THE INVISIBLE HAND:
THE METAPHYSICS IN THE THEORY OF ADAM SMITH
COMPARED WITH MODERN ECONOMICS
Master’s Thesis
Danish Title: Den usynlige hånd: Metafysikken i Adam Smiths
teori sammenlignet med moderne økonomisk teori
Study Program: MSc in Business Administration and Philosophy, Copenhagen Business School
Department: Department of Management, Politics and Philosophy, Copenhagen Business School
Supervisor: Professor Niels Henrik Gregersen, Faculty of Theology, University of Copenhagen
Name: Joakim Kromann Rasmussen
E-Mail: joakim_kromann@hotmail.com
Submitted December 5, 2011
Copenhagen Business School, 2011
ABSTRACT
This thesis shows how the metaphysical foundation in Adam
Smith’s theory is reflected in modern economic theories. It is
shown that the question of order is the main economic problem for Smith as well as the modern economists. With this
question in focus, Smith’s philosophy is synthesized and reinterpreted. Upon this reading of Smith, a comparison is made
to two modern economic positions: general equilibrium
theory (Kenneth J. Arrow, Frank Hahn, and Gerard Debreu)
and theories on the self-organizing economy (Friedrich A.
Hayek, Thomas Schelling, and Paul Krugman). In this regard,
the thesis is a philosophical interpretation of Smith’s works
emphasizing the idea of the invisible hand and the metaphysical foundation in his theory: an interpretation juxtaposed with
two stances in modern economic theory in order to unravel
how the metaphysics in Smith’s works still finds an expression
in modern economic thinking.
The analysis falls into three parts. While the two first
parts make up the interpretation of Smith, the third part
makes up the comparative analysis. In the first part it is
shown how Smith deals with the question of order in his
works, as when he argues that humans qualifies epistemologically by organizing the events they meet, that humans at a
social level strive for the sympathy of others to stabilize the
social life, and how the market organizes resources for the
common good. While many Smith scholars have interpreted
his theory secularly, within the last fifteen years there have
been attempts to interpret his theory nonsecularly. Under the
influence from this research, a nonsecularized interpretation
of Smith finds its way in the second part of the thesis. This
part shows that the secular elements in Smith’s theory stand
forth more consistent in light of the theological subject of
providence. In the third part, Smith’s basic assumptions are
compared with assumptions set forth in the two economic
positions. This part shows how the question of order has influenced modern economic theory, and further, how the idea
of the invisible hand, in a secularized form, still haunts modern conceptions of economic theory.
Keywords: History of philosophy; invisible hand; ontology
of economics; order; organization; Adam Smith.
DANSK RESUMÉ
Nærværende kandidatafhandling viser, hvordan det teoretiske
og metafysiske grundlag, som er at finde i Adam Smiths teori,
stadig er at genfinde i moderne økonomiske teorier. Der vises,
at spørgsmålet om orden er det centrale økonomisk-teoretiske
problem for såvel Smith som de moderne økonomer. Med
spørgsmålet om orden i fokus sammenfattes og genfortolkes
Smiths økonomiske og filosofiske tænkning. Ud fra denne
læsning foretages da en sammenligning af to økonomiskteoretiske positioner, nemlig generel ligevægtsteori (Kenneth
J. Arrow, Frank Hahn og Gerard Debreu) og hvad der kunne
kaldes for teorierne om den selvorganiserende økonomi (Friedrich A. Hayek, Thomas Schelling og Paul Krugman). I den
forstand er afhandlingen en filosofihistorisk fortolkning af
Smiths filosofi med særlig vægt på idéen om den usynlige
hånd og teoriens metafysiske grundlag som sammenlignes
med to positioner inden for nyere økonomisk teori med henblik på nærmere at udrede, hvordan Smiths metafysik stadig
er at spore i moderne økonomisk tænkning.
Afhandlingen falder i tre dele. De første to dele udgør
fortolkningen af Smith, hvor der i første del vises, hvordan
Smith i sin filosofi tematiserer spørgsmålet om orden. Således
når han fokuserer på, hvordan mennesket epistemologisk set
er et væsen kendetegnet ved at ordne de begivenheder, det
møder; hvordan mennesket socialt set stræber efter andres
sympati for at kunne stabilisere det sociale liv; og hvordan
markedet organiserer de menneskelige ressourcer til et fælles
bedste. Mens mange forskere har fortolket Smith som en sekulariseret tænker, har der inden for de sidste femten år været
forsøg på at fortolke ham som ikke-sekulariseret. Under indflydelsen af denne forskning forsøges i anden del en ikkesekulariseret fortolkning af Smith, hvor det vises, at teoriens
verdslige momenter fremstår filosofisk mere konsistent i lyset
af teoriens teologiske og metafysiske aspekter, herunder særligt spørgsmålet om forsynslæren. I afhandlingens tredje del
sammenlignes Smiths grundlæggende antagelser med de antagelser, der er at finde i de to økonomisk-teoretiske positioner. Denne del viser, hvordan spørgsmålet om orden generelt
har påvirket moderne økonomisk teori, og hvordan forestillingen om den usynlige hånd, i sekulariseret form, endnu spøger i moderne udlægninger af, hvordan økonomi skal forstås.
Keywords: Filosofihistorie; orden; organisering; Adam
Smith; den usynlige hånd; økonomiens ontologi.
Scientists were rated as great heretics by
the church, but they were truly religious
men because of their faith in the orderliness of the universe.
(Einstein)
Il est mauvais d’être en équilibre sur des
haches, sur des haches qui vont tomber,
qui vont s’enfoncer dans la chair tendre, si
douloureuse, si lente à se refermer. [...]
Mais comment, de ces précaires et insurportables passages, émigrer vers un réellement satisfaisant et définit équilibre?
(Michaux)
LIST OF ABBREVIATIONS
Essays on Philosophical Subjects, including:
EPS
Ancient Logics
‘The Principles which Lead and Direct Philosophical Enquiries; Illustrated by the
History of the Ancient Logics and Metaphysics’
Ancient Physics
‘The Principles which Lead and Direct Philosophical Enquiries; Illustrated by the
History of the Ancient Physics’
Astronomy
‘The History of Astronomy’
External Senses
‘Of the External Senses’
TMS
Theory of Moral Sentiments
WN
An Inquiry into the Causes and Nature of the Wealth of Nations
LJ(A)
Lectures on Jurisprudence, Report of 1762–3
LJ(B)
Lectures on Jurisprudence, Report dated 1766
All works are from The Glasgow Edition of the Works and Correspondence of Adam Smith by Liberty Fund originally published by Oxford
University Press. References to the works are as follows:
Ancient Logics.1
= ‘The History of the Ancient Logics and Metaphysics’, § 1
Ancient Physics.2
= ‘The History of the Ancient Physics’, § 2
Astronomy.I.3
= ‘History of Astronomy’, Section I, § 3
External Senses.60
= ‘Of the External Senses’, § 60
TMS.I.iii.2.2
= The Theory of Moral Sentiments, Part I,
section iii, chapter 2, § 2
WN.I.x.b.1
= Wealth of Nations, Book I, chapter x, section
b, §. 1
CONTENTS
1. INTRODUCTION ........................................................ 3
1.1. Method .................................................................................................. 6
1.2. Literature Review ................................................................................. 9
1.3. Textual Basis ....................................................................................... 12
1.4. The Influence on Smith ...................................................................... 13
1.4.1. The Stoics’ Conception of Nature ............................................... 14
1.4.2. The Tradition of Spontaneous Order ......................................... 17
1.5. Exposition ........................................................................................... 19
2. WORLDLY LIFE: ORGANIZATION .......................... 22
2.1. Organizing Events: Invisible Chains.................................................. 22
2.2. Organizing the Social: Sympathy and the Spectator ........................ 27
2.3. Organizing the Market: Prices ........................................................... 36
2.3.1. Nature: The Prime Mover in the Economic System .................. 37
2.3.2. Labor and Division of Labor: Production of Difference ...........38
2.3.3. Capital: Organizing Medium ...................................................... 41
2.3.4. The Market: The Invisible Hand ................................................ 43
3. HEAVENLY LIFE: ORDER ....................................... 53
3.1. One God and One Hand ..................................................................... 54
3.2. A Part of the Whole ............................................................................58
3.3. The Invisible Hand: Providence ........................................................64
Summary: The Metaphysics of the Invisible Hand ................................. 67
1
4. MODERN ECONOMICS: SELF-ORGANIZING
ECONOMY AND GENERAL EQUILIBRIUM THEORY . 69
4.1. Economic Self-Organization ..............................................................70
4.1.1. Hayek: Catallaxy .......................................................................... 71
4.1.2. Schelling and Krugman: Self-Organizing Economy .................. 74
4.2. Economic Order ................................................................................. 79
4.2.1. Arrow, Hahn, and Debreu: General Equilibrium Theory ........ 80
5. CONCLUSION .......................................................... 85
REFERENCES ............................................................................... 89
2
1. INTRODUCTION
In the year 1776 a sublime phenomenon appeared in the
northern part of the foggy British Islands. Several previous
appearances had been observed, especially in 1759, but without any larger public interest. This time, seventeen years later,
appearing in a different setting, the phenomenon gathered
strength to a degree that would be noticed in Scotland and
Europe then, but as far as U.S., Chile, and China in the time
coming. The reappearing and illusive phenomenon is the invisible hand by Adam Smith (1723–1790) appearing in his
work An Inquiry into the Nature and Causes of the Wealth of
Nations.
Wealth of Nations (WN) is without doubt one of the major contributions to economic and political economic thought,
surely in economics but indeed also in political discussions.
The idea of the invisible hand has to a large extend contributed to form our everyday conception of the economy as
when we use expressions such as the self-regulating market,
market efficiency and free market. Still today, the idea of the
invisible hand is subject to controversies, for, what did Smith
meant? Does the idea of the invisible hand refer to a metaphysical being? Does the invisible hand exist? Is it a deity? Is
it an expression to grasp market phenomena? Despite such
unanswered questions, or maybe because of them, the idea of
the invisible hand still attracts the attention of the public and
academic debate.
The invisible hand is an idea used by Smith to express the
properties of the market and its behavior. The crucial question
is, if Smith hints to a metaphysical being to account for these
properties, or if the idea of the invisible hand is just a figure of
speech explaining market mechanisms. When reading the
3
works of Smith, it is difficult to ignore the phrases that have a
theological or metaphysical content. Instead of simply neglecting such phrases, this thesis examines the idea of the invisible hand in their light. I interpret the philosophy of Smith to
expose and discuss the general assumptions in his philosophy
emphasizing the question of order. The first concern of the
thesis, then, is a historical philosophical inquiry focusing on
the metaphysical parts of the theory of Smith including the
idea of the invisible hand.
The theory of Smith has had a major influence on later
political economic theory and economics. Many parts of his
theory have been rejected by later economists, and surely, the
technical details in his theory do no longer play a role in
present economics. However, other facets of his theory, and
especially his general assumptions, remain in modern economic theory: in the self-organizing economy (Friedrich A.
Hayek, Thomas Schelling, and Paul Krugman) and general
equilibrium theory (Kenneth J. Arrow, Frank Hahn, and Gerard Debreu). These facets revolve around the metaphysical
assumptions and the general economic problems Smith sets
forth to solve. The second concern for the thesis, then, is to
compare the metaphysical aspects found in the works of
Smith with the general assumptions found in modern economics.
A research question summarizes these two concerns:
How are the metaphysical aspects revolved around the idea
of the invisible hand found in the theory of Adam Smith reflected in modern economic thought? The thesis sounds:
Smith is concerned with how order is established, and despite
the scientific developments in economic theory, reminiscences
of such concern is still found in modern economic theory,
something reflected in the problems modern economists set
forth to solve.
4
The question of order is related to notions such as order,
organization, and self-organization. It also covers notions
such as coordination, regulation, and equilibrium. Although I
lose some of the slight differences between these notions, I
group them together to be able to compare them across the
various forms they may appear in. More concretely, the notion
of order designates either that a part and the whole is in concordance with each other or that a domain has reached a certain stable state. 1 It may express both an activity, as when a
realm organizes, and a state, as when a realm is in order. 2
Unless otherwise stated, the notion of self-organization is
used when referring to “the idea that systems are organized
out of preestablished elements” (Gregersen 1998, 335). The
notion of self-organization (different from the notion of organization stating without further characterization that a
realm organizes) is an activity specifying that a realm organizes by its own means and within its own boundaries.
The purpose of the thesis is not to criticize Smith for having metaphysical references and allusions in his theory. Neither is the purpose to criticize the economic theories for inheriting these metaphysical aspects under a new form. Rather,
more modestly and less controversial, I expound the metaphysical grounds found in Smith’s theory to expose how modern economic theory resembles his thought. In more general
terms, then, the thesis explores a way of thinking in economic
thought in which the question of order has been of central
relevance and has shaped later economic theories.
Following this definition: “Ordnung […] ist objektiv das strukturierte,
geregelte, nicht zufällige Verhältnis der Elemente eines Ganzen, aktiv
dessen Herstellung. Jede Ordnung bezieht ein Ordnung-Prinzip (Formalaspekt) auf die Mannigfaltigkeit eines Bereichs (Materialaspekt)”
(Anzenbacher 1998, 1112).
2 The word organization never refers to a physical entity such as an institution or a company.
1
5
General assumptions in economic models and theories
are important to study for at least two reasons. First, an economic theory is a frame of reference to understand parts of
our world, the economic domain, which conducts our way of
thinking about such domain. By examining the general assumptions of an economic theory, we can reflect on the foundation such theory is based on. Second, a theory is not an innocent contribution to economic science. It may be included
in scholarly debates, but more important, it may also be
adopted by institutions organizing the economy. An economic
theory may for these reasons potentially transform social and
economic structures at a basic level and to disclose such general assumptions is a necessary, continuous task.
1.1. Method
When dealing with a problem, the problem gives the method.
In this thesis the problem is as already mentioned two-sided.
First, how to understand the metaphysical allusions and the
idea of the invisible hand found in the works of Smith. Second,
how to compare the general problems posed by Smith with
modern economic theories.
The first side of the problem could be studied by economic studies such as econometrics, case study based economics,
micro-economic theory or the like, but they seldom reflect on
their historical and underpinning presumptions. Instead, they
set forth to develop problems of technical character trying to
explain different economical phenomena (problems, of course,
important to explore and solve). These studies may give an
account of the existence of the invisible hand studying it as an
expression for price mechanisms regulating market behavior.
In this thesis, however, the problem is not if the invisible hand
exists or not. The problem is what role the idea of the invisible
hand and the metaphysical allusions play in Smith’s theory,
and how they correlate with the question of order.
6
Other research fields have tried to unravel the idea of the
invisible hand, most notably history of economic thought and
history of philosophy. While history of economic thought
tends to conceive the idea of the invisible hand as a not fullydeveloped theory of equilibrium theory, history of philosophy
focuses on the metaphysical allusions found in the works of
Smith. For these reasons, a historical philosophical reading of
his works presents itself as a reasonable method. In my reading of the works I have two aims. First, I dwell on the phrases
where Smith refers to a deity or the invisible hand. In these
phrases the metaphysical aspects of his theory are explicit.
But, when focusing on the general assumptions found in
Smith’s works, other implicit metaphysical claims appears
such as whether the universe is organized or not. The aim in
this case is to infer a general theme of order.
Until now I have used the word metaphysics rather vaguely, and surely, it is a disputed and ambiguous notion and discipline (see Ritter and Gründer 1980, 1186–8; van Inwagen
2007, § 1). Instead of sketching out the history of metaphysics
and develop a notion considering all the possible meanings, I
will settle giving a stipulative definition. The definition revolves around two slightly different but related meanings.
First, when analyzing the passages in which Smith refers to a
deity or the invisible hand, metaphysics is close to theology. A
second meaning of the word metaphysics appears when Smith
gives a general account of how the universe or the market is.
Metaphysics, then, is not necessarily concerned with a suprahuman being but to general nonempirical statements on the
universe of the character: is the universe distinguished by
order or disorder? These two meanings of the word metaphysics are related to the first side of the problem.
The second side of the problem is concerned with the
comparison between the general assumptions found in the
7
works of Smith and those found in modern economic theories.
While the general suppositions found in Smith’s theory are
metaphysical, when turning to modern economic theories, we
might label such general statements as the ontological assumptions of the theory. A general claim found in this thesis is,
then, that the metaphysical assumptions found in Smith’s
theory are reflected as ontological assumptions in modern
economic theories. To guide my analysis of the ontological
assumptions I use the following definition of ontology: “It is
common to speak of […] the ontology of a theory, meaning the
things that would have to exist for that theory to be true”
(Craig 1998). For the modern economic theories, what has to
exist is a belief in that the economy is either a realm already in
order or a realm organizing itself.
The research field known as philosophy of economics, and
in particular ontology of economics, studies and criticizes
such ontological assumptions in economic theories (see Guala
2004; Fullbrook 2009a, 2009b; Lawson 2003; Mäki 2001a,
2001b, 2002). My analysis is partly guided by this approach.
However, they do not study economic theories historically and
comparatively for which reasons I call upon the approaches of
Michel Serres (2000) and Niels Henrik Gregersen (2008,
2006). Common for their approaches is that they work interdisciplinary discussing fundamental problems and ideas of
relevance for two different fields of study. The former (in the
mentioned work) compares early philosophy and modern
physics, while the latter discusses the conjunction between
theology and natural science. Similarly, but without claiming
to reach such deep analysis, I examine an important idea in
economic thought, unravel the metaphysical allusions in
Smith’s works, and compare these with the ontological claims
found in modern economic theories.
