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.”

Wednesday, July 29, 2015


I regularly receive comments from readers, which are always welcome. Most are published, excepting those inviting readers to sex contacts (we were ‘bombed’ a few years back, hence the use of Moderation) and those that are commercial with no connection to the History of Economic Thought. 
In this connection I would welcome readers passing on news of new books and articles on Adam Smith and others, which I would feature on Lost Legacy.
A recent readers from 2007 comments on my post of 20 September, 2007: “A Misleading Quotation Exposes the Ignorance of the Quoter”
I re-post a couple of paragraphs from my original post.  They encapsulate my ideas from the early days of “Lost Legacy”.  I think they are still relevant.
“Those hunting societies in Europe and the Near East 8,000 to 10,000 years ago, after the last ice-age, that formed small settled societies, developed civil governments among which problems they faced was who lived where in the settlements. This required the invention of the role of private property. Without such a concept they could never have developed shepherding (Adam Smith’s second age of mankind) to solve the elementary problem of who owned which deer, sheep, pigs or cattle, and they would never have gone on to develop agriculture (Adam Smith’s third age of mankind), from which, as they say, the rest is history.

Now there may be some (I’ve certainly met a few) who regret the long run consequences of that fateful decision of individuals to abandon relying on hunting towards the end of the ice-age and starting mankind, unknowingly and unintentionally, to create the recent history of mankind as we know it. There are even some still surviving who would welcome the end of property, though they wish to retain all the appurtenances of civilisation at the same time. I admire their self-sacrifice of the lives of billions of humans, including themselves, who would never have been born if the ragged survivors of the last ice-age had reverted to hunting as many did in the rest of the world and were found in the same state they were in when the descendants of the pastoral and farming tribes found them from the 15th to the 18th century.”

Tuesday, July 21, 2015


A former student of mine at Edinburgh Business School, where I taught the MBA Business Negotiation Elective from 1989-2005, has written (20 July) in The Times of Malta HERE: 
“Its All Greek to Me”:
“In my student days I followed closely the writings of Gavin Kennedy, professor at Edinburgh Business Schools.
In his book, The New Negotiating Edge, he writes: “Many authors present negotiating as a choice of manipulative ‘tactics’ and aggressive ploys, delivered by the so-called ‘tough’ wise guys: the red style. In the real world negotiation is not so simple. No matter how ‘tough’ you try to be, waiting round the corner is a tougher guy.”
Here is a short piece I wrote coincidentally earlier today for my former company’s (Negotiate Ltd) Blog:
“The Greek Negotiations: Between a Rock and a Hard Place".
Does the dragging out of the negotiated conclusion, as typified by the long-saga of the Greek-EU negotiations, have interesting lessons for everyday business negotiations?
As with cease-fire and peace negotiations between countries at war, neither side aims to end-up as the loser. Hence, long-drawn out negotiations between warring parties tend to change track due to the each side’s changing fortunes on the battlefield. Sudden successes/reverses in their battlefield fortunes stiffen resistance or weaken their earlier demands, prolonging their negotiations.
Likewise, debtors have problems proportionate to their impossible or unfair creditor’s demands, but their creditor’s demands lose force if their debtors are so broke that they refuse to pay anything at all. Their creditors lose everything if their debtors walk away from their creditor’s demands and their debtors will walk if the pain of near bankruptcy is only marginally less worse that their total bankruptcy.
Negotiators realise these shifting, subjectively-judged boundaries to which they and their partners are bound, and which can be reflected in their mutually threatening rhetoric that might shift one side or the other to react negatively, even if mutually self-destructively, in the heat of a defiant moment. 
The sudden resignation of Yani Varouakis, the Greek Finance Minister, signalled a shift in the deadlock in favour of the EU, and a pending Greek climb down to their resignation of accepting other terms they might otherwise have gotten if the prospect of a unilateral default to the mutual detriment of both parties had remained on the table. 
During the negotiations each side had the comfort that the otherside will also be damaged by a default, but when default is immiment, each side is only concerned with the cost to themselves from their own electorate. The cost to the other side is of little comfort domestically.

Greece blinked first. Therefore, its pain continues for the foreseeable future. What its electorate will think of the severe consequences in a few months or years is unknown, as is the real cost of their blinking.”


John Halsted (15 June) HERE 
12 Things Pagans Should Know About the Pope’s Environmental Encyclical”
“Yesterday, the Pope’s historic environmental encyclical was published.  The document is almost 200 pages long, which means that most of us won’t read it, at least not all of it.  So here are 12 things Pagans should know about the Pope’s environmental encyclical …
9.  The Pope calls for a “radical change” in our understanding of the economy and progress.   (¶ 171)  He condemns the “deification” of the market” (¶ 56) and a “magical conception of the market” (¶ 190) (referring apparently to the “invisible hand”).”

For someone who claims a special line to God he shoild know the source of belief in “miraculous” invisible hands is a purely human belief on much the same scale of belief in Gods. In fact, the metaphor of the invisible hand was widely known among theologians and a few authors long before Adam Smith used it (twice + once as a noun on his Works) in the second half of the 18th century (see Peter Harrison, Journal of the History of Ideas, 2014).

[GK: My domestic emergency continues preventing my regular posting on Lost Legacy for now]

Thursday, July 09, 2015


JunDalisay posts (9 July) HERE  “Why Profit Maximisation is absurd”
“A key fallacy that is inseparably part of Economics is the idea of profit maximization. But the idea of maximization has its origins in Newton’s Calculus which in turn has its origins in Physics. Smith and Hume never mentioned maximization nor calculus anywhere in their writings on the political economy. In fact, the Wealth of Nations has no equations at all!  So how in the world did it enter and be so fundamental to Economics?
We trace its entry into economic thought through the marginal revolution, specifically with WS Jevons who combined JB Mill’s flawed utilitarianism philosophy (the pursuit of private pleasure) with Calculus.
“PLEASURE and pain are undoubtedly the ultimate objects of the Calculus of Economics. To satisfy our wants to the utmost with the least effort—to procure the greatest amount of what is desirable at the expense of the least that is undesirable—in other words, to maximise pleasure, is the problem of Economics.” WS Jevons
In essence, this combines a bad philosophy with a mathematical tool that is not meant for humans. Mathematics applies to physical, unconscious objects which have no free will, and not to human minds which can change drastically. Through math, you can predict precisely where a ball will fall, but you can never accurately predict a person’s actions, much less those of a society through numerical data. If the latter were possible, then there would be no such thing as recessions, wars, and terrorism. If the latter were possible, then it would mean everything in existence is predetermined, which in turn would destroy the need for existence.”

Read the article. It comes at Adam Smith from a different angle to 99% of others you will read.  I agree with much, but not all, of it but you may be less enthusiastic to read Smith from a different angle, especially on the modern post-1948, false assertions by Paul Samuelson of Adam Smith’s use and meaning of the invisible-hand metaphor.