"Centrality" Exchanges in an Invisible Hand Debate

Brad Delong has composed a selection of pieces on Adam Smith and the invisible hand controversy (including some interesting comments), of which Lost Legacy has contributed its two-pence worth these past 4 years (and health permitting and other circumstances, I shall continue to do so for the foreseeable near future).

You can find the collage HERE:

Presently, I am composing a response to the excellently argued paper from Daniel Klein and Brandon Lucas on the “centrality” of Smith’s only references to the invisible hand metaphor in Moral Sentiments and Wealth Of Nations and its position in the ‘dead centre’ of both books. You should read Daniel Klein and Brandon Lucas’s paper HERE – and in Brad Delong’s excellent Blog:

Nov 01, 2009
Was the Invisible Hand "Central" to Smith?
Daniel Klein, Professor of Economics at George Mason University and Editor of Econ Journal Watch, asks:
What probably would you put on the truth of a broad hypothesis of deliberate centrality?

Here's more background on the question:

In a Word or Two, Placed in the Middle: The Invisible Hand in Smith’s Tomes, by Daniel B. Klein and Brandon Lucas: Abstract: The meaning and significance of Smith’s expression “led by an invisible hand” has been long debated, and especially lately. We speak to the large debate only in fine, by focusing on the conjecture, first hinted at by Peter Minowitz, that Smith deliberately placed his central idea, as represented by the phrase “led by an invisible hand,” at the physical center of his masterworks. We bring supportive evidence and argumentation to the conjecture. The four most significant points developed are as follows: (1) The expression “led by an invisible hand” occurs pretty much dead center of the 1st and 2nd editions of Wealth of Nations, and of the final edition of the volumes containing Theory of Moral Sentiments. (2) The expression in WN drifted only a bit from the center, only about 5 percent from the center in the final edition (and even less if the index is excluded). (3) The rhetoric lectures show that Smith not only was conscious of deliberate placement of potent words at the center, but thought it significant enough to remark on to his pupils, noting that Thucydides “often expresses all that he labours so much in a word or two, sometimes placed in the middle of the narration.” (4) There numerous and rich ways in which centrality and middle-ness hold special and positive significance in Smith’s thought. In conjunction with larger considerations, these points may be helpful in assessing the significance of Smith’s famous phrase.

Here's a figure showing centrality through the 7 editions of each work.

This is an attempt to rescue the invisible hand from critics who argue that the invisible hand idea that is attributed to Smith was not a central part of his writing (e.g. see Gavin Kennedy).
In answer to the question, it doesn't seem very likely to me that this was intentional.
________________________________________
Note: If you are unfamiliar with the debate over the invisible hand, here is Gavin Kennedy:
...Lost Legacy has never been slow in criticizing the ‘Chicago Adam Smith’, a person with ideas that are far from the ideas of the Adam Smith born in Kirkcaldy in 1723.

George Stigler’s boast that “Adam Smith is alive and well and lives in Chicago” (1976) reflects to invention of the Adam Smith of the “invisible hand” (a mere metaphor for Adam Smith whose single use of it in Wealth Of Nations referred to the unintended consequences of the risk-avoidance of some, but not all merchants ... who preferred the home trade), and had nothing to do, at least in Adam Smith’s mind, with how markets worked, ... or how the price system worked.
The belief that the “invisible hand” was a significant ‘idea’, ‘concept’, ‘theory’, or ‘paradigm’ was wholly invented in the 1950s by neo-classical economists on the back of general equilibrium mathematics ... and in support of a worthy criticism of Cold War, Soviet central planning. It is now taught in every economics 101 class as if it had historical validity, mainly by people who have never bothered to read Wealth Of Nations. ...

Update: See " Yet Another Note on Adam Smith's "Invisible Hand": What It Is and What It Is Not" by Brad Delong.
Posted by Mark Thoma on Sunday, November 1, 2009 at 10:54 AM in Economics, History of Thought Tweet This Permalink TrackBack (0) Comments (19)

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RW said...

