Sunday, July 01, 2007

So Near, Yet Just a Little Short of Being Perfect

Private equity will have to play fair on tax: American Account' by Irwin Stelzer in today’s Sunday Times Online (1 July):

So far, so good. But the dealmakers forgot to consult their undoubtedly dog-eared copies of Adam Smith, the man they cite for the proposition that they are being led as if by an invisible hand to do the public good. First, as James Buchan points out in his Adam Smith and the Pursuit of Perfect Liberty, that phrase occurs only three times in the million-word output of Smith, “and on not one of those occasions does it have anything to do with free-market capitalism . . .” More importantly, Smith argued that: “The subjects of every state ought to contribute towards the support of the government, as nearly as , in proportion to their respective abilities.”

Irwin Stelzer is almost right in quoting the excellent author, James Buchan, and his excellent book, Adam Smith and The Pursuit of Perfect Liberty [Profile Books, London; new paperback edition is out, £7.99; which is the subject of my review next week].

But James Buchan does not hold to visions of ‘an invisible hand’ in the manner attributed by implication from the manner in which Irwin Stelzer places his name in the same paragraph ‘as if’ (if I may be so bold) James Buchan had made a similar comment. He didn’t, and as we would expect, Buchan makes it very clear in his interpretation of the invisible hand that he was not fooled by claims about Smith’s use of it, which happens to be the same as mine in Lost Legacy (with one small caveat, which I cover in my review of the new edition of Buchan’s admirable volume, to be published here next week).

However, Adam Smith did not use the phrase ‘as if led’ instead of ‘are led’ before ‘by an invisible hand’. That is an interpolation introduced by habits from whence I know not where nor by whom I know not of. It changes Smith’s use of the metaphor of ‘an invisible hand’; it softens its more ridiculous claims to be taken seriously as other than a metaphor for what Smith has described in previously to the oft quoted paragraph.*

Check it out for yourself in your copy, ‘dog-eared’ or otherwise (Wealth Of Nations, Book IV, 9. p 456: ‘and he is in this, and in many other cases, led by an invisible hand to promote an end which was no part of his intentions’).

Why is this important? Well, Irwin Stelzer is commenting on the behaviour of certain equity-partners, and assuming that they read Adam Smith so often and have done for so long that their copies of ‘Wealth Of Nations’ are ‘dog-eared’ (excluding the unlikely possibility that they only own second-hand copies), they will find, if they consult their copies, a different phraseology to that which Irwin attributes to Smith, which might lower the attention they pay to his advice.

The real problem for me is that to the incorrect attribution of certain qualities to Smith’s use of a well-known, to him at least, literary metaphor (only three times in all of his works), Irwin changes the meaning that Smith gave it by his use of the metaphor as quoted above.

As if led by and invisible hand’ is different from ‘led by an invisible hand’. This opens another debate between those who see Smith as some sort of ‘Deist’ (believer in an original God, but not a personal God) and those who see him as essentially atheistic (such as I do).

I would add, in parenthesis, that when Adam Smith speaks of the inner motivation of people he talks unambiguously of their constant striving to better themselves and this does not need, nor does he give it, the metaphor of ‘an invisible hand’:

‘… the principle which prompts to save, is the desire of bettering our condition, a desire which, though generally calm and dispassionate, comes with us from the womb, and never leaves us till we go into the grave. In the whole interval which separates those two moments, there is scarce perhaps a single instant in which any man is so perfectly and completely satisfied with his situation, as to be without any wish of alteration or improvement, of any kind. An augmentation of fortune is the means by which the greater part of men propose and wish to better their condition. It is the means the most vulgar and the most obvious; and the most likely way of augmenting their fortune, is to save and accumulate some part of what they acquire, either regularly and annually, or upon some extraordinary occasions. Though the principle of expence, therefore, prevails in almost all men upon some occasions, and in some men upon almost all occasions, yet in the greater part of men, taking the whole course of their life at an average, the principle of frugality seems not only to predominate, but to predominate very greatly.’ [WN II.iii.28: 341]

If only readers of, and writers about, Wealth Of Nations would stick to the actual propensities of humans to act in ways that raised the prospects of society - all of it, not just a few – enjoying the products of land and labour, i.e., the annual production of the ‘necessaries, convenience and amusements of life’, they would be closer to the really important messages contained in Wealth Of Nations.

* I cover the details in my paper: ‘Adam Smith’s Invisible Hand: from metaphor to myth’,(presented to the 34th Annual Conference of the History of Economics Scoiety, Fairfax, Virginia, 10 June) which interested readers may obtain by sending to me an email: GavinK9 [a]t] gmail{d]o][t]com from which they will receive an electronic copy.


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