The Invisible Hand in Economics

The Invisible Hand in Economics

The Invisible HandThe Invisible Hand in Economics
How Economists Explain Unintended Social Consequences
INEM Advances in Economic Methodology
London: Routledge, 2008.

This is a book about one of the most controversial concepts in economics: the invisible hand. The author explores the unintended social consequences implied by the invisible hand and discusses the mechanisms that bring about these consequences.

The book questions, examines and explicates the strengths and weaknesses of invisible-hand type of explanations of emergence of institutions and macro-social structures, from a methodological and philosophical perspective. Aydinonat analyses paradigmatic examples of invisible-hand explanations such as Carl Menger’s ‘Origin of Money’ and Thomas Schelling’s famous checkerboard model of residential segregation in relation to contemporary models of emergence of money and segregation. Based on this analysis, he provides a fresh look at the philosophical literature on models and explanation and develops a philosophical framework for interpreting invisible-hand type of explanations in economics and elsewhere. Finally, the author applies this framework to recent game theoretic models of institutions and outlines the way in which they should be evaluated.

Covering areas such as History, Philosophy of Economics and Game Theory, this book will appeal to philosophers of social science and historians of economic thought as well as to practicing economists.

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Review and Comments:

by Nicola Giocoli:

Conjectural models aim at devising the initial conditions required for individual actions to generate a given social phenomenon as unintended consequence. Social scientists make frequent use of this modeling technique. Indeed the list of those who have applied it – from Smith to Menger, from Schelling to Lewis – reads likely a veritable “who’s who” of the last 250 years of social sciences. Yet the question of how these purely speculative models may actually enjoy any explanatory power with respect to real world phenomena has only rarely been tackled. Aydinonat’s outstanding work fills this gap by thoroughly investigating the philosophical and methodological challenges posed by conjectural models and by developing a coherent and persuasive framework to account for the role of abstract theorizing in the social sciences. The book is a candidate to become compulsory reading for methodologists and philosophers of science, as well as for those economists who take seriously the issue of their models’ epistemological foundations.

by Robert Sugden:

There is a long tradition in the social sciences, going back to Adam Smith, of explaining social phenomena as the unintended consequences of human actions. In this illuminating book, Aydinonat investigates the structure of such explanations and the nature of the claims that can legitimately be derived from them. In the process, he analyses some of the classic ideas in social theory – Smith’s invisible hand, Carl Menger’s explanation of the emergence of money, Thomas Schelling’s analysis of racial segregation, and David Lewis’s theory of convention – with acuity and subtlety. This is a significant contribution to the philosophy of social science which will also engage the interest of reflective economic theorists.

 

by  Edna Ullmann-Margalit:

The book’s choice of the topic with which economists and philosophers could start engaging each other cannot be improved on. The notion of the invisible hand, and the type of explanations it gives rise to, of social patterns of behavior as unintended consequences of individual actions and interactions, are just right for the cross-fertilization between a variety of philosophical fields, prominently including the philosophy of science, on one side, and economic theory, prominently including game theory, on the other. Moreover, the experience of reading this book leaves the reader feeling that the choice of author for this undertaking can hardly be improved on either.

Trained both in economics and in philosophy, Emrah Aydinonat has formal and technical skills as well as a historical sensibility and a keen intellectual curiosity, and he has the tenacity to go on digging for gem-stones where previous visitors to the same terrain seem content with surface pebbles. Setting himself the task of developing a framework capable of making sense of the marketplace of extant models, and then to use this framework to ‘gain new insights into the contemporary literature that characterizes institutions and macro-social structures as unintended consequences of human action’ (p. 7), he has produced a book that is pleasingly disciplined and well organized.”

“Aydinonat’s book provides a historical context in which the notion of the invisible hand emerged, and analyzes the concepts and the distinctions behind this notion at such a high resolution that no scholar is likely to revisit this territory ever again. Any and every future discussion of the invisible hand – and there are sure to be such – will from now on make the obligatory reference to this book and simply take off from it. (Read the review)

by Mark Blaug

This is a splendid book about a controversial concept in economics, the notion that there may be unintended benevolent social consequences of actions undertaken by individuals for entirely private reasons and that these consequences are not merely benevolent but are capable of producing an order that appears to be designed although it is actually the product of spontaneous action. (Read the review)

by Wade Hands:

In summary, I found Aydinonat’s book to be a very important contribution to the literature. This is not to say that I would not quibble about specific details of his argument – but it does provide a very useful, and quite coherent, framework for thinking about the explanatory power and adequacy of invisible hand-type explanations. Such explanations are so pervasive in economics – for some they define economics – and yet we previously lacked any coherent framework for situating them within the broader context of scientific explanations in general. Aydinonat has provided us with a badly needed framework for investigating these issues. The Invisible Hand in Economics will not be the last word on invisible hand explanations, but it will become an obligatory reference point for any future research on the subject, and I recommend it to anyone who would like to better understand this very important class of models. (Read the review)

by Warren Samuels:

This study by a sensitive and imaginative intellect is a substantive contribution to the literature  developing  the  meaning  of  the  concept  of  ‘‘the  invisible  hand’’  while simultaneously attempting to establish how interpretation can be structured to convey ‘‘understanding’’ albeit not ‘‘truth.’’ (Read the review).

by Anna Alexandrova:

Where do social institutions and phenomena come from? A venerable tradition in economics seeks to explain some of these institutions and phenomena, for example, money, traffic rules, racial segregation and many others, using a concept of invisible hand. Such explanations show a phenomenon to be an unintended outcome of a multitude of actions and interactions of individual persons. In a book based on his doctoral dissertation, Emrah Aydinonat seeks to a) give an account of what sort of social phenomena are susceptible to this sort of explanation, b) evaluate the success of some of the most famous explanations of this type, and along the way, c) draw lessons for philosophical accounts of formal models in economics. In many ways, this book represents philosophy of economics at its finest. It is impeccably informed on the present state of economics, sensitive to the history of the discipline and full of interesting and thoughtful philosophical analysis. A significant problem, however, is that the central notion of the paper – partial potential explanation – does not receive an appropriate articulation. After presenting Aydinonat’s views, I explain the problems and why they matter. (Read the review)

 

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