Wednesday, December 07, 2011

Brief History of a Myth

Budget austerity works for the rich” Harlan Green writes in Huffington Post HERE

Their economic thinking is not quite medieval but certainly from the 18th century, when Adam Smith's invisible hand theory was first used to rationalize conservatives' ideology that government is a hindrance to growth. We now know that cutting spending doesn't lead us out of recessions, or worse. It takes budget deficits during bad times to prime the pumps of private employers, until they loosen their own purse strings and begin to invest the trillions from record profits that they have instead used to buy back their stock in order to boost executives' incomes.”

I am not interested in commenting on the thematic charge that Harlan Green makes against “conservative ideology”. That is politics. I am interested in his/her assertion that “Adam Smith's invisible hand theory was first used to rationalize conservatives' ideology that government is a hindrance to growth.”

As a statement of fact that statement is completely wrong in respect of Adam Smith’s works, Moral Sentiments, 1759 and Wealth Of Nations, 1776. Smith had no such “theory”. His use of the popular 17-18th century metaphor had no status as a `’theory”; it was a plain and simple, albeit brilliant, literary metaphor. It has been accorded the status of theory by those modern economists who re-interpreted (invented is not too strong a word) the metaphor into a "theory”, a “paradigm” even.

For the first 100 years after 1776, Smith’s use of the IH metaphor was virtually ignored, except among theologians, preachers, poets, novelists, politicians and historians. His contemporaries didn’t mention it. Dugald Stewart, the son of Smith’s student friend, Michael Stewart. Father like son, a professor of mathematics at the University of Edinburgh. Dugald swapped chairs and became Professor of Moral Sentiments. Dugald taught political economy (as Smith had taught it in Glasgow) and Wealth Of Nations was one of the texts he used in his published lecture notes. He published a volume on political economy in 1801, which included long quotations from Wealth Of Nations, one of which was a long excerpt from the chapter in which Smith uses the invisible hand metaphor. But Dugald made no comment on the metaphor and it passed unnoticed. If it was a ‘theory’ of Smith’s Dugald would have known from his father's life-time intimacy with Smith and his own close association with him until he died in 1790. Dugald gave the eulogy to Smith at two meetings of the Royal Society of Edinburgh in 1793.

That was virtually it until the 1870s, when some five authors mentioned the metaphor. It became part of an oral tradition at Cambridge in the 1920s and later at Chicago until the 1900s. From the 1940s, its (mis)use began to explode as authors gave it publicity in forms unconnected to anything that Adam Smith actually wrote. Paul Samuelson gave these false attributions a boost in his best-seller, "Economics: an introductory analysis", from 1948 and to its last, 20th edition, in 2010.

Hence, Smith's mythical ‘theory’ of 'an invisible hand' now has traction only in the minds of modern economists and politico’s of left and right today. Any ‘rationalisation’ by ideologues of the liberal or conservative persuasion is based on myth and counter-myth, wholly invented since the 1930s. It is now ubiquitous across media, politics, theology and opinion formers of all shades.

Harlan Green is but one of many, peddling false ideas about Adam Smith’s legacy, which makes his/her comments redundant, however sound his/her criticism of his opponents may or may not be. Sad.



Blogger airth10 said...

The invisible hand is a metaphor but it is also represents a philosophy. Is it analytical or continental philosophy, or both?

Paul Samuelson used it analytically.

12:27 pm  
Blogger Gavin Kennedy said...


You say it 'represents a philosophy". But who's?

It now has many meanings given to it, but none of them represents Adam Smith's intended meaning in using it.

That is what I am concerned about on Lost Legacy.

Warren Samuels, a great historian of economic thought, finished a book before he died recently on the modern usages of the 'invisible hand' (I am waiting for it to arrive to read it and review it).

However, I had personal conversations a year or more ago while he was writing it and we agreed on several matters regarding Adam Smith's use, and from what he showed me in a draft paper. He looks beyond Smith's use to what has been made of the words in the last half of the 20th-century.

I look forward to reading the published book, and I am sure I shall not be disappointed.


3:52 pm  
Blogger airth10 said...

Many consider Adam Smith a philosopher of economics. Thus, I would think, whatever musings he made about humankind were philosophical, including his idea about an invisible hand. That people have commandeered his IH metaphor for their own use is another philosophical problem.

4:35 pm  

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