Invisible and Visible Hands. What Kind of Economist is Adam Smith, and Why is He Still Relevant?

ABSTRACT

Adam Smith’s works are investigated to provide better understandings of his contributions to economics and social science. The main issues discussed are the roles of invisible and visible hands; his general theories concerning human nature, moral philosophy, and socioeconomic formations; his proposal for major socioeconomic reform; whether he was a political economist or the ‘father’ of Neoclassicism; the nature of metaphorical interpretations; and why his thought still remains relevant.

KEYWORDS:

• Invisible hands
• visible hands
• general theories
• system of natural liberty
• metaphors
• political economy

JEL CODES:

• B12
• B31
• B41

1. Introduction

The phrase, ‘an invisible hand’, in Smith’s economic magnum opus has three main interpretations. Neoclassical economists interpret it as capturing the causal mechanism underpinning their conclusion that perfectly rational agents in perfectly competitive markets deliver the perfect outcome of universal optimisation, with this making Smith ‘the father of economics’. Some non-orthodox economists accept this interpretation and minimise or dismiss Smith’s importance to political economy. Others treat it as a caricature, focusing instead on his accounts of the actual nature of market economies, their outcomes, and the policies needed for improvement.¹

Eight questions concerning economics are discussed.

1. What core ideas are presented in Smith’s works?

2. Are these works united by common themes?

3. What meanings attach to his three invisible hand remarks?

4. Do visible hands or invisible hands underpin his economic theorising?

5. Why does Neoclassicism need an invisible hand?

6. Is Smith’s rightful place in the pantheon of orthodox, or non-orthodox, economists?

7. Is his invisible hand remark a metaphor?

8. Why is his thought still relevant today?

The answers provided are based on Smith’s writings, and logical analysis. Given the huge territory covered by his output, the focus is on conceptual frameworks, their main properties, and the arguments deployed therein. And given the enormous secondary literature, only relatively few authors are cited with apologies to those whose work is omitted.²

2. Smith’s Writings

The Glasgow edition of Smith’s writings is used, with the following abbreviations:

EPS: Essays on Philosophical Subjects, 1740s and 1750s, c220pp.

LRBL: Lectures on Rhetoric and Belles Lettres, 1748 to 1763 at least, c223pp.

TMS: The Theory of Moral Sentiments, 1759 (6th ed., 1790) c340pp.

LJ: Lectures in Jurisprudence, comprising LJ(A) of 1762–63, and LJ(B) of 1766, 550pp combined.

WN: An Inquiry into the Nature and Causes of the Wealth of Nations 1776 (6th ed., 1791), c1,000pp.³

These works cover natural philosophy, moral philosophy, science, literature, language, the arts, psychology, society, economics, politics, history, sociology and anthropology. One common theme, however, is the nature and content of scientific theorising. EPS discusses, inter alia, natural science from primitive times to the 18th century using astronomy as a key example. LRBL, while focused primarily on literature, also comments on logic and science. TMS explores key aspects of human nature in its necessarily social context, and announces his intention to write on the general principles of law and government (TMS, pp. 3, 342). LJ fulfils that promise, and presents a general theory of socioeconomic formations. WN, in advancing its contributions to economic theorising and policy-making, reprises various themes in the earlier works.

Although Smith’s economics is the main concern, some of its key ideas are closely related to his earlier writings, so that understanding WN requires adequate knowledge of the prior works. Relevant issues include cause–effect relations, the nature of individuals and societies, the different meanings of invisible hands, the roles of visible hands, general theories and special cases, the logical properties of arguments, and why Neoclassical economics requires an invisible hand.

3. Three Views of the Invisible Hand in Economics

3.1. Assertion (P)

The invisible hand is real and operates in all markets. It invisibly and benevolently produces universal optimisation (UO), the core conclusion of pure Neoclassicism. The rational policy is then to let free markets rule without government intervention. These ideas underpin orthodox textbooks, curricula, and research programmes.⁴

3.2. Denial (∼P)

The invisible hand is a fiction invented by Neoclassicism. Smith’s economic theorising deploys visible hands, his invisible hand remark is a removeable rhetorical aside, and WN nowhere argues that an invisible hand operates in any economy. Private sector decision-making delivers a range of possible outcomes with both satisfied and unsatisfied agents, any improvement of which then requires the visible hands of the state and its agencies.

3.3. Compromise (P&∼P in Various Forms)

While Smith’s invisible hand delivers UO, exceptions exist so that his position is mixed. For example, the invisible hand is ever-present but sometimes temporarily prevented from delivering UO; or the invisible hand is a helping hand not an ensuring hand; or Smith is the father of Neoclassicism and a political economist. These internally contradictory stances deliver two Smiths, not one.

4. Smith’s References to an Invisible Hand

Only three explicit references occur, each being a brief single reference in separate works in separate domains without a unified meaning. The paucity of the remarks, the presence of only one in WN, and the variations in meaning raise doubts about the unity and centrality of this idea in his oeuvre. Invisible hands are notably absent from LRBL and LJ.

4.1. EPS

In the History of Astronomy essay, his invisible hand remark references deities and the powers attributed to them in ‘less civilised’ societies.

… in all Polytheistic religions, 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. (EPS, p. 49; also p. 50)

Here normalities are caused by the internal nature of things, and abnormalities by the external invisible hands of deities interfering in the natural order. The early Greeks then began moving the causes of these abnormalities back into the natural world, a process continued in astronomy by Copernicus, Brahe, Kepler and, Newton (Smith’s contemporary). Scientific explanations thus began replacing religious ones.⁵ It is not often noted that EPS’s invisible hand concept is irrelevant to pure Neoclassicism. Since the latter always delivers UO, UO becomes a normality. Using an invisible hand to explain normal/natural outcomes when it only explains abnormal/unnatural ones would be self-contradictory.

Other important points are as follows. First, Smith views science and philosophy as identical because both have the same objective of revealing ‘the connecting principles of nature’. Second, scientific explanation involves ‘a connecting chain of intermediate events’, that is, internal sequences of cause–effect interactions. Third, these chains present accounts of what happens in reality. Fourth, explanatory systems resemble ‘machines’, as in mechanisms producing outputs from inputs, effects from causes, or logical conclusions from axioms. Fifth, invisible means unknown to humans, so that the aim of philosophy/science is to make the unknown known, or the invisible mentally visible. Sixth, long historical periods may be needed to develop understanding, as astronomy illustrates. Finally, EPS discusses genera and species, and universals and particulars, with these related to the general theory-special case relationships in his later thought. EPS is thus linked in various ways to LRBL, TMS, LJ and WN.⁶

4.2. TMS

While primarily concerned with moral philosophy, human nature, and psychology, its single invisible hand remark occurs in the context of the distribution of wealth and income. Smith’s discussion contradicts Neoclassical rationality in several ways.

Wealth is portrayed as having three important outcomes. First, the wealthy tend to ruin themselves by buying trinkets of frivolous utility insufficient to compensate for their expense (they are thus not utility-maximizers). Second, the youthful poor, to ‘whom heaven in its anger’ delivered ‘ambition’, admire the wealthy, imagine that if they were rich they would be content, and so devote themselves ‘to the pursuit of wealth’. They are also not maximising utility, for an angry heaven gave them false ideas about what benefits them.⁷ Third, these ideas gratify the ‘love of distinction so natural to man’, but turn out to be irrational by causing far less happiness compared to people remaining content with their stations. For the poor, this realisation arrives in old age when they finally understand that they sacrificed the ‘real tranquillity that [was] at all times in [their] power’ and chose a course that was ‘in no respect preferable to that humble security and contentment which [they] had abandoned’. The reality is that ‘wealth and greatness are mere trinkets of frivolous utility’; we may admire them and ‘applaud the satisfaction’ they seek to supply, but ultimately ‘no real satisfaction’ occurs, so that ‘Power and riches’ are revealed to be ‘enormous and operose machines contrived to produce a few trifling conveniencies to the body’ (TMS, pp. 180–183).

Providence (Nature or God), however, endowed all adult humans with stomachs of roughly equal size, so that the rich and the poor consume ‘nearly the same quantity’ of ‘the necessaries of life’. This anatomical property is the referent of TMS’s invisible hand remark.

