Invisible Hand Explanations

F.A. Hayek essentially quit economic theory and gave up the phenomena of industrial fluctuations as an explicit object of theoretical investigation following the publication of his last work in technical economics, 1941’s The Pure Theory of Capital. Nonetheless, several of Hayek’s more methodologically-oriented writings bear important implications for economic phenomena, especially those of industrial fluctuations. Decisions (usually, for Hayek, of a political nature) taken on the basis of a “pretence” of knowledge impede the operation of the price system’s belief-coordinating function (...) and thereby contribute to episodes of economic disequilibrium. Moreover, this later account – which I call Hayek’s epistemic theory of industrial fluctuations – implies certain aspects of his earlier theory. The two accounts are connected in virtue of the role that ignorance and the limits of human knowledge play in each. Indeed, it turns out that – substantively, if not methodologically – Hayek’s early theory of the cycle is a special case of the more general epistemic account. (shrink)

The recent literature on economic models has rejected the traditional requirement that their epistemic value necessary depended on them offering actual explanations of phenomena. Contributors to that literature have argued that many models do not aim at providing how-actually explanations, but instead how-possibly explanations. However, how to assess the epistemic value of HPEs remains an open question. We present a programmatic approach to answering it. We first introduce a conceptual framework that distinguishes how-actually explanations from how-possibly explanations and that further (...) differentiates between epistemic and objective how-possibly explanations. Secondly, we show how that framework can be used for methodological appraisal as well as for understanding methodological controversies. (shrink)

Marxism has found its home in the academic world in various disciplines: economics, philosophy, sociology, and political science. An under-appreciated area is Marxist accounting. At first, this seems like a rather strange field in which to develop the theories of Marxism, but Rob Bryer, in his book Accounting for Value in Marx’s Capital: The Invisible Hand, has brought attention to Marxist accounting and its necessity for understanding Marxist theory. This is relevant not only to those who study accounting but to (...) all who have an interest in Marxism’s basis for value and, even more importantly, the labour theory of value as a whole. (shrink)

"F. A. Hayek and the Epistemology of Politics is an exploration of an important problem that has largely been ignored: the problem of policymaker ignorance, and the limits of political epistemology. Scott Scheall explores Hayek's attitude to the philosophy of science and political philosophy, arguing that Hayek defended a philosophy of science that implied certain potential dangers of politicized science, and that his political philosophy established the potential dangers of misapplying scientific methods and results to matters of public policy. The (...) book offers an explanation for why policymaking often fails and why constituents, whatever their political affiliations, are so often disappointed with political leaders. In this primarily philosophical examination of his work, Hayek's ideas are not merely discussed, analysed, and contextualized, but extended; the book both draws and defends previously unrecognized implications from the Hayekian canon. The book also explores the historical context within which these ideas flourished. The book will be of interest to scholars and researchers of the works of F.A. Hayek, policymakers, and to those of all political, philosophical, and social-scientific persuasions"--. (shrink)

The modern concept of ideology was established by the liberal politician and philosopher Destutt de Tracy, with the objective of creating an all-embracing and general science of ideas, which followed the sensualist and empiricist trend initiated by Locke that culminated in the positivism of Comte. Natural selection and immunity are two key concepts in the history of biology that were strongly based on the Malthusian concept of struggle for existence. This concept wrongly assumed that population grew faster than the means (...) of existence. This “natural” law contained implicitly the idea that the poor and least gifted would not survive. This idea led to the progressive development of the concept of natural selection, whose definitive version was given by Darwin. Mechnikov took the concepts of struggle for existence and natural selection and conceived infectious diseases as a struggle between a host and its invader, the so-called phagocytosis theory. This theory created the necessity to possess mechanisms to discriminate between the own and the foreign, and led to the conception of the immune self. These concepts were not developed from ideas coming from perceptions or sensations, but from ideas coming from their values: individual interest, inevitable inequality, property, utility and profit. Values are ideals that constitute an ideological matrix which exerts a numinous activity and influence the development of our future actions. In consequence, science and its practice cannot avoid and ignore the values that drive them and impulse them towards certain directions. (shrink)

