Sunday, April 30, 2017


Mark Anderson posts (29 April) on Stirring the Pot (different perspectives on public policy) HERE
The concept is simple.  Markets, through the magic of the “invisible hand,” will serve society well because markets invariably weed out all kinds of bad behavior and reward good behavior.  We do not need to worry about worker safety or consumer product safety because markets will punish firms that behave badly.  If a company has too many worker accidents or causes too many illnesses the market will punish it by forcing the firm to have to pay higher wages to attract workers.  So firms will protect workers to keep wage rates lower.  Likewise, firms selling unsafe or defective products are punished in the market because buyers will learn to buy from other firms.  One of the candidates for the job of Food and Drug Administration Administrator in the new administration has argued that the FDA should not require firms to prove that new pharmaceuticals are actually effective in treating disease.  The drug market will sort that out, penalizing firms with ineffective products and rewarding firms whose products actually do what they are supposed to do.  (Thankfully, he did not get the FDA appointment.)
Put the extreme case for something and you can prove anything. Of course, you can tell what’s coming with the assertion: 
Markets though  the magic of the “invisible hand,” will serve society well because markets invariably weed out all kinds of bad behavior and reward good behavior.’
The real problem is that there there is no ‘invisible hand’. 
Adam Smith has been misread and the fantasy world that passes for modern economics among modern economists does not exist and Adam Smith never said it did.

And that is the real problem. Using a misread sentence to justify all kinds of behaviour is bound to lead to tragedy or farce, or both.

Friday, April 28, 2017


Santa Clarita Gazette (satire) (press release) (blog) HERE
Doug’s (Gone for a Week so Gazette Staff Took Over) Rant
Go ahead, trust the invisible hand of competition to employ struggling, single, expectant mothers who need maternity leave.
Akshaya Nath posts (28 April) on Daily Opinion HERE
Not just AIADMK supporters but other parties in the state too feel the involvement of the BJP. “The observations of political analysts show the invisible hand of the Centre in all developments here.
Editorial in MENAFN.COM (28 April) HERE
“Economists split over Turnbull's plan to reserve gas for Australian customers”
“A common theme in many of the arguments of those that disagree with the policy is that the appropriate response to rising gas prices overseas is to let the domestic price rise and firms and households work out the best way to adjust to higher prices – that is, let the 'invisible hand' work,' he said.”
There you have it one: “let the domestic price rise and firms and households work out the best way to adjust to higher prices”. 
Except the authors responsible but this needless advice are no other than the The ESA Monash Forum, which is is a joint initiative between Monash Business School and the Economic Society of Australia’
These purveyors of Paul Samuelson nonsense about “an invisible hand” relate his misunderstanding of Adam Smith’s metaphor as being about relying on prices, the VISIBLE signals in all markets. Yes!
So what does the “invisible hand” supposedly do?
Absolutely nothing! 
It’s a metaphor for the consequences of intended motivated actions of people in MARKETS led by VISIBLE prices.
I now see what Emma Rothschild meant by it being Adam Smith's 'ironic joke'.

The Invisible Hand of Power: An Economic Theory of Gate Keeping (Modern Heterodox Economics)


Politiseek Staff post 27 April on PoltiSeek (Political News Research) HERE
Invisible Hand Of The Free Market Man
Concepts Smith pioneered, such as the invisible hand and the division of labor serve are now quintessential economic theories. Okun’s 1975 book Equality and Efficiency: The Big Tradeoff, had only one basis for his remarkable theory: “The Invisible Hand” automatically creates market efficiency, and it would be a mistake to tamper with the automatic efficiency of the marketplace by redistributing wealth and income.Capitalism’s invisible hand just produces market efficiency, everyone buying and selling at the most efficient price. 
Politiseek staff exemplify the modern misreading of Adam Smith since Paul Samuelson led gnerations of ECON 101 students astray with his misreading of Smith’s use of a three-word metaphor in 1948. Samueson earned several fortunes from sales of his textbook, Economics through its 19 editions, and multiple translations. (It was the standard 101 textbook when I was an undergraduate in the 1960s)
All Smith intended in his Wealth of Nations was the very simple - and blindingly obvious - point that a merchant who invested his capital in the domestic economy, thus adding to domestic investment and employment, and in doing so added to aggregate domestic investment unintentionally! The merchant was only interested in making a profit from his investment but in acting to do so he was led, metaphorically, by an invisible hand to add his expenditures to gross domestic investment!
Yes, that’s all! Smith’s point was so obvious that hardly anybody commented on his use of the now (in)famous metaphor through much of the 19th century. And this near silence lasted well into the 19th century and for much of the 20th century too, up  to 1948 when Samuelson, a brilliant mathematical economist, misread Smith’s wording.
Think about it. 
The merchant was motivated to invest domestically because, said Smith, he did not trust foreign merchants, nor their legal systems. (Wealth of Nations, 1776 and etc; Book IV, chapter 2, page 456). 
But by investing locally he automatically added to aggregate domestic investment. The point was and is so obvious from Smith’s ever so clear exposition, yet despite that the world now believes that there is an actual (not a metaphorical) invisible hand, miraculously at work that “automatically creates market efficiency, and it would be a mistake to tamper with the automatic efficiency of the marketplace by redistributing wealth and income. Capitalism’s invisible hand just produces market efficiency, everyone buying and selling at the most efficient price.”

