A Letter to the Times

Jonathan Sacks, Chief Rabbi, in the United Kingdom, wrote an article for The Times this week (behind a defended subscription wall) on the decline in general morality this week.  A long-standing friend and colleague of mine, whom I saw a week ago at his 90^th birthday lunch, drew my attention it. I penned a letter to The Times reprinted below:

“The Times

8 July 2012

Sir,

Jonathan Sacks talks a lot of good moral sense.  However, he has been misled about Adam Smith and “an invisible hand”. I suspect Dr Sacks is quoting from the same stable of unreliable modern economists who claim to be “authorities” on Adam Smith’s Works and Philosophy and who attribute to Adam Smith sympathy for the “greed is good” mantra.

Smith never wrote anything about “the invisible hand” of the market leading to the “pursuit of self-interest into collective gain”.   

His singular use of “an invisible hand” in his Wealth Of Nations (1776) was a modest observation that some, but not all, merchants were so concerned about the security of their capital (mentioned five times) that they avoided foreign trade and preferred to invest domestically.  The unintended consequence of their insecurity was that they were “led” to add to domestic “revenue and employment”, which Smith regarded as a pubic benefit.

However, to generalise this observation (the whole is the sum of its parts) into a theory of markets driven by a benign self-interest, grossly exaggerates Smith’s views.   He identified other merchants driven by their self-interest who lobbied for tariffs on foreign imports, which was (and remains) against the self interests of their customers and the public good.

There are another 70 instances self-interests having malign consequences for the public good in Wealth Of Nations.

Yours sincerely

Gavin Kennedy, Professor Emeritus”