The capacity of [the landlord’s] stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. … The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, … they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal proportions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society … . When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to be left out in the partition. … In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar who suns himself by the side of the highway possesses that security which kings are fighting for. (TMS, pp. 184–185, emphases added)

Near-equality in quantities of necessary food is the only thing that matters. It generates near-equality in real satisfaction and allows interpersonal utility comparisons (both notions contradicting Neoclassicism).

Logically, these arguments are abysmal. They seek to resolve moral and social questions with a fact about biology; to complex questions they give trivially simple answers; and many issues involving great inequalities in one domain are reduced to a single issue involving great equality in another domain. They urge the poor, who are unhappy with their lot, to be content (and so desist from rebellious disturbances). And those with the ability to assist the poor are relieved of moral or religious injunctions to do so, for Providence’s anatomical levelling has made such teachings optional. Instead of addressing the objective causes of their discontent, it is sufficient to teach the poor that their subjective assessments are mistaken because adults have roughly equal stomach sizes. Finally, Smith’s argument involves a major equivocation. It says that the rich divide with the poor ‘the produce of all their improvements’ but then replaces this with the ‘necessaries of life’ (emphases added).⁸

More logical inconsistencies arise. Ignoring the plight of the impoverished conflicts with TMS’s opening proposition that no matter how selfish we are, there are principles in our nature that interest us in the fortune of others and render their happiness ‘necessary’ to our own (TMS, p. 9). Second, the disposition to admire or worship the rich and powerful, and to despise or neglect the poor, is ‘the most universal cause of the corruption of our moral sentiments’ (TMS, p. 61). If we are beings with moral sentiments that should not be corrupted, we should neither worship wealth nor neglect the poor, which means we must sympathise with, and care about, them. Third, the idea that desiring wealth morally corrupts individuals, and hence should inhibit moral beings from pursuing greater wealth, conflicts with Neoclassicism. Its independent self-centred agents are solely concerned with increasing wealth and utilities, so that the right way to benefit all agents and achieve UO is to act selfishly. Such ideas are absent from WN which pursues increased wealth for all, and advances policies for inequality reduction. Also undermined are accounts making TMS the prior work most closely aligned with WN. Blaug’s (2008) view that TMS’s invisible hand argument significantly prefigures WN’s invisible hand argument has no logical foundation.

Finally, Smith’s argument involves a chain of intermediate connections: TMS’s invisible hand causes roughly equal adult stomach sizes, which cause roughly equal consumptions of necessities, which cause roughly equal satisfactions, which result in the unimportance of huge economic inequalities.⁹

4.2.1. The Actual Relevance of TMS to WN

Despite these non-sequiturs, TMS is important in relation to Smith’s views of human nature and behaviour. First, virtue is defined as a combination of three elements: propriety, prudence and benevolence. Propriety is properness in one’s behaviour as judged by others. Prudence means carefulness in avoiding undesired consequences for oneself, and is thus linked to rationality and self-interest. Self-interest here embraces many inter-connected interests: those of oneself, one’s family, one’s community, and one’s country, and is thus not equivalent to selfishness or self-love (see also below). Finally, benevolence involves our actions towards others less fortunate than ourselves. All three attributes reflect the fact that humans are necessarily interdependent social beings whose levels of satisfaction are inextricably linked to those of other social beings.

From its first sentence − ‘How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him’ (TMS, p. 9, emphases added) − the dependence of one’s happiness on those of others remains a constant theme.

And hence it is that to feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature … [It] is the great precept of nature to love our ourselves only as we love our neighbour … It is not … that feeble spark of benevolence which Nature has lighted up in the human heart [but] a stronger power which exerts itself … It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct. … It is from him only that we learn [that] the natural misrepresentations of self-love can be corrected … by the eye of this impartial spectator … who shows us … the deformity of injustice; the propriety of resigning the greatest interests of our own, for the yet greater interests of others, and the deformity of doing [injuries to others] to obtain the greatest benefit to ourselves. (TMS, p. 137, emphases added; also p. 138).

In directing all our actions to promote the greatest possible good, … in regarding one’s self but as one of the many, whose prosperity was to be no further than … was consistent with … that of the whole, consisted the perfection of virtue. Self-love was a principle that could never be virtuous in any degree or in any direction. (TMS, p. 303, emphases added)

That whole account of human nature … which deduces all sentiments and affections from self-love … but which … has never yet been fully … explained, seems to me to have arisen from some confused misapprehension of the system of sympathy (TMS, p. 317).¹⁰

Smith’s concept of human nature thus embraces both self-regarding and other-regarding motives as essential properties of humans, and so directly contradicts the independent, purely self-centred agents underpinning Neoclassicism and its doctrine of theoretical individualism.

S = self-interest involves everything in which I have an interest: myself, my dependants and friends, other individuals, social institutions, my society, and my country.

N = self-interest, self-love and selfishness are identical, and concern myself alone = ∼S.¹¹

TMS asserts that Providence implanted the three attributes of virtue in all humans which means that Smith regarded these as essential parts of human nature, this again contradicting all axioms assuming that agents are naturally selfish. The primary relevance of TMS to WN does not involve invisible hands, but the interdependent nature of humans and their self-interests.¹²

4.3. LJ

Although Smith began lecturing on jurisprudence in 1751,¹³ only student notes from 1762–63 and 1766 are available, with Smith never producing a published book. LJ advances a descriptive and explanatory history of human social systems from the beginning of recorded history to his present. It covers the key political, economic, ethical and legal features of the major forms of these systems, and their evolution across time and space through four stages: hunter/gatherer, herding/pasturage, farming/agriculture, and commercial/industrial.¹⁴ Using this history, he classified the necessary functions of all governments under four heads: Justice, Police, Revenue and Arms, here abbreviated to JPRA.¹⁵

Although neglected by many economists, LJ is a vital precursor to WN for several reasons. First, it is essential to WN because, without LJ, WN would not have espoused some of its key ideas. Second, during 1763, he began an early draft of WN, chapter 2 of which was entitled ‘Of the nature and causes of public opulence’ (a title virtually identical to that of WN) and which, like WN, begins with the division of labour.¹⁶ Third, LJ is central to WN via JPRA, with the form of JPRA represented by WN’s ‘system of natural liberty’ (SNL) advanced as superior to Mercantilist forms. Fourth, LJ and WN both emphasise that government is a necessary actor in all economies, a proposition contradicting all notions of Smith as a champion of laissez-faire. Fifth, LJ contains no invisible hand remarks, but abounds in visible hands, these being necessary and sufficient for scientific explanations of how real societies function without calling upon deity-based explanations.

Finally, historical induction and reflection on the nature of humans and societies led Smith to view all human activity (economic, political, social etc) as occurring within a JPRA framework. LJ’s primary contribution is a general theory of human socioeconomic formations regardless of time, place, and degree of functionality. All real societies and their economies instantiate particular forms of JPRA, with variety in the forms depending on inter-related factors such as material conditions, social and economic institutions, social goals, and theoretical understandings. Concerning Europe’s current goal of increased national wealth, WN rejected Mercantilist and Physiocratic forms of JPRA and advanced Smith’s JPRA-based SNL as a superior form for commercial/industrial societies. Without LJ, many of WN’s central contributions could not have been conceptualised the way they were.

4.4. WN

Its only invisible hand reference occurs in the following argument:

As every individual … endeavours as much as he can both to employ his capital in the support of domestick 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 … neither intends to promote the publick interest, nor knows how much he is promoting it. … [By] directing [domestick] 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. … By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. (WN, p. 456, emphases added)¹⁷

This repeats his earlier remark (WN, p. 454) that in deciding how to allocate capital, every individual seeks ‘his own advantage’ and not that of society; but ‘the study of his own advantage … necessarily leads him to prefer that employment which is the most advantageous to society’. Here ‘necessarily’ means ‘logically’ or ‘naturally’.

Several points arise. First, home investment is preferable to overseas investment due to reduced uncertainty. Second, the phrase is completely irrelevant to the logic of his argument, a widely unrecognised point that can be demonstrated by either excision or re-wording.

