An Economics by Topic detail
From An Inquiry into the Nature and Causes of the Wealth of Nations, Book IV, Chap. 2 by Adam Smith.
London: Methuen and Co., Ltd., 1904. Edwin Cannan, ed. First published 1776. Card Catalog
But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic 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 domestic 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 was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it. [Par. IV.2.9]
From The Theory of Moral Sentiments by Adam Smith.
London: A. Millar, 1790. First published 1759. Card Catalog
The produce of the soil maintains at
all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap 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 all their
improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would
have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without
knowing it, advance the interest of the society, and afford means to the multiplication of the species. [Par. IV.I.10]
There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred.
It has been said that “only God can make a tree.” Why do we agree with this? Isn’t it because we realize that we ourselves could not make one? Indeed, can we even describe a tree? We cannot, except in superficial terms. We can say, for instance, that a certain molecular configuration manifests itself as a tree. But what mind is there among men that could even record, let alone direct, the constant changes in molecules that transpire in the life span of a tree? Such a feat is utterly unthinkable!
I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies?millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding!… [Pars. RP.22-24]
Hayek, Friedrich A., “The Use of Knowledge in Society,” American Economic Review, 1945
In F. A. Hayek’s seminal article, he illuminates the real role of markets?the coordination of knowledge and information without anyone being in charge. Hayek argued that markets process more information than could possibly be mastered by a mastermind or even a mastermind working with a computer. It’s one of the most eloquent expositions of how decentralized, unorganized individuals individual decision-making can outperform a central planner.
Hayek’s insights formed the basis of Leonard Read’s whimsical look at uncontrolled order and the role of markets in coordinating knowledge, “I, Pencil.” Reading both side by side is a fascinating look at economic rhetoric.
list of related topics and links here, e.g., links to econlib reading list entries on
division of labor
information and markets; any other pages to be written on, say, division of labor, invisible hand; links to the CEE, links to biographies (e.g., Smith); links to Teachers Corners, links to Featured Articles; links to EconLog; links to other websites; suggested books and articles that are not online; miscellaneous items and new items of all sorts.