Monday, July 16, 2012

"Hands That Are Invisible"

A post sent to the Energy Bulletin, 13 July, in response to a Post entitled: "Hands That are Invisible" by Craig K. Comstock (originally in Huffington Post):

"I am glad that Craig K. Comstock visited Adam Smith's simple grave site at the Canongate Kirk.  He was also only a hundred yards or so from his former Edinburgh home in Panmure House, where he lived with his mother and cousin from 1778-90 (soon to be restored by Edinburgh Business School from private donations).

It is sad, however, that Craig has come to believe the modern myth about Adam Smith's use of a simple, popular Eighteenth-century metaphor, of "an invisible hand" and the accompanying invention that it is "said to convert individual greed or self-interest into public good".  That bit about "greed"/"selfishness" was invented by Paul Samuelson in 1948 in his popular Economics 101 textbook, Economics: an analytical introduction, McGraw-Hill.
Adam Smith never proposed such a meaning for his use of "an invisible hand" metaphor.  He referred to a merchant's concern for the security of his capital and therefore he avoided "foreign trade", which had the unintended consequence that the merchant added to "domestic industry", adding revenue and employment locally.   This was the added public benefit.  A simple arithmetical outcome - the whole is the sum of its parts. 
The "invisible hand" metaphor referred to concern for his security leading the merchant to invest locally, and it did so by describing the effect of the merchant's insecurity in a "more striking and interesting manner" (see Adam Smith on the role of metaphors in his Lectures on Rhetoric and Belles Lettres", 1763). All the rest of the modern guff about mystical invisible hands, magically at work is pure myth.  There is no such entity.  It does not exist. Smith showed that self-interest could be, and often was malign, as shown in tariffs and prohibitions, pollution, vile rulers, and crime, all of them the product of the pursuit of the self-interest of the beneficiaries.
Gavin Kennedy, Professor Emeritus, Heriot-Watt University, Edinburgh"


Blogger airth10 said...

It is unfortunate that the invisible hand is associated with greed. I probable would have cringed if I heard that in class.

Gavin, do you have the exact quote at your finger tips where Samuelson connects greed and the public good to an invisible hand?

I can appreciate the notion that greed and selfishness can eventually result in the public good. However, not all greed results in good, like not all love results in good. Greed and selfishness push the 'envelope' from which more positive things develop. Those behaviors can be lighting rods for progress. They are litigious behaviors. And as it's been said, "Litigation creates civilization".

Greed can be a wishy washy term. Sometimes it referrers to an individuals relentless ambition and the excesses that come with it. If that is the case Steve Jobs and Bill Gates have been greedy. But look at the public good their greed has spawned.

I suppose the issue here, though, is that the invisible hand doesn't lead or necessarily convert greed into public good. But some phenomenon out there does. Some have chosen to refer to that phenomenon, rightly or wrongly, as the invisible hand.

3:10 pm  
Blogger Gavin Kennedy said...

The original quotation in Samuelson - which did most damage, given his 5 million plus sales, in multiple languages, an 20 editions to 2010 - appeared first in 1948 in his iconic textbook, Economics: an introductory analysis, p 36, McGraw-Hill.
It's not just greed/selfishness that is the problem. To generalise by claiming that self-interest always leads to public good is absurd. Smith never asserted such a generalisation, let alone an inclusive benefit always arising from self interest.
He railed against selfishness in Moral Sentiments. In Wealth Of Nations he identified over 70 instances of where self-interests led to malign outcomes in Books I,II, and III, let alone a whole book, Book IV, on the malign outcomes of self-interested campaigns by merchants and manufacturers for tariff protections, prohibitions, monopolies, conspiracies against competition to raise prices, wars against neighbours, support for Trading Companies, and various Acts of Parliament against labourers resisting wage cuts, moving freely around the country for work, and barriers to apprenticeships.
Why the belief in mainly benign outcomes ever got traction intellectually given the visible evidence of its many failings, is beyond explanation.
An independent system of Justice and the equality under Liberty are the best antidotes to malformed markets and prejudicial state policies supporting only one section of the community.

