Is This Another Designed Utopian Society?

Unfortunately, “designed” social systems have a poor record of improving on what their authors consider to be failed social systems, which have arisen without design or intention. In new book, Yochai Benkler makes the case for “prosocial” systems design:

“The Penguin and the Leviathan: The Triumph of Cooperation Over Self-Interest (Crown Publishing Group, August 2011),” by Harvard Law Professor Yochai Benkler.
HERE

“This “old model” harks back to 1652, when philosopher Thomas Hobbes published “Leviathan,” arguing for rule by absolute sovereignty. Hobbes unleashed a monster, the “iconic image of a controlling state,” says Benkler, which ever since has cast its shadow over social contracts, spreading the dire message that “if left to our own devices, we’ll be at each other’s throats.” Overlaying this Hobbesian model of state control is the market-oriented Invisible Hand metaphor, introduced by economist Adam Smith in “The Wealth of Nations” (1776), which assumes that “by each pursuing self-interest, we make things better for all of us,” not because we care for one another but because it is mutually advantageous.”

The above article, “Escaping the Leviathan’s Shadow,” by Julia Collins, first appeared in the Summer 2011 Harvard Law Bulletin. Benkler’s book was also recently reviewed in The Atlantic, "Can the Internet Bring the Beginning of the End of Selfishness?,” by Walter Frick,

Can the Internet Bring the Beginning of the End of Selfishness?, where

Walter Frick reviews Yochai Benkler HERE

“After tracing macroeconomic history from pre-nineteenth century European monarchies through the industrial revolution, the New Deal, and the Washington Consensus, Benkler writes, "If neither the command-control systems dictated by the Leviathan nor the Invisible Hand of the free market can effectively govern society, where shall we turn? Can the Penguin deliver us more robust, working social and economic systems that break us out of this vicious cycle? I believe that he can."

Comment
Long, long before Thomas Hobbes introduced ideas about the “Leviathan” state in the 17th century, human social systems had experienced their own millennia-lasting “iconic images of a controlling states”. Professor Yochai Benkler should know about the Roman Republic and Empire (much law theory started way back), as well as the High Egyptian Nile Delta centuries, Babylon, and Imperial China. They did not need to await Hobbes’ endeavours to apply their own versions of tyranny.

Yochai Benkler’s “market-oriented Invisible Hand metaphor, introduced by economist Adam Smith in “The Wealth of Nations” (1776), which assumes that “by each pursuing self-interest, we make things better for all of us,” not because we care for one another but because it is mutually advantageous” is but a parody on Adam Smith, owing much to modern false attributions of his ideas, and, most importantly, an invented version of his use of the “invisible hand” metaphor.

There is no “invisible hand of the market” attributable to Adam Smith. It is a myth that owes more to the Cold War years when US academe confronted the Soviet challenge (an example of another “iconic image of a controlling state”) with its human ‘designed’ social system and with very inhuman consequences for those living within it.

Apart from these observations, I am always very interested in the evolution of co-operation as human behaviour, which Adam Smith credited to the acquisition of the faculties of ‘reason’ and ‘speech’ (Wealth Of Nations, chapter 2). This part of Yochai Benkler’s book might be interesting. If my book budget permits I might buy a copy and see what he says. But if it is merely a utopian blueprint for a designed society, I would prefer to give it a miss.

Nobel Prize Winners No Guarantee that they Speak Accurately on Adam Smith

Chriss Street, Founder of Chriss Street and Company, writes (12 May) in Huffington Post HERE: on how Michael Spence, Nobel Laureate and former dean of the Stanford Business School, has just published 'a rigorous economic analysis' called: The Evolving Structure of the American Economy and the Employment Challenge.

‘Adam Smith, 18th century English economist, pioneered the concept of the "invisible hand" to describe how capitalism through self-interest, competition, and supply and demand, more effectively allocated resources than the "dead hand" of the state; that levied punitive taxes, adopted restrictive regulations, and enforced monopolies to favor their crony allies. Smith described how English entrepreneurs flourished after their king's feudal dominance of the economy was liberated by adopting the laissez-faire economics that allowed transactions between private parties to be free from the state's coercion. Smith described how new wealth was rapidly created and compounded over time form the productivity gains of the Industrial Revolution that leveraged the value of workers and led to higher wages.’

