Paul Samuelson versus Adam Smith

Thanks to the careful work of Sarah Skwire, especially her beautiful draft paper “As If: Clueless about the Invisible Hand”, we have seen how people often add the words “as if” to Adam Smith’s original formulation of the invisible hand metaphor, and we have traced the source of this error back to Paul Samuelson’s 1948 textbook on economics, but why does this “as if” error matter?

Simply put, this seemingly-innocent error matters because adding the words “as if” to Smith’s passage changes the entire tenor and meaning of the invisible hand metaphor, or in Skwire’s own words: “when ‘as if’ is added to ‘led by an invisible hand,’ it changes the rhetorical figure from a metaphor to something else.” To be more precise, the phrase “as if” converts Smith’s invisible hand metaphor into a conditional or counter-factual statement.

Why is this problematic? Because a counter-factual statement, by definition, consists of a conditional claim with the following logical structure: “if p were true, then q would be true.” (See generally B. K. Milmed, “Counterfactual Statements and Logical Modality,” Mind, Vol. 66, No. 264 (1957), pp. 453-470, available here.) That is, logically speaking, when when say “if p were true, then q would be true” what we really are saying is that both the antecedent (p) and the consequent (q) are false. As a result, the phrase “as if” injects doubt and uncertainty into the sentence into which these words are added.

To see this, compare Paul Samuelson’s formulation of the invisible hand theory with Adam Smith’s original formulation:

A. What Paul Samuelson thinks Adam Smith said: “[Smith] proclaimed the mystical principle of the ‘invisible hand’: that each individual in pursuing his own selfish good was led, as if by an invisible hand, to achieve the best good of all ….”

B. What Adam Smith really said: “… by directing [our] industry in such a manner as its produce maybe of the greatest value, [we] intend[] only [our] own gain; and [we are] in this, as in many other cases, led by an invisible hand to promote an end which was no part of [our] intention.” [Note to my Millennial & Gen-Z readers — you win: I have changed Smith’s pronouns from “he/his” to “we/our”.]

Do you see the difference in tone and meaning? What Samuelson is basically saying is that Smith’s “invisible hand” is bullshit. Of course, maybe Samuelson is right; maybe the economy is not always guided by Smith’s Panglossian invisible hand, but that is definitely not what the great Adam Smith himself is saying. Instead, Smith is using the idea of a harmonious invisible hand as a metaphor, not as a counter-factual. For Smith, the paradox of people “intending only their own gain” (to paraphrase Smith) and yet producing good outcomes in the aggregate is real.

Now, walk into your local market or grocery store and look around … Isn’t Smith right?

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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