8
1.2. Literature Review
Many attempts have been made to clarify the first side of the
problem. Among these we find political interpretations posing
arguments for economic liberalism (Baker 2010; Flew 1987;
Friedman 1981). Invisible hand discussions have also been
carried out in distant fields such as philosophy of science
(Leonard 2002; Ylikosky 1995). Inside economic theory, discussions have been carried out in relation to several parts of
the theory of Smith. Most noticeably, we find accounts of the
idea of the invisible hand as something explaining unintended
consequences on the market (Aydinonat 2008; Lehtinen
2009). On the other side of the scale we find attempts to overcome the invisible hand, either by proposing new ways of
study for economics (Moore 2006), or by criticizing the influence the notion of the invisible hand has had on later economics (Finlayson et al. 2005). The variety of these studies shows
the broad interest the idea of the invisible hand has gained.
These studies, however, too often focus on the idea of the invisible hand as such without giving a comprehensive account
of it based on Smith’s works.
Another line of study is proposed by history of economic
thought and history of ideas. These studies contextualize the
theory of Smith displaying the influence from general ideas of
his time such as general ideas of order and equilibrium
(Toulmin 2001, 56–7). Other general historical approaches
focus on the chronology in the history of economic thought
showing how the idea of the invisible hand and the idea of
equilibrium inspired future progress in economic thought
(Bronk 1988; Foucault 2008; Ingrao and Giorgio 1990; Lal
2006; Milgate and Stimson 2009; Sandmo 2008; Smith
2006; Suntum 2004; Tieben 2009). Such studies are relevant
and provide a background for my reading of Smith’s works,
9
but they do not scrutinize the works from which we may extract the general and metaphysical assumptions.
For such a task, close readings of Smith are needed. Historical philosophical readings have so far been the ones most
devoted to this task. Among these we find general readings of
either Smith (Skinner 1989; Lawler 2006; Young 2009) or the
invisible hand (Vaughn 1989). There are, however, also specific discussions on the notion of the invisible hand and the metaphysical allusions found in Smith’s works. To form a general
idea of these discussions, they can be divided into secular and
nonsecular readings, that is, readings for which the metaphysical allusions are irrelevant and relevant respectively. In a
secularized age, not surprisingly, the notion of the invisible
hand is by secular interpreters considered as either a metaphor (be that for price-mechanisms, market efficiency, competition or the like) or simply as a joke (Gramm 1980, 128;
Hahn 1981; Kennedy 2008, 210; 2005, 165; Kurrild-Klitgaard
2004; Pack 1995; Rothschild 1994). Such interpretations seem
to neglect the time Smith lived in where the division of faculties in the sciences were not strongly pronounced enabling
metaphysical discussions to influence other disciplines. More
important, these interpretations often fail to juxtapose the
idea of the invisible hand with the metaphysical allusions
found several places in the works of Smith. One may therefore
argue that such interpretations are selective not including
important passages in Smith’s works. On the other hand, one
could still insist that the invisible hand is a metaphor, be that
for a worldly or heavenly entity. To my mind, this question is
wrongly posed. The invisible hand might be a metaphor, but
regardless of its literary character, we are to look at the functional role it plays in the theory. It is that element in the
theory, which organizes the market, and without it, the theory
is amputated (in line with Hill 2001). In my interpretation,
10
the notion of the invisible hand epitomizes the organizing
character of the market, and this organization is ultimately
enabled by a deity. In other words, attention is needed towards phrases and allusions of metaphysical character when
interpreting the works of Smith.
The nonsecularized interpretations emerged in the 1990s
following a track left in the second half of the 20th century by
Jacob Viner (for an overview, see Kleer 2000). These interpretations discuss the teleological, theological, and metaphysical
aspects in the works of Smith stressing other aspects of his
theory than just his economic contributions (Brat 3 ; Clarke
2000; Evensky 1993; Harrison; Hill 2004, 2001; Jones 2010;
Keppler 2010; Kim 1997; Kleer 2000, 1995; Klein 2009; Long
2009; Oslington 2011; Oswald 1995; Pack 1995; Schabas
2003; Waterman 2002). The first objective for this thesis is to
contribute to these studies. In addition to discussing the nonsecularized facets of Smith’s theory, I also juxtapose the metaphysical parts with the economic parts: something often
toned down by these studies, which focus mostly on the noneconomic parts of his work.
About the second side of the problem, studies in history of
economic thought has as already mentioned shown the importance of Smith for later economic theory, especially neoclassic
economic theory and general equilibrium theory (Ingrao and
Giorgio 1990; Tieben 2009). These studies focus on the scientific progress in economic theory but not on the shifts in the
metaphysical or ontological assumptions. Such line of study
would fall under the already mentioned research field philosophy of economics. However, their main interest has been to
analyze theories such as neoclassic economics or classic microeconomics and macroeconomics (Hands 2004; Hausman
3 A reference without a year of publication refers to an unpublished work.
In the reference list it is listed as ‘----’.
11
2009, 2001, 1980; Hoover 2009, 2001; Kincaid 2001; Rosenberg 2009, 2001, 1992, 1976). A historical collation of the metaphysical and ontological assumptions found in the works of
Smith and modern economic theories has so far not been carried out. The second objective in this thesis, thus, is to sketch
out a new line of study where such assumptions are studied.
Needless to say, this new line of study is far from conclusive,
but it may nevertheless inspire future studies on the matter.
1.3. Textual Basis
A question to be answered when reading the works of Smith is
how the works relate to one another. When reading the works
of a philosopher, there is a risk of falling into the Bruckerian
fallacy always looking for a coherent philosophical system
throughout the works (see Catana 2005). I believe, though,
there are reasons to claim a certain affinity between the works
of Smith. It was common during the first half of the 20th century to question the relationship between WN and The Theory
of the Moral Sentiments (TMS) (1759, revised for the sixth
and last time in 1790): a scholarly discussion known as ‘The
Adam Smith Problem’ (see Anspach 1972; Wilson and Dixon
2006). Most scholars, however, now see clear connections
between the two works (cf. the introduction by D.D. Raphael
and A.L. Macfie in TMS). Besides, the six revisions of TMS by
Smith witness that he did not need to revise the content remarkably after the appearance of WN in 1776. Although there
might be tensions between the two works, I believe it is reasonable to read the two works together.
Alongside these two works, it is also relevant for this thesis to include the Essays on Philosophical Subjects (EPS)
(1795). In it appears the essays ‘The Principles which Lead
and Direct Philosophical Enquiries; Illustrated by the History
of the Ancient Logics and Metaphysics’ (Ancient Logics), ‘The
Principles which Lead and Direct Philosophical Enquiries;
12
Illustrated by the History of the Ancient Physics’ (Ancient
Physics), ‘The History of Astronomy’ (Astronomy), and ‘Of the
External Senses’ (External Senses). Although published after
his death (with Smith’s consent), scholars give reason to believe that they were written before TMS (Ahmad 1990, 141). I
include the essays because the invisible hand appears in one
of them, and they support and confirm my thesis that Smith
wanted to give an account of how order emerges. 4
The idea of the invisible hand is literally nearly invisible
in the works of Smith. It appears only three times, once in
each of his main works: Astronomy, TMS, and WN. In Astronomy it is discussed in relation to polytheistic religion,
while in TMS and WN it is reserved to economic matters. In
the three cases, the notion of the invisible hand is connected
with the question of order and to questions of metaphysical
character. In the following sections I will discuss how this
manifests in the works. For now, it is enough to say that the
idea of the invisible hand is a recurrent one in all his major
works.
1.4. The Influence on Smith
Since Smith never gives any formal definition of the idea of
the invisible hand, I now turn to some of his sources to provide a frame of reference in which we may be able to get a
sense of the idea. Historically, the idea of the invisible hand
appears both in works of Homer, Augustine, Shakespeare, and
others: works Smith could have read (see Harrison 2011; Kennedy 2008). Since the invisible hand is only mentioned in
The Lectures of Jurisprudence (LJ(A), 1762–3; LJ(B), 1766) are mostly
concerned with the topics in WN. It is only in so far the lectures illuminate relevant passages in WN that they are included. The Lectures on
Justice, Police, Revenue, and Arms (1763), A Treatise on Public Opulence (1764), the Lectures on Rethoric and Belles Lettres (1762– 3), and
the essays on poetry, music, and dancing appearing in EPS will not be
included, since their content falls outside the subject matter.
4
13
passing, an accurate meaning of the invisible hand is difficult
to retrieve from such references. Therefore, although some of
these references might have inspired Smith to coin the phrase,
we are rather to look at the role the invisible hand plays in his
theory. Since I explore the metaphysical assumptions found in
his works and interpret the invisible hand under the light of
these, it is worth presenting an explicit source of influence in
that matter: the Stoics (sec. 1.4.1). However, when stressing
the question of order, the idea of spontaneous order is worth
presenting too (sec. 1.4.2). 5
1.4.1. The Stoics’ Conception of Nature
It is uncontroversial to refer to the Stoics as an important
source of influence for Smith (cf. the introduction in TMS, 5–
10). 6 Smith’s moral philosophy is influenced by Greek virtue
Other influences could have been mentioned. Among these we find
Smith’s teacher, Francis Hutcheson (as proposed by Gregg 2008, 57; see
also Jones 2010, 92). Not only did Hutcheson translate the Meditations
of Marcus Aurelius, a work Smith is inspired by, but Smith also derives
the concept of benevolence under the influences of Hutcheson’s writings
(although Smith also criticizes Hutcheson for his inability to articulate
the necessity of self-love in the economic realm (TMS.VII.ii.3.15–6)).
David Hume could also have been mentioned. However, Hume was
probably for the most an interlocutor (cf. the letter correspondences they
had) and not a direct source of influence. Moreover, as Harold B. Jones
argues, Hume’s Epicurean inspired metaphysics never substituted the
Stoic metaphysics found in the works of Smith (Jones 2010, 93–4). It is
also worth mentioning the Swedish/Finnish economist Anders Chydenius who in 1765 published a minor work entitled Den nationnale winsten (The National Gain): a work that anticipated Smith’s thoughts on
the free market. In this work, Chydenius adopts a skeptical attitude
towards governmental regulation being sympathetic towards free trade
(Chydenius 1929). Although relevant in relation to some aspects of
Smith’s theory, when stressing the metaphysical aspects of it, these influences seem to be less relevant.
6 The Stoic influence is, nonetheless, directly contested by Lauren Brubaker (Brubaker 2006, 173–6). The quotation she highlights from TMS,
however, is to my mind not meant as a critique of the Stoic philosophy in
general, as she concludes, but to specific points in the Stoic philosophy:
5
14
ethics, for example Plato, Aristotle, and the Stoics, but his
theological stance is mostly influenced by the Stoics (see also
Clarke 2000; Jones 2010; McCloskey; Montes). Throughout
the TMS and especially at the end of the work (VII.ii.2.15–47),
Smith spends thirty-two paragraphs interpreting the philosophy of the Stoics alluding most significantly to Epictetus and
Marcus Aurelius. 7 Such accentuation on a philosophical tradition is worth examining. 8
Especially important for this thesis is the Stoic’s conception of nature, since it bears a resemblance to how Smith employs the notion of nature when accounting for the orderliness
of the universe and the organizing character of the market
(see also Schabas 2003). Charles L. Griswold, Jr. traces seven
different meanings of the notion of nature in the works of
Smith (1999, 316). Here, the relevant meaning in question is
nature conceived as the whole and closely related to the universe. A similar conception of nature is found in Stoicism.
In this philosophical school, nature is a “rationally organised structure” and affiliated to other entities such as the
especially their attitude towards suicide and their conception of paradoxes.
7 Smith writes about the Stoics: “The few fragments which have come
down to us of what the ancient philosophers had written upon these
subjects, form, perhaps, one of the most instructive, as well as one of the
most interesting remains of antiquity. The spirit and manhood of their
doctrines make a wonderful contrast with the desponding, plaintive, and
whining tone of some modern systems” (TMS.VII.ii.1.29); “That the
Stoical philosophy had very great influence upon the character and conduct of its followers, cannot be doubted; and that though it might sometimes incite them to unnecessary violence, its general tendency was to
animate them to actions of the most heroic magnanimity and most extensive benevolence” (VII.ii.1.47). The Stoic philosophy is also mentioned in the Astronomy and Logics.
8 A general remark is to be made. Whether the accounts given by Smith
on earlier philosophers or philosophical schools are adequate or not is
not the subject of this thesis. Of interest here is how Smith’s own
thought is expressed through such interpretations.
15
universe and God (Long 1974, 108). Nature is characterized by
having an inert active organizing principle that “holds the
world together” and “causes things on the earth to grow”
(Long 1974, 148): a similar organizing quality is also found in
Smith’s conception of the market. Further, nature is omnipresent and man naturally takes part in this structure. Because of
this, and since man 9 is endowed with reason (logos), he may
grasp the nature of this whole and try to fulfill the part he
plays in this whole. This human participation in the whole
raises the question on the relationship between man and God.
For the Stoics, man and God are not two complete different
beings. On the contrary, the “human soul” is an “‘offshoot’ of
God” (Long 1974, 150). A similar relation between man and
God is found in Smiths moral philosophy. Here, as I show in
the third part, man is attributed with a ‘demigod within’. The
demigod is an instance in man that establishes a relation between man and God, which enables man to conduct his actions according to the whole. This demigod and the notion of
nature can interpreted in line with Stoic metaphysics.
Although there is reason to believe that Smith was influenced by the Stoics, it would be misleading to reduce his philosophy to this position. 10 Among the differences, one important point is man’s ability to achieve knowledge of God and
nature. For both the Stoics and Smith, man stands in relation
to God, but the confidence found in the Stoics regarding man’s
(the sage’s) ability to fully account for the rational structure of
nature is relaxed by Smith. When looking at his theory of
knowledge, man only reaches an estimated account of nature,
To avoid confusion I employ the same gender pronoun as Smith.
As Griswold, Jr. points out, the significance of the Stoic influence is
ambiguous due to the notion of nature (1999, 329–30). While the Stoics
render themselves to be a part of nature or the whole, Smith upholds a
difference between man and nature insisting on the free will of humans
(see also sec. 3.2).
9
10
16
and this applies for the knowledge of God too. Since this fact
does not prevent Smith in stating that nature is organized, I
argue that his believe in a universal order is based on a general assumption. In other words, Smith asserts that the universe
is in order, despite the fact that man will never be able to give
a full rational account of such order. Therefore, although there
are parts of Stoic theology and metaphysics in Smith’s reasoning, there is not a full resemblance.
1.4.2. The Tradition of Spontaneous Order
Another important source of influence for Smith is the idea of
spontaneous order. 11 A reference to this idea is not explicitly
found in Smith’s works. Nonetheless, it flourished on the British Isles around the time of Smith among intellectuals such as
Bernard Mandeville, Josiah Tucker, David Hume, and Adam
Ferguson. Although a connection between this idea and Smith
is difficult to prove with conviction in his works, there are
reasons to believe that Smith knew the idea (see Barry 1982;
Smith 2006, 5). Since the idea of spontaneous order to a certain extent resembles some of the qualities of the idea of the
invisible hand, the former might provide a line of interpretation to unravel the latter.
Recent studies in the history of economic thought have become more
attentive to the influence from Chinese culture upon European economics. A last source of influence worth mentioning, then, is Chinese philosophy as demonstrated by Wei-Bei Zhang (2000) and especially the notion of wu-wei. The notion bears a certain affinity with the idea of spontaneous order and could be one of the sources of influence for its development. Wu-wei literately translates to ‘without action’ or ‘without governance’. In Daoism it is related to the governance of a state and related
to nature expressing how nature unfolds or organizes itself without external interference. The French physiocrat François Quesnay was influenced by Chinese philosophy. Since Smith visited Quesnay’s economic
school, and keeping in mind that Smith might have been heavily influenced by one of Quesnay’s students, Anne-Robert-Jacques Turgot, this
Chinese concept also hints to an interpretation of Smith concerned with
the question of order.
11
17
Shortly, the idea of spontaneous order refers to the organization of a particular realm, say the social or the market. This
organization reaches order or equilibrium without outer influence such as a deity or imposed forces such as legislation or a
contract (as in Hobbes 1651). Craig Smith defines the end of
spontaneous order in relation to the social as “the product of
the unintended consequences of the actions of subsistence
and order-seeking individuals” (Smith 2006, 166). In this
regard, a particular field organizes itself towards a certain
state unintentionally. Such state is according to the Scottish
Enlightenment worth reaching because of its stabilizing role:
order is normatively good.
Scholars note that one of the main qualities of the invisible hand is its ability to organize the economic realm, something similar to the idea of the spontaneous order. However, it
is debatable if the organization of the market is provided
without external influence, and if this organization leads to
order at all. (At least, as I will show, the answers to these
questions are not obvious.) More obvious is Smith’s concern
with questions related to order. This is seen in his interest in
how human organize their impressions of the world, how social order emerges, and how the behavior on the market results in the allocation of resources. Thus, how order emerges
is crucial for Smith, but simply reducing the idea of the invisible hand to that of spontaneous order reduces the complexity
(or perhaps the ambiguity) found in his works.
Not surprisingly, the crux of the matter is how we interpret the works of Smith. As mentioned, many scholars read
Smith as a genuine secular thinker. Such stance enables an
interpretation where the invisible hand is an illustration of the
idea of spontaneous order, that is, the economic realm organizes itself without the influence from a supreme being (see
Smith 2006, 4; Barry 1982, B.54). However, when including
18
the metaphysical aspects of Smith’s theory the matter becomes more ambiguous, and an interpretation of the emergence of order with reference to a deity becomes possible too.
On the other hand, deducing all facets of Smith’s economic
thought from a single metaphysical principle, for example God,
thus throwing aside the reference to the idea of spontaneous
order, would also be misleading. In the following I will discuss
such ambiguities.
