The Unintentional Misleading Consequences of Part Quotations

Robin Amlot, Managing Editor of “CPI” writes on “Unintended consequences” (HERE):

“I did some reading up on unintended consequences as a result of a newspaper story I read the other day. The concept was popularised in the last century by the sociologist Robert Merton in a paper he wrote in 1936 but it actually goes back to our dear old economic chum Adam Smith. Mind you, he mostly focused on the positive aspect with his ‘invisible hand’. 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.”

“Sadly it is usually more common for the law of unintended consequences to highlight a negative or perverse impact of legislation and/or regulation.”

Comment
“Yes, but”. As we often say to students, who do not quite get a concept correctly. Regretfully on this occasion we must say it to Robin Amlot. He has taken part of a sentence written by Adam Smith in a specific context over nine paragraphs and generalised it almost into a theorem, which was not part of Smith’s intention (thus, at once and, ironically, demonstrating “unintended consequences).

In this specific instance, Adam Smith was discussing the behaviour of some, but certainly not all, merchants, in a particular, but certainly not, all contexts where physically they invested their capital. In this specific case, he referred to those merchants who preferred to invest locally in the British economy rather than send their capital abroad to Europe (or to the British colonies in North America) because of their felt insecurity (risks to) their capital compared to less risky investments in their locality – where they knew the probity of the people with whom they were dealing, and the legal system that they operated within. They preferred, he noted, to keep their capital within their sight, rather than see it it disappear over the horizon.

But by investing locally they added to “domestick industry” and this added to “annual revenue and employment”, which he regarded as a positive benefit. However, and of course, some British merchants were major players in foreign trade – they had less “risk aversion”, as we say today.

The validity of his proposition about these merchants who acted because of their relative insecurity was purely arithmetical – the whole is the sum of its parts. It was not a general theorem. The metaphor of “led by an invisible hand” expressed the behaviour of some merchants and its consequences in “a more striking and interesting manner”, as metaphors are used in English literature and grammar. Indeed, this is precisely what Adam Smith taught his students from 1748 (his Edinburgh public lectures) and from 1751-64 (his Glasgow University Lectures) and we know this because student notes of his “Lectures On Rhetoric and Belles Lettres” in 1763 were found in 1955 and published in 1983 by Oxford University Press (see p29).

The “end” unintended outcome of all the behaviours of merchants is not necessarily always benign, which is precisely what Smith taught and wrote extensively in his polemics against mercantile political economy. Their lobbying by “domestick industry” for tariff protections and outright prohibitions of large numbers of foreign imports were anything but benign, as far as the interests of consumers were concerned (see Book IV of Wealth Of Nations), and constituted what he described as his “very violent attack” on the commercial system of Britain.

Hence, to generalise to all merchants his specific remarks about a small set of specific merchants as unintentionally being in “the public interest” is misleading.

Robin Amlot is not responsible for the near universal ascription of Smith’s supposed assertion that actions by all players in the economy (often presented as applying even when their motives are “selfish”) are unintentionally beneficial is quite wrong. Yes, there are unintentional consequences, many of which can be beneficial and many of which can be non-beneficial (pollution, harmful, and etc.,).

Robin Amlot also slips in another part quotation that may also be misleading: “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.” This is from Book I, chapter ii, page 27 of Wealth Of Nations and is part of Smith’s discussion of bargaining, which, of course, mostly is benign but need not always be so (drug dealers). It is part of his recommendation when bargaining with suppliers that the aspirant purchasers “address” the seller’s interests and not just their own (we can serve ourselves by serving the interests of others (as addressed in Smith's other work, The Theory of Moral Sentiments). Barganing has no connection to his use of the metaphor of “an invisible hand” in Book IV and while Robin does not make that connection explicit, he could not if he tried. But his emphasis of selected parts of quotations can be misleading to an author and his readers.

Metaphors Are Not Real

Jeff Carter writes for Business Insider (HERE):

"Behaviorial Economics Isn't Rational"

“True free market economics in the Adam Smith vein has a lot of warts. It’s messy. People make mistakes. Sometimes it takes a bit longer for a market to clear. There are winners and losers. Many will point to things as being unfair. But, it’s the most efficient way to allocate capital and to raise the standard of living for all society. There is no getting around it, people intrinsically weigh opportunity costs/benefits and make utility maximizing decisions for themselves. That’s what makes the world go round. Some people are able to process information quicker than others, are smarter than others, and have more material advantages than others-but that playing field has been with us since the dawn of mankind. There is no way to even it.

The internet has made it possible to have true worldwide markets. It's possible to quickly exchange information and act on it across borders and time. Simply look at the speed at which news travels today versus even ten years ago. It's much faster and more efficient. You don't even need to watch television news anymore, just follow the right people on Twitter. 

Demand curves always slope down. The study concludes, “Adam Smith’s invisible hand may be more powerful than originally thought….it may generate aggregate rationality not only from individual rationality but also from individual irrationality."

Comment
There is one big flaw in Jeff Carter's self-satisfied argument: there is no such thing as a general ‘invisible hand’. It’s a metaphor: it has an object, different from itself. The metaphor is only as “powerful” as the “object” it “describes” in “a striking and interesting manner” (Adam Smith: Lectures on Rhetoric and Belles Letters”, [17563] 1983, p 29).

When Adam Smith used the IH metaphor, only twice in his published writings, he was not referring to “demand curves”, market demand, or the price system (see Theory of Moral Sentiments, Part IV 1.10: 184) and Wealth Of Nations Book IV. II. 9: 456). In fact, he never used the IH in relation to markets or competition.

In TMS he referred to “unfeeling” landlords having to feed their servants, retainers, field slaves/ serfs/ tenants from the inevitable necessity of doing so – no food no labour; no labour no food. In WN he referred to some, but clearly not all merchants – Britain’s foreign trade made it a major exporter and importer in the 18th century - whose “insecurity” led them to invest in “domestick industry”, which in consequence, and without their intention, quantitatively increased domestick annual output of the “necessaries, conveniences, and amusements of life” (WN Introduction, p 10), and he considered this outcome contributed to the public good. (It follows, thereby, on this argument that those merchants who engaged in the “foreign trade of consumption” initially, at least, lowered investment in “domestick industry”).

For both of these examples Smith used the metaphor of “an invisible hand” leading them to act in certain ways – in TMS, from the landlord’s following the dictates of their self “deception” and absolute necessity, and in WN, from some merchants reacting to their feelings of “insecurity” to avoid foreign trade. The IH metaphor was not real in itself; the invisible workings of the brains of those landlords and those merchants “led” them to behave as they did. No actual "hands" led them to do anything - metaphors do nothing themselves they are literary imaginations for the real world.

The metaphor expressed these actions “in a more striking and interesting manner”. In Smith’s use it had nothing to do with markets and the price system, etc. The popular notion that it did have such a connection was an invention in modern economics from the 1940s (Paul Samuelson and others).

Whether behavioural economics is “rational” or “irrational” is not addressed by the IH metaphor.

