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Who Gives Invisible Hand of Adam Smith a Super Power?

            Frank May 12, 2014 in Waterloo, Ontario, Canada     

               http://www.kwcg.ca/bbs/home.php?mod=space&uid=61910&do=blog&id=3872

     This is an excerpt from my July 29 2012 article To Make Possible from Impossible by Breaking the Shackles of Dogmatic.

     Adam Smith. a British economist who wrote The Wealth of Nations in 1776 to have coined the Invisible Hand - the free market managing the economy, and giving up the visible hand of government intervention.

     This doctrine has been touted as the economic Bible since it was born.  Although it has caused many insurmountable economic problems, especially cyclical economic crisis, the interest groups still advocated that market should be more aissez-faire.

     For a long time, there was no one doubted Invisible Hand's correctness and dared break the dogma. 
     It was John Maynard Keynes, a British economist, who not only appealed that laissez-faire should be ended, but also provided useful financial instruments to have saved economy.

     Here, I think that there are necessary to talk a little more about Invisible Hand. 

     It said that was Rothschild banking family of England to have persuaded and funded Adam Smith to write The Wealth of Nations with the purpose to pave a Boulevard for their controlling the national economy especially the monetary system by disabling the function of supervision of the Government. 

     Some scholars have questioned the understanding for Invisible Hand. Among them, there is a most powerful questioner, Emma Georgina Rothschild who is a descendant of the Rothschild banking family, aBritish economic historian and a professor of Harvard University. In 2001, She published Economic sentiments: Adam Smith, Condorcet and the Enlightenment to question the understanding for Invisible Hand. In the paragraph of <The Bloody and Invisible Hand> she said that: 

    “The Invisible Hand of Jupiter"

    "Adam Smith's ideas have had odd secular destinies, and the twentieth century was the epoch of the invisible hand." the profoundest observation of smith," for Kenneth Arrow, is "that the system works behind the backs of the participants; the directing 'hand' is 'invisible' "For Arrow and Frank Hahn, the invisible hand is "surely the most important contribution [of] economic thought" to the understanding of social process; for James Tobin, it is "one of the great ideas of history and one of the most influential." 'The object of this chapter is to look at the intellectual history of the invisible hand, and to put forward a view of what Adam Smith himself understood by it. What I suggest is that Smith did not especially esteem the invisible hand. The image of the invisible hand is best interpreted as a mildly ironic joke. The evidence for this interpretation, as well be seen, raises interesting questions both about Smith and about the invisible hands of the twentieth century.””

    Another questioner is Gavin Kennedy who is a retired professor of business history and the history of economics, now is a prolific blogger. His central topic is Adam Smith’s “lost legacy”, on which he has written two books. His Blog has focused on the misuses of the metaphor of “the invisible hand”. He has questioned that Smith used the metaphor 3 times, but only once was in <Wealth of Nations>, and never expressed anything like a “theory” of the invisible hand. In paper Adam Smith and the Invisible Hand: From Metaphor to Myth” he said that “A far cry from the almost mystical force it later acquired.”

    June 21, 2010, on the Website of Adask's law, there is a post The Real Father of Modern Economics said that, “Where Smith advocated a “free market” wherein each individual’s “self-interest” would result in “benefit” to all, our current markets are manipulated and their “benefits” are primarily reserved for a few “insiders” rather than the nation at large. Smith advocated “natural liberty”; today’s economics push for debtor bondage. Smith’s classical (moral) economics promoted The Wealth of Nations; today’s monetary economics promotes The Wealth of Special Interests (or perhaps, The Wealth of Bankers).” The writer indicated that “the “father” of today’s monetary economics” is “Mayer Amschel Rothschild (A.D. 1743-1812), the founder of the Rothschild fortune and dynasty that controls much of the world’s economy to this day.” 

     From above comments, we may understand that appealed to control the economy by the Invisible Handinstead of regulation of Government was not the original intention of Adam Smith but intended advocated by interest individual or group for removing the barrier of their looting social wealth.

      Although, the thought of Keynes that Government intervenes in the economy has applied widely, however, the Invisible Hand is still misused widely, too.

      The monetary easing policies based on Keynesian have been promoting the rapid expansion of the financial economy, and exacerbated the financial economy plundering on the real economy. Plus there are no enough regulations to restricting to those greedy people who are protected by the umbrella of Invisible Hand, so that caused the disaster of Financial Crisis of 2007, and will be to gestate more disasters inevitably.

     Since the occurrence of Financial Crisis of 2007–2010, people began to doubt the free market. April 6, 2011, a report that Sharp Drop in American Enthusiasm for Free Market, Poll Shows said that “The findings, drawn from 12,884 interviews across 25 countries, show that there has been a sharp fall in the number of Americans who think that the free market economy is the best economic system for the future.” “Americans with incomes below $20,000 were particularly likely to have lost faith in the free market over the past year, with their support dropping from 76 per cent to 44 per cent between 2009 and 2010. American women have also become much less positive, with 52 per cent backing the free market in 2010, down from 73 per cent in 2009.”

     Contrasted sharply, people around the world renewed emphasis on Marx's thought, especially in Marx's home country Germany. In 20 October 2008, a paper Marx popular amid credit crunch reported that Karl Marx's Das Kapital that published in 1867 now is back in fashion. Says one German publisher, who attributes his new popularity to the economic crisis. “German media have reported that bookstores nationwide have seen a 300% increase in sales of the book in recent months.”

    The results on the view of free market are a new proof of some people seems accustomed to fall into the trap of dogmatism without the dialectical sense in the observation of things – that is that there are two sides to everything; the Invisible Hand certainly has its rational part and irrational part. We must be good use of its rational part and avoiding the harm of its irrational part. In the practice of intervening in the economy, the different components of the market should be treated differently. For the traditional manufacturing sector, we should implement fully liberalized market to be controlled by Invisible Hand, through the price to regulate the production automatically. For the financial sector, it can not be taken as complete free market. Especially, the international hot money should be identified and banned because it is playing a role of advanced bandits in modern society and the financial derivatives should be strictly controlled by the Visible Hand. The occurrence of the Financial Crisis of 2007–2010 was certainly not the guilty of the Invisible Hand, it was the guilty of governors because of they did not well regulate the part of the market that must be regulated.

     There is a question worth pondering, which is that Adam Smith requested to burn his manuscripts when his life went into critical state. Some people have guessed that, may be it was that Adam Smith thought his writings were too mean to consistent with his personal morality, even a proof of The Wealth of Nations were written under the force of others.

                  

          

     Above photo appeared in most of articles that introduce the Great Depression. Anxious mother and her hunger children have been demonstrating the tragic reality of the man-made disaster. Every time I saw it, I could not help but was full of tears in my eyes with wondering that whether the mother and her children survived through the difficult years. I think that it is a powerful proof of the sin caused by the irrational part of Invisible Hand. The tragedy showed in the photo might have been foreseen by Keynes and encouraged him to write The End. Also it might had been foreseen by Adam Smith, thereby induced him to have requested to burn his manuscripts when he was ready to return to the eternal. 

    The topic about Adam Smith will stop here. You may think that many of the comments seem to have deviated from the main topic; however, I think that is necessary. A successful conduct of individuals or enterprises must meet the moral standards of public consensus. Otherwise, even if they couldmake possible from impossible, the results may not be acceptable socially.