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Keen – inequality, power and the invisible hand

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Steve Keen on the invisible hand

This following is an extract from pp.76-77 of Keen, S. (2011). Debunking economics: the naked emperor dethroned? (Rev. and expanded ed.). London; New York: Zed Books Ltd.

The extent to which economic theory ignored crucial issues like the distribution of wealth and the role of power in society leads many to extend a conspiracy theory explanation of how economics got into this state. Surely, they argue, economic theory says what the wealthy want to hear?

I instead lay the focus upon the teleological vision to which economists have been committed ever since Adam Smith first coined the phrase ‘an invisible hand’ as an analogy to the workings of a market economy. The vision of a world so perfectly coordinated that no superior power is needed to direct it, and no individual power sufficient to corrupt it, has seduced the minds of many young students of economics. I should know, because I was one…

Last updated 10 September 2014

1 response

  • David Harold Chester says:

    So where has it gone wrong? Steeve Keen has not give us much help here, and the correct reason is a somewhat long story. The theory of the invisible hand still applies, although today it is surely tempered and distorted by a degree of monopolistic control in certain industries, resulting in the produce not being distributed within a properly competing framework.

    That such monopolies are possible, and that they can spoil the idealistic vision of Smith, is a matter for more thought and analysis. It is associated with the way that opportunity to work is controlled by the ownership and use of the natural resources, particularly the land.

    Since Smith proposed his three factors of production the influence of the big organizations has worked to eliminate the concept of land being distinct from capital, thereby making the adverse role of the industrial barons a lot less easy to discern. The economist chiefly responsible for this dis-information was John Bates Clerk whose was active at the turn of the nineteenth century. Up to then the Smithian model was supported by such profound economists as David Ricardo, Kark Marks, Henry George, Malthus, etc.

    Since the era of Clerk, and with the beginnings of diagramatic models of our social system, starting with Knight and his 2-sector (householder and labourer versus producer and capitalist) presentation, the whole matter of the significance of the land has become hidden.

    I think Steven Keen knows better than this, and he should be one to say so. Students should become better aware of the degree with which speculation in the land values associated with their monopolization raise production costs, reduce demand and increase unemployment.

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