[firstOrder]

Dogma has penetrated very deep. If you read Adam Smith's "Wealth of Nations", the invisible hand is something that intervenes in markets to prevent free trade among merchants from different nations.

Nowadays, 99% of the time people use his term the exact opposite way. They say it is a hand that gently guides merchants from different nations to trade with one another within a free market, and that such thing. They have twisted his term to mean the exact opposite of how Smith intended it.

[baddox]

> If you read Adam Smith's "Wealth of Nations", the invisible hand is something that intervenes in markets to prevent free trade among merchants from different nations.

I don't see how that's the opposite interpretation from the modern usage. It just seems like the modern usage is a generalization of Smith's usage. In The Wealth of Nations, Smith seems to be saying that an individual favoring domestic industry over foreign industry for purely personal gain tends to be good for domestic industry and society, and perhaps even for foreign industry. The generalized interpretation that people use today is that individuals seeking purely personal gain can result in a market that self-regulates and benefits society. What is the contradiction you're referring to?

Also, in The Wealth of Nations, Smith does describe the more general concept of market self-regulation, though in that section he does not use the phrase "invisible hand." In his earlier book "The Theory of Moral Sentiments," Smith uses the phrase "invisible hand" to refer to the phenomenon that rich people tend to provide livelihoods to the people working for them, not out of altruism, but for personal gain, which is another special case of the general concept of market self-regulation.

Disclaimer: I haven't actually read Smith straight through. I've just read various articles about Smith, and excerpts of his work. I might be missing a lot of context (and please inform me if that's the case), although my general impression of his usage of this phrase is in line with Wikipedia's summary: https://en.wikipedia.org/wiki/Invisible_hand.

[djokkataja]

No, Smith used the term "invisible hand" more generically to describe how the actions of individuals when optimizing for themselves can produce outcomes that may be optimal for greater purposes. In The Wealth of Nations, he uses it to refer to the way in which the actions of domestic businessmen support domestic industry in the best possible way (as though orchestrated by an invisible hand).[1]

In The Theory of Moral Sentiments, Smith says that the actions of the wealthy produce beneficial effects for all of society, as though guided by an invisible hand. This idea is commonly referred to as the "trickle-down effect" today.[2]

In modern economics the term is mostly used to refer to the way in which markets tend to self-regulate,[3] and it's known as THE invisible hand, which is a bit unfortunate since it's such a vague metaphor that it can easily be used to refer to almost any gestalt concept.

[1] https://en.wikipedia.org/wiki/The_Wealth_of_Nations#Book_IV:... "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." (Book 4, Chapter 2) [2]https://en.wikipedia.org/wiki/Invisible_hand#Other_uses_of_t... "The rich … consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though 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." [3]https://en.wikipedia.org/wiki/Invisible_hand

[firstOrder]

You quote exactly what I am talking about from Wealth of Nations. How is the "support of domestic to that of foreign industry" free trade in modern parlance? That is protectionism. Your paraphrase echoes what I am saying as well. The modern conception of the invisible hand is not one which leads to tariffs and protectionism, but international free trade. This is the opposite of what he said though.

[judk]

Interestingly, the supporting claim about rich people consuming not much more than poor people, is massively less true now than it was centuries ago.

[barry-cotter]

Could you expand on that? Technological progress has been less about increasing the gross amount of stuff the rich consume than the type. And for most things the poor get that stuff too, just later. iPhones, better, safer, more fuel efficient cars, flat screen TVs, , healthcare innovations etc.

Rich people do have nicer stuff but to a surprising extent they just have different stuff. An awful lot of that is zero sum social status signalling, like living in a richer area, or drinking wine, not beer, or gritting your teeth and congratulating your colleague on their kid getting into Princeton, when yours got into Duke.

I'd actually be really surprised if consumption inequality hasn't gone down since the fifties for most physical goods and services.

[zo1]

Perhaps the definition changed because the invisible hand he described isn't so invisible. It's usually government intervention / foreign trade policy, and it's anything but invisible!