Sunday, September 21, 2008

The Invisible Hand

For those of us who have studied economics, they will be familiar with the guru Adam Smith. The father of economics, had a vision which seems to persist to the present day and influences government policy. Known as "the invisible hand" Adam Smith put all his faith in the virtue of a mystical force that would guide the economy for the good of everybody if only governments would not interfere. Hence the "invisible hand" became the credo for the free market economy. Even after the Great Crash of 1930 and the lessons of Keynesian economic policy were learn't, economists still held on the the notion of the "invisible hand" much like a religious follower will believe in the holy spirit despite the absence of any proof.

With the meltdown of the US economy occurring because of the poor performance of banking sector, we are faced with the need to re-evaluate the notion of the free market and the idea of the invisible hand.

The world will now have to wait for the emergence of a new economics guru who will explain to us what is happening and where we went wrong. Until then, we are bound to suffer the consequences of international economic meltdown.
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Culturist John said...


Culturist John said...


This catastrophe was not caused by the invisible hand. Though not an economist, I have been studying this here situation. It was largely caused by democrats pressuring banks to make loans to low income minority applicants. Fannie Mae was set up to facilitate this. It had lower rates to that end. This gave them an edge in the middle of the market which pushed legit lenders to fight for sub-prime folks.

Any input from economic historians would be appreciated.

Lexcen said...

Here is a response by Ron Paul, who still believes in the invisible hand and blames the government for interfering in the economy.
Personally I've never been completely convinced on the "invisible hand" ideology.

Culturist John said...

Lex, for God's sake, you have to get over your aversion to believing in things you cannot see!

BTW I was musing on the culturist implications of the gullibility of children. We are programmed to receive culture as youths. An aspect of this is the actual belief in Santa Clause.