Smith's idea of the “invisible hand” is the basis of the belief that large-scale government intervention and regulation of the economy is neither needed nor helpful. Smith put forward the notion of the invisible hand to argue that free individuals acting in a free economy, and making decisions that are primarily intended for their own self-interest, will, in fact, take actions that benefit society as a whole, even though such beneficial results were not the specific focus or purpose of those actions.
The central idea is that by means of the “invisible hand” purely self-interested actions and exchanges produce a large, unintended public good.
Quotations, Adam Smith,
The Wealth Of Nations, Book IV, Chapter V, Digression on the Corn Trade, p. 540, para. b 43.
…THE INVISIBLE HAND…
[rich people] consume little more than the poor, and in spite of their natural selfishness and rapacity…they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.
The Theory of Moral Sentiments, Part IV, Chapter I, pp.184-5, para. 10.
Every individual... 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, 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. ---End quotations
Smith goes on to argue that intentional intervention by government regulation, although intended to protect the common good or benefit society as a whole, in practice is usually less effective and beneficial than is a freely operating market. In many cases, it is actually harmful to the people in general, because it denies them the benefits of the free market. This is especially true if the intervention produces a sort of political feeding frenzy of political favor to special interests.
The general prosperity and economic growth resulting from expanded international trade is part of the evidence for Smith thesis. However, though it is plausible to believe that something like Smith's “invisible hand” provides for the public good by way of growing prosperity in the initial stages of economic growth, it is considerably less plausible that liberalization and expanding markets or expansion of international trade will always produce a public good commensurate with the harm they cause.
This is not a purely economic argument. Instead it suggests a political evaluation. Economic expansions are also known to produce considerable economic dislocations, people go unemployed and entire industries wander away; not all participants benefit equally.
More basically, by shifting and creating wealth both within and between political societies, extensive economic expansions also cause political dislocations that require political adjustments.
The basic problem is that the shifts in economic interests brought about by rapid and extensive economic expansions proceed much more quickly than the slow and laborious, deliberative and political processes required for making needed adjustments and introducing regulations as may be required --to meliorate untoward effects.
In consequence, political societies tend to be thrown into deep political problems and conflicts tending toward factional infighting, in the attempt to control the political process in the interest of various, older or newly established economic interests. The continued pursuit of self-interest then produces something like “crony capitalism” (an age of the “robber-barons”) and social-political strife; and, at the worst, the result is uncontrolled conflict both within and between organized political societies.
Philadelphia, PA
Dear Mikhail & readers,
Perhaps the key concept in this question is "public good."
The following definition may help:
public good noun
1.ECONOMICS a commodity or service that is provided without profit to all members of a society, either by the government or a private individual or organization."a conviction that library informational services are a public good, not a commercial commodity"
2.the benefit or well-being of the public."the public good clearly demands independent action"
---End quotation (You will find this definition by googling "public good.")
I take it, for instance, that increased general prosperity and enhanced opportunities in a society are public goods produced by market economies --especially --or at least-- in the opening phases of an economic expansion. Again, The central idea in Smith is that by means of the “invisible hand” purely self-interested actions and exchanges produce a large, unintended public good.
But later, economic resources and wealth become more concentrated, and it is not clear that the same benefit is provided to society in general in later phases of an economic expansion. The concentration of wealth and economic power tends to focus the benefits that might go to the society, more generally, into the hands of those who already have concentrated wealth and power. This is partly economic, an effect of economic consolidation itself, and partly political. The concentrated centers of economic power and wealth tend to attract, or even "capture" political power over policy which facilitates even more concentration of wealth and economic power. Prosperity becomes more exclusive and opportunities are controlled for the benefit of insiders. One result of interest, of course, is growing inequalities and the emergence of prominent individuals controlling extreme wealth.
H.G. Callaway
Dear All,
Since the old Athens, Vikings etc, trade is going hand by hand with political - military power, what means that free market is the same phantasm as Marxist type of socialism.
Regards ...
If governments could be able to discourage corruptions and avail equal opportunity to be educated, there would be no need to move against free markets. Creamy layer of the society snatches all the resources in its hands and then play music of different types of markets etc.
I agree that human species is being divided due to exploitation system of present humanity, which is disintegrating the human society as well as the environment.
This is a hard question to attempt to answer in a short space. There is an assumption in Smith's thinking (and in Marx's) that economics is primary in shaping a society and its values. If the invisible hand is enlightened self-interest, then where does the enlightenment come from? In practice it tends to come from the cultural values of the society, which are a function of things such as religion and traditions. It is true, on the other hand, that humans (and other animals) form groups to achieve more than an individual (secure food, security for example), and that there is benefit to each individual in belonging to the group. But such groups will only behave well in general to members of the same group. Thus there is still no enlightenment necessarily.
But does the lack of an invisible hand without enlightened minds mean that societies should interfere in economic developments? My personal view is that liberalism, in the sense that a society allows all of its members to be creative and innovative, is most likely to lead to economic success because there are minimal barriers to productivity and a likely increase in the methods of production. There are however existential threats to humankind and (for example over population, climate change) which do need economic and social intervention.
Philadelphia, PA
Dear Powell & readers,
Thanks for your comments on this thread.
I don't think we can reasonably take the "invisible hand" as a matter of enlightened self-interest. The reason is that the invisible hand is supposed to work without any "enlightened" intention. The idea is that individuals, acting purely on the basis of self-interest will confer a public good without intending to do so--and in consequence, even if unenlightened. Smith no doubt thought that cultural values are important, in much the ways you indicate, but that is not his argument.
The idea of the invisible hand is more akin to the moral idea (found in much of early modern thought) that we can best bring benefit or express concern for society or humanity in general by simply attending to our own business and our immediate relations--and that this will benefit others indirectly. The idea is that we do not know enough about society in general or humanity in general to be able to intentionally act for its benefit. Thus the negative view of government intervention or regulation.
In The Theory of Moral Sentiments, Smith wrote:
Every individual... 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, 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.
---End quotation
But though individuals and groups may, at first, provide a public good without intending to do so, once established, and with growing financial means and power, the same actors become better able to distinguish how or in what ways they contribute to the public good or to self-interests; and they will, plausibly begin to curve their own practices more toward self-interest--or that is the critical argument about Smith's "invisible hand." Intensive competitions, of course, will encourage more intensive pursuit of private interests.
H.G. Callaway
---you wrote---
There is an assumption in Smith's thinking (and in Marx's) that economics is primary in shaping a society and its values. If the invisible hand is enlightened self-interest, then where does the enlightenment come from? In practice it tends to come from the cultural values of the society, which are a function of things such as religion and traditions. It is true, on the other hand, that humans (and other animals) form groups to achieve more than an individual (secure food, security for example), and that there is benefit to each individual in belonging to the group. But such groups will only behave well in general to members of the same group. Thus there is still no enlightenment necessarily.
Smith's "invisible hand" has symmetry to the physical constructal law (the unification law of evolution). Evolution is real, otherwise we would not be here. Life is a product of the physical laws of nature. Therefore, life is a way for nature to see and experience itself.
The constructal law is the latest discovery in thermodynamics. The law states, “For a flow system to persist in time (to live), it must evolve freely such that it provides greater access to its currents.”
