Monday, January 16, 2017

THE INVISIBLE HAND METAPHOR HAS NOTHING TO DO WITH CORRUPTION

Obadiah Mailafia posts (16January) on Business Day Online HERE
Economic crime and the rule of law (part 2)
There is empirical evidence that corruption undermines the efficiency of the free market economy. In an ideal world, markets working with undistorted price signals enable individuals to choose the products and services that best satisfy their needs. This is the working of Adam Smith’s ‘invisible hand’. Corruption is a disease that cripples the free workings of the invisible hand. Those who believe that corruption is to be accepted in developing countries if it oils an otherwise creaking system will have to think again.
Comment
A well-written discussion of the role and consequences of widespread corruption in Nigeria, and by extention in much of Africa elsewhere too. For that Obadiah is to be congratulated.
Tis a pity that the author links the problems and consequences of corruption to the perversion of Adam Smith’s ‘invisible hand’. That is mistaken on two counts: first Smith did not link his use of the now infamous metaphor to a “free market economy”, that is a modern myth. 
In fact, Smith’s sole example of the ‘invisible hand’ in his Wealth of Nations, linked the metaphor to the generality of human motives and their intended consequences, which actions also had unintended consequences that could be benign for the public good (by raising ‘domestic product and employment’), or they could be detrimental to the ‘public good’ ‘ (by raising prices and narrowing competition).
Corruption has the social consequences identified by so eloquently by Obadiah Mailafia. 

Smith’s ‘metaphor’ of an ‘invisible hand’ has nothing to do with the social consequences of corruption.

Friday, January 13, 2017

THE MYSTERY OF THE UBIQUITOUS INVISIBLE HAND

Art Carden, Associate Professor of Economics at Samford University’s Brock School of Business posts (January, 2017) posts on The Imaginative Conservative HERE
What is the “Invisible Hand”?
Observers who dissapprove of other’s exchanges too often want to substitute the visible first of the state for the invisible hand of the market
“As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” —Adam Smith, Wealth of Nations
Which better guides the use of a society’s decentralized knowledge: the invisible hand of the market or the visible fist of the state? Adam Smith began An Inquiry into the Nature and Causes of the Wealth of Nations by explaining that people have become more productive because they have been able to specialize and divide labor. He identified and explained something really marvelous. The invisible hand of the marketplace helps us make use of others’ knowledge and encourages us to help ourselves by helping others. The invisible hand of market exchange—and voluntary action more generally—generates the ordered use of social knowledge according to the visions, plans, and expectations of the many members of that society, rather than according to the visions, plans, and expectations of state functionaries.
[Republished from The Intercollegiate Review, Fall 2016].
COMMENT
Adam Smith never referred to the “invisible hand of market exchange”. That last is an assertion of modern economists, largely since Paul Samuelson’s careless remarks in his textbook, Economics, in 1948, 19 editions to 2010, and 5 millionn sales, plus, of course the active second-hand market. Smith used the ‘invisible hand” metaphor in his “Wealth of Nations” once in a direct reference to a merchant who preferred the home market over the risks of foreign trade, hence he invested locally. A consequence of that intended action by the merchant was that he added unintentionally his capital to domestic capital, which was a public benefit in employment.
The sequence is the merchant’s motive leading him to an intentional action, which action had unintended consequences. The invisible hand metaphor describes that sequence metaphorically. Nothing more! Metaphors do not describe some unseen force that consciously leads to unintended consequences, as is sometimes claimed by apologists for some conscious or purposeful force (even a ‘spiritual force’ has been claimed for it - ‘hand of God, etc) at work in markets. 
Moreover, Smith did not ‘coin’ the metaphor, which had been in general use  since Greek and Roman times as the ‘invisible hand of Jupiter’ - hence it was originally a popular, mainly theological idea, often heard in Church ministers’ sermons in the 18th century.
There were, of course, many other actions by many other “merchants and manufacturers”, not all of which were “public benefits” (also discussed several times in Smith’s Wealth of Nations). On these occasions the intended actions of ‘merchants and manufacturers’ were public disbenefits, such as their clamoutrng to impose tariffs, even direct prohibitions on imports, a consequence of which were restrictions on supply and thereby rises in domestic prices.
Ard Carden, a distinguished economist, knows these facts but does not qualify his assertions about the supposed generality of the “invisible hand” as a public benefit. Smith’s Wealth of Nations is awash with criticism of many of the behaviours of “merchants and manufacturers” in and through markets and in their lobbying of politicians and being lobbied by them.
Art Carden's article presents a somewhat idealised picture of how markets work. Adam Smith was not so starry eyed. He understood the positive and the negative sides to human actions. That is why Smith wrote extensively about Jurisprudence - the history and need for laws, which he taught for longer than he taught political economy. He also incorporated ideas from his early Jurisprudence lectures throughout Wealth of Nations. 
Surprisingly, given the modern extensive claims of what Smith meant by using the now infamous metaphor, it is possibly remarkable that those economists who came after Smith, including his friends and contemporaries who were familiar with Smith’s work, did not mention his use of the “invisible hand” metaphor, nor its supposed significance.  Only after 1874 were there references to the metaphor by a handfull of authors, and even then a virtual public silence until after Paul Samuelson.  Today references to Smith’s so called “invisible hand theory” are ubiquitous (try Googling “Adam Smith and the invisible hand” and see its plentitude of daily references compared to none while he was alive to 1790 and up to the 1870s).

