A Respectful Reply to 'Jon'

Jon
Thank you for your helpful response. I am, however, concerned with what Adam Smith wrote in Wealth Of Nations, which is the original dispute that Chomsky expressed in his critique of Milton Friedman, a voice for rightist views in public debate. I observe that both Chomsky and yourself (both ‘leftist’?) also make comments at variance with Adam Smith’s writings, not just about his two references to “an invisible hand”.

You accept that Smith did not write of globalization as experienced in the 20th-21st centuries. You challenge my reading of Smith in Book IV, chapter 2 of Wealth Of Nations, and I am grateful for your observations and comments. Others also quote the paragraphs mentioned by you, for example, David Friedman (no relation?), a libertarian, who posted to me on Lost Legacy a couple of years ago.

In paragraph 1, Smith gives examples of the consequences of ‘Restraints upon the Importation from foreign commerce of such goods as can be produced at home’. That these restraints, Smith says in paragraph 2, benefit domestic industry and employment “cannot be doubted”, but whether that benefits society “is not, perhaps, altogether so evident”. His general proposition is that “general industry” can “never exceed what the capital of the society can employ”, but regulations cannot increase the employed capital; they can only divert it, which may not be as “advantageous to the society than that into which it would have gone of its own accord” (paragraph 3).

He switches to consider the individual exerting himself to “find out” the most advantageous employment for his capital, and this “finding out” process is naturally “most advantageous to society”, even though he seeks his own “advantage” (paragraph 4). He seeks to invest locally “as near home as he can”, which supports “domestick industry”, guided by “ordinary, or not a great deal less than ordinary profits” (paragraph 5). You quote part of paragraph 6 part. The other part, unquoted, says

“In the home–trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever necessarily brought home, or placed under his own immediate view and command’ (paragraph 6, lines 3 to 5).

These express considerations of risk in trading outside “domestick industry”, including that of the “foreign trade of consumption” and “the carrying trade”, which were more riskier than distant parts of “domestick industry”. Smith gives over the long rest of the paragraph to give examples from distant foreign trade (paragraph 6, lines 8 – 32). The merchant, to avoid risks and trouble, when engaged in foreign trade, will always be glad to sell his cargoes domestically, and as a consequence will “put into motion a greater quantity of domestick industry [that] gives revenue and employment to the greatest number of people of his own country”. It is this convenience and security (lower risks) that leads to the consequence of “home being the centre, if I [Smith] may say so, round which the capitals … continually circulate”. The “natural” inclination to employ his capital in this manner, driven by risks of foreign or distant trade “gives revenue and employment to the greatest number of people in his own country” (paragraph 6 and 7). he whole is the sum of its parts.

This is clearly a consequential outcome of his risks, concerns and trouble of foreign trade, which also has the necessary consequence of slower turnover of his capital overseas – instead of turning over his capital for profit in months, the merchant may have to wait years (Smith discusses this elsewhere in Wealth Of Nations).

The inhibitions of some, but not all merchants (foreign trade was an increasingly significant element of the British economy from the 14th century) leading them to trade domestically’ is the object of his use of the metaphor of “an invisible hand”, which was a metaphor to “describe in a more striking and interesting manner” the personal inhibitions of traders in “domestick industry” (see Smith’s Lectures on Rhetoric, 1762). The metaphor had nothing to do him preferring to better "his home country' which caused him to be "led by an invisible hand” as an expression of a public benefit. Smith specifically says that he is “led by an invisible hand to promote an end which was no part of his intention” (the betterment of a public benefit), because "by pursuing his own interest (avoiding the risks and trouble of foreign trade) ‘he frequently promotes that of society more effectually than when intends to promote it” (paragraph 9). In short the "betterment" came as a consequence of him being "led by an invisible hand"; it was not the cause of him acting in this manner to avoid risk to the security of his capital. If he preferred to "better his country", it would not be consequence, but the reason for acting thus.

I have tried to persuade “rightist” authors (David Friedman, Daniel Klein, and my friends in the Adam Smith Institute – where – disclosure – I am a Fellow, but so far to no avail) and ‘leftist authors, writing in defence of Chomsky (also, so far, to no avail). My concerns are nothing to do with 21st-century squabbles; they are in defence of Adam Smith and his legacy; I do not take sides in the Cold-War legacy in modern economics, inspired by false attributions, since Paul Samuelson’s 1948 text, Economics: an introductory analysis.

Many thanks, Jon, for your attention and interest.

What Has Joe StIglitz Learned?

Elena Callahan reports (2 April) on New Deal 2 (“a project of the Franklin and Eleanor Roosevelt Institute”) HERE

“Stiglitz: The Invisible Hand is Invisible Because It Isn’t There”

In a keynote address, Roosevelt Institute Senior Fellow Joseph Stiglitz also argued that healthy societies have strong governments and that his research has shown that “the reason the invisible hand often was invisible was that it wasn’t there.”

“… Stiglitz says that “most Americans don’t realize that we are no longer the country of opportunity that we think of ourselves, that America today has less equality of opportunity than any of the other advanced industrial countries.” He points out how many like to say that our economy is doing well because GDP is growing, but that “if you’re going to be judging how well an economy is doing, clearly I think the key metric that one wants to focus on is what is happening to the living standards of most citizens.” He says that most Americans don’t realize how bad we’re doing, including the fact that “the median income of a full-time male worker today is the same as it was in 1968,” and “if you look at median household income it is the same today as it was a decade and a half ago.”

How did our society get to a place where government has taken a back seat and where people are wary of government control? Stiglitz thanks the conservatives who have successfully touted false ideology about markets over the past 40 years. While they like to blame the government for inequality, Stiglitz notes that not even Adam Smith thought markets were anything beyond efficient. “Nobody ever said that they were fair, that they would lead to a distribution of income that was socially acceptable.” Furthermore, he says, “many of the aspects of our inequality are a result of market failure. People who don’t have health insurance when they get sick wind up in extreme poverty and they can’t get health insurance because of a whole set of market failures.” He says it’s “striking that in spite of the fact that there is no intellectual basis for what you might call a ‘Smithian’ view that unfettered markets lead to efficiency,” conservatives have marched ahead with this idea.
So why was there so much economic growth after World War II? Stiglitz says one reason is “the legacy of the Roosevelts, the legacy that government made a difference.” In making the case for government he also points out that “government has played an important catalytic role in a whole variety of other areas. If you think about our modern economy, you think about Internet, you think about biotech, you think about telecommunications and all of these things rest on government-funded basic research.” He recalls a conversation with a Scandinavian finance minister who, when asked how his economy was so successful, answered “high taxes.” Stiglitz took away that “if you’re going to have a well-functioning economy… you have to pay for what you get. You need to have a well-functioning government that provides education, infrastructure, research, technology, all these things, and we have to pay for it.” Given that markets are not predictable nor interested in social problems, our government should stop bailing the financial institutions out and start investing in its people and the institutions that benefit them.”

Comment
Those of us who are suspicious of politicians in government and the Sir Humphrey's among civil servants, who administer legislation initiated by politicians and those who influence them, are frustrated by the analysis of the likes of left-of-centre, Joseph Stiglitz, that what governments ought to do, they should do more of, and critics of government policies from a right-of-centre perspective who say that whatever governments do now, they should do less of it. These views are matched by contrary views among left-socialist statists who say that governments should do everything and by anarcho-libertarians that governments should do practically nothing at all.

Both perspectives share the same fallacy about Adam Smith’s contributions to these debates. Stiglitz correctly states: there is no such thing an “an invisible hand”, but continues to believe in the ideas of neoclassical economics. Leftwing critics of the fallacy of the “invisible hand” also believe that it is an essential idea of neoclassical economics and attribute it to Adam Smith. For both sets of believers, the modern interpretation of the metaphor is attributed to Adam Smith, as it has been since the late 1940s, summarised (by Paul Samuelson) in the crude fantasy that Smith said that even “selfish” motivations lead unintentionally to social betterment, a wholly pernicious doctrine, about as alien to Adam Smith’s philosophy as one can get.

