A Wee Gem of a Little Book

Packing my library of Adam Smith books today I came across a number of “treasures” related to my interrupted preparations for a new paper on the “invisible hand” controversy, of which my response to Daniel Klein’s most interesting discovery (great detective work! of an apparent intentional location of Smith’s use of the metaphor in both Moral Sentiments and Wealth Of Nations is reported and discussed. I shall post the response separately first as soon as I get a breather from downsizing a large 5-bedroom house into a much smaller 3-bedroom house nearby, to which get access on 4 February. Meanwhile we are also moving sufficient furniture and a very small library to our daughter’s house, also nearby, though in the opposite direction (the bulk of the rest are going into storage on 14 December).

The main subject of the new paper is on the semi-political use made of the metaphor of an “invisible hand” by modern economists since the 1940s, though there are isolated examples of its use in similar vein starting in the late 19th century and re-appearing in the early 1930s. It was to continue full-throttle from the 1940s, and then, Niagara-falls like, from the 1950s.

I believe that the evidence for an invented, completely new meaning to the metaphor of the “invisible hand”, certainly quite different from its use by Adam Smith (on the two occasions in which he used it in 1759 and 1776; his use in 1744-58 in his unpublished essay, History of Astronomy, [1795] is definitely not consistent with either of his later uses) is, I believe, almost overwhelming from my recent research into the writings of modern economists.

One of the ‘treasures’ from this afternoon was an unpretentious little book by George Stigler, editor, “Selections from the Wealth Of Nations” 1957, Appleton Century-Crofts, New York. I append some excepts from Stigler’s introduction, (pp vii-ix):

“The contents of the Wealth of Nations ccanot be summarised, as so many famous books are, by a pat phrase, but the broad base upon which the volume is erected is the examination of the economic behaviour of men who are acting freely in pursuit of their own interests. How in such a (private enterprise) economy will the quantities and prices of the various commodities be determined, how will incomes be divided among workers, capitalists, and landlords, and how will the accumulation of capital affect these economic processes. The analysis which answers these questions provides the theoretical skeleton on which the entire work hangs. …

Smith’s strong common sense deserves emphasis because the legend has grown up that his whole system rested upon a naïve doctrine of the “natural identity of interests” – doctrine that whenever a person seeks to serve his own ends, he invariably serves the ends of society. …

The doctrine of the “natural identity of interests”, indeed, is not really a doctrine at all: it is a problem. It is the problem of discovering those social arrangements under which the pursuit of self-interest is at worth harmless and at best greatly helpful to the remainder of the community. Under a set of conditions which economists summarize by the word competition, Smith demonstrated that it is possible to reconcile personal liberty and economic efficiency with peaceful liberty and economic efficiency with peaceful social co-existence in a large area of a man’s life. This reconciliation is one of Smith’s permanent contributions to the understanding of social life.”

Comment
This is fairly familiar “modern” prose on what Adam Smith was about, with much of which I would concur. If modern economists like Stigler had stopped there then a major part of Adam Smith’s legacy would have been protected instead of lost.

You should notice that Stigler, while on familiar territory of the “natural identity of interests” under which it is “possible to reconcile personal liberty and economic efficiency with peaceful liberty and economic efficiency with peaceful social co-existence in a large area of a man’s life”, does not mention anywhere in the introduction anything about the famous “invisible hand”.

In fact, Stigler explicitly criticises “legends” of the “naïve doctrine” that Smith should be associated with notions that “whenever a person seeks to serve his own ends, he invariably serves the ends of society”.

In 1957, at least, Stigler was able to write that Smith “demonstrated that it is possible to reconcile personal liberty and economic efficiency with peaceful liberty and economic efficiency with peaceful social co-existence in a large area of a man’s life” and concluded that this was “one of Smith’s permanent contributions to the understanding of social life”.

Here, what was to become the mandatory linking of this accurate conclusion with the absence “an invisible hand” is revealing. The soon to be flood of mandatory references to the invisible hand was only just becoming visible in some textbooks (example, Paul Samuelson’s Economics, 1948, p 36) – the general media was not yet infected to the extent that it has become from the 1980s.

I shall draw on Stigler's introduction as part of the case for exposing the modern myths of the invisible hand as a "doctrine", "concept", "theory", of Adam Smith. Meanwhile, it's back to preparing the family property for two-month's storage.