Markets are wonderfull human activities, indeed, but science, including its history, sets higher standards for explanation and understanding, than is evident in the 21st century myths about Smith’s use of the “invisible hand” metaphor in the 18th century.

Thursday, January 12, 2017

OVER PRAISE FOR AN ALREADY PRAISEWORTHY ADAM SMITH

Magictr posts (11 January) in Sivertimes HERE  
“The iPhone 7, another masterpiece of design and engineering, is packed with improved features. Adam Smith, the founder of modern economy, would probably be amazed. Would he buy it? Posthumous interview with the famous thinker."
COMMENT
Good marks awarded for its maginative content.
Query though for the asssertion that Adam Smith was “the founder of the modern economy”.
He played not such role. Smith studied the history of the existing economy in the 18th century and noted some of its important evolving trends. These trends were underway long before Adam was born and continued while he was alive and after he died (1790). 
His readers of the six editions of his “Wealth of Nations” (1766 to 1789) did not invent or create what became ‘capitalism’ - a word first used in English in 1854. 
My admiration for Adam Smith is unbounded but careless attributions about him being the “founder of modern economy” expose him to unwanted riddicule by the eternal standards of scholarship.

Magictr otherwise writes an entertaining and informative article that is worth reading.

AN UNWANTED SERIAL TREND

This morning’s (6am) random selection of commercial essay writing services (I expect others throughout the day)
  
xsl.pt
Wealth of nations adam smith analysis essay invisible hand college writing service include a provocative insight or quotation from the research ...

xsl.pt
Who is adam smith essay essays on philosophical subjects invisible hand media studies dvd cover analysis essay. In search of free writing help useful ...

myfreeip.me
adam smith essay do how literary introduction have ever been depressed ... Invisible hand media studies dvd cover great day out laughter wasted ...

xsl.pt
adam smith essay nanyang mba 2016 nfl great help with papers into self interest ... Division Of Labor Adam Smith Essay - Richmond Yacht Basin | Best . ..... Philosophy invisible hand college writing service what write my has to offer ...

oneway2.me
Essays adam smith vs john nard keynes great essay. Invisible hand nanyang mba 2016 nfl college writing service include a provocative insight or ...

the 191 Group
Professional Academic Help. Starting at $7.99 per pageFlawless papers is our top priority - Adam Smith Laissez Faire Invisible Hand.
Adam Smith Essay
adam smith essay nanyang mba 2016 nfl great help with papers into self interest ... Division Of Labor Adam Smith Essay - Richmond Yacht Basin | Best . ..... Philosophy invisible hand college writing service what write my has to offer 
adam smith laissez faire invisible hand
Professional Academic Help. Starting at $7.99 per pageFlawless papers is our top priority - Adam SmithLaissez Faire Invisible Hand.

adam smith laissez faire invisible hand
Professional Academic Help. Starting at $7.99 per pageFlawless papers is our top priority - Adam SmithLaissez Faire Invisible Hand.

COMMENT The academic staff who read these essays under the names of their students may or may not care that early habits of passing off as their work something that is somebody else’s original work introduces into academic behaviour disreputable behaviour. 
When such habits continue into adult scholarly behaviour we see the spread of plagiarism, where so-called scholars pass of work as their own that was written by somebody else without acknowlegement.

