The invisible hand is the term used by Adam Smith to describe the undesirable social benefits of an individual selfish action. The phrase was employed by Smith in connection with the distribution of income (1759) and production (1776). The exact phrase is used only three times in Smith's writings, but has come to grasp his idea that individual efforts to pursue their own interests may often benefit society more than if their actions directly intend to benefit society. Smith may have found two meanings of the phrase from Richard Cantillon that developed both economic applications in his model of isolated realities.
Smith first introduced the concept in Theory of Moral Sentiments, written in 1759, applying it in reference to the distribution of income. But in this work, the notion of the market is not discussed, and the word "capitalism" is never used. By the time he wrote The Wealth of Nations in 1776, Smith had studied the economic model of the French Physiocrats for many years, and in this work the invisible hand was more directly related to production, to capital work to support industry domestic. The only use of the "invisible hand" found in The Wealth of Nations is in Book IV, Chapter II, "Restrictions on the Import of Foreign Countries Such goods can be produced at Home. "
The idea of ​​trade and market exchange automatically channeling personal interests toward socially desirable goals is a central justification for the laissez-faire economic philosophy, which lies behind the neoclassical economy. In this sense, the central dispute between economic ideology can be seen as a dispute about how powerful the "invisible hand" is. In alternative models, the newborn strengths during Smith's lifetime, such as large-scale industries, finance, and advertising, reduce their effectiveness.
Video Invisible hand
Adam Smith
The Theory of Moral Sentiments
The first appearance of the invisible hand at Smith takes place in Theory of Moral Sentiments (1759) in Part IV, Chapter 1, where he describes a selfish landlord as being led by an invisible hand to share his harvest for those who work for him:
The arrogant and unfeeling landowner sees his vast field, and without thinking of the wishes of his brethren, in the imagination consumes all the harvest... [However] his stomach capacity is not proportional to the magnitude of his desire.. the rest will be obliged to distribute among them, who prepare, in the best way, the few that he himself uses, among those who fit the palace where this is little to eat, among those who provide and keep all the different knickknacks and trinkets used in the economy of greatness ; all of which come from a luxury and caprice, a part of the necessities of life, which they hopefully wasted from their humanity or justice... The rich... led by invisible hands to make the distribution of the necessities of life almost similarly, to be created, if the earth is divided into equal parts among all its inhabitants, and thus without any intention, without realizing it, promotes the public interest...
Elsewhere on The Theory of Moral Sentiments, Smith has described men's desire to be respected by the members of the community in which they live, and the man's desire to feel that they are respectable beings.
The Wealth of Nations
Adam Smith menggunakan metafora dalam Buku IV, Bab II, paragraf IX dari The Wealth of Nations .
But the annual income of every society is always exactly the same as the exchange rate of all its annual industrial output, or rather exactly the same thing as the exchange rate. Because every individual, therefore, makes every effort to use his capital in support of the domestic industry, and to direct industries whose products may have the greatest value, each individual is certainly the workforce to make an annual income of society as much as he can. He in general, indeed, does not intend to promote the public interest, or know how much he promotes it. By preferring domestic support for foreign industries, he only wants his own security; and by directing the industry in such a way that its product may be the greatest value, it only wants its own profit, and it is in this case, as in many other cases, led by invisible hands to promote the objectives not part of his intention. Nor is it always worse for the public that it is not part of it. By pursuing his own interests, he often promotes that society is more effective than when he really intended to promote it. I never knew much done by affected people to trade for the public good. This is a pretense, indeed, not very common among merchants, and very few words need to be used to deter them from it.
Other uses of the phrase by Smith
Only in The History of Astronomy (written before 1758) Smith speaks of the invisible hand, which the diversionists refer to the unexplained phenomena of nature:
The fire burns, and the water is refreshing; heavy bodies descending, and lighter substances flying upward, by necessity of their own nature; also the invisible hand of Jupiter who had been arrested to be employed in the matter.
In the Theory of Moral Sentiments (1759) and in The Wealth of Nations (1776) Adam Smith talks about an invisible hand
The rich... consume a little more than the poor, and regardless of their selfish selfishness and greed, even if it means only their own, even though the only goal they propose from the hard work of all the thousands of people they hire becomes gratuities of their own vain and insatiable desires, they share with the poor the result of all their improvement. They are led by the invisible hand to create an almost equal distribution of the necessities of life, which will be made, if the earth is divided into equal parts among all its inhabitants, and thus without any intention, without know it, advance the interests of society, and provide a means for species propagation. When the Announcer divides the earth among several lord rulers, he does not forget or leave those who seem to have been left in the partition. The latter also enjoys their share of all that it produces. In what is the real happiness of human life, they are by no means inferior to those who seem far above them. In the ease of the body and peace of mind, all the different levels of life are almost at the same level, and beggars, sunning by the side of the highway, have the security that the kings are fighting for.
