Friday, October 28, 2005

Invisible hand, no 23

The Washington Post runs an article, “Broken Pledges in Hong Kong” by Kin-ming Liu, October 28, 2005, which contains the following:

“Actually, Hong Kong was, in a way ruled under a "one country, two systems" formula by the British, too. British governments followed socialist policies at home for decades after World War II, but in Hong Kong they gave free rein to Adam Smith's invisible hand; Hong Kong has often been called the world's freest economy. But the post-1997 government, despite paying lip service to free-market principles, has undermined this cornerstone of Hong Kong's past success.”

“Adam Smith's invisible hand”? Surely not. They stepped back from interfering in commercial markets, may be, but how did Shakespeare’s invisible hand (Macbeth, 3:2) get into the act? How do you summon an invisible hand and what does it do that isn’t already done by markets?

Smith’s use of the metaphor once in “Wealth of Nations” and once in “Moral Sentiments had little to do with how markets work. Smith certainly did not include an invisible hand working in the markets he analysed. His use of Shakespeare’s metaphor (“thy bloody and invisible hand”) was about the unintended outcome of human motivations. In the case of “Moral Sentiments” it was about the Feudal Lords making a similar distribution of the products of agriculture to their retainers and serfs as would be distributed if all the land was shared equally, and in the case of “Wealth of Nations” it was about the private motivations of traders preferring to keep close to their capital stock by placing it locally and not abroad. Neither is to do with how free markets work.

Smith and the invisible hand are locked together in the minds of many commentators who call on his name to illustrate their articles and speech. It has become the icon of smithian references; readers and listeners nod sagely in recognition of Smith’s name. Fine, but don’t let us accept that markets, well understood by Smith and many others of his contemporaries and certainly by all modern economists, have any ‘miraculous’ features, or invisible hands or Gods, in them.

That is a form of paganism, which, after all, was the context of the first of the three times he referred to an invisible hand in his essay on astronomy, published posthumously in 1795. In that essay he referred to the ‘invisible hand of Jupiter’ – the Roman god, not the planet – in that part of his discourse where he discusses ‘pagan superstition’ and the belief that human lives were ruled and ruined by invisible gods that nobody has seen, or can ever see.

On Kin-ming Liu’s ‘one country, two systems’ allusion to Britain’s relations with its former colony, Hong Kong, I found that suggestion most interesting and worth reading.


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