The concept of "the invisible hand," cherished by self-designated "conservatives," has its origin in Adam Smith's Wealth of Nations.
[The individual] neither intends to promote the public interest, nor knows how much he is promoting it... [H]e 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.
An unyielding faith in the infallible beneficence of "the invisible hand," leads to "market absolutism" – the doctrine that whatever government attempts, privatization and the free-market can do better.
What market absolutists (unlike Smith) fail to notice, is that not all workings of "the invisible hand" are beneficial. Some unintended consequences of market activity are harmful -- "the back of the invisible hand." Economists call these "market failures."
One cannot enroll in an Introduction to Economics class, without encountering the concept of "market failure" – the acknowledgment that a totally unconstrained and unregulated free market can, at times, have socially undesirable consequences (as I will exemplify below). It is one of the most obvious and incontrovertible facts of economics. Almost all of us are aware of market failures, whether or not we have ever studied economics.
Some students of Econ. 101 choose to major in Economics, and a few of these earn doctorates in the field. Those scholars who go on to work for The Heritage Foundation, The American Enterprise Institute, The Cato Institute, and other such "conservative think-tanks" somehow manage to completely forget about "market failures." The free unregulated market, they tell us, always brings about the socially optimum result. Some examples (with my italics):
**"In the free market, the individual would have to produce a good that the other person desired in order to receive a good in return. Adam Smith's "invisible hand" of the market guides all participants in society to promote the best wishes of everyone else by pursuing his own wants and desires." (Jacob Halbrooks).
** "[T]he free market allows more people to satisfy more of their desires, and ultimately to enjoy a higher standard of living than any other social system... We need simply to remember to let the market process work in its apparent magic and not let the government clumsily intervene in it so deeply that it grinds to a halt." (David Boaz, Libertarianism, a Primer, p. 40, 185.)
**"A free market [co-ordinates] the activity of millions of people, each seeking his own interest, in such a way as to make everyone better off... Economic order can emerge as the unintended consequence of the actions of many people, each seeking his own interest." (Milton and Rose Friedman: Free to Choose, pp. 13-14).
Accordingly, governments should never interfere with markets. Furthermore, governments should not own property, which is better managed by private individuals. So argues the libertarian, Robert J. Smith: "The problems of environmental degradation, pollution, overexploitation of natural resources, and depletion of wildlife all derive from their being treated as common property resources. Whenever we find an approach to the extension of private property rights in these areas, we find superior results." (My italics). "All," "whenever" -- no compromise or qualification here!
In short: let the free market decide. The mysterious "invisible hand" of the free market will "promote the best wishes of everyone..," (Halbrooks), "[allow] more people to satisfy more of their desires" (Boas), and "make everyone better off" (Freidman).
Practical experience tells us otherwise:
**The unconstrained chemical industry promoted pesticides and caused extensive damage to the ecosystem, until the public and then the government, aroused by Rachel Carson's book, "Silent Spring," put a stop to it.
**Similarly, the chemical industry strenuously resisted demands that it cease the manufacture and distribution of chloro-fluorocarbons (CFCs), when atmospheric scientists discovered that the CFCs were eroding the stratospheric ozone, which protects the earth's inhabitants from ultra-violet radiation. Once again, the federal government, joined by the governments of other industrialized nations, enforced a ban on CFCs.
**Scientific warnings about global climate change ("global warming") were countered by "junk science" sponsored by the energy industry. Now, at last, as the fact of climate change becomes undeniable and widely acknowledged, the same industry is promulgating the "line" that climate change may not be all that bad, and might even be beneficial. Clearly, mankind can not count on private enterprise to solve this grave crisis. Only international agreement among the industrial nations will suffice. Meanwhile, the Bush administration, on behalf of its "sponsors" the energy industry, is resisting international action.
**Reduced labor costs yield increased profits and increased dividends to the stockholders of the corporation. Thus, if workers abroad accept wages that are a fraction of the wages demanded in the United States, then the "responsible" policy of the corporation executives is to re-locate jobs abroad. "Outsourcing." The consequences to the displace workers, and eventually to the national economy, is devastating. But strictly speaking, that is not the concern of the corporation. Not, that is, unless the government intervenes with tariffs, tax incentives, regulations, and laws.
Dr. Ernest Partridge is a consultant, writer and lecturer in the field of Environmental Ethics and Public Policy. Partridge has taught philosophy at the University of California, and in Utah, Colorado and Wisconsin. He publishes the website, "The Online Gadfly" (www.igc.org/gadfly) and co-edits the progressive website, "The Crisis Papers" (www.crisispapers.org). His book in progress, "Conscience of a Progressive," can be seen at www.igc.org/gadfly/progressive/^toc.htm .
WW1, WW2, Korean war, Vietnam war, Iraq -- innumerable wars and conflicts, poverty, plague, misery ---
This is the invisible fist: the political counterpart to the invisible hand. It is the result of just letting things happen as they will without any effort to make things better -- the 'natural' forces of greed and lust for power. If there were some 'invisible' force controling things then we should be living in a relative paradise, and should always have done so -- no intelligence, planning, contstraint, or knowledge needed.
But who is it who argues for no rules? Look now: we see Bush arguing that the Geneva Conventions, international law, the Constitution, any laws -- are obsolete and of no value. And look at the results.
The invisible hand has a name; it's name is 'chaos'.
by
Blue Pilgrim (0 articles, 3 quicklinks, 2 diaries, 998 comments)
on Wednesday, June 20, 2007 at 3:06:42 PM
Note that the original quote by Smith refers to an individual. Indeed a case can always be made that when individuals trade between themselves, the trade tends to be somewhat equitable. The old barter system does work fairly well in small groups. The problem arises when "corporations" are substitute for "individuals" in Smith's model. Who am I trading with when I trade with a corporation? How can such a trade be equitable, especially when one of the parties (the corporation) can more easily modify the laws to their advantage? Smith's model of free markets is not applicable to a market consisting of both individuals and corporations. If libertarians really wanted a free market system, then they should call for the immediate abolishment of corporations (since a corporation is essentially a voluntary self-governmental organization, with specific internally-defined rules (i.e., laws) used to control how their product is created and marketed, and is thus, by definition, not a free market system). Results from studies of game theory (an area of mathematics which studies the interaction of "intelligent" systems) show that without specific and consistently applied penalties, interactions between players (i.e., buying and selling) will always lead to massive wealth inequities between players. Smith's model of the free market cannot be applied when the rules for trade are not consistent for all possible trades (the rules for trading between corporations and for trading within a corporation differ). Any conclusion based on this incorrect assumption is not logically valid.
by
djl (0 articles, 0 quicklinks, 0 diaries, 6 comments)
on Wednesday, June 20, 2007 at 5:51:03 PM
Trade between individuals of equal power has a chance of being fair, but there are numerous examples of individuals exploiting other individuals, ranging from the classic unscrupulous used-car dealer to the equally classic well-heeled businessman offering a starving runaway $5 for a blowjob.
It's true that a corporation has way more power than any individual, but it doesn't let the exploitative individual off the hook either.
by
lwarman (0 articles, 0 quicklinks, 0 diaries, 42 comments)
on Thursday, June 21, 2007 at 9:32:58 PM
You are dead on point. The day the Supreme Court ruled that a corporation was a person under the Constitution was the day America ceased to exist as it was envisioned.
by
W.M.L. (0 articles, 0 quicklinks, 0 diaries, 283 comments)
on Wednesday, June 20, 2007 at 10:18:39 PM