Smith's visit to France and his acquaintance to French-based (known as the Physiocrats) changed his view of micro-economic optimization into macroeconomic growth as the end of Political Economy. So the greed of the landlord in Theory of Moral Sentiments is denounced in Wealth of Nations as unproductive labor . Walker, the first president (1885 to 92) of the American Economic Association, agrees:
The housekeeper... was not employed as a tool for his master's benefit. His master's income is not part of his work; on the contrary, the income was first earned... and in the amount of income determined whether the servants will be employed or not, while for the full level of the work, income is reduced. As Adam Smith discloses, "a man grows rich by employing many producers, he grows poor by keeping many abusive servants."
Smith's theoretical screening from a microeconomic point of view to a macroeconomics is not reflected in the The Wealth of Nations . A large section of the book is taken back from Smith's lecture before his visit to France. So we must differentiate in Macroeconomic and macro-economic Adam Wealth of Nations. Whether Smith's quote about invisible hands in his work is a micro-economic statement or a macroeconomic statement condemning government monopoly and interference as in the case of tariffs and patents is debatable.
Maps Invisible hand
Economists' interpretation of "invisible hand" quotes
The concept of "invisible hand" is almost always generalized beyond the original use of Smith. This phrase was unpopular among economists before the 20th century; Alfred Marshall never used it in his book of Principles of Economics nor William Stanley Jevons in his Theory of Political Economy. Paul Samuelson quotes it in the Economic textbook in 1948:
Even Adam Smith, the clever Scot, whose monumental book, "The Wealth of Nations" (1776), represented the beginning of modern economics or political economy - even he was so shocked by the recognition of an order in the economic system which he expressed the mystical principle of " invisible hands ": that every individual in the pursuit of selfish good is led, as if by an invisible hand, to achieve the best of all, so any interference with the government's free competition is almost certainly dangerous. This unsustainable conclusion has done almost as badly over the last one and a half centuries, especially as it is too often remembered most of our citizens, 30 years later, from their courses in economics.
In this interpretation, the theory is that the Invisible Hand states that if every consumer is allowed to choose freely what to buy and that every producer is allowed to choose freely what to sell and how to produce it, the market will settle on the distribution of useful products and prices for all individual members of a community, and therefore for society as a whole. The reason is that self-interest drives actors to beneficial behavior in case of chance. Efficient production methods are adopted to maximize profits. Low prices are charged to maximize revenue through profit in market share by cutting competitors. Investors are investing in the industries most needed to maximize returns, and attract capital from those who are less efficient at creating value. All of these effects happen dynamically and automatically.
Since the time of Smith, this concept has been further incorporated into economic theory. LÃÆ' Â © on Walras develops a four-equation common equilibrium model that concludes that private interests operating in competitive markets produce unique conditions in which the total utility of society is maximized. Vilfredo Pareto uses the edgeworth line contact line to describe similar social optimality.
Ludwig von Mises, in Human Action using the phrase "Invisible Salvation hand", referring to the period of Marx, means the evolution of meliorism. He does not mean this as a criticism, because he argues that secular reasons lead to the same conclusion. Milton Friedman, a Nobel Prize-winning economist, called Smith's Invisible Hand "possible co-operation without coercion." Kaushik Basu calls the First Welfare Theorem an Invisible Hand Theorem.
Some economists question the integrity of how the term "invisible hand" is currently used. Gavin Kennedy, Professor Emeritus at Heriot-Watt University in Edinburgh, Scotland, argues that its current use in modern economic thought as a symbol of free market capitalism can not be reconciled in the rather simple and erratic manner in which it is employed by Smith. In response to Kennedy, Daniel Klein argues that reconciliation is legitimate. In addition, even if Smith does not intend the term "invisible hand" to be used in the current manner, the ease of such a service should not be ineffective. In conclusion of their exchange, Kennedy asserted that Smith's intentions are of the utmost importance to the current debate, which is one of Smith's relationships with the term "invisible hand". If the term is to be used as a symbol of economic freedom and coordination as it has been in the modern era, Kennedy argues that it must exist as a completely separate construction from Adam Smith because there is little evidence that Smith contributed significantly to the term, much less the given meaning currently.
Former Professor of Political Economy at Oxford, D. H. MacGregor, Drummond argues that:
One case in which he refers to the 'invisible hand' is that private persons prefer trading home for foreign trade, and he argues that the preference is in the national interest, since he replaces the two domestic capitals while foreign trade is only replaced one. The argument of two capital letters is bad, because it is an important amount of capital, not part of it; but unseen sanctions are given to protectionist ideas, not for defense but for work. It is not surprising that Smith is often quoted in Parliament to support the Protection. The background, as we are today, is a private company; but non-intervention dogma by the government should make bad weather at The Wealth of Nations .
