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Date:
Fri Mar 31 17:19:11 2006
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From:
[log in to unmask] (Pat Gunning)
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----------------- HES POSTING ----------------- 
Below is the paragraph from the "Wealth of Nations" in which the invisible hand statement
appears:
 
"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 maybe of the greatest value; every individual necessarily
labours to render the annual revenue of the society as great as he can. He generally,
indeed, neither intends to promote the public interest, nor knows how much he is promoting
it. 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. 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. I have never known much good done by those who affected to trade
for the public good. It is an affectation, indeed, not very common among merchants, and
very few words need be employed in dissuading them from it."
 
http://www.online-literature.com/view.php/wealth_nations/24?term=invisible%20hand 
 
It seems to me that because every reasonable person would agree that invisible hands do
not exist, the "as if" debate is unimportant. Surely, Smith did not believe that invisible
hands exist. Indeed, one of the goals of his works seems to have been to promote the idea
that where others might interpret the events of the world by referring to deities, it
would be wise to also interpret these events by referring entirely to the actions of
individuals. So if one inserts "as if" into the "invisible hand" sentence, the meaning
does not change. The form is different, but the substance is the same.
 
I agree with Jean, if I understand the implied meaning of the last part of the post, that
the term is meant to bring into one's mind the notion of God directing men's actions, or
perhaps the Pope or the king acting in God's behalf (and claiming that his action was "for
the public good"). Smith seems to be making a contrast between an image of human behavior
being directed by the behavers themselves (in their own interest) and behavior being
directed by God, the government, or by people who claim to be trading "for the public
good."
 
The question arises of what Smith means when he says "promotes the interest of society."
The answer to that, it seems to me comes from his butcher, baker, and brewer passage. He
is writing about what neoclassical economists meant when the referred to "the interests of
individuals acting in the role of the consumer." The fact that he modifies this phrase
with the word "frequently" shows, it seems to me, that he was mixing model building with
realistic practical conclusions. His meaning probably goes something like this: "if the
behavior of the butcher is not fraudulent, if the consumer does not err in his own eyes,
if the production of the meat does not cause a negative externality, and if the butcher
does not charge a monopoly price; consumers will gain from the actions of business people
who employ their capital, including the butchers, bakers and brewers; and no one else will
lose."
 
Is this idea important today? It seems to me that it is the starting point of all clear
thinking about the effects of market intervention. Where else can one start?
 
Pat Gunning, Feng Chia University, Taiwan; 
 
 
 
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