From A Debate in Las Vegas

Don Maw, Mesquite writes in the Las Vegas Sun(13 June) to comment on remarks by Bob Jack (HERE):

‘Capitalism has plenty of drawbacks’

‘Bob Jack — in his Thursday letter to the editor, headlined “Let loose invisible hand of self-interest” — seeks to apply Adam Smith’s 1776 writings to today’s economy. Mr. Jack wrote that Smith “attributed great power to the ‘invisible hand of self-interest’ in leading to that which is best for society.” That may have been true 235 years ago, but today the “invisible hand of self-interest” has a new synonym — it is called “greed”.’

Comment
Without entering into a debate about the nature of modern capitalism, I am perplexed by the claim that Adam Smith “attributed great power to the ‘invisible hand of self-interest’ in leading to that which is best for society.”

This is not what Adam Smith actually said on either of the (only) two occasions in his books, Moral Sentiments (1759) and Wealth Of Nations (1776), in which he mentioned the metaphor of ‘an Invisible hand’, without attributing ‘great power’ (his point was more subtle than that).

Modern media and modern economists attribute various meanings to the invisible hand metaphor, including the one claimed by Bob Jack: the ‘invisible hand of self interest’. Other claims are that the Adam Smith meant by the ‘invisible hand’, the market, supply and demand, even elementary ‘general equilibrium’ and the Pareto’s ‘welfare theorems’ (Samuelson, Debreu, Arrow, Nobel prize winners all). And, anyway, self-interest also led many individuals to anything remotely linked to the ‘best interests of society’ – what do these senior economists think Adam Smith was saying in critiquing 18th-century mercantile political economy which was riddled with sectional self-interests of those (many) individuals who lobbied legislators and those who influenced them for tariff protection, trade prohibitions, the one-sided combination acts against their employees, local monopolies conspiring against consumers, and the setting of wages by local magistrates, and so on? Did these self-interested actions benefit society as a whole? If they think so, they have never understood Adam Smith.

The fact remains that Smith did no such thing and the reading of his two references to the metaphor of ‘an invisible hand’ show this clearly. More, Smith identifies the object of the IH metaphor in his two books (all metaphors have an object which they describe in a ‘more striking and interesting manner’, as texts on English grammar show (and, incidentally, and importantly, Smith also states in his ‘Lectures on Rhetoric and Belles Lettres’, delivered in both Edinburgh and Glasgow from 1748-63 and published in 1983, p 29).

The IH metaphor in Moral Sentiments was about rich and unfeeling landlords having no choice but to feed their retainers, serfs, and labourers (and their families) if their fields were to be farmed, because of necessity ‘no food’ meant ‘no labour’. Smith’s metaphor for this necessity, is that the landlords are led by an invisible hand’. In Wealth Of Nations, Smith refers to those merchant traders who fear for their capital if sent abroad and, in consequence choose to invest at home in their domestic economy. It is their insecurity that lead them to make that choice and Smith’s metaphor for this choice is that they are led by ‘an invisible hand’. Both occasions show Smith’s meaning of the IH metaphor in a ‘more striking and interesting manner’.

But, who am I, a single voice against so many distinguished economists, who clearly know much about modern theory, some of whom claim with merit to know much about Adam Smith, but, somehow for some obscure reason, all of them are deficient (apparently) in the standard elementary grammar of the English language? Smith even states clearly what he means on both occasions, yet these very literate scholars seem not to notice.

No wonder that Don Maw and Bob Jack are debating something for which they innocently misunderstand. By the way, Adam Smith regarded 'greed' as licentious and did not equate it with self-interest.

Why Rousseau Got it Wrong

Louis René Beres, a professor of International Law at Purdue University, from The Christian Science Monitor, 1 June (also in Alaska Dispatch, ‘news and voices from the last frontier’),
HERE:


'Ignoring Adam Smith is killing the U.S. economy'

‘In virtually all current political debate concerning the requirements of American prosperity, the classic argument of Adam Smith remains the fashionable mainstay of conservatives. It was Smith, after all, who reasoned capably and persuasively that a system of private property, although naturally unequal, would nonetheless permit the poor to live tolerably.’

Comment
Adam Smith wrote of the ever-changing social trends that showed, since the re-introduction of commerce based in small towns close to ‘natural’ and ‘ancient’ routes, such as rivers, for trade (temporarily lost to that purpose with the fall of the Roman Empire in the 5th century and the triumph of feudal war lords) was gradually raising what we now call per capita incomes of the very poor. For Smith the social trends were more important than the temporary unequal excesses of the very rich few (though by modern standards of today’s low income families in the West, the rich were remarkably poverty stricken – mark this for discussion in an economics tutorial).

‘Rejecting Jean-Jacque Rousseau’s fully contrary position that, in commerce, “the privileged few...gorge themselves with superfluities, while the starving multitude are in want of the bare necessities of life,” Smith saw in capitalism not only rising productivity, but also the ultimate condition for political liberty.’

Comment
Jean-Jacque Rousseau saw only the then current poverty of the French rural and city poor; he was blind to historical changes, including when he lauded the imagined ‘freedoms’ of the very equal ‘savage’, at least in material possessions, though not in social stature that some families have ever been dominant for a time – and still are in chimpanzee societies.

Adam Smith pointedly compared the then current differences in material ‘necessities and conveniences’ between the poorest labourers in 18th-century Britain with the general absence of such conveniences and even necessaries available to the 18th-century ‘savages’ in North America and Africa (see Wealth Of Nations, Book 1, chapter 1, and also his Lectures On Jurisprudence, delivered at Glasgow University in 1763-4, a decade before Wealth of Nations in 1776).

Rousseau did not appreciate social changes when he compared snapshots of one imagined state of mankind with a more vivid snapshot of 18th century France (also with his own pampered life style ‘earned’ by his gigolo-like lifestyle, while his children starved in an orphanage).

‘Significantly, perhaps, Adam Smith published his “Inquiry into the Nature and Causes of the Wealth of Nations” in 1776. A revolutionary book, “Wealth” did not aim to support the interests of any one class over another, but rather the overall well-being of an entire nation. Smith discovered, of course, “an invisible hand,” an utterly unsought convergence whereby “the private interests and passions of men” will lead to “that which is most agreeable to the interest of a whole society.”

Comment
Not quite: Smith did not discover
‘“an invisible hand,” an utterly unsought convergence whereby “the private interests and passions of men” will lead to “that which is most agreeable to the interest of a whole society.”

That is a myth invented by some modern economists in part analytical from their mathematical models of an imagined economy that nowhere exists, or can exist, and it is absolutely at variance with Adam Smith’s musing on the use of an 18th-century metaphor to illustrate how some, but not all, actions can have beneficial but unintended outcomes.

In the case of the invisible-hand metaphor in Wealth Of Nations (Book IV), the only time he used it in that Work, he referred to the consequential actions of those merchants who refrained from investing in foreign trade with Europe and the British colonies because they regarded it as too risky. If they didn’t invest abroad, the only other place to invest at all, was to invest in ‘domestick industry’, which added to ‘domestick revenue and employment’, making it higher than it would have been if they were less insecure (clearly, many other British merchants did invest abroad and had done so since the 14th century when Europe was beginning to recover - ‘at last’ - from the fall of the Roman Empire).

The so-called ‘invisible hand’, which led them to this fortuitous outcome, specifically the public benefit being the increase in ‘domestick revenue and employment’, was their private risk aversion, invisible in their heads. It had no visible component, of course, but like the invisible wind, it had very visible results – domestic GNP (in modern terms) was higher, as was the employment among the poor that it generated. But as a separate entity, the invisible hand did not exist. That bit is a modern illusion, invented by modern economists – though nobody, to my knowledge, has told us what it does, how it works (it certainly has no term in the mathematics of those who profess its existence).

