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Adam Smith – Truly an Invisible Hand?

Although Adam Smith argued and developed the Theory of the Invisible Hand, it is important to note that is not his entire theory.

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By John Keller | USA

For decades politicians have quoted Adam Smith’s work, The Wealth of Nations (1776), an essay reaching over 500 pages on economic and political philosophy, that came up with the theory of the invisible hand of the market, with no government intervention and the adaptation of laissez-faire economics to support their political positions, but was Adam Smith truly the free hand economist politicians suggest?

It is true that Adam Smith developed the theory of the invisible hand of the market or the free hand as many will refer to it. He writes in The Wealth of Nations:

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 not part of his intention.

Although businessmen don’t naturally intend to develop their community, but rather their own enterprise, they do it as a result of the invisible hand. By improving their enterprise they can buy in greater bulk and lower the cost for consumers (Law of Supply and Demand which Adam Smith also develops in his book), by raising more revenue could invest in employee wages which would, in turn, put more money into the hands of consumers and stimulate the economy. As a result, Smith argued that the government should stay out of spending your earnings:

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with most unnecessary attention but assume an authority which could safely be trusted to no council and senate whatever, and which would nowhere be so dangerous as in the hands of man who have folly and presumption enough to fancy himself fit to exercise it.

Based on these two quotes the idea that Adam Smith is a laissez-faire economist would be a sound and reasonable conclusion making it justified that he is presented in this manner by politicians: but they leave out the second part of his theories contained within The Wealth of Nations, the need to provide social welfare.

No society can surely be flourishing and happy of which by far the greater part of the numbers are poor and miserable.

Yes, Adam Smith is arguing for the Invisible Hand of the market to regulate the economy, but he also deems it necessary for the poor to be taken care of. Society must be measured by the member of suffering and to have a great society the poor must be relieved of their miseries. Adam Smith furthers that for such a measure the wealthier members of society should pay higher taxes, he writes:

It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

Adam Smith actually argues for a progressive tax code – contrary to the tax plans the Republican party, the most often to quote Adam Smith, support. As a final warning Adam Smith argues to keep businessmen out of office and positions of power:

The interest of [businessmen] is always in some respects different from, and even opposite to, that of the public… The proposal of any new law or regulation of commerce which comes from this order… ought never to be adopted, till after having been long and carefully examined… with the most suspicious attention. It comes from an order of men… who have generally an interest to deceive and even oppress the public

Although Adam Smith argued and developed the Theory of the Invisible Hand, it is important to note that is not his entire theory. This article was to dispel the myths and misquotes of Adam Smith and to inform people of the lies and propaganda of many politicians.

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