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Wall Street (1987 film)

From Wikipedia, the free encyclopedia

Wall Street
Theatrical release poster
Directed by	Oliver Stone
Written by	Oliver Stone Stanley Weiser
Produced by	Edward R. Pressman
Starring	Michael Douglas Charlie Sheen Daryl Hannah Martin Sheen Hal Holbrook Terence Stamp
Cinematography	Robert Richardson
Edited by	Claire Simpson
Music by	Stewart Copeland
Production companies	American Entertainment Partners Amercent Films
Distributed by	20th Century Fox
Release date	December 11, 1987
Running time	126 minutes
Country	United States
Language	English
Budget	$16.5 million
Box office	$43.8 million

Wall Street is a 1987 American crime drama film, directed and co-written by Oliver Stone, which stars Michael Douglas, Charlie Sheen, Daryl Hannah, and Martin Sheen. The film tells the story of Bud Fox (C. Sheen), a young stockbroker who becomes involved with Gordon Gekko (Douglas), a wealthy, unscrupulous corporate raider.

Stone made the film as a tribute to his father, Lou Stone, a stockbroker during the Great Depression. The character of Gekko is said to be a composite of several people, including Dennis Levine, Ivan Boesky, Carl Icahn, Asher Edelman, Michael Milken, and Stone himself. The character of Sir Lawrence Wildman, meanwhile, was modelled on British financier and corporate raider Sir James Goldsmith. Originally, the studio wanted Warren Beatty to play Gekko, but he was not interested; Stone, meanwhile, wanted Richard Gere, but Gere passed on the role.

The film was well received among major film critics. Douglas won the Academy Award for Best Actor, and the film has come to be seen as the archetypal portrayal of 1980s excess, with Douglas' character declaring that "greed, for lack of a better word, is good." It has also proven influential in inspiring people to work on Wall Street, with Sheen, Douglas, and Stone commenting over the years how people still approach them and say that they became stockbrokers because of their respective characters in the film.

Stone and Douglas reunited for a sequel titled Wall Street: Money Never Sleeps, which was released theatrically on September 24, 2010.

Plot

In 1985, Bud Fox is a junior stockbroker at Jackson Steinem & Co. in New York City. He wants to work with his hero, Gordon Gekko, a legendary Wall Street player. After calling Gekko's office 59 days in a row trying to land an appointment, Bud visits Gekko on his birthday with a box of Gekko's favorite, contraband Cuban cigars. Impressed at his persistence, Gekko grants Bud an interview. Bud pitches him stocks, but Gekko is unimpressed. Desperate, Bud provides him some inside information about Bluestar Airlines, which he has learned in a casual conversation with his father, Carl, leader of the company's maintenance workers' union. Intrigued, Gekko tells Bud he will think about it. A dejected Bud returns to his office. However, Gekko places an order for Bluestar stock and becomes one of Bud's clients.

After making a considerable amount of money from the Bluestar tip, Gekko gives Bud some capital to manage, but the other stocks Bud selects by honest research and advice from respected senior broker Lou Mannheim lose money. Gekko offers Bud another chance, and tells him to spy on British investor Sir Lawrence Wildman. They deduce that Wildman is making a bid for Anacott Steel. Gekko buys a large block of shares in Anacott, which Wildman is forced to buy off him at a high price, to complete the takeover.

Bud becomes wealthy, enjoying Gekko's promised perks, including a penthouse on Manhattan's East Side. He also gains a girlfriend, Gekko's art consultant and ex-mistress, Darien, an interior decorator. Bud is promoted as a result of the large commissions he is bringing in and is given an office with a view. He continues to maximize inside information and use friends as straw buyers to provide more income for himself and Gekko. Unknown to Bud, several of his trades attract the attention of the SEC.

Bud pitches a new idea to Gekko: buy Bluestar Airlines and expand the company, with Bud as president, using savings achieved by union concessions and the overfunded pension. Even though Bud is unable to persuade his father to support him and Gekko, he is able to get the unions to push for the deal. Soon afterward, Bud learns that Gekko plans to dissolve the company and sell off Bluestar's assets in order to access cash in the company's pension plan, leaving Carl and the entire Bluestar staff unemployed. Although this would leave Bud a very rich man, he is angered by Gekko's deceit and wracked with guilt for being an accessory to Bluestar's impending destruction, especially after his father suffers a heart attack. Bud resolves to disrupt Gekko's plans, and breaks up with Darien when she refuses to go against Gekko, her former lover.

Bud and the union presidents secretly meet with Wildman and arrange for him to buy the stock and a controlling interest in Bluestar, at a significant discount, on the condition that he saves the company. Bud then devises a plan to leak news of Gekko's takeover to drive the price up. This forces Gekko to buy the stock at a higher price, as he tries to secure a controlling interest. Bud then convinces the unions to pull their support, ending any prospect of Gekko completing the takeover, and causing the price to plummet. This forces Gekko to offload his stock at a considerable loss. When Gekko learns on the evening news that Wildman is buying Bluestar, he realizes Bud has engineered the entire scheme. Bud triumphantly returns to work at Jackson Steinem the following day, only to be arrested for insider trading by the SEC, who had been tracking Bud's illicit trading.

Later, Bud confronts Gekko in Central Park. Gekko punches Bud several times, berating him for his role with Bluestar, and accuses him of ingratitude for several of their illicit trades. Later, it is revealed that Bud was wearing a wire to record his encounter with Gekko for the authorities, who suggest he may get a lighter sentence in exchange for providing evidence against Gekko. Later, Bud's parents drive him down FDR Drive towards the New York County Courthouse, telling Bud he "did the right thing" by cooperating with the government and paying back his illicit earnings, and urging him to accept Wildman's offer of a job at Bluestar once he has completed his prison sentence. After suggesting Bud "create, instead of living off the buying and selling of others", Carl drops Bud off at the courthouse, where he ascends the steps, ready to face justice for his crimes.

