December 5, 2007

Invisible Hand – fragments from the history of a metaphor. (Part One. Featuring a lot of googling and almost no real knowledge)

Filed under: Economics, Vitiated by Ignorance — duncan @ 4:43 pm

Over on Adam Smith’s Lost Legacy, Gavin Kennedy is fighting an infinite one man losing battle against the misattribution of the ‘invisible hand of the market’ doctrine to Adam Smith. Smith only used the phrase, Kennedy tirelessly asserts and reasserts, one time in ‘The Wealth of Nations’ – not discussing the market in general, but discussing an individual’s decision to invest in the domestic economy, rather than in riskier foreign ventures. Here’s the famous quote:

“By preferring the support of domestic 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.”

Kennedy tells us that the pervasive use of this phrase in twentieth and twenty-first century economics misrepresents Smith’s meaning. Smith isn’t claiming that laissez faire market operations will always, or even usually, increase the common good. He’s making a specific point about a specific issue, using a vivid metaphor – and to take the doctrine of the ‘invisible hand’ as the cornerstone of Smith’s legacy is to do considerable violence to Smith’s nuanced thought.

Kennedy has a point – the ‘invisible hand’ metaphor does not play the prominent role in Smith’s work that it does in modern economics. But I have some doubts about Kennedy’s broader argument. There is a strong sense in Smith that social and economic relations are guided by a beneficent impersonal force to bring about the greatest social good. At times this goes by the name of the ‘invisible hand’; at times, by the name Providence. In the other famous ‘invisible hand’ passage, from ‘The Theory of Moral Sentiments’, Smith articulates an early version of the ‘trickle down’ theory of income distribution.

“The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. 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 among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition.”

The invisible hand is here the hand of Providence – and the idea of Providence makes little sense outside an intellectual context which imagines a beneficent divine force behind the natural order of the world. Kennedy quotes Saint Augustine as a source from which Smith might have derived his phrase: “God’s hand is his power, which moves visible things by invisible means.” It’s surely not far fetched to see the idea of the invisible hand as invoking the hand of God.

Now the idea of Providence guiding economic processes has a long intellectual history. As Robert Skidelsky tells us in his biography of Keynes [I know, I know, I need to do some proper reading, I can’t just rely on blogs and asides in popular biographies to make sweeping statements about the history of economics – I need to sit down in an academic library and read the actual books… but I don’t have time] the emergence of economics as an independent discipline was partly the product of a crisis of faith. Smith’s work was the product of the Scottish Enlightenment. But for Smith’s audience, despite the newly sceptical age in which he wrote, the concept of Providence could be invoked without provoking too many secularist doubts. With the slow retreat of Christianity this changed. The separation of economics from the discipline of philosophy, or moral science, was achieved in England by Alfred Marshall – and Skidelsky describes how this institutional transformation came from a period of great intellectual turmoil:

“The Victorian order rested on Evangelical religion and social deference. On the rock of these ‘givens’, the English and Scottish thinkers of the Enlightenment had erected political, moral and economic philosophies based on the sovereignty of the individual, his interests and choices. They never imagined that these interests and choices would be worked out other than in the framework of Christendom, would be other than constrained and harmonised by the existing social structure. The threatened breakdown of this protective system left them with nothing but their individualism to fall back on; and they were immediately faced with an adding-up problem. What guarantee was there that the sum of individual choices would result in a desirable social outcome? What assurance was there – heavenly rewards having been eliminated – that individual happiness would coincide with social duty?”

This was more than a matter of personal doubt. It was a political problem – the problem of how the ruling class could justify its power to itself and to its subjects without the idea of a divine mandate for the existing social order. This is why atheism and political radicalism were bound together. One of the purposes of economics, as it developed through the Victorian era, was to provide an account of impersonal social processes which could play the same role as the traditional idea of a divine plan for mankind.

I don’t think it’s a coincidence that in ‘The Theory of Moral Sentiments’ the ‘invisible hand’ is more or less explicitly linked to Providence, while in ‘The Wealth of Nations’ the phrase is used in a sense that is at least arguably metaphorical. I think we can read this as the movement from moral science to political economy in microcosm. Metaphors can, of course, carry just as much conceptual weight as a literal phrase or claim; but they do so without relying on explicit arguments. When Smith speaks of an ‘invisible hand’ in ‘The Wealth of Nations’ he is making vivid an idea that the passage as a whole expresses at a discursive level. But the phrase “as in many other cases” expands the metaphor’s scope – it generalises the idea that the metaphor conveys beyond the given situation, and applies the concept of the invisible hand to many other economic phenomena. This is still, at one level, ‘just a metaphor’. But it also evokes, potentially or implicitly, an entire system of Christian theology. As John Kells Ingram says, in his 1888 History of Political Economy, it suggests a “secret substratum” in Smith’s thought; Smith is “secretly led… by a priori theological ideas.”

This puts a lot of weight on a couple of sentences. Kennedy is surely right to complain about how often these passages are taken out of context and heavily over-interpreted to suit a modern agenda. (Needless to say, that’s what I’m doing here.)

But I want suggest that this appropriation of Smith’s metaphor is the product of the same decline in faith I’ve been describing. The twentieth century re-emergence of the idea of the ‘invisible hand’, plucked from Smith’s text and given vastly greater prominence than Smith ever gave it, is a product of the loss of the belief systems that would give intellectual substance to the idea. The reason the ‘invisible hand’ metaphor has attained such hegemonic power is that the claim it makes can no longer be credibly asserted other than metaphorically.

In my opinion, economists need the idea of a benevolent force organising our society – they need it to justify their assumptions of rationality and equilibrium, and they need it to justify the political status quo But in today’s largely secular academic world there is no plausible candidate for such a force. So this idea must be asserted at a rhetorical, textual, metaphorical level. The ‘invisible hand’, one of the guiding metaphors of modern economics, can carry with it all the dubious intellectual content that rational economists soberly disclaim. To misquote Walter Benjamin, the puppet of liberal economics is to triumph all the time – and it can only do this by enlisting the aid of theology, which must stay out of sight

More underinformed comment to follow. Next post: ‘The History of Astronomy’.

[NB: Post modified so that I actually get the names of Smiths’ books right. Sheesh.]


  1. […] pm Gavin Kennedy, of Adam Smith’s Lost Legacy, has put up a couple of posts responding to my post last year on the ‘invisible hand’.  Since Kennedy is a Smith scholar who knows almost everything […]

    Pingback by Gavin Kennedy on Smith’s strategic use of ‘Providence’ « Praxis — February 29, 2008 @ 6:29 pm

  2. How can I cite you?
    Thank you

    Comment by João — May 28, 2009 @ 9:23 pm

  3. Hi João. The citation convention for internet pages depends a bit on your referencing style, I think. Generally you include the author, date of publication, page name, URL, and date accessed – maybe a description of the page too. [If this is the page you’re thinking of citing, the name and URL could of course be a bit embarrassing for at least one of us. But there you have it.] Since putting up this post I’ve ‘outed’ myself as Duncan Law, if that matters. So, if I’ve got things right, the Harvard convention (for example) would be (for example):

    Law, D 2007, Invisible Hand – fragments from the history of a metaphor. (Part One. Featuring a lot of googling and almost no real knowledge), blog post, viewed 28 May 2009, [].

    If this is the page you’re thinking of citing, and you do, there’ll be a sort of bizarre reflexive experience for any of your readers who bother to access it, now. All good fun. 😛


    Comment by duncan — May 28, 2009 @ 10:15 pm

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