ADAM SMITH ON THE INVISIBLE HAND: THE FACTS NOT THE MYTHS

Dr. Marwan Iskandar opines (11 January 2016) HERE

“The Invisible Hand and Consequences of Invisible Neglect”

“The pioneers of modern economic thinking like Adam Smith and John Stuart Mill considered that an invisible hand, which guarantees the best result, guides the order of free markets. Successive crises as of 1907 culminating in the international financial and economic crisis of 2007/2008 disprove that theory.”

Comment

Adam Smith never made such a sweeping and absolutely false statement that Dr. Marwan Iskandar attributes to him. Dr Iskander is extremey well qualified and has had a distinguished career. He holds a B.A. and an M.A. from A.U.B., a law degree from the Lebanese University and a Ph.D. from Oxford, and he is a prolific author. 

Yet he will never find anything in that Adam Smith wrote that asserts “an invisible hand, which guarantees the best result, guides the order of free markets”.

That was an assertion made by economists long after Adam Smith died in 1790 and confuses modern interpretations of a singular case in Wealth Of Nations where he shows that a merchant who was pessimistic about the conduct of foreigners in respect of trade with them and in the quality of foreign judicial remedies for deceit and thereby would prefer to invest domestically instead, which motivated action would arithmetically add to “domestic revenue and employment” (WN IV.II.9. pp. 455-6).

There is absolutely no generalisation in Smith from this singular case to such an invisible hand “which guarantees the best result, [and thereby] guides the order of free markets”. 

That sort of claim is a modern one, such as by Paul Samuelson, in his “Economics: and introductory analysis” McGraw Hill, 1948, which subsequently spread into the popular textbooks and was added to by the general media where they were encouraged to do so by many prominent academic economists, including, to their shame, the authority of many Nobel Prize winners. The 5 million readers of Samuelson’s 19 editions (to 2010) who passed through Econ 101 since 1948 also remembered the false assertion that Smith allegedly enunciated the myth that his reference to “an invisible hand” was about even “selfish” motivations were all worked through the “price system” to serve the “public good”. By repetition that was all they remembered of their classes and they passed it on to the general media.

Dr. Marwan Iskandar now passes on the myth to his readers, while attacking it for being wrong! Of course it is wrong and Adam Smith is innocent of the claim that he asserted it in the first case. 

In Wealth of Nations Smith exposes such notions (more than once) throughout by showing that “merchants and manufacturers” often intentionally act to manipulate markets to limit competition in order to raise prices, often in collusion with legislators, by pressing for tariffs and prohibitions, let alone colluding with their competitors privately whenever they meet, even on social occasions (Smith in WN: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”)

So, as Smith never made such an absurd claim as attributed to him by Dr. Marwan Iskandar and often points out the contrary, is it not time his critics took note of the facts and all those who believe that he did make such claims, for both groups to read Smith for themselves, starting with Smith's clear exposition of the role of metaphors in his Lectures on Rhetoric and Belles Lettres (1762) and his Wealth of Nations (1776). They could also benefit from reading my essay, “Adam Smith and the Invisible Hand: from Metaphor to Myth” Gavin Kennedy (2008) Enquiries to: gavinK9@gmail.com