11.05.08

Free markets, and economics (updated)

Posted in Critique of Evolutionary Economy at 5:15 pm by nemo

updated.
James comments on Invisible Hand Theories, Markets And Economies

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?

The passage you cite is an adaption from World History And The Eonic Effect, where a careful distinction is made between historical dynamics in general, and economic dynamics in particular. I can deal with a figure such as Marx, but remain critical of the theoretical claims for historical materialism in his sense, which, in various forms, claims an economic determination for historical evolution. The eonic effect shows something much different.
Next, the discussion here too often assumes a close connection between economic function (markets) and Darwinian evolution, or evolution in general, but the analogy is false, the original bane of evolutionary theory.
The question of markets is difficult. Adam Smith is essentially the source of the ‘market ideology’ rampant currently, but at one and the same time his thinking was broader, less ideological, and counterbalanced with a series of views his descendants no longer honor. His usage of the term ‘invisible hand’ is not enough to reach a conclusion about anything, since, in fact, he hardly uses the term.
The developments of economic theory, especially after the marginal revolution at the end of the nineteenth century, are highly mathematical, and misleading, in the sense that the methods of physics and engineering don’t really apply to economic systems. But the flood of such models makes such a statement almost a lost cause, as the mystique of mathatical mantra chanting at a very high level mesmerizes the public and keeps non-technical critics at bay. Milton Friedman’s mathematical economics is now being discredited, after being almost dogma for such a long time.
As far as the real potentiality of markets is concerned, the evidence at this level is mixed, the famous Arrow-Debreu theorems about maximizing markets being arcana of the esoteric economics profession.
Discussions of markets mostly omit the obvious, that modern market systems are highly designed, from many angles, and regulated to greater or lesser degree. Thus strictly speaking the idea of ‘free markets’ is an illusion. The mantra of the ‘invisible hand’ has thus only subjective status as a perception from experience of the relative efficiency, subject to many contradictions, or relatively unregulated markets.

So it is hard to really deal with this issue, because the jungle of ideology mixed with math is almost impenetrable. Check out Philip Mirowski’s books on this (look at Amazon), or Kuttner’s critique of the subject. The differential equation was designed for physics, its application to economies is open to challenge at step one. As we see currently the system has never been understood in those terms, or conclusively analyzed or predicted by economic theory.
The current mix of biology and economics shows the experts don’t know what they are talking about finally, so what can I say. I have no prestige as a counter-expert to expose the game.
My remarks about the left were merely that the challenge of a figure such as Marx is important, but his theory wasn’t much better than anyone else’s. He is, one might note, attacked for the labor theory of value, but that was created by Adam Smith. Marginal economics performed the magic of ridding the world of Marx’s theory almost as soon as it was published, to the bewilderment of most leftists.
It’s a big hard-on about using calculus to do economic theory. It is possible to argue that economists are suffering from physics envy (Mirowski) and mostly aping the Big Boys with bits and pieces of this and that, like the raindances of shamans….

As to historical theory, I recommend the eonic effect and its model: it actually works, at least as a descriptive map.
The book I am thinking of is
Against Mechanism (Hardcover)
by Philip Mirowski (Author)
This must be a reprint, with an alarming increase in price.
Check out the good Amazon review:
Neoclassical Economics as Outdated Physics:

This book opened up my eyes to the very real possibility in the myth or absense of any universal economic law. The methods employed for either justifying or empirically proving concepts like diminishing marginal utility or comparative advantage are standards that have been borrowed from a now defunct and thoroughly untenable scientific research program. One will finish this book thinking to himself “why do scientists and philosophers get to have all the fun?” It is time that economists really begin revolutionizing or subverting their current paradigm in hopes of finding a better and more useful alternative.

Read the whole thing.
Also, if you read about the Arrow-Debreu theorems, you get the impression of something solidly established.
It was my understanding from pursuing the work on it that the conditions are highly stylized, making this ‘propaganda’ for markets a bit deceptive, and highly technical.
Note: I certainly didn’t mean to dismiss Marx. He was the first to point the problem with all these economic models, and the ideologies they serve!!

Kuttner’s book is Everything For Sale.
I notice that I reviewed it several years ago.

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