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Adam Smith and the Invisible Hand: From Metaphor to Myth
Abstract
Adam Smith and the ‘invisible hand’ are nearly synonymous in modern economic thinking. Adam Smith is strongly associated with the invisible hand, understood as a general rule that people in realising their self-interests unintentionally benefit the public good. The attribution to Smith is challengeable. Adam Smith’s use of the metaphor was much more modest; it was re-invented in the 1930s and 1940s onwards to bolster mathematical treatments of capitalism (Samuelson, Friedman) and to support innovative analysis by associating the metaphor with ‘spontaneous order’ (Hayek). The effect has been to ignore insightful explanations about how markets function as a process in favour of semi-mystical beliefs in imagined outcomes, wrapped in an isolated 18th-century literary metaphor, which does not explain anything.
... That the invisible hand metaphor was not essential for Smith's writings can be seen in at least two ways. First, Smith only uses the metaphor three times throughout all his writings: once in Wealth of nations, once in Moral sentiments, and once in History of Astronomy [Kennedy, 2009]. If it had been an essential part of his economic theory, it is curious that he uses it so sparsely. ...
... This is also suggested by figures 4.1 and 4.2, where we see that the use of "invisible hand" has gained popularity from the mid-20th century, and that the increase cannot be fully explained by a general increase in publications concerning Adam Smith. Samuels [2008, p.185], Kennedy [2009], andSamuels [2011, ch.8] all argue that the use of the invisible hand metaphor from the 1940s onwards can be linked to the ideological promotion of capitalism and laissez-fair economy as a response to totalitarian regimes. This can, for example, be seen in the writings of Hayek, who -in his famous book The road to serfdom from 1944 -argues that the rise of Nazism in Germany was not due to Germans being "evil" but rather to preceding socialist policies and planning attempts. ...
In this thesis I argue that one way scientific descriptions can become self-fulfilling is by promoting social norms among the people they are disseminated to. Identifying this mechanism will enable us to change unwanted social implications caused by it. To make the argument, I rely on the definition of social norms given by Bicchieri [2006] in The Grammar of Society and use the case of microeconomics as it is presented in university textbooks. Thus, the aim of the thesis is to argue that one way microeconomics can be self-fulfilling is by promoting a social norm of self-interest - and often narrow self-interest - via its textbooks and university teaching practices. To do this, I first use the current empirical findings to argue that the dissemination of the rationality assumption as it is presented in microeconomics textbooks can make microeconomics self-fulfilling. Second, I conduct a historical analysis to show that the claims that greed and self-interest are beneficial have been a part of modern economics from its beginning and still is today. I then discuss why the rationality assumption is a part of contemporary microeconomics and analyse how it is presented in standard textbook models today. Here, we see that even though some of the models can account for other-regarding preferences, the textbooks do not mention this fact. Instead, they present the rationality assumption as focusing on self-interested preferences only, and justify it as being both descriptively plausible and normatively desirable. Finally, I use the above analyses to argue that microeconomics textbooks and teaching practices can change people’s behaviour by making them follow a social norm of self-interest in economic situations. I end the thesis by presenting the results of an empirical study designed to test this argument.
... In his capacity as a moral philosopher (who unintendedly laid one of the cornerstones of economics as an academic discipline), Smith observed that the pursuit of self-interest (an intention or principle) can result in both desirable and undesirable consequences for society. This nuanced perspective on self-interest in Smith's work is often overlooked (for a critique of the general Smith reception, see Kennedy (2009)). In fact, much of the literature reduces Smith to the famous invisible hand passage. ...
... As a result, ambivalence thinking thus focuses the analysis toward these conditions and to the question: Which conditions are needed and how can they be created to bring out the positive face of the self-interest mirror? In fact, Adam Smith spent much of his life educating people and advocating policy options to guide reforms to steer the British economy into that direction (Kennedy 2009). ...
... Р. 134]. А упёртые приверженцы экономического либерализма XIX в. начали ползучую реабилитацию laissez-faire выдвижением на первый план метафоры «невидимой руки», занявшей к началу XXI в. едва ли не главное место в мифологизации учения А. Смита [Kennedy, 2009]. ...
The article is dedicated to the anniversaries of W. Petty and A. Smith in 2023 and examines the legacy of the classics of English political economy in the context of the problem of the influence of the European Scientific Revolution of the XVII century on the British Industrial Revolution of the XVIII century. The historical significance of the heyday of British clock-making as a by-product of the Scientific Revolution of the XVII century and the prerequisites for the accumulation of human capital in England, necessary for a technological breakthrough into industrial civilization, are highlighted. Various interpretations by economists and historians of thought of the framework of classical political economy and A. Smith's attitude to the Industrial Revolution are compared. The W. Petty’s anticipation in the "Additions to the Political Arithmetic" of the role of innovative clockmaking and coal resources as British competitive advantages is noted. It is shown that the evolution of English political economy from balance-of-trade doctrine to A. Smith’s «system of natural freedom» reflected the conquest by England of the hegemonist position in the formed capitalist World-System.
... Although this observation does not imply that the institution of the market and marketplace exchanges are somehow natural, it does indicate that these institutions and practices are much more prevalent than just during the last two-three centuries in the global West, a point exemplified by many examples referenced here. If the "hidden hand" is not the basis for the widespread historical importance of markets (Kennedy, 2009), Polanyi paid little attention to the slave economy, explaining the civil war this way: "...the North appealed to the intervention of arms to establish a free labor market" ( , p. ), a comment that does no justice to the commoner opposition to slavery or to the numerous Union soldiers and exslaves serving the Union armed forces who died for a much more powerful cause than "to establish a free labor market." ...
Anthropologists have persistently diminished the importance of the market and marketplace exchange in premodern, preindustrial times. This strident anti-marketmentality, derived largely fromthe writings of Karl Polanyi, underpins an ideological and politicized argument that neither sets useful guideposts to advance anthropological research, nor does it yield the necessary insights
or empirically valid foundations to comprehend the deep historical origins of modern economies or polities. In fact, by envisioning the past that is categorically caged from the modern, the school of thought crystalized through Polanyi’s perspectives circumvents the role of diachronic processes that are at
the heart of a truly historical social science. Although it is not our principal aim to relitigate the vast literature pertaining to the rise and fall of Polanyian thought, our approach expands on prior arguments about his project both by highlighting critical perspectives on capitalism that long predated Polanyian
thought and by identifying a veritable bounty of new evidence and theory concerning premodern and contemporary marketplace economies that enable us to transcend these now-entrenched claims. The scheme we present that
distinguishes between open and competitive marketplaces, on the one hand, and the capitalist impulse, on the other, we believe, adds depth and breadth to
the analysis of price-making markets and their divergent social and economic outcomes across time and space.
... Angesichts ihres äußerst spärlichen und eher lapidaren Gebrauchs könnte man die Frage, was die Metapher der unsichtbaren Hand genau bedeutet, getrost ignorieren, so wie sie auch im 18. Jahrhundert niemanden hinter dem Ofen hervorlockte (vgl. Kennedy, der auch meint: "The metaphor of an invisible hand is just a metaphor and modern wonder over its meaning is, well, meaningless" (Kennedy 2009, S. 253, sowie Carey 2017 Wie auch immer -dass kein allgemeines Vergessen einsetzt, sondern die Forschung zu diesem Detail im Gegenteil immer intensiver wird, hat etwas mit den Weiterungen zu tun, die von dem möglichen Bedeutungsgehalt der Metapher abhängen. Von größter Tragweite ist hier die Vorstellung, hinter der "unsichtbaren Hand" sei etwas Göttliches zu verorten, gar die Vorsehung ("Providence"). ...
Zusammenfassung
Vor 300 Jahren, im Juni 1723, kam Adam Smith auf die Welt. Aus dem Sohn eines schottischen Anwalts und Zollkommissars wurde ein großer Aufklärer, der vor allem mit seinen moralphilosophischen und ökonomischen Schriften Berühmtheit erlangte. Mit seinem zweiten Hauptwerk, dem „Wealth of Nations“ (1776), etablierte sich die Volkswirtschaftslehre als eigenständige akademische Disziplin. Das Buch entfaltete nicht nur theoretische, sondern in zahlreichen Ländern auch praktische Wirkung. Freilich ging die Rezeptionsgeschichte mit erheblichen Vergröberungen und Verzerrungen einher. Gegen diese Klischees stemmt sich seit einigen Jahren eine interdisziplinäre Gruppe von Smith-Forschern. In diesem Überblicksartikel aus Anlass des Jubiläums stellt Karen Horn einige der Einsichten aus der jüngeren Literatur der Smith-Forschung vor und zeigt, wie reizvoll und fruchtbar die Auseinandersetzung mit dem großen Schotten weiterhin ist – auch für die hier unterrepräsentierten Ökonomen.
... The title of a book by as eminent a scholar as Warren Samuels (2011) -Erasing the Invisible Hand: Essays on an Elusive and Misused Concept in Economics -speaks for itself and indicates that, at the very least, opinion is divided on the matter. (See also Grampp (2000) and Kennedy (2009).) While there is no generally agreed-upon definition of what is meant by an invisible hand, we shall employ the approach of Ullmann-Margalit (1978), which even Samuels (2011, 291) appears to regard as above reproach. ...
