Mr. Oren Cass
Chief Economist, American Compass
Oren:
My friend Steven Kaufman just shared with me your March 2025 F&D Magazine piece – which I hadn’t yet seen – “In Search of the Invisible Hand.”
Your portrayal of the case for free markets – and of the scholars who make that case – is disappointingly tendentious.
Start with your argument that economists make too much of Adam Smith’s metaphor of the invisible hand. You’re correct that Smith used that phrase only once in Wealth of Nations, but you incorrectly infer from this fact that Smith attached little significance to the theme that it summarizes. That theme, which runs through the book, is that in free markets producers, sellers, investors, workers, and consumers not only generally are led to cooperate productively with each other without any central direction or design, but that government interference with such market-coordinated cooperation will likely make things worse. I don’t ever recall, in all of the many times that you mention Smith, your sharing this passage from Wealth of Nations:
What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
If you’re intent on making an honest and strong case that Smith was not the staunch advocate of free markets that the economists who you criticize believe him to have been, you should not ignore the above passage.
Regarding the particular context in which Smith used the phrase “invisible hand,” see here and here.
Your chief error, though, is to describe the case for free markets as being based on “blind faith.” Frankly, that’s a smear. People rely on faith when they have neither good reason – that is, no compelling theory – nor good evidence to support their case. Yet over the course of 250 years, economists – starting with Adam Smith – have developed and refined theories of the workings of the market, and have tested these theories with history and empirical data. Among the most notable such tests were performed by another Smith – Vernon, a co-winner of the 2002 Nobel Prize – who constructed laboratory experiments that confirmed that markets are remarkably proficient at coordinating human action absent conscious direction.
And there are mountains of historical verifications of the successful working of spontaneous-ordering market forces. Consult, for example, the Journal of Law & Economics, Regulation magazine, and the Independent Review. Read the data-rich articles and books written by T.S. Ashton, Robert Higgs, Douglas Irwin, Deirdre McCloskey, Douglass North, Elinor Ostrom, Julian Simon, Thomas Sowell, and Lawrence H. White – to name only a few.
It’s true that there are challenges to this theory and history, yet the very existence of these challenges proves that the economic case for free markets isn’t one of blind faith. It’s one of science.
But if you insist on identifying a policy that relies heavily on faith, consider your own endorsement of industrial policy. Economists have a theory of how prices, profits, losses, and other market signals provide both the knowledge and the incentives for resources to continually be directed away from less-productive and toward more-productive uses. What is your and other industrial-policyists’ theory of how the politicians and mandarins who are to carry out your industrial policies will get the knowledge they need in order to achieve economic outcomes superior to those brought about by free markets?
My question is serious. Please identify that theory. Explain how elected officials in the White House and on Capitol Hill, and bureaucrats on the streets and avenues around them, will obtain the knowledge required to out-perform the market at allocating resources. Do so with the rigor that’s found in any ordinary ECON 101 textbook.
Until and unless you identify such a theory, it is you and other interventionists – not those persons who you regularly deride as “market fundamentalists” – who are guided by faith.
Sincerely,
Don