Other ambiguities to be found are whether the organization of the market promotes order or disorder, whether order
is a state to be reached at all, or, whether order is already
reached and to be maintained by continuous organization.
Several passages in the works of Smith clearly suggest that the
universe is in order and introducing an organizing device such
as the invisible hand would be irrelevant if one adopted a secular stance. Adopting a nonsecular stance, on the other hand,
could resolve such obvious textual divergences, since the need
for organization could be explained under a specific understanding of theology. However, instead of resolving such ambiguities to a clear-cut reading, I believe that such ambiguities
should be kept in mind when exposing the works of Smith.
Despite the uncertainties that comes forth when introducing the idea of spontaneous order, it has a certain value to this
thesis, since the idea has been adopted in modern economics
(Smith 2006, 9–10). Among the economic theories we find
conceptions of order similar to the idea of spontaneous order
in which a specific realm, the market, has the ability to organize itself. Most noticeably, this idea is found in the economic
theory of Friedrich A. Hayek, and as I show in the fourth part,
the idea is implicitly present in other economic approaches.
1.5. Exposition
What I set forth to do in the thesis is to give an interpretational frame in which these ambiguities can be included and dis-
19
cussed. To do so, I divide the interpretation of Smith’s works
in two interrelated parts (part 2 and part 3). With this interpretation in mind, I compare the general assumptions found
in his works with modern economic theories (part 4). The last
part (5) makes up the conclusion.
In the second part I am concerned with what I call the
worldly life in Smith’s theory, that is, the non-theological elements in his theory. I show that Smith sets forth to argue how
the events in the world are organized by the mind, how man
organizes his feelings according to other people, and how the
market organizes the actions of men. In other words, the
starting point is the single human being and his actions in the
mundane world. When seen from man’s perspective, opposite
a deity’s, the world is not an already organized entity. On the
contrary, the world appears dynamic. Man has to reorganize
his image of the world because of the new events he experiences, and new social interactions are to be coordinated to
reach social mutuality. In short, the worldly realm is for man
something to be organized.
The third part makes up the other side of the theory of
Smith, the heavenly life. In this part I analyze the theological
phrases found in the works of Smith and relate this side with
the worldly side to give a full account of his philosophy. Of
special interest is his notion of God, its connection to the invisible hand, and its linkage to the other parts of his theory. In
this part, the view shifts from the limited human being to the
all-encompassing view of God. From this perspective, the
world is in order, and all parts of the world form a relevant
piece in it. In short, from the perspective of God the world is
organized. 12
The distinction between worldly and heavenly life is not only analytical.
A similar distinction is found in Smith: “The great judge of the world,
has, for the wisest reasons, thought proper to interpose, between the
12
20
The distinction between the worldly and heavenly life is
kept in mind in the fourth part where I analyze and compare
the modern economic theories within this frame. Economic
theories have lost any reference to a deity, but their general
and ontological presumptions are close to the metaphysical
ones found in Smith’s works and can be discussed within this
frame: some theories stressing the notion of organization,
others the notion of order. In the fifth part I conclude and
evaluate the thesis.
weak eye of human reason, and the throne of his eternal justice, a degree
of obscurity and darkness, which though it does not entirely cover that
great tribunal from the view of mankind, yet renders the impression of it
faint and feeble in comparison of what might be expected from the grandeur and importance of so mighty an object” (TMS.III.1.8.Eds.2–5). The
same distinction is also found in Stoic philosophy as presented by Anthony Arthur Long (1974, 179–80).
21
2. WORLDLY LIFE: ORGANIZATION
In my general interpretation of Smith, the keyword I use to
describe his philosophy is order, but in this part specifically it
is organization. The following part falls in three main sections,
each of them showing how the question of organization is unfolded. Reading the main works of Smith chronologically, this
part begins by exposing how the question of organization can
be traced in Smith’s theory of knowledge. From a sentiment of
wonder and a need to organize the world he sees, man produces invisible chains to organize the disorder he sees in the
world (sec. 2.1). Similarly, in the social sphere, man constantly
monitors his passions in relation to other people. He coordinates his actions with others to reach order, something expressed when reaching a state of mutual sympathy (sec. 2.2).
When entering the market, men no longer have the means to
coordinate their actions for which reasons the invisible hand
steps in as an organizing device compensating for the distance
between men that the market creates (sec. 2.3).
2.1. Organizing Events: Invisible Chains
In EPS, Smith deals with philosophical subjects such as theory
of knowledge, metaphysics, and astronomy. Although the essays where never completed and remained unpublished during Smith’s lifetime, they nevertheless present a preliminary
outline for the theme of order. Focusing on the Astronomy, I
now show how this theme plays a role in his theory of knowledge and his conception of human nature.
Man, in Smith’s view, lives and acts in the world surrounded by a manifold of objects, people and nature. Not only
is the world complex with causal relations not always intellig-
22
ible for man, it also qualifies by chance as when fortune plays
a role in social life (TMS.II.iii; VII.ii.1.20). If not familiar with
the array of certain events in the world, such set of events appears disorganized for the limited human mind. At times, then,
whenever man has not yet been acquainted with a causal relation by custom, or when he sees something new (Astronomy.I.2, 3, 7, 9; II.4; TMS.V), his sense and understanding of
the world is disturbed. Man begins to wonder about such experiences. This sentiment of wonder is central, since it pushes
forward man’s wish to organize the flux of phenomena in the
world.
Before turning to how such organization comes about, a
presentation of two central notions is needed: passions and
sentiments. 13 Passions are psychological entities inert in man,
which affect his emotions and imagination (Astronomy.I.2, 6).
Passions are affected by the senses and inner experiences produced by the mind. Their character may be strong or weak,
but they are transient and do not affect man for a long time.
Sentiments, on the other hand, are also activated by the mind
or external senses: especially from what man sees (External
Senses.60). Although Smith at times juxtaposes them with the
senses, it may be more adequate to interpret them as distinguished psychological ideas. These ideas are placed in the
mind as inner sensations affecting man’s attitude towards the
physical and social world. Although more stable than passions,
they are modifiable in time. Further, sentiments are concre-
Smith is not keen to give any formal definition of his notions. Their
meaning must be inferred from the many passages in which they appear.
Such indeterminateness may result in some insecurity when interpreting
Smith. The indeterminateness could be met by recurring to a general
meaning of the terms found in other philosophers from the Scottish
Enlightenment. Such an approach, however, runs the risk of missing a
specific meaning possibly found in Smith’s works.
13
23
tized in the form of a specific sentiment, for example wonder,
or as the moral sentiment, sympathy (cf. TMS).
When a new event is experienced by man, the passions
revolt in his mind and he becomes upset or even disrupted.
With his memory and imagination he tries to recollect similar
experiences from the past with the purpose of finding an analogy for that particular experience. In other words, he tries to
organize the events, which at first sight appears to be disorganized. If the mind does not succeed, the sentiment of wonder
appears. Smith describes the process as follows:
The imagination and memory exert themselves to no
purpose, and in vain look around all their classes of
ideas in order to find one under which it may be arranged. They fluctuate to no purpose from thought to
thought, and we remain still uncertain and undetermined where to place it, or what to think of it. It is this
fluctuation and vain recollection, together with the
emotion or movement of the spirits that they excite,
which constitute the sentiment properly called Wonder.
(Astronomy.II.3, emphasis in original)
Wonder is an important sentiment in Smith’s theory of knowledge, since it suspends the sensation of order man otherwise
has when not confronted with a new and incomprehensible
event. Man is displeased to be ‘wonder-full’, because the mind,
naturally, as Smith alleges, is unfitted to be in a momentary
lapse of order. The mind is pleased to create connections between events and resemble them into something already
known and organized. It continuously arranges and classifies
ideas and objects in several divisions and such state of order is
quickly to be restored if interrupted (Astronomy.II.1, 3, 4). In
24
these paragraphs, thus, we find a general assumption in
Smith’s thought: the human mind strives for order. 14
In order for the mind to reestablish order it must connect
the successions of events and resemble them with ideas in the
mind. In this case, the mind uses the imagination. The imagination is a conscious ability of the mind that settles or creates
relations between seemingly unorganized events. After such
creative operation, the unorganized events appear organized
in the mind. This establishment of relations is ensured by
what Smith calls invisible chains:
Those two events seem to stand at a distance from each
other; it [the mind] endeavours to bring them together,
but they refuse to unite; and it feels, or imagines it feels
something like a gap or interval betwixt them […;] it
endeavours to find out something which may fill up the
gap, which, like a bridge, may so far at least unite those
seemingly distant objects. The supposition of a chain of
intermediate, though invisible, events, which succeed
each other in a train similar to that in which the imagination has been accustomed to move, and which link
together those two disjointed appearances, is the only
means by which the imagination can fill up this interval,
Smith’s interest in order is expressed in various paragraphs: “It is
evident that the mind takes pleasure in observing the resemblances that
are discoverable betwixt different objects” (Astronomy.II.1); “Whatever
[…] occurs to us we are fond of referring to some species or class of
things, with all of which it has a nearly exact resemblance” (II.3); “That
the imagination feels a real difficulty in passing along two events which
follow one another in an uncommon order, may be confirmed by many
obvious observations” (II.10); “Nothing can more evidently show, how
much the repose tranquility of the imagination is the ultimate end of
philosophy” (IV.13). This is also mirrored in TMS: “If we consider the
real satisfaction which all these things are capable of affording, by itself
and separated from the beauty of that arrangement which is fitted to
promote it, it will always appear in the highest degree contemptible and
trifling. But we rarely view it in this abstract and philosophical light. We
naturally confound it in our imagination with the order, the regular and
harmonious movement of the system, the machine or oeconomy by
means of which it is produced” (IV.I.9).
14
25
is the only bridge which, if one may say so, can smooth
its passage from the one object to the other. (Astronomy.II.8) 15
Invisible chains construct a relation between unorganized
events, thus stabilizing the ideas in the mind. The epistemological challenge for man, then, is to fill out the gaps between
seemingly distant events. Further, Smith claims that this is
even the task for philosophy: “Philosophy, by representing the
invisible chains which bind together all these disjointed objects, endeavours to introduce order into this chaos of jarring
and discordant appearances” (Astronomy.II.12). 16 Once again,
it is fundamental for Smith to explain how order emerges. 17
Invisible chains are not constructed by the mind without
reference to real events. Smith, instead, adopts a stance where
invisible chains can be created more or less accurately. If the
invisible chains give a fairly complete and simple account of
the events, it is a reasonable characterization of the events. In
that case, the mind accounts for how events are organized. But,
the interesting point here is that it is only an approximated
account. Smith argues that different explenations of the celesSmith’s conception of invisible chains is not all too different from
Empiricus’ notion of connection. As Long writes when presenting the
Stoic’s notion of man: “A man is a creature who possesses the capacity to
see connexions (and to use language) as a natural endowment” (Long
1974, 125).
16 The connection between Astronomy and TMS is clear: “[…] and the
system of human nature seems to be more simple and agreeable when all
its different operations are in this manner deduced from a single principle” (TMS.II.ii.3.5). This single principle is the invisible chain in the
theory of knowledge of Smith, and as I will show, it is sympathy in his
social theory and the invisible hand in his economic theory.
17 Spencer J. Pack also draws attention to EPS but concluding the opposite, that is, that the “workings of the perceived invisible hand, is for
Smith an empirical question” (1995, 293). Pack equates the invisible
hand with the invisible chains making the invisible hand a product of
human imagination (1995, 297–8). His emphasis on EPS, without alluding considerably to TMS, leads to such conclusion.
15
26
tial spheres throughout the history of astronomy have come
gradually closer to the right account culminating with Isaac
Newton (Astronomy.IV.68, 76). Newton created the single
most important invisible chain with the idea of gravitation,
which was apt to characterize a fundamental law of the universe and was at the same time complete and simple only
using few general laws (see also Lindgren 1969; Montes
2006). 18 Despite his sympathy towards Newton, Smith’s essay
also shows how knowledge is historically bound and a new
description of the celestial sphere after Newton could be possible: a description coming even closer to the right explanation.
This implies, then, that man can never give a complete description of how the world ontologically speaking is organized.
But, by claiming that man can give an estimated account still
moving closer towards an explanation of the order in the
world, Smith seems to presume there is order although unimaginable for the human mind. As I will prove in the third
part, this ambiguity can be resolved recurring to the metaphysical parts of Smith’s theory. I show that the universe is in
order, something ensured by a metaphysical assumption. Before that, I now turn to his social theory.
2.2. Organizing the Social: Sympathy and the Spectator
In the moral philosophy of Smith presented in TMS we are
also confronted with the question of organization. As in his
The influence on Smith from mechanistic Newtonianism on metaphysical grounds is pointed out by Donald J. Oswald (1995). I share
Oswald’s motivation: “Smith’s empirical inquiries into social reality were
ultimately and fundamentally dependent upon his nonempirical, metaphysical beliefs” (1995, 472). But, although his contribution is important
in relation to Smith’s scientific point of view (and compatible with my
interpretation), when coming to the metaphysical parts of his theory,
Stoic philosophy has to be included, something Oswald unfortunately
does not reflect upon.
18
27
theory of knowledge, passions and sentiments play an important role. When socializing, the passions and sentiments men
have towards one another fluctuate. Again, such disorganization must be brought into concordance. This comes about by
sympathy, which is realized by the socalled impartial spectator that organizes men’s passions and sentiments according to
one another. This mutuality between men, however, is contrasted with the self-love also found in man and the social
rank he strives to achieve. Such obvious opposition is to be
solved with reference to Smith’s conception of the market
presented in the next section 2.3.
In his moral philosophy, Smith argues for a tendency in
man’s nature to promote the well-being of other men. The
widely cited first sentence in TMS reads:
How selfish soever man may be supposed, there are
evidently some principles in his nature, which interest
him in the fortune of others, and render their happiness necessary to him, though he derives nothing from
it except the pleasure of seeing it. (TMS.I.i.1.1)
Smith claims that man finds it pleasurable to see others in a
state of happiness (see also TMS.I.i.2.1). Given that it is the
first sentence in the book and presented in a key part of TMS,
this happiness between men is not merely a random incident.
Instead, mutuality between men, where one another’s fortune
is appreciated, is the end of social action. While happiness can
be a concrete display of such mutuality, generally speaking,
mutuality is expressed in the sentiment of sympathy. 19 This
sentiment is at the center of Smith’s moral philosophy. When
defining sympathy, Smith writes: “Sympathy […] may […] be
As Smith writes: “But whatever may be the cause of sympathy, or however it may be excited, nothing pleases us more than to observe in other
men a fellowfeeling with all the emotions of our own breast; nor are we
ever so much shocked as by the appearance of the contrary” (TMS.I.i.2.1).
19
28
made use of to denote our fellow-feeling with any passion
whatever” (I.i.1.6). Smith alludes to the interdependence between passions, and how they connect when they are like. For
example, if another man is happy, I would take part in his joy
and become affected by this passion finally reaching sympathy.
Passions, again, are the foundational units in the inner world
of man, but now, they are to be attuned to let sympathy come
about (I.i.3.1).
Passions are excited by different causes and events. They
may arise from the body, the interaction between men, or the
imagination (TMS.I.i.1.6; I.ii.1–2). Some of them are social,
others unsocial (I.ii.3–5). In this welter of passions, men interact. Compared to the creation of invisible chains, the level of
complexity now rises. Man does no longer stand in front of a
set of passionless events but in front of another man also full
of passions. What Smith has to show is how passions can be
assembled into a social order. As in his theory of knowledge,
imagination plays an important role in that matter.
Sympathy is a sentiment created in the actual and concrete relation to the other person. Smith is, in other words,
presenting a moral philosophy concerned with social relations
unfolded in situ. There are no abstract principles, just the
ethical event guided by virtues. 20 How to evaluate such event
comes about using the imagination. Smith writes:
As we have no immediate experience of what other
men feel, we can form no idea of the manner in which
they are affected, but by conceiving what we ourselves
should feel in the like situation. Though our brother is
upon the rack, as long as we ourselves are at our ease,
our senses will never inform us of what he suffers. They
never did, and never can, carry us beyond our own per20 I will not dwell on Smith’s notion of virtue but only state that the end
of virtue is to “promote […] the order of society” and is “the fine polish to
the wheels of society” (TMS.VII.iii.1.2).
29
son, and it is by the imagination only that we can form
any conception of what are his sensations. (TMS.I.i.1.2).
Man never conceives by rational means what another person
experiences or feels. He cannot transgress himself to reach the
other persons’ experiences. For that sake, he must use the
imagination. When producing imaginations, man creates a
sense of the inner world of the other person. Smith argues
that man recreates the other’s situation in himself, “we enter
as it were into his body” (TMS.I.i.1.2), and by such action of
imagination he can grasp the other’s sentiments (see also
I.i.1.11; I.i.3.9, 10). 21 The purpose of social life, thus, is to imagine what other people feel and experience to ensure the
social order between men. 22,23
In the ethical sphere, man creates order by reaching sympathy (TMS.I.i.4.7). 24 Sympathy, in other words, is the gravitational point, which social actions tend towards. The problem
is that this point is not stable. 25 Smith writes:
Such act succeeds under the assumption that men are more or less
similar. Although a man might not give a perfect representation of the
other’s sentiment, he is nonetheless able to give an approximate account.
This account is not intellectual in the sense that he theoretically can
explain how the other person may feel. It is emotional and something
that affects him directly as when Smith writes: “we then tremble and
shudder at the thought of what he feels” (TMS.I.i.1.2).
22 As in his theory of knowledge, this is done using the memory with
which man can grasp the events facing him (TMS.I.i.2.4).
23 A similar accentuation on the “inter-relationship between the agents”
is found in Andy Denis (2004, 348–54). Jan Horst Keppler even describes this social interaction with the word auto-organization (2010, 6,
76–8).
