bolshevik1917
11th February 2003, 22:20
In his book ‘the Wealth of Nations’ (regarded as the founding classic of bourgeois economics) Adam Smith gives us his alternative to planning the economy, as we socialists advocate. It is the ‘invisible hand’ of self-interest. We look to get our daily bread from the butcher, baker and brewer not by appealing to their altruism but by reminding them (if they need reminding) that it is in their interests to produce the goods and sell them to us.
Smith says, "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 in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention".
Got it? Self-interest means chasing the money. You can’t make money in the end, Adam Smith asserts, unless you produce something someone wants enough to pay for.
We have a very slight problem. Capitalism doesn’t present the fine picture of the harmonisation of interests Adam Smith paints, where all’s for the best in the best of all possible worlds. What’s wrong with the theory of the invisible hand?
In a recent article in the Guardian, Joseph Stiglitz quotes the research of a psychologist Kahneman who "shows not only that individuals sometimes act differently than standard economic theories predict, but that they do so regularly, systematically and in ways that can be understood and interpreted through alternative hypotheses, competing with those utilised by orthodox economists." Stiglitz goes on to draw the conclusion that last year’s Nobel prize winners "implied that markets were not, in general efficient…Adam Smith’s invisible hand - the idea that free markets lead to efficiency as if guided by unseen forces - is invisible, at least in part because it is not there." The article is entitled ‘There is no invisible hand’!
The problem, as Stiglitz sees it, is that people don’t always know what’s best for them. And the people who want to find out what they want so they can supply it are also not omniscient, as economists say in the trade (that means they don’t have all the information in the world before them). What sort of doctor would let you dose yourself up against an illness with pills that were yellow, just because that was your favourite colour?
But if you don’t always know what’s best, what chance has anyone else got of guessing? Adam Smith’s homely example of the village alewife and baker is profoundly misleading. They might know what people want, but that’s because they know everyone in the village, not because of ‘market signals’. What chance do modern multinationals have of reading our minds? Perhaps that’s why they spend so much money on advertising and such like in trying to tell us what to like.
If the invisible hand doesn’t work, that means socialist planning is on the agenda.
www.marxist.com
Smith says, "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 in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention".
Got it? Self-interest means chasing the money. You can’t make money in the end, Adam Smith asserts, unless you produce something someone wants enough to pay for.
We have a very slight problem. Capitalism doesn’t present the fine picture of the harmonisation of interests Adam Smith paints, where all’s for the best in the best of all possible worlds. What’s wrong with the theory of the invisible hand?
In a recent article in the Guardian, Joseph Stiglitz quotes the research of a psychologist Kahneman who "shows not only that individuals sometimes act differently than standard economic theories predict, but that they do so regularly, systematically and in ways that can be understood and interpreted through alternative hypotheses, competing with those utilised by orthodox economists." Stiglitz goes on to draw the conclusion that last year’s Nobel prize winners "implied that markets were not, in general efficient…Adam Smith’s invisible hand - the idea that free markets lead to efficiency as if guided by unseen forces - is invisible, at least in part because it is not there." The article is entitled ‘There is no invisible hand’!
The problem, as Stiglitz sees it, is that people don’t always know what’s best for them. And the people who want to find out what they want so they can supply it are also not omniscient, as economists say in the trade (that means they don’t have all the information in the world before them). What sort of doctor would let you dose yourself up against an illness with pills that were yellow, just because that was your favourite colour?
But if you don’t always know what’s best, what chance has anyone else got of guessing? Adam Smith’s homely example of the village alewife and baker is profoundly misleading. They might know what people want, but that’s because they know everyone in the village, not because of ‘market signals’. What chance do modern multinationals have of reading our minds? Perhaps that’s why they spend so much money on advertising and such like in trying to tell us what to like.
If the invisible hand doesn’t work, that means socialist planning is on the agenda.
www.marxist.com