Cast

Michael Douglas as Gordon Gekko
Charlie Sheen as Bud Fox
Daryl Hannah as Darien Taylor
Martin Sheen as Carl Fox
John C. McGinley as Marvin
Terence Stamp as Sir Larry Wildman
James Karen as Harry Lynch
Hal Holbrook as Lou Mannheim
Sean Young as Kate Gekko
James Spader as Roger Barnes
Saul Rubinek as Harold Salt
John Capodice as Dominick
Franklin Cover as Dan
Sylvia Miles as Dolores the Realtor
Millie Perkins as Mrs. Fox
Josh Mostel as Ollie
Paul Guilfoyle as Stone Livingstone

Production

Development

After the success of Platoon (1986), Stone wanted film school friend and Los Angeles screenwriter Stanley Weiser to research and write a screenplay about quiz show scandals in the 1950s. During a story conference, Stone suggested making a film about Wall Street instead. The director pitched the premise of two investment partners getting involved in questionable financial dealings, using each other, and they are tailed by a prosecutor as in Crime and Punishment. The director had been thinking about this kind of a movie as early as 1981 and was inspired by his father, Lou Stone, a broker during the Great Depression at Hayden Stone.

The filmmaker knew a New York businessman who was making millions and working long days putting together deals all over the world. This man started making mistakes that cost him everything. Stone remembers that the "story frames what happens in my movie, which is basically a Pilgrim's Progress of a boy who is seduced and corrupted by the allure of easy money. And in the third act, he sets out to redeem himself". Stone asked Weiser to read Crime and Punishment, but Weiser found that its story did not mix well with their own. Stone then asked Weiser to read The Great Gatsby for material that they could use, but it was not the right fit either. Weiser had no prior knowledge of the financial world and immersed himself in researching the world of stock trading, junk bonds, and corporate takeovers. He and Stone spent three weeks visiting brokerage houses and interviewing investors.

Screenplay

Weiser wrote the first draft, initially called Greed, with Stone writing another draft. Originally, Charlie Sheen's character was a young Jewish broker named Freddie Goldsmith, but Stone changed the name to Bud Fox to avoid the stereotype that Wall Street was controlled by Jews. Reportedly, Gordon Gekko is said to be a composite of several people: Wall Street broker Owen Morrisey, an old friend of Stone's who was involved in a $20 million insider trading scandal in 1985, Dennis Levine, Ivan Boesky, corporate raider Carl Icahn, investor and art collector Asher Edelman, agent Michael Ovitz, and Stone himself. For example, Stone told Newsweek that the "Greed, for lack of a better word, is good" line was based on a speech by Boesky where he said, "Greed is right".

According to Edward R. Pressman, producer of the film, "Originally, there was no one individual who Gekko was modeled on", he adds, "But Gekko was partly Milken". Also, Pressman has said that the character of Sir Larry Wildman was modeled on James Goldsmith, the Anglo-French billionaire and corporate-raider.

According to Weiser, Gekko's style of speaking was inspired by Stone. "When I was writing some of the dialogue I would listen to Oliver on the phone and sometimes he talks very rapid-fire, the way Gordon Gekko does". Stone cites as influences on his approach to business, the novels of Upton Sinclair, Sinclair Lewis and Victor Hugo, and the films of Paddy Chayefsky because they were able to make a complicated subject clear to the audience. Stone set the film in 1985 because insider trading scandals culminated in 1985 and 1986. This led to anachronisms in the script, including a reference to the Space Shuttle Challenger disaster, which had not yet occurred.

Casting

Stone met with Tom Cruise about playing Bud Fox, but the director had already committed to Charlie Sheen for the role. Matthew Modine turned down the role of Bud Fox. Stone liked the "stiffness" of Sheen's acting style and used it to convey Bud's naivete. Michael Douglas had just come off heroic roles like the one in Romancing the Stone and was looking for something dark and edgy. The studio wanted Warren Beatty to play Gekko, but he was not interested. Stone initially wanted Richard Gere but the actor passed, so Stone went with Douglas despite having been advised by others in Hollywood not to cast him. Stone remembers, "I was warned by everyone in Hollywood that Michael couldn't act, that he was a producer more than an actor and would spend all his time in his trailer on the phone". Nevertheless, Stone found out that "when he's acting he gives it his all". Stone said that he saw "that villain quality" in Douglas and always thought he was a smart businessman. Douglas remembers that when he first read the screenplay, "I thought it was a great part. It was a long script, and there were some incredibly long and intense monologues to open with. I'd never seen a screenplay where there were two or three pages of single-spaced type for a monologue. I thought, whoa! I mean, it was unbelievable". For research, he read profiles of corporate raiders T. Boone Pickens and Carl Icahn.

Stone gave Charlie Sheen the choice of Jack Lemmon or Martin Sheen to play his father in the film, and Sheen picked his father. The elder Sheen related to the moral sense of his character. Stone cast Daryl Hannah as Bud Fox's materialistic girlfriend Darien Taylor, but felt that she was never happy with the role and did not know why she accepted it. He tried to explain the character to Hannah repeatedly, and thought that the materialism of the character conflicted with Hannah's idealism. Stone said later that he was aware early on that she was not right for the part. "Daryl Hannah was not happy doing the role and I should have let her go. All my crew wanted to get rid of her after one day of shooting. My pride was such that I kept saying I was going to make it work". Stone also had difficulties with Sean Young, who made her opinions known that Hannah should be fired and that she should play that role instead. Young would show up to the set late and unprepared. She did not get along with Charlie Sheen, which caused further friction on the set. In retrospect, Stone felt that Young was right and he should have swapped Hannah's role with hers. Stone admits that he had "some problems" with Young, but was not willing to confirm or deny rumors that she walked off with all of her costumes when she completed filming.

