Title: Not enough markets to sustain an invisible hand metaphor

Authors: Hendrik Van den Berg; Matthew Van den Berg

Addresses: Department of Economics, University of Nerbraska-Lincoln, Lincoln, NE 68588-0489, USA ' Department of Economics, American University, Washington, DC, USA

Abstract: The invisible hand metaphor dates to the 18th century but only gained prominence after neoclassical analysis came to dominate economic thinking late 19th century. Neoclassical economists rigorously established the assumptions necessary for an economy to operate in accordance with the metaphor, including that all economic activity passes through efficient markets. But, real markets are never efficient or even competitive, and most provisioning occurs outside markets in households, social settings, business organisations, and government. Yet, mainstream economics continues to model the economy in accordance with the metaphor. This paper delegitimises the metaphor by means of a simple exercise, easily understood by beginning economics students, to use wide-ranging inter-disciplinary evidence to estimate the percentage of human economic interactions that occur in competitive markets. Conclusion: the proportion of human economic interactions carried out in competitive markets is much too small for the invisible hand metaphor to accurately describe an economic system.

Keywords: invisible hand; household activity; non-market interaction; heterodox economics; economic metaphors; neoclassical economics; economics education; human economic interactions; competitive markets.

DOI: 10.1504/IJPEE.2014.063510

International Journal of Pluralism and Economics Education, 2014 Vol.5 No.2, pp.157 - 179

Published online: 26 Jul 2014 *

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