Smith’s explanation, however, is clear; it is a metaphor, which like all metaphors, expresses ‘in a more striking and interesting manner’ its object (see Adam Smith on metaphors in his Lectures on Rhetoric and Belles Lettres, 1763, p. 29).

I commend this book of Adam Smith’s to Louis René Beres and anybody else who clings to the modern myth of ‘an invisible hand’. If they get this simple fact wrong, it may be they may re-look at what they conclude about Adam Smith’s penetrating analysis of social trends over the sweep of time. It is not just what Rene Beres claims of “today’s conservative defenders of Smith usually ignore, either deliberately or unwittingly, the full depth of his rather complex thought”. Rene has also failed to understand ‘the full depth of [Adam Smith’s] rather complex thought”.

If the ‘cap fits, Rene must wear it’.

It follows that the rest of Rene's article (follow the link) is also wrong in my view, but to dissect it would take too much space and time just now.

Professor Boettke: what Exactly Do Invisible Hands Do?

Peter Boettke in Coordination Problem writes HERE

‘What Does the Market Process Do?’

‘Dick Cornuelle was a student of Mises before Rothbard, before Sennholz, before Kirzner. He also devoted his work to a wider audience, and to a field not traditionally studied by economists. But he was a market process theorist and he did emphasize the adaptive efficiency of the market economy.

Consider the following from Dick Cornuelle's De-Managing America (1975):

‘The economic process is usually explained in terms of profit motivation and competitive discipline, so we get the impression that the process communicates instructions like "Work hard and don't waste anything." But Adam Smith's invisible hand does much more than stimulate effort and penalize waste. It works as a master arranger or harmonizer of diverse human effort and it works without control. The invisible hand that coordinates the economic process holds neither a carrot nor a stick. It is a signaling hand, important mainly for the kind of directions it provides and the way it communicates them.’

The free economic process shows each participant how to find his own way into a useful position in the larger mosaic. ... The way this happens in practice is illuminated by the concept of feedback ... (pp. 85-86)’

Comment
I have read Peter Boettk’s Blog for many years, so my critical remarks of his praise for Dick Cornuelle's ‘De-Managing America’ are not intentionally derisory on what I regard as sheer mysticism by Dick Cornuelle's attempt to explain either or both, the process or the outcomes of markets at work. ‘Adam Smith's invisible hand’ (IH) supposedly explains everything, yet it explains nothing. It certainly was not given this role by Adam Smith himself. He used the invisible hand metaphor for much more limited purposes and his use did not obviously have anything much to do with markets.

If the IH really works as ‘a master arranger or harmonizer of diverse human effort and without control’, how or what did ‘it’ do exactly?

In Moral Sentiments, the context in which Smith applied the IH metaphor referred to the behaviour of ‘proud and unfeeling’ landlords when they allocated part of the harvests produced on their land by and to, variously, serfs, slaves, villains, labourers (and later tenants). This covers a very long period of history, since whenever ‘Providence divided the earth among a few lordly masters’ (TMS, IV.1.10:184), which, in Smith’s stadial sequence, was long before commercial society and even nascent markets.

The object of the IH metaphor on this occasion in TMS was identified by Smith as the cause of them feeding their dependents – the plain fact that they had no choice but to do so – labourers and their families had to be fed, otherwise the labourers could not work the fields that secured the ‘greatness’ of their lordly masters, and this was ensured only because of the mutual dependence of the labourers on their lordly masters and the dependence of the lordly masters on their labourers. It had nothing to do with markets – in fact their mutual dependence was based on the very real likelihood of violence, fuelled by the ‘natural selfishness and rapacity’ of ‘the rich’ (Moral Sentiments, IV.1.10: 184-5).

The second example of Smith’s use of the IH metaphor in Wealth Of Nations, which Cornuelle directly, and Boettke indirectly, claim: ‘coordinates the economic process’, holding ‘neither a carrot nor a stick’, but it is ‘a signalling hand, important mainly for the kind of directions it provides and the way it communicates them’. This use is also far from what Adam Smith wrote in Wealth Of Nations as its role. Pointedly, its ‘object’, is also far from a ‘market decision’, as opposed to a decision in a market environment – 18th-century protectionist Britain.

On this occasion, the IH metaphor was applied by Smith to a particular sub-set of merchants in protection-ridden Britain. One subset of merchants traded exclusively and ‘domestickly’ in Britain, and another sub-set traded exclusively in the ‘foreign trade of consumption’. Another sub-set, while inclined to join in foreign trade, recoiled from it because of their concerns for the security of their capital. Smith discusses the causes of the security concerns of these merchants from paragraphs 1 to 8 in pages 452-55) before he uses the IH metaphor (WN IV.ii.9:456). He comments: ‘In the home trade' [the domestic-only merchant] knows better ‘the character and situation of the persons whom he trusts, and if he should be deceived, he knows better the laws of the country from which he must seek redress' (WM IV.ii.6: 454), and Smith observes, correctly, that ‘a capital employed in the home trade ... necessarily puts into motion a greater quantity of domestic industry and gives revenue to a greater number of inhabitants of the country, than an equal capital employed in the foreign trade of consumption’ [which is not exactly high-level maths!].

Smith goes on, (mentioning the impact on ‘domestick industry 3 times more), to make his famous observation on the role of an invisible hand:

‘By preferring the support of domestick to that of foreign industry, he intends only his own security and by directing that industry 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 which was no part of his intention’ (IV.ii.10: 456).

Now, all metaphors have specific objects, which they describe ‘in a more striking and interesting manner’ (see Adam Smith, Lectures in Rhetoric and Belles Lettres, [1763] 1983, page 29), and the object of the IH metaphor in Wealth Of Nations is not that it ‘coordinates the economic process’, holding ‘neither a carrot nor a stick’, nor that it is ‘a signalling hand, important mainly for the kind of directions it provides and the way it communicates them’.

That is wholly an invention from the 20th century, albeit plausible if a 20th-century author wishes to invent that role for it (with of course a clear identification of the intended object by the 20th-century author) - but it is not what Adam Smith wrote in Wealth Of Nations and should not be applied to his use in the 18th century. Smith, on both occasions, in TMS and WN, identified the objects of the IH metaphor and they are eminently plausible, and help us understand the role of their objects in the process in which they operated.

But that cannot be said of the 20th-century inventions; nobody bothers to explain how the use of the IH metaphors helps us understand the working of markets. In fact, they obfuscate our understanding, creating allusions to something mysterious, indeed, ‘miraculous’, about markets (yes, even ‘the hand of God’ is sometimes applied).

Smith knew how markets worked (he showed how in Books I and II of Wealth Of Nations – without mentioning anything about ‘invisible hands’ - , but nobody, to my knowledge has explained what the modern version of ‘an invisible hand’ actually does, yet the profession, including the followers of Mises, seem to apply it in a mystical form, making modern pretentions to being a science somewhat laughable.

