Retrospectives: Ethics and the Invisible Hand

Abstract

As modern economists, we use Adam Smith's "invisible hand" metaphor confident that we all know what it means in our discourse: it reflects our admiration for the elegant and smooth functioning of the market system as a coordinator of autonomous individual choices in an interdependent world. But in Adam Smith's moral philosophy, the invisible hand has a much broader responsibility: if individuals are to enjoy the fruits of a classical liberal society, the invisible hand must not only coordinate individuals' choices, it must shape the individuals into constructive social beings—ethical beings. I begin by presenting the philosophical basis for Smith's invisible hand, describing the sense in which the hand is invisible and whose hand it is. I then describe the story Smith tells of the invisible hand creating and maintaining a constructive classical liberal society and show how Smith's story evolved as his faith in the ability of the invisible hand to shape an appropriate ethical foundation waned. I conclude with some thoughts on the legacy of Adam Smith and of our predecessors in economic inquiry more generally.