Relative to nature experiencing itself, for the flow of human reasoning to persist in time (to live), it must evolve freely such that it provides greater access to the pedagogic currents of nature. Resulting in the evolution of enlightenment, promoting change in the configurations of philosophy, culture, markets, technology and scientific understanding, etc.; generating dendritic patterns guided by the physical constructal law all superimposed on the same area (the globe) and in the same volume (the brain).
https://www.youtube.com/watch?v=P-NDwqyTOaM
From those pedagogic currents of nature, individuals, including social systems, evolve relative to their currents. That is, the individual flows towards the currents of happiness, the market flows towards the currents of wealth generation, governance flows towards the currents of the power to rule, and a civil society flows towards the currents of harmony. The critical link in the convolution of those social currents is the individual’s morality, the exclusive pinnacle in advancing the evolution of a civil society towards harmony.
The issue is not with Smith's "invisible hand," the issue is one of reason and ethics. I cover this subject in my book. Currently working on the fifth edition to be out in the first quarter of 2020. The following is the introduction chapter of the current version:
https://www.academia.edu/37021128/Scientific_Proof_of_Our_Unalienable_Rights
Dear Prof. Callaway,
I agree with you that Smith's view was that government intervention in economic and social matters could be counter-productive and that there is an inherent value in freedom from interference by others. And intuitively I agree with that view. After all, interference decreases innovation and creativity, and reduces diversity. Who would presume, after all, to know better than everyone else, and impose their views of others? (OK, maybe there are a few people ...) But, as the likes of Dickens and Hugo argued through their novels, naked capitalism had a devastating effect on the lives of the working population. Historically the state did increasingly interfere to protect workers, to extend voting rights and generally to make life better for the working population. To me interfering in that case seems sensible because it was likely to increase the productivity of the working population. Now in some cases that was done voluntarily (for example by the Quaker chocolate makers in Birmingham, UK), but in general it needed to be imposed by statute. This illustrates about self-interest not always leading to enlightenment or economic efficiency. I certainly agree that the default position should be not to interfere, but sometimes the invisible hand needs help.
In a similar but subtle vein, I would like to frame Adam Smith's "invisible hand" has grown in some countries as "the little invisible hand". Corporations as entities have grown to such a size that they resemble countries in their resources and capacity to control. While they do not have the same kinds of authority they do have authority in subtle ways and in not so subtle ways. I think Smith's work should then be framed under these new paradigm if used as reference for the current state of affairs.
Corporations are not made with the scope of governments and they will tend to maximize their objective regardless of Corporate social responsibility. regardless of Corporate social responsibility is a secondary goal (they also exert enormous amount of pressure on governments) .
I see this factors within a dynamic system where if there is no dampener such as a government, oscillations due to unrestrained objectives will destabilize the system. This goes contrary to Smiths "invisible hand" as becoming "the little invisible hand" in a sea of big hands. At the same time there is truth that if the little "the little invisible hand" interferes too much it becomes the kid that makes parents stay at home instead of going out and therefore makes the system over damped. I guess moderation on both sides is the key.
Just my biased opinion
I agree with @Sherif Yisrael Mikhail on human instincts and think that such instincts are learned by our ancestors and genetically inherited; and is dominant on direct learning and acquired knowledge.
The second matter is that we believe in magic of science which was the root reason for starting of scientific developments.
Third reason is that our individual knowledge is tiny in respect to human knowledge base. We don't take our responsibility towards society and environment. We wait for starts by other and move up with relief.
But it is a time to humanity to wake for the rights of innocent and non-voiced, as ultimately all are the components of the nature on earth, ruled by its own laws.
That's my humble opinion.
In terms of economic cycles, my non-expert view (as I am not an economist) I would have thought that in a free market economy that large companies tend to reach maximum growth at the top of an economic cycle, and recessions cause break up of large companies and leave room for smaller companies to grow. In terms of social value that companies bring, in a liberal society (where innovation is encouraged) large companies may explicitly develop an ethical agenda in order to attract innovative employees and to distribute surplus value in a tax efficient way. This has been happening in the USA for the last ten years. This development would imply that in modern, liberal free market economies (such as the USA), the top of an economic expansion may show a strong invisible hand. But I have argued that the conditions that lead to such an economy are culturally as well as economically dependent. I believe that liberalism (in terms of encouraging creativity and innovation) with a free market economy are in combination sufficient conditions for maximising economic growth and for maximising the impact of the invisible hand. But I still think that the invisible hand needs help.
Dear all,
I do agree with Callaway that: “Smith's idea of the “invisible hand” is the basis of the belief that large-scale government intervention and regulation of the economy is neither needed nor helpful. Smith put forward the notion of the invisible hand to argue that free individuals acting in a free economy, and making decisions that are primarily intended for their own self-interest, will, in fact, take actions that benefit society as a whole, even though such beneficial results were not the specific focus or purpose of those actions.“
Everyone who has taken an economics course came across the claim that, in modern terms, “markets know best”. It is, however, rather interesting to look at Smith’s argument. The term “invisible hand” occurs only once in The Wealth of Nations and in a context that – from a modern perspective - seems rather decidedly against what we nowadays call “free trade”. Smith presupposes what one may call a “home bias”: “every individual endeavours to employ his capital as near home as he can, and consequently as much as he can in the support of domestic industry” (p. 590).
He then goes on to argue that this home bias necessarily benefits society because, “capital employed in the home trade […] necessarily puts into motion a greater quantity of domestic industry, and gives revenue and employment to a greater number of the inhabitants of the country, than an equal capital employed in the foreign trade of consumption, and to give revenue and employment to the greatest number of people of his own country.” (pp. 592-593).
Smith then draws the conclusion that ”[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.” (p. 593)
Thus, Smith’s argument is based on this home bias. It is by no means clear how the “invisible hand” is supposed to work if there is no home bias. In this case, capital would be free to seek maximum profit wherever it could find it. To the best of my knowledge, Smith doesn’t discuss this possibility, but, given his argument, the advantages that come from the home bias wouldn’t materialize, so the invisible hand wouldn’t work in the way Smith imagines it.
Callaway is certainly right when he states that Smith argues that ”intentional intervention by government regulation, although intended to protect the common good or benefit society as a whole, in practice is usually less effective and beneficial than is a freely operating market.”
However, Smith makes this argument under two assumptions: That there is a home bias and what we nowadays may call “comparative advantage”. He particularly insists that “Whether the advantages which one country has over another be natural or acquired is in this respect of no consequence. As long as the one country has those advantages, and the other wants them, it will always be more advantageous for the latter rather to buy of the former than to make.” (p. 597)
And more importantly, Smith recognizes two clear exceptions from free trade: National security (in particular the British Navy) and systematic disadvantages (for example, taxes on domestic production must be imposed on imports as well) (p.602 and p. 605). Furthermore, Smith considers the possibility of mitigating certain negative effects on a domestic economy by temporary measures, in particular in cases of what we nowadays may call “trade war”. Unfair taxation on imports by foreign nations of domestic goods (p. 609).
All in all, Smith seems to present an argument that favours domestic production of a comparatively highly developed country combined with the necessity of state intervention when either national security is at stake or a systematic disadvantage for the domestic economy threatens national interests, while rejecting state intervention in favour of particular interests.
