One of the main advantages of our proposed science of SORAnomics over Economics is that is based on moral philosophy which is, in turn, part of metaphysics or the study of the abstract principles of things. The most famous abstract thing in SORAnomics is Adam Smith’s invisible hand metaphor, brought up but unfortunately misinterpreted by Samuelson*, and has since been unjustly blamed for bad things about the economy and has even been denounced by some economists.
*Samuelson's wrong interpretation might be attributed to what Hume calls a tendency of the mind to readily connect ideas without reflection
As seen in the video, the immediate problem is that the invisible hand that most people think about is the one defined by Samuelson, not Smith:
Smith proclaimed the principle of the ‘invisible hand’. It says that every individual, in selfishly pursuing only his or her personal good, is led, as if by an invisible hand, to achieve the best good for all. In this best of all possible worlds, any interference with free competition is certain to be injurious. (Samuelson)
Of course, the fallacy with Samuelson’s definition is the word ‘selfishly’ which does not equate to ‘self-interest’. This is because Smith’s ‘self-interest’ here ultimately equates to taking care of oneself:
The habits of oeconomy, industry, discretion, attention, and application of thought, are generally supposed to be cultivated from self-interested motives. They are apprehended to be very praise-worthy qualities, which deserve everybody’s esteem and approbation. The mixture of a selfish motive often sullies the beauty of those benevolent actions. However, this is not because self-love can never be the motive of a virtuous action. It is because the benevolent principle in this case appears weak and altogether unsuitable to its object.. We would pity a man who would not take that proper care of his health, life, or fortune which should be prompted by his self-preservation. (Simple TMS, Part 7, Chap 3)
Therefore to Smith:
Self-Interest = One’s interests in life, one of which is being healthy
Self-love = Selfishness
There is nothing immoral about wanting to live or exist or being healthy or keeping one’s money safe. There is nothing wrong in wanting to eat to stay alive or in a rescuer putting a rope around himself first before jumping in a river to save a drowning man. Existence becomes immoral only if it is done at the expense of the existence of others. It seems some authors after the time of Smith and Hume (probably Bentham and Mill) took the words ‘self-interest’ and ‘self-preservation’ and diverted both into a selfish direction, removing virtue or anything of natural goodness from their definition.
Even the ‘self-interested’ commerce described by David Hume is ultimately founded on promises, which are then founded on common interests, or the interests of everyone:
This self-interested commerce begins to take place and predominates in society. But it does not entirely abolish the more generous and noble intercourse of friendship and good offices. I can still do services to persons I love and know, without any prospect of advantage. They may make me a return in the same way, with just the view of recompensing my past services. To distinguish the interested commerce from the disinterested one, the interested commerce is called a promise. A promise is the sanction of the interested commerce of mankind. When a man promises anything, he expresses a resolution to perform it. By using the word ‘promise’, he subjects himself to the penalty of never being trusted again in case of failure.. Interest is the first obligation to the performance of promises. Afterwards, a sentiment of morals concurs with interest, and becomes a new obligation on mankind.. This sentiment of morality in the performance of promises, arises from the same principles as the sentiment in the abstinence from the property of others..The obligation of promises is an invention for the interest of society. (Simple Treatise, Book 3, Sec 5 Promises)
‘Never being trusted again’ would make one’s position in society precarious, which in turn would endanger one’s self-preservation. Thus, Samuelson’s invisible hand is unnatural because it totally ignores morality in the form of the obligation of promises (Hume), or, which is the same thing as the ignorance of virtue required for self-preservation in society (Smith).
When you invest $1 million with an investment bank or institution, you are relying on a promise that the bank will keep or grow its value, or for the bank to have the virtue of prudence, otherwise you would not invest in the first place. The huge loss of nominal value during the 2008 Financial Crisis is a proof that Samuelson’s invisible hand has no virtue, nor the morality of promises. The absence of the obligation of promises in turn is an indication that the sentiment in the abstinence from the property of others is missing, which is of course a trait common to greedy people and is a vice, not a virtue. A person breaks promises to gain an unfair advantage. Thus, establishing Samuelson’s invisible hand as a policy or economic philosophy would be as absurd as establishing falsehood and broken promises to gain unfair advantages as standard economic behavior. If honesty or truthfulness is the best policy, then greed and deception are the worst. The prevalence of financial crises and crashes can be viewed as an obvious effect of Samuelson’s invisible hand, which has been taught in schools and universities.
Having used Smith and Hume to destroy Samuelson’s invisible hand, we then ‘do a Hume’ in the next post and break down the complex idea of Smith’s invisible hand to its basic ideas to be able to make a conclusive definition of it to clear up any confusion and ambiguity.
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