I think they learnt that the whole issue is not easily as simplified as the market failure asserted in the classroom.
Always let the man have his last word, though. He worked years of his life, greyed his hair, stayed away from home, and temporarily gave up on family to do what he does now. It’s very hard to become a PhD, moreso in an area like risk management.
Since he is a Russian, I am not surprised he used “You are talking about the invisible hand”*, and he’d probably have done a Pravda style “This is neoliberalism!” on you. They are still very angry about the forced market reforms in Russia and cheer every time a crisis happens in the US.
*another sign of Das Adam Smith Problem, the man who plagiarised and set back economics tremendously by copying ideas he didn’t understand, giving anti-marketers all the leverage with his idiotic “invisible hand” rhetoric.
I knew of Rothbard’s critique of Adam Smith, but I don’t remember any accusations of Adam Smith copying ideas ‘he didn’t understand’. I must look that part up again. (I remember the plagiarism accusation, but not that Adam Smith didn’t understand the ideas he was copying.)
I don’t get the problem with the invisible hand rhetoric by the way. It’s relatively clear what Adam Smith means by it: self-interest, in the correct institutional environment, creates stuff for other people.
You are, by the way, aware that traditionally ‘das Adam Smith Problem’ is used for a different problem? (Just checkin’; I’m sure you do.)
From what I remember in the endnotes of that wonderful article, Das Adam Smith Problem refers to not just one kind of Adam Smith problem. There are some other contradictions in Smith’s work, but post-1970s, Smith’s idolization has come down.
It’s just that invisible hand is a very very bad analogy. No free marketer ever believed millions of humans interacting create some perfect natural harmony. It’s all about rapid reception and response to information, and learning from loss, failure, and mistakes.
I prefer Joseph Schumpeter’s Creative Destruction, which reflects the rapid chaos from which we humans learn, act, and build. The word Marginalism also captures that sense of real life capitalism, where we know that there is no perfect solution, but only giving up a little to gain a little.
Marginalism and Creative Destruction are what builds human civilization.
It’s not as much of an analogy as it is an empirical generalization.
‘Hey, this process actually works pretty well. It is as if someone is guiding it. But the awesome thing is: it is not!’ It doesn’t imply ‘perfect natural harmony’, nor does Adam Smith portrait it like that.
Well; the original Das Adam Smith Problem refers to the so called gap between his moral and economic writings. I don’t know of any other generally acknowledged use of the term.
He is substituting his idea of what the risk and return would be for the idea of what the risk and return would be of the entrepreneur. If the risk and return from the point of view of the lender was the same for the poor and rich person, they would be indifferent as to who to lend to. So what he is saying is that the damn entrepreneurs have the bizarre notion that poor people are less able to pay back their loans than rich business people, and that the government has to step in and fix their arbitrary discrimination! So what makes him think that he knows who will pay their loans back better than the lender would?
The fact that he just said straight up that they have the same risk and return and didn’t even reveal that he was switching up the points of view from the entrepreneurs to himself just shows where his ideas came from. If he had noticed that he had changed the points of view, he might have realized how unsubstantiated his views were. He would have noticed that he just asserted the basis of his whole argument, and didn’t give anything resembling an explanation for it!
It’s because the rhetoric is used to accuse economists os being nutcase puritans by likening the “invisible hand” to God, as many pro-market writers actually did (and do). The market is God’s Plan, and the economist’s only argument against socialism is that God’s Plan is Right, no matter what that plan may be. If the “invisible hand” wills children to starve to death then that is the way things should be, and all those who try to save them are blasphemers.
Of course this isn’t even what Adam Smith meant, but that doesn’t stop people who use this from being annoying. Though I can’t really say I blame Smith for it, if he hadn’t used the “invisible hand” idea then they would have just come up with another cowardly rhetorical tactic to use in its place.
Believing in the existence of God, Smith could not help tracing back all earthly things to him and his providential care, just as later the Catholic Bastiat spoke of God’s finger.[2] But in referring in this way to God neither of them intended to make any assertion about the ends God may want to realize in historical evolution. The ends they dealt with in their writings were those aimed at by acting men, not by Providence. The pre-established harmony to which they alluded did not affect their epistemological principles and the methods of their reasoning. It was merely a means devised to reconcile the purely secular and mundane procedures they applied in their scientific efforts with their religious beliefs. They borrowed this expedient from pious astronomers, physicists, and biologists who had resorted to it without deviating in their research from the empirical methods of the natural sciences.
Oddly, you don’t generally find the mildly indulgent religious references of Galileo, Newton and Wallace being pounced upon by these same leftist critics.