In response to a comment by David Chester regarding Adam Smith and the Invisible Hand, I am reproducing the section in the paper which deals with this issue. This answers his question about how what is attributed to Adam Smith differs from what he actually said.
[Excerpt from the paper: Failures of the Invisible Hand]

Section 6: Recent Vintage of the Invisible Hand

The main goal of this section is to show that the modern interpretation of the IH is relatively recent. The idea that Mankiw (together with other modern economists) attributes to Smith is not actually present in Smith’s writings. In fact, modern writers borrow the authority of Adam Smith to provide weight to a very dubious idea of recent coinage.

We first note that modern interpretation of the “IH” is radically different from any interpretation of this concept that existed before the second half of the twentieth century. There is a growing body of literature (e.g., Grampp, 2000; Minowitz, 2004) which insists that the metaphor used by Smith was never meant to be anything more than a metaphor, and that the meanings inferred from Smith’s idea of IH by the modern economists support only their own interpretation of economic policies. Kennedy (2009) shows that three leading modern economists laud the IH as the “profoundest” and “most influential” contribution of Adam Smith. Nonetheless, their interpretation of the term and its significance is not supported either by Adam Smith or by readers of Adam Smith until the late nineteenth century.

In a corpus of over a million words, the terms IH appears only twice in the economic writings of Adam Smith. It is used only once in the Wealth of Nations in very limited and narrow context. Rothschild (1994) analyses the controversy surrounding the meaning of IH and concludes that what Smith meant by this metaphor was only a “mildly ironic joke.” Blaug (2007) also shows that Adam Smith cannot be blamed for these ideas. He cites other references which state that:

Some economists regarded the Arrow-Debreu results [on the existence of general equilibrium] and the fundamental theorems of welfare economics as the modern expression of Smith’s invisible hand . . . . But Smith would be surprised at what is attributed to him today . . . . On careful reading Smith does not say that selfish behavior is praiseworthy, is bound to pay, or necessarily promotes the best interests of society . . . . The passage containing the invisible hand metaphor is not about general equilibrium theory: its purpose is to explain why merchants would continue to buy British products even if tariffs were removed.

Ashraf, Camerer, and Loewenstein (2005) make a detailed analysis of Smith’s pioneering work The Theory of Moral Sentiments to conclude that “For Adam Smith, a mixture of concern about fairness . . . and altruism played an essential role in market interactions, allowing trust, repeated transactions and material gains to occur.” In sharp contrast to the modern economists’ unwarranted understanding of the IH metaphor as a sanction for selfish behavior, Smith explains that justice is in fact only a rational behavior. Fear of retribution is likely to deter the people from committing injustice. He says: “Nature has implanted in the human breast, that consciousness of ill-desert, those terrors of merited
punishment which attend upon its violation, as the great safe-guards of the association of mankind, to protect the weak, to curb the violent, and to chastise the guilty.” See Smith (1759, p. ii, iii, 125). Realizing the crucial role of justice, especially in ensuring just behavior, he believes that justice is the “main pillar that upholds the whole edifice. If it is removed, the great, the immense fabric of human society . . . must in a moment crumble to atoms.” Fairness and justice have only recently attracted the attention of economists as providing justifications for many observed human behaviors in conflict with standard utility maximization theories, see Karacuka and Zaman (2012) for a brief survey.


Ashraf, N., Camerer, C. F., & Loewenstein, G. (2005). Adam Smith, behavioral economist.
Journal of Economic Perspectives, 19, 131–145

Blaug, M. (2007). The fundamental theorems of modern welfare economics, historically
contemplated. History of Political Economy, 39, 185–207

Grampp, W. D. (2000). What did Smith mean by the invisible hand? Journal of Political
Economy, 108, 441–465

Kennedy, G. (2009). Adam Smith and the invisible hand: From metaphor to myth. Econ Journal Watch, 6, 239–263

Minowitz, P. (2004). Adam smith’s invisible hands. Econ Journal Watch, 1, 381–412

Rothschild, E. (1994). Adam Smith and the invisible hand. The American Economic Review, 84, 319–322

The WEA Online Conferences format, designed by Edward Fullbrook and Grazia Ietto-Gillies, makes full use of the digital technologies in the pursuit of the commitments included in the World Economics Association Manifesto: plurality, competence, reality and relevance, diversity, openness, outreach, ethical conduct, and global democracy. The WEA On-line Conferences seek to also engage graduate and undergraduate students considering: (a) the variety of theoretical perspectives; (b) the range of human activities and issues which fall within the broad domain of economics; and (c) the study of the world’s diverse economies.

