In the previous post, we destroyed Samuelson’s invisible hand of selfishness* so that we can isolate and properly analyze that of Smith. We shall ‘do a Hume’ and break down its complex ideas so that we can arrive at a clear definition which then will serve as the foundation our general socioeconomic policy.
*One does not need to read Hume to know that selfishness is bad. However, selfishness seems to have slowly crept up to mainstream moral and economic thought (Jeremy Bentham, JS Mill and Ayn Rand) since the death of Enlightenment philosophers, just as plants and bugs slowly creep into one's house the longer one is away from home. Nowadays, profits, utility, and selfishness is so entrenched that it seems impossible to be removed and more practical to see the current economic system fail to be replaced by a new one, just as a bug-infested house is better destroyed whole and then rebuilt.
Explanation 1A (MAIN)
The longest explanation by Smith is in The Theory of Moral Sentiments (we will color code similar ideas):
The produce of the soil always maintains nearly as many people as it can maintain. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor. They divide with the poor the produce of all their improvements despite: their natural selfishness and rapacity, them wanting only their own convenience, and them employing thousands to gratify their own vain and insatiable desires. They are led by an invisible hand to make nearly the same distribution of life’s necessities which would have been made, had the earth been divided equally among all its inhabitants. Thus, without intending or knowing it, they advance the interest of the society, and afford the means to multiply the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who were left out in the partition. These last too enjoy their share of all that it produces. In the real happiness of human life, they are not inferior to those who seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly on a level. The beggar, who suns himself by the highway, possesses that security which kings are fighting for. (Simple TMS, Part 4, The Effect of Utility on Approbation)
The ideas are:
- The basic supply quantity meets basic demand, or Production = Consumption
- Rich humans:
- select only the highest quality from this quantity
- have nearly the same consumption limitations as poor humans
- in a micro view, divide their unconsumed supply to the poor humans, despite their greed.
- in a macro view, divide the Earth’s supply among everyone, without knowing it.
- through this, they advance society and increase human populations
- Providence divided the Earth among masters, but did not forget the poor.
- The poor shall share in all of the Earth’s supply
- Real happiness is in the ease of the body and peace of the mind.
- Everyone, rich or poor, are on nearly the same level in this.
- The beggar feels secure as any king.
We then select the key ideas relating to humans and condense them into three:
- Because of their natural physical limitations, those who have resources unknowingly distribute resources to all, selecting only the best for themselves, and advance society and population.
- The poor share in this quantity of resources.
- Real happiness is in the ease of the body and peace of the mind, which everyone is nearly on the same level of.
Explanation 1B (SUpporting)
Next, we add the supporting explanation in the first part of the paragraph which follows. This will make sense after we try to combine the invisible hand in The Theory of Moral Sentiments with that of the Wealth of Nations:
Those institutions which promote the public welfare are frequently recommended by the same principle, the same love of system, and the same regard to the beauty of order, art, and contrivance. When a patriot exerts to improve the public police, his conduct does not always arise from pure sympathy with the happiness of those who will benefit of it. A public-spirited man encourages the mending of high roads not commonly from a fellow-feeling with carriers and wagoners. When the legislature establishes premiums and other encouragements to advance the linen or woollen manufactures, its conduct seldom proceeds from pure sympathy with the wearer of cloth, much less from sympathy with the manufacturer or merchant. The perfection of police, the extension of trade and manufactures, are noble and magnificent objects. Their contemplation pleases us. We are interested in whatever advances them. They are part of the great system of government. It makes the wheels of the political machine seem to move with more harmony and ease. We take pleasure in beholding the perfection of so beautiful and grand a system. We are uneasy until we remove any obstruction that can disturb or encumber the regularity of its motions. However, all constitutions of government are valued only in proportion as they tend to promote the happiness of those who live under them. This is their sole use and end. We sometimes value the means more than the end because of a certain spirit of system, love of art and contrivance. We are eager to promote the happiness of others more from our desire to perfect and improve a beautiful and orderly system, than from any immediate feeling of what they feel. There have been men of the greatest public spirit, who were not very sensible to the feelings of humanity. On the contrary, there have been men of the greatest humanity, who entirely lacked public spirit. (Simple TMS, Part 4)
The ideas relating to the invisible hand (without government) are:
- The invisible hand:
- includes the love of system and regard for beauty of order, art, and contrivance
- recommends institutions for the public welfare
