Kurien – Markets and ‘invisible hands’
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: http://www.worldeconomicsassociation.org/books
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.
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