Interestingly, the Marxist economist, Oscar Lange, while at Chicago, from where Samuelson graduated, adopted from its oral tradition the importance of the role of the “invisible hand” to market economies, and in his plans for socialist economies envisaged the state taking over its role from the superior ability of the State planners to allocate resources “better” in place of the market’s “invisible hand”, amidst what Marx called the “anarchy of capitalist production”.

And the roots of the prevalent, but wholly misleading, belief in the “invisible hand” was a child of what became the Cold War, first in the perceived threat to market-based capitalism from the socialist economics of the Soviet planned economy, and later, from the mid-1940s, from the perceived military threat of an enlarged Soviet Union following its take-over of Eastern Europe and the post-war surge of mass communist parties in Western Europe, plus, of course, after 1949, the seizure of power by Mao’s Communist Party in China. There was also a perceived threat to capitalist hegemony in Western Democracies from social-democratic governments, and anti-colonial movements in what was known as the Third World. The myth of the “invisible hand” became a powerful ally of defenders of capitalism.

And its praises were sung in a increasingly loud voice as the 60s gave way to the decades after, which we can trace in the surge in mentions of its virtues from hardly next to no mentions of the role of Adam Smith’s so-called “invisible hand” from when he died in 1790 right through to 1875, and then only a trickle to the 1930s. Only after Paul Samuelson published his invention of the “selfish” invisible hand leading to public benefits from 1948 (‘Economics: an analytical introduction’, McGraw-Hill) did the modern myth acquire traction. Warren Samuels provided the astonishing data of public mentions of the invisible hand from the 1940s to the 1990s in stark contrast to the barren decades of no mentions at all to the 1870s (‘Erasing the Invisible Hand: essays on an elusive and misleading concept in economics’, 2011, Cambridge).

The old Cold War is over, and capitalist economies have lost their shine. Faith in the system-saving “invisible hand” is draining away. Stiglitz is an early manifestation of the beginning of the drain. But whether his proclaimed alternative to markets is sound, I have my doubts.

He writes:

“our government should stop bailing the financial institutions out and start investing in its people and the institutions that benefit them.”

It sounds attractive as a one-liner, but has he really learned from the over-due demise of “invisible hand”? The current problem is government borrowing to fund bloated expenditures. The overhanging deficits have to be funded and repaid. They are so large that borrowing to spend more are acts of prodigality. Willing lenders do not match the appetites of clamouring borrowers, nor does the political will of legislators match the aspirations of restless (e.g., Bradford) electorates.

Not bailing out banks is an easy target. Cutting welfare spending is highly unpopular; it is even unpopular to cut welfare spending among the rich because of the clamour it causes at the margin. We are a long way from ‘death to the Kukaks’, but starting down that road is the sort of pass-the-buck politics where it paralyses action to change the arithmetic of the perceived spending disaster.

On the Road to Redemption?

Scott Galupo writes in USNEWS.com HERE

He quotes August Heckscher essay, "Where Are the American Conservatives?" in which he declared “it to be as relevant today as when it was published in 1953”:

“The concept of a pure conservatism, its pattern ‘laid up in heaven’, was an illusion; it was in fact the same illusion that had possessed the Liberals and the Utopian democrats through the nineteenth century. That the conservatives should have fallen under its spell was particularly strange, for traditionally the conservatives mistrust an excessive rationalism—they know that the world moves by habit, by values, by inherited faith, quite as much as it moves by getting new ideas. The conservatives, when they are in their right mind, avoid tearing up the roots of something they do not like almost as instinctively as they avoid tearing up the roots of institutions and procedures of which they approve. The fact that American conservatives to so large a measure forgot, or never learned, this healthy prudence and this basic tolerance, I can only attribute to the fact that they had grown so uncontrollably angry. In attacking the New Deal they became inflexible in their thinking, unresponsive to the settled expectations and tacit consents of the great public; and they wanted instead to impose a doctrinaire program of their own.”

Scott Galupo adds:

“Replacing one's notion of Nanny with a sterner Daddy will not restore the prelapsarian paradise of Adam Smith's Invisible Hand and Friedrich von Hayek's Spontaneous Order—because those paradises never existed to begin with.”

Comment
This may be an example of someone waking up and realising that he cannot smell the coffee because there is none to smell.

Samuelson’s authoritative myth (and getting more authoritative through the following decades) of Adam Smith’s ‘selfish’ invisible hand that nevertheless miraculously benefitted society had hardly got the traction by 1953 that it was to acquire a few years from his highly successful textbook: Economics: an introductory analysis McGraw-Hill (1948) – achieving 5 million sales by 2010.

It took a little time for Samuelson’s, or his teachers’, oral invention to spread into western consciousness, as graduates across the world went out to teach on other campuses, or claim through the media and democratic politics that there was salvation in the optimism in markets, nowhere free, but freer in the ‘land of the free’ than in war-shattered Europe, and incomparably freer than the drab communist central-planning regimes of Soviet occupied states, and to a much lesser extent, in Western European social-democratic states and in their newly independent former colonial states of the British Empire.

The Soviets grabbed East European territory after World War 2, and their communist allies grabbed China, but all was not lost because the West had the “miraculous magic”, wrongly attributed to Adam Smith, of the “invisible hand” that worked its wonders in markets irrespective of the selfish motives of those who were “led” by it.

Those who wanted a “doctrinaire program of their own” found it in “Adam Smith’s invisible hand”, which the Soviets could not match, despite Oscar Lange’s attempt to portray central planners as doing the work of an invisible hand, but only ‘better’. Such unconvincing fantasies were of no avail compared to the success of post-war capitalism, supposedly with its genuine invisible hand in its markets.

Events showed the superiority of the democratic capitalist economies, particularly in the collapse of Soviet communism and the opening by communist China by aligning its imitative state producing for capitalist world markets. With the economic crisis in Western capitalist economies from reckless over spending and borrowing, their over confidence was challenged globally.

Scott Galupo reacts with his conclusion that “the prelapsarian paradise of Adam Smith's Invisible Hand” never existed. He’s right, but that truth was available to anybody who consulted Adam Smith’s Works and read the very limited contexts in which he used the metaphor (only twice in fact), and certainly he never associated it with the blank cheque of “selfishness” and the assertion that society automatically would be better off.

This last assertion, shouted everywhere in the US on every media, is contradicted in Adam Smith’s “Wealth Of Nations” , much as the “selfish” libel is contradicted in his “Moral Sentiments”. Smith laid into the selfish behaviours of “merchants and manufacturers”, many of whom acted directly contrary to the interests of consumers (tariffs, prohibitions, the anti-labour combination acts, settlement acts, the town guilds, apprentices acts, and all attempts at narrowing competition to raise prices).

It is a mystery beyond explanation why so many voices, even among academics, simultaneously believed in the myth of the selfish invisible hand and were unaware of the content (not just quotes from) Adam Smith’s two works.

I put it down to a form of collective amnesia much closer to a theology than to social science.

How Modern Economists and Journalists Fail

Christine Shearer, a postdoctoral fellow in Sociology at the University of California, Santa Barbara, reviews John Cassidy: “How Markets Fail: The Logic of Economic Calamities”, (Farrar, Straus and Giroux, 2010). She is a journalist at “The New Yorker” and posts on Left Eye On Books HERE

“Is faulty economics at the root of t he global financial crisis?”

