Tuesday, April 17, 2012
" The Invisible Hand " in economics !
Citings : 14.April.2012. Saturday
-------------------------------------------
" There is no invisible Hand " by Jonathan Schilefer
-------------------------------------------------------------------------------------
One of the best kept secret in Economics is that, there is no case for invisible hand. After more than a century of trying to prove the opposite, Economic theorists investigating the matter, finally concluded in the 1970 s 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 their supposedly practical colleagues who so eagerly push advice about almost anything ....
Adam Smith suggested the invisible hand in an otherwise obscure pasage in his ' An Inquiry into the Nature and Caused of the Wealth of Nations ' in 1776. He menitoned it ony once in the book, while he repeatedly noted situations where " natural liberty " does not work
Let banks charege 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 turn to " some contrivance to raise prices " .
Let market competition continue to drive the division of labour, and it produces workders as " stupid ... as it is possible for a human creature to become " .
In the 1870 s, academic economists began seriously trying to build " general equilibrium " modles to prove the invisible hand. They hoped to show that, market trading among invididuals, pursuing self-interst, and firms, maximising profit, would lead tan economy to a a stable and optimal equilibrium!
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------
" There is no invisible Hand " by Jonathan Schilefer
-------------------------------------------------------------------------------------
One of the best kept secret in Economics is that, there is no case for invisible hand. After more than a century of trying to prove the opposite, Economic theorists investigating the matter, finally concluded in the 1970 s 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 their supposedly practical colleagues who so eagerly push advice about almost anything ....
Adam Smith suggested the invisible hand in an otherwise obscure pasage in his ' An Inquiry into the Nature and Caused of the Wealth of Nations ' in 1776. He menitoned it ony once in the book, while he repeatedly noted situations where " natural liberty " does not work
Let banks charege 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 turn to " some contrivance to raise prices " .
Let market competition continue to drive the division of labour, and it produces workders as " stupid ... as it is possible for a human creature to become " .
In the 1870 s, academic economists began seriously trying to build " general equilibrium " modles to prove the invisible hand. They hoped to show that, market trading among invididuals, pursuing self-interst, and firms, maximising profit, would lead tan economy to a a stable and optimal equilibrium!
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