The current WEA Conference Public Law and Economics: Economic Regulation and Competition Policies  aims to:

(i) discuss how sector regulators and competition authorities are interacting post-crises and how the economic analysis of law can help countries reach better regulation and competition policies;

(ii) contribute with practical and theoretical references on the limits of economic power and forms of state intervention;

(iii) deal with the uncertainties and challenges of the digital economy;

(iv) gather relevant case studies and

(v) identify new trends in Law and Economics that have arisen post-crises.


We invite you all  to read the following conference papers at and send your comments



As Edward Fullbrook highlights in his recent book Narrative Fixation in Economics, the Cartesian view of human reality has deeply shaped the way Neoclassical Economics theorizes about the economic and social existence (2016, p. 45). Indeed, while emphasizing the relevance of the pure thought of a disembedded human subject,  Neoclassical Economics has reinforced the relevance of the Cartesian method of inquiry  that moved the so called scientific (true) knowledge  out of the general flux of experience.

In the second part of the Discourse of Method, Descartes presented some principles that should be followed in order to acquire knowledge: 1) human beings cannot  admit any ideas that are not absolutely clear; 2) human beings must divide each problem in so many parts as appropriate for its best resolution; 3) human beings should apply deductive reasoning to organize their  thoughts from the simplest to the most complex ones 4) the analytical-synthetic process of reasoning leads to true knowledge.

According to Descartes, the first principle of his method focuses the importance of “never accepting something as true that I clearly don’t know as such” (Discourse of Method, Part II). Indeed, Descartes inspired himself in Geometry as a model of Science. As a result, he considered the postulates of Geometry not only as universal and necessary but also as clear and distinctive ideas related to intellectual intuition. Only these clear and distinctive ideas  are considered to be the pillars of true knowledge.

Based on the second principle, Descartes builds his research method of analysis that isolates the clear and distinctive ideas from the most complex ones. His emphasis on the order of thoughts strengthens the role of Mathematics in the Cartesian method of pure inquiry. Moreover, the third principle of his method leads to a special kind of organization of thoughts. In his own words, the organization of thought should start “with the simplest and easier to gradually rise, as if by means of steps, to the knowledge of the more composed, and assuming an order between the ones that don’t precede naturally each other” (Discourse of Method, Part II).

Departing from the mathematical method of reasoning, Descartes arrives at the notion of order in scientific thought, that is to say, once the human subject knows the simple elements of a problem, he can assume all the consequences that derive from those first ideas considered as absolutely certain. Those first ideas have the characteristics of clarity and distinction. Besides, they are known intuitively and constitute the pillars on which relies true knowledge.

Finally, Descartes reinforced the analytical-synthetic process of reasoning. Following the deductive method of pure inquiry, human knowledge grows throughout a rigorous chain of ideas. As a consequence, new thoughts arise while the human subject applies deductive reasoning so as to create a chain of ideas that links the most simple to the most complex ones. In this attempt, true knowledge can be obtained.

As a matter of fact, the Cartesian method presents the intellectual intuition and the deductive reasoning as crucial elements of the discovery and construction of true knowledge. Moreover, clarity, distinction and order overwhelmed the mathesis universalis that turned out to be considered as the pinnacle of the epistemo-ontological construction of Cartesian thinking.  The mathesis universalis is, according to the Cartesian epistemology, a general method of pure inquiry able to explain everything, regardless of the nature of the objects to be studied.

As E. Gilson (1945) highlighted, the Cartesian method represents an attempt to extend the mathematical method of inquiry to all of human knowledge in the form of the mathesis universalis.  Indeed, this extension is at the center of the a priori foundations of scientific knowledge in Neoclassical Economics.





DESCARTES, René.  Discurso do Método. São Paulo: Abril Cultural, 1973.

FULLBROOK, E. Narrative Fixation in Economics, WEA Books, 2016.

WILLIAMS, Bernard. Descartes: The Project Of Pure Enquiry. UK: Penguin, 1978

A relevant feature of the current crisis in economic knowledge is the recurrence of the  Ricardian Vice. Joseph A. Schumpeter coined this term in his book History of Economic Analysis when he criticized the habit assigned to Ricardo to represent the economy by a set of simplified assumptions and to use tautologies to develop practical economic solutions. Indeed, Schumpeter rejected the kind of economic thought that mainly favours deductive methods of inquiry – based on mathematical reasoning- because the  habit  known as the Ricardian Vice generates analytical unrealistic results that are irrelevant to solve the real-world economic problems.

