Friday, December 07, 2012

A Polite Exchange of Views

A correspondent writes privately politely critiquing my take on the Invisible-hand in Adam Smith’s two only mentions, one each in his Theory of Moral Sentiments and Wealth Of Nations:
“I agree that it’s mutual dependence and not, say, natural teleological order or some such thing that indeed led them to act as they did’.  But to be fair, what really matters here isn’t the motives or the final causes but the effect, which – as is made clear in the next line you rightly quote – is wealth redistribution, and indeed a relatively egalitarian vision of such.  So I wonder – is it really wrong for contemporary pundits to find in the IH of this sort a fundamentally economic reading?  Perhaps this would be clearer if you were able to cite some specific invocations of the invisible hand associating it not merely with unintended consequences and wealth redistribution – which indeed seems to me defensible – and instead with the sorts of mechanisms that you note below (e.g. price system, equilibrium, etc).”
My response:
Thank you for your explanation of your point of view,
I see what you are getting at but you may have missed my point.  I am discussing what Adam Smith wrote in 1759 and from that text what he most likely meant.  This discussion must include Smith’s understanding of the role of a metaphor in English grammar, as clearly expressed in his “Lectures on Rhetoric and Belles Lettres”, 1763 (and, incidentally as understood still today in English grammar: see the entry for ‘Metaphor’ in the Oxford English Dictionary, 1983). 
Metaphors express in “a more striking and interesting manner their object” (LRBL, 1763, 29).  They do not describe the consequences, as you seem to suggest.  Take a statesman who is described metaphorically a “pillar of the State”; the pillar does not exist; the metaphor of “the pillar” describes the statesman in a ‘more striking and interesting manner’, and we would expect him to act in a sober, solid and judicious manner, and indeed, describe him that way if we did not use a metaphor.  Readers would generally think of him as the kind of statesman that holds up the virtues of the State, which would have consequences for those affected by his conduct and demeanour, implied more richly by the ‘pillar’ metaphor than merely by describing his “sober, solid and judicious manner”.  
The consequences of his manner are not metaphorically described as “a pillar”.  The likely consequences are suggested in our mind by the image of the metaphor in our imagination, perhaps derived from the images we might have of the great architecture of Cathedrals or Samson’s Temple. The statesman’s demeanour is the cause of the resultant sober, solid and judicious consequences; the consequences are not the object of the metaphor. These distinctions, I believe, really do matter.
In the TMS case, the “proud and unfeeling landlord” viewing his fields and imagining he consumes everything in them forgets (in Smith description) the “thousands whom he employs” and forgets the obligation to feed them their bare subsistence (as interpreted by his overseers).  Only from what is left over can he indulge in his own actual and still generous consumption of the “best bits”.  His obligations to his labourers must include their families, the prime compulsion for which is: if he does not feed his labourers their, no doubt, bare subsistence, none of them can labour in his fields more than a day or so, and if they do not labour the landlord, and his overseers too, will soon be in desperate straights.  No food for the labours, means no labour; no labour, means no food for anyone. Even in the worst manifestation of slavery over the millennia, the slaves had to be fed some minimal amount from the resources of the slave-owners (created by the slaves).
Regarding the IH metaphor as referring to the consequences, not the motives of the actions that cause the consequences, seems to suggest the IH referred to “wealth redistribution”, which is also stretched to include a supposed “egalitarian vision”.  Human societies, before they left the forest, lived on “subsistence” only (small families, short life spans, with not much, if any, additional “conveniences”).  These came later with shepherding and farming.  Therefore, as labourers, to be assured of their “subsistence” was not much of a climb, if any, in their per capita income over the millennia (not that they lived long enough to notice). With richer farming landlords, even owners of large flocks, there were real differences in per capita incomes between them and their labourers (as we can see in the detritus of past civilizations across Europe, Asia, and Central America) including the abandoned “conveniences and amusements” familiar to students of archaeology.
I conclude that the expression “led by an IH” did not describe “in a more striking and interesting manner” the unintended outcomes following the consequences of the motivated actions of those “led by” the IH; in both of Smith’s cases the unintended outcomes followed the motives, described by the IH metaphor, that “led” to the consequences.
In WN Smith refers to the felt insecurity of some, but not all, merchants that “led” them to invest domestically, the consequence of which was an increase in domestic investment, which “led” to an arithmetical increase in domestic “revenue and employment”.  That is all.  Modern economists have made much more out of it than Smith’s text supports, and got into a fuddle when it was clear that the attribution of the IH to 18th century mercantile, and later, to modern capitalist/state economies, fell foul of the observed imperfections of mixed economies. Samuelson backtracked in his later editions from his original (1948) explanation of Smith’s IH metaphor by confining the IH to theoretical “perfect competition”, particularly after W. D. Nordhaus became his co-author from the 12th (1985) to the 20th edition (2010).  As Perfect competition does not exist (never has); it follows that the mythical IH does not exist in the form believed by modern economists and some politicians.  Nevertheless the IH is still widespread in use across all media, and among modern economists.
I hope this clarifies my stance.  


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