Thursday, March 15, 2018

The Invisible Hand

Comment on Why New Economics Needs a New Invisible Hand by David Sloan Wilson

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It's true that Adam Smith only used the term "invisible hand" three times, but he often discussed the concept without using the term...

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. — Adam Smith, Wealth of Nations

Samantha the bee discovers a huge patch of blooming Aloes. After collecting as much pollen/nectar as she can carry, she quickly flies back to the hive to report her discovery. The way that she transfers her information to the other bees is by dancing. She dances long and hard to express her estimate of the patch's high quality. This is not a cheap signal... it's a costly signal. It costs her many of her precious calories. Because she's willing to make such a big sacrifice, many of the onlooking bees decide that it's worth it to inspect the Aloe patch for themselves. When they return to the hive they confirm, via sacrifice, that the patch is very useful. But if too many bees end up visiting the patch, then it will be harder to find nectar/pollen, and when they return to the hive they will report a lower valuation of the patch. The is how and why the Invisible Hand works.

Evonomics supplies lots of articles... but they really aren't equally useful. Most of the articles about the Invisible Hand are pretty useless. This really shouldn't be a surprise... given that the supply of articles isn't regulated by the Invisible Hand.

The solution is really simple. When people make a donation to Evonomics... just give them the opportunity to "earmark" their money to the most useful articles. Create a page on the website where the articles are sorted by usefulness. People will logically read the most useful articles and it will be a virtuous cycle.

So no, the Invisible Hand isn't primarily about selfishness. It's primarily about communication. All else being equal, whichever group is better at communicating will win.

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