Removing the phrase delivers exactly the same meaning, the only loss being rhetorical.

[By] directing [domestick] 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 to promote an end which was no part of his intention. … By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

Re-wording, using its reference to unintentionality and his idea that science involves interconnected chains of events, delivers the following.

By directing … industry [so that it] may be of the greatest value [to himself], he is in this, as in many other cases, led by a chain of events to promote an end which was no part of his intention.

Agents have intended outcomes (advancement of their self-interests), the pursuit of which necessarily creates unintended outcomes affecting the self-interests (positively or negatively) of many other agents in ways that are unseen.

Third, if the logically irrelevant invisible hand phrase is to be retained, it is consistent with his meaning to insert ‘as if’ to create ‘as if by an invisible hand’. This captures both the invisibility of the unintended consequences to the agents whose visible hands cause them, and the actual absence of any causal invisible hand. Unsurprisingly, this idea is usually rejected by those asserting that a real invisible hand exists in market economies.

Fourth, the idea of unintended consequences is commonplace, as Smith acknowledges by saying ‘as in many other cases’. Most people know that actions can have unintended consequences, that these may be unknown (invisible) to perpetrators, and that they could be made visible by further analysis without invoking invisible entities.

Unintended consequences (good, bad, indifferent) occur in virtually all spheres of life: businesses, households, governments, militaries, and education. They are necessarily part of economic activity because exchange involves two parties. Employers pursue their self-interests by buying labour services and paying wages. By accepting contracts, workers pursue their own self-interests and use these wages to buy commodities for themselves, their dependants, and possibly others. This spending unintentionally helps other employers, workers and individuals to pursue their self-interests via further acts of buying and selling. A long chain of interconnected activities results in which the pursuit of each person’s self-interest generates unintentional effects flowing on to many other agents in ways that are invisible to the transactors (such as the specificities of exchanges, the specific individuals that benefit, and so on). The process eventually exhausts itself due to leakages (such as savings and taxation).

Fifth, given the nature of humans and of reality, this idea is logical and natural. Humans require various commodities for survival and contentment, with social reality generating responses via divisions of labour, markets, and supporting institutions. While the details might be invisible to agents, the existence of chains of interconnected events can be made known by scientific thought and logical analysis. EPS made the same point regarding astronomy. Scientific theorising uses chains of inter-connected events to render the previously invisible visible, so removing any need to invoke invisible hands. Progressive science makes known (visible) the previously unknown (invisible).

Sixth, Smith’s (often-overlooked) use of ‘frequently’ generates inconsistency with pure Neoclassicism because frequently is never always. His argument allows for cases excluded by Neoclassicism and its UO conclusion. Seventh, if agents pursue self-interests in ways that have negative impacts on others (as in reducing investment due to higher uncertainty; or in using market power), the outcomes will not be as widely beneficial, a conclusion inconsistent with orthodoxy’s assertion that WN’s invisible hand is always beneficial when left alone because it produces UO.

Eighth, Smith never claimed that WN’s theory was a general theory of economics for all times and places. His markets are situated in JPRA-based systems, which means their modus operandi and outcomes are JPRA-dependent (that is, institution-dependent). For example, in SNL agents are free to pursue their own self-interests within the law; they may own or hire resources and sell outputs in competition with other agents, or work for money-wages unrestrained by villeinage or slavery; and can benefit from basic education and healthcare (see Section 6).

Finally, an earlier sentence by Smith is highly apposite concerning WN’s invisible hand remark: ‘These lines which … few understand are generally admired … because few take the pains to consider the author’s real meaning’ (LRBL, p. 31, emphasis added).

4.4.1. Hume’s Early Influence

In 1752, Smith presented a talk on some of the commerce-related essays in Hume (1752).¹⁸ Hume criticised Mercantilism, saw wealth as consisting of commodities not bullion, viewed trade within and between nations as beneficial to all parties, and gave clear descriptions of some of the mechanisms operating in markets. Twenty-four years later these ideas, closely related to divisions of labour, reappeared in WN. Hume also saw the expansion of markets as benefiting many people, and observed that it was the task of ‘a philosopher’ to analyse all the effects.

Consequences, mixed and varied, may be foreseen to flow from every measure – and many consequences unforeseen do always, in fact, result’. (Hume 1752 pp. 41; see also pp. 45, 47, 86, 208).

Hume’s insightful remarks later became central to Smith’s economic thought in WN in four respects: the existence of intended and unintended consequences of spending decisions; these consequences may be positive, negative or neutral; they are caused only by visible hands; and no invisible hands are needed to explain their existence. Early commentators (as in Stewart, Buhle and Kraus) were well aware of ‘the theoretical antecedents’ provided by Hume to Smith’s political economy,¹⁹ but for nearly all modern economists the links between Hume’s and Smith’s analyses are invisible.

5. Smith’s Policy Goal in WN

As well as his theoretical analysis of the nature and causes of wealth, Smith advanced policy proposals to improve the performance of industrial, commercial, market-based economies. These involved major socio-economic change, the replacement of the current dysfunctional, primarily Mercantilist JPRA system grounded on mistaken theoretical principles with a better system possessing theoretical coherence and greater functionality.

The weaknesses of Mercantilism derived from its conception of the ‘nature of wealth’ and its corollaries. With wealth defined as bullion, only four methods for increasing wealth were available: foreign trade, wars, colonisation, and piracy. This created a totally flawed system characterised by the absence of mutual benefits, and the presence of ongoing conflict and tensions, whether concerning European nations, European nations and colonised peoples, or colonies and home countries (the last being significant in US and Canadian history).

Given current amounts of bullion, acquiring more wealth required nations to gain more bullion from, and lose less bullion to, other nations. The result was ‘beggar thy neighbour’ policies in three main forms: export more and import less (with governments subsidising domestic exports and taxing foreign imports); the immiseration of workers (the subsistence wages doctrine); and piracy (with governments sharing in the proceeds). To increase supply, new gold- and silver-bearing territories were needed. This led to overseas wars, colonisation (especially of the Americas), and slavery. The colonies also created cheaper products for home production and hence higher returns on foreign sales, as well as new markets for home output since commerce between colonies and the home country was the monopoly of the home country. Externally and internally, Mercantilism could never be a system based on liberty, peace, mutual benefits and greater social contentment, for it was an inherently contradictory system. Growth in each nation’s wealth required ongoing conflict (external and internal), which undermined every nation’s goal of greater wealth.²⁰

As its replacement, Smith advocated his SNL. Unfortunately, readers are not given advance notice of its full nature in his ‘Introduction and Plan of the Work’. Only later, in the last quarter of WN (comprising the last two pages of the final chapter of Book IV, and Book V), do we learn that Smith’s SNL involves major socio-economic transformation. Also, the titles of chapter IX Book IV and of Book V refer to the standard need for any state to raise revenue with no indication of the destinations of these funds (pp. 662, 689). Finally, we are told that the government in SNL has ‘only three duties’ (p. 687) when in fact it has four, the missing one being revenue.²¹ Based on his general theory in LJ, all states have four JPRA-based duties or functions: three kinds of expenditure, and the revenue-raising to fund them.

SNL is a system based on new ideas. First, a changed definition of wealth − the ‘annual produce of land and labour’, or the ‘the whole annual produce’ of the nation’s industry (WN, pp. 332, 455; also pp. 255, 258, 337, 343). Commodities can be increased far more easily and quickly than bullion, thus allowing wealth to grow faster and be more widely distributed, especially when stimulated by mutual benefits and unhindered by conflict. Second, a very different form of JPRA within which to pursue wealth − one that allowed greater liberty for individuals to pursue their self-interests within a set of necessary, state-funded institutions.

6. SNL in Syllogistic Form

Understanding Smith’s logic requires his definitions, his premises and his arguments, not later reconfigurations introduced by the (visible) hand of Neoclassical economists.

Definitions

1. The goals of political economy are to ‘enrich both the people and the sovereign’. This is done by enabling (a) the people to provide a plentiful ‘revenue or subsistence for themselves’, and (b) ‘the state [to have sufficient] revenue’ for its necessary purposes (WN, pp. 428, 748).

