ADAM SMITH WAS INNOCENT!

Adrija Ghosh from Calcutta, India, an English Honours student at LSR, Delhi University, posts (25 July) in Atwood Magazine:

“JUSTIN BIEBER, POPULAR CULTURE, AND CAPITALISM”

All of us have let Capitalism trick us into believing in the invisible hand. Well, Adam Smith was wrong. [The Author refers readers to the STANFORD ENCLYOPEDIA OF PHILOSOPHY HERE https://plato.stanford.edu/entries/smith-moral-political/ for an entry entitled: ‘Adam Smith's Moral and Political Philosophy’, reproduced as an essay within the article.] …

… Unless we look beyond ourselves and our individual contributions, bubbles, we cannot improve ourselves as a community or as a culture.

It is our popular culture. If we want something more from it, we need to make it more accommodating of all kinds of narratives and languages, the unheard and oppressed more than others. … Popular Culture exists because of Capitalism. You follow the contemporary trends, and it becomes a part of your consumption and your social context. One singer isn’t the representative of the entire popular culture, but all of our perspectives, lifestyle, and desires, are.”

COMMENT

ADAM SMITH WAS INNOCENT!

He tricked nobody. The culprits were 20th-century intellectual miscreants, including Paul Samuelson and Milton Friedman.

ECONOMISTS HAVE MUCH TO LEARN ABOUT THE REAL WORLD THEY INHABIT

GARY SAUL MORSON  a professor of the arts and humanities at Northwestern University, is co-author of Cents and Sensibility: What Economics Can Learn from the Humanities and MORTIN SHAPIRO, a professor of economics and President of Northwestern University, is co-author of Cents and Sensibility: What Economics Can Learn from the Humanities. post (28 July) on PROJECT-SYNDICATE HERE

Economics With a Humanities Face

In a 2006 survey, American university professors were asked whether it was better to possess knowledge from numerous fields of study, or from just one. Among professors of psychology, 79% were enthusiastic about interdisciplinary learning, as were 73% of sociologists and 68% of historians. The least enthusiastic? Economists: only 42% surveyed said they agreed with the need to understand the world through a cross-disciplinary lens. As one observer put it bluntly: “Economists literally think they have nothing to learn from anyone else.”

In fact, economists would benefit greatly if they broadened their focus. Dealing as it does with human beings, economics has much to learn from the humanities. Not only could its models be more realistic and its predictions more accurate, but economic policies could be more effective and more just.

Whether one considers how to foster economic growth in diverse cultures, the moral questions raised when universities pursue self-interest at the expense of their students, or deeply personal issues concerning health care, marriage, and families, economic insights are necessary but insufficient. If those insights are all we consider, policies flounder and people suffer.

In their passion for mathematically-based explanations, economists have a hard time in at least three areas: accounting for culture, using narrative explanation, and addressing ethical issues that cannot be reduced to economic categories alone. …

… The point is not to abandon the great achievements of economics, but to create what we call a “humanomics,” which allows each discipline to keep its own distinctive qualities. Rather than fuse economics and the humanities, humanomics creates a dialogue between them.

Such a conversation would actually bring economics back to its illustrious roots in the thought of Adam Smith, who, in The Theory of Moral Sentiments, explicitly denied that human behavior could be adequately described in terms of people’s “rational choice” to maximize their individual utility. After all, people often behave foolishly. More important for Smith, their care for others is an “original passion” that is not reducible to selfish concerns.

COMMENT

Yes, more evidence that there is a slowly growing articulation of resistance to the modern dominance of economics by blind adherence to purely mathematical expositions of analysis that leaves out of consideration the plain facts that human activity is subject to many forces unnameable to mathematical rigidities.

Follow the link and consider its author's concerns. They may not quite get the full consequences of their criticisms, but they do point a way ahead.

MORE EVIDENCE OF THE TIDE TURNING?

Oscar Valdes Viera posts (1 July) a most interesting Working Paper ( NO. 893)  HERE Working Paper No. 893

The Neoclassicals’ Conundrum

If Adam Smith is the Father of Economics, It Is a Bastard Child

Neoclassical economists of the current era frequently pay lip service to Adam Smith’s theories to certify the validity of natural-laws-based, laissez-faire policies. However, neoclassical theories are fundamentally disconnected from Adam Smith’s notion of value, his understanding of the economic individual and their interactions in society, his methodology, and the field of study he afforded to political economy. Instead, early neoclassical economists parted ways with the theories of Adam Smith in an effort to construct economic laws that would validate the existing capitalist order as universal, natural, and harmonious

* The author would like to thank John F. Henry for his most helpful comments on earlier drafts. All errors, however, are the author’s own.

