Invisible Hand

The other day I read a review of a book about Adam Smith. Smith is the Scotsman who in the 18th century introduced the world to the idea of "free market capitalism". He coined the phrase "invisible hand" to describe the unseen force he thought guided free market capitalism.

At the time of Adam Smith free market capitalism did not yet exist. But it was beginning to emerge, like democracy was beginning to emerge. It is believed that Smith invented the idea of capitalism, that his ideas instigated it. Really, though, capitalism invented itself, to reflect and address what was happening in human affairs. Nevertheless, Smith contributed to it in a big way. He was the one astute enough to name and understand it. Furthermore, by identifying and explaining what was transpiring in human affairs, he helped facilitate and expand it.

I imagine Smith standing in the middle of the 18th century, looking around and trying to figure out the phenomenon that was swirling around and consuming his world. This phenomenon was the Industrial Revolution, which was just developing and creating unparalleled social upheaval. It was mind-boggling. Smith believed that something inevitable and natural was behind this revolution, with its churning, laissez faire, entrepreneurial ways. It was this market anarchy and its money that compelled Smith to name it free market capitalism. However, he also realized that this free market capitalism was no random event but was due to an emerging new order. He also realized that it was this new order's very nature of production and distribution of goods that compelled the economic system of free market capitalism to develop. From Smith's stand point the Industrial Revolution and capitalism were mutually inseparable. Each begot and necessitated the other.

From the book review I also learned a little known fact about Smith's invisible hand. His idea grew out of natural philosophy, a philosophy that was gaining acceptance due to thinkers like Isaac Newton and Francis Bacon before him. These natural philosophers – scientists, linked the activities of humans to those of the natural world, believing that the laws and economics of nature also applied to humans because, as it seemed obvious, humans were also bound by the natural world. Bacon also thought that society could and should be organized and governed along the same principles as nature. This is probably where the idea of the 'survival of the fittest' came from, as an explanation for those humans that adapted well to the social upheaval of the Industrial Revolution and those that did not, similarly to what happens in nature. Perhaps also, Smith's free market principles were intended to reflect the 'free market' principles that occur in nature, with its ebbs, flows and fluctuations.

Having recognized that humankind is part of the natural world and influenced by it, Smith wondered if there was anything comparable to the force of gravity in the social sense. Was there a force like gravity that grounded humankind socially, like that which grounded the natural, physical world? That is when he came up with the idea of the invisible hand, perhaps for want of a better term. So, to Smith's way of thinking the invisible hand was social gravity, the thing that grounds us and establishes our ethical behavior.

The social gravity of the invisible hand that Smith had in mind is not quite what I had in mind. Where as I think of the invisible hand as the economic instrument that organizes society in accordance with nature’s economic imperatives, he thought of it as an instrument that would naturally balance society’s economic imbalances and right the wrongs brought about by the Industrial Revolution. The Industrial Revolution, with its laissez faire capitalism, brought about an economic upheaval never witnessed before. While some people got rich a lot of others got very poor and lived in terrible conditions. It was a revolution sparked by and centered on individualism and individual initiative. And while it allowed some people to advance themselves economically it left may others far behind, living in squalor. Some believed that the rich were exploiting the poor without much regard for their welfare. However, Smith thought that the invisible hand, by assisting individuals to pursue their own self-interests and become rich, would inadvertently help the poor to also advance themselves. Smith believed that the invisible hand would in time level the playing field.

I have another idea about the invisible hand, other than it just being the equalizer Smith believed it to be. It is also the guiding hand that has led humankind to an economic system that is capable of sustaining our future. It has also taught us that economics is humankind’s number one discipline, which without it being addressed first and foremost little else is possible. Apart from that, the free market, which the invisible hand has guided us to, is the only workable system that can address the ever-present conflict between human needs and the economic imperatives of the natural world. It is also the best system to afford us the new technologies we need to survive and continue. And as to evidence of its exceptionalism, free market capitalism is now the unchallenged economic system of the world. However, until recently there was another competing economic system, communism, which was rigid and centralized, not free or open. But communism is now debunked because of the invisible hand and the knowledge that inflexible economic markets do not have the sustainability necessary for the modern world.