Monday, August 21, 2006

Tobin's Hyperbole About Smith's Invisible Hand

Mark Thoma on in his Blog (, reports (20 August) on ‘An Interview with James Tobin’, the distinguished professor, from the post-war generation of Keynesians (I read him first while an undergraduate).

I had reason to be reminded of Professor Tobin recently while writing on the perennial subject (for me, that is) of “Smith on an invisible hand”, a subsection of a chapter of my new book on Adam Smith (for Palgrave Macmillan, 2007). The extract refers to chapter II of Book IV of Wealth of Nations, which contains his sole reference to this mysterious force in human motivation, now, alas, transformed into a ‘theory’ of markets by people who should know better.

I was surprised at the time find Tobin, in common with Arrow and Hahn, lauding the metaphor in terms that I considered to be over-the-top, wildly wrong and embarrassing for three distinguished scholars. Hence, my comments in what follows are not flattering of my otherwise happy appreciation of my memories of Tobin, at least on this singular occasion:

“From the end of the 19th century until now, and increasingly from the mid-20th century, an alleged affinity between Adam Smith and a so-called ‘invisible hand’ has been near total in the public’s mind. This statement is heavily qualified as ‘alleged’ or ‘so-called’ because it needs to be treated so.

It may come as surprise to persons brought up, as it were, on Smith’s ‘theory of the invisible hand’, to learn that he had no such theory, that he used the metaphor only three times (in a million published words), and once in Wealth of Nations [1] (and not in reference to markets), and that he showed no inclination to treat it as anything more than an isolated metaphor including in his other two uses, once in his History of Astronomy, [2] in reference to pagan superstition, and once in Moral Sentiments, [3] in reference to feudal lords divvying up their accumulated produce among their retainers and serfs in roughly the same quantities as would be distributed if land had been divided equally.

Towards the end of the 20th century, three veritable giants among economists lauded Smith for his metaphor, describing it variously as: ‘The profoundest observation of Smith’; ‘surely the most important contribution [of] economic thought’; and ‘one of the great ideas of history and one of the most influential’.[4] How did Smith’s casual metaphor achieve such high status two centuries after him? No wonder that almost all of the profession followed suit in according a metaphor the unbelievably high status it now enjoys, as a ‘profound’, ‘great’ and ‘influential’ idea - a clear case of the ‘Emperor having no clothes’?

There are two parts to his metaphor’s promotion from ‘an invisible hand’ to ‘the invisible hand’ and to its iconic status in modern treatments of Adam Smith by academics and media professionals, the latter group counting less in Smith’s day to ours. The first part deals with what the metaphor meant to Smith, and the second part deals with what his posterity did with it. Both parts are difficult to be certain about because we can only deduce the meaning of the metaphor for Smith from his rare use of it, and we can only comment on what we think users today claim he meant.

Remarkably, discussion – it was never a debate – is universally muted. The metaphor of the invisible hand was not remarked upon at all for nearly a hundred years after Smith’s death in 1790, after which early assumptions about it slipped into the mainstream almost unnoticed.[5] An exception to the almost, but not quite, unanimous [6] silence was a paper, ‘Thy Bloody and Invisible Hand’, delivered by Emma Rothschild at the prestigious American Economics Association in 1974, later published in her book, Economics Sentiments.[7] I have drawn from her work in this chapter, without implicating her with aspects of my treatment.

From where did Smith take the metaphor? We don’t know, but he was almost spoilt for choice because versions of the metaphor had been around for a long time and Smith was most likely familiar with all of them. Emma Rothschild reports literary references to ‘invisible’ and ‘hands’, and ‘invisible hands’, in Homer (Illiad), Ovid (Metamorphoses), Lactantius (De divinio praemio), Augustine (City of God), Shakespeare, (Macbeth), and, in correspondence, Voltaire and Condorcet. [8] To which James Buchan adds Daniel Defoe’s ‘resourceful whore’, in his Moll Flanders (1722). [9]
Cutting to the chase, I shall explore what ‘an invisible hand’ supposedly referred. To begin, you should note that in both Moral Sentiments and Wealth of Nations Smith refers to an invisible hand, with the indefinite article ‘an’, not with the definite article ‘the’, though in almost all cases, except direct quotes from Smith, modern authors refer to it as ‘the invisible hand’ and it is to ‘the invisible hand’ than they attribute its status as ‘one of the great ideas of history and one of the most influential’ (see the above references to Arrow, Hahn and Tobin).

