Wednesday, March 24, 2010

On Misleading Humanities Students

“Mr. Smith” writes (23 March) for the Humanities course at Huron High School in Ann Arbor Michigan HERE:

The Invisible hand”

Adam Smith's complex and influential writings on philosophy, politics, and economics contain, among other concepts, his metaphor of an "invisible hand," the natural process by which an equilibrium or homeostasis is reached in everything from chemistry to economic, from biology to politics. This force directs human activity without the knowledge or consent of individuals, and thus merely self-centered actions are finally seen as part of the cosmic harmony

[He then summarises the quote from Adam Smith on the ‘rich and unfeeling landlord’ eating well and being ‘led by an invisible hand’ to feed the ‘thousands whom they employ’ and thereby advancing ‘the interest of the society, and afford means to the multiplication of the species’ [Moral Sentiments IV.ii.10: 183]. Next he adds his commentary by way of an illustration of a rich man in a restaurant, concluding:

‘The rich man's excess expenditures will have furnished the wages by which several poor people will have purchased their food.

‘Thus, even if an individual were purely selfish, and had no desire to aid others, his economic activity will, in fact, provide wages which effectively distribute wealth among his countryme

[This leads him to the invisible hand’s role in leading individuals to enhance aggregate output and its related employment (I know these are counting the same thing)]

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.’ [Wealth Of Nations, IV.ii.9: 456]

Finally asserting: ‘attempts at economic altruism do not nudge the society toward equilibrium points, but it is precisely at those points that benefit and utility for every person in that society is maximized.’

‘Mr Smith’ (NOT Adam Smith!) is woefully wrong on both of his presentation of Adam Smith’s use of the metaphor of ‘an invisible hand’. He advances his own idea that the ‘invisible hand’ is ‘an equilibrium or homeostasis [that] is reached in everything from chemistry to economic, from biology to politics’. Fair enough, providing ‘Mr Smith’ is clear to his students that this is his own assignment of meaning to the metaphor of ‘an invisible hand’ and NOT Adam Smith’s.

The rich farming landlord in Adam Smith’s parable in Moral Sentiments (7159) had nothing to do with a rich man in a restaurant in a market society where the circulation of revenue affects all involved.

Adam Smith’s point was that the rich landlord was ‘led by an invisible hand’ to feed the ‘thousands he employed’; the invisible hand was a metaphor for the absolute necessity that he did so, otherwise they would not last the winter to repeat their tasks next season, and the rich landlord would lose cease to be rich. He had no choice but to act in this manner, whatever his state of selfishness or vileness of his behaviour. That the poor were fed (at least to survivable subsistence) was a consequence of necessity forcing rich landlords to deliver some of their output back to the toilers.

Turning to the merchants who add to an economy’s total output, the context is quite clear: all merchants face a choice of investing their capital abroad (export-imports and acquiring foreign assets) for profit, or investing their locally for profitable purposes. It’s a crucial difference. Some merchants (but NOT all) feel that foreign trade and investment involves greater risks above the normal ones of investing at home, and the degrees of risk-avoidance vary among individual merchants. Hence, some invest only at home for ‘their own security’.

Adam Smith’s point is that the home investors, feeling more secure than their colleagues trading or investing abroad, by investing locally they add to the total of local investment, making the WHOLE greater than it would be if they had sent their capital abroad. This simple consequence follows the arithmetic rule that: the WHOLE is the SUM of its PARTS.

Adam Smith used the metaphor of ‘an invisible hand’ to make this point in what he called (from his Lectures in Rhetoric an Belles Lettres’ [1763], 23 November 1762, Lecture 6.66; 29) ‘a more interesting and striking manner’. That is what metaphors are used for: ‘to give the due strength expression to the object to be described’. In short: the ‘invisible hand’ is not its own object; it gives due strength to its object.

In Moral Sentiments, the object of the metaphor of ‘an invisible hand’ is the absolute necessity, whatever the ‘unfeeling’ landlord’s lack of concern for his ‘brethren’, for him to provide subsistence for his ‘toilers’.

In Wealth Of Nations the object of the metaphor of ‘an invisible hand’ is the absolute unavoidable consequence of those merchants who invest at home, for whatever reason, including their risk-avoidance, of their adding to aggregate national output (and thereby employment of labour), which in terms of ‘spreading opulence’ is a public benefit.

Only the lazy reading of these two instances, mainly from isolated quotations, torn our of their contexts, leads to spurious conclusions about Adam Smith’s use of a well-known 17-18th-century metaphor.

[My forthcoming paper on the ‘Origins of the Modern Misconceptions of the Invisible Hand Metaphor’, for presentation at the Summer Institute on the History of Economics, Richmond University, Virginia, in June 2010, addresses these issues.]



Post a Comment

<< Home