Purposive Action and Unintended Consequences

This chapter, like that which precedes it, will take the interpretation of Smith, as presented so far, as being established, and will apply it to a specific aspect of his work. The subject here is his treatment of ‘unintended consequences’ and the associated theme of ‘deception’ which finds frequent expression in both the Theory of Moral Sentiments and the Wealth of Nations.

Before commencing an examination of Smith’s views on this issue, two caveats are in order:

Firstly, in the process of seeking to establish his position we will be led into a discussion of ‘ultimate values’ and teleology, and thus to that vaguely defined boundary where metascience merges into metaphysics. Since the realm of metaphysics has been explicitly renounced, no attempt will be made to evaluate the adequacy of Smith’s treatment of ultimate values, or to compare it with alternative perspectives. For the present purpose I am only interested in his views in so far as they appear to find expression within the context of his scientific model. Further, since Smith himself declines to cross the boundary in question, his discussions of the issue are far from explicit and this, together with the complexity of the subject results in this chapter being considerably more tentative than those which precede it.

Secondly, we will also be involved in an examination of Smith’s ‘invisible hand’ metaphor, which, it will be suggested, is representative ofhis overall position on unintended consequences. This aspect of his work has been extensively explored by those working within the perspectives of standard economics, who have tended to see it as an early anticipation of the homeostatic proper­ties of ‘tattonement’ within a competitive market. Blaug for example has concluded that the invisible hand is: ‘... nothing more than the automatic equilibrating mechanism of the competi­tive market.’ And that it is ⁱ...

Whilst I would agree that some clear anticipations of aspects of our contemporary general equilibrium theory can be found in Smith on ‘unintended consequences’, their examination is outside the scope of this book, and they will not be further considered.

Before coming down to detail, let us identify the problem of unintended consequences in general terms. It has been established that in Smith’s model, individuals are shaped by a process of sympathetic interaction which is located within a dynamic socio­economic context (Chapter 5). The workings of‘practical reason’ ensure that the social structures which are also formed during this interactive process are (within the limits imposed by social estrangement) appropriate to the particular stage of economic development. This is true not only of morals, laws and institutions, but also, as we shall see (Chapter 8) of subjective perceptions of utility.

But, as the division of labour proceeds, the contextual frame­work undergoes qualitative change. It follows that social struc­tures which were appropriate to a given context, can become inappropriate in later periods. This, as we have seen, is an important theme in Smith’s writing. Further, the criteria by which the adequacy of specific laws, customs and values is evaluated — the measure of their fitness or propriety — are largely internal. They are standards which are derived from, and which function relative to, a specific contextual framework.

Given this interpretation, the individual within a special social context can have no criteria for evaluating the long-run process of socio-historical development. Indeed, as already suggested in Chapter 6, he may well be unaware of his part in this process, and regard the social structure he helps to create as determinate and objective. It follows that the long-run effects of individual actions, must be, in a fundamental sense, ‘unintended conse­quences’.

Firstly, how is it that individuals who are pursuing their own self-interest within a specific short-run setting and who are constrained and motivated by rules and values appropriate to that context, can unconsciously further the course of long-run social evolution?

Secondly, given that there is an apparent inconsistency between reason guided purposive, human action, and this notion of un­intended consequences, how, if at all, is a reconciliation to be achieved?

In an effort to answer these questions, let us come down to detail, and look at what Smith has to say about unintended con­sequences. Our starting point is almost mandatory — this world- famous passage from the Wealth of Nations — Smith’s one and only explicit discussion of the invisible hand in that work. It reads as follows:

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestick 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 domestick 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 is no part of his intention. (P½V, IV.II.9.)

The passage concerns the activities of merchants, who, Smith claims, will tend to employ their capital ‘as near home’ as they can. Taken in this context it can be seen as a part of Smith’s attack on ‘mercantilist’ restrictions on trade. Indeed the chapter in which it occurs is entitled ‘Of Restraints upon the Importation from foreign Countries of such Goods as can be produced at Home’ and Smith, true to form, is against such restraints.

