[New thread starting from
http://eh.net/pipermail/hes/2008-March/008313.html
HB]


John C. Médaille said:
> See http://www.theatlantic.com/issues/98mar/misquote.htm on the
> deliberate misquoting of Smith on the invisible hand.
>
> Smith uses the invisible hand exactly twice, once in the Theory of Moral
> Sentiments and once in the Wealth of Nations. And they mean opposite
> things in each work. In TMS, it is a distributive principle, whereby
> Smith holds that owners of land will distribute its output in equitable
> ways, and do so for their own security. That theory is obviously
> untenable, and he does not repeat it in WON. In the later work, as Gavin
> points out, he is merely pointing to the preference for local investment
> rather than foreign adventures. From these slender threads has been built
> up the elaborate mythology (or Smithology?) of the Invisible Hand.


Who is misquoting Smith?

Certainly, Smith did not have a concept of an invisible hand - it was a 
striking phrase that he used once per book for emphasis, no more. But the 
way he used it is not as John C. Medaille suggests. The TMS invisible hand 
is about the distribution of food, not goods in general. The rich landlord 
has command of huge amounts of food, but cannot eat it all himself. Instead 
he spends on luxuries thereby enabling his servants and the producers of 
'baubles and trinkets' to earn and eat. Smith did not give up this argument 
but kept it in the final edition of TMS, long after the writing of the WN. 
The WN repeats essentially the same argument (Glasgow ed, pp. 180-1), but 
switches the phrase, 'invisible hand' to a different (but not conflicting) 
argument. The WN invisible hand is not only, not even mainly, about home 
investment v investment abroad. Smith claimed that investing where the 
return is highest distributes capital between activities in a way which 
maximizes the annual revenue of society.

This is not, of course, the same as the first theorem of modern welfare 
economics, but it is not as inconsequential as John tries to make out.

Tony Brewer