... The title of a book by as eminent a scholar as Warren Samuels (2011) -Erasing the Invisible Hand: Essays on an Elusive and Misused Concept in Economics -speaks for itself and indicates that, at the very least, opinion is divided on the matter. (See also Grampp (2000) and Kennedy (2009).) While there is no generally agreed-upon definition of what is meant by an invisible hand, we shall employ the approach of Ullmann-Margalit (1978), which even Samuels (2011, 291) appears to regard as above reproach. ...
... The naïve assumption continues that, like other (non-media) industriesmarket competition guarantees the quality of the products. Of course, the invisible-hand/rational-choice model itself is mythical (Kennedy 2009); but in oligopolistic or less concentrated markets of regular products and servicesthere is some checking/balancing of errant firms and of poor-quality products. The dual product model of the media industry, however, misdirects those "invisible hands" and complicates such safeguards. ...
The miasma of misinformation has become globally pervasive, infecting millions of people with false beliefs and conspiracies. This conceptual study examines the role of media in the creation, sustenance, and propagation of misinformation, by looking into the economic structuring of media industries. Traditionally, media relied on the dual product model that rendered their function of informing the public a secondary concern, as their profitability depended on expanding their viewership. Pervasiveness of misinformation in the contemporary media landscape is aided by the emerging “triple product model” as the economic logic of the digital media platforms. The valorization of the users’ data has become a lucrative “third product.” This shift in the form of communication processes takes place in social media platforms through the notion of “phatic communication,” a concept that has been underexplored by media and consumer studies literature so far.
... See Samuels (2011) andKennedy (2009) on the importance of the invisible hand metaphor in Smith's work. SeeKlein (2009) andKlein and Lucas (2011) for a critique. ...
Is everything good in political economy incorporated into modern graduate education in economics? With the transition of the art of political economy into the science of economics, there was a significant narrowing of graduate education curriculum. The prevailing technique in economics, a neoclassical framework focusing on formal empirics, gradually compressed artistic components of economics, including philosophical underpinnings, democratic justifiability, theoretical intuition, comparative institutional analysis, and political economy. Courses on the history of economic thought, which historically played a role in introducing graduate students to the complexities of the art of political economy, are now only offered as an elective. This paper argues, however, that there are still insights to be gleaned from studying the classics of political economy in graduate education. We highlight the tradeoff between theoretical cumulativeness and knowledge, arguing that significant insights from historical works of political economy are often absent in contemporary technical expositions of economics. We explore examples of useful knowledge in political economy that was lost in the transition away from the art of political economy. To remain an operationally valid social science, economists should reintroduce the artistic elements of political economy into the graduate training of economists.
... There are surely few if any metaphors in the academic world as famous as the "invisible hand" of Adam Smith (Kennedy, 2009), whose The Wealth of Nations also included other language and thought figures like the "economy as a machine" (Aspromourgos, 2012;Gremaschi, 2002;Ötsch, 1993). In fact, Adam Smith had very clear ideas about the role of language and rhetoric, a subject about which he wrote extensively in Considerations Concerning the First Formation of Languages (1761). ...
Este artículo trata de analizar la utilización de metáforas económicas en el discurso público sobre la crisis de deuda soberana en Europa, a través del estudio de su presencia en los artículos en la prensa española. La hipótesis general del estudio, de acuerdo con investigaciones previas sobre las metáforas económicas, es que cabe esperar una utilización muy homogénea de las metáforas económicas más tradicionales, independientemente del tipo de periódico y de su orientación editorial. El contexto del estudio y del enfoque de investigación se presenta en la primera parte del trabajo, a partir de una síntesis de los trabajos realizados en tres campos que convergen en este tema: el análisis de metáforas conceptuales, su uso en el discurso económico y financiero, y su particular categorización a la hora de dar sentido a las situaciones de crisis. En la segunda parte se explica el diseño del estudio empírico en cuatro diarios españoles. Posteriormente, se presentan y explican los principales resultados. El estudio confirma la hipótesis de la gran uniformidad en el uso de las principales metáforas en los distintos periódicos, lo que permite reflexionar sobre el problema de una interpretación excesivamente unilateral de la crisis de 2008.
... The function of this type of metaphors is to enable the audience to visualize unknown or complicated phenomenon or concept. Among this type, we find Adam Smith's 'the invisible hand', which explains the implicit mechanism resulting in the phenomenon that free markets lead to efficient outcomes as if by an 'invisible hand' (Kennedy, 2009). Other types of metaphors serve only to clarify and explain unfamiliar concepts. ...
Economics is a field of knowledge that has witnessed a major shift after the World War II and the Cold war: new terms, concepts and idioms appear every day. This has influenced English language resulting in a business terminology in accelerating progress. In order to remain updated, researchers in this domain have to read and learn directly in the original language of publication that is to say English; this is the reason why English for business and economics has been introduced in business departments in order to help students reading and writing in English to promote both research and publication. However, teaching English for business at the university faces several problems: the most important one is that language teachers are usually General English teachers and not specialists in the field of business, thus their capacity to understand and meet the needs of business students is less than the capacity of an economist. In the other hand, business teachers at the university generally are not capable to teach English language. This paper aims at discussing the main characteristics of business language both in English and Arabic, especially those resulted from translation from English into Arabic. Additionally, it aims at discussing the challenges of teaching business English at the Algerian universities especially those related to the capacity of the teacher and the needs of students.
... While Smith sparked the debate, he was not at all specific about the nuanced signals of a hand metaphor and thus overlooked some of the power variations that could assist interactionist understanding of forces at work. Kennedy (2009) believed that Adam Smith used the invisible hand as a casual metaphor failing to take it as far as he should in his theorizing. In this context, we contend that the thumb aligns with the control and coercion of materials, time and people through the resource base of technology, and the little finger links to money and promissory factors, which are the economic powers that Adam Smith was cognizant of in the invisible hand metaphor. ...
Purpose
The purpose of this paper is to develop a nuanced interpretative frame that can help global managers with recommendations to avoid misapplied power with group and organizational situations.
Design/methodology/approach
Embodied metaphor is applied in analysis of the theory-praxis nexus to reconceive the bases, processes and resources associated with group and organizational power. Identified are patterns of relations in organizational bases and circuits of power, as expressed through literal and symbolic aspects of human hands and fingers. The paper does not revolve around gesticulations; instead focusing upon a novel, meta-cultural development of touchlines of the human hand, revealing conceptual relationships with the implementation of influence.
Findings
A differentiated understanding of the touchline powers of technology, information, self-awareness, relation to others and access to money can respectively improve decisions and actions. Insights are provided in the areas of controlling people to achieve objectives, demeaning others, managing change and resistance for personal gain, negotiating contracts, advancing personal interests and coordinating reward or punishment.
Research limitations/implications
Choosing one metaphor may contribute to the exclusion of other perspectives, however, the embodied nature of the hand and touchlines tends to cross cultures and may assist further research to address the embedded nature of abuses of organizational power.
Originality/value
The contribution is in the theory-praxis nexus to assist global managers in addressing the risk of potential misuse of power and influence in organizations and to respond to calls for ancient indigenous epistemological systems to assume a role in contemporary management studies.
... Much misrepresentation of Smith's work has its source in an overemphasis on the metaphor of 'an invisible hand' (G. Kennedy, 2009), and Smith himself, in an essay on scientific explanation, writes disparagingly of those who fall for the temptation of letting a nice analogy become the 'great hinge' upon which everything in a 'system' turns (1982, p. 42). ...
Straipsnyje pateikiamas A. Smith’o veikaluose taikytos „nematomos rankos“ sampratos atsiradimo aplinkybių ir jos realaus aktualumo šiandienai teorinis tyrimas, grindžiamas nuostata, kad norint suprasti šiuolaikinę visuomenę reikia rimtai domėtis idėjų ir visuomenių istorija. Vykdant tyrimą siekiama atskleisti A. Smith’o veikaluose taikytos „nematomos rankos“ sampratos atsiradimo aplinkybes, pagrindinius jos turinio momentus ir parodyti jos realų aktualumą šiandienos ekonomikos teorijai bei liberaliai ekonominei politikai. Remdamiesi vykdyto tyrimo rezultatais galime teigti, kad savo veikaluose A. Smith’as aiškiai atskleidė, kad „nematoma ranka“ lengvai ir sklandžiai egoistinį kiekvieno individo naudos siekį įtraukia į tuo metu vykstantį visuomenės gerovės kilimo procesą.
This article critiques the account of the invisible hand theory that individual actions bring about macro-level social benefits. The standard account of the invisible hand theory asserts that individual actions, motivated mostly by self-interest, advance the common good inadvertently and unknowingly. The invisible hand theory provides explanation how social reality, such as emergence of language, social morality and culture, evolve through individual actions. The account of the invisible hand embedded in self-interest is generally attributed to Adam Smith. Adam Smith's account of the invisible hand is centred on self-interest and freedom. In the invisible hand theory, freedom unfetters individual actions based on self-interests and promotes a kind of competition in an economic sense, which is known as capitalism. Certainly, the account of the invisible hand theory, which is based on only self-interest is un-Smithian. I argue that although the invisible hand theory provides an adequate explanation for the evolution of language, morality, culture, and market, it promotes an unbridled capitalism, which, in an economic sense, may cause malign consequences. In qualitative research methodology, I adopt the empirically informed philosophical analysis method to documentary resources, including journal papers, academic books, and proceedings of conferences and congresses.