Now taken on its face value, this passage does not seem particu­larly important. What we have is a highly specific statement to the effect that merchants (who Smith regards as being ‘self­interested’ to a, perhaps excessive, degree) in fact promote the public good en passant when seeking to maximise their own advantage. Considering that this is the only mention of the invisible hand, in a book of some 950 pages, one might well wonder why it has attracted so much attention. The reason is, of course, that this passage is the most explicit — and most striking — illustration of a theme that runs throughout much of the Wealth of Nations, and indeed in the Theory of Moral Sentiments as well; the notion that men, if unconstrained by artificial restrictions, will, in furthering their own self-interest, tend to promote socially beneficial consequences.²

The invisible hand passage, is in fact merely an example of a much wider theme — that men are unconscious of the consequences of their actions, and indeed are frequently deceived as to the actual outcome of those actions, but that this deception tends, by and large, to promote social welfare. The whole notion is on occasion — but by no means always — couched in the quasi- theological terminology of an anthropomorphic ‘Nature’. I shall call this more general theme the ‘deception theory’, and will attempt to elucidate the meaning of the invisible hand metaphor in this wider context.

Let us broaden out the discussion by looking at the invisible hand passage in the Theory of Moral Sentiments. There Smith says:

The produce of the soil maintains at all times nearly the number of inhabitants that it is capable of maintaining. The rich select from the heap only what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own 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 their improvements.

and Smith goes on to say that real human happiness depends upon ‘ease of body and peace of mind’ so that ‘the beggar who suns himself by the side of the highway possesses that security which kings are fighting for’.

The element of deception is much more obvious in this passage; the rich strive for wealth and all that it can buy, but because of purely physiological limitations can consume little more than a beggar. Even more importantly, the satisfaction they seek is, at least on one level, illusory. True human happiness does not depend upon riches and material goods, but upon leisure and contempla­tive activity. In so far as the rich actually increase their ‘utility’, it is in terms of vanity — the satisfaction they derive from what we would now call ‘conspicuous consumption’.

It is important to note here that Smith seems to work with two scales of value. On the one hand we have a subjectivist approach where the value of commodities to the rich is measured in terms of their individual valuation. There is an element of illusion here because one component of their utility often fails to materialise; once a basic subsistence is assured, goods do not yield the utility they promise. The ambitious man strives to obtain the conditions of the rich but:

... in the first month of his application [submits to] more fatigue of body and more uneasiness of mind than he could have suffered through the want of them.

In old age he discovers that:

...wealth and greatness are mere trinkets offrivolous utility... more troublesome to the person who carries them about with him than all the advantages they can afford him are commodious. (TMS, VI.I.8.)

However, the rich do at least gain the subjective satisfaction resulting from conspicuous consumption, and this is highly important to them: ‘The rich man glories in his riches, because he feels that they naturally draw upon him the attention of the world...’ (TMS, I.iii.2.1).

But, as the above ‘invisible hand’ passage shows, there are also strong implications of an objective scale of value, upon which can be measured ‘real’ human happiness. Indeed, the same dichotomy between subjective and objective values is to be discerned in Smith’s presentation of the water/diamond ‘paradox’.³ Thus he says that scarcity is the basic reason why people desire diamonds (LJ: 1766, p. 487) but that they are of less use than iron, or water (14W, I.IV.13). The implication seems to be that the desire to possess an article because of its scarcity is not a ‘genuine’ or fully rational need, which seems at odds with Smith’s view that the need for social acclaim (rather than utility) is the central motive for effort and acquisition.

John Laird, in discussing this point has said that Smith was ^l... thinking biologically, and forgetting perhaps the importance of ornaments in sex-attraction.’⁴

By ‘thinking biologically’ Laird means that Smith has an objective scale of values, based upon human needs. Whilst agreeing with this, I find it hard to accept that Smith merely ‘forgot’ about the role of ornament, which figures quite prominently in both the Theory of Moral Sentiments and the Wealth of Nations. What is clear, however, is that there are two aspects to the deception theory. Firstly, part of the anticipated utility fails to materialise, and secondly, the part that does materialise which is measured in terms of vanity, can be, in some sense, illusory. I will call the first of these effects ‘utility illusion’ and the second the ‘subjective/objective dichotomy’. Further use will be made of these concepts in Chapter 8, but for the present purposes the argument needs further development.

