09.28.08
Invisible hand theories, markets, and economies
Having critiqued Wilson I wouldn’t necessarily disagree with the need for regulation. That’s not my point. Although I take seriously a number of left views on economies, I certainly would not reject out of hand ‘invisble hand’ thinking for the functioning of markets, not entirely. Note the distinction, economies and markets. The term ‘inivisible hand’ is loaded, and is, ironically, a design term like natural selection, used to refer to a supposed mechanical process. Be that as it may, the point, it seems, in Adam Smith’s reasoning is that attempts to overcontrol markets backfires. Leave them alone, more or less. Whether that is true or false, it applies to markets, not to economies which are generalized associations of economic agents in a cultural context. Those agents have policies and recommendations about how markets should function, and inject policy recommendations into the cultural economy, which then influence markets, on the basis of human decisions and/or consensus agreements in that cultural economy. The result, along with the institutions to accompany those decisions, are the ‘economy’, and that is larger than the market.
Thus an economy is a set of two schema:
1. the free agents who decide how markets should be set up
2. the resulting functioning of those markets.
Note how theorists omit factor #1, and presume to say that the mechanics of markets explains the whole. And then they presume to theorize freedom away in a statement of laws, and then, amazingly, apply all this to evolution in general. It’s not true that market mechanics explain that whole.
Consider the difference. Make a list of all the economies that have existed since, say, the Neolithic, or even the Paleolithic economies trading in obsidian. Note the relationships of factor #1 and factor #2. Note the obvious point. Purely capitalist ‘free markets’ have only existed since the Industrial Revolution. And the innovation we call capitalism, although gestating priorly, is thus a recent novelty, which resulted in part from the recommendations of policy agents. From people like Adam Smith. The trade inobsidian was probably the last unregulated market. With the rise of civilization the factor of regulation arises. The onset of capitalism was also associated with decisions by economic agents to lessen that regulation, to create artificially ‘free’ markets. And that set of initial conditions is the result of decisions of policy. Thus, against the backdrop of history, capitalist free markets are the result of regulation, that brand of it called ‘deregulation’. Thus derugulation is itself a form or regulation. !!
The point is that we don’t have a single continuous stream called the ‘evolution of markets’, but a broken up cultural stream consisting of the intervals of particular economies setting up finite intervals of ‘markets’.
You must have two theories of evolution then: the evolution of markets and the evolution of the cultural economies.
This difference explains why we are suddenly puzzled when the demand for regulation arises. We are free agents who flipped the switch on free markets, and might well need to flip them off. It is we, in the cultural economy, who must judge the behavior of markets, and change our decisions about them accordingly. The initial conditions of those market laws, are, wow, human decisions of the economic agents themselves.
Consider the case of Milton Friedman, an extreme version of the market/economy fallacy. He has the best math to explain markets. But what is he up to? Fascist coup in Chile to set the initial conditions for the kind of market he prefers!! Talk about regulation!
James said,
November 5, 2008 at 11:57 am
“Although I take seriously a number of left views on economies, I certainly would not reject out of hand ‘invisble hand’ thinking for the functioning of markets, not entirely. Note the distinction, economies and markets. The term ‘inivisible hand’ is loaded, and is, ironically, a design term like natural selection, used to refer to a supposed mechanical process. Be that as it may, the point, it seems, in Adam Smith’s reasoning is that attempts to overcontrol markets backfires. Leave them alone, more or less.”
Can you elaborate on your views here? Would you say that we haven’t seen the “free market” system that Adam Smith intended and hence we haven’t seen the idea’s true potential?