IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Interdependence, the Invisible Hand, and Equilibrium in Adam Smith

Listed author(s):
  • Amos Witztum
Registered author(s):

    The question of whether there is general equilibrium in Adam Smith lies at the heart of the battlefield between those who wish to see Smith as a precursor of modern economics and those who see in his writing an alternative system. In this article I will argue that it is possible for general equilibrium to be present in Smith and yet, for his system to be an alternative to, rather than a precursor of, modern economics. I will show that coordination is crucial in both systems although the narratives that produce it are fundamentally different. I will argue that in the end, there are two coordinating mechanisms in Smith. First, there is the invisible hand of the Theory of Moral Sentiments, which facilitates the process of specialization and trade (or division of labor). It is a coordinating mechanism and not a tautology, as it is based on a presumption about human behavior yet it is not dependent on the market. Without the belief in the coordinating power of the invisible hand, labor would not have been divided and people would not have become dependent on others. Second, the growing dependency on strangers brings to the fore the coordinating powers of the market. Their function in this elaborate system is to uphold the promise of the invisible hand of the Theory of Moral Sentiments and guarantee life's necessities, as well as support the new social drive that, through the deception of nature, is manifested in the accumulation of wealth. I will argue that according to Smith, these functions are well performed by the markets when prices are all at their natural rate. It is only then that across all industries and employment, division of labor would occur, affluence would be generated, and the worse-off people in society would not be left behind. The mere existence of general equilibrium ensures none of the above and is hence unrelated to the question of successful coordination.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Duke University Press in its journal History of Political Economy.

    Volume (Year): 42 (2010)
    Issue (Month): 1 (Spring)
    Pages: 155-192

    in new window

    Handle: RePEc:hop:hopeec:v:42:y:2010:i:1:p:155-192
    Contact details of provider: Postal:
    Duke University Press 905 W. Main Street, Suite 18B Durham, NC 27701

    Phone: (919) 660-1800
    Fax: (919) 684-8974
    Web page:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:hop:hopeec:v:42:y:2010:i:1:p:155-192. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Center for the History of Political Economy Webmaster)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.