Also Keynes warned that the understanding of the economic phenomena demands not only purely deductive reasoning, but also other methods of inquiry along with the  study of other fields of knowledge- such as History and Philosophy. In his own words:

The study of economics does not seem to require any specialised gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher – in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.” (Keynes, Collected Writings, vol. X: Essays in Biography)

Today, Schumpeter’s and Keynes’s criticism could be certainly addressed to those economists whose beliefs ultimately privilege the deductive method of inquiry in Economics. Due to these beliefs,  mainstream economists favour the adoption of a nominalist bias. And as a consequence, the trouble is that the dialogue between economic theories and the economic reality turns out to be abandoned not only in academic research but also in the policy making process.

This dialogue is complex and should be considered in any attempt to build realistic economic theories, as Keynes warned. Indeed, the changing environment of real-world markets through time -that is irreversible-  refers to a certain degree of ontological indeterminacy that should be considered in realistic economic theories and in the study of Economics.


Throughout 2016, many countries around the world keep on competing for market share in high-wage, innovation-based industries. Indeed, these countries have turned to “innovation mercantilism” by imposing protectionist policies to expand domestic production and exports of high-tech goods and services.

In this setting, innovation mercantilist policies are being oriented to high-value tech sectors such as life sciences, renewable energy, computers and electronics, and Internet services. There are new “beggar-thy-neighbor” strategies adopted by nation-states, such as forcing companies to transfer the rights to their technology or forcing them to relocate their production, research and development (R&D), or data-storage activities. These strategies aim at   both replacing imports with domestic production or promoting exports.

At this respect, the 2016 Information Technology and Innovation Foundation annual report shows that:

  • China introduced a new cybersecurity law so as to impose local data-storage requirements, and forced intellectual property and source code disclosures.  This country also introduced new cloud-computing restrictions so as to exclude and prevent foreign firms from operating in the Chinese market.
  • Germany introduced forced local data-storage requirements as part of a new telecommunications data law.
  • Indonesia introduced forced local data-storage requirements for Internet-based content providers. The country also introduced a patent law amendment in order to force local production and technology transfers.
  • Russia introduced forced local data-storage requirements and encryption-key disclosure as part of a new telecommunications data law. The country also introduced new government procurement rules in order to ban the purchase of foreign software.
  • Turkey introduced a new data-protection law that, as a matter of fact, forced local data storage.
  • Vietnam introduced forced local data-storage requirements for Internet-based content providers. The country also introduced a new network-security law that forces disclose encryption keys and source codes a condition of market access.

New protectionist trends have also been observed in the United States. As of January 23, 2017, the new American president Donald Trump’s decided to remove the U.S. from the Trans-Pacific Partnership, or T.P.P. This decision signalizes that the United States are not willing to be permanently tied to East Asia, mainly a rising China, by free-trade strategies. Instead, it is believed that American workers would be protected against competition from low-wage countries, such as Vietnam and Malaysia, also parties to the trade deal.

As America looks inward to increase investment in manufacturing, to reduce the dependence on East Asia imports and to stimulate job creation, among other  domestic challenges, the outcomes of the revision of free-trade strategies will certainly carry out relevant geopolitical implications.


Much of the comments on the global financial and economic crisis have focused on the proximate causes and governance issues related to risk management, monetary policy and weak regulation. New political alignments allowed a process of global financial deregulations in the early 1970s. The political ascendancy of financial capital and extensive capital market liberalization, employment goals were abandoned in the economic policy agenda. Indeed,   price stabilization and “fiscal prudence” turned out to be the primary objectives of the economic policy. As a result, prior to the 2008 global crisis, inflation was low and close to official inflation target rates in the advanced economies. However, credit bubbles threaten the macroeconomic stability.

After the Global Crisis, academic economists and policy makers have actively participated in the debate on monetary policy in the United States and European Union. In the face of the outcomes of the crisis, central banks have dealt with a triple challenge

  • how to contain the crisis
  • how to prevent a recessionary downturn
  • how to avoid enhancing financial instability in the form of inflationary pressures or asset  and credit bubbles.

The Federal Reserve (Fed) and the European Central Bank (ECB) have faced major global financial challenges together. However, within their respective zones, they coped with their institutional set-up and governance guidelines.

After the bail-outs, their main concern is whether nominal interest rates really have a lower bound around zero per cent. After the crisis, central banks responded to the large fall in aggregate demand and the under- utilized productive resources by adjusting  the policy interest rates to, or very close to, zero. Indeed, these central banks have focused on lender-of-last-resort program extensions. The main question is: to what extent central banks can deal with huge levels of leverage, structural flaws of financial innovations (securitization, structured finance, and derivatives above all) and  lack of transparency in terms of  risk management?.

