Thursday, November 21, 2013

Lost Legacy is Not Alone

“Nils” posts in The Sustainable Adam Smith HERE  
The idea of an invisible hand that guides the free market to produce mutually beneficial outcomes is perhaps Adam Smith’s best-known idea. It has been interpreted to mean that acting in self-interest can be virtuous. But this would be an odd interpretation, given Smith explicitly says that virtue consists of thinking less about yourself and more about others:
And hence it is, that to feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety (Theory of Moral Sentiments, Part 1, Section 1, Chapter 5).
What, then, is Smith trying to get at with the invisible hand metaphor? In interpreting this, it’s important to understand that Adam Smith really didn’t like rich people. InTheory of Moral Sentiments he makes it clear that they have mistaken wealth for virtue and are therefore likely to be less virtuous than the common man (Theory of Moral Sentiments, Part I, Section III, Chapters 2-3 ). Even within Wealth of Nations he argues that we shouldn’t trust profit seeking merchants when it comes to setting public policy. And while he certainly thinks that trade in mutual self-interest can be beneficial, he points out in Wealth of Nations over 70 cases where acting in self-interest is harmful to society. By contrast there’s only one mention of an invisible hand, so let’s look at the case Smith had in mind when he used the invisible hand metaphor.
Smith is discussing an individual merchant’s decision to engage in domestic trade instead of foreign trade (Wealth of Nations, Book IV, Chapter 2). The key tell here is that Smith is not arguing that a decision that’s clearly good for the merchant is also happens to be good for society. He’s arguing that a decision that’s clearly good for society (domestic trade) also happens to be good for the merchant (he spends a long time explaining the disadvantages of foreign trade to the merchant). In other words, while we might be tempted to think of the merchant as a virtuous individual for choosing to engage in socially beneficial activity, we shouldn’t, because as far the merchant is concerned it’s just incidental that he wound up helping society. It’s just so deliciously ironic that a passage which Smith intended to point out a lack of virtue among wealthy merchants is now widely cited as a justification for their virtue. If it weren’t so serious, it would be hilarious.  So, why is Smith so badly misinterpreted? The short and cynical answer is that an economic system that justifies self-interest is incredibly appealing, particularly to the people who are in the best positions to actualize their self-interest. So they saw what they wanted to see in Smith’s writings and left the rest. (You probably thought I was going to compare the short and cynical answer to a longer and more nuanced one….I’m not. Sometimes the short and cynical answer is also the correct one).
I came across The Sustainable Adam Smith several years ago and was delighted to see it is still operating today.  For some reason it was not sent to me by Google until last night. 
I would broadly agree with the above sentiments that I posted above which broadly are in line with Lost Legacy’s stance on the meaning of Adam Smith’s use of the “invisible hand” metaphor. [Note it links to Lost Legacy too.] 
Makes it less like a lone-single-man battle against the orthodox consensus among modern economists who, both neoclassical and heterodox, swear by the invented notion that Adam Smith used the “invisible hand” as a self-directing force for the common, public, good.
Clear such notions away and we are ready and open to the truly wonderful, because natural, and inherent consequences of markets in conditions of liberty and good government, in which the interests of consumers reign supreme under the rule of law (Wealth Of Nations). 


Blogger The Arthurian said...

"Makes it less like a lone-single-man battle against the orthodox consensus"

Yes, it does. And today I cannot just read your stuff and go away. I have to say you do good work. And I want to say a lot of the time I read your stuff and do not comment. But this does not mean you are alone in your battle. You would be alone if people like me chose not to visit.

Good post.

11:55 pm  
Blogger Gavin Kennedy said...

The Arthurian
Thanks for your supportive comment.
I receive several such comments throughout the year and they are appreciated.
And there are occasional signs on other blogs or in the media that others broadly agree, at least with part of what I am saying.
There are also signs that, as in this post, that others are dissatisfied with mainstream neoclassical models and their pseudo certainties not least among complexity theorists and the self-described new Austrians.
But I would be happy to see many more. The Manchester students in revolt over the staid neo-classical textbook teaching syllabus is most encouraging. I hope we see more.
But sometimes I wonder. Not that I shall give up!
I continue to write papers for publication and I have a new book in mind...

1:49 pm  

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