Sunday, May 01, 2011

Jacob Viner's Theological Gloss to his Error on Adam Smith's Use of the Invisible-Hand Metaphor

Among other items I have been reading this week, I came across this item:
Jacob Viner on the invisible hand in Smith in (1972) ‘The Role of Providence in the Social Order: an Essay in Intellectual History’, New Jersey, Princeton University Press.

Adam Smith’s system of thought, including his economics, is not intelligible if one disregards the role he assigns in i tto teleological elements, to the “invisible hand”.’ (p 82)

‘In his economic analysis Smith operates from the categorical premise that the economic relations between man are on effect fundamentally impersonal, anonymous, infinitely “distant” so that the sentiments with the one exception of “justice”, remain dormant, are not aroused into action’ (82).

Viner goes on to consider ‘commercial transactions carried out by professional merchants of whom, one say, is resident in England and the other in Turkey, and the only communication between them is through equally anonymous intermediaries, or by mail. Smith, however, in his general treatment of the market, although often not when he is dealing with particular cases, writes as if he accepts as realistic the same psychological assumptions when he is considering the relationships of master and servant, landlord and tenant-farmer, employer and employee, as when he is discussing foreign trade

What struck me as I read Jabob Viner’s take on the invisible hand was how different it was from my own take on Smith’s idea of the ‘anonymity’ of the links in the supply chain, even when fairly simple, let alone when more complex. The products that a merchant purchased, from home suppliers of goods as agents from those merchants residing abroad, one or two links from the merchant either before and after his own face-to-face contact with his suppliers and his buyers, none of whom need be final seller or buyers (because merchants in the supply chain may be subject to many suppler and buyer links before or after those he deals with directly) would not be anonymous.

A merchant buyer in England buys through agents - he has to know those whom he deals with if only to view the merchandise or to judge the visible prices quoted. He does not address a letter, let alone his money, to ‘anybody in Turkey’. The seller in Turkey may buy his produce from other local Turkish sub-merchants, original manufacturers, and perhaps through their agents along the supply chain. The goods purchased are carried as cargo in the ships of merchant traders and offloaded to port-agents in England, and then carried forward to our merchant. In short, each link in the chain is in contact with the next link, and for that transaction the traders are very real and known, and not ‘anonymous’.

Smith’s point was that there is no need for the merchant in England to know the people in the links in a supply chain two or more steps before in the links. Indeed, in complex markets, that anonymity is productive, but it is not a mystery. In the first instance, he only needs to know the ones he buys from and sells to directly.

However, if a merchant suspects (because he does not know) that the character and probity of the persons in the links he deals with face-to-face, because of possible fraud or unreliability, this can inhibit his participation in trade, especially of foreign trade, where recourse to reliable justice may be difficult. He might very well try to go 'behind' the person he deals with in England, to make contact with his foreign suppliers and try to ‘cut out’ that person in the supply chain (perhaps be visiting the foreign country himself or through a trusted agent). If the risks are too high (he is risk averse) and if he has other options, such as access to domestic trade supply chains, he could exercise the virtue of prudence and only trade domestically.

Now that was the precise point that Adam Smith was making in his use of the ‘invisible-hand’ metaphor in Wealth Of Nations (IV.ii.1-9:452-56) to show how some, but not all, merchants, concerned for the security of their capital when applied to the foreign trades, preferred to invest at lower risks domestically, which unintentionally added to domestic ‘annual revenue and employment’ (the whole is the sum of its parts). It was their risk aversion that Smith referred to by the IH metaphor (their 'security' was the metaphor's object) . What is in someone's head as a motivation is 'invisible' - we cannot see into their heads; we can only feel, like the wind, it's affects. They can decide (privately, without fuss) to either trade foreign or domestically, or undertake a bit of both. A some merchants, but not all, initiate and continue with foreign trade, which in Britain's case in Smith's time and afterwards amounted to a significant part of what today we call the GNP.

The sentiment affecting their behaviour was the sentiment that Deidre McClosky rightly called the bourgeois virtue of prudence. This virtue is not, as Jacob Viner suggested, ‘infinitely “distant”’ from all sentiments, except ‘justice’. Viner made that claim to give ‘teleological' elements, to the “invisible hand”’, which is a theological gloss covering his incorrect appraisal of Adam Smith’s use of the IH metaphor.

[Note to Regular Readers: I am occupied at present in the first draft of my Essay on 'Adam Smith On Religion' and posts just now are less frequent than normal. Please have patience. I shall try to post more frequently after the 'holidays'.]

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Blogger Mose Busby said...

Jacob Viner, the greatest history of economic thought, would have sliced your argument into ribbons. He had no tolerance for fools.

3:36 p.m.  
Blogger Mose Busby said...

Jacob Viner, the greatest history of economic thought, would have sliced your argument into ribbons. He had no tolerance for fools.

3:37 p.m.  
Blogger Mose Busby said...

Jacob Viner, the greatest historian of economic thought, would have sliced your argument into ribbons. He had no tolerance for fools & understood Smith better than any scholar before or since. We would not even know who Adam Smith was were it not for Viner, & he certainly understood Smith best. Do some research on him.

3:38 p.m.  
Blogger Gavin Kennedy said...

Mose Busby
You have not read Viner very much if that is your assessment of him and his work.
I suspect you are a bored troll looking to torment somebody.
Show me you know Viner's work and illustrate your claims.
Scholars do not write or speak in public in the manner you think is 'smart'.

4:36 p.m.  
Blogger Mose Busby said...

I am Jacob Viner's grandson.

6:47 p.m.  
Blogger Gavin Kennedy said...

Hi Moses
You are not a troll and you have claims to knowing Jacob Viner as a grandson.
However, I know Jacob Viner through his works and I have referred to and quoted from them on Lost Legacy.
He was a distinguished scholar and did not express in public criticisms of the work of other scholars in the manner you expressed, whatever you allege or imply he said in private.
I have read a fair proposition of his published work
and I am impressed by it. As a scholar he sought to persuade others of his views and did not make public ad hominem attacks on others. Nor was he the only scholar writing about Adam Smith in the first party of the 20th century. Hiss clastic authority came from his insightful arguments not just his name. I am not a 'fool'. My reference to his 'theological gloss' came from his short essay on 'Providence'.

3:21 p.m.  

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