This article critiques of the account of invisible hand theory that individual actions bring about macro-level social benefits. The standard account of the invisible hand theory asserts that individual actions, motivated mostly by self-interest, advance the common good inadvertently and unknowingly. The invisible hand theory provides explanation how social reality, such as emergence of language, social morality and culture, evolve through individual actions. The account of the invisible hand embedded in self-interest is generally attributed to Adam Smith. Adam Smith’s account of the invisible hand is centred on self-interest and freedom. In the invisible hand theory, freedom unfetters individual actions based on self-interests and promotes a kind of competition in an economic sense, which is known as capitalism. Certainly, the account of the invisible hand theory, which is based on only self-interest is un-Smithian. I argue that although the invisible hand theory provides an adequate explanation to evolution of language, morality, culture, and market, yet it promotes an unbridled capitalism, which in economic sense, may cause malign consequences. In qualitative research methodology, I adopt the empirically informed philosophical analysis method to documentary resources, including journal papers, academic books, and proceedings of conferences and congresses.
This chapter introduces the approach of the Freiburg School and explains its particular relevance to the focus of this book. It provides a brief overview of the concept of “Ordnungsökonomik” or “Ordnungspolitik”, presents its historical origins, its background and development and provides references to the key representatives. It briefly outlines the principles of the market economy formulated by Walter Eucken, which can be understood as a kind of essence of the approach of the Freiburg school. Then it explains why it makes sense to recombine and supplement them for the purposes of this study.
Background. Defenders of scientific economics will enthusiastically look to Adam Smith's writings for arguments in favor of free trade to bolster the metaphor that heralds later formulations of general equilibrium theory, while his critics will be just as tenacious in seeking out Adam Smith's highly debatable assumptions and methods that call into question the discursive chain of political economy. The aim of this article is to situate Adam Smith's thesis of liberalism and his philosophy of egoism in its historical context, in order to better understand the workings of our modern economy and its future, taking note of the fact that Adam Smith sought to transpose certain anthropological principles to the sciences in general, and to economics in particular. Methods. The author has adopted classic scientific research methods. First, a historical method is used to provide a portrait of Adam Smith and the key events in his life that shaped his vision of economics. Then, a descriptive method focusing on an overview of Adam Smith's main theses on egoism and its interaction with economics. Finally, an analytical method, based on a detour through Adam Smith's anthropology and moral philosophy, will enable us to better understand why a society driven by self-interest can survive and even prosper. Results. The article concludes that, for Adam Smith, the "egoistic" motive that drives each individual to constantly improve his or her economic situation generates beneficial effects at the national level and leads to the best possible economic organization by achieving the general interest through competition. In this respect, egoism will always be the main force organizing the economic activities of any society. Natural equilibrium therefore results from the interaction of all individuals in the economy and the confrontation of their interests, without the need for any regulatory intervention, because all individuals, in one way or another, are selfish. Conclusions. For over a century, Adam Smith's thinking on egoism and its role in the economy has been consciously or unconsciously decontextualized to serve the ideology of free-market advocates. It's true that Adam Smith's famous metaphor of the "invisible hand" alluded to the harmonious functioning of the "market". In other words, the selfishness of each leads to an equilibrium through the satisfaction of his or her self-interest. We can't deny that, for Adam Smith, liberalism is still based to a certain extent on the principle of a natural equilibrium resulting from the way we all play our part in the economy and the confrontation of our interests.
Adam Smith was born 300 years ago, in June 1723. The son of a Scottish lawyer and customs commissioner grew to become a great Enlightenment thinker who gained global fame for his writings in moral philosophy and political economy. His second major work, the “Wealth of Nations” (1776), enabled economics to establish itself as a separate academic discipline. In numerous countries, the book had not only a theoretical but also a practical policy impact. Yet many distortions crept into the reception history of Smith’s oeuvre. For some years now, an interdisciplinary group of Smith scholars has taken on the received wisdom to challenge the clichés. In this survey written on the occasion of the Adam Smith tricentenary, Karen Horn presents some insights from recent Smith scholarship and shows just how inspiring and fruitful an engagement with the great Scot continues to be – even for economists, who are so far remarkably underrepresented in this activity.
A widespread socio-political diagnosis suggests that renewed reform processes are needed to address the social and environmental crises facing contemporary societies. To understand what this implies from the viewpoint of societal analysis, a retrospective look at the reform processes that characterised the substantial development of welfare after the World War II as well as its later crisis is necessary. The chapter reconstructs these processes with reference to the United Kingdom during the Clement Attlee’s Labour Government since 1945. It shows how the institutionalisation of civil, political and social citizenship rights influenced the building of a shared consensus about the fundamentals of civil coexistence. To understand its later crisis the guiding principles of the neo-liberal worldview as well as the modalities of their implementation since the 1980s are presented. The focus is here on the social fragmentation and the loss of social legitimacy that these processes induced. The main societal phenomenon that emerges from the analysis is that of a failing social structuration that comes to expression in the ‘intermittent normativity’ of contemporary societies. The question thus arises as to how a resumption of regulatory societal structuration in the sense of an ecologically aware twenty-first century welfare can develop. In this respect, the chapter analyses the reciprocal action between the high social plasticity of contemporary societies and the transformative potential of social action.
Розглянуто основні складові інфраструктури: освіта, житлово-комунальне господарство, зв'язок, медицина, транспорт, рекреаційна система, екологія, соціальне забезпечення, культура. Проаналізовано інфраструктуру регіонів і виявлено основні диспропорції розвитку та недоліки невідповідного розподілу й спробу використання виділених інвестицій на основі інтегрального індексу. Надано авторське визначення сутності поняття «інфраструктура». Велику увагу приділено аналізу стратегії розвитку фінансової інфраструктури України в довоєнний період. Доведено, що на цьому етапі було проведено низку реформ, які сприяли стабілізації банківської системи, фінансового сектора; зміні стандартів корпоративного сектора, ефективній та розвиненій інфраструктурі ринків капіталу й товарних ринків, відновленню кредитної активності банків та небанківських фінансових установ, зростанню обсягу безготівкових операцій, розширенню переліку дистанційних фінансових операцій, захисту прав споживачів фінансових послуг, зростанню конкуренції на банківському й небанківському фінансових ринках. Проведено порівняльний аналіз виділення з держбюджету інвестицій на розвиток інфраструктури США та України. Запропоновано стратегію розвитку інфраструктури України, що буде сприяти фінансовій стабільності.
The paper analyzes the metaphor of “an invisible hand”, which was introduced two and a half centuries ago by Adam Smith (1723—1790) and which eventually became the central concept of modern economics. Its first part presents a detailed textual analysis of three fragments from Smith’s works where it is discussed — in the posthumously published “The history of astronomy” (1796), “The theory of moral sentiments” (1757) and “The wealth of nations” (1776). A question arises what meaning Smith put into his metaphor and what significance he attached to it — was there some important general idea behind it or was it merely a passing rhetoric device? There is also no consensus among historians of economic thought what interpretation is more correct — theological (in this case, the “invisible hand” is attributed to the Divine Providence directing it) or secular (in this case, it acts autonomously, without control from any external powers). In addition to “an invisible hand”, we also find in Smith’s texts “the visible hand” of the state, and he leaves no doubt on whose side his sympathies are.
The aim of this major piece of original scholarship by Roberto Camagni is to justify the inclusion of Adam Smith among the Great Minds of Regional Science. This endeavor may seem curious, because Smith was never associated with regional topics, space economy, or geography, and he is rarely, if ever, explicitly referenced on particular issues in the regional science literature. In fact, however, it is possible to find in Smith’s works a clear systematization of important concepts normally used in regional science. The most significant of these concepts is that of land rent, in its twofold nature as agricultural rent and “situation” rent. Smith analytically defines, in the latter case, the concept of bid rent, usually attributed to Von Thünen fifty years before him. Above all, to author Camagni's knowledge, Smith was the first to build a theory of urban land rent, detailing its components and sources, as well as providing justification for its “peculiar” taxation. His was a theory entirely accepted during the following one hundred years—until Marshall and Pigou—and it is still referenced today. Moreover, Smith analyzed the “city” and the “country” as the two archetypes of the territorial realm, interpreting the historical evolution of their relationship as the pathway of the progress of human institutions and the human mind. In his theoretical interpretation, he considered both functional complementarities and hierarchical, distributive, and power relations—concepts very instructive for the interpretation of the present role of large cities. The importance of Smith’s legacy, however, extends much beyond these direct contributions to regional science issues. His conception of economic progress as closely interwoven with political and social processes pointed to the importance of civil institutions. His analysis of individual conduct—based on self-interest and “self-love” (not selfishness!), but also on “sympathy” for joy or pain of others, relationality, and reciprocity—revealed the existence of a wider, individual, and social goal beyond “opulence”: that of public happiness. His philosophical equalitarianism induced him to condemn some harmful products of the invisible hand of the market when not framed by appropriate institutions, and even to question the much-praised principle of the division of labor when it works against the progress and the emancipation of the lower classes, thus anticipating Marx’s theory of worker alienation. Most of these issues and fields of inquiry were advanced through new strands of economic theory starting to be developed almost one hundred and fifty years after the WealthofNations and mostly present within regional science. In this case, Camagni’s intention is not to claim a historical priority for Smith's contributions, but only to signal that many theoretical developments could have been achieved earlier and more easily had Smith's legacy not been misunderstood or lost for so long.
