FACT-CHECKERS NEEDED AT FORTUNE
Chris Matthews in “Fortune” 13 August, HERE writes:
“The 'invisible hand' has an iron grip on America”
CW: “There are few metaphors that have captured the American economic psyche as powerfully as the “invisible hand” of the market. The term, first coined by Adam Smith in 1759, is used to describe how the self-interested behavior of people in a marketplace leads to the greater good for all. No need to rely on concerted efforts of government or the church to direct commercial activity. If the proper economic and legal institutions are set up, we can all be made better if simply left to our own devices.”
Adam Smith did not “coin” the phrase ‘invisible hand’, nor was it a ‘phrase’ - it was and remains a metaphor that was regularly in use in the 17th and 18th centuries before Smith was born and for long afterwards.
Moreover, Smith used the metaphor only once in his 1759 book: Theory of Moral Sentiments and it did not refer to “people in a market place”. He was discussing an agricultural economy, akin to feudalism, where landlords owned the land and serfs, peasants, or landless labourers worked the landlord’s land and landlords in return fed them their necessaries from the farm’s produce. There was no marketplace in Smith’s 1759 example. In reality, of course, landlords used unsympathetic overseers to keep the labourers in order and to distribute produce to them.
CW: “Before Smith coined the phrase “invisible hand,” the discipline of economics didn’t even exist, which is likely why he is so revered by economists today. But while economists respect Smith for inventing the field, they are much less uniformly fond of the “invisible hand” and its sway over public discourse and policy.”
‘Political Economy’ in Smith’s times was incorporated under the older rubric of Moral Philosophy and Jurisprudence (both of which Smith taught at Glasgow University (1751-64).
The more fashionable subject of “Political Economy” came into fashion from Continental influence (Sir James Steuart: “An Inquiry into the Principles of Political Economy”, 1766) and for long afterwards throughout the 19th century (Ricardo, Malthus, and Marx) until Alfred Marshall published his weighty texbook “Principles of Economics” (1890), from which the modern title became common for the narrower discipline emphasising markets over governments.
That Smith is so ‘revered’ today has nothing to do wth the mention of the ‘invisible hand’, which was largely ignored while he was alive and hardly noticed after he died in 1790 and then until 1874, and seldom since until Paul Samuelson started that particular hare running in 1948. Mentions of the IH are now viral.
Only recently have economists become “less uniformally fond of the the “IH” metaphor”. Lost Legacy has tried since 2005 to undermine what “fondness” remains for attributing the invented properties attributed to the “IH” metaphor and for it being attributed to Adam Smith.
CW:Joseph Stigliz: “Adam Smith, the father of modern economics, is often cited as arguing for the “invisible hand” and free markets. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best…. [T]he reason that the invisible hand often seems invisible is that it is often not there.
In other words, markets are pretty good at allocating resources where they are most needed, but there are so many exceptions to this rule that these exceptions deserve as much attention as the rule itself.”
I am always pleased when a leading Nobel-winning, modern economist, with a vast popular readership, acknowledges the fiction of the “invisble hand”. I would be even more pleased if Chris Matthews, writing in the popular magazine, “Fortune”, used the legendary fact-checkers, supposedly abounding in US journalism, to clear up the other factual errors in his otherwise authoritative articles when referring to Adam Smith.