Tuesday, November 24, 2015
Clem Chambers asks (23 November) in Forbes HERE
“Is An Invisible Hand Manipulating The Market?”
“Many market participants are starting to see a not so invisible hand at work in the U.S. markets. The series of miraculous market turnabouts has people getting paranoid that the whole game is a fix.
There could be a fix in place and it is an easy idea to embrace. After all, interest rates are ‘fixed’ and that’s the biggest market of all.
However, markets can seem to act like a single person because in the end they are a summation of a lot of people and an average person is very like a unique single person.”
Ask a silly question and you get a silly answer. And intelligent people get paid for writing such stuff for intelligent people who pay to read it.
Friday, November 20, 2015
LOONY TUNES NO. 123
Surfer Magazine (9 November) HERE
“It was as if he'd been slapped by a giant invisible hand. The blow didn't come from an angry, omnipotent being.”
Taha Lokhandwala posts on FT Adviser (13 November):
“Troy’s Lyon: Dividends ‘face downwards cycle”
“The invisible hand of the free market is beginning to make its presence felt after being handcuffed to non-market forces for so long.”
Jim Sabin posts (13 November) on Health Care and Organisational Ethics HERE
“So far the invisible hand has been dealing out slaps. Next time - the fist!”
Church of the Invisible Hand HERE is a denomination of Deism. We believe that there may have been a God who created the Universe, but that God does not perform Miracles within that Universe. We believe that the best expression of God's will for us, if God has any will for us, is the set of Natural Laws that govern the Universe, Founded by User:FriarRich.”
Thursday, November 19, 2015
A THOUGHT FOR YESTERDAY AND TODAY
I regularly receive comments from readers, which are always welcome. Most are published, excepting those inviting readers to sex contacts (we were ‘bombed’ a few years back, hence the use of Moderation) and those that are commercial with no connection to the History of Economic Thought.
In this connection I would welcome readers passing on news of new books and articles on Adam Smith and others, which I would feature on Lost Legacy.
A recent reader from 2007 comments on my post of 20 September, 2007: “A Misleading Quotation Exposes the Ignorance of the Quoter”.
I re-post a couple of paragraphs from my original post. They encapsulate my ideas from the early days of “Lost Legacy”. I think they are still relevant.
“Those hunting societies in Europe and the Near East 8,000 to 10,000 years ago, after the last ice-age, that formed small settled societies, developed civil governments among which problems they faced was who lived where in the settlements. This required the invention of the role of private property. Without such a concept they could never have developed shepherding (Adam Smith’s second age of mankind) to solve the elementary problem of who owned which deer, sheep, pigs or cattle, and they would never have gone on to develop agriculture (Adam Smith’s third age of mankind), from which, as they say, the rest is history."
Now there may be some (I’ve certainly met a few) who regret the long run consequences of that fateful decision of individuals to abandon relying on hunting towards the end of the ice-age and starting mankind, unknowingly and unintentionally, to create the recent history of mankind as we know it. There are even some still surviving who would welcome the end of property, though they wish to retain all the appurtenances of civilisation at the same time. I admire their self-sacrifice of the lives of billions of humans, including themselves, who would never have been born if the ragged survivors of the last ice-age had reverted to hunting as many did in the rest of the world and were found in the same state they were in when the descendants of the pastoral and farming tribes found them from the 15th to the 18th century.
I had an additional thought on what happens when humans from different levels of economic and technological development find or are found by others.
These historical events did not justify nor excuse the largely abominable treatment meted out to those our predecessors who found earlier orginal societies and their peoples, including genocide, slavery, racism, social and sexual exploitation.
Should human kind ever begin to explore the Universe, I fear for the prospects of any living kind they come across. Moreover, should any living kind visit Earth, I would not expect any good news to come about as a result of their contacts with our descendants.
Wednesday, November 18, 2015
FISHING AMONG PFOOLS
Peter Foster posts (17 November) on Financial Post HERE
“Nobel Phools George Akerlof and Robert Shiller”
“Akerlof and Shiller claim to have cast-iron proof for their thesis. It’s all Adam Smith’s fault. His concept of the Invisible Hand has led to a “standard economics” that celebrates greed and ignores market manipulation; that preaches that markets are perfect and economic actors purely rational. “If business people behave in the purely selfish and self-serving way that economic theory assumes,” they write, “our free-market system tends to spawn manipulation and deception.
But which business person derives his practices from economic theory?
What Akerlof and Shiller are actually condemning is human nature. Moreover, once we abandon caveat emptor for “Let the government beware for us” we are on a slippery slope towards losing not just choice but freedom. Such concerns are dismissed by claiming that those who warn against the moral hazards involved in government “would also tell us to do away with fire departments, because there would then be no fires since people would be more careful.”
Adam Smith in fact never suggested that markets were, or could be, perfect. He wrote of “the higgling and bargaining of the market, according to that sort of rough equality which, though not exact, is sufficient for carrying on the business of common life.” He was also an avid student of human irrationality which, he noted, was infinitely more dangerous when it came to politics and religion than to shenanigans by tradesmen, of which he was well aware. He pointed out that the market controls such shenanigans, not least by rewarding a reputation for honesty, although the law is needed to protect us from fraudsters. Akerlof and Shiller’s answer to the value of reputation is to claim that it is accumulated so that it can be “mined” to cheat people.”