Principal photography

Stone wanted to shoot the movie in New York City and that required a budget of at least $15 million, a moderate shooting budget by 1980s standards. The studio that backed Platoon felt that it was too risky a project to bankroll and passed. Stone and producer Edward R. Pressman took it to 20th Century Fox and filming began in April 1987 and ended on July 4 of the same year. Parts of the film were shot in Snowbird, Utah. According to Stone, he was "making a movie about sharks, about feeding frenzies. Bob [director of photography Robert Richardson] and I wanted the camera to become a predator. There is no let-up until you get to the fixed world of Charlie's father, where the stationary camera gives you a sense of immutable values". The director saw [Wall Street] as a battle zone and "filmed it as such" including shooting conversations like physical confrontations, and in ensemble shots had the camera circle the actors "in a way that makes you feel you're in a pool with sharks".

Jeffrey "Mad Dog" Beck, a star investment banker at the time with Drexel Burnham Lambert, was one of the film's technical advisers and has a cameo appearance in the film as the man speaking at the meeting discussing the breakup of Bluestar. Kenneth Lipper, investment banker and former deputy mayor of New York for Finance and Economic Development, was also hired as chief technical adviser. At first, he turned Stone down because he felt that the film would be a one-sided attack. Stone asked him to reconsider and Lipper read the script responding with a 13-page critique. For example, he argued that it was unrealistic to have all the characters be "morally bankrupt". Lipper advised Stone on the kind of computers used on the trading floor, the accurate proportion of women at a business meeting, and the kinds of extras that should be seated at the annual shareholders' meeting where Gekko delivers his "Greed is good" speech. Stone agreed with Lipper's criticism and asked him to rewrite the script. Lipper brought a balance to the film and this helped Stone get permission to shoot on the floor of the New York Stock Exchange during trading hours. Lipper and Stone disagreed over the character of Lou Mannheim. Stone shot a scene showing the honest Mannheim giving in to insider trading, but Lipper argued that audiences might conclude that everyone on Wall Street is corrupt and insisted that the film needed an unimpeachable character. Stone cut the scene.

Stone also consulted with Carl Icahn, Asher Edelman, convicted inside trader David Brown, several government prosecutors, and Wall Street investment bankers. In addition, traders were brought in to coach actors on the set on how to hold phones, write out tickets, and talk to clients. Stone asked Lipper to design a six-week course that would expose Charlie Sheen to a cross section of young Wall Street business people. The actor said, "I was impressed and very, very respectful of the fact that they could maintain that kind of aggressiveness and drive".

Douglas worked with a speech instructor on breath control in order to become better acclimatized to the fast rhythm of the film's dialogue. Early on in the shoot, Stone tested Douglas by enhancing his "repressed anger", according to the actor. At one point, Stone came into Douglas' trailer and asked him if he was doing drugs because "you look like you haven't acted before". This shocked Douglas, who did more research and worked on his lines again and again, pushing himself harder than he had before. All of this hard work culminated with the "Greed is good" speech. Stone planned to use a Fortune magazine cover in exchange for promotional advertisements, but Forbes magazine made a similar offer. Stone stuck with Fortune, which upset Forbes publisher Malcolm Forbes, who turned down a later request to use his private yacht. Stone switched from 12- to 14-hour shooting days in the last few weeks in order to finish principal photography before an impending Directors Guild of America strike and finished five days ahead of schedule. Sheen remembered that Stone was always looking at the script and at his watch.

Soundtrack

The original score composed by Stewart Copeland was released on LP record in 1988, followed by a CD version in 1993.

No.	Title	Length
1.	"Kent: Unpredictable (from Talk Radio)"	2:18
2.	"Dietz: Just Come Right in Here, Denise (from Talk Radio)"	3:07
3.	"TLKa: We Know Where You Live (from Talk Radio)"	3:52
4.	"Tick: We Feel Too Much (from Talk Radio)"	2:48
5.	"Trend: He Has Heart (from Talk Radio)"	3:12
6.	"Bud's Scam"	2:51
7.	"Are You with Me?"	1:15
8.	"Trading Begins"	2:25
9.	"The Tall Weeds"	3:04
10.	"Break-Up (Darian)"	2:03
11.	"Anacott Steal"	2:54
12.	"End Title Theme"	1:09

Themes

The film has come to be seen as the archetypal portrayal of 1980s excess, with Gekko advocating "greed, for lack of a better word, is good". Wall Street defines itself through a number of morality conflicts putting wealth and power against simplicity and honesty, and an attack on the value system of extreme competitiveness where ethics and the law are simply irrelevant parts of the show.

Carl (Martin Sheen's character) represents the working class in the film: he is the union leader for the maintenance workers at Bluestar. He constantly attacks big business, money, mandatory drug screening, greedy manufacturers, and anything that he sees as a threat to his union. The conflict between Gekko's relentless pursuit of wealth and Carl Fox's leftward leanings form the basis of the film's subtext. This subtext could be described as the concept of the two fathers battling for control over the morals of the son, a concept Stone had also used in Platoon. In Wall Street the hard-working Carl Fox and the cutthroat businessman Gordon Gekko represent the fathers. The producers of the film use Carl as their voice in the film, a voice of reason amid the creative destruction brought about by Gekko's unrestrained personal philosophy.

