Saturday, March 29, 2008

Backward Projection of a 20th-Century Myth

Political Lore (here) : 29 March, by Shaun Pickford:

In the “Wealth of Nations”, Adam Smith believed that a successful nation’s free market will be guided by “an invisible hand”. In studying Adam Smith’s economic philosophies, the Founding Fathers of the United States kept the government out of the free market by writing no laws and regulations restricting any aspect of the market within the country. They knew that if they let this “invisible hand” run its course, the newly formed American economy would flourish. With nothing to hold them back, the Patriots of the country could specialize in anything of their choosing, develop a niche market and become a staple in their communities for their trade. The “specialists” would prosper, as would the others in their respective trades, thus developing a strong, sustainable, wealthy community that would later become a shining example for capitalism and free markets around the world.”

This is an example of a 20th-century backward-looking projection onto Adam Smith of a myth created by, among others, Chicago economists, and which is now well ingrained in public lore as to be a parody of Adam Smith’s analysis of how markets work.

Adam Smith’s ‘philosophies’ were a critique of mercantile political economy which had dominated English/British government policies for three centuries (and, it should be noted, was carried on in effect almost without interruption through to the 21st century, including until the mid-20th century, the mercantile policy of colonies, and their associated wars).

There are no references to invisible hands in Wealth Of Nations except once in Book IV (page 456 – read the whole chapter and not just the paragraph) which addressed another matter (risk avoidance) and not free markets.

The Founders had copies of the UK edition of Wealth Of Nations in Autumn of 1776. They did not ‘know’ about invisible hands and about the beenfits of letting them ‘run their course’. The metaphor was almost unremarked upon until the early 20th century, after which it was imaginatively created into a ‘theory’, a ‘concept’, a ‘paradigm’, and an ‘axiom’, by soem economists, which is rather mysterious as it was none of these to Adam Smith.

Please Note: Shaun Pickford’s article is under the heading: “Obama plans to shield us from ourselves in 2008, and ultimately destroy the “Shining City on a Hill”.

My criticism of the above aspect of the article in no way should be taken as a political comment on the merits of Barack Obama, or any other Presidential candidates. Lost Legacy does not comment on the merits of candidates in any country other than the one I vote in.


Blogger Shaun Pickford said...

Gavin, I apologize and thank you for the correction. I do plan to fully read the Wealth of Nations in its entirety, but for now I have always been taught and informed (and to my mistake took it for the word) that Adam Smith was a firm believer in the idea of an "invisible hand" in a free market. I did research the fact that the term was in the book before writing this post, however I did not read the entire context of the chapter. Thanks again for the correction, and thank you for reading the blog. Please keep me informed of future postings on your blog and hopefully we can find related posts to cross-link and promote each other.

Shaun Pickford

7:02 am  
Blogger Gavin Kennedy said...

Hi Shaun

Thank you for your comment.

You are not alone in believing the myth of the invisible hand. Most modern economists do so too, despite all of them knowing of the Wealth Of Nations, and many of them bot having read it, plus a fair number of whom have read it and who have not udnerstood hid uder of the metaphor. They prefer to believe what other economists claim was said by Adam Smith despite being unable to show anything like the claims they make about it.

I shall keep an eye on your 'politicallore' Blog.


3:56 pm  

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