Sunday, September 04, 2016


Alan Kirman, professor emeritus of Economics at the University of Aix-Marseille III and the Ecole des Hautes Etudes en Sciences Sociales. He is also a member of the Institut Universitaire de France.
He posts (29 August) on Evonomics HERE
Although in fields such as statistical physics, ecology and social psychology it is now widely accepted that systems of interacting individuals will not have the sort of behaviour that corresponds to that of one average or typical particle or individual, this has not had much effect on economics. Whilst those disciplines moved on to study the emergence of non-linear dynamics as a result of the complex interaction between individuals, economists relentlessly insisted on basing their analysis on that of rational optimising individuals behaving as if they were acting in isolation. Indeed, this is the basic paradigm on which modern economic theory and our standard economic models are based.. It dates from Adam Smith’s (1776) notion of the Invisible Hand which suggested that  when individuals are left, insofar as possible. to their own devices, the economy will self organise into a state which has satisfactory welfare properties.
Yet this paradigm is neither validated by empirical evidence nor does it have sound theoretical foundations. It has become an assumption. It has been the cornerstone of economic theory although the persistent arrival of major economic crises would seem to suggest that there are real problems with the analysis.
I like the journey that Alan Kirman clearly is undertaking. My only quibble is his assertion that “Adam Smith’s (1776) notion of the Invisible Hand which suggested that  when individuals are left, insofar as possible. to their own devices, the economy will self organise into a state which has satisfactory welfare properties.”
This reads something much more into Smith’s use of the metaphor of ‘an invisible hand’ than is justified by his exact reference in Wealth of Nations, Book IV) consistent with his teachings on Rhetoric in his Lectures on Rhetoric and Belles Lettres (1762-3; 1983, Oxford University Press).
There was no notion in Smith’s day of degrees of what is called ‘perfect competition’, nor of “satisfactory welfare properties” (Pareto, 20th century).

There certainly are “real problems with the analysis” prevalent in 21st century economics.


Blogger Tom Hickey said...

I was wondering if you would read this and comment in it. Thanks for doing so.

I was thinking of you when I read Kirman's post, so I read it with care.I was wondering if you would read this and comment in it. Thanks for doing so.

I don't think Kirman states that Adam Smith's idea or intention were the same as the modern interpretation, but rather that it provided the suggestion for it. The modern interpretation reads a whole lot more into Smith than the texts support. I would think that if pressed, most would admit that. Contemporary economists would likely say that Smith only "glimpsed" the outline of what was later developed formally. The modern version depends on marginalism and econometrics, which were unknown to Smith and the classical economists.

Of course, those who never read Smith likely absorbed the myth as received knowledge and never through much more about it. They might be surprised to find the myth debunked. Economists are no longer required to study the history of economics, let alone to read earlier authors. Most haven't read Keynes, let alone the classical economists.

As far as I can tell from the Evonomics post, it's not clear where Kirman fits in this scheme. In a short post in which word count counts, he can be excused for not being more specific.

In my view as a philosopher and logician interested in justification of claims, what is most significant is why the appeal to Smith at all. it seems to me that the moderns' agenda for appealing to Smith was motivated at least in part to bolster the justification of their view by an appeal to authority — perhaps against Marx and even Keynes.

If most neoclassical economists appealing to Smith as an authority were pushed on it, I think that would admit that Smith did not put forward a concept of the invisible hand that is the same as theirs. They would explain the difference as the development. They would hold instead that they are crediting Smith for the idea as the originator even through he did not work it out as they later did based on developments in the field. I doubt that many economists would see their mention of Smith as an appeal to authority. But human beings are often unaware of their cognitive-affective bias to rationalize, including using rhetorical devices and informal fallacies inadvertently.

6:42 pm  
Blogger Gavin Kennedy said...

Thanks for your observations,
I suggest we start with Smith’s actual statements on the “Invisible Hand” in WN, and place it in the several contexts where he discusses the motivated actions of ‘merchants and manufacturers” and various governments (foreign policy; rival colonies; world wars/piracy at sea, and on land’, monarchial rivalries), both sets with regard to the motivated actor’s intended consequences and their unintended consequences.
For an unintended consequence, someone initially has be motivated to Act for an intended consequence: the merchant intentionally invests locally; in doing so he unintentionally and arithmetically adds his capital to “domestic capital and employment”. His motives are his safety concerns if he sent his capital abroad (described by Smith). The unintended consequence follows from his motivated action taking place.
He is not guided by an “invisible hand” - the unintended conseuqnce follows from his motivated action. There is no separate intentional consequence, somehow describable as an actual “inviisble hand” (‘hand of god’) intentionally causing unintentional consequences!. It is a metaphor for something that does not actually exist! See Smith on metaphors in his “Lectures on Rhetoric and Belles Lettres (p.29:1762-3/1083).
When in the deep past of humanity, someone dropped (even accidentally) a piece of raw meat into or by a fire and it was seared by the flames, she discovered the edibility of cooking, When she intentionally continued to experiment with ‘cooking’, she unintentionally took humanity into a whole new sequence of steps that led towards civilisation and healthier humanity. One intentional motivate step in retrospect unintentionally led to another. She did not intentionally lead humanity unintentionally to MacDonald’s! There is no actual IH. Its a metaphor.

7:01 am  

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