24 As Smith writes: “The person principally concerned is sensible of this,
and at the same time passionately desires a more complete sympathy.
He longs for that relief which nothing can afford him but the entire concord of the affections of the spectators with his own” (TMS.I.i.4.8).
25 This is also the case with the market (cf. sec. 2.3).
21
30
Mankind, though naturally sympathetic, never conceive, for what has befallen another, that degree of passion which naturally animates the person principally
concerned. That imaginary change of situation, upon
which their sympathy is founded, is but momentary.
(TMS.I.i.4.7) 26
From the passage we may infer that man must try to immerse
into the sentiment of sympathy over and over again, or expressed differently, man must continually reestablish social
kinship because of the momentary character social relations
have. 27 As in the theory of knowledge, man never reaches order once and for all. Instead, man continuously has to organize his passions towards other men. The next question to answer is what ensures this social mutuality.
During social interaction and before reaching sympathy,
sentiments of pain and pleasure may oscillate in the mind of
man. This instability is unpleasant for man, something he
must balance by the right actions and imagination. To create
stability, Smith introduces the impartial spectator:
None of those systems [those systems which make virtue consist in propriety: the ethics of Plato, Aristotle
and the Stoics] either give, or even pretend to give, any
precise or distinct measure by which this fitness or
A sense of balancing or gravitation is also identified when entering
sympathy: “The propriety of every passion excited by objects peculiarly
related to ourselves, the pitch which the spectator can go along with,
must lie, it is evident, in a certain mediocrity. If the passion is too high,
or if it is too low, he cannot enter into it” (TMS.ii.intro.I).
27 As when Smith writes: “In order to produce this concord, as nature
teaches the spectators to assume the circumstances of the person principally concerned, so she teaches this last in some measure to assume
those of the spectators. As they are continually placing themselves in his
situation, and thence conceiving emotions similar to what he feels; so he
is as constantly placing himself in theirs, and thence conceiving some
degree of that coolness about his own fortune, with which he is sensible
that they will view it” (TMS.I.i.4.8).
26
31
propriety of affection can be ascertained or judged of.
That precise and distinct measure can be found nowhere but in the sympathetic feelings of the impartial
and well-informed spectator. (TMS.VII.ii.1.49)
When man enters social life, he has to watch and judge how
social events unfold and see how he can reach the sentiment
of sympathy. In short, guided by the wish of reaching sympathy, man regulates his behavior using the impartial spectator
to bring the passions “under perfect subjection to the ruling
principles of his nature” (TMS.VII.ii.1.23). 28 What, then, is the
spectator? The question is debatable, since it depends on
whether Smith should be read as a secular or nonsecular
thinker. Surely, the impartial spectator is an inner instance
found in all men (II.i.1.7), an ability to judge other person’s
actions, and more important, an ability to imagine what the
other person is experiencing (I.i.1.6; III.2.5). It is the ability to
reflect on the actions of oneself through the spectator of the
others as already stated. 29 So far presented, a secular reading
would be possible, but as I will show in the next part, a nonsecular reading is needed to fully grasp the nature of the impartial spectator.
Now, the sympathetic social game of passions contrasts
with the self-love Smith also ascribes to man. Furthermore,
As Smith writes: “When the original passions of the person principally
concerned are in perfect concord with the sympathetic emotions of the
spectator, they necessarily appear to this last just and proper, and suitable to their objects” (TMS.I.i.3.1); “In all such cases, that there may be
some correspondence of sentiments between the spectator and the person principally concerned, the spectator must, first of all, endeavour, as
much as he can, to put himself in the situation of the other, and to bring
home to himself every little circumstance of distress which can possibly
occur to the sufferer” (TMS.I.i.4.6).
29 Smith writes: “We must, here, as in all other cases, view ourselves not
so much according to that light in which we may naturally appear to
ourselves, as according to that in which we naturally appear to others”
(TMS.II.ii.2.1).
28
32
the social ranks in society indicate that social life is more
complicated than so far presented. Since self-love and social
ranks are widely discussed in the studies of Smith, and often
stressed in common readings of him, I find it necessary to
include these notions in my interpretation. Throughout the
last paragraphs in this section I show that sympathy and the
impartial spectator are after all the driving forces behind all
social action. Further, I show that sympathy at the same time
is the cause behind the creation of a differentiated society,
thus promoting economic wealth. The organizational problem
now arising is that a differentiated society challenges stability
in society. Without a distribution mechanism this may result
in that society turns into an unorganized affair with social
inequalities. As I will expose in the next section 2.3, a distribution or organizing mechanism is needed for which reasons
Smith introduces the idea of the invisible hand.
Smith’s statements on self-love are not only related to an
economic discussion. The notion is broader than the terms
economic self-interest or economic man. Self-love links to the
social status of man both in relation to his virtuousness and
economic wealth, and it is an important part of human nature,
since it preserves the life of a human being. In the paragraphs
devoted to the Stoics, Smith writes:
[E]very animal was by nature recommended to its own
care, and was endowed with the principle of self-love,
that it might endeavour to preserve, not only its existence, but all the different parts of its nature, in the
best and most perfect state of which they were capable.
(TMS.VII.ii.1.15–6) 30
30 Since Smith also elaborates on the notion of self-love in earlier paragraphs in TMS (cf. III.ii.1.10), the quotation is not simply an introduction to a Stoic notion.
33
To preserve himself, man has to choose between objects that
ensure his own health while rejecting those that do not. Such
thinking could lead to an egotistical stance where man only
strives for his own well-being. But this facet of human nature
must be exceeded in favor of an ethical stance where self-love
is brought under control. Smith, then, is not arguing that man
should simply follow his self-love. Instead, man is to evaluate
his actions according to the impartial spectator in order to be
accepted by other people. Smith writes:
If he would act so as that the impartial spectator may
enter into the principles of his conduct, which is what
of all things he has the greatest desire to do, he must,
upon this, as upon all other occasions, humble the arrogance of his self–love […]. (TMS.II.ii.2.2)
Further, man should not only control his self-love, he should
also act towards social life: first towards his family but ultimately towards mankind. As he writes: “Among those primary
objects which nature had recommended to us as eligible, was
the prosperity of our family, of our relations, of our friends, of
our country, of mankind, and of the universe in general”
(TMS.VII.ii.1.18; see also III.3.4.ed.1). In short, Smith does
speak for self-love but framed in a concern for all other people.
Related to Smith’s conception of self-love is the question
of rank and status in society. While the social game of passions could suggest that Smith refers to a nonhierarchical
equal society, he is aware of that social life is not carried out
without the riches of the world. Social life exists parallel to the
riches and ranks in society. 31 Ranks and riches distinguish
men: some being wealthier and more virtuous than other.
This difference does not result from a societal failure (for ex-
31
This too is derived from the Stoics (see TMS.VII.ii.1.16).
34
ample an unequal distribution policy). The nature of man
demands those ranks in society. As Smith writes:
The man of rank and distinction, on the contrary, is
observed by all the world. Every body is eager to look at
him, and to conceive, at least by sympathy, that joy and
exultation with which his circumstances naturally inspire him. (TMS.I.iii.2.1)
It is the pleasure in seeing another person in joy that animates
the rank in the first place. The wealth of other people is, then,
tied with Smith’s conception of sympathy, because men are
“disposed to sympathy more entirely” with those carrying out
a joyful and wealthy life than to sympathize with the poor
(TMS.I.iii.2.1). Since man is directed towards other men’s joy
and wealth, he is affected to such a degree by wealth that he
wishes to avoid poverty and vicious acts, because, when he is
wealthy, sympathy from other men is awarded. 32
Smith has to introduce ranks because they give stability in
society in the long run. Social interaction based on the game
of social passions can only lead to a temporary order, since the
organizing role of sympathy only plays a role during the social
interaction. By introducing ranks, Smith sediments the organizing quality of sympathy into stable structures in society.
Sympathy creates order in the local and intimate relations
between men, but its character transforms by the same token
this temporary interaction into a structural organizing feature
in society. As Smith writes: “Upon this disposition of mankind,
to go along with all the passions of the rich and the powerful,
is founded the distinction of ranks, and the order of society”
32 Smith writes: “Nothing is so mortifying as to be obliged to expose our
distress to the view of the public, and to feel, that though our situation is
open to the eyes of all mankind, no mortal conceives for us the half of
what we suffer. Nay, it is chiefly from this regard to the sentiments of
mankind, that we pursue riches and avoid poverty” (TMS.I.iii.2.1).
35
(TMS.III.iii.2.3). However, the introduction of ranks leads to
another organizational problem: how can wealth be distributed among men to avoid the mortifying poverty that may
challenge the ranked and stable society?
Man steps into the market and is, then, both a social actor
and an economic agent. Stepping into the market creates a
distance in the social relations, since bargaining is mediated
by prices and not concrete social interrelations. Opposite the
intimate face-to-face relation motivated by sympathy, now
stands an abstract and distant relation set by the prices on the
market. While social relations settle with sympathy, when
stepping into the market, the results of men’s actions can no
longer be regulated by themselves. By separating the intimate
social relations, Smith must introduce the idea of the invisible
hand to account for the organization of events on the market.
Before reaching a clarification of the notion of the invisible
hand, I now move on to show how the economic domain relates to the question of organization.
2.3. Organizing the Market: Prices
To give a fair interpretation of Smith’s economic theory, I find
it necessary to expose some of the main facets of it, thus not
only focusing on the invisible hand. Therefore, I begin by presenting the constituting parts of his economic theory exposed
in WN. For Smith, the objective of political economy is to provide revenue for people and public services (cf. WN.IV.I.1). He
sets forth to explain how wealth is created and organized in
the economy. 33 Among the many parts in his political econo33 Wealth is understood as economic wealth. For example, if a merchant
gets a higher price for a commodity he sells, he increases his wealth. The
subject in WN, however, is how wealth in general develops. Wealth was
also a matter of interest for the Stoics: “Wealth accords with Nature in
the sense that a rational being is naturally predisposed to prefer wealth
to poverty if it is open to him to select either of these” (Long 1974, 192; cf.
sec. 2.2).
36
my that describe this matter, the four most important units
are nature, labor, capital, and the market. They connect in the
following way: While nature is the preliminary condition to
produce wealth (sec. 2.3.1), labor is the activity that elaborates
nature and further increases wealth (sec. 2.3.2). Without capital, wealth cannot increase beyond its natural level and not be
distributed in society (sec. 2.3.3). The final component that
ensures this distribution of wealth by organizing nature, labor,
and capital, is the market: something led by the invisible hand
(sec. 2.3.4).
2.3.1. Nature: The Prime Mover in the Economic System
Reflections on nature are rare in WN, even though being the
chief wealth source nourishing all other economic components (II.v.11). 34 In WN, nature appears in two different but
associated forms both expressing the question of order, that is,
either as an entity organizing itself or one being organized. 35
The first form is the physical nature (II.i.27): in economic
terms, the unmanufactured resource to be cultivated to enable
wealth. Smith calls this nature a “spontaneous production”
(I.xi.e.27; II.iii.3, 9). Once again, Smith does not give a formal
definition of his notion. Given the regular sense of the word
‘spontaneity’ (cf. OED), a possible interpretation could be a
compound consisting of physical things not formed by another being (for example a farmer) but produced and reproduced
by its own means. In this regard, nature continuously produces itself. Although the notions production and organization
are far from similar, I believe it is sensible to compare them to
Nature is not the only source of wealth and surely not the most effective to increase wealth. Because of the division of labor, nonagricultural
production increases wealth more than agriculture (WN.I.i.4), but the
resources for nonagricultural production are in one form or another
ultimately found in nature (II.iii.4; III.i.2).
35 In this case, the notion of nature is not to be understood as the conception presented in sec. 1.4.1.
34
37
each other when seen under the light of the idea of spontaneous order (cf. sec. 1.4.2). Smith is to my mind alluding to this
idea when using the notion of spontaneous production. On the
other hand, simply equating the two terms is misleading,
since there is a slight difference between the two notions.
Spontaneous order reaches at a certain point a stationary or
organized state. Smith’s notion of nature, on the contrary,
expresses how nature produces itself within the given boundaries set by nature but without necessarily reaching order.
The second form of nature is a cultivated form of the
spontaneous productive nature. It is nature brought under
control or nature accommodated to human needs. This subordinated nature is regulated by an external cause such as
labor. Out of this labor process the potential wealth found in
nature actualizes into new forms such as a commodity or a
piece of land. Under this process of cultivation, nature does
not vanish. Instead, as a commodity, it remains in the product
as a quality (WN.I.vi.1–2; see also II.iii.1). For example, wood
may be the quality of a chair. As land, nature remains the
force behind the process of cultivation that helps to improve
wealth by its spontaneous productivity now brought under
control (II.v.11). In both cases, nature is man’s property and a
mean to gain revenue: either as a product to sell or as a piece
of land to be rented (I.xi.a). This second form of nature, then,
is the raw material for all other labor processes and makes up
the ‘prime mover’ of wealth.
2.3.2. Labor and Division of Labor: Production of Difference
In the economic theory of Smith, it is not only nature and land
that increases wealth. Manufacturing and industry in towns,
and labor in general, also increase wealth. 36 While nature is
36 Although the division of labor may be of use for the labor in the country, Smith states that advantages are greater in towns where manufac-
38
the first cause of wealth, labor is the action that further increases wealth and transforms nature into a concrete commodity to be used or consumed. In abstract terms, labor alters
materials (whether natural or cultural) incorporating the value of its own process into the commodity. 37 Labor, then, as
nature, is embedded in the commodity. Further, labor is the
source that ultimately preserves human life. As the first sentence in WN reads: “The annual labour of every nation is the
fund which originally supplies it with all the necessaries and
conveniencies of life which it annually consumes” (I.I.1). Since
labor is important for society, it has to be evaluated fairly, that
is, by evaluating the alteration man gives the material. In other words, the price paid for a commodity includes the rent of
land and the wages paid for the labor activity (I.v.1; I.vi.3). 38
What characterizes labor is its ability to be divided. 39 By
dividing labor into single, simple and repetitive movements,
this action is specialized resulting in a higher quantity of work
done (WN.I.i.7; I.I.4). Consequently, wealth increases. The
division of labor has another implication. While many scholars states that dividing labor impoverishes the worker (also
noted by Smith and Karl Marx), I want to highlight another
ture is more pronounced (WN.I.i.4). Because of the nature of manufacturing labor and the concentration of people in towns, towns support by
the means of their effectiveness the natural riches found on the country.
There exists, then, a mutual relation between towns and the country
(III.i.1).
37 More straight, the amount of time spent on laboring the material is
reflected in what kind of commodity that results from this process: a
house requires more labor than a cottage.
38 More technical, “[l]abour measures the value not only of that part of
price which resolves itself into labour, but of that which resolves itself
into rent, and of that which resolves itself into profit” (WN.I.vi.9).
39 On the improvement of labour, Smith writes: “The greatest improvement in the productive powers of labour, and the greater part of the skill,
dexterity, and judgment with which it is any where directed, or applied,
seem to have been the effects of the division of labour” (WN.I.i.1; see
also I.I.4 and I.i.6–8).
39
side of this division. Division not only divides labor, it also
divides several realms in society thus creating differences in
society (differences reflected in the aforementioned social
ranks in sec. 2.2). Although men by nature are more or less
similar (I.ii.4), dividing labor gives them the means to concentrate their effort into one activity (that being either philosophy
or trading) finally creating differences between men and
hence a differentiated society. By introducing the division of
labor, Smith can account for how wealth increases in society.
In return, though, the question of order rises once again, for,
what are the results of such type of society? And more important, how is such differentiated society organized?
A differentiated society could lead to disorganization. Yet,
a mechanism ensures the common good by distributing the
riches in society (WN.I.ii.4–5). 40 Smith writes:
It is the great multiplication of the productions of all
the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that
universal opulence which extends itself to the lowest
ranks of the people. (WN.I.i.10)
Apart from a paragraph in the introduction in WN (I.I.5), this
quotation is the first passage speaking of an underlying organizing principle, which possesses the same quality as the one
found in the invisible hand. Although the mechanism is related to the division of labor, organizing the riches cannot be
understood merely with reference to this division. Instead, I
argue, it must be seen under the light of the invisible hand.
40 Smith writes: “Among men […], the most dissimilar geniuses are of
use to one another; the different produces of their respective talents, by
the general disposition to truck, barter, and exchange, being brought, as
it were, into a common stock, where every man may purchase whatever
part of the produce of other men’s talents he has occasion for”
(WN.I.ii.5).
40
This means: since the division of labor continuously creates
difference in society, Smith has to introduce the invisible hand
to organize and distribute this difference to omit societal disorganization.
Before turning to the invisible hand, the third unit of
Smith’s economic theory has to be introduced. For the division of labor to be realized, accumulation or capital is needed
(WN.II.I.3). Capital is needed in the form of technology to
provide the means for such division. Otherwise, labor may not
be rearranged for specialization (II.ii.7). More important, the
circulating character of capital is the medium in the economic
complex that enables the organization of the market.
2.3.3. Capital: Organizing Medium
As seen, labor is already a form of accumulation, since the
alteration of the material remains in the product. Another
type of accumulation is the one of goods, corn, money etc.
derived from labor, land rent, or selling products. Accumulation is important because it reflects how high general wealth is
in society: higher accumulation equals higher wealth. As the
word suggests, accumulation comes about when riches piles
up into a stock. Once a stock is accumulated it may be used for
consumption or as revenue. Leaving the former out, the latter
may be invested or lent in return for interests. It is as revenue
that a stock makes up capital: “That part [of the stock] which,
he expects, is to afford him this revenue, is called his capital”
(WN.II.i.2). Such capital, Smith claims, is used to further
promote accumulation, since its owner as far “as possible”
wishes to improve the quantity of labor (II.I.4; II.iii.27, 38). 41
Smith points out, then, that the nature of capital is to be acElsewhere Smith simply writes: “Whatever part of his stock a man
employs as a capital, he always expects is to be replaced to him with a
profit” (WN.II.iii.6).