(Expected) adverse effects of the ‘ICT Revolution’ on work and opportunities for individuals to use and develop their capacities give a new impetus to the debate on the societal implications of technology and raise questions regarding the ‘responsibility’ of research and innovation (RRI) and the possibility of achieving ‘inclusive and sustainable society’. However, missing in this debate is an examination of a possible conflict between the quest for ‘inclusive and sustainable society’ and conventional economic principles guiding capital allocation (including the (...) funding of research and innovation). We propose that such conflict can be resolved by re-examining the nature and purpose of capital, and by recognising mainstream economics’ utilitarian foundations as an unduly restrictive subset of a wider Aristotelian understanding of choice. (shrink)

Everyone has heard of "the invisible hand," the famous metaphor used by Adam Smith (1723-1790) in The Wealth of Nations. Although he uses the expression only once in the book, it has given rise to controversy that has lasted for over two centuries. -/- The famous expression has been understood, in (at least) two very different ways. In one way by most of academia, and in a very different way by Keynes, Noah Chomsky and more lately by Mark Blaug (in (...) the second edition of The New Palgrave, 2008). -/- In the standard textbook interpretation, it is considered a poetical name for "the price mechanism" and presented as an argument in favor of laisser-faire and free trade. In this paper we recall the less well-known interpretation (of Keynes, Blaug and Chomsky), showing that Smith was more reserved towards laisser-faire than is commonly believed and that by "invisible hand" he did not mean the price mechanism. (shrink)

There is no room for the concept of need in the prevailing neoclassical school of economics. Not so, however, in classical political economy. Through close analysis in this paper, I wish to trace the concept’s prominence in Adam Smith’s thought and to fine-tune its definitional aspects. The thrust of Smith’s argument is to delineate the mechanism via which the needs of the poorest in society are satisfied. Grounded in an understanding of need as limited and exhaustive rather than infinite, like (...) desire or preference, his theory is one of affluence rather than scarcity. But his justification of commercial society (from which the neoclassical school only lifts the conclusion) rests on becoming actually satisfied that these needs are, indeed, satisfied—an erroneous belief (at least according to the terms of Smith’s own definition) and an internal contradiction in the development of his argument, occasioned, I wish to suggest, by certain colonialist discourses. Finally, Smith’s ontology of need, as reconstructed here, corresponds to similar enquiries recently undertaken in philosophy and in some heterodox schools of economics. (shrink)

A descriptive norm is a behavioral rule that individuals follow when their empirical expectations of others following the same rule are met. We aim to provide an account of the emergence of descriptive norms by first looking at a simple case, that of the standing ovation. We examine the structure of a standing ovation, and show it can be generalized to describe the emergence of a wide range of descriptive norms.

