Sat Mar 7th, 2009 at 02:33:09 AM EST
Many self-professed fans of Adam Smith seem to think that the parable of the Invisible Hand is either one of meritocracy, or one of economic efficiency. Now, I have not read Wealth of Nations (yet), and I'm not quite finished with Theory of Moral Sentiments, so it's possible that Smith does use the metaphor in those ways later in his works. It is also possible that many self-professed fans of Adam Smith have read more Ayn Rand than Adam Smith...
In any event, this is the first appearance of the Invisible Hand in Smith's books, from Part IV of Theory of Moral Sentiments [paragraph breaks inserted by me]:
It is to no purpose that the proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest that grows upon them. The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant.
The rest he is obliged to distribute among those who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets which are employed in the economy of greatness; all of whom thus derive from his luxury and caprice that share of the necessaries of life which they would in vain have expected from his humanity or his justice.
The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They 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 [my bold]; and thus, without intending it, without knowing it, advance the interests 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.
There is a couple of things, listed in no particular order, that I found noteworthy about this story:
- This is not a meritocratic story, and the people at the top of the heap really aren't very nice, or even necessarily very deserving of their riches.
- Adam Smith clearly never experienced poverty on his own body.
- This entire logic hinges upon the notion that "The rich only select from the heap what is most precious and agreeable. They consume little more than the poor." While that is a debatable point even at Adam Smith's time, it certainly does not apply today. One of the results of industrialisation is that those with access to the fruits of an industrial production economy can now consume far, far more than those without. In other words, the Invisible Hand is dead. Industrialisation killed it.
- Related to the above point, the Invisible Hand distributes only the barest "necessaries of life" - it cannot be counted upon to distribute such luxuries as dental care, running water, electricity or any of the other thousand and one conveniencies that the citizens of modern industrial states surround themselves with.
- The book was written at a time where health care was more palliative than curative (if even that at all). A couple of pages earlier, Smith makes the point that even the richest and most powerful king is laid as low as the meanest beggar by disease. In a world of quacks and nostrums - Adam Smith's world - there's something to that. In a world of modern, effective medicine... not so much.
- This is not a story of economic efficiency, it is a story about distribution.
And I'm sure that there are other aspects that I missed.