Friday, July 07, 2017

How To Ruin a Good Piece on the History of Economic Thought

Following an informative account of the gradual realisation by early writers on how prices changed from vaying patterns of the supply of goods and the demand for them, illustrated by both John Locke (1691) and Sir James Steuart (‘An Inquiry into Principles of Political Economy’ (1761), Halder Ali Sindhu posts (7 July) in the Daily Pakistan HERE
“Careem’s peak pricing and John Locke’s philosophy"
“Later, Adam Smith dealt extensively with the topic in his 1776 epic work, “The Wealth of Nations.” Smith, often referred to as the father of economics, explained the concept of supply and demand as an “invisible hand” that naturally guides the economy.
Adam Smith did no such thing. 
Halder Ali Sindhu would know just how wrong this statement is if he had read Wealth of Nations, or had read even the single paragraph in which Smith mentioned the ‘invisible hand’ in WN: IV.ii.9 p 456).
That paragraph had next to nothing to do with supply and demand. It was about a merchant who was self-motivated to avoid foreign trade in favour of investing his capital in domestic trade. The consequence of his domestic investment was to serve his intentions to trade profitably.
There were other consequences noted by Smith. In serving his self-motivated intentions to invest locally he was ‘led by an invisible hand’ to also unintentionally benefit the public good.
By the simple obvious fact that his self motivated actions also added to gross domestic investment, irrespective of his self-motivated actions, but which public consequences were also a public benefit.
The simultaneous consequences of his actions was that his invested capital added to domestic aggregate gross domestic investment, which was a public benefit.
Now this conclusion of Adam Smith was so obvious to his early readers that NONE of them commented upon it, until the 1870s when a few did, and hardly any others up to 1948, when Paul Samuelson, later a Nobel Prize winner, published what became his runaway best-seller Econ 101 textbook, Economics (McGraw-Hill). After 5 million sales and 18 editions it transformed the innocent metaphor of ‘an invisible hand’ into the now infamous mysterious, miraculous, power allegedly at work in the world’s economies.

Halder Ali Sindhu innoncently passes Samuelson’s monumental error on in his article, but then thousands of others also do the same daily - even hourly - in the world’s media, and, sadly, in our supposed senior academic professional journals.


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