The "Anti-Dismal" Blog Moves Closer to Adam Smith on the Metaphor of the Invisible Hand
Paul Walker writes an interesting and informative
Blog, “Anti-Dismal (A blog on all things to do with economics and related
subjects)” HERE
I strongly recommend readers of Lost Legacy to bookmark “Anti-Dismal” (I read it most days). Here is yesterday’s post by Paul
Walker on a subject that I often discuss on Lost Legacy.
Regular readers will note that while Paul’s
take on the “invisible hand” metaphor, as used by Adam Smith, is fairly close
to mine, they will also note that he also differs from my take.
So read my extract below of his post and his
response to a comments made by one of his readers, where he outlines his
differences with my views:
Paul Walker, Anti-Dismal:
“Use of the metaphor of the ‘invisible hand’”
In the
comments section to the previous post on the Foundations
of a free society Owen writes,
“Shame he mis-quotes Smith. AS never mentioned an invisible hand in reference
to markets, in fact he only mentioned it once in Wealth of Nations. Also, AS
notion of self-interest was appealing to others self-interest to gain what you
wanted, ie mutual trade, nothing selfish about it. I'm not aware of any
evidence that markets automatically lead to good outcomes for society, I do
think they are the best allocative mechanism though (in most cases).
Butler is
not quoting Smith and I'm sure that he is aware of the use Smith made of the
term "invisible hand". To quote [Eamonn] Butler, [the Director of the
Adam Smith Institute, London] at some length,
Adam Smith
is famous for his ‘invisible hand’ idea. Most people take this to mean that our
self-interested actions somehow produce an overall social benefit. Our hard
bargaining, for example, creates a market system that allocates resources with
great efficiency.
In fact,
apart from a mention of the ‘invisible hand of Jupiter’ in The History of
Astronomy, Smith uses the phrase just twice in his entire output and not
really in the commonly presumed sense. The rich make work for the poor.
In The
Theory of Moral Sentiments, Smith suggests that the hand of ‘Providence’
equalises economic rewards. The rich can eat no more than the poor. Their only
use for most of the food produced by their land is to exchange it with others –
those who supply the luxuries, the ‘baubles and trinkets’, that the rich
demand. Thinking only of themselves, the rich provide employment to thousands …
These two
passages suggest to critics that Adam Smith’s real ‘invisible hand’ concept is
far removed from the popular notion of it. In one, the happy outcome of
self-interest is attributed to ‘Providence’. In the other, it is a side comment
in a discussion about the export trade.
In fact,
the critics read too narrowly. The invisible hand idea, as commonly understood,
pervades Smith’s work, and would do so even if these two specific references
had never existed. For the phrase is a very convenient shorthand for Smith’s
idea that human actions have unintended consequences; and that provided a few
fundamental rules such as the principles of justice are followed, the
self-serving actions of individuals can unintentionally produce a
well-functioning and beneficial overall social order.
Or as Craig
Smith has point “It is the idea of the invisible hand, or more generally the
idea of social evolution through unintended consequences, which represents
Smith’s chief legacy to the modern world. The recognition that many of the most
important human achievements are, as Smith’s friend Adam Ferguson observed, the
results of human action, not the product of human design, is a profound lesson
to us all. It is this observation which leads Smith to his deep scepticism
towards ‘men of system’ who would organise humanity to achieve noble ends.
As to
whether markets automatically
lead to good outcomes for society, Butler is not claiming that they do and
Smith never claimed that they do. What I think most economists would say is that
markets lead to good outcomes for society more often than any alternative
method of resource allocation. A system of rules are required to achieve this
end - such as competition and a system of justice - but as long as these are in
place then markets are a better bet to achieve good outcomes than "men of
system".
And below
are comments by “Owen”, and alo Paul’s response:
Owen said...
“Whoops,
may have jumped to conclusions there a bit!! Im too used to seeing invisible
hand = markets. Thanks for the clarification.”
Owen said...
“Further to
this, when I first came across the notion that the invisible hand was not what
was taught in uni, it was a revelation and I also assumed it was rather the
unintended consequences, but reading more im not so sure thats the correct
interpretation either eg
http://adamsmithslostlegacy.blogspot.com/2013/11/causes-are-not-consquences.html”
Paul Walker responds:
Yes, Gavin
does take a different view. For a detailed discussion of his view see chapter
12 of Gavin Kennedy, "Adam Smith: a moral philosopher and his political
economy" 2nd ed., New York: Palgrave Macmillan, 2010. Also read all of
Gavin's excellent blog, Adam Smith's Lost Legacy. To see differing views on the
"invisible hand" see "Econ Journal Watch", "Adam Smith
and the Invisible Hand: From Metaphor to Myth" by Gavin Kennedy, May 2009
and "In Adam Smith’s Invisible Hands: Comment on Gavin Kennedy" by
Daniel B. Klein along with "A Reply to Daniel Klein on Adam Smith and the
Invisible Hand" by Gavin Kennedy, September 2009. Also Klein and Kennedy
do battle again in "Economic Affairs": "In a word or two, placed
in the middle: the invisible hand in Smith's tomes" by Daniel B. Klein and
Brandon Lucas and "Adam Smith and the role of the metaphor of an invisible
hand" by Gavin Kennedy. There are additional comments on the Klein-Lucas
paper by other Smith scholars: "A comment on the centrality of the invisible
hand" by Craig Smith and "A comment on the centrality of the
invisible hand" by Ryan Hanley. All these are in Volume 31 Issue 1, 2011.
