Tuesday, March 22, 2011

Visible Prices Determine Markets, Not An Invisible Hand

Khalid Fayaz writes (22 March) for Greater Khashmir HERE

Politics defines economy: Political stability determines economic strength

“To achieve this outcome, the economy has to coordinate transactions among these firms, as well as between firms and consumers or simply we can say to achieve this outcome, the economy should have free market. Because market economies achieve this coordination through market prices. That is, market prices are the instrument with which the invisible hand (of Adam smith) of the market-place brings supply and demand into balance.”

A post that exposes the utter redundancy of the myth that ‘an invisible hand’ makes markets work. What does this ‘invisible hand’ add to the very visible prices in markets leading people to buy, sell, or negotiate in markets? What does the invisible hand metaphor do?

It does not explain any more than the standard explanations for the role of prices, clearly stated by Adam Smith in Books I and II of Wealth Of Nations, and he did not mention anything about ‘an invisible hand’ while he did so.

It is a myth – an invention – of the 1950s, led by Paul Samuelson on his popular text, Economics: an introductory analysis, 1948, p age 36, (4½ million sales over 19 editions, and scores of copies in other economics texts).

Kahlid Fayez is simply repeating what modern economists have copied from Paul Samuelson wrote about mixed capitalist economies and what Oscar Lange wrote about socialist planning In 1936 and 1947)



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