Beyond the Invisible Hand

Beyond the Invisible Hand: Groundwork for a New Economics

Kaushik Basu
Copyright Date: 2011
Pages: 312
https://www.jstor.org/stable/j.ctt7rv3c
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    Beyond the Invisible Hand
    Book Description:

    One of the central tenets of mainstream economics is Adam Smith's proposition that, given certain conditions, self-interested behavior by individuals leads them to the social good, almost as if orchestrated by an invisible hand. This deep insight has, over the past two centuries, been taken out of context, contorted, and used as the cornerstone of free-market orthodoxy. InBeyond the Invisible Hand, Kaushik Basu argues that mainstream economics and its conservative popularizers have misrepresented Smith's insight and hampered our understanding of how economies function, why some economies fail and some succeed, and what the nature and role of state intervention might be. Comparing this view of the invisible hand with the vision described by Kafka--in which individuals pursuing their atomistic interests, devoid of moral compunction, end up creating a world that is mean and miserable--Basu argues for collective action and the need to shift our focus from the efficient society to one that is also fair.

    Using analytic tools from mainstream economics, the book challenges some of the precepts and propositions of mainstream economics. It maintains that, by ignoring the role of culture and custom, traditional economics promotes the view that the current system is the only viable one, thereby serving the interests of those who do well by this system.Beyond the Invisible Handchallenges readers to fundamentally rethink the assumptions underlying modern economic thought and proves that a more equitable society is both possible and sustainable, and hence worth striving for.

    By scrutinizing Adam Smith's theory, this impassioned critique of contemporary mainstream economics debunks traditional beliefs regarding best economic practices, self-interest, and the social good.

    eISBN: 978-1-4008-3627-7
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. PREFACE
    (pp. ix-xviii)
  4. CHAPTER 1 In Praise of Dissent
    (pp. 1-15)

    By most counts, the world is a better place today than it was in ancient times. First and foremost, we have the comforts that come from our greater collective wealth. But even apart from that, we do not live in perpetual fear that another nation’s marauding army will come and take away our land and belongings. When we return home from dining out, we do not expect to find that strangers have broken in and occupied our homes. The physically weak do not have to be reconciled to being economically destitute. There are numerous rights of individuals and nations that...

  5. CHAPTER 2 The Theory of the Invisible Hand
    (pp. 16-23)

    Smith’s novel theory was that the free market system is like an invisible hand that can unobtrusively coordinate the behavior of a multitude of individuals, interested only in maximizing their own selfish utility, so as to bring about efficiency and a socially optimal outcome. Smith did not put it in those words, but he discussed this basicideain several places in his classic book. For instance, he pointed out how in making economic decisions, each person “intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an...

  6. CHAPTER 3 The Limits of Orthodoxy
    (pp. 24-54)

    To stay away from the familiar criticisms of the Invisible Hand Theorem, let us shed for now whatever objections we may have to the idea of Pareto optimality and pretend that a Pareto optimal outcome is sufficient for the outcome to be considered good. Let us also assume that individuals are atomistic and not strategic, so the competitive model is a valid depiction of reality. With these distractions out of the way, the Invisible Hand Theorem seems to become the gospel according to market fundamentalists eager to banish the state and allow individuals to pursue their own self-interest, unhindered.

    But...

  7. CHAPTER 4 The Economy according to Law
    (pp. 55-76)

    “Someone must have slandered Josef K., for one morning, without having done anything truly wrong, he was arrested” (Kafka 1998, 3). Thus begins one of the great novels of the twentieth century: Franz Kafka’sThe Trial.

    There was something oddly mysterious about the men who came to arrest K.

    “What sort of men were they? What were they talking about? What office did they represent? After all, K. lived in a state governed by law, there was universal peace, all statutes were in force; who dared assault him in his own lodgings?” (6).

    That morning, arrested by taciturn, emotionless characters,...

  8. CHAPTER 5 Markets and Discrimination
    (pp. 77-96)

    There is a view, propagated by conservative intellectuals, that free markets and unfettered capitalism reduce discrimination. Permit capitalism to flourish unhindered, and not all at once but gradually we will see racism and discrimination wither away, somewhat like the way white vinegar diluted with water, left standing without further interference, makes some of the worst residues and crusts on glass vanish. Milton Friedman (1962) advocated this viewpoint vociferously in hisCapitalism and Freedom. Talking about “minority groups” that, according to Friedman, benefited most from this property of capitalism but failed to understand it, he argued, “They have tended to attribute...

  9. CHAPTER 6 The Chemistry of Groups
    (pp. 97-129)

    Our sense of self or identity can influence our social, economic, and political behavior. There are people willing to lay down their lives for their flag, boycott products that they believe are produced by an enemy people, and take actions that hurt themselves but hurt people of another religion or ethnicity even more. While there may be ways to contort the traditional models of economics and society to explain such behavior, the more reasonable method is to make explicit room for the individual’s sense of group identity in our models. This requires us to step beyond the bounds of methodological...

  10. CHAPTER 7 Contract, Coercion, and Intervention
    (pp. 130-156)

    In 1995, soon after I moved to the United States, I got a letter from a lawyer in California requesting me to write a letter to a California Supreme Court judge in support of his client. Not being sure of the ethics of such matters, I will not reveal any names. His client, Mr. X, had been approached by an entrepreneur, Mr. R, for a loan of five hundred thousand dollars in order to open a restaurant. They agreed to an annual interest rate of 12 percent and a schedule of repayment in installments. For quite some time R paid...

  11. CHAPTER 8 Poverty, Inequality, and Globalization
    (pp. 157-179)

    The efficiency and fairness of a market economy are intricately connected to the nature of governance and institutions for collective action available to society. This was the subject matter of the opening chapters of the book. The emphasis is on the word ‘intricately,’ since this connection is far from obvious, and ideologues on either side of the debate tend to underestimate the complexity of it. On the one hand, we have the Invisible Hand Theorem, which shows how individuals going about serving their own interests can end up creating an efficient society that serves their collective interests. By drawing on...

  12. CHAPTER 9 Globalization and the Retreat of Democracy
    (pp. 180-192)

    Wars are often waged in the name of democracy and freedom. This happened recently in Iraq, and it happened earlier in Vietnam. But when one accounts for the human toll of the firepower used in some of these theaters of war, it takes a handsome amount of gullibility to believe that wars are indeed in the interests of freedom and democracy in the nation being bombed. A unique data set collected by the U.S. military gives us what is arguably the most comprehensive account of the bombing of Vietnam. Here is a summary.

    The Indochina War, centered in Vietnam, was...

  13. CHAPTER 10 WHAT IS TO BE DONE?
    (pp. 193-212)

    What is to be done? In answering this question, I have to disappoint the reader. This is a book that, in keeping with Marx’s famous and slightly pejorative description of philosophical works, tries to interpret our social and economic world, not change it.¹ It tries to lay the groundwork for a manifesto, but cannot pass for one. If it seems radical, that is only because so much of what passes for interpretation and description of the world in the social sciences is a Panglossian justification for the current system, the distribution of power as it presently is, and the status...

  14. NOTES
    (pp. 213-234)
  15. REFERENCES
    (pp. 235-258)
  16. INDEX
    (pp. 259-273)