A reply by Klein and Lucas appears in Volume 31 Issue 2, 2011: "On the
deliberate centrality of an invisible hand: reply to Gavin Kennedy, Ryan Hanley
and Craig Smith".
GK: Comment
I agree
with Paul broadly on his critique of the popular modern economist’s idea of the
“invisible hand”. I regard Paul’s
treatment as a step or two forward in this debate, and praise him for taking
it. In his subsequent comment to
“Owen”, Paul kindly refers “Owen” to citations of my published assessments on
the IH metaphor from 2008-2011.
However,
Paul makes a suggestion also made by my scholarly friend, Craig Smith, several
times, including in his excellent book, Smith, C. 2006. “Adam Smith’s Political
Philosophy: the invisible-hand and Spontaneous Order”, Oxford, Routledge. Craig is the Reviews Editor of the “Adam
Smith Review” (International Adam Smith Society), and a co-editor (with Chris
Berry and Maria Paganelli “Handbook
on Adam Smith”, 2013, Oxford University Press. Neither Paul nor Craig fully agree
with my interpretation of the significance to Adam Smith of his use of the “IH”
metaphor, though they both are disturbed with modern interpretations of it to
an extent.
Nevertheless,
they present an alternative view to mine (argued on Lost Legacy since
2005). In their presentations they
agree in effect: “The
invisible hand idea … is a very convenient shorthand for Smith’s idea that
human actions have unintended consequences; and that provided a few fundamental
rules such as the principles of justice are followed, the self-serving actions
of individuals can unintentionally produce a well-functioning and beneficial
overall social order” (Paul) and: “generally the idea of social evolution
through unintended consequences, which represents Smith’s chief legacy to the
modern world” (Craig).
I am
pleased to see that Paul and Craig both are further away from the
post-Samuelson (1948) invention that conflates Smith’s use of self-interest as
“selfishness” that “miraculousy” has the effect of creating a “public” benefit.
I can agree
with Paul and Craig in so far as they reject the invention, which is a step
forward. However, I do not think
that they have shown that Smith used the IH metaphor “as Smith’s friend Adam
Ferguson observed, the results of human action, not the product of human
design”. The phrase was indeed
used by Adam Ferguson, and in Smith’s case it is true that Smith also referred
to ‘unintended consequences” in the (long) IH paragraph, but Smith's statement
says: [The merchant who invests domestically] “generally, indeed, neither intends to promote the publick interest,
nor knows how much he is promoting it. By preferring the support of domestick
to that of foreign industry, he intends only his own security; and by directing
that industry in such a manner as its produce may be of the greatest value, he
intends only his own gain, and he is in this, as in many other cases, led by an
invisible hand to promote an end which was no part of his intention. (WN
IV.2.9: 456).
To argue from the above that the IH metaphor
is about “unintended consequences I suggest misreads the sense of Smith’s
paragraph. Smith Lectured on
Rhetoric in Edinburgh and 1748 (privately sponsored public lectures) and at
Glasgow University from 1751 to 1763 as a member of the Glasgow faculty and the Professor of Moral
Philosophy). He was also fluent in Latin and Oxford English grammar. He was therefore most unlikely to make
grammatical errors. He taught
about the grammar of metaphors as figures of speech, for which we have student
notes: Smith. [1762-3] 1983. “Lectures on Rhetoric and Belles Lettres”,
Lectures 6, 7, 8 and 9. Oxford University Press.
Smith refers to the “objects” of
metaphors, which in this case refers to the specified objects in each of the
two cases in which he used the IH metaphor to “describe in a more striking and
interesting manner” its “object”.
In the two (only) cases he mentioned,
first in Moral Sentiments (the actions of the “proud and unfeeling Landlord”
feeding his serfs, labourers, servants, and overseers, which was an absolute
necessity – no food meant no labour!).
It was that necessity that led the landlord to feed those employed on
his estate – described by Smith that he was “led by an invisible hand”. In the second case, mentioned in Wealth
Of Nations, the merchant who felt too insecure to send his capital abroad,
hence he invested in “domestic revenue and employment”. It was the “merchant’s insecurity
that led him to invest locally – described by Smith of him being “led by an
invisible hand”.
In short, the IH metaphor refers to
the motives of the landlord and merchant that LED them to act as they did. It was NOT the IH that separately
intentionally led either of them to create the “unintentional consequences of
their actions. The IH describes
their actions. That is why the consequences of their actions were
“unintentional”!
To argue otherwise makes no-sense of
Smith’s use of the grammar of metaphors (still exactly the same as defined in
today’s Oxford English Dictionary, 1983, as Smith described it in 1762-62).
Moreover, Paul and Craig imply a
theological interpretation of his use of the IH metaphor – what, whomsoever, or
whatever, leads an “IH” to cause the “unintentional outcomes”? (see Kennedy, “Adam Smith on
Religion”, Handbook on Adam Smith, Oxford UP 2013, or shorter, earlier version,
Kennedy, 2011. “The Hidden Adam Smith in his Alleged Theology” Journal of the
History of Economics, no 3, 2011).
An action has motives which actions
may have consequences, but unintended consequences do not have intentional motivated
causes!
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