Firstly, an examination of the two invisible hand passages will show that they are in fact specific instances of the more general deception theory. In each case we are presented with a. picture of narrow self-interest promoting a hidden public good and if the element ofdeception is less obvious in the Wealth of Nations passage, that is only because Smith does not there ‘unpack’ the concepts of ‘produce’ and ‘consumption’ as he does in the Theory of Moral Sentiments passage. The general theme can be further analysed in terms of another example. In the opening book of the Wealth of Nations Smith discusses the apparently high fees earned by lawyers, and concludes that their fees are in fact, too low. The argument proceeds as follows. First, Smith says:

Put your son apprentice to a shoemaker, there is little doubt of his learning to make a pair of shoes: but send him to study law, it is at least twenty to one if he ever makes such proficiency as will enable him to live by the business. (WN, I.X.b.22.)

and he goes on to suggest that in a fair lottery, those who win should receive all that is lost by the others. But in the case of lawyers, this is not so, and thus:

The lottery of the law, therefore, is very far from being a perfecdy fair lottery; and that, as well as many other liberal and honourable professions, are, in point of pecuniary gain,

evidently under-recompenced. (Ibid.)

We thus have a situation in which lawyers do not receive the proper market price for their labours. This is in part because ‘public admiration’ makes up a considerable part of the total reward they receive. In addition men are over-confident, not only in over-rating their ability, but also in over-estimating their chances of success. Thus:

The over-weening conceit which the greater part of men have in their own abilities, is an ancient evil remarked upon by the philosophers and moralists of all ages. Their absurd presumption in their own good fortune, has been less taken notice of. It is, however, if possible, still more universal. (WW, I.X.b.26.)

Now if we compare the form of this argument with that of the invisible hand passages the structural similarity is clear. Here again we have the self-interested actions of individuals furthering the social purpose, and here again we have the element of deception where people over-estimate the value of the rewards they strive for. As before, this illusion is partly recompensed by the non-pecuniary gains derived from public acclaim. Such acclaim appeals to the vanity and can, on occasion form the major part of our total reward; for example, ‘in poetry and philosophy it makes almost the whole’. There is, of course, nothing ad hoc about the role vanity plays in the deception theory. As we saw in Chapter 2, the vanity-pride-magnanimity sequence is one of the two links between the individual and the social, and as such is a fundamental part of Smith’s metascientific world-view. This being the case, there is nothing surprising about the fact that he should hold that a substantial part of our subjectively perceived ‘income’ should accrue in terms of public acclaim.

The element of deception is not confined to wage and salary earners; the owners of capital are similarly prone to illusion, for:

The apparent difference, besides, in the profits of different trades, is generally a deception arising from our not always distinguishing what ought to be considered as wages from what ought to be considered as profit. (HW, I.X.b.34.)

Further, we do not only tend to over-estimate the rewards from a particular employment or venture, but also to under-estimate the associated dangers. This, says Smith, is why most people do not insure their houses against fire, and it is also why young men join the army, for they

... figure to themselves, in their youthful fancies, a thousand occasions of acquiring honour and distinction which never occur. These romantick hopes make the whole price of their blood. Their pay is less than that of common labourers, and in actual service their fatigues are much greater. (PKV, I.X.b.30.)

This passage shows again that ‘vanity’ makes up a substantial part of their reward, but that even this is largely illusory.⁵

This then is the deception theory, and I think that enough has been said to show that the invisible hand metaphor is merely an illustration of this more general theme, and not in itself a separate principle, or mechanism.⁶ This view finds further support when we come to examine the one other explicit reference to the invisible hand that Smith made in his surviving written work. It is worth quoting at length:

Hence the origin of Polytheism, and of that vulgar superstition which absorbs all the irregular events of nature to the favour or displeasure of intelligent, though invisible beings, to gods, daemons, witches, geni, fairies. For it may be observed, that in all Polytheistic religions, among savages, as well as in the early days 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 upward by the necessity of their own nature; nor was the invisible hand ofjupiter ever apprehended to be employed in those matters. But thunder and lightning storms, and sunshine, those more irregular events were ascribed to his favour, or his anger. Man, the only designing power with which they were acquainted, never acts but either to stop, or to alter the course which natural events would take ifleft to themselves. Those other intelligent beings whom they imagined, but knew not, were naturally supposed to act in the same manner... (EPS: Astronomy, pp. 49-50.)

