Monday, January 16, 2012

A Must-Read Book For All Modern Economists

Warren Samuels with the assistance of Marianne F. Johnson and William H. Perry, 2011, Erasing the Invisible Hand, Essays on an Elusive and Misused Concept in Economics, New York and Cambridge: Cambridge University Press. ISBN 978-0-521-51725-6

This is a welcome and authoritative contribution to a central problem in modern economics, specifically that of the so-called ‘invisible hand’ and its prescriptive implications for policy. Its author is well-known among economists for his life’s work in the broad field of the history of economic thought, especially, of course, among historians of economic thought, where he is well-known and rightly admired.

Sadly, Warren Samuels (14 September, 1933 – 17 August, 2011) died just before his last major book was published last September. Many messages of sympathy and commendation have circulated among the various academic communities across the world (see, Lost Legacy, 19 and 21 August for mine HERE .

Samuels started on his thorough examination of the ‘invisible-hand’ in 1983 and, 28 years later, it was completed and published in September, 2011. His examination begins with Adam Smith’s initiation, so to speak, of the debate in 1744 when he began his Essay on Astronomy while at Oxford, published posthumously in 1795. He made two further mentions only of the IH in his two other works, Moral Sentiments (1759) and Wealth Of Nations (1776). Smith did not invent the IH metaphor; he used what had been widely used by many others in the 17th and 18th centuries (and was used by many others going back to classical times).

After Adam Smith, there was a long period of silence about his use of the now famous metaphor until the last quarter of the 19th century, when scattered references surfaced occasionally through the 20s and 30s of the 20th century and then flooded into print from the 1950s (with over 33,000 book titles on Amazon) and daily mentions on all media (see Google).

Warren Samuels' main critical focus is on the uses and the various attributed meanings given to the IH from the 1940s by modern economists. His examination of the modern period is detailed, exhaustive, and relentless. He provides the data: between 1816 and 1938 the “average” number of references was “very low” [I would say close to zero, especially from 1790 to 1875); from 1944 to 1974 that number “doubled”, from 1975 to 1979 it “doubled again”, between 1980-89 it became 6.6 times higher than between 1942 to 1974, between 1990-99 it was 8x that of 1942-74, and less than 20% higher than the 1980-89 level. In 2000-06 mentions fell back to 60% of the 1990-1999 level (p 18). In short, the ‘noise’ of the modern periods became awesome, in contrast with the trappist-like silence of the period 1790-1875.

I agree with Warren Samuels there is some connection with the Cold War years when “capitalism’, as an idea, was under pressure from the Soviet challenge, and I would add, from domestic challenges from communist, social democratic and anti-colonial movements at least to 1989.

By the time that Warren concludes his ten essays, no stone is left unturned. There is nowhere left to hide from Samuels' definitive and confident conclusion: there no such thing as an actual “invisible hand” at work, or present, in the economy, at any level or for any particular purpose. The idea adds nothing at all to our understanding of how markets or anything else works. It is empty of relevant meaning. It is a myth, a religious-like belief, yet some of the finest economists of our modern age, including several Nobel Prize winners, believe in it with a worrying passion.

However, even with this welcome demolition of the IH myth, I have one area of concern with Warren Samuels' absolutely splendid book. At Lost Legacy since 2005, I have focussed a lot on Adam Smith’s use of the IH metaphor, in particular on the simple test of what Adam Smith taught on the role and use of metaphors. Strangely, Warren devotes Essay 6 (pages 135-63) to a thorough examination of ‘figures of speech’, including metaphors, using mainly specialists in modern English literature, with a singular exception of a two references to Dr Johnson’s Dictionary (1755), whom Smith criticised for being "insufficiently grammatical".

What Warren does not do is consult the most relevant source: Adam Smith, a better guide than Dr Johnson! Smith’s teaching on metaphors is highly relevant, particularly when we try to consider what he meant when he used the IH metaphor so sparingly. In his Lectures on Rhetoric and Belles Lettres, delivered from 1748-64, for which we have a set of student notes [1763] 1983. Smith’s words cut through all the speculation about the meaning of the IH metaphors, which negates the wilder assertions of those modern economists and philosophers who have invented and continue to invent numerous ‘meanings’ of the IH as discussed (all demolished in a scholarly and always polite manner by Warren Samuels).

Adam Smith was clear: a metaphor “describes in a more striking and interesting manner it object” (LRBL, page 29); and the definitive guide to the English language, The Oxford English Dictionary (1983) endorses Smith’s 1763 definition. So what is the problem?

Currently, I am writing a longer scholarly review of Warren’s book for EH.Net (an internationally read eReview service for history of economics specialists across academe), in which I shall report on Warren Samuel’s assessments of the modern myths of the IH and its ideological role in recent and current economic policy and political debate (see Lost Legacy passim). When it is published in March I shall report it to Lost Legacy.

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