Questioning the Myth of the Invisible Hand

Adam Smith's Lost Legacy: Questioning the Myth of the Invisible Hand (Gavin Kennedy)

Dave Cohen writes (27 March) for Decline of the Empire

HERE

“Invisible Hand Goes Missing”

“For most of the last 3 decades, many influential economists embraced a theory that justified wholesale theft by the Finance industry because the magical powers of Adam Smith's Invisible Hand would always result in greater "efficiency" in the economy. It's as if Homo sapiens had suddenly stumbled upon a miraculous potion— this was framed as the efficient market hypothesis. Drinking this cleansing kool-aid would enable us to see clearly that Gordon Gekko was right, unfettered greed is good. Hundreds of years of economic history, and thousands of years of human history, could simply be tossed out the window. Move on, nothing to learn there.”

Comment

Yes, that just about sums up where the myth of the invisible hand has taken modern economics and Adam Smith’s good name with it.

Of course, Adam Smith did not say any of the things about the metaphor of ‘an invisible hand’ that is attributed to him, as pointed out on Lost Legacy scores of times.

Smith had no connection to allusions to ‘Homo Economicus’, Gordon Gekko’s ‘greed is good’, ‘efficient markets hypotheses’, or notions of ‘equilibrium’. In fact, the invention of Adam Smith from Chicago has hardly any connections with the Adam Smith from Kirkcaldy.

If more people came to realise this it would be much better for the practice of economic management and understanding.

It would be a start of Dave Cohen was to get up to speed on the derivation of the myth of the invisible hand, which has nothing to do with Adam Smith's use of the popular 17th-18th-century metaphor on two occasions only in his books, once in Moral Sentiments, 1759, and once in Wealth Of Nations, 1776 and neither case was about markets – I exclude his singular use of the metaphor in a student essay written when he was a student at Oxford on 'pusillanimous superstition' about Astronomy, 1744-50.

As Kennedy has pointed out many times, Smith mentions the "invisible hand" once in The Wealth of Nations. He is talking about the risk aversion that leads many local merchants not to engage in international trade and are thus led, as if by an invisible hand, to benefit their community. Smith was not particularly enamored with business people nor their use of government power to create local monopolies for themselves. While he certainly grasped the incredible contributions of the division of labor and trade, he was hardly a Chicago School free trader. You would have to look at something like Bernard Mandeville's Fable of the Bees (1705) to get something more akin to what has built up around the "invisible hand" mythology.

For an excellent readable article on the origins of the Invisible Hand metaphor, see Kennedy's Adam Smith and the Invisible Hand: From Metaphor to Myth.