Kennedy's account makes sense and is consistent with Cold War historical patterns as well; e.g., Congress adding the words, 'under God,' to the Pledge of Allegiance in 1954 to better contrast our system with the godless commies (and satisfy the then rather powerful Knights of Columbus and their allies).
Reply Nov 01, 2009 at 12:35 PM

Dennis Ashendorf said...
Dr. Thuma,
You agree with Kennedy? You consider Klein's "statistical" argument unpersuasive?

Reply Nov 01, 2009 at 01:11 PM
Tom Hickey said...
Who cares what Adam Smith "thought" or "intended." We'll never know. His use of the term may give the concepts and explanations derived from it (for Smith did not do so) some authority. But if orthodox economics is dependent on arguments from authority for its underpinnings, we are all in big trouble.
The question is, what testable hypotheses can be derived from the concept further fleshed out by subsequent economists. That is to say, can it be shown empirically that there are "natural forces" that incline markets to equilibrium. If these forces are "natural," then how do markets fail (and they do). Is the exogenous shock explanation a testable hypothesis, or a simply an assumption necessary to make the contraption work at the margin?

Reply Nov 01, 2009 at 01:59 PM
Richard H. Serlin said...
Places like George Mason and Chicago are really seeming like echo chambers. Are there people at those departments who aren't willing to use weak, deceptive, or downright embarrassing measures to defend the dogma? Is there any attempt to hire people with other views and training?

Reply Nov 01, 2009 at 03:20 PM

Fred C. Dobbs said...
'Hypotheses non fingo', as somebody
said, well before Adam Smith.
Reply Nov 01, 2009 at 03:34 PM

john wycliffe said...
I'm sorry.

If we can't agree on what Smith meant by "the invisible hand," how can anyone even suggest that it was a central feature of his thinking?
Seems to me a central feature would be something that gets rather more attention, doesn't it?
Or have I shown myself to be woefully ignorant? If so, please to explain?
Reply Nov 01, 2009 at 05:14 PM

Tom Hickey said...
@ Fred C. Dobbs
Watch your language, buddy. Just kidding.

It was Newton who said this, and it is well known that Smith was "impressed" with Newton's work. It is quite possible that Smith modeled his thinking to some degree on Newton (this is controversial), Certainly, the idea of natural forces in economics bears a relation to the physical sciences that had been so influential in this period. This influence may have persisted and may continue to persist in orthodox economic thought. For example, the notion of a "representative agent" that goes proxy for all consumers is an attempt to achieve the kind of elemental reduction of the hard sciences.

On the principle of hypotheses non fingo, it is unnecessary to account for assumptions like natural forces in terms of causes. Asking why is not needed because showing how is sufficient. Gravity doesn't have to explained in terms of causes. It works as an explanation of planetary motion, filling in the Copernican view.
However, there is a great difference here between natural forces like gravity (which elicited the hypotheses non fingo response from Smith in the first place), which result in predictions that can be tested empirically, the assumptions of orthodox economics that do not. It's not a matter of why here, the how is in question, since the economic models haven't exactly produced anywhere near the same engineering results. At this point, why is a legitimate question, and "because Adam Smith said so," isn't adequate justification.

Proponents of orthodox economics would object that experiments cannot be designed to test hypotheses in economics as they can in the physical sciences. But that still leaves them to explain how the what the hypotheses are good for if they can't actually predict and often apparently don't work. Steve Keen does a pretty good job showing this in Debunking Economics.

Orthodox economics sees to be in a position similar to psychology when B. F. Skinner dominated the field. No one got hired and certainly not promoted without toeing the line. Until Abraham Maslow came along and revolutionized the field.
My sense is that Abba Lerner's functional finance could be the Copernican Revolution in economics. The people using it as the basis for modern monetary theory are showing how this provides a coherent explanation independent of "natural forces" and one that can be corroborated through social engineering (full employment with price stability) if the political understanding and will can be found. Plus, it puts and end to a lot of the quasi-religious myths.

