Economics = ID?

James K. Galbraith attempts a smackdown on economics:

Economists, on the other hand, have been Intelligent Designers since the beginning. Adam Smith was a deist; he believed in a world governed by a benevolent system of natural law. Consider this familiar passage from Wealth of Nations, published in 1776, with its now mostly forgotten anti-globalization flavor:

"By preferring the support of domestic to that of foreign industry [every individual] 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…. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

Smith's Creator did not interfere. He simply wrote the laws and left them for events to demonstrate and man to discover. The greatest American economist, Thorstein Veblen, observed that "the guidance of…the invisible hand takes place…through a comprehensive scheme of contrivances established from the beginning." What is this if not Intelligent Design?

Answer:  It is just the opposite of intelligent design:  spontaneous order.  The invisible hand is not a reference to some deity, some designer, but is a metaphor for the individual person's self interest which he acts to promote and it is these decentralized and personalized acts that create economic order without intelligent design.

More than a century later, economics has not escaped its pre-Darwinian rut. Economists still don't understand variation; instead they write maddeningly about "representative agents" and "rational economic man." They still teach the "marginal product theory of wages," which excuses every gross inequality faced by the laboring poor. Alan Greenspan even recently resurrected the idea of a "natural rate of interest" to justify raising rates, though that doctrine had been extinct for 70 years. Economists still ignore the diversity of actual economic and social life. They say little about forms of ownership and the distribution of power, and almost nothing about how pointless product differentiation and technical change now shape and drive the struggle for survival among firms.

Regarding the "gross inequality faced by the laboring poor:"  Prof. Galbraith must be referring to things such as minimum wages, lack of the existence of/respect for private property rights, and government corruption that limit the creativity and choices of "rational economic man." 

Futhermore, why are product differentiation and technical change both "pointless?"  People are not the same and do not necessarily want exactly the same product as their neighbor.  One of the beauties of capitalism is that we do not all have to have, for example, black cars.  Instead, technological change and the trial and error process that is competition have made it profitable to paint the multitudes of styles of cars many different colors.

HT to Division of Labour.

Update:  I'd be remiss if I didn't quote from this wonderful essay by Steve Horowitz's entitled "On Social Snowflakes" which was inspired by this gorgeous picture of a snowflake. 

My fervent wish for the 21st century is that more smart and caring people can begin to see and appreciate "social snowflakes." People who are so willing to accept the existence and beauty (and benevolence!) of undesigned order in the natural world should be more willing to open themselves to the possibility that there are processes of undesigned order at work in the social world too. These people know that no one can make a snowflake, but seem blind to the fact that much of the innocent blood that was spilled in the last century was because too many people thought they could intelligently design the social world. Not repeating those mistakes will require a renewed aesthetic appreciation of, and deep desire to understand, the awesome beauty and complexity of the undesigned order of "social snowflakes."

Lynne Kiesling at Knowledge Problem has this post on emergent order without central direction.

I made another batch of Hot and Sour soup today, a recipe I blogged about here.  Tonight I thought about the processes that made the various ingredients and cooking utensils available to me so that I could make the soup as well as the entree' (beef and onion stir fry) that my family enjoyed tonight.  I don't even know when I bought the stuff I used and I certainly didn't know a single person in the vast chain of actions that got the stuff to my home.  I don't know when I'll need to resupply my various stocks either, but one thing is almost certain:  I'll have no problem finding what I want.

I like to look at the night sky.  I have a pair of binoculars, a spotting scope, and a small reflector telescope that I use to look at stars, galaxies, etc.  Doing so makes me wonder about the processes that shaped the world around me and while it may not be quite as romantic or picturesque, the processes that brought food to my Powerkids' mouths tonight are just as wonderful.

Comments

[EclectEcon]

Thorstein Veblen, the greatest American economist? That's enough to cast anything else he wrote into question. What about Friedman, Samuelson, or Miller?

[Phil Miller]

Miller? Ahem. :-) I'd place Banaian a few spots above me. Did you know that Veblen spent some time at ol' Mizzou? He hated it. Here's a link to a biography... see the listing 1911-1918.

http://de.geocities.com/veblenite/biography.htm