Thursday, November 23, 2006

His 'Greatest Legacy' - Surely Not!

As if on cue, given this week’s rather long postings on the so-called ‘invisible hand’, yesterday I was reading a book I purchased last year but which I forget to take back to Edinburgh when I returned there in September. It was raining heavily and I didn’t feel up to writing material for my forthcoming book on Smith and, anyway, my former day job colleagues asked me to look over a proposed contract they were putting together and my mind was not centred enough on the contents of Wealth of Nations to justify my attention.

The book in question is by Peter Minowitz and is called: “Profits, Priests, and Princes: Adam Smith’s emancipation of economics from politics and religion”, 1993, Stanford University Press, Stanford, CA. In my view, Dr Minowitz has written an excellent and scholarly study of Adam Smith’s writings, particularly in his chapters on Smith’s approach to supernatural religion and the ‘after life’. I found nothing in these chapters to undermine anything I wrote in this week’s posting on Smith’s status as a non-believer in revealed religion; in fact, I found much of the book to support what I had written.

This morning, wanting something to read over breakfast (my Internet was down again and I could not print off my regular newspaper columns) I picked up Dr Minowitz’s book and turned to Chapter 6: ‘The Invisible Hand’ which I did not look at while writing my three-part short essay on Smith’s use of the metaphor of ‘an invisible hand’ in response to a correspondent’s questions. Well that I didn’t!

In contrast to Chapters 7, 8, 9 and 10, which I read with great pleasure yesterday evening, Chapter 6 is so contrary to my thinking on Smith’s use of the metaphor ‘an invisible hand’ that I cannot think why Dr Minowitz could have arrived at his interpretation of it. He is so wonderfully correct and measured in his close arguments in Chapters 7-10 and so wrong in Chapter 6 that it ‘ruined’ my morning. I wrote, and re-wrote, only 330 words on Book IV of Wealth of Nations, when I normally would write or ‘tidy-up’ 1,000 before lunch. Even lunch in our nearby town with my wife and a neighbour was a strain, with me trying hard to focus on our social conversation.

Chapter 6 begins: ‘The concept of the invisible hand was perhaps Adam Smith’s greatest legacy’. It goes downhill from then on, though it brightens up at the end of the chapter, as if Dr Minowitz wrote the beginning to conform with conventional interpretations of his use of the metaphor, which he only partly corrects after his ritual genuflections to orthodoxy (his writing on supernatural gods and Smith’s beliefs show no such holding back to avoid upsetting conventional attributions to him of the biblical certainties).

Dr Minowitz notes, correctly, that Smith uses the metaphor sparingly – only three times – and makes a little joke about his use being ‘almost invisible’. ‘On a practical level,’ he writes, ‘the invisible hand represents the liberation of individual self-interest and a concomitant restraining of the political impulse to supervise society as a whole.’ If only it did, though, of course, like in Alice and Wonderland, you can make any metaphor to mean exactly what you want it to mean.

I discussed in this week’s essay the meaning of Smith’s use of ‘an invisible hand’ in Moral Sentiments. Needless to say, this is not Dr Minowitz’s interpretation. I suggest that the division of the land under property relations could not but increase the productivity of agriculture if population were to grow above the level of the ‘rude’ hunter gatherer mode. The property owner could indulge in selfish consumption – palaces compared to hovels – but only if the growing population of serfs and retainers achieved at least the level of consumption achieved in the hunter-gatherer mode, otherwise they would experience high mortality rates and population would decline, not grow. This is an inescapable fact of subsistence below a tolerable minimum. It did not require ‘an invisible hand’ to bring it about. Nowhere was the land divided equally; if it had been, the production and property regime would have been unstable. Property was the essential component, and with property comes accumulation and, with output above subsistence, including the individual extravagance of property owners (up to limits), serfs and retainers would produce the output (serfs) and the security (the armed retainers), sufficient for the propagation of the species.

When Dr Minowitz turns to Smith’s metaphor in Wealth of Nations he runs several of Smith’s ideas together and misses the trivial nature of what Smith used the metaphor for. He asserts that: ‘The invisible hand is invoked to bolster Smith’s argument for free trade, especially free international trade.’ (p 129) He achieves this claim by noting that Book IV is a critique of Mercantile policies of trade restrictions and prohibitions adds that: ‘The immediate point Smith illustrates by means of the invisible hand is that people engaged in foreign trade promote society’s interest merely by pursuing their own “advantage” (p 129).

But hang on, Smith’s metaphor, as quoted by Dr Minowitz, is in Chapter 2 (of nine chapters in Book IV), which is about ‘Restraints upon the Importation from Foreign Countries of such goods as can be produced at home’ and is not about directly promoting foreign trade. At best it is about the irrelevance of restricting foreign imports (as Dr Manowitz notices). Smith suggests that because merchants prefer domestic trade, as ‘near home’ as possible to their trading in foreign imports for domestic consumption (on grounds or risk and security), and the carrying trade, they inevitably support domestic industry, and they ‘necessarily endeavour so to direct that industry, so that its produce may be of the greatest possible value’ (Book IV, Chapter II). It is these actions that promote the national interest – sell and buy domestically – and, in consequence, increase domestic annual product or revenue (GDP) by the most that suits the domestic country’s capital and labour.

That is what is called by Smith’s metaphor, ‘an invisible hand’. Nothing more, nothing less, but which Dr Manowitz asserts is ‘Adam Smith’s greatest legacy’! Surely not. If Smith’s ‘greatest legacy’ (‘greatest’ compared to everything else he wrote?) is only the arithmetical consequence of aggregating all the merchants and manufacturers maximising their individual annual outputs or revenues to produce the maximum annual output or revenue, then we can safely assert that this was the easiest intellectual legacy ever earned by anybody in the history of knowledge. That Smith’s legacy was much, much more, needs no proof.

The necessary laws of arithmetic – the arithmetical whole is the arithmetical sum of the arithmetical parts – is too trivial to be a legacy, except for the inventor of arithmetic. Hence, the source of my distractions for a few hours today. That the use of a metaphor, like ‘an invisible hand’, is perfectly legitimate, and that identification of the motivations that drive individuals to take certain courses is also perfectly legitimate, but the invention of something claimed, or implied, to be a mysterious career-making discovery when it is nothing more than the application of the basics laws of arithmetic is something right out of order, though widely believed across the profession of economics, which is a comment of its present state.


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