“Cassidy begins with Adam Smith’s “The Wealth of Nations,” widely regarded as the precursor to the modern discipline of economics. Smith laid out a vision in which rational self-interest and competition can paradoxically lead to the greater good for everyone and national economic prosperity. As Smith put it, each individual “intends only his own gain, and he is in this [is] led by an invisible hand to promote an end which was no part of his intention.” In making this argument, Smith’s vision of how societies and economies operate was highly utopian, as Robert Heilbroner’s “The Worldly Philosophers” explores.”

Comment
Christine Shearer (a postdoctoral fellow), does not say where in his texts Adam Smith claimed that “rational self-interest and competition can paradoxically lead to the greater good for everyone and national economic prosperity”, nor what is meant by “rational” self-interest (a similar popular assertion often presented as “enlightened” self interest”). It is too easy to slip from modern language to read into Adam Smith what is not there, as it is to find in his Works a “leftwing” Adam Smith.

She also allows Cassidy to get away with doctoring a quotation from Adam Smith to give an entirely different slant on it compared to Adam Smith’s clear language:

“Here is the full quotation from Adam Smith (with Cassidy’s rather reduced and brutal version emphasised):

“But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestick industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it. By preferring the support of domestick to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention” (WN IV.ii.9: 456 – also read paragraphs 1 – 8 to confirm the Smith’s restricted context).

Smith’s was not a general statement of what every individual merchant in a society did, but what some specific merchants did, who “intend their own security” and who were averse to sending their capital out of their direct sight and control, into the “foreign trade of consumption” - see the previous 8 paragraphs of Book IV, chapter 2, Wealth Of Nations.

Cassidy (like many others who quote but do not report Smith’s entire argument) misses out Smith’s clear statement of the specific case he identified of some, but not all merchants, preferred to invest in “domestick to that of foreign industry”. This group “intend only [their] own security”, and, in consequence, they “direct that [domestick] industry [so] that its produce may be of the greatest value”. This means that “every individual” in the specific group he identified (not necessarily every individual merchant in a commercial society), so motivated, “necessarily labours to render the annual revenue of the society as great as he can.”

This is not a general statement of what happens universally across an economy in every individual merchant. Adam Smith states the simple consequence of the actions of those specific merchants who invest only at home: they necessarily add to annual domestic revenue (GDP) by exactly the arithmetical amount of their domestic capital investment – the whole is the sum of its parts! It is not a “vision” or anything like one. It was a limited quantitative consequence of the risk aversion of some, but not all “individual” merchants.

Clearly, foreign trade was an important element of British GNP, but a sizeable number of other merchants did send their capital abroad in the quite extensive British merchant marine (thanks to the Navigation Acts from Cromwell’s time), thereby denuding “domestick industry” of that quantity represented by their capital, which necessarily reduced UK “annual revenue and employment”, though for other reasons not gone into here, annual GDP would be smaller if nobody invested abroad. Smith, remember, favoured overseas trade. Exports to buy imports added to the range of domestic consumption in the form of imports, assuming domestic “merchants and manufacturers”, and other self-interested parties did not prevent imports by agitating to impose mercantile tariffs and prohibitions, the main target of Smith’s “violent attack” in his critique in Wealth Of Nations.

That modern economists continue to misread Adam Smith – or more correctly, simply quote blindly the assertions of others without reading Wealth Of Nations – is itself a comment on modern ‘scholarship’, and perhaps on modern journalism too that repeats these myths – what happened to news journalism’s fabled “fact checkers”?

Christine Shearer takes from Cassidy that Adam Smith held the view “that individual self-interest operating in a competitive marketplace produces the conditions under which a society thrives paved the way for utility maximization theories [from the late 19th-century] and general equilibrium theories, [from post-1940s] leading to models of self-equilibrating, rational markets balanced out by the forces of supply and demand. Cassidy notes [she tells us] that many of these same modern theorists are aware of the shortcomings of their ideas: that “they often only held up under certain conditions (and often very restrictive ones), or could not be demonstrated empirically, making them grounded more in abstract equations and theory than observable reality. He argues that, in fact, it is well-established in mathematical economics that there are several problems with the theories, particularly that there is no guarantee that an economy will settle on an “efficient” rest point. These theorists, Cassidy argues, therefore rarely posed their studies as prescriptions for government policy.”

This type of thinking gave “credibility to the ideology of the ‘Efficient Markets Hypothesis’ as the best approximation for how financial markets operate”, with results that are evident today. True, some financial firms made profits on such theories, but as many others made losses. None of this had anything to do with Adam Smith. He was dragged into supporting these theories, and especially those associating him with the “invisible hand”, when, in fact, he was innocent of any connection with them. The views that he was complicit are inventions and distortions (of the kind that originated in misquotations of the famous “invisible-hand” paragraph, like those of Christine’s above), from the 1940s, which had more to do with the Cold War decades, than they had in historical fact. For which, Paul Samuelson was a major instigator of the claim from 1948 that Adam Smith supposedly set the “invisible hand” myth running, so that today that belief is rampant.

I note (not as criticism – people have a right to believe what they like) that Christine Shearer is of a “leftish’ disposition. It is somewhat ironic that she criticises “rightish” theories but, apparently, she too has bought into the same myths about Adam Smith, which myths achieved traction during the Cold War in the Western effort to counter Soviet central planning as an alternative to commercial markets, with the planners taking over the invented role of the “invisible hand” (see Oscar Lange’s books from 1938-47). Such myths impugn Adam Smith’s legacy. He died over 150 years before the Cold War came to be part of modern intellectual discourse and lasted until around the 1990s.

Mark Skousen and the Invisible-Hand Metaphor

Mark Skousen posts his talk to Hillsdale College, ‘Will The Real Adam Smith Please Stand Up?’ HERE In yesterday’s post, I commented on some remarks made by Mark and today I shall comment on matters of substance. It is a rather long post, but it raises important issues of scholarly conduct.

Mark Skousen writes:

“Invisible Hand: Marginal or Central Concept?”

“Could the detractors be correct in their assessment of Adam Smith’s sentiments? Is the invisible hand metaphor central or marginal to Adam Smith’s “system of natural liberty”?

… Gavin Kennedy contended in earlier writings that the invisible hand is nothing more than an after-thought, a “casual metaphor” with limited value. Emma Rothschild even goes so far as to declare, “… the invisible hand…[is] un-Smithian and unimportant to his theory” and was nothing more than a “mildly ironic joke.”]

Adam Smith Reveals His Invisible Hand

A fascinating discovery uncovered by Daniel Klein, professor of economics at George Mason University, may shed light on this debate. Based on a brief remark by Peter Minowitz that the “invisible hand” phrase lies roughly in the middle of both The Wealth of Nations and The Theory of Moral Sentiments, Klein made preliminary investigations that led him to suggest deliberate centrality. Klein then recruited Brandon Lucas … to investigate further. Klein and Lucas found considerable evidence that Smith “deliberately placed ‘led by an invisible hand’ at the centre of his tomes” and that the concept “holds special and positive significance in Smith’s thought.”

Klein and Lucas base their conjecture on two major points. First, the physical location of the metaphor: The single expression “led by an invisible hand” occurs almost dead center in the first and second editions of The Wealth of Nations. (It moves slightly away from the middle after an index and additions were added to later editions.)

Moreover, it appears again “well-nigh dead centre” in the final edition of The Theory of Moral Sentiments. Klein and Lucas admit that it was not in the middle of the first edition in 1759, speculating that “physical centrality was not initially a part of his intentions…[but that] by 1776, Smith had become intent on centrality.” Indeed, Smith moved the phrase “invisible hand” closer to the center of the book, first by appending an important essay on the origin of language and finally by making substantial revisions in the final edition.