A significant scene in the film is a speech by Gekko to a shareholders' meeting of Teldar Paper, a company he is planning to take over. Stone uses this scene to give Gekko, and by extension, the Wall Street raiders he personifies, the chance to justify their actions, portraying himself as a liberator of the company value from the ineffective and excessively compensated executives. The inspiration for the "Greed is good" speech seems to have come from two sources. The first part, where Gekko complains that the company's management owns less than three percent of its stock, and that it has too many vice presidents, is taken from similar speeches and comments made by Carl Icahn about companies he was trying to take over. The defense of greed was adapted from a remark by Boesky, who himself was later convicted of insider trading charges. Delivering the 1986 commencement address to the School of Business Administration at the University of California, Berkeley, Boesky said, "Greed is all right, by the way. I want you to know that. I think greed is healthy. You can be greedy and still feel good about yourself."

Wall Street is not a wholesale criticism of capitalism, but of the cynical, quick-buck culture of the 1980s. The "good" characters in the film are themselves capitalists, but in a more steady, hardworking sense. In one scene, Gekko scoffs at Bud Fox's question as to the moral value of hard work, quoting the example of his (Gekko's) father, who worked hard his entire life only to die in debt. Sir Laurence Wildman genuinely attempts to save Anacott Steel and ultimately saves Blue Star instead, although Gekko taunts him that he laid off thousands of workers in previous companies which he took over. Lou Mannheim, the film's archetypal mentor, says early in the film, that "good things sometimes take time", referring to IBM and Hilton—in contrast, Gekko's "Greed is Good" credo and his frequent references to Sun Tzu's The Art of War typify the short-term view prevalent in the 1980s.

Reception

Critical response

Wall Street was released on December 11, 1987, in 730 theaters and grossed $4.1 million on its opening weekend. It went on to make $43.8 million in the United States and Canada, earning theatrical rentals of $20 million. Internationally, it earned rentals of $21 million for a worldwide total of $41 million.

The film has a 79% rating on Rotten Tomatoes based on 61 reviews, with an average rating of 6.90/10. The consensus reads, "With Wall Street, Oliver Stone delivers a blunt but effective—and thoroughly well-acted—jeremiad against its era's veneration of greed as a means to its own end." On Metacritic it has a score of 56 out of 100 from 16 reviews, indicating "mixed or average reviews". In his review for The New York Times, Vincent Canby, while quite critical of the film overall, praised Douglas' work as "the funniest, canniest performance of his career". Roger Ebert gave the film three-and-a-half stars out of four and praised it for allowing "all the financial wheeling and dealing to seem complicated and convincing, and yet always have it make sense. The movie can be followed by anybody, because the details of stock manipulation are all filtered through transparent layers of greed. Most of the time we know what's going on. All of the time, we know why". Time magazine's Richard Corliss wrote, "This time he works up a salty sweat to end up nowhere, like a triathlete on a treadmill. But as long as he keeps his players in venal, perpetual motion, it is great scary fun to watch him work out". In his review for The Globe and Mail, Jay Scott praised the performances of the two leads: "But Douglas's portrayal of Gordon Gekko is an oily triumph and as the kid Gekko thinks he has found in Fox ('Poor, smart and hungry; no feelings'), Charlie Sheen evolves persuasively from gung-ho capitalist child to wily adolescent corporate raider to morally appalled adult". Rita Kempley wrote in The Washington Post that the film "is at its weakest when it preaches visually or verbally. Stone doesn't trust the time-honored story line, supplementing the obvious moral with plenty of soapboxery". F.F. Mormani, writing for The Objective Standard, calls the film "mixed", explaining that it "accurately portray[s] some aspects of the financial profession and unjustly demonizing it, too. But," she concludes, "it is sufficiently thought provoking and philosophical to recommend watching or rewatching."

Michael Douglas won the Academy Award for Best Actor and thanked Oliver Stone for "casting me in a part that almost nobody thought I could play". However, Daryl Hannah's performance was not as well received and earned her a Golden Raspberry Award for Worst Supporting Actress, thus making this the only film to date to win both an Oscar and a Razzie. The "quintessential financial high-roller's attire" of Michael Douglas in the movie, designed by Alan Flusser, was emulated in the 1980s by yuppies.

Interest in the film was renewed in 1990 when the cover of Newsweek magazine asked, "Is Greed Dead?" after 1980s icons like Michael Milken and Ivan Boesky ran afoul of insider trading laws. Over the years, the film's screenwriter Stanley Weiser has been approached by numerous people who told him, "The movie changed my life. Once I saw it I knew that I wanted to get into such and such business. I wanted to be like Gordon Gekko". In addition, both Charlie Sheen and Michael Douglas still have people come up to them and say that they became stockbrokers because of their respective characters in the film. In 2002, Stone was asked how the financial market depicted in Wall Street has changed and he replied, "The problems that existed in the 1980s market grew and grew into a much larger phenomenon. Enron is a fiction, in a sense, in the same way that Gordon Gekko's buying and selling was a fiction ... Kenny Lay—he's the new Gordon Gekko". Entertainment Weekly magazine's Owen Gleiberman commented in 2009 that the film "reveals something now which it couldn't back then: that the Gordon Gekkos of the world weren't just getting rich—they were creating an alternate reality that was going to crash down on all of us."

A 20th-anniversary edition was released on September 18, 2007. New extras include an on-camera introduction by Stone, extensive deleted scenes, "Greed is Good" featurettes, and interviews with Michael Douglas and Martin Sheen.

