Adam Smith’s ‘Invisible Hand’ & Today’s Need for Protectionism

 The Oct. 18 New Yorker has an excellent essay on Adam Smith by Adam Gopnik (behind subscription wall.) Nominally, it is a favorable review of Adam Smith: An Enlightened Life (Yale Univ. Press, 2010) by Nicholas Phillipson. As with many Gopnik pieces, it provokes many musings.

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One of the great challenges of reading Adam Smith – and indeed any writer not of one’s time or culture – is putting him and his thoughts in context.

Smith poses special problems for Americans. So much of our thoughts on politics and economics rests on our beliefs about what he said that it’s hard to talk about alternative interpretations.

For instance, Gopnik suggests Smith’s use of ‘an invisible hand’ might be ironic. That thought has crossed my mind more than once, prompted by the broad insistence on misquoting the phrase as ‘the invisible hand’ – as Gopnik himself does in text quoted in my last post. A meticulous writer and habitual reviser, the choice of article remained through six editions of Wealth during Smith’s life.

At one time I thought the phrase referred to the Deists’ notion of God. It certainly can’t refer to ‘the market’. For one thing, Smith doesn’t use the word within pages either side of his immortal phrase. And, he’s not talking about the merchant’s competitors or customers.

Rather, Smith answers his own question about why a merchant in his own self-interest will favor domestic over foreign goods, all things – presumably including quality as well as price – being about equal. Smith equates self-interest with that of the merchant’s society. Therefore the hand in question is much more likely that of an inner witness.

The domestic choice has not been the one favored by executives of nominally American corporations for the last two decades. Manufacturing and high tech jobs – even reading x-rays and MRIs – we’ve exported as readily as we’ve consumed the goods those jobs produce.

As former Intel CEO Andy Grove’s conversion to protectionism harshly reveals, Smith’s theory may be right and elegant, but human practice dictates another result.

Smith wryly concludes the paragraph holding his famous phrase:

By pursuing his [the merchant’s] 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 publick good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it. [Wealth, IV.ii.10]

Precisely!  And that’s precisely why today’s ‘merchants’ need different inner witnesses from Smith’s merchants.

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Thanks to Adam Gopnik (who terms Smith ‘wry’) and the New Yorker, I will muse on Adam Smith over several posts.

But don’t limit your enjoyment of Smith to secondary encounters. Read him! You can get handsome, sturdy-bound trade paper versions of the definitive Glasgow edition of Smith at laughably low prices. The source is Liberty Fund, a press whose politics I abhor but whose books I adore.

3 Comments

  1. […] have been musing on Adam Smith, the moral philosopher, for the past few days. As I said yesterday, I find it increasingly difficult to believe ‘an invisible hand’ alludes to ‘the […]

    October 31, 2010
  2. Congratulations. I agree: the invisible hand metaphor in Wealth Of Nations (Book IV) was not about the market, which Smith detailed his views upon in Books I and II. The motivation of the traders who preferred “domestick industry” to “foreign industry” was the perceived “security” of their capital. By preferring “domestick industry’ they were led by their insececurity to add to domestic “revenue and employment”, a purely quantitative outcome, which in Smith’s view was beneficial because it spread the benefits of “opulence”, especially to the “poorer majority” (pages 45-56, WN). This idea , especially after the 1940s, was transformed by modern economists to the market (see Paul Samuelson, “Economics: an analytical introduction”, 1948, page 36, plus 19 editions and 4 million plus sales) into a much wider myth than Adam Smith’s, such that even ‘selfish” motives “benefitted society”, a wholly ludicrous proposition from Smith, a moral philosopher. Such ideas about selfish ends were derived from Mandeville (1724), whom Smith considered “licentious” (see Smith’s “Moral Sentiments, Part VII, 1759).

    November 1, 2010

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