Economic Historian Gavin Kennedy responds to a question from one of his readers about Adam Smith's use of the invisible hand metaphor. Smith used the metaphor once in "The Wealth of Nations" and once in "Theory of Moral Sentiments" (and also once in his "History of Astronomy.") On neither occasion was it used to refer to the operations of markets. Kennedy documents the usage of the metaphor in his post. He concludes his post with the following:
Yes, I accept that this is somewhat different from the modern texts read by students and taught by modern economists (and widely believed in the media). But Oscar Lange (a Marxist) and Paul Samuelson (an exponent of the capitalist mixed economy) introduced the modern version of Adam Smith's use of the IH metaphor in the 1940s and it was boosted by modern theories of welfare economics and general equilibrium. For this the IH metaphor was hijacked, so to speak, to give their theories an authoritative pedigree back to Adam Smith.
Lost Legacy works tirelessly to draw attention to what Adam Smith actually wrote against the stubborn resistance of most of my colleagues who defend their modern version eloquently with many other modern theories, though none of them are related to Adam Smith's meaning. I base my case solely on Smith's works, which is the best guide to his meaning.
Every time I hear the invisible hand metaphor used to describe markets and ascribed to Adam Smith, I think of all the times I've heard someone say, "Our response should be an eye for an eye and a tooth for a tooth … just like Jesus says in the Bible." The words are there, but have those who recited them read the whole book and appreciated the context?
Markets indeed have an astounding coordinating capability that has generated an amazing abundance. There is something seemingly providential in markets. Even John Chrysostom percieved this. But methinks deification of markets goes a bit too far.
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