41
41
cumulated, and similarly, the nature of man is also to accumulate. As a general assumption in the economic theory of Smith
we find, then, that capital and wealth in society continuously
increases (II.iii.14).
Smith divides capital into two forms. It may be fixed as
when used to improve buildings, land, machines or the workforce. In this case, capital does not change hands and is not
transformed into something else (WN.II.i.5). It may also circulate. Smith pays most attention to the latter, since it makes
up the former. 42 When characterizing the latter, Smith writes:
His capital is continually going from him in one shape,
and returning to him in another, and it is only by
means of such circulation, or successive exchanges,
that it can yield him any profit. Such capitals, therefore,
may very properly be called circulating capitals.
(WN.II.i.4)
This form of capital has the ability to circulate and to transform. It may adapt the form of goods or money according to
what the exchange situation needs (a landlord may for example want corn, a merchant gold) afterwards circulating to
another exchange situation needing new forms. Further, capital may circulate at different rates of speed depending on the
size of the capital. Small amounts of capital are fast, while
large amounts are sluggish causing that the economic system
organizes at different rates of speed. Capital, in sum, is the
medium enabling exchanges on the market and hence the
organizing medium in the market. Capital so to say runs
through all economic activities. It sets the economy into moHe writes: “Every fixed capital is both originally derived from, and
requires to be continually supported by a circulating capital”
(WN.II.i.24). On the fundamental importance of circulating capital, he
writes: “It is the circulating capital which furnishes the materials and
wages of labour, and puts industry into motion” (II.ii.25).
42
42
tion letting accumulation to take place little by little in society. 43 According to Smith, now, circulating capital should be let
free from possible hindering forces (WN.II.ii.94). But, since
Smith is concerned with how the market organizes, he is not
ready to let this free capital transform the market into a wilderness. On the contrary, Smith can only argue for this freedom, because free capital is incorporated into an organized
whole ensured by the invisible hand.
As seen in the previous section, the price of a commodity
is based on land and labor reflected in rent and wages respectively. Capital, similarly, is a part of the commodity reflected
for example in the interest paid for a loan. Now, with this interpretation of capital, the full price of a commodity is set.
Rent, wages, and interest make up what Smith calls the natural price. As the following section will show, when introducing
the natural price, Smith can show how the market organizes
and how another type of price, the market price, revolves
around it.
2.3.4. The Market: The Invisible Hand
As showed so far, the three units, nature, labor, and capital
have themselves a certain affinity to the question of order and
organization. The last of the four central units in WN, the
market, binds the three other units together, sets the limits for
them, 44 and organizes them. Smith’s notion of the market is
presented in the next sec. 2.3.4.1, reserving the characteristics
of its organizing nature to sec. 2.3.4.2.
43 Smith also argues for a steady accumulation of capital throughout the
history of nations (WN.I.ix.6).
44 Smith writes: “As it is the power of exchanging that gives occasion to
the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the
market” (WN.I.iii.1).
43
2.3.4.1. Natural and Market Prices
The market is a concrete place in which bargaining takes places. We may speak of a multiple of markets: some small, others
large, some exchanging commodities, others again setting
finances. Despite these differences and the autonomous character markets may have at first glance, they are united, or
certainly, becoming united. By developing carriages, land- and
water-carriages, as Smith describes, the markets connect to
each other. Connecting the markets reduces travel time between spaces (Calcutta comes closer to London), thus opening
up for a global market (WN.I.iii). 45 Smith, then, argues that all
people and markets in the economic world are uniting to a
connected whole (cf. sec. 3.2). With such a description, his
conception of the market turns into a general description. 46
At a closer look, what takes places in the market is bargaining. For bargaining to take place at all, a social realm is
needed. As seen in TMS, men are social beings dependent of
one another. 47 When they exchange, besides, this mutuality
and dependency is constantly confirmed. The difference
among men created by the division of labor, however, implies
that they also have different preferences. While all men have
some necessary basic needs, for example the need for water,
they have also “many insignificant demands” (LJ(B).209,
Most clearly when Smith writes: “Since such, therefore, are the advantages of water-carriage, it is natural that the first improvements of art
and industry should be made where this conveniency opens the whole
world for a market to the produce of every sort of labour, and that they
should always be much later in extending themselves into the inland
parts of the country” (WN.I.iii.4).
46 I accentuate this generalization since it opens for an interpretation of
Smith where his notion of the market resembles the Stoic’s notion of
nature (cf. sec. 1.4.1).
47 Something confirmed in WN as when Smith writes that man “stands
at all times in need of the cooperation and assistance of great multitudes,
while his whole life is scarce sufficient to gain the friendship of a few
persons” (WN.I.ii.2; see also I.i.11).
45
44
adopted from the editor’s note in WN.I.iv.13.n31). Such different demands result in the so called paradox of value between
two types of value. One kind of value concerns the ‘value in
use’ of goods, that is, “the utility of some particular object”
(I.iv.13). The other one concerns the ‘value in exchange’: “the
power of purchasing other goods which the possession of that
object conveys” (I.iv.13). The paradox consists in that certain
goods have no value in use, while they have great value in exchange (for example diamonds).
This paradox splits Smith’s conception of the market into
two realms. One realm revolves around the exchangeable value where commodities have a nominal price, 48 and another
revolved around a natural value where commodities have a
natural or real price. What makes up the real price is labor:
“The real price of every thing […] is the toil and trouble of
acquiring it” (WN.I.v.2; see also I.v.7). In other words, the
bodily trouble or effort put in a labor activity sets the natural
price of a commodity. Smith recognizes the problems such
measure gives for how do we compare the work of a philosopher at Edinburgh University with a worker in the wool factories? Although this problem could be “adjusted” by the market
(I.v.4), Smith admits it is practical to exchange using the relative value of commodities rather than labor itself (I.v.5–6).
This other value constitutes the nominal price. Now, in turn, a
problem of relativity arises, for, how can the price be set without a firm measure? (I.v.8). Instead of resolving these problems of measure, Smith preserves both types of prices in his
theory (I.v.9–10). Although wicked tongues would claim that
Smith’s theory of prices is wrong, the two types of prices do
not form a theoretical problem for him, since he is able to
48 Smith also uses the terms money price, exchange price or relative
price. All these are equivalent to the term nominal price.
45
connect them to each other due to the organizing nature of the
market (see next sec.). 49
The relation between the two prices varies with time and
place: “At the same time and place the real and the nominal
price of all commodities are exactly in proportion to one
another” (WN.I.v.19). This moment is but an ideal state immediately to be disorganized by the flux of time. Separating
the real and nominal prices results in value and price displacements in the market where an ounce of silver may buy
more labor in Canton than London (I.v.20). In sum, Smith
introduces market dynamics (expressed in price fluctuations)
causing instability on the market. In the long run, however,
the market organizes such insecurities because of the nature
of the market. 50
2.3.4.2. The Nature of the Market
There are two important qualities regarding the nature of the
market worth exposing. First, the market price tends towards
the natural price, and second, the market organizes all events
in the economy. While the natural price is stable representing
49 Smith indicates that labor alone (and thus natural price) is the “the
ultimate and real standard by which the value of all commodities can at
all times and places be estimated and compared” (WN.I.v.7; cf. I.v.17).
On the other hand, he also gives priority to the nominal price, when it
comes to its practical use: “As it is the nominal or money price of goods,
therefore, which finally determines the prudence or imprudence of all
purchases and sales, and thereby regulates almost the whole business of
common life in which price is concerned, we cannot wonder that it
should have been so much more attended to than the real price”
(WN.I.v.21). Nonetheless, Smith lets the two types of prices coexist with
each other.
50 Smith writes: “When by an increase in the effectual demand, the market price of some particular commodity happens to rise a good deal
above the natural price, those who employ their stocks in supplying that
market are generally careful to conceal this change. […] Secrets of this
kind, however, it must be acknowledged, can seldom be long kept; and
the extraordinary profit can last very little longer than they are kept”
(WN.I.vii.21).
46
the real value of the commodity, the market price fluctuates
(WN.I.vii.18–9) around the natural price (I.vii.8). As Smith
writes:
The natural price […] is, as it were, the central price, to
which the prices of all commodities are continually
gravitating. Different accidents may sometimes keep
them suspended a good deal above it, and sometimes
force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this center of repose and continuance, they are
constantly tending towards it. (WN.I.vii.15) 51
Although the flux of time separates the natural and market
price, there is still an organizational relation between the two.
The natural price is a firm and stable price, since it reflects
something natural and real (made up by rent, wage, and interest). The market price, on the other hand, is artificial or nominal constantly changing according to different individual
demands causing it to lie under or above the natural price. For
example, demand for blond wigs may rise instantaneously due
to a performance of Così fan tutte, but the cost of producing
wigs changes only naturally over time. The natural price, acting as a gravitational point, continuously attracts the market
price. Now, the question is why and how this attraction occurs?
An explanation has to be sought between the effects resulting from men’s actions and the market price. Every eco-
51 The wording in this passage is not unlike Newton’s law of gravitation
(see also Montes 2006, 252–8). Keeping Smith’s enthusiasm for Newton
in mind, he writes on gravitation: “He [Newton] demonstrated, that […]
the Planets were supposed to gravitate towards the Sun, and to one
another, and at the same time to have lad a projecting force originally
impressed upon them” (Astronomy.IV.67).
47
nomic action, as Smith states, affects the prices. 52 Prices, then,
reflect economic actions. Attracting the market prices towards
the natural state of the natural prices, therefore, implies regulating the effects stemming from economic actions. A full explanation of this cannot be given recurring to economics only.
Surely, an interpretation referring to price developments on
the market could be given, but such interpretation cannot
account for why human actions unfold in the way they do on
the market. A full clarification can be given turning to Smith’s
claims on the nature of the market and the ‘natural’ regulation
and organization found on the market. 53,54 At this point we
may refer to the idea of spontaneous order (cf. sec. 1.4.2)
where the nature of a given entity organizes into an organized
whole. Similarly, but as already stated not identical, the nature of the market in Smith’s theory also has such organizing
character. It organizes economic actions into a cohesive whole
regulating all the transactions in the economy. By alluding to
As when he writes: “The market price of every particular commodity is
regulated by the proportion between the quantity which is actually
brought to market, and the demand of those who are willing to pay the
natural price of the commodity, or the whole value of the rent, labour,
and profit, which must be paid in order to bring it thither” (WN.I.vii.8).
53 Smith has many references to natural regulation. To mention a few:
“There is in every society or neighbourhood an ordinary or average rate
both of wages and profit in every different employment of labour and
stock. This rate is naturally regulated, as I shall show hereafter, partly by
the general circumstances of the society, their riches or poverty, their
advancing, stationary, or declining condition; and partly by the particular nature of each employment” (WN.I.vii.1); “The quantity of every
commodity brought to market naturally suits itself to the effectual demand” (WN.I.vii.12); “A trade which is forced by means of bounties and
monopolies may be and commonly is disadvantageous to the country in
whose favour it is meant to be established […] But that trade which,
without force or constraint, is naturally and regularly carried on between
any two places is always advantageous, though not always equally so, to
both” (WN. IV.iii.31).
54 Now, nature and natural refers to the notion of nature as presented in
sec. 1.4.1.
52
48
the nature of the market, Smith can describe the advance of
wealth so important in WN.
The nature of the market finds an epitomizing expression
in the idea of the invisible hand. Roughly halfway in WN, the
notion of the invisible hand appears as that instance organizing the effects of economic actions. The controversial passage
reads:
But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the
same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both
to employ his capital in the support of domestic industry, and so to direct that industry that its produce may
be of the greatest value; 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. (WN.IV.ii.9) 55
55 And similarly in the passage in TMS containing the notion of the invisible hand: “The capacity of [the landlord’s] stomach bears no proportion
to the immensity of his desires, and will receive no more than that of the
meanest peasant. The rest he is 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,
49
The invisible chains had the important role to organize the
events. Now, the invisible hand organizes the actions of persons on the market to promote the public interest, thus
spreading wealth to all corners of the economic system. The
invisible hand does not lead the intentions of an economic
agent. It does neither affect an agent’s will nor the prior conditions for his actions. What it does, is to lead the effects resulting from his actions. In social life man could organize the social behavior by the means of the impartial spectator. Now, on
the market, the results of economic activities are too complex,
or unimaginable. The complexity found in the connecting
markets where all economic actions such as bargaining, laboring, lending land, and lending capital interact, hinders man in
knowing how to reach sympathy or to act according to the
“prosperity of mankind” (cf. sec 2.2). Therefore, an organizing
unit needs to step in: the invisible hand. The few quotations
containing the notion of the invisible hand suggest that the
invisible hand only appears in relation to economic events and
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 produce of the soil maintains at all times nearly that number
of inhabitants, which it is capable of maintaining. 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,
tho’ they mean only their own conveniency, tho’ the sole end which they
propose from the labours 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” (TMS.IV.1.11). Although the contexts
where the notion of the invisible hand appears are different, the same
organizational character is found in both.
50
not social life. The appearance of the invisible hand on the
market, however, does not only occur once. Instead, since
people exchanges constantly, the invisible hand must intervene and reorganize the market continuously. Organizing the
market, then, is a continuous affair. With this lifeline in place,
complexity is reduced, and man may focus on his own economic actions and interest, since the invisible hand will lead
the results from his actions towards the general interest.
So far, the general assumptions in Smith’s theory of
knowledge, his moral philosophy, and political economy have
been exposed. These assumptions point towards an interpretation of his theory based on the notion of organization: to
organize events using the imagination, to organize passions to
reach sympathy, and to organize wealth to distribute the riches in society. This rather long exposition was necessary for
two reasons. First, to identify the general assumptions found
in the theory of Smith. Second, extrapolating these assumptions should reflect central parts of his theory. Otherwise,
interpreting the metaphysical aspects would be insensible to
and incompatible with major parts in Smith’s works. Along
this interpretation two theological problems have been presented but not been fully explored. These are the impartial
spectator and the invisible hand. My interpretation of the impartial spectator called for a theological interpretation, since
the use of the word ‘demigod’ and passages in Smith’s works
suggests so. The invisible hand, similarly, also calls for a theological interpretation, for, what entity has the ability to regulate the actions of humans?
From this interpretation of the worldly life, where the
limited human nature grasps the world as an organizing enti-
51
ty, 56 I now turn to the heavenly life of Smith’s theory showing
how the world at a global level is organized.
Some have argued that Smith’s conception of the market should be
characterized as a self-organizing system (for an overview see Fuchs and
Collier 2007, 27; Kurakin 2007, 12; Ruzavin 1994, 68–9; Witt 1997, 490).
Recurring to modern scientific conceptions of self-organization, however,
may run the risk of being insensible to the existing text material.
56
52
3. HEAVENLY LIFE: ORDER
When trying to expose Smith’s theological stance or infer the
influences from the tradition of metaphysics in his works, one
is met with only few hints. Smith often refers to a deity, but
what theology we might deduce from this is not obvious.
Among the many words Smith uses when referring to a deity
are Jupiter, God, the Creator, the Director of Nature, and
many more. Whether these words refer to the same object,
denote different divine qualities, or even refer to different
deities, is uncertain. What role the deity plays for the invisible
hand is also unclear, and maybe one should simply add the
invisible hand to the list of deities. Despite these difficulties,
there are some assumptions of metaphysical character found
in his works useful when exposing his theology. The assumptions are general, often vague, and do not offer a specific account of his theological stance, but they may guide a sensible
interpretation of his metaphysics and theology.
My method to grasp Smith’s theological stance is to include the passages on theology and metaphysics in EPS and
juxtapose these with his references in TMS and the general
assumptions presented in the previous part. What Smith may
have meant by God or the invisible hand is probably out of
reach for historical studies. What can be done is to interpret
the few passages in which a metaphysical claim or discussion
is present. Keeping Smith’s epistemological, ethical and political economic stance in mind, we may be able to combine the
worldly and heavenly aspects into a coherent theological
stance.
In order to account for this heavenly realm, I will discuss
three theological issues. First, I show how Smith’s theological
stance is partly inspired by Christian theology, partly by Stoic
53
theology (sec. 3.1). Second, I consider how the heavenly life in
Smith’s theory is not characterized by organization, as the
worldly life, but by order. From God’s view, the whole is organized although the single parts in this whole may not grasp
this order, something related to the discussion of the relation
between man and God. With this theological discussion, I am
now able to give a full account of the impartial spectator (sec.
3.2). Third, the question of order and organization will be
discussed in relation to Smith’s conception of providence,
thus finally exposing the invisible hand in its totality (sec. 3.3).
3.1. One God and One Hand
With poor textual evidence many possible interpretations of
the idea of the invisible hand comes at hand. Common readings of Smith grasp the invisible hand as a metaphor for either
market price dynamics or a divine being. Conceived as a metaphor for market prices, the organization of the prices is not
explained properly. Explaining the prices in this way, one risk
resting on a dogma saying that prices are organized by the
effects of supply and demand without explaining why supply
and demand forces act in that manner. To strengthen Smith’s
statements and to give his ideas coherence at a metaphysical
level, such reading of the invisible hand should be abandoned.
If thought as a metaphor for a divine being, the interpretation
would be more convincing. In such case the invisible hand is
merely just another word for God. Although sound, such interpretation would nevertheless neglect that the idea of the
invisible hand actually appears in his works. Further, this
reading would be stressing what Smith might have meant
instead of interpreting the words actually appearing in the
works. Despite the interpretational difficulties it may raise, I
distinguish between God and the invisible hand, thus accepting the semantics found in Smith’s works at its face value.
