Sunday, November 11, 2012

A Tale of Two Scholarly Debates on Adam Smith

Adam Smith’s Argument for the Existence of an Invisible~Hand
Claude Hillinger
(Emeritus Professor of Economics, University of Munich)
“No other phrase has been as widely and as controversially used in  the discussion of capitalism and markets   as the ‘invisible hand’,  a metaphor that Adam Smith used just  once in each of his major works. There has been a debate as to whether Smith himself attached any importance to this metaphor.  I do not deal with this issued directly.  Instead, I ask another question that seems to me more relevant and interesting: Did Smith have a logical argument, call it a ‘proof’ if you will, as to why actual economies would behave as suggested by the metaphor? I claim that the answer is a clear ‘yes’. Smith argued that the profit maximizing behavior of entrepreneurs leads them to produce the output that has the highest valued that can be attained with given resources. The value of the total output is therefore a maximum also. This is precisely the condition that is also used in the most elegant mathematical proof of the efficiency of a competitive equilibrium. Comparing Smith’s argument with the Walras/Pareto approach raises important questions of methodology.”
Available from Social Science Research Network HERE
And my reply:
A Response to Claude Hillinger’s “Adam Smith’s Argument For
the Existence of An ‘Invisible hand’”
Gavin Kennedy
(Emeritus Professor, Edinburgh Business School, Edinburgh)
(Note: My paper awaits uploading at SSRN in a couple of days: Copies available meanwhile from Lost Legacy on application via Comments, or by email to usual address: gavinK9 AT gmail DOT com)
“This paper discusses briefly Adam Smith metaphoric use of the “invisible hand” chapter of Wealth Of Nations and shows his use of the famous metaphor conforms to the proper role of
metaphors in English grammar, as he taught his students.  It also comments on the role of self-interest in society.  Far from hinting verbally at the grand mathematical theories of “General Equilibrium” or the “Pareto Theorem”, Smith’s assertion was confined to a modest quantitative arithmetical change in “annual revenue and employment”.  It concludes with comments on Claude Hillinger’s interesting, though ultimately flawed, version of Adam Smith’s supposed argument for the existence of an “invisible hand”.


Blogger airth10 said...

Wasn't it sometime mid 19th century that we saw the metaphoric (or is meteoric) rise of Adam Smith's invisible hand?

4:50 pm  
Blogger Gavin Kennedy said...

Hi airth
Nice to hear from you again.
The first notable mention of the IH metaphor was in 1875 by F. W. Maitland, [1875] 2000. A Historical Sketch of Liberty and Equality. Indianapolis: Liberty Fund , a law professor at Cambridge. Then A. C. Pigou (Professor of Economics at Cambridge),, in 1920, in his "Economics of Welfare". This did not get going until 1930s with "History of Economic Doctrine" (1931), Oscar Lange, "Economics of Socialism" (1938), and then really got going, after Samuelson's "Economics, an introductory analysis (1948), with tens of thousands, then hundreds of thousands, of mentions to 2009. The rise from Samuelson was truly meteoric!

5:44 pm  

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