It’s commendable that Nasar and the film’s makers wish to educate the public about schizophrenia and the brave struggles Nash endured for his very existence. Yet, with just a few sentences of text and dialogue, respectively, they have also done the world a great disservice by misleading people into believing that Nash’s work in Game Theory has disproved the practicality of free-market economics.

If policy-makers and the general voting public come to accept this inaccurate assertion, the ramifications could include the passing of new, unnecessary laws that harm us all.

Nasar and the film claim that John Nash’s ideas have refuted the “Invisible Hand” theory that Adam Smith, the first true economist, publicly explained in 1776. They get away with this due to what is, at best, a complete misunderstanding of what Smith said.

The “Invisible Hand” theorem is that a free market will regulate itself better than any mercantilist or socialist law would, thanks to the incentives it provides. Smith gave a number of examples, two of which are particularly famous.

First, Smith noted that it’s good for the consumer when businesses selling similar products or services learn to compete with one another, because each firm will reduce its prices and improve its quality to attract more customers. If a baker charges lower prices for bread than all other bakers, then the others have to lower their own prices or people will stop buying from them. It’s the self-interest of all parties involved that create the best condition for the economy in general -- the “Invisible Hand” of profit motivates it.

Second, Smith stated that, when one can serve his own self-interest by cooperating with others, he will do so. If Bob the baker wants $5 more than his loaf of bread, and Steve the customer wants a loaf of bread more than his $5, the two make a trade -- Steve buys Bob’s bread. Each person gives up what he wanted less, and ends up with what he wanted more, so both sides win.

These parties may not necessarily like each other, but they cooperate to serve their own respective self-interest, and, as long as no one’s rights are violated, everyone is better off. “The Invisible Hand” works again.

Nasar, the filmmakers, and some anti-capitalist Game Theorists get away with saying Nash refuted Adam Smith by remembering the first example, taking it out of context, and then ignoring the second. According to “the Nash equilibrium,” an individual will look at his own self-interest to decide whether to compete or cooperate with others.

For instance, imagine there are two men in a forest, who could hunt for rabbits or deer. This is a “Game Theory” scenario. If they each hunt for a rabbit alone, they will eat a little. To catch a deer requires both of them to cooperate, so, if they both work together to catch a deer, they’ll both eat a lot and “win big.” But if one man gets the other to hunt for deer while he hunts for rabbit instead, the rabbit-eater will eat and “win,” while the deer-hunter will end up with nothing and “lose.” The best solution for both men, said Nash, is not to compete but to work together to catch a deer, serving everyone’s self-interest best.

Ludicrously, Nasar and the filmmakers insist this refutes Adam Smith because the parties cooperate rather than compete. But that’s a “straw man” argument, because Smith never said that people always have to compete; he just said that competition between firms in the same industry benefits consumers.

And Smith also pointed out that self-interest motivates different parties to cooperate, helping everyone in the community, such as in the example of people making mutually beneficial business transactions. No matter the spin that the Hollywood Left and some anti-capitalist Game Theorists try to put on this, the “Nash equilibrium” somewhat affirms Smith’s “Invisible Hand” theory, whether Nash himself realizes it or not.

Nash has never refuted the free market. Nor will any of his students.

Adam Smith himself made mistakes in economics, but he had a beautiful mind too, and Hollywood would do us a favor if it didn’t misrepresent it anymore.

Stuart K. Hayashi is the president of the Reason Club of Honolulu and an undergraduate in Entrepreneurial Studies at Hawaii Pacific University, though his opinions do not necessarily reflect that of either institution. He can be reached at radical_individualist@hotmail.com and an index of his past editorials for HawaiiReporter.com can be seen at http://reason_club.tripod.com/stuart_editorials.html (If you would like to continue seeing Stuart Hayashi's editorials on this site, please let Hawaii Reporter know at info@hawaiireporter.com)

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