Second, Klein and Lucas note that as an historian and moral philosopher, Adam Smith commented frequently on the importance of middleness in architecture, literature, science, and philosophy. For example:

– Smith wrote sympathetically about the Aristotelian golden mean, the idea that virtue exists “between two opposite vices.” For instance, between the two extremes of cowardice and recklessness lies the central virtue of courage. …

– Klein discovered that Smith, in his lectures on rhetoric, admired the poetry of the Greek poet Thycydides, who “often expresses all that he labours so much in a word or two, sometimes placed in the middle of the narration.”

In sum, according to Klein and Lucas, the invisible hand represents the climatic centrality of Smith’s “system of natural liberty,” and is appropriately found in the middle of his works. By this discovery, if true, one goes from one extreme to the other — from seeing the invisible hand as a marginal concept to accepting it as the touchstone of his philosophy.

Klein and Lucas’s list of evidence is what a lawyer might call circumstantial, or “impressionistic,” to use Klein and Lucas’s own adjective. Taken as a whole, the documentation is either an ingenious breakthrough or a “remarkable coincidence,” to quote Gavin Kennedy.

A few Smithian experts have warmed up to Klein and Lucas’s claim. Gavin Kennedy, who previously considered the invisible hand a “casual” metaphor, now sees a “high probability” in their thesis of deliberate centrality. Others are more skeptical. “We have no direct evidence for the conjecture,” states Craig Smith, an expert on Adam Smith at the University of St. Andrews. The idea that Adam Smith deliberately hid his favorite symbol of his philosophy “strikes me…as very un-Smithian,” he states, and runs contrary to his policy of expressing thoughts in a “neat, plain and clever manner.” Placing the shorthand phrase “invisible hand” in the middle of his works may not be plain, but is it not neat and clever?

Comments
I have long practiced the scholar’s duty of always submitting to the evidence of facts; a trait not found among ideologues of left or right, or among those of religious persuasion, and those with a ‘theory’ about how the world works. When Daniel Klein kindly sent to me his findings on “centrality” before publication, I responded as a scholar must. He gave me the choice of denying the evidence he and Brandon had found in measurements of copies of Smith’s early original editions of TMS and WN in the US Library of Congress, or of taking the less scholarly route of denying the evidence, or the lamer (agnostic) excuse of “remaining unconvinced”. I chose to accept the evidence of physical centrality in Smith’s two books (obviously, I completely accepted their reported measurements) and I said so to Daniel. It was the right thing to do. In private correspondence he admitted to being “surprised” by my response.

I did not, and do not, accept that the fact of physical centrality altered the general substance of my view that Smith used the IH metaphor precisely as a metaphor, and nothing written since by Daniel has changed that view – if anything the further that Klein moves away from Smith’s clear meaning in his texts in favour of modern commentaries (let alone the very ancient Talmud), the weaker Daniel makes his case for some higher significance of the IH metaphor. Whether Smith’s use of the metaphor was somehow more significant than I claimed it to be, remains an entirely separate subject from physical centrality, and in subsequent publication of my views, I have remained critical of Daniel Klein’s asserted conclusions that Smith’s use of the IH metaphor was “the touchstone of his philosophy”. [See: Gavin Kennedy, “Adam Smith and the Invisible Hand: From Metaphor to Myth,” Econ Journal Watch 6:2 (2009); and “Adam Smith and the Role of the Metaphor of an Invisible Hand,” Economic Affairs (March 2011), and on Lost Legacy passim.]

Daniel’s “asserted conclusions” rely heavily on a blend of the “Aristotelian golden mean” (well-known to all students of Philosophy 101; and to Adam Smith), and on modern commentaries about the IH metaphor (following Paul Samuelson’s inventions, 1948). Incidentally, the “golden mean” is always presented in philosophy as a mean between two associated extreme behaviours (‘vices’), from which the said “centrality” is postulated philosophically. Symmetry is important in artistic beauty, perspective and design. That Klein and Lucas (from an hint by Peter Minowitz) “discovered” centrality in Smith’s books over 200 years later, is remarkable, but not earth shattering.

I refer to Adam Smith’s “Lectures on Rhetoric and Belles Lettres” [1762] 1983, pp 25-32, which he gave in Edinburgh, 1748-51, and in Glasgow, 1752-63. In his lectures he discussed the role of metaphors. Neither Klein nor Skousen refer to this lecture – in fact, Daniel dismissed my reference to metaphors in this lecture as “simplistic”; a common debater’s put-down, implying my naivety in referring to what is surely the most important source for the elucidation of Adam Smith’s meaning in his use of a commonly known 17th-18th-century metaphor, well known to his contemporary, if not to his modern, readers. In short, Adam Smith did not “coin the phrase”; it applied it as a metaphor.

That he used the IH metaphor according to its standard usage in English grammar, and which was read as such for decades from 1759 (hence absolutely no contemporary references to other, more complex, explanations of it; see below), is exemplified in the important fact that nobody claimed the far greater significance of the expression, as read into it generations later from a few mentions from 1875-1900 (hardly any from 1790 to 1875). This period was followed by a very few from 1900-1940, and then, first a trickle, then dozens, then scores, and then thousands from the 1970s. Warren Samuelson, who tracked the mentions of the IH metaphor in reference to Adam Smith writes:

“between 1816 and 1938, the average annual level of writings in which the invisible appeared was very low”, thereafter from “1942 through 1974, the average annual levels doubled, from 1975 through 1979, it roughly doubled again, and between 1980 and 1989 it was approximately 6.5 times higher than during 1942 though 1974. Between 1990 and 1999, the average level was little more than eight times that of 1942-74 and slightly less 20 per cent higher than the 1980-89 level. During the period 2000-2006, the average annual level seems to have receded to a level slightly more than 60 per cent of the 1990-199 level.” (Samuels, W. 2022. Erasing the Invisible Hand: essays on an elusive and misused concept in economics, pp. 18-19. Cambridge University Press). The rest of his 329-page volume details the modern IH phenomenon, largely at variance with Klein and Skousen’s assertions.

I have found a total unwillingness among modern believers in the invisible-hand’s actual existence, and among those believing that the IH metaphor supposedly had special significance for Adam Smith, to them becoming acquainted with how Adam Smith taught his students on the role and use of metaphors. Of course, the device of disclaiming my (undefined) ‘simplicity’ is pure rhetoric, but it does not answer my, and more importantly, Smith’s point in his Rhetoric Lectures:

“In every metaphor, it is evident there must be an allusion betwixt one object and an other. … Now it is evident that none of these metaphors can have beauty unless it be so adapted that it gives the due strength of expression of the object described and at the same time does this in a more striking and interesting manner” (LRBL, i.66. p 29).

We should note also how Hugh Blair, who 'took over Smith's Lectures on Rhetoric and had a distinguished career at the University of Edinburgh, shortly after Smith left for Glasgow in 1751, described the use of metaphors:

“this is a figure founded entirely on the resemblance which one object bears to another … it is no other than a comparison expressed in an abridged form … When I say of some great minister, “he upholds the state, like a pillar which supports the weight of the whole edifice, I fairly make a comparison; but when I say of such a minister “that he is the pillar of the state”, it has now become a metaphor” (Hugh Blair, DD. FRSE, Lectures on Rhetoric and Belles Letters”, pp 342-33. 3 vols. London, 1827).

Every metaphor Smith used in his works is in the standard format of English grammar. And in applying Smith’s role of metaphors to the “invisible hand” on the three (only) occasions in which he used it, we see this clearly.

In his Lectures on the History of Astronomy [posthumous, 1795; written from 1744] Smith referred to the beliefs of pagan Romans that their god, Jupiter, fired thunderbolts at errant Romans (that is what they believed). For them Jupiter’s invisible hand was very real, and very terrifying. They regarded it not as a metaphor but as a noun (as are most theological users).