The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals.

Levy Economics Institute

P.O. Box 5000 Annandale-on-Hudson, NY 12504-5000 http://www.levyinstitute.org

Copyright © Levy Economics Institute 2017 All rights reserved ISSN 1547-366X

Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad.

ABSTRACT

Neoclassical economists of the current era frequently pay lip service to Adam Smith’s theories to certify the validity of natural-laws-based, laissez-faire policies. However, neoclassical theories are fundamentally disconnected from Adam Smith’s notion of value, his understanding of the economic individual and their interactions in society, his methodology, and the field of study he afforded to political economy. Instead, early neoclassical economists parted ways with the theories of Adam Smith in an effort to construct economic laws that would validate the existing capitalist order as universal, natural, and harmonious.

Keywords: Economic Thought; Classical School; Neoclassical Economics; Adam Smith; Economists

JEL Classifications: A11; A13; B12; B13; B16; B20; B31

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“But coherence doesn’t mean ‘equilibrium’,” Alice objected.

“When I use mathematics,” Humpty Dumpty said, in a rather scornful tone, “it means what I choose it to mean—neither more nor less.”

“The question is,” said Alice, “whether you can make mathematics mean so many different things.”

“The question is,” said Humpty Dumpty, “which is to be the master—that’s all.”

—A corruption of an exchange in Lewis Carrol’s Through the Looking Glass (Minsky 1985, epigraph)

I. INTRODUCTION

Modern orthodox economists frequently theorize and propose their models wrapped in algebraic expressions and econometrics symbols that make their theories incomprehensible to anyone without significant training in mathematics. These complicated mathematical models rely on sets of assumptions about human behavior, institutional frameworks, and the way society works as whole, i.e., theoretical underpinnings developed through history. Yet, more frequently than not, their assumptions go to such great lengths that the models turn out to be utterly detached from reality.

The mathematical approach was brought to the forefront of economics during the 1870s, in an effort to emulate the success of the natural sciences in explaining the world around us, and so transform political economy into the “exact” science of economics. The new discipline, born with a scientific aura, would provide a legitimate doctrine for rationalizing the existing system and state of affairs as universal, natural, and harmonious.

It is frequently claimed that orthodox economic theory is traceable to the theories of Adam Smith and his “invisible hand” metaphor (Henry 2008). However, Adam Smith argued that the scientific method should be an attempt of the imagination to solve observable problems; the scientist could use mathematical tools or models to propose laws, but they should subordinate to observed phenomena (Fleischacker 2004, ch. 2). Smith’s notion falls more along the lines of the ideas proposed by heterodox economists like Hyman Minsky, who argued that any scientific

2

theory disconnected from observations should be rejected, because in “sciences theory is a servant of observations” (Minsky 1985, 1).

Nevertheless, the “invisible hand” metaphor seems to be the most pervasive misrepresentation of Adam Smith and is taken literally by high-ranked economists in their understanding of economics. Smith’s hypothesis of how the economy works, as if governed by an “invisible hand,” has been disguised behind scientific-mathematical formulations that tend to reduce our complex world and irrational society to a small, rational scheme, where the profit motive and competition align the self-interests of individuals to produce a collective good. Then, because such process is natural and inevitable, all that is needed to guarantee the proper functioning of the economy is to remove any barriers (i.e., the government and its regulations) and allow the system to work freely.

In short, this paper argues that the advent of rigorous mathematical models was the turning point in the transformation of political economy into the science of economics. On the basis of economic laws that would confirm those characteristics, the new science—epitomized by the neoclassical Marginal Revolution—parted ways with the theories of Adam Smith in an effort to validate the existing capitalist order as universal and natural. However, neoclassical economists of the current era still pay lip service to Smith and his theories to certify their laissez-faire policies, representing an incongruence that is at the foundations of orthodox economic theory.

COMMENT

This by far is the most focussed contribution to the missing debate over where and why did economic theory and science go astray from the 19th century though to the 21st century.

