Wednesday, March 07, 2012

The 20th Century Myth of the Invisible Hand

Dan Hirschman, a regular reader and correspondent of Lost Legacy, posts on his Blog, A Budding Sociologists Commonplace Sourcebook HERE

The 20th Century Myth of Adam Smith’s Invisible Hand in Two Graphs

For obvious reasons, Dan Hirschman's post is worth printing in full (follow the link to see the two graphs), both of which are a remarkable confirmation of Lost Legacy’s arguments regarding the supposed claims that Adam Smith’s use of the Invisible Hand Metaphor shows that the modern myths of its significance, as his major idea in his Works, were pure inventions of the Cold War decades.

“Longtime readers of this blog will know that I am a bit fascinated with the uses and misuses of Adam Smith’s work. For that reason, I am a big fan of Gavin Kennedy’s blog, Adam Smith’s Lost Legacy. Kennedy has been fighting against contemporary misinterpretations of Smith, with a special focus on the “myth of the invisible hand” (for an article-length summary of his position, see here). His work, along with Emma Rothschild, Warren Samuels, and others, has shown that the concept of the invisible hand emerged in 20th century economics, and was not central to Smith’s own writing. Smith used the phrase “invisible hand” just once in the Wealth of Nations, and it meant something more like “unintended consequences” than the harmonious workings of a perfect market. Emma Rothschild goes so far as to call it a “mildly ironic joke,” though I prefer to emphasize that the invisible hand was a common metaphor of the time that had little special significance for Smith. So, when did we start thinking of Smith as being the “theorist of the invisible hand” (and, around the same time, forget all his opposition to strict laissez-faire)? Gavin Kennedy’s historical work places the disjuncture in an oral tradition in England and the US in the late 19th to early 20th century. The myth remained somewhat confined until the publication of Samuelson’s extremely influential undergraduate text, Economics in 1948, which brought the myth to the masses (Kennedy 2010).

One way to see the influence of Samuelson’s publication, and to check the overall plausibility of the Kennedy-Rothschild-Samuelson (K-R-S) account of the myth of the invisible hand, is simply to check how often the phrase was referenced. Thankfully, JStor’s Data For Researchers tool makes this task trivial. Here’s a graph of counts of articles mentioning “invisible hand” over time:

There is a trickle of mentions leading up to the 20th century, with a takeoff following 1950 (and thus, a few years after Samuelson’s text was published).

Here’s a similar graph for mentions of “adam smith” AND “invisible hand”:

Mentions of "adam smith" and "invisible hand" in JStor's corpus.

Note that the trickles earlier on drop out – as “invisible hand” was a somewhat common metaphor in Smith’s time, it makes sense that other 18th and 19th century authors invoked it, but they did not appear to do so in reference to Smith. By the 1920s, and especially in the 1950s and after, we begin to see Adam Smith and the invisible hand coming together. A more detailed analysis is also possible in JStor, as we could look at the articles referencing both Smith and the invisible hand to see exactly how authors in the 1920s-1950s understood the phrase, and compare it to uses in articles from the 19th and early 20th century that did not reference Smith. Even in the absence of that more detailed analysis, I think we can safely say that the link between Smith and the invisible hand is a relatively recent creation. The evidence for the K-R-S position is strong.”

This is more evidence that the message is getting across to a wider audience after nearly seven years of Lost Legacy. I expect that the message will gain traction following publication of Warren Samuel's, Erasing the Invisible Hand (Cambridge University Press, 2011). Warren was a prominent and well-respected scholar in the History of Economic Thought community and his detailed assessment of the claimed significance to Adam Smith of his use of the IH metaphor and its relevance to modern economics are grossly exaggerated. It plays no useful role in modern economic theory.

Please pass on to other Blogs and colleagues Dan Hirschman's post.

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