Moore and Thornton on the IH Metaphor
“Ham-Fisted Coercion and Incompetence versus the Invisible Hand of Self-Interest” (22 May):
I shall now examine more closely the contribution of Mark Thornton to the discussion of Smith’s metaphor.
“… Mark Thornton’s “Cantillon and the Invisible Hand” suggests that Richard Cantillon was Adam Smith’s influence in his description (in The Theory of Moral Sentiments, 1759, and The Wealth of Nations, 1776) of the invisible hand mechanism (self-interest’s effect of inadvertently providing for the general welfare). In Thornton (2009), this standard interpretation appears to be upheld against several modern theories of the metaphor’s meaning.
With this interpretation and then further development of the idea to incorporate “newer” concepts, we can say that actions taken for personal gain accumulate in the marketplace in the form of signals indicating supply, demand, cost, loss, and profit, leading to various levels of further risk, production, and consumption, which have serendipitous advantages for others participants in the marketplace. The marketplace facilitates trade. In a free market, this means voluntary exchange. Since the Marginal Revolution, it has been acknowledged that voluntary exchanges benefit all parties to them, or they would simply not take place. Thus, the general welfare is provided for”
Mark Thornton’s paper is interesting. He introduces Richard Cantillon into the debate over the “Invisible Hand” and Smith’s use of it. I think Cantillon’s role in the history of economic ideas remains relatively unknown to the mass of economists writing today, and Mark has done a singular good service in bringing it to our attention.
I shall comment on an aspect of Cantillon’s work and note how in this respect Cantillon was more accurate in his historical assessment than Adam Smith.
Cantillon’s Essai Sur La Nature du Commerce was first printed in 1755 in French, though Smith probably saw a French manuscript of it in circulation sometime after 1730-4 when Cantillon wrote it. Smith was fluent in reading French literature; the first English edition was published in 1759.
Turning to Cantillon’s Chapter XI, it opens with:
“It does not appear that Providence has given the right of the Possession of Land to one Man preferably to another: the most ancient Titles are founded on Violence and Conquest. … But howsoever people come to the property and possession of Land we have already observed that it always falls into the hands of the few in proportion to the total inhabitants. If the Proprietor of a great Estate keeps it in his own hands he will employ Slaves or free men to work upon it. If he has many Slaves he must employ Overseers to keep them at work: he must likewise have Slave craftsmen to supply the needs and conveniences of life for himself and his workers, and must have trades taught to others in order to carry on the work.
In this economy he must allow his Labouring Slaves their subsistence and the wherewithal to bring up their children.” Cantillon also computes the equivalent of how much land was required to feed him and, if married with children, how much more land was needed. Unfortunately he directs readers to a “Supplement”, since lost, but the rough indication is that “4 to 10 acres” without “drunkenness or gluttony or excess of any kind” was needed to feed him (Cantillon, R. 1759, pp 31-33, 37). Of course, “overseers” not the “slaves” interpreted the actual amounts they actually received over a year of the produce-equivalent from an amount of acreage of the landlord’s land.
Now contrast this with Adam Smith’s account in TMS:
“When Providence divided the earth between a few Lordly masters, it neither forgot nor abandoned those who seems to have been left out in the partition. These last too enjoy their share of all it produces. In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them." (TMS IV.i.11: p. 185).
The above extract from TMS follows the famous IH passage in TMS:
“They [the proud unfeeling” landlords] are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants” (TMS IV.i.11: p. 184-5).
Now what are we to make of Smith’s use of an IH metaphor and what did it describe?
Thornton contrasts it thus, trying to link the IH passage to notions from modern economics:
“Cantillon and Smith appear not to have incorporated the idea that landlord and tenant could each receive something they valued more in exchange for what they valued less. So how could they say that tenants benefit at all? Because the things they received were necessities, without which they might have starved …Before the Industrial Revolution was in full swing, tenancy was often just a higher form of serfdom. Even so, the self-interest of tenants benefited landlords, not just the other way around. And there were relationships besides those of tenants and landlords. Merchants and laborers would have also had mutually beneficent dealings with tenants and landlords. But Smith focused on one aspect of one relationship in his first economic use of the phrase “an Invisible Hand.”
Mark Thornton almost gets it right by noting that the “tenants” (described by Cantillon as “slaves” or “Serfs”) received: “… necessities, without which they might have starved”. No “might” about it – they would have “starved”! And that is the clue to unravel Smith’s unstated meaning (remember, Smith was lecturing to students many of whom also attended his “Lectures on Rhetoric and Belles Lettres”) of the IH metaphor and, simultaneously demolish the empty case that Smith’s use of the IH metaphor was about “markets”, the “price system”, “supply and demand” and all the other fantasies ascribed to the invisible hand by modern economists.
The relationship between landlords and their serfs or “slaves” had nothing to with “markets”, etc. It was an exchange – the slave labourers laboured and the landlords provided them with the wherewithal for them to avoid starvation, on terms decided by the landlords, via their overseers. Each certainly exchanged “something they valued less for what they got in return. The “proud and unfeeling landlords” received from the labour of their slaves/serfs the material wherewithal for their social “greatness”, and the landless slaves/serfs/peasants received their “subsistence” and occasional “conveniences”. It was ever thus throughout human history and pre-history. The propensity to exchange is the “necessary consequence of the faculties of reason and speech” (Smith, 1776, WN I.ii.2: 25). Exchange is fundamental to what distinguishes humans from other animals. Adam Smith used the invisible-hand metaphor to “describe in a more striking and interesting manner” (see Smith on the role of metaphors in his “Lectures On Rhetoric and Belles Lettres”, 1762-3, p 29) the “object” of the metaphor, which “led” the landlords to act as they did. Without the (enforced) labour of the serfs, etc., they could not labour in his fields; without receiving food, etc., the landlords’ could not enjoy their “subsistence, conveniences and amusements” due to them to maintain their station in life.How modern economists, including, sadly, Mark Thornton (a modern economist of the “Austrian” variety) fail to see Smith’s purpose in using a metaphor to describe its “object” is a revealing comment on the modern appreciation of English grammar as much as it is of modern versions of the history of 18th century ideas in Smithian economics.