I recommend readers to take the trouble to follow the links and read the whole paper and make their own minds up about the degree of the validity of the Author's arguments.

I confess to being impressed with its central theme and the degree to which Oscar Valdes Viera's survey of the end-state of what today passes for the near universal acceptance of the so-called modern science of economics, coincides broadly with mine. 

NEW USE FOR AN OLD METAPHOR?

John Wenz posts (24 July) on Discovery Magazine HERE

“ A Closer Look at Rogue Planets in the Universe””

“The OGLE data showed enough events that were likely super-Earth sized worlds to build a picture of something like this: 25 percent gas giants, 75 percent rocky worlds or ice giants. And it all has to do with the invisible hand of gravity. In short, stars are more likely to hold onto gas giants because the gas giants have a stronger grip.”

GREED IS NOT GOOD

UTPAL KUMAR write in Daily O (23 June) HERE

“Dharma of business: The roots of commerce in India”

“Donald R Davis Jr's book holds the key to moral economy, something the world has been eagerly looking for.

Morality has been another constant phenomenon. Here, Davis reminds that Adam Smith, whose "hidden hand" theory is often put forward to justify the greed-is-good argument, believed in moral economy and his initial juxtaposition on economy and morality has been distorted. …

… “There emerged a series of economists in the US in the 20th century who mystified the economy and believed that it was an autonomous entity. They said there was no need to worry about morality because the market magically converted greed into good,” he says. “I think Smith would have been shocked to see his idea being distorted so much.”

Also, unlike the Western model, all businesses in India are personal. “We are often told in the professional arena that it’s not personal. But the Dharmashastras tell us that the business will flourish more if there’s a personal touch and a sense of belonging involved.”

Davis blames the West for creating this sense of distrust among Indians for their indigenous way of doing business, and instead blindly aping the US. “My colonial predecessors inculcated a sense of stigma among Indians about their local laws, languages and customs. This also explains why Sanskrit finds so little support and patronage in the country of its birth.”

COMMENT

Another addition to the growing pile of daily evidence that the world is gradually waking-up to the wholly made-up, mid-20th century misreading, of Adam Smith’s singular usage of the “invisible hand” metaphor in Wealth of Nations. The great error was initiated by Paul Samuelson (1948) and promoted by Milton Friedman from the 1950s. They both carried immense prestige among economists with their Nobel Prizes. 

Whatever else they were justly respected for they were both wrong about ‘greed is good’ economics. It is time to call them out.

We owe it Adam Smith and his legacy.

AN END TO 'GREED IS GOOD' ECONOMICS?

Donald R Davis Jr posts (23 July)  The Dharma of Business talks about the history of commerce in India. HERE

“This latest book throws light on the roots of business in India”

“Morality has been another constant phenomenon. Here, Davis reminds that Adam Smith, whose 'hidden hand' theory is often put forward to justify the greed-is good argument, believed in moral economy and his initial juxtaposition on economy and morality has been distorted. "There emerged a series of economists in the US in the 20th century who mystified the economy and believed that it was an autonomous entity. They said there was no need to worry about morality because the market magically converted greed into good," he says. "I think Smith would have been shocked to see his idea being distorted so much.”

COMMENT

At least David R Davis Jr exposes the modern distortion of Adam Smith’s use of the metaphor of the ‘hidden hand’/ invisible hand in modern economics. For that alone congratulations!

I think (hope?) there is a slowy emerging trend to abandon Paul Samuelson’s/Friedman’s 1948/1950s distortion of the post-war that ‘Greed is good’ economics.

From such signs, I am increasingly optimistic that the modern distortion of Adam Smith’s ideas will largely be universally discredited before too long. (I am 77 …).

MAKING IT UP AS YOU GO ALONG!

John T. Kennedy (NO RELATION!) posts (22 July) in STEELMIT HERE 

“The Invisible Hand of Spontaneous Corruption”

“In The Wealth of Nations, Adam Smith observed that markets spontaneously generate unintended order, as if an invisible hand were at work in the free market. He identified self-interest of the individual as the animating force of this invisible hand, "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

I submit that there is another invisible hand, one by which government spontaneously generates unintended disorder. The animating force of this invisible hand is the same; each individual participant in government is naturally motivated by self-interest. But while self-interest leads to beneficial cooperation in a free market, it quickly leads to corruption when the same individuals wield coercive control through government.”

