Contesting Markets: Analyses of Ideology, Discourse and Practice

By Roy Dilly | Go to book overview

2 Adam Smith and the Invisible Hand -- of the Market?

HEINZ LUBASZ

There has been a lot of talk recently about the invisible hand of the market, brought on no doubt by the resurgence of laissez-faire ideology in the US and Britain and reinforced by what one can only call the outbreak of free-market mania elsewhere. The market in question is, of course, not the local or the weekly market, or even the long-term world-wide market for this or that commodity. The market in question here is the economy as a whole in a commercial or market society, that is, an economy so completely permeated by exchange relations that the 'services' of land (which includes raw materials), labour and capital (the 'factors of production') are just as readily available to any entrepreneur -- individual or firm -- who can raise the money to pay for them as the goods produced by means of these factors of production are available to any consumer who can afford to buy them. These consumers -- again, individuals and firms -- are the 'effectual demanders': people not just as they have needs and wants but as they can turn these needs and wants into effective demand in the market by means of money. What then is meant by 'the invisible hand of the market' is broadly this, that material good is done to others in the entire absence of benevolence and altruism: the market itself brings it about that the private pursuit by individuals and firms of their own greatest profit makes 'everyone' as well off as possible -- at least 'on balance and over time'. As it is less than self-evident how such purely self-interested activity can bring about so wholly beneficial an outcome, reference is made to the market's invisible hand. But as this reference does not explain much, theories are put forward to show just how the market functions as an invisible hand. And that is where our troubles begin: many theories, no agreement.

This chapter has three main parts. The first part compares the view of modern economists that the invisible hand is the hand of the market itself with Adam Smith's view that it is the hand of nature -- in 'the market', and goes on to elaborate Smith's conception of nature. The second addresses the providentialist dimension of the concept, and deals with the highly providentialist 'invisible hand' passage in Smith The Theory of Moral Sentiments ( 1759), a passage often -- and mistakenly -- cited in support of the present-day proposition that 'the market' somehow yields an equitable distribution of income. The third part shows in detail how in The Wealth of Nations ( 1776) the invisible hand of nature works so as to promote the interest of the society.

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