It was necessity that led ‘proud and unfeeling lordly masters’ to feed their dependent labourers – that necessity was the IH; it was what economists call their risk-aversion from what Smith called ‘their insecurity’ that led some, but not, all merchant traders to invest their capital locally, thus unintentionally adding to local ‘domestick’ revenue and employment – their insecurity was the invisible hand (you cannot see 'necessity' or 'insecurity' but you can see market signals at work through very visible prices, as we teach from Economic 101 to Doctorates.

I urge Peter Boettke to consider an ‘Emporer is naked’ moment on the modern use of the IH metaphor and answer the question: what does the Market Process do?’ - without using a 20th-century empty metaphor of its required object.

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.]

Scholars of English Apparently Not Clear on Metaphors

This review article is posted in the Illinois Department of English Blog (HERE):
By Curtis Perry head of the department (2 May)

The 'Invisible Hand' and British Fiction, 1818-1860

I am delighted to announce here the publication of Eleanor Courtemanche's new book, The 'Invisible Hand and British Fiction, 1818-1860: Adam Smith, Political Economy, and the Genre of Realism. Actually, the book been in print in Great Britain since April 12, but I learned this morning that Professor Courtemanche's advance copies have now arrived in the mail. This is my cue to post. Because, like I always say, nothing can be real until it arrives in central Illinois.

Published as part of Palgrave's impressive "Palgrave Studies in Nineteenth-Century Writing and Culture" series, The Invisible Hand and British Fiction argues that 19th-century realist novels, with their large-canvas portraiture of individuals within complex social systems, represent the best and most sophisticated response we have to the baffling experience of living in a world of global capitalism. This is a historical argument, about fiction and economic theory in the 19th century, but one that also makes 19th-century fiction speak to experiences that are our own. I admire this book for its powerful argument, but also for its lively and accessible prose. I think it has the potential, therefore, to be of interest to readers beyond its main, obvious audience of scholarly specialists: if only the invisible hand of the marketplace could somehow bring it to a wider audience's attention!

Here is the book description, pasted in from the press' website: "Some economic ideas are too interesting to be left to economists. This book argues that Adam Smith's metaphor of the 'invisible hand' – in which selfish economic actions are mysteriously transformed into aggregate social benefits in a capitalist economy – implies an entire spatial and temporal system in which the morality of any particular action can only be understood in the context of society as a whole. The 'Invisible Hand' and British Fiction argues that while political economists focused only on the optimistic outcomes of capitalist moral activity, Smith's model of ironic morality also influenced the work of novelists including Austen, Dickens, Martineau, Thackeray, Gaskell, and Eliot. Their realist novels represent the reconciliation between individual ignorance and systemic overview as much less stable than the economic synthesis, using omniscient narrative voices, multiple perspectives, and humor to depict a wide variety of possible outcomes. Smith shares with the realists a vision of modern society that is structured around a fragile trust in the benefits of unintended consequences."

Congratulations, Eleanor!

Comment
It is not my intention to impugn the scholarly standards of a fellow-Palgrave author, but Eleanor Courtemanche is quite wrong in associating Adam Smith with her standard repetition of the modern meaning (not Adam Smith’s) of the “invisible hand metaphor.

Adam Smith did not assert that “selfish economic actions are mysteriously transformed into aggregate social benefits in a capitalist economy” anywhere on the two (only) occasions in which he used the IH metaphor in his Moral Sentiments (1759) and Wealth Of Nations (1776). If that is her theme for her otherwise no doubt excellent book, then she starts from a disadvantage.

In that sense I agree that “Some economic ideas are too interesting to be left to economists” and would extend that to scholars who pick up ideas from other disciplines which they have not investigated independently. Especially since, the disputed metaphor is directly related to the modern misreading of the role of metaphors in the English language as understood and taught by, a subject I expect Eleanor Courtemanche (and Curtis Perry) would know more about than economists.

I refer them both to Adam Smith’s Lectures on “Rhetoric and Belles Lettres” [1763] 1980, a regular part of the Scottish University courses in Moral Philosophy in the 18th century, and which Smith gave to students in Edinburgh from 1748-51, and to Glasgow University students from 1751-64 (and which remained a part of moral philosophy degrees in Scotland through to the early 20th century).

In his lectures, Smith discussed the role of metaphors (page 29) and made the strong point that metaphors describe their ‘object’ “in a more striking and interesting manner". His two uses did just that, but neither had anything to do with “selfish economic actions (that) are mysteriously transformed into aggregate social benefits in a capitalist economy”.

In Moral Sentiments the IH metaphor refers to rich feudal landlords having to feed their labourers from the produce of food on their lands (i.e., they could not consume it all themselves and not feed their labourers – otherwise who would live long enough to labour on the landlord’s land? Moreover, the labourers could not labour without receiving food from the landlord. They were mutually dependent – no labour, no food; no food no labour. The IH metaphor explained the relationship that bound both sides of their dependency in a ‘more striking and interesting manner’.

In Wealth Of Nations, in Book IV, the IH metaphor explained that consequence of some, but not all merchants, who feared for the security of their capital if they sent it abroad, and how their insecurity led them to invest in the home market instead. By doing so, they added to domestic “revenue and employment” – the whole being the sum of its parts. This unintended benefit was the direct consequence of their insecurity and this insecurity was the object of the IH metaphor.

In short there is no actual “invisible hand”. It is a metaphor, but not a metaphor for “selfish economic actions [that] are mysteriously transformed into aggregate social benefits in a capitalist economy”. Smith devoted two books (285 pages) in Wealth Of Nations to how markets in commercial economies (not “capitalist” – they came later in mid-19th century) worked in detail and he never used the IH metaphor while doing so.

Moreover, by describing the object of the IH metaphor (i.e. identifying it) on both occasions that he used it, there is nothing ”miraculous” nor mysterious about how these unintended outcomes came about. Nor is there, for completion, nothing mysterious about how markets work – they work through very visible prices as shown in Books I and II.

But the IH metaphor is not about prices – its about the specific "objects" that Smith’s examples referred to: mutual dependence and insecurity. Now these are not visible, they operate within people’s heads, that cause them – leads them – to behave in the way they do.

Why modern myths were invented using the IH metaphor in the 1950s onwards by modern economists is a question of ideology born (metaphor) in the post-second world war decades in competition with Soviet military expansion in Eastern Europe and the rise of anti-market communist parties in Asia and perceived subversion in capitalist Western economies.

A Reader's Question and An Answer

A reader asks:

Dear Professor, I have not understood, really, your comment on my comment on invisible hand: what I wrote in very plain and uncontroversial for any serious scholar of Smith. Why you comment it critically? I have dedicated many papers and some books to Smith, and I think to know enough his theory of invisible hand to comment it properly, isn't?

To which I respond:

Dear Reader,
You do not say how many of the posts on Lost Legacy you have read but I did not elaborate on my criticism of your reference to Adam Smith’s ‘idea of invisible hand’ represented in your post:

““Smith's idea of invisible hand (mentioned more than once) is actually very central in both his theory of market (wealth of nations) and in his theory of human sentiments and social behaviour: the invisible hand mechanism is one of the most powerful idea in modern social sciences”.”

The two examples of Smith’s use of the metaphor of ‘an invisible hand’ in Moral Sentiments and Wealth Of Nations are not about “his theory of markets”, which he elaborates in Books I and II without mentioning the IH metaphor. Moreover, the sole example he gives of the IH metaphor in Book IV has no connection to his theory of markets. Likewise, in Moral Sentiments his example of the IH metaphor also is not about markets.