This passage is rich in meaning and appears to have close links with Smith’s epistemological perspective (Chapter 3). For the present argument, however, two points seem to be of relevance: Firstly, the role of the invisible hand depicted here is diametrically opposite to that of the invisible hand of the Theory ofMoral Sentiments and the Wealth of Nations. There it is presented as a permanent, if recondite, law of nature, that steadily guides the overall actions of men. Here it is the irregular events of nature that are explained by reference to the invisible hand.⁷ Smith has thus used the same metaphor in a distinctly different way, which tends to support the view that the metaphor itself has little significance for him. Secondly, the appeal to the invisible hand is seen by Smith as being the result of ignorance and superstition, and, as the rest of the essay makes clear, he sees its role diminishing as men learn, through experience, to subsume more and more of natural phe­nomena, under general laws. This passage is of crucial importance in that it has strong implications concerning the status of the other two invisible hand passages; is it likely that Smith, who here says clearly that explaining natural events in terms of the invisible hand, is the result of‘vulgar superstition’ and inadequate science, would himself employ exactly the same metaphor in a key position in his own work?

If this line of argument is accepted, we can ignore the metaphor itself, and analyse the mechanism it is intended to illustrate as part of Smith’s overall treatment of unintended ∞nsequences, in what has here been called his deception theory. What then, is the relationship between Smith’s deception theory, and his scientific model? One possible interpretation is to see the deception theory as an ad hoc, and largely metaphysical mechanism, which is brought in to support Smith’s scientific analysis, in an effort to remedy some ofits defects. Such a view has been taken by Macfie,⁸ who has argued that there is a conflict in the Theory of Moral Sentiments between the optimism of the progressive dynamics implicit in Smith’s system, and the harsh facts of eighteenth­century British society. In his view Smith saw that the ‘self-love’ of the Theory of Moral Sentiments and the ‘self-interest’ of the Wealth of Nations were both too strong for the social checks which his model proposed, and he thus introduced an additional safeguard.⁹ This mechanism, says Macfie, unlike the rest of Smith’s work, does not have (inductive) scientific status — it is a deductive argument, and as such does not (and cannot) receive any logical justification. The consequences are unfortunate in that the balance of Smith’s ethical system, and to a lesser extent his economic system, is badly affected, and further, ‘theistic platitudes’ replace what should be a systematic analysis of ultimate ends.

This interpretation seems to me to over-emphasise the effects of the deception theory on Smith’s scientific perspective. His model provides us with a detailed specification of the forces that will keep self-interest in check and there seems to be no reason why Smith should have felt them to be inadequate. Indeed, the decep­tion theory does not seem to me to be something additional to these forces, but rather a series of statements to the effect that men are unaware of them, so that they are, in this sense, unintended consequences. Further, whilst it is true that Smith does on occasion resort to ‘theistic platitudes’ — a not uncommon convention in British eighteenth-century writing¹⁰ — there is little evidence to support the view that they interfere with his scientific analysis. It is also of significance that, in his final revision of the Theory of Moral Sentiments, Smith reduces considerably the incidence of such platitudes, with no loss to the overall cogency of his system.

It is possible that Macfie has modified his position on this issue, for when we turn to the discussion of ‘deception’ presented by Raphael and Macfie, in their Introduction to the Moral Sentiments,¹¹ we find that they lay considerably less stress upon the effects of the deception theory on Smith’s science, than Macfie did in his earlier work. They hold that Smith’s introduction of the invisible hand, ‘... may have sprung from an uneasiness about the reconcili­ation of selfishness with the perfection of the system’ (p. 8), but also that:

In itself the idea of deception by an invisible hand is unconvincing. It gains its plausibility from the preceding account of aesthetic pleasure afforded by power and riches, a pleasure that is reinforced by the admiration of spectators. Smith himself clearly set most store by the psychological explanation. (Ibid.)

They hold that:

Stoic philosophy is the primary influence on Smith’s ethical thought, [and that] it also fundamentally affects his economic theory (p. 5).