It is particularly interesting that he insists that countries should never try to improve their own industry if another economy is more advanced in that regard. If, for example, the US had followed that advice, they would never have become the advanced industrialized economy that they are. At the time, the US (or what was to become the US) exported mainly fur, tobacco and other natural resources, while importing superior British manufactured goods. According to Smith, this shouldn’t have changed (obviously, the US didn’t followed sound economic advice).
It seems that the “invisible hand” in Smith sense requires that certain assumptions hold, in particular that capital favours the domestic industry and that strong state intervention takes care of national interest. Here I think lies the answer to Callaway’s question: If capital does not have any national bias, but seeks maximum profit, and if state intervention favours particular interests, then the “invisible hand” does not yield the beneficial outcome Smith imagined, but rather leads to “[the] continued pursuit of self-interest [that] then produces something like “crony capitalism” (an age of the “robber-barons”) and social-political strife; and, at the worst, the result is uncontrolled conflict both within and between organized political societies.”
We should, I think, take a closer look at the conditions under which the “invisible hand” is supposed to work, instead of believing in the religion that “markets know best”.
Sorry for the long post!
Best,
Sven Beecken
Adam Smith, Ed. Edwin Cannan, An Inquiry into the Nature and Causes of the Wealth of Nations, University of Chicago Press, 1977
Dear Prof. Kralj,
I was thinking about the big tech companies, such as Amazon, Facebook, Google, Microsoft. I think they or their founders have foundations or schemes which aim to benefit society at large. In any case there is no doubt that they try to appeal to an innovative workforce, who may be attracted by the charitable stance of a company.
Dear Ales,
Every company has a duty to maximise return to its shareholders. There is an issue, which is a political one I think, about how far a society should support low corporate taxes, and rely for the invisible hand for social value ("trickle down" of wealth). I think the answer depends on the society and its cultural values, but I have to say that the presumption should be that a company or an individual knows better how to spend their money than another entity. It is not always true, but there is a huge risk of waste if you give money to an entity that does not appreciate its value (because it has not earned it). That is not to say that institutions like schools and universities and the government of the state are not needed, but the question of what can be achieved for the social good more efficiently or at all by individuals and companies needs to be a continual test for all investment by government.
Ales,
I undrstand your challenge, but cannot judge the intentions of large companies, other than what stated business objectives are.
Philadelphia, PA
Dear Mikhail & readers,
Thanks for your questions and reflections on Adam Smith and related matters.
It is worth remarking that Smith was one of the earliest advocates of free trade, and that he also argued that Britain (and the other powers) didn't need colonies. The 19th-century British liberals didn't buy the argument against retaining colonies, and their devotion to free trade always functioned within the related constrains of the imperial system.
You are right, of course, that Smith's work is rooted in the Scottish Enlightenment, which, by the way, is also an important influence on the American Enlightenment --at the time of the founding of the U.S. (There is also some influence of the French Enlightenment, via Jefferson, Montesquieu, etc.) The Scottish Enlightenment, in turn, often reflects prior developments in the Scottish reformation --which was also very influential in the U.S.
The value of entrepreneurial capitalism and innovation has much to do with the social and political environment within which it takes place. If the social and political environment is more oppressive, then it makes sense to encourage individual innovations and their establishment of new economic foundations of those innovations. ("Impowerment," as we say, these days.) This point recognizes the positive side of the famous characterization of capitalism (or free enterprise, as I'd prefer to say) as a process of "creative destruction." If social and political relations are stuck in feudalism, or anything similar, then one would plausibly encourage innovations and having new people come forward. But this is not to say that these very new people who come forward may not eventuate in the establishment a new oppressive system based on the intertwining of politics and the economy.
As a general matter, I think it important, from the ethical point of view, to distinguish sharply between "self-interest" (or even love of self) on the one hand and greed on the other. If self-interest is to play a constructive role in society, then it must involve the exercise of self-constraint. As I like to put it more generally, there is no virtue without self-constraint.
The Scottish Enlightenment struggled with this kind of question, in its attempt to understand the ancient virtue of "magnanimity," --greatness of soul. (Its an Aristotelian virtue.) This includes the ambition to achieve great works in society. Notice that even establishing religious freedom and tolerance in society can be viewed as a great work of statesmen and founders. (Madison, btw, who substantially wrote the first amendment, studied at Princeton with the Scot, Rev. John Witherspoon.) In any case, the basic problem is to reconcile "magnanimity" with Christian humility--and the fallen state of man, etc. One key to this reconciliation was to avoid, and exercise considerable skepticism on, the pursuit of great wealth.
History only avoids the cycles of power and domination insofar as we can bring forward and incorporate what is best in the past without destroying or totally suppressing the human powers of innovation. Depending on the "invisible hand" alone to control ambition is much too optimistic.
H.G. Callaway
Dear Callaway,
I kept thinking about your question and how to better decompose the impact of the "invisible hand" on the economy.
Smith's economic model already had the concept of economic equilibrium stated in his words as "The commodity is then sold precisely for what it is worth, or for what it really costs the person who brings it to market"[1]. We can then use the arguments of what disturbs this equilibrium to bring about new economic development and give more context to Smith's argument.
Mokyr [2] identifies 4 forces of economic growth:
Each of these deserve individual consideration in evaluating the impact of the "invisible hand" on the economy. In the first Mokyr points out this involves savings and if left unchecked or without the incentive to reinvest then this growth will not occur. Savings or lack thereof is stimulated by interest rates controlled by governments. Positive or negatives outcomes can happen depending on the policy of the government. This is one where the government hand is clearly visible and strong
Commercial expansion can occur by investment in infrastructure for the establishment of new trade routes. This can happen by government intervention (such as intercountry railway systems) or investment by corporations. such as ships for trade. In this particular instance the involvement of multiple players is almost always necessary. And this is one where government intervention is in my view necessary. For example, Smith could not have foreseen the deforestation that took place with the railroad expansion that took place with the introduction of the steam locomotive or current expansionist movements such as Facebook. This is one aspect where I think that it does not matter if it is "self-interest" or greed, it is more on macro effects that bypass any individual corporation or government. This also goes with economies of scale. Under the economic paradigm it is considered a motor for expansion but strains on the resources have always been at a global scale since the third force was introduced.
The final is the one that I will most agree that merits the exclusion of the invisible hand at east until maturity sets in and the corporation focuses on one of the other three forces.
This is just an opinion
Regards
[1] Wealth of Nations, CHAPTER VII Of the Natural and Market Price of Commodities
[2] Mokyr, J. (1992). The lever of riches: Technological creativity and economic progress. New York: Oxford University Press.
Philadelphia, PA
Dear Mikhail & readers,
Keep in mind that our question concerns not merely economics but what is often called political economy. We are dealing with political questions or better, questions of political analysis --in some considerable part.
I suppose that few would consider Smith "invisible hand" as a technical term of economics. Still the term represents for many the social value of market economies, say, in contrast with the claimed need for government regulation.
Market economies are widely viewed as beneficial, though we suppose that actors and exchanges on markets are chiefly motivated by self-interest or pursuit of monetary or economic advantage for the actors. This is where Smith's concept of the invisible hand comes in to play. Although we stipulate that exchanges in market economies aim chiefly at gain, Smith argues, that nonetheless they produce, without intending to do so, what we have been calling a public good.