COMMENT

A clear example of making it up as you go along. Wherever he got the above muddled ideas from it most certainly was not from Adam Smith, nor from his Wealth of Nations.

FAKE NEWS IN MODERN ECONOMICS

Sam Dumitriu writes (20 July) in the Adam Smith Institute Blog HERE

‘Fake News in The Guardian’

“Oh dear, how embarrassing. The Guardian’s George Monbiot appears to have fallen hook, line and sinker for Nancy Maclean’s poorly (dishonestly?) researched book Democracy in Chains.

Democracy in Chains smears Nobel Laureate James Buchanan (amongst others) with deliberate misquotes and pernicious accusations of racism. It asserts that Buchanan sat at the centre of an elaborate academic conspiracy to undermine democracy and replace it with ‘a totalitarian capitalism’.

Of course, this isn’t the first time Monbiot’s been taken in by a BS Vendor who happens to share his political biases – he frequently cites Naomi Klein’s sloppy Shock Doctrine which proposed a similar right-wing academic conspiracy with Milton Friedman at the centre (thoroughly debunked by Johan Norberg at Cato).

Unlike Maclean herself, it’s not clear if Monbiot actually understands what public choice theory (the field where Buchanan made his name) is.”

COMMENT

Read the whole article by following the link above.

I think it is important that when we read something of which we have some claim to understanding and with which we profoundly disagree with a contributor’s comments, that we are sufficiently confident of our case that we offer a corrective comment in the interests of scholarly clarity.

Clearly, Monbiot on this occasion falls far short of that minimal scholarly standard as shown by Sam Dumitriu.

This if not a new cause for my concern as the author of the LOST LEGACY BLOG. 

In fact, LOST LEGACY was founded to correct the FAKE NEWS that Adam Smith believed the modern post 1948, nonsense of ‘an invisible hand’ mysteriously guiding supply and demand in the market, causing economic equilibrium, and Pareto’s welfare theorems 1 and 2. 

Whereas for Adam Smith, it was a metaphor for the simplest of statements that by seeking personal gain from domestic investment and the employment of domestic labour, the inevitable consequence was that the merchant also, and necessarily, added to aggregate domestic investment and employment. That’s all!

[Disclosure: I am a (moderate) Fellow of the Adam Smith Institute]

NEWS OF NEW BOOK ON ADAM SMITH BY GAVIN KENNEDY

© 2017

An Authentic Account of Adam Smith

Gavin Kennedy

To be published by Palgrave-Macmillan, 1st September, 2017

This book is a textual criticism of modern ideas about the work of Adam Smith that offers a new perspective on many of his famous contributions to economic thought. Adam Smith is often hailed as a leading figure in the development of economic theories, but modern presentations of his works do not reflect Smith’s actual ideas or influence during his lifetime.

       Provides an informed survey of the existing corpus of Smithian studies, as well as a number of suggested original lines of further debate.

Though not written as a biography, it often draws on details of Smith's life in order to illustrate an authentic version of his works and the ideas that informed them

Makes extensive use of primary sources on Smith.

Gavin Kennedy believes that Smith’s name and legacy were often appropriated or made into myths in the 19th and 20th centuries, with many misconceptions persisting today. Offering new analysis of works on rhetoric, moral sentiments, jurisprudence, the invisible hand, The Wealth of Nations, and Smith’s very private views on religion, the book gives a new perspective on this important canonical thinker.

© 2017

A TIMELY REMINDER THAT MARKETS CAN BE ENSLAVING OR LIBERATING

From an OP-ED in The News & Observer HERE

"Free markets, when idolized, demand sacrifice"

“An idolatry is growing in the land and it could destroy our health. Idolatry is the worship of earthly things as though they were gods. In our case, the idol is the human idea of the sanctity of private markets. Evidence of this idolatry abounds in statements and images: “the invisible hand of the market”, “the magic of the market”, “the market is a bull”, “the market is nervous” or “exuberant” or “relieved.” Well-funded market missionaries use mass media, advertising, think tanks and, now, full-blown university programs to evangelize, to share their “faith in the market” and exhort us all to believe. The market’s high priests, the business news commentators, explain to us what the market is saying. We hang on their words because we are told that our well-being depends on it. This gleaming golden calf is compelling indeed.

