Removal of Ordinary Life from the ‘Invisible Hand’ of Lionel Robbins

Alfred Marshall was a great economist, who established the Tripos for economics in 1903 at the University of Cambridge, marking the beginning of economics as an established discipline in universities around the world.

There is a decisive difference between classical economics and neoclassical economics. In the latter tradition, Alfred Marshall limited economics to the study of the ordinary business of life (Marshall 1890, Preface 20,1.I.1,1.II.1,1.II.6,1.II.8, I.II.16).

Economics is therefore the study of man in the ordinary business of life. It enquires how he gets his income and how he uses it. It is the study of wealth, and more importantly, it is part of the study of man. It is clear that ordinary life is essential to this inquiry. This idea underlies both the sustainability of ordinary life of members of the economy and the universality of the market. Marshall’s profile of the economic framework was then severely restricted by Lionel Robbins (1898-1984) in 1932, who insisted that economics was a theory of optimization of a limited amount of economic resources. Economics is therefore a science that studies human behavior as a relationship between ends and scarce means that have various alternative uses.

This idea does not always require Marshall’s supposition of the ordinary life. From his restrictive definition, economics deprived of the ordinary life was born. Respectable economic chivalry in ordinary life, Marshall argued, was no longer permissible in economics (Marshall 1890, VI.XIII.68, VI, XIII.74, Note 168, App.A 37).

Table 1.3 Three layers of optimizer

Robbins’ doctrine of economics has been a kind of optimizer. He believed that his economic optimizer could be compatible with various settings, which can give rise to a problem identifying the optimizing agent. I now examine his idea in three ways:

1. The market, an impersonalized agent, is acting as an optimizing agent.

2. Some agency, such as military logistics or a private company, is acting as an optimizing agent. This idea leads to management science, not economics.

3. The individual, as a player, is optimizing to achieve his object (end).

Correspondingly, these three cases imply:

1. may be an idea of an ‘invisible hand’, but the definition of the market must be a computer to calculate an optimizing problem. Otherwise, the market plays a game with the industry (factories) as a whole.

2. may be Operational Research (OR), which is actively employed for military operations; in particular, logistics.

3. is a standard theory of microeconomics.

These interpretations form different explanations for the working of the invisible hand. However, this hand is no longer relevant to its original meaning in ordinary life. To put it another way, it is as if the invisible hand has been confined to a small mathematical laboratory to conduct mathematical experiments on ideal situations outside real life.

Depending on the approach adopted, laboratory experiments on optimizing agents may be classified into subsets as either game theoretic or related to general equilibrium. Chapter 2 gives more detail about general equilibrium. Here, I discuss the game theoretic approach, which is applied to levels 1 and 2 in Table 1.3. The game theoretic set contains various historically developed forms, including several cascades derived from von Neumann’s original, such as:

1. Max-min Theorem developing LP, i.e., Linear Programming

2. Balanced Growth Theorem: Nonlinear model and joint productive cycles giving a hint of genetic algorithm GA, Genetic Algorithm

3. Nash Theorem and Core Theorem accompanying Bargaining: Ultimatum game

4. Evolutionary Game Theorem: Replicator dynamics

5. Cournot Theorem and von Stackelberg Theorem: ContractZBridge and Dynamic Programming

These detailed forms have been described in Aruka (2011, Chap. 1).

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