Sunday, December 24, 2006

Now We Have an 'Invisible Middle Finger'

I came across this piece in an incredibly boring article on convoluted incidents in some parts of the US that has something to do with real estate speculation. Its called:

“The Invisible Middle Finger” and it heads off with a definition of “Invisible Hand”:

Definition

Term used by Adam Smith to describe the natural force that guides free market capitalism through competition for scarce resources. According to Adam Smith, in a free market each participant will try to maximize self-interest, and the interaction of market participants, leading to exchange of goods and services, enables each participant to be better of than when simply producing for himself/herself. He further said that in a free market, no regulation of any type would be needed to ensure that the mutually beneficial exchange of goods and services took place, since this “invisible hand” would guide market participants to trade in the most mutually beneficial manner.”

Comment

This definition and the incredibly boring obscure ‘joke’ of an article that followed were penned by an entity called the ‘Badlands Journal editorial board’ at:
http://www.badlandsjournal.com/?p=227 (warning: only read it if you are suffering from holiday-induced insomnia).

Capitalism and ‘free markets’ seldom go together, and when Smith was writing capitalism didn’t yet exist (neither did the word until 1854). And Smith never used the defined term as a ‘natural force’ guiding capitalism or competitive markets.

Each participant in any market, free or constrained, tries to better themselves (an urge that comes with us from the cradle to the grave). Unfortunately, unrestrained free markets in practice do not guide participants ‘in the most mutually beneficial manner.’ There is the little problem of monopolising practices, anti-competitive cartels, protections and prohibitions and ‘combinations’, and conspiracies against the consumers, against which Smith railed ceaselessly throughout Wealth of Nations. Basically, ‘merchants and manufacturers’ (and labour combinations) could not be trusted.

The dilemma, not solved by Smith, is that governments are not any more trustworthy than private self-interested citizens. ‘Men of system’ are dangerous, especially with power to impose their political (or religious) fantasies.

Hence Smith did not ‘further’ say that ‘no regulation of any type would be needed’. He favoured laws of justice (a severe form of regulation), he favoured the government having a monopoly of violence (eight hundred years of troublesome warlords put paid to any illusion that rivals to the state were safe when armed). He changed his mind about favouring a militia in place of a standing army, as long as the army and navy were subject to annual votes in a parliament (even one as undemocratic as the UK parliament in the 18th century) for their budgets.

He also favoured a government mint for metal money, a government post office for the mail, government assay offices and government stamping of products where quality may be diluted. He had an extensive education programme, paid in part by taxpayers, an early form of publicly funded health programme for contagious diseases, and some elementary programmes in public welfare to encourage economic activities, including substantial road, canal and bridge building programmes and publicly funded pavement building, refuse collection and lighting facilities in towns.

The definition of the ‘invisible hand’ is so wrong as to be a travesty of Smith’s views, ranking alongside the false idea that he supported laissez-faire. If it is true that ‘for the last 30 years, American economists have re-embraced Smith’s invisible hand with the fervor of rightwing religious fanatics embracing the Rapture, Armageddon and all that’, the connection between such a phenomenon and the writings of Adam Smith is, er, invisible!


That American journalists, academics and commentators (widely, and not just from the ‘rightwing’ – the ‘leftwing’ is just as credulous) believe the above about Adam Smith is unchallengeable, if the media, journals and books emanating from across the pond are read regularly. What is eminently challengeable is the whole notion that such ideas have anything to do with Adam Smith.

1 Comments:

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12:38 pm  

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