54
A way of approaching the theological stance of Smith is to
consider what may be excluded from this stance. Among the
omissions we find a polytheistic stance. Smith criticizes this
theological stance in several passages: not because it assigns
existence to a metaphysical realm but because it assigns it to a
realm consisting of more than one deity. He writes:
The idea of an universal mind, of a God of all, who
originally formed the whole, and who governs the
whole by general laws, directed to the conservation and
prosperity of the whole, without regard to that of any
private individual, was a notion to which they [philosophers whose natural philosophy is based on the four
elements] were utterly strangers. (Ancient Physics.9)
Smith speaks of one God who created the universe and directs
his conduct towards the prosperity of that whole. 57 His theological stance, then, is not polytheistic but monotheistic. With
the expression ‘general laws’, Smith asserts that God organizes this whole by some unchangeable principles. Smith might
be speaking for a natural theological stance where the acts of
God may be revealed when studying nature by the means of
reason, experience or science instead of recurring to the Bible
or other sacred texts (Krolzik 1988, 17). 58 Such interpretation
could be sound when keeping in mind his epistemological
concern in unifying the events with the invisible chains to
grasp the general laws of nature (cf. sec. 2.1). However, as I
A similar prosperity was expressed with the invisible hand where the
invisible hand ensures the prosperity of all on the market (cf. sec.
2.3.4.2).
58 Natural in natural theology meaning: “‘Natürlich’ als […] von der
Natur als erfahrbarer Wirklichkeit ausgehend […] ‘Natürlich’ als Erkenntnis, die sich argumentativ nicht auf die im Glauben angenommene
Offenbarung stütz” (Kraus 1998, 677). TMS is partly composed of some
of the lectures Smith held. Although there are no records that may confirm this, the lecture course included natural theology (Brewer 2009,
534, quoting Alec L. Macfie; see also Pack 1995, 290).
57
55
argued, man only gives an estimated account of the world. If
Smith’ stance should be described as a natural theological one,
it has to be flavored with a skeptic attitude only giving an estimated account of God’s general laws. 59 In Stoic philosophy,
the universe is distinguished by logos. Since humans take part
in the universe, they have the ability to account for logos.
Smith’s stance is more humble. The universe is gifted with
logos but human beings have only limited means to describe
it. 60 Proving the existence of God, then, cannot be given by
reason only. Explanations must be supported by recurring to
general (Christian) beliefs or dogmas, something Smith does
although not explicitly referring to passages in the sacred texts.
Another problem with the polytheistic stance is that divine beings are ascribed to be the cause of unusual events
occurring in the universe. Instead, Smith argues for a monotheistic stance where all events are the cause of one deity.
For it may be observed, that in all polytheistic religions,
among savages, as well as in the early ages of Heathen
antiquity, it is the irregular events of nature only that
are ascribed to the agency and power of their gods. Fire
burns, and water refreshes; heavy bodies descend, and
lighter substances fly upwards, by the necessity of their
Although my interpretation is in many points in line with Lisa Hill’s
interpretation at this point we differ, since I emphasize the epistemological skepticism from Astronomy (Hill 2001, 5).
60 Smith writes: “The administration of the great system of the universe,
however, the care of the universal happiness of all rational and sensible
beings, is the business of God and not of man. To man is allotted a much
humbler department, but one much more suitable to the weakness of his
powers, and to the narrowness of his comprehension; the care of his own
happiness, of that of his family, his friends, his country: that he is occupied in contemplating the more sublime, can never be an excuse for his
neglecting the more humble department; and he must not expose himself to the charge which Avidius Cassius is said to have brought, perhaps
unjustly, against Marcus Antoninus [Aurelius]; that while he employed
himself in philosophical speculations, and contemplated the prosperity
of the universe, he neglected that of the Roman empire” (TMS.VI.ii.3.6).
59
56
own nature; nor was the invisible hand of Jupiter ever
apprehended to be employed in those matters. (Astronomy.III.2)
Alongside Smith’s critique of polytheism, the passage also
presents the invisible hand in a setting different from the one
presented in the previous part (sec. 2.3.4.2). Again, the invisible hand is only mentioned in passing without any clarification or elaboration. What we may infer from the quotation,
though, grammatically speaking, is a possessive case between
God and the invisible hand: the invisible hand of Jupiter. At
least there is a conceptual difference between God (or Jupiter)
and the invisible hand. Smith employs the notion of the invisible hand in two ways: either to describe how the actions of
men are led to another end (WN and TMS) or as the reason
behind events in the universe (Astronomy). Both cases are not
necessarily antipodes, since the invisible hand in the first case
could be interpreted as a divine being organizing events in the
world. In the second use, Smith might assert that the invisible
hand is similar to the underlying logos in the universe responsible for all events occurring in the universe. In both cases, the
invisible hand is an active force in the universe.
A way of grasping this active force is to recur to the Stoic
idea of pneuma. The idea expresses “the active principle” or a
“force” working in nature manifested both in the physical and
supra-physical realm (Long 1974, 155–6). Pneuma assembles
the universe by connecting the center of the universe with the
circumference. Further, it is a force both inert in man and
universe uniting the two. Although there is no textual instance
to confirm a collation between pneuma and the invisible hand,
the invisible hand shares some of its qualities. The invisible
hand organizes wealth in society centered in the hands of one
part of the population to another surrounding part, and it is
the active force leading man’s economic actions. By recurring
57
to pneuma it is possible to further explain the link between
God and the invisible hand. Pneuma is a force active in nature
and closely affiliated to God although not identical. Similarly,
the invisible hand is a force intervening in the universe and
God-like but should not be reduced to God. The invisible hand,
then, should be interpreted as a quality of God or God’s intervention in the world.
Now, what is more ambiguous is Smith’s use of the word
Jupiter, since it refers to Roman mythology: a polytheistic
theological stance. When looking into the passages in which
Jupiter appears, its use is most extensive in the paragraphs on
the Stoics found in TMS (I.iii, ed. 2–5; III.5.4; VII.ii.1), in Ancient Physics (11), and in a letter to Lord Hailes (March 5,
1759) referring to Homer. Roman mythology was adopted
from Greek polytheistic mythology, but in Stoic philosophy,
Jupiter (or Zeus) represents the king of Gods and the principal divine being of the divine realm (see also Long 1974, 150).
To my mind, the quotation should be read in this context.
Smith proposes a monotheistic stance but keeps a semantic
relation with Stoic metaphysics by referring to Jupiter. Given
the affinity between Smith’s philosophy and the Stoics, this
could be a reasonable first hint on how to interpret Smith’s
theological stance, which could be named a Stoic influenced
Christian position or an eclectic Stoicism (cf. Montes).
3.2. A Part of the Whole
To further characterize the theology of Smith, we are to explore an idea he often recurs to. The idea that a part in the
universe is not isolated from but connected to the whole. As
Smith writes:
As all, even the smallest of the co-existent parts of the
universe, are exactly fitted to one another, and all contribute to compose one immense and connected sys-
58
tem; so all, even apparently the most insignificant of
the successive events which follow one another, make
parts, and necessary parts, of that great chain of causes
and effects which had no beginning, and which will
have no end; and which, as they all necessarily result
from the original arrangement and contrivance of the
whole; so they are all essentially necessary, not only to
its prosperity, but to its continuance and preservation.
(TMS.VII.ii.1.38) 61
With the Stoic conception of nature in mind (cf. sec. 1.4.1), the
quotation can be read along two lines. First, worldly objects
are related to one another as when people sympathize through
passions or when products circulate on the market by means
of the circulating capital. Second, there is a connection between the worldly and heavenly life in which God takes part in
the world as expressed with the idea of the invisible hand. The
two realms, the worldly and heavenly side, are thus connected
through the invisible hand as an acting force moving all the
single parts in accordance with the whole or God (see also sec.
3.3).
Because of this interconnection, man, nature and God
form a whole. In several passages Smith argues that man is a
part of Nature: he is not “detached” from things (TMS.VII.ii.1.
19). Although man may not recognize what part he plays in
the whole (cf. man’s cognitional limitations), he is nevertheThe idea also appears outside the paragraphs on the Stoics: “In every
part of the universe we observe means adjusted with the nicest artifice to
the ends which they are intended to produce” (TMS.II.ii.3.5). The common clock metaphor is also used: “The wheels of the watch are all admirably adjusted to the end for which it was made, the pointing of the hour.
All their various motions conspire in the nicest manner to produce this
effect. If they were endowed with a desire and intention to produce it,
they could not do it better. Yet we never ascribe any such desire or intention to them, but to the watch–maker, and we know that they are put
into motion by a spring, which intends the effect it produces as little as
they do” (TMS.II.ii.3.5).
61
59
less a part of that whole and should see himself as a part. The
universe’s perfection is ensured by God; man should live following that life assigned to him (TMS.VII.ii.1.21), because
everything occurs according to the will of God; and man is to
follow God’s will (TMS.VII.ii.1.22). As Smith writes:
He [a wise man] does not look upon himself as a whole,
separated and detached from every other part of nature,
to be taken care of by itself and for itself. He regards
himself in the light in which he imagines the great genius of human nature, and of the world, regards him.
He enters, if I may say so, into the sentiments of that
divine Being, and considers himself as an atom, a particle, of an immense and infinite system, which must
and ought to be disposed of, according to the conveniency of the whole. (TMS.VII.ii.1.20) 62
The quotation shows the affinity between man and God. Man
is a part of the whole, and he can imagine how God sees him.
Again, the imagination presented in his theory of knowledge
(cf. sec. 2.1), and often neglected by scholars, plays an impor-
Similarly: “This [the essence of virtue] was what they [the Stoics]
called to live consistently, to live according to nature, and to obey those
laws and directions which nature, or the Author of nature, had prescribed for our conduct” (TMS.VII.ii.1.16); or as when quoting Aurelius:
“From thee are all things; in thee are all things; for thee are all things”
(VII.ii.1.38); and: “Whoever does not cordially embrace whatever befals
him, […] wishes, so far as in him lies, to stop the motion of the universe,
to break that great chain of succession, by the progress of which that
system can alone be continued and preserved, and, for some little conveniency of his own, to disorder and discompose the whole machine of
the world” (TMS.VII.ii.1.38). It is also mirrored at a societal level: “It is
thus that man, who can subsist only in society, was fitted by nature to
that situation for which he was made. All the members of human society
stand in need of each others assistance, and are likewise exposed to
mutual injuries. […] All the different members of it are bound together
by the agreeable bands of love and affection, and are, as it were, drawn
to one common centre of mutual good offices” (TMS.II.ii.3.1).
62
60
tant role in the theology of Smith. 63 The sentiments too play a
role in his theology. They are possessed by man but also by
God and therefore may man, when using his imagination,
enter God’s sentiments and fulfill the role he has to play in the
whole. 64
As I argued in the previous part (sec. 2.2), a full account
of the impartial spectator was not possible. Now, the task can
be fulfilled. The link between man and God is confirmed with
the impartial spectator and especially with the word demigod.
The impartial spectator is not only a judicial agency estimating which acts result in sympathy. It is also a facility mediating affairs between man and God letting man reflect on his
actions by entering “into the sentiments of that divine Being”.
Smith writes:
In such cases, this demigod within the breast appears,
like the demigods of the poets, though partly of immortal, yet partly too of mortal extraction. When his judgments are steadily and firmly directed by the sense of
praise–worthiness and blame–worthiness, he seems to
act suitably to his divine extraction: But when he suffers himself to be astonished and confounded by the
judgments of ignorant and weak man, he discovers his
connexion with mortality, and appears to act suitably,
rather to the human, than to the divine, part of his origin. (TMS.III.2.32) 65
The connection between Smith’s theology and the rest of his philosophy is also stated by Pack (1995, 289).
64 My interpretation could at this point be criticized for overemphasizing
the Stoic influence. The passages above are extracted from the section
where Smith presents Stoic philosophy, but Smith frames his presentation with important notions from his own philosophy such as imagination and sentiments.
65 And in another passage Smith writes: “The weak, the vain, and the
frivolous, indeed, may be mortified by the most groundless censure, or
elated by the most absurd applause. Such persons are not accustomed to
consult the judge within concerning the opinion which they ought to
form of their own conduct. This inmate of the breast, this abstract man,
63
61
The quotation suggests that man is endowed with a judging
faculty that is partly mortal, partly immortal or divine. Smith
states there is a tribunal in man that “acts suitably” when he
acts in concordance with the divine, something that requires
entering God’s sentiments. This tribunal, however, may be
corrupted and man acts in that case according to his human
side thus not entering the sentiments of God.
The relation between man and God does not work both
ways. Smith is stating that man has the means to enter the
sentiments of the divine being, but he is not stating that God
is influencing his decisions directly. 66 In other words, man
may act according to God’s will, but Smith also states that
man may not always fulfill this task. Here, Smith is not adopting a Stoic stance. Because of pneuma, the Stoics could describe all events recurring to the logos inert in nature ultimately reducing all human actions to be a part of the divine
plan as expressed in destiny (fatum) (Long 1974, 168–70, 182).
The problem with the Stoic theological stance is that it cannot
describe evil in the universe: if God is all-benevolent, why
does evil exist? 67 Smith, instead, reserves a place for evil and
the representative of mankind, and substitute of the Deity, whom nature
has constituted the supreme judge of all their actions, is seldom appealed to by them. They are contented with the decision of the inferiour
tribunal” (TMS.III.1.8.Eds.2–5).
66 Although his analysis is framed differently, Keppler also notes that the
communication between man and God is not direct (Keppler 2010, 84).
67 Clearly expressed by Smith: “The ancient stoics were of opinion, that
as the world was governed by the all–ruling providence of a wise, powerful, and good God, every single event ought to be regarded, as making a
necessary part of the plan of the universe, and as tending to promote the
general order and happiness of the whole: that the vices and follies of
mankind, therefore, made as necessary a part of this plan as their wisdom or their virtue; and by that eternal art which reduces good from ill,
were made to tend equally to the prosperity and perfection of the great
system of nature. No speculation of this kind, however, how deeply soever it might be rooted in the mind, could diminish our natural abhorrence
62
flaw in his theology by giving humans more autonomy. 68 Humans, then, are not a perfect reflection of God and his will.
They are independent beings, imperfect; they may act immorally, and respectively, they do not have knowledge of how
events in the universe will unfold. 69
If there is a clear division between the heavenly and
worldly life, why does God need to intervene in the worldly
for vice, whose immediate effects are so destructive, and whose remote
ones are too distant to be traced by the imagination” (TMS.I.ii.3.5).
68 As Smith writes: “That men, however, might never be without a rule to
direct their conduct by, nor without a judge whose authority should
enforce its observation, the author of nature has made man the immediate judge of mankind, and has, in this respect, as in many others,
created him after his own image, and appointed him his vicegerent upon
earth to superintend the behaviour of his brethren. They are taught by
nature to acknowledge that power and jurisdiction which has thus been
conferred upon him, and to tremble and exult according as they imagine
that they have either merited his censure, or deserved his applause”
(TMS.III.1.8.Eds.2–5; see also III.2.31).
69 This interpretation is in line with Griswold, Jr. and consistent with my
division between worldly and heavenly life. From the point of view of
God, human actions are of no interest, because they form a part of the
whole, which human beings do not have access to: “moral distinctions
disappears” (Griswold, Jr. 1999, 319). From the point of view of man,
moral distinctions reappear and human actions become important for
social life. The division is also expressed in the following: “Thus man is
by Nature directed to correct, in some measure, that distribution of
things which she [Nature] herself would otherwise have made. The rules
which for this purpose she prompts him to follow, are different from
those which she herself observes. She bestows upon every virtue, and
upon every vice, that precise reward or punishment which is best fitted
to encourage the one, or to restrain the other. She is directed by this sole
consideration, and pays little regard to the different degrees of merit and
demerit, which they may seem to possess in the sentiments and passions
of man. Man, on the contrary, pays regard to this only, and would endeavour to render the state of every virtue precisely proportioned to that
degree of love and esteem, and of every vice to that degree of contempt
and abhorrence, which he himself conceives for it. The rules which she
follows are fit for her, those which he follows for him: but both are calculated to promote the same great end, the order of the world, and the
perfection and happiness of human nature” (TMS.III.5.9).
63
life? In other words, what role does the invisible hand plays?
Such questions are related to providence.
3.3. The Invisible Hand: Providence
As stated in the introduction, the heavenly side of Smith’s
theory is in order, something confirmed when Smith argues
for a connection between parts and whole. What I still need to
clarify is the relation between the worldly and heavenly side.
The first clarification to be made is if Smith argues for a deistic position, 70 that is, a theological stance where God created a
perfect universe for which reasons God does not have to influence the universe after the creation. Since the invisible hand is
an active principle such interpretation would not be sound.
Instead, the invisible hand is an expression of God’s interference in the universe, or in other words, providence (cf. also
Hill 2001). 71
Next, what kind of providence is Smith proposing? As
argued in the previous paragraph, Stoic fate cannot account
for evil in the universe. Another problem with the Stoic conception is to account for man’s free will. Given that nature in
Stoic philosophy is a rational active force arranging all the
parts of the universe according to its law, the Stoic position
does not leave space for the free will. 72 If Smith adopted the
Stoic stance entirely, freedom, the basic pillar in liberalism,
would only be a matter of appearances. Smith, then, is not
proposing a type of providence where God decides how individuals should act. Instead, he proposes a type of providence
where he gives space to individual freedom. But, since he also
70 Something Anthony Brewer, following Macfie, seems to imply (2009,
534).
