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Comment by Mc91 | Hacker News Reader

Even though the metaphor is only touched on lightly here, in Wealth of Nations, Adam Smith says, in a chapter on tariffs -

"By restraining, either by high duties, or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them...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."

In Smith's example, the invisible hand is something that is working in the market against free trade between countries.

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Yes. The "invisible hand" reference in Wealth of Nations is probably the most egregiously misused term in history. It's only mentioned once in the entire work, and as you point out, the context is completely different from that to which it is usually (and incorrectly) applied.

The phrase is commonly used to promote the idea that markets are self-regulating, requiring no state oversight, because they supposedly trend toward some form of equilibrium. In reality they do no such thing, for there is no equilibrium to trend towards.

Smith's specific example is somewhat dubious given the tendency of corporations to off shore work to cheap foreign locales or purchase from foreign suppliers. It actually winds up being governments and not individuals who acknowledge the necessities of protecting domestic industry from foreign competition. For market actors (individual consumers to big business) the short term price advantage winds up dominating the self interest calculus rather than consideration of potential long term ramifications of being dependent on foreign producers.

Regardless, this passage (if you expand it a bit) most concisely sums up one of the main themes of the book, which is why it's so often cited. The main takeaway here being that intentions don't always match outcomes. Governments often intend to improve society by intervention but make things worse. Free actors don't intend to improve society but often do so anyway (as an aside, despite this, Smith is actually LESS laissez faire than many expect).

Shortly after where your quote ends he makes this clear, "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." This is reiterated in various ways as I recall and he's merely trying to apply it to this specific topic of importation here, though in hindsight what he considers the outcome of the self interest calculus is a bit wrong.

Still, market actors acting in their own self interest of foreign trade do indeed produce the unintended consequence of enriching those trading partners.

The self-interest is probably the wrong focus. If you took a million prople in a society and asked that what was in their best interest then you'd likely get similar policies to many modern democractic socialist states, since that's effectively what they do in elections.

If you asked a King or CEO or aristocracy or other small concentrated power what was in their own selfish best interests then you'd end up with slavery/fascism/exploitation like we have through history.

So really its more about distribution of power, since peoples ability to bargain and/or resist co-oercion is reflected in their power/wealth and most of the market power theories rely on distributed wealth while proponents actually work against this.

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