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Why Is the "Invisible Hand" in the Middle of Smith’s Works?

Coincidence or subtle statement?

MARCH 09, 2011 by MARK SKOUSEN

(Editor’s Note: Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations was published on this day in 1776.)

Adam Smith had one overwhelmingly important triumph:  he put into the center of economics the systematic analysis of the behavior of individuals pursuing their self-interest under conditions of competition. — George Stigler (emphasis added)

Critics of laissez faire — from Cambridge economic historian Emma Rothschild to British Labor Party leader Gordon Brown — have recently attempted to wrestle Adam Smith out of the hands of the free-market camp and into the camp of the social democrats.  According to Iain McLean, professor of politics at Oxford University, and Samuel Fleschaker, professor of philosophy at the University of Illinois at Chicago, the Scottish philosopher was a “radical egalitarian” who, while endorsing economic liberalism, had a lively appreciation of market failure and ultimately rejected “ruthless laissez-faire capitalism” in favor of “human equality” and “distributive justice.”

These critics are quick to claim that Smith was no friend of rent-seeking landlords, monopolistic merchants, and conspiring businessmen, and that he advocated an active State authority in support of free education, large-scale public works, usury laws, progressive taxation, and even limits on free trade.

Powerful Symbol

What about the metaphor of the “invisible hand,” the famous Smithian idea that “by pursuing his own self interest, [every individual] frequently promotes that of the society”?  Free-market economists from Ludwig von Mises to Milton Friedman have regarded it as a powerful symbol of unfettered market forces, what Adam Smith called his “system of natural liberty.”  In rebuttal, the new critics belittle Smith’s metaphor as a “passing, satirical” reference and suggest that he favored more of a “helping hand.” They emphasize that Smith used the phrase “invisible hand” only once in each of his two major works, The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776).   The references are so sparse that commentators seldom mentioned the expression by name in the nineteenth century.  No notice was made of it during the celebrations of the centenary of The Wealth of Nations in 1876.  In the eighteenth, nineteenth centuries, and early twentieth centuries, no subject index, including that of the well-known edition edited by Edwin Cannan (1904), listed “invisible hand” as a separate entry.  It was finally added to the index in 1937 by Max Lerner for the Modern Library edition.  Clearly, it wasn’t until the later twentieth century that the invisible hand became a popular symbol of laissez faire.

Could the detractors be correct in their assessment of Adam Smith’s sentiments?  Is the invisible-hand metaphor central or marginal to his “system of natural liberty”?

Milton Friedman refers to Adam Smith’s symbol as a “key insight” into the cooperative, self-regulating “power of the market to produce our food, our clothing, our housing . . . without central direction.” Economist George Stigler calls it the “crown jewel” of The Wealth of Nations and “the most important substantive proposition in all of economics.”

On the other hand, economist Gavin Kennedy contended in earlier writings that the invisible hand is nothing more than an after-thought, a “casual metaphor” with limited value.  Rothschild, the Harvard University economic historian, even goes so far as to declare, “What I will suggest is that Smith did not especially esteem the invisible hand. . . .  It is un-Smithian and unimportant to his theory” and was nothing more than a “mildly ironic joke.”

Who’s right?

The Discovery

A fascinating discovery uncovered by Daniel Klein, professor of economics at George Mason University, may shed light on this debate.  Based on a brief remark by Peter Minowitz, the Santa Clara University political philosopher, that the “invisible hand” phrase lies roughly in the middle of both of Smith’s books, Klein made preliminary investigations.  He next recruited Brandon Lucas, then a doctoral student at Mason, to investigate further.  Klein and Lucas report in Economic Affairs (March 2011) that they found considerable evidence that Smith “deliberately placed ‘led by an invisible hand’ at the centre of his tomes” and that the concept “holds special and positive significance in Smith’s thought.”

Klein and Lucas base their conjecture on two major points.  First, the physical location of the metaphor:  The single expression “led by an invisible hand” occurs almost dead center in the first and second editions of the Wealth of Nations.  (It moves slightly away from the middle after an index and other material were added to later editions.)

Moreover, it appears “well-nigh dead centre” in the final edition of The Theory of Moral Sentiments.  Klein and Lucas admit that it was not in the middle of the first edition in 1759, speculating that “physical centrality was not initially a part of his intentions . . . [but that] by 1776, Smith had become intent on centrality.”  Indeed, Smith moved the phrase “invisible hand” closer to the center of the book, first by appending an important essay on the origin of language and finally by making substantial revisions in the final edition.

Second, they note that as a historian and moral philosopher, Adam Smith commented frequently on the importance of middleness in architecture, literature, science, and philosophy.  For example:

  • Smith wrote sympathetically about the Aristotelian golden mean, the idea that virtue exists “between two opposite vices.”  For instance, between the two extremes of cowardice and recklessness lies the central virtue of courage.
  • In his  essays on astronomy and ancient physics, he was captivated by Newtonian central forces and periodical revolutions.
  • Klein discovered that in his lectures on rhetoric Smith admired the poetry of Thucydides, who “often expresses all that he labours so much in a word or two, sometimes placed in the middle of the narration.”

Midpoint analysis and centralized themes existed long before Smith’s time.  For example, the Talmud offers considerable commentary about midpoints in the Torah, especially in a poetic form called chiasmus.

In sum, according to Klein and Lucas, the invisible hand represents the centrality of Smith’s “system of natural liberty” and is appropriately found in the middle of his works.  By this discovery, if true, one goes from one extreme to the other — from seeing the invisible hand as a marginal concept to accepting it as the touchstone of his philosophy.

“Impressionistic” Evidence

Klein and Lucas’s list of evidence is what a lawyer might call circumstantial, or “impressionistic,” to use their own adjective.  Taken as a whole, the documentation is either an ingenious breakthrough or a “remarkable coincidence,” to quote Kennedy.

A few Smithian experts have warmed up to Klein and Lucas’s claim.  Kennedy, who previously considered the invisible hand a “casual” metaphor, now sees a “high probability” in their thesis of deliberate centrality.  Others are more skeptical.  “We have no direct evidence for the conjecture,” says Craig Smith, an expert on Adam Smith at the University of St. Andrews.  The idea that Adam Smith deliberately hid his favorite symbol of his philosophy “strikes me . . .  as very un-Smithian” and runs contrary to his policy of expressing thoughts in a “neat, plain and clever manner.”

Placing the shorthand phrase “invisible hand” in the middle of his works may not be plain, but is it not neat and clever?

We may never know the truth, since we have no record of Smith’s confession on the matter.  Fortunately, one does not need to depend on the physical centrality of the “invisible hand” to recognize the doctrinal centrality of his philosophy.  As Craig Smith states, “I’m not convinced that Smith deliberately placed the invisible hand at the centre of his books, but I am certain that it lies at the heart of his thinking.”

There are many passages from The Wealth of Nations and The Theory of Moral Sentiments that elucidate the “invisible hand” theme, the idea that individuals acting in their own self-interest unwittingly benefit the public weal, or that eliminating restrictions on individuals’ behaviors “better[s] their own condition” and makes society better off.  Smith repeatedly advocated removal of trade barriers, State-granted privileges, and employment regulations so that individuals can flourish.

In The Theory of Moral Sentiments, Smith writes:

The man of system … seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.

Smith’s argument is comparative.  To quote Klein:  “Hewing to the liberty principle generally works out better than not doing so—in this respect, [Kenneth] Arrow, Joseph Stiglitz, and Frank Hahn do disfigure Smith when they identify the invisible hand with some rarified perfection. We need not rehearse Smith on the ignorance, folly, and presumption of political power, on the corruption and pathology of political ecology…. Smith sees the liberty principle as a moral, cultural, and political focal point, a worthy and workable principle in the otherwise dreadful fog of interventionism.”

To think that Adam Smith, the renowned absent-minded professor, hid a little “invisible” secret in his tomes is indeed the ultimate irony.  As Klein concludes, “That the phrase appears close to the center, and but once, in TMS and in WN might be taken as evidence that Smith did intend for us to take up the phrase.”

I find Professor Klein’s story compelling and have enjoyed showing copies of Smith’s works with a bookmark in the key pages to students, faculty, and interested friends.  It has, in the words of philosopher Robert Nozick, “a certain lovely quality.”

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