In consequence, we can easily translate Smith's thesis into the claim that self-interested activities in market economies produce a public good, even if the actions and exchanges all aim at gain for those directly involved. We want to know if this is true or if it is always true.
I do not think this idea is so strange. Do not good businessmen benefit their families? Do they not sometimes bring new opportunities and prosperity to the localities where they operate or open shop? Don't they pay taxes which in turn (potentially) benefit society more generally. Don't they bring new advances and technological developments to the wider world? Don't they insist on the independence of the judiciary? That a private business may or can "supply a need" (though chiefly aiming at profits) in the society through the market, is only the most obvious effect of what Smith calls the "invisible hand."
Although Aristotle's natural science is certainly obsolete, his Ethics and Politics is not quite so. What is amazing is that Aristotle's ethics makes sense to the modern world, though it is 2500 years old. (I highly recommend Aristotle on "friendship"--a major themes of the Ethics.) Though science has changed a great deal, human nature is pretty static. In may ways, Aristotle represents the common sense of the Western world. No doubt, many resist imposition of any concept of self-restraint on self-interest. But in Aristotle, every virtue is a "golden mean" between two extremes.
H.G. Callaway
So, here's the thing about the "invisible hand" concept. It doesn't suggest that economies are going to be Utopian. It suggests that economies tend in a certain direction. The technosphere (the sum total of all human activity, things they create, use, share, etc) is analogous to the biosphere, and individual groups of people, businesses, etc are analogous to ecosystems. Just like these ecosystems are self-stable, over long periods, so are anthroposystems (the analog). But just like in nature, there are ups and downs.
I wish I had the full discussion finished, but my paper/book on "technoecology" is so far in draft form that it's literally just scraps of ideas all over the place. I don't think anyone would get any use out of it, even if I posted it here.
Reading Andrew Powell's popular reply, I don't think that Adam Smith's "enlightened self interest" means anything quite as altruistic or moralistic as Andrew suggests. I think it may be as simple as saying, one's own, long-term, self-interest.
Adam Smith's thesis is that benefits to others will be a byproduct, of our own self interests. So for example, for someone who designs kitchen appliances, it is in that individual's own self interest to design the most efficient appliances. Because by doing that, he can sell more than the competition. That alone is the "enlightenment." Has little to do with religious or moral values. It is smart selfishness. And it benefits the other guy.
We could extend that to not trash the environment, at least for a period of time that we exist on the planet.
I really think that the bigger problems occur when politicians, among the worst offenders, are too clueless to even know to be "enlightened." Their goals are so near-term, that next election, that they will prey on people's ignorance of the facts.
Same happens with corporate execs, who also often have very near-term goals, and that golden parachute as the end goal. That is how "enlightenment" becomes skewed. But otherwise, I don't think we have gotten any wiser than the natural laws of economics. We have to listen to nice-sounding rhetoric from politicians, who like to fool people into believing that politicians should be the stewards of the people's wealth, but too often, their efforts backfire big time. For a recent example, you need look no further than the 2008 housing market collapse, in the US. A predictable result of political meddling, for short term gains (and banks without enough backbone to "just say no").
Dear H. G. Callaway,
Good reference to Aristotle! Your ending with Aristotle is where I’ll begin. One of Aristotle’s translation concerning happiness:
“Not that happiness is virtue, but that it is virtuous activity. Living well consists in doing something, not just being in a certain state or condition. It consists in those lifelong activities that actualize the virtues of the rational part of the soul.”
In the shadow of Smith’s "invisible hand" relative to markets, where markets are the only source of wealth generation for a nation because governments are incapable of generating wealth. Let me add the philosophy of Nobel laureate Friedrich Hayek’s claim, “Money is one of the greatest instruments of freedom ever invented by man.” However, money has dualistic components, one of freedom, the other, a storage of wealth (a form of energy storage in the pursuit of objectives).
In today’s civil society, freedom, for the most part, is a function of money. The more money one has, the more freedom there is to do and buy things. Increasing freedom improves the quality of life, and reducing the amount of energy (the wealth factor) used during pursuit through purchase, control, and movement, money became a positive-feedback mechanism in the drive to achieve (or increase the perception of) happiness—hence, the “greed” factor.
Connecting the dots of happiness, freedom (money) and the energy from the storage of wealth in the pursuit of an objective we have: “Life, Liberty, and the pursuit of Happiness.” This happens to be Thomas Jefferson’s philosophy known as “unalienable Rights.”
Combining Jefferson’s and Aristotle’s philosophies we have: Life, Liberty, and the virtuous pursuit of Happiness. It would seem what we are missing in our government controlled educational system is a focus on reason and ethics, and in turn, should improve the quality of “political economy”; and in today’s reality, an economy lacking in ethics.
Because money translates to freedom and the storage of wealth, our unalienable rights provides reason to desire its accumulation by increasing freedom while reducing work in the pursuit. It is hard to deny the powerful effects of money on the perception of freedom; and even harder to deny its potential effects on morality and power.
Regards,
Mike
Dear all, dear discutants,
Smith's idea of the “invisible hand” is the basis of the belief that large-scale government intervention and regulation of the economy is neither needed nor helpful.
Smith's ideas may be true for an economy based on bartering or a natural produce economy, but for highly complex societies, with a high degree of division of labor, a complex labor market and a dense network of the welfare state, this statement is untenable.
As an example, the network of health insurance companies is often cited here. In the normal case, it is sufficient if about 20 people get together to pay a doctor. But you need different specialists. So different groups have to cooperate. And what happens if doctors blackmail the patients and vice versa, how are negotiations with the pharmaceutical companies etc. So you need health insurance. But do you need about 150 different health insurances in Germany?
The question is always about the measure or the relationship of state regulation and individual responsibility. There are different directions. The Anglo-American system relies more on personal responsibility and the effect of market forces than in Germany. But who is more effective, where does society develop better? Business and capital also have social responsibility?
My answer is always the same. History and tradition matter most how the measure or the relationship of state regulation and individual responsibility is developed, whether we like it or not.
M.L.
Dear all, Dear Ales,
No one has talked about only one health insurance, though there are examples of where this works well (Norway).
In addition to the health insurance, there are still the accident insurance, long-term care insurance, pension insurance, etc. These insurances are still in public insurance ind private insurance differentiated. In the financial crisis it has been shown that private insurances are only on profit and have sent many people to ruin.
We had a big reform of accident insurance. There are now less than 10. With the health insurance of formerly almost 400 are still around 150 there. The contribution rates can be used to achieve further regulation. In Germany everyone is helped who is in need. This has the stigma of abuse and it takes place now a strong discussion in the population about that.
It's about optimization and effectiveness in the concrete situation, as I described it
M.L.
> Never underestimate the invisible hand that is absent in U.S. and Slovenia (not comparable in all details).
True! However, is that any surprise? In the US, 40% of all economic activity is government spending. Moreover, government controls the monetary base. Most of the economy is controlled by government. I suggest in my analogy between the biosphere and the technosphere that governments act on an anthroposystem, in the same way as agriculturalists act on an ecosystem. So it's like saying "See this farm? See how unsustainable it is? Clearly evolution fails!"
