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.

A Newly Discovered Role for the Invisible Hand

Russ Roberts of Café Hayek, writes (HERE):

‘A good week for thinking about Adam Smith’

It connects to video of a lecture by Daniel Klein (Professor at GMU, Fairfax, Virginia) on Adam Smith to a class meeting in Sweden.

Comment
Daniel Klein gives an interesting lecture on Moral Sentiments to an audience of Swedish postgrad students. I have debated with Daniel a couple of times on Adam Smith’s use of the Invisible Hand metaphor (see Econwatch, 2009 and more recently see Economic Affairs, 2010) and he is a well-informed, articulate, and always courteous scholar, who shares my passion for Adam Smith’s Works.

Our different takes on the meaning and significance of the IH metaphor does not mean I respect him less (perish the thought). Any student wanting to undertake research or classes in Adam Smith’s moral philosophy and political economy is recommended to take any opportunity to visit or attend classes at George Mason University. They are building a first-class reputation in Adam Smith studies there (look them up on the Web).

However, my differences with Daniel’s interpretation of Adam Smith’s Works have not diminished my respect for his writings and his participation in the republic of letters. We learn much from our better-informed critics.

Daniel’s account of the impartial spectator is interesting, though his throwaway afterthought of using the simile of the impartial spectator as like a ‘monotheistic god’ caught my attention, and I shall think about it, though my immediate response is to question its credulity.

When in the latter stages of his short lecture he introduced the ‘invisible hand’ in Smith’s moral theory in a major role (without the slightest textual evidence in support of his contentions) I was immediately struck by his querulous assertion.

Daniel links his (not Smith’s) novel interpretation of the IH metaphor in Moral Sentiments to ‘Smith’s presumption of liberty’, yet did not explain how or what the ‘invisible hand’ did exactly in this new role.

In fact the single direct textual reference to the IH metaphor in TMS directly concerned a time when the regime of ‘proud and unfeeling’ landlords ruled in Europe (and even before to there were landlords in pre-historic millennia in the near East when ‘the earth was divided unequally’, through all of which times nothing remotely like ‘natural liberty’ prevailed, or was known).

I found this section of Daniel’s lecture utterly unconvincing, but I wait to be corrected, with textual references from Smith. Where we present our own interpretations (which may have or not have legitimacy) we should not slide them into an account without any notice as if they are the legitimate views of Adam Smith. If we speculate we should say so.

Follow the link and watch Daniel’s lecture.

Clarification on "Centrality" As a Physical Fact, Not As Altering Adam Smith's Meaning

In Freeman online from the Foundation for Economics Education (HERE)

Mark Skousen writes:

“Why Is the “Invisible Hand” in the Middle of Smith’s Works?

"Coincidence or subtle statement?

... On the other hand, economist Gavin Kennedy contended in earlier writings that the invisible hand is nothing more than an after-thought, a “casual metaphor” with limited value. Rothschild, the Harvard University economic historian, even goes so far as to declare, “What I will suggest is that Smith did not especially esteem the invisible hand. . . . It is un-Smithian and unimportant to his theory” and was nothing more than a “mildly ironic joke.”

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.

In his essays on astronomy and ancient physics, he was captivated by Newtonian central forces and periodical revolutions.
Klein discovered that in his lectures on rhetoric Smith admired the poetry of Thucydides, who “often expresses all that he labours so much in a word or two, sometimes placed in the middle of the narration.”

Klein and Lucas’s list of evidence is what a lawyer might call circumstantial, or “impressionistic,” to use their own adjective. Taken as a whole, the documentation is either an ingenious breakthrough or a “remarkable coincidence,” to quote Kennedy.
A few Smithian experts have warmed up to Klein and Lucas’s claim. 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"

My Comment on the Freeman online Blog today:

I should make it clear that when Daniel Klein kindly sent to me a prepublication version of his ‘centrality’ paper he asked for my comment. Reviewing the evidence assembled by Klein and Lucas I applied the scholar’s principle that we should always submit to the facts. On the narrow question of the physical centrality of the IH metaphor in Moral Sentiments (from the 3rd edition) and Wealth Of Nations (all six editions), the facts are clear it appears in the physical centre of each book. Therefore I expressed the view that this was more likely to be deliberate than coincidental (the latter of ‘vanishingly small probability’).

That is the extent of my comment.

I continue to reject politely and respectfully the enormous superstructure that Daniel Klein builds on the fact of centrality.

He ignores Adam Smith’s teaching on metaphors (page 29 in the same lecture series in which he comments on Thucydides in contrast to Polybius) that metaphors describe ‘in a more striking and interesting manner’ their objects and in both of his mentions of the IH metaphor in his two books he also identifies their ‘objects’, and they had nothing to do with ‘markets’, ‘supply and demand’, ‘harmony’, ‘equilibrium,’ or the rest of its supposed meanings invented from the 1940s by modern economists as part of the necessary Cold War against communist expansionism. Bringing the 2,000 years-old Talmud into the discussion is a distraction from Smith’s meaning.

The IH metaphor was popular and in wide use in 17th and 18th century literary discourse, mainly among theologians, but also among play writers, poets, and novelists. It was hardly mentioned among ‘economists’ until Paul Samuelson gave it widespread publicity from 1948.

[The "Aristotelian golden mean" was a necessary part of Smith's Moral Philosophy degree course - and of all courses in "Moral Phil" at Scottish Universities from the early 1700s (if not before) through to the 1960s (and probably still is), when I mixed with "Moral Phil" students as a young economics student, and we talked about the "Golden Mean" - as you do. What Smith taught did, not imply special enthusiasm, it was his job as professor to so so.]

