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Beyond the Invisible Hand: Groundwork for a New Economics

by Kaushik Basu Princeton University Press
Pub Date:
Pbk 312 pages
AU$49.99 NZ$54.77
Product Status: Not Our Publication - we no longer distribute
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One of the central tenets of mainstream economics is Adam Smith's proposition that, given certain conditions, self-interested behavior by individuals leads them to the social good, almost as if orchestrated by an invisible hand. This deep insight has, over the past two centuries, been taken out of context, contorted, and used as the cornerstone of free-market orthodoxy.


In Beyond the Invisible Hand, Kaushik Basu argues that mainstream economics and its conservative popularizers have misrepresented Smith's insight and hampered our understanding of how economies function, why some economies fail and some succeed, and what the nature and role of state intervention might be. Comparing this view of the invisible hand with the vision described by Kafka--in which individuals pursuing their atomistic interests, devoid of moral compunction, end up creating a world that is mean and miserable--Basu argues for collective action and the need to shift our focus from the efficient society to one that is also fair.


 Using analytic tools from mainstream economics, the book challenges some of the precepts and propositions of mainstream economics. It maintains that, by ignoring the role of culture and custom, traditional economics promotes the view that the current system is the only viable one, thereby serving the interests of those who do well by this system. Beyond the Invisible Hand challenges readers to fundamentally rethink the assumptions underlying modern economic thought and proves that a more equitable society is both possible and sustainable, and hence worth striving for.


By scrutinizing Adam Smith's theory, this impassioned critique of contemporary mainstream economics debunks traditional beliefs regarding best economic practices, self-interest, and the social good.




Preface ix



Chapter 1: In Praise of Dissent 1Discontent and Discourse 1 Smith's Myth 9 The Lay of the Land 11On Understanding 13


Chapter 2: The Theory of the Invisible Hand 16Competition and Social Welfare 16The Standard Critiques 20


Chapter 3: The Limits of Orthodoxy 24 The Dual Interpretation 24Evolving Feasible Set 27Evolving Preference 31Social Norms and Culture 33A Comment on Incentive Compatibility 41On Methodological Individualism 43On Knowledge 49


Chapter 4: The Economy according to Law 55 Kafka's Invisible Hand 55Law's Economy: The Standard View 57The Law as Focal Point 60Implications of the Focal View of Law 66A Game-Theoretic Illustration of Law as Focal Point 71A Research Agenda 73


Chapter 5: Markets and Discrimination 77Do Free Markets Reduce Discrimination? 77The Literature 79The Self-Reinforcement of Productivity 83The Entrepreneur 85Toward a New Theoretical Model 89Appendix: Aptitude Test Administered to Slum Children at Anandan in Calcutta 95


Chapter 6: The Chemistry of Groups 97Identity and Methodological Individualism 97The Ingredients of Theory 101Altruism, Trust, and Development 104The Janus Face of In-group Altruism 110The Malignancy of Identity 120


Chapter 7: Contract, Coercion, and Intervention 130Principle of Free Contract 130Coercion and Voluntariness 138The Large Numbers Argument 141Acts and Rules 148Multiple Equilibria 153Domains of Intervention 155


Chapter 8: Poverty, Inequality, and Globalization 157Governance and the Globe 157Inequality 158Some Facts of Globalization 161Some Analytics of Globalization 165Inequality and Poverty: The Quintile Axiom 167Poverty-Minimizing Inequality, with or without Globalization 171Policy Implications 176


Chapter 9: Globalization and the Retreat of Democracy 180Democracy in Deficit 180Globalization and Influence 185Dollarization and Democracy 187Democratic Global Institutions 189


Chapter 10: What Is to Be Done? 193Interpreting the World and Changing It 193The'Environmental Case' against Inequality 199Despair and Hope 208


Notes 213References 235Index 259




"Beyond the Invisible Hand will be useful to political economists who want to see how game theory can shed light on the ways that groups and races of rational actors may assume surprising dynamics. It could also be useful to policymakers who must justify arguments about group policies in standard economic terms. [The] author's contributions to political economy deserves to be taken seriously."--Jonathan Schlefer, Perspectives on Politics

Kaushik Basu is professor of economics and the C. Marks Professor of International Studies at Cornell University. He is currently chief economic advisor to the Ministry of Finance of the Government of India. His books include Prelude to Political Economy: A Study of the Political and Social Foundations of Economics and Of People, of Places: Sketches from an Economist's Notebook.