Dear Daniel, Dear all,
simply you have put it in a nutshell. Look at this table: https://www.bundesfinanzministerium.de/Content/DE/Monatsberichte/2016/10/Inhalte/Kapitel-6-Statistiken/6-1-19-staatsquoten-im-internationalen-vergleich.html
Unfortunately it is only in german. It shows: total government expenditure in% of GDP in each country. 2017:
Germany: 44.5%; USA: 38.1%; Ireland: 31.5%; UK: 42.0%
No state can do without state regulation. But it also shows that the tax system and the effectiveness of public spending are of paramount importance. There are probably the biggest differences.
In Germany, there is a saying: Only rich people can renounce a strong state. In any case, her interest in it is very low.
M.L.
> No state can do without state regulation.
I'm not sure that I agree with this analysis. If our analogy between the biosphere and the technosphere holds, then it's like saying that nature needs a god.
Dear Callaway,
In addressing your question on whether self interested activities in market produce a public good, I think it depends on how you frame public goodness.
To illustrate where I am going with this let me put forth a quote from Thomas Hughes :
" medieval Catholic church and later theologians imagined Christians fulfilling divine purpose as they mastered the earth. They reasoned that possessing a divine creative spark, humans could design tools and machines that would allow them to transform the land into a new Garden of Eden" [1, p. 21]
His argument continues and at the end of the chapter he poses the question which I think goes to the heart of my emphasis on framing of public good:
"According to the Genesis creation story, all physical creation was intended to serve human purpose. Should the fouling of the environment be attributed to Judeo-Christian injuntction?"[1, p. 42]
My point is that, if we see technological expansion as part of he great economic machinery, it brings a dual role of being a beneficiary on the one hand but also the bringer of hardship. As technology drives the economy (as part of point 4 of my previous post) it brings many benefits to the individual, but it also brings the technological divide in which we get the ones that have and the ones that don't have. To the ones that have and share the Hughes Second Eden, they are fulfilling their purpose and it is on contributing to expanding this Eden that is the public good. Take the opposite view of the ones that don't have and the economy (with a technological face) becomes the engine of oppression. This argument can be expanded to the conflict between the expansion of the Second Eden and the impact to the environment as Hughes question emphasizes.
Just a thought
[1]Thomas P. Hughes. Human-Built World: How to Think about Technology and Culture. University of Chicago Press, 2005.
Dear all,
I jus read Ha-Joon Chang book ' kikcking away the ladder" in which he does a very carefull and insightfull criticism of occidental liberalism. Recomend to all.
Dear all,
Do you agree with me that if you abolish all taxes, including for all those who do not pay taxes because of their low incomes, in this case those will also not fare better. Is it an example for a "invisible hand"? Maybe for alms?
M.L.
Michael, we can eliminate taxes and switch to voluntary means of funding programs, including through blockchain managed NGOs. Government and taxation is a fairly new thing. It's only about 10,000 years old, and we don't really see government in H&G societies. For the relatively short time that governments have been around, there have been some functions, though much of government is more a consequence of a lack of alternative means to manage a large group of people that need to organize for a common cause. Moreover, government is somewhat self promoting: one government forms and then others form to defend against it.
But I do think that blockchain technology, and other technologies, are more and more eliminating the excuse for government, and specifically for taxation. I do think we will have blockchain+crypto alternatives for healthcare funding, social security programs, and many other areas.
Aleš, the energy intensive nature of certain blockchains is not inherent to blockchain as a whole. But there's more to it than that. People often only look at the energy expenditure on a per transaction basis. Consider my answer here: https://www.researchgate.net/post/What_is_the_relationship_between_the_digital_coin_Bitquin_and_sustainability#view=5c3f2f2ef0fb62988233f10b
I point out that blockchain + crypto is the entire financial entity. It is the distributed ledger, it is the store of the virtual wealth, and it is the transaction system. In other words, this system is an alternative to an entire banking and financial management system. Energy analysis therefore needs to take that into account.
Dear Michael Lersow,
“Smith's idea of the “invisible hand” is the basis of the belief that large-scale government intervention and regulation of the economy is neither needed nor helpful.”
“Scale” is relative! Putting aside Smith’s “belief” the invisible hand needs a hand from government to work; on the other hand, what is a free market? I always find that question never has a good answer. A question having a better answer, what is a free evolving market? The key is evolution!
The mechanics of evolution is dependent on dynamic channels of resistance and freedom; otherwise, a market cannot evolve without one or the other. For example, at the garage-sale level you have absolute freedom, but there is no evolution. At the other end of the spectrum in absolute tyranny, there is no evolution. The evolution of a market exist in-between those two extremes. The task becomes, between those two extremes, where does a market perform the best? Note, not all markets are the same nor are the dynamic channels of resistance and freedom the same for each market.
For example, the automobile market had the freedom to evolve relative to the Model-T days at the turn of the last century. This evolution could not have taken place without those dynamic channels of resistance (regulations, taxes, unions, competition, anti-trust, etc.) along with those dynamic channels of freedom (to incorporate, transportation infrastructure, location, growth, raw materials, design next generation, etc.). During the evolution of the automobile market, companies come and go relative to the natural selection process resulting in higher quality, cleaner emissions, improve technology, and perhaps, one day self-driving vehicles. Hence, the freedom of the automobile market to evolve thanks to those dynamic channels of resistance and freedom. The evolution of the automobile market lifted the standard of living throughout the world relative to transportation.
It is not about “large-scale government intervention and regulation,” it is about government being an ethical partner with the market in the wealth of a nation. Here is the caveat, for a society to remain civil, the liability of governance must be less than the wealth generation of its nation.
Regards,
Mike
Philadelphia, PA
Dear Lersow & readers,
Thanks for your contributions to this thread.
In a sense the "strong state" is beside the point, I believe. The reason is that a strong state may either encourage or prevent the decline of Smith's "invisible hand" toward the end of an economic expansion. If the strong state helps build, say, monopoly power, perhaps in the guise of "national champions," then it may facilitate exploitation of what would otherwise be public goods; but on the other hand, if it acts, say, to break up great concentrations of economic power in the interest of competition and smaller producers, then it may enhance the public goods of the market system.
Strong states have chiefly been wanted in competitions between and among states, and that is part of the danger of them, since they tend to support the self-aggrandizement of the military-industrial complex. Again, state promotion of domestic industry and foreign trade, colonialism, etc. have featured prominently in the aims of strong states--in fearsome competitions with their neighbors.
H.G. Callaway
H.G. Callaway yes it stopped working before, when markets expended and there was no-technology to let the invisible hand play its role. Therefore we needed a middle man in every transaction or regulations of an industry or country to put things under control. Yes because of manual interventions in economy the rich or influential got advantage of that. However, I think block-chain has the potential through which "Invisible Hands" theory of Adm smith will work at global level.
I agree with many experts comments that rich people has an influence over government (visible hand) and policy makers, the bigger stakeholder always will have an impact (well deserved) even after block-chain technology.
