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Myths About Adam Smith Ideas v. His Ideas

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John Hunter

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Gavin Kennedy is a professor and director of contracts at Edinburgh Business School. He authors the Adam Smith’s Lost Legacy blog discussing the mis-attributions to Adam Smith, which are all too common now. A good example is, Perpetrators of Myths Mislead Generations of Students, Some of Whom Grow Up to (mis)Advise Legislators:

The notion that Smith had a ‘theory’ of ‘an invisible hand’ leading all players in markets to act in pursuit of their self-interests and raise annual output and annual employment is a myth, invented (‘made up’ would not be too strong a charge) by advocates of pro-corporate capitalism, then becoming rampant in the USA in the 1950s.
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Smith’s intellectual arguments, and personal warmth for the growth of commercial society, were driven by the conviction that growth across agriculture, industry and specific, targeted public expenditure, such as defence, justice, and public works and public institutions, would assist the spread of opulence, especially to the labouring poor and their families, albeit slowly and gradually, but steadily too, if legislators and those who influenced them were careful not to approve monopoly schemes to narrow markets and restrict competition, not to indulge in spasms of ‘jealousy of trade’, protectionism, forming loss-making colonies and conducting wars for trivial ends (i.e., not for defensive purposes only).

Introducing, a mystical or miraculous force at work in markets detracts from the real and detailed policy measures that may required from time to time to ensure steady growth, competition, and liberty for all, and not just for the amoral ends of privileged monopolists and their cronies.

Related: Not Understanding Capitalism – Ignorance of Capitalism – Monopolies and Oligopolies do not a Free Market Make – Estate Tax Repeal, Bad Policy

Comments

One response to “Myths About Adam Smith Ideas v. His Ideas”

  1. Marc Hersch Avatar
    Marc Hersch

    G. Kennedy’s apologetics notwithstanding, Smith was wrong when he wrote:

    “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 AND END WHICH WASNO PART OF HIS INTENTION. Nor is it always the worse for the society that it was not 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.”

    But is it true that a man “…pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

    Smith falls into the trap of reducing human motivation to self-interested action — any other motivation he calls “an affectation”. He then argues forward from this premise that selfishly motivated individuals, inadvertently contribute to a system that produces a greater good. In doing so, he argues that malevolent intentions are outweighed by the consequences of the “invisible hand”.

    Although some unintended good may, in the short run, flow by happenstance from actions taken for the wrong reasons, in the long run, it is the consequences of wrong reasoning (reduction of human motivation) and wrong intentions (selfish interests) that determine outcomes.

    For example, we may celebrate the invention of the automobile and the financial kingdoms built from profits realized in the production, promotion, and sale automobiles. We can say that were it not for the self interested ambition of inventors, producers, sales people, and well funded lobbyists, today we would not have two cars for every adult human being in the United States. Instead, we might have high speed rail, smogless cities designed for people rather than cars, plenty of oil to serve our energy needs, and a climate that is not in peril.

    To build a society upon good that is inadvertently produced by wrong reasoning, is to ride on the back of a tiger — Smith enshrines the lowest and most bestial passions of the human psyche as natural law.

    To build a society based on the intention to create a system that works, by forming theory and developing methods that, to the best of our knowledge as any given time, will produce our most reasonably realize our intended outcomes, is not only a wiser path, but it is the innate and definitive quality of human action.

    Is there a carnivorous tiger lurking in the human soul? Of course, but that is merely what we have in common with tigers and other unreflecting large predators, all of whom are near extinction. Man has risen not because of his predatory and selfish nature, but because of his ability to reflect, create theory, and devise methods to manage the threatening forces that surround him.

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