Now we can excuse a single offfence due to an accidental overlook, but habits of serial offenders should be firmly chastised within the disciplinary codes of the institutions concerned.

Monday, January 09, 2017

VISIBLE PRICES OR VOODOO ECONOMICS?

Paul Kerin posts ((January, 2017) in The Australian HERE
Live where you like, but pay a fair price for services”
“Why are location-based subsidies problematic? They distort our choices. Adam Smith’s invisible hand theorem — that the public interest is best served by letting individuals make voluntary choices to exchange goods and services — applies to location choices too.
…Why are location-based subsidies problematic? They distort our choices. Adam Smith’s invisible hand theorem — that the public interest is best served by letting individuals make voluntary choices to exchange goods and services — applies to location choices too. But they also distort other choices. For example, SA country residents have incentive to use water even when it benefits them less than the real supply costs, while metropolitan residents use too little water (the benefits they’d enjoy from addition usage would exceed the real supply costs). The invisible hand only works if we all receive price signals that reflect the real costs of our choices.”
COMMENT
Paul Kerin’s assertion about ‘an invisible hand’ is problematic: how does every individual know that the VISIBLE price is subsidised or that the actual supply is manipulated? Mostly she doesn’t and needn’t. Moreover, her voluntary choice to drink (buy) water or not remains available. She acts on the VISIBLE ‘price’, not the ‘politics’ of water supply (of which latter she may not know nor be influenced of and by the details).
So what does the so-called ‘invisible hand theorem’ contribute? 
Here in Edinburgh, despite my long residence, I have no idea what the price of water is today - the bill is paid annually - hence it does not influence my hourly demand choices. I would still turn off a running tap to avoid any mess from spillage, or open it to wash down my bird haunted patio. Markets work from VISIBLE prices, including their cross comparisons, and daily, hourly, annual, changes. 
There is no role for a literary metaphor, invented by modern economists that doesn’t exist in fact, except in voodoo economics.





Sunday, January 08, 2017

INVISIBLE HANDS DO NOT EXIST

Jonathan Haidt is a social psychologist and Thomas Cooley professor of ethical leadership at the NYU-Stern School of Business writing on EVONOMICS HERE 
“The CEO of Sears Fails His Company by Believing in Ayn Rand and the Invisible Hand”
Why promoting only individual competition is disastrous”
“Lampert runs Sears like a hedge fund portfolio, with dozens of autonomous businesses competing for his attention and money. An outspoken advocate of free-market economics and fan of the novelist Ayn Rand, he created the model because he expected the invisible hand of the market to drive better results. If the company’s leaders were told to act selfishly, he argued, they would run their divisions in a rational manner, boosting overall performance.”
The results have been disastrous, in part because Lampert was ideologically committed to the metaphor of the invisible hand and the associated idea that people are purely selfish. Ideology is a lens – it makes some things more visible, others less so. Lampert’s ideology prevented him from seeing that he was destroying the invisible band – the bond that forms around groups that can trust each other and work together toward shared goals. Evolution is a different lens – one that we believe brings unparalleled focus and resolution when examining complex human systems. A brief look through the evolutionary lens would have made it obvious how dysfunctional Lampert’s reorganization was likely to be. …
… This is the point that Lampert seems not to have grasped: cooperation and trust generate extraordinary value, yet they are fragile and easily undermined by competition at the next-lower level. It’s as though there’s an invisible band, which ties all the members together and motivates them to work for the common good. But if you tell everyone to be selfish and then you reward selfishness, the band dissolves and you lose the benefits of cooperation and division of labor.
Kimes describes how the culture of Sears changed in response to Lampert’s reorganization:
“The divisions turned against each other—and Sears and Kmart, the overarching brands, suffered. Interviews with more than 40 former executives, many of whom sat at the highest levels of the company, paint a picture of a business that’s ravaged by infighting as its divisions battle over fewer resources….  [one former executive said it created a] “warring tribes” culture. “If you were in a different business unit, we were in two competing companies,” he says. “Cooperation and collaboration aren’t there.”
For example, no division was willing to lose revenue to create loss-leaders, which would drive traffic into the store, thereby helping all divisions. Another example: the appliance division found it could make more profit from selling Samsung appliances than from selling Sears’ Kenmore brand, so they gave more and better floor space to Samsung.
So the next time someone suggests changing the organizational chart, incentives, or culture of your company to “align incentives” or appeal to selfish interests, ask them if they have thought about the full range of motives evolution has bequeathed to our complex species.  People are not just selfish. It might make Ayn Rand roll over in her grave to put it this way, but corporations and capitalism depend on the invisible band, as well as the invisible hand.
COMMENT
Writing plausibly does not make you plausible. The options include not carrying Samsung at all and relying on Kenmore exclusively. The dilemma is removed at the expense of no income from Samsung (or any other competing brand). 
The competitive option it to avoid own brand products altogether without prominence given to own brand displays, unless it is the brand leader. If its not the brand leader, enquire why.