71 A formal definition of God’s providence could sound: “Die providentia
Dei ist also die auf die allgemeine Schöpfung und Geschichte gerichtete
gegenwärtige Gottesherrschaft” (Krolzik 1988, 17).
72 I am simplifying the Stoic position to draw a clear distinction between
Smith and the Stoics.
64
insists on market order, God needs to engage in the world to
preserve and confirm the order that free individuals on the
market might disturb.
God as the creator of the universe, then, acts upon the
agents on the market. In this concourse (concursus divinus)
between God and an economic agent only God plays a role.
Man may grasp God’s sentiments with the imagination, but he
can neither appeal to nor affect God. Man has been given a
domain in which he can act freely as long as he acts according
to God’s will (as man imagines it to be), and to a certain extent,
he can fulfill this will. 73 For example, in social relations, man
may organize his passions according to the other. But, when
entering the market, he is no longer able to preserve this order.
Man no longer knows the results of his actions and can no
longer organize his passions according to other people. In
other words, the effects stemming from bargaining cannot be
organized by man: a social distance is created when entering
the market. Smith, therefore, has to introduce the invisible
hand. God must intervene in the market to organize the outcomes of human action that happens when bargaining. God’s
providence, in sum, is not to foresee human actions but to
intervene and organize the results of human action unfolded
when men bargain on the market. Since human beings constantly bargain on the market, God’s intervention with the
invisible hand on the market is also continuously.
Smith writes: “But by acting according to the dictates of our moral
faculties, we necessarily pursue the most effectual means for promoting
the happiness of mankind, and may therefore be said, in some sense, to
co-operate with the Deity, and to advance as far as in our power the plan
of Providence. By acting other ways, on the contrary, we seem to obstruct, in some measure, the scheme which the Author of nature has
established for the happiness and perfection of the world, and to declare
ourselves, if I may say so, in some measure the enemies of God”
(TMS.III.5.7).
73
65
The government of God in the world (gubernatio), then,
is given a restricted role in the theology of Smith. Since the
active invisible hand only appears in paragraphs discussing
the market, a possible interpretation could be that the otherwise organizing world cannot organize itself when speaking of
the market. An external influence is needed, and the invisible
hand intervenes to conserve (conservatio) 74 and confirm the
order created when the universe was created. The invisible
hand, then, reestablishes order and is the helper ensuring the
increase of wealth on the market organizing the disruptions
on the market by gravitating the prices. The question is how
extensive the market is. Is the market a single and isolated
domain among other domains such as the social or the physical nature? Or is it a domain making up all other domains?
Smith sees the market as a global entity (cf. sec. 2.3.4.1) giving
it almost the same universal status as nature. In this case one
could speak of a naturalized providence. On the other hand,
he also speaks of a noneconomic realm such as when men
interact socially without promoting economic results (cf. sec.
2.2). Since human beings have the means to organize this
realm with the impartial spectator, the market (and the business of society) seems to be the only realm that needs to be
organized. In this case one could speak of ‘marketalized’ providence. To my mind, it is in this and only this domain that
God needs to intervene in.
God takes part in the world, and this participation may be
revealed by man. For example, the world’s orderliness could
be a proof of God’s existence. In this case God is revealed by
Conservatio is: “begrifflich die extensive Fassung des Schöpfungsgedankens, welche in der Verbindung ‘Schöper und Erhalter’ […] vertraut
ist”; and may in this case be conceived as “die Vorstellung von geordneten Kosmos eingebettet, in welcher der Fortbestand der Welt als notwendiges Moment ihrer Erzeugung mitgedacht werden muss” (Scheffczyk 1995, 762).
74
66
experience and man could grasp God’s existence by studying
nature and the laws inert in it. But, as argued (cf. 2.1 and 3.1),
man can only give an estimated account of the events in the
world. Now, in his theology, Smith pushes this skepticism
even further. Man has no remedy to reveal God’s providence,
since he would interfere in the providence of God. Smith
writes:
If those infinite rewards and punishments which the
Almighty has prepared for those who obey or transgress his will, were perceived as distinctly as we foresee
the frivolous and temporary retaliations which we may
expect from one another, the weakness of human nature, astonished at the immensity of objects so little fitted to its comprehension, could no longer attend to the
little affairs of this world; and it is absolutely impossible that the business of society could have been carried
on, if, in this respect, there had been a fuller revelation
of the intentions of providence than that which has already been made. (TMS.III.1.8.Eds.2–5)
The quotation is consistent with Smith’s Stoic-Christian position, but he also disassociates from the Stoic position. In the
quotation we find agnostic tendencies, not about the existence
of God but about his providential aims. This fact is reconcilable with Smith’s epistemological skepticism. With this quotation we now understand why Smith argues that humans
should not intervene in the course of events. They should follow their own interest, since they cannot grasp the providence
of God anyway. God and the invisible hand will ensure that
the course of events will fall out to the best.
Summary: The Metaphysics of the Invisible Hand
In the works of Smith we find a fundamental and recurrent
theme: order and how to ensure order. As I have displayed,
nature and God, the heavenly side of Smith’s theory, are a
67
harmonious whole in which all parts are an integrated and
fulfilling part of the whole. The worldly side does not have this
same character. When stepping down from the pedestal of
God, the world no longer appears to be a harmonious whole.
From man’s point of view, the flux of the world must be organized, both the experienced events and social passions. While
man succeeds organizing these two domains, when entering
the market, he no longer has the means to organize his surroundings. In steps the invisible hand and organizes economic
events. It continuously takes part in the market and organizes
it towards an organized state, and, since men always bargain,
the market never reaches a stable state. Similar to man, who
continuously organizes the events he sees and the passions he
experiences, the invisible hand organizes market activities
confirming nature’s perfection although never reaching the
permanence and harmony of the heavenly side. The link between the organizing principle and the fluctuating prices of
the market ensures that wealth increases by organizing the
market into a well-distributed domain.
In the next part of the thesis I expose how two important
modern economic theories, general equilibrium theory and
self-organizing economy, are related to the theory of Smith.
While the former subscribes to the heavenly side always assuming an order which all economic activities are a part of,
the latter stays at the worldly side trying to state how selforganization unfolds. In other words, the metaphysical assumptions and general problems stated by Smith are retained
in modern economics.
68
4. MODERN ECONOMICS: SELF-ORGANIZING ECONOMY AND GENERAL EQUILIBRIUM THEORY
Smith is without doubt one of the major contributors in political economy and economics even though many parts of his
theory has been discarded. What did influence later economics and not least economic policy, even in our time, is the idea
of a self-sustaining market free from governmental intervention. Indeed, many later economists still try to explain these
forces in the market. While Smith used price mechanisms to
explain market behavior (mechanisms supported by the invisible hand), later economists have explored the same issue with
different tools, models and notions. In this part I argue that
reminiscences from the metaphysical assumptions in Smith’s
theory are still to be found in recent economic schools of
thoughts. Not in a sense that new theories are simply reproducing Smith’s theoretical frame. Instead, I argue that the
question of order raised by Smith founded on metaphysical
premises can still be found in modern economic theory at an
ontological level. 75
In this part, two major economic theoretical advances are
analyzed in relation to my interpretation of Smith. First, the
economic theory proposed under what could be named selforganizing economy. 76 Here the later works of the Nobel LauAttempts to show how the idea of the invisible hand has influenced
modern economic theory have of course already been made (see for
example Barry 1985; Tobin 1991; Witztum 2010). However, interest has
been on the scientific facets of his Smith’s theory and not the metaphysical aspects.
76 A formal definition of self-organization is never given by these economists. To extend the definition from the introduction, the definition
given by Paul Cilliers is useful because it is wide enough to contain the
informal descriptions found in the works of the economists. It sounds:
“The capacity for self-organisation is a property of complex systems
75
69
reate in 1974, Friedrich A. Hayek (1899–1992), draws the attention, as well as developments urged by Nobel Laureate in
2005, Thomas C. Schelling (1921–), and Laureate in 2008,
Paul Krugman (1953–). 77 In the next section (4.1), I show how
the heavenly side found in the theory of Smith collapses giving
up the assumption of order for a self-organizing realm. If
these recent economists still represent a heterodox position in
economics, the second position I consider, general equilibrium theory, is a settled position in mainstream economics.
Here the classic figures are the two Nobel Prize winners Kenneth J. Arrow (1921–) and Gerard Debreu (1925–), and Frank
H. Hahn (1925–). They may be interpreted in line of the heavenly side where order is the ground premise (sec. 4.2).
4.1. Economic Self-Organization
Although the following economists present different economic
theories and deal with different economic problems, the notion that grasps their difference and relates them to one
another is the one of organization and self-organization. This
is seen in Hayek’s idea of spontaneous order. Here the question of order concerns how the economy organizes itself. Simiwhich enables them to develop or change internal structure spontaneously and adaptively in order to cope with, or manipulate, their environment” (1998, 90). Contrary to the definition given in the introduction,
these systems do not necessarily evolve out of preestablished elements.
77 The economic studies from Santa Fe Institute could have also been
included. However, because of their diversified computational approach,
their theoretical foundation is difficult, if not impossible, to extract (see
for example Anderson, Arrow, and Pines 1988). The work of Paul Ormerod (1998) implicitly referring to Schelling could likely have been be
included. However, such inclusion would not add essential insights in
relation to this study since Ormerod shares many of Schelling’s fundamental assumptions as when he writes: “Individuals do not act in isolation, but affect each other in complex ways” and “[t]he often unpredictable interactions between individuals lead to a certain kind of selfregulation in the behaviour of the system as a whole” (1998, x and xi
respectively).
70
larly, the contributions of Schelling and Krugman also link to
the question of organization.
4.1.1. Hayek: Catallaxy
The most elaborated conception of self-organization in political economy is found in the three volume work of Hayek from
the 1970s, Law, Legislation and Liberty (here only the two
first volumes, Hayek 1973, 1976). 78 In this work, Hayek treats
a central economic problem: the question of knowledge and
what we can know about the economy (1973, 11–5; 1945, 519–
30; 1948). Instead of assuming that economic agents have the
means to gain full information, Hayek supposes the opposite:
agents do not have the cognitive capacity to get full information. They have a limited capacity and can only organize a
limited series of events outplayed in the economy (an economy complex in nature). Furthermore, not even institutions
have the means to monitor the information in the economy,
since these are also ultimately conducted by human beings. At
a basic level, therefore, there is none or nothing (institutions,
a governmental system) that can give a full, detailed account
of the economy (1984b, 56–7, 59). What Hayek sets to explain
is how the economy after all is organized (1973, 35).
Hayek’s answer to this question relates to his idea of catallaxy. 79 The word is a definition of the economy meaning the
evolution of a spontaneous order based on the coordination of
single economic agents (1973, 107–9; 1984c, 368). In other
words, Hayek’s notion of order denotes an order created enHayek was earlier concerned with economic equilibrium, something
he to a certain extent has criticized and developed (see 1984a, 1948).
This aspect of his authorship will not be discussed.
79 Catallaxy is a neologism by Hayek derived from the Greek verb katallattein (to exchange, to admit into the community, and to turn from
enemy into a friend) and substantivated. It is used as a substitute for the
Aristotelian oikonomia (household management, law of the house)
(Hayek 1976, 108; 1984c, 367).
78
71
dogenously. 80 Although Hayek states there are other forms of
order creation, for example exogenously created order, the
fundamental creation of order in the economy is spontaneous
order (1973, 47). What provides order in the economy is the
coordination of knowledge, which is ensured by market prices. 81 Apart from being an exchange medium, prices carry out
information. A price is a condensed expression communicating the value of a specific product to agents on the market.
The prices, thus, coordinate the knowledge at hand for the
single agents on the market telling a value, which agents may
or may not accept (1976, 115–8). Agents act upon price information, and conversely, the actions of the agents are reflected
in the prices because prices are affected by what economic
agents buy and sell. Since prices work as a neutral communication medium, the agents themselves can organize their activities on the market without any external legislator or price
fixer giving the market a self-organizational character (1984d,
217–9).
When comparing Smith and Hayek, we find a similar
epistemological skepticism in Hayek as in Smith. In Smith’s
epistemology, man can only give an estimated account of the
events in nature, and he cannot forecast developments of the
market at all. Although Smith discusses the epistemological
Hayek’s definition of order sounds: “[A] state of affairs in which a
multiplicity of elements of various kinds are so related to each other that
we may learn from our acquaintance with some spatial or temporal part
of the whole to form correct expectations concerning the rest, or at least
expectations which have a good chance of proving correct” (1973, 36).
Hayek’s notion of order is derived from the Greek kosmos, which he
translates as “a right order in a state or a community” (1973, 37).
81 In abstract terms, Hayek writes: “The spontaneous order arises from
each element balancing all the various factors operating on it and by
adjusting all its various actions to each other, a balance which will be
destroyed if some of the actions are determined by another agency on
the basis of different knowledge and in the service of different ends”
(1973, 51).
80
72
problems in a natural scientific setting and Hayek in a social
and economic setting, 82 it is nonetheless this skepticism that
leads both economists to similar conclusions. Since human
beings cannot organize the results of their actions on the market (Smith), or do not have the capacity to gain full information (Hayek), human beings have to let market forces unfold
without trying to control them. In Smith’s theory, the price
developments on the market, ultimately supported by the
invisible hand, will in the end ensure the organization of the
market. Hayek, similarly, argues for the self-organizing character of the market where economic agents follow price developments on the market without any reference to an outer
governing principle. The difference between the two economists is that Hayek argues for a self-organization without a
single purpose (1973, 39). 83 In Smith’s theory, the market has
a telos as when market prices revolve around natural prices
reflecting the order of nature and God. The market may never
reach order, but the inclination towards order and that order
is good in itself is obvious in Smith’s theory. What Hayek does
inherit from Smith is the assumption that the free market is
the most efficient way to govern the economy. Without intervention, the market follows its own nature, 84 something based
on their skeptical epistemology. 85
C. Smith, when writing on the epistemological skepticism of Hayek,
echoes A. Smith: “Science can assist us better to understand the general
nature of social inter-relation-ships, but it cannot ever hope to provide
formulae that allow the accurate prediction of all future human circumstances” (Smith 2006, 152). Although by different means, C. Smith also
seems to reach a similar conclusion as I do in relation to the question of
knowledge found in A. Smith and Hayek (2006, 166).
83 “The cosmos of the market”, instead, “serves the multiplicity of separate and incommensurable ends of all its separate members” (Hayek
1976, 108).
84 Hayek does not speak of a natural price being a result of nature. There
is no transcendent entity, such as nature, working as the premise for the
prices on the market. It is only the social interaction on the market that
82
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4.1.2. Schelling and Krugman: Self-Organizing Economy
A similar concern for the question of organization is found in
the works of Schelling (1978) and Krugman (1996). From a
game theoretical perspective, what interests Schelling is the
social behavior that unfolds among people. While Hayek’s
problem was information and how the market distributes it,
Schelling deals with the social behavior of people. 86 For Schelling, people are not guided by prices but by other people’s
actions – even personal preferences are formed by others. Or,
as Schelling states, he is interested in a “kind of analysis [that]
explores the relation between the behaviour characteristics of
the individuals who comprise some social aggregate, and the
characteristics of the aggregate” (1978, 13, emphasis in original). Using the word aggregate can be misleading, since Schelling insists on the complexity of social interaction not reducing collective actions to a mere sum of single people’s actions.
In that sense, Schelling shares Smith’s assumption in which
the single takes part in the whole (cf. section 3.2). This leads
Schelling to a fascination for organization and how social life
organizes: “Somehow all of the activities seem to get coordinated” (1978, 20). Schelling gives a thorough account for this
fascination, but the main point here is that his point of departure is organization and how social activities organize. Instead
of arguing for a disorganized universe, Schelling claims that
society is organizing much similar to the worldly side of Smith.
How perfect this organization may for sure vary but the para-
decides the prices on the market, but Hayek nevertheless sees social
interaction as the most efficient way of organizing the market.
85 Andy Denis finds a similar connection between Smith and Hayek, but
he focus on the interrelationship of economic agents and the epistemological grounds (2004, 348–54).
86 Schelling, though, also shares the same assumption that human beings have cognitive limitations and may not grasp the complex world. In
his theory, there is also a skepticism towards central planning (1978, 22).
74
digmatic approach is the one of organization (see also 1978,
20–4).
As I have showed in sec. 2.2, Smith is concerned with the
ethical relation between men. When they act, they do so to
gain sympathy by organizing their passions according to one
another. Such purpose is not found in Schelling’s theory, but
people do coordinate their actions towards one another. 87
With preferences (Schelling) or the impartial spectator
(Smith), the agent acts in a social sphere towards order. Smith
reserves social coordination to intimate interactions, and
Schelling traces out the behavior of the aggregate from social
micro-relations without alluding to a single mechanism (price
mechanisms, God). The organization of the social and the
market, thus, is innate, that is, organized solely by the means
of people.
Now, the question is what end such organization has. As
seen in Smith, the telos of the organizing market is to reach
order. Schelling recognizes that the market may fail, either
economically or socially, but he nevertheless grants the market the ability of “harmonizing” the acts of many single “individuals and organizations” (1978, 23). The organization of the
social does not manifest as a single equilibrium but in a socalled dual equilibrium. 88 For Schelling equilibrium is “a situSchelling even mirrors the impartial spectator, although omitting all
ethical connotations: “And if we know what a problem a person is trying
to solve, and if we think he actually can solve it, and if we can solve it too,
we can anticipate what our subject will do by putting ourself in his place
and solving his problem as we think he sees it” (1978, 18, my emphasis).