‘Adam Smith identifies the "entrepreneur" as the invisible hand that shifted economic resources out of lower and into higher productivity activities for and greater reward. If the invisible hand is expected to be busy shifting resources from lower to higher productivity; why has America shifted resources from higher to lower productivity jobs?’

Comment
It may be ‘a rigorous economic analysis’ from ‘Michael Spence, Nobel Laureate and former dean of the Stanford Business School’, but it is hardly an accurate representation of Adam Smith’s thought or of his origins in Kirkcaldy, in Scotland not England (please note this historical fact Professor Spense, and the sub-editor of Huffington Post, and the reporter, Chriss Street. If such elementary historical facts are wrong, what trust should we place in what follows?

Sad to say, not much.

Smith never used the metaphor of the ‘invisible hand’ to ‘describe how capitalism through self-interest, competition, and supply and demand, more effectively allocated resources than the "dead hand" of the state'. Has our Noble Laureate ever read Smith’s ‘Wealth Of Nations’, or his earlier ‘Moral Sentiments’? On this evidence I must conclude that the hasn’t.
He scores a D- - for his blunder and he deserves to be sent back to the library to rewrite his essay.

Sure, Smith argued that governments ‘levied punitive taxes, adopted restrictive regulations, and enforced monopolies to favor their crony allies’ but this had nothing to do with the metaphor (never a ‘concept’) of ‘an invisible hand’.

He simply pointed out in Book IV, chapter ii, of WN that some but never all, merchant traders because of their concerns about the risks to their capital, preferred to invest locally in ‘domestick industry’ rather than send it abroad to Europe or to the British colonies in central and north America, thereby unintentionally adding to ‘domestick revenue and employment’ (the whole being the sum of its parts – hardly heavy maths) and making it greater than it otherwise would be.

These particular merchants were ‘led by an invisible hand’, but specifically from their insecurity (in modern parlance, their risk aversion), which ‘expressed in a more striking and interesting manner’ (see Adam Smith’s ‘Lectures in Rhetoric and Belles Lettres’, [1763] 1983, p 29) on the objects of a metaphor.

Cleary, the metaphor was needed, because even generations of economists, including distinguished winners of Noble Prizes from Paul Samuelson (1948) onwards, have managed to ignore Smith's specifying the object of the metaphor he used once in Wealth Of Nations (in this case the object was risk aversion of some but not all merchants) in favour of their invention of a new meaning to that metaphor alone, to which these modern economists have credited (invented is not too strong a word) a far more complex meaning to it than Adam Smith ever credited it with.

Adam Smith certainly ‘described how new wealth was rapidly created and compounded over time’ (though not necessarily ‘rapidly’, more inexorably gradual) in the form of leveraging ‘the value of workers' which 'led to [real] higher wages’ (certainly of clear benefit to the poor labourers), but he did not say that this compounding had anything to do with ‘the productivity gains of the Industrial Revolution’, as suggested by Professor Spence. The ‘industrial revolution’ did not get conspicuously under way until after Adam Smith’s death in 1790, when power-driven machinery spread out into the manufacturing economy in the early decades of the 19th century. Admittedly, this is an area of some controversy among historians, as is the very retrospective name of an ‘industrial revolution’.

The question of ‘If the invisible hand is expected to be busy shifting resources from lower to higher productivity; why has America shifted resources from higher to lower productivity jobs?’ is best directed at those modern economists who invented the myth of Adam Smith’s so-called ‘invisible hand’ and not laid in any manner as a question that Adam Smith’s Writings have a responsibility to explain.

