Adam Smith On Metaphors

From Professor Don Boudreau’s ‘Quotation of the Day’, Café Hayek, HERE 18 August:

“To them the market economy is largely incomprehensible  …and its results seem to them irrational and immoral.  They often see in it merely an arbitrary structure maintained by some sinister power”. From: F. Hayek, 1979. “The Political Order of a Free People” in  “Law, Legislation, and Liberty”, vol. III. p. 165.

Comment

Friedrich Hayek’s observation chosen by Professor Don Boudreaux (George Mason University, Fairfax, Virginia) in his regular and most informative Café Hayek Blog is apt. 

In particular,note Hayek’s last sentence: “They often see in it merely an arbitrary structure maintained by some sinister power”. 

Among the offenders who might be covered by the scope of it, we can include all those who rely on vague ideas of an active, motivated, and wholly mysterious “invisible hand” that directs people to play their disparate parts in the “market economy” to create the “best of all possible world”, and something closely resembling the “public good”, no matter what their motives, including “selfishness”. 

Some of them see the “hand of God” at work, others a benign “invisible” force that is both “magical” and “mysterious”.  Worse, they credit their examples of their crass imaginations to Adam Smith, a philosopher, who did no such thing. 

In fact, Smith did the exact opposite: he showed how markets work through visible and known prices – today, through billions of visible prices - many changing irregularly somewhere all along each market’s complex interfacing supply and demand chains, from the reactions of individuals to changing prices without any one of them knowing, or needing to know, the identities of scores of other individual’s more than a very few links away in a market ( a great theme of Hayeks).

Smith correctly identified that individuals participate in markets and act from their motivations that are “invisible” to others – we cannot see into the minds of any other individual – and he described actions that follow from any individual’s hidden motives by using the metaphor of their being “led by an invisible hand” to act in accordance with their motives.  Which in the specific case he was examining – merchants who decide to invest their capital in “domestic industry and employment”, instead of investing it abroad.  Their actions, added Smith, had “unintended consequences”, specifically in this case, of leading to a “public” benefit through the arithmetic increase in the annual total of “domestic revenue” (for society) and the annual total of employment (for labourers and their families from paid work) (see Wealth Of Nations, 1776, Book Four, chapter 2, paragraphs 1-9, pages 452-456).

From a failure to comprehend the role metaphors in the English language (and its US version), they casually created an imaginary body of economic ‘theory’ that has burdened economics with delusions about how markets work, so far impervious to attempts to correct the error.

As a straightforward corrective, I offer two steps to a remedy for the “invisible hand” fable, now dominant at the highest levels among modern economists.

First, on the role of metaphors in English, I suggest sceptics consult Adam Smith, of whom many economists may be surprised to discover he also lectured for many years throughout his academic career on the use and meaning of English grammar, and specifically on the role of metaphors.  

A set of students’ notes exist on those lectures: A. Smith, 1762-3 “Lectures on Rhetoric and Belles Lettres”, Oxford University Press, and in a cheaper popular edition available from Liberty Press. 

Turn to “Lecture no 6, Monday, 29 November, 1762:  ‘Of what is called the tropes and figures of speech’ (pages 25-32).  Smith makes a clear statement, describing the role of metaphors:

“The Grammarians however finding that the best authors frequently deviated from their generall rules and introduced those figures of speech as they called them; and finding also that they were most frequently met with in the most striking and beautifull passages, wisely concluded that these figures gave the passage j all its beauty; not considering that this beauty flowed from the sentiment and the elegance of the expression, and that the use of figures was only a secondary mean sometimes proper to accomplish this end, to wit, when they more fittly expressed the sense of the author than the common stile” (p 25-6) (Original note-taker's spelling).

“In every metaphor it is evident there must be an allusion betwixt one object and an other. …Now it is evident that none of these metaphors can [can] have any beauty unless it be so adapted that it gives the due strength of expression to the object to be described and at the same time does this in a more striking and interesting manner” (p 29).

The metaphor is not the “object”; the “object” to which the metaphor refers “in a more striking and interesting manner” is the non-visible motives from which the actor, the merchant, who feels insecure from the risks to his capital in the “foreign trade of consumption”, the cause, avoids foreign risks to his capital by investing locally, instead, in “national revenue and employment”.  This behaviour has “unintended consequences”, which were not part of the merchant’s intentions, i.e., they did not cause him to invest locally.  Motives cause actions, not the consequences of them.

In short the “invisible hand” describes in a “more striking and interesting manner” the cause and not the consequences, which at root is the source of the completely incorrect assertion of an invisible directing hand operating in markets.  Adam Smith’s point was clear grammatically to himself and to his students, none of whom mentioned the IH metaphor in the modern economists sense, including several distinguished winners of Nobel Prizes. Those who attended his lectures or read his books while he was alive (to 1790), or afterwards, until a professor of law, then a graduate student, did so in 1875. 

Even from then, the modern version of the IH metaphor, which transformed it into its “object” in its own right, rather than remain a metaphoric description ("in a more striking and interesting manner”) of its bject, until 60-plus year later, when it suddenly burst out all over the discipline in tens, later hundreds, of thousands of mentions per year at all levels in repetitive assertions completely at variance with Smith’s more grammatically simple, innocent, correct usage in 1776 (only once) and 1759 (only once) (and in a student essay only once in c.1744-58).  Together hat makes only three mentions by Smith in all of his works.

This is long way from Boudreau’s quotation from Hayek, but it is not a long way from the source of the superstitious belief in “magic” and “miracles” working in markets to create a world that is the “best off all possible” worlds, lauded by some extreme ideologues on the right and denounced by extreme ideologues on the left.  

Both sets of ideologues, and those in-between, can sort out their confusion by considering the appropriate role of metaphors when reading in the English language. 

There is no "invisible hand" directing markets and neither is there a "visible hand" directing governments.  Prices drive markets; politics direct governments.