"[ ... ] Smith's faith in the benefits of 'the invisible hand' has absolutely nothing whatever to do with allocative efficiency in circumstances where competition is perfect a la Walras and Pareto; the effort in modern textbooks to enlist Adam Smith in support of what is now known as the 'fundamental theorems of welfare economics' is a historical travesty of major proportions. For one thing, Smith's conception of competition was, as we have seen, a process conception, not an end-state conception. For another society, a decentralised competitive price system was held to be desirable because of its dynamic effects in widening the scope of the market and extending the advantages of the division of labour - in short, because it was a powerful engine for promoting the accumulation of capital and the growth of income."In today's terms, in some ways, I would see Smith as more "Austrian" than "neoclassical".
Blaug, Mark 1996. Economic Theory in Retrospect. 5th edn. 60-1. Cambridge: Cambridge University Press.
Thursday, 24 November 2011
Blaug on Smith
Given the recent deaths of both Mark Blaug and Andrew Skinner I was reminded of this comment by Blaug on Adam Smith and the "invisible hand",