not describing the British energy …"
Sunday, April 23, 2017
ADAM SMITH'S IDEAS WERE NOT FOLLOWED BY POLITICIANS
Donald Boudreaux posts (22 April) on FEE (Foundation for Economic Education) HERE
(Republished from Cafe Hayek.}
“Mises on The Importance of Adam Smith”
Ludwig von Mises, in his introduction to the 1953 Henry Regnery Co. edition of Adam Smith’s An Inquiry Into the Nature and Causes of the Wealth of Nations, gave us this commentary on the importance of Adam Smith's intellectual contributions:
“Smith’s books did not lay the foundation stone, but the keystone, of a marvelous system of ideas. Their eminence is to be seen precisely in the fact that they integrated the main body of these ideas into a systematic whole. They presented the essence of the ideology of freedom, individualism, and prosperity, with admirable clarity and in an impeccable literary form.
It was this ideology that blew up institutional barriers to the display of the individual citizen’s initiative and thereby to economic improvement. It paved the way for the unprecedented achievements of laissez faire capitalism. The practical application of liberal principles multiplied population figures and, in the countries committed to the policies of economic freedom, secured even to less capable and less industrious people a standard of living higher than that of the well-to-do of the “good old” days. The average American wage-earner would not like to dwell in the dirty, badly lighted, and poorly heated palatial houses, in which the members of the privileged English and French aristocracy lived 200 years ago, or to do without those products of capitalist big business that render his life comfortable.
The ideas that found their classical expression in the two books of Adam Smith demolished the traditional philosophy of Mercantilism and opened the way for capitalist mass production for the needs of the masses. Under capitalism the common man is the much-talked-about customer who “is always right.”
Donald Boudreaux is a tireless and articulate exponent of market economics whose literate posts I have read for a number of years. Readers of Lost Legacy will recognise points in Donald’s thesis above where I would be critical of some of the presentations of his ideas about Adam Smith’s actual influence on policies pursued by Briish and other governments from the 19th century onwards. “Laissez-faiire capitalism” is a political slogan not an idea of Adam Smith's, as I posted about yesterday. Smith favoured “natural liberty” for all, not just moneyed interests, who fought hard to enjoy freedoms they denied to their workforces and to foreign competitors. It was well into the 20th century before politics - not unbridled capitalism - legislated for the elements of the Welfare State. That debate cintinues on both sides of the Atlantic.
Of course, Boudreaux is right about the real shift in the comparative living tsandards of all classes in the 18th century compared to the 21st century. This was a point made by Adam Smith too in comparing the difference betweeen living standards of the 18th-century labourer with the richer property owner, which were self-evident, to the near destitution of the ordinary indigenous “savage” and their “chiefs”. In that comparison, Smith showed that the working labourer was incomparably welll-off than those at the bottom of the scale in the territories of Africa, Asia and the Amderica’s.
And that gap would continue - and did - well into the 21st century, though narrowing as economic government spreads, despite the awesome struggles at the tops of those societies in corruption, civil and tribal warfare,which spreads and engulfs many of these countries and stalls market economic growth. The market economics of the 19th and 20th centuries were dominated by international racial and political tensions, and hot and cold wars too.
In sum, I am sceptical of claims thatt Smith “demolished” many ideas prevaling in the wider political spheres, putting it another way, the link between a book and the practical choices made by politicians and governments is far more tenuous than credited by Donald Boudreaux.
Saturday, April 22, 2017
TODAY’S INVISIBLE HANDS, no 2
TODAY’S INVISIBLE HANDS, no 2
Mike McConnell and Judy Genshaft post, 21 April on THE HILL
“Federal effort is needed to address shortfall in cybersecurity talent”
“The private sector should not wait for the “invisible hand” of the labor market to eventually increase the supply of cybersecurity black belts. With sufficient privacy and intellectual property protections, cybersecurity firms should share their expertise with students and faculty and each other.”
Md Saiful Islam at South Asian University, New Delhi, India posts
22 April in Daily Observer HERE
Invisible Hand in the political economy
“Hence, the invisible hand in the political economy has become distinctly significant in exploring the economic growth as well as political assimilations.