The aim of this chapter is to present the most significant and influential supporters and opponents of the Invisible Hand idea. Among them there are presented not only economists, but also philosophers, politicians (like Margaret Thatcher) who were governing their countries in such a way that Invisible Hand mechanisms received a favourable environment to provide self-control and self-optimisation of a local or national economy and social structures. The case of Poland will also be discussed because in 1989 professor Leszek Balcerowicz, inspired by Margaret Thatcher’s reforms, created in Poland a favourable environment for a very large scale Invisible Hand action. What was extraordinary at that time was the fact that the Invisible Hand task was not a simple economy optimisation but a provision of the emergence of a new spontaneous order, of some fabric/web, of a new nationwide economy, for the country of ca. 38 million people as fast and efficiently as possible. No central planning system is able to calculate something like that—the Invisible Hand did that in just 2 years. Despite the suffering of ordinary people, the quality of the task was so good that it is taken now as an example. The aim of this chapter is not to copy and paste some biodata, but to extract and present the then environment of supporters and opponents, which presumably allowed them to make observations, to see important, global socio-economic events and then, on this basis, to draw conclusions which they later presented scientifically/politically or practically implemented.
The main references of the social sciences and humanities are texts. Texts are the means by which social scientists communicate their ideas and the means through which we, as readers, access those same ideas. Consequently, reading can be regarded as one of the main tools in the social sciences and ultimately the cornerstone of academia. This minisymposium takes the idea of reading and reading practices as its central focus. More specifically, the minisymposium demonstrates a variety of ways in which the reading process is complex, varied, and subject to many influences. In addition to this shared consideration of reading practices, articles in this minisymposium are united in their discussions of Adam Smith. It is through the means of interrogating readings and receptions of Smith that each article brings to the fore a different aspect of the reading process. The four articles contained within the minisymposium were first presented in May 2020 at an Adam Smith workshop funded by Newcastle University's Political Philosophy Cluster, and they each represent a continuation of the contemporary revisionist discussions on Smith—put forward by the likes of Glory Liu, Warren Samuels, and Amartya Sen—that criticize and revise dominant interpretations of Smith's works. The articles offer a diverse range of thoughts on the complex and multifaceted nature of the reading process, on how we might interrogate our own reading practices and those of others, and, ultimately, why doing so is beneficial and worthwhile.
Within the discipline of economics, as within all academic disciplines, scholars produce texts in which they examine, discuss, and sometimes invoke their intellectual predecessors. As historians of economic thought, we are faced with the task of evaluating the readings put forward by these scholars. In this article, I argue that to adequately evaluate such readings one must understand the inalienable role that a scholar's epistemological framework plays in the conditioning of their reading of historical texts and concepts. To do so, I examine two divergent readings of Adam Smith: Jacob Viner's reading of Smith's invisible hand as God and Paul Samuelson's reading of the same three words as an allocative mechanism that translates an individual's “selfish” actions into the public good or “the best good of all” within a state of perfect competition. These distinct readings from two North American economists with remarkably similar historical, geographical, and academic contexts provide the ideal case for exploring the manner in which readers' differing epistemological commitments shape their different readings of historical concepts and texts. I embed my exploration of these readings and the manner in which they are epistemologically conditioned within the wider discussion around an interpretation put forward by Quentin Skinner. In doing so, I offer an account of the variance in readings of ‘the invisible hand’ and thus contribute toward the contemporary revisionist Smithian literature that explores, criticizes, and revises dominant readings of Smith.
The chapter reconstructs the macroscopic aspects of the current societal crisis. Its starting point is Habermas’ analysis of the legitimation crisis in late capitalism. Based on a critical review of actual capitalism theories (Piketty, Walby and Streeck), it defines the concept of ‘crumbling late capitalism’ to address the current dominant development model. This diagnosis is then contrasted with the ongoing debate on the idea of socialism, its crisis and redefinition (Honneth, Piketty, Karsenti and Lemieux), which is interpreted as a symptom of society’s effort to control the risks of today’s economic development. This assessment introduces to the examination of the politics of welfare-state compromise adopted after WWII, as well as to the analysis of the social and ideological reasons for its crisis since the 1980s.KeywordsCapitalism theoryIdea of socialismCrumbling late capitalismLegitimation crisisWelfare-state compromise
This chapter explains the methodological framework of the study that will be carried out in Chaps. 5, 6, 7, 8, and 9, focusing on the conceptual and ideological dimensions of discourse. It combines a Foucauldian understanding of discourse with a Deleuzian approach to concepts, a position that then finds operational articulation through a customised palette of methods coming from the broad and variegated family of Discourse Studies. Along the way, insights from Conceptual Metaphor Theory, Cognitive Linguistics, and Critical Discourse Analysis are examined, criticised, re-articulated, and incorporated. The rationale behind these theoretical and methodological choices emerges from the previous discussion on ideology, hegemony, neoliberalism, and critique (Chap. 3), as well as a consideration of the elusive nature of the epistemic object I will be exploring, which subsists in the form of an intertextual discursive formation across different domains of knowledge. As such, this “object” does not reference an existing something, but rather a pattern of recurrence demonstrating a particular way of looking at the world. By reproducing vocabularies and conceptual associations, particular distributions and hierarchies of meaning are instituted. Instead of evaluating their truth or falsity, the aim is to identify their function and operational role—their capability to steer social practices in specific directions.
En este artículo se ensaya el análisis e interpretación de la conocida expresión de Adam Smith “conducido por una mano invisible”. Se propone como base metodológica la necesidad de considerar integralmente todos los componentes de la expresión, sus contextos textuales y retóricos y la relación entre sus tres apariciones. Hecho esto, se interpreta que “conducido por” se refiere al interior humano en dos de sus condicionantes: la pasión de la vanidad y la racionalidad deliberativa; que “una mano” solo es una manera metafórica de apropiarse, en un contexto mundano, de la tradición de la teología natural; y que “invisible” hace referencia no metafórica a la invisibilidad, que es un elemento crucial en la obra de Smith. Tras esto se concluye que Smith quería que comparásemos las distintas apariciones de la expresión, tratando de sugerir el mayor interés del sistema moral, político y económico republicano con respecto al del Antiguo Régimen.
We explore themes in Nobel Prize–winning economist James M. Buchanan’s work and apply his Ethics and Economic Progress to problems facing individuals and firms. We focus on Buchanan’s analysis of the individual work ethic, his exhortations to “pay the preacher” of the “institutions of moral-ethical communication,” and his notion of law as “public capital.” We highlight several ways people with other-regarding preferences can contribute to social flourishing and some of the ways those who have “affected to trade for the public good” might want to redirect their efforts. We show how Buchanan’s work has considerable implications for business ethics. Just as his economic analysis of politics changed how we understand government, we think his economic analysis of ethics can (and should) change how we understand business.
Entre 1748 y 1764 Adam Smith definió un proyecto filosófico global y coherente que no llegó a publicar en su integridad. La teoría de los sentimientos morales y La riqueza de las naciones deben interpretarse como partes de este que sí llegaron a publicarse. El presente artículo presenta como núcleos vertebradores de dicho proyecto la teoría smithiana del origen del lenguaje y su visión del cuerpo humano como constitutivamente débil y sofisticado. Ambos se hallan en la base del proceso histórico de socialización que, según Smith, fue a la vez, de una manera no problemática, semiótico y económico. Finalmente, reflexiona sobre el interés de esto para la interpretación de Smith como un igualitarista no tan centrado en el mercado y, a partir de aquí, para nuestra visión de nosotros mismos como seres carenciales que deben ampliar sus vínculos sociales todo lo que puedan, pues nos necesitamos.
Students in introductory economics rarely get much exposure to historical ideas, but they often hear about at least one historical concept: “the invisible hand.” Unfortunately, what they learn about the invisible hand – at least as far as is evident in the leading undergraduate textbooks – is flawed, largely because it is removed from its historical context. In this paper, we describe recent research on Smith’s metaphor and suggest some simple ways for instructors to use it – informed by the context in which it was written and Smith’s original intent. We also describe some simple classroom experiments that aid in these discussions.
There is no Theory of the “Invisible Hand of the Market” in either of Adam Smith’s two major works, The Theory of Moral Sentiments (1759) or The Wealth of Nations (1776). Smith uses the terms on one page each of The Theory of Moral Sentiments and The Wealth of Nations as a literary devise only, as pointed out repeatedly by Gavin Kennedy over a twenty year period. None of the two references refers to market prices and wages moving up and down to clear markets.
