Sunday, June 09, 2013

A Most Welcome Post on the Truth About Smith's Use of the "Invisible Hand" Metaphor

Bernard Dupont, an Associate Professor of Economics at Western Washington University where he teaches economic history, the history of economic thought, microeconomics, labor economics and political economy, posts on his Economic Incubator Blog HERE  It was a great pleasure to read this short piece that  “Samuelson’s Invisible Hand”
In re-reading Smith’s Theory of Moral Sentiments (TMS), I have been asking myself why Paul Samuelson got it so fundamentally wrong when he wrote:
   "Even Adam Smith, the canny Scot whose monumental book “Wealth of Nations (1776), represents       the beginning of modern economics or political economy – even he was so thrilled by the recognition of order in the economic system that he proclaimed the mystical principle of the “invisible hand”: that each individual in pursuing only his own selfish good was led, as if by an invisible hand, to achieve the best good of all, so that any interference with free competition by government was almost certain to be injurious."
Of course, Smith never advocated that each individual was “only” led by his “selfish” desires.  Was this misstatement of Smith’s purpose simply because Samuelson ignored the TMS altogether?  It wasn’t widely read by economists in the mid-20th century when Samuelson wrote this (for that matter, it’s not widely read by economists today).  Was it simply more convenient to focus on “selfish” motives as economics became more mathematically rigorous; in other words, did methodology trump substance?  Was it that Samuelson, like Edgeworth before him, thought that “selfishness” applied to certain types of problems, including economic ones?
Nobody would doubt Samuelson’s genius, which makes his error even more egregious.  And Smith didn’t exactly hide what he considered to be the virtues (note the plural – virtues) in his TMS:
The man who acts according to the rules of perfect prudence, of strict justice, and of proper benevolence, may be said to be perfectly virtuous.
Smith tells us, over and over, that the virtues are more than prudence – they include benevolence, temperance, and justice.  They do not, contrary to Samuelson, only include “selfishness.”
You can see why I was so pleased to read the above paragraphs, their content is so rare in the Academy. Bernard is right on target about the misuse of Smith's clear exposition of what he used the IH to mean.
Bernard Dupont's Blog is well worth a bookmark to the Link above. 


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