Mark D. White

Continuing our chapter-by-chapter preview of Accepting the Invisible Hand: Market-Based Approaches to Social-Economic Problems (which is now available), we come to Chapter 6 by Robert F. Garnett Jr., entitled "Philanthropy and the Invisible Hand: Hayek, Boulding, and Beyond." (If you missed them, here are links to the previews of the chapters by White, Meadowcroft, Gwartney and Connors, Baker, and Blevins, Ramirez and Wight, as well as the book's preface.)

Garnett's chapter discusses the dismissive approach that economics has taken to philanthropic giving, which he links to the "Adam Smith Problem":

The pervasive neglect of philanthropy in economic theories of commercial society is the mark of an enduring “Adam Smith Problem” (ASP), both in the classical sense described by Oncken and the modernist version of the ASP that took root after World War II. Professional economists in the 1940s, 1950s, and 1960s, inspired by the rise of national income accounting and general equilibrium theory, embraced a modernist image of the market economy (or the mixed economy of markets and government) as a machine-like system. ... Economists came to regard markets and commerce as the generative core of economic life (potent, efficient, systemic), in contradistinction to charity and other forms of philanthropic giving, which were seen as outmoded, inefficient, and ad hoc. (pp. 111-2)

Garnett brings two of the most important economists of the 20th century to bear on addressing this problem:

To better understand the contours and significance of the aforementioned Adam Smith Problem, this chapter examines its treatment by two pioneering economists of the post–World War II period: F.A. Hayek and Kenneth Boulding. Notwithstanding their philosophical differences, I find that Hayek and Boulding share a similarly dualistic view of the commerce/philanthropy relationship. In other words, both partake of the modern ASP. At the same time, their respective approaches offer valuable tools and suggestions that can assist us in seeking to extend the reach of Smith’s invisible hand to include philanthropic motives, actions, affiliations, and processes. The final section outlines a strategy for mobilizing the resources of Boulding, Hayek, and other post-Walrasian economists to reintegrate philanthropy into the economic conversation of commercial society. (p. 113)

Among Garnett's many insights is this one (which in particular speaks to me; emphasis mine):

To overcome the dysfunctional separation of philanthropy from the invisible hand, we must recognize that their fraught relationship stems from a lingering Adam Smith Problem and continue to actively rethink the monist notions of self and economy that gave rise to this ASP in the first place. Stated positively, we must develop cogent, pluralistic conceptions of economic life, particularly the plurality of human motivations and institutional processes that characterize every real-world economy. (pp. 125-6)