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Date: | Tue Mar 11 17:30:53 2008 |
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Gavin Kennedy's mail is very helpful and interesting. I want to think more
about it, but my first reaction is that although I may have overstated the
case - clearly the phrase, 'invisible hand' appears in a discussion of
foreign trade and investment, and the risk-avoiding preference for home
investment mattered to Smith - I still think that home v foreign investment
is not the main point. The first two sentences of the invisible hand
paragraph read:
'But the annual revenue of every society is always precisely equal to the
exchangeable value of the whole annual produce of its industry, or rather
is precisely the same thing with that exchangeable value. As every
individual, therefore, endeavours as much as he can both to employ his
capital in the support of domestic industry, and so to direct that industry
that its produce may be of the greatest value; every individual necessarily
labours to render the annual revenue of the society as great as he can.'
(WN IV.ii.9)
The basic argument seems to me to be independent of trade issues. For a
closed economy, one could delete the words 'both to employ his capital in
the support of domestic industry, and', without destroying the main thrust
of the argument. Smith never did consider a closed economy, of course, but
it is the allocation of capital to the highest return that seems to me to
be the main thrust of the argument, and it is not one that can be lightly
dismissed. The home v overseas investment argument then becomes a
complementary point, covering a possible counterargument that the revenue
which is maximized might be somewhere else.
Tony Brewer
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