Interesting ejournal About Adam Smith

Professor Daniel Klein of George Mason University, Fairfax, Virginia, has something to do with a most interesting service called Journal Talk (HERE): that discusses, among other topics, articles in academic journals on Adam Smith, normally read only by academic economists,

Here are literate and serious comments on Andrew Skinner (the leading UK academic authority on Adam Smith) on a topic, separately discussed earlier this year on Lost Legacy:

Brandon Holmes:

“Adam Smith and the role of the state: education as a public service”

Skinner points out that people who support a more interventionist government policy would cite Smith for his mention of the government’s involvement in social diversions. It is important to note that Smith says nothing about the state creating institutions or subsidizing in his discussion of pubic diversions. His suggestion that the government should encourage diversions by giving entire liberty to the people means that those people should be free to do what they want, within the confines of their liberty. The state does not encourage exercising liberty by granting subsidies; it encourages exercising liberty by not putting up barriers to its existence. 
The problem with a government body effectively “stepping into” the market in order to correct an efficiency problem is that efficiency is not a static concept. In its application towards education, government policy needs to set up certain standards that will show how close a school, teacher or university is to a given level of efficiency. The level of efficiency is arbitrarily set by experts who will weigh in on where students should be in their educational path, based on gender, age, nationality, family income, and a myriad of other variables. When Smith suggested that the government needed to ensure efficiency, it meant that the government needed to make sure that the opportunity for education was available to each person who desired it, not that the government necessarily had to intervene in the curriculum.





Throughout the chapter Andrew Skinner grossly overstates the scope of Adam Smith’s support for state action. Skinner repeats Jacob Viner’s assertion that Smith “saw a wide and elastic range of activity for government, and was prepared to extend it further.” Viner’s view guides Skinner, but Skinner provides poor support for his notion of Smith the statist. He misinterprets the following direct quotation from the Wealth of Nations in a key part of his argument about education:
“The expence of the institutions for education and religious instruction is likewise, no doubt, beneficial to the whole society, and may, therefore, without injustice, be defrayed by the general contribution of the whole society. This expence, however, might perhaps with equal propriety, and even with some advantage, be defrayed altogether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either the one or the other.” (V.i.i.5)
Skinner claims the passage makes it seem “likely that Smith would have supported the arrangements he envisaged for elementary education, where there is a combination of modest private, and a more significant public, contribution.” Reading the Smith quote, and going back to the entire section of the Wealth of Nations that Skinner refers to, Smith mentions nothing about any significant public contribution to education at any level. Indeed, not only above, but throughout his discussion of education Smith stresses that the cost should be primarily – if not entirely – borne by the beneficiary of the service. 
It is true that Adam Smith did support some government activity; any careful reading of his works shows the scope of that activity to be far more limited than Skinner implies.

Here is another:

Steven Kunath on Adam Smith’s Theory of Inquiry

Undoubtedly Adam Smith is one of the most influential thinkers of the modern Western Tradition. As a result many philosophers engage in critical reflection of Smith’s numerous contributions. A tension, however, arises when examining Smith’s entire corpus. The divide for many philosophers becomes apparent when comparing The Wealth of Nations to The Theory of Moral Sentiments. What did Smith see as the connection, if any, between these works? Lindgren’s piece provides an important first-step in connecting Wealth of Nations with The Theory of Moral Sentiments by investigating how Adam Smith understood the role of inquiry. While Lindgren does not attempt to unite his conclusions on inquiry with Smith’s Wealth of Nations and Theory of Moral Sentiments, it provides sufficient ground for further reflection on the matter.
Non-specialists might wonder why starting how the notion of inquiry can serve as a suitable place for beginning philosophical reflection. Starting with inquiry provides a framework to see how Smith literally sees the world. Is Smith an adherent to a philosophically realistic view of the world or does he follow the nominalism and skepticism of others like Hume? For Lindgren the answer is clear. Smith’s epistemology does not fit into the metaphysical realist position and is more in line with the skeptical views of Hume. Breaking from the earlier tradition of metaphysical realism Smith’s model of inquiry will not focus on determining some type of abstract form of a thing, instead he will understand the world as somewhat incomprehensible to the individual. For Smith the individual is not capable of aligning his knowledge of the world with things that actually exist in the world as would be the case for metaphysicians. A consequence of this is that Lindgren sees Smith’s philosophy of language as the basis for his model of inquiry. While Lindgren provides a sound argument that language served as Smith’s model of inquiry he does not challenge and further test Smith’s notion. 
Fundamentally the question that Lindgren avoids asking is what is the relationship between convention and nature in a grammar and its application to human inquiry. Lindgren seems to disregard many of the contributions of modern linguistics by simply affirming Smith’s view that grammatical rules “are dependent upon the aesthetic temperament of the community.” Certainly there is some truth to that, but modern linguistics and cognitive science would make the claim that grammar has a part that exists by convention—especially prescriptive grammars dictating forms of written communication—but it would also point out that the actual wiring of the human brains creates limits on the types of grammar possible. Limiting the type of grammars possible in the hardware of the brain in turn creates limits on the type of socially possible grammars. So does knowing that grammars have inherent and theoretically universal limits sufficient to undermine parts of Smith’s model of language? Starting here and saying there are some types of universal constraints that emerge in the human brain seems to seriously impact the analysis of Lindgren and in turn the applicability of Smith’s application of language to inquiry. If constraints naturally emerge on the structure of language then there could be a tendency for languages to form in a particular way. If languages form in a particular way then is Smith’s understanding of the experience of learning a language correct? Lindgren needs to provide a tougher critique of Smith’s model and see if it is still applicable. This author believes that Smith’s view of language could best be described as quaint, but not able to sustain rigorous scrutiny.