Except, of course, that is not what Smith wrote…

Wednesday, April 26, 2017


The Invisible Hand of Peace Impact Factor:3.387 Ranking:International Relations 2 out of 85 Political …”
The American Lawyer
So here's the question: Are women flocking to those low-rent areas out of choice or is there an invisible hand that steers them there?
Globe Report
However, now Washington's assistance is required.”
The Sun

When the legendary economist Adam Smith wrote of an “invisible hand” leading us all to a better society, he was not describing the British energy …"

Sunday, April 23, 2017


Donald Boudreaux posts (22 April) on FEE (Foundation for Economic Education) HERE
(Republished from Cafe Hayek.}
“Mises on The Importance of Adam Smith”
Ludwig von Mises, in his introduction to the 1953 Henry Regnery Co. edition of Adam Smith’s An Inquiry Into the Nature and Causes of the Wealth of Nations, gave us this commentary on the importance of Adam Smith's intellectual contributions:
“Smith’s books did not lay the foundation stone, but the keystone, of a marvelous system of ideas.  Their eminence is to be seen precisely in the fact that they integrated the main body of these ideas into a systematic whole.  They presented the essence of the ideology of freedom, individualism, and prosperity, with admirable clarity and in an impeccable literary form.
It was this ideology that blew up institutional barriers to the display of the individual citizen’s initiative and thereby to economic improvement.  It paved the way for the unprecedented achievements of laissez faire capitalism.  The practical application of liberal principles multiplied population figures and, in the countries committed to the policies of economic freedom, secured even to less capable and less industrious people a standard of living higher than that of the well-to-do of the “good old” days.  The average American wage-earner would not like to dwell in the dirty, badly lighted, and poorly heated palatial houses, in which the members of the privileged English and French aristocracy lived 200 years ago, or to do without those products of capitalist big business that render his life comfortable.
The ideas that found their classical expression in the two books of Adam Smith demolished the traditional philosophy of Mercantilism and opened the way for capitalist mass production for the needs of the masses.  Under capitalism the common man is the much-talked-about customer who “is always right.”
Donald Boudreaux is a tireless and articulate exponent of market economics whose literate posts I have read for a number of years. Readers of Lost Legacy will recognise points in Donald’s thesis above where I would be critical of some of the presentations of his ideas about Adam Smith’s actual influence on policies pursued by Briish and other governments from the 19th century onwards. “Laissez-faiire capitalism” is a political slogan not an idea of Adam Smith's, as I posted about yesterday. Smith favoured “natural liberty” for all, not just moneyed interests, who fought hard to enjoy freedoms they denied to their workforces and to foreign competitors. It was well into the 20th century before politics - not unbridled capitalism - legislated for the elements of the Welfare State. That debate cintinues on both sides of the Atlantic.
Of course, Boudreaux is right about the real shift in the comparative living tsandards of all classes in the 18th century compared to the 21st century. This was a point made by Adam Smith too in comparing the difference betweeen living standards of the 18th-century labourer with the richer property owner, which were self-evident, to the near destitution of the ordinary indigenous “savage” and their “chiefs”.  In that comparison, Smith showed that the working labourer was incomparably welll-off than those at the bottom of the scale in the territories of Africa, Asia and the Amderica’s.
And that gap would continue - and did - well into the 21st century, though narrowing as economic government spreads, despite the awesome struggles at the tops of those societies in corruption, civil and tribal warfare,which  spreads and engulfs many of these countries and stalls market economic growth. The market economics of the 19th and 20th centuries were dominated  by international racial and political tensions, and hot and cold wars too.

In sum, I am sceptical of claims thatt Smith “demolished” many ideas prevaling in the wider political spheres, putting it another way, the link between a book and the practical choices made by politicians and governments is far more tenuous than credited by Donald Boudreaux.

