Saturday, March 04, 2017


Frances Coppola posts 3 February on  COPPOLA COMMENT HERE
“Adam Smith's "invisible hand" is perhaps one of the most misunderstood concepts in economics. It is usually interpreted to mean that when individuals all operate according to their own self-interest, their actions somehow combine to create a well-ordered, well-functioning society "as if guided by an invisible hand”.
Frances Coppola’s  DESCRIPTION IS WRONG: “as if guided by an invisible hand”, which is a simile, not a metaphor! 
Adam Smith did not write poor English: see his ‘Lectures on Rhetoric and Belles Lettres”, which he taught from 1748-1763, incidently his longest series of Lectures.
“To be fair, this statement about the "invisible hand" (from the Wealth of Nations) does seem to mean exactly that
[The rich] consume little more than the poor, and in spite of their natural selfishness and rapacity…they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.
Frances is wrong again: the above quotaion is not from Smith’s Wealth of Nations, 1776; it is from Smith’s earlier book: Moral Sentiments, 1759, at page 184, TMS IV.i.10.
This should have been challenged long ago on the lack of counterfactual evidence. It is an assertion, not a fact. Nonetheless, despite the glaring inequalities in our world today, it could be true.” 
Smith, writing in the 18th century about landlords and farm labourers was unable to discuss the ‘world today’, or ‘socialism’ - hardly relevant until the 20th century,
Frances continues:
The problem with Smith's statement is that it gives the impression that equitable distribution is not only possible, it is inevitable. The "invisible hand" guides the human species ever closer to complete equality of distribution.
But this is only half the story. The other half can be found in what I consider to be Smith's greater work, the Theory of Moral Sentiments: 
Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... 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.”
For Smith, self-interest is inevitably benevolent in effect, whatever the intention. He does not consider the possibility that self-interest could have malevolent effects. Nor does he consider the possibility that short-sightedness and stupidity may have unexpected consequences. And this is because he is thinking in aggregates. Smith's "invisible hand" applies not to the individual, but to the group. The individual does whatever he wants: but the collective actions of thousands or millions of individuals together bring about a better society.”
Again Frances muddles the quotations. He attributes the above to Smith’s Theory of Moral Sentiments (1759) when in fact it comes from Smith’s Wealth of Nations (1776) - and draws the wrong conclusion:
For Smith, self-interest is inevitably benevolent in effect” 
Not at all true! Smith spends some considerable time referring to the merchants and manufacturers who lobby governments to impose tariffs on imported goods, and also outright prohibitions on imports altogether, with a view to reduce domestic competition so that they can raise prices.
Has Frances actually read Smith’s books? Or is he simply reading a book of quotations and got them muddled up?

Considering his opening sentence that “Adam Smith's "invisible hand" is perhaps one of the most misunderstood concepts in economics” which Francis goes on to demonstrate, I suggest you read it for yourself…


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