Wall Street Journal deputy editorial features editor Matthew Hennessey joins Brian Anderson to discuss economics for non-economists and the enduring wisdom of Adam Smith. His new book, Visible Hand: A Wealth of Notions on the Miracle of the Market, will be released April 12.
Audio Transcript
Brian Anderson: Welcome back to the 10 Blocks Podcast. This is Brian Anderson, the editor of City Journal. Joining me on the show today is an old friend, Matthew Hennessy, The Wall Street Journal's deputy op ed editor. Before he went to The Journal, Matt was an associate editor at City Journal where he wrote any number of articles for us on numerous topics. Today we'll discuss his brand new book, which is coming out this April, Visible Hand, A Wealth of Notions on the Miracle of the Market. It's published by Encounter Books. April 12th is the official release date. Visible Hand offers a guide to basic economic principles and written in Matt's very punchy and clear English. So Matt, thank you very much for joining us.
Matthew Hennessey: No, it's my pleasure, Brian. It's good to be back.
Brian Anderson: So the book begins with an admission, you are not an economist. In fact, you acknowledged that you once found economics somewhat intimidating. Much of what you know about the topic you've learned through observation, self-guided study. So what prompted you to write a book on this subject and how was your perspective on these issues formed and really what can a non-specialist bring to the topic of economics that a formally trained economist might overlook?
Matthew Hennessey: Well, I started writing the book for the same reason that I often set pen to paper, which is I get an idea in my head and I can't shake it. The first victims of this idea usually are my family, my children. So I find myself the lecturing in the car or in the living room on a certain topic. And I think to my myself, "Well, I might have a few things here to say that people might be interested in beyond this captive audience." And I try to pull the thread and see if there's a big ball at the end of it. In this case, there was. I'm not an economist, I'm a writer, I'm a journalist. I did study a little bit of economics and I do work for The Wall Street Journal.
So I have a little bit of a professional background in journalistic economics if that's a thing. I think that this is actually a pretty good time, it might always be a good time to remind people of the virtue of capitalism, the virtues of the free market system. I don't like to call it a system. I don't think it is a system. I think it is what it is. It's no more of a system than gravity is a system, or the weather is a system.
I guess the weather sometimes is called a system, but it's a set of objective realities that we live inside and around and which govern our choices. And often we lose sight of how much good it's done for us. We hear a lot of criticism, almost constant criticism, of capitalism for its shortcomings, of which there are many, but very rarely do we, or too rarely do we hear out the benefits and the benefits are so extreme that we've come to take them for granted. So I wanted to remind people of the benefits of capitalism and get a few things out of my head that had been rattling around there for a long time.
Brian Anderson: So the title of your book, The Visible Hand, of course, is a reference to Adam Smith's concept of the invisible hand. Smith is considered by many people to be the father of modern economics. But in the first chapter of your book, you note that he did not invent capitalism, but rather simply described it. So why is that description important and what affects did Smith's description of the workings of our economy have on politics and society?
Matthew Hennessey: Well, Adam Smith's invisible hand is sort of the controlling metaphor of free market economics. If you know nothing about economics, you probably heard of the invisible hand of the marketplace. I certainly did, even at a time when I knew next to nothing else about what economics was or why it mattered. In my mind, I imagined one of those big foam fingers that you see at a football game, we're number one, and I just sort of imagined, well, the invisible hand must just sort of be pushing people into stores and reaching into their wallet and putting the money on the counter and that kind of thing. So it has a power, a descriptive power that people understand or think they do intuitively and it's gone everywhere. It's the one thing that most people know. So I thought that this is a good way to approach what I'm arguing, which is that the effects of what Smith was describing are in fact very visible.
