- Jan 2021
Preparatory remarks on the concept of an invisible hand: 1. The concept of an invisible hand plays a vital role in Karl’s analysis, even though Smith refers to it explicitly only twice in his two major books, once in The Wealth of Nations, and once in The Theory of Moral Sentiments(2005 ). 2. While there is no generally agreed-upon definition of what is meant by an invisible hand, we shall employ the approach of Ullmann-Margalit (1978), which even Samuels (2011, 291) appears to regard as above reproach.
By the nature of their profession, economists are often asked to expound on the appropriate role of government. In my opinion The Hand Behind the Invisible Hand provides us with a platform to discuss one of the most pressing issues of our time, namely the appropriate role of government.
When any system is replaced by another, as in the Soviet system of command being replaced by a market system, the new system will require appropriate institutions. The dogmatic view on free markets is the view that such institutions would emerge of their own accord without the visible hand of government.
free market argument. The belief that the emergence of such institutions requires deliberate planning amounts to the pragmatic free market argument. The requisite institutions have to be created by the visible hand of government.
Further explanation of the difference behind pragmatic and dogmatic free market.
If the hand behind the invisible hand is also invisible, we have invisible hands operating, as it were, at different levels. The signalling device at the individual dimension (let’s call this Level 1) will be the price system. If the hand behind the invisible hand is also invisible, then the HUMS explanation amounts to the claim that the system is spontaneously generating the kind of institutions (Level 2) necessary for the invisible hand to operate at Level 1. We would then have spontaneous or unintended order at Level 1 and Level 2.
Interesting introduction of the different levels at which the Invisible hand operates - Level 1 - individual dimension (Burning man) and Level 2 - institutional arrangements (Rules, Order, Planning, Organization). If the order (Level 2) that emerges at Level 1 is spontaneous and unintended then the hand behind the invisible hand is also invisible. Here, it is also introduced the 'price system' as a term. For now, I cannot understand how exactly are the price system and Level 1 interrelated.
We have thus an example in which the hand behind the invisible hand is visible, in line, therefore, with Mittermaier’s presentation of the pragmatic view in which humans deliberately decide upon an institutional framework within which an invisible hand is supposed to operate. If, however, we were to argue that the appropriate institutional arrangements would have emerged of their own accord, in other words without such planning, Mittermaier would classify us among the ranks of the dogmatic free marketeers. For a dogmatic free marketeer, the hand behind the invisible hand is also invisible.
The difference behind a pragmatic and dogmatic free market - in a pragmatic market - the hand behind the invisible hand is visible, whereas in a dogmatic market - the hand behind the invisible hand is also invisible.
Two hands appear in Mittermaier’s title and at least one is invisible. Is the other also invisible? By considering answers to the question, Mittermaier classifies a stance on the free market as either dogmatic or pragmatic.
What is considered a dogmatic market? What is considered a pragmatic market?
Mittermaier asks the question, does the institutional setup also emerge spontaneously via an invisible hand? As the 1996 watershed year specification makes clear, a decision was made to insist on arrangements deliberated upon with an idea to prevent chaos. In other words, in terms of Mittermaier’s argument we could say that in the case of the Burning Man event, the hand behind the invisible hand is visible, which amounts to a pragmatic rather than a dogmatic stance on the emergence of the institutions involved.
In the initial highlights I asked the question of what a pragmatic stance on the free market doctrine means and this highlights a general answer to my question.
An invisible hand process is at work if individual human action results in some sort of order that was not specifically designed by those individuals pursuing their own ends. But in order for the invisible hand to operate well, institutions need to be in place for otherwise the human action at play could result in chaos (no order at all).
and institutional structures (street layout, fire prevention measures, moral codes etc) ensure that some sort of order prevails. The hand behind the invisible hand is visible.
The economist Paul Romer, who attended the 2019 event, was quoted in the New York Times as saying:I picture an economist showing up at Burning Man and saying: ‘Oh, look! This is the miracle of the invisible hand. All of this stuff happens by self-interest, and it just magically appears.’ And there’s this huge amount of planning that actually is what’s required beneath it to make the order emerge.
Practical/contemporary explanation of the idea behind the 'invisible'hand'
We have a means of identifying what an invisible hand is all about without necessarily using the terms invisible or visible. And should we find it more convenient to do so, we can associate an invisible hand argument with either a spontaneous (Hayek) or an unintended (Otteson) order.
more positive-sounding term spontaneous order than the more mystical-sounding invisible hand. Others, however, prefer to use another term. ‘I prefer the term “unintended order” to the more familiar “spontaneous order” because the former conveys that the system of order was not anyone’s intentional design without suggesting, as “spontaneous” might, that there is no way to account for the creation of the system’ (Otteson 2002, 6; see also Otteson 2007, 21).
The importance of accountability is implied by introducing the term - "unintended order".
Hayek is thus informing us that the framework of our analysis should include institutions that are ‘The results of Human Action but not of Human Design’.
Hayek notes that if we confine our arguments to the natural and artificial realms confusion is bound to ensure: ‘... one would describe a social institution as “natural” because it had never been deliberately designed, while another would describe the same institution as “artificial” because it resulted from human action’ (Hayek 1967, 130)
Preparatory remarks on the concept of an invisible hand: Suppose we identify an order in human affairs. On further investigation we ascertain that although the regularity came about as a result of human action, it did not arise from human deliberation. In other words, the order did not arise from human design. Under such conditions, says Ullmann-Margalit (1978, 263), we have an invisible hand explanation. She refers to this realm of things that results from human action but not from human design as a middle realm (1978, footnote 2) and cites Hayek (1966 and 1960) as her source. An example that comes most readily to the fore as an invisible hand explanation is the one associated with the creation of money (Ullmann-Margalit 1978, 264) or the emergence of language.
Suppose we identify an order in human affairs. On further investigation we ascertain that although the regularity came about as a result of human action, it did not arise from human deliberation.
Part of ''Preparatory remarks on the concept of an invisible hand". It continues - In other words, the order did not arise from human design.
The Hand Behind the Invisible Hand can be seen, in part, as an interpretation of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (commonly referred to as The Wealth of Nations), which appeared in 1776.
The main purpose of the book is to interpret the 18th century book of Adam Smith - An Inquiry into the Nature and Causes of the Wealth of Nations (commonly referred to as The Wealth of Nations).
In an age of frequent upgrades and instant downloads, it is nice to come across a work of art containing an ancient line of thought and a modern message.
A nice quote by Christopher Torr - a member of the Department of Economics in the School of Economics and Finance at the University of Witwatersrand.
- Paul Romer
- Visible hand
- Institutional arrangements
- Pressing issues
- Spontaneous order
- Invisible hand
- Free market
- Unintended order