But the “free” market is not a god to be worshipped. It is a tool which uses the supply-demand dynamic to allocate resources. It can be a useful tool. It has been used to accelerate economic growth and expand certain freedoms for many people. But it is only a tool. It must be harnessed and used in conjunction with other tools for the common good. Just as we need more than a power saw to build a house, we need more than private markets to uplift and strengthen our communities. Other essential tools include volunteerism, philanthropy, churches and other non-profits and democratic government. All are important. All involve human beings, so no tool is perfect. Yet, we are asked to believe that the market can do no wrong, that it is practically a sin to use the tool of our democratic government to regulate the market and provide health care for our community.”
[Read more here: http://www.newsobserver.com/opinion/op-ed/article161416873.html#storylink=cpy]

COMMENT

A contribution to balancing the exuberance of many public economists (including Milton Freidman, etc) when they idolise the “Market”, and their critics who denounce “Markets” as if they are the “Enemy”.

Three Examples of the Misuse of Adam Smith’s Literary Metaphor in Today’s Economic’s Advice

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Laura Kreutzer posts (14 July) in Private Equity News HERE

http://www.penews.com/today/index/content/4076679199/restricted

Adam Smith and the Wealth of Limited Partners

“The declining returns expected by some investors won't necessarily limit the flow of capital into private equity”

… Back in 1776, Adam Smith published his groundbreaking treatise, The Wealth of Nations, forming the foundation of classical economics and underscoring the importance of market forces, what he refers to as the "invisible hand," in driving supply and demand.”

NOTE: May have been lifted from below…

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Norma Cohen posts HERE

https://www.ft.com/content/c5aa195c-67a6-11e7-8526-7b38dcaef614

Beware when independent financial advice is not independent

Choice is futile in opaque markets only understood by specialists, writes Norma Cohen

…“The other element of advice of course, is that it assumes that the body receiving it has choices to make. Choice is what Adam Smith described as “the invisible hand” that creates markets. Choice enables rewards to be delivered to producers of the best products at the best prices. Inefficient producers fail, and rightly so. …

…But when markets are so opaque that only specialists understand them, choice becomes meaningless unless accompanied by advice as defined by the Oxford Dictionary. Earlier this week, Nobel Prize-winning economist Angus Deaton, in a paper for the Royal Economic Society, said that the failure of the US healthcare market is akin to that in financial services. “Choice is unproblematic, and little recognition is given to the possibility that people might choose badly,” he wrote. “In such a world, well-informed consumers will drive out deceptive insurance policies, just as consumers will drive out financial advisers whose investment vehicles are designed to profit the advisers, not the investors.” Of course, that is not what happened in either the US or the UK and the results are unfolding rapidly. …

Norma Cohen is the Financial Times’ former demography correspondent and is a PhD candidate at Queen Mary University of London

3

Susan Kirwin posts on Cision HERE

http://www.newswire.ca/news-releases/headwinds-are-keeping-inflation-tame-but-only-temporarily-cibc-634242193.html

"Looking ahead, the compensation component should see further pressure, as it captures the lagged impacts of the recent tightening in Canadian labour markets on wage settlements," says Mr. Shenfeld. "In addition to that invisible hand of markets, higher minimum wages in Ontario, BC and Alberta will be kicking into labour costs in the next two years."

COMMENT

Three examples in this morning’s press (courtesy of Google Alerts).

1: “the "invisible hand," in driving supply and demand.”

2 “the invisible hand” that creates markets”.

3 “invisible hand of markets”.

All written by competent economists to be read in journals read by professional players in financial markets.

To what do the writers and their readers credit today’s ubiquitous invisible hand to do its supposed work? 

Three questions:

1 In what way is Adam Smith’s use of ‘an invisible hand’ related to 21st century markets? It was not a metaphor for supply nor demand in Adam Smith’s usage of it. Neither ‘supply’ nor ‘demand’ was mentioned by Smith.

2 Why did nobody, either among Smith’s closest collleagues while he was alive, nor among the major 19th-century political economists after he had died in 1790, mention or discuss the Smith’s use the ‘invisible hand’ in their own major works on political economy, published in the 19th century. They all failed to mention the invisible hand metaphor. Yet all of them commented in detail on Smith’s Wealth of Nations without them mentioning the so-called significance of Smith’s metaphor,  certainly until after the 1890s, when isolated mentions began to appear, without any of them claiming anything special about it.