Reply Nov 01, 2009 at 05:35 PM
Tom Hickey said...
Ooops — (which elicited the hypotheses non fingo response from "Smith" in the first place) should have been "Newton."
Reply Nov 01, 2009 at 05:39 PM

wjd123 said...
Adam Smith was a moral philosopher and not a physicist. I doubt he would recognize the economic presuppositions of neo-classicist today much less approved of them.
Their underlying presuppositions about the nature of economic man and efficient markets is, in my opinion, turning American capitalism into a particular virulent strand of capitalism that it would be hard for moral philosophers to justify much less recognize.

It's my impression, from what little I know of Smith, that these neo-classicists, have presumed, quite illegitimately, on Smith's writings about the needs of the butcher, the baker, and the candle stick maker to turn them into an unseen force guiding markets.

How convenient for them, but it doesn't square with the Smith who advocated regulations and certainly not with any claim of theirs that Smith thought the invisible hand was a necessary evil. If someone can quote a specific statement by Smith on the invisible hand, justifying it without reliance on presumptions, I'm listening.

I'm not an economists but assertions based on weak suppositions don't belong in economic text books. It's more the sort of thing from which historical fiction is fashioned.

I think neo-classical economists are using historical fiction to turn American capitalism into a particular virulent strand of capitalism with Adam Smith wouldn't recognize.
I mention this because of a certain sentiment I hear more and more today that I particularly loath: the presumption that those in positions of power will naturally use their position to maximize their self interests. It's most egregious when it's used to justify the multimillion dollar salaries of CEOs.

I loath this logic because it appears to be an attempt by those in positions of responsibility to absolve themselves of any personal responsibility for their actions: "It's the governments fault for not stopping us before we killed again." And then the appeal, "If you were in our shoes you would have done the same" as though what they are doing is natural. Both appeals fit nicely with the presuppositions of neo-classical economists about self interested economic man where economic man is a self interested sot.

I think of this latter appeal as an attempt to democratize the behavior of these CEOs because the "you" isn't an appeal to their peers who are among the top earners in our society even before exercising their stock options but an appeal to the guy on the street, Main Street, struggling to make ends meet.

The guy in the streets has enough trouble without having these fat cats trying to get into his or her head. The guy in the street isn't in their shoes and to suggest that if he were he or she too would stuff their bank accounts by back dating their stock options or getting their quarterly reports to look good by hock or crook, is insulting.

I believe that the more wealth you have the looser your attachment to society. In this respect the filthy rich are not much different than the desperate poor. The desperate poor can't afford the norms of society and the filthy rich can't be bothered with them. It's a natural fit for the wealthy when being scrutinized by society for their irresponsibility to point to others who are in a position to act irresponsibly and present it as the way of world.

There is, however, an ethical difference between the desperate poor and the filthy rich in that the ethical "ought" implies "can". So ethically the poor person's "can't afford" offers some mitigation against the accusations of irresponsible behavior by society whereas the rich person's "can't be bothered" doesn't. (Also, there is nothing keeping the poor from having a sub-set of unofficial norms which they can keep since they are the most in need of protection. For protection the wealthy hire lawyers.)

The above justifications by those in positions of power acting irresponsible along with every other rationalization that can be thought up to excuse their behavior can be found in the financial media. It's a cornucopia of apologetics for anti-social behavior.

The idea that in the capitalistic society of the neo-classical economist it's only naturally that we learn to walk and talk like their capitalists may be a growing truism with horrible consequences for society yet to be imagined even after the financial crisis, or possibly because of it.

I would hate to live in a society where the strongest motivation for the butcher to keep his thumb off his scales is the fear of the law. Fear of the law is for people who haven't internalized the idea of the good. Fear of the law is for those who need a government to blame for their lack of responsibility; it's for those looking for a way to rationalize their behavior. Therefore, the constant refrain heard from those walking away with millions or abusing their powers is, "I haven't done anything illegal."

