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THE INVISIBLE HAND: WHAT DO WE KNOW?

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Chapter Summary

Adam Smith’s metaphor of the “invisible hand” and its analogue in classical physics are investigated in detail. Smith’s analogue was the mechanics of the solar system. What makes the analogy fail are not the idealisations in the caricature-like model of the rational economic man. The main problem rather is that the metaphor does not employ the correct analogue, which belongs to thermodynamics and statistics. In the simplest macro-economic model, the business cycle has the same formal structure as the heat flow between two heat reservoirs and a business cycle of growing efficiency works like a refrigerator: it pumps money from the poor to the rich. More complicated models do not give a friendlier image. Due to technological push, an economic system behaves like a thermodynamic system far from the equilibrium, showing chaotic behaviour and developing into unpredictable states.

10.1163/9789401206037_014
/content/books/b9789401206037s014
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