Block-chain technology removes the middle mans biased interference. Every transaction created between A and B can be observed by any one. Government can have a copy of that transaction but the record will be between A and B. At the same time this technology weakens the government and banks. I think the existing middleman (Government/banks) considers it a threat. Its implementation can take time but I think that is the final solution to solve the market inequality
Philadelphia, PA
Dear Farooq & readers,
Thanks for your comment--which relates several sub-themes.
Though politics is often messy and unpleasant, I think there is no avoiding it. It is a fundamental limitation on what human beings can do, since it is slow, easily falls into bias, requires wide knowledge and wisdom, etc. We are always running the risk of exhausting the available political competence.
My best judgment is that attempting to substitute a complex algorithm for human regulation of the economy, as for instance with central banks, is something of a pipe-dream. Its the old dream of substituting something automatic. But though the ideal of justice is blind, our actual institutions of justice will always contain human and political elements.
Politics is finally unavoidable.
H.G. Callaway
H.G. Callaway, I never saw politics as an issue. It's simply our process of making decisions within a group/organization. What becomes problematic is when one party makes a decision for another party, and the latter does not have the ability to refrain from acting as the former suggests.
For instance, suppose a group gets together on a weekly basis for dinner, and they vote on what to eat, and every week the majority votes "pizza." Well, maybe one person cannot eat pizza. So obviously they're going to get frustrated for a while. So long as they're allowed to choose whether to join the group, that's fine. It might result in some tension between friends, but so be it.
Now consider that you live in a country and the government has decided that everyone should eat pizza, so you are forced to help pay for everyone's pizza, even if you cannot eat it. That's where "politics" becomes offensive and abusive.
Dear all,
whoever allows market forces unfold freely has naked capitalism. I do not know of any developed economy that does not have a regulated market with welfare state principles. In Germany this is the social market economy. There are differences between the economies. Some differences are very large. Much of it is based on history and traditions.
Americans always want (much) less regulation than Germans. One can argue about that, but one don't has to. I don't want to.
There is a military industrial complex in Russia, the USA, China and India, but not in Germany. The term "strong state" will differently used. I use it in terms of well-fortified democracy, the protection of citizens and the welfare state.
Callaway, you are right that state monopolies can endanger the middle class. This is a constant point of discussion in Germany. Perhaps this should be discussed by asking whether wage costs alone determine the production of high technology. The system of quality characteristics and training could be decisive in the future to survive in competition. In agriculture, the strengthening of regional cycles plays a decisive role. Otherwise, this has nothing to do with Smith.
M.L.
> whoever allows market forces unfold freely has naked capitalism.
I am sorry Michael, but that's simply not correct. Capitalism and markets are not the same thing, not even close. There are plenty of market entities which are not capitalist in nature and at least some capitalist entities which are not market entities. Credit unions, many food cooperatives, etc are market entities. The prices for their goods and services is set by market forces, but they are not capitalist in nature.
> There is a military industrial complex in Russia, the USA, China and India, but not in Germany.
Due to past situations, let's say, a military force in Germany is highly scrutinized, but let's not beat around the bush. The European Union is largely an economic empire with Germany at its center. Germany is able to benefit off of the Euro, offloading much of its burden onto other nations such as Greece, which would be doing far better right now if it had monetary sovereignty.
Sorry Daniel,
Cooperative structures can, of course, exist in capitalism. But cooperatives that compete with the capitalist market are subject to the same laws as their capitalist competitors. Otherwise, I do not want to classify you as one of the utopian communists. This discussion should be over.
The example with Greece has always been heard, again and again. If Greece had keep its own currency, its devaluation would have better controlled the crisis process.
Of course it was a risk to include Greece in the Eurozone. Greece, and especially the Greek people, has done an excellent job. And it will continue to improve. I do not know any serious Greek politician who wants to lead Greece out of the EU. And maybe some will rub their eyes, how the standing of Greeks will be in the furture in the Eurozone.
M.L.
Michael, again you seem to be conflating markets and capitalism, when the two are very different things. An anthroposystem is made up of market and non-market entities, which may themselves be capitalist or non-capitalist in nature.
As for Greece, I did an analysis way back in 2015, and took into account rough economic theory on how monetary policy impacts production capacity, and found that Greece was actually better off than the US, but that the control of monetary policy was the problem. https://politicoid.us/greece-vs-the-united-states/
Philadelphia, PA
Dear all,
Would anyone like to expand on, support or dispute the following statement from Goldman?
The European Union is largely an economic empire with Germany at its center. Germany is able to benefit off of the Euro, offloading much of its burden onto other nations such as Greece, which would be doing far better right now if it had monetary sovereignty.
---End quotation
This is a very striking and broad claim. Is the public good produced by the E.U. retracting?
I thought the question here much broader than that of whether Greece would be better off without the Euro. Equally, it not the question of whether Greece wants to leave the E.U.
H.G. Callaway
Greece could possibly do better outside the Eurozone, because then they could set their own monetary policy. Of course, in relation to other EU countries, they might so fare so well. For instance, imports would cost more to Greeks, over time. But that alone is not all bad either. It's the way European countries used to operate, before the Maastricht treaty.
One thing I see missing is any mention of competition. The "invisible hand" can only exist when the marketplace is competitive. Conversely, government regulations are most essential when competition cannot practically be achieved. Such as, with your water and sewer utilities, with telecoms, electric power. No "invisible hand," or at least not much of one, in the running of such monopolistic utilities.
Another example of required government regulation would be for safety of products. You don't want to have to wait until enough people get killed, before the safer products from the competition win in the marketplace.
Other valid roles for government regulation, in my view, are to promote competition (prevent over-consolidation of industries), and as a safety net for the very poor.
But not "just because," as I infer some people saying. Regulation of the market is generally to be avoided. It tends to distort the "natural economic processes." Except in special cases as mentioned above.
Dear all, Dear Alberto,
I can agree with you in most cases. In cases where services of maintain public order and of safeguard national security have a unique selling proposition or are in danger of public security, public enterprises or institutions should also carry out. This includes the monopoly on the use of force, at least in Germany. The difference in the assessment can be seen very well from the public spending, see above. In Germany and some European states more public spending. In the Anglo-American area a little less public spending. Without state it does not work, otherwise we would not have to pay taxes. The comparison with times before the Middle Ages is not very helpful.
Yesterday, the new master agreement between Germany and France was completed. Criticism was also raised, especially by Tusk. Whether France and Germany want a Europe of two speeds? Macron and Merkel denied this and stressed the unity of Europe. However, the Europe of two speeds placed on the agenda and published again and again. I want to emphasize this here because it is a complete contrast to Aleš Kralj's comments. But I have no problem with it, even if it contains information that is untenable (diesel, laws, Visegrad states, all be net recipients, etc.).
I live right on the border with Bohemia. I live right on the border with Bohemia. CS has the lowest unemployment rates in Europe, because of its excellent cooperation with Germany, although some opinions differ.
M.L.
H.G. Callaway Invisible hand cannot always lead to unintended public good. Rather it leads to unintended public bad more often, from Tulip mania to Bitcoin.
Researchers have always asked to control the influence of Invisible Hand in from Charlas Mackay's Extraordinary Popular Delusions and Madness of the Crowds to Robert Shiller's Irrational Exuberance
Economic Regulations is the core of prosperous economy.
Muhammad Farooq's block-chain suggestion can be a good solution but its unlikely to be implemented because superior economies and businesses (especially middlemen) won't like the idea.
