TheAdvocate's Full Review: Adam Smith and Andrew S. Skinner - The Wealth of N...
The epinion on Adam Smith's Wealth of Nations by "tfoekler" (http://www.epinions.com/book-review-7FA-111DC3B-38C84AA8-bd1) covers the basic concepts Smith put forth. It's a good epinion, and I'd recommend it if you're looking for a general overview of this book. Instead, I'd like to focus my review on just one aspect of Smith's economic dissertation, the concept of the "invisible hand."
Published in 1776, Smith's Wealth of Nations made the controversial assertion that individuals pursuing economically "selfish" goals are organized "as if by an invisible hand" into a self-regulating economy that benefits everyone. Today, this assertion remains controversial. Defenders of laissez-faire capitalism uphold it by insisting that the "invisible hand" is apparent in observable phenomena; critics dismiss the theory as metaphysical optimism.
The theory does sound a bit hopeful, and perhaps too influenced by vitalism (the belief that life processes contain a "vital" or spiritual force and can't be reduced to physical, chemical explanations). But Smith's "invisible hand" has found a promising though tentative defense in the science of complexity.
In At Home in the Universe, Stuart Kauffman, a complexity theorist at the Santa Fe Institute, writes: "Adam Smith first told us the idea of an invisible hand in his treatise The Wealth of Nations. Each economic actor, acting for its own selfish end, would blindly bring about the benefit of all. If selection acts only at the level of the individual, naturally sifting for fitter variants that 'selfishly' leave more offspring, then the emergent order of communities, ecosystems, and coevolving systems, and the evolution of coevolution itself are the work of an invisible choreographer."
Kauffman's "invisible choreographer" of the emergent order of a nation's economy, an evolving ecosystem, or a self-replicating organism is the phase transition between order and chaos. Kauffman terms this phase transition the "edge of chaos," and explains it this way:
"Borrowing a metaphor from physics, life may exist near a kind of phase transition. Water exists in three phases: solid ice, liquid water, and gaseous steam. It now begins to appear that similar ideas might apply to complex adapting systems. For example, we will see that the genomic networks that control development from zygote to adult can exist in three major regimes: a frozen ordered regime, a gaseous chaotic regime, and a kind of liquid regime located in the region between order and chaos."
With his NK models ("a system of N parts, each of which makes a 'fitness contribution' that depends on its own state and the states of K other parts"), Kauffman has produced some observable results. At the edge of chaos, [in this case, the optimal number of "patches" which loosely translates to an economy of diverse, free-acting agents neither too small (family-like) nor too big (global)] Kauffman finds that "each adapts for its own selfish benefit, yet the joint effect is to achieve very good, low-energy minima for the whole lattice of patches. No central administrator coordinates behavior. Properly chosen patches, each acting selfishly, achieve the coordination."
Kauffman's preliminary conclusion echoes the words of Adam Smith: "[C]ontrary to intuition, breaking an organization into 'patches' where each patch attempts to optimize for its own selfish benefit, even if that is harmful to the whole, can lead, as if by an invisible hand, to the welfare of the whole organization."
A rather compelling vindication, if true, of Smith's 18th century assertion. Unfortunately, complexity theory is still years away from definitive conclusions. Still in its infancy, complexity and chaos theory suffer the same rational criticisms and flat-out denunciations that Wealth of Nations has endured for the last 200 years. Time will eventually prove the concept of the "invisible hand" to be either a fanciful, useless predilection, or the insightful hunch of a true genius.
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