Saturday, August 06, 2016


Tim O’Reilly, founder and CEO of O'Reilly Media Inc. posts  (4 August) on Evonomics HERE
Why we cannot wait for an Invisible hand. Its Time to Rewrite the Rules of The Economy
To survive, the game of business needs to update
its rules
Many simplistic apologists for the capitalist system celebrate disruption and assume that while messy, it will all work out for the best if we just let “the invisible hand” do its work.” 
Yet Tim O’Reilly does not inform us what the “invisible hand” actually does, as if everybody knows and does not need to be told.
Adam Smith applied the metaphor of an invisible hand to a wholly unconnected activity than to those which modern economists apply it to (some apply it to everything, and following Paul Samuelson, 1948, even to “selfish’ behaviours!).
O’Reilly continues: “This is true, if we correctly understand the invisible hand.”
But still no explanation of what the ‘invisible hand’ does!
The law of supply and demand does not describe some magical force, but the way that players of the game fight for competitive advantage. There are games within games.” 
If supply and demand are not ‘magical’, why is the ‘invisible hand’ magical?
O'Reilly: “As Adam Smith put it,
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”
O’Reilly takes this quotation from Smith’s Wealth of Nations which is about the negotiations between a buyer and three sellers of domestic goods, not about the “law” of suppply and demand, nor about the unstated explanation of what the metaphor of the “invisible hand” is supposed to contribute to our understanding.
O'Reilly:The invisible hand became very visible indeed by way of bitter strikes, and then transcended the market into the political process with the National Labor Relations Act of 1935 (the Wagner Act), the Labor Management Relations Act of 1947 (Taft-Hartley), and state “right to work laws.” …
Comment Smith's metaphor of 'an invisible hand' was not about 'bitter strikes' - not a common feature of 18th century Scotland.  
O'Reilly: I am confident that the invisible hand will do its work. But not without a lot of struggle. The political convulsions we’ve seen in the UK and now in the US are a testament to the difficulties we face if we let the invisible hand struggle through normal channels! We are heading into a very risky time.”
Yes, but what “work” does the “invisible hand” do? To let the “invisible hand struggle” we have to know what it does! 
O'Reilly: Moreover “the difficulties we face if we let the invisible hand struggle through normal channels”.
'Difficulties can only be 'faced' if we know what the ”invisible hand” does.  To “face” the right way we have to know where we have to look for it.
O’Reilly had led us into a muddle. He has a vision of an “invisible hand” which he does no share with us. 

I know what Adam Smith meant by his use of the metaphor and I know that modern economists think they know what Smith meant, but I also know that modern economists are quite wrong in what they think they know. It appears O’Reilly shares their views. 


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