Is Adam Smith’s “Invisible Hand” Misunderstood? A Declaration

From the New York Times opinion blog “The Stone” comes this article by John Paul Rollert, who teaches business ethics at the University of Chicago Booth School of Business and leadership at the Harvard Extension School.  In the piece, Rollert argues that Adam Smith’s comment regarding the “invisible hand” of market forces was an idea that had only fleeting appearances (three total) in all of Smith’s writings and that Smith never argued for the elimination of government because of inherent qualities inimical to the growth of capitalism or human liberty. Rollert’s analysis of Smith seems to have more to do with his qualms with the Romney/ Ryan ticket than refuting what he considers a common “misunderstanding” of Smith’s fundamental descrition of market forces and human economic cooperation. He writes:

In other words, the invisible hand did not solve the problem of politics by making politics altogether unnecessary. “We don’t think government can solve all our problems,” President Obama said in his convention address, “But we don’t think that government is the source of all our problems.” Smith would have appreciated this formulation. For him, whether government should get out of the way in any given matter, economic or otherwise, was a question for considered judgment abetted by scientific inquiry. He offered “The Wealth of Nations” in service of such an inquiry, a two-volume tome he painstakingly revised for years after it was published. Had he known that a single phrase plucked from the dense thicket of ideas would become the first and last word of his philosophy, I suspect he would have made one more revision.

Perhaps. None other than Milton Friedman had a clear understanding of the phrase, which he examined in detail during his monumental television series Free to Choose and in the accompanying book written in conjunction with his wife Rose. Smith, Friedman wrote, argued that government had its uses (blocking monopolies, for example) but it was the poorest stimulant for economic growth. (Take the time to watch this clip from Episode 1, “The Power of the Market,” where Friedman brilliantly uses a simple pencil to describe the invisible hand as a force for peace and cooperation. You will understand why he won the Noble Prize in Economics.)

Where Rollert hits the mark (I could care less about his politicking in the article) is correctly pointing out that Smith’s seminal work The Wealth of Nations includes a withering blast against mercantilism, the prevalent national economic policy of Britain which regulated the economy of the American colonies. Smith’s book is published the same year as the Declaration of Independence and there is superb evidence that many of the delegates to the Second Continental Congress were familiar with his ideas. Jefferson and Smith would have been agreement when discussing the economic charges leveled at George III specifically and the British government generally in the Declaration:

He has erected a multitude of New Offices, and sent hither swarms of Officers to
harrass our people, and eat out their substance … He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation: … For cutting off our Trade with all parts of the world: For imposing Taxes on us without our Consent … .

The condemnation of taxation without representation is one that every school child should know. What often goes unsaid or unknown are the economic arguments in the Declaration that make clear that “life, liberty, and the pursuit of happiness” should be free from the unwarranted regulation of government that does not enjoy broad consent of the people. If the people wish to alter or abolish that form of government it can be for economic reasons as much as for political reasons.

I often wonder if either President Obama or Gov. Romney would sign the Declaration if they truly understood what it meant. If both would read it and The Wealth of Nations they would understand that the United States should not measure its wealth by how government imposes a visible hand of “fairness” but how it promotes cooperation between free individuals who use the power of the market to improve their lives.

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Filed under Commentary, History of the Declaration of Independence

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