Finally, no actions by any king solely ended the ‘feudal dominance of the economy’ by liberating the rising commercial economy and certainly not ‘by adopting the laissez-faire economics that allowed transactions between private parties to be free from the state's coercion.’ The commercial economy grew, Smith showed in Wealth Of Nations, from the insatiable greed of feudal landlords for luxury products from merchants, for which they bargained away their temporal powers of resistance to and intimidation of successive kings (Smith called it for a for 'mess of potage'). Mercantile political economy was slowly dismantled in some respects, but the governments of the kings (and Queen Victoria) ignored Smith's main advice for more competition; in fact he never mentioned the words laissez-faire – these were promoted by some of the French Physiocrats and attributed to Smith, without textual authority by the 19th-century economist, J. B. Say, and by spokespeople for 19th-century mine and mill owners anxious to prevent Factory Inspectors implementing modest legislation limiting daily hours of work and the employment of women and children in mills and mines. Interestingly, the first advocate of ‘laissez-faire’, the French merchant, a M. Le Gendre, in 1680, sought laissez-faire for his fellow merchants, but not, please note, for their customers. At least he knew his self-interest vis a vis his customers still subject to local monopolies!

The 16-18th century policy of Mercantile Political Economy was replaced in the 19th century by new mercantile policies of restricted trade and also a new and larger colonial empire was established, incorporating Canada, the Caribbean and central and south America, Africa, India, Australia and New Zealand, replacing the lost colonies of the new United States, and all governments of the day ignored Adam Smith’s admonition, in the very last paragraph of the Wealth of Nations, for Britain to turn away from ambitions of Empire and 'endeavour to accommodate her future views and designs to the real mediocrity of her circumstances'. The history of Britain since and up to now has certainly be that of a protective economy (as has that of the United States, and Europe) far, very far, from laissez-faire, and the politicians of Conservative, Labour and liberal views (like US Democrats and Republicans) might reflect on Smith's words.

I found Professor Michael Spence, Nobel Prize not withstanding, is not too good on Adam Smith or on history, showing why economics in universities should be taught with courses on the history of economic thought.

Aye, Those Canny Scots...

John Churchill posts (3 April) in the Phi Beta Kappa blog (HERE):

“Those Canny Scots”

“Smith, of course, looms in almost cartoonish effigy over economic struggles of our own day. As the apostle of the free market, and source of the notorious “invisible hand” metaphor, he is trotted out with great regularity as the canonical spokesman of “laissez-faire” capitalism and the principle that public regulation of private enterprise is at best a necessary evil, to be minimized when it cannot be avoided altogether.

One might begin to question the adequacy of Smith’s perspective to the present day with the observation that he lived and wrote before industrial modes of production, urbanization, and the explosive growth of technologies ─ not least those of transportation ─ and populations had begun to give shape to the world in which we now live. The water frame and the spinning jenny had barely been invented in the years in which he wrote, and the power loom appeared a decade after. It is fascinating but ultimately elusive of resolution to speculate what he would have made of our world.

Still, we can note some things that turn up in the Wealth of Nations that seem, in interesting ways, to cut against the grain of the popular image Smith has been given. For example, he notes that, while one might assume that the point of production is to provide for consumption, the interests of consumers are often sacrificed to those of producers. His example is the maintenance of the (then) North American and West Indian colonies: “A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers. . . . For the sake of that little enhancement of price. . . ., the home-consumers have been burdened with the whole expense of maintaining and defending that empire.” Cold Scots logic, that.

Comment
John Churchill, unlike many modern economists, is spot on with his short post on the authentic Adam Smith, particularly on the presumption that he was as apostle of laissez-faire (words he never used; nor did he use the word ‘capitalism’, first used in English in 1854), which is often confused with the 17th-18th century ideas of natural liberty from Grotius, Pufendorf, Carmichael, and Hutcheson and learned by Adam Smith when a student at Glasgow University.

I liked the description of him being the modern “source of the notorious ‘invisible hand’ metaphor”, a commonly used metaphor in the 17th-18th centuries by theologians, moralists, historians, preachers, and playwrights (Shakespeare) and novelists (Defoe, Walpole) [see also Professor Harrison’ paper on Adam Smith and the ‘invisible Hand in the September 2010 issue of the Journal of the History of Ideas) long before Adam Smith used it only three times for quite different purposes (and only once in Wealth Of Nations).