In Moral Sentiments (1759-90), Smith describes how a “proud and unfeeling landlord”, viewed the crops in his “extensive fields … without a thought for the wants of his brethren” and “in imagination consumes himself the whole harvest that grows upon them”. But “in spite of their natural and selfish rapacity, though they mean only their own conveniency, the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements”.

That sentence states the object of the metaphor that follows. Smith writes: “they are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of society, and afford a means to the multiplication of the species” (TMS Part IV, chapter 1, paragraph 10: 184-5). This links the metaphor’s to its object. In short, the IH metaphor “describes in a more striking and interesting manner” its object.

Now, what is so difficult for undoubted and talented scholars, such as Daniel Klein and Mark Skousen, to accept Smith’s standard use of a metaphor in English? (see the definitive Oxford English Dictionary re: metaphors). The haughty landlord was totally dependent upon the “thousands he employs” in his fields, as they were upon him. He did what he did “without a thought for his brethren” – he had to do so because he (and they) had no option to do otherwise (‘no labour, no food’; ‘no food no labour’). It was the absolute necessity of their mutual dependence that led him and them to do what he (and they) had no choice but to do, and the outcome of the landlord's choice was to “advance the interest of society, and afford means to the multiplication of the species”.

In Wealth Of Nations (1776-90) Smith applied the same metaphor that resulted in a similar outcome. He mentions the location of the ‘object’ of the metaphor six times. It was the choice of investing capital in “domestic industry” or in the “foreign trade of consumption”, and either choice affected the arithmetic amount of investment going into ”domestic industry” (the whole is the sum of its parts). Into this decision, Smith raised the important issue that the merchants faced in their assessment of the relative risks involved in their investment choice. In so far as some, but not all, merchant investors perceived that there were greater risks in foreign trade (he describes those greater risks in paragraph 6), they are more likely to choose to invest in “domestic industry”. Their attitudes to risks were subjective; their minds could not be seen, but their minds affected their decisions.

Smith states clearly: “By preferring the support of domestick to that of foreign industry, he intends only his own security, and by directing that [domestick] industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote and end that was no part of his intention” (WN Book IV, chapter 2, paragraph 9: p 456).

The IH metaphor “describes in a more striking and interesting manner” its object, specifically the insecurity felt by the merchant investor. The outcome of their choice is to “advance the interest of society” by increasing the arithmetic sum of the contributions of “domestck industry” which increases the “annual revenue and employment”, which in Smith’s view, promoted the “pubic interest”.

Why cannot Daniel Klein and Mark Skousen acknowledge Smith’s clear intentions in his use of the IH metaphor? Are they protecting their theories of how modern economies work? Surely, their theories of the modern world would still work, whatever Adam Smith wrote in 1759-90?

These Guys Should Know Better

Rob Norton HERE
Concise Encyclopedia of Economics, quoted by “Utah” in the Rio Norte Line HERE

"Unintended Consequences" by Rob Norton

“The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s “invisible hand,” the most famous metaphor in social science, is an example of a positive unintended consequence. Smith maintained that each individual, seeking only his own gain, “is led by an invisible hand to promote an end which was no part of his intention,” that end being the public interest. “It is not from the benevolence of the butcher, or the baker, that we expect our dinner,” Smith wrote, “but from regard to their own self interest.”

Comment
This authoritative source (from Liberty Fund) has been instrumental in spreading the fallacious notion of the entirely modern notion (from the late 1940s, pace Paul Samuelson) that there is “an invisible hand” at work in capitalist economies, and worse, that Adam Smith initiated the idea.

One excellent antidote to the “invisible hand” myth is Warren J. Samuels’ last book (he passed away just before it was published): “Erasing the Invisible Hand: essays on an elusive and misused concept in economics”, 2011, Cambridge University Press). I suggest that the good people of Liberty Fund read it.

Generalising from a single instance of Smith’s use of the IH metaphor and joining it to another quotation on an different subject is always dangerous when presenting Adam Smith’s ideas.

Pay Attention to What Adam Smith Actually Says

Christina Free posts (19 January) in e-International Relations (“the world’s leading website for students of international politics") HERE


In doing so she repeats the false exposition of Adam Smith's use of the metaphor of “an invisible hand” and repeats the modern economists’ myth that this metaphor is related to several ideological (i.e., not founded on facts) assertions about how Smith considered economies functioned. The result is a misreading – and by the aims of e-international relations – a false presentation of Adam Smith’s views for ‘students of international politics’.

“The Goldman Sachs Abacus 2007-ACI Controversy: An ethical case study”

“The 21st century economic landscape is a reflection of the philosophy and ideas set forth by Smith and his contemporaries. Among Adam Smith’s works, two stand out as his most influential; the Theory of Moral Sentiments published in 1759 and Wealth of Nations published in 1776 (ibid). The Wealth of Nations, in part records what Smith considered to be the benefits and potential problems of a market economy, and lays the foundations of the modern economic system. What many consider to be his most important contribution to economics is his theory of the “invisible hand”, which recognizes the benefits that can be derived from allowing people to follow their self-interest (Smith, 1776). He analyzed the way in which a market system could combine the freedom of individuals to pursue their own objectives “with the extensive cooperation and collaboration needed in the economic field to produce our human needs” (ibid).

Adam Smith’s economic theory claims that when individuals are granted the “natural liberty” to pursue their own interests, they also end up promoting the interests of the greater good (Bruni and Sugden 2008). His famous theory of the ‘Invisible Hand’ states that if consumers are given the opportunity to freely choose what to buy, and producers are allowed to freely choose what to produce and sell, the market will settle on a “product distribution, and prices that are beneficial to all the individual members of a community, and hence to the community as a whole” (Keller 2007). This “invisible hand”, or the market, consists of self-interested suppliers on one side and self-interested buyers on the other. It is each parties self-love which Smith considered to be the best motivator for fair pricing and quality production in the markets (Smith 1776). The harmony of these individual pursuits which “often produce social and economic good” creates a “self-constraining system” (Werhane 2006). Thus, the “invisible hand” which governs market transactions, functions as a regulator of self-interests, and simultaneously promotes economic growth and well-being. In the Wealth of Nations, Smith gives several examples of how this mechanism works, and how it gives rise to the division of labour. He states that “it is by treaty, by barter, and by purchase, that we obtain from one another the greater part of those mutual good offices which we stand in need of” (Smith 1776).

[Follow the link HERE to appreciate Christine Free’s essay in full. ]

Comments
Some questions of fact: where does “his theory of the “invisible hand recognize “the benefits that can be derived from allowing people to follow their self-interest”?

Smith never had a “theory” of “an invisible hand”. He mentioned it twice, once each, in his two published works (Moral Sentiments and Wealth Of Nations). It was a metaphor, not a theory. It became a “theory” because modern economists claimed that it was a “theory”, and from the 1940s invented content to demonstrate that it had one.

The theory of “natural liberty” was promoted by Grotius and Pufendorf, and taught at Glasgow University (and other Scottish Universities) in the Moral Philosophy courses, but it had nothing to do with the metaphor of an “invisible hand”. Not did Smith assert that it had any connection.

The “invisible hand” was never a synonym for “the market”. Smith discussed how markets operated in Books I and II of Wealth Of Nations, without mentioning anything about the presence of “an invisible Hand”. It is mentioned only once in Wealth Of Nations (in Book IV) as a metaphor for the ‘insecurity’ of some, but not all investors, who, from their insecurity, were led to prefer to invest in “domestick industry” rather than the “foreign trade of consumption” (WN Book IV, chapter 2, paragraph 9: 456). Modern economists generalized that single (and singular) mention of the invisible hand into a “theory” about something else entirely.

