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The Invisible Hand

from Asad Zaman

This post is a continuation of ET1%: Blindfolds Created by Economic Theory, We show how the Invisible Hand theory appears to be neutral but actually favors the top 1%.

As quoted and refuted in my earlier post on “Failures of the Invisible Hand“, Mankiw writes that: “The reason for excellent functioning of decentralized market economies is that all participants are motivated by self-interest. This self-interest works better than love and kindness in terms of promoting social welfare.”  

What a monstrous statement! How can any human being think such thoughts? This is what comes from cutting off human experience as a source of knowledge, removing hearts from bodies, and leaving only brains floating in vats as a the sole source of knowledge.

Our hearts — in their pure states –would revolt at the oxymoron of a society based on selfishness. However, contamination by the poisons of economic theory and positivism leads to the blindness to sources of human welfare displayed in the Mankiw quote. In earlier times, A Christmas Carol of Dickens was sufficient as a reminder the wealth is not a measure of welfare. However, modern times reflect modern mindsets, which convert greed and wealth to desirable virtues, as reflected in the Disney version of Uncle Scrooge. So it becomes necessary to argue on logical grounds, appealing to brains in vats, instead of appealing to the heart.   read more

  1. econoclast
    July 22, 2018 at 9:50 pm

    Thank you for posting the “monstrous quote”, it saves me from plowing through Mankiw’s nonsense to find it. I will use it widely, as it captures in a few words what is so wrongheaded, heartless and inhuman.

    • Rob Reno
      July 23, 2018 at 1:15 am

      Ditto that.

  2. Helen Sakho
    July 23, 2018 at 3:20 am

    The Very Visible Boots of inhumanity was always present and more and more visibility with increasing brutality. If you do not agree, look up Boots that helps people “feel better” and while we are at it, look at the changing composition of the labour force there.

  3. David Harold Chester
    July 23, 2018 at 8:03 am

    Leon Walras claimed that the process of seeking equilibrium in an economy was one of groping ( tâtonnement). So would’t it be correct to claim that the fair lady economica is being groped by an invisable hand!

  4. Frank Salter
    July 23, 2018 at 8:04 am

    I find myself in a quandary. Despite the number of times I explain that there is an empirically quantitatively valid explanation of the invisible hand, it appears that no-one takes the trouble to follow and test the references. They continue to argue about a particular interpretation, which they consider wrong. They enter this blind alley continually.

    If you don’t like my analysis, which admittedly requires effort to understand, then discuss what you believe to be wrong. Don’t reiterate the same old arguments ad nauseam. You already know that leads nowhere.

    Unless someone makes an effort, you will all be stuck in this endless loop for ever. After all it has only been some 250 years so far.

    • Robert Locke
      July 23, 2018 at 11:51 am

      It is the “visible hand,” not the “invisible” one that is the problem. Haven’t any off you read Alfred D. Chandler’s Pulitzer prize winning 1977 book. Managerialism is the enemy.

      • Frank Salter
        July 23, 2018 at 3:06 pm

        Yes! It is the visible hand which forces the economy away from its most appropriate configuration. Until it is understood what that means improvement will remain impossible.

      • Rob Reno
        July 23, 2018 at 10:33 pm

        I’ll read it now Robert, as soon as I finish your two books.

      • July 25, 2018 at 12:28 pm

        It is the visible hands that drives the economy. Invisible hand parable is only useful to show that no central director is regulating the whole economy.

        Alfred Chandler presented a new vision on how market economy works. It is managers of firms and consumers who drives and self-regulate economy. However, it remained to be a vision. He could not present an analytical model how market economy works without falling in disasters (at least in most of situation)..

        I believe this analytical model has been presented in my work with Morioka and Taniguchi. I have talked on this in the recent International Schumpeter Society Conference July 3-5, in Seoul under the title:
        Microfoundations of Evolutionary Economics

        Frank Salter presented a theory based on his first principle that can reproduce Verdoorn’s law. This is a great achievement, but I have still strongly dissatisfied with this result. The main reason is that Salter’s result is still aggregated “empirical formula” like Boyle-Charle law. We must investigate why this law emerges. Boyle-Charle law was explained first by kinetic theory of gazes and then quantum statistical mechanics. We need this micro level theory.

    • Rob Reno
      July 23, 2018 at 11:06 pm

      “I find myself in a quandary. Despite the number of times I explain that there is an empirically quantitatively valid explanation of the invisible hand, it appears that no-one takes the trouble to follow and test the references.”

