Tuesday, March 14, 2006

At Last! Someone on Wall Street Puts the Invisible Hand in its Place

Trawling through web sites occasionbally brings forth the most amazing things. Has a financial commentator, spotted what so many others miss: namely the disconnect between Adam Smith and the invisible hand, so often attributed to him as an almost religious piece of imagery?

Marc Gernstein, director of investment research at Reuters writes “Buffett vs. Wall Street ‘Helpers’” on
www.investor.reuters.com (6 March 2006)

He writes:

But before we jump on decisions with which we don’t agree (even those that don’t succeed) to indict the entire process, consider Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, specifically, his argument that although the each decision-maker, for better or worse, considers just his own point of view, he is nevertheless “led by an invisible hand to promote an end which was no part of his intention” (Muller, page 66 quoting Smith at page 454).

Wealth of Nations is not Gospel. Perhaps Smith was off base. And there is much room to debate the true scope of the “invisible hand” phrase (Smith used it in the context of a trade-policy discussion). Regardless, it is often quoted in discussion of the philosophical foundation of western-style market economics, the system Buffett enthusiastically supports and in which he has flourished.

Might such an invisible hand be guiding individual acceptance of Wall-Street friction toward a more beneficial common end?”

For Lost Legacy that is right on the money. Why, oh why can’t we have more economists educated in Adam Smith’s Works like Marc Gernstein? What is it that drives teachers at what are claimed to be the best universities in the world to spout their nonsense about the invisible hand; yet Marc Gernstein manages to get it right?

Wherever Marc Gernstein was educated in economics, congratulations to his tutors (assuming they imparted this knowledge to him as a student) or double congratulations to him if he learned it despite his tutors.

I will make it the Lost Legacy Prize Winner for March right now! You may imagine how excited I was to read the article (it says a lot more about investing and Mr Buffett and Wall Street, of interest to financial people, in which, I confess, I am not fluent) after a year reading mostly nonsense about invisible hands.

Congratulations Marc Gernstein!

Read it at:


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