2. The nation’s wealth is the ‘the produce of land and labour’, which, in modern terms, is the (real) value of the total quantity of output.²²

3. The national annual product is the sum of the annual products of individuals and the state.

4. SNL is a system in which:

   1. All individuals are free to pursue their own interests provided they obey the law, and

   2. The government/state provides the following using public institutions:

      		(i)	a judicial system protecting every individual from injustice and oppression by other individuals in the same society [Justice],
      		(ii)	public works unprofitable for individuals to undertake but which assist private commerce, such as road and canal infrastructure [Police],
      		(iii)	a universal primary education system to improve human inputs to production and reduce the stupefying effects of the division of labour [Police],
      		(iv)	a basic public health system to maintain the basic health (physical and mental) of the population and eliminate the spread of disease [Police],
      		(v)	the institutions to supervise the above and all other necessities of government [Police],
      		(vi)	the protection of society from violence and invasion by other societies [Arms], and
      		(vii)	a system of taxation and user charges based on justice and utility [Revenue].23

Premises

1. It is in the social/national interest to increase the annual national product.

2. It is in the social/national interest to provide useful infrastructure, promote education and health, reduce poverty, and increase social contentment.

3. In SNL, all individuals pursue their self-interests to make their products/incomes as large as possible with whatever capital or other resources they have.

4. In SNL, the state’s role is to implement policies to promote output expansion, education, health, and defence, with these financed by taxation and user charges.

Conclusion

It is in the social/national interest to install SNL.

Invisible hands are absent because they are irrelevant. All hands are the visible hands of individuals, the state, and its institutions. WN’s economic logic contradicts Neoclassical claims that Smith believed that market forces alone automatically produce the best economic outcomes, a misinterpretation that replaces WN’s many visible hands with an ‘invisible hand’ always delivering UO outcomes (see also Section 10).²⁴

6.1. Levels of Aggregate Output

As against pure Neoclassicism which asserts that free market economies always deliver UO (full resource employment and maximum output), Smith’s SNL delivers a different conclusion. WN provides multiple arguments showing that varying output levels naturally occur due to the properties of real humans, institutions and economies.

First, output is capital-dependent, with the quantity of capital varying independently of the number of labourers seeking work.

The general industry of the society never can exceed what the capital of the society can employ. As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of … society, must bear a certain proportion to the whole capital of that society, and can never exceed that proportion. (WN, pp. 453 and 11)

In WN, it is the stock of capital that determines the level of employment not the size of the labour force as in Neoclassicism. Second, capital is limited to the amounts that individuals can command with no guarantee that this is sufficient for full employment. Not everyone has access to capital; many with access will not get desired amounts; and there is no certainty that entrepreneurs will succeed in all ventures. The total capital generating output and employment will typically be less than that required for full employment.

Third, uncertainty is recognised as a permanent companion of business activity. Many entrepreneurs have an ‘over-weening conceit’ of ‘their own abilities’ and an ‘absurd presumption in their own good fortune’, so that the ‘chance of gain is by every man more or less over-valued, and the chance of loss is by most men under-valued’. Smith illustrated over-valuation with lotteries, and under-valuation with insurance, and concluded that ‘In all the different employments of stock, the ordinary rate of profit varies more or less with the certainty or uncertainty of the returns’ (WN, pp. 124–128 emphasis added). Further, in speculative activities, considerable fortunes are ‘just as likely’ as considerable losses (WN, pp. 130–131).²⁵

Fourth, ill-judged and unsuccessful projects tend ‘to diminish the funds destined for the maintenance of productive labour’, for in ‘every such project, though the capital is consumed by productive hands only, … there must always be some diminution in what would otherwise have been the productive funds of society’. Fifth, how capital and revenue are deployed in the present influences accumulation, output and employment in the future, his distinctions between productive and unproductive labour and consumption being central here: ‘A man grows rich by employing a multitude of manufacturers. He grows poor, by maintaining a multitude of menial servants’. Sixth, high and easily-earned profits can set contractionary forces in motion: the ‘capital of the country, instead of increasing, gradually dwindles away, and the quantity of productive labour maintained … grows … less and less’. Seventh, the pursuit of individual interests ‘frequently promotes’ that of society. Neither ‘frequently’ nor ‘promotes’, alone or in combination, imply maximisation, but do imply attempts often helping the national interest.²⁶

In short, Smith’s ‘effectual demand’ (WN, p. 73) is variable over time, with the attained output levels forming a set of varying magnitudes in which maxima are but one possibility. The market is self-regulating in the sense that it regulates itself into one of these possible output levels ceteris paribus, but not in the sense that it always self-regulates into market-clearing equilibria (UO).²⁷ Note also that Smith’s phrase, ‘most advantageous’, is not synonymous with maximum possible advantage (full employment and UO); it is the highest increase that can be obtained by existing humans with existing resources under existing circumstances.

7. Cause–Effect Relations

These are central to all Smith’s works due to their roles in science and philosophy, and are thus especially relevant in understanding WN’s invisible hand remark.

Hands cause an initial effect, regardless of whether they are the invisible hands of deities creating astronomical abnormalities (EPS) or biological uniformities (TMS), or the visible hands of humans creating persuasive arguments (LRBL), or undertaking economic transactions (LJ and WN). The initial effect then typically causes an ongoing chain or process of further cause–effect relations. In economies, the initial effect (say a purchase and its associated money transfer) becomes the cause of second effects (later purchases and further money transfers), which become the cause of third effects of the same kind, and so on until the process dies out as successive increases decline to zero because of leakages.

In his economic writings, Smith presents us with the mechanism universally present in all market economies − an ongoing chain of cause–effect interactions generating total effects from all the intermediate effects.²⁸ The mechanism, its operation and its effects, may be invisible to participants, but can be revealed by investigators presenting scientific explanations of the processes (as in EPS and WN).

Schematically, we have the following:

Initial cause (a visible hand) → a temporal process (more visible hands) → final effect = Σ intermediate effects created by visible hands.

Expanding the middle term, we have:

Cause₁ → effect₁ → cause₂ → effect₂ → cause₃ → … . → final effect.

This is the referent or meaning of WN’s invisible hand remark. An initial expenditure by the visible hand of one agent creates a series of consequences for other agents unintended by the first agent. These generate many further expenditures by other visible hands with equally unintended consequences, and so on. This is the mechanism central to all market systems. The main difference between Smith’s SNL and Mercantilism is that in SNL the effects of expenditures are positive and wealth-creating for all, whereas, in Mercantilism, wealth creation consists of zero-sum games in which stronger parties benefit at the expense of weaker ones.²⁹

The cause of all these unintended consequences and their total effect is simply the market mechanism universally present in all market systems. Divisions of labour create many markets and agent-interdependencies. These cause transactions that generate many further effects and causes, and hence a global effect that can be made visible by scientific investigation. This mechanism is not a ‘hand’ that remains invisible as a deity’s hand does. It is a mechanism initially invisible to market participants but rendered visible by science (and hence all participants aware of that science), just as occurred in EPS with astronomy. Calling this an invisible hand is a scientifically-inaccurate, purely rhetorical, and meaningless relabelling of the real mechanism. Nor does viewing it as a ‘metaphor’ provide an escape (see Section 11).

When Smith rhetorically says agents are led by an invisible hand to generate unintended consequences affecting many others, he is scientifically saying that while the sequence of subsequent effects is invisible to agents, its presence can be made known (visible) by scientific investigators (such as himself). Any initial expenditure starts an ongoing connected chain of subsequent buying and selling activities that expands the number of agents beneficially affected by those actions, even though the effects may be invisible to all the actors involved. The overall result benefits the economy as a whole in proportion to the initial expenditure. Pure Neoclassicism’s errors are to replace this market mechanism, its variety of global outcomes, and its complete reliance on visible hands, with the utterly different and opposed mechanism of a benevolent invisible ‘hand’ always delivering UO.³⁰

8. An Early Multiplier Concept

Smith’s mechanism producing global outcomes via chains of economic cause–effect interactions is identical to Keynes’s multiplier mechanism.³¹ In both, two final effects arise. First, private sector decisions cause global effects unintended by the private actors motivated by self-interest, with these effects being beneficial (higher employment) or harmful (lower employment or higher inflation). Second, public sector decisions motivated by the public interest also cause effects, either intended by the public agency (say higher employment), or unintended (say higher inflation), or mixtures of both depending on the appropriateness of the decision in current economic circumstances.

