Good Teachers Should Refrain from Teaching the Modern Version of the Invisible Hand in Smith's Name
“When I give them my phone number so they can reach me (it ends with 1776), I ask them the significance. Invariably someone answers that it was the pub date of Adam Smith's Wealth of Nations (after the first typical answer that it was the date of the Declaration of Independence.) Then I show them The Wealth of Nations and tell them that many people dismiss it because it's "so 18th century." Then I read to them the famous quote about benevolence of butcher, brewer, and baker:
'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. 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'
and the famous quote about the invisible hand:
'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. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.
Then I read to them Smith's prediction that the 13 colonies would win the war and that they would become the most powerful nation in the world. I still get goose bumps when I read those quotes.”
David teaches Executive MBAs from in “front of a camera to 3 remote locations: D.C., Norfolk, and Oceana”. He’s “taught since 1975 with 4 years off to work at Cato or in the Reagan Administration, 1 year off for 2 half-year sabbaticals, and 1 year of leave without pay to work on the original Encyclopedia of economics.” He’s not bored teaching the same stuff “over and over” and has been doing it since his “first year at the University of Rochester in the fall of 1975” when he “was 24”.
I read (and you should too) David's regular contributions to Econlog with Arnold Kling and Bryan Caplan HERE
From reading his contributions, I believe David is an intuitive and inspiring teacher. That’s where my problem with the above extract from his post begins. His students will listen to him and, because he is a good teacher, and they respect good teachers, they will go away from class and believe for life what he has taught them.
Since the 1950s that is precisely has been happening all across campuses in North America and Britain, though not in the main from good teachers like David – what they half understand from their lectures they get reinforced in print in their standard textbooks, which mainly present the same misleading idea under the authority, apparently, of Adam Smith.
If they remember nothing much else about Adam Smith, their introduction to the “invisible hand” will probably be among the little they do about how modern markets allegedly work. And every media source they watch, hear or read, will repeat the metaphor of the “invisible hand” whenever the economy is discussed.
Lately, of course, some media sources will assert that the “invisible hand” is no longer working; others will assert that it would be working, “if only…” this or that intervention was or was not made. Each repetition of the metaphor embeds it deeper in their memories. The myth becomes real. There is an “invisible hand”!
Yet, David, and all other teachers, good like he is, or not so good, even those who are bad or positively worse, entrench the myth into a principle of economic theory and it becomes an actual truth, believed with the certainty of a religious precept and twice-blessed because its authority comes from an ancient text that few read, though many have a copy on their book shelves (and even more have the quoted paragraph to hand but who have never opened Wealth Of Nations to read for themselves). That Smith’s book shares the same revered year of 1776, as the Declaration of Independence, gives it an hallowed status too.
Against this tide, what chance has the truth about the making of the metaphor of “an invisible hand” into myth got? My experience of presenting the truth about the “invisible hand” to polite audiences of my fellow economists – including those who distinguish their scholarship with deep understanding of the history of economic thought – has been dire, if not wholly disappointing, with a few heroic, and much appreciated, exceptions. I shall try to do better in future.
However, I suggest to David that he continue to address his Executive MBA class with the same goose-pimple, inducing enthusiasm as always but with an amendment. I suggest that he drops the myth of the invisible hand – which was not Smith’s point (see my: “Adam Smith and the Invisible Hand: from metaphor to myth” HERE and Here
plus Dan Klein’s criticism HERE which is not the same as in its modern guise.
It misleads his audience into believing what is not true, namely that irrespective of what they do, a long as they act from the “self-interest”, it all works out for the ‘best of all possible worlds’, when manifestly it hasn’t and doesn’t (not least because “self-interest” is not always benign towards others).
I praise David for continuing to introduce his class to Smith’s ideas (as long as they are Smith’s ideas) starting with the role of bargaining (the parable of the “butcher, the brewer, and the baker”), and, perhaps, following with Smith’s assertion that “no society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable” (WN 96).
The rest, of course, I leave to David in the confidence that he knows his way round Wealth Of Nations and will use that knowledge to motivate future managers and entrepreneurs to do better than many of their predecessors.
Labels: Invisible Hand