The Invisible Hand in Economics

2007-09-08T12:39:00.000-07:00

The Invisible Hand in Economics
How Economists Explain Unintended Social Consequences
by N. Emrah AYDINONAT

Routledge INEM Advances in Economic Methodology

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.

Table of Contents

Review by Nicola Giocoli

2007-09-08T12:31:00.000-07:00

"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."

Nicola Giocoli (Professor of Economics, University of Pisa)

Review by Robert Sugden

2007-09-08T12:24:00.000-07:00

"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."

Robert Sugden (Professor of Economics, University of East Anglia)

2007-09-08T00:23:00.000-07:00

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CONTENTS

ACKNOWLEDGMENTS

1 INTRODUCTION
Unintended Consequences
Plan and Summary of the Book

2 UNINTENDED CONSEQUENCES
Introduction
Types of Unintended Consequences
Invisible-Hand Consequences
Concluding Remarks

3 THE ORIGIN OF MONEY
Introduction
Menger’s Explanation
Exact Understanding
Explanatory Value
Concluding Remarks

4 SEGREGATION
Introduction
Residential Segregation
Explanatory Value
Concluding Remarks

5 THE INVISIBLE HAND
Introduction
Smith’s Invisible Hand
Modern Conceptions of the Invisible Hand
Invisible-hand explanations
Concluding Remarks

6 THE ORIGIN OF MONEY RECONSIDERED
Introduction
Existence of a Medium of Exchange
Emergence of a medium of exchange
Explanatory Progress?
Concluding Remarks

7 MODELS AND REPRESENTATION
Introduction
Partial Potential Explanations
Models and Explanation
Models and Representation
Models and Theories
Models, Similarity and Tendencies
Models and Exploration
Models as Mediators
Concluding Remarks

8 GAME THEORY AND CONVENTIONS
Introduction
Coordination Conventions
Coordination in the World of Models
Interpretation
Concluding Remarks

CONCLUDING REMARKS

Appendix I Smith, Jevons and Mises on Money
Appendix II Models of Emergence of Money
Appendix III Explorations of The Checkerboard World
Appendix IV Focal Points, Risk Dominance etc.

REFERENCES