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December 22, 2004

They Are Led by an Invisible Hand...

AdamSmithee believes that I am guilty of sharp practice:

AdamSmithee:...it does seem unfair that, as noted by other commentators, you attack Herzog for quoting Smith without looking at the broader context and then turn around and with the weasel words "In the Wealth of Nations, at least" you yourself ignore most of Smith's writings.

The number of times that Smith suggested the desire for wealth was principally driven by vanity is far too high to assume the thought was a mistake or minor aside. Indeed, he thought that vanity was an important tool to ensure that there was some level of equality in the distribution of necessities. The rich, by employing the poor "for their own vain and insatiable desires... make nearly the same distribution of the necessities of life... had the earth been divided into equal portions among all its inhabitants," he argued.

Again, 'the whole industry of human life is employed' in satisfying 'the nicety and delicacy of our taste.' And 'an augmentation of fortune is the means by which the greater part of men propose and wish to better their condition. It is the means most vulgar and most obvious...'

Read Albert Hirschman's 1977 classic "The Passions and the Interests: Political Arguments for Capitalism Before Its Triumph."

I accept the criticism, and will report to the reeducation camp tomorrow.

In partial mitigation of my offense, I plead The Adam Smith Problem: to what extent is the authorial voice of An Inquiry into the Nature and Causes of the Wealth of Nations consistent and compatible with the authorial voices of Smith's other writings and lectures? Did Smith change his mind over time? Did he not think it very important to make his political economy consistent with his moral psychology? These are all big questions on which I find my views changing every half decade or so, each time I reread Smith's collected works.

But enough from me. Let's turn the microphone over to The Man from Kirkcaldy himself, and read his great paean to short-sighted vanity--the first place, IIRC, that he ever uses the phrase "invisible hand":

From The Theory of Moral Sentiments:

The poor man’s son, whom heaven in its anger has visited with ambition... admires the condition of the rich. He finds the cottage of his father too small.... He is displeased with being obliged to walk.... He... judges... a numerous retinue of servants would save him from a great deal of trouble. He thinks if he had attained all these, he would sit still contentedly, and be quiet, enjoying himself in the thought of the happiness and tranquillity of his situation. He is enchanted with the distant idea of this felicity.... To obtain the conveniencies which these afford, he submits in the first year, nay in the first month of his application, to more fatigue of body and more uneasiness of mind than he could have suffered through the whole of his life from the want of them. He studies to distinguish himself in some laborious profession. With the most unrelenting industry he labours night and day to acquire talents superior to all his competitors.... Through the whole of his life he pursues the idea of a certain artificial and elegant repose which he may never arrive at, for which he sacrifices a real tranquillity that is at all times in his power, and which, if in the extremity of old age he should at last attain to it, he will find to be in no respect preferable to that humble security and contentment which he had abandoned for it....

But in the languor of disease and the weariness of old age, the pleasures of the vain and empty distinctions of greatness disappear.... In his heart he curses ambition, and vainly regrets the ease and the indolence of youth, pleasures which are fled for ever, and which he has foolishly sacrificed for what, when he has got it, can afford him no real satisfaction. In this miserable aspect does greatness appear to every man when reduced either by spleen or disease to observe with attention his own situation, and to consider what it is that is really wanting to his happiness. Power and riches appear then to be, what they are, enormous and operose machines contrived to produce a few trifling conveniencies.... They are immense fabrics, which it requires the labour of a life to raise, which threaten every moment to overwhelm the person that dwells in them, and which while they stand, though they may save him from some smaller inconveniencies, can protect him from none of the severer inclemencies of the season. They keep off the summer shower, not the winter storm, but leave him always as much, and sometimes more exposed than before, to anxiety, to fear, and to sorrow; to diseases, to danger, and to death.

But... when in better health and in better humour... We are then charmed with the beauty of that accommodation which reigns in the palaces and oeconomy of the great.... The pleasures of wealth and greatness... strike the imagination as something grand and beautiful and noble, of which the attainment is well worth all the toil and anxiety which we are so apt to bestow upon it.

And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth.

The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants. 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 oeconomy 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, and thus without intending it, without knowing it, advance the interest 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.

Posted by DeLong at December 22, 2004 09:44 AM


A beautiful passage and I thank you for quoting it -- this inspires in me a sentiment to which I have previously been a stranger, viz. the desire to read Smith.

Am I wrong in thinking this means that the notion of homo economicus as a rational actor post-dates Smith? He essentially says in the first paragraph there, efforts to improve one's situation by working for money are irrational.

Posted by: Jeremy Osner at December 22, 2004 09:53 AM


Posted by: Brad DeLong at December 22, 2004 10:11 AM

Yes it is very heartening to think of the ideal sentimenents which reveal to us that the deluded selfishness of the rich will result in enough scraps falling from their tables to feed the mass of us.

The point is that the whole thing is asserted as an article of faith in a secular religion. The Irish died in the famine, as do the Etheopians and the reugees of Darfur, not because there was not enough food, but because they have no MONEY.

Who they are and what they do are not considered enough worth to be paid either in wages or divdends and rents. And the land had been appropriated into provate hands by the ambitions of the wealthy, so they lack the means to produce their own food and clothing.

And cetainly these necessities cannot be given away free because then there will be no incentive for work and ambition.

My point is that none of this is science, it is religion, an assertion of faith in a certain structure of human behavior and of a meachanism of how the world works together for good.

But there are other possible faiths. As Nietzsche said, "Man does not seek happiness. Only the Englishman does."

Posted by: pragmatic_realist at December 22, 2004 10:28 AM

Well, it is moral science, but incomplete. On the one hand it presumes to describe "human nature" as if it were locked into one state of being, and immutable over time. On the other hand, negative externalities to ecosystem and climate were not on Smith's horizon. (Also, I think maybe he harbored a hidden presumption that through his new-found system, the poor might finally catch up to the rich--a result felicitous enough to justify the breaking of bones, as the commons was fenced-off for primitive accumulation.) Nowadays of course, we are just ignoring distribution, we are explaining the supply and demand of religious belief and even martyrs, and we are practicing contingent valuation upon the results of wildlife evolution. We quantify the outsides as the clowns can perceive it, and let the market compute. So all will be better, soon!

Adam Smith is much more interesting than having merely started economics, as extraordinary as that is. Here, at the beginning of the Enlightenment, we find an attempt to explain why England was doing so well in its aggrandizement of material wealth, when after this display of hubris, by testaments old and new, the judeo-christian god should instead have punished it. It is the great splitting-off of rationality that characterizes our era of thought. Of course there are plenty of takers: fetid little bipeds in mortal fear. Why, just the other day I utilized exchange-value to watch a DVD movie, in order to have conveniently-scheduled emotions about the quick and the dead.

And now that we are noticeably altering the elemental cycles of the biogeosphere, perhaps in excess of our technological bootstraps to aright things, will adverse consequences finally arrive so all the clowns can see at once? No!--I must go read something that argues that creativity will surmount all obstacles in time, and that the market will best enable this to happen...

Posted by: Lee A. Arnold at December 22, 2004 12:11 PM