The Invisible Hand appears one time in The Theory of Moral Sentiments as a metaphorical device used to explain why the rich nobles must supply their mass of servants with the necessities of life because, if they did not do so, then they would not have any servants to serve them on a daily basis in a wide variety of tasks. This has been pointed out numerous times by Gavin Kennedy. The Invisible Hand appears one time in The Wealth of Nations, again as a purely metaphorical devise to explain why merchants choose the domestic or home trade as opposed to the international or foreign trade, given equal or nearly equal returns, where, according to Benthamite utilitarian criteria, they should be indifferent between the domestic and international trade. The answer, given by Smith, was that the merchants choose the home trade over the foreign trade because they have a greater knowledge of, and expertise and experience in, the home trade relative to the international trade. They have greater confidence in their decisions in the home markets because they have greater knowledge of the home trade and far less knowledge in the foreign trade. This argument is an early version of J M Keynes’s weight of the argument analysis in his A Treatise on Probability (1921) in chapters 6 and 26. Thus, merchants benefit the home country through their desire to avoid the risk, ambiguities and uncertainties of the foreign trade, although that was never their intention, which was strictly a private concern. Thus, the home country gains greater GDP, as if by an Invisible Hand, by decisions made by private merchants who never planned to benefit the home country by their decisions. Again, as pointed out by Gavin Kennedy, there is no Invisible Hand of the Market operating here to equilibrate returns at the margin, since Smith had already made it clear that the returns were equal or nearly equal in both the domestic and foreign sectors.
Other quotations taken from the Wealth of Nation/Theory of Moral Sentiments to support the Invisible Hand of the Market claim fail to recognize that Smith’s rationale for maximizing behavior by the “sober” people is Smith’s Virtue Ethics approach, based on the Virtue of Prudence and not Jeremy Bentham’s Utilitarian view of the maximization of utility. In other words, just as a runner in The Theory of Moral Sentiments is planning on winning the racing competition contest and the first prize, so the sober people are planning to win the economic competition.
So who is the creator of the Invisible Hand of the Market concept? The creator of the Invisible Hand of the Market concept is none other than Adam Smith’s great intellectual rival, Jeremy Bentham, whose utilitarian views Smith, as a virtue ethicist, had to completely and totally reject. Bentham’s oscillating pendulum model represents the first application of a physics/engineering physics concept in economics, where the pendulum at rest is identified with an optimal position somewhere on the boundaries of the static and dynamic production possibilities frontiers. Only exogenous, external, outside shocks can create temporary disequilibriums which will gradually be self correcting through the market mechanism, which serves to naturally absorb the shocks like a cars shock absorbers through changing prices and wages.
Bentham asserts, in contradiction to Smith, that the economic system is internally harmonious, since there are none of Smith’s projectors, imprudent risk takers, or prodigals creating internal, endogenous shocks like speculative financial bubbles created with the aid of the private bankers.
In The Theory of Moral Sentiments Adam Smith explores how sympathy, propriety, and spectators help human beings form moral judgments that promote social harmony. Following Smith's progression through three levels of context exposited in Part IV, Ch. 1 of TMS—trinkets, private life, and political life—I explore how the prevalence of moral corruption depends significantly on the level of context. Moving from clearly defined contexts to more general and abstract contexts worsens our moral judgment. That, in turn, suggests that devolving power, authority, and decision-making to lower levels of context will generally improve moral judgment. Unsurprisingly, Smith's work includes many examples advocating such devolution, from local financing and governance of public works to “the liberal plan” in general which allows people to act “of their own accord.” I conclude that in addition to their economic benefits, Smith advocates liberal institutions as a means of improving our impartiality and our moral judgment.
Análisis de la relación entre los preceptos del Antiguo Testamento y el concepto de mano invisible. Se presentará la hipótesis de que el concepto de mano invisible está implícito en la Tora (Pentateuco). El trabajo concluye que el razonamiento de la teoría económica que sostiene que las decisiones que toman los hombres en pos de su propio interés, tienen consecuencias benéficas para la sociedad si se cuenta con un marco institucional adecuado, y que el resultado se alcanza a pesar de que es ignorado por el hombre, fue expresado en la Tora 3000 años antes que los iluministas escoceses (Smith, Hume y Ferguson) con el naasé ve nishmá (haremos y oiremos, Éxodo 24:7) y el conjunto de normas que conforman el libro del Pacto. Y que el concepto de mano invisible ayuda a comprender la recompensa prometida al pueblo si se cumplen las mitzvot (preceptos bíblicos).
The degree to which Adam Smith’s view, that the opulence of any nation at the macro level was the result of, and was determined by, large numbers of “sober” people practicing the Virtue of Prudence, which Smith demonstrated in Part VI of the Sixth Edition of The Theory of Moral Sentiments in 1790 was connected to the practice of the other Virtues of Self Command( a combination of Temperance and Courage combined), Justice and Benevolence, was ever understood by any economist was severely questioned by Gavin Kennedy in the 21st century. Kennedy argued, in his books, journal articles, and Blog, titled “Adam Smith’s Lost Legacy”, that practically no living economist understood Smith’s approach.
This can be confirmed by analyzing the assessment of Adam Smith made by a highly recognized Orthodox economist, N. Gregory Mankiw, and the assessment made by a highly recognized Heterodox economist, Milan Zafirovski. Both authors agree completely that Smith’s views of the economic process were based on some kind of rational economic man concept, which resulted in Smith’s promulgation of his doctrine of The Invisible Hand of the Market leading to the need for Laissez Faire policies, which, with a few exceptions, would result in private self(ish) interest being turned into a social maximum that benefited all.
Kennedy simply pointed out that Smith’s extensive and detailed discussions of the economic damages done by Upper-Income Class Prodigals, Imprudent Risk Takers, and Projectors required the government to impose preventive measures, laws, sanctions, and penalties against this category of powerful private citizens in order to prevent severe detrimental impacts such as depressions and inflations from hurting the sober people. Needless to say, there are no discussions about such a group of people in either Mankiw’s account or Zafirovski’s account.
The conclusion reached is the same as the conclusion reached by G. Kennedy-there is no current economist who understands what it was that Adam Smith was stating led to the wealth and opulence of nations.
Jeremy Bentham’s Utilitarian tracts The Principles of Morals and Legislation and In Defense of Usury contains an explicit attack on Adam Smith’s The Theory of Moral Sentiments and The Wealth of Nations on pages 8-23 in chapter Two of The Principles of Morals and Legislation, as well as on pages 167-168 and 187-188.Bentham argues repeatedly on these pages that all systems of moral philosophy based on sympathy and antipathy are flawed. Bentham’s conclusion is that ethics can only be based on the principle of utility alone and nothing else.
Smith’s The Theory of Moral Sentiments is based on sympathy ,but not antipathy. However, the major foundation for The Theory of Moral Sentiments is the virtue of prudence, since ,without prudence, sympathy can’t be backed up with actions and none of the later virtues can be successfully implemented. Bentham’s Utilitarian maximizing utility concept has nothing whatsoever to do with the virtue of prudence and is intended to replace virtue ethics completely .If Utility maximization were related to,or a form of, prudence alone, then it would have been subject to Smith’s withering attacks in The Theory of Moral Sentiments on all ancient philosophies that were based on Prudence alone, such as those expressed by the Stoics, Cynics, and Skeptics. That would mean that Bentham’s Utilitarianism was merely a variation on a theme that argued Prudence alone was the only virtue and mean that there was nothing original or innovative in Bentham’s utilitarian ethics. Smith realized that Bentham’s position had nothing to do with prudence at all and was a system of thought that sought to ink psychological egoism explicitly to the possession of money alone as the only criterion for ethical consideration and action.
Bentham’s major innovation,then, was to claim that money alone was the best measure of ,or proxy for,the successful maximization of utility since all men loved money for money’s sake alone all the time. This entails that all actions always lead to results that lead to an increase in one’s monetary, pecuniary or financial position or situation in life. Happiness and success in life are then functions of the capability of a decision maker to accumulate more money over time. .
Smith successfully decimated Bentham’s attack on virtue ethics and repelled his attempt to undermine the virtue of prudence in the Sixth edition of The Theory of Moral Sentiments .Unfortunately, Smith’s metaphorical and incidental use of the term, Invisible Hand , one time in both books allowed Benthamite Utilitarian economists to seek to transform the self interest (shrewdness, frugality, parsimony, saving) of the virtue of prudence, expressed in the The Theory of Moral Sentiments by the example of an athlete using maximum and sustained effort( practice, training ,preparation, intensity, concentration, etc.) to win a racing competition and in The Wealth of Nations by the brewer,baker ,and butcher using maximum ,sustained effort to win an economic competition,as being a rejection of the virtues of benevolence and magnanimity .Nothing could be further from the truth, as winning both the racing and economic competition first, by winning the prize or making an economic profit or gain, is a necessary condition that must take place before one can engage in the virtues of benevolence and magnanimity second.
Just as there is a division of labor and specialization of function in the economic realm,the application of the different virtues also is divided up and specialized in actual application. Adam Smith’s example of running a race emphasized the fact that, when preparing and training and running the race, the only virtue that could be applied was the virtue of prudence. It is simply impossible to train for and run a race to win if the racer is considering the interests of the other competitors in the race besides his own. In fact ,it is an oxymoron to argue that the racer needs to be simultaneously concerned about how he finishes the race and how others may finish the race .It is only after he has finished the race and won(lost) that the virtues of temperance, justice(fairness),benevolence and magnanimity can come into play. So it is also in the economic competition in the market place. It is the virtue of prudence that is especially applicable in the economic competition in the same manner that it was applicable in the racing competition .However, after the competition in the market place has been won(lost),the other virtues are to be deployed .
