Smith argued that these three ingredients would lead to a "natural harmony" of interests between workers, landlords, and capitalists.Recall the pin factory, where management and labor had to work together to achieve their ends, and the woolen coat that required the"joint labor" of workmen, merchants, and carriers from around the world. On a general scale, the voluntary self-interest of millions of individuals would create a stable, prosperous society without the need for central direction by the state. His doctrine of enlightened self-interest is often called "the invisible hand," based on a famous passage (paraphrased) from The Wealth of Nations: "By pursuing his own self interest, every individual is led by an invisible hand to promote the public interest" (423).
Adam Smith's invisible hand doctrine has become a popular metaphor for unfettered market capitalism. Although Smith uses the term only once in The Wealth of Nations, and sparingly elsewhere, the phrase "invisible hand" has come to symbolize the workings of the market economy as well as the workings of natural science (Ylikoski 1995).
Defenders of market economics use it in a positive way, characterizing the market hand as "gentle" (Harris 1998), "wise" and "far reaching" (Joyce 2001), one that "improves the lives of people" (Bush 2002), while contrasting it with the "visible hand," "the hidden hand,"
"the grabbing hand," "the dead hand," and the "iron fist" of government, whose "invisible foot tramples on people's hopes and destroys their dreams" (Shleifer and Vishny 1998, 3^1; Lindsey 2002; Bush 2002). Critics use contrasting comparisons to express their hostility toward capitalism.To them, the invisible hand of the market may be a "backhand" (Brennan and Pettit 1993), "trembling" and "getting stuck" and "amputated" (Hahn 1982), "palsied" (Stiglitz 2001, 473),"bloody
(Rothschild 2001, 119), and an "iron fist of competition"
(Roemer 1988, 2-3).
The invisible hand concept has received surprising praise from economists across the political spectrum. One would expect high praise from free-market advocates, of course. Milton Friedman refers to Adam Smith's symbol as a "key insight" into the cooperative, self-regulating "power of the market [to] produce our food, our clothing, our housing" (Friedman and Friedman 1980, 1). "His vision of the way in which the voluntary actions of millions of individuals can be coordinated through a price system without central direction . . . is a highly sophisticated and subtle insight" (Friedman 1978, 17; cf.Friedman 1981).Not to be outdone are Keynesian economists. Despite its imperfections, "the invisible hand has an astonishing capacity to handle a coordination problem of truly enormous proportions," declare William Baumol and Alan Blinder (2001, 214). Frank Hahn honors the invisible hand theory as "astonishing" and an appropriate metaphor."Whatever criticisms I shall level at the theory later, I should like to record that it is a major intellectual achievement. . . . The invisible hand works in harmony [that] leads to the growth in the output of goods which people desire" (Hahn 1982, 1, 4, 8).
Smith's References to the Invisible Hand
Surprisingly, Adam Smith uses the expression "invisible hand" only three times in his writings. The references are so sparse that economists and political commentators seldom mentioned the invisible hand idea by name in the nineteenth century. No references were made to it during the celebrations of the centenary of The Wealth of Nations in 1876. In fact, in the famed edited volume by Edwin Cannan, published in 1904, the index does not include a separate entry for "invisible hand." The term only became a popular symbol in the twentieth century (Rothschild 2001, 117-18). But this historical fact should not imply that Smith's metaphor is marginal to his philosophy; it is in reality the central element to his philosophy.
The first mention of the invisible hand is found in Smith's "History of Astronomy," where he discusses superstitious peoples who ascribed unusual events to the handiwork of unseen gods:
Among savages, as well as in the early ages of Heathen antiquity, it is the irregular events of nature only that are ascribed to the agency and power of their gods. Fire burns, and water refreshes; heavy bodies descend and lighter substances fly upwards, by the necessity of their own nature; nor was the invisible hand of Jupiter ever apprehended to be employed in those matters. (Smith 1982, 49)
A full statement of the invisible hand's economic power occurs in The Theory of Moral Sentiments, when Smith describes some unpleasant rich landlords who in "their natural selfishness and rapacity"pursue "their own vain and insatiable desires." And yet they employ several thousand poor workers to produce luxury products: The rest he [the proprietor] is obliged to distribute . . . among those. . . 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. . . . [T]hey divide with the poor the produce of all their improvements. They are led by an invisible hand to,... without intending it, without knowing it, advance the interests of the society. (Smith 1982 [1759], 183-85)"The third mention, already quoted above, occurs in a chapter on international trade in The Wealth of Nations, where Smith argues against restrictions on imports, and against the merchants and manufacturers who support their mercantilist views. Here is the complete quotation:As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.... [A]nd 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. I have never known much good done by those who affected to trade for the public good. (Smith 1965 [1776], 423)
