Friday, August 04, 2017

MORE FAKING IT ABOUT ADAM SMITH

Sabal al-Binal posts (3 August) on The National (the middle-east explained) HERE
Why the firm underpins a modern economy
We need companies to exist in order to ensure efficient markets but they shouldn't get too big
“The idea of an efficient market was introduced by Adam Smith, the Scottish philosopher considered to be the father of modern economics. Smith used the phrase “invisible hand” to describe the theory that if each consumer is allowed to buy whatever they want and each producer is allowed to sell whatever they want then this would result in an optimal allocation of resources and setting of prices that would benefit the economy as a whole. This optimality is what is now known as Pareto optimal, ie any reallocation of resources that makes one market participant better off would necessarily make at least one other participant worse off.”
COMMENT
Adam Smith did not introduce the “idea of an efficient market”.
He did not use “the phrase “invisible hand” to describe the theory that if each consumer is allowed to buy whatever they want and each producer is allowed to sell whatever they want then this would result in an optimal allocation of resources and setting of prices that would benefit the economy as a whole.”
Adam Smith knew nothing of “Pareto optimal” (an idea formulated in the 20th century). Smith lived and died in the 18th century.

In short, Sabah al-Binali is making it up, also known as faking it.

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