It is a very severe error is to assume that Smith’s prudence is Jeremy Bentham’s maximizing utility. They are not the same and there is no connection between the two .Economists err because they have confused and conflated Smith’s virtue ethics conception of self interest with Jeremy Bentham’s conflicting utilitarian conception of self interest.
It is simply impossible for benevolence to precede prudence because it is prudence that allows one to create a surplus that can be used later for benevolence. One can’t give what one does not have. Sympathy without the application of prudence first is simply a completely ineffective sentiment. Only prudence allows one to follow up sympathy with actions. One can imagine a poor Good Samaritan with no horse, no wine, no oil, and no bag of silver coins having sympathy for the badly beaten and robbed traveler on the very dangerous road to Jericho, but, because of his imprudent behavior in the past, not being able to act benevolently. The Good Samaritan would then go down in history as the Sympathetic Samaritan, who could take no actions of any importance to mitigate the sufferings of the beaten man.
Economists have horribly misconstrued Smith’s story of the baker, brewer and butcher. The baker, brewer and butcher can’t possibly act benevolently in the future unless they can earn an economic profit in the present. It is absurd to expect the baker, brewer and butcher to practice benevolence if they are suffering losses or just breaking even. They have no surplus or bag of silver coins to give away to others. The baker, brewer and butcher must first practice prudence (self love) before they can help others. They must win the economic race first before they can even consider doing anything for others.
Apparently, economists have badly confused altruism with benevolence. Altruism is not benevolence and it is not a virtue. The expectation that the baker, brewer and butcher should give away their products for free or at a greatly reduced cost to others is not benevolence. It is altruism. Altruism, except in highly unique and rare circumstances, is universally condemned by all spiritual leaders and guides precisely because it violates, for example, Christ’s second law that one must love your neighbor as you love yourself, which is prudence.
Smith’s first book,The Theory of Moral Sentiments ,is his general theory of how humans should act. This general theory is based on the application of Five virtues. Prudence is ALWAYS the first virtue. Then temperance and courage, self command (self control) are practiced so that one is satisfied when his needs,not his wants, are met. Shrewdness, Frugality, Parsimony and Saving allow one to create a surplus by controlling one’s wants. The next virtue is the recognition of the importance of justice, followed finally, in last place, by benevolence.
Smith’s second book, The Wealth of Nations, deals only with the economic race for an economic profit and the macroeconomic value of the sober (prudent) citizens, as opposed to the malevolent and detrimental behavior of the prodigals, imprudent risk takers, projectors, and British East India Company. ALL prudent citizens do their utmost to win this race in exactly the same manner that the runner in The Theory of Moral Sentiments does his very best to win the race in which he is taking part against others. There is no role for benevolence when one is preparing for, training, practicing, and then running the foot race. Similarly, there is no role for benevolence in an economic race. The Wealth of Nations deals with the economic race. Of course, AFTER both races have been won, one can practice self command, justice, and benevolence, but NOT BEFORE.
The following assessment of Adam Smith's approach to economics is completely erroneous, but would be a very exact and accurate description of Jeremy Bentham’s utilitarian approach to economics:
"How do you get your dinner?" That is the basic question of economics. When economist and philosopher Adam Smith proclaimed that all our actions were motivated by self-interest, he used the example of the baker and the butcher as he laid the foundations for "economic man." He argued that the baker and butcher didn't give bread and meat out of the goodness of their hearts. It's an ironic point of view coming from a bachelor who lived with his mother for most of his life ― a woman who cooked his dinner every night.” (Marcal, K., 2017).
The University of Chicago Economics Department approach is based on the philosophy of Jeremy Bentham’s rational utility maximizer, as set out by Bentham in 1787 in his The Principles of Morals and Legislation and in his Defense of Usury. This approach never had anything to do with the Virtue Ethics approach of Adam Smith in either The Theory of Moral Sentiments or The Wealth of Nations. In fact, both books by Bentham are direct, but subtle, attacks on Smith’s The Theory of Moral Sentiments and The Wealth of Nations. Bentham rejected Virtue Ethics completely. Smith rejected utilitarianism completely.
Smith emphasized the second of Jesus Christ’s two necessary and sufficient laws for living a happy life-first, Love your God and second, love your neighbor as yourself. A longer summary of this second law would be to love your neighbor as you love yourself. Loving yourself always comes first. Loving yourself, or self love or self interest, is what is involved in the most important virtue of all, Prudence, because, unless you love yourself first, it is quite impossible to love anyone else. Smith argued that the baker, brewer, and butcher supplied their goods based on the virtue of prudence. It is a very severe error to regard altruism, which states that you only should love your neighbor, as a virtue because altruism directly contradicts Christ’s, as well as all other spiritual teachers and messengers position, about the importance of the self. In general, except in extreme, very unique circumstances, altruism is a vice, because it promotes the neglect of self love.
A severe confusion about the virtues of benevolence and magnanimity, which can only be practiced after, and never before, the virtue of prudence has been successfully accomplished, and altruism, can be seen in all of Gary Becker’s work at the economics department at the University of Chicago. Becker’s work, as well as that of G. Stigler and M. Friedman, follows directly from Jeremy Bentham’s utilitarian claim that only the maximization of utility (Max U) can serve as the foundation for the study of ethics. Bentham’s Max U philosophy is directly opposed to the virtue of prudence. Bentham argued that the only way of measuring utility is to substitute the amount of money gained in any interaction or action involving others. All transactions and interactions are judged from a purely pecuniary or monetary nature alone ,and all involve the love of money for money’s sake:
“But at all times, every man, more or less, loves money…But if a man, by his love of money…For take men throughout if a man loves money to a certain degree to-day it is probable that he will love it, at least in equal degree, tomorrow.” (Bentham, 1787, pp.167-168, ft.2).
Thus, Bentham’s one and only rule, that is consistent with his entire life’s commitment to psychological egoism, is to love yourself only or only consider yourself at all times. Adam Smith totally rejected both Bentham’s position and the Chicago school of economics, which is built completely on a foundation of Bentham's Max U. All of the work of Friedman, Stigler, and Becker is merely a series of footnotes to Bentham’s theory and the Max U model of rational economic man, combined with Bentham's oscillating pendulum model, where only exogenous, outside shocks can create disequilibriums, which will naturally dissipate by themselves overtime so that no government actions are ever required at any time to restore equilibrium. Such actions merely delay the self correcting swing of the pendulum toward equilibrium.
Over the last two and one half centuries, Benthamite Utilitarian economists have labored unceasingly to combine Smith’s virtue ethics approach to self love and self interest, based on Jesus Christ and all other spiritual teachers and messengers, with Bentham’s directly conflicting concept of self interest and self love based on egoism.
This has led to the gross canard that Smith believed in the Invisible Hand of the Market and Laissez Faire economic policies, operationalized through Max U thinking concerning Bentham’s rational economic calculator model, that happiness is only a function of the amount of money accumulated over one’s life. Nothing could be more false.
Alone among economists, only Gavin Kennedy (2005, 2008, 2012) recognized that Smith completely rejected the Invisible Hand of the Market and Laissez Faire.
The fact that all economists fail to see the close connection between the theoretical structures of the work of Adam Smith and Keynes is unfortunate,since the parallels between their theories and policy proposals are extremely close .Recognition of these close parallels leads directly to the conclusion that Keynes's GT is simply a continuation and development of the WN .
The Theory of Moral Sentiments (1759; 1790) is the foundation for the Wealth of Nations(1776).Smith recognized, like all other major spiritual and moral teachers, that Prudence is the most important virtue because nothing can be accomplished without it being applied successfully first. The virtue of Prudence applies in all facets of life. However, there were individual philosophers who rejected virtue ethics. One such individual was Jeremy Bentham (another was Karl Marx). Bentham sought to replace Smith’s Virtue Ethics with his Principle of Maximizing Utility. Bentham argued that only his principle of maximizing utility could support the study of ethics.
Bentham attacked Smith’s Virtue Ethics approach in 1787 in the same fashion as J.Viner attacked Smith’s Virtue Ethics in 1927.
Both Bentham and Viner argued that
• Smith’s The Theory of Moral Sentiments (virtue ethics) is very flawed
• Smith’s support of interest rate control laws and skewing of bank credit to the sober people and away from the prodigals,imprudent risk takers, and projectors (Bentham was a strong supporter and employee all his life of the major projector company, the British East India Company, which started the American Revolutionary War) was very ill advised
• Smith’s analysis of the macroscopic impact that the prodigals, imprudent risk takers ,and projectors have on an economy,endangering the sober people, was incorrect because the prodigals, imprudent risk takers, and projectors were really just innovative entrepreneurs pursuing their own self interest
• Smith never actually made a single advance in the field of economics (political economy) in his lifetime as all of the parts of his theory were already available from other, earlier sources, which he failed to acknowledge properly and cite
Smith responded to Bentham’s two pronged attack in 1787 by rewriting major parts of the The Theory of Moral Sentiments so that its virtue ethics message would be fine tuned in order to target legislators and government officials, which would counter the utilitarian message of Bentham’s Defense of Usury and The Principles of Morals and Legislation. There was now a clear cut choice between two completely different ethical systems upon which to build capitalism.