You see them all the time. You can see them all around you. The forces that he and others helped to define for people were not inventions. They didn't cook them up in a laboratory. They didn't design them in a studio on a canvas. They observed them. Smith is an economist. People who are a little savvier would call him a philosopher, a political philosopher. In our own day I think he'd be considered something more like a social anthropologist, a social scientist, perhaps even a journalist. Because when I read The Wealth of Nations, it reads very much to me like a very, very long reporting assignment. He's got a lot to say about what he observes, about how people organize their economic lives, their commercial lives, how they spend, how they save, how they earn, how they produce and how they consume.
And it's difficult to approach. It's hard going. It's not a fun book to read. And it's very intimidating in terms of its size. But there's a lot of collected wisdom in there that has been reduced unfortunately to this notion of the invisible hand, which has been further reduced by pop culture and sort of the enemies of capitalism to greed is good. And so I think that Adam Smith needs periodic vigorous defense because he did not invent capitalism. He did not invent the forces of supply and demand. And he did not unleash them on the world.
It's always been interesting to me that he wrote The Wealth of Nations or he published it I should say the same year that the Declaration of Independence came out. So there's some sort of connection there, some sort of flowering of genius that happened in 1776, or in the 1770s, that has, you know, it echoes through the centuries and it continues to inform and guide our lives both politically and economically. Always been fascinated by that.
So I think that if you're an American and you consider yourself somewhat educated person, and you're interested in politics and the way the world works, you have to have some basic understanding of who Smith is, who Smith was and why we still operate in the world that he sort of helped illuminate.
Brian Anderson: Here, a more personal aspect of this book is your parents owned a bar. You've written about this for City Journal in fact, and you write fondly of your time working there when you were in your teens and 20s. But in your book, you caution readers not to quote "fall into the trap of thinking that small businesses are good and decent while big businesses are bad and mean." End quote. Now, this is something you hear from politicians a lot, comes up in presidential debate and it's an intellectual position that's also been developed and held by a number of people like Louis Brandis or somebody today like the economist, Luigi Zingales who hold the concentration is very bad for the economy, that capitalism does sometimes encourage monopolistic practices and that the government should intervene to prevent mammoth businesses from forming or break up those businesses into component parts. So what's wrong with that view?
Matthew Hennessey: Well, I don't necessarily think there is anything wrong with that view. I don't have any particular brief against antitrust or I certainly am not a champion of monopoly power. The point I'm trying to make is that we frequently, as you say, we hear politicians lionizing the small businessman or the little entrepreneur or the person that managed to build up a little business in their backyard or out their front window. And the debate sort of about those people is often very laudatory. Whereas when we discuss larger businesses, of which there are many, that are not Amazon or Apple or Exxon, larger businesses, the point I'm trying to make in the book are not that different really than Hennessy's Washington Bar that my dad owned. They operate in the same, most of the time in the same environment, there's just more of it.
There's just more to do, and there's more to buy and sell. And it's at a scale that exceeds the individual person's ability to grasp just intuitively, like most of us could understand what it would be like to run a small restaurant or some kind of a business out of your home or off the internet or something like that. A bigger business like GE or some sort of car company or a Hollywood studio, it's not really easy to understand how... It's such a complicated thing that the average person can't really wrap their mind around it. So we have a tendency to think big is bad. If we can't understand it, it can't be good. When in fact, big businesses supply most of the things that we buy and use in our daily lives and they do it in way that is affordable to us precisely because they are big.
We do understand this intuitively that if you go to a family owned restaurant, you might pay a little more for your hamburger, but you're helping out a family who is running a small business or whatever. But if you go to McDonald's, you would not expect to pay the same price for that hamburger. Fact of the matter is, most people in the United States get their burgers from McDonald's and not from some little farm to table restaurant in the Catskills or something. So my point simply is that in telling the story of my dad's business was first of all to say that a version of isn't this a great country? Because my father had no business training whatsoever. He had a career as a teacher and a social worker that wasn't really paying the bills.