Modern economists made Smiths use of the ‘invisible-hand’ metaphor “notorious”, and without foundation in how Adam Smith used it, and applied it to contexts far removed from Smith’s use (most of whom apparently have not yet read Adam Smith on the proper use of metaphors, available in his Lectures On Rhetoric and Belles Lettres, [1763] 1983, p 29, Oxford University Press).

And, as the inimitable Robert Burns put it A Dream:

“facts are chiels that winna ding’ An downa be disputed’. (“A Dream’)

In English this translates as:

“facts are fellows that will not be overturned, And cannot be disputed”.

Can I say more?

John’s praise of Hume and Smith as the ‘canny Scots’ is appreciated.

Using the Invisible-Hand Myth to Bash Markets

Charles Sullivan writes in Bear Market News Blog (HERE) (from something in the Guardian UK newspaper):

“Capitalism, Market Fundamentalism, and the Duplicitous Meanings of Democracy”

“Private ownership of the means of production and the invisible hand of the market are two key components of modern capitalism. In reality, there is no ‘invisible hand’ of the market, as the proponents of free market capitalism contend. If there were, the global banking system would have collapsed long ago. We have only to lift the cloak of secrecy for the human fingerprints of manipulation to become plainly visible. A small cadre of the elite is manipulating everything.”

Comment
This is from a leftish Blog that believes the ‘ruling class’ runs everything, so it is not exactly a recantation from those responsible among academic economists for the myth of ‘an invisible hand’, leading even ‘selfish’ capitalists and as selfish consumers to the wonderful miracle of benefitting society, and to the even more miraculous outcome of perfect harmony between what suppliers supply and consumers want to consume.

The Left does not believe in the invisible hand (at least not since Oscar Lange tried to adopt the idea (circulating in Chicago in the 1930s) in 1938 and 1946 that it was something claimed by Adam Smith for free markets (It wasn’t, but that’s another and longer story), which in Lange’s view could be better performed by socialist planning in the Soviet Union, and in post-war Poland, later taken over by the Red Army.

This was followed by a staunch, rival claim from Paul Samuelson (of Chicago and MIT) in 1948 that the ‘invisible hand’ was Adam Smith’s “central idea”, applicable to perfect-market economies and, later, allegedly proved by Arrow and Debreu in advanced General Equilibrium mathematics.

Since then, the myth of Adam Smith’s ‘invisible hand’ has spread like a meme into the unthinking intellectual apparatus of graduate economists and the media/political/lobbying hordes who pass for informed opinion.

That the invisible-hand does not exist is not disputed on Lost Legacy. It never existed, and Smith’s use of the metaphor had nothing to do with what the post-late 1870s academics made of it.

That the invisible-hand had anything to do with the current crisis in state-managed capitalist economies is disputed. Metaphors do not have operational roles in the real world. Asserting that they do, literally is nonsense and an ideological alibi, in Bear Market News, to bash markets.

Smoke and Mirrors Protected Adam Smith From Religious Persecution

Regular reader, Dan Hirschman, draws my attention to a paper by Benjamin Friedman, Harvard, ‘Religion the Rise of Economics’, presented to the AEA meting in Denver, recently and reported in The Economist, HERE:

“This “influence on the work of Smith and other early economists stemming from thinking about matters not just moral but religious in the traditional sense”, Mr Friedman argues in the short paper on which his talk was based, “is not generally understood – indeed...(it) contradicts most current-day interpretations of the origins of economics as an independent intellectual discipline".

Mr Friedman is not making a point about Adam Smith’s own religious beliefs or lack thereof, nor making claims about his own religious practices. Rather, he argues that the ideas that mark out a Smithian conception of human behaviour and motivation mirror, in an intriguing way, what were “then controversial changes in religious beliefs in the English-speaking Protestant world”. Recognising these affinities, he reckons, reverses the view:

“[T]hat the emergence of "economics" out of the European Enlightenment of the 18th century was an aspect of the more general movement toward secular modernism in the sense of a historic turn in thinking away from a God-centered universe, toward
what we broadly call humanism.”