In reviewing the film's sequel 23 years later, Variety noted that though the original film was "intended as a cautionary tale on the pitfalls of unchecked ambition and greed, Stone's 1987 original instead had the effect of turning Douglas' hugely charismatic (and Oscar-winning) villain into a household name and boardroom icon – an inspiration to the very power players and Wall Street wannabes for whom he set such a terrible example."

Accolades

Award	Category	Nominee(s)	Result
Academy Awards	Best Actor	Michael Douglas	Won
David di Donatello Awards	Best Foreign Actor	Michael Douglas	Won
Golden Camera Awards	Best International Actor	Michael Douglas	Won
Golden Globe Awards	Best Actor in a Motion Picture – Drama	Michael Douglas	Won
Golden Raspberry Awards	Worst Supporting Actress	Daryl Hannah	Won
Japan Academy Film Prize	Outstanding Foreign Language Film		Nominated
Jupiter Awards	Best International Actor	Michael Douglas	Won
Kansas City Film Critics Circle Awards	Best Actor		Won
Nastro d'Argento	Best Foreign Actor		Won
National Board of Review Awards	Top Ten Films		9th Place
National Board of Review Awards	Best Actor	Michael Douglas	Won
New York Film Critics Circle Awards	Best Actor		Nominated
Sant Jordi Awards	Best Foreign Actor		Nominated
Satellite Awards	Best DVD Extras		Nominated

The film is recognized by American Film Institute in these lists:

2003: AFI's 100 Years...100 Heroes & Villains:
- Gordon Gekko – #24 Villain
2005: AFI's 100 Years...100 Movie Quotes:
- Gordon Gekko: "Greed, for lack of a better word, is good." – #57

Sequel

In 2007, The New York Times reported that a sequel to Wall Street, to be subtitled Money Never Sleeps, was already in pre-production. Michael Douglas would reprise his role as Gordon Gekko. The film would also focus on Gekko, recently released from prison and re-entering a much more chaotic financial world than the one he once oversaw. Charlie Sheen would also reprise his character of Bud Fox, but only in a cameo role. Daryl Hannah would not be involved in the sequel.

But by April 2009, 20th Century Fox confirmed that the sequel was already in development and announced that Oliver Stone would direct. In addition, Shia LaBeouf was cast with Josh Brolin. Javier Bardem had been considered, but Bardem dropped out due to scheduling conflicts. The film was finally released on September 24, 2010 and received mixed reviews.

Invisible hand

From Wikipedia, the free encyclopedia

The invisible hand is a metaphor inspired by the Scottish economist and moral philosopher Adam Smith that describes the incentives which free markets sometimes create for self-interested people to accidentally act in the public interest, even when this is not something they intended. Smith originally mentioned the term in two specific, but different, economic examples. It is used once in his Theory of Moral Sentiments when discussing a hypothetical example of wealth being concentrated in the hands of one person, who wastes his wealth, but thereby employs others. More famously, it is also used once in his Wealth of Nations, when arguing that governments do not normally need to force international traders to invest in their own home country. In The Theory of Moral Sentiments (1759) and in The Wealth of Nations (1776) Adam Smith speaks of an invisible hand, never of the invisible hand.

Going far beyond the original intent of Smith's metaphor, twentieth century economists, especially Paul Samuelson, popularized the use of the term to refer to a more general and abstract conclusion that truly free markets are self-regulating systems that always tend to create economically optimal outcomes, which in turn can't be improved upon by government intervention. The idea of trade and market exchange perfectly channelling self-interest toward socially desirable ends is a central justification for newer versions of the laissez-faire economic philosophy which lie behind neoclassical economics.

Adam Smith was a proponent of less government intervention in his own time, and of the possible benefits of a future with more free trade both domestically and internationally. However, in a context of discussing science more generally, Smith himself once described "invisible hand" explanations as a style suitable for unscientific discussion, and he never used it to refer to any general principle of economics. His argumentation against government interventions into markets were based on specific cases, and were not absolute. Putting the invisible hand itself aside, while Smith's various ways of presenting the case against government management of the economy were very influential, they were also not new. Smith himself cites earlier enlightenment thinkers such as Bernard Mandeville. Smith's invisible hand argumentation may have also been influenced by Richard Cantillon and his model of the isolated estate.

Because the modern use of this term has become a shorthand way of referring to a key neoclassical assumption, disagreements between economic ideologies are now sometimes viewed as disagreement about how well the "invisible hand" is working. For example, it is argued that tendencies that were nascent during Smith's lifetime, such as large-scale industry, finance, and advertising, have reduced the effectiveness of the supposed invisible hand.

History of the terms and concepts

The term "invisible hand" has classical roots, and it was relatively widely used in 18th-century English. Adam Smith's own usage of the term did not attract much attention until many generations after his death. In his early unpublished essay on The History of Astronomy (written before 1758) he specifically described this type of explanation as a common and unscientific way of thinking. Smith wrote that superstitious people, or people with no time to think philosophically about complex chains of cause and effect, tend to explain irregular, unexpected natural phenomena such as "thunder and lightning, storms and sunshine", as acts of favour or anger performed by "gods, daemons, witches, genii, fairies". For this reason the philosophical or scientific study of nature can only begin when there is social order and security, so that people are not living in fear, and can be attentive. Because of this background, a wide range of interpretations have been given to the fact that Smith himself used the metaphor twice when discussing economic topics. On one extreme it has been argued that Smith was literally suggesting that divine intervention is at play in the economy, and at the other extreme it has been suggested that Smith's use of this metaphor shows that he was being sarcastic.

The modern conception of a free market causing the best possible economic result, which is now commonly associated with the term "invisible hand", also developed further, going beyond Smith's conception. It has been influenced by arguments for free markets found not only in Smith's works, but also by earlier writers such as especially Bernard Mandeville, and later more mathematical approaches by economists such as Pareto and Marshall.

