Invisible Hand - Other Uses of The Phrase By Smith

Other Uses of The Phrase By Smith

Only in The History of Astronomy (written before 1758) Smith speaks of the invisible hand, to which ignorants refer to explain natural phenomena otherwise unexplainable:

Fire burns, and water refreshes; heavy bodies descend, and lighter substances fly upwards, by the necessity of their own nature; nor was the invisible hand of Jupiter ever apprehended to be employed in those matters.

In The Theory of Moral Sentiments (1759) and in The Wealth of Nations (1776) Adam Smith speaks of an invisible hand, never of the invisible hand. In The Theory of Moral Sentiments Smith uses the concept to sustain a "trickling down" theory, a concept also used in neoclassical development theory: The gluttony of the rich serves to feed the poor.

The rich … 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. These last too enjoy their share of all that it produces. In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for (emphasis added).

Smith's visit to France and his acquaintance to the French Économistes (known as Physiocrats) changed his views from micro-economic optimisation to macro-economic growth as the end of Political Economy. So the invisible hand in The Theory of Moral Sentiments is denounced in the Wealth of Nations as unproductive labour. Walker, the first president (1885 to 92) of the American Economic Association, concurred:

The domestic servant … is not employed as a means to his master's profit. His master's income is not due in any part to his employment; on the contrary, that income is first acquired … and in the amount of the income is determined whether the servant shall be employed or not, while to the full extent of that employment the income is diminished. As Adam Smith expresses it "a man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants."

Smith's theoretical U-turn from a micro-economical to a macro-economical view is not reflected in The Wealth of Nations. Large parts of this book are retaken from Smith's lectures before his visit to France. So one must distinguish in The Wealth of Nations a micro-economical and a macro-economical Adam Smith. Whether Smith's quotation of an invisible hand in the middle of his work is a micro-economical statement or a macro-economical statement condemning monopolies and government interferences as in the case of tariffs and patents is debatable.

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