On this view, ultimate values for Smith are bound up with Roman interpretations of the Stoic conception of cosmic harmony, and the associated theme of human universalisation within a system of natural law. The influence of Stoic philosophy upon Smith seems beyond dispute, and one could indeed argue that the criteria by which he evaluates both scientific models and social institutions — coherence, generality etc. — have clear antecedents in the writings of Marcus Aurelius and Cicero. Take, for example, Cicero on this theme:

... everyone ought to have the same purpose: to identify the interest of each with the interest of all. Once men grab for themselves, human society will completely collapse. But if nature prescribes (as she does) that every human being must help every other human being... then all men have identical • 12

interests.

Given this argument, we could then push the interpretation a little further by arguing that the impartial spectator, in applying these criteria is in fact making ultimate reference to a system of natural justice, which transcends the limitations of context and is in this sense universal. This would seem to imply that in as much as there can be a long-run, objective scale of values, it is that of God, or Nature, and not that of man.¹³ Smith’s dynamics would then seem to have much in common with those of Hegel, where the long-run objective values are grounded in a Reason that, whilst embodied in human society, has an autonomy that transcends context. Smith’s deception theory would then be the analogue of Hegel’s ‘cunning of Reason’, which holds that men are deceived into accepting as objective, structures which they themselves create, and that such deception promotes the ultimate development of Reason. This view would seem to offer an answer to the first of the questions that was raised above and at least the beginnings of an answer to the second.

Such an interpretation has plausibility and in the absence of any strong counter evidence, can certainly not be rejected out-of­hand. There is indeed, some textual support for the position, in that Smith on occasion makes use of the concept of natural justice that would seem to imply some transcendental objectivity. For example, when discussing the issuing of promissory notes by bankers, he says

... to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law, not to infringe, but to support. (MW, II.II.94. See also I.X.c.59 and IV.IX.51.)

Despite such support, I have reservations about this perspec­tive, mainly because it seems to imply that Smith has an overall view of nature that is distinctly at odds with his detailed mode of scientific explanation. The main point of the Theory of Moral Sentiments is to establish a system of ethics that is man-centred, being rooted in concrete explanations of human interaction. As Knud Haakonssen has pointed out:

Nothing hinges on teleological explanations and thus on the guarantor of teleological order. I think it is safe to say that wherever a piece of teleology turns up in Smith, it is fairly clear where we have to look in order to find a ‘real’ explana­tion in terms of what we might broadly call efficient causes.¹⁴

Whilst it is possible to offer a detailed explanation of human institutions which is based upon anthropocentric efficient causes, and at the same time accept a transcendental system of natural justice, it is at best an uneasy juxtaposition. Campbell¹⁵ has taken a somewhat different perspective of the role of ultimate values in Smith’s work. He holds that Smith’s teleology is a form of utili­tarianism, in that the overall functioning of the system is evaluated in terms of its contribution to human happiness. This, says Campbell, is the ^l... metaphysical belief which lies behind his science of society...’ (p. 206), so that:

Utility is... very much the meta-principle for Smith. It is to be found at the basis of his whole moral outlook, but it operates most typically at the level of contemplation when men adopt a God’s-eye view of society...’ (p. 219.)

However, Smith himself explicitly rejects the view that utility is a ‘principle source of our approbation and disapprobation’ and gives two reasons for doing so. Firstly, that

... it seems impossible that the approbation of virtue should be a sentiment of the same kind with that by which we approve a convenient or well contrived building; or that we should have no other reason for praising a man than that for which we commend a chest of drawers.¹⁶ {TMS, IV.ii.3.4.)

and secondly, that, as a matter of fact the sentiment of approbation always involves in it a sense of propriety quite distinct from the perception of utility.’ {TMS, IV.ii.3.5.)

Whilst I accept that Campbell is using the notion of‘utilitarian­ism’, not to describe Smith’s view of the grounds of our ‘approba­tion of virtue’ but rather to describe the way in which Smith makes judgements as to the adequacy of our moral and political principles I still find it hard to reconcile his claim with the quoted passages. That is to say, it seems improbable that Smith would adopt as his ‘metaprinciple’ the same standard by which he would ‘commend a chest of drawers’. This is not, of course, to claim that utility has no role to play in Smith’s model. He in fact links utility to aesthetic satisfaction, holding that ‘... utility is one of the principle sources of beauty...’ (TMS, IV.i. 1) and that, ‘... the fitness of any system or machine to produce the end for which it was intended, bestows a certain propriety and beauty upon the whole...’ (Ibid.)