Adam Smith's use of the term in economics

The Wealth of Nations

The invisible hand is explicitly mentioned only once in the Wealth of Nations, in a specialized chapter not about free trade but about capital investment, which discusses the concern that international merchants might choose to invest in foreign countries. Smith argues that a self-interested investor will have a natural tendency to employ his capital as near home as he can, as long as the home market does not give much lower returns than other alternatives. This in turn means...

[...] every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it. [emphasis added]

As noted by William D. Grampp, this example involves "a particular condition that may or may not be present in a transaction on a competitive market". Essentially, the invisible hand refers to the unintended positive consequences self-interest has on the promotion of public welfare.Nevertheless, Smith draws a practical implication in this case is that legislators should not intervene too hastily in many (if not all) cases:

What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

According to Grampp:

The invisible hand, then, is not an autonomous force. It is self interest operating in particular circumstances. The owner of capital acts in the public interest if acting in his private interest is profitable and happens to provide a public benefit. He does not act in the public interest if acting in his own interest would be unprofitable. There are circumstances of the opposite kind, when what is in his interest is not in the public interest. They are not rare, and although they vary in importance, none is trivial.

The Theory of Moral Sentiments

Smith's first use of the invisible hand metaphor occurs in The Theory of Moral Sentiments (1759) in Part IV, Chapter 1, where he describes a selfish landlord being led by an invisible hand to distribute his harvest to those who work for him. This passage concerns the distribution of wealth: the poor receive the "necessities of life" after the rich have gratified "their own vain and insatiable desires". It has been noted that in this passage Smith seems to equate the invisible hand to "Providence", implying a divine plan.

The proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest ... [Yet] the capacity of his stomach bears no proportion to the immensity of his desires... the rest he will be obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets which are employed in the economy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice...The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own convenience, though the sole end which they propose from the labors of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements...They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition.

Although this passage concerns an economic topic in a broad sense, it does not concern "the invisible hand" of the free market as understood by twentieth century economists, but is instead about income distribution. There is no repeat of this argumentation in Smith's comprehensive work on economics in his later Wealth of Nations, and income distribution is not a central concern of modern neoclassical market theory. As Blaug noted in the New Palgrave Dictionary of Economics this passage "dispels the belief that Smith meant one thing and one thing only by the metaphor of 'the invisible hand'." Grampp has claimed that if there is any connection between this passage and Smith's other one, "it has not been demonstrated with evidence from what Smith actually wrote".

The reinterpretation by modern economists

In contrast to Smith's own usage, the "invisible hand" today is often seen as being specifically about the benefits of voluntary transactions in a free market, and is treated as a generalizable rule. Paul Samuelson's comments in his Economics textbook in 1948 made the term popular and gave it a new meaning. The phrase was not originally commonly referred to among economists before the twentieth century. Alfred Marshall never used it in his Principles of Economics textbook and neither does William Stanley Jevons in his Theory of Political Economy. Samuelson's remark was as follows:

Even Adam Smith, the canny Scot whose monumental book, "The Wealth of Nations" (1776), represents the beginning of modern economics or political economy-even he was so thrilled by the recognition of an order in the economic system that he proclaimed the mystical principle of the "invisible hand": that each individual in pursuing his own selfish good was led, as if by an invisible hand, to achieve the best good of all, so that any interference with free competition by government was almost certain to be injurious. This unguarded conclusion has done almost as much harm as good in the past century and a half, especially since too often it is all that some of our leading citizens remember, 30 years later, of their college course in economics.

In this interpretation, the theory is that the Invisible Hand states that if each consumer is allowed to choose freely what to buy and each producer is allowed to choose freely what to sell and how to produce it, the market will settle on a product distribution and prices that are beneficial to all the individual members of a community, and hence to the community as a whole. The reason for this is that self-interest drives actors to beneficial behavior in a case of serendipity. Efficient methods of production are adopted to maximize profits. Low prices are charged to maximize revenue through gain in market share by undercutting competitors. Investors invest in those industries most urgently needed to maximize returns, and withdraw capital from those less efficient in creating value. All these effects take place dynamically and automatically.

Since Smith's time, this concept has been further incorporated into economic theory. Léon Walras developed a four-equation general equilibrium model that concludes that individual self-interest operating in a competitive market place produces the unique conditions under which a society's total utility is maximized. Vilfredo Pareto used an Edgeworth box contact line to illustrate a similar social optimality. Ludwig von Mises, in Human Action uses the expression "the invisible hand of Providence", referring to Marx's period, to mean evolutionary meliorism. He did not mean this as a criticism, since he held that secular reasoning leads to similar conclusions. Milton Friedman, a Nobel Memorial Prize winner in economics, called Smith's Invisible Hand "the possibility of cooperation without coercion." Kaushik Basu has called the First Welfare Theorem the Invisible Hand Theorem.

Some economists question the integrity of how the term "invisible hand" is currently used. Gavin Kennedy, Professor Emeritus at Heriot-Watt University in Edinburgh, Scotland, argues that its current use in modern economic thinking as a symbol of free market capitalism is not reconcilable with the rather modest and indeterminate manner in which it was employed by Smith. In response to Kennedy, Daniel Klein argues that reconciliation is legitimate. Moreover, even if Smith did not intend the term "invisible hand" to be used in the current manner, its serviceability as such should not be rendered ineffective. In conclusion of their exchange, Kennedy insists that Smith's intentions are of utmost importance to the current debate, which is one of Smith's association with the term "invisible hand". If the term is to be used as a symbol of liberty and economic coordination as it has been in the modern era, Kennedy argues that it should exist as a construct completely separate from Adam Smith since there is little evidence that Smith imputed any significance onto the term, much less the meanings given it at present.