Equally apparent is that visible hands alone cause all changes and effects from start to finish. No invisible hands are present or needed, and the only invisibilities/unknowns concern the specificities within the chains of interconnected events. In all science, real events have real causes and in social science, visible hands cause real outcomes, not invisible hands. Note also that Smith focused more on positive cases where increased spending decisions lead to greater benefits, rather than negative cases where agents decide that decreased spending serves their self-interests (say reductions in investment due to higher uncertainty), so contributing to less beneficial social outcomes that may prompt remediation by the state’s visible hands.

9. Key Contributions of the Pre-WN Works to WN

EPS advances general features of scientific theorising. First, it pursues, via causes and effects, chains of intermediate connection between events which, when revealed, become visible. Second, its scientific explanations of reality deploy logic applied to natural entities, without referencing supernatural entities. Third, it discusses scientific ideas concerning general theory-special case relations, as in genera and species. LRBL references the same features: chains of causation, cause–effect relations, general theories and special cases, and logical (contradiction-free) reasoning and explanation.³²

TMS offers a general theory of human nature and behaviour based on interdependencies between humans in which the self-interest of every agent is linked in multiple ways to the self-interests of other agents, individually and collectively. It uses realistic concepts of self-interest and rationality, not pure Neoclassical notions where humans are atomic, selfish, asocial and perfectly informed. LJ then advances a general, realistic, evidence-based account of all socio-economic formations in which no invisible hands operate, only visible ones.

All four works provide key inputs into WN. They help explain why, scientifically speaking, WN’s invisible hand phrase is an irrelevant, removeable, rhetorical flourish concerning its real referent, the universal, non-supernatural mechanism in all market systems that generates wider effects unintended by all or most of the individuals pursuing their self-interests.

10. Why Does Neoclassicism Need an Invisible Hand?

This important, and apparently previously unposed, question has a simple answer: Neoclassicism requires an invisible hand for theoretical survival. Its invisible hand conceals from students, adherents, and wider audiences the presence of internally-generated logical contradictions that deliver disqualification from scientific theorising and relegation to mere ideology or story-telling.

All the axioms of pure Neoclassicism are perfection-based: agents possess perfect knowledge, perfect abilities, perfectly ordered preferences and perfect freedom of choice; they make perfect decisions in perfectly competitive markets possessing perfect coordinating mechanisms. Using perfect mathematics, pure Neoclassicism reaches its pre-determined, conclusion that undisturbed market systems always deliver perfect outcomes. Any imperfect outcomes (recessions, involuntary unemployment, and crises) are never due to competitive market forces, but to outside, ‘non-market’ factors (as in governments, unions, and monopoly power) causing non-UO outcomes.

Three fundamental problems arise. First, no instances of its assumed perfection-based axioms occur in reality, and axioms not instantiated in reality can only produce conclusions not instantiated in reality. Second, even if UO outcomes do occur, they remain invisible as we have no means of confirmation; we cannot survey every single person at all times and locations to test for UO; this is an impossible task given the imperfect methods available to imperfect beings. Third, how can a theory based on perfections explain the common, and sometimes disastrous, imperfect outcomes observed in reality? Two paths have been taken, both logically defective. One is to add imperfection axioms to the perfection axioms of the initial theory, so creating contradictions within the expanded axiom sets. The other is to assert that the imperfections existing in reality (say genuinely unemployed workers) are not imperfections, but ongoing perfections caused by workers exogenously changing their work-leisure preferences.³³

Since contradictions destroy the validity of propositional reasoning, the only way Neoclassicism can sustain its claims to explain reality is to employ a different causal or explanatory mechanism with two essential properties. The mechanism must exist outside propositional logic; and it must make the destructive effects of contradictions in propositional theorising become invisible to, or disappear from the sight of, its adherents. An imaginary, non-propositional, contradiction-concealing device is required.

Enter the perfect solution. An invisible hand exists inside all real markets guaranteeing perfect outcomes whether immediately or after a delay. This is the ‘invisible hand axiom’ that Neoclassicism needs for respectability as a scientific enterprise attempting to explain reality. It originates, not with Smith, whose scientific theorising sought foundations in realism, valid propositional reasoning, and the absence of supernatural causes and equivocations concerning observed reality, but with Neoclassicism which needs a device to overcome its conceptual and logical difficulties to justify itself as the correct framework for economic science.

In summary, the perfect and invisible world of Neoclassicism (the explanans) cannot explain the imperfect and visible world of reality (the explanandum). By definition, perfections and imperfections are contradictories. Reconciling them in an explanans-explanandum relationship requires a magical device capable of overcoming their logical antimony and allowing perfections/invisibilities in an imaginary world to explain imperfections/visibilities in the real world. Since no contradiction-free way of overcoming contradictions exists in the propositional logic used by Neoclassicism, all proposed solutions contain contradictions:

1. N = the Neoclassical axiom of a real invisible hand allows perfections to play key roles in deductively explaining imperfections.

2. L = in standard deductive logic, it is impossible for explanations to contain contradictory ideas since each denies the other = ∼N.

Thus the ‘invisible hand solution’ to the initial perfection-imperfection contradictions is itself internally contradictory. And since any theory containing a contradiction implies an infinity of further contradictions, the logical problems can never be removed.

Because Smith was the first reputable economist to use the invisible hand phrase in economics, he became, for Neoclassicism, the first to provide a ‘solution’ for the unsolvable, and hence the ‘father’ of economics. This fiction returns us to the fact that no invisible hand can overcome contradictions in the propositional logic chosen by Neoclassicism. Only in the entirely un-Smithian world of pure Neoclassicism, where perfectly informed, independent and selfish agents in economies with perfect adjustment mechanisms invariably deliver UO at all times and places, is this thought possible.

The primary reason why the contradictions between WN and Neoclassicism are invisible to intelligent people is the view that mathematical logic is the right foundation for economic science. Two mistaken assumptions underpin this stance: mathematics is the most rigorous form of logical reasoning and hence superior to propositional reasoning; and valid mathematical reasoning always delivers valid propositional reasoning.³⁴

10.1. The ‘Invisible Hand Theorem of Adam Smith’

This ‘theorem’ is grounded on a postulated identity between Smith’s economic theorising and Neoclassical general equilibrium theory. It seeks to capture the essence of Smith’s economic thought despite the fact that he advanced no such theorem. Arrow rightly says that Smith’s ‘profoundest observation’ was that ‘the system works behind the backs of the participants, but then wrongly adds that ‘the directing hand is invisible’ (1987, p.71, emphasis added). Starr (1997, pp. 237–238) is highly enthusiastic: the ideas behind Neoclassical general equilibrium theory are ‘just what Adam Smith (1776) would have said’.³⁵ Colander (2010, pp. 11–14) views ‘the invisible hand theorem’ as saying that ‘a market economy through the price mechanism will tend to allocate resources efficiently’. Other economists adopt even more confused middle positions. Blaug (1992, p. 163) rightly says it is a ‘travesty’ to claim that general equilibrium theory makes precise a tradition as old as Adam Smith’s, but then adds ‘To be sure, there are elements of the invisible hand theorem in Adam Smith’, without providing the necessary elaboration. The benefit of the identity posited by the ‘theorem’ is that its acceptance relieves one of the duty of reading Smith and showing where the theorem’s axioms and conclusions are to be found.