Adam Smith in his book the Wealth of Nations mentions that Political Economy refers to the relationship between economics and politics. It is the combined forces of the political environment, political institutions such as governments and the interactions of the economic systems and actors in the national as well as international levels.”
Andras Gollner, emeritas associate professor, Montreal Concordia University, posts 21 April in Hungarian Free Press HERE
“The Budapest Bridge – Epilogue”
“The rapid demise of that industry as a consequence of cyber technologies, and the movements of the market mechanism’s so-called “invisible hand” is equally astonishing.”
I like Dr Gollner’s reference to “so called invisible hand” which I hope is a sign of his moving towards dropping the invisible hand altogether. Adam Smith was innocent - he never said anything about “invisible hands” of the market.
“Paradoxes Of Political Ethics: From Dirty Hands To The Invisible Hand”
Caution: Russian Site: may not be safe: gijaheede.ru
Caution: Russian Site: may not be safe j
Slapped by the Invisible Hand: The Panic of 2007 - Gary B. Gorton
The Dilemmas Of Laissez-faire Population Policy In Capitalist Societies: When The Invisible Hand Controls Reproduction
From Redddit HERE"There's even a market for smelly hairy degenerate whores. The invisible hand at work again"
Thursday, April 20, 2017
TODAY'S INVISIBLE HANDS NO. 1
1 The Invisible Hand Of Peace: Capitalism, The War Machine, And International Relations Theory
The Invisible Hand In Economics And Politics: A Study In The Two Conflicting Explanations Of Society End-states And Processes | keluzize.ru.
Slapped By The Invisible Hand: The Panic Of 2007
Friday, April 14, 2017
ENCOURAGING NEWS: ANOTHER BLOGGER QUESTIONS THE USE OF 'AN INVISIBLE HAND'!
Bob Morrice posts 13 April an excerpt from Jonathon Schlefer in Harvard Business Review on Blogging on Business HERE http://bobmorris.biz/there-is-no-invisible-hand-2
There Is No “Invisible Hand”
One of the best-kept secrets in economics is that there is no case for the “invisible hand.”
After more than a century trying to prove the opposite, economic theorists investigating the matter finally concluded in the 1970s that there is no reason to believe markets are led, as if by an invisible hand, to an optimal equilibrium — or any equilibrium at all. But the message never got through to their supposedly practical colleagues who so eagerly push advice about almost anything. Most never even heard what the theorists said, or else resolutely ignored it.
Of course, the dynamic but turbulent history of capitalism belies any invisible hand. The financial crisis that erupted in 2008 and the debt crises threatening Europe are just the latest evidence. Having lived in Mexico in the wake of its 1994 crisis and studied its politics, I just saw the absence of any invisible hand as a practical fact. What shocked me, when I later delved into economic theory, was to discover that, at least on this matter, theory supports practical evidence.
Adam Smith suggested the “invisible hand” in an otherwise obscure passage in his Inquiry Into the Nature and Causes of the Wealth of Nations in 1776. He mentioned it only once in the book, while he repeatedly noted situations where “natural liberty” does not work. Let banks charge much more than 5% interest, and they will lend to “prodigals and projectors,” precipitating bubbles and crashes. Let “people of the same trade” meet, and their conversation turns to “some contrivance to raise prices.” Let market competition continue to drive the division of labor, and it produces workers as “stupid and ignorant as it is possible for a human creature to become.”
In the 1870s, academic economists began seriously trying to build “general equilibrium” models to prove the existence of the invisible hand. They hoped to show that market trading among individuals, pursuing self-interest, and firms, maximizing profit, would lead an economy to a stable and optimal equilibrium.
Leon Walras, of the University of Lausanne in Switzerland, thought he had succeeded in 1874 with his Elements of Pure Economics, but economists concluded that he had fallen far short. Finally, in 1954, Kenneth Arrow, at Stanford, and Gerard Debreu, at the Cowles Commission at Yale,developed the canonical “general-equilibrium” model, for which they later won the Nobel Prize. Making assumptions to characterize competitive markets, they proved that there exists some set of prices that would balance supply and demand for all goods. However, no one ever showed that some invisible hand would actually move markets toward that level. It is just a situation that might balance supply and demand if by happenstance it occurred.
Jonathan Schlefer is author of The Assumptions Economists Make (Belknap/Harvard, 2012). The former editor of Technology Review, he holds a Ph.D. in political science from MIT and is currently a research associate at Harvard Business School.
