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Beyond the Invisible Hand : Groundwork for a New Economics - Kaushik Basu

Beyond the Invisible Hand

Groundwork for a New Economics

Paperback Published: 17th June 2016
ISBN: 9780691173696
Number Of Pages: 312

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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.

About the Author

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.

Industry Reviews

"Alluring... [Basu's] latest book, subtitled Groundwork for a New Economics, aims to show that many economists have dogmatically accepted capitalist theories as fact and have failed, as a result, to scrutinize their own discipline... Basu devotes the bulk of the text to deconstructing some sacrosanct tenets of capitalism that have become entrenched in government policy over the past 60 years."--Timothy R. Homan, Bloomberg "A most interesting and ... a most significant book... Basu's book is the first serious study of the modern myth related to the 'Invisible Hand' I have seen anywhere."--Gavin Kennedy, Adam Smith's Lost Legacy "Basu has rethought and modernized socialism in this book. He has done so without cluttering it up with Marxist jargon or abstract mathematics; the worst the reader will encounter in this book is game theory, which, though it is not all fun and games, is pretty easy to follow. It is a book worth reading by the socialist types who run our country, as well as those who need to understand socialism to dissent from it."--Business World "[A] very rewarding read... This is Basu's most ambitious and rewarding book, and it works--there's no public policy debate in India it's not relevant to."--The Economic Times "This book should be read by anyone interested in economics for its in-depth thinking, although its targeted readership is more basically professional economists."--Wladimir Andreff, European Legacy "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

Preface ix

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

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

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

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

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

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

Chapter 7: Contract, Coercion, and Intervention 130
Principle of Free Contract 130
Coercion and Voluntariness 138
The Large Numbers Argument 141
Acts and Rules 148
Multiple Equilibria 153
Domains of Intervention 155
Chapter 8: Poverty, Inequality, and Globalization 157
Governance and the Globe 157
Inequality 158
Some Facts of Globalization 161
Some Analytics of Globalization 165
Inequality and Poverty: The Quintile Axiom 167
Poverty-Minimizing Inequality, with or without Globalization 171
Policy Implications 176

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

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

Notes 213
References 235
Index 259

ISBN: 9780691173696
ISBN-10: 0691173699
Audience: Tertiary; University or College
Format: Paperback
Language: English
Number Of Pages: 312
Published: 17th June 2016
Publisher: Princeton University Press
Country of Publication: US
Dimensions (cm): 23.5 x 15.2  x 1.91
Weight (kg): 0.45
Edition Number: 1

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