Harvard economist Stephen Marglin argues that while the "invisible hand" is "the most enduring phrase in the whole of Smith's work", it is "also the most misunderstood."
Economists have taken this part to be the first step in cumulative mainstream economic efforts to prove that competitive economies provide the greatest possible economic pie (the so-called first welfare theorem, which shows Pareto's optimality of the competitive regime). But Smith, evident from its context, has made a much narrower argument, namely, that the interests of entrepreneurs in the security of their capital will lead them to invest in the domestic economy even at the somewhat higher returns that may be available from foreign investment..A A.
David Ricardo.Ã,.Ã,. echoing Smith..,. [but] Smith's argument is at least incomplete, since it ignores the role of foreign investment in the domestic economy. It should be pointed out that the gains from UK capital from the preferences of British investors to Great Britain outweigh the losses for Britain from the preferences of Dutch investors to the Dutch and French investors to France. "
According to Emma Rothschild, Smith is really ironic in the use of the term. Warren Samuels describes it as "a means of linking modern high theories to Adam Smith and, thus, an interesting example of language development."
Understanded as a metaphor
Smith uses metaphors in the context of arguments against protectionism and government regulation of markets, but these are based on the very broad principles developed by Bernard Mandeville, Bishop Butler, Lord Shaftesbury, and Francis Hutcheson. Generally, the term "invisible hand" may apply to any individual action that has unplanned and undesirable consequences, especially arising from actions not governed by a central order, and which have observable and patterned effects on the community.
Bernard Mandeville argues that personal crime is actually a public advantage. In The Fable of the Bees (1714), he regrets that "bees of social virtue are buzzing in men's hats": that civilized man has stigmatized his personal taste and the result is a backwardness of good.
Bishop Butler argues that the pursuit of public good is the best way to advance his own good because they are identical.
Lord Shaftesbury changed the convergence of public and private good, claiming that acting according to personal interests produces socially beneficial results. The underlying unifying power called Shaftesbury as "The Will of Nature" maintains balance, harmony, and harmony. This power, to operate freely, requires individual pursuit of rational self-interest, and self-preservation and advancement.
Francis Hutcheson also accepted the convergence between public and private interests, but he linked his mechanism, not with rational personal interest, but to personal intuition, which he called "moral feeling." Smith developed his own version of this general principle in which six psychological motives combine in each individual to produce a common good. In The Theory of Moral Sentiments , vol. II, page 316, he says, "By acting in accordance with the command of our moral abilities, we are always pursuing the most effective means of promoting the happiness of mankind."
Contrary to common misconceptions, Smith does not suggest that all workers who are interested in themselves will benefit the community, or that all public goods are produced through self-sustaining labor. The suggestion is simply that in a free market, people tend to produce goods that their neighbors want. A common tragedy is an example where personal interest tends to bring undesirable results.
The invisible hand is traditionally understood as a concept in economics, but Robert Nozick argues in Anarchy, State and Utopia that substantively the same concept exists in a number of other areas of academic discourse of different names, especially Darwin selection natural. In turn, Daniel Dennett argues in the Dangerous Idea of ​​Darwin that this represents a "universal acid" that can be applied to a number of different-looking fields of philosophical inquiry (awareness and free will in particular).
Tawney's Interpretation
Christian socialist R. H. Tawney saw Smith put his name on an older idea:
If preachers have not openly identified themselves with the natural human view, expressed by the eighteenth-century writers in words, commerce is one thing and religion is another thing, they imply a conclusion that is not so different from their silence about the possibility of a collision between they. The peculiar doctrine is one, in fact, leaving little room for religious teachings for economic morality, as anticipated theory, then exemplified by Adam Smith in his famous reference to the invisible hand, which sees in the economic interests of the operation of a definite plan. The commandment, except as far as the brief imposition of the disturbing Government, is the order of nature, and the commandment of nature is the commandment of God. The most educated people, in the middle of the [eighteenth] century, will find their philosophy expressed in the Pope's lines:
- So God and Nature form a common frame,
- And bade self-love and social being the same.
Of course, again, such an attitude precludes a critical examination of the institution, and abandoning it as a sphere of Christian charity are only parts of life that can be reserved for philanthropy, precisely because they fall outside the wider territory of normal human relations, personal interests provide very adequate motives and rules of conduct. ( Religion and the Resurrection of Capitalism , pp. 191-192.)