IT WAS AND REMAINS BOUND TO HAPPEN. THE MYTH OF THE INVISIBLE HAND IS THE RESULT OF MISREADING ADAM SMITH.
That a few economists have recently raised doubts about the supposed mystical powers of “an invisible hand” is encouraging. I hope that increasing numbers economists realise that they were taught a nonsense from Econ 101 onwards, and will speak out.
LOST LEGACY welcomes the few - so far - who have realised that the whole idea of a real “invisible hand” has been and continues to be a class 1 error of the imagination.
Adam Smith was and remains innocent of any of the ideas on this subject that currently dominate both the scientific side of economics and the daily popular media.
Thursday, April 13, 2017
FROM THE DEPARTMENT OF THE CREDULOUS
“Untied shoelaces -- it's one of life's most annoying quirks. A team of mechanical engineers at the University of California Berkeley has had enough, so they investigated the reason why shoelaces keep on coming untied.
According to a report from Phys Org, the group found that the feet's combination of stomping on the ground and whipping around act as an "invisible hand," loosening and eventually untying the knot.”
YES, BUT, WHAT EXACTLY DOES THE “INVISIBLE HAND” DO TO UNDO THE SHOELACE?
HAVING MORE THAN ADEQUATELY EXPLAINED HOW THE LACES BECAME UNDONE, WHY ADD THE MUMBO JUMBO OF “AN INVISIBLE HAND” TO THE ANSWER?
I AGREE: THE INVISIBLE HAND DOES NOT EXIST
Sylvain Guyoton, Senior Vice-President Research EcoVadis posts om 12 April on Huffington Post (US EDITION) HERE
“Globalization: Between ultra-liberalism and protectionism, there is a third way”
“Yet, both protectionism and ultra-liberalism are blind.
One systematically favors a single nation at the risk of promoting companies that offer more expensive or lower quality products, yet not being necessarily themselves socially responsible. The other ignores the ravages caused by work conditions that sometimes seem like they’re straight out of the middle ages, as well as the conditions inflicted upon nature. This approach counts on the intervention of the “invisible hand” of the market, even though we know –for those who still doubt– that it does not exist, as was bitterly illustrated by the 2013 Rana Plaza tragedy in which 1,100 textile workers perished in a building in Dacca, Bangladesh.”
Well, the sentence highlighted is a good place to start, though I am not so confident that businesses will comply with the proposed changes in their procedures.
However, my doubts are not decisive. Given that there is no mystical “invisible hand” in markets and that all markets do not work without VISIBLE prices, beliefs in “an invisible hand” - a notion purloined from Adam Smith’s totally innocent use of a literary metaphor - are beside the point.
Sylvain Guyoton is starting from the right spot, so all strength to his public journalism
Wednesday, April 12, 2017
THE ROOT OF MISUNDERSTANDING OF ADAM SMITH ON 'AN INVISIBLE HAND'
Capitalism’s Invisible Hand Doesn’t Generate Public Good in Liberal View News HERE
"Capitalism’s invisible hand does not promote general welfare. Leading economist Paul Samuelson describes his dawning recognition of this: “All of my teachers believed there was something to Adam Smith’s invisible hand—that each person pursuing their self-interest would, by some miraculous action of the invisible hand, be led to contrive in some vague sense the best interest of all. However, none of them could explain properly what the truth and falsity was in that position. I would say that if I had been a bright student in 1894 and read Pareto’s Italian journal article, I would have understood what I now understand to be the germ of truth in the invisible hand argument. All it refers to is the avoidance of deadweight loss.”
The point here is that Smith’s invisible hand does nothing to achieve ethical maximization. Pareto optimality (the thesis of the Pareto’s Italian journal article) is simply the condition in which there’s no more room for a better deal between any buyer and seller. Everyone is getting the best deal possible given their resources, and there’s therefore, no “deadweight loss,” no one paying too much or too little for anything given available supply and demand.
Capitalism’s invisible hand just produces market efficiency, everyone buying and selling at the most efficient price. According to idealized capitalist market theory, the rich can buy luxury goods at fair market price and the poor can buy what little they can at fair market value..
