Capitalism is a word that Smith never used — the author of “The Wealth of Nations” had been dead for almost 50 years before it entered the language, via Karl Marx — but his most famous expression, “the invisible hand,” is often taken as its proxy. Romney juxtaposes it with what he calls the “supposed informed hand of government.” As he said in a speech on economics at the University of Chicago in March, “When the heavy hand of government replaces the invisible hand of the market, economic freedom is the inevitable victim.”
Heady words, but hardly unusual. Few phrases in Western philosophy have embedded themselves as deeply in the vernacular as Smith’s invisible hand, and no single image has ever so captivated (and occasionally inflamed) the popular mind. This has been the case for a while now — the intellectual historian Emma Rothschild called the 20th century “the epoch of the invisible hand”— but the financial crisis and the federal government’s response have recently made it a cause for celebration and debate.
This development would most likely have surprised Adam Smith. The invisible hand makes only three appearances in his work, all fleeting. Blink, and you will miss them.
The most cited usage is in “The Wealth of Nations,” the foundational text of modern economics, first published in 1776. The invisible hand appears once, several hundred pages into the work during a discussion of trade policy. Mercantilism, then the prevailing school of economic thought, held that the way to secure a nation’s wealth was by implementing rigid protectionist polices. Smith agreed that such polices could strengthen certain sectors of an economy, but he contended that this came at the expense of “the general industry.” If restrictions were lifted, every merchant would pursue the most profitable trade available to him, making the most efficient use of his own time and money. Granted, he would act with an eye only toward his personal “security” and “gain,” but in so doing, he would “render the annual revenue of the society as great as he can.” He would be “led by an invisible hand to promote an end which was not part of his intention,” namely, to benefit society and the broader welfare of its citizens.
“[T]he system works behind the backs of the participants” is how the Nobel Prize-winning economist Kenneth Arrow described this phenomenon. Smith wouldn’t have objected, though what clearly intrigued him was less the enlightened mechanism than the moral paradox. The invisible hand not only works behind the backs of participants, it succeeds despite them.
Consider Smith’s use of the phrase in “The Theory of Moral Sentiments,” the first of his two great works. He describes the landlord who, admiring his fields, consumes in his imagination “the whole harvest that grows upon them.” Fortunately for the poor, the size of a wealthy man’s stomach, if not necessarily his storehouse, is roughly equal to theirs. The rich “only select from the heap what is most precious and agreeable.” The rest they “divide with the poor” such that they “are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions.”
Again, the system yields an outcome that is salutary and humane, but one that stands at odds with the selfish interests of participants. The wealthy, says Smith, spend their days establishing an “economy of greatness,” one founded on “luxury and caprice” and fueled by “the gratification of their own vain and insatiable desires.” Any broader benefit that accrues from their striving is not the consequence of foresight or benevolence, but “in spite of their natural selfishness and rapacity.” They don’t do good, they are led to it.
by John Paul Rollert, NY Times | Read more:
Illustration: Leif Parsons