Next, I suggest we examine what Adam Smith said about using metaphors in English grammar, remembering that Smith was an accomplished public lecturer in Rhetoric from 1748 to 1751 in Edinburgh and from 1751-64 in Glasgow (Rhetoric was part of a Moral Philosophy degree in the 18th century). Few traces have been found of Smith’s original text. One such were “Notes of Dr Smith’s Rhetorick Lectures” that was found in a manor-house sale in Aberdeenshire by John M. Lothian (1896-1970) in 1961 (and published by him as Lectures on Rhetoric and Belles Lettres Delivered in the University of Glasgow by Adam Smith, Reported by a Student in 1762-63 (Nelson, 1963). These student Notes were re-edited by J. C. Bryce (and A. S. Skinner) and published as Lectures on Rhetoric and Belles Lettres for the Glasgow Edition of the Works and Correspondence of Adam Smith by the Oxford University Press in 1983 (available from Liberty Fund, 1985).
Adam Smith taught that the role of a metaphor is to “describe in the more striking and interesting manner” its object (Adam Smith, “Lectures on Rhetoric and Belles Lettres” [1762-3] 1983, p 29).

In Moral Sentiments Smith’s use of the IH metaphor was about how proud and unfeeling rich landlords in feudal Europe fed their retainers, serfs and slaves, who, with their families, otherwise would die of starvation. If they could not work who, then, would work the ‘rich and unfeeling landlords’ fields and who would keep out intruders, and who would keep the other poor at bay, and also help keep other lordly rivals from taking over the fields of their masters? This meant that the rich landlords had to share their harvests with their underlings, just as much as servants, serfs, and slaves had to work to get fed. The IH metaphor referred to the consequences of this necessary mutual dependence, policed by the Feudal Lord's power and oppression. But it had nothing to do with how markets work (peasants were not hired in a market economy).

In Wealth Of Nations, some merchants, but obviously not all, traded with and invested in the colonial settlements in North America, the Caribbean, Africa, and India –and continental Europe - but other merchants preferred to invest their capital domestically, where it was under their immediate control, rather than risk it by sending it abroad at the mercy of events (shipwreck, piracy and war) beyond their control. The merchants also distrusted people they did not know, who were not subject to UK justice. Therefore, they invested solely in the domestic economy, but in doing so, unintentionally, they added to domestic revenues and employment (public benefits in Smith’s view). He used the IH metaphor to describe ‘in a more striking and interesting manner’ the consequence of their risk aversion leading to this public benefit, without making any reference to how markets work, or to greater ‘harmony’ or to the ‘magical’ distribution of the benefits. It was simply the consequential arithmetic rule that the ‘whole is the sum of its parts’.

In TMS Smith referred to feudal landlords being led by the IH to feed their serfs, slaves and retainers, which enabled them to work for him and, unintentionally, contributed to the propagation of the human species; in WN he referred to some, but not all, merchants whose insecurity about the risks of foreign and colonial trade being led by an IH to prefer to invest in the ‘domestick’ market, which added to “annual output and employment” (an example of the simple arithmetic rule that the whole is the sum of its parts).

In each case, the object of the metaphor is specified: in TMS, the landlords were ‘led by an invisible hand’, out of the necessity of feeding their serfs, peasants and retainers if they were to survive to work through the seasons and the winters; in WN, the risk averse merchants were ‘led by an invisible hand’ to invest locally, to avoid the higher risk of the loss of their capital and their destitution that could follow.

[In Smith’s third use of the IH metaphor in his History of Astronomy (published posthumously in 1975) heathen Romans feared ‘the invisible hand of Jupiter’ (their stone god), who they believed fired thunderbolts from his pointed finger at enemies of Rome (Smith called it their ‘pusillanimous superstition’, but again absolutely nothing to do with his theory of markets)].

Hugh Blair, who followed Adam Smith as a lecturer in rhetoric at Edinburgh University published his own lectures in the 1800s, Lectures on Rhetoric and Belles Lettres, 3 volumes, London. Vol. 1, Lecture XV: describes Metaphors and gives examples as:

“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 ‘ upholds the state, like a pillar which supports the weight of a whole edifice’, I fairly make a comparison; but when I say of such a minister ‘that he is a pillar of the state’, it has now become a metaphor. The comparison betwixt the minister and a pillar is made in the mind, but it is expressed without any words that denote comparison. The comparison is only insinuated, not expressed, the object is supposed to be so like the other, without formally drawing the comparison; the name of one may be put in place of the other” (pp 342-3).

This literary explanation given by Hugh Blair of the role of metaphors corresponds well with Adam Smith’s rougher spoken words, but clearly means the same (as it still does in modern English).

For these reasons, I critically commented on your remarks that “the invisible hand mechanism is one of the most powerful idea in modern social sciences”. This ignores Smith’s specified role of the IH metaphor in the English language (I cannot speak for other languages). The only question is what were the objects for the IH metaphor in the case in Moral Sentiments and Wealth Of Nations?

I suggest in Moral Sentiments the IH metaphor expresses in a “more striking and interesting manner” its object, namely, the invisible compulsion of necessity that drives rich landlords to feed their peasants and their families so that they continued to toil in his fields, which makes him and his family rich and ‘great’ – no food, no toil; no toil no food.

I also suggest in Wealth Of Nations the IH metaphor expresses in a “more striking and interesting manner” its object, namely, the invisible’ compulsion to avoid perceived foreign risks by investing their capital domestically that raises ‘the annual revenue and employment’ higher than it would be if they had sent it abroad – lower domestic investment lowers domestic revenue and employment.

Yes, I accept that this is somewhat different from the modern texts read by students and taught by modern economists (and widely believed in the media). But Oscar Lange (a Marxist) and Paul Samuelson (an exponent of the capitalist mixed economy) introduced the modern version of Adam Smith’s use of the IH metaphor in the 1940s and it was boosted by modern theories of welfare economics and general equilibrium. For this the IH metaphor was hijacked, so to speak, to give their theories an authoritative pedigree back to Adam Smith.

Lost Legacy works tirelessly to draw attention to what Adam Smith actually wrote against the stubborn resistance of most of my colleagues who defend their modern version eloquently with many other modern theories, though none of them are related to Adam Smith’s meaning. I base my case solely on Smith’s works, which is the best guide to his meaning.

Gavin

A Debate Among Friends Rumbles On

Many thanks to several regular readers for drawing my attention to the article in the Economic Affairs journal (Marc 2011) on Daniel Klein's hypothesis that the physical centrality of Adam's Smith's use of the invisible-hand metaphor (with my response). Earlier last year I was invited by the Economic Affairs Journal to write a response to Daniel Klein's paper, the original draft of which he had kindly sent to me much earlier (we are both members of the Republic of Letters, where the participants engage in 'arguments among friends'). I had also commented on Daniel's earlier draft article about his and Brandon's discovery, and we both published our early papers on the Social Science Research Network (SSRN - available free - google it).

The gist of my response was to accept the results of the detective work by Daniel Klein and his colleague, Brandon Lucas, namely that in both Moral Sentiments (from the 3rd edition) and in Wealth Of Nations for the first six editions, the metaphor appeared in the physical centre of each book (chapter 1, Part IV and chapter i2, book IV respectively). When facts are stated and corroborated by the evidence, scholars should submit to the facts, which I did.

