The metaphor of the invisible hand
from David Ruccio
Take a course in neoclassical economics or listen to a neoclassical economist and you’ll soon learn of the magic of the invisible hand. And you’ll learn that the invisible hand was Adam Smith’s great contribution to moden economic thought.
Much of the rest of Smith is discarded or simply ignored. The labor theory of value. The role of trust and sympathy in allowing markets to operate. The need for public education in a world in which labor is often reduced to drudgery. And so much more.
But the invisible hand remains. The problem is, the invisible hand is an idea that Smith only invokes twice in his main texts—once in the Wealth of Nations, and once in the Theory of Moral Sentiments.
And, as Gavin Kennedy has been arguing, the invisible hand is a metaphor
was not about markets, regulated of otherwise and in none of the three cases that he uses it was it about markets. The belief that he did refer to markets is a wholly invented myth by modern economists from the 1950s. [The third example Kennedy refers to is in Smith's Astronomy.]
Why does it matter? According to Kennedy,
If you insist that the ‘invisible hand’ is real, actual, or has content, you take on a wholly fictitious metaphysical idea (‘the hand of God’ or such like construction), which is theology not economics.
My assertion that the metaphor was not used by Adam Smith in relation to markets is based on the close reading of his uses of it. Samuelson and others asserted that it was elated to markets, without a scrap of textual evidence – its is not mentioned in Books I and II of WN, which deal in detail with the workings of markets. Also, his use of it was hardly mentioned by political economists, while Smith was alive, nor for long after he died. Strange for a cardinal principle?
And that’s what we’ve been getting in recent years: a theology of free markets, justified by a powerful metaphor—the invisible hand—for which neoclassical economists have worked to invent a tradition beginning with Adam Smith.
The so-called “invisible hand” attributed to Adam Smith, which operates in reality much like the “visible hand” of the proctologist when it has a rubber glove on it, was never intended as a metaphor for the mechanisms of how the market was supposed to turn private sociopathy and greed into the social good, only to postulate the Homo Oeconomicus heuristic as eternal “human nature” and to assert that only capitalism could turn/harness the negative and potentially anarchic and chaotic aspects, interactions and “propensities” of “human nature” (businessmen in particular)discussed in the Theory of Moral Sentiments, at the micro level, into socially optimal and equilibrating-stabilizng structures and patterns at the macro level. It was designed to show that only capitalism can operate not only by harnessing rather than trying to deny or suppress supposed eternal “human nature”, but in doing so producing socially optimal results far better and far more efficiently that if human interactions were consciously driven by some kind of social [or socialist] consciousness.
But the proof of any theory is in its applications, predictions and ability to take in and account for all relevant facts.
When I encounter the free market freaks, I always say to them:”OK let’s have a discussion first of the 7 fudnamental things that markets are supposed to do to answer the basic what, how and for whom questions and the order in which they do them, and please list for me the six fundamental conditions necessary for “free markets” to exist and do what they are supposed to do and give me examples past or present of markets that meet all six conditions.” When they ask why, and I do this only when others are present, I just say “Could we have a productive discussion on say optimal techniques in flying an airplane without your being a pilot or even knowing the basic structures and functions of an airplane?
Precisely!
And the professors enjoy using the term ‘invisible hand’. Sadly, this idea is entrenched even within the public domain. I have seen the newspapers carry features where Smith is supposed to have argued for ‘laizzez faire’. It is very unfortunate that Smith is read out of context, with no mention of the excessive regulations in place by the monopolies and the remnant mercantilist ideology.
And most of those who refuse to accept the truth about Smith, are those who have never read the WoN. And it is hardly every read alongside TMS. If this was done, such a misconception could never have gotten so much strength!
Brad Delong has posted on this a while ago, very worth reading:
http://delong.typepad.com/sdj/2009/11/yet-another-note-on-adam-smiths-invisible-hand-what-it-is-and-what-it-is-not–by-adam-smith.html
“Could we have a productive discussion on say optimal techniques in flying an airplane without your being a pilot or even knowing the basic structures and functions of an airplane?”
This is where I can say “Precisely” to Omahkohkia. The analogy between “an invisible hand” and an autopilot is so obvious that I am astounded the theory and engineering developments of Wiener’s “Cybernetics” [1948, MIT/Wiley] are not the common parlance of academic economistsm – despite the insanity usually resulting from their in-breeding. It is not as if Wiener had nothing to say about the “hucksters” that “recognise no national boundary” [Introduction] or “The Lords of Things as They Are” [Ch. viii]. He was however well aware that new technical developments “have unbounded possibilities for good and for evil”. Even an autopilot requires someone to set the course, and if this Captain of Investment – not understanding the ambiguity of a compass – sets his course by reference to the South of monetary profit instead of the North of nature’s well-being, it will be hardly surprising if his “invisible hand” has counter-productive results.