WHAT ADAM SMITH MEANT BY HIS USE OF THE METAPHORIC INVISIBLE HAND
Tim Scott posts (2 November) on Dissident Voice (a radical newsletter in the struggle for peace and social justice) HERE
“Social Impact Bonds: The Titans of Finance as the Altruistic Merchants of Schooling and the Common Good"
“Up until then, what you had was a world of socially responsible investing where everybody paid lip service to the fact that we shouldn’t do bad things. But we didn’t really have the ability to deliver positive social returns. With the advent of the social impact bond, the thinking began to reverse, I think in a really fundamental way; so fundamental that if Adam Smith were around today, he’d be talking not just about the invisible hand of markets but the invisible heart of markets.”
A very long and erudite article by Tim Scott detailing the mess that the author sees in the treament by wealthy charities in their interventions for disadvantaged youths from non-white social groups in the USA. I have no expertise in this subject-area, but if it is half as bad as the author states then it is pretty bad indeed.
However, I do have some familiarity with the views of Adam Smith, of whom Tim asserts talked about “the invisible hand of the market”. The fact is Smith didn’t mention his reference to “an invisible hand” in that way. Modern economists and people who believe what modern economists assert, certainly speak that way.
Tim Scott extends the modern error of the now infamous metaphor, giving it a new twist: “the invisible heart of markets”.
Very clever, literary-wise, but still inaccurate.
Markets are social-constructs. They neither have hands nor hearts (nor ‘fists’, ‘boots’, ‘bludgeons’, or anything else physical). They work by VISIBLE PRICES and cannot work without them.
People generate motives and act accordingly in pursuit of them. Their MOTIVATED ACTIONS have INTENDED consequences (which may or may not be realised).
The metaphor Smith used (widely in use in the 1th-18th centuries, mainly but not only, with theological overtones), referred to those motivated actions leading to UNINTENDED consequences (hence Smith’s references to the motivated actions of the person being “led by an invisible hand” which actions caused their unintended consequences, sometimes of positive benefit to the public good (raising the annual output of goods/and services and employment) and sometimes of negative dis-benefit to the public good (tariffs and prohibitions and wars over 'jealousy of trade').
If we keep that distinction in mind, and its sequence, we can understand Smith’s use and meaning of his use of a metaphoric “invisible hand”.
Unfortunately, keeping the sequence and the unintended consequences of the motivated actions of people clear in our minds is not (yet!) common.