Sunday, June 19, 2005

A Marxist on the Invisible Hand

Encapsulated in the following extract from an article by Archie Kennedy (no relation) entitled “The Value of Workers”, are misunderstandings of the ways markets work and what they are about. There is also an underlying arrogant tone in people who assume that they know better than other people what is best for them, an all too familiar mantra heard by the victims of those who choose, usually by coercion, what is best for ‘society’. Archie Kennedy writes:

“Any notion that the invisible hand of supply and demand will produce what is best for society is simply wrong. For example, a given society may need more medicine or health care or housing, whatever the case may be. The market suggests however that producing Play Stations is more profitable. Play Stations will be produced in accordance with the laws of supply and demand. Capitalism is very good at producing trinkets, shiny toys, and killer hamburgers.”

The misuse of a metaphor from Shakespeare’s “Macbeth” (“… thy bloody and invisible hand”) and, over a century later, by Adam Smith in an isolated single mention in his “Wealth of Nations”, is instructive for it suggests a distant acquaintance with its meaning if Archie Kennedy believes he can ascribe the invisible hand metaphor to “supply and demand”, either in Adam Smith's theory or practice. He should read Smith’s only use of the metaphor in “Wealth of Nations” and discover that he was not referring to supply and demand at all.

The core of Mr Kennedy’s complaint about the market appears to be that “a given society needs more medicine or health care or housing” but gets instead “Play Stations” because they are “more profitable”. First, of course, Mr Kennedy’s judgement of what society needs more of is his personal opinion, to which he is entitled to express. It may be that a fair number of others would agree with him, given his selection of “medicines or health care or housing” as the alternatives to producing Play Stations. However, a selection of any other set of alternatives may be more controversial, though equally justified, in a free society under the rule of law (before Archie Kennedy utters a quibble he should give us the evidence for his experiences of his life under a real totalitarian regime rather than in Canada).

“A given society" may need more “drugs, playing cards and lap dancers” or “more hymnals, confessionals and statues of the saints” or “more copies of Das Kapital, Commissars and gulags”, depending on who’s running it. And that last is crucial.

The range of alternative combinations of sets of goods and services that “a given society” may “need” is almost limitless, each with possible constituencies of support, and all of them on an equal footing to Archie Kennedy’s, unless he has sufficient power to enforce his selection on the rest of us. In North America and most of Europe, he hasn’t that power. Because this is what it comes down to: Archie Kennedy has selected his preferences to decry a particular selection his rhetoric claims that “the market” has chosen, namely, “Play Stations, trinkets, shiny toys, and killer hamburgers”.

It might be helpful just here to gauge Mr Kennedy’s sense of proportionality by suggesting that if the production of Play Stations were to cease completely by the end of the week and the resources used in producing them were transferred to ‘medicine, health care and housing” it is doubtful if the net effect would be very large. Though if the reverse measures were imposed in Canada, US and western Europe, on medicine, health care and housing and their enormous expenditures were transferred to making Play Stations, the consequences would be awesome indeed; we would be awash with them and their price would be negative.

We are led this point (but NOT by “an invisible hand”!) to pose the question as to what kind of society would we need to bring about the appropriate balance between the production of Play Stations and the provision of Archie Kennedy’s preferences for more “medicine, health care and housing”? This is not a question about the desirability of either choice in Archie Kennedy’s counter-poised alternatives, though no doubt he would want us to listen to his case against Play Stations. In free societies we can choose to listen or not to listen to his views.


So what kind of society does he envisage as appropriate to satisfy his preferences? I am asking him to spell out how he would order affairs in such a way as to stop the design, production and marketing of many of the things that free consumers choose in market societies to buy, so that he can release their resources for the things that he thinks are better for them, assuming, of course, that his version of society could produce more medicine, health care and housing too. The seventy-two years of Soviet planning did not exactly deliver on its early rhetoric about ‘liberating the proletariat’. The Dictatorship of the Proletariat was just, well, a Dictatorship, and a shabby one at that. The orphanages of Romania were one example among many of the decrepit state of State provision for people not members of the Socialist Elite, i.e., income distribution mirrored that of capitalist societies but was worse because nobody could protest about it and change things by free elections.

Markets are better are providing people with what they want – not what they should want – and they do this quietly without gulags, peoples’ courts and the people impoverished by shortages of the basic necessities of life. A ‘market’ is the sum of the people’s choices at any given moment for the vast array of products and services on offer or potentially on offer . It is not something alien from outer space. There are no hands, visible or invisible, driving them.

If people want more medicine, health care or housing they accumulate the funds to get them, or if the State arranges their supply, funded by taxation, they vote for more in democratic elections (the least worst of all systems of government). In Marxist “planned” economies they get what they are given and do without what they can’t get. In practice, what they are “given” by the “planners” is insufficient medicine, health care and housing, and no Play Stations.

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