Preface Introduction Christopher J. Berry: Adam Smith: Outline of Life, Times, and Legacy Part One: Adam Smith: Heritage and Contemporaries 1: Nicholas Phillipson: Adam Smith: A Biographer's Reflections 2: Leonidas Montes: Newtonianism and Adam Smith 3: Dennis C. Rasmussen: Adam Smith and Rousseau: Enlightenment and counter-Enlightenment 4: Christopher J. Berry: Adam Smith and Early Modern Thought Part Two: Adam Smith on Language, Art and Culture 5: Catherine Labio: Adam Smith's Aesthetics 6: James Chandler: Adam Smith as Critic 7: Michael C. (...) Amrozowicz: Adam Smith: History and Poetics 8: C. Jan Swearingen: Adam Smith on Language and Rhetoric: The Ethics of Style, Character, and Propriety Part Three: Adam Smith and Moral Philosophy 9: Christel Fricke: Adam Smith: The Sympathetic Process and the Origin and Function of Conscience 10: Duncan Kelly: Adam Smith and the Limits of Sympathy 11: Ryan Patrick Hanley: Adam Smith and Virtue 12: Eugene Heath: Adam Smith and Self-Interest Part Four: Adam Smith and Economics 13: Tony Aspromourgos: Adam Smith on Labour and Capital 14: Nerio Naldi: Adam Smith on Value and Prices 15: Hugh Rockoff: Adam Smith on Money, Banking, and the Price Level 16: Maria Pia Paganelli: Commercial Relations: from Adam Smith to Field Experiments Part Five: Adam Smith on History and Politics 17: Spiros Tegos: Adam Smith: Theorist of Corruption 18: David M. Levy & Sandra J. Peart: Adam Smith and the State: Language and Reform 19: Fabrizio Simon: Adam Smith and the Law 20: Edwin van de Haar: Adam Smith on Empire and International Relations Part Six: Adam Smith on Social Relations 21: Richard Boyd: Adam Smith, Civility, and Civil Society 22: Gavin Kennedy: Adam Smith on Religion 23: Samuel Fleischacker: Adam Smith and Equality 24: Maureen Harkin: Adam Smith and Women Part Seven; Adam Smith: Legacy and Influence 25: Spencer J. Pack: Adam Smith and Marx 26: Craig Smith: Adam Smith and the New Right 27: Tom Campbell: Adam Smith: Methods, Morals and Markets 28: Amartya Sen: The Contemporary Relevance of Adam Smith. (shrink)

(2013). Bringing Forth That Which is Within: How an Invisible Hand Led me to a Life That “Feels Like My Own”. World Futures: Vol. 69, The Complexity of Life and Lives of Complexity, pp. 345-358.

The unintendedness of the phenomenon that is to be explained is a constraint visible in the various applications and clarifications of invisible-hand explanations. The article casts doubt on such a requirement and proposes a revised account. To have a role in an invisible-hand process, it is argued, agents may very well act with a view to contributing to the occurrence of the social outcome that is to be explained, provided they see what they do as an aggregation of their individual (...) actions rather than as something they jointly perform. (shrink)

Journal of Economic Methodology, Volume 19, Issue 4, Page 451-457, December 2012.

This book examines the use, principally in economics, of the concept of the invisible hand, centering on Adam Smith. It interprets the concept as ideology, knowledge, and a linguistic phenomenon. It shows how the principal Chicago School interpretation misperceives and distorts what Smith believed on the economic role of government. The essays further show how Smith was silent as to his intended meaning, using the term to set minds at rest; how the claim that the invisible hand is the foundational (...) concept of economics is repudiated by numerous leading economic theorists; that several dozen identities given the invisible hand renders the term ambiguous and inconclusive; that no such thing as an invisible hand exists; and that calling something an invisible hand adds nothing to knowledge. Finally, the essays show that the leading doctrines purporting to claim an invisible hand for the case for capitalism cannot invoke the term but that other nonnormative invisible hand processes are still useful tools. (shrink)

Review of Adam Smith’s political philosophy: the invisible hand and spontaneous order, by Craig Smith, London: Routledge, 2006, i –vi þ 209 pp., US$147.29 (hardback), ISBN 978-0-415-36094-4.

One of the central tenets of mainstream economics is Adam Smith's proposition that, given certain conditions, self-interested behavior by individuals leads them to the social good, almost as if orchestrated by an invisible hand. This deep insight has, over the past two centuries, been taken out of context, contorted, and used as the cornerstone of free-market orthodoxy. In Beyond the Invisible Hand, Kaushik Basu argues that mainstream economics and its conservative popularizers have misrepresented Smith's insight and hampered our understanding of (...) how economies function, why some economies fail and some succeed, and what the nature and role of state intervention might be. Comparing this view of the invisible hand with the vision described by Kafka--in which individuals pursuing their atomistic interests, devoid of moral compunction, end up creating a world that is mean and miserable--Basu argues for collective action and the need to shift our focus from the efficient society to one that is also fair. Using analytic tools from mainstream economics, the book challenges some of the precepts and propositions of mainstream economics. It maintains that, by ignoring the role of culture and custom, traditional economics promotes the view that the current system is the only viable one, thereby serving the interests of those who do well by this system. Beyond the Invisible Hand challenges readers to fundamentally rethink the assumptions underlying modern economic thought and proves that a more equitable society is both possible and sustainable, and hence worth striving for. By scrutinizing Adam Smith's theory, this impassioned critique of contemporary mainstream economics debunks traditional beliefs regarding best economic practices, self-interest, and the social good. (shrink)