When I was a kid in grade school--a long time ago when taxes on the top earners were 90%--a well respected neighborhood dentist came in to talk to my class about his profession. The one thing I remember him telling us about dentistry was "It will keep food on the table and a roof over your head." That was sufficent, there was no talk about "cavier dreams."
I suspect it would have been sufficient for Adam Smith butcher. I dare to hope that it is sufficient for the man or woman in the streets today dispite the best efforts of neo-classical economist to get into their heads with their particular virulent strand of capitalism.
Reply Nov 01, 2009 at 11:53 PM

anon/portly said...
Okay, Daniel Klein is obviously a nut, but the question of how central to Smith the "invisible hand" concept was, or at the least the things Smith was using it to describe, is an interesting question.
"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."

I think this brings up several questions. How "many" other cases - a few, lots? What would some of those other cases be? Is the concept of "promot[ing] an end which was [unintended]" a big part of Smith's analysis, or not?

I don't think it's too crazy to see similarities between the merchants who Smith views as promoting the ends of society via risk-avoidance (as Gavin Kennedy notes) and profit-maximization (as Gavin Kennedy omits to note), and the well-known profit-maximizing merchants of this passage:

"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."
Would this be a candidate for one of those "many other cases," or not?
You might think I am merely attempting to make a point but there's no use my denying it: I consider this to be a devastating, final 'proof' of my assertions.
http://adamsmithslostlegacy.com/2009/04/invisible-hands-explain-nothing.html
Reply Nov 02, 2009 at 12:58 AM

reason said...
I'm with Tom Hickey on this. Who cares.
Reply Nov 02, 2009 at 01:49 AM

Fred C. Dobbs said...
Injecting 'the invisible hand' into the consideration of economics. Is that not a way to insert religion into the discussion, perhaps to suggest that the end really is near, as the 'invisible handwriting is on the wall'?
Reply Nov 02, 2009 at 02:26 AM

kharris said...
The problem with claiming a sparsely employed expression in Smith's writing to be central to the thought behind the writing is at least two-fold. First is that (OK, I know there will be objections, but stay with me) Smith is a very good writer. I'm not saying he is the sort of writer that today's reader can't put down, but neither is Shakespeare for a great many modern readers. Look at the sensation Smith caused in his own day. He managed to grab the attention of thinkers in his own time, and won praise in the process.

If a great writer had meant - as Smith suggested Thucydides did - to feature a particular idea by placing it carefully in the middle of the essay, wouldn't he have done so in a way that caused readers in his own age to notice? Kennedy's point is that "invisible hand" became a fad nearly 200 years after it was first shown to the world. If it were central to Smith's thinking, given that he is a good writer (more Herodotus than Thucydides, to my thinking), then wouldn't he have been able to make the expression a fad in his own time? If it did not become a sensation after the first edition, wouldn't he have made the sort of changes that would have given it greater prominence?

The second "fold" of the problem is that the claim of centrality based on location looks like special pleading aimed at push-back. If location is the only claim one can put forward for Smith's own intentions regarding the centrality of "invisible hand" thinking (thanks to Tom H, for inserting the "intentionalist fallacy" into the discussion), then the claim is a thin one. Do we know, for instance, that no other expressions were used in a roughly central position in the text - expressions that have not been adopted to make claims about Smith that are otherwise hard to support - but not elsewhere? If "invisible hand" is not unique in its Thucydidian locational qualities, then the argument for intent is weakened. I don't intend to do a search for every 2-to-5 word phrase in the middle 10% of the book to find out, but isn't it somewhat incumbent on Klein and Lucas to substantiate their argument with more than just Smith's fondness for a writing trick from Thucydides?
Reply Nov 02, 2009 at 05:32 AM

Barkley Rosser said...
"Invisible hand" was a general trope of the British
Englightenment. Smith was the first to apply it to
economics, although he did so in a way not consistent
with the current textbook interpretation.
It looks like it first appeared in a letter in 1712
from Robert Cotes to Isaac Newton in connection with
Newton's theory of gravity. Bodies are drawn towards
each other "as if by an invisible hand."
Reply Nov 02, 2009 at 06:52 AM

Barkley Rosser said...
I have just seen it noted that the phrase "invisible hand" appears in Shakespeare's "Macbeth," although in a much different usage. Pretty clear that the theory of gravity is closer to the concerns of Adam Smith than as means of undoing the mortal coil.

