Adam Smith on Invisible Hand - Dictionary of Arguments

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Invisible Hand: The "invisible hand" is a metaphor introduced by Adam Smith to describe how individuals pursuing their own self-interest unintentionally contribute to overall economic well-being. Through voluntary exchange in free markets, resources are allocated efficiently, as if guided by an unseen force. This concept supports the idea that minimal government intervention can lead to beneficial outcomes for society as a whole. See also Interest, Markets, Prosperity, Wealth. _____________ Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

> Smith, Adam	> Invisible Hand	Adam Smith on Invisible Hand - Dictionary of Arguments Otteson I 37 Invisible Hand/Adam Smith/Otteson: [In his] Wealth of Nations⁽¹⁾ Smith writes: "It is his own advantage, indeed, and not that of the society, which [each person] has in view. But the Study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society" (WN⁽¹⁾: 454). Smith continues that each individual "generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it"; "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" (WN⁽¹⁾: 456). What is the "end" the individual promotes that "was no part ofhis intention"? The "publick interest." Individuals have, of course, ends (or purposes), but they are personal and local. Smith's claim in this famous passage is that in seeking to accomplish their personal and local ends, they are led to discover ways to serve others' ends as well - whether they care about those others or not. The Invisible Hand Argument hence finds a way to achieve the lofty goal of helping others from the humble motivation of self-interest. Otteson: How is this extraordinary feat accomplished? Recall Smith's claim that the goal of increasing standards of living results from division of labor - but only within a "well-governed society." >Division of labor/Adam Smith, >Community/Adam Smith. (…) what Smith means by a "well-governed society" is one that protects the "3 PS" of justice: person, property, and promise. >Justice/Adam Smith. In other words, it ensures that the only way I can get what I want from you is by appealing to your interests. If your person, property, and promise are protected, I cannot enslave you, I cannot steal from you, and I cannot defraud you. The only recourse i have, then, to get whatever goods or services you might be able to provide is by making you an offer. Otteson I 38 This means that I have to ask myself: What can I offer you that you would think is valuable enough to cooperate with me? Given that each of us "stands at all times in need of the cooperation and assistance of great multitudes" (WN⁽¹⁾: 26), that means that each of us must, in a well-governed society, think constantly of the value we can provide to others - which we can know only ifwe are thinking about those others and not thinking only about ourselves. In such a society, Smith says, we become "mutually the servants of one another" (WN⁽¹⁾: 378). The genius of the Smithian market mechanism was that it could coordinate the disparate individual efforts of indefinitely many persons and manage to derive an overall benefit for the good of society from them. >Market/Adam Smith, >Free Market/Adam Smith. To summarize Smith's argument: because I seek to achieve my goals in the most effcient manner possible (…), I am incentivized to make good decisions about how to achieve my goals using the resources available to me (…) and hence, as long as we are living in a well-governed society that debars me from acting with injustice, I will be led to cooperate with you in ways that will be beneficial to you as well (as the Invisible Hand Argument holds). >Justice/Adam Smith. In Smith's account, neither of us can benefit at the other's expense; rather, each of us can benefit only by benefitting the other. Benefit: Who will be the chief beneficiaries of this generally increasing prosperity? Not the emperor, king, Iord, or baron-they already manage to get theirs, mostly by extracting it in "zero-sum," or even "negative-sum," transactions that benefit themselves at the expense of unwilling others. No, the primary beneficiary of this process is the everyday workman, who finds himself gradually and incrementally able to afford more and more of life's necessities and luxuries. It is his standard of living that stands to see the greatest gains, and his Iowly station - which has been the situation of the majority of humanity throughout almost all of its history - which should be our chief concern. Smith believes he has discovered the key to unlocking a perhaps limitless engine of prosperity. Its salutary effects on the lives of common people is the moral mandate that drove Smith's political economy. >Political economy. Importance of the Invisible Hand Argument/Otteson: That phrase "invisible hand" occurs only once, however, in all of The Wealth of Nations⁽¹⁾. It occurs only two other times in Smith's extant works: once in TMS⁽²⁾ (pp. 184—5) and once in an essay Smith wrote about the history of astronomy (Smith, 1982a⁽³⁾: 49). Otteson: If it occurs only so infrequently, one might wonder why so much subsequent attention has been paid to it. Is it really so central to Smith's thought? The answer is yes, it is absolutely central to Smith's thought. Although the phrase "invisible hand" appears only a few times, the Invisible Hand Argument appears throughout his works. Occurrences in The Theory of Moral Sentiments: Here is the one occurrence of the phrase in TMS(2): the rich "are led by an invisible hand to make nearly the same distribution of the necessaries oflife, 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" (TMS⁽²⁾: 184-5). But the idea, if not the phrase itself, occurs throughout TMS. For example: "But by acting according to the dictates of our moral faculties, we necessarily pursue the most effectual means for promoting the happiness ofmankind" (TMS⁽²⁾: 166). "No qualities of the mind," writes Smith, "are approved of as virtuous, but such as are useful or agreeable either to the person himself or to others; and no qualities are disapproved of as vicious but such as have a contrary tendency" (TMS⁽²⁾: 188). Smith continues: "And Nature, indeed, seems to have so happily adjusted our sentiments of approbation and disapprobation, to the conveniency of both the individual and of the society, that after the strictest examination it will be found, I believe, that this is universally the case" (ibid.). Otteson I 39 Occurences in the Wealth of Nations: In addition to the one occurrence of the phrase in WN⁽¹⁾, quoted earlier, the idea is similarly found throughout Smith's WN. Here are a few examples. "The houses, the furniture, the cloathing of the rich, in a little time, become useful to the inferior and middling ranks of people. They are able to purchase them when their superiors grow weary of them, and the general accommodation of the whole people is thus gradually improved" (WN⁽¹⁾: 347). Another example: "It is his own advantage, indeed, and not that of the society, which he has in view. But the Study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society" (WN(1): 454). One more: "It is thus that the private interests and passions of individuals naturally dispose them to turn their stock towards the employments which in ordinary cases are the most advantageous to the society" (WN: 630). Many other examples could be adduced. 1. Smith, Adam. (1776) The Wealth of Nations. London: W. Strahan and T. Cadell. 2. Smith, Adam (1982) [1759]. The Theory of Moral Sentiments. D. D. Raphael and A. L. Macfie, eds. Liberty Fund. 3. Smith, Adam (1982a). Essays on Philosophical Subjects. W. P. D. Wightman, ed. Liberty Fund. _____________ Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.	EconSmith I Adam Smith The Theory of Moral Sentiments London 2010 EconSmithV I Vernon L. Smith Rationality in Economics: Constructivist and Ecological Forms Cambridge 2009 Otteson I James R. Otteson The Essential Adam Smith Vancouver: Fraser Institute. 2018

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