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Warped interpretation of Adam Smith’s phrase, the “invisible hand,” undermines economic justice

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The hazards to the public interest inherent in the institution of the corporation apply equally well to the institution of government. For example, when discussing how the management of large corporations were managing "other people 's money, " and thus likely to waste and squander it, such a moral hazard occurs in government. Statements he made against war-mongering corporations that operated the forts and garrisons in his time apply equally well to oppressive, war-mongering governments.

Smith does not address a crucial difference between the corporation and a democratic government. Governments, through citizen action, can be brought under a degree of democratic control. In principle, citizens can remove corrupt or ineffective politicians. The public has no direct input as to how powerful private individuals or businesses deploy their capital. Consumers may choose what to buy from whom, but multinational corporations receive income from the sales of goods, services, interest income and even currency speculation. Consumers have little ability to check the political and economic power of multinational corporations because of the corporations ' enormous diversity of income sources. As Smith described, those who profit from such corporations also have a disproportionate influence on the legal system. Only the legal institutions of governments can challenge excessive private power. If one desires a great weakening of government, one must also advocate the abolishment, at a minimum, of corporations that enjoy unlimited life and power.

The success of "invisible hand " propaganda seems to have permanently distorted the thinking of many, and has made many people associate capitalism with the Enlightenment, the philosophic movement that provide the basis for values of reason, freedom, and human rights. Disapproving of the outcomes of unregulated capitalism, many opponents of unchallenged corporate power now seem to hate a core idea of the Enlightenment: the concept of an objective reality, which can be discovered by testing whether ideas are true or false. As physicist Alan Sokal has argued, a profound state of confusion exists among many professed supporters of human rights, who instead embrace suicidal and self-destructive post-modernist philosophies, in which objectively provable facts are regarded as mere social constructions.

If justice, human rights, and reason are to prevail, it must never be forgotten that challenging power depends on facts and truth, since these values are the first concepts that those in power try to destroy with propaganda and the manipulation of public opinion.

In his argument for unregulated global capitalism, referred to at the beginning of this article, Bernstein claims " ...Adam Smith, as fully of the Enlightenment in his thinking as in his lifespan, advocated a system of "natural liberty ....On grounds of both economic utility and the rights of man, Smith endorsed economic liberty the rights of the individuals to compete freely and peacefully, free of coercive interference from the government .... "

We can now begin to formulate a Smith-based rebuttal to this oversimplified and inaccurate portrayal of Adam Smith. Regarding economic utility, Smith showed that the capitalist class and the corporation also undermine economic efficiency and utility because of their propensity to form "combinations " and limit or eliminate their competition. Government could undermine efficiency and utility by protectionist policies, which also reduce competition. Yet sometimes the state (Smith 's "arbitrary " government) is necessary to protect "the rights of man, " and sometimes the capitalists, the "third order of men " would "deceive and even ...oppress the public. " He described how corporations were likely to foment wars instead of preferring free and peaceful competition. The capitalist and the corporation are just as susceptible to the corruption of power as is a despotic government. Smith implied that "economic liberty " should not include the right for capitalists, working through government, to issue unlimited corporate charters, and that limiting the scope and lifetime of the corporation could restore the free and peaceful competition that Smith thought would keep capitalist self-interest in check.


The American public would surely be receptive to such arguments. Confidently argued and disseminated, such discussions and analysis could appear in op-eds and web sites and build intellectual support for more fair and equitable economic policies, whatever such policies might later look like in detail.

A fully referenced version of this article may be found at:
www.globalgildedage.com.

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The author studies history, economics, and politics.

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Warped interpretation of Adam Smith’s phrase, the “invisible hand,” undermines economic justice

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