Reply Nov 02, 2009 at 07:03 AM
anne said...
http://shakespeare.mit.edu/macbeth/macbeth.3.2.html
1605
The Tragedy of Macbeth
By William Shakespeare
Act III. Scene II.
The palace.
Enter LADY MACBETH and a Servant
LADY MACBETH
Is Banquo gone from court?
Servant
Ay, madam, but returns again to-night.
LADY MACBETH
Say to the king, I would attend his leisure
For a few words.
Servant
Madam, I will.
Exit
LADY MACBETH
Nought's had, all's spent,
Where our desire is got without content:
'Tis safer to be that which we destroy
Than by destruction dwell in doubtful joy.
Enter MACBETH
How now, my lord! why do you keep alone,
Of sorriest fancies your companions making,
Using those thoughts which should indeed have died
With them they think on? Things without all remedy
Should be without regard: what's done is done.
MACBETH
We have scotch'd the snake, not kill'd it:
She'll close and be herself, whilst our poor malice
Remains in danger of her former tooth.
But let the frame of things disjoint, both the
worlds suffer,
Ere we will eat our meal in fear and sleep
In the affliction of these terrible dreams
That shake us nightly: better be with the dead,
Whom we, to gain our peace, have sent to peace,
Than on the torture of the mind to lie
In restless ecstasy. Duncan is in his grave;
After life's fitful fever he sleeps well;
Treason has done his worst: nor steel, nor poison,
Malice domestic, foreign levy, nothing,
Can touch him further.
LADY MACBETH
Come on;
Gentle my lord, sleek o'er your rugged looks;
Be bright and jovial among your guests to-night.
MACBETH
So shall I, love; and so, I pray, be you:
Let your remembrance apply to Banquo;
Present him eminence, both with eye and tongue:
Unsafe the while, that we
Must lave our honours in these flattering streams,
And make our faces vizards to our hearts,
Disguising what they are.
LADY MACBETH
You must leave this.
MACBETH
O, full of scorpions is my mind, dear wife!
Thou know'st that Banquo, and his Fleance, lives.
LADY MACBETH
But in them nature's copy's not eterne.
MACBETH
There's comfort yet; they are assailable;
Then be thou jocund: ere the bat hath flown
His cloister'd flight, ere to black Hecate's summons
The shard-borne beetle with his drowsy hums
Hath rung night's yawning peal, there shall be done
A deed of dreadful note.
LADY MACBETH
What's to be done?
MACBETH
Be innocent of the knowledge, dearest chuck,
Till thou applaud the deed. Come, seeling night,
Scarf up the tender eye of pitiful day;
And with thy bloody and invisible hand
Cancel and tear to pieces that great bond
Which keeps me pale! Light thickens; and the crow
Makes wing to the rooky wood:
Good things of day begin to droop and drowse;
While night's black agents to their preys do rouse.
Thou marvell'st at my words: but hold thee still;
Things bad begun make strong themselves by ill.
So, prithee, go with me.
Exeunt
Reply Nov 02, 2009 at 08:34 AM
Barkley Rosser said...
Thanks, anne. Figured you might come through on this one. Exeunt, indeed, :-).
Reply Nov 02, 2009 at 10:13 AM

Harold said...
Doesn't "the invisible hand" really refer to a belief that Providence (in the form of ever-improving Progress) had directed (non-Darwinian) evolution in such a way as to assure that "the best" always came out on top, an outlook prominent during the period of British late nineteenth-century imperialism.
Herbert Spencer's libertarian "political philosophy" (otherwise known as the "police state" theory of government, which holds that government's role should be limited to protecting private property, dates from this era.
Reply Nov 02, 2009 at 12:45 PM

Barkley Rosser said...
Harold,
Not in Newton or Smith, who way predate all that Victorian evolution...