However, the explanations of the facts and their consequences are still very much open to debate, which I do in my response to Daniel and Brandon's article, but their explanation for their results was not part of those facts. Specifically, they did not (nor has Daniel ever done) answer the counter-fact of Adam Smith's taught meaning of the role of metaphors in the English language and Rhetoric (see student notes of his Lectures on Rhetoric and Belles Lettres, [1763] 1983, Oxford University Press/Liberty Fund, page 29), or consult any text on English grammar, including that by Hugh Blair, who took over Smith's Rhetoric lectures delivered in Edinburgh, 1748-51 and delivered his version thereafter at Edinburgh University.

Metaphors are used to describe their object in a "more striking and interesting manner"; they do not exist as their own objects - there is no 'invisible hand' with the mystical or romantic properties usually ascribed to it by modern economists, such as that Smith's invisible hand, for example, referred to 'competitive market forces'.

Smith's use applies to: a) the unavoidable necessity of rich landlords, including those of a vile disposition, in feudal Europe having to feed their slaves, serfs and labourers, if only to maintain them in their ability to work his land; and b) the insecurity felt by some, but clearly not all, merchants who chose to invest locally in the 'domestick' economy rather than undertake the perceived greater risks of foreign trade, which raises 'the domestic national output of the necessities and conveniences of life', the whole being the sum of its parts (that is, nowhere near the heavy maths of general equilibrium, nor the deep philosophy of Daniel's arguments, including the Talmud.

In neither example is the invisible hand absolute and applicable to all - some 'vile' feudal lords treated the subsistence of their dependent serfs despicably, and some from their humanity and fed their slaves, serfs, etc., reasonably well (subject to abrupt change no doubt through the passing generations), and many merchants invested their capital locally for other motives than their insecurity, just as some merchants chose to invest abroad with alacrity and enthusiasm. Smith was making a 'striking and interesting' point with the invisible-hand metaphor about specific lords and specific merchants and the unintentional consequences of their behaviour.

Modern economists (post-Samuelson from 1948) attributed a whole tranche of invented meanings to Smith's use of the invisible-hand metaphor, such as, but not only, that it was about perfectly competitive markets, natural liberty, a version of Pareto's welfare theorem, supply and demand, and general equilibrium. All these inventions fall on considering the specific objects of Smith's two uses only of the invisible hand metaphor - the behaviour of feudal landlords in their (non-competitive) agricultural economies and some merchants in Mercantile (and also in anything but competitive) Britain. These facts are ignored in all the debates on the invisible-hand that I have had with Daniel Klein and (for example, but not only) David Friedman (see my statement above about scholars ' scholars should submit to the evidence...).

The common usage since the 1970s of the invisible-hand metaphor applies it in Adam Smith's name to many modern phenomena and then back-projects its ascribed properties onto Smith's two examples, which is a factual error as well as being, in my always humble, opinion a conceptual mess, because the facts of the feudal centuries do not correspond with any of the circumstances associated with the modern attributions, nor do the facts of what is meant by competitive economies as understood by the same modern economists.

At this point, for now, I rest my case.

While Waiting for Dinner in an Edinburgh Library

I was early for a dinner-discussion last night with several scholars, each in their academic fields, highly knowledgeable about the moral philosophy and political economy taught by Adam Smith. Inevitably, I scanned the crowded bookshelves, mainly of 18th and 19th century well-bound volumes of books related to Edinburgh.

I came across such a 3-volume set and recognised the author as the man who replaced Adam Smith, after he had delivered his series of private lectures, sponsored by Henry Home, lawyer friend (later Lord Kames, a distinguished Enlightenment author and Scottish judge) and James Oswald (a close friend and a rising star in British politics at Westminster). These lectures were on several subjects, including Rhetoric and Belles Lettres, delivered to a ‘respectable auditory’ from 1748-51 in Edinburgh, from which Smith earned a fee of £100 per winter term (not bad for an unemployed Glasgow and Oxford graduate - though no trace of his actual formal graduation at either place is proven), near to, but not in, Edinburgh University. His audience consisted largely of that university’s students of law and theology. His lecture series established his academic reputation with the professors at Glasgow.

When Smith was appointed a Professor of Logic at Glasgow University, he finished off that winter’s lucrative course, thus delaying the start of his Glasgow lectures to the following winter term, and he handed over the lucrative private lecture series and subjects to his friend, Hugh Blair, who was about to commence a successful career at Edinburgh University (and became a popular Sunday preacher too). Blair asked Smith for his notes on Rhetoric to get him started and Smith obliged.

Blair became a popular lecturer at Edinburgh and he expanded Smith’s Rhetoric lectures, making the subject his own, and they were published in 1827. They read well and they are in a more polished style in comparison to the student notes of Smith lectures under the same title. Few traces can be found of Smith’s original text in his “Notes of Dr Smith’s Rhetorick Lectures”, found in a manor-house sale in Aberdeenshire by John M. Lothian (1896-1970) in 1961 (and published by him as Lectures on Rhetoric and Belles Lettres Delivered in the University of Glasgow by Adam Smith, Reported by a Student in 1762-63 (Nelson, 1963). These Notes were re-edited by J. C. Bryce (and A. S. Skinner) and published as Lectures on Rhetoric and Belles Lettres for the Glasgow Edition of the Works and Correspondence of Adam Smith by the Oxford University Press in 1983 (Liberty Fund, 1985).

I opened Hugh Blair’s three-volumes and out of curiousity looked them over, until the other dinner guests arrived. Turning the pages, I became curious to see how he presented his chapter on metaphors, a subject of great interest to me today because of the elevation of Smith’s use of the invisible-hand metaphor into an invented fantasy way, way beyond anything meant by Smith when he used the now famous metaphor once only in each of Moral Sentiments (1759), Wealth Of Nations (1776) and (posthumous) in his History of Astronomy (1795).

I noted down some sentences from Hugh Blair’s account, as below:

Hugh Blair, Lectures on Rhetoric and Belles Lettres, 3 volumes, London. Vol. 1, Lecture XV: Metaphors:

Metaphors are:

“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 ‘ upholds the state, like a pillar which supports the weight of a whole edifice’, I fairly make a comparison; but when I say of such a minister ‘that he is a pillar of the state’, it has now become a metaphor. The comparison betwixt the minister and a pillar is made in the mind, but it is expressed without any words that denote comparison. The comparison is only insinuated, not expressed, the object is supposed to be so like the other, without formally drawing the comparison; the name of one may be put in place of the other” (pp 342-3).

This literary explanation given by Hugh Blair of the role of metaphors corresponds well with Adam Smith’s rougher spoken words, but clearly means the same (as it still would be).

