Adam Smith (1723-1790) may be the most misunderstood British thinker of the last 500 years—misunderstood not by intellectual historians but by journalists and the educated public. A case in point: Steven Pearlstein, a well-regarded business journalist, asserts that Smith argued that the “ ’invisible hand’ of the market .  .  . miraculously transforms individual greed into collective prosperity.” Smith said no such thing. There is one sentence in An Inquiry into the Nature and Causes of the Wealth of Nations (1776) about the invisible hand, but Smith never says it is a wonder-working formula for prosperity and civic harmony.

By “invisible hand,” Smith meant that people in commerce, who are driven by self-interest, frequently do more to promote the general welfare than people who work in what we would now call the nonprofit sector: A person “pursuing his own interest .  .  . frequently promotes that of the society more effectually than when he really intends to promote it.” By saying “frequently,” Smith qualifies his praise of commerce. And Smith never endorses greed. He says that commerce is not driven by benevolence: “It is not from the benevolence of the butcher, the brewer, or the baker,” he writes, “that we expect our dinner, but from their regard to their own interest.” It makes no sense to use the word greed to describe a seller’s interest in making a profit, or a buyer’s interest in getting the best price for a product or service.