Comment
These are serious commentaries on the article entitled as shown. I have not managed to track down the original articles yet, but they are at the link shown above.

I recommend that you bookmark the link.

My thanks to Daniel Klein for the site who seems to be behind a great deal of research work on Adam Smith - not that we see eye-to-eye on everything (the meaning and significance of Smith’s use of the IH metaphor, for instance) but we share a passion for Smith’s works.

'We Are All Smithian's Now': New PhDs from GMU

I take the unusual (and unauthorised step) of reprinting a post from Coordination Problem (formerly Austrian Economists) Blog HERE: announcing the introduction of a new PhD programme on Smithian Political Economy at George Mason University, Virginia.

This will be delivered by Daniel Klein, Russ Roberts, Don Boudreau (with associate inputs from Peter Boettke and David Levy). For those acquainted with Smithian studies, that is a formidable line-up of all the talents.

Read the details Peter Boettke below and if you are young enough (and good enough) it should cause you to salivate.

[If you are past it and retired, it might make you shed a tear of regret of hopes unfulfilled at past lack of opportunities.]

“Smithian Political Economy at George Mason University”:

“I have often described GMU's PhD program to prospective students as "the best weird place to study economics in the world." When Colander and Klamer did the interviews for The Making of An Economist, they mainly limited their interviews to the top 5 schools, but this was my professional cohort, and I was interviewed by both. Colander has never talked much about the interviews outside of the elite programs, but Klamer has. In Klamer's interpretation, the students at schools such as The New School, UMass-Amherst, and George Mason University, had a different passion for economics than those at Chicago, Harvard, MIT, Stanford and Princeton. It was this difference of passion among the students for the discipline of economics that fascinated Klamer. The issue of passion for economics was not the primary target that Colander was focused on in that book, or in his follow up project two decades later.

GMU has since the establishment of its PhD program in the early 1980s always chosen to "dare to be different". The intellectual environment here for research and graduate education is unique not just due to the presence of the different paradigmatic perspectives: Austrian, Public Choice, Experimental, New Institutionalism; but also the blending of these traditions to form something unique (Masonomics) --- Austrianism Institutionalism; Experimental public choice; Austrian experimental, etc. Moreover, GMU has also offered fields that are not always offered at other programs: Law and Economics, History of Thought, Economic History, Comparative Economics, Constitutional Political Economy, Development, etc. Yes, we have Industrial Organization, Public Finance, and Monetary, but we also have the more specialized specializations listed above. In fact, this is one of the issues that confuses prospective students and outside observers of the program when they try to figure out ranking issues. We have alternative paradigmatic training (among the best places in the world to be trained in those perspectives) and we have specializations which are under-represented elsewhere (and we are among the best places to study in those areas). Conventional rankings often don't look at those areas of specialization, but when they do we don't just come out "good" we are listed among the elite departments.

My colleagues Dan Klein, Russ Roberts and Don Boudreaux are continuing in this tradition of "daring to be different" and starting next academic year will be offering graduate students in our program an opportunity to get a "field" in Smithian Political Economy. Students will be able to take a course sequences concentrating on Smith's works, and also participate in various reading groups and seminars that Dan Klein will run. Dan and Russ recently had a 6 part conversation on Smith's Theory of Moral Sentiments at EconTalk. Dan has also provided a list of sample field exam questions.

In addition to this Smithian political economy research and education program that Klein, Roberts and Boudreaux will be initiating, there will remain the traditional history of thought track (taught by David Levy and myself) as well as the unique paradigmatic and field specialization mentioned above.

Anyway, the development of this unique research and educational opportunity for students to specialize in Smithian Political Economy is just another example of "GMU is the best weird place to study". We dare to be different here at GMU and do not pursue a cookie-cutter approach to research and graduate education. As I have written before, you can get a very conventional education at GMU if you want to -- you just have to be wise in your course choices and be entrepreneurial in looking for opportunities in Computational Sciences, Center for Social Complexity, School of Public Policy, etc. to supplement your standard training in the first-year. But why would you? As Pete Leeson often stresses to students, the signal isn't sent by class selection, the signal is sent by school selection! (I think he might have first heard that from me, but I will give him credit for it).

Go dig up Klamer's interpretations of those interviews from the mid-1980s, read what he has to say about the passion the students had about the discipline of economics (its history, its current practice, how to teach it best, and what questions to research and what puzzles to solve). Then visit GMU today and you will see the same passion exhibited among the faculty and students. Arjo got it, Deirde McCloskey got it during her visits throughout the years, Jim Buchanan created it, Vernon Smith re-established it. GMU is a very unique place. But it is also a place rooted in the long history of our discipline. As Lord Acton once put it: "it is not the popular movement, but the traveling of the minds of men who sit in the seat of Adam Smith that is really serious and worthy of all attention." We, at GMU, aspire to sit in the seat of Adam Smith. In this we are all Smithian's now.

Adam Smith On Liberty, Laissez-Faire and Justice

David Henderson of Econ Lib (HERE)
Conducts a Q and A session with Daniel Klein (George Mason University) on Amartya Sen’s article in the New Statesman discussed on Lost `legacy last week.