Smith envisaged a completely different approach to capitalism than Bentham. Like the inhabitants of Augustine’s Earthly City and Heavenly City,there were two opposing groups, the middle class sober people, who practiced virtue ethics, and the upper class projectors, imprudent risk takers, and projectors, who practiced utilitarian ethics. The proper role of government was to use legislation, law and sanction to prevent the upper class projectors, imprudent risk takers, and projectors from damaging the middle class, sober people.
The Smith and Bentham views about the correct evolution of capitalism over time are as different as night and day.
A major confusion among economists, except G.Kennedy, since Smith’s death in 1790,is to confuse the operation and impacts of the virtue of prudence with the Invisible Hand. It is simply impossible for any Invisible Hand of the market to conceivably operate unless the sober people completely dominate the political, economic, social and institutional levers of power. Smith’s comments about the Invisible Hand in Part IV of the Wealth of Nations are simply a repetition of his comments in The Theory of Moral Sentiments (1759; 1790), about the racer in a running competition always doing his very best to win the race, being applied to those engaged in a comparable economic race doing the best they can to sell their particular products. This brings out a positive response from their competitors, who also run and train harder. This positive interactive feedback effect is referred to metaphorically as an invisible hand, although it is actually the result of all of the sober people simultaneously applying the virtue of prudence. None of this has anything to do with Bentham’s Max U utilitarian approach.
Once the gain, profit, or savings has been won, it is now time to apply the Virtue of Self Command (the Virtues of Temperance and Courage) to invest to expand one’s business.The correct choice is not financial manipulation , stock market speculation or conspicuous consumption, but investment in physical durable capital goods, worker training,and inventories of intermediate parts and materials.Business success now allows one to apply the final virtues of justice (fairness, equity), magnanimity and benevolence as worker wages and benefits can be increased.The result is opulence for all.
Just as there is a division of labor and specialization of function in the economic realm, the application of the different virtues also is divided up and specialized in actual application.
Adam Smith’s example of running a race emphasized the fact that, when preparing and training and running the race, the only virtue that could be applied was the virtue of prudence. It is simply impossible to train for and run a race to win if the racer is considering the interests of the other competitors in the race besides his own. In fact, it is an oxymoron to argue that the racer needs to be simultaneously concerned about how he finishes the race and how others may finish the race. It is only after he has finished the race and won(lost) that the virtues of temperance, justice (fairness), benevolence and magnanimity can come into play. So it is also in the economic competition in the market place. It is the virtue of prudence that is especially applicable in the economic competition in the same manner that it was applicable in the racing competition. However, after the competition in the market place has been won (lost), the other virtues are to be deployed.
It is a very severe error to assume that Smith’s prudence is Jeremy Bentham’s maximizing utility. They are not the same and there is no connection between the two. Economists err because they have confused and conflated Smith’s virtue ethics conception of self interest with Jeremy Bentham’s conflicting utilitarian conception of self interest.
Smith's imprecise approach to probability is in direct conflict with Bentham's precise approach.Once this is understood,it becomes obvious that Smith can't possibly be a utilitarian of any sort or kind.
This is a book about one of the most controversial concepts in economics: the invisible hand. The author explores the unintended social consequences implied by the invisible hand and discusses the mechanisms that bring about these consequences.
The book questions, examines and explicates the strengths and weaknesses of invisible-hand explanations concerning the emergence of institutions and macro-social structures, from a methodological and philosophical perspective. Aydinonat analyses paradigmatic examples of invisible-hand explanations such as Carl Menger’s ‘Origin of Money’ and Thomas Schelling’s famous checkerboard model of residential segregation in relation to contemporary models of emergence of money and segregation. Based on this analysis, he provides a fresh look at the philosophical literature on models and explanation and develops a philosophical framework for interpreting invisible-hand type of explanations in economics and elsewhere. Finally, the author applies this framework to recent game theoretic models of institutions and outlines the way in which they should be evaluated.
Adam Smith used the metaphor of an invisible hand to represent the instincts of human nature that direct behavior. Moderated by self-control and guided by proper institutional incentives, actions grounded in instincts can be shown to generate a beneficial social order even if not intended. Smith's concept, however, has been diluted and distorted over time through extension and misuse. Common misperceptions are that Smith unconditionally endorsed laissez-faire markets, selfish individualism, and Pareto efficiency. The author draws upon recent literature to clarify Smith's meaning and to discuss ways of improving its classroom presentation. The author argues that the invisible hand operates within a variety of institutional settings and that a number of arrangements are compatible with economic progress.
Adam Smith is revered as the father of modern economics. Analysis of his writings, however, reveals a profoundly medieval outlook. Smith is preoccupied with the need to preserve order in society. His scientific methodology emphasises reconciliation with the world we live in rather than investigation of it. He invokes a version of natural law in which the universe is a harmonious machine administered by a providential deity. Nobody is uncared for and, in real happiness, we are all substantially equal. No action is without its appropriate reward – in this life or the next. The social desirability of individual self-seeking activity is ensured by the “invisible hand,” that is, the hand of a god who has moulded us so to behave, that the quantity of happiness in the world is always maximised.
‘Look, my lord! See heaven itself declares against your impious intentions’ The Castle of Otranto (1764) is the first supernatural English novel and one of the most influential works of Gothic fiction. It inaugurated a literary genre that will be forever associated with the effects that Walpole pioneered. Professing to be a translation of a mysterious Italian tale from the darkest Middle Ages, the novel tells of Manfred, prince of Otranto, whose fear of an ancient prophecy sets him on a course of destruction. After the grotesque death of his only son, Conrad, on his wedding day, Manfred determines to marry the bride–to–be. The virgin Isabella flees through a castle riddled with secret passages. Chilling coincidences, ghostly visitations, arcane revelations, and violent combat combine in a heady mix that terrified the novel's first readers. In this new edition Nick Groom examines the reasons for its extraordinary impact and the Gothic culture from which it sprang. The Castle of Otranto was a game-changer, and Walpole the writer who paved the way for modern horror exponents.
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In this accessible book, Gavin Kennedy takes a fresh look at Adam Smith's moral philosophy and its links to his political economy and his lectures on Jurisprudence. The book provides a new analysis of Wealth of Nations, and argues that Adam Smith's intellectual legacy was completely transformed in the Nineteenth and Twentieth centuries by economists pursuing different agendas, to create ideas and policies that Smith did not advocate. It also provides a new explanation for the main mysteries about Smith's later life.
In this paper, I want to disentangle some of the senses in which the hypothesis of rationality is used in economic theory. In particular, I want to stress that rationality is not a property of the individual alone, although it is usually presented that way. Rather, it gathers not only its force but also its very meaning from the social context in which it is embedded. It is most plausible under very ideal conditions. When these conditions cease to hold, the rationality assumptions become strained and possibly even self-contradictory. They certainly imply an ability at information processing and calculation that is far beyond the feasible and that cannot well be justified as the result of learning and adaptation.
In this essay I want to disentangle some of the senses in which the hypothesis of rationality is used in economic theory. In particular, I want to stress that rationality is not a property of the individual alone, although it is usually presented that way. Rather, it gathers not only its force but also its very meaning from the social context in which it is embedded. It is most plausible under very ideal conditions. When these conditions cease to hold, the rationality assumptions become strained and possibly even self-contradictory. They certainly imply an ability at information processing and calculation that is far beyond the feasible and that cannot well be justified as the result of learning and adaptation.
Adam Smith was a philosopher before he ever wrote about economics, yet until now there has never been a philosophical commentary on the Wealth of Nations. Samuel Fleischacker suggests that Smith's vastly influential treatise on economics can be better understood if placed in the light of his epistemology, philosophy of science, and moral theory. He lays out the relevance of these aspects of Smith's thought to specific themes in the Wealth of Nations, arguing, among other things, that Smith regards social science as an extension of common sense rather than as a discipline to be approached mathematically, that he has moral as well as pragmatic reasons for approving of capitalism, and that he has an unusually strong belief in human equality that leads him to anticipate, if not quite endorse, the modern doctrine of distributive justice. Fleischacker also places Smith's views in relation to the work of his contemporaries, especially his teacher Francis Hutcheson and friend David Hume, and draws out consequences of Smith's thought for present-day political and philosophical debates. The Companion is divided into five general sections, which can be read independently of one another. It contains an index that points to commentary on specific passages in Wealth of Nations. Written in an approachable style befitting Smith's own clear yet finely honed rhetoric, it is intended for professional philosophers and political economists as well as those coming to Smith for the first time.
This account of Hume's philosophy, differs from other books on the subject in two ways. First, Hume's philosophy is set in the context of his whole life's work in the study of "moral subjects" that is areas such as psychology, history, political science and economics. The second approach of this book is that it examines systematically the drastic consequences of accepting not one but three Cartesian presuppositions as "the obvious dictates of reason" which "no man, who reflects, ever doubted". Basically, Hume's starting point in philosophy was the position Descartes reached in Part IV of the "Discourse"; a position quite incomparible with any science, whether moral or natural. The consequences drawn by Hume can, however, be turned round to provide arguments to refute those presuppositions, which are today still widely accepted.
