Thursday, October 08, 2015


It is asserted:
"Adam’s Smith’s “invisible hand” of the marketplace is perhaps the single most captivating metaphor in all of economics. The idea that all of society can be made better off by the self-interested behavior of its constituents was revolutionary for its time, and it undergirds free-market philosophy to this day.
But a growing chorus of economists are taking issue with the degree to which we put our faith in free markets, and just how far the invisible hand can take us as a society.
Nobel-prize winning economists, George Akerlof and Robert Shiller take up this mantle in their latest book, "Phishing for Phools: The Economics of Manipulation and Deception". The central argument of the book is that though free markets bring wonderful bounties to societies that embrace them, they also yield negative consequences that can be avoided with intelligent modifications. They write:
"We see the cornucopia that free markets have delivered. But just as every coin has two sides, so do free markets. The same human ingenuity that produces the cornucopia also goes into the art of the salesman. Free markets produce good-for-me/good-for-you’s; but they also produce good-for-me/bad-for-you’s. They do both, so long as profit can be made. The free market may be humans’ most powerful tool. But like all very powerful tools, it is also a two-edged sword.
The book offers powerful support for a skeptical view of free markets, but it’s also a helpful guide for consumers to avoid getting ripped off in the course of making important purchases." There are five dangerous scenarios Akerlof and Shiller present in their new book: “Phishing for Phools: The Economics of Manipulation and Deception”. Princeton University Press.
What a strange world we live in. First, the authors completely misrepresent what Adam Smith wrote about the “Invisible Hand” (it was not about how free markets work). His first use of the “captivating metaphor” was about the “pusilanimous superstition of Roman citizens” who believed that their stone image of “Jupiter” represented their credulous beliefs in their god firing thunder bolts from his "Invisible hand” at enemies of Rome, two thousand years ago (From Adam Smith’s posthumous “History of Astronomy”, published in 1795 — Smith died in 1790). 
Second, it referred to rich landlords in agricultural societies, feeding their slaves, serfs, and agricultural labourers from the produce that their landless servants were forced to produce by the landlords’ unsympathetic overseers, which had the unintended,overall consequence that such violent regimes promoted (unintentionally) the “propagation of the species”.
Thirdly, Smith referred to the unintentional consequences of some owners of capital investing said capital domestically rather than risk sending it abroad for overseas investnment. Said consequences included adding their capital to “domestic revenue and employment” (known today as domestic GDP).  Said unintentional consequences benefitted domestic revenue and employment, considered as public benefit.
It had nothing to do with “all of society can be made better off by the self-interested behavior of its constituents”, nor was it “revolutionary for its time”, even though it might “undergird free-market philosophy to this day”.  
Smith said nothing about its alleged contribution to “free-market philosophy”.  Indeed, it was a simple arithmetic consequence of the motivated actions of such owners of capital. It was not a general law of economics, free or otherwise.
Nobel-prize winning economists, George Akerlof and Robert Shiller’s latest book ”Phishing for Phools: The Economics of Manipulation and Deception” is based on a modern invented assertion that Smith claimed something that he didn’t.  Indeed, Smith in Books 1-4 of Wealth of Nations gives over 60 specific examples of owners of capital acting against “free markets”, the more famous being tariffs, prohibitions, and restrictions on imports, and even state-sponsored wars and the Navigation Acts, plus their conspiracies to restrict competitive markets.  He also warned that to believe that free trade would ever be established was to believe in “Utopia”, but urged steps towards them despite the machinations of selfish "merchants and manufacturers".

“Phishing for Fools” applies first to all those who preach that Smith had such a notion of a magical and miraculous “invisible hand”, as Akerlof and Shiller present it.   He didn’t.  He was very clear how "merchants and manufacturers" in his day manipulated the economy (now continued at all levels by many capitalists in our day)
The “invisible hand” was not about the wonders of markets in a utopian sense. It was a metaphor for the motives of those who intentionally acted and how their actions could lead to  unintentional consequences, some beneficial and many that were not (see Book 4 of WN to get a taste for Smith’s realistic assessments of the range of negative unintended consequences common in markets. George Akerlof and Robert Shiller should know these truths.  Most of the profession apparently do not. 
Calling it "phishing" is imaginative and will sell their book, but Smith wrote about it in detail in the 18th century. Misinterpreting Smith's use of the metaphor of an "invisible hand" is the real "phishing".

Wednesday, September 23, 2015


PAS president Abdul Hadi Awang asks his political rivals: HERE
“If you can accept communism, why not Islam?”
Similarly, he said the people accepted BN, MCA and MIC which promotes capitalism, an ideology pioneered by the Englishman Adam Smith.”
From  an ambitious Asian politician seeking to govern his country he demonstrates his ignorance of history and  facts. 
The obvious response is to note that Adam Smith was never an “Englishman” - he was born in 1723 in Kirkcaldy, in Fife, a county in Scotland, making him a Scotsman. He occasionally lived in England but never long enough to be confused as an Englishman, spending most of his life in Scotland.
Moreover, Smith never “pioneered capitalism” - he never knew the word ‘capitalism, which was first used in English in William Thackeray in 1854 in his novel,The Newcomes, issued in weekly parts from 1853-55. 
The Oxford English Dictionary, considered an authority on the English language, credits William Makepeace Thackeray for the first published use of the word ‘capitalism’ in his novel, “The Newcomes” (1853-55), though it is clear from its context that this refers to finance capital, rather than to a ‘system’. Financiers in 19th century novels tended to get a bad press; see also Trollope’s ‘The Way We Live Now’. 
Archival Note:
From “Lost Legacy”, 9 February, 2007:

“The origin of the word ‘capitalist’ is of much earlier vintage: in French, A. R. J. Turgot (1727-1781) used ‘capitaliste’ in his essay, ‘Reflection on the Formation and Distribution of Wealth’ (1769-1770), and William Godwin used its English version, ‘capitalist’, in his Political Justice (1794).”

