Here’s a letter to National Review:
In “Conservative Economics Can’t Ignore the National Interest” (August 4), Nate Hochman seriously misinterprets Adam Smith by asserting that “Smith’s point about the invisible hand was contingent on the capitalist’s ‘preferring the support of domestic to that of foreign industry.’”
It’s true that Smith’s lone use in The Wealth of Nations of the famous term “invisible hand” occurs when Smith notes that the self-interested investor is led by an invisible hand to support domestic industry. But Smith here was debunking the fallacious mercantilist superstition that adequate amounts of investment in home-country industries can be secured only through the use of protective tariffs. Smith observed that one of the advantages of investing in the home country is a better ability to supervise those investments (compared to investments far away). This observation was meant to bolster his argument that mercantilists err when they assert that failure to protect domestic firms from foreign competition will leave the domestic economy with an inadequate stock of capital.
Contrary to Mr. Hochman’s implication, Smith did not argue that the validity of a policy of free trade is contingent upon investors operating with some sort of special solicitation for, or patriotic interest in, the domestic economy. Mr. Hochman’s misinterpretation of Smith is highly ironic given that Smith’s core purpose, in the chapter from which Mr. Hochman quotes, was precisely to explain that under a policy of free trade no special solicitation or concern for the domestic economy is required for it to become as prosperous as possible.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030