Does Adam Smiths Invisible Hand Work for Financial Markets: Comments
Adam Smith theory of the Invisible Hand is fundamentally flawed. The neoclassical theory based on it relies on market models in which economic agents interact with the market forces that are not governed by Universal Law of Nature; such models ignore correlations that lead to booms and depressions. To prove rigorous theorems financial economists also assume that market fluctuations follow a certain statistical distribution a la a thermodynamic equilibrium approach. Do they really score a major breakthrough? No – the dominant ‘equilibrium principle’ of the market is only a hope, not a reality: It lacks proper empirical underpinning. Statistics and mathematics do not help.