And that’s just market theory. In practice, the rich can campaign profitably to promote laws that advantage themselves, while the poor can have bake-sales to fund comparatively In practice, capitalism undermines general welfare as we see in all kleptocracies, including the one coming soon to a government near you.”
Please follow the link and see what you make of its author’s rambles through a melange of mixed up ideas, centred on a misunderstanding about the “invisible hand” as understood by Adam Smith and misunderstood by late Victorian era economists and then by Paul Samuelson in his 1948 first edition of 19 up to 2010, Economics with 5 million sales across the world in many languages.
Adam Smith said nothing about “ethical maximisation”, whatever than means. He simply said that a merchant seeking a profitable exchange in a domestic market was ‘led by an invisible hand’ metaphorically (not actually!) to benefit the domestic economy.
How did this happen? By the fact that an intentional domestic investment adds both capital and consumption to the aggregate total of domestic capital and employment in an economy.
Investment involves both capital - the purchase of machines, buildings, materials, and know-how - and human labour for wages. The capital expenditures on these add to domestic capital expenditure and the expenditure of wages adds to the total of all purchases by all employees in the economy.
These inescapable consequences of the merchants’s intentional behaviours are an unintentional “public benefit”.
Yet Paul Samuelson, a brilliant mathematical economist and Nobel Prize Winner, managed by his failure to understand Smith’s simple point, to read into Smith’s metaphor of “an invisible hand”, something completely different. That by “self-interest” Smith meant “selfishness” and that there was something mystical, even magical, in the metaphor of an “invisible hand”. Theologians also jumped on the metaphor giving it a theological meaning.
But Adam Smith stated a simple consequece of the merchant’s motivated actions, that by investing his capital with a view to making a profit, in the course of which, the merchant also contributed to the public good by adding his expenditures to the aggregate expenditures of an economy!
Monday, April 10, 2017
WISHFUL THINKING IS NO SUBSTITUTE FOR HISTORICAL TRUTH
Q on CORA
“The theory for the Invisible Hand states that if each consumer is allowed to choose freely what to buy and each producer is allowed to choose freely what to sell and how to produce it, the market will settle on a product distribution and prices that are beneficial to all the individual members of a community, and hence to the community as a whole. The reason for this is that self-interest drives actors to beneficial behavior in a case of serendipity.”
Allowing for the open nature of CORA, where anybody may ask any question and anybody may respond with any reply they care to make, the above statement is extraordinarily wishful thinking. It is more political than a statement from economics (similar statements in identical words have appeared on the internet recently, suggesting a common source).
Which “theory of the invisible hand” and from which author mades such an assertion as the one in CORA?
It most certaintly did not come from Adam Smith (1723-90).
“Self interest” may “drive actors to beneficial behaviour”.
It also may drive them to private benefits at the expense of their customers!
Adam Smith discussed this latter group several times, for which he noted there was “no remedy”. Some individuals are beyond self-restraint unless the law intervenes. Moreover, some of these individuals are powerful enough to legally do what is anti-social by such behaviours as persuading governments to impose import tariffs on goods that raises their prices and gives a competitive advantage to domestic producers at the expense of domestic consumers. In more extreme cases, import tariffs are extended into outright import bans giving domestic producers an ouright incentive to raise their prices even higher.
How and where the so-called “invisible hand” operates as stated in the initial statement above is left unstated.
Markets work best through VISIBLE prices. There is no INVISIBLE HAND!
It was a metaphor used by Adam Smith for the motivated actions of a merchant who invested his capital employing local labour for wages that employees spent in the domestic economy, and the merchant bought inputs from other local merchants, needed for that his domestic production, both of which added to DOMESTIC output that benefitted the domestic economy.
That inevitable consequence of the motivated merchant’s economic activity was a “public benefit”, claimed Adam Smith.
Those are the economics behind the metaphor of “an invisible hand” as used by Adam Smith.
Almost all comments by modern economists and politically motivated commentators on the so-called “invisible hand” have nothing to do with Adam Smith.Neither are they true in themselves.
Thursday, April 06, 2017
A BLAST FROM THE PAST
FROM:LOST LEGACY, THURSDAY, 24 MAY, 2007
It has long been my view that ‘invisible hand’ explanations are redundant in Wealth Of Nations and Moral Sentiments because the instances they refer to are fully explained by Smith as a natural outcome from human behaviours.