The former Drummond Professor of Political Economy at Oxford, D. H. MacGregor, argued that:

The one case in which he referred to the 'invisible hand' was that in which private persons preferred the home trade to the foreign trade, and he held that such preference was in the national interest, since it replaced two domestic capitals while the foreign trade replaced only one. The argument of the two capitals was a bad one, since it is the amount of capital that matters, not its subdivision; but the invisible sanction was given to a Protectionist idea, not for defence but for employment. It is not surprising that Smith was often quoted in Parliament in support of Protection. His background, like ours today, was private enterprise; but any dogma of non-intervention by government has to make heavy weather in The Wealth of Nations.

Harvard economist Stephen Marglin argues that while the "invisible hand" is the "most enduring phrase in Smith's entire work", it is "also the most misunderstood."

Economists have taken this passage to be the first step in the cumulative effort of mainstream economics to prove that a competitive economy provides the largest possible economic pie (the so-called first welfare theorem, which demonstrates the Pareto optimality of a competitive regime). But Smith, it is evident from the context, was making a much narrower argument, namely, that the interests of businessmen in the security of their capital would lead them to invest in the domestic economy even at the sacrifice of somewhat higher returns that might be obtainable from foreign investment. . . .
David Ricardo . . . echoed Smith . . . [but] Smith's argument is at best incomplete, for it leaves out the role of foreigners' investment in the domestic economy. It would have to be shown that the gain to the British capital stock from the preference of British investors for Britain is greater than the loss to Britain from the preference of Dutch investors for the Netherlands and French investors for France."

According to Emma Rothschild, Smith was actually being ironic in his use of the term. Warren Samuels described it as "a means of relating modern high theory to Adam Smith and, as such, an interesting example in the development of language."

Proponents of liberal economics, for example Deepak Lal, regularly claim that the invisible hand allows for market efficiency through its mechanism of acting as an indicator of what the market considers important, or valuable.

Understood as a metaphor

Smith uses the metaphor in the context of an argument against protectionism and government regulation of markets, but it is based on very broad principles developed by Bernard Mandeville, Bishop Butler, Lord Shaftesbury, and Francis Hutcheson. In general, the term "invisible hand" can apply to any individual action that has unplanned, unintended consequences, particularly those that arise from actions not orchestrated by a central command, and that have an observable, patterned effect on the community.

Bernard Mandeville argued that private vices are actually public benefits. In The Fable of the Bees (1714), he laments that the "bees of social virtue are buzzing in Man's bonnet": that civilized man has stigmatized his private appetites and the result is the retardation of the common good.

Bishop Butler argued that pursuing the public good was the best way of advancing one's own good since the two were necessarily identical.

Lord Shaftesbury turned the convergence of public and private good around, claiming that acting in accordance with one's self-interest produces socially beneficial results. An underlying unifying force that Shaftesbury called the "Will of Nature" maintains equilibrium, congruency, and harmony. This force, to operate freely, requires the individual pursuit of rational self-interest, and the preservation and advancement of the self.

Francis Hutcheson also accepted this convergence between public and private interest, but he attributed the mechanism, not to rational self-interest, but to personal intuition, which he called a "moral sense". Smith developed his own version of this general principle in which six psychological motives combine in each individual to produce the common good. In The Theory of Moral Sentiments, vol. II, page 316, he says, "By acting according to the dictates of our moral faculties, we necessarily pursue the most effective means for promoting the happiness of mankind."

Contrary to common misconceptions, Smith did not assert that all self-interested labour necessarily benefits society, or that all public goods are produced through self-interested labour. His proposal is merely that in a free market, people usually tend to produce goods desired by their neighbours. The tragedy of the commons is an example where self-interest tends to bring an unwanted result.

The invisible hand is traditionally understood as a concept in economics, but Robert Nozick argues in Anarchy, State and Utopia that substantively the same concept exists in a number of other areas of academic discourse under different names, notably Darwinian natural selection. In turn, Daniel Dennett argues in Darwin's Dangerous Idea that this represents a "universal acid" that may be applied to a number of seemingly disparate areas of philosophical inquiry (consciousness and free will in particular), a hypothesis known as Universal Darwinism. Positing an economy guided by this principle as ideal may amount to Social Darwinism, which is also associated with champions of laissez-faire capitalism.

Tawney's interpretation

Christian socialist R. H. Tawney saw Smith as putting a name on an older idea:

If preachers have not yet overtly identified themselves with the view of the natural man, expressed by an eighteenth-century writer in the words, trade is one thing and religion is another, they imply a not very different conclusion by their silence as to the possibility of collisions between them. The characteristic doctrine was one, in fact, which left little room for religious teaching as to economic morality, because it anticipated the theory, later epitomized by Adam Smith in his famous reference to the invisible hand, which saw in economic self-interest the operation of a providential plan... The existing order, except insofar as the short-sighted enactments of Governments interfered with it, was the natural order, and the order established by nature was the order established by God. Most educated men, in the middle of the [eighteenth] century, would have found their philosophy expressed in the lines of Pope:
Thus God and Nature formed the general frame,
And bade self-love and social be the same.
Naturally, again, such an attitude precluded a critical examination of institutions, and left as the sphere of Christian charity only those parts of life that could be reserved for philanthropy, precisely because they fell outside that larger area of normal human relations, in which the promptings of self-interest provided an all-sufficient motive and rule of conduct. (Religion and the Rise of Capitalism, pp. 191–192.)

