by Gavin Kennedy
(cross posted from Adam Smith’s Lost Legacy)
Identify the Invisible Hand!
Alex Tabarrok writes on the Nobel Prize for Oliver Williamson in an article on the Marginal Revolution Blog “Oliver Williamson and the pin factory”, which is fine but it contains the following paragraph:
“Transaction cost economics is all about applying these ideas in different settings to figure out the best governance structures (marriage, vertical integration etc.) in different circumstances. How does one deal with expensive investments (such as highly individual dies or plant construction) that are specific to a given trade and put the investor at risk yet which increase productivity? Williamson analyzes how firms come to rely on long term contracts or vertical integration or other seemingly non-competitive solutions to enhance market productivity. Early generations of antitrust enforcers often saw these as monopolistic dealings, but scholars such as Williamson helped us understand how these are essential to the workings of the invisible hand.”
Be clear, I applaud the award to Oliver Williamson, whose books I read as an undergraduate (I bought these outside of the recommended reading list and tried to introduce their ideas into my essays), and, of course, applaud the shared award with Elinor Ostrom.
So deep is the modern association of the workings of markets with the metaphor of the “invisible hand”, that it slips in even in the strangest of circumstances.
How is vertical integration “essential to the workings of the invisible hand”? What “workings”? Where can they be seen? Who has seen them to date? Where did he or she see them? Where did they describe them in a publication? Where in the maths of markets is the term for the “invisible hand”?
I could go on, but won’t.