Skip to main content

Three things you thought you knew about economics

Great post by Robert Vienneau who correctly claims that the three propositions below are well-established, namely :
"1. Adam Smith did not use the phrase "The invisible hand" to refer to the optimality properties of a static general equilibrium supposedly brought about by the workings of competitive markets. 
2. Thomas Carlyle did not coin the phrase "The dismal science" to refer to Thomas Malthus's anti-utopian theory of population. According to that theory, human population responds endogenously to increased prosperity, thereby making impossible any rapidly established, long-lasting general rise in per capita income beyond the custom and habits of mankind. 
3. John Maynard Keynes, in The General Theory of Employment, Interest, and Money, did not explain widespread and persistent unemployment by sticky, rigid, or slowly adjusting money wages and prices - a pre-Keynesian theory that, in fact, he opposed. Many economists, I claim, teach the opposite of these propositions. 
(...) 
It seems to be a quixotic and never-ending task to oppose demonstrably false statements about economics, often made by economists."
It is absolutely true. I would even say the majority of economists teach the opposite. I have insisted more on 3 here, but 1 and 2 are equally true, and 1 at least as important as 3. I should probably use this in my history of thought lectures from now on.

Comments

  1. Matías, what was actually the meaning and intent of Smith's phrase of "invisible hand"? (En español, el significado y qué quiso decir realmente Smith con esa frase?) Gracias.
    Pablo

    ReplyDelete
  2. The meaning is, in a strict sense, that those pursuing their self-interest, end up benefiting society as a whole. However, self-interest does not produce optimal allocation of resources (e.g. full employment of labor or capital), since that is actually alien to Smith's theory. Further, behavior for Smith is constrained by class, and in that sense the need to accumulate, that drives capitalists to produce, leads to the surplus that allows for the reproduction of the system.

    ReplyDelete
  3. In his words: "by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

    ReplyDelete

Post a Comment

Popular posts from this blog

What is the 'Classical Dichotomy'?

A few brief comments on Brexit and the postmortem of the European Union

Another end of the world is possible
There will be a lot of postmortems for the European Union (EU) after Brexit. Many will suggest that this was a victory against the neoliberal policies of the European Union. See, for example, the first three paragraphs of Paul Mason's column here. And it is true, large contingents of working class people, that have suffered with 'free-market' economics, voted for leaving the union. The union, rightly or wrongly, has been seen as undemocratic and responsible for the economics woes of Europe.

The problem is that while it is true that the EU leaders have been part of the problem and have pursued the neoliberal policies within the framework of the union, sometimes with treaties like the Fiscal Compact, it is far from clear that Brexit and the possible demise of the union, if the fever spreads to France, Germany and other countries with their populations demanding their own referenda, will lead to the abandonment of neoliberal policies. Aust…

A brief note on Venezuela and the turn to the right in Latin America

So besides the coup in Brazil (which was all but confirmed by the last revelations, if you had any doubts), and the electoral victory of Macri in Argentina, the crisis in Venezuela is reaching a critical level, and it would not be surprising if the Maduro administration is recalled, even though right now the referendum is not scheduled yet.

The economy in Venezuela has collapsed (GDP has fallen by about 14% or so in the last two years), inflation has accelerated (to three digit levels; 450% or so according to the IMF), there are shortages of essential goods, recurrent energy blackouts, and all of these aggravated by persistent violence. Contrary to what the press suggests, these events are not new or specific to left of center governments. Similar events occurred in the late 1980s, in the infamous Caracazo, when the fall in oil prices caused an external crisis, inflation, and food shortages, which eventually, after the announcement of a neoliberal economic package that included the i…