The issue turns on how ‘soft’ Smith was for the ‘little guy’ in respect of a tax financed poor relief policy. Klein:

“Saying that Smith "had a soft spot for government welfare" is highly misleading. Smith expounded a presumption of liberty - as you and I understand that term. Even Jacob Viner, an earlier cataloger of Smith's exceptions to the liberty principle, says so. Though he was in an important sense an egalitarian, and an affirmer of distributive justice understood in a libertarian way, he never favored a policy that he construed as forced "poor relief," and never argued on such grounds. He was silent, even conspicuously silent, in the otherwise quite comprehensive WN, regarding the essential feature of the poor law, tax-financed poor relief. At the opening of WN he says that he shows "what are the necessary expences of the sovereign, or commonwealth ...", and, in the spirit of enumerated powers, we might infer that he did not regard the poor law as "necessary." Indeed, there is a lot of textual evidence indicating that he would not be supportive of the redistributive state.”

Comment
Daniel Klein equates “laissez-faire” with the “liberty principle”, as he does the “invisible hand”. Wealth Of Nations is a polemic (Book IV) against mercantile political economy.

Laissez-faire is a phrase first stated (significantly) by a merchant, not a consumer, to the French Minister of Finance who had already instituted French-style regulations on trade fares and town markets (if you know France you will know French ‘logic’ in regulations). This was laissez-faire liberty for merchants, nothing was said about consumers.

Liberty for Smith was a philosophical tradition going back to Grotius and Puffendorf, based tightly on legal principles. It superseded patricular economic systems. Smith taught Jurisprudence at Glasgow (1751-64) and was firmly rooted in law and justice (see student notes of his Lectures in Jurisprudence, 1762-63, Liberty Fund 1982). Liberty is this sense is often treated as a synonym for the merchants’ 17th century plea for laissez-faire – it isn’t. And Smith never mentioned laissez-faire in Wealth Of Nations and he was intimate and familiar with the French Physiocrats who tried to popularise it.

For Smith, Liberty was not anarchy; it was a legal prejudice in favour of freedom within Natural Liberty. But nor did he regard Natural Liberty as a pre-condition for progress towards opulence. He chastised Physiocrats (naming ‘Mr. Quesnai’, a physician) for ‘entertaining the notion’ that the ‘political body’ would only thrive under ‘a certain precise regimen, the exact regimen of perfect liberty and perfect justice’. Indeed, Smith adds, ‘the bad effects of political economy’ which ‘retards and more of less is not always capable of stopping altogether the natural progress of a nation towards wealth and prosperity and still less making it go backwards’.

To which Smith appends the devastating evidence of history (all economic systems and all degrees of oppression): ‘If a nation could not prosper without the enjoyment of perfect liberty and perfect justice, there is not in the world a nation that could ever have prospered’. (WM IVix.28: 674) In short, while desirable under Natural Liberty, it was neither necessary nor sufficient to take a nation to opulence. That is an important assertion and it guided Smith’s many suggestions for partial changes within the mercantile political economy of which he criticised specifically in Wealth Of Nations.

His criticism of the mercantile acts of government from Elizabethan times (Apprentices, Town Guilds, Settlement, Corporate town monopolies, etc.,) was directed at their poverty-inducing consequences. To avoid taxes to relieve the poor, the income earners of a locality had an incentive to reduce the numbers of poor by moving them on and destroying their houses (hovels) to reduce the poor rolls; these laws prevented poor people settling elsewhere looking for work.

Smith’s views on ‘the little guy’ (a lovely Americanism) are broadly sympathetic on natural liberty and justice grounds. They are trifle more subtle than modern readers sometimes appreciate, especially in trying to back project onto Smith distributive justice in the modern sense.

In Smith's day distributive justice did not have the same meaning it has today.

"Centrality" Exchanges in an Invisible Hand Debate

Brad Delong has composed a selection of pieces on Adam Smith and the invisible hand controversy (including some interesting comments), of which Lost Legacy has contributed its two-pence worth these past 4 years (and health permitting and other circumstances, I shall continue to do so for the foreseeable near future).

You can find the collage HERE:

Presently, I am composing a response to the excellently argued paper from Daniel Klein and Brandon Lucas on the “centrality” of Smith’s only references to the invisible hand metaphor in Moral Sentiments and Wealth Of Nations and its position in the ‘dead centre’ of both books. You should read Daniel Klein and Brandon Lucas’s paper HERE – and in Brad Delong’s excellent Blog:

Nov 01, 2009
Was the Invisible Hand "Central" to Smith?
Daniel Klein, Professor of Economics at George Mason University and Editor of Econ Journal Watch, asks:
What probably would you put on the truth of a broad hypothesis of deliberate centrality?

Here's more background on the question:

In a Word or Two, Placed in the Middle: The Invisible Hand in Smith’s Tomes, by Daniel B. Klein and Brandon Lucas: Abstract: The meaning and significance of Smith’s expression “led by an invisible hand” has been long debated, and especially lately. We speak to the large debate only in fine, by focusing on the conjecture, first hinted at by Peter Minowitz, that Smith deliberately placed his central idea, as represented by the phrase “led by an invisible hand,” at the physical center of his masterworks. We bring supportive evidence and argumentation to the conjecture. The four most significant points developed are as follows: (1) The expression “led by an invisible hand” occurs pretty much dead center of the 1st and 2nd editions of Wealth of Nations, and of the final edition of the volumes containing Theory of Moral Sentiments. (2) The expression in WN drifted only a bit from the center, only about 5 percent from the center in the final edition (and even less if the index is excluded). (3) The rhetoric lectures show that Smith not only was conscious of deliberate placement of potent words at the center, but thought it significant enough to remark on to his pupils, noting that Thucydides “often expresses all that he labours so much in a word or two, sometimes placed in the middle of the narration.” (4) There numerous and rich ways in which centrality and middle-ness hold special and positive significance in Smith’s thought. In conjunction with larger considerations, these points may be helpful in assessing the significance of Smith’s famous phrase.

