‘Inventing the Market: Smith, Hegel, and Political Theory’ reviewed by Jorge H Sanchez Perez

Inventing the Market: Smith, Hegel, and Political Theory

Oxford University Press, 2013. 184pp. £50 hb
ISBN 9780199674176

Reviewed by Jorge H Sanchez Perez

About the reviewer

Jorge H. Sanchez Perez is currently a PhD Student at the Philosophy department of McMaster …


The 2008 economic world crisis led to the realization that the economy is too important to be left to economists and that many of the assumptions regarding the market have not been properly addressed by other areas of academia. One particular field were economy has been neglected as a core topic has been political theory (3). In order to overcome this problem, Lisa Herzog begins Inventing the Market with a critique of the contemporary focus on mathematical economics, which Herzog properly notices is only one of many ways to approach the economy. It then moves towards a methodological presentation of what Herzog calls a ‘Post-Skinner’ approach (12). This allows her to establish a dialogue with two classic authors with two different opinions on the social phenomena of the economic market. This dialogue provides an interesting and thought-provoking background to discuss economics as a whole. The areas that are covered in the book include history, philosophy and political theory, and together present a solid work in the field of intellectual history.  

Herzog first considers the work of Adam Smith, scrutinizing the ‘classical liberal’ notion of the market as a place where ‘problems are solved’ (6). She engages in a systemic reading of Smith in order to provide a solid account of his views on the market, taking in his moral philosophy and his metaphysical ideas. Smith’s notion of the ‘invisible hand’, a natural mechanism that would guide the market, rests on the assumption that ‘a benevolent deity has created the world’ (34). Therefore, allowing a whole system of causality eventually to recreate some kind of balance among everybody. The rich will end up needing the poor to satisfy their desires thus incorporating them into the path of wealth and growth. Herzog skillfully presents many of Smith’s philosophical points. As previously mentioned, she considers Smith’s works on metaphysics and morals, which provides a solid support for the main argument of her reading. However, she does not adequately consider the epistemological perspective. It is true that Smith does not deal with epistemology at great length in his main works, but in order to understand his thought in a systemic way it could be useful to refer to his empiricist background, which might in turn shed new light on the Deistic reading of Smith that the author tries to present. Herzog seems to focus on a particular reading of the science behind Smith’s thought and does not focus on his epistemological approach which is closely related to Hume’s and therefore further away from the Deistic take that Herzog adopts. However, her reading of the notion of self-interest in Smith does seem to work quite well with the overall thesis of the book. For Smith a properly guided and ordered market does provide the ground to attack inequality and therefore to improve the life of the poor. But as Herzog says, it all depends of who is guiding such a market, which in turn puts pressure on the existence of “virtuous politicians” (38) who can avoid the manipulation of different sub-groups always trying to balance the “system of natural liberty”.

Herzog proceeds to address Hegel’s works and advocates a particular reading of his notion of the market. She starts this part of the book with Hegel’s definition of what politics is and how for Hegel economy should be read under the umbrella of politics. Herzog claims that there is renewed interest in the works of Hegel within the analytical school, which puts in question the traditional assumption that the analytical school disregards for historic topics and in particular Hegel. The main look at the relationship between economics and politics comes from the analysis of the Philosophy of Right. Herzog recognizes the difficulties of focusing on a particular work of Hegel since one of his main goals was systematicity. However, she quickly moves on from this debate assuming that in order to read Hegel’s practical philosophy properly it is sufficient to return to his system to fill in the gaps of the Philosophy of Right. The first step in her reading of Hegel is the definition of two core concepts in the whole system: Geist and Sittlichkeit. Geist is a constant actualization of the spirit’s own abstract and atemporal self and Sittlichkeit is the set of rules and traditions in the light of reasonableness that lead the life of a community. As Herzog notices, if one takes Geist as an open notion one may lose the focus on the duality of the notion – a duality that allows the concept to be understood as the product of the struggle for recognition of individuals and, as the whole of human history developed into a rational process, for communities as well. The author recognizes the two elements that the entire political system in Hegelian terms needs: an abstract law (Geist), and the content of the law in the forms of the traditions (Sittlichkeit) which have been developed throughout history (49).  