N. Emrah Aydinonat's account of the invisible-hand is analysed. One of the conditions for unintended social consequences is it requires that individuals' intentions are exclusively directed at the individual level. This condition is weakened in order to accommodate cases in which individuals may also aim at consequences at the social level but the model clearly depicts the invisible hand. Lehtinen's model of counterbalancing strategic votes is proposed as an example that satisfies Aydinonat's conditions, if they are modified as suggested.

Introduction -- Unintended consequences -- The origin of money -- Segregation -- The invisible hand -- The origin of money reconsidered -- Models and representation -- Game theory and conventions -- Conclusion.

Adam Smith's metaphor of the "invisible hand" and its analogue in classical physics are investigated in detail. Smith's analogue was the mechanics of the solar system. What makes the analogy fail are not the idealisations in the caricature-like model of the rational economic man . The main problem rather is that the metaphor does not employ the correct analogue, which belongs to thermodynamics and statistics. In the simplest macro-economic model, the business cycle has the same formal structure as the heat (...) flow between two heat reservoirs and a business cycle of growing efficiency works like a refrigerator: it pumps money from the poor to the rich. More complicated models do not give a friendlier image. Due to technological push, an economic system behaves like a thermodynamic system far from the equilibrium, showing chaotic behaviour and developing into unpredictable states. (shrink)

Reviving the Invisible Hand is an uncompromising call for a global return to a classical liberal economic order, free of interference from governments and international organizations. Arguing for a revival of the invisible hand of free international trade and global capital, eminent economist Deepak Lal vigorously defends the view that statist attempts to ameliorate the impact of markets threaten global economic progress and stability. And in an unusual move, he not only defends globalization economically, but also answers the cultural and (...) moral objections of antiglobalizers. Taking a broad cross-cultural and interdisciplinary approach, Lal argues that there are two groups opposed to globalization: cultural nationalists who oppose not capitalism but Westernization, and "new dirigistes" who oppose not Westernization but capitalism. In response, Lal contends that capitalism doesn't have to lead to Westernization, as the examples of Japan, China, and India show, and that "new dirigiste" complaints have more to do with the demoralization of their societies than with the capitalist instruments of prosperity. Lal bases his case on a historical account of the rise of capitalism and globalization in the first two liberal international economic orders: the nineteenth-century British, and the post-World War II American. Arguing that the "new dirigisme" is the thin edge of a wedge that could return the world to excessive economic intervention by states and international organizations, Lal does not shrink from controversial stands such as advocating the abolishment of these organizations and defending the existence of child labor in the Third World. (shrink)

The version of the invisible hand argument in Adam Smith's Theory of Moral Sentiments differs in important respects from the version in The Wealth of Nations. Both are different, in turn, from the version invoked by Milton Friedman in Free to Choose. However, all three have a common structure. Attention to this structure can help sharpen our sense of their essential thrust by highlighting the questions (about the nature of economic motivation, the structure of markets, and conceptions of the public (...) interest) to which answers of certain kinds would have to be available for any of the versions to succeed. (shrink)

Własność prywatna nie jest żadnym naturalnym uprawnieniem, ale prawną konwencją zdefiniowaną przez system podatkowy. Stopień ingerencji w rzekomo naturalne prawo własności nie może być podstawą oceniania systemów podatkowych, bo sama własność jest wytworem takich systemów. Podatki nie odbierają nam własności, tylko umożliwiają jej istnienie.