Consider Smith’s seminal “invisible hand” idea—that behaviour motivated solely by individuals’ self-interest can, and under appropriate conditions will, lead to outcomes that are beneficial for society as a whole. This was, of course, a radical notion at the time. In the 18th century, people argued about whether people did or did not have the ability to figure out what was or was not in their own self-interest. But even those who believed that they did did not reckon that there was anything inherently broadly beneficial. Indeed, self-interested behaviour was usually described as “vicious”. Yet around the time that Mr Smith was thinking about the foundations of economic behaviour in Edinburgh, Scotland was in the midst of what would come to be regarded as a shift away from orthodox Calvinism (simultaneously, there was a similar debate within the Church of England).

Mr Friedman identifies three central features of this shift in thinking. First, a shift from orthodox Calvinist belief in the “utter depravity” of all individuals to the “inherent goodness” of people. Second, a shift away from a belief in predestination to a belief in human agency (in the religious context, this was primarily about who was eligible to be “saved”). Third, “while Orthodox Calvinists believed that the sole reason man exists is the glorification of God; their opponents believed that human happiness is also a legitimate, divinely intended end”.

Each of these shifts, he argues, is strikingly congruent with the shift from a pre-Smithian conception of the way people behave and the economy functions, to Mr Smith’s vision. Mr Smith might have developed his ideas even if these religious debates had not been taking place, he argues, but the similarities are striking. The paper concludes that:
Critics sometimes complain that belief in free markets…is a form of religion. It turns out that there is something to the idea—not in the way the critics mean, but in a deeper, more historically grounded sense.

Comment
Bnejamin’s Paper on which the Economist Article is based, “ECONOMICS AS A MORAL SCIENCE: RELIGIOUS INFLUENCES ON THE SMITHIAN REVOLUTION AND AFTER, Benjamin M. Friedman Harvard University” can be accessed from the link in the original Economist report, cited above.

[NB: Benjamin’s paper is of a “read only” status.]

Lost Legacy’s interest in Benjamin’s paper is two-fold: our continuing interest in the modern fable of Adam Smith’s meaning of the Invisible-Hand metaphor, and our interest in the fables of “Adam Smith and Religion”, which title is a chapter that I am actively engaged in writing for the forthcoming “Oxford Adam Smith Handbook”, , edited by Chris Berry, Maria Pagannelli, and Craig Smith, Oxford University Press, for September 2011.

I wrote the following to Dan Hirschman of my general impression of Benjamin’s general hypothesis (without citing any particular parts of it):

The case put for religion influencing Smith is quite common (see: A. L. Macfie, 1967, Allen & Unwin, or T. D. Campbell’s, Adam Smith’s Science of Morals, 1971, Allen & Unwin to mention only two authors -there are many more), and I consider the case is quite weak. It tends to ignore the context in which Adam Smith worked, or rather identifies the context from the wrong perspective. Smith was not influenced in what he wrote by religious ideas (he was not a Christian) but he was influenced by the repressive environment that religious fanatics created in Scotland; he wrote, therefore, specifically to disguise his skepticism because of the context of the very real dominance of the religious institutions in Scotland at that time, which precluded academic freedom to be frank about it.

This was much like Soviet institutions dominated Easter European academic work from the late 1940s to c.1989, and influenced how non-communists felt compelled to write their papers without being persuaded of Marxist ideas. Communist regimes were part of much deeper totalitarian repression than the dominant Calvinists in Scotland in the 17th-18th centuries, but as long as philosophers in Scotland did not challenge explicitly revealed religion, and made the occasional genuflection towards the scriptures, they tended to be left alone, as was the case with Adam Smith and others (but not honest David Hume but even he refrained from admitting explicitly to atheism). Three professors (two ministers of the Church, and one a professor of divinity) at Glasgow were harassed for alleged 'heresy' by the local Presbytery before Smith's appointment as Professor of Moral Philosophy . Strikingly, totalitarian Communism lasted for 'only' 70 years, while the iron fist of Calvinism lasted two centuries – and Catholicism for a millennia before that.

Smith was careful to write within such constraints until the last decade of his life (particularly after his very religious mother died in 1784) when his cumulative dilution of his earlier conformist religious statements in his 6th edition of Moral Sentiments showed he had moved considerably to a non-Calvinist stance on Atonement, revealed religion, and the after-life, among a score of other shibboleths.

