11. Smith’s Invisible Hand

One of the biggest concepts that underlies every single one of Smith’s works is the idea of the Invisible Hand, this notion of inhuman forces pushing and causing humanity to make decisions in its favor. Many scholars interpret this as an Enlightenment attempt to describe God in more deistic terms, thus taking away the personality of the God and turning him into just a force for the good and bad that occurs in economic transfer.

He describes it in his supplementary text The Theory of Moral Sentiments, using the context of a self-interested landlord as the reference in Chapter VI.

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 … [Yet] the capacity of his stomach bears no proportion to the immensity of his desires … the rest he will be 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 rich…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…

In Smith’s mind, there is a historical motive that drives man to act outside of their interest, or against the rationale of the day. As Smith states so well in the Wealth of Nations.

Every individual necessarily labors to render the annual revenue of the society as great as he can … 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 … By pursuing his own interests, 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.

This is summarized by Investopedia as “First, voluntary trades in a free market produce unintentional and widespread benefits. Second, these benefits are greater than those of a regulated, planned economy.”

Some scholars see this as him promoting some sense of deism, where a god selectively gets involved in shifting and driving developments in the economy and culture. However, economists see this in more general, less religious terms.

Paul Samuelson, early 20th century economist, wrote in his textbook Economics that the Invisible Hand was not some spiritual entity, but a principle. According to Samuelson, “each individual in pursuing 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 seems to see this concept as the spirit of the Free Market driving their fellow man to make decisions that help him.

In other words, it is far less a religious concept or belief in a higher entity than it is a belief in your fellow man and his capabilities to build up his fellow man. Smith believes wholly that man, if left to his devices, will act in the economy and his fellow man’s interest. It’s an economic humanism, if you will.

One clap, two clap, three clap, forty?

By clapping more or less, you can signal to us which stories really stand out.