Here's a figure showing centrality through the 7 editions of each work.

This is an attempt to rescue the invisible hand from critics who argue that the invisible hand idea that is attributed to Smith was not a central part of his writing (e.g. see Gavin Kennedy).
In answer to the question, it doesn't seem very likely to me that this was intentional.
________________________________________
Note: If you are unfamiliar with the debate over the invisible hand, here is Gavin Kennedy:
...Lost Legacy has never been slow in criticizing the ‘Chicago Adam Smith’, a person with ideas that are far from the ideas of the Adam Smith born in Kirkcaldy in 1723.

George Stigler’s boast that “Adam Smith is alive and well and lives in Chicago” (1976) reflects to invention of the Adam Smith of the “invisible hand” (a mere metaphor for Adam Smith whose single use of it in Wealth Of Nations referred to the unintended consequences of the risk-avoidance of some, but not all merchants ... who preferred the home trade), and had nothing to do, at least in Adam Smith’s mind, with how markets worked, ... or how the price system worked.
The belief that the “invisible hand” was a significant ‘idea’, ‘concept’, ‘theory’, or ‘paradigm’ was wholly invented in the 1950s by neo-classical economists on the back of general equilibrium mathematics ... and in support of a worthy criticism of Cold War, Soviet central planning. It is now taught in every economics 101 class as if it had historical validity, mainly by people who have never bothered to read Wealth Of Nations. ...

Update: See " Yet Another Note on Adam Smith's "Invisible Hand": What It Is and What It Is Not" by Brad Delong.
Posted by Mark Thoma on Sunday, November 1, 2009 at 10:54 AM in Economics, History of Thought Tweet This Permalink TrackBack (0) Comments (19)

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RW said...

Kennedy's account makes sense and is consistent with Cold War historical patterns as well; e.g., Congress adding the words, 'under God,' to the Pledge of Allegiance in 1954 to better contrast our system with the godless commies (and satisfy the then rather powerful Knights of Columbus and their allies).
Reply Nov 01, 2009 at 12:35 PM

Dennis Ashendorf said...
Dr. Thuma,
You agree with Kennedy? You consider Klein's "statistical" argument unpersuasive?

Reply Nov 01, 2009 at 01:11 PM
Tom Hickey said...
Who cares what Adam Smith "thought" or "intended." We'll never know. His use of the term may give the concepts and explanations derived from it (for Smith did not do so) some authority. But if orthodox economics is dependent on arguments from authority for its underpinnings, we are all in big trouble.
The question is, what testable hypotheses can be derived from the concept further fleshed out by subsequent economists. That is to say, can it be shown empirically that there are "natural forces" that incline markets to equilibrium. If these forces are "natural," then how do markets fail (and they do). Is the exogenous shock explanation a testable hypothesis, or a simply an assumption necessary to make the contraption work at the margin?

Reply Nov 01, 2009 at 01:59 PM
Richard H. Serlin said...
Places like George Mason and Chicago are really seeming like echo chambers. Are there people at those departments who aren't willing to use weak, deceptive, or downright embarrassing measures to defend the dogma? Is there any attempt to hire people with other views and training?

Reply Nov 01, 2009 at 03:20 PM

Fred C. Dobbs said...
'Hypotheses non fingo', as somebody
said, well before Adam Smith.
Reply Nov 01, 2009 at 03:34 PM

john wycliffe said...
I'm sorry.

If we can't agree on what Smith meant by "the invisible hand," how can anyone even suggest that it was a central feature of his thinking?
Seems to me a central feature would be something that gets rather more attention, doesn't it?
Or have I shown myself to be woefully ignorant? If so, please to explain?
Reply Nov 01, 2009 at 05:14 PM

Tom Hickey said...
@ Fred C. Dobbs
Watch your language, buddy. Just kidding.

It was Newton who said this, and it is well known that Smith was "impressed" with Newton's work. It is quite possible that Smith modeled his thinking to some degree on Newton (this is controversial), Certainly, the idea of natural forces in economics bears a relation to the physical sciences that had been so influential in this period. This influence may have persisted and may continue to persist in orthodox economic thought. For example, the notion of a "representative agent" that goes proxy for all consumers is an attempt to achieve the kind of elemental reduction of the hard sciences.

On the principle of hypotheses non fingo, it is unnecessary to account for assumptions like natural forces in terms of causes. Asking why is not needed because showing how is sufficient. Gravity doesn't have to explained in terms of causes. It works as an explanation of planetary motion, filling in the Copernican view.
However, there is a great difference here between natural forces like gravity (which elicited the hypotheses non fingo response from Smith in the first place), which result in predictions that can be tested empirically, the assumptions of orthodox economics that do not. It's not a matter of why here, the how is in question, since the economic models haven't exactly produced anywhere near the same engineering results. At this point, why is a legitimate question, and "because Adam Smith said so," isn't adequate justification.

Proponents of orthodox economics would object that experiments cannot be designed to test hypotheses in economics as they can in the physical sciences. But that still leaves them to explain how the what the hypotheses are good for if they can't actually predict and often apparently don't work. Steve Keen does a pretty good job showing this in Debunking Economics.