They also, apparently, did not know about the role of a metaphor in English grammar, though Smith did. Smith taught Rhetoric each year from 1748 (his public lectures in Edinburgh to 1751 and at Glasgow University from 1751-64). We also have a set of student lecture notes for 1762, which were found in a house-clearance sale in Aberdeen in 1958 and published as Adam Smith, ‘Lectures in Rhetoric and Belles Lettres’ in 1983. Lecture 6 is devoted to metaphors and figures of speech. On page 29 he defines a metaphor as: “describing in a more striking and interesting manner its object”. Clearly, concerns about the security of an investor’s capital (the object) are brilliantly described in a “more striking and interesting manner” by the metaphor of “an invisible hand” leading the investor to act in this manner because of his “insecurity”. Everybody remembers the metaphor, but few – too few – remember, or even recognise its object, namely their insecurity, mentioned 6 times by Smith in the paragraphs leading to the metaphor of "an invisible hand".

Smith never claimed, or mentioned the “invisible hand” as “govern[ing] market transactions,” or “function[ing] as a regulator of self-interests” that “ simultaneously promotes economic growth and well-being”. That is pure fiction. Respectfully, Christine Free should read Smith’s original 1759 and 1776 texts rather than rely of second- or third-hand reports by Werhane (2006), Keller (2007), Younkins (2011), and Jennings 2004, and many others since the 1940s. She should also read the authoritative analysis of the modern ‘invisible-hand’ phenomenon by Warren Samuels, “Erasing the Invisible Hand: essays on an elusive and misused concept in economics”, 2011, Cambridge University Press, to locate the ideological source of the errors she relies on and about Smith’s innocent role in the modern “invisible hand” myth.

Turning to Moral Sentiments, Christine acknowledges that “What has been lost from Adam Smith to the neoclassical economists (although his ideas and theirs at first glance seem quite similar) is the basis of morality and control that he envisioned would go hand-in-hand with the markets (Keller 2007)”, (a most controversial statement) and she wriggles to maintain the “invisible hand” theory”, asserting that “it was Smith’s “invisible hand” which laid the foundation for the neoclassical economic ideology”. This is partly true, but not in the manner as she understands it. The so-called “theory” (an invented construction by neo-classical – and, sadly, also maintained by many heterodox economists) is at ”the foundation for the neoclassical economic ideology”, but it was not put there by Adam Smith! Neo-classical ideologues back-project their erroneous claims about Adam Smith by misrepresenting his texts.

Christine also misrepresents Smith in Moral Sentiments in presenting Smith’s theories of morality. The separation of an individual from all of the vast anonymous members of the human race, except for a few family and friends, is a fact of life. It is impossible to know everybody in a neighbourhood, let alone on other continents (the world and the people in it beyond Europe were virtually unknown for millennia) The power of the division of labour brought the possibility of peaceful and moral relationships, alas somewhat tarnished by actual experiences of European violence, though, hopefully, not excluded as a more peaceful relationship in the very long run.

However, Christine misreads the old canard that Smith stated in Moral Sentiments that “a man would ultimately have more distress over the loss of a finger than hearing the loss of millions of lives in some distant land”. This is not a quotation from Mortal Sentiments; it is a misleading summary of what the 1759 passage actually said. I suggest that Christine reads it again. It is an easy mistake to misread Smith here (I did, until Sandra Peart, Dean at Richmond University in Virginia, kindly pointed out my error). Smith, after setting up the counter-point of a man preferring his little finger over the lives of “a hundred millions of millions of his [Chinese] brethren”, then excoriates (to put it mildly) any person who actually acts in that manner, his language unrestrained, and his moral tone deafening (Moral Sentiments, Book III, chapter 3.5. para 4: 136-7). Remember, Smith was teaching young teenage boys and used such devices to maintain their attention.

Readers of Adam Smith do best by paying attention to what he says, unadorned with modern interpretations and inventions.

A Must-Read Book For All Modern Economists

Warren Samuels with the assistance of Marianne F. Johnson and William H. Perry, 2011, Erasing the Invisible Hand, Essays on an Elusive and Misused Concept in Economics, New York and Cambridge: Cambridge University Press. ISBN 978-0-521-51725-6

This is a welcome and authoritative contribution to a central problem in modern economics, specifically that of the so-called ‘invisible hand’ and its prescriptive implications for policy. Its author is well-known among economists for his life’s work in the broad field of the history of economic thought, especially, of course, among historians of economic thought, where he is well-known and rightly admired.

Sadly, Warren Samuels (14 September, 1933 – 17 August, 2011) died just before his last major book was published last September. Many messages of sympathy and commendation have circulated among the various academic communities across the world (see, Lost Legacy, 19 and 21 August for mine HERE http://adamsmithslostlegacy.blogspot.com/2011/08/sad-loss-to-history-of-economic-thought.html) .

Samuels started on his thorough examination of the ‘invisible-hand’ in 1983 and, 28 years later, it was completed and published in September, 2011. His examination begins with Adam Smith’s initiation, so to speak, of the debate in 1744 when he began his Essay on Astronomy while at Oxford, published posthumously in 1795. He made two further mentions only of the IH in his two other works, Moral Sentiments (1759) and Wealth Of Nations (1776). Smith did not invent the IH metaphor; he used what had been widely used by many others in the 17th and 18th centuries (and was used by many others going back to classical times).

After Adam Smith, there was a long period of silence about his use of the now famous metaphor until the last quarter of the 19th century, when scattered references surfaced occasionally through the 20s and 30s of the 20th century and then flooded into print from the 1950s (with over 33,000 book titles on Amazon) and daily mentions on all media (see Google).

Warren Samuels' main critical focus is on the uses and the various attributed meanings given to the IH from the 1940s by modern economists. His examination of the modern period is detailed, exhaustive, and relentless. He provides the data: between 1816 and 1938 the “average” number of references was “very low” [I would say close to zero, especially from 1790 to 1875); from 1944 to 1974 that number “doubled”, from 1975 to 1979 it “doubled again”, between 1980-89 it became 6.6 times higher than between 1942 to 1974, between 1990-99 it was 8x that of 1942-74, and less than 20% higher than the 1980-89 level. In 2000-06 mentions fell back to 60% of the 1990-1999 level (p 18). In short, the ‘noise’ of the modern periods became awesome, in contrast with the trappist-like silence of the period 1790-1875.

I agree with Warren Samuels there is some connection with the Cold War years when “capitalism’, as an idea, was under pressure from the Soviet challenge, and I would add, from domestic challenges from communist, social democratic and anti-colonial movements at least to 1989.

By the time that Warren concludes his ten essays, no stone is left unturned. There is nowhere left to hide from Samuels' definitive and confident conclusion: there no such thing as an actual “invisible hand” at work, or present, in the economy, at any level or for any particular purpose. The idea adds nothing at all to our understanding of how markets or anything else works. It is empty of relevant meaning. It is a myth, a religious-like belief, yet some of the finest economists of our modern age, including several Nobel Prize winners, believe in it with a worrying passion.

However, even with this welcome demolition of the IH myth, I have one area of concern with Warren Samuels' absolutely splendid book. At Lost Legacy since 2005, I have focussed a lot on Adam Smith’s use of the IH metaphor, in particular on the simple test of what Adam Smith taught on the role and use of metaphors. Strangely, Warren devotes Essay 6 (pages 135-63) to a thorough examination of ‘figures of speech’, including metaphors, using mainly specialists in modern English literature, with a singular exception of a two references to Dr Johnson’s Dictionary (1755), whom Smith criticised for being "insufficiently grammatical".