When Adam Smith published his celebrated writings on economics and moral philosophy he famously referred to the operation of an invisible hand. Adam Smith's Political Philosophy makes visible the invisible hand by examining its significance in Smith's political philosophy and relating it to similar concepts used by other philosophers, revealing a distinctive approach to social theory that stresses the significance of the unintended consequences of human action. This book introduces greater conceptual clarity to the discussion of the invisible hand and (...) the related concept of unintended order in the work of Smith and in political theory more generally. By examining the application of spontaneous order ideas in the work of Smith, Hume, Hayek and Popper, Adam Smith's Political Philosophy traces similarities in approach and from these builds a conceptual, composite model of an invisible hand argument. While setting out a clear model of the idea of spontaneous order the book also builds the case for using the idea of spontaneous order as an explanatory social theory, with chapters on its application in the fields of science, moral philosophy, law and government. (shrink)

I argue that Adam Smith does more than providing an account of competitive behavior loosely linked to an underlying psychology since the joint between the complex psychology of The Theory of Moral Sentiments and the invisible hand pages in The Wealth of Nations explains why some of the basest affections, greed and ambition, prevail over other tendencies in certain social groups, namely merchants and manufacturers, in a commercial and urban society.

Can successful science accommodate a realistic view of scientific motivation? The Received View in theory of science has a theory of scientific success but no theory of scientific motivation. Critical Science Studies has a theory of scientific motivation but denies any prospect for (epistemologically meaningful) scientific success. Neither can answer the question because both regard the question as immaterial. Arguing from the premise that an adequate theory of science needs both a theory of scientific motivation, and a theory of scientific (...) success, I make a case for seeing science as a kind of invisible-hand process. After distinguishing different and often confused conceptions of invisible-hand processes, I focus on scientific rules, treated as emergent responses to various coordination failures in the production and distribution of reliable knowledge. Scientific rules, and the means for their enforcement, constitute the invisible-hand mechanism, so that scientific rules (sometimes) induce interested scientific actors with worldly goals to make epistemically good choices. (shrink)

Carl Menger's theory of invisible-hand explanations is rooted in his methodology of the social sciences. Contrary to his 18th-century Scottish forerunners he explains both the emergence and the persistence of unplanned social institutions exclusively by the individual pursuit of perceived self-interest. Contrary to Hayek's evolutionary functionalism, Menger's theory is not confined to the explanation of efficient or beneficial institutions. And contrary to Buchanan and Vanberg's constitutional contractualism, it does not require that people form stable preferences over rules.

David Hull accounts for the success of science in terms of an invisible hand mechanism, arguing that it is difficult to reconcile scientists' self-interestedness or their desire for recognition with traditional philosophical explanations for the success of science. I argue that we have less reason to invoke an invisible hand mechanism to explain the success of science than Hull implies, and that many of the practices and institutions constitutive of science are intentionally designed by scientists with an eye to realizing (...) the very goals that Hull believes need to be explained by reference to an invisible hand mechanism. Thus, I reduce the scope of Hull's invisible hand explanation and supplement it by appealing to a hidden hand explanation. (shrink)

An invisible hand seems to play an important role in science. In this paper I set out the general structure of invisible-hand explanations, counter some objections that have been raised to them, and detail the role that they play in science. The most important issue is the character of the mechanisms that are supposed to bring about invisible-hand effects.

In this paper I will discuss the idea of the invisible hand in the connection of its recent use in the philosophy of science. It has been invoked by some philosophers of science with a naturalistic bent as a part of their account of science. Some have made explicit references to the idea (Hull, 1988a) and others have only presupposed it (Giere, 1988; Goldman, 1991; Kitcher, 1993). I will argue that there are some problematic features in the way the idea (...) of the invisible hand isused inthese accounts. I will first discuss some general properties of the invisible hand explanations and then present some motives for its use in the theory of science. Then I will show how one particular philosopher of science, David Hull, uses the idea. I will use Hull's account as a practising target and offer some comments and criticism in order to promote more disciplined use of this model of explanation in science studies. (shrink)