Adam Smith’s Invisible Hand and Visible Misinterpretations

Famously absentminded and an avid player of whist, he roamed the campuses of Glasgow and Oxford in the mid-18th century. This man was also frequently overheard talking to himself. Nonetheless, this eccentricity of a man was a preeminent thinker and held the chair of Moral Philosophy at Glasgow University. He counted amongst his friends great intellectuals such as David Hume, D’Alembert, Turgot, Voltaire, and even Francois Quesnay.

This man, of course, is Adam Smith.

Today, Adam Smith is one of the most well-known figures in economics. Most textbooks begin with an expert from his book The Wealth of Nations, enlightening young students about how an invisible hand tends supply and demand towards equilibrium in the long run. Hailed as the founder of economics, Adam Smith has certainly made lasting contributions towards modern economics.

But do we really understand Adam Smith and his insights? Can we be certain that we did not misunderstand him?

Ironically, Adam Smith himself did not see himself as a “founder of economics,” nor did he even consider The Wealth of Nations to be his greatest work.

The former claim is an easy one to verify: Smith had intended to dedicate The Wealth of Nations to Francois Quesnay, the French thinker who authored the Tableau Economique—an economic model of macroeconomics.

The latter claim can be deduced when one looks at Smith’s life-history: Considering his long-standing reputation as an authority on moral philosophy, it is quite probable that Adam Smith died thinking that his book Theory of Moral Sentiments published in 1759 was his greatest work.

So then, what about the bloated fanfare about his notion of the invisible hand? The term appears on page 572, where Smith writes,

“[The market participant] 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.”

When one reads The Wealth of Nations, the reader cannot help but wonder if Adam Smith wrote of the invisible hand in passing. After all, Smith makes sure that he repeats important claims several times within his work to reinforce his claim. In contrast, the term “invisible hand” appears only once. Perhaps it’s just a metaphor.

It seems reasonable to conclude that Adam Smith considered himself more an authority on philosophy than a voice for economics, and we ought to titillate the feasibility of whether or not the invisible hand is just overbloated hype.

But with all of that said, Adam Smith’s Wealth of Nations is certainly a bible of macroeconomics. The book hints of Smith’s stance as a Rawlsian long before John Rawls established his notion of the “difference principle” and also contains Smith’s insights on population growth, statistics, and speculation—just to name a few. Smith also draws liberally from French thinkers, which makes The Wealth of Nations a rich and enjoyable read.

Students of economics would do well to read The Wealth of Nations—being content with the notion of an invisible hand may in fact lead to very visible misinterpretations of not only Adam Smith, but of economic theory in general if the students’ attitudes towards studying are characterized by lazy inquiry.

Thus the fork in the road towards sound economics and vulgar economics seems to lie in whether or not an individual sees the continuity of the economics as a study.

//By Ryo TAKAHASHI

2 Responses to “Adam Smith’s Invisible Hand and Visible Misinterpretations”

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