In the last instance he used the metaphor ' invisible hand' without any theological reference in his 'Wealth of Nations' written in 1776. Here in discussing superiority of domestic to that of foreign investment, Smith says that a capitalist in order to have greatest value ' he intends his own gain, and he is in this, as in many other issues, led by an invisible hand to promote an end which was no part of his intention'.
This unintended social benefit of individual's self - interested actions, in other words the metaphor ' invisible hand' is noted elsewhere in the book. 'It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, but never talk to them of our necessities but of their advantages.
'Though in all fairness it must be admitted that this idea was first advanced by Anglo- Dutch philosopher Dr. Barnard De Mandeville in his 1714 book ' Fable of the Bees or, Private vices, Publick benefits' before Smith was born. 'But Adam Smith's viewpoint on self-interest and self-love as depicted in Wealth of Nations will not do justice to him. Ha was also the author of his major philosophical work ' The Theory of Moral Sentiments. Here he says that some motives including self-love, sympathy, and sense of propriety actuate human behavior.
These motives are well balanced. Self-love is balanced, restrained and guided by sympathy. He begins the book thus: 'How selfish so ever man may be supposed, there are some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.' It is to be noted that he first advanced his idea of invisible hand or unintended social benefits of private gains in this very philosophical work.
It is obvious that whereas Smith's self-interest was value laden, self-interest of the neoclassical economists, market fundamentalists-aforementioned libertarian economists is completely value-free.
Moreover though Smith championed Laissez Faire principle, first espoused by French physiocrats, he kept expenses of these important fields to be met by the sovereign, i.e, government as education of the youth, instruction of people of all ages, erection and maintenance of the public works like roads, bridges, navigable canals, harbors, etc. On the other hand, libertarian Milton Friedman advocates elimination of ' free public education, decriminalization of drugs, legalization of prostitution etc. In his scheme of ' Freedom to choose'. Even Smith's advocacy of free trade was not unqualified.
But soon after the death of Adam Smith, his vision of a harmonious society guided by Invisible hand based on enlightened self-interest evaporated. Visible hand of never ending greed and lust of business and capitalists became manifest. Widespread application of machinery displaced labor and thus created unemployment.
As labor became light with machinery, children of four- five and women were engaged in factories and with a paltry wage working day went on lengthening and reaching 19 hours. Capitalists gorged on the profits arising out of extreme misery of workers of all categories. Working condition in mills and factories was so hellish and horrific that Romantic poet William Blake in his poem ' Jerusalem' described those as ' dark, satanic mills'. Visible hand of business and government together turned European colonial system in Imperialism in cementing grab of market and resources.
Moreover as Marx brilliantly analyzed the process of concentration and centralization of capital, the very process created monopoly and monopolistic markets with significant market power in their visible hands at the turn of 19th century. With that ended invisible hand's operation of equilibrium prices through supply and demand. Latecomers' endeavor to claim portions of market and resources was to a great extent responsible for two world wars in the 20th century. Moreover, externalities have greatly diminished the so called merit of invisible hand.
Very existence of this planet is under gravest threat due to environmental externality created out of free market economy and visible hand of corporate greed. Since early 19th century invisible hand of market has been causing visible and in many cases terrible periodic business cycles including Great Depression of 1930s, and the last being that of 2008-9.
What visible bitter fruits did Thatcherism, Reaganomics and Washington consensus produce through invisible hand of market? Inflation was contained but at what tremendous social costs? The poor got body blow. In Great Britain, unemployment rose to 3.3 million from 1.5 million when he came to power in1979. Poverty rate increased.
When she quit office in 1990, 28% of the children in Great Britain were below poverty line. Gini coefficient measuring inequality went up from. 25 in 1979 to. 34 in 1990. Millions of secure, skilled industrial jobs were lost. In the USA, homelessness in the cities became acute. Reagan said that the homeless people ' make it their own choice for staying out there.' 'A large proportion of them are mentally impaired'.
On the other hand top marginal income tax rate fell from 70.1 % to 28.4%. Hurting poor, in 1983, a payroll tax was introduced increasing on social security and medical hospital insurance. IMF and World Bank imposed harsh conditionality's to provide loans to the developing countries which included cuts in subsidy, various austerity measures in order to get prices right' according to free market principle.
As a result many developing countries, especially poor African countries faced grievous situation where hard won successes in health, education, nutrition etc. during previous three decades were losing ground. UNICEF became seriously concerned and in' Adjustment with a human face' of 1987 those concerns were ventilated.
One of the most pernicious effect of this libertarian market fundamentalism, laissez faire and invisible hand is the unprecedented and abominable visible inequality that has been created and is being created day in and day out since the start of Thatcherism and Reaganomics. Not a single billionaire was there in Great Britain in 1979. Now there are 97 billionaires and cent billionaires in UK. There were 13 billionaires in the USA in 1982, now according to Wealth-X billionaires census 2019, there are 705 billionaires and centi billionaires.
China was one of the most egalitarian society up to 1976. Now with the introduction of Communist China's market economy, it has 285 billionaires, second highest billionaires in the world. India has 82. According to OXFAM, in 2018, 26 richest billionaires had as much asset as 3.8 billion poorest people of the world; in 2017, 43 richest billionaires had as much asset as half of poorest population on earth and in 2016, 61 richest men had as much asset as half of the poorest population of the world which shows that world asset is being concentrated in fewer and fewer hands. As a measure of inequality, UNO has set .4 Gini coefficient as the alarming level.
At present, USA has a Gini coefficient of.48. China and India have more than. 5. It is rightly said that like global warming, world inequality is inching towards irreversible tipping point.
On the other extreme, greatest social engineering experimented in Russia, China and elsewhere to establish socialism with very limited use of market and market categories to achieve some macro social objectives failed ignominiously behind which neglect of market and money commodity relations to achieve efficiency and proper use of resources was largely responsible. Severe stunting of the economy and its ultimate collapse was the result.
So, where is the solution? What should be proper mix of state and market in different space and time? If Scandinavian model is a solution, do developing countries possess the capital base and resources to implement it? Does the great moral philosopher cum economist Adam Smith's 'Providence' who is the divine planner behind Smith's invisible hand of Theory of Moral Sentiments have the solution? Waiting for Godot?
The writer is Retired Professor of Economics, Rajshahi University, Rajshahi.
Leave Your Comments