Invisible-hand explanations

The invisible hand is about unintended social consequences that have been brought about by the interaction of individuals who are pursuing their own inter- ests. Moreover, the original concept emphasises the need to explicate the process which brought about the social phenomenon in hand. Explanations that follow this process interpretation of the invisible hand are generally known as invisible- hand explanations (see Nozick 1974; Ullmann-Margalit 1978):

They [some explanations] show how some overall pattern or design, which one would have thought had to be produced by an individual’s or group’s suc- cessful attempt to realize the pattern, instead was produced and maintained by a process that in no way had the overall pattern or design ‘in mind.’ After Adam Smith, we shall call such explanations invisible hand explanations.

(Nozick 1974: 18)

Invisible-hand explanations explain how some well-structured social pattern could have emerged, or persists, as an unintended consequence of individual ac- tions (Ullmann-Margalit 1978). An invisible-hand explanation claims to show the pattern in question as the ‘output’ of a process that aggregates the dispersed actions of numerous individuals who did not intend to bring it about. This process may be called an ‘invisible-hand process’.

By the ‘invisible hand process’ is meant the aggregate mechanism which takes as ‘input’ the dispersed actions of the participating individuals and pro- duces as ‘output’ the overall social pattern.

(Ullmann-Margalit 1978: 270, emphasis added)

And ‘the onus of the explanation lies on the process, or mechanism, that aggre- gates the dispersed actions into the patterned outcome’ (Ullmann-Margalit 1978: 267). An invisible-hand explanation is, thus, an explanation of the unintended social consequences by means of a process that connects the dispersed actions of the individuals to the social phenomenon. It is an explanation that explicates the ‘connecting principles’ that may have brought about the social phenomenon.

Using our definition of unintended social consequences (see Chapter 2), we can characterise an invisible-hand explanation in the following way:

An invisible-hand explanation explains the emergence (and/or maintenance) of an unintended social phenomenon by explicating a process that may bring it about (and/or maintain it). Its explanandum must be an unintended consequence in the sense that:

  1. it is located at the social level;
  2. it was not intended by any individual;
  3. it is mediated through a multiplicity of individuals;
  4. individual intentions are directed to the individual level;
  5. the action of one individual is not sufficient to produce the unintended (social) consequence;
  6. individuals do not pursue the same end collectively (that is, collective intentionality is excluded); and
  7. the actions resulting from one single individual’s intention cannot affect the social level directly, or in isolation.

Our examination of the paradigmatic examples of invisible-hand explanations and their roots implies that invisible-hand explanations are partly based on the as- sumption that interactions of individuals are essentially complex, and it is usually not possible to have enough information about the motives of the individuals and about the peculiarities of their individual situation. We have also seen that it is usually not possible to gain knowledge about the characteristics of the individuals by simply observing social phenomena – in the sense implied by invisible-hand explanations. For these reasons, invisible-hand explanations usually take the form of conjectures about individual mechanisms that may have brought about the ob- served social phenomenon. They are somewhat speculative reconstructions of the ‘connecting principles’ that bring about the social phenomenon at stake. We have seen in the previous chapters that paradigmatic examples of invisible-hand expla- nations explicate some of the possible ways in which certain ‘familiar’ mecha- nisms may interact. They are conjectures, yet good invisible-hand explanations should be different from ‘boundless conjectures’ in that the depicted mechanisms should be plausible (see Chapter 7 for further discussion of this issue).

Our discussion of Menger and Schelling’s explanations indicates that a good invisible-hand explanation should have the following properties:

  1. Its explanation of the transformation of the model world (from the state where the explanandum phenomenon is absent to a state where it exists) should be successful
  2. It should explicitly state the proposed individual mechanisms and how they are connected to each other.
  3. The description of the initial state of the model may be inaccurate in terms of representing the corresponding particular initial state of the real world (it is better if it is not), but it should at least depict some ‘familiar’ individual The description of the individual mechanisms (that is, the description of the individuals and how they behave) should be plausible in the sense that under the conditions specified in the model we should expect real individuals to act in a similar fashion.
  4. The description of the explanandum phenomenon should represent its relevant characteristics given the interests of the explanation.
  5. It should either suggest that a new / previously unexamined sort of (aggregate) mechanism may explain the phenomenon at stake, or provide a firmer basis for the previously suggested invisible-hand process.

We have seen in Chapter 4 that Schelling’s explanation satisfies these condi- tions. But we have also noted that it is a partial potential explanation (i.e. not a full-fledged explanation of the emergence of residential segregation). Obviously, Menger’s explanation cannot do as well for it is not explicit enough. As suggested in Chapters 3 and 4, the above characteristics make it more likely that the pro- posed mechanisms in an invisible-hand explanation have the potential of explain- ing particular exemplifications of the explanandum phenomenon. Nevertheless, the proof of the pudding is in the eating. That is, we can only know whether an invisible-hand explanation of the singular sort will be successful by inquiring whether the proposed aggregate mechanism is responsible for the phenomenon at stake.

Many invisible-hand explanations aim to explain the origin of phenomena such as money, language and segregation, and it is usually not easy to ascertain whether the proposed mechanisms really explain the phenomenon or not. For this reason, they may live as conjectures for a long time. Yet the quality of alerting the researchers to new mechanisms is an important contribution in itself. It expands our mental horizon, and indicates new paths for further empirical and theoreti- cal research. As these first steps are usually incomplete, like that of Menger and Schelling’s, the intuitions provided by such explanations are further explored by other researchers, by testing both the logical soundness and empirical validity of the proposed invisible-hand arguments. Briefly, such conjectures are valuable basically because they point out some of the ways in which certain mechanisms may interact in the real world and therefore they may be considered as attempts to discover the way in which the world works. We will see in the next chapter how these conjectures may be explored, and in Chapter 8 we will see how they may open the way to new research agendas and new results.

Source: Aydinonat N. Emrah (2008), The Invisible Hand in Economics: How Economists Explain Unintended Social Consequences, Routledge; 1st edition.

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