Wednesday, November 19, 2014


"Adam Smith and Milton Friedman on an Invisible Hand"
 Jadranko Brkic posts 18 SEPTEMBER on ‘SIP TV Freedom and Prosperity ’(libertarian network of alternative media in Western Balkans') HERE 
"People who intend only to seek their own benefit are led by invisible hand to serve public interest which was no part of their intention." - Adam Smith
"People who intend only to serve public interest are led by invisible hand to private interest which was no part of their intention." - Milton Friedman
The statement attributed to Adam Smith is phoney, i.e., made up. 
The statement attributed to Milton Friedman is also invented. 
Perhaps both were lost in translation?
Their nonsense is easily exposed.  
Protectionists and advocates of tariffs on imports seek to gain from reducing domestic competition and raising prices.  Adam Smith was adamant that both tariffs and protection legislation may have benefitted some domestic producers, but certainly did not “serve the public interest” - see his Wealth of Nations, Book IV.
Adam Smith understood that legislaters “seeking to serve” serving the “public interest” could be serving their own interests or the interests of specific groups at the expense of the interests of others (e.g., awarding lawyers  monopolies in some specialised activities.
People making false statements do not serve the public interest. 


Blogger Yadranko said...

Adam Smith and an invisible hand:

From the book: "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. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."

Friedman's opposite wording quote may well have been invented.

2:37 am  
Blogger Gavin Kennedy said...

Thank you Jadranko Brkic for your quotation of part of the famous “invisible-hand” passage in ‘Wealth Of Nations’. What you have quoted is incomplete. Smith was making a statement on the ltheme of the negative consequences of import restraints on the publlic good (WN IV.ii. 1-10, pp. 452-56).
It is about the motives of a domestic merchant who feels insecure about the risks and costs of investing abroad.
Which is “most advantageous to the society” is ”by no means certain”. The merchant is driven by “his own advantage necessarily” and “not that of the society”. But this consideration “necessariy leads him to prefer that employment which is most advantageous to the society”.
Smith’s asserts that on “equal or nearly equal profits “every wholesale merchant naturally prefers the home trade to the foreign trade”.
Smith reasons from the “insecurity” of the merchant “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 (WN IV.ii.6. p. 454), plus the practical issues of the “inconveniences” of loading and unloading cargoes”, risks and inconvenience and added costs and customs fees.
Smith states that by maximising the employment of his capital he “necesarily labours to render the annual revenue of the society” without intending to do so (WN IV.ii.9: 456).
He has deploys the now famous “invisible-hand” metaphor to “describe” its “object” in “a more striking and interesting manner” (Smith, “Lectures on Rhetoric and Belles Lettres” [1762-3] 1983, p.29). It is a rhetorical device to explain a complex set of ideas described in 9 paragraphs and 5 pages, much of which is ignored because most readers leap across and focus on that part of the metaphoric argument that is most “striking” and “interesting”.
Few scholars notice Smith’s distinction between intended and unintended consequences embeded in these paragraphs. Smith notes that a merchant’s motives (the security of his capital) is served by choosing to invest domestically, expected profits being ‘equal or nearly equal’ to the alternatives, lead him to invest locally. The sequence is clear: motives cause the merchant’s actions with the intended consequences that assuage the merchant’s insecurity; however the consequence of merchant’s intended actions can have unintended consequences too. In this case the merchant’s actions unintentionally add to domestic revenue and employment.
Be clear: the invisible-hand leads from the merchant’s motivated actions, which actions may have unintended consequences that may or may not be a public benefit. Merchants who press for tariffs and prohibitions are motivated to intentionaly reduce competition and raise prices, which consequence is not a public benefit at all, and which most of Book IV is Smith’s ‘violent’ polemic against their intentional actions leading to unintetnional negative consequences.
The leads to a confusion, such as asserting that “an invisible hand” operates in markets by directing them to public benefits, whereas markets work, everywhere only through visible prices and they cannot work without them.

4:38 pm  

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