What Warren does not do is consult the most relevant source: Adam Smith, a better guide than Dr Johnson! Smith’s teaching on metaphors is highly relevant, particularly when we try to consider what he meant when he used the IH metaphor so sparingly. In his Lectures on Rhetoric and Belles Lettres, delivered from 1748-64, for which we have a set of student notes [1763] 1983. Smith’s words cut through all the speculation about the meaning of the IH metaphors, which negates the wilder assertions of those modern economists and philosophers who have invented and continue to invent numerous ‘meanings’ of the IH as discussed (all demolished in a scholarly and always polite manner by Warren Samuels).

Adam Smith was clear: a metaphor “describes in a more striking and interesting manner it object” (LRBL, page 29); and the definitive guide to the English language, The Oxford English Dictionary (1983) endorses Smith’s 1763 definition. So what is the problem?

Currently, I am writing a longer scholarly review of Warren’s book for EH.Net (an internationally read eReview service for history of economics specialists across academe), in which I shall report on Warren Samuel’s assessments of the modern myths of the IH and its ideological role in recent and current economic policy and political debate (see Lost Legacy passim). When it is published in March I shall report it to Lost Legacy.

More Good Sense From Western Washington University

Brandon Dupont, associate professor of economics at Western Washington University writes (12 January) for his Economic Incubator Blog HERE

“On the Fallacies of Free Markets”

“Misconceptions about “free markets” are not unusual but here’s the latest from Justin Semion, with some of my comments below:
According to Semion:

‘The concept of the “invisible hand of the market” underlies classical and neoclassical economic theories advocating for a free market economy, one with no government regulation. In summary, free market theory proposes that supply and demand in the unregulated marketplace naturally reach a state of equilibrium where the maximum possible social good is achieved.’

[To which Brandon replies:]

“First, the “invisible hand of the market” is widely attributed to Adam Smith, yet Smith did not intend it as a theory of markets and only mentioned it once in the Wealth of Nations. Paul Samuelson used the phrase to provide some color to his efficiency theorem of competitive markets, but it is not due to Adam Smith. More importantly, no free market economy (especially the version proposed by Smith) is one in which there is “no government regulation.” Smith himself proposed a variety of government regulations as do nearly all modern economists.”

Comment
Follow the link and read the rest of Brandon’s excellent critique of Justin Semion’s (of Presidio Graduate School) piece. Brandon writes a correct representation of Adam Smith’s views on markets, government, and the invisible hand.

Justin’s piece is typical of modern economics as taught on most campuses and is published in Triple Pundit HERE

The more professors who critique the views of economists like Justin Semion, the better.

Once More on Robert Frank's Invented Charles Darwin

Elliott “chats” with Robert Frank in FireDog Lake HERE

“Smith’s theory of the invisible hand, which says that competition channels self-interest for the common good, is probably the most widely cited argument today in favor of unbridled competition–and against regulation, taxation, and even government itself. But what if Smith’s idea was almost an exception to the general rule of competition? That’s what Frank argues, resting his case on Darwin’s insight that individual and group interests often diverge sharply. Far from creating a perfect world, economic competition often leads to “arms races,” encouraging behaviors that not only cause enormous harm to the group but also provide no lasting advantages for individuals, since any gains tend to be relative and mutually offsetting.”

Comment
I agree that: “Smith’s theory of the invisible hand, which says that competition channels self-interest for the common good, is probably the most widely cited argument today in favor of unbridled competition–and against regulation, taxation, and even government itself”. But not a word of it is true about Adam Smith being the author of it.

Adam Smith never said anything like that statement. It is a complete fabrication – or rather several fabrications run together, popularised by modern economists and was repeated endlessly by ideologically-committed politicos in the Cold War decades since the 1940s, and then raised to shriek-levels since the Cold War ended with the fall of communism in the 1990s.

First, Adam Smith never had a “theory of an invisible hand”; he used the IH metaphor as a metaphor, it was never a “theory”. It was a figure of speech, referring to specific objects, as all metaphors in English are crafted to do (see: "Adam Smith, Lectures in Rhetoric and Belles Lettres", [1763] 1983, p 29).

In Moral Sentiments, the object of the IH metaphor was the unavoidable necessity that “rich and unfeeling” landlords had to feed their serfs, servants, and armed retainers, from the crops in their lands (no food, no toil). In Wealth Of Nations the IH metaphor was the response of some, but not all, merchants to their concerns for the "security" of their capital who preferred to invest in “domestick industry”. In each case, the public good benefitted from the unintentional survival and procreation of the species, or the unintentional addition to the “annual revenue and employment “ in boosting “domestick industry”.

Whether all self-interested actions had such benign outcomes depends on a case-by-case consideration. The notion that "an invisible hand" “channels self-interest [that always benefits] the common good” is a gross exaggeration. The fact that benign self-interest “channels benign self-interest for the common good”, perhaps, is an acceptable interpretation in the two cases only mentioned by Adam Smith that he identified, but not all self-interest is always benign; many actions, unintentional or otherwise, are not in the public interest. Some (indeed, many) “merchants and manufacturers” exercised their self-interest in non-benign monopoly activities, when they met their “competing” compatriots”, even for diversion”, they end up “conspiring against public”, they lobby (indeed “clamour” for) the legislature to set tariffs and other trade prohibitions, they conspire with “competitors” in secret “combinations” to hold wages down and to reduce them, and, from spreading “jealousy of trade, they join the jingoistic clamour for the government for wars against rival trading countries to “narrow the competition” and to “raise prices”.

Robert Frank rests “his case on Darwin’s insight that individual and group interests often diverge sharply”. This is hardly a new insight, neither unknown nor ignored by Adam Smith. What is Wealth Of Nations about other than a critique of “mercantile political economy” where “merchants and manufacturers” pit their individual self-interests against those of all consumers as a group? In what manner was this already discovered and clearly – even repeated - viewpoint of Adam Smith in 1776 become “Darwin’s insight” 82 years later at the Linean Society?

Robert Frank’s book was reviewed on Lost Legacy on 23 September (HERE ,
so I won’t rehearse my critique here. Smith spoke of the unintentional actions of thousands of “merchants and manufacturers”, who can, and did, consciously react to events in pursuing their self-interests; Franks refers to Darwin – though not to Darwin’s theory of natural selection, as published in 1859 in “Origin of Species”, in that he has some elks who are born with larger antlers than others, and some hawks born with keener eyesight that others, both benefitting from either dominating smaller antlered elks in contests with rival elk males for female sex partners, or other less well-sighted hawks in food contests for the survival baby hawks. These favoured antlers or eyesight are genetic benefits ensuring, all things considered, the survival, having been born with these advantages, of a larger number of progeny surviving per season.

The difference between humans and both elks and hawks is that genetic differences, advantageous or disadvantageous, are not within the control, consciously or otherwise, of neither the elks nor the hawks, hence they cannot consciously engage in “arms races”, nor avert them; each generation is a prisoner of their nature and their environment. In comparison, the actions of humans are within their ability to consciously change them, or not to do so, up to a limited point. They are able within wider parameters, to act consciously as their existing generation, and those yet to come. Humans are not prisoners of their nature nor their environment to the same extent as elks and hawks. Behavioural changes may occur for the better or worse, among humans in their societies. “Arms races” can be averted by agreement; elks and hawks cannot “call a truce” and voluntarily "disarm"!

Adam Smith understood that – so have most philosophers. Darwin understood that too, though not the invented ”Darwin” invented by Robert Frank, or his reviewers – none so far that I have seen makes these elementary points that demolish the thesis upon which he bases his politics and the prospects for Adam Smith's reputation in a hundred years time.