The difference between ‘an invisible hand’ and ‘the invisible hand’ is highly significant, though for readers unfamiliar with the original references in Smith, the ‘sleight of hand’, to coin a phrase, is, well, ‘invisible’. And that should answer the question raised about what Smith meant by using the metaphor! A metaphor is such because it is indefinite. It has no real counterpart in reality.

Feudal lords, Smith wrote, ‘are led by an invisible hand’ [10] and undertakers, anxious not to be separated from their capital, are ‘led by an invisible hand’;[11] note that neither of them are led by ‘the invisible hand’, for the simple reason that there isn’t one, and Smith never intended that readers should conclude any differently.

Smith, in the case of the heavenly Roman god, Jupiter, referred to ‘the invisible hand’, because in pagan beliefs supposedly he used it to protect the earthly Roman emperor with thunderbolts, as represented on Roman coins.[12] That is the difference between using a metaphor and using a definite noun, and Smith certainly, and beyond doubt, knew of the difference, as we can read in his lectures on rhetoric, which include his discussion on metaphors that make particular reference, incidentally, to how Shakespeare used them.[13]

It is clear then that Smith used ‘an invisible hand’ purely as a metaphor, possibly casually; too casually in view of the hyperbolic adulation made about it two hundred years later by its elevation into a ‘theory’. That such distinguished scientists, including winners of the Bank of Sweden Prize in Economics in Memory of Alfred Nobel, Magi-like, travelled so far from their normal habitat of the abstract desert of general equilibrium to salute an isolated metaphor, as ‘one of the great ideas of history and one of the most influential’,[14] can only be the result of their complete unawareness of (or their completely forgetting) Smith’s historical, social-evolutionary approach.”

[From ‘Adam Smith’, Chapter 7; © Gavin Kennedy, 2006]
[1] WN IV.ii.9: p 456
[2] EPS III.2: p 49
[3] TMS IV.1.10: pp 184-5
[4] Arrow, K. 1987. ‘Economic Theory and the Hypothesis of Rationality’ in The New Palgrave: a dictionary of economics, Macmillan, London; Arrow, K. and Hahn, F. 1971. General Competitive Analysis, p 1, Holden-Day, San Francisco; Tobin, J. 1992. ‘The Invisible Hand in Modern Microeconomics’, in M. Fry, ed. Adam Smith’s Legacy: his place in the development of modern economics, Routledge, London
[5] Cliff Leslie, T. E. 1879. Essays in Political and Moral Philosophy, pp 154-55, Hodges, Foster and Figgis, London; Ingram, J. K. [1888] 1967. A History of Political Economy, pp 89-90, 102, 104, Augustus M. Kelly, New York; Bonar, J. 1892. Palgrave: Dictionary of Political Economy, ed. R. H. Inglis Palgrave, pp 3: 423, 415; Bonar, J. 1893. Philosophy and Political Economy in Some of their Historical Relations, pp 150, 173, Sonnenschein, London; cited in Rothschild, E. 2001. pp 117-8
[6] Cf. (Both authors at the University of Glasgow): Macfie, A. M. 1967. The Individual in Society: papers on Adam Smith, ‘The Invisible Hand’ in the Theory of Moral Sentiments’, pp 101-25, George Allen & Unwin, London; Campbell, T. D. 1971. Adam Smith’s Science of Morals, pp 60-1; 70-73, George Allen & Unwin, London; Cf. Novak. M. 1982. The Spirit of Democratic Capitalism, pp 113-115, Simon & Schuster, New York
[7] Rothschild, E. 2001. Economic Sentiments: Adam Smith, Condorcet, and the enlightenment, pp 116-56, Harvard University Press, Cambridge, Mass.
[8] Rorhchild, E. 2001. Economic Sentiments, pp 119-21
[9] Buchan, J. 2006. Adam Smith and the Pursuit of Progress, p 2, Profile Books, London;
[10] TMS IV.i.10: p 185
[11] WN IV.ii.9: p 456
[12] EPS III.2: p 49
[13] Smith, A. Lectures on Rhetoric and Belles Lettres, i.v.68: pp30-1
[14] Tobin, J. 1992. ‘The Invisible Hand in Modern Microeconomics’, in M. Fry, ed. Adam Smith’s Legacy: his place in the development of modern economics, Routledge, London


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