Invisible Hand - Abusing Smith's Statement of an Invisible Hand

Abusing Smith's Statement of an Invisible Hand

That part of Smith's The Wealth of Nations that belongs to his views prior to his acquaintance to the French Économistes (Physiocrats) can rightly be claimed by neo-classical economists as their forerunner. The earlier Smith and his teacher Hutcheson belong to a micro-economic strain in line with Aristotle and Puffendorf. An agonising neoclassical theory had been reanimated in the 30th in Chicago against dominant Institutional economics, so claims to be the heirs of Adam Smith are partially justified. In this line of reading Smith, already Samuelson indicates that Smith should be an American citizen:

And at the bicentennial celebration of The Wealth of Nations 1976 at Glasgow University, Stigler (from Chicago) was happy to declare: "I bring you greetings from Adam Smith who is alive and well and living in Chicago".

But this equation of Smith's invisible hand statement and the American-led neoclassical General equilibrium theory is obtained only by curtailing Smith. An example is Paul Samuelson's Economics – published since 1948 with over 4 million copies. It mentions Smith's invisible hand seven times. But the use Samuelson makes of Smith's invisible hand is stated best by comparing Smith's text with how it is cited in excerpts by Samuelson (Smith's text, with Samuelson's selections in bold):

"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 maybe 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 general interest, nor knows how much he is promoting it. 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, 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.

Smith nowhere wrote about "the invisible hand of the market" as is commonly assumed. He just used the phrase "invisible hand". Furthermore, the qualifier, "By preferring the support of domestic to that of a foreign industry", is not quoted when referring to the "invisible hand" sentence.