Tue, Nov 01, 2005 - Page 8 News List

Letter: What Adam Smith meant

By Gavin Kennedy

The New York Times article"Nobel-winning economist looks beyond the invisible hand," (Oct. 30, page 12) misunderstands Adam Smith, who did not have a "theory of the invisible hand." This is an invention of modern academe.

Smith's used the metaphor of the invisible hand only once in Wealth of Nations. It was never a "theory," but was an illustration of how human motivations could have unintended consequences, which, in the case he was discussing, were, happily, benign consequences. He never made it a general rule that the "individual pursuit of self-interest promotes the greatest good for all."

The pursuit of self-interest also promotes unintended malign consequences. Merchants and manufacturers, wrote Smith, tend to promote monopolies and reductions in supply to raise prices against the interests of consumers. Self-interest does not automatically promote "the greatest good for all." It all depends on the circumstances; hence, Smith did not make the metaphor into a theory.

Anyway, the metaphor was originally Shakespeare's from Macbeth ("thy bloody and invisible hand").

The author of the article distinguishes between absolute and relative performance in the game of hockey. "Absolute" here means what everybody might do (if they are compelled somehow, but otherwise do not), and "relative" means what some individuals might choose to do because they value one outcome (safety) over another (winning).

The distinction is precisely Smith's point precisely: if everybody pursued their own self interest without detriment to anybody else's (a big "if" and one that never escaped Smith's attention) then by doing so everybody would promote "the greatest good for all."

But humans do not play the game this way, neither in society nor in hockey. Smith knew that and never concluded that they would. It may be that this is "the standard presumption in [modern] economics," but it never was a presumption of Smith's Wealth of Nations. So whatever Schelling went "beyond," it was not a turn away from Smith. Schelling's work, more correctly, was a return to Smith's approach.

Gavin Kennedy

Edinburgh, Scotland

This story has been viewed 3597 times.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top