Umpteen scholars have made the point that the Invisible Hand metaphor, which is used only once in the Wealth of Nations at around the middle of that long work, is frequently misinterpreted and/or misunderstood in contemporary economic discourse. See, for example, Emma Rothschild [Adam Smith and the Invisible Hand on JSTOR] and Sir John Kay [A message from Macbeth, and Adam Smith – John Kay].
Moreover, the mistakes in this regard have not been confined to those unfamiliar with economics: they are to be found across economically trained scribblers (Keynes’s characterisation), up to and including a Nobel Laureate or two. As Kay says: “Smith, it should be acknowledged, was a sceptical observer of all human behaviour. Politicians, doctors and above all university professors felt the lash of his acerbic tongue.”
The general reader does not, however, have to engage with this economic literature to appreciate the issue: he/she can simply look at the singular use of the metaphor in its specific context, which is concerned with the effects of a preference among British merchants to deal with one of their own kind, rather than with foreign merchants (‘home preference’), all other things being equal. This surely serves to restrict trade (relative to a counterfactual in which nationality is a matter of indifference), something that Smith might be expected to point out will have negative consequences for domestic economic wellbeing.
But wait; here is the text:
“By preferring the support of domestick to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”
So that’s that: the invisible hand is a metaphor for consequences that are unintended and not taken into account by parties engaged in exchange transactions. The wording is carefully crafted: “Nor is this always the worse …” is a far cry from a judgment that such effects will generally be beneficial for a wider society.
The care taken should not be surprising. Smith was a polymath who lectured on a wide range of subjects at Glasgow University, including Greek and Shakespearian tragedy. It is almost certain that he was well familiar with MacBeth, the ‘Scottish Play’, and likely that the expression ‘invisible hand’ first entered his mind via MacBeth’s words on the murder of Banquo.
Come, seeling night,
Scarf up the tender eye of pitiful day,
And with thy bloody and invisible hand,
Cancel and tear to pieces that great bond,
Which keeps me pale! Light thickens, and the crow,
Makes wing to the rooky wood;
Good things of day begin to droop and drowse,
Whiles night’s black agents to their preys do rouse.
In falconry, seeling refers to a technique used in training a young hawk or falcon by stitching its eyebrows together, so that it cannot see. It was familiar in Shakespeare’s time, though later displaced by the use of hoods. Thus, the dark of night reduces visibility and allows a bloody hand to do its work unseen. It’s a tragedy, so the downstream consequences of the act are inevitably unfavourable!
Smith’s use of the metaphor in the Wealth of Nations is his third and last use of the expression, the first being in a long essay now referred to as the History of Astronomy, which, inter alia, develops a fledging philosophy of science that bears a remarkable resemblance to scholarship in that discipline more than two centuries later (a point to be developed in a later blog in this series). In that work, the notions of visibility and invisibility play central roles.
A dictionary definition of visible is “able to be seen”, but that immediately raises the question of the meaning of “see”. Two candidate meanings emerge from the dictionary: (A) “perceive with the eyes; discern visually” and (B) “discern or deduce after reflection or from information: understand.” In MacBeth Shakespeare relies heavily on meaning A, whereas Smith, consistently throughout his works, relies on meaning B. That’s the difference, and we will use parentheses [‘see’] to denote the Smithian meaning.
To elaborate, consider a child playing with magnets. The child can feel the repulsions and attractions between the two poles, but does not see (in either sense) anything connecting the two magnets. On the other hand, while the physicist likewise does not visually discern a connection, he or she does ‘see’ it by virtue of something created in the mind, the idea of a magnetic field.
In the Wealth of Nations, and even more so in the History of Astronomy, the metaphor has a programmatic quality. It is the task of the political economist to ‘see’ connectivities between things – between causes and effects. between actions and consequences – that are not ‘seen’ by others. Smith does not chastise others for their narrow visions, because he ‘sees’ their limited range of knowledge as an aspect of the division of labour that is so favourable to economic progress [Adam Smith’s ‘Theory of Productivity Growth’ – Regulatory Policy Institute]. Like physicists, political economists ply a particular, specialist trade, that’s all.
As to Smith’s own vision, it might roughly be characterised as the ‘seeing’ of connecting chains that proceed as follows: individual search for mutually beneficial exchange transactions exchanges are agreed mutual betterment greater scope for further mutually beneficial exchange transactions continued search more mutually beneficial exchange transactions agreed … . There is no magic and nothing mysterious about it. It’s just an iterative, discovery process operating in parallel along myriad channels of individual interactions, driven by individual desires for material betterment.