Adam Smith in a broader context

by guest poster Gavin Kennedy

(Rdan-A reader comments on the Research Agenda post on Adam Smith. The comments could not handle the volume of text, so I took the liberty of putting up the comment and the response. Good work guys):

The reader suggests Mr. Gavin consider the following quote and his explanation:
Adam Smith in the Wealth of Nations

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 may be 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.

(Reader then comments on the above quote he provided…)

Society is made up of individuals. The sum product in terms of goods and services produced by society is the output of the economy. If everyone is producing as much as they can individually, whether it be teacher, truck driver, artist, investment banker, or Michael moore, then collectively the economy is producing at an optimal level. Individuals are motivated by maximizing the things they want such as earning money, getting the satisfaction of teaching children, or making movies with a social concious while making money. Its what motivates us as individuals that is the invisible hand as opposed to some dictator or monarch trying to direct the economy and telling us all what to produce and how we are to be employed. Adam Smith was trying to offer an alternative to the tyranny and brutality of royalty. The liberals in my view want to dive is back to the days when the central authority such as the king called the shots. Us and the progressive right say not thank you…

Mr. Kennnedy responds below the fold: Research Agenda

As always with ideas from the 18th century, they are bit more complicated than they seem at first, and in what they have become to mean in the 21st century, as with the invisible hand metaphor, which after 60 years of truncated quoting and misapplying of it, its original innocence is almost lost in myths.

The partial quotation you make from the paragraph in Wealth Of Nations eliminates the actual context of which Smith wrote (WN IV.ii.9: 456). Indeed, in the truncated form you offered, the immediately previous eight paragraphs are also important (WN IV.ii.1-8: 452-55).

I urge you to read them. Should you do so, you will realise that Smith was not making a general statement about society’s “output of the economy”; he was writing about the effects on national output arising from the risk-avoidance of some, but not all, merchants who prefer to invest domestically rather than abroad because of the greater risks of overseas trade (all explained in paragraph 6, page 454) and also specifically identified in the invisible hand paragraph 9: “he intends only his own security”.

The actual “rule” that Smith, incidentally an accomplished mathematician, speaks of, is the arithmetic rule that “the whole is the sum of its parts”, in this case, the greater the number of merchants investing locally, the greater the national output and the resultant employment and “progress to opulence”.

My contributions on Adam Smith are made as an educator, not as a propagandist for this or that interpretation of Adam Smith’s writings. I cannot comment on the role of “liberals” or “progressives”, as the Atlantic divides the meanings of these words so much that they have come to mean their opposites on both sides!

Thank you for commenting on my contributions.