Central banks have shown that they can innovate and coordinate with other central banks on short notice when unprecedented situations of financial crisis arise. However, central banks cannot prevent financial crisis.  Considering the menace of deepening the recession, the outcome of the central banks’ management of  nominal interest rates is that  real interest rates may be (and may continue to be) negative.  Despite the evolution of nominal and real interests, big banks have restricted new lending operations because of credit and market risks. Indeed, big banks have enlarged the amount of cash in order to cope with their own losses more easily in the future.

In the 1930s, John Maynard Keynes said the liquidity trap was a period in which cash and bonds became perfect substitutes and, after the nominal interest rate has fallen to a very low level, liquidity-preference may become virtually absolute. In other words, it is difficult for central banks to reduce their policy interest rates much below zero as cash can be held as an alternative to negative interest rate bearing assets. Most people would prefer cash to holding a debt which yields. In this event the monetary authority would have lost effective control over the rate of interest.

The modern Keynesian literature emphasizes that, even if increasing the current money supply has no effect, monetary policy is far from ineffective at zero interest rates. What is important, however, is not the current money supply but managing expectations about the future nominal and real interest rates. Thus, recent research indicates that monetary policy is far from being ineffective at zero bound levels, but it worked mainly through expectations.

Therefore, the question is how very low or negative interest rates translate into improved growth rates (Hannoum, 2015).  It is worth remembering that central banks consider that the monetary stimulus could stimulate short-term growth through five main channels:

  • by boosting credit to the real economy
  • by lifting asset prices
  • by forcing investors towards riskier ones
  • by lowering the exchange rate
  • by attempting to avoid deflationary pressures.

Up to now, the monetary policy of prolonged very low or negative interest rates relies on the uncertain effectiveness of these transmission channels. However, potential serious consequences for central banks could emerge. here is the threaten that  monetary policy could become subordinated to the demands of the financial markets and to the public debt burdens.


Hannoun, H (2015) “Ultra-low or negative interest rates: What they mean for financial stability and growth”, BIS Speech at Eurofi High-Level Seminar, Riga

The DISCUSSION FORUM  is open access.

The purpose of the WEA Conference Food and Justice is to enhance a debate that could stimulate the articulation of various aspects of the relationship between food and justice.  Although the scope and intensity of these challenges vary according to the economic situation of countries, the debate has been global. Current food challenges involve issues ranging from food access to national and international regulation.

Food production has always been present in the economic debate because of the concern about population growth and demographic changes. In spite of the Malthusian concern, new methods of food production have emerged which allowed the increase in food supply. Technological changes, however, have not occurred uniformly throughout the world. Indeed, some countries have managed to expand their production and trade surpluses while situations of hunger remained a reality in many parts of the world.

In addition to technological factors in food production, other political and economic issues are involved in the access to food. In the 21st century, the scenario of changes in food production means that even with a larger supply of food, many people, mainly the poor ones, still live in a situation of starvation. In addition to the challenges in food access, other relevant issue is food waste. Actually, a large percentage of the world food production is lost throughout the different stages of production, transportation, processing and consumption. Indeed, among the current concerns, there is the need to search for actions that can reduce the food losses that could face the situation of hunger of millions of people.

The agriculture and food industries are part of the list of “global” sectors. Indeed, a global network of institutions supplies the worldwide food markets. In this scenario, one of the major outcomes of the expansion of the global supply chain is the changing role of the local farm sector under the pressure of international competition. Contract farming and integrated supply chains are deeply transforming the structure of the agriculture and food industries. Besides, the advance of the biotech revolution and the introduction of genetically improved varieties have also fostered structural changes in the global industry. These systemic changes are linked to financial and trade flows largely driven by the search for wider markets and less expensive sources of raw material.

This process of globalization of capital in food production arises other problems related to the growth of investments in big projects led by investment funds and transnational companies that purchase land in various parts of the world in order to increase global production. In truth, these investments often expose small farmers to a situation of hunger and food insecurity by expelling them from the land where they live.

We invite you to send your comments to the  posted papers. Join the discussion !

Posted Papers 

Fast and integrated revision of agricultural risk management in Brazil

Diet Risks in Resource Rich Countries

Putting Social Justice First: The Case of Islamic Economics

The democratisation of access to land in Brazil between 2003-2015

Public procurement of family farming in Brazil

Food Sovereignty: A Strategy for Environmental Justice

What is Good to Eat? The Big Question of our Times

Technical Efficiency Analysis of Pineapple Production in the Eastern Region of Ghana: Data Envelopment Analysis (DEA) Approach

Cassava price volatility: evidence from Ghana

Land use conflict among vegetable farmers in Denu: Determinants, Causes and Consequences

Sustainable rural development index