I am detailing this in a chapter I am writing on 'Religion and Adam Smith' for the pending Oxford Adam Smith Handbook to be published in September 2011. A short 'taster' of my ideas can be read in my ‘The Hidden Adam Smith in his Alleged Theology’ in a forthcoming, Journal of History Of Economic Thought.

That evangelical Christians, including Calvinists, played a large and influential role in the AEA in the later-19th century had nothing to do with Smith's works or ideas.

To allege even that Smith was influenced by religious ideas in any positive sense is to misread the evolution of his need to hide his views in public) in both TMS and WN (he was slightly more candid in private). He did whatever was necessary to avoid public chastisement from the unforgiving zealots and enthusiasts’ of the Church of Scotland - and to protect his very religious mother from embarrassment and hurt - as a careful reading of his changes to new editions of his books from the 3rd to the sixth (TMS) and a proper assessment of his chapter on the role of religion in society would show in Book V of WN.

Both Blurb and Book in Error

From the Publisher's publicity blurb"

Beyond the Invisible Hand
Groundwork for a New Economics
 by Kaushik Basu

“One of the central tenets of mainstream economics is Adam Smith's proposition that, given certain conditions, self-interested behavior by individuals leads them to the social good, almost as if orchestrated by an invisible hand. This deep insight has, over the past two centuries, been taken out of context, contorted, and used as the cornerstone of free-market orthodoxy. In Beyond the Invisible Hand, Kaushik Basu argues that mainstream economics and its conservative popularizers have misrepresented Smith's insight and hampered our understanding of how economies function, why some economies fail and some succeed, and what the nature and role of state intervention might be.”

Comment
A reader sent this notice to me with the publisher’s blurb for Kaushik Basu’s new book (which I am reading just now and posting about on Lost Legacy).

The blurb sums up the book neatly and also why I am so critical of what could have been a greater book. Kaushik Basu writes as if he is certain that his central error is absolutely – no questions about it – the historical truth. It isn’t; it is a myth crafted by those who wanted to give their remarkable constructions (in the sense of mathematical beauty) a pedigree going back to what they made out to be the hallowed memory of Adam Smith. But unintentionally traducing it.

Their genius in formulating the mathematics of general equilibrium (worthy of Nobel memorial prizes) was indeed an achievement, which nobody can deny, but was sullied (in my humble view) by melding GE with Pareto optimality and then blessing it, unnecessarily, with the innocent use by Adam Smith of a popular 17th – 18th century metaphor of ‘an invisible hand’.

That Smith referred to an entirely different subject, which has not yet occurred to Kaushik Basu, who makes the classic mistake of taking the statements in the literature on trust, though they are in Smith’s case, checkable - his books are widely available but not read. There are no prizes for being right on Adam Smith; however, there are prizes for accepting a paradigm in our peer-reviewed journal publications, i.e. (where N[p-rjp] = tenure, etc.).

To be brief: Adam Smith’s example in Wealth Of Nations refers to ‘every individual’ who prefers “domestick industry” to that of “foreign industry”, “render[s] the annual revenue of the society as great as he can”, which is a quantative measure that says nothing at all about “harmony”, “perfect competition”, “distribution”, “matching demand with supplies”, “equilibrium”, poetical or general, or any other condition remotely akin to Pareto optima or the Welfare theorem.

Smith’s example of the “invisible hand” (in his case, the “insecurity” felt by traders for foreign trade) adds to what we call GNP – the whole is the sum of its parts, that’s all. On the grounds that growing GNP promotes opulence and, of necessity, because growth increases the labour that is employed, growth achieves a “public benefit’ in Smith’s lexicon.

It was a post-war invention that Smith’s “self-interested behavior by individuals leads them to the social good, almost as if orchestrated by an invisible hand”, especially that it is formulated by Kaushik Basu (and Samuelson, et al) as “selfish” behaviour , which is an idea antipathetic to Smith’s moral sentiments.

For these reasons Kaushik Basu is not that much different from the “conservative popularizers” he complains about who “have misrepresented Smith's insight and hampered our understanding of how economies function, why some economies fail and some succeed, and what the nature and role of state intervention might be”.

If Basu had left Smith out, or better still if he had used the authentic Adam Smith to good effect in support of his justified criticism of the modern paradigm, his “Beyond the Invisible Hand” would be a better book.

The Misunderstood Invisible Hand (Part 94)

‘amv’ posts in ‘coffehouse eonomics’ (A Tour Guide to Economics–Field Reports of Four Hohenheim Grads) HERE:

'Again the invisible hand: I just can't get enough (amv)'

“Adam Smith‘s ‘invisible hand‘ is a poetic expression of the most fundamental of economic balance relations, the equalization of rates of return, as enforced by the tendency of factors to move from low to high returns.[...] Smith also perceived the most important implication of general equilibrium theory, the ability of a competitive system to achieve an allocation of resources that is efficient in some sense. Nothing resembling a rigorous argument for, or even a careful statement of the efficiency proposition can be found in Smith, however.”
(Arrow, Hahn 1971: 1-2) [General Competitive Analysis, San Francisco: Holden Day]

Comment
Arrow and Hahn in the same article described the invisible-hand ‘as surely the most important contribution [of] economic thought’ for something they invented themselves. For Smith the invisible hand certainly could be described as a ‘a poetic expression’, but it had, for Smith at least, nothing to do with ‘the equalization of rates of return, as enforced by the tendency of factors to move from low to high returns’, nor did Smith actually write anything about ‘the most important implication of general equilibrium theory’, and as for it achieving ‘an allocation of resources that is efficient in some sense’ that is hardly a recommendation – an efficient allocation, or a Pareto optima, could include a grotesque maldistribution of income such that millions starve and a few don’t, but nobody can be made better off without a few others being made worse off.

‘amv’, a graduate, would know about the limitations of welfare ‘efficiency’ criteria, but having bought into Arrow, Hahn and others’ expositions of the ‘invisible hand’, and not having read Smith closely enough, she/he makes a mistake.

‘amv’ even quotes paragraph 9, Book IV, chapter ii, page 456 of Wealth Of Nations, but clearly has not read and understood the immediately previous 8 paragraphs of Smith’s exposition. If she/he had done so, the idea might have dawned that Smith was writing about something other than what Arrow, Hahn, Samuelson others imagined and invented in mid-20th century.

'Joe Stiglitz Slaps the Invisible Hand'

Tyler Durden quote Joseph Stiglitz in City Index (‘The next way to trade’)
HERE

“Joe Stiglitz Slaps The Invisible Hand”

"The theories that said that markets work perfectly were all based on very simplistic models of perfect competition and perfect information. My own work we show that the reason that when there is asymmetric information, the reason that the invisible hand often seemed invisible, was that it wasn't there. And I don't think today anybody would claim that the pursuit of self-interest by bankers, which is sometimes called greed [don't tell the screenplay writer for Wall Street] has led to the wellbeing of all of society. And yet this was the central notion taught in almost every graduate school in the country."

Comment
At last the myth of the ‘invisible hand’ is under challenge from a much wider range of sources than Lost Legacy, which since 2005 has been ploughing a lonely furrow.

The consequences of the invention of the modern role for the metaphor on ‘an invisible hand’ were not trivial.

As thousands of graduate economists acted on the belief of the
beneficial role of ‘an invisible hand’, no mater what the motives of the individuals – from a false sense of altruism through to pride in their greed – modern economists taught that it was all for the good of the community.

Pollution, protectionism, graft, fraud or exploitation of children are not necessary processes for a commercial society to thrive. It does matter when wrong ideas are invented and falsely justified by linking them to the name of Adam Smith who taught quite the opposite.

Another False Attribution to Adam Smith

The Rev. Darcey Laine (Religious Task Force for a Living Wage) in Star Gazette HERE

“Adam Smith wrote about the "invisible hand of the market," which guides the free market to produce an optimal result for all. Today it often seems that the market has become the only guide to morality for our society.”

Comment
Where – anybody – did Adam Smith write about the “invisible hand of the market”?

Modern economists in the 1950s began writing about the “invisible hand of the market”, but Adam Smith decidedly did not.

Does anybody know which economist first asserted that he did?