Adam Smith‘s “invisible hand” theory of efficient markets is one of the first lessons taught to young economics students. James Tobin, a Nobel prize-winning economist, once described the theory as “… one of the great ideas of history and one of the most influential.” But in this new paper, Gavin Kennedy argues that Smith actually had no invisible-hand theory, pointing out that the phrase appears only three times in Smith’s writings. One scholar believes that Smith’s use of the phrase was a “mildly ironic joke.” (HT: Brad DeLong) [%comments]
The Invisible Hand Hoax
TAGS: adam smith
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There’s a story about this USSR poliburo guy who comes to visit the UK. After chatting with some officials he asks ‘who is responsible for the supply of bread to London?’.
When told that no one was he couldn’t get his head round it. Not sure if anyone explained the invisible hand metaphor to him.
Ukdan makes a very important observation about the free market, where there is DEMAND someone will come to fill it.
The problem today is we have voodoo SUPPLY side economics that assert that “incentives” are needed to create supply so that people can buy. Well this, in part, has lead to our financial crises.
Another aspect of economics that is being overlooked is the necessity to act ethically. Our current attitude towards capitalism is “buyer beware”, which allows companies to “cheat”. If they can cheat then the consumer is entitled to cheat too. Anarchy is not good.
Despite the accuracy of context for what was said “yester-year”, the value and benefit that the “Invisible Hand” brings to the table of developed and developing countries greatly outweighs the costs and unfair business practices passed on to consumers at times.
To understand the complexities of this Invisible Hand in present day, we whould ask ourselves why is it that we Hate and Love Wal-Mart all at the same time?
So Booyah… in my opinion, the phrase is valid and alive in our day to day lives. Long live his principles and long live the Invisible Hand.