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Adam Smith's "Invisible Hand" for Dummies

You might not have heard of Adam Smith's Invisible Hand theory. That's okay. Of those who have heard of it, though, a fair number of them belittle the Invisible Hand, a metaphor for the process which is supposed to guide a free market economy to generally positive outcomes for everyone. They belittle the theories because they are dummies. Or because they are immoral. Or both. This short article is for them.

The Invisible Hand theory is this
[The business person] generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. ... 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.

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. ... By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.
Notice that Adam Smith said that we "frequently promote[]" the interests of society in a truly free market. Not always. Because none of us are perfect. But the farther we get from perfect, the less likely the Invisible Hand will function properly.

Notice also that Adam Smith didn't describe the Invisible Hand as working in an environment of rampant fraud. It absolutely will not work in such an environment.

If the Invisible Hand isn't working, it's my fault. And it's your fault. It works under normal circumstances. But our circumstances are becoming less and less normal every day. You need to do something about it.

John Adams warned that
Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.
It is no different for the free market. Free enterprise cannot be maintained except in an environment where the populace is predominantly moral and religious. As an American society, we've just about crossed the line.

If it's not working, I can't bear to think of the alternative. Because if it's not working, the most immoral people--the same ones who will have broken the free market with their rampant immorality--will be at the pinnacles of your government.

Watch out. We're almost there.
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Comments

  1. Anonymous2/20/2009 02:57:00 PM

    “Free enterprise cannot be maintained except in an environment where the populace is predominantly moral and religious.”

    Utter BS. People who inextricably link morality with religiosity are “dummies”. Morality certainly does not require religion. In fact, in many cases, the two are diametrically opposed.

    ReplyDelete
  2. Scott Hinrichs2/23/2009 01:32:00 PM

    In other words, Don says John Adams is a moron. I recently purchased the DVDs of HBO's John Adams series, which is historically correct and masterfully done. 'Moron' is not the idea one gets of John Adams.

    ReplyDelete
  3. Anonymous2/23/2009 02:59:00 PM

    Yep, that's what I said . . . [rolls eyes]

    ReplyDelete
  4. Frank Staheli2/25/2009 07:42:00 PM

    Don,

    So please restate. Do you think that what John Adams said was correct? Because in a small sort of way John Adams did link morality and religiosity inextricably...

    ReplyDelete
  5. Anonymous4/24/2009 07:06:00 PM

    Don, God has provided us with many great leaders who are ready to lead. The problem was that the leaders did not want to get involved with the immoral. Once we start to turn down a new path (which we are), children of God will lead the way. Our leaders will lead once again to be great for the people and not to profit off of the people. Faith alone will say that God will never close one door without opening another!

    ReplyDelete

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