One could interpret this as implying that, when we take what Campbell calls a ‘God’s-eye-view’, we can evaluate the overall long-run development of human society in terms of its ‘fitness’ to promote human happiness. This could in turn be taken as imply­ing some sort of Benthamite metaprinciple, with human happiness being the ultimate goal. Such an interpretation does not, however, appear to stand up to close scrutiny. For a start, Smith makes it clear that the ‘fitness’ is more valued than the end that it promotes (TMS, IV.1.3) and he illustrates the point with two everyday examples, before asking...

How many people ruin themselves by laying out money on trinkets of frivolous utility. What pleases these lovers of toys is not so much the utility as the aptness of the machines which are fitted to promote it. (TMS, IV.i.6.)

and he goes on to point out that this is also true of the ‘most serious and important pursuits’ (TMS, IV.i.7). If this is so, our utilitarian metaprinciple appears to be relatively unimportant, and the aesthetic standards of propriety and beauty become the key issues. Further, Smith further illustrates the theme by giving one of the classic illustrations of his deception theory; the poor man’s son ^t... whom heaven in its anger has visited with ambition

He devotes his life to attaining wealth and power, only to find in old age that their benefits are largely illusory. We are charmed, says Smith ⁱ... with the beauty of that accommodation, which reigns in the palaces and economy of the great

But:

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. (TMS, IV.i.9.)

It is again ‘beauty of arrangement’ that is central, and the utility which was the goal of all the poor man’s son’s endeavour, is shown to be not only trivial, but illusory.

All of this would seem to lead us to the conclusion that, in so far as there are, for Smith, any metastandards of evaluation which transcend the limitations of‘context’, they are the aesthetic criteria of fitness and propriety. If the analogy holds, the ‘end’ — be it human happiness, Reason’s self-realisation or the fulfilment of Nature’s plan — would appear to matter little. This seems rather strange, but the perspective has, in fact, a close analogy in Smith’s treatment of social structures. As we saw (Chapter 5), it is not any particular set of institutions and conventions that makes society possible, but the process of sympathetic interaction by which such structures are formed. In so far as standards of evaluation are available, they are aesthetic, being expressed in terms of coherence and generality. In the present context, we seem to be saying that it is not any specific ‘end’ of human evolution that is important, as much as the aesthetic qualities of the overall process by which such evolution takes place. If this is correct, then we would appear to be justified in claiming that, as far as his scientific perspective is concerned, Smith does not have a teleology. If this view is accepted, however, we are still faced with trying to answer the two questions raised at the beginning of this chapter concerning links between the short-run and the long-run in Smith’s model. In the remainder of this chapter, I shall apply the overall interpretation of Smith as presented so far in an attempt to provide some tentative answers to these questions.

Let us begin with rationality. In Chapter 4 it was argued that Smith rejected the reified Rationality of‘ethical rationalism’, and worked with a much more restricted conception of reason, which sees it as the act of low-level judgement implicit in sympathetic interaction. This process ofjudging, which I have called ‘practical reasoning’ is responsible for the progressive element in sympathe­tic interaction, and guides the qualitative transition from one contextual framework of social structures to the next. For the present purpose it is crucial to recognise that it is firmly rooted both in human nature, and in the nature of human social inter­action. Smith has thus denied the duality of reason and the passions by providing a dialectical model of how they are related in the process of sympathetic interaction, which is itself located in a progressively developing context. This means that not only self-interest but also the changing institutional structures which will restrain and channel it, are located firmly in human nature and human rationality. This seems to me to provide the beginnings of an answer to the questions with which we started, in that there is no inconsistency between self-interest and long-run social evolu­tion. They shape and support each other, and have common roots.

