W. Grampp's 'What Did Smith Mean by the Invisible Hand?' Overlooks Smith's Analysis of Uncertainty-Ambiguity Aversion Based on His Definition of Uncertainty in the Wealth of Nations

Abstract

Grampp, as well as all other economists who have written on Smith, overlooked Smith’s original contributions to decision making under uncertainty. Grampp’s main point, that “The invisible hand is not a power that makes the good of one the good of all, and it is not any of a number of other things it is said to be. It is simply the inducement a merchant has to keep his capital at home, thereby increasing the domestic capital stock and enhancing military power, both of which are in the public interest and neither of which he intended”, is correct. However, his claim that “Smith’s exposition discloses how his rhetorical sallies could disfigure his economics, confuse his argument for free trade, and make him play fast and loose with facts and the ideas of others.”, overlooks the great originality of Smith’s penetrating application of uncertainty – ambiguity aversion to the decision making approaches of merchants and businesses.