88 Schelling gives an account of this dual equilibrium by recurring to the
notion of critical mass. Critical mass is a phenomenon appearing when
the behavior of one agent acting among other people adapts to the behavior of the many or the mass. When the amount of people acting according to a relative large group of people becomes so high that all other
people will follow their action, we may speak of a critical mass (1978,
91–102, 104–19). The mass is critical in the sense that the moment and
the number of persons making up a mass are not fixed. For example, if a
87
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ation in which some motion or activity or adjustment or response had died away, leaving something stationary, at rest,
‘in balance’” (1978, 25). Although equilibrium may adopt several forms, be “exact or approximate”, the main point is that
there is tendency that the economic system will evolve towards a state of order (dual equilibrium). The metaphysical
claim found in Smith’s theory that the universe is organizing
is resembled, and although the telos inert in the system is
relaxed, Schelling’s economic system still moves towards an
orderly state.
The third economist, Krugman, is inspired by Schelling,
but he is concerned with the spatial analysis of the economy
focusing on the emergence of order for a specific region, for
example a city (Krugman 1996; see also Fujita, Krugman, and
Venables 1999). While he adopts the insights from Schelling,
for example the dual equilibrium (1996, 7, 15–22), he pays
more attention to the initial state conditions prior to the evolution of a particular region into order. He arrives to the conclusion that the economy reaches order in two ways: it may
either be organized from instability, or it may be organized
along random economic growth (1996, 7, 99–100). For the
former, order emerges spontaneously. Although spontaneous
order is given a scientific flavor in Krugman, opposed to
Hayek and Smith, the idea is the same. Further, Krugman
resembles Smith when accounting for the premises for this
group of ten persons are waiting to cross a pedestrian crossing, one
single person may not animate the remaining nine persons to cross the
street. But if two or three persons follow the first, the rest will tend to
follow the same action. In this case the critical point could be set to be
three persons crossing, that is, a point where the behavior of the seven
remaining may go either way. The three people, then, represent a critical
point where the system of ten people trying to cross the road is in an
unstable equilibrium, which may have two equilibriums: the three trying
to pass get cold feet and return to the pavement or the seven follow and
cross the road to the pavement on the other side of the road.
76
order from instability. In drawing an analogy to natural
science, Krugman writes:
An individual fruit fly cell presumably does not think to
itself, ‘I am part of a wing,’ yet cells collectively seem in
effect to decide to become different parts of the organism. Experiments suggest that cells indeed behave as if
they knew their own polar coordinates! (Krugman 1996,
48)
Krugman states that cells are not isolated entities having no
references to other parts in the biological system. Since they
have the ability to become another part, this implies that cells
are a part of a whole. Although Krugman’s description is more
technical than the ones found in Smith and free from theological allusions, the underlying premise is that the part is connected to the whole.
Order from random growth, on the other hand, has two
sides. First, the actual rate of growth characterizes how the
economy develops randomly. Second, the expected rate of
growth characterizes how the economy develops within the
scope of a so-called power law (Krugman 1996, 100). 89 The
former is an inexplicable process, since the economy is a
spontaneous production not following general laws. The latter
is measurable and describable by the universal power law.
Krugman may be right or not. What is important here is his
attempt to explain economic activity alluding to one single,
Krugman’s definition of the power law sounds: “[T]he number of
objects […] whose size exceeds S is proportional to S-a, where a is not
only a mystery parameter but […] a round number, like 1 or 2” (1996, v).
Krugman finds this law expressed in the population of cities. The most
populous city in a country is twice as populous as the second largest, is
three times as populous as the third largest, and so forth. Expressed in a
curve the relation would yield the slope a = -1 (1996, 39–43, 96–7).
89
77
scientific principle. 90 The gravitational law of Newton inspired
Smith, and Krugman similarly incorporates the power law
into economic domains to explain economic phenomena.
Smith used the idea of gravitation to explain how the fluctuating market prices tended towards the more stable natural
prices. Krugman argues, in a similar way, that the actual rate
of growth is random as the market prices in Smith’s theory.
But, the evolution of this growth is on the long run nevertheless describable and tends towards a certain law (or something natural). Both economists, then, share the same ambition to describe fluctuating markets with a scientific principle.
Like Smith, Krugman has a tendency to ascribe the market a certain nature to describe how market developments
take place. In Smith’s theory, the market follows its own nature and without any external intervention, the market will
organize its activities properly. Similarly in Krugman’s theory,
the economy is ascribed to have a certain self-organizational
nature (1996, vi, 4). Both economists give different accounts
of this nature, but they share the belief that an economy is an
entity with a certain nature. For Smith, the market distributes
personal gain for the common good, and it gravitates the market prices towards the natural prices. For Krugman, the selforganizational character of the market organizes the entire
economic region resulting in local equilibriums, which might
become unstable and be replaced by new local equilibriums,
and so forth (1996, 58–9). Krugman’s notion of organization,
then, does not bear reminiscences from Smith in the sense
Krugman also mirrors Smith to a certain extent when describing the
actual rate of growth as a spontaneous production. In Smith’s theory,
nature too is a spontaneous production necessary for wealth growth (cf.
sec. 2.3.1).
90
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that order is good (cf. 1996, 5–6), but the economy is nevertheless describes as something naturally organizing. 91
Hayek, Schelling, and Krugman, in different ways, reflect
in a secularly manner Smith’s theory, since the economy is
organized by itself. Their way of describing the organization of
the economy is not normative as in Smith’s theory. Smith
claims that organization towards order is good in itself, since
it confirms the order of the universe. In their conception, the
heavenly side of Smith’s theory has so to speak collapsed, or,
the invisible hand is an entity strictly inherent the economy.
What does remain in their theory is the focus on organization,
and they share with Smith the fundamental assumption that
the nature of the economy is to organize itself.
4.2. Economic Order
The other economic position I now analyze is general equilibrium theory, 92 especially the major contributors to this
theory, Arrow, Hahn, and Debreu. 93 There is a long tradition
in economics for studying equilibrium. Among the founding
fathers to this school of thought we find the developments of
Léon Walras (1834–1910) and Vilfredo Pareto (1848–1923).
These two economists would lay the groundwork for later refAs when Krugman writes: “Nor do I think that this insight is merely
about modeling. It seems reasonable to speculate that the immensely
more complex landscape that determines the real geography of the world
economy has its own underlying approximate simplicities. That is, there
may be many possible outcomes, […] [b]ut some broader features may
be more or less independent of historical contingency” (1996, 37).
92 This interpretation draws on Bruna Ingrao and Giorgio Israel (1990,
chps.9–10).
93 Although trivial, it is important to point out that developments in the
economic science are as diverse as in any other science. Even in subdisciplines within a single science, as general equilibrium theory, the progression is nonlinear. To talk about a general equilibrium theory is
therefore misleading. The contributions from Arrow, Hahn, and Debreu
are crucial but not the only ones (see Arrow and Debreu 2001).
91
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lections on this subject (Arrow 1974, 19; Arrow and Hahn 1971,
3–6). 94 Walras’ contribution to economic theory was his idea
of tâtonnement. This idea, as the French word suggests, characterizes economic progression as something moving towards equilibrium in a fumbling or groping fashion. Pareto,
on the other hand, was concerned with the optimum distribution of resources in the economy. In short, the Pareto optimum is when two economic agents or more are in a state
where no one can come out better-off without others coming
out worse-off. With these two concerns on equilibrium and
optimum modern general equilibrium theory would evolve.
4.2.1. Arrow, Hahn, and Debreu: General Equilibrium
Theory
Several economists developed during the 1950–1970s a theory
that described the economy as a realm in equilibrium. They
drew on game theory (developed first by Oskar Morgenstern
and John von Neumann and generalized by John Forbes
Nash), and developed their theories in a rigorous mathematic
language. Although the economic problems set by the general
equilibrium theory varies, the overall task is to mathematically infer the price conditions that may describe economic equilibrium. 95 Their notion of equilibrium states that all economic
Arrow and Hahn also mention Smith: “[…] Adam Smith’s ‘invisible
hand’ is a poetic expression of the most fundamental of economic balance relations” (1971, 1); “Thus it can be maintained that Smith was a
creator of general equilibrium theory, though the coherence and consistency of his work may be questioned” (1971, 2).
95 Arrow and Hahn writes: “Our main concern will be the description of
situations in which the desired actions of economic agents are all mutually compatible and can all be carried out simultaneously, and for
which we can prove that for the various economies discussed, there
exists a set of prices that cause agents to make mutually compatible
decisions” (1971, 16; Debreu 1959, § 5.7). And: “A general equilibrium
theory is a theory about both the quantities and the prices of all commodities” (Arrow and Hahn 1971, 2).
94
80
relations are balancing forces sustaining the price conditions
enabling equilibrium. If the relations are unbalanced (cf. temporary equilibrium, Arrow and Hahn 1971, 35–40), other
forces in the economy will reestablish the balance (1971, 1,
22–3).
The generality in general equilibrium theory rests on the
belief that “every economic activity is connected with every
other one” (Arrow quoted in Ingrao and Giorgio 1990, 273).
This means that the single economies affect each. To find the
general equilibrium, therefore, includes finding equilibriums
between economies. Their concern is not local or partial equilibrium of which there can be many, but the general equilibrium of which there can only be one (cf. the uniqueness of
equilibrium, Arrow and Hahn 1971, chap. 9). 96 At this general
level, their approach to economy resembles Smith’s. Improved
carriages and circulating capital make Smith’s conception of
the economy global, something also reflected in his primary
aim: to explain the wealth of nations. Similarly, the belief that
all economic events are united resembles Smith’s metaphysical assumption that every part takes part in the whole. Further,
when economic relations unbalance, other parts in the economic system will restore balance. For Smith, the invisible
hand restores this balance. The invisible hand leads the actions of economic agents thus affecting the market price. General equilibrium theory is in this case remarkably close to
Smith, since the prices are also regulating forces eventually
resulting in market equilibrium. 97 The gravitating market
96 Another important contributor to the study of general equilibrium
theory, Lionel W. McKenzie, writes: “Unlike partial equilibrium theory,
general equilibrium theory treats as constant only non-economic influences and embraces all sales and purchases of all agents involved in
exchanges. It implies that all subsets of agents are in equilibrium and
that all individual agents are in equilibrium” (2008, sec. Abstract).
97 As Arrow and Hahn’s conclusion reads: “We have thus been able to
establish that for the market here described there exists a set of ‘signals’
81
prices moving towards the natural price is, thus, not far from
the accounts found in general equilibrium theory.
An important assumption in general equilibrium theory is
that the economy must be a competitive economy: a decentralized economy where a state or a monopoly is not the only
force influencing economic actions. If an almighty force had
the power to rule out destabilizing forces in the economy, one
could assume that such model would be more suitable to balance the economy. However, general equilibrium theorist
argues that single forces regulate the economy more effectively without the intervention from a powerful instance. This
assumption is not far from the normative framework of Smith
where governmental influence should be restricted to a minimum, since the nature of the market will ensure stability. Although the competitiveness assumption in general equilibrium theory is founded mathematically, it is nevertheless an
assumption reflecting the normative scheme found in Smith’s
theory.
Another concern for general equilibrium theory is the
question of optimum. Their problem is to generalize Pareto’s
insight to a global economy with a single equilibrium. Despite
the different economic mathematical solutions there might be
to this question, assumptions are needed to solve such economical-theoretical problem. The assumption made in the
general equilibrium theory links to the question of order. For
general equilibrium theory the point of departure for their
way of solving the problem is that equilibrium exists. They
never question if disorder could be the natural starting point
when describing economic actions. On the contrary, they assume there is order. The task, then, is mathematically to find
– market prices – that will lead agents to make decisions that are mutually compatible” (Arrow and Hahn quoted in Ingrao and Giorgio 1990,
279, my emphasis).
82
the conditions for order. General equilibrium theory has been
criticized for their formal theory without reference to real
economic phenomena. 98 The interesting point here, however,
is not the critique of their formalization but the premises for
this formalization. To my mind, general equilibrium theory
has inherited an economic problem (the question of order)
stemming from Smith and later developed by Walras and Pareto without questioning if this problem is reasonable. Opposite the self-organizing economy, they do indeed depart from
an assumption, that there is order. Thus, the model departs
from the heavenly side of Smith’s theory in which order is
founded and ensured by the Great Director of Nature. General
equilibrium theory’s concern for the existence of equilibrium
is only theoretical, and surely neither theological nor metaphysical. But, it is still ontological in the sense that equilibrium concerns all markets and economic actions, and equilibrium is further the fundamental assumption in the theory.
Both for the Hayek-Schelling-Krugman liaison and the
Arrow-Hahn-Debreu one, they are immersed in the metaphysics exposed in Smith’s works. Surely, their contributions to
economic theory are secularized, but they stand on the same
metaphysical basis. The first liaison is a continuation of the
invisible hand as an inherent force in the economy organizing
itself by its own means. The second comes forth by assuming
order (equilibrium), and then afterwards trying to find the
laws behind that order. Two important modern contributions
Although not meant as a critique, William Zame writes: “The definition of competitive equilibrium identifies a particular state of the economy but provides no clue as to the process by which the economy is to
reach this state. Without such a process, competitive equilibrium may
retain its usefulness as a benchmark (normative solution), but is in
doubt as a description of reality (positive solution)” (2008, sec. Equilibration).
98
83
in economics are, then, still in the hand of the invisible hand:
one immersed in the worldly life, the other in the heavenly life.
84
5. CONCLUSION
In my interpretation of Smith’s philosophy I have argued that
his major concern is how order can be established. The underlying metaphysical assumption is that the universe is organized or organizing, and the task for him is to show how. I
have identified this problem in the context of his epistemology,
social life, and political economy. The crux of the matter in
this reading has been the idea of the invisible hand and what
character it has. Ascribing the invisible hand a metaphysical
character may still cause an outcry, not least in economic
theory. For the rest of us, keeping in mind the time in which
Smith wrote, the metaphysical allusions are merely a frame of
reference informing the endeavors of the mind rather than
trusting positive facts. When ascribing the invisible hand a
metaphysical character it opens for a reading dividing Smith’s
theory between worldly and heavenly aspects in his theory.
This distinction also marks two different points of view, that is,
between a human, local perspective and a godly, global perspective. For the former, the realms of the world appear as
continuously organizing towards order although never reaching a stable state. From the perspective of God, the world is in
order. In this interpretational frame, the invisible hand is the
active principle confirming this order and the mechanism
ensuring market order, since the social distance between humans created when entering the market disables them to
uphold this order themselves. I have also identified the question of order in two modern economic positions. The task for
modern economists surely differs from one another and Smith.
But, both positions sets forth either to explain how order
emerges as an act of self-organization or to find the mathematical premises that proves market equilibrium. In short, the
85
thesis shows how the metaphysical problem set by Smith still
bothers modern economists at an ontological level in their
theories.
The interpretation of Smith and the comparison to modern economics could have been further supported. For the
former, the interpretation could include reflections on what
role the invisible hand has had in theological positions before
Smith. Worth mentioning are the works of Martin Luther and
his idea of the hand of God and the Christian and Jewish conception of manus dei. Also the studies on the relation between
Christian theology and economics would be profitable (see
Harper and Gregg 2008, part I). For the latter, the comparison could have been supported by history of economic
thought, drawing the historical lines between Smith and the
modern economic stances. Although these general historical
lines have already been given, an historical analysis tracing
the ontological assumptions underlying the theories still
misses.
In addition to these two lines of studies, an analysis of the
notion of self-organization could stress other qualities of the
invisible hand giving new possible interpretations of Smith
and clarifying the self-organizing economy of Schelling,
Krugman, and Hayek. This could be done applying scientific
works on self-organization (to mention a few Bak 1997;
Kauffman 1993; Luhmann 1984). Although reasonable in
modern economics, it would be misplaced in the case of Smith,
since a detailed scientific notion hardly fits with his works.
Instead, a conceptual and less scientific account focusing on
the relation between nature and self-organization, or parts
and whole, would be compelling. Comparisons to Immanuel
Kant (1974/1791, §§ 62–8) and Friedrich W.J. Schelling
(1985/1799, 333, n. 1 [I/3, 17, n. 1]; 1985/1797, 279–80 [I/2,
86
41–2]; see also Heuser-Kessler 1986) could sketch out such
new lines of interpretation.
To argue that Smith’s theory contains metaphysical facets
could be regarded as an accusation. Although not my purpose,
it is possible to criticize Smith’s theory for being swaddled in
metaphysics. Critics of capitalism and socialist positions could
nourish their suspicion of liberalism by pointing to this fact.
However, people who live in glasshouses, as the old saying
goes, should not throw stones. A critique of Smith, or for that
sake liberalism, must include reflections on the metaphysics
and ontology their own alternative rests on. It has to be sensible to similarities and differences between the alternatives at
this level. Otherwise, critics could end proposing the same as
their opponents. 99
To give a complete empirical account of the economy is an
impossible task. To formulate a theory that describes the
economy is on the other hand possible. Such a theory is always built, as the studies in philosophy of economics have
taught, on some assumptions. These must be exposed and
evaluated reflecting on the consequences they have in other
parts of the theory. A philosophical conceptual analysis may
not be fertile at the practical and technical level for these theories. However, at the foundational level, the analysis may expose aspects of their underlying principle that could yield new
results in other levels in the theory.
General assumptions, either of metaphysical or ontological character, are unavoidable. Reflections on them are not.
Philosophy and economics may at this level have more in
common than usually admitted, and with philosophy we may
The celebrated 21st century Communist manifesto Empire by Michael
Hardt and Toni Negri comes remarkably close to the Hayek-SchellingKrugman liaison as when stating that “[t]he multitude is a biopolitical
self-organization” (2000, 411).
99
87
as economists further move our endeavors. The mist from the
British Islands hindering our endeavors to grasp the economy
has so far required that we hold hands with the invisible hand,
but if economic theory is to move on we might shake hands
with it end up saying, “goodbye for now”.
88
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