The Usual Misunderstanding About Adam Smith and an Invisible Hand
In the Brisbane Times (30 August) HERE:
“Nature and the Altruism Gene”
“Capitalism, Darwinism and democracy share not only a reliance on competitive self-interest but a presumption that self-interest works - or can be made to work - for the common good. As America's patron saint Adam Smith so memorably wrote in The Wealth of Nations, "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 self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."
This was the essence of Smith's famous invisible hand concept, and to the founding fathers it must have seemed, indeed, like manna from heaven. The invisible hand is the idea that a serendipitous glue ties individual self-betterment to the common good, so that the private interest and the public interest are, essentially, one.
The individual, wrote Smith, "intends only his own gain and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his original intention". Greed, in other words, will drive people to beneficial behaviour: producing the right deed, albeit for the wrong reason.”
Comment
The political comments associated with this article are not my concern. Its author has distinct views regarding a possible collapse of the US economy, to which I am tempted to say, as Adam Smith said in response to a similar concern about the collapse of Britain in the war against its colonies in North America, ‘there is a great deal of ruin in a nation’ (Corr. Letter 221, p 262, note 3; also WN IV.vii.64: pp 615-15, note 52).
However, the usual misquotation, and therefore, false conclusions of the article are of concern in Lost Legacy. The author, presumably an Australian, mocks Adam Smith as ‘America’s patron saint’, an goes on to show he is not talking of the Adam Smith from Kirkcaldy, Scotland, because the interpretation he puts on the passage he quotes, is actually the interpretation of the 'Adam Smith' created in Chicago nearly 200years later.
This Adam Smith is made to dance to the tune of “its all about greed”, which is quite different from Adam Smith the moral philosopher. Clearly, scholarly exactitude is not a strong point of leader writers on the Brisbane Times.
Where exactly is the reference to greed in the passage quoted: "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 self-interest. We address[,] ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages"? (You will find it at WN I.ii.4: pp 26-27; original punctuation aded in square brackets.)
If you tried to buy the ingredients for your dinner out of greed, you may be less successful if you fail to appeal to the seller’s self-interests. She serves her family’s self-interests with the net proceeds from what you pay her for your meat, beer, and bread, and she is able to meet her self-interests – the comforts of her family (presumably a moral duty, including in Brisbane) by addressing your self-interests in feeding yourself and your family.
Each party to the exchange by addressing the self-interests of the other is not being greedy by any meaning of the word. Smith specifically enjoins you to address their ‘self-love’ and talk of ‘their advantages’, NOT YOUR OWN! Be other-centred, not self-centred.
Of course, you can try to appeal to their 'humanity' and if successful (and everybody else was successful similarly) the seller’s family would starve and the Brisbane authorities would doubtless intervene and charge the seller with neglect of her children.
Moreover, if the Brisbane Times bosses suggested to the editorial writers that they work each and every day not for their pay, or their family’s requirements in food, clothing and shelter – not to mention the affluent living standards associated with Brisbane – but out of sheer delight at working for nothing but the entertainment of the Brisbane Times’ readers, we know, and so does the author of the editorial, what the response would be.
Brisbane Times: “This was the essence of Smith's famous invisible hand concept, and to the founding fathers it must have seemed, indeed, like manna from heaven.”
Comment
The connection between the use of the metaphor of ‘an invisible hand’ (used only once in Book IV) and the above quoted passage from Book I) is entirely made up. There is not connection in Wealth Of Nations, which is one of the common errors associated with those who assert that there is a connection. It most certainly was not a connection made by Adam Smith from Kirkcaldy. Its connection was invented by US academe in the 1950s to give a spurious blessing to their assertions that their mathematical models of general equilibrium prove what they allege Adam Smith had in mind when he used the metaphor.
The fact that the metaphor was not connected to markets (covered in Books I and II without a single mention of ‘an invisible hand) is an exactitude of damaging relevance and it is safe from instant rebuttal on the fairly certain assurance that hardly anybody is likely to check by opening Wealth Of Nations and reading for themselves.
How ‘it must have seemed, indeed, like manna from heaven’ is a nonsense – I think the ‘Founding Fathers’ and a lot more to think about (they were creating the world's first democracy before Australia was founded as another colony in 1788) than an obscure metaphor in a long book, which they didn’t take much notice of, and nor did anybody else until one or two obscure philosophers (Cliff Leslie for one) in the late 19th century commented critically on the metaphor’s religious implications, and then 60 years later a whole host of neoclassical teachers invented a narrative about it from the 1950s.
[Those readers interested in my rebuttal of the myth of the invisible hand may ask for a copy of the paper I am presenting to the History of Economic Thought, 40th Annual Conference, to be held in Edinburgh 3-6 September, by identifying themselves to: gavin at] negweb Dot coM .]
“The invisible hand is the idea that a serendipitous glue ties individual self-betterment to the common good, so that the private interest and the public interest are, essentially, one.
