Tuesday, April 27, 2010

Again the invisible hand: I just can't get enough (amv)

„The man of system […] seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of ist own, altogether different from that which the legislature might choose to impress upon it. If those principles coincide and act in the same direction,the game of human society will go on easily and harmoniously, and is very likely to be hapyy and successful. If they are opposite, or different, the game will go on miserably, and the society must be at all times in highest degree of disorder.“

(Adam Smith, Theory of Moral Sentiments, 1759, VI.2)
„As every individual, therefore, endeavours as much as je can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his security; and 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. I have never known much good done by those affected to trade for the public good.“

(Adam Smith, Wealth of Nations, 1776, IV:2)
„In civilized society [man] stands at all times in need of cooperation and assistance of great multitiudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown to maturity, is entirely independent, and ist natural state has occasion for the assistnace of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and to show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. ‚Give me that which I want, and you shall have this which you want‘, is the meaning of every such offer.; and it is in this manner that we obtain from one another the far greatest part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own neccessities but of their advantages.“

(A. Smith, WoN, I.2)
„This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.“

(A. Smith, WoN, I.2)

„[…] nations stumble over upon establishments, which are indeed the result of human action but not the result of human design. […] The forms of society are derived from an obscure and distant origin; they arise, long before the date of philosophy, from the instincts, not from the speculations of man […]. We ascribe to a previous design, what came to be known by experience, what no human wisdom could foresee, and what, without the concurring humour and disposition of his age, no authority could enable an individual to execute.“

(A. Ferguson, An Essay on the History of Civil Society, 1767)
„The main point is neither to extinguish nor to enfeeble self-love, but to give it such direction that it may promote the public interest by promoting ist own […]. The proper design of this chapter is to show that the universal mover in human nature, self-love, may receive such a direction in this case (as in all others) as to promote the public interest by those effects it shall make towards pursuing ist own.“

(J. Tucker, Elements of Commerce, 1756)
„Adam Smith‘s ‚invisible hand‘ is a poetic expression of the most fundamental of economic balance relations, the equilization of rates of return, as enforced by the tendency of factors to move from low to high returns.[...] Smith also perceived the most important implication of general equilibrium theory, the ability of a competitive system to achieve an allocation of resources that is efficient in some sense. Nothing resembling a rigorous argument for, or even a careful statement of the efficiency proposition can be found in Smith, however. [...] Thus, it can be maintained that Smith was a creator of general equilibrium theory, though the coherence and consistency of of his work may be questioned. A fortiori, later systematic expositors of the classical system, such as Ricardo, Mill, and Marx, whose work filled some of Smith‘s logical gaps, can all be regarded as early expositors of general equilibrium theory. [...] There is, however, a very important sense in which none of the classical economists had a true general equilibrium theory: None gave an explicit role to demand relations."

(Arrow, Hahn 1971: 1-2)