The ‘theorem’ is a complete distortion of Smith’s economics. He lived in reality, understood that real events have real causes, and gave a reality-based meaning to the invisible hand phrase in WN as opposed to the religious meanings in EPS and TMS (and the perfection-based meaning in pure Neoclassicism). Replacing a market mechanism in which the visible hands of humans cause unintended outcomes (of variable global magnitudes) with an invisible hand that causes only one global and intended outcome (UO) just installs contradictions in Neoclassical interpretations of WN.³⁶

Further, making Smith the father of (Neoclassical) economics requires equivocations. Smith’s meanings are replaced by Neoclassical meanings, the most egregious being the replacement of Smith’s concepts of visible human hands in market mechanisms causing unintended and variable outcomes, with a Neoclassical invisible hand ensuring a unique and intended UO outcome. These contradictions are hidden by further equivocations. First, orthodoxy silently changes the meaning of Smith’s SNL from a JPRA-based system in which visible hands deliver variable outcomes, to its own JPRA-free, invisible hand, UO-generating meaning. Second, it replaces the referent of invisibility in WN − effects that are unintended by and invisible to agents − with pure Neoclassicism’s referent − a cause creating UO, the intended effect of Neoclassicism itself.

Third is equivocation concerning causality. In Smith, the levels of output and inequality have two interacting causes: a JPRA-based social structure and the activities of interdependent individuals pursuing their self-interests. In pure Neoclassicism, JPRA (and hence the state and other institutions) are absent. All that exists are imaginary, asocial, independent individuals with idealised superhuman capacities, and an assumed perfect coordination mechanism generating UO. Cause–effect relations in Smith are utterly different from cause–effect relations in pure Neoclassicism.

11. To Metaphor or Not to Metaphor?

That WN’s invisible hand phrase is a metaphor is a well-entrenched, post-Smithian invention, introduced apparently in the late 1940s by economists of Neoclassical persuasion, but now widely adopted.³⁷ Like the ‘Invisible Hand Theorem’, and Smith’s ‘fatherhood’ of Neoclassicism, the metaphor postulates an identity between two things: A = Neoclassical general equilibrium theory, and B = the meaning of the invisible hand in WN.

In his early lectures on rhetoric (in Edinburgh and Glasgow), Smith included logical reasoning within a wider discussion of the ways we seek, in speech and writing, to persuade or to entertain others. In LRBL (pp. 58–60), he criticised Shaftesbury for having ‘no great depth in Reasoning’, and hence being ‘glad to set off by the ornament of language what was deficient in matter. …[His] chief ornament of language …was…uniform cadence [which he often used] in contradiction to precision and propriety which are surely of greater consequence’. Further, his similes and metaphors ‘are often very ingenious but are spun out to such a length as is tiresome [to] his readers’. In science, Smith favoured didactic exposition because convincing arguments are its primary goal, with rhetoric seeking to persuade only insofar as the strength of the arguments is convincing’ (LRBL, p. 62). In his key distinction between didactic and rhetorical writing, he also recognised that scientific arguments rely on clear meanings and logical reasoning for instruction, while literature relies more on stylistic and compositional matters for entertainment.³⁸

In EPS, Smith discussed the key role of similarities in two areas. Early science used ‘analogy’ and ‘similitudes’ to help explain the unfamiliar in terms of the familiar (EPS, pp. 47, 85–89). And the arts relied on ‘imitation’, as in painting or sculpture, or possessed ‘affinities’, as between music, dancing and poetry (EPS, pp, 176–213, 220–205). These ideas are closely related to similes.

In LRBL (pp. 29–31), metaphors are characterised as having four properties: (i) ‘In every metaphor … there must be an allusion betwixt one object and another’; (ii) this gives ‘strength of expression to the [described] object … in a more striking and interesting manner’; (iii) various types of metaphors exist; and (iv) statements about metaphors are ‘equally applicable’ to similes. These remarks, along with his examples of metaphors − Diomed resembles an ass, and Milton’s ‘comparisons’− indicate that metaphors and similes are wrongly being treated as the same figure of speech, with the ‘allusion’ between the two objects then being of the same kind.

LRBL (pp. 204–205) also introduces ‘antonomasia’, a figure of speech giving persons or objects names other than their proper names, as in saying ‘the philosopher’ instead of Aristotle, ‘the Iron Duke’ instead of Wellington, or ‘the Greek grocer’ instead of the name of the store. While antonomasia has elements of both similarity and identity, Smith stressed similarity, for he (i) defined antonomasia as the giving to one object the name of any other object ‘which nearly resembles it’, (ii) linked it to genus-species relationships (where similarity is fundamental), and (iii) exemplified it by calling a clever natural philosopher ‘a Newton’, meaning that the person is not Newton but like Newton in some relevant respect. Subsequently, TMS presented a mechanism-based simile: ‘Human society, [contemplated] in a certain abstract and philosophical light, appears like … an immense machine [producing] a thousand agreeable effects’ (TMS, p. 316).

It is vital, however, to distinguish between metaphors and similes for they are quite distinct. Defined fully, logically, and structurally, a metaphor has three properties. It postulates an identity between two different objects, A and B. This identity is known to be false by both authors and readers. And the two objects have some form of contextual similarity. Examples are ‘Juliet is the sun’; ‘All the world’s a stage’, ‘Life is a pilgrimage’; and ‘Time is money’. By contrast, a simile accepts that A and B are different, and only says that A is like B in some way. Two key differences separate similes and metaphors. First, the difference between likeness and identity or between ‘is like’ and ‘is’, that is, between Diomed resembles an ass, and Diomed is an ass. Second, divergent conceptions of likeness. With similes, likeness refers to the objects themselves, but with metaphors, likeness refers to the contexts in which the two objects are situated. Both Juliet and the sun bring warmth and light to Romeo; in both ordinary situations and on-stage, we speak and interact with others; and in both pilgrimages and life we undertake journeys. As a result, a metaphor is not a simile. Nor is it an ‘elliptical simile’, a simile from which something has been omitted, for the idea of identity in metaphors means that nothing has been omitted.³⁹

The metaphor-simile distinction is crucial in all discussions requiring logical validity. By definition, metaphors are grounded on contradictions. A is asserted to be B (A = B), when it is known that A is not B (A = ∼B), a combination generating A = B&∼B (Juliet is, and is not, the sun), and B = A&∼A (the sun is, and is not, Juliet). Metaphors assert identity between two non-identical objects, an assertion acceptable in rhetoric and literature, but not in logical argument and scientific theorising. Similes, on the other hand, are contradiction-free; they are grounded solely on entity likenesses, and contradictions never arise in likeness relationships.

Smith never called (or needed to call) any of his invisible hand remarks metaphors. He made the referents of all his As clear without needing any literary device. In EPS and TMS, the invisible hands of deities are neither metaphors nor similes because they directly reference the supernatural powers of deities that enable their interventions in natural worlds to cause their intended effects. Likewise, the invisible hand in WN is not, and was not called, a metaphor. It directly, logically, and non-metaphorically references its A, the unintended wider consequences of the visible hands of humans pursuing their self-interests in markets and so generating unseen global outcomes. This was never equated to any A-contradicting B, such as an external Walrasian auctioneer that always generates UO if not interfered with. Smith’s scientific analyses do not need a contradiction-infused literary device to persuade readers that his conclusions follow from his premisses.

Although Neoclassical economists very probably initiated the process of converting what was never a metaphor into a metaphor, all commentators claiming that Smith’s phrase is a metaphor are caught in contradictions. Orthodox economists assert A = B (the outcome produced by WN’s invisible hand is identical to the UO outcome generated by pure Neoclassicism). But since metaphors also require A = ∼B, these economists also necessarily (but unconsciously) assert A = ∼B, the denial of A = B. This leads to A = B&∼B and B = A&∼A; or that WN’s invisible hand remark does, and does not, reference Neoclassical general equilibrium theorising.

