Smith's Wedge: The Invisible Mishandling of Context in Robert Frank's The Darwin Economy

Abstract

In The Darwin Economy a distinguished behavioral economist, Robert Frank, promises to put Adam Smith’s “invisible hand narrative” into “context”. Neglecting history, empirical evidence, original sources, and a voluminous secondary literature, he fails to deliver. Frank predicts that one hundred years from now professional economists will name not Adam Smith but Charles Darwin as the intellectual founder of their discipline. The reason he gives is “Darwin’s wedge” — a term he coins to emphasize a divergence between individual and group interests which in turn causes wasteful competition and collective loss. He credits Darwin for the insight. We find the very same “wedge” and insight in a book wholly neglected by Frank and most economists after Stigler, namely, Smith’s The Theory of Moral Sentiments. Working with original sources we show that Frank’s view of the invisible hand—and thus of modern economics — is not sustainable. Contextual economics after Schmoller is of course voluminous but it is hardly known by Frank, who is wedded to the axiomatic approach and “no cash on the table” conjecture favored by most neoclassicals. We highlight the problem with evidence on the economics of labor-managed firms and with a revival of a once-famous study by Carleton Parker on large scale farming, unregulated migrant labor, and the Wheatland Hop Field riot of 1913.

Keywords: invisible hand, Schmoller, migrant labor, labor-managed firms, Wheatland

JEL Classification: B3, N3, J6, B41, Q10