The Myth of the Invisible Hand

(This is an appendix from my book, Adam Smith’s Wealth of Nations: a 21st Century Translation and Commentary.)

This appendix is my analysis, not Smith’s, and therefore should be viewed as commentary. It will, no doubt, upset some of my readers who fancy themselves fans or apostles of Adam Smith. I regret the necessity.

The Wealth of Nations has taken on the quality of an article of faith among many people. As such, people sometimes see the words they wish were in the text rather than those actually there. While I understand and appreciate the human tendency to elevate great people and great works to the level of archetypes, my job (admittedly, self-appointed) has been to translate Smith as accurately and faithfully as possible in order to make him accessible to a modern audience.

Toward this end, I refuse to sacrifice intellectual honesty for the sake of preferences, whether my own or those of others. It now appears that the invisible hand metaphor has been misused since the 1940s.

To get to the bottom of this, we must start with the realization that “invisible hand” was and is a metaphor. We do not need to speculate as to Smith’s views on metaphors; they have been recorded.

Said Prof. Gavin Kennedy: “In ‘Lectures on Rhetoric and Belles Lettres’ ([1762–3] 1983), Smith makes it clear what a metaphor does: it enlivens ‘tiresome’ discourse.” (Note: per the Smith quotation in my Author’s Preface, he was well aware that his lengthy writing could prove tiresome.)

A metaphor is, in Smith’s own words, “an allusion betwixt one object and another… (giving) due strength of expression [and beauty] to the object described and at the same time (doing) this in a more striking and interesting manner.”

Note that, by Smith’s own definition, every metaphor has an object. The metaphor is never, itself, its own object. This directs us to ask the question, what was the object of Smith’s invisible hand metaphor?

Here, says Kennedy, is the true object of the metaphor, preceding it in the same paragraph: “ 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…’ (WM IV.ii.9: 456; emphasis added)”

Contrast that with the common misunderstanding of the invisible hand metaphor. In the words of the person who apparently created that misunderstanding:

“…the mainstream belief, mainly from the post-1940s, is that Adam Smith: ‘proclaimed the mystical principle of the “invisible hand”: that each individual in pursuing only his own selfish good was led, as if by an invisible hand, to achieve the best good of all, so that any interference with free competition by government was almost certain to be injurious’ (Samuelson 1948, 36).”

To which Kennedy rebuts, “Smith made it clear why individuals behaved as they did before he deployed the invisible hand metaphor and by no stretch of what he actually wrote was the famous invisible-hand other than a simple, though striking, metaphor. It was not an additional explanation, nor evidence of an implicit theological mystical force or providential presence in human decision-making.”

He further notes, “It was simply a well-known rhetorical device, sufficiently popular among 18th-century literate readers and theologians. Hence, nobody commented upon it during his lifetime, and precious few until the late 19th century and the last half of the 20th century.” (Emphasis added.)

I concur with Kennedy’s observation: had the invisible hand held such centrality and significance to Smith’s thinking as was attributed by Samuelson and others following him, this fact would surely have been noted by scholars prior to the mid-20th century. (The book was, after all, a runaway bestseller in its time and the foundation for most of the economic thinking that followed.) Instead, what apparently happened is that Samuelson made an error, which error was subsequently repeated by numerous economists without any independent scholarship. He took the metaphor far beyond its intended scope of meaning.

I would add to Kennedy’s comments the observation that nowhere in Smith’s actual words in The Wealth of Nations is to be found support for Samuelson’s sweeping phrase, “each individual in pursuing only his own selfish good”. This is Samuelson’s own invention.

Here is Smith’s only actual statement in The Wealth of Nations regarding the invisible hand: “ 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.” (Emphasis added.)

Samuel Fleischacker said it well, “‘If [Adam Smith] had wanted to proclaim that an invisible hand always guides individual economic decisions toward the good of society, we would expect the proclamation at the opening of the book, as part of his grounding theory of economic activity. The theory Smith gives us there does support the claim that individuals generally promote the social good in their economic behavior without intending to do so, but there is no hint that this holds in all cases, much less that it is guaranteed to hold by either empirical or metaphysical laws” [Emphasis added] (Fleischacker 2004a, 139).

Note well in Smith’s actual words the terms “many” and “frequently”. As in so much of Smith’s thinking, his invisible hand metaphor is nuanced. It specifically references “many” and not all cases. There is nothing in the context of the metaphor to indicate that he intended a wider application than to discuss the decision-making process of merchants.

Even though he held firmly to high ideals, Smith was an unwavering pragmatist. He was not writing merely to opine but to persuade. That is why he made frequent and clever use of metaphor, of which this is but one example.

Smith is claimed as the patron saint of multiple schools of economics, notably the various “freshwater” schools including the Monetarists and Austrians. There is much justification in this, and he is highly respected by the other schools as well. But, just as some of Milton Friedman’s disciples have taken more extreme positions than he himself would have allowed so too have unwarranted positions been taken in Smith’s name. Most egregious are those who claim to quote Smith, ignoring the fact that their purported ‘quotation’ is nowhere to be found in his writing.

Smith sought to patiently explain the causes of human behavior, laying out for the first time many understandings that inform us today. He was a deep student of human nature. Were Smith alive today, I suspect he would find himself most in accord with the school of economics known as Behavioral Economics, which focuses on making economic theory and analysis reflect what people actually do.

Finally, I would be remiss if I did not give due acknowledgement to the opposing point of view. Prof. Daniel Klein, who debated the meaning of invisible hand with Prof. Kennedy in Econ Journal Watch. (, said this: “the phrase [invisible hand] may properly serve as a tag for the comparative merit of liberty. Whether Smith intended for the phrase to be used that way is uncertain, but does not matter much to its serviceability.”

Having read both sides of this debate, I do not find such uncertainty, but I will grant that reasonable people can harbor differing opinions. My own view is that Prof. Samuelson made an error in this particular instance, and that many others have furthered this error ever since.


The invisible hand has been converted from Smith’s original use as a metaphor into the object of that metaphor. This has supported much caricature of the man. Smith was a far more nuanced and sophisticated thinker than many commentators would have him. He was no ideologue.

To the extent that Smith favored what later came to be called capitalism, and he definitely did so in most cases, it was as an expedient to provide for the common advancement of humanity and because of his belief in the virtues of liberty, but a nuanced liberty.

Unlike Ayn Rand, Smith attached no moral superiority to business people or to the wealthy. His entire economic thesis was a means to an end: a society of greater wealth and opportunity, leading ultimately to universal opulence — which is the subject of my sequel to this book.

In my view, Smith was an unwavering ally of individual liberty and limited government, while never losing sight of the tendency for large vested interests to manipulate the system.[i] He believed that this tendency must be checked by institutions of government, while cautioning that those very institutions can become perverted in service to large vested interests, as has happened time and again.

Smith was above all a friend to the creation of a moral society in which little people are given a decent chance at happiness and progress.

[i] The phrase, “Maximize shareholder value” is taught in many business schools as a guiding principle of management, if not an 11th Commandment. It creates what many managers consider to be a moral duty to perform any action necessary to raise the company’s market capitalization. It puts countless honorable managers in a difficult position, as it forces them to compromise between service to their employer and their broader values in life.