Editing Invisible hand (section)

==Adam Smith's use of the term in economics==
=== ''The Wealth of Nations'' ===
The invisible hand is explicitly mentioned only once in the ''Wealth of Nations'', in a specialized chapter not about free trade but about capital investment, which discusses the concern that international merchants might choose to invest in foreign countries. Smith argues that a self-interested investor will have a natural tendency to employ his capital as near home as he can, as long as the home market does not give much lower returns than other alternatives.<ref>{{Cite book |last=Smith |first=Adam |title=An Inquiry into the Nature and Causes of the Wealth of Nations |publisher=W. Strahan & T. Cadell |year=1776 |edition=1st |volume=II |location=London |pages=32–33}}</ref> This in turn means...
{{Quote|text=[...] every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, 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 no part of his intention'''. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.<ref>{{Cite book |last=Smith |first=Adam |title=An Inquiry into the Nature and Causes of the Wealth of Nations |publisher=W. Strahan & T. Cadell |year=1776 |edition=1st |volume=II |location=London |pages=35}}</ref> [emphasis added]}}

As noted by [[William D. Grampp]], this example involves "a particular condition that may or may not be present in a transaction on a competitive market".{{sfn|Grampp|2000|p=443}} Essentially, the invisible hand refers to the [[Unintended consequences|unintended positive consequences]] self-interest has on the promotion of community [[well-being|welfare]].<ref>{{Cite journal |last=Rodríguez Braun |first=Carlos |date=2019 |title=Adam Smith's liberalism |url=https://link.springer.com/10.1007/s11138-019-00474-9 |journal=The Review of Austrian Economics |language=en |volume=34 |issue=4 |pages=465–478 |doi=10.1007/s11138-019-00474-9 |s2cid=202271443 |issn=0889-3047|url-access=subscription }}</ref><ref name=":1">{{Cite book |url=https://www.worldcat.org/oclc/761868679 |title=Handbook of the history of economic thought : insights on the founders of modern economics |date=2012 |publisher=Springer |others=Jürgen G. Backhaus |isbn=978-1-4419-8336-7 |location=New York, NY |pages=171 |oclc=761868679}}</ref> Nevertheless, Smith draws a practical implication in this case is that legislators should not intervene too hastily in many (if not all) cases:
{{Quote|text=What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.<ref>{{Cite book |last=Smith |first=Adam |title=An Inquiry into the Nature and Causes of the Wealth of Nations |publisher=W. Strahan & T. Cadell |year=1776 |edition=1st |volume=II |location=London |pages=35–36}}</ref>}}

According to Grampp:{{sfn|Grampp|2000|p=460}}
{{Quote|The invisible hand, then, is not an autonomous force. It is self interest operating in particular circumstances. The owner of capital acts in the public interest if acting in his private interest is profitable and happens to provide a public benefit. He does not act in the public interest if acting in his own interest would be unprofitable. There are circumstances of the opposite kind, when what is in his interest is not in the public interest. They are not rare, and although they vary in importance, none is trivial.}}

=== ''The Theory of Moral Sentiments'' ===
Smith's first use of the invisible hand metaphor occurs in ''The Theory of Moral Sentiments'' (1759) in Part IV, Chapter 1, where he describes a selfish landlord being led by an invisible hand to distribute his harvest to those who work for him. This passage concerns the distribution of wealth: the poor receive the "necessities of life" after the rich have gratified "their own vain and insatiable desires". It has been noted that in this passage Smith seems to equate the invisible hand to "[[Divine providence|Providence]]", implying a divine plan.<ref>Smith, A., 1976, ''The Theory of Moral Sentiments'', vol. 1, p. 184 in: The Glasgow Edition of the Works and Correspondence of Adam Smith, 7 vol., Oxford University Press</ref>
{{quote|The proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest ... [Yet] the capacity of his stomach bears no proportion to the immensity of his desires... the rest he will be obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets which are employed in the economy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice...The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own convenience, though the sole end which they propose from the labors of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements... They are '''led by an invisible hand''' to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition.}}

Although this passage concerns an economic topic in a broad sense, it does not concern "the invisible hand" of the free market as understood by twentieth century economists, but is instead about income distribution. There is no repeat of this argumentation in Smith's comprehensive work on economics in his later ''Wealth of Nations'', and income distribution is not a central concern of modern neoclassical market theory. As Blaug noted in the ''New Palgrave Dictionary of Economics'' this passage "dispels the belief that Smith meant one thing and one thing only by the metaphor of 'the invisible hand'."{{sfn|Blaug|2008}} Grampp has claimed that if there is any connection between this passage and Smith's other one, "it has not been demonstrated with evidence from what Smith actually wrote".{{sfn|Grampp|2000|p=464}}