Human Motivation and Adam Smith’s “Invisible Hands”

Abstract

The foundation for the eventual emergence of economics as a distinct discipline was laid with the publication of Adam Smith’sWealth of Nations in 1776. The potential power of competitive market economies became widely recognized over the following 100 years throughthe works of David Ricardo, Thomas Malthus, Frederick Bastiat, and Karl Marx, among others. The discipline went through arevolution in the last third of that century when “marginalists” William Stanley Jevons in England, Leon Walras in France,and Carl Menger in Austria separately recognized how marginal values (as distinct from the prior focus on total or average values) carried great weight in determining the levels of consumption,production, and price levels. David Ricardo in the first quarter of the nineteenth century began formalizing economics asa deductive science, relying heavily on simplifying assumptions, with the publication of his On the Principles of Political Economy and Taxation in 1817. Alfred Marshall institutionalized the discipline’s graphical techniques for generations of budding economists withthe publication of his widely and long-adopted textbook, Principles of Economics, in 1890. Through this history, some form of self-interest, if not less narrowly constrained rational behavior, remainedembedded in economic discussions. This chapter will be concerned with the motivational foundations of Adam Smith’s politicaleconomy. I devote a separate chapter to human motivations in Smith’s writings not only because he is now recognized (but notin his own time) as a founding father of economics, but also because Smith’s construction of human motivations was far morecomplex and comprehensive than most of his supporters and detractors seem to believe.