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Adam Smith & the Invisible Hand

from Asad Zaman

In response to a comment by David Chester regarding Adam Smith and the Invisible Hand, I am reproducing the section in the paper which deals with this issue. This answers his question about how what is attributed to Adam Smith differs from what he actually said.
[Excerpt from the paper: Failures of the Invisible Hand]

Section 6: Recent Vintage of the Invisible Hand

The main goal of this section is to show that the modern interpretation of the IH is relatively recent. The idea that Mankiw (together with other modern economists) attributes to Smith is not actually present in Smith’s writings. In fact, modern writers borrow the authority of Adam Smith to provide weight to a very dubious idea of recent coinage.

We first note that modern interpretation of the “IH” is radically different from any interpretation of this concept that existed before the second half of the twentieth century. There is a growing body of literature (e.g., Grampp, 2000; Minowitz, 2004) which insists that the metaphor used by Smith was never meant to be anything more than a metaphor, and that the meanings inferred from Smith’s idea of IH by the modern economists support only their own interpretation of economic policies. Kennedy (2009) shows that three leading modern economists laud the IH as the “profoundest” and “most influential” contribution of Adam Smith. Nonetheless, their interpretation of the term and its significance is not supported either by Adam Smith or by readers of Adam Smith until the late nineteenth century.

In a corpus of over a million words, the terms IH appears only twice in the economic writings of Adam Smith. It is used only once in the Wealth of Nations in very limited and narrow context. Rothschild (1994) analyses the controversy surrounding the meaning of IH and concludes that what Smith meant by this metaphor was only a “mildly ironic joke.” Blaug (2007) also shows that Adam Smith cannot be blamed for these ideas. He cites other references which state that:  read more

  1. July 21, 2017 at 2:18 am

    Similarily Darwin never wrote ‘survival of the fittest’ except maybe in passing. That was H Spencer–social darwinist. .

  2. July 23, 2017 at 11:49 am

    If you know even the basics of Adam Smith’s life and writings the current view of the so-called “invisible hand” is absurd. Smith was a liberal moral philosopher. So, he certainly favored liberty in all areas of human society, including economic transactions. But Smith was also clear that he did not believe liberty was all or even the most important part of society. Liberty without justice is the road to serfdom under factionalism, or to chaos. As his writings show Smith was aware of the dangers of government in terms of harming liberty. But he also recognized that government is the only collective tool available to humans to constrain those who do not play by the rules and to provide essential services (utility services, health care, infrastructure, defense, etc.) that private for-profit enterprises will not, cannot, or should not provide.

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