Sunday, June 22, 2014


Harrison Seales, a Master's economics student at George Mason University, Fairfax Virginia, MA Fellow at the Mercatus Center, and alumnus of the University of Massachusetts Amherst.  He describes himself as an “avid scribbler”.
(19 June) HERE “The Invisible Hand: An Idea Not So Modern”
For everybody is eager to acquire such things and to obtain property, provided that he will enjoy it when it has been acquired. It ths comes about that, in competition one with the other, men look both to their own advantage and to that of the public; so that it both respects wonderful progress is made. The contrary of this happens in countries which live in servitude; and the harder the servitude the more does the well-being which they are accustomed, dwindle.”
Adam Smith? David Hume? Nope, Niccolò Machiavelli. From The Discourses, II.2, translation by Leslie J. Walker, S.J. Like so many ideas, the invisible hand has been understood by more than we moderns.
Harrison’s Seales has done us all a service in quoting Machiavelli and his interesting idea, but with an unfortunate error in his comments on it. The problem, highlighted regularly on Lost Legacy is that “the invisible hand has [NOT] been understood by … we moderns”.  In fact, ‘we’ moderns in the main have completely misunderstood Adam Smith’s use of the metaphor of an “invisible hand” and in consequence have spread that myth to millions.
Among “moderns”, I would include my good friend, one of the best of modern Adam Smith scholars, Daniel Klein, also of George Mason University, with whom I debated the myth of the ‘invisible hand’ in Econ Journal Watch in 2009-10. At least Daniel Klein is a scholar with some careful original thoughts, compared to the thoughtless Smithian epigones who normally pontificate endlessly on the meaning of Smtih’s uses of “an invisible hand” (including some Nobel Prize winners).
In the above Machiavelli quotation, there is no mention of an “invisible hand” at work in: “men look both to their own advantage and to that of the public; so that it both respects wonderful progress is made.”  It appears the Machiavelli describes the process by which two persons arrive at a mediation of their self-interests, which is loosely demonstrated in Smith’s description in his “butcher, brewer, and baker” parable (WN. I.ii.2: pp. 26-7). 
Smith reference to the unintentional promotion of the public interest is not the intentional purpose of the “invisible hand” - that confusion is the source of the modern error - it is a metaphor for the unseen (by others) motives of an agent who intentionally acts in pursuit of such motives, which motivated actions have unintended consequences.  In the merchant’s case, he decides from his feelings of insecurity against sending his capital abroad and who therefore decides (“led by an invisible hand”, i.e., his hidden motive - we cannot see in the minds of others) to invest domestically instead. The unintended consequence of his motivated actions (his insecurity) is that without intending it he adds to “domestic employment and revenue”.  
In today’s language, we would refer to the unintentional consequence of his acting in pursuit of his hidden motive was that his intended actions added to Gross Domestic Product (GDP).  Such an unintended consequence of his intended actions became a public benefit; Smith correctly saw a rising GDP as socially beneficial. A stagnant and low GDP, which Smith saw as the cause of the relative poverty of the ‘richest’ ‘savage’ societies in North America and Africa, explained why a poor labourer in his hovel in Scotland was many times relatively more ‘affluent’ in material goods than even chiefs of the savage tribes (same chapter 2 in Wealth Of Nations).
Machiavelli’s reference to “men look both to their own advantage and to that of the public” is a stretch beyond Smith’s more limited point about arithmetically adding to GDP, which is not as extravagant a conclusion as believing that “an invisible hand” intentionally leading in some mystical manner to produce its intended consequences.  There is no mysterious “invisible hand” entity operating in modern markets.  It was a metaphor for the motives that intentionally caused actions, which actions, once taken, had unitended consequences.
Smith lectured on the role of metaphors throughout his academic career.  There is a student report of his “Lectures on Rhetoric and Belles Lettres” from the 1762-3 session at Galsgow University (published by Oxford University Press) in which he discusses metaphors as “describing in a more striking and interesting manner” their “object” (1983, p. 29).  
In this particular case the object that Smith’s use of a metaphor describes is the merchant’s motive (his insecurity - mentioned three times) for his intended actions (invest locally), which in turn had interesting unintended consequences (adding to national “revenue and employment, i.e., today’s GDP) which had unintended public benefits.

Thus, full circle: Harrison Searles uses a metaphor, “avid scribbler” to modestly self-describe himself “in a more striking and interesting manner” as a thoughtful and literate Blogger (which he is).


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