The same rule which regulates the relative value of commodities in one country does not regulate the relative value of the commodities exchanged between two or more countries.
Under a system of perfectly free commerce, each country naturally devotes its capital and labor to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by rewarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labor most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilised world. It is this principle which determines that wine shall be made in France and Portugal, that corn sell be grown in America and Poland, and that hardware and other goods shall be manufactured in England…
Adam Smith's Wealth of Nations has been among the world books for over two hundred years and has gathered a mythology, which does scant justice to the actual book. One reason for this was that the Wealth of Nations was one of a series of studies through which Smith hoped to complete his system of moral, social and natural philosophy.
Self-Interest before Adam Smith inquires into the foundations of economic theory. It is generally assumed that the birth of modern economic science, marked by the publication of The Wealth of Nations in 1776, was the triumph of the 'selfish hypothesis' (the idea that self-interest is the motive of human action). Yet, as a neo-Epicurean idea, this hypothesis had been a matter of controversy for over a century and Smith opposed it from a neo-Stoic point of view. But how can the Epicurean principles of orthodox economic theory be reconciled with the Stoic principles of Adam Smith's philosophy? Pierre Force shows how Smith's theory refutes the 'selfish hypothesis' and integrates it at the same time. He also explains how Smith appropriated Rousseau's 'republican' critique of modern commercial society, and makes the case that the autonomy of economic science is an unintended consequence of Smith's 'republican' principles.
ELH 66.3 (1999) 739-758
Few passages have been quoted as often as the following from Adam Smith's The Wealth of Nations (1776), in which he represents the self-regulating capacity of the market as "an invisible hand" inevitably plotting the economic process towards a final state of equilibrium:
Although this figure of "an invisible hand" reconciling private and social interest has generated prolific citation and interpretation, it has never been subjected to a literal reading by linking it to the contemporary literary genre of the gothic novel, where it plays a prominent role as well. In the founding text of this literary tradition, Horace Walpole's The Castle of Otranto (1764), the reader also encounters "an invisible hand" causing a disjunction between an action's intention and its result. After the villain Manfred has declared to Isabella his "impious intentions" of "marrying" her, his attempt to assault her sexually is thwarted by an animated portrait that leads him to a chamber, whose door is then violently shut by an invisible hand:
In Walpole's text, as in Smith's, the original intentions of actions are superseded by the intervention of an "invisible hand," but Smith represents the economic reconciliation of individual and social interest as the natural, ordinary course of events, whereas the frustration of Manfred's "impious intentions" is effected by supernatural rather than natural agency. This difference may seem to render the proposed linkage between political economy and the gothic novel implausible or negligible -- as if their interrelation were one of mutual rejection rather than exchange. Yet exactly this type of supernatural agency is conjured by Adam Smith's first use of the phrase "invisible hand," which does not, as one might expect, occur in his Theory of Moral Sentiments (1759) but even earlier in an essay on "The History of Astronomy." Smith describes here the origin of polytheism among "savages," locating it in irregular natural events like "comets, eclipses, thunder, [and] lightning . . . which exasperate his [the savage's] sentiment into terror and consternation." This "terror," which is treated by Edmund Burke -- citing the same examples -- as the source of the sublime, induces the "savage" to ascribe these events to "some invisible and designing power":
This new edition of The Life of Adam Smith remains the only book to give a full account of Smith's life whilst also placing his work into the context of his life and times. Updated to include new scholarship which has recently come to light, this full-scale biography of Adam Smith examines the personality, career, and social and intellectual circumstances of the Scottish moral philosopher regarded as the founder of scientific economics, whose legacy of thought - most notably about the free market and the role of the state - concerns us all. Ian Simpson Ross draws on correspondence, archival documents, the reports of contemporaries, and the record of Smith's publications to fashion a lively account of Adam Smith as a man of letters, moralist, historian, and critic, as well as an economist. Supported with full scholarly apparatus for students and academics, the book also offers 20 halftone illustrations representing Smith and the world in which he lived.
This study analyses the influence that Adam Smith's philosophy had on his Wealth of Nations, and reveals the unity in Smith's extensive system of morals, politics, and economics. It concludes that Smith was motivated by a political ideal, which was moral liberalism. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/0198292880/toc.html
This book examines the influence that Adam Smith's philosophy had on his economics, drawing on the neglected parts of Smith's writings to show that the political and economic theories built logically on his morals. It analyses the significance of his stoic beliefs, his notions of art and music, astronomy, philosophy and war, and shows that Smith's invisible hand was part of a 'system' that was meant to replace medieval Christianity with ethic of virtue in this world rather than the next. Smith was motivated primarily by a political ideal, a moral version of liberalism. He rejected the political philosophy of the Greeks and Christians as authoritarian and unworldly, but contrary to what many economists believe, he also rejected the amoral liberalism that was being advocated by his countryman and friend David Hume. Far from being myopic about self-love, Smith arrived at his theories of free trade, economic growth, and alienation via his reinterpretation of Stoic virtue. Of interest to economists, philosophers, political theorists, sociologists and lawyers concerned with jurisprudence, this book is clearly written, and its innovations reveal the hitherto hidden unity in Smith's overarching system of morals, politics and economics.
The Fortunes and Misfortunes of the Famous Moll Flanders / Daniel Defoe. Note: The University of Adelaide Library eBooks @ Adelaide.
Why are some parts of the world so rich and others so poor? Why did the Industrial Revolution--and the unprecedented economic growth that came with it--occur in eighteenth-century England, and not at some other time, or in some other place? Why didn't industrialization make the whole world rich--and why did it make large parts of the world even poorer? In A Farewell to Alms , Gregory Clark tackles these profound questions and suggests a new and provocative way in which culture--not exploitation, geography, or resources--explains the wealth, and the poverty, of nations. Countering the prevailing theory that the Industrial Revolution was sparked by the sudden development of stable political, legal, and economic institutions in seventeenth-century Europe, Clark shows that such institutions existed long before industrialization. He argues instead that these institutions gradually led to deep cultural changes by encouraging people to abandon hunter-gatherer instincts-violence, impatience, and economy of effort-and adopt economic habits-hard work, rationality, and education. The problem, Clark says, is that only societies that have long histories of settlement and security seem to develop the cultural characteristics and effective workforces that enable economic growth. For the many societies that have not enjoyed long periods of stability, industrialization has not been a blessing. Clark also dissects the notion, championed by Jared Diamond in Guns, Germs, and Steel , that natural endowments such as geography account for differences in the wealth of nations. A brilliant and sobering challenge to the idea that poor societies can be economically developed through outside intervention, A Farewell to Alms may change the way global economic history is understood.
The invisible hand is not a power that makes the good of one the good of all, and it is not any of a number of other things it is said to be. It is simply the inducement a merchant has to keep his capital at home, thereby increasing the domestic capital stock and enhancing military power, both of which are in the public interest and neither of which he intended. Smith's exposition discloses how his rhetorical sallies could disfigure his economics, confuse his argument for free trade, and make him play fast and loose with facts and the ideas of others.
In the field of economics, perhaps the most important break with the past—one that leaves open huge areas for future work—lies
in the economics of information. It is now recognized that information is imperfect, obtaining information can be costly,
there are important asymmetries of information, and the extent of information asymmetries is affected by actions of firms
and individuals. This recognition deeply affects the understanding of wisdom inherited from the past, such as the fundamental
welfare theorem and some of the basic characterization of a market economy, and provides explanations of economic and social
phenomena that otherwise would be hard to understand.
William Grampp’s JPE article on Adam Smith is creative and provocative. It errs, however, by disparaging the invisible hand’s importance as a symbol of various economic processes that help societies prosper in ways that individuals neither intend nor comprehend. Four specific problems stand out. First, Grampp unsoundly tries to limit the relevance of the invisible hand within the Wealth of Nations to situations in which a merchant increases domestic capital and strengthens national defense. Second, Grampp presents an oversimplified account of WN’s treatment of international relations. Third he conspicuously misinterprets the trickle-down process of The Theory of Moral Sentiments, where Smith argues that an invisible hand promotes the welfare of the poor despite the greed of the rich. Fourth, by failing to plumb the connection between these two invisible hands—and by dismissing the relevance of a third invisible hand, which Smith elsewhere invokes to illustrate the superstitious outlook that pervades “primitive” societies—Grampp overlooks the complex interrelationships between Smith’s two books. Whereas WN presents the invisible hand in an atheistic context, the TMS version seems to be the hand of God; this religious contrast mirrors TMS’s more optimistic perspective on the poor and its more ambivalent evaluation of “riches and power.” Grampp is wise to stress the inconsistencies, puzzles, and exaggerations that Smith bequeathed to his readers. But some of Grampp’s criticisms are glib, and he deserves blame for trivializing the invisible hand. The three invisible hands, I argue, not only illuminate the rhetorical strategies that helped Smith influence institutions and public policies; they also signal his commitment to promoting curiosity and inquiry.