Orthodox economics sees to be in a position similar to psychology when B. F. Skinner dominated the field. No one got hired and certainly not promoted without toeing the line. Until Abraham Maslow came along and revolutionized the field.
My sense is that Abba Lerner's functional finance could be the Copernican Revolution in economics. The people using it as the basis for modern monetary theory are showing how this provides a coherent explanation independent of "natural forces" and one that can be corroborated through social engineering (full employment with price stability) if the political understanding and will can be found. Plus, it puts and end to a lot of the quasi-religious myths.

Reply Nov 01, 2009 at 05:35 PM
Tom Hickey said...
Ooops — (which elicited the hypotheses non fingo response from "Smith" in the first place) should have been "Newton."
Reply Nov 01, 2009 at 05:39 PM

wjd123 said...
Adam Smith was a moral philosopher and not a physicist. I doubt he would recognize the economic presuppositions of neo-classicist today much less approved of them.
Their underlying presuppositions about the nature of economic man and efficient markets is, in my opinion, turning American capitalism into a particular virulent strand of capitalism that it would be hard for moral philosophers to justify much less recognize.

It's my impression, from what little I know of Smith, that these neo-classicists, have presumed, quite illegitimately, on Smith's writings about the needs of the butcher, the baker, and the candle stick maker to turn them into an unseen force guiding markets.

How convenient for them, but it doesn't square with the Smith who advocated regulations and certainly not with any claim of theirs that Smith thought the invisible hand was a necessary evil. If someone can quote a specific statement by Smith on the invisible hand, justifying it without reliance on presumptions, I'm listening.

I'm not an economists but assertions based on weak suppositions don't belong in economic text books. It's more the sort of thing from which historical fiction is fashioned.

I think neo-classical economists are using historical fiction to turn American capitalism into a particular virulent strand of capitalism with Adam Smith wouldn't recognize.
I mention this because of a certain sentiment I hear more and more today that I particularly loath: the presumption that those in positions of power will naturally use their position to maximize their self interests. It's most egregious when it's used to justify the multimillion dollar salaries of CEOs.

I loath this logic because it appears to be an attempt by those in positions of responsibility to absolve themselves of any personal responsibility for their actions: "It's the governments fault for not stopping us before we killed again." And then the appeal, "If you were in our shoes you would have done the same" as though what they are doing is natural. Both appeals fit nicely with the presuppositions of neo-classical economists about self interested economic man where economic man is a self interested sot.

I think of this latter appeal as an attempt to democratize the behavior of these CEOs because the "you" isn't an appeal to their peers who are among the top earners in our society even before exercising their stock options but an appeal to the guy on the street, Main Street, struggling to make ends meet.

The guy in the streets has enough trouble without having these fat cats trying to get into his or her head. The guy in the street isn't in their shoes and to suggest that if he were he or she too would stuff their bank accounts by back dating their stock options or getting their quarterly reports to look good by hock or crook, is insulting.

I believe that the more wealth you have the looser your attachment to society. In this respect the filthy rich are not much different than the desperate poor. The desperate poor can't afford the norms of society and the filthy rich can't be bothered with them. It's a natural fit for the wealthy when being scrutinized by society for their irresponsibility to point to others who are in a position to act irresponsibly and present it as the way of world.

There is, however, an ethical difference between the desperate poor and the filthy rich in that the ethical "ought" implies "can". So ethically the poor person's "can't afford" offers some mitigation against the accusations of irresponsible behavior by society whereas the rich person's "can't be bothered" doesn't. (Also, there is nothing keeping the poor from having a sub-set of unofficial norms which they can keep since they are the most in need of protection. For protection the wealthy hire lawyers.)

The above justifications by those in positions of power acting irresponsible along with every other rationalization that can be thought up to excuse their behavior can be found in the financial media. It's a cornucopia of apologetics for anti-social behavior.

The idea that in the capitalistic society of the neo-classical economist it's only naturally that we learn to walk and talk like their capitalists may be a growing truism with horrible consequences for society yet to be imagined even after the financial crisis, or possibly because of it.

I would hate to live in a society where the strongest motivation for the butcher to keep his thumb off his scales is the fear of the law. Fear of the law is for people who haven't internalized the idea of the good. Fear of the law is for those who need a government to blame for their lack of responsibility; it's for those looking for a way to rationalize their behavior. Therefore, the constant refrain heard from those walking away with millions or abusing their powers is, "I haven't done anything illegal."

When I was a kid in grade school--a long time ago when taxes on the top earners were 90%--a well respected neighborhood dentist came in to talk to my class about his profession. The one thing I remember him telling us about dentistry was "It will keep food on the table and a roof over your head." That was sufficent, there was no talk about "cavier dreams."
I suspect it would have been sufficient for Adam Smith butcher. I dare to hope that it is sufficient for the man or woman in the streets today dispite the best efforts of neo-classical economist to get into their heads with their particular virulent strand of capitalism.
Reply Nov 01, 2009 at 11:53 PM

anon/portly said...
Okay, Daniel Klein is obviously a nut, but the question of how central to Smith the "invisible hand" concept was, or at the least the things Smith was using it to describe, is an interesting question.
"By preferring the support of domestic 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."

I think this brings up several questions. How "many" other cases - a few, lots? What would some of those other cases be? Is the concept of "promot[ing] an end which was [unintended]" a big part of Smith's analysis, or not?