‘Selfish’ behaviour has nothing to do with Adam Smith and his use of the metaphor of “an invisible hand”. That bit was added by Paul Samuelson in 1948 and in the 18 other editions of his famous textbook, “Economics” and passed into folklore. 
Meanwhile, the existence of an actual  ‘invisible hand’ is a myth.

Saturday, January 07, 2017

THE POISON SPREADS ...

THERE IS A NOTICEABLE INCREASE IN ESSAY CHEAT OFFERS
It must be that time of the academic year when first year students are required to write essays on their economic class subjects.
On the Web a couple of clicks and the lazy student (or the busy ones who are too busy in other campus activities) face deadlines for submitting their term essays and instead of writing their own, they can pay a few dollars or pounds for a pre-written essay sold by enterprising others, tailor-made to fool the lecturer of the student's academic progress.
In the past month I have noticed dozens of the essay writing sites offering their wares. 
Where there is a demand there often is a supply, unfortunately of varying quality, or what is as bad, essays of excellent quality but of the wrong standard (too good for a first year student say) or too poor of off-message, or absolute worse still, an essay identical to the others received by the lecturer from other students!
Am I being too moralistic? Not at all. 
I am just appalled at the standards likely to emerge, especially when I see such offers that include titles like 'Adam Smith's Invisible Hand Theory'.
And so the poison spreads...


MEXICO'S OIL PRICES AND THE FOLLIES OF STATE CONTROLS

 Maria Fernanda Tapis Cortes posts (6  January 2017) on
Fair Observer (‘make sense of the world’) HERE
Solving Mexico’s Oil Crisis’
… It is only a temporal measure. From February onward, costs will change every day until they are released in each state. By the end of the year, prices will only be determined by that invisible hand Adam Smith talked about: the market. ….
…The Mexican government aims to compensate the gap from Pemex contributions with a gasoline tax and the new companies arriving in the country. Without a subsidy to pay, there will be about 400 billion extra pesos to invest in social programs.The question is whether this money will be correctly managed or if it will be lost on salary bonuses, debt payments and corruption that costs the country about 9% of its gross domestic product (GDP) every year… 
… There are many other problems related to these issues that will affect Mexicans in the short term. The president’s popularity hit rock bottom with several protests this week demanding prices to be brought down. There is a shortage of fuel in 13 states caused by the insufficient production, damaged ducts and panic shopping, and criminal groups reselling stolen gasoline on the black market at lower prices are gaining ground. …
COMMENT
Read the sorry tale. What a mess! And dragging the innocent Adam Smith into it with the modern myths of ‘an invisible hand’.

Markets operate by visible prices. 
There are no invisible hands, as understood and claimed by modern economists, such as Paul Samuelson (1948), who blamed Adam Smith (1723-1790).

Wednesday, December 28, 2016

ANNOUNCEMENT

Recently, over the seasonal break for New Year I noticed a decided drop in comments from readers. I was perplexed by this but could not see what was the matter (apart from indifference among readers!).
I have also noticed than my Blog's layout on screen appears to be different.
Today, almost by accident, I noticed differences in layout that appear to have been introduced by Google without explanation, so I decided to follow clues.
Lo and behold, I found a new route to Comments 'awaiting moderation'. 
So I read them pressed 'publish' of some of them and 'deleted' the occasional attempts at sending messages of no interest to me, nor I suspect to readers (who if they are searching for sex partners or related supplies, should look elsewhere).
Hence, apologies if you sent Lost Legacy a relevant Comment recently and it did not appear on the Blog. 
I welcome relevant Comments, critical or otherwise.
Gavin Kennedy