Peter Foster is the author of “Why We Bite the Invisible Hand” (Pleasance Press, Toronto, 2014), on which I had occasion to comment on Lost Legacy last year, partly favourably - he is an excellent writer - and partly unfavourably - he believes the usual modern nonsense about the “invisible hand”).
Here he Is lambasting George Akerlof and Robert Shiller for taking seriously modern myths of Adam Smith’s use of the metaphor of “an invisible hand”. I have criticised Akerlof and Schiller’s thesis on Lost Legacy and would so again for their portrayial of Smith’s simple metaphor as if it has anything to do with modern (post Pail Samuelson’s 1948-2010) treatment of it as “the invisible hand” of the market.
That error is the kernal of the confusion of modern economics. Peter Foster’s quarrel with the Akerlof and Schiller “phishing" thesis is spot on but Foster shares the same core fallacy of the so-callaed invisible hand supposedly at work in market economies ensuring the common good.
There is no such invisible hand and Smith never claimed that there was. Smith simply observed that if a merchant prefers to avoid foreign trade and intentionally invest locally, he will unintentionally and arithmetically add to “domestic revenue and employment”, i.e., in modern terms, add to GDP, which can be a public benefit. Hardly a startling conclusion! Yet so much is read into such an obvious outcome even by Nobel Prize winners from top universities.
Moreover almost the entire economics profession has bought into Paul Samuelson’s misreading of Adam Smith. The invisible hand is a metaphor for the motivated actions of people may be having unintended outcomes. It was not about a mystical, even miraculous, controlling force at work in market economies.
I would hope that Peter Foster would come to see what Smith meant and where Akerlof and Schiller got it completely wrong.
Wednesday, November 11, 2015
MYTHS OF NEOCLASSICAL ECONOMICS
David Ruccio writes (31 Oct, 2010) in Real World Economics (11 November) HERE
“The metaphor of the invisible hand”
“Take a course in neoclassical economics or listen to a neoclassical economist and you’ll soon learn of the magic of the invisible hand. And you’ll learn that the invisible hand was Adam Smith’s great contribution to moden economic thought. Much of the rest of Smith is discarded or simply ignored.”- (See HERE)
NeoClassical economics is mired in errors; much of it is in a fantasy world that does not exist in reality. People do not behave in the manner of precise mathematical ways. Electrons might behave that way but people are individuals subject to a whole range of motivations and consequential actions.
There is nothing magical, nor miraculous about the metaphor of “an invisible hand”. Human motivated actions have intended consequences and those actions may have unintended consequences, some of which may have beneficial consequences and some which may not be. Some actions lead simultaneously to unintended outcomes (such as an insecure merchants investing locally which adds to "domestic revene and employment" - see Smith’s Wealth of Nations, Book 4) and some to unintended outcomes years, even lifetimes or generations later (see Smith’s Moral Sentiments, Part 4).
Monday, November 09, 2015
AT LEAST ONE OTHER AUTHOR SEES THROUGH THE MODERN MYTH OF THE INVISIBLE HAND
“Yeger”posts on Opinion HERE “The fabricated myth of the invisible hand”
This is the nearest anyone else has gotten to the truth about Adam Smith’s meaning embedded in his reference to the “invisible hand” in only three times that he mentioned it in all of his published Works:
“However, everything we know about the invisible hand is wrong. Selfish behaviour by everyone neither leads to a harmonious society nor to an efficient economy, and Adam Smith never argued that way. In fact, he frequently argued that selfish actions by certain individuals were harmful to society as a whole. The invisible hand is nothing but a fabricated myth and the picture we cherish of Adam Smith is an ideological construct.
The fundamental problem is that Adam Smith never defined the idea. Our knowledge of the invisible hand is therefore an interpretation of how Smith used the phrase. This leads to another problem: In all of his writing the invisible hand only appears 3 times.”
“Smith argued that the ancient greeks were superstitious because they believed that the** invisible **hand of god, and not the laws of physics, was responsible for the natural events.”
Correct: Smith referred to the pusilanimous superstition of the Romans that their god, Jupiter, fired thunderbolts at enemies of Rome (particularly during thunderstorms). Jupiter was often depicted on coins and other images with lightning emanating from his finger. It was a powerful image for believers in a superstitious belief.
Having experience of such thunder storms while living in Rome on a UN FAO assignment in the 1970s, I can testify to the noisy nature of such storms. In summary, this use of the invisible hand of Jupiter in Smith’s “History of Astronomy” (posthumous, 1795; written between 1744-58) was not as a metaphor - it was an adjective describing what they believed was Jupiter’s albeit invisible hand.
“In the second appearance of the invisible hand Smith argued that medieval landlords were obliged to share parts of their wealth with their servants to prevent them from starving. Thereby landlords would further the good of society without their intention or their knowledge.”