See Adam Smith, Lectures on Rhetoric and Belles Lettres, Oxford University Press in 1983 (Liberty Fund, 1985), p 29:

A Step Towards Understanding the Invisible Hand Metaphor - Then Two Steps Back

Brendan Jordan writes in Power, Identity, Resistance (PIRana Wiki Blog) HERE:

“Brendan's Reading Blog in response to questions 1 & 2 on the e-mail sent October 8th”

“1. Adam Smith's two claims regarding the 'invisible hand' of a market economy, found on pages 18 and 477 in The Wealth of Nations both reach the same conclusion regarding the benefits of appealing to man's self-interest. However, Smith's claim on 477 is much more ambitious than his former claim, since he explicitly conveys how the "invisible hand" of a market ensures that man's self-love can contribute to the collective well-being without his explicit knowledge or consent. Although Smith cites the "invisible hand" phenomenon specifically in reference to how a man's support of domestic industry for his own security can benefit the collective, he clarifies this statement by noting that this invisible hand is evident in "many other cases." On page 18 Smith writes of how natural economic exchange is based upon the self-interest of each individual, and not their benevolence. From reading page 18 it can be inferred that "by treaty, by barter, or by purchase" man can satisfy a variety of wants, efficiently and with a low opportunity cost to himself. However, unlike his later claim Smith does not explicitly connect how self-interest giving rise to exchange can benefit society as a whole. Smith's claim on page 18 omits the words "invisible hand" and is also mostly confined toward the reasons for and the effects of self-interest and exchange with regards to division of labor whereas Smith's claims on page 477 are much broader in their scope.”

Comment
I found this piece intriguing. Brendon Jordon writes an interesting account of what he calls “Adam Smith's two claims regarding the 'invisible hand' of a market economy” (even quoting “page 18 and 476” of Wealth Of Nations). [This is not the definitive Glasgow Edition of the book from Oxford University Press, where the pages are 26-7 and 456 respectively and therefore Brendon is quoting from another edition.]

Still, that leaves a major problem. Smith used the metaphor of ‘an invisible hand’ only once in Wealth Of Nations (456) and only once in Moral Sentiments (184) (he also used the ‘invisible hand of Jupiter” in his Essay on Astronomy [1795, posthumous)], but this use was as a noun, not a metaphor). The reference to page ‘18’ being meant an invisible hand is by Brendon’s controversial attribution, of which more below.

Brendon writes: “… Smith cites the "invisible hand" phenomenon specifically in reference to how a man's support of domestic industry for his own security can benefit the collective …”, which is quite correct and very pleasing to see – clearly he has read the passage, which is a step up from the usual reports of Smith’s use of the Invisible Hand metaphor, by people who have not read WN. He then spoils his case by adding: “On page 18 Smith writes of how natural economic exchange is based upon the self-interest of each individual, and not their benevolence. From reading page 18 it can be inferred that "by treaty, by barter, or by purchase" man can satisfy a variety of wants, efficiently and with a low opportunity cost to himself. However, unlike his later claim Smith does not explicitly connect how self-interest giving rise to exchange can benefit society as a whole.”

The “butcher, brewer, baker” case centres on how parties make their bargains to acquire their dinners from those others who sell them items on their menus, specifically by the conditional proposition: “Give me that which I want, and you shall have this which you want” adding “it is in this manner that we obtain from one another the far greater part of the far greater part of the good offices which we stand in need of” (26).

Smith does not mention the Invisible Hand metaphor because the metaphor is redundant in these exchange cases: prices and offers and demands are visible, not invisible, neither are the items they wish to exchange. They use persuasion and conversation to find a price acceptable to both of them and the mechanism is by their not talking to the other party of “own necessities but of their advantages” to conclude their transactions.

In short, they achieve their own self-interests by serving the self-interests of the other party and they mediate their initial differences on price and quantity, by raising their offers or lowering their demands until they reach a single visible price and quantity.

Two extremely egotistical, self-interested would-be bargainers will never conclude a transaction unless they change their behaviours. Which is why the invisible-hand metaphor is inapplicable to such cases, and why Adam Smith never spoke of the ‘invisible hand of the market’. That last was an invented attribution by modern economists from the 1950s (see Paul Samuelson, Economics, 1948, p 36).

Moreover, consider the two cases where he did use the Invisible Hand metaphor: in Moral Sentiments (1759) he refers to feudal landlords – indeed all to all landlords from when farming was ‘discovered”, Pharaohs, Babylonian Kings, and Roman Emperors, etc., included, who used some of their crops to feed their slaves or serfs; and in Wealth Of Nations he refers to some, but not all, merchants and manufacturers, who prefer domestic investment to the riskier (in their view) investment abroad.

Now feudal landlords did not operate in a market; they fed their slaves and serfs because their own fortunes and “greatness” depended on doing so; neither did those investors in 18th-century Britain whose risk-aversion led them to add to domestic output and employment operate in free markets, especially considering the mercantile political economy with its tariff protection and prohibitions, its Government enforced Acts of Settlement, Apprenticeship Statutes, Incorporated Town Guilds, Chartered Companies, Patents, Primogeniture and Entail Laws and the Navigation Acts enforced by the Royal Navy.

The invisible–hand metaphor’s object in Feudal times was the invisible absolute necessity of keeping alive sufficient slaves and serfs at subsistence to work their fields (and for the slave and serfs to work to survive); this mutual dependency was the object of the metaphor. The invisible-hand metaphor in 18th-century Britain was the invisible risk-aversion of those who preferred the safer home trade to the riskier foreign trade.

In neither case was the invisible-hand metaphor about how visible exchange in markets work, with visible prices, quantities of visible trade goods. The invisible-hand is not real; it does not exist physically.

Smith spoke on the role of metaphors in his Lectures on Rhetoric and Belles Lettres 1762-3 (published in 1963 and 1983, page 29). A metaphor expresses the object to which it related “in a more striking and interesting manner”; no metaphor is the object of itself.

Once More With Feeling

‘niftynei’ writes the Scribblings Blog (HERE):

“Book Review: Predictably Irrational”

‘Definitely a must read for anyone interested in buying a house, starting a bank, creating a pricing scheme for a product set, or just understanding the idiocy of our current economic dogma. Dan Ariely explains in everyday (if not too everyday sometimes) language how and why we as consumers are NOT in fact rational consumers that obey Adam Smith's invisible hand, but rather irrational beings that merely like to think that we are logical. The rational model of economics is, really, nothing more than an optimists view of reality: the actual rules of reality, Ariely shows, are a far cry from what we would have ourselves believe them to be.’

Comment
Typical comment from those who buy the modern myth of Adam Smith’s invisible hand.

It does not even correspond to what Adam Smith wrote about the invisible hand in Wealth Of Nations, which ‘niftynei’ would realize if he read the single reference to the metaphor (Book IV, chapter 2, paragraphs 1-9).

Smith made no statements about ‘rational’ consumers ‘obeying the invisible hand’. In fact, his point about the metaphor of the invisible hand had nothing to do with consumers, or markets, or so-called rational consumers.

He referred to some – BUT NOT ALL – merchant traders who preferred to invest locally in their own country rather than engage in foreign trade because of the additional risks of sending their capital abroad. He used the metaphor of an invisible hand to reinforce what he had explained in the 8 paragraphs before he mentioned ‘an invisible hand’ as a metaphor fin paragraph 9.

Those merchants who invested locally were ‘led by an invisible hand’ metaphorically to express in a ‘more striking and interesting manner’ what they insecurity led them to do. That is the role of a metaphor, according to Adam Smith’s Lectures on Rhetoric and Belles Lettres (given at Glasgow University 1762-3, p 29). He delivered his lectures on rhetoric regularly between 1748-1763 and showed that metaphors describe their ‘object’ in a ‘more striking and interesting manner’. The invisible hand was a metaphor, not a noun – there was no invisible hand compelling anybody.