Waqar, there are a few issues here. The first is calling Bitcoin a "public bad." It is a proof of concept technology and is not all there is to crypto, but as a proof of concept, it has helped show that we can find an alternative to the banking and credit institutions, as well as a decentralized system of monetary production which is very much in line with Plato's view of an ideal currency.
As for Tulip mania, there are a lot of factors here, not the least of which is that regulation did seem to have a major impact on prices. For one, it seems that we are really looking at contract prices, and Thompson basically suggests that, just as is often the case, the fluctuations were a response of expectations of changes in government regulation. Article The tulipmania: Fact or artifact?
In other words, Tulip mania was a response to outside intervention, rather than a result of natural dynamics of the technosphere. Of course, we're always going to have ups and downs in a natural technosphere, just as the biosphere has fluctuations. But so what?
Dear Daniel,
To describe a social development only with ups and downs is rather cynical. For example, if the time course does not increase positively with linear regression, there is economic regression, perhaps stagnation. That is, only a few become rich, the vast majority impoverished, despite work.
M.L.
oh, dear H.G. Callaway ..where do you want to start?
Greece was on the list of "failure" while banks knew exactly the consequences of their actions.
Same UK's lords:-) as there is a power to fight for whatever "reasons"
EU will stay together as long as their actions are not colliding with USA. What EU might have challenges although will be to get away from NATO.
One speed for EU as a unitary entity is mandatory although some might have different interests..but then only time will tell.
> That is, only a few become rich, the vast majority impoverished, despite work.
Michael, we see that in societies that are heavily "domesticated." It is not the result of the invisible hand. Show me a group of people that maintain wealth for many generations, show me a nation where there is massive wealth inequality, and where the average person can barely survive, and I can pretty much guarantee that there is a subversion of the natural dynamics of the technosphere.
Dear Daniel,
At first you can not simplify a model so much that it becomes wrong. If they represent the data of a social development during a wave motion as a time course, e.g. as a linear regression y = mx + b (regression line), then m has to be positive. This refers to the national economy as a whole.
All ancient dynasties can cite them as an example, e.g. the British royal family.
M.L.
And then if you intersect 2 lines you will have:
y-y1=m(x-x1)..so some can be on the positive "line" while others are always on the "negative" line..
Then m value is always (-1) because m1 is m2 inverted so whichever way you look, some have a good life while others "keep balances":-) contrary to an individual Natural Law in which each has quality of life.
The invisible hand analogy does not suggest that everyone lives well. What it suggests is a general tendency of the technosphere as a whole.
https://www.youtube.com/watch?time_continue=1428&v=CjWhYOqoPUc
some have established "controls" therefore skewed the entire Human specie and its environment
I think that YouTube video is overstating the extent to which monetary policy "picks who will be rich and who will be poor." The video discusses primarily macroeconomic issues, the money supply. If the money supply is expanded more than the actual growth of the economy, you get inflation. Conversely, if the money supply does not keep up with economic growth, you get deflation.
Everyone is impacted, either way. To claim that expanding the money supply will give an advantage to the rich, with absolute certainty, is a bit of a stretch. It is only true to the extent that the rich usually have much of their money invested, not just hidden under a mattress, so that they will be more immune to inflation. Assuming their investments are good, naturally. The investments can also be risky, and they could lose a lot of wealth that way too. But everyone should have some money invested, if nothing else, in their retirement plans. No one is telling people not to invest.
The other point is, I object to the suggestion that the US was aching for military action against Libya. This was 2011, Obama was President, and military intervention was not high on Obama's list of priorities. Quite the opposite. How he got dragged in, primarily by France and the UK, is still a mystery to me. But he definitely had to get dragged in, and played a minor role.
And one more thing. Public works projects are sometimes necessary, because the amount of capital needed up front is so high. But come now. Let's not pretend that a public work project is all it takes. We have seen what happens in places like Venezuela, right? Centralized decision making, put too many eggs in one basket, the price of oil drops, and the economy suffers more than it ever should have. It suffered more than it should have precisely because the "invisible hand" was not operating! Let's not not fall into the trap of superficial, facile rhetoric.
Everyone is impacted, either way.
I must disagree with you, Albert, at least partially. If the expansion of the monetary base were uniform, that would be true. For instance, if for every dollar, $0.10 was created, and you received that $0.10 then it is true. But that is not the case. Expansion of the monetary base occurs through the banking industry, and those who are connected to that industry are going to disproportionately benefit from the expansion of the monetary base.
But Daniel, when the money supply expands (correctly expands, so as not to merely create inflation), existing industries can afford to invest in expansion, hire more workers, and startups can also get their funding. How does that not benefit everyone? How would the central bank (such a the Federal Reserve in the US, which determines money supply) determine who benefits from that expansion?
It can benefit many, but to say that it benefits everyone is problematic. If the expansion is natural, I would agree. But in a system where the monetary base and interest rates are controlled by a central banking institution, I would say no. Those who are more closely connected to the source are going to benefit more, while purchasing power for those further away is going to actually decrease.
Dear all,
There is no pure teaching in the complex economies! One just has to apply the right teaching and it runs smoothly in society??? It is quite simply one just needs to use the "invisible hand" and social development is going great.
Ridiculous. Everyone knows that's not the case.
M.L.
It is quite simply one just needs to use the "invisible hand" and social development is going great.
I don't think that anyone is making this claim. Nature doesn't "run great." But that does not mean that there must be a god to keep things running, any more than there must be an outside force to keep the technosphere running smoothly.
" This was 2011, Obama was President, and military intervention was not high on Obama's list of priorities "... Yet Secretary of State Hillary Clinton strongly advocated and succeeded in convincing the administration to support the Libyan rebels with a no-fly zone, intended to prevent a possible humanitarian disaster that turned quickly into all-out war.
https://nationalinterest.org/feature/hillarys-huge-libya-disaster-16600
Despite valid ceasefire opportunities to prevent “bloodshed in Benghazi” at the onset of hostilities, Secretary Clinton intervened and quickly pushed her foreign policy in support of a revolution led by the Muslim Brotherhood and known terrorists in the Libyan Islamic Fighting Group. One of the Libyan Rebel Brigade commanders, Ahmed Abu Khattala, would later be involved in the terrorist attack in Benghazi on September 11, 2012. Articulating her indifference to the chaos brought by war, Secretary Clinton stated on May 18, 2013 , to the House Oversight Committee and the American public, “Was it because of a protest or was it because of guys out for a walk one night and decided they’d go kill some Americans? What difference, at this point, does it make?
Good that she was not able to take the power as she hoped for so maybe there are still positive forces in USA
Daniel,
[Proper expansion of the money supply] can benefit many, but to say that it benefits everyone is problematic.
You're right, I should have been more precise. The proper expansion of the money supply, where by "proper" I mean that it closely reflects economic growth, potentially benefits everyone. I'm just trying to stay away from vague generalities, which assume, as a given, that economies are always governed by socialism. The kind of generalities that get people to automatically nod their approval.
When an economy expands, "the invisible hand" helps to determine what industries, and therefore what worker skill sets, will be the primary winners. To the extent that banks hand out the loans, those who benefit the most are those who the banks assess will bring to society what society is rewarding most, at that point in time.