- is not immediately based on sympathy
- makes us value the means more than the end
- makes us eager to promote the happiness of others from the view of the system than by sympathy
We then combine the main and supporting explanations:
Because of their natural physical limitations, those who have resources unknowingly distribute resources to all, through the invisible hand, selecting only the best for themselves, and advance society and population, sharing resources with those without. This invisible hand thus recommends the institutions for the public welfare not through sympathy, but through a love of system which brings ease of body and peace of mind, desired by all, though we often value the means more than the end. (Condensed Explanation 1)
From this, we create the basic idea groupings, for future comparisons:
- Brown: Production = Consumption
- Green: The invisible hand as a non-rational or non-intellectual phenomenon (unknowing, non-intending) determined by natural limitations leading to the welfare of the species
- Blue: The inclusion of the poor and everyone of the species
- Teal: The love of system or the means to attain the end of real happiness of ease of body and peace of mind, through security
- Orange: The invisible hand is not immediately based on sympathy
Explanation 2A (Main)
Next, we add the explanation in The Wealth of Nations, using the same colors for similar ideas as in the previous explanations:
The annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry. Its revenue is precisely the same thing with that exchangeable value. Every individual necessarily works to render the society’s annual revenue as great as he can. He generally does not intend to promote the public interest, or know how much he is promoting it. By preferring to support domestic industry over foreign industry, he intends only his own security. By directing that industry to produce the greatest value, he intends only his own gain. In this case, as in many other cases, he is led by an invisible hand to promote an end which he did not intend. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes the society’s interest more effectively 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. It is an affectation not very common among merchants. Very few words can be used to dissuade them from it. (Simple WN, Book 4, Chap 2)
The basic ideas are:
- The produce of society is equal to its revenue, or Production = Revenue
- Everyone works to increase their own revenue without knowing it
- The invisible hand leads him to promote the interest of society
- He pursues the interest of society more by pursuing his own interest
- Trading for public welfare does not do much good
- Merchants commonly don’t work for the public welfare
By using colors, it is easier to see here that the orange idea or the lack of sympathy is more prevalent, and that the blue and teal ideas are missing (the inclusion of the poor and the goal of real happiness). This lack of blue and teal gives the invisible hand in The Wealth of Nations (WN) an air of selfishness, opposite that of the one in The Theory of Moral Sentiments (TMS), and is a major cause of debate. Liberals and greedy people will likely cite the WN version in defending their economic selfishness, while benevolent people will cite the one in TMS. Even its supporting explanation below is in orange.
Explanation 2B (SUpporting)
Every individual can, in his local situation, judge much better than any statesman on what domestic industry his capital produce the greatest value. The statesman who directs private people how they should employ their capitals would load himself with a most unnecessary attention. He would assume an authority which could not be safely trusted to any single person nor to any council or senate. Such authority would be most dangerous in the hands of a man who had the folly and presumption to fancy himself fit to exercise it. (Simple WN)
The basic ideas are:
- Every individual is the best judge of how to employ one’s own capitals.
- No one should direct others how to do it, as it would be dangerous.
We then combine the main and supporting explanations:
The invisible hand leads a person, pursing his own interest and employing his own capital the best way he knows how, to promote the interest of society without him knowing it, much better than pursuing public welfare directly. (Condensed Explanation 2)
We reconcile the difference between both invisible hands simply by focusing on their end goal of public welfare, and connecting it backwards to their combined basic ideas, to reveal that both lead to public welfare, ultimately to real happiness, indirectly in a long way. This is the same technique we used to separate the definition of capitalism from mercantilism, but here we use it to combine both invisible hands:
Thus, we can give temporary definitions of the invisible hand:
- The invisible hand works on natural physical limitations letting those who have resources unknowingly share resources with all, and advance society.
- It leads a person, pursing his own interest and employing his own capital the best way he knows how, to promote the interest of society without him knowing it, much better than pursuing public welfare directly.
- It thus recommends the institutions for the public welfare indirectly, not through sympathy, but through a love of system ultimately for the ease of body and peace of mind, through security.
However, as shown in the graphic as a question mark, it is not clear how each person pursuing his own interest would lead to an inclusive system of welfare or how the humans with resources will share theirs with everyone. In the next post, we will explain this missing pieces.