The other merchants, who were less risk-averse, clearly were not ‘led by an invisible hand’, because they invested abroad instead. Both sets of merchants behaved according to their tolerance for risks.

The consequence of the risk-averse merchants from their investing locally was a larger local annual output than would otherwise occur if they overcome their ‘insecurity. The arithmetic rule of ‘the whole is the sum of its parts’ fully explains this consequence.

The notion that Smith wrote what is claimed for him about the invisible hand is a wholly invented myth from the 1950s. He was not a believe in Homo economics, rational consumer or slave to the metaphor.

A Libertarian With Sensible Doubts About the Invisible Hand

Shawn Reed
 posts in Journal Talk (HERE) a comment on Dan Klein and Brandon Lucas’s article: “In a Word or Two, Placed in the Middle: The Invisible Hand in Smith’s Tomes”, HERE: discussed on Lost legacy in February.

‘I find myself, in general, agreeing with the possibility of a phrase in the middle being of extra-importance, somehow, to Smith, but I do find some of the arguments for that importance to be somewhat lacking, even to one inclined to be supportive of the notion, to say nothing of how a reader unsympathetic with the priority of the Invisible Hand in Smith would take the arguments. …

The Invisible Hand is certainly an important idea, especially to those of us sharing libertarian/free-market priors, but I am not convinced that its location in the book is much more than a divined pattern where no pattern exists. If our minds are predisposed to see stories where no story exists, could this not likely be one of those instances? …

There seem to be two main cases discussed in the paper for why smith would put something so central in the middle (contrary to the general inclination of putting the important at the beginning or the end). Either Smith was intentionally obscuring his controversial views from the censors/casual readers, and leaving that controversial view to be found by those with eyes to see, or he saw a certain aesthetic value in having his most important thought in the middle. If he was being intentionally obtuse, what was Smith hiding from? Religious persecution? Doubtful. Political outrage/maintaining his cultural royalty position? If that were the case, aren’t there enough other other relatively incendiary/anti-government-intervention passages in the book that would succeed in pissing someone off if they were going to get pissed off by the idea of an invisible hand doing better at organizing markets than their own machinations? If “economics is a challenge to the conceit of those in power,” then isn’t that challenge made clear elsewhere? Why bother with esoteric writing when so much of it is exoteric? I realize that, having still not read any leftist understandings of Smith, I may still be laboring under the false notion that Smith’s pro-market, anti-governmental-intrusion (by and large) is plain to any fair-minded reader encountering WN and TMS. Perhaps I already have had the blinders lifted, so to speak, and I would be labeled a loon if I were to explicate Smith with my modern eyes in 1780. In what ways would Smith’s Invisible Hand be a challenge to the status quo, that he would need to obscure its centrality?’ …

Comment
The doubts expressed so thoughtfully by Shawn Reed are worthy of readers of Lost Legacy following the links and reading them through. Let me explicate what was going on in Smith’s mind based on careful interpretation of exactly what he was doing. My view is that the Invisible Hand as used by Smith was meant metaphorically. We do not have to read into the two occasions on which he used the metaphor complex deeper mysteries ascribed to Smith as argued by Klein and Lucas. On the evidence that Klein and Lucas have assembled so carefully, I accept that the centrality of the metaphor in both of his books was intentional (see Lost Legacy: October, November 2009, and April 2010) but the question is: what was Smith’s intention? I wrote a detailed answer to Klein and Lucas is ‘The Centrality of the Invisible Hand in Smith’s Books: Using a Metaphor as an Antidote to 'Tiresome' and 'Less Pleasant' Narrative Styles’, which is downloadable (free) on the Social Science Research Network (SSRN) here:

Briefly, Smith had no need to hide his basic critique of the prevailing ideology of government intervention, known as Mercantile Political Economy. He carefully avoided attacks on living individuals, was deferential to the King, raised no flags of revolution and was circumspect in his policy recommendations. He was no ideologue; his proposals tended to be modest.

Abstract:

‘Daniel Klein and Brandon Lucas’s highly original article (from a suggestion by Peter Minowitz), “In a word or Two, Placed in the Middle: the invisible hand in Smith’s Tomes” (October, 2009) is discussed. This paper presents an alternative account of the role of the metaphor in Adam Smith’s thought. Part 1 (‘Centrality of Smith’s Invisible Hand metaphor’) acknowledges the persuasive evidence from Klein and Lucas for the physical centrality of the metaphor in Smith’s two books. In support of centrality, details are provided of his close involvement in the print production of his books. Part 2 (‘Smith on metaphors’) considers Smith’s teachings on the use of metaphors. Part 3 (‘Significance of the invisible-hand for Smith’) discusses the two cases where Smith used the invisible hand as an antidote to ‘tiresome and less pleasant’ narrative styles by showing that a metaphor represents in a ‘more striking and interesting manner’ their objects, using the examples of how ‘rich landlords’ and some ‘merchants’ acted in conformity with the absolute necessity of their circumstances, with unintended consequences. Misleading explanations by Paul Samuelson and others derived since the late 1940s of Smith’s use of the invisible-hand metaphor are challenged.’

To Download a copy of the text from the Social Science Research Network, visit HERE:

Further comment:
Smith also lectured on Rhetoric and we have student notes of those lectures (Lectures on Rhetoric and Belles Lettres: 1762-63 [1983: Liberty Fund]). And in the same chapter Klein and Lucas derived the centrality thesis, Smith made specific references to the role of metaphors, which he illustrated, once each in both Moral Sentiments and Wealth Of Nations.

In both examples, once in Moral Sentiments and once in Wealth Of Nations, the context was definitely not about competitive markets. There was nothing competitive about life for labourers and their families in the quasi-feudal regimes of ‘Rich landlords’ (TMS IV.ii: 184-85), nor for merchants in 18th-century mercantile Britain (WN IV.ii.9: 456).

Neither circumstance was driven by market considerations: the landlords had no choice but to feed their serfs out of their grain stores if they were to be fit to labour for them on the land each season and survive the winters each year, and the merchants who chose to invest locally were led by their insecurity over sending their capital abroad, hence some, but not all, preferred to invest only at home where their capital was within their sight and control. Necessity led landlords to supply food to their labourers and the insecurity of merchants led them to invest locally. These were the objects of the metaphor of ‘an invisible hand’.

The metaphor of an invisible hand that ‘led’ landlords and some merchants to behave as they did was expressed by the metaphor in a ‘more striking and interesting manner’ (see Smith on metaphors in his Lectures on Rhetoric and Belles Lettres; 1763-63; 1983: 29). That’s all!

From the metaphor – hardly noticed until the late 19th century – a theory has been invented linking it to the market (even to the ‘hand of God’) from the 1950s, which was not justified by the context in which Smith used the metaphor, nor by Smith’s avowed use of metaphors in his lectures that he taught his students. The erroneous belief in the 'mystical' - even 'miraculous' - invisible hand led many economists to attribute to markets wondrous powers they never had and in broadcasting their beliefs they misled themselves and those they influenced into a complacency that ignored what was happening in the real world as shown in the current financial crisis - as witnessed by Greenspan's confession last year.

Shawn Reed has begun his journey towards the truth about the invisible hand. I hope what he reads may help him clarify his current doubts and questions.