Realistically, landlords were motivated by their dependence on feudal serfs/slaves for their production of agricultural produce upon which the landlords’ power depended. If their serfs had no food they could not labour in the landlord’s fields; the serfs laboured in order to receive their shares of what they produced - realistically, their shares depended on the landlord’s unsympathetic overseers.
There were no markets involved. The only consequence as Smith put it, was the long term “propagation of the species” not the good of society. Credit, if there was any to be noted, belonged to both landlords and their serfs, and their purely unintended co-operation, largely enforced by violence.
“The final appearance of the invisible hand was in the context of national security. Smith warned that if a society was outsourcing too much of its production for higher profits national security would be threatened. However, Smith also expected merchants and industrialists to favour their home markets because they knew local laws and customs and would also prefer the reduced uncertainty of trading in close proximity. Due to this preference the merchants would further the interests of society without knowing or intending it.”
Tangental, at best.
Smith specifically refers to a merchant whose behaviour was guided by his concerns about the security about his capital if he sent it abroad to foreign jurisdictions where he did not know well the foreign people he dealt with or have faith in their legal systems should he be cheated and sought redress.
Hence, he invested domestically. His intention was to avoid the added risks of exposing his capital to avoidable foreign risks. Smith spent nine paragraphs explaining this situation in Wealth of Nations (Book IV. Chapter 1, paras I- IV). He makes no reference in these paragraphs to “national security”. It was solely concerned with the security of the merchant because it was that insecurity that motivated the merchant to keep his capital closest, intentionally under his control.
However, in acting intentionally in this manner, Smith asserts that the merchant unintentionally beneffited the domestic economy by arithmetically adding his capital to “domestic revenue and employment”, which was a “public benefit”.
Yes, “It was the modern economists who created this entirely new Adam Smith and by extension the idea of the invisible hand.”
The process of creating myths about Adam Smith’s use of the “‘invisible hand” metaphor in post-1948 economics was boosted by Paul Samuelson’s famous textbook, “Economics: an analytical introduction” McGrae Hill, 1948-2010. That myth grips modern economics almost unanimously today.
I recommend that you follow the link above.
Saturday, November 07, 2015
While my domestic situation is no less serious than previously announced, causing me to cease regular blogging, I am now assisted by an excellent care worker - plus, of course by my family - and this has relieved me sufficiently for an hour of so a day. Hence some recent very short Blog posting has been possilble, plus some journal refereeing and source reading. I remain a long way off regular academic work.
My work on my new paper on Adam Smith is getting some of my attention, though it is still very much incomplete. I have written to those readers who registered an interest in receiving it when finished by informing them that work is slowly resuming.
Should other readers wish a copy when it is finished please send to me your email at: firstname.lastname@example.org
LOONY TUNES Nos 121 AND 122
LOONY TUNES no. 122
Scrivener110 (no information) posts (3 Ocober) HERE
“Family The Truly Invisible Hand”
Lars Scall posts (3 October) HERE
“discusses his optimism for gold and “the invisible hand” of the Plunge Protection Team”
in “The Physical Gold Markets In The East Will Prevail”
Dave Elbert posts (8 November) in the Elbert Files in Business Record HERE
“Capitalism isn't always pretty”
“James Grant in the Wall Street Journal argued that it is better to have interest rates set by what Adam Smith described as “the invisible hand” of the marketplace than by the “all too visible hand” of the Fed.”
People like Dave Elbert and James Grant are paid good money to write factually but they also purvey absolute nonsense, as in the case above. Adam Smith never described as ““the invisible hand” of the marketplace. Some modern economists assert, without evidence, that Adam Smith used the invisible hand metaphor in such a manner. He did not. James and Dave have made it up.
LOONY TUNES no. 121
Novices Australia + Peter Cai (Chinese Spectator) + Hot Healines (24-25 August) HERE
”Beijing has lost the arm wrestle with the invisible hand of the market”
PAS president Abdul Hadi Awang asks his political rivals: HERE
“If you can accept communism, why not Islam?”
“Similarly, he said the people accepted BN, MCA and MIC which promotes capitalism, an ideology pioneered by the Englishman Adam Smith.”
From a post by an ambitious Asian politician seeking to govern his county who demonstrates his ignorance of history and modern facts. The obvious response is to note that Adam Smith was never an “Englishman” - he was born in 1723 in Kirkcaldy, in Fife, a county in Scotland, making him a Scotsman. He occasionally lived in England but never long enough to be confused as an Englishman, spending most of his life in Scotland. He also visited France for some months.
Moreover, Smith never “pioneered capitalism” - he never knew the word ‘capitalism, which was first used in English in William Thackeray in 1854 in his novel,The Newcomes, issued in weekly parts from 1853 to 55, though it is clear from its context that this refers to finance capital, rather than to a ‘system’. Financiers in 19th century novels tend to get a bad press; see also Trollope’s ‘The Way We Live Now’.
From “Lost Legacy”, 9 February, 2007:
“The origin of the word ‘capitalist’ is of much earlier vintage: in French, A. R. J. Turgot (1727-1781) used ‘capitaliste’ in his essay, ‘Reflection on the Formation and Distribution of Wealth’ (1769-1770), and William Godwin used its English version, ‘capitalist’, in his Political Justice (1794).”