He sort of stumbled into this opportunity and he made the absolute most of it really through intuition and hard work, showing up and getting... The business just took off in a way that no one would've anticipated or predicted based on his background. And there's no other country in the world where a thing like that is possible and precisely because we embrace and support entrepreneurship, and we recognize that the free market has certain advantages over a controlled economy. What I'm saying in the book is that I can see that my father's business, as small as it was, played a part, was a sort of a hub of a wheel with spokes that supported other businesses, large and small. You can take that sort of hub and spoke idea and just expand it out and eventually you're going to get to Amazon.
Amazon is a big company and it's like a battleship, it dwarfs a lot of things when it comes into the harbor, you can only see Amazon. But it also supports a lot of economic vitality when it comes into the harbor. And so long as it doesn't block out the sun, which is the problem of monopoly, you want that ship in the harbor because it's helping support a lot of local business. I'm far from the right person to ask about antitrust and sort of the details, there's a literature on all that kind of stuff and I would leave it to the academic economists to deal with the negative externalities that come from size in the micro economy.
Brian Anderson: A lot of polls today, Matt, when they ask millennials about their views on capitalism and socialism, the results suggest a rather alarming support for socialism among younger people in America, and pretty critical views of capitalism. What's your take on that? Why are millennials more predisposed to saying nice things about socialism?
Matthew Hennessey: Well, I have to begin by saying that millennials are not so young anymore, Brian. So it's a mistake to use millennial as a synonym for young people as I've learned. Millennials for the most part are 25 and up at this point. So we have another, yeah, we have another generation called Generation Z or something else, generation to be named later, exhibiting all of the same habits and predilections of younger generations from time immemorial, which is a sort of an idealistic attraction to collectivist economics.
So I wrote this book Visible Hand in part because you may have such a young person living in your home and you may want to drop a little knowledge on them through my book. This is not a book for people who have degrees in economics, or certainly not advanced degrees in economics. Probably not a book for people that work in the financial economy. This is not for accountants. And this is a book for people that, about economics for people that don't like economics, or think they don't. And so if you're an adult who's managed to avoid it most of your life like I did, this could be a useful entree. And if you've got teenagers who are dabbling shall we say in socialism or some other abomination, this might be just the lifeline they need to help them claw their way back to reality.
Brian Anderson: When you were researching the book in your own self education in economics, who were some of the authors that you found most useful to engage with? Adam Smiths, for sure, but beyond Smith.
Matthew Hennessey: Well, I'm one of these guys, I work for The Wall Street Journal opinion pages so you won't be surprised to learn that I'm a fan of my Milton Friedman and Thomas Sowell, but there are books that you don't know exist until you start rattling around. Now, of course, some people listening to this podcast will know these books exist and I understand that so you don't need to comment or send me messages about it.
But there's a book that I'm looking at right now on my desk called Economics In One Lesson and by Henry Hazlitt. And that was kind of the book that I had in mind I think every time someone, certainly publishers want to know what it is you're trying to do when you pitch them the idea of a book. And that was the book that really, that I had in mind when I was writing this book, a sort of a pocket economics, a pocket free market economics, something that someone who is terrified of the notion or thinks that economics is all about money or all about accounting could read, enjoy, and maybe learn a few things.
I want to caution people who might be thinking of having a look at this book that it's not, as I said in the very first sentence, I'm not an economist, so you should not expect anything resembling a textbook in this book. It is simply my view of the world as a mid 20th century American who has worked in journalism and somewhat familiar with economics.
Brian Anderson: Well, thanks, Matt very, very much. Good luck with this book. It's out April 12th, it's called Visible Hand, and it is a kind of friendly guide to basic economic principles, as I said at the outset written in very, very clear punchy prose. So thanks again for coming on. Don't forget to check out Matt Hennessy's earlier work on the City Journal website, www.city-journal.org. We'll link to his author page in the description. You can find City Journal on Twitter @cityjournal and on Instagram at @cityjournal_MI. And as always, if you like what you've heard on the podcast, please give us a ratings on iTunes. So, Matt, thanks again for coming on.
Matthew Hennessey: It's my pleasure, Brian.
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