The System Is the Solution

A little poetic licence is allowed (‘cutting some slack’, as Americans say, I believe). But this last paragraph is problematic:

‘Adam Smith understood that the system is the solution when he wrote that beneficial market outcomes are the result of an "invisible hand." '

It is the extension of the use of the metaphor of ‘an invisible hand’ from what Smith was talking about in both Moral Sentiments and Wealth of Nations that creates an inaccurate impression of his meaning, and perhaps, it is also causes others to make a metaphor into a ‘theory’ of markets, and, in some cases (Jerry Evensky is an example) to associate Smith with theology.

Smith did not use this metaphor in relation to markets. He never wrote that ‘beneficial market outcomes are the result of ‘an invisible hand’. His subjects in relation to ‘an invisible hand’ in Moral Sentiments were about the comparison between the subsistence incomes of landless tenants under late feudalism and their possible incomes if the land was divided equally among all people. No invisible hand was required to meet the condition that the poor were no worse off as landless tenants compared to either the conditions prior to landownership by a few rich proprietors or to a hypothetical equal division of land. In both cases, the situation under rich proprietors from higher productivity would be at least as good, if not better.

Moreover, to be sustainable, landed property in the hands of greedy landlords, had to at least meet previous or alternative arrangements if it was to be sustainable as a social arrangement. As population remained steady or grew (excepting periods such as the Black Death), Smith assertion was obvious. His reference to ‘an invisible hand’ referred to the motives of the players not having any effect on a quantitative outcome that was inevitable and necessary if population was to grow.

In Wealth of Nations, the ‘invisible hand’ metaphor states simply that the whole is the sum of its parts, and that if the parts are greater than they would be otherwise, the whole is greater too. Merchants who were risk averse, and in conditions of piracy, fraud and uncertain sea states they had good reasons to be so, preferred to invest locally where they could keep an eye on things, knew the law and the relative trustworthiness of the people they dealt with. By doing so, local net investment was higher than it would be if they dispersed their capitals elsewhere.

Neither use of the metaphor had anything to do with markets. If economists wish to extend the metaphor to cover market conditions (though I do not see what mystifying it with invisible hands, palsied or otherwise, adds to our understanding of market behaviours) then that is their privilege if under their own names. But to pass this notion of as Adam Smith’s is unacceptable. It leads to people concluding, as per HEA meetings last week in Chicago, that Adam Smith was a theologian!

Hayek does not need Smith’s support for the wholly reasonable idea of ‘spontaneous order’. Invisible gods from primitive pagan religion have no place in economics.

That is very close to something I posted here about a month ago. Plagiarism! Actually, I am sure it has been said many times, and besides, I said it better

I certainly agree. If people aren't allowed to make mistakes, then they will never learn to correct them, indeed that skill will atrophy. Thus, this kind of paternalism produces the very circumstances which proponents invoke to justify it.

I have a hint for you, economist guy:

Just because you don't understand a behaviour does not make it "irrational."

Repeat 100 times.

I think there's another point to be made in relation to the argument. The assumption of rationality is overall beneficial, because it's a model that produces results that on balance tend towards accurately modelling what we see in real life. An assumption of partial irrationality will struggle to do that because there are many 'irrational' results, and somehow the economist would be forced to pick one.

Theodore Dalrymple's [pen name of Anthony Daniels] book LIFE AT THE BOTTOM is a must read for anyone who thinks social welfare is a "compassionate" idea. The book is invaluable because it's a case book. It presents the facts of actual cases and not just theoretical argument.

The cases in the book show clearly that when government undertakes to protect people from the consequences of their own behavior, there is a pretty good chance that their behavior will become more and more self destructive.

Apparently there is a substantial danger that giving up the right to fail results in losing the right to succeed as well.