Alternative Title: Review of Chapter 10 of Law and the Invisible Hand
Nine chapters down (1-9); three to go (10-12). Among other things, the antepenultimate chapter (Ch. 10) of Robin Paul Malloy’s Law and the Invisible Hand identifies an enormous blind spot in Adam Smith’s theory of political economy: where do new ideas come from? Alas, there are no inventors or entrepreneurs in Smith’s writings. Inventors and entrepreneurs, however, are essential for prosperity and economic growth; without them, we wouldn’t have new products and services or new technologies. In a word, without new ideas, we wouldn’t have progress.
In fairness to Adam Smith, most mainstream economists and legal theorists have also ignored the vital role that inventors and entrepreneurs play in developing and testing new ideas. To help fill this embarrassing gap, Professor Malloy identifies possible links between the work of Adam Smith and the ideas of Israel Kirzner (pictured below), an economist who has explored the process of creative discovery. For his part, Malloy makes the following critical connection between Kirzner’s emphasis on new ideas and Smith’s invisible hand and defense of free markets: the “invisible hand” of free trade and voluntary exchange creates new opportunities for alert, profit-seeking individuals to make new discoveries; so the larger the extent of the market, the more opportunities for inventors and entrepreneurs to emerge.
In other words, although Adam Smith himself did not discuss the role of inventors or entrepreneurs, Smith’s “invisible hand” approach to political economy makes ample room for these pivotal figures. Specifically, by extending the domain of Smith’s metaphorical invisible hand, i.e. by expanding the market and creating new opportunities for trade and voluntary exchange, we make it more likely for inventors and entrepreneurs to emerge and work their magic. To put this idea in Smithian terms, the emergence of inventors and entrepreneurs, like the division of labor (specialization), is limited by the extent of the market!
As it happens, the next chapter of Law and the Invisible Hand (Ch. 11) revisits an even deeper theoretical puzzle, an enigma at the heart of Malloy’s beautiful book: what is the relation between the invisible hand of the market and the impartial spectator of ethics and aesthetics? I will further explore “Malloy’s enigma” in my next two posts.