Friday, December 15, 2006

Boudreaux on ‘Invisible Hands’

My admiration of, and respect for Don Boudreau, is well-known to readers, but that does not prevent me questioning his statements when I believe that they warrant it.

In a short piece for popular consumption, ‘Spontaneous Order and Law’ in Pittsburgh Tribune-Review, he informs his readers of some elementary principles of law, of how laws evolved by people adopting ad hoc informal ‘rules’ of behaviour towards each other, which when they become general because they work, by reducing disputes, tend to be formed into mandatory codes, backed, later, by official enforcement.

For a first class in ‘spontaneous order’ (after Hayek) Boudreaux’s article is just right. The attention span of the audience precludes strict adherence to unambiguous criteria, but the gist of it is just fine.

However, he kicks off the first paragraph with:

“Adam Smith famously observed that "it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." Smith explained how self-interested behavior by each person in a private-property-rights environment combines with the self-interested actions of others to bring about a peaceful, productive and complex economy that no one designed. This economy is the result of what Smith called "the invisible hand."


Without the last sentence it would be still be correct; including it I find it problematic. Smith never called an economy the ‘result’ of ‘the invisible hand’. Minor quibble, but indicative; Smith only mentioned twice about ‘an invisible hand’ twice, first as a metaphor for unintended consequences of individuals (unpleasant rich people, as John Pratt puts it) whose ‘natural meanness and rapacity’ is curbed by the minimal subsistence that keeps a population multiplying (Moral Sentiments, IV.1.10: p 184) and second for the risk aversion of traders preferring to trade locally and not abroad, which concentrates their capital accumulation domestically and enables the national interest (domestic wealth, or, today, GDP), to grow faster than it would if their capital necessarily was spread thinner, or what amounts to the arithmetic of the ‘larger whole is the sum of its larger parts’.

He was not referring to markets on either occasion. To suggest that he did, gives credit to the ‘Chicago Adam Smith’, neo-classical to the core, who has little in common with the Adam Smith of Kirkcaldy, who wrote Moral Sentiments and Wealth of Nations.

Smith had a social-evolutionary method of analysis that began with the origins of phenomena, like language, morals, political economy, forms of government and law (the negative virtue of justice), and used it to show the ‘connecting links’ of disparate phenomena (from his ‘History of Astronomy’. His theory of how economies evolved and work is in his analysis, and not in a metaphor.

On the first occasion, in ‘Moral Sentiments’ (TMS IV.I.10.10: p 184-5), he states that if rich landlords wish to extract each year from the harvests sufficient product to trade to acquire ‘trinkets of frivolous utility’, then it is necessary for them to distribute sufficient subsistence to their retainers and serfs to maintain themselves and their families at a minimum level consistent with the multiplication of the species and their capacities for labour. If they do that they will discover that mortality will decline, and serfs and retainers will produce insufficient children to replace deaths among adults, and labour will be beyond them.

Now, as this minimal condition obtained in ‘Rude’ society (before the earth was subjected to the division into properties), it follows that the distribution of subsistence by rich land owners to pay for their retainers and serfs’ productive efforts would at least equal the situation obtaining in such an arrangement, when everybody had equal portions of land. If it didn’t, such a society would experience real decline.

In short, the base-line subsistence level operates in all societies, all four Ages of Man: if the population is not fed, clothed and sheltered by its mode of production it declines below the reproduction rate and becomes to weak to work; if its mode of production raises subsistence output, it achieves or exceeds it reproduction rate, and labourers are able to work.

To use a metaphor to describe this ‘iron law’ as its participants are being ‘led by an invisible hand’, adds nothing to the sense of his examples, not does it detract from them (providing that metaphor is appropriate, is not forced, is self-consistent and has its own ‘beauty’; see Adam Smith, 1762: Lecturers in Rhetoric and Belles Lettres’, Lecture 6, Liberty Fund, 1985). Converting the metaphor into what it was not is misleading.


Post a Comment

<< Home