7:18 pm  
Blogger airth10 said...


Nowhere on p 36 of Samuelson's "Economic: an introduction" did I find the word greed. But I did see the mention of the invisible hand twice and the phrase "selfish good". Perhaps selfish good means greed.

Samuelson writes that Smith was so thrilled to recognize an order in the economic system that he proclaimed the existence of a mysterious invisible hand to explain it. Smith, Samuelson writes, believed "that each individual pursuing only his own selfish good, as if led by and invisible hand, [would] achieve the best good for all".

8:51 pm  
Blogger Gavin Kennedy said...

You asked: "where Samuelson connects greed and the public good to an invisible hand?" I answered with the reference to "greed/selfishness" in Samuelson, without quibbling with your mention of 'greed' - though they have come together in many modern attributions.
The most important point, not picked up by Samuelson from Smith, is that 'self-interest' is not unambiguously favourable to the public good. This is evident in the instances where 'self-interested' actions can lead to negative consequences, in such as tariff protections, etc.
In the famous "brewer, butcher, baker" example, widely misunderstood, Smith's advice was to address the self-interests of the suppliers of your dinner and NOT your own.
In other words, self-interested actions have to be mediated by concern for the self-interests of others. Hence, do not pollute, etc. Do not clamour for tariffs to keep out competition, and so on.
The "greed/selfishness" claim is not the sole error of those who attribute the notion that selfish self-interested acts lead to the public good to Adam Smith.
He neither had a theory of "an invisible hand" directing everything, nor did he make claims that "selfish", "greedy", nor even all "self-interested' actions always led to the pubic good.
The insecure merchant, worried about his capital abroad, happened to add to domestic "revenue and employment". He mentioned that there were "many other cases" too, without specifying them. He also made clear that self-interested actions also led to tariffs, prohibitions, monopolies, colonies and slavery.
That modern economists have run everything, together to attribute to him the absurd notion that this led to the public good - even general equilibrium - all because of "an invisible hand". It is a travesty of Adam Smith's legacy.

9:14 am  
Blogger Gavin Kennedy said...

I received an email notifying me that you are sent a response.
It did not contain your message or an address to reply to.

Please respond with your message. Lost Legacy does not censor criticism.

9:08 am  
Blogger Gavin Kennedy said...

Craig Comstock replies:

While I don’t wish to argue with an Edinburgh professor
about Adam Smith’s exact understanding of a metaphor (which by the way appears
only a few times in his main books), The Wealth of Nations does feature a
theory by which self-interest is turned into economic progress. As my brief
piece makes clear, I rue the use that’s been made of the metaphor recently, and
I appreciate the detail about Samuelson.

You are right on the only three mentions of "invisible hand" in all of Adam Smith's works. The first in his History of Astronomy (1744-58) was not strictly a metaphor: it was in reference to the Roman God, Jupiter, who was believed by religious Romans to fire thunderbolts at those who cursed Rome. The second was in Moral Sentiments (1759), as a metaphor for the absolute necessity of "unfeeling" landlords to feed their peasants from the harvests because without food they could not labour in his fields (even as slaves) and without food they could not procreate future generations (a public benefit for the human species); the third was in Wealth Of Nations (1776), as a metaphor for the insecure merchant investing only domestically which added to "domestic revenue and employment (the public good bit).
Of course self-interest can and did lead in some, BUT NOT ALL, cases to public benefits; it could and largely did lead to dis-benefits for the public good, as Adam Smith also detailed in Wealth Of Nations (over 70 times: tariffs, vile tyrannies, etc), and Moral Sentiments (numerous times in immoral acts). It is not that self-interested acts lead to public benefits, nor selfish acts, but that the outcome always depends on the context.
That is why the ideologues (Right and Left) are wrong, not Adam Smith.
Gavin Kennedy
PS If you come to Edinburgh again, I would be delighted to show you around Panmure House, once we have restored it (thanks to donations).

10:12 am  

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