The individual, wrote Smith, "intends only his own gain[,] and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his original intention". Greed, in other words, will drive people to beneficial behaviour: producing the right deed, albeit for the wrong reason.” [WN IV.ii.9: p 456; Original punctuation added]
Comment
This statement, as they say, straining to be polite, is problematical.
Has the editorial writer in Brisbane actually read Wealth Of Nations? The chapter in question is not about greed at all. It is about motivation and in this specific case the motivation of ‘wholesale merchants’ who act to invest locally is their ‘risk aversion’ to sending their capital stock abroad to the British colonies in North America, where necessarily it has to cross a wild ocean, and be placed in the hands of people they do not know well, in legal systems which are likely to be partial to local interests, and where the turn around of their capital stock as imports back into Britain, not only doubles the risks of a second crossing, but also may take up to four years compared to a local turn round of two or three times in a single year.
It is not surprising that the more risk-averse merchants prefer the domestic trade to foreign trade. Smith explains it thus:
“Thus, upon equal or nearly equal profits, every wholesale merchant naturally prefers the home-trade to the foreign trade of consumption, and the foreign trade of consumption to the carrying trade. In the home-trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever necessarily brought home, or placed under his own immediate view and command.”
(WN IV.ii.6: p 454)
And the bit quoted in the Brisbane Times misses out the critical motive for preferring domestic investment, essential to understand the context of Smith’s use of the metaphor:
“But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestick industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” (
WN IV.ii.9:p 456)
The motive is not greed – it is caution; risk avoidance. And there is not mystery about it – ‘he intends only his own security’.
The consequence is that the total of domestic investment is the sum of all the individual investments made by those wholesale merchants who trade locally – the whole is the sum of the parts, a law of arithmetic. The greater the number of citizens who purchase the Brisbane Times, the greater the total revenue earned by the paper, and no invisible hand brings this about- it’s called producing a better newspaper as judged by customers. (If its a free sheet, the greate the number of readers the more advertising it atracts.)
And remember, despite the risk avoidance of some merchants in these matters, there was till a large number of local merchants who did engage in the colonial trade, despite the risks. They were not affected by an invisible hand – they took the risk and enough of them made regular profits to continue doing so.
Whether the actions of corporate bodies benefits society is an examinable question.
Certainly, polluters, monopolists, protected producers and restrictive union practices, do not benefit society. Adam Smith never shied from reminding readers of the perfidy of special interest groups (read Book IV if you want to check this statement).
And he never said anything about beneficent outcomes from whatever producers (owners, managers and employees) decide to do that necessarily benefited society.
The belief to the contrary is as much of a myth as the metaphor of ‘an invisible hand’.
“Nature and the Altruism Gene”
“Capitalism, Darwinism and democracy share not only a reliance on competitive self-interest but a presumption that self-interest works - or can be made to work - for the common good. As America's patron saint Adam Smith so memorably wrote in The Wealth of Nations, "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 self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."
This was the essence of Smith's famous invisible hand concept, and to the founding fathers it must have seemed, indeed, like manna from heaven. The invisible hand is the idea that a serendipitous glue ties individual self-betterment to the common good, so that the private interest and the public interest are, essentially, one.
The individual, wrote Smith, "intends only his own gain and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his original intention". Greed, in other words, will drive people to beneficial behaviour: producing the right deed, albeit for the wrong reason.”
Comment
The political comments associated with this article are not my concern. Its author has distinct views regarding a possible collapse of the US economy, to which I am tempted to say, as Adam Smith said in response to a similar concern about the collapse of Britain in the war against its colonies in North America, ‘there is a great deal of ruin in a nation’ (Corr. Letter 221, p 262, note 3; also WN IV.vii.64: pp 615-15, note 52).
However, the usual misquotation, and therefore, false conclusions of the article are of concern in Lost Legacy. The author, presumably an Australian, mocks Adam Smith as ‘America’s patron saint’, an goes on to show he is not talking of the Adam Smith from Kirkcaldy, Scotland, because the interpretation he puts on the passage he quotes, is actually the interpretation of the 'Adam Smith' created in Chicago nearly 200years later.
This Adam Smith is made to dance to the tune of “its all about greed”, which is quite different from Adam Smith the moral philosopher. Clearly, scholarly exactitude is not a strong point of leader writers on the Brisbane Times.
Where exactly is the reference to greed in the passage quoted: "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 self-interest. We address[,] ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages"? (You will find it at WN I.ii.4: pp 26-27; original punctuation aded in square brackets.)
If you tried to buy the ingredients for your dinner out of greed, you may be less successful if you fail to appeal to the seller’s self-interests. She serves her family’s self-interests with the net proceeds from what you pay her for your meat, beer, and bread, and she is able to meet her self-interests – the comforts of her family (presumably a moral duty, including in Brisbane) by addressing your self-interests in feeding yourself and your family.
Each party to the exchange by addressing the self-interests of the other is not being greedy by any meaning of the word. Smith specifically enjoins you to address their ‘self-love’ and talk of ‘their advantages’, NOT YOUR OWN! Be other-centred, not self-centred.
