Friday, January 7, 2011

Invisible Hand

Adam Smith is the so-called father of capitalism. Generally,the let business be crowd likes to refer to Smith's idea of the invisible hand. The moneyed people like to promote the idea that if you only keep the government out of economic activity, the invisible hand will work for everyone's good.

This is a gross misrepresentation of Smith's thoughts. In Smith's "Wealth of Nations", Book IV, Chapter II, Smith stated:

But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; 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.

Smith was cautioning against the risk of trade (today's globalism).

Dairy is a perfect example where there is no public, or dairy farmer, benefit from world trade.

1 comment:

  1. The "Wealth of Nations" is the greatest work on free market economies, and a close and non-selective reading of his book warns against monopolies.