It is, in fact, possible that underlying Smith’s scientific model, we have a metascientific view of human potential. If so, the long-run can be seen as the process during which this potential can be realised. That is to say, a society which develops along the ‘natural’ path will, as the division of labour proceeds, provide a vehicle for the realisation of the best that human beings are capable of achieving, given the nature of both their passions, and their rationality. Such a process should not be seen as deterministic; there is a broad range of alternatives within ‘the natural’, and social estrangement, individual peculiarities, and the vagaries of ‘fortune’ can all hinder, if not prevent, potential being translated into actual. Nor can we identify the full realisation of potential with perfection; Smith is too cynical of human frailty to have made such an identification, and it seems probable that he would regard human potential as somewhat limited.

If this view is accepted, Smith’s model appears to have rejected any form of teleological explanation, in so far as this is taken to mean that a specific goal is postulated. Instead he works with explanations in terms of efficient causes, but there is an implicit metascientific assumption to the effect that society should be allowed to develop so as to realise humanity’s full potential. It is not any particular end that is important here but rather the process of development, and much of Smith’s work can be interpreted as being aimed at ensuring that this process is not artificially restricted.

This whole interpretation is highly speculative, but if we accept it for the moment, it has some interesting implications for Smith’s distinction between ‘actual’ and ‘natural’. Natural can now be taken to mean not just ‘optimal’ but rather ‘consistent with the unrestricted development of long-run human potential’. This view finds some support in the fact that Smith very frequently presents his accounts of violations of‘natural liberty’ when he is discussing artificial restrictions on the development ofthedivision oflabour.'⁷ Further, we frequently find a similar linking of ‘natural price’, with the optimum development of the division of labour, as, for example, in the Lectures on Jurisprudence (1766) where he says...

When men are induced to a certain species of industry rather than any other they must make as much by the employment as will maintain them while they are employed. {LJ'. 1766, p. 494 et seq.)

and,

A man then has the natural price of his labour when it is sufficient to maintain him during the time of labour, to defray the expense of education, and to compensate the risk of not living long enough and not succeeding in the business. When a man has this, there is sufficient encouragement to the labourer and the commodity will be cultivated in propor­tion to the demand, (ibid.)

Whilst I would not wish to push this interpretation too far, it seems to me that most of Smith’s discussions of ‘natural’ and ‘actual’ can be fitted rather well into its general perspective. It also enables the deception theory to be restated in terms which avoid at least some of its apparent contradictions. Smith can then be seen as saying that the nature of human passions and propen­sities, together with the interacting nature of human rationality, will, if allowed to follow their natural path, as the division of labour proceeds, produce a society that gives full realisation to human potential. In any specific short-run setting, the individual, motivated by the passions, will be largely unaware of his role in creating the social fabric that translates his self-interest into socially beneficial activity. The passions are strong, and immedi­ate, in each individual, whilst his contribution to the totality of the long-run process is minute.

The merchant who employs his capital so as to maximise his own security, is well aware that this will further his own self­interest, but is, in general, unaware of his contribution to the long-run evolution of human society. But he, like those that went before him, has helped to construct the social order that renders his actions beneficial in their short-run setting, and his interaction with his fellow men will continue the process of long-run develop­ment. It is in this sense that reason-guided, purposive, human action is consistent with the notion of unintended consequences.

Further, since the overall process is not goal directed, there can be no ex ante specification of ends. The average man cannot, therefore, see the shape of the overall process, and has in any case, no metacontextual standards by which to assess its adequacy. Even those whose task it is to legislate, must evaluate their efforts in terms of their coherence relative to an existing network of social structures and thus make decisions which are unintended conse­quences as far as long-run processes are involved.

It seems probable, however, that Smith sees the role of ‘philosophy’ as transcending some of these limitations. By taking a ‘philosopher’s eye’ view, we can discern the overall process, and evaluate its aesthetic qualities. The philosopher does not have any special access to criteria that will enable ‘ends’ to be specified or evaluated, but has the detachment to see the ‘fitness’ of the system as a vehicle for human self-realisation.

This interpretation tends to raise more questions than it answers, and I suspect it also imposes upon Smith a spurious concreteness of approach in that it tends to make explicit notions that are only implicit in his treatment. It is, therefore, offered not so much as a resolution of the problems in Smith’s treatment of deception, but rather as a tentative suggestion as to how these problems might usefully be approached.

Notes

1. M. Blaug, Economic Theory in Retrospect (Irwin, Homewood, Ill., 1962). See also J.J. Spengler, ‘The invisible hand and other matters’, American Economic Review (1977).