That invisible hand explanations have become in the second half of the 20th century elevated into ‘principles’ or ‘theories’ of markets has more to do with an apparent need of Chicago-influenced neoclassical economists to sanctify their partial and general equilibrium models and is unfortunate, but they do not correspond to anything implied in Smith (he did not develop theories of perfect competition as we know of them today), nor did he write about capitalism (a word invented in 1854).
I have prepared a paper for the History of Economics Society 34th annual meeting, this year taking place at GMU, Fairfax, Virginia from 8 to 11 June. My paper is called: ‘Adam Smith’s Invisible Hand: from metaphor to myth’. It is in draft form at present.
I was reading a my chapter from my manscript for a new book on Adam Smith today (aiming to have a final manuscript for the published by the end of June) and I noted a few paragraphs indirectly related to the invisible hand debate, which sum up a theme running through my HES paper and I thought readers may be interested in reading them (hopefully, also commenting if so minded).
I quote the famous paragraph mentioning the metaphor first, followed by some full quotations from later chapters in Wealth Of Nations that provide a perfectly clear explanation of behaviours related to the famous paragraph that do not mention anything about ‘an invisible hand’. The omission is so glaring that my assertion that the ‘invisible hand’ explanation of behaviours are redundant is a sounder explanation of the metaphor than attributions to it by some economists nearly two hundred years later.
Here is the famous paragraph (Smith’s only reference to ‘an invisible hand’ in Wealth Of Nations:
‘By preferring the support of domestick to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.’ (WN IV.ii.9: p 456)
Compare this mystical explanation with ‘an invisible hand’ to how Smith explains what is going on in mercantile commerce five chapters later in Wealth Of Nations, which fully explains the process by which unintentional actions have unintended outcomes beneficial for society without mentioning, or implying, that ‘an invisible hand’ was at work:
‘The mercantile stock of every country, it has been shewn in the second book, naturally seeks, if one may say so, the employment most advantageous to that country. If it is employed in the carrying trade, the country to which it belongs becomes the emporium of the goods of all countries whose trade that stock carries on. But the owner of that stock necessarily wishes to dispose of as great a part of those goods as he can at home. He thereby saves himself the trouble, risk, and expence, of exportation, and he will upon that account be glad to sell them at home, not only for a much smaller price, but with somewhat a smaller profit than he might expect to make by sending them abroad. He naturally, therefore, endeavours as much as he can to turn his carrying trade into a foreign trade of consumption. If his stock again is employed in a foreign trade of consumption, he will, for the same reason, be glad to dispose of at home as great a part as he can of the home goods, which he collects in order to export to some foreign market, and he will thus endeavour, as much as he can, to turn his foreign trade of consumption into a home trade. The mercantile stock of every country naturally courts in this manner the near, and shuns the distant employment; naturally courts the employment in which the returns are frequent, and shuns that in which they are distant and slow; naturally courts the employment in which it can maintain the greatest quantity of productive labour in the country to which it belongs, or in which its owner resides, and shuns that in which it can maintain there the smallest quantity. It naturally courts the employment which in ordinary cases is most advantageous, and shuns that which in ordinary cases is least advantageous to that country.’ (WN IV.vii.c.86: p 628-9)
Smith continues in this vein because distant trade is ‘as necessary for the welfare of the society as a near one’. How then does it occur naturally that ‘some stock should be withdrawn from advantageous employment locally to distant locations where it is less advantageous? The answer is fully explained in the model from Book II (and not by the metaphor of ‘an invisible hand’), namely the higher profits obtainable in distance trade (scarcer capital is employed in distant than local trade, raising the market rate of profit above its natural rate), motivate individuals to overcome their risk aversions.
‘It is thus that the private interests and passions of individuals naturally dispose them to turn their stock towards employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society, among all the different employments carried on it, as nearly as possible in the proportion which is most agreeable to the interests of the whole society.’ (WN IV.vii.c.88: p 630)
A Lost Legacy Reader quoted this post of mine from 2007 this morning and I thought it should be published ten years later because I would not change a word of it, both for its originality and for my continuing agreement with its contents.
I hope Lost Legacy readers find it informative.