The market economy acts within the framework of Sittlichkeit (51), and therefore within the realm of civil society. Individuals interact here in such a way that their necessities lead their relations. This allows them to expand their liberty as they interact with others in order to satisfy their own needs. This process is called ‘dialectical advance’. As Herzog realizes, the similarities between Smith’s invisible hand and Hegel process of ‘dialectical advance’ are striking (54). However if within the market people find freedom due to their participation in the dialectical process, outside of it they cannot be part of it, and that is one of the strongest differences between the two authors. For Hegel the market will not work as balanced as it does for Smith. For the latter participation in the market is taken for granted, while for the former the chaotic nature of relationships based on needs can end up excluding people from it and therefore taking away their liberty to act with others as well. For Hegel the market is another face of the civil realm where the freedom to citizens is guaranteed, not a place to simply increase the riches that an individual might possess. Therefore he supports the existence of the market, but not for the same reasons as Smith who sees it simply as a way to generate wealth.  

These theoretical foundations allow Herzog to move forward to political theory. There are three main debates that she now deals with, on identity, justice and freedom. It is commonly assumed that Smith has an individualistic view while Hegel argues for the other extreme with a communitarian account of society. The book seems unnecessarily neutral in its evaluations of both authors takes on the market. It is clear that Hegel had more elements to judge how the market can influence people and how, in the end, it can lead to forms of discrimination that Smith did not consider. They both reveal themselves to be aware of the problems within certain types of economic relationships, but Hegel is more aware of how these could eventually lead to a destruction of the individual self. By taking away the meaning of the job you do, you are reduced to a mere good in the market. This is an issue that Hegel warns about. Smith is optimistic about the human capacity to hold itself true even within a system of exchange of goods. This Hegelian fear of the problems of the market takes definite shape in Marx’s theory of alienation, where humans lose themselves in the capitalist system without many opportunities to break away. Thus presenting the possibility of a revolution as a way to try to tame the now wild market. The plain ‘Smithian’ take on the job market tends to lose sight of these kind of relations and the consequences they might bring (83).

When discussing the notion of justice in the market Herzog allows herself a more normative account. From the book’s perspective, the market should be part of the discussion of what social justice means. The whole book argues that there are problems with contemporary market assumptions and even within the contemporary reading of Smith’s thesis regarding how individuals interact in the market. Smith holds that the individual might not care for the highest virtue regarding the market but he will care about ‘bourgeois virtues of honesty, reliability and justice’ (111). This again points to a particular reading that has left aside questions about how humans tend to act within the market. Hegel realized that the market left to itself may lead to more inequalities and discrimination than to solutions to those problems. He tries to solve this with the empowerment of another sphere, the political arena, that can take on the job of regulating the market by increasing the political inclusion of the population. Herzog argues that this may not be the solution, since first the state can only provide charity, and second it is not necessarily true that political inclusion will eliminate poverty and inequalities. In this sense we can take the fifth chapter of the book as recognition of political defeat towards the market. If we are not capable of holding the market down with our best social institution, the state, then how are we supposed to address this issue? Herzog claims that the solution should come from within the market itself. A deep analysis of how the market works and how the social spheres interact with it should make this clear. However, this solution does not present itself as an obvious one either. Even in Smith’s terms there is a market because there is a society. If there are needs then there will be a state to address those needs (137), and Hegel seems to understand this as a clear manifestation of modern times. The problem is containment not regulation. If the market develops without the containment of the state then it will overrun other spheres of social life, as Marx ended up seeing with clarity.  

In conclusion, the book provides an interesting take on the history of the market and does present us with the clear conclusion that markets, like any other social sphere, have their own history. The author emphasizes that it is important to read Smith and Hegel’s works on the market not to predict how it will act in the future but rather to understand how it developed into the system we have today. Although her work is in political theory, the recognition of the limited capacity of the state to contain the social phenomena known as the market seems rather pessimistic. Nevertheless, this book provides a helpful starting point for anybody interested in discussing economic topics beyond mere mathematical models, allowing the reader to start looking at them from the perspective that political theorists must have if they want to understand how to deal with economic crises in the future. 

24 November 2014

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