      Translation: Why won’t anyone read my paper and recognize my genius and Nobel Prize for discovering the Universal Truth of Economics – the ONE TRUE INVISIBLE HAND – modeless modeling.

      What is the sound of one visible hand clapping?

      • Frank Salter
        July 24, 2018 at 7:11 am

        which is an example of mumpsimus!

        “modeless modeling”:
        I have previously challenged you to demonstrate what you perceive to be the “model” in my analysis. There is NO model so your silence continues to be deafening!
        You make it obvious that you can NOT find a model and yet you continue to make unjustifiable claims.

        You should go and read some of the analyses from first principles in scientific papers. After all, there are nearly two million of them compared to the one in economic analysis. I won’t suggest, again, that you read the Wikipedia entry. That produces your reaction of who can believe Wikipedia.

        You continually fail to follow your uninformed scoffing by any justification of your position — definitely mumpsimus.

      • Frank Salter
        July 24, 2018 at 8:21 am

        Is Rob Reno correct? And millions of scientists wrong! I think NOT!

      • Frank Salter
        July 24, 2018 at 9:12 am

        I offer proven mathematics! Rob Reno offers rhetoric!

        I can only conclude that he can NOT do the maths!

    • Yok
      July 25, 2018 at 10:45 pm

      I’ll read your paper Frank. Where is it?

  5. July 23, 2018 at 9:15 am

    Frank, no quandary needed, just have a look at Mandeville’s Fable of the Bees from the early 1700s and trace how this impacted Adam Smith’s thinking in the Wealth of Nations. He has the best focused justification for greed and self-interest and is, like Newton’s theory of Gravity (which too many still accept) way outdated. Let me know if this is not right.

    • Frank Salter
      July 23, 2018 at 12:09 pm

      I appreciate your comment, as it informs me to try, again, to explain.

      Enlightened self interest or what ever else drives people is NOT the whole story.

      All action has to be mediated through the physical world. It is in this world that what occurs happens! It is NOT in the hypothetical thinking which can lead to the erroneous belief that benefitting the top few percent produces the best overall output. It does NOT!

      My analysis deals with physical reality. This analysis precludes any possibility of benefitting the few being anything other than disastrous! What I see as the real problem is that: those who are discussing this are simply parroting others words. They will NOT engage with the specifics I refer to. Why not? I am sure it is NOT beyond their capabilities.

      Engagement will lead to very different conclusions being drawn.

      • Edward K Ross
        July 25, 2018 at 3:12 am

        Reply to Frank Slater July23
        I may be an annoying largely uneducated citizen of the real world. From lived experienced and observation gained in that world I absolutely agree with what you have written above, including “Engagement will lead to very different conclusions being drawn”.

      • Frank Salter
        July 25, 2018 at 5:52 am

        Thank you. It is reassuring to see that there are those who have an open mind.

  6. July 29, 2018 at 1:02 pm

    It is clear from the study of Sapiens evolution and cultural adaptation over a period of 200,000 years that acting and living cooperatively with care for one another is historically the usual situation for Sapiens. So how is it that recent humans (last 3000 to 5000 years) can accept this ludicrous statement from Gordon Tullock, “the average human being is about 95 percent selfish in the narrow sense of the term?” Evidence indicates that differences in cooperativeness are caused in part by training in economics. As one researcher notes, “it
    would be remarkable indeed if none of the observed differences in behavior were the result of repeated and intensive exposure to a model whose unequivocal prediction is that people will defect whenever self-interest dictates.” Should we be concerned that economics training may inhibit cooperation? Some might respond that while society would benefit if more people cooperated in social dilemmas, economists cannot be faulted for pointing out the
    unpleasant truth that self-interest dictates defection. But this conclusion is too simplistic. Yes, in some situations humans defect to self-interest. But research indicates that the main results from evolution and cultural adaptation afford humans the greatest advantages in terms of survival. Self-interested actions may improve the situation of individual humans in terms of survival but harm the survival chances of the species. Simply put, self-interested actions reduce the likelihood of our species surviving. This recognition is especially important today. In an ever more interdependent world, cooperation among Sapiens has become increasingly important—and yet increasingly fragile. With an eye toward both the welfare of our species and the well-being of their own students, economists may wish to stress a broader view of human impetus in their teaching.

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