3 Where did the modern obsession with Smith’s isolated reference to the ‘invisible hand’ appear from? We can date it precisely. Paul Samuelson claimed it was a reference to people’s ‘greed’ that affected their behaviour in markets in his popular textbook on Economics 101 published by McGraw-Hill in 1948. The false notion spread that ‘greed is good’, which was never an idea of Adam Smith.

ADAM SMITH'S TORRID YEARS AT BALLIOL COLLEGE

Eamonn Butler, Director of the Adam Smith Society, London, posts (7 July): on the Adam Smith Institute Blog HERE https://www.adamsmith.org/blog/universities-incentives

“Universites and Incentives”

Eamonn uses the case of Adam Smith’s somewhat disappointing experiences of his four years at Balliol College as a Snell Exhibitioner (1740-1744) to illustrate the close negative linkage between performance and reward.

If people receive their income irrespective of their performance there will be slacking off in their performance, and even a complete evasion of any performance at all.

The latter consequence is used by Eamonn Butler to illustrate the appalling treatment by Balliol College of Adam Smith, which at that time had lost any pretentions to be “one of the most distinguished centres of learning in the world”.  It took a long time for Balliol to re-deserve that accolade, which today it truly deserves.

The Snell Exhibition was worth £40 a year, which at the time was a lot of money, (day labourers at the time earned less than half that per year), out of which he paid for his subsistence, for college services and his fees. The small remainder was for his own use. Moreover, Balliol’s general financial position was a cause for concern among the faculty and, while they treated the Snell Exhibitioners poorly, they valued their fees highly.

Smith reacted to the absence of tutorial support negatively. Balliol’s so-called ‘lectures’ were a total and disgraceful sham, which Smith details in his surviving correspondence. There were two sessions of prayers a day and two sham, non-lectures, a week, in which if faculty attended they said nothing at all, or told a student to read aloud from a textbook.

Smith spent two years arranging to leave Balliol on compassionate leave for him to return to Kirkcaldy to comfort his widowed mother during the 1745-46 Jacobite rebellion. (Smith’s politics were Hanovarian and not Jacobite). Eventually Smith and Balliol College came to an agreement - he could return on leave, as long as Balliol continued to receive his annual £40 Exhibition.

Smith arrived in Kirkcaldy and consulted his official Guardians as to his future. Eventually, an agreement was reached that young Smith would deliver a series of public lectures in Edinburgh on Rhetoric and, later also on Jurisprudence, from which he earned £100 a year, a princely sum indeed, similar to a university professor’s salary. From this public demonstrations of his academic abilities (ignored at Balliol) he was appointed a Professor at Glasgow, and the rest, as they say, is history.

One other important biographical fact. Adam Smith, as a junior Exhibitioner, never had access to “everything that the great Baliiol library” contained within it walls. Admission was confined to graduates only, and Smith never graduated from Oxford. Decades later, somewhat cynically, Oxford University “graduated” the, by then, world-famous Adam Smith with the degree they withheld from him while he was there as a student.

We can see what the Balliol faculty missed while Smith was among them because a long Essay that he researched and compiled alone at Balliol was kept by him in his bedroom cabinet all his life, and he ordered his Literary Executors to publish it after his death, which they did and it is available today as:  “The Principles which Lead and Direct Philosophical Enquiries; Illustrated by the History of Astronomy” (1795) [Oxford University Press, 1980]

This essay shows what Balliol Faculty missed by their appalling treatment of Adam Smith.

(Disclosure: I am  Fellow of the Adam Smith Society)

How To Ruin a Good Piece on the History of Economic Thought

Following an informative account of the gradual realisation by early writers on how prices changed from vaying patterns of the supply of goods and the demand for them, illustrated by both John Locke (1691) and Sir James Steuart (‘An Inquiry into Principles of Political Economy’ (1761), Halder Ali Sindhu posts (7 July) in the Daily Pakistan HERE

“Careem’s peak pricing and John Locke’s philosophy"

“Later, Adam Smith dealt extensively with the topic in his 1776 epic work, “The Wealth of Nations.” Smith, often referred to as the father of economics, explained the concept of supply and demand as an “invisible hand” that naturally guides the economy.”

COMMENT

Adam Smith did no such thing. 