I don't think it's too crazy to see similarities between the merchants who Smith views as promoting the ends of society via risk-avoidance (as Gavin Kennedy notes) and profit-maximization (as Gavin Kennedy omits to note), and the well-known profit-maximizing merchants of this passage:

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest."
Would this be a candidate for one of those "many other cases," or not?
You might think I am merely attempting to make a point but there's no use my denying it: I consider this to be a devastating, final 'proof' of my assertions.
http://adamsmithslostlegacy.com/2009/04/invisible-hands-explain-nothing.html
Reply Nov 02, 2009 at 12:58 AM

reason said...
I'm with Tom Hickey on this. Who cares.
Reply Nov 02, 2009 at 01:49 AM

Fred C. Dobbs said...
Injecting 'the invisible hand' into the consideration of economics. Is that not a way to insert religion into the discussion, perhaps to suggest that the end really is near, as the 'invisible handwriting is on the wall'?
Reply Nov 02, 2009 at 02:26 AM

kharris said...
The problem with claiming a sparsely employed expression in Smith's writing to be central to the thought behind the writing is at least two-fold. First is that (OK, I know there will be objections, but stay with me) Smith is a very good writer. I'm not saying he is the sort of writer that today's reader can't put down, but neither is Shakespeare for a great many modern readers. Look at the sensation Smith caused in his own day. He managed to grab the attention of thinkers in his own time, and won praise in the process.

If a great writer had meant - as Smith suggested Thucydides did - to feature a particular idea by placing it carefully in the middle of the essay, wouldn't he have done so in a way that caused readers in his own age to notice? Kennedy's point is that "invisible hand" became a fad nearly 200 years after it was first shown to the world. If it were central to Smith's thinking, given that he is a good writer (more Herodotus than Thucydides, to my thinking), then wouldn't he have been able to make the expression a fad in his own time? If it did not become a sensation after the first edition, wouldn't he have made the sort of changes that would have given it greater prominence?

The second "fold" of the problem is that the claim of centrality based on location looks like special pleading aimed at push-back. If location is the only claim one can put forward for Smith's own intentions regarding the centrality of "invisible hand" thinking (thanks to Tom H, for inserting the "intentionalist fallacy" into the discussion), then the claim is a thin one. Do we know, for instance, that no other expressions were used in a roughly central position in the text - expressions that have not been adopted to make claims about Smith that are otherwise hard to support - but not elsewhere? If "invisible hand" is not unique in its Thucydidian locational qualities, then the argument for intent is weakened. I don't intend to do a search for every 2-to-5 word phrase in the middle 10% of the book to find out, but isn't it somewhat incumbent on Klein and Lucas to substantiate their argument with more than just Smith's fondness for a writing trick from Thucydides?
Reply Nov 02, 2009 at 05:32 AM

Barkley Rosser said...
"Invisible hand" was a general trope of the British
Englightenment. Smith was the first to apply it to
economics, although he did so in a way not consistent
with the current textbook interpretation.
It looks like it first appeared in a letter in 1712
from Robert Cotes to Isaac Newton in connection with
Newton's theory of gravity. Bodies are drawn towards
each other "as if by an invisible hand."
Reply Nov 02, 2009 at 06:52 AM

Barkley Rosser said...
I have just seen it noted that the phrase "invisible hand" appears in Shakespeare's "Macbeth," although in a much different usage. Pretty clear that the theory of gravity is closer to the concerns of Adam Smith than as means of undoing the mortal coil.

Reply Nov 02, 2009 at 07:03 AM
anne said...
http://shakespeare.mit.edu/macbeth/macbeth.3.2.html
1605
The Tragedy of Macbeth
By William Shakespeare
Act III. Scene II.
The palace.
Enter LADY MACBETH and a Servant
LADY MACBETH
Is Banquo gone from court?
Servant
Ay, madam, but returns again to-night.
LADY MACBETH
Say to the king, I would attend his leisure
For a few words.
Servant
Madam, I will.
Exit
LADY MACBETH
Nought's had, all's spent,
Where our desire is got without content:
'Tis safer to be that which we destroy
Than by destruction dwell in doubtful joy.
Enter MACBETH
How now, my lord! why do you keep alone,
Of sorriest fancies your companions making,
Using those thoughts which should indeed have died
With them they think on? Things without all remedy
Should be without regard: what's done is done.
MACBETH
We have scotch'd the snake, not kill'd it:
She'll close and be herself, whilst our poor malice
Remains in danger of her former tooth.
But let the frame of things disjoint, both the
worlds suffer,
Ere we will eat our meal in fear and sleep
In the affliction of these terrible dreams
That shake us nightly: better be with the dead,
Whom we, to gain our peace, have sent to peace,
Than on the torture of the mind to lie
In restless ecstasy. Duncan is in his grave;
After life's fitful fever he sleeps well;
Treason has done his worst: nor steel, nor poison,
Malice domestic, foreign levy, nothing,
Can touch him further.
LADY MACBETH
Come on;
Gentle my lord, sleek o'er your rugged looks;
Be bright and jovial among your guests to-night.
MACBETH
So shall I, love; and so, I pray, be you:
Let your remembrance apply to Banquo;
Present him eminence, both with eye and tongue:
Unsafe the while, that we
Must lave our honours in these flattering streams,
And make our faces vizards to our hearts,
Disguising what they are.
LADY MACBETH
You must leave this.
MACBETH
O, full of scorpions is my mind, dear wife!
Thou know'st that Banquo, and his Fleance, lives.
LADY MACBETH
But in them nature's copy's not eterne.
MACBETH
There's comfort yet; they are assailable;
Then be thou jocund: ere the bat hath flown
His cloister'd flight, ere to black Hecate's summons
The shard-borne beetle with his drowsy hums
Hath rung night's yawning peal, there shall be done
A deed of dreadful note.
LADY MACBETH
What's to be done?
MACBETH
Be innocent of the knowledge, dearest chuck,
Till thou applaud the deed. Come, seeling night,
Scarf up the tender eye of pitiful day;
And with thy bloody and invisible hand
Cancel and tear to pieces that great bond
Which keeps me pale! Light thickens; and the crow
Makes wing to the rooky wood:
Good things of day begin to droop and drowse;
While night's black agents to their preys do rouse.
Thou marvell'st at my words: but hold thee still;
Things bad begun make strong themselves by ill.
So, prithee, go with me.
Exeunt
Reply Nov 02, 2009 at 08:34 AM
Barkley Rosser said...
Thanks, anne. Figured you might come through on this one. Exeunt, indeed, :-).
Reply Nov 02, 2009 at 10:13 AM