Of course, you can try to appeal to their 'humanity' and if successful (and everybody else was successful similarly) the seller’s family would starve and the Brisbane authorities would doubtless intervene and charge the seller with neglect of her children.
Moreover, if the Brisbane Times bosses suggested to the editorial writers that they work each and every day not for their pay, or their family’s requirements in food, clothing and shelter – not to mention the affluent living standards associated with Brisbane – but out of sheer delight at working for nothing but the entertainment of the Brisbane Times’ readers, we know, and so does the author of the editorial, what the response would be.
Brisbane Times: “This was the essence of Smith's famous invisible hand concept, and to the founding fathers it must have seemed, indeed, like manna from heaven.”
Comment
The connection between the use of the metaphor of ‘an invisible hand’ (used only once in Book IV) and the above quoted passage from Book I) is entirely made up. There is not connection in Wealth Of Nations, which is one of the common errors associated with those who assert that there is a connection. It most certainly was not a connection made by Adam Smith from Kirkcaldy. Its connection was invented by US academe in the 1950s to give a spurious blessing to their assertions that their mathematical models of general equilibrium prove what they allege Adam Smith had in mind when he used the metaphor.
The fact that the metaphor was not connected to markets (covered in Books I and II without a single mention of ‘an invisible hand) is an exactitude of damaging relevance and it is safe from instant rebuttal on the fairly certain assurance that hardly anybody is likely to check by opening Wealth Of Nations and reading for themselves.
How ‘it must have seemed, indeed, like manna from heaven’ is a nonsense – I think the ‘Founding Fathers’ and a lot more to think about (they were creating the world's first democracy before Australia was founded as another colony in 1788) than an obscure metaphor in a long book, which they didn’t take much notice of, and nor did anybody else until one or two obscure philosophers (Cliff Leslie for one) in the late 19th century commented critically on the metaphor’s religious implications, and then 60 years later a whole host of neoclassical teachers invented a narrative about it from the 1950s.
[Those readers interested in my rebuttal of the myth of the invisible hand may ask for a copy of the paper I am presenting to the History of Economic Thought, 40th Annual Conference, to be held in Edinburgh 3-6 September, by identifying themselves to: gavin at] negweb Dot coM .]
“The invisible hand is the idea that a serendipitous glue ties individual self-betterment to the common good, so that the private interest and the public interest are, essentially, one.
The individual, wrote Smith, "intends only his own gain[,] and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his original intention". Greed, in other words, will drive people to beneficial behaviour: producing the right deed, albeit for the wrong reason.” [WN IV.ii.9: p 456; Original punctuation added]
Comment
This statement, as they say, straining to be polite, is problematical.
Has the editorial writer in Brisbane actually read Wealth Of Nations? The chapter in question is not about greed at all. It is about motivation and in this specific case the motivation of ‘wholesale merchants’ who act to invest locally is their ‘risk aversion’ to sending their capital stock abroad to the British colonies in North America, where necessarily it has to cross a wild ocean, and be placed in the hands of people they do not know well, in legal systems which are likely to be partial to local interests, and where the turn around of their capital stock as imports back into Britain, not only doubles the risks of a second crossing, but also may take up to four years compared to a local turn round of two or three times in a single year.
It is not surprising that the more risk-averse merchants prefer the domestic trade to foreign trade. Smith explains it thus:
“Thus, upon equal or nearly equal profits, every wholesale merchant naturally prefers the home-trade to the foreign trade of consumption, and the foreign trade of consumption to the carrying trade. In the home-trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever necessarily brought home, or placed under his own immediate view and command.”
(WN IV.ii.6: p 454)
And the bit quoted in the Brisbane Times misses out the critical motive for preferring domestic investment, essential to understand the context of Smith’s use of the metaphor:
“But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestick industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” (
WN IV.ii.9:p 456)
The motive is not greed – it is caution; risk avoidance. And there is not mystery about it – ‘he intends only his own security’.
The consequence is that the total of domestic investment is the sum of all the individual investments made by those wholesale merchants who trade locally – the whole is the sum of the parts, a law of arithmetic. The greater the number of citizens who purchase the Brisbane Times, the greater the total revenue earned by the paper, and no invisible hand brings this about- it’s called producing a better newspaper as judged by customers. (If its a free sheet, the greate the number of readers the more advertising it atracts.)
And remember, despite the risk avoidance of some merchants in these matters, there was till a large number of local merchants who did engage in the colonial trade, despite the risks. They were not affected by an invisible hand – they took the risk and enough of them made regular profits to continue doing so.
Whether the actions of corporate bodies benefits society is an examinable question.
Certainly, polluters, monopolists, protected producers and restrictive union practices, do not benefit society. Adam Smith never shied from reminding readers of the perfidy of special interest groups (read Book IV if you want to check this statement).
And he never said anything about beneficent outcomes from whatever producers (owners, managers and employees) decide to do that necessarily benefited society.
The belief to the contrary is as much of a myth as the metaphor of ‘an invisible hand’.
0 Comments:
Post a Comment
<< Home