Halder Ali Sindhu would know just how wrong this statement is if he had read Wealth of Nations, or had read even the single paragraph in which Smith mentioned the ‘invisible hand’ in WN: IV.ii.9 p 456).

That paragraph had next to nothing to do with supply and demand. It was about a merchant who was self-motivated to avoid foreign trade in favour of investing his capital in domestic trade. The consequence of his domestic investment was to serve his intentions to trade profitably.

There were other consequences noted by Smith. In serving his self-motivated intentions to invest locally he was ‘led by an invisible hand’ to also unintentionally benefit the public good.

How? 

By the simple obvious fact that his self motivated actions also added to gross domestic investment, irrespective of his self-motivated actions, but which public consequences were also a public benefit.

The simultaneous consequences of his actions was that his invested capital added to domestic aggregate gross domestic investment, which was a public benefit.

Now this conclusion of Adam Smith was so obvious to his early readers that NONE of them commented upon it, until the 1870s when a few did, and hardly any others up to 1948, when Paul Samuelson, later a Nobel Prize winner, published what became his runaway best-seller Econ 101 textbook, Economics (McGraw-Hill). After 5 million sales and 18 editions it transformed the innocent metaphor of ‘an invisible hand’ into the now infamous mysterious, miraculous, power allegedly at work in the world’s economies.

Halder Ali Sindhu innoncently passes Samuelson’s monumental error on in his article, but then thousands of others also do the same daily - even hourly - in the world’s media, and, sadly, in our supposed senior academic professional journals.

FROM ACORNS BIG TREES CAN GROW

Asad Zaman posts (29 June) on WEA Pedagogy Blog HERE

Adam Smith & the Invisible Hand

"In response to a comment by David Chester regarding Adam Smith and the Invisible Hand, I am reproducing the section in the paper which deals with this issue. This answers his question about how what is attributed to Adam Smith differs from what he actually said.

[Excerpt from the paper: Failures of the Invisible Hand]

Section 6: Recent Vintage of the Invisible Hand

The main goal of this section is to show that the modern interpretation of the IH is relatively recent. The idea that Mankiw (together with other modern economists) attributes to Smith is not actually present in Smith’s writings. In fact, modern writers borrow the authority of Adam Smith to provide weight to a very dubious idea of recent coinage.

We first note that modern interpretation of the “IH” is radically different from any interpretation of this concept that existed before the second half of the twentieth century. There is a growing body of literature (e.g., Grampp, 2000; Minowitz, 2004) which insists that the metaphor used by Smith was never meant to be anything more than a metaphor, and that the meanings inferred from Smith’s idea of IH by the modern economists support only their own interpretation of economic policies. Kennedy (2009) shows that three leading modern economists laud the IH as the “profoundest” and “most influential” contribution of Adam Smith. Nonetheless, their interpretation of the term and its significance is not supported either by Adam Smith or by readers of Adam Smith until the late nineteenth century."

The above is from a paper availale from SSRN HERE

Amir-ud-Din, Rafi and Zaman, Asad, Failures of the 'Invisible Hand' (July 15, 2013). Forum for Social Economics, Vol. 45, Iss. 1, 2016. Available at SSRN: https://ssrn.com/abstract=2293940 or http://dx.doi.org/10.2139/ssrn.2293940

SEE ALSO: REFERENCES:

Ashraf, N., Camerer, C. F., & Loewenstein, G. (2005). Adam Smith, behavioral economist.

Journal of Economic Perspectives, 19, 131–145

Blaug, M. (2007). The fundamental theorems of modern welfare economics, historically contemplated. History of Political Economy, 39, 185–207

Grampp, W. D. (2000). What did Smith mean by the invisible hand? Journal of Political

Economy, 108, 441–465

Kennedy, G. (2009). Adam Smith and the invisible hand: From metaphor to myth. Econ Journal Watch, 6, 239–263

Minowitz, P. (2004). Adam smith’s invisible hands. Econ Journal Watch, 1, 381–412

Rothschild, E. (1994). Adam Smith and the invisible hand. The American Economic Review, 84, 319–322

COMMENT

The truth, albeit slowly, is emerging about the modern misinterpretation of Adam Smith's use of the metaphor of an invisible hand. At present, that truth is confined to the sidelines of economic discourse but what begins there can spread towards the core.

I am encouraged. Follow the link and spread the news ...