![]() ![]() One of the problems, according to Norwegian economist Erik Reinert, is that the free-market idealists do not see any difference between the “real economy” and the “financial economy.” Ideally, the financial economy represents the capital that drives the real economy, while the real economy itself consists of a chaotic complexity of production, sales, and innovation of numerous goods and services. The influence of this idea for modern economic theory has been enormous and the consequences on real life economics quite unsettling. ![]() Adam Smith’s comments have been proffered as proof that the market, through the invisible hand of some equally invisible power, will automatically bring harmony and equality to society. The invisible hand is mentioned in almost every textbook of economics, and in all references to Adam Smith and his ideas. So, compared to how little Smith actually wrote about the invisible hand, its importance in modern economic theory has been truly staggering. He simply left us with these brief observations. He never develops the idea into a consistent theory. In 1,700 pages of writing, Smith mentions the invisible hand only twice. “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.” In Wealth of Nations, Smith has this to say about the invisible hand: ![]() They are led by an invisible hand to make nearly the same distribution of the necessities of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without including it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.” 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. “The rich only select from the heap what is most precious and agreeable. Reading the quote from Theory of Moral Sentiment, one can only marvel at the idealistic simplicity of his ideas: In fact, it is mentioned only once in Wealth of Nations, and once in Theory of Moral Sentiments. These sides of Adam Smith’s thinking are rarely mentioned in capitalist circles, but they would be clear to anyone reading his original work.Īs for the famed invisible hand itself, Smith says surprisingly little about it. He was first and foremost a moral philosopher, and he used his first major work, The Theory of Moral Sentiments, to prove that human beings are actually good, and generally act according to the dictates of their conscience, what Smith calls “the man in the breast,” even if it goes against one’s own interest.įurthermore, Smith often took the side of the consumer over the producer, the worker over the factory owner, and was very suspicious of traders and manufacturers, and he claimed that their interests were directly opposite to that of society. But it is questionable that Smith would have agreed. This simple idea was developed by later writers on capitalism as wholesale support for greed and selfishness. “We address ourselves, not to their humanity,” Adam Smith wrote, “but to their self-love, and never talk to them of our own necessities, but of their advantages.” In economic terms this means that it is not from the baker’s benevolence that we get our bread and pastries, but rather from the baker’s self-interest in making a profit. Facebook Twitter LinkedIn Email Messenger Telegram WhatsAppĪdam Smith’s most famous and most quoted idea is that of the invisible hand–the notion that if you work for your own selfish goals, the result would still be the same as if you worked to serve society as a whole. ![]()
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