Sunday, November 12, 2006

Pseudo-Mysticism of Chicago Economics





Gavin Kennedy

There is the usual bout at large these last few days of insensitive exhibitions of Chicago’s errors in ascribing to Adam Smith, in search of authoritative endorsement, its views on the motivations of economic actors (the neoclassical Homo economicus). Why they need to wrap their inannimate mathematical doctrines equilibrium in a pseudo-mystical verbiage of disembodied ‘invisible hands’ is a subject possibly of great interest to students of pagan belief in ‘invisible gods’, who guide our fates for good or ill.

Today, it is only sad.

John Mackey, an advocate of whole foods capitalism, for example, pushes a view of self interest that had little to do with Adam Smith.

“Conscious Capitalism: Creating a New Paradigm for Business Part II
This is Part II of Conscious Capitalism
Creating Wealth, Profits, and Growth”, posted by John Mackey

‘Why isn't the pursuit of our own self-interest enough? Perhaps we need to look more closely again at what Adam Smith wrote. The Wealth of Nations was a tremendous achievement, but economists would also be well served to read Smith's other great book, The Theory of Moral Sentiments. There he explains that human nature is not just about self-interest. It also includes sympathy, empathy, friendship, love, and the desire for social approval. As motives for human behavior, these are at least as important as self-interest; for many people, they are more important.’

Agreed, it is always beneficial to read both ‘Moral Sentiments’ and Wealth of Nations’, though it is perfectly possible from reading ‘Wealth of Nations’ alone to understand that Smith did not see self-interest in the narrow fashion that the Chicago neoclassical model requires for its assumption of Homo economicus as a selfish maximiser.

“Q. My final point of clarification is the quote from Adam Smith that is frequently used to try to negate my point of view. The quote is "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good." Adam Smith in The Wealth of Nations.
A. To me this quote has two parts to it, the first one is a reinforcement of Adam Smith's famous 'invisible hand' metaphor (which I think was the most profound insight into social history ever made) which implies that through a voluntary exchange people acting in their own self interest, pursing their own good create value for the greater society. That is true! I am not arguing against that. I believe in the invisible hand. Period. The second part of the statement, however, is what I disagree with, "I have never known much good done by those who have affected the trade of the public good." The fact of the matter is that much of the good that is done in this world is done by people who intend to do the good. The invisible hand metaphor correctly points out that much good is done for the public accidentally, so to speak, by simple pursuit of self-interest. Through voluntary exchange, acting in self-interest, parties both voluntarily exchange, and both parties benefit or the exchange wouldn't happen. That process creates a social good, true, but it is also true that very much good is done because people have an intention to "do good". All the "good" is not done accidentally.

I believe that the 'invisible hand' of Adam Smith should be supplemented by the 'visible hand' of intentional "do-gooding", and that individuals, governments, and businesses have endless opportunities to attempt to do-good in the world. Business has the opportunity to "do good" and create value for all the various constituencies that trade with the business voluntarily. I also believe that supplementing the 'invisible hand', with a 'visible hand', if done consciously, on an ongoing basis by individuals and corporations around the world, would help push humanity into an era of accelerated progress that would be unprecedented in world history. That is what Whole Foods Market is trying to do, and that is what Conscious Capitalism really means

The first sentence of the answer betrays the error it is trying to fit into the metaphor of an invisible hand. To accord to Smith’s use of a metaphor as “the most profound insight into social history ever made” is plain silly. What 20th-century neoclassical economists made into a theory of ‘the’ invisible hand had little to do with Smith’s use of it.

The metaphor of an invisible hand does not assert what is claimed for it, namely “that through a voluntary exchange people acting in their own self interest, pursing their own good create value for the greater society.” For a start, Smith used the metaphor of the invisible hand only once and in Book IV, or mercantile political economy, not in Book I on exchange transactions. The spreading harmony of mediated self interest (note, not advancing them) had nothing to do with ‘an invisible hand’.

Some instances of the consequences of acting in a certain manner might have the unintentional outcome that it creates ‘value for the greater society’, and it may do so in the case that Smith quotes in Book IV, but it was not stated in the absolute form that individuals necessarily would ‘create value for the greater society” – they may just as well destroy value ‘ for the greater society’. Indeed, Books III and IV of Wealth of Nations demonstrate this possibility in large measure in Smith’s critique of mercantile political economy, as do many other passages when he discusses the wealth destroying effects of nefarious ‘merchants and manufacturers’ and their consequential effects on the progress of society towards opulence.

Read John Mackey’s post at:


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