Criticism
Joseph E. Stiglitz
Nobel Prize-winning economist Joseph E. Stiglitz, said: "The reason that the invisible hand often looks invisible is that it is often not there." Stiglitz explains his position:
Adam Smith, the father of modern economics, is often cited as arguing for "invisible hands" and free markets: the company, in pursuit of profit, is led, as if by an invisible hand, to do what is best for the world. But unlike his followers, Adam Smith is aware of some of the limitations of the free market, and research has since made clear why the free market, by itself, often does not lead to what is best. As I put it in my new book, Making Globalization Work, the reason that the invisible hand often looks invisible is that it is often not there. Whenever there is an "externality" - in which one's actions impact on others who are not paid, or that are not compensated - the market will not function properly. Some important examples have long understood environmental externalities. The market, by itself, produces too much pollution. The market, by itself, also produces too little basic research. (The government is responsible for financing most important scientific breakthroughs, including the Internet and the first telegraph channels, and many advances in bio technology.) But recent research shows that this externality is pervasive, whenever there is imperfect information or imperfect risks. market - it always is. The government plays an important role in banking and securities regulations, and a number of other areas: some rules are needed to make the market work. Government is required, almost all will agree, at least to enforce contracts and property rights. The real debate today is about finding the right balance between market and government (and the third "sector" - government nonprofit organization.) Both are necessary. They can each complement each other. This balance differs from time to time and place to place.
Previous claims are based on Stiglitz's 1986 paper, "Externalities in Economics with Immodest Information and Incomplete Markets", which describes a common methodology for dealing with externalities and for calculating optimal corrective taxes in the context of general equilibrium. In it he considers the model with household, company and government.
Perusahaan memaksimalkan laba , di mana y f adalah vektor produksi dan p adalah vektor harga produsen, tunduk pada , G f fungsi produksi dan z f adalah variabel lain yang mempengaruhi perusahaan. Vektor produksi dapat dibagi menjadi .
Pemerintah menerima pendapatan bersih , di mana t = (q-p) adalah pajak atas barang yang dijual ke rumah tangga.
It can be shown that in general the resulting equilibrium is inefficient.
Noam Chomsky
Noam Chomsky states that Smith (and more precisely David Ricardo) sometimes uses the phrase to refer to "house bias" to invest domestically as opposed to offshore outsourcing production and neoliberalism.
Rather interesting, these issues are foreseen by the great founders of modern economics, Adam Smith for example. He acknowledges and discusses what will happen to Britain if the owners obey the sound economic rules - now called neoliberalism. He warned that if British manufacturers, merchants and investors switched abroad, they might profit but Britain would suffer. However, he feels that this will not happen because his master will be guided by the bias of the house. So as if by the invisible hand of England will be spared from the damage caused by economic rationality. That part is quite difficult to miss. This is the only occurrence of the famous phrase "invisible hand" in Wealth of Nations, in criticism of what we call neoliberalism.
Stephen LeRoy
Stephen LeRoy, professor emeritus at the University of California, Santa Barbara, and a visiting scholar at the Federal Reserve Bank of San Francisco, offers a critique of the Invisible Hand, writes that "[T] he is a proposition of the most important in economic theory, first stated by Adam Smith, is that competitive markets do a good job of allocating resources. (...) The financial crisis has prompted debate about the right balance between markets and governments and prompted some scholars to question whether the conditions assumed by Smith... are accurate to the economy modern.
Computational model of phenomenon
Tadeusz Szuba, the model author for the collective intelligence phenomenon, proposed the theory - that Adam Smith's invisible hand metaphor is an occurring phenomenon that can be formalized, simulated and most likely used to propose new tools for analyzing and predicting future markets.
The proposed theory claims that the invisible hand is a symptom of the existence of another dimension of the market, which is computational. The market and its agents are not aware of this, because only a piece (s), or result (s) of these symptoms can be observed. In this dimension, market properties and agents create complete and programmable computers on the agent's brain platform and the physical structure of the market. This computer is self-contained programming and because it exists and functions on the market-agent's brain platform, the results of calculations are expelled through the brains of agents and represent themselves as market behavior. This calculation is chaotic, distributed, parallel, and non-continuous, with interleaving threads of different calculations.
This calculation is driven by:
- the abstract value assigned to objects and services
- calculations and logical conclusions.
What is fundamental to the emergence of this computational dimension, is that market agents can provide value to objects, services and actions, be able to consciously build chain of conclusions, and be able to convert conclusions into business actions.
According to this theory, the invisible hand is much stronger and more universal than Adam Smith and contemporary economists believe. The invisible hand exercises market control on several levels: in terms of production and consumption (balance optimization); in the case of a new discovery (technical market optimization); in terms of social behavior (social market optimization), such as modifying and discovering new rules of market behavior. It is hoped that this discovery could lead to the creation of new tools and models for market analysis and prediction, compared to current macroeconomic models.
See also
- Books
- Articles
References
Bibliography
Further reading
- The Theory of Moral Sentiments (full text)
- The Wealth of Nations (full text)
External links
- Oslington, Paul (2012). God and the Market: Adam Smith's Unseen Hand //JSTOR
Source of the article : Wikipedia
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