Sunday, September 06, 2015


My apologies for the absence of posts since mid-August, but my domestic situation continues, and may do for some weeks yet.

My wife is in hospital though I hope she will return to our home in a few days or so. Complications in her treatment necessitated her hospitalisation since the last days of August.

While the family have rallied round, which has been most comforting, my attentions to Blogging have been minimised, at least so far has posting, or writing generally. There is queue of potential posts forming an orderly line and my recently drafted essay awaits my attentions.

Thank you


Friday, August 21, 2015


The Chinese Stock Market Crash is it because of "The Invisible Hand"
“A former hedge fund manager, MBA prof & expert witness on investments” writes HERE
The short answer is that the invisible hand not only caused the stock market crash, but that, when the market is working properly, the invisible hand causes EVERY crash... along with every change in stock market prices.  The basic thesis of the invisible hand, as coined by Adam Smith, is that markets of all kinds (stocks, groceries, energy) further the common good by incentivizing people to deliver goods and services that society wants.  Assuming the market is operating rationally, the hand has caused this crash by pulling capital out of the market, having determined that the future goods and services sold by companies in this market will not have the profits previously expected (although there is also the possibility that investments elsewhere have become more desirable).
The “invisible hand” was never a thesis “coined” by Adam Smith. 
Long before Adam Smith was born the “invisible hand” was used regularly in the 17th century - and before then too. It was used by Smith ONLY three times - twice without reference to markets and the third time as a metaphor for domestic capital investment arithmetically adding to what we now call GNP. 

Markets do not operate “rationally”. They are operated by human beings and like governments, also operated by human beings, they make many mistakes and misjudgements, including by people who quite “rationallly” act for selfish purposes closer to failure and often criminality than to the benefit of other people. The future ifsnot “determined”, nor known, and people in futures markets are no better than gamblers making guesses, much like tipsters in the horse racing business, usually with other people's money.

Tuesday, August 18, 2015


“Joann” on Easy Blog posts a Blurb (Feb 15 2014) from the respected publisher, Wiley HERE
“The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money” by Steven Drobny.
“Smith postulated it is the magic of the invisible hand of a free market that best distributes economic resources and best energizes the people and industry and innovation. Feb 10, 2014:  In his preface to the new edition of The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money (Wiley, 2014) Steven Drobny.
Of course there is always a market in selling books, and ‘confidential insiders’ newsletters from those claiming to be in “the know because of their experience”. The old wisdom postulates that a “man with money meets a man with experience. The man with experience ends up with the money, while the man with the money ends up with the experience”.
A load of gibberish inventively misquoting Adam Smith is no guide to making a fortune listening to "insiders". 

Smith never referred to the “magic of the invisible hand”, nor that there was an “invisible hand of the free market”, and not even that it “best energizes the people and industry and innovation”. These three claims are utterly untrue, though widely believed.
My new essay: “Adam Smith on Self Betterment, the Invisible-Hand, Human Actions, intended and Unintended Consequences”, addresses exactly what Smith said about his use of the "invisible hand" metaphor. It should be available shortly after September/ October.

Tuesday, August 11, 2015


Oscar Williams-Grut posts on Business Insider (3 Aug)
The second phenomenon is the insane level of government intervention in the markets. Here's Sweeney: "In China a very visible heel can stomp on the invisible hand of financial markets.
Chance Kinnet posts (11 August) on ChipChick: HERE 
Is HTC About To Go Bust?”
“Essentially, it’s the invisible hand of the free market becoming visible just long enough to give HTC the finger.
Nerd Wallet posts on Nasdaq (10 August) HERE
“None of this is intended to disparage fee-only planning. Rather, my aim is to dispel the notion that any compensation model is morally and ethically superior and to encourage you to keep in mind the presence of Adam Smith’s “invisible hand” when evaluating various advisor compensation models.”
Essentially each of these loony posts have something in common. They refer to the alleged presence in markets of a supposed invisible entity that for certain purposes can become visible to people.
1. How does the Chinese "very visible hand of the state" know where to "stomp" an entity that is invisible?
2. How does an invisible hand become visible long enough to be seen?
3. How does an investor "keep in mind" something invisible when "evaluating" compensation models?
Conclusion: their advice is inoperable and a waste of money paying for it.

Saturday, August 01, 2015


“Nannus” posts (12 July) on “Embassy of the Future” HERE 
Being Strangeled by the Invisible Hand
“Earsto1” posts (22 July)  HERE  ““Your Invisible Hand”
A message for all future and current Big West soccer players.
When playing soccer, make sure to never use your invisible hand that grows out your left rib, because you will be called for handball.
Tim Watter posts (1 August) on Reddit HERE 
“The "Invisible Hand" Of The Market Is Slapping The Poor Into Senselessness”
To which a comment is added by a reader: 

“The invisible hand of corporate fascism slapping the market into senselessness, actually.”