Saturday, April 22, 2017


Mike McConnell and Judy Genshaft post,  21 April on THE HILL 
“Federal effort is needed to address shortfall in cybersecurity talent”
The private sector should not wait for the “invisible hand” of the labor market to eventually increase the supply of cybersecurity black belts. With sufficient privacy and intellectual property protections, cybersecurity firms should share their expertise with students and faculty and each other.”
Md Saiful Islam at South Asian University, New Delhi, India posts
22 April in Daily Observer HERE

Invisible Hand in the political economy
Hence, the invisible hand in the political economy has become distinctly significant in exploring the economic growth as well as political assimilations
Adam Smith in his book the Wealth of Nations mentions that Political Economy refers to the relationship between economics and politics. It is the combined forces of the political environment, political institutions such as governments and the interactions of the economic systems and actors in the national as well as international levels.”
Andras Gollner, emeritas associate professor, Montreal Concordia University, posts 21 April in Hungarian Free Press HERE
“The Budapest Bridge – Epilogue”
The rapid demise of that industry as a consequence of cyber technologies, and the movements of the market mechanism’s so-called “invisible hand” is equally astonishing.”
I like Dr Gollner’s reference to “so called invisible hand” which I hope is a sign of his moving towards dropping the invisible hand altogether. Adam Smith was innocent - he never said anything about “invisible hands” of the market.
“Paradoxes Of Political Ethics: From Dirty Hands To The Invisible Hand”
Caution: Russian Site: may not be safe:

Caution: Russian Site: may not be safe j
Slapped by the Invisible Hand: The Panic of 2007 - Gary B. Gorton 

The Dilemmas Of Laissez-faire Population Policy In Capitalist Societies: When The Invisible Hand Controls Reproduction
From Redddit HERE
"There's even a market for smelly hairy degenerate whores. The invisible hand at work again"

Thursday, April 20, 2017


1 The Invisible Hand Of Peace: Capitalism, The War Machine, And International Relations Theory

The Invisible Hand In Economics And Politics: A Study In The Two Conflicting Explanations Of Society End-states And Processes |

Slapped By The Invisible Hand: The Panic Of 2007

Gary B. Gorton. Originally written for a conference of the Federal. Reserve

The Invisible Hand of Creativity
To make it more interesting let's posit a hypothetical business that has decided to go all in on the Invisible Hand of Creativity and implement a market ...

Friday, April 14, 2017


Bob Morrice posts 13 April an excerpt from Jonathon Schlefer in Harvard Business Review on Blogging on Business  HERE
There Is No “Invisible Hand”
One of the best-kept secrets in economics is that there is no case for the “invisible hand.”
After more than a century trying to prove the opposite, economic theorists investigating the matter finally concluded in the 1970s that there is no reason to believe markets are led, as if by an invisible hand, to an optimal equilibrium — or any equilibrium at all. But the message never got through to their supposedly practical colleagues who so eagerly push advice about almost anything. Most never even heard what the theorists said, or else resolutely ignored it.
Of course, the dynamic but turbulent history of capitalism belies any invisible hand. The financial crisis that erupted in 2008 and the debt crises threatening Europe are just the latest evidence. Having lived in Mexico in the wake of its 1994 crisis and studied its politics, I just saw the absence of any invisible hand as a practical fact. What shocked me, when I later delved into economic theory, was to discover that, at least on this matter, theory supports practical evidence.
Adam Smith suggested the “invisible hand” in an otherwise obscure passage in his Inquiry Into the Nature and Causes of the Wealth of Nations in 1776. He mentioned it only once in the book, while he repeatedly noted situations where “natural liberty” does not work. Let banks charge much more than 5% interest, and they will lend to “prodigals and projectors,” precipitating bubbles and crashes. Let “people of the same trade” meet, and their conversation turns to “some contrivance to raise prices.” Let market competition continue to drive the division of labor, and it produces workers as “stupid and ignorant as it is possible for a human creature to become.”
In the 1870s, academic economists began seriously trying to build “general equilibrium” models to prove the existence of the invisible hand. They hoped to show that market trading among individuals, pursuing self-interest, and firms, maximizing profit, would lead an economy to a stable and optimal equilibrium.
Leon Walras, of the University of Lausanne in Switzerland, thought he had succeeded in 1874 with his Elements of Pure Economics, but economists concluded that he had fallen far short. Finally, in 1954, Kenneth Arrow, at Stanford, and Gerard Debreu, at the Cowles Commission at Yale,developed the canonical “general-equilibrium” model, for which they later won the Nobel Prize. Making assumptions to characterize competitive markets, they proved that there exists some set of prices that would balance supply and demand for all goods. However, no one ever showed that some invisible hand would actually move markets toward that level. It is just a situation that might balance supply and demand if by happenstance it occurred.
Jonathan Schlefer is author of The Assumptions Economists Make (Belknap/Harvard, 2012). The former editor of Technology Review, he holds a Ph.D. in political science from MIT and is currently a research associate at Harvard Business School.
That a few economists have recently raised doubts about the supposed mystical powers of “an invisible hand” is encouraging. I hope that increasing numbers economists realise that they were taught a nonsense from Econ 101 onwards, and will speak out.
LOST LEGACY welcomes the few - so far - who have realised that the whole idea of a real “invisible hand” has been and continues to be a class 1 error of the imagination. 

Adam Smith was and remains innocent of any of the ideas on this subject that currently dominate both the scientific side of economics and the daily popular media.