ADAM SMITH’S METAPHORIC USE OF THE INVISIBLE HAND
[I was asked recently by a well-known and internationally respected Smithian scholar: ”to briefly state what you take Smith in fact to have meant by invoking the IH in the relevant passages in TMS and in WN”. What follows is a slightly edited response as my reply]:
Adam Smith’s metaphoric references to the “invisible hand” were made on two occasions only. In Moral Sentiments, (1759: Part IV. Chapter 1. paragraph 10): “unfeeling landlords” had a coincidence of self-interests with their field labourers. Landlords were dependent on their labourers because their social “greatness” and their “vain and “insatiable desires” depended on their succcessful management of their estates. Their labourers were absolutely dependent on their landlords for their families’ subsistence from the total produce of their labours. Smith said the landlords were “led by an invisible hand to make nearly the same distribution of the necessaries of life” as “would have been made had the earth been divided into equal portions”.
Landlords were motivated to feed their labourers because without their compliant labour (enforced, we should note, by the landlord’s overseers) there would be no social “greatness”. Their labourers were motivated to labour in their landlord’s fields because they received their share of subsistence for their compliant labour, without which they could not survive. Each party therefore was motivated intentionally to act to secure their desired outcomes. However, as a result of their conjoined actions there were also unintended consequences, specifically that “without intending it, without knowing it, [they] advance the interests of the society, and afford means to the multiplication of the species” (TMS IV.i.10: p. 184-5).
Smith’s second use of the “invisible hand” metaphor had a similar construction in Wealth of Nations (1776: Book IV. Chapter 2. paragraph 9: p. 456). A “wholesale merchant” naturally “prefers the home trade to the foreign trade” because “his capital is never never so long out of his sight” and he “knows better the laws of his own country and knows better the character” of the “persons whom he trusts”. By acting in this manner he “intends only his own gain, and he is led by an invisible hand to promote an end which was no part of his intention”. Specifically by acting in “such a manner” the country’s produce “may be of the greatest value”. Again, the private, hidden motivations of the merchant, in this case his aversion to the risks of foreign trade, cause him to act intentionally to protect his capital by investing it locally. And acting in this manner, he is led by “an invisible hand” unintentionally to add to the “annual revenue of the society” and thereby “promote the publick interest” (WN IV.ii.9: p. 456).
In both cases, Smith described the sequential process that begins with the motivations of human agents for the actions they take that led them to achieve their intended consequences and, in turn, their motivated actions may lead to the unintended consequences he describes. In using the “invisible hand” metaphorically to describe the same sequence in each case, and also noting that the same sequence could apply “in many other cases” (WN IV.ii. p 456), Smith made an important perspicuous contribution about the human proclivity for their motivations leading them to actions in pursuit of intended consequences that could also have unintended positive, or negative, consequences.
Schematically the sequence may be illustrated by:
Motives > Actions > Intended consequences > Unintended consequences.
The ‘invisible hand’ metaphorically describes this common process throughout all of human activity since our ancestor’s speciation as primates.
The “invisible hand” metaphor is neither benign nor malign; it is a metaphoric rhetorical description of human actions, some of which may add positively to market operations (rising GDP and per capita incomes) and some that may detract negatively from human welfare (environmental destruction, pollution, corruption, general illegalities, and such like).
In what follows (in my latest essay I am preparing for publication) I survey modern (post-1948), often ideological, misunderstandings among post mid-20th century economists about what Smith meant by innocently using the “invisible hand” metaphor to describe important aspects of human behaviour - though Smith applied his use of the metaphor to functioning societies long before modern markets came to dominate the more successful commercial economies in the modern world.
In short, Smith never said there was a “magical” or “miraculous” “invisible hand” uniquely located in modern market exchanges that benignly “led” markets, or supply and demand, to a supposed benign “equilibia”. His metaphoric meaning was more modest.
In post-1948 economics the misuse of the “invisible hand” with its imaginative fantasies, unsupported in anything Smith wrote (or taught) of his rhetorical use of the now famous metaphor that, remarkably, none of his contemporaries commented upon it. Moreover, only a very few of those who taught from his works in the 19th century, plus only a dozen or so scholars in the first half of 20th-century, referred to the “invisible hand”.
Smith states in his largely unread “Lectures on Rhetoric and Belles Lettres” (1762; 1983) that “in every metaphor there must be an allusion betwixt one object and an other” and that a metaphor cannot “have any beauty unless it be so adapted that it gives due strength of expression to the object described and at the same time does this in a more striking and interesting manner. When this is not the case they must either carry us to bombast on the one hand or into burlesque on the other” (LRBL, i.64-66: p.29).
I suggest “bombast and burlesque” is precisely what has happened to Smith’s innocent metaphoric use the “invisible hand” in the academy since Paul Samuelson’s, “Economics: an analytical introduction”, McGraw-Hill, 1948, became the world’s best selling ‘Economics 101’ textbook (over its 19 editions to 2010) with its flippant and fateful sentences on page 36. (See: Kennedy, G. 2010. “Paul Samuelson and the Invention of the Modern Economics of the Invisible Hand” History of Economic Ideas, xviii/2010/3. pp. 105-19).
Gavin Kennedy (6 June, 2015) Copyright 2015.