Let's not pretend, though, that banks have all the clout. If banks don't hand out loans in accordance with what society is valuing right at that time, those loans will default. The bank loses.
So for example, in that YouTube video, the assumption appeared to be that an expanding money supply would, with 100% certainty, benefit the real estate sector. And that therefore, the banks decided who would become rich. We should not just accept that as gospel truth. The real estate sector can also collapse, leaving a lot of these supposed elite destitute. As we have discovered.
How are we all going to be affected?
https://seekingalpha.com/article/4235422-governments-central-banks-got-wrong-will-learn
Daniel,
"Most well-known and shaping today's understanding is undoubtedly today the use of the metaphor in the work published in 1776, The Wealth of Nations. Smith uses the invisible hand there in the second chapter of the fourth book, in which he deals critically with import restrictions on foreign goods, that is, in a macro or microeconomic context."
You should become a revolutionary in your beautiful country and really argue for Smith.
M.L.
Philadelphia, PA
Dear all,
"Classical liberalism" is a doctrine or movement of political economy deriving from the work of Adam Smith (1776) The Wealth of Nations, through Ricardo, and J.S. Mill --with earlier and later adherents and proponents. It is also sometimes thought of as nineteenth-century liberalism, and it extends to other nineteenth-century thinkers e.g., in France and Germany.
Note the following passage from the Encyclopedia Britannica:
Although the terms are similar, neoliberalism is distinct from modern liberalism. Both have their ideological roots in the classical liberalism of the 19th century, which championed economic laissez-faire and the freedom (or liberty) of individuals against the excessive power of government. That variant of liberalism is often associated with the economist Adam Smith, who argued in The Wealth of Nations (1776) that markets are governed by an “invisible hand” and thus should be subject to minimal government interference. But liberalism evolved over time into a number of different (and often competing) traditions. Modern liberalism developed from the social-liberal tradition, which focused on impediments to individual freedom—including poverty and inequality, disease, discrimination, and ignorance—that had been created or exacerbated by unfettered capitalism and could be ameliorated only through direct state intervention. Such measures began in the late 19th century with workers’ compensation schemes, the public funding of schools and hospitals, and regulations on working hours and conditions and eventually, by the mid-20th century, encompassed the broad range of social services and benefits characteristic of the so-called welfare state.
---End quotation
See:
https://www.britannica.com/topic/neoliberalism#ref1247535
Any version of liberalism is distinguished from socialism by making greater provisions for markets in the economy and private ownership of resources and means of production. It appears that contemporary versions of neo-liberalism have evolved in the direction of corporatism and often lost the liberal aversion to the large state and state intervention and regulation.
H.G. Callaway
Dear Callaway, Dear all,
I can agree with you in everything. Perhaps it would be interesting to note that European liberalism and Anglo-American liberalism are essentially different. That's why I think it's risky to consider social liberalism as fundamental. But social liberalism is a form of liberalism, e.g. next to economic liberalism. Social liberalism has its roots in Europe.
I had submitted a table of social rates of the GDP. In general, this social rate can also provide information on how the welfare state has been developed in the idividual countries..
M.L.
HG Callaway and Michael,
On this quote from the former:
Any version of liberalism is distinguished from socialism by making greater provisions for markets in the economy and private ownership of resources and means of production. It appears that contemporary versions of neo-liberalism have evolved in the direction of corporatism and often lost the liberal aversion to the large state and state intervention and regulation.
The contemporary version of liberalism, tout court, I would argue, assumes that capitalism simply won't work. I think this is what Michael calls "social liberalism." Its proponents start off with the premise that government control of the economy is mandatory. In the US, they don't usually go to the extreme of suggesting government ownership of industry, but they certainly do propose government control of wealth redistribution.
Is the modern version of "neoliberalism" not called "libertarianism"? Here's today's extreme example: the current Chairman of the US Federal Communications Commission (FCC). His goal seems to be to roll back just about every measure there is, to regulate the telecoms, even though this industry is not at all self-regulating, due to almost complete lack of local competition. (Which is inevitable, much as competing water and sewer services are not practical, in any single location. It has to do with capital outlays and return on investment.)
So, that's the other extreme. In today's argot, I'd argue that "liberalism" and "libertarianism" are complete opposites, and both extremes are characterized by dogma and simplistic slogans.
In fact, perhaps this ties back to the various threads on philosophy vs science. This FCC Chairman stubbornly believes that lack of government oversight must result in a big increase in competition and growth. Like a religious belief. Even though there is plenty of evidence that in certain industries, those that are not or cannot be competitive, what he "strongly believes" is plain false. He claims that because of his rollbacks, the telecoms have gone on major investment sprees. When in fact, nothing of the sort has happened. (In his defense, he is a lawyer, not a scientist by any definition of the term, and therefore, prone to dogmatic beliefs.)
Dear All,
https://www.youtube.com/watch?v=qIrFAi5R9yg
Shoshana Zuboff is the author of 'The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power.' She talks with Leo Laporte about how social media is being used to influence people.
Michael, I argue for an "organic technosphere." Basically, I'm an anarchist.
Philadelphia, PA
Dear Manfredi & readers,
As a matter of contemporary political analysis, "libertarians" contrast with the dominant currents of neo-liberalism in that the neo-liberals are typically corporatist in their outlook. (Contrast, say, Senator Rand Paul with the Republican establishment or the Clinton Democrats.)
Neo-liberalism, is a version of "big government" liberalism. Notice that large corporate institutions, of every sort, private or public, have greatly benefited in the governmental policies and process of globalization and are better adapted to survive in the international competitions. (This is not to endorse either one or the other, but there are important differences of emphasis.) Neo-liberalism (think: "Wall Street" and "the "City of London") lines up better with recent neo-conservative elements among the U.S. Republicans; but also with the institutionalist and moneyed left of the Democratic party.
The idea of a German or European "social liberalism," again, lines up better with big business and big public institutions of every sort --partly as a consequence of the European market and partly as an implications of policies of globalization. Germany, however, in contrast with many other countries, has done a better job in preserving smaller firms and manufacturing industries domestically, though wages have also stagnated in Germany in view of the international competition.
Keep in mind that European thinkers preserve a positive conception of corporatism --in which leaders of government, industry and labor, are to work out their differences, "sitting at the table," and that this kind of politics is not well adapted to larger more heterogeneous societies or countries. Nonetheless the American institutionalist left in the Democratic party thinks that something similar can be made to work. The Republican establishment is, perhaps, less ideological, but happy to line up with big corporate donations? Libertarians, on the other hand, often find it difficult to think in terms of corporate domination --insofar as they idealize private business.
In the background here is the point that the modern corporation arose or was significantly changed in the progressive era. What had been large family-owned firms associated with famous names, became publicly owned and came to be dominated by their managers. This was thought to be a move away from 19th-century capitalism and the age of the "robber-barons," making large firms over in a fashion more amendable to government control and regulation. Whether they are, in fact more amendable, is another question. But the institutionalist left tends to think they are, or should be. The Europeans typically can't see that their domestic styles of politics don't work in larger, more heterogeneous countries.
H.G. Callaway
---you wrote---
Is the modern version of "neoliberalism" not called "libertarianism"?