Friday, July 09, 2010

Be Careful With Presumptions

Jameson Graber writes the “I think, therefore I Blog” which today included, “Adam Smith on Presumption”, HERE:

As I read through Adam Smith's Wealth of Nations, I'm finding that Book IV, Chapter II is a gold mine for some of his most concise and powerful statements on economic freedom.”

[There follows the quote of the “invisible hand” passage. WN IV.ii.9: 456]

Apparently, this is the famous "invisible hand" argument. It's kind of funny to me that its context is merely a chapter on why laws against imports are bad. However, it really is quite a beautiful idea: we can actually benefit the whole society, which is incomprehensible to us, by focusing on that which is entirely comprehensible to us, namely our own self-interest.”

“Glad you found WN IV.ii. because it is an important chapter but not as significant as it has been made out, mostly by modern economists. The only reference in Wealth Of Nations to 'an invisible hand' was not a general statement by Smith about 'an invisible hand' in markets. In his discussions on markets in Book I, he does not mention anything about invisible hands. Read Chapter 2, book IV carefully and note he is discussing how some but clearly not all, traders who prefer to invest locally because of the greater risks of overseas trade, add to national output (the 'whole is the sum of its parts), which Smith considered a public benefit (higher local employment). This has nothing to do with 'efficiency', 'welfare' or perfect competition, as claimed today.”



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