ALL IS NOT WELL IN EAST AFRICA
SEKTA (Money & Information on East African Business) writes (13 July) HERE
The Theory Of Laissez-Faire – 2. The Meaning Of Laissez-Faire and The Invisible Hand – 2
“In the 1700 and 1800, French businessmen felt they would be much better off if left alone without any business rules.
Philosophers who agreed, began to write essays that advocated Laissez-Faire, but it was a Scotsman who made the idea of Laissez-Faire famous.”
Adam Smith never mentioned “Laissez-Faire”! How then did he make the idea of laissez-faire” “famous”?
SEKTA: “In his book, The Wealth Of Nations Adam Smith argued that all restrictions on business should be removed.”
Yet, Adam Smith argued that even with “perfect liberty” there were cases where their liberty should be constrained by laws, examples: in matter of the interest rates charged for loans; in the matter of builders adding ‘party walls’ on the properties they build to prevent fires spreading to other people’s apartments. He also stated quite clearly that those who believed that “opulence” would be impossible for any country without complete “natural liberty” were wrong as there were many cases of countries enjoying opulence without “perfect liberty”.
SEKTA: “One of the most important ideas in Smith book, was the concept of the ‘invisible hand’ Smith believed that this invisible hand would always guide the selfish acts of individuals to help the country”.
On the SINGLE occasion only, in Wealth Of Nations, when he mentioned the “invisible hand”, it was as a METAPHOR never as a CONCEPT (check the Oxford English Dictionary if you are not sure of the stark difference between the meanings of these words). He never argued that the metaphoric “invisible hand” would “always guide the selfish acts of individuals to help the country.”
SEKTA: By working for his own private gain, the businessman must produce as much as he can, and for the lowest price. In order to sell goods he charges very little. This will help society as a whole, even though that was not his intention. The invisible hand thus directs selfish acts for the good of the community.
In Wealth Of Nations Smith gives many examples of the “selfish” and “self-interested” actions of businessmen leading to disavantages for society Examples include the frequent lobbying of governments for tariff and prohibitions on imports that raised, not “lowered”, prices and “reduced production”, not increased it, and raised, not lowered, their profits. These practices did not “help society as a whole” and neither did they “direct selfish acts for the good of the community”.
Smith did not “urge trust in the invisible hand, and not the government”. Government role in law making and enforcing justice were fundamental for a free society.
SEKTA: “Every person is a much better judge of what is good for him than any President, Governor, or Legislator. When the government starts telling people what they should do with their money, they are telling people how to mind their own business. This will make a bigger mess than that which they tried to correct.”
That every person “is a much better judge of what is good for him than any President, Governor, or Legislator” is likely to be true or untrue, dependening on the examples chosen, it did not follow that their individual “judgements” were good for others in the commmunity, examples: buying drugs, including excessive alcohol and smoking, driving at high speeds, flying with unqualified pilots, seeking health checks from witch-doctors, entering building designed by unqualified architects, and so on.
Selfish actions may, and often do, have negative consequences for others. “Presidents, Governors, or Legislators” may impose, often at the behest of lobbyists, paid by beneficiaries, laws and regulations that worsen the interests of some or all consumers.
Adam Smith is wholly innocent of that which SEKTA attributes to him. The best remedy is to read Adam Smith for yourself and refrain from quoting what other ill-informed modern economists and journalists claim for him.