Criticisms

Joseph E. Stiglitz

The Nobel Prize-winning economist Joseph E. Stiglitz, says: "the reason that the invisible hand often seems invisible is that it is often not there." Stiglitz explains his position:

Adam Smith, the father of modern economics, is often cited as arguing for the "invisible hand" and free markets: firms, in the pursuit of profits, are led, as if by an invisible hand, to do what is best for the world. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best. As I put it in my new book, Making Globalization Work, the reason that the invisible hand often seems invisible is that it is often not there. Whenever there are "externalities"—where the actions of an individual have impacts on others for which they do not pay, or for which they are not compensated—markets will not work well. Some of the important instances have long understood environmental externalities. Markets, by themselves, produce too much pollution. Markets, by themselves, also produce too little basic research. (The government was responsible for financing most of the important scientific breakthroughs, including the internet and the first telegraph line, and many bio-tech advances.) But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always. Government plays an important role in banking and securities regulation, and a host of other areas: some regulation is required to make markets work. Government is needed, almost all would agree, at a minimum to enforce contracts and property rights. The real debate today is about finding the right balance between the market and government (and the third "sector" – governmental non-profit organizations). Both are needed. They can each complement each other. This balance differs from time to time and place to place.

The preceding claim is based on Stiglitz's 1986 paper, "Externalities in Economies with Imperfect Information and Incomplete Markets", which describes a general methodology to deal with externalities and for calculating optimal corrective taxes in a general equilibrium context. In it he considers a model with households, firms and a government.

Households maximize a utility function $u^{h} (x^{h}, z^{h})$ , where $x^{h}$ is the consumption vector and $z^{h}$ are other variables affecting the utility of the household (e.g. pollution). The budget constraint is given by $x_{1}^{h} + q \cdot {\bar{x}}^{h} \leq I^{h} + \sum a^{h f} \cdot π^{f}$ , where q is a vector of prices, a^hf the fractional holding of household h in firm f, π^f the profit of firm f, I^h a lump sum government transfer to the household. The consumption vector can be split as $x^{h} = (x_{1}^{h}, {\bar{x}}^{h})$ .

Firms maximize a profit $π^{f} = y_{1}^{f} + p \cdot {\bar{y}}_{1}$ , where y^f is a production vector and p is vector of producer prices, subject to $y_{1}^{f} - G^{f} ({\bar{y}}^{f}, z^{f}) \leq 0$ , G_f a production function and z^f are other variables affecting the firm. The production vector can be split as $y^{f} = (y_{1}^{f}, {\bar{y}}^{f})$ .

The government receives a net income $R = t \cdot \bar{x} - \sum I^{h}$ , where $t = (q - p)$ is a tax on the goods sold to households.

It can be shown that in general the resulting equilibrium is not efficient.

Proof

Noam Chomsky

Noam Chomsky suggests that Smith (and more specifically David Ricardo) sometimes used the phrase to refer to a "home bias" for investing domestically in opposition to offshore outsourcing production and neoliberalism.

Rather interestingly, these issues were foreseen by the great founders of modern economics, Adam Smith for example. He recognized and discussed what would happen to Britain if the masters adhered to the rules of sound economics – what's now called neoliberalism. He warned that if British manufacturers, merchants, and investors turned abroad, they might profit but England would suffer. However, he felt that this wouldn't happen because the masters would be guided by a home bias. So as if by an invisible hand England would be spared the ravages of economic rationality. That passage is pretty hard to miss. It's the only occurrence of the famous phrase "invisible hand" in Wealth of Nations, namely in a critique of what we call neoliberalism.

Stephen LeRoy

Stephen LeRoy, professor emeritus at the University of California, Santa Barbara, and a visiting scholar at the Federal Reserve Bank of San Francisco, offered a critique of the Invisible Hand, writing that "The single most important proposition in economic theory, first stated by Adam Smith, is that competitive markets do a good job allocating resources. (...) The financial crisis has spurred a debate about the proper balance between markets and government and prompted some scholars to question whether the conditions assumed by Smith...are accurate for modern economies.

John D. Bishop

John D. Bishop, a professor who worked at Trent University, Peterborough, indicates that the invisible hand might be applied differently to merchants and manufacturers from how it is applied with society. He wrote an article in 1995 titled "Adam Smith's Invisible Hand Argument", in which he suggests that Smith might be contradicting himself with the "Invisible Hand". He offers various critiques of the "Invisible Hand", and he writes that "the interest of business people are in fundamental conflict with the interest of society as a whole, and that business people pursue their personal goal at the expense of the public good". Thus, Bishop indicates that the "business people" are in conflict with society over the same interests and that Adam Smith might be contradicting himself. According to Bishop, he also gives the impression that in Smith's book 'The Wealth of Nations,' there's a close saying that "the interest of merchants and manufacturers were fundamentally opposed of society in general, and they had an inherent tendency to deceive and oppress society while pursuing their own interests." Bishop also states that the "invisible hand argument applies only to investing capital in one's own country for a maximum profit." In other words, he suggests that the invisible hand applies to only the merchants and manufacturers and that they're not the invisible force that moves the economy. He contends the argument "does not apply to the pursuit of self-interest (...) in any area outside of economic activities".

Thomas Piketty

French economist Thomas Piketty notes that although the Invisible Hand does exist and thus that economic imbalances correct themselves over time, those economic imbalances may lead to an extended unoptimal utility, which could be solved thanks to non-commercial processes. He takes for instance the cases of real estate of which imbalances may last decades, and of the Great Famine of Ireland, which could have been avoided by shipments of food from Great Britain to areas in crisis without waiting for new bread producers to come.