Failures of the Invisible Hand

The introduction of an economics textbook by Manikiw quotes Adam Smith regarding the invisible hand and deduces the following claims:

1. Participants in market economies are motivated by self-interest. (SI)
2. Decentralized market economies work very well, and maximize the welfare of society as a whole. (FM: free markets)
3. The reason for excellent functioning of decentralized market economies is that all participants are motivated by self-interest. This self-interest works better than love and kindness in terms of promoting social welfare. (GG: greed is good)
4. The principles listed above were summarized in the concept of the “Invisible Hand” by Adam Smith. (AS)

Manikiw writes that these ideas remain central to modern economics. Our paper on “Failures of the Invisible Hand” shows that all four of these claims are wrong. Some years ago, I was naive enough to think that a refutation of key claims of a central text would at least arouse debate. But I have long since learned that challenges to the core ideologies are simply not to be discussed. THe paper is rejected by many journals with superficial comments not engaging with or disputing the claims.

Advertisements
2 comments
  1. sharingrisk said:

    Well, you are going up against the political Greg Mankiw who deleted the phrasing from his Principles of Macroeconomics where he referred to proponents of supply side economics as “charlatans and cranks” (http://gregmankiw.blogspot.com/2007/07/on-charlatons-and-cranks.html), not the economist Greg Mankiw who first included that wonderful phrase in his textbook’s first edition.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: