Adam Smith's Lost Legacy: False Prospectus for "An Invisible Hand"
Gavin Kennedy offers observations in response to a piece by Peter Foster in the Financial Times about Smith's two famous uses of the "invisible hand" metaphor, once in the Theory of Moral Sentiments and the Wealth of Nations. Read Kennedy's whole post for more context.
… In Moral Sentiments, Smith was not glibly crediting “the rich” with “spread[ing] the wealth despite themselves.” The plain fact was that the “proud and unfeeling landlords” had absolutely no choice but to share their crops with the landless labourers as their sole source of basic subsistence because without food neither the labourers nor their families would survive a week – they had no other source of sustenance – and without food the labourers could not work and their families would not grow up to replace them, and the landlords would also starve. It was this dependence on their labourers which “led” them to order that they be fed, metaphorically expressed as the landlords being led by an invisible hand”. Moreover, given that agriculture, upon which societies depended and had done so since it was introduced 11,000 years ago as humans left the forests, their distributions of food, which had continued through many regimes, mostly tyrannical, were managed by the landlords’ overseers, not noted for their humanity. Of the accumulated wealth of the rich – basic conveniences and dressage of their castles – next to nothing was shared with the poor.
In Wealth Of Nations, the blanket term, “businessmen” also hides an important point made by Smith, namely the fact that he was referring to the specific case of some, but not all merchants, who were characterised by their felt insecurity for the fate of their capital if they sent it abroad. Instead, this sub-set of all businessmen, were “led” by that insecurity, metaphorically expressed as “an invisible hand” – insecurity in the man’s head could not be seen, i.e., it was “invisible” – to do what they chose to do out of their fears. By so doing, unintentionally they were led to add to the arithmetical size of national “revenue and employment”, which was a public good.
In both cases, the immediate cause of their doing a public good (the propagation of the species and an addition to the arithmetical total of “revenue and employment”) was metaphorically described by Smith as them being “led by an invisible hand”. He made no claims to nosense that there was an actual “invisible hand” present and working miraculously in “markets”, through “supply and demand”, the “price system”, “general equilibrium”, or any of the other nonsense wromgly in his name. …
… Smith also taught how self-interested individuals could act in disregard of the consequences of their actions, for which he gives over 80 examples in Wealth Of Nations, which did not add to the public good. Self-interest also led merchants to favour tariffs, prohibitions, and ‘jealousy of trade’ …
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