Wednesday, September 01, 2010

Now Two-handed 'Invisible Hands', But Nothing to do With Adam Smith

Gilbert Holmes write on Online Opinion (Australia) on ‘The invisible right hand and the invisible left hand’ HERE:

‘In 1776, Adam Smith published his work, The Wealth of Nations, within which he detailed the actions of “the invisible hand” of economics.

The basic concept of Smith's invisible hand is that; when self-interested parties compete against one another, rather than there being one winner and one loser, benefit often results not only for both parties, but also for the broader society.

Since its release, the profound and simple logic of Smith's invisible hand has switched on the “lightbulbs of the mind” of generations of apparently deep thinkers and economic policy makers.

Leading directly to the idea that free competition between self-interested parties is the engine of a healthy economy, Smith's invisible hand has provided something of a social conscience for free market capitalism. It is the single most important concept that has driven the laissez-faire agenda over the last few centuries, and which continues to drive laissez-faire economic's most recent manifestation, neo-liberalism.

Unfortunately, in describing the positive results that spring from self-interested parties competing with one another, it turns out that Smith’s invisible hand only gives us half the story. Smith has left out of his theory the simple concept that there are times when we co-operate together, and that positive economic outcomes can also be derived from this co-operation.
It appears that we may actually be looking at two invisible hands!’

Comment
Imaginative discourse but one built on wet sand.

From what Gilbert writes I take it that he has not read the scant (only) reference to the metaphor of ‘an invisible hand’ in Wealth Of Nations (WN IV.ii.1-9: 452-56; the reference is on page 456).

It is not clear that Gilbert understands what Smith said about the ‘invisible hand’. He tells us that ii is”

when self-interested parties compete against one another, rather than there being one winner and one loser, benefit often results not only for both parties, but also for the broader society.’

Yet, Smith says nothing about ‘when self-interested parties compete against one another’ and the invisible hand. Gilbert should look the up Smith’s reference to the metaphor:

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, 456)

There is no mention either of ‘self-interested parties’ (Smith refers on to an ‘individual’), nor that they ‘compete against each other’, and consequence no case of there being ‘one winner and one loser’ (incidentally an unSmithian thought; for Smith trade is not a zero-sum game). Whether the result is of ‘benefit’ for ‘both parties’ – yet Gilbert asserts one [loses]? – and is of ‘benefit’ for ‘the broader society’ is not mentioned by Smith in this passage.

Smith, reporting of the consequence of the individual ‘supporting ‘domestick’ rather than ‘foreign industry’ he ‘frequently promotes that of the society’. But how? Smith clearly states how: because the individual ‘endeavours as much as he can to employ his capital in support of domestick industry … [he] necessarily labours to render the revenue of that society as great as he can’ (WN, p.456).

And that is precisely what Smith is arguing for. It has nothing to do with ‘two parties’ engaged in zero-sum transactions, with a ‘winner and a loser’. It is about the annual revenue of a society being increased by the individual contributions of individuals to ‘domestic revenue and employment’, instead of reducing that quantity by them investing abroad.

Where Gilbert got the idea that the ‘invisible hand has provided something of a social conscience for free market capitalism’ is not obvious, nor is it obvious (actually its unbelievable!) that the invisible hand is the ‘the single most important concept that has driven the laissez-faire agenda’.

Fact: Adam Smith never mentioned ‘laissez-faire’, even once, though the idea that it ‘continues to drive laissez-faire economic's most recent manifestation, neo-liberalism’ may indeed be strictly true, but that has nothing to do with Adam Smith’s views on the metaphor of the invisible hand.

Hence, I do not think Gilbert knows anything about Adam Smith and his use of the metaphor of ‘an invisible hand’.

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