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Kurien – Markets and ‘invisible hands’

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CT Kurien on Markets and ‘invisible hands’

This commentary draws from Kurien, C. T. (2012). Wealth and illfare: An expedition into real life economics, Bangalore: Books for Change.

The book is available in pdf format on the WEA site at:

In the following extracts from his book, CT Kurien argues that the economy exists within a broader social context. Social factors are important determinants of economic behaviour and outcomes. This differs from some standard representations of an economy based on markets that somehow work to give a socially optimal outcome. The whole book is very readable and informative. Here are a few extracts which summarise just a few of Kurien’s points.


[T]he ‘economy’, the field of study of economics, is set within a non-economic mould. As we move on we shall see what this ‘social embeddedness’ of the economy means. You will see also how each of the features we have enumerated has its bearing on the economy. You will note too that the distinction between the economic and non-economic aspects implied here won’t be seen in real life situations…Reality is far too complex to analyse and understand in its entirety. We can see only in part: we can understand only in part. But the parts, if carefully examined and understood may give us a glimpse of that complex reality.

The economy as a whole is complex too. We can examine it also only in parts!


[T]there is a school of economics that maintains and propagates the notion that the functioning of an economy is automatic, subject only to its own inner laws, often referred to as the invisible hand…such an approach cannot be considered valid or sustainable and…decision making authority is integral to the effective functioning of an economy even when its presence seems invisible or is not identified easily.


[T]he market does not arrive at anything that can even be remotely considered to be a uniform price, let alone an equilibrium price. If and when you come across uniform prices, it is safe to infer that it is not decided by the market, but some external agency, usually the State.

The most reasonable explanation for the prices that one comes across in the market is that they are determined by the cost of production plus a mark-up. Ask anybody who deals with prices and this is the answer you are most likely to get.


Invisible Hand?

Does this mean that the market has a life and logic of its own, some sort of ‘Invisible Hand’ steering it? That is another myth about the market: that it has ‘laws’ of its own; it works best when it is left alone without human interventions. But we have seen that the market is very much an evolving social institution initiated by human beings and always under human control, though difficult to control situations do arise similar to stampedes in a crowd when an unexpected panic strikes. Then why has it acquired a kind of supernatural aura in certain circles? The answer must be pretty obvious. If the market is allowed to function without external intervention it will be to the advantage of those who control and manipulate it: it is that simple! The tragedy is that there are academics ready to use their economics and mathematics to derive ‘theorems’ and their proofs to peddle their ideology of what the market is and how it functions? These are some of the best minds of the past and the present that the world has seen; but many are naïve followers who, without applying their minds, are willing to propagate the ideas of the ‘great minds’. That being the climate it is easy to make use of any unverified and unverifiable assumptions as basic principles and then churn out theorems and models to propagate what they have already decided is the valid position. Socrates said: “The unexamined life is not worth living”. It is worth pondering whether theories and models based on unexamined premises can be relied on to formulate policies in real life situations.

Last updated 8 September 2014

2 responses

  • David Harold Chester says:

    There are many points here worth making comments against. My remarks connect them as well as applying separately to each.

    Page 20 and 28 The idea that macroeconomics is too complicated to properly understand by logical analysis is simply not true. The kinds of minds who seek to confirm this claim are not logical scientific thinking individuals, but rather they take the matter of intuition a bit too seriously and use it to replace what should be more logical thought.

    As every theoretical analyist and engineer knows, including myself, the process of trying to get to grips with our understanding of a specific phenomenon, be it in science or in engineering, is based on taking the most practical and simplifying assumptions. Some of these are based on certain axioms about the whole of the subject in question. (In economics these are: 1. Man seeks to satisfy his desires with the least exertion, but 2. Man’s desires are unlimited, as originally suggested by Henry George.)

    The analysis also depends on definitions, a large number of which are also mising from many of their works. As a result different economists write about different aspects of what appears to be the same things (but isn’t) and this causes confusion. Most of the writings of these early economists fail to state their assumption, which never the less are iimpliesd inconsistantly within their arguements.

    The way that our social system can be properly envisaged is through modeling process an example of which can be seen as:
    DiagFuncMacroSyst.pdf which is in Wikimedia, Commons, Macroeconomics and other places on the WWweb. This model is the result of making the right kinds of assumptions and a lot of logical thought has gone into the development of this diagram, unfortunately which we cannot explain here (its takes about 5 chapters of my soon to be published book).

    Using a model such as this kind, there is every chance that the resulting theory and its analytic results will have a more profound and satisfactory meaning than the claims of the past and current series of intuitive economists, whose reliance on this past difficulty seems to stop our subject from becoming a true science (which I assure you has been achieved by my system of thought). It is interesting that many of them complain about this lack of science whilst not being capable of doing much about it!

    Pages 62-63 The concept of a lack of order within the way that prices are set and business deals done is simply untrue. However, due to the amount of monopolization of certain markets and to the amount of bribes and other handouts that comprise many of the established practices (some of which are corrupt), it is very difficult to discern how this system works at this level. But it is not impossible, and the way to look at it is to avoid the fine and confusing detail and to examine the subject from a greater distance, where these embarrasing facts are no longer need to be, nor are capable of being resolved.

    The model that I presented above does this. It is like being charged for something that is not actually a part of the cost of the product but which allows one to enter into the transaction. Since this is a necessary effect it should be included in the total price (as distinct from the cost of production).

    Page 62 Complete confusion between market practices and those whose theoretical knowledge might (but does not) have any influence on them! Once again, by taking correct axioms, assumptions, definitions and logical analyses, one can obtain a better picture about how our system actually works, and then to substitute numberical values associated with a particular economy, which are themselves constrained by the basic equilibrating (or near equilibrating) conditions, to allow one to examine the effects of the sudden introduction of changes.

    This is another big subject which can logically follow within the analysis provided by my book, that is based on the above-mentioned modelling system. In this space I can only claim that better ways of treating the general subject exist without my giving you more of what I have recently discovered. I will be glad to share this information with you, but since my adding an e-mail address inhibits the publishing of this comment, I ask that you enquire through the organizers of this website. I have nothing to hide.

  • C. T. Kurien says:

    I am glad that Chester has taken note of passages from my book, but it is obvious that he has not gone through it even though it is available over internet (as was mentioned in the Preface to the passages). Chester’s book is not yet available.

    But surely, the issues posed in the passages are not matters of “truth vs hype”. Chester maintains that the proper way to understand reality is first to produce a model and then look around for facts to verify it. He admits that the model of a perfectly competitive market is not what you find in real life; rather,there are other factors to be reckoned with, monopoly, bribes etc. To what extent is an a priori model relevant for examining and understanding these realities is the issue. The position that I have taken is that there are other ways, more helpful ones if the aim is to come to grips with real life issues.

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