Thursday, 10 March 2011

Changing certain aspects of BBC radio 4 one cross pedantic letter at a time!

Steve Fritzinger (who was on Business World the other day) is probably a bit nuts, but that's by way of background. I guess he's one of those folks who thinks the free operation of baseball would be much improved if we just removed all those pesky rules, not to mention the regulatory interference of the diamond, the bat and ball, and the players arms and legs, and just let the BASEBALL ITSELF flourish.

I don't mind Steve Fritzinger being a bit nuts. I don't have the patience today to argue with the impression he gave, deliberately or not, that markets spring into being independently of regulatory environments.

All I want to say is that Steve should stop cosying up to poor Adam Smith. It is exactly this kind of snuggly cosying manoeuvre which sets him rolling in his grave. To pick on just one detail, the supposed centrality of the invisible hand to Smith's work -- well, I can find the phrase "invisible hand" just once in The Wealth of Nations. Here's the quotation:

"[...] As every individual, therefore, endeavours as much as he can, both to employ his capital in the support of domestic industry, and so to direct that industry that its produce maybe of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it [...]"

Smith intends his "invisible hand" as a bit of flowery ornamentation. It is not a concept worked out in any detail. It is not an appropriate metaphor for the price mechanism, and it is not suggested by Smith as such.

In fact, Smith's enthusiasm here is quite muted: he says "nor is it ALWAYS the worse" for the society that an end promoted was no part of the intention; he says that the individual who pursues his own interest only "FREQUENTLY" promotes that of society. He does not chastise "trade for the public good," only the artificial pretence or "affectation" of such trade -- the worst side of Corporate Social Responsibility green-washing, you might say.

Anyway, notwithstanding some gestures towards a more general case, Smith is basically talking about something quite specific: investment in the domestic economy. That is the context of the invisible hand. He's not talking about supply and demand or firms in perfect competition or anything like that. He is certainly absolutely not talking about international banking and global capital flows. Smith's invisible hand leads capital to by and large stay put. Is that what your invisible hand does, Mr Fritzinger?

A big invisible middle finger to you.


PS: The baseball thing is an exaggeration, of course, but no more egregious than the patronising infantilising & slightly creepy way Steve personifies the "poor free market." "It has very few friends these days." Markets have never needed very many friends, so long as the "friends" they do have are tremendously rich and powerful. Steve is probably not nuts, just a bit set in his ways. They are ways which are beneficial to tremendously rich and powerful people.