The real Adam Smith?

Most of us heard of the famous phrase “the invisible hands” and book “The Wealth of Nations” by Scottish economist and philosopher Adam Smith.

My personal understanding of “the invisible hands” is the aggregate supply and demand of the market force. However, based on the latest podcast on Adam Smith by Freakonomics Radio, this phrase in the book “The Wealth of Nations” didn’t mean that. 😊

Most interestingly, both right and left sides of politicians in the western world love to quote Adam Smith and rely on his intellectual authority.

They believe that Smith’s “the invisible hands” supported free market and minimal government involvement such as taxes, regulations, and any kind of interventions. A good case in point is Margaret Thatcher’s economics reform to privatize many industries seeking to improve efficiency, cutting tax to stimulate economic growth, etc. One British economist even argued to privatize NHS – National Health Service which is like a religion for British public. It is a bit like our attitude towards public health care system in Canada. Tommy Douglas was voted the greatest Canadian ever because he founded the Canadian single-payer health care system. Most of us Canadian believe that our health care system needs great improvement and more investment from both federal and provincial governments. The shortage of doctors and nurses stems from the funding cut in the recent decades.  Why didn’t they look at the US health care system? It is the so expensive that it is sinful. That is the exact consequence of free market.

We need a fine balance of free market and governments involvement.

He is the most quoted by both the left and the right. The famous “invisible hands” and the “The wealth of Nations”. However, many didn’t read his books. Even if they do, they could have very different or even opposite interpretations.  Most of us are biased and limited.

The other book of his – “The Theory of Moral Sentiments” is about sympathy. Below is a direct quote.

“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 on 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 person, and it is by the imagination only that we can form any conception of what are his sensations. Neither can that faculty help us to this any other way, than by representing to us what would be our own, if we were in his case. It is the impressions of our own senses only, not those of his, which our imaginations copy. By the imagination, we place ourselves in his situation.”

A bit rambling. However, I understand he is trying hard to say how hard it is for us to truly appreciate the hardship others are going through if we never experience something similar. How compassionate!

I love that he is a philosopher and an economist. They called him a political economist. I find it funny. I thought that the purpose of politics is to achieve prosperity and happiness for as many people as possible. I felt that these he wrote these two books to tackle this big question. Perhaps I am biased. I feel that he is a compassionate economist. He recognized the negative effects of free market resulting in inequality and poverty.

Perhaps he was trying to find the fine balance of market and government. Perhaps I am biased and only see what I want to see.