2. Indeed, if we examine the quoted passage more closely, we can detect its generality, for Smith says that not only in this case, but ‘in many other cases’ the individual is led by an invisible hand. Interestingly, a similar perspective is to be found in Gibbon, who writes: ^ζ... in the present imperfect condition of society, luxury, though it may proceed from vice or folly, seems to be the only means that can correct the unequal distribution of property. The diligent mechanic and the skillful artist, who have obtained no share in the division of the earth, receive a voluntary tax from the possessors of land; and the latter are prompted, by a sense of interest, to improve those estates, with whose produce they may purchase additional pleasures.’ E. Gibbon, Decline and Fall of the Roman Empire (1776) (Chatto & Windus, London, 1960), p. 28.

3. The ‘paradox’ itself was not original to Smith, and was in fact something of a commonplace in eighteenth-century writing.

4. J. Laird, The Idea of Value (Cambridge University Press, Cambridge, 1929).

5. A similar deception is to be found in the exaggerated respect we have for the great and powerful — cf. for example: TMS, I.iii.2.4 et seq; I.ii.3.3 et seq; and IV.I.8. Also LRBL, p. 124, where Smith says: ‘... we are apt to pay great respect and attention to our superiors, however unworthy.’

6. The metaphor itself has however captured much of the attention of commentators on Smith, as the editors of the Glasgow edition of the TMS point out. D.D. Raphael and A.L. Macfie, Theory of Moral Sentiments (Adam Smith) (Oxford University Press, Oxford, 1976), p. 7 et seq.

7. P.L. Macfie makes this point in his paper, ‘The invisible hand of Jupiter’, Journal of the History of Ideas (∖97 ∖) where he says: ‘... the capricious role of the invisible hand of Jupiter is quite different from that of the order preserving invisible hand of the two books...’

8. A.L. Macfie, The Individual in Society, op cit. A similar view has been expressed by Walton and Gamble, From Alienation to Surplus Value (Sheed & Ward, London, 1972).

9. Homa Katouzian supports this view. He sees inconsistencies within the Wealth of Nations, and says that: ‘... even a cursory study of The Wealth would reveal the indispensability of the “invisible hand” to its main arguments,’ and that: ‘the absence of restraint uniformly promotes the good of the society in all aspects of production; but conflicts arise when the product is shared out.’ H. Katouzian, Ideology and Method in Economics (Macmillan Press, London, 1980).

10. Indeed, even David Hume, who was as clear an atheist as the eighteenth century ever produced, was not above the occasional theistic platitude. Gay, for example, has pointed out that in his Natural History Hume ‘pretends to subscribe to the argument from design’ when he writes, ‘... a purpose, an intention, a design is evident in everything.’ P. Gay, The Enlightenment, An Interpretation (2 vols., Wildwood, London, 1970), vol. 1, p. 413.

11. D.D. Raphael and A.L. Macfie (eds), The Theory of Moral Sentiments (1976), op cit. See note 6.

12. Cicero, Selected Works (Penguin, Harmondsworth, 1960), p. 168.

13. Werner Stark has claimed that: ‘The eighteenth century as a whole stood half-way between theism and atheism. On the one hand, it was not yet willing to abandon the faith in a beneficent divine order, but on the other it was no longer satisfied with proofs which ended in the transcendental. Tangible arguments were demanded and tangible arguments were supplied.’ W. Stark, The Ideal Foundations of Economic Thought (Kelley, London, 1976).

14. K. Haakonssen, The Science of a Legislator (Cambridge University Press, Cambridge, 1981), p. 77.

15. T.D. Campbell, Adam Smith’s Science of Morals (Allen & Unwin, London, 1971).

16. There is a note of irony in this passage which appears to be directed at Hume, who claims that the source of approbation of ‘a convenient house, and a virtuous character’ is the same even though our feelings of approbation may seem to differ. D. Hume, A Treatise of Human Nature (Penguin, Harmondsworth, 1969), p. 617.

17. Consider, for example, the whole sequence in the Wealth of Nations, from I.X.c.40 to the end of the chapter where Smith discusses restrictions of‘the free circulation of labour from one employment to another’.