ADAM SMITH'S PRAGMATIC 'WARTS AND ALL' VIEWS ON BOTH BUSINESSMEN AND LEGISLATORS
RICHARD EBELING, a professor of economics at Northwood University in Midland, Michigan. He posts in Heartland HERE
“The Wisdom of Adam Smith for Our Own Times”
“Thus, as if by an “invisible hand,” each individual is led through pursuit of his own personal gain and betterment to simultaneously improve the conditions of others in society. Or as Adam Smith famously stated it:
“As every individual, therefore, endeavors as much as he can both to employ capital in support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labors to render the annual revenue of the society as great as he can.
“He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it . . . 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.”
… “It is not that Adam Smith believed that people always knew enough to never make a mistake, or that their speculative judgments about an uncertain future would always be correct so disappoints or losses would never be suffered.
He reasoned that each man, in his own corner of society, has a better understanding of his own circumstances and opportunities in the context of his own wants, desires and goals. And that each individual has the strongest motive and incentive to try to make his decisions wisely since failures experienced fell upon him. He who bears the costs and reaps the potential benefits has the greatest incentive to minimize the former and maximize the latter.
The same does not apply, Smith argued, when those in political power make the decisions. The “statesman” in a faraway capital can never know and understand things the way each individual can evaluate and judge them in their own unique surroundings. No legislator bears the cost of the wrong decisions he imposes on others; after all, he continues to live off compulsory taxes collected from those upon whom he has imposed harm.”
In an article with which I mostly agree and thereby recommend to readers for its general coverage of Adam Smith and his works, I marked the above paragraphs for the usual reasons on Lost Legacy.
Here are my differences with Richard Eberling’s interpretation of Smith’s use of the famous metaphor of "an invisible hand":
Richard Ebeling: “each individual is led through pursuit of his own personal gain and betterment to simultaneously improve the conditions of others in society”. This overstates Smith’s more cautious connection between an individual’s oursuit of his own gain (self-interest). Individuals can act in pursuit of their self-interest and actuall harm the self-interests of those other affected by such actions. Smith was clear on this distinction. For example, the mercantilist who proposes tariffs on imports thereby raises the prices of said imports, lowers other consumers access to them which does not “improve the conditions of otherS in society”, in fact worsens them!”
If Richard Ebeling can quote the page chapter and page in Wealth Of Nations (Oxford University Press, edition, 1976), I would be fascinated to read it where he wrote the sentence he confidently quoted “hrough pursuit of his own personal gain and betterment to simultaneously improve the conditions of others in society” above. Richard’e second paragraph is a direct quote but does not state the claims of his first paragraph above.
Similarly with his paragraphs 3 and 4. Much of people’s actoins are not mistakes, they are intentional (for example: trades meeting together conspiring to raise prices and so on). Their decisions are intended to benefit themselves.That is why Richard’s market always making benign decisions is no way less fallible and malign than those of rent-seeking politicians in imposing “harm” on electors.
Smith had a very low opinion of politicians: “the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as the skill of that insiduous and crafty animal, vulgarily called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs” (WN IV.ii.19: p. 468).
He was no less dismissive of businessmen, indeed some readers of Wealth Of Natioins have remarked how Smith seems to have low opinions of them and their self-seeking behaviours that they have wondered why Smith is seen today as an uncritical pro-business exponent? Hence, balance is called for; Richard does not show such balance in his attributions to Smith.
Smith had a more pragmatic view of the benefits of markets - warts an all - than many modern commentators credit to him, possibly from not reading his Works for themselves.