Adam Smith Was Not a Naive Moralist

Kyle Westway, described as “the founding partner at Westaway Law, an innovative New York City law firm that counsels social entrepreneurs. He lectures on social entrepreneurship at Harvard Law School and Stanford Law School.”. He writes in Harvard Business Review Blog network (1 December) Kyle Westway, is described as “the founding partner at Westaway Law, an innovative New York City law firm that counsels social entrepreneurs. He lectures on social entrepreneurship at Harvard Law School and Stanford Law School.” He writes in Harvard Business Review Blog network (1 December) HERE

Adam Smith Was Not Schizophrenic"

The left wants to end capitalism. The right says if we could just get the government out of the way, then the capitalist system would work. … To gain some clarity, we need to consult Adam Smith.

Adam Smith, the father of modern economics, was the first to assert the concept of free market capitalism. In his most popular work The Wealth of Nations he wrote about the oft-quoted "invisible hand." But in his first work, The Theory of Moral Sentiments — which he considered his most meaningful contribution — he writes about our duty to fellow members of society. Pundits on either end of the political spectrum quote whichever work suits their argument. Predictably, the right quotes Wealth of Nations and the left quotes The Theory of Moral Sentiments. Given the gap between modern capitalism and the morals-based approach from his first book, one can't help but wonder if Smith was an intellectual schizophrenic, essentially promoting two competing theories.

… The Wealth of Nations presupposed actors in the capitalist system operating on the moral framework he laid out in the Theory of Moral Sentiments. The free market has no conscience of its own: it is made up of billions of people transacting. Though Smith asserts that each of these people are guided by their self interest, he presupposes that each of the actors in the marketplace are guided by some internal morality and an awareness of one's place within the broader context of his community — locally and globally.

The current version of capitalism is not the one envisioned by Smith at all. He was seeking to create a system defined by efficient allocation of resources driven by self-interest, but guided by self-restraint. This is conscious capitalism.”

Comment
Adam Smith’s thinking was not quite so unsubtle as Kyle Westway makes it out to be. Westway’s image of Smith is from the modern myths of Smith’s moral philosophy and political economy, as taught at Harvard (see student views of Professor Mankiw’s lectures) and Stanford (and aesewhere), with little reference to Smith’s Moral Sentiments or Wealth Of Nations.

Smith in The Wealth of Nations did not write “about the oft-quoted "invisible hand” – he only mentioned it once" and he did not present the IH metaphor in reference to markets, supply and demand, and equilibrium, as it is too “often quoted”. He wrote of a quite different ‘invisible hand’, in reference to the specific object of the IH metaphor (the concern of some, but not all merchants, for the security of their capital if sent abroad in the “foreign trade of consumption”, leading them (“led by an invisible hand’!) to invest their capital in “domestic industry” – Book IV, chapter 2, paragraph 9, page 456). Smith did not mention ithe IH metaphor anywhere else in his Wealth Of Nations. I recommend to Kyle Westway that he finds the reference and reads it carefully, if only to “gain some clarity”, as one expects lawyers to read the evidence.

I agree that “his two preeminent works [amount] to a unified theory”, but not the theory as propounded by modern economists, on both the Left and the Right.

“Smith asserts that each of these people are guided by their self interest” is right so far as it goes, but whether they are all guided by “internal morality” in the sense implied by Kyle Westway may be misleading, and it is not a conclusion intended to be drawn so generally by Adam Smith. Wealth Of Nations as a whole is not a naïve moral tale written by a simpleton. He was quite specific in a advising those looking for their dinners at the "butchers, brewers, and bakers" , not to refer to their own self-interest but to address the self-love of the those from whom they wish to buy (Wealth Of Nations, I.ii.2. 27).

Adam Smith was a keen judge of people’s behaviour, and he notes just how often their behaviour falls well short of being universally benign. After all, he studied jurisprudence at Oxford (1744-6) and was awarded a doctorate in laws from Glasgow (1763). His Lectures On Jurisprudence [1762-3] 1978) show his competence in the foibles and failings of people, especially the ‘vile behaviours’ of the ‘rulers of mankind’, and of rioting labourers goaded by their employers to act to prevent imports competing with their products.

True, Moral Sentiments is morally positive, not negative, but it was not written as a celebration of the universally benign benefits of people acting in their self-interest. In Wealth Of Nations there are over 70 examples in Book IV of self-interest leading to non-benign results. Book V addresses the depredations of self-interests of colonial invaders. He wrote in a letter that Wealth Of Nations was a “very violent attack on the whole commercial system in Britain” and it shows a keen sense of realism that merchants, legislators, and those who influence them, are often guided by their self-interests which are directly counter to the interests of the general population, and he often demonstrates an absence of any, let alone some, “internal moral” guidance in the sense meant by Kyle Westway. "

On the Errors of Robert Franks. Again

Erica Augenstein posts (29 November) in The Cornell Daily Sun a report of Robert Frank’s idea that Charles Darwin was the founder of economics, not Adam Smith
HERE

“Cornell Professor's Theory Relates Economics to Theory of Evolution”

“Prof. Robert Frank, management and economics, detailed his new theory of how capitalism can be explained by Darwinian concepts at a lecture in the Plant Sciences building on Monday.

As detailed in his recently published book, The Darwin Economy, Frank explains that natural evolutionary behavior leads people to consume more in order to compete with the relative wealth of others.

For instance, “The middle class admires the rich and attempts to mimic them, which leads to more consumption,” Frank said. These behaviors allow individuals to fight for resources in the global market, much like animals in a Darwinian system.
Frank said that the parallels extend to the potential drawbacks of Darwinian evolution. Just as some evolution creates inefficiencies for animals, some habits of individuals in the marketplace, such as conspicuous consumption, can hurt people.
“The large antlers on the bull elk are good for winning battles for females, but make the bull elk more cumbersome,” Frank said. “This behavior is brought on by competition like a military arms race.”

This Darwinian theory provides an alternative to Smith’s “invisible hand” theory, which suggests that deregulation allows self-interest to advance societal interest. However, Frank’s theory is not meant to absolutely contend with Smith’s, Frank said.
“Smith explains how often there are effects of self interest. I have no quarrel with his insight,” Frank said.

Frank said he disagrees more with contemporary disciples of Smith who, he said, wrongly interpret the principle of the invisible hand to be the sole determinant of the forces of capitalism.

“It is not the whole story,” Frank said of this interpretation. “It is a naïve version of Smith.”

Comment
Frank’s views on Charles Darwin are naïve versions of natural selection. For example: “The large antlers on the bull elk are good for winning battles for females, but make the bull elk more cumbersome,” Frank said. “This behavior is brought on by competition like a military arms race.”

Elks compete for sexual access to females. It is in their nature (and found in all living creatures that breed by sexual activity). Elks engage in sexual competition whether they had large or small antlers and some elks with small or smaller antlers continue to have progeny. Because of genetic changes some elks gain an advantage over other males from their bulk and strength. They have more progeny as a result, passing on their genes to more descendants. But they do not have any control or consciousness of their genetic inheritance and they could never consciously choose the size of their antlers. They cannot ‘mimic’ rivals with larger antlers ever! They have no control over their genes. By the time they are born it is too late. The size of their antlers is already determined.

Franks does not seem to understand natural selection. In comparing the participants in an economy, who consciously choose their actions within social constraints, with the blind forces of natural selection, Frank is in error. His is “a naïve version of Smith.” Therefore, he mistakes the so-called antler behaviours as an ‘arms race’.

It’s the wrong metaphor, much like his misunderstanding throughout his book of Smith’s use of the IH metaphor.

Frank’s version of Darwinian theory: does not provide an “alternative to Smith’s “invisible hand” "theory” on two counts.
First count is that Adam Smith never had a ‘theory’ of ‘an invisible hand’. Frank got that misattribution from modern economists, most not having read Wealth Of Nations, including, on this reading, suspect neither has Frank (see my review of his book on Lost Legacy in 2 parts, 23 September 2011). The other count is that Darwin never had a theory of natural election as represented by Frank’s misattribution.