Critics rejecting Neoclassical interpretations but retaining the metaphor description take the same steps in reverse. They assert A = ∼B, but the metaphor ascription means they assert A = B also, so arriving at A = B&∼B, and B = A&∼A from the opposite direction. Neutral commentators treating Smith’s phrase as a metaphor are also trapped, even if not explicitly specifying any As and Bs. In all cases, the contradiction embedded in the concept of a metaphor is transferred to the characterisation of the subject of the metaphor, a fate befalling all metaphor descriptions of Smith’s invisible hand phrase.⁴⁰

Why do Neoclassical economists portray WN’s ‘invisible hand’ phrase as a metaphor? This returns us to Neoclassicism’s need to conceal its inabilities to provide contradiction-free explanations of reality, and of WN’s invisible hand remark, using its perfection-based theorising. Metaphors, as contradiction-based entities, are perfect vehicles for camouflaging other contradictions. Here they allow a Neoclassical proposition − the ‘invisible hand theorem’ in which WN’s invisible hand causes unique UO outcomes − to be silently substituted for WN’s actual proposition − the visible hands of humans in markets generate variable ranges of outcomes invisible to the participants. Otherwise put, the ‘demand’ for equivalence by Neoclassicism is satisfied by the ‘supply’ of a metaphor by Neoclassicism. Just as Juliet brings light and warmth to Romeo, Neoclassicism brings light (understanding) and warmth (multiple comforts) to its adherents. In delivering these benefits, it uses its own invisible (and benevolent) hand to conceal the propositional contradictions within its framework using two further propositions, separately or in combination: valid mathematical logic guarantees valid propositional logic in social science,⁴¹ and the deity’s hand, which controls everything, invisibly guides market systems to benevolent outcomes for all humans.

In short, WN contains no ‘invisible hand metaphor’, only an entirely removeable, rhetorical, non-metaphorical phrase concerning its real referent, the unintended global effects of agents pursuing their self-interests in markets. Those believing that the metaphor ascription helps in understanding WN’s remark must specify a relevant A and B, and demonstrate that no contradiction arises despite the definition of a metaphor. No ‘hand’ (visible or invisible) can do this in the standard propositional logic deployed in economics.

A better account is as follows. Metaphors and similes are not identical. In similes, the non-contradictory combination of difference and similarity between objects is entirely different from the contradiction-based identity, and contextual similarity, essential to metaphors. Metaphors thus have no place in scientific arguments for they silently reproduce at one remove the internal contradictions necessary to their existence. By contrast, similes, as non-contradictory entities, can and do have important roles in scientific explanation and logical discourse. Further, the two figures of speech are themselves contradictories — ‘A is like B’ is not ‘A is B’ — which again emphasises the point that similes can have constructive roles in science while metaphors cannot. But because similes or likenesses cannot deliver the equivalence or identity required by Neoclassicism to claim WN as its founding document, Neoclassicism necessarily (if unconsciously) turns to the contradiction-laden device of metaphors to acquire the desired identity.⁴²

12. Logic and Invisible Hands

No logical problems arise in the religion-based arguments of EPS and TMS, for their axioms deploy the invisible hands of deities acting as the causes of intended outcomes in reality. Nor does WN’s invisible hand remark pose logical problems, for it does not reference an invisible mechanism intentionally causing UO, but the real mechanism in all markets whereby visible hands pursuing personal objectives cause unintended effects invisible to the transacting agents. Smith’s three invisible hand arguments are free of logical problems.

Insurmountable logical problems, however, beset the Neoclassical re-interpretation of WN’s invisible hand as a causal mechanism with two functions: ensuring that UO occurs in all market economies (either immediately or subsequently depending on the speed of the hand); and concealing the insoluble logical difficulties arising in Neoclassical explanations. In using perfection-based explanantia to explain imperfection-based explananda, Neoclassicism needs something to make the resulting contradictions invisible. It finds it in an invisible hand of its own making, one that it substitutes for Smith’s WN phrase to gain a longer and more respectable historical pedigree for its ‘fatherhood’, one that joins the realism-based theorising of the 18th century with its own idealism-based theorising from the late 19th century onwards.

13. Smith’s Eternal Relevance

First, Smith’s theorising is based on realism-based, not idealism-based, abstractions. His explanantia directly addresses his explananda: his agents are humans constituted by nature and society; they pursue goals in institutional environments that prescribe and proscribe freedoms; they possess imperfect knowledge and abilities; and their pursuit of goals is never guaranteed full success. They are the opposite of the imaginary, omniscient, mistake-free agents of pure Neoclassicism. Only visible hands, not invisible hands, perform the activities on which Smith’s economics reposes, and there are no invisible UO-guaranteeing mechanisms such as Walrasian auctioneers or accurate forecasting models. Both intended and unintended effects occur in reality, as against the single intended global effect of UO imposed by Neoclassicism.

Second, in keeping with that realism, Smith’s general JPRA framework remains a powerful way of understanding and analysing all human socio-economic formations regardless of their liberality or oppressiveness, or functionality or dysfunctionality. Today it embraces all forms of liberal democracies, religious republics, ex-communist states, indigenous societies, as well as any other forms in the past, present or future.

Third, the JPRA framework includes socio-economic policy-making. This means current JPRA forms can always be altered to address new realities and problems. Today, interdependencies between human activity and natural environments generate changes threatening our survival and prosperity via events of increasing severity and frequency due to global warming and climate-change (floods, droughts, wildfires, species extinction etc). Interdependencies between humans and technology create multiple problems via inbuilt obsolescence, ‘forever’ chemicals, and artificial intelligence (cyber-crimes, untrustworthy information sources, algorithmic culturalisation etc). Predation continues, of humans (modern slavery, human trafficking) and environments (unsustainable production practices). Interdependencies exist between earth’s finite resources and human populations. And vital interdependencies between humans and other biological forms can create pandemics. All suggest the need for major changes to current JPRA frameworks to help societies, individually and collectively, become more functional in addressing current challenges, and more resilient against future challenges.

Reliable, well-founded scientific knowledge is vital. In economics, it requires realism-based theorising, not idealism-based thinking and ideologies such as ‘the invisible hand of the market’ or ‘markets always know best’. The desirable levels of output are not maximum possible levels at every moment, but levels consistent with the capacities of the planet to satisfactorily sustain all its life forms now and in the future. For as long as humanity exists, Smith’s JPRA model retains its relevance.

14. Conclusion

Fully honouring Smith as a philosopher-scientist requires one to read all his works carefully; to seek as good a grasp as possible of his conceptual frameworks, their constituents and inter-relationships; to assess the logical validity of his arguments and those of his interpreters; to identify inconsistencies or misleading phrases; to improve his arguments where possible to assist scientific thought and science-based policies; and to discard all illogical interpretations. While not always easily accomplished, ignoring these duties is to dishonour him, and asserting that he held views contrary to those he espoused doubles that dishonour.

Reducing Smith’s massive, structured and contextualised contributions situating all humans in social, economic and political contexts, to a later, imaginary construction reliant on a single irrelevant phrase is jejune, illogical and unscientific. Ideology and incapacity, inter alia, drive the reduction of that which is essential in WN’s argument to the fiction of a permanently benevolent, ‘invisible hand’ inside competitive markets. No other phrase, via misrepresentation and obfuscation, has done more harm to scientific theorising in economics.

Why, then, did Smith use the invisible hand phrase in WN? The above analysis suggests the following answer. As a scientist fully aware that his theorising concerned the visible hands of human agents pursuing self-interests, he sought to reveal important facts about reality that were invisible to many people − the chains of causal connection generated by market mechanisms, the unintended global effects produced by individuals pursuing their self-interests, and the interdependencies between humans in all socio-economic systems. Given his interest in the rhetoric of persuasion, one brief, vivid way of referencing these facts was to use an invisible hand remark. Neoclassicism’s error is to replace Smith's reality-based imperfect mechanism and its variable unintended global outcomes with its contradictory, an idealised perfect mechanism with a unique UO outcome intentionally imposed by its own hand. This adopts, and reverses, the invisible hands of EPS and TMS. Neoclassicism itself is now the benevolent deity introducing, in the real world, not abnormalities, but perfect outcomes that supposedly remain normalities so long as human hands do not interfere to cause abnormalities.