Harold said...
Doesn't "the invisible hand" really refer to a belief that Providence (in the form of ever-improving Progress) had directed (non-Darwinian) evolution in such a way as to assure that "the best" always came out on top, an outlook prominent during the period of British late nineteenth-century imperialism.
Herbert Spencer's libertarian "political philosophy" (otherwise known as the "police state" theory of government, which holds that government's role should be limited to protecting private property, dates from this era.
Reply Nov 02, 2009 at 12:45 PM

Barkley Rosser said...
Harold,
Not in Newton or Smith, who way predate all that Victorian evolution...

Next Major Project: modern use of the invisible hand

Background:

I have completed my response to Daniel Klein’s (“In Adam Smith’s Invisible Hands: comment on Gavin Kennedy” HERE: response to my article: “Adam Smith and the Invisible Hand” (HERE): My final response will be published next week in Econ Journal Watch (September 2009) HERE:

It is now time to move on to my next project (larger in scope and more ambitious): To consider the role played by the use of the invisible hand metaphor by modern economists. Yes, I shall name, though probably not shame, them.

My main charge against them collectively, is that they wrongly attribute their allusion to the invisible hand by name to Adam Smith – because the modern (post-1930s) (miss)use (miss)associates the metaphor with their quite different meanings – and they imply and, in many cases they directly claim, that Smith have said things about markets that he never did. I shall also offer an alternative explanation for the ubiquity of the invisible hand in modern discourse.

I suspect, somewhat cheekily, that many modern economists have never read Wealth Of Nations, nor do they realise how limited was Smith’s use of the popular 18th-century metaphor (once only in Wealth Of Nations, 1776, once only in Moral Sentiments, 1759, and once only in his short, posthumous essay on the History of Astronomy (1744-58), no one of which was connected conceptually to the others.

To date, I have collected some preliminary research materials on the modern usage of the invisible hand (some of which go well beyond its use as a metaphor; some authors believe that there is an actual entity of ‘an invisible hand’ operating in markets, some of them attributing the entity to the invisible God.

Until now, I have waited before embarking on my own assessments for Warren Samuels, a distinguished Smithian scholar, to publish his considered analysis of the modern uses to which the invisible hand metaphor has been put. His 2008 article: Adam Smith’s Invisible Hand, in The Street Porter and the Philosopher: conversations in analytical egalitarianism, edited by S. J. Peart and D. M. Levy. Ann Arbor: Michigan University Press, was the initial article I awaited, but I was advised that another article by Warren Samuels, is to be published in Jeffrey Young’s, (editor), forthcoming Elgar Companion to Adam Smith, Cheltenham: Elgar Publishing, in October 2009.

From private conversations, I understand this is a formidable piece of work and out of respect for Warren's work, I have held back to see to what degree his analysis of modern usage conforms to mine. I understand that he may also reply directly also to my Econ Journal Watch paper.

Where does this take us? Well, my hypothesis for the new project tests my assertions from time to time, that the invisible hand metaphor is a relatively modern adaptation of the 18th-century metaphor purporting to show the presence of an invisible hand in modern market capitalism, seen almost daily in the world media, and more importantly, as asserted in refereed journal articles and authoritative pronouncements in academic texts.

If its usage was confined purely to popular media, it could safely be ignored, but when Nobel Prize Winners and respected authorities from our discipline elaborate on the modern theory of ‘the invisible hand’, we need to separate ideology from analysis. The robust criticism I occasionally encounter of my counter-thesis suggests an investment in emotional subjectivism on the part of some economists.

Any help readers offer to me during this research project will be graciously accepted.

I have been tracing the early beginnings of the discipline’s interest in applying the metaphor to modern economies, starting with late 19th-century economists, some of whom were identified by Daniel Klein and others in correspondence with myself. I am particularly interested in early 20th-century exponents from Chicago University in the 1930s and thereafter.

For example, from Paul Samuelson (Economics, 1948: p 36) I noted that he reported, somewhat critically, on the oral tradition at Chicago which included ideas about the invisible hand operating in market economies. Among the first reference to this use of the invisible hand, I was directed to Oscar Lange’s article in The Review of Economic Studies (vol 13, 1945-46, p 19-32). Lange was at Chicago during the 1930s (as was Samuelson).

In his 1946 article Oscar Lange writes:

“The market has, therefore, been compared (by Adam Smith and others) to that of an invisible hand which produces out of the autonomous decisions of many separate units” (p 26).

What did he mean “by Adam Smith and others”? Who were the “others”?
Any information would be welcome from readers, including references, sources, and biographies. Though retired, I have access to a good library at a University and can probably follow up even vague references or books titles.

Thank you in anticipation of any help received.