It is time to restore Smith to his proper place in the pantheon of non-Neoclassical economics, a position he always occupied even if this is invisible to those who have not fully read him, those who have read him but genuflect to orthodoxy, and all the innumerable students who will never read him but need to imbibe false renditions for successful futures. Far from being the parent of Neoclassical economics and its perfection-based entities, he was a significant contributor to, and proponent of, realism-based political economy based on a general socio-economic form that has existed throughout human history in which individuals, governments, social institutions, and private institutions are all necessary components serving crucial functions. His SNL was never grounded on notions of government-free societies and independent selfish human agents operating in unregulated markets, with such fictions providing the only (and hence the rational) road to the best possible economic outcomes.⁴³

Concerning the improvement of science, Smith made two apposite remarks relevant to Neoclassicism. The first is ‘how easily the learned give up the evidence of their senses to preserve the coherence of the ideas of their imagination’ (EPS, p. 77). The second is that, to improve society, the state should support the ‘study of science and philosophy’, a key reason being that ‘Science is the great antidote to the poison of enthusiasm and superstition’ (WN, p. 796). Nowadays, standard propositional logic (an essential part of much science and philosophy) is needed as the great antidote to the poisons of perfection-based theorising in social science, distorted characterisations of Smith’s economics, and the contradiction-tolerance of Neoclassicism.

Acknowledgements

I thank Lane Blume and an anonymous referee for helpful comments.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 This paper is dedicated to Karl Mittermaier whose 1987 dissertation (Mittermaier 2020) stimulated my deeper interest in Smith.

2 Additional interpretation issues are discussed in a companion paper, O’Donnell (2024a).

3 Not all his writings survived, however, for he insisted that all his unpublished writings be burnt before his death except for a select few. The dates derive from the Glasgow edition and Young (2009, p. xxiii). While that edition published the final editions of TMS and WN, reference is also made below to Smith (1759), the first TMS edition.

4 Besides Smith’s works, only three abbreviations are used: UO, JPRA and SNL (Section 4.3).

5 Even Newton, the most famous scientist in a ‘more civilised’ period, believed that while Nature was God’s creation, God occasionally intervened to correct the motions of the planets (Gillespie 1960, p. 265). Keynes’s biographical essay also noted that Newton had one foot in the Middle Ages, and one pointing towards modern science.

6 On the theme of connecting chains and principles, see EPS (pp. 41–45, 50–51, 58, 66–67, 73–74, 91–92, 96–98, 100, 104–105), and LRBL (pp. 89–93, 223). His ‘History of Astronomy’ was among the few papers he wanted preserved before he died (Wightman and Bryce 1980, p. 172).

7 It is rarely (if ever) observed that in TMS the invisible hand of a deity intervenes in human affairs to deceive and mislead a large section of the population.

8 These remarks also conflict with Smith’s earlier statement (TMS 138) that a poor person who steals from a rich one can benefit more than the latter suffers.

9 The idea of stomach size reappears in Smith’s later works, but is given economic and not moral significance. In LJ (pp. 194–195), a wealthy man is advantageous and not destructive to society for he gives rise to ‘a [great amount] of work and manufacturing’, even though ‘he eats no more than … any other man [for] he has not a larger stomach’. In WN (p. 181), a person’s desires fall into two classes: a need for food which is limited by ‘the narrow capacity of the human stomach’, and a desire for other commodities which seems to have ‘no limit’.

10 See also TMS (pp. 82–91, 135–139,140–141n, 157–161, 170–174, 237, 262, 290, 302, 304, 317).

11 The same contradiction arises in relation to WN for it also relies on agent interdependencies.

12 See TMS (pp. 180–85) for all quotations. The editors’ view that ‘Essentially … TMS and WN are at one’ (TMS, pp. 7–9) is half-false and half-true. False because there is no alignment between the invisible hand in TMS (a supernatural hand) and the invisible hand in WN (as discussed below). True, because in both works human individuals are social beings whose rational self-interests are never equated to selfishness.

13 Ross (1995, pp. 111–112).

14 Smith borrowed this four-stage model from Lord Kames who introduced it in his Historical Law Tracts of 1758.

15 See LJ(A) 5; LJ(B) 397. Police is an earlier term for Policy. JPAR is a more logical order, but Smith’s is followed here. The same four elements are mentioned at the end of TMS, both in its first edition (1759, p. 551) and its last (1790, pp. 3, 342).

16 See LJ (pp. 561–586) and Meek and Skinner (1973).

17 See also WN 454. An editorial footnote to the quoted passage says that in TMS ‘Smith also uses the concept of the ‘invisible hand’ in an economic context’. This is partly misconceived for two reasons. First, the contexts differ: TMS primarily concerns the distribution of wealth, WN both its level and distribution. Second, ‘the concept’ rather than ‘a concept’ implies that the two ideas have the same nature, even though the causal invisible hand of a deity is utterly different from a process generating unintended effects via visible human hands.

18 See Ross (1995, p. 113).

19 See Ross (1995, pp. 272, 365–336).

20 Note that Smith criticised slavery and encouraged freely employed labour in LJ (pp. 185–186, 189–192, 453, 523) and WN (pp. 98, 388–389).

21 Saying ‘three expenditure duties’ would have been accurate.

22 Services are not separately considered in WN, apparently being viewed as inputs into the production of goods, whether directly via markets or indirectly via social institutions.

23 See WN Book V, chs I and II, and his four maxims of taxation (WN, pp. 825–827).

24 Earlier forms of this argument appear in O’Donnell (2020) and O’Donnell (2022a).

25 LRBL (pp. 178, 180–181, 216) earlier noted the influences of uncertainty and probability on human affairs.

26 For the quotations, see WN (pp. 330–331, 341, 612, emphases added; see also 332, 344–345, 362). Further discussion occurs in O’Donnell (2022a) Sections 5 and 6.

27 The convergence of market prices on ‘natural’ prices is part of this equilibrating process.

28 Recall EPS’s idea of theories resembling machines (Section 4.1).

29 Note that hoarding money is contractionary in SNL, but important to wealth-creation in Mercantilism.

30 Galbraith’s (1984, p. 113) statement that when monopoly is present, the invisible hand is ‘withdrawn’, is inaccurate. In Smith’s analysis, the market mechanism always operates, but with monopolies delivers fewer benefits, greater costs, and lower national wealth.

31 Kennedy (2017, p. 94) makes a similar point, but in an unnecessarily qualified way.

32 In more detail, see LRBL as follows: logical reasoning (pp. 62, 73, 89, 117,142, 144–145, 149, 169, 174–176), contradictions (pp. 36, 77, 114, 215), cause-effect relations (pp. 67, 91–93, 98–100, 106, 115, 135), clarity of expression (pp. 6–7, 21, 24, 41, 55), and general theory-special case relations (pp. 80, 104, 149, 177, 205–207).

33 The first is discussed in O’Donnell (2022b), the second in O’Donnell (2024b).

34 On why both assumptions are false, see O’Donnell (2023).

35 See also ibid (pp. 141, 146, 151).

36 If Smith’s economic theorising does deliver a theorem, it is a ‘Visible Hand Theorem’ with non-Neoclassical axioms and conclusions.

37 For example, Evensky (1993), Brown (1994), Ross (1995), Fiori (1996), Fleischacker (2004), Blaug (2008), Kennedy (2010, 2017), and Aspromourgos (2020). While the last two authors present non-Neoclassical WN interpretations, some key differences separate their accounts from mine.

38 See also Ross (1995, pp. 85–92, 110–111).

39 Likewise, a simile is not an elliptical metaphor in which something (identity) is omitted. A metaphor without identity is not a metaphor.

40 Fiori’s (1996) analysis of metaphors in Smith is mistaken as it views metaphors as identical to similes, and relies largely on Neoclassicism’s view of WN’s invisible hand. Kennedy (2017) rightly rejects Neoclassical renditions, but then copies Smith in treating the two figures of speech as the same. Besomi’s (2019) discussion also treats metaphors as identical to similes; his tertium comparationis (the third part of the comparison indicating the aspects that the compared things have in common) does not exist in metaphors because identity eliminates all points of comparison.

41 On the crucial differences between propositional logic and mathematical logic, see O’Donnell (2022b, 2023).

42 The large philosophical literature on metaphors, as surveyed by Hills (2022), does not alter the argument that the appropriateness of metaphors in literature does not extend to sciences using propositional logics in which A = ∼Ã is prohibited.

43 His final paid employment as Controller of Customs for Scotland (1778–90) was fully consistent with his SNL, but inconsistent with orthodox laissez-faire interpretations of WN.