The concept of "the invisible hand," cherished by
self-designated "conservatives," has its origin in Adam Smith�s Wealth
of Nations.
[The individual] neither intends to promote the public
interest, nor knows how much he is promoting it . . . [H]e 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.
An unyielding faith in the infallible beneficence of
"the invisible hand," leads to "market absolutism"
-- the doctrine that whatever government attempts, privatization and the
free-market can do better.
What market absolutists (unlike Smith) fail to notice, is
that not all workings of "the invisible hand" are beneficial. Some
unintended consequences of market activity are harmful -- "the back of the
invisible hand." Economists call these "market failures."
One cannot enroll in an Introduction to Economics class,
without encountering the concept of �market failure� -- the acknowledgment that
a totally unconstrained and unregulated free market can, at times, have
socially undesirable consequences (as I will exemplify below). It is one of the
most obvious and incontrovertible facts of economics. Almost all of us are
aware of market failures, whether or not we have ever studied economics.
Some students of Econ. 101 choose to major in Economics, and
a few of these earn doctorates in the field. Those scholars who go on to work
for The Heritage Foundation, The American Enterprise Institute, The Cato
Institute, and other such "conservative think-tanks" somehow manage
to completely forget about �market failures.� The free unregulated market, they
tell us, always brings about the socially optimum result. Some examples (with
my italics):
- �In
the free market, the individual would have to produce a good that the
other person desired in order to receive a good in return. Adam Smith's
�invisible hand� of the market guides all participants in society to
promote the best wishes of everyone else by pursuing his own wants and
desires.� (Jacob
Halbrooks)
- �[T]he
free market allows more people to satisfy more of their desires, and
ultimately to enjoy a higher standard of living than any other social
system . . . We need simply to remember to let the market process work
in its apparent magic and not let the government clumsily intervene in it
so deeply that it grinds to a halt." (David Boaz, Libertarianism,
a Primer, p. 40, 185.)
- "A
free market [co-ordinates] the activity of millions of people, each
seeking his own interest, in such a way as to make everyone better off
. . . Economic order can emerge as the unintended consequence of the
actions of many people, each seeking his own interest." (Milton and
Rose Friedman: Free to Choose, pp 13-14).
Accordingly, governments should never interfere with
markets. Furthermore, governments should not own property, which is better
managed by private individuals. So argues the libertarian, Robert J.
Smith: �The problems of environmental degradation, pollution,
overexploitation of natural resources, and depletion of wildlife all
derive from their being treated as common property resources. Whenever
we find an approach to the extension of private property rights in these areas,
we find superior results." (My italics). "All," "whenever"
-- no compromise or qualification here!
In short: let the free market decide. The mysterious
�invisible hand� of the free market will �promote the best wishes of
everyone..,� (Halbrooks), �[allow] more people to satisfy more of their
desires� (Boas), and �make everyone better off� (Freidman).
Practical experience tells us otherwise:
- The unconstrained chemical industry promoted pesticides and
caused extensive damage to the ecosystem, until the public and then the
government, aroused by Rachel Carson�s book, �Silent Spring,� put a stop
to it.
- Similarly, the chemical industry strenuously
resisted demands that it cease the manufacture and distribution of
chloro-fluorocarbons (CFCs), when atmospheric scientists discovered that
the CFCs were eroding the stratospheric ozone, which protects the earth�s
inhabitants from ultra-violet radiation. Once again, the federal
government, joined by the governments of other industrialized nations,
enforced a ban on CFCs.
- Scientific warnings about global climate
change (�global warming�) were countered by �junk science� sponsored by
the energy industry. Now, at last, as the fact of climate change becomes
undeniable and widely acknowledged, the same industry is promulgating the
�line� that climate change may not be all that bad, and might even be
beneficial. Clearly, mankind can not count on private enterprise to solve
this grave crisis. Only international agreement among the industrial
nations will suffice. Meanwhile, the Bush administration, on behalf of its
�sponsors� the energy industry, is resisting international action.
- Reduced labor costs yield increased profits
and increased dividends to the stockholders of the corporation. Thus, if
workers abroad accept wages that are a fraction of the wages demanded in
the United States, then the "responsible" policy of the
corporation executives is to re-locate jobs abroad. "Outsourcing."
The consequences to the displace workers, and eventually to the
national economy, is devastating. But strictly speaking, that is not the
concern of the corporation. Not, that is, unless the government intervenes
with tariffs, tax incentives, regulations, and laws.
- Finally,
the tobacco industry, whose corporate responsibility to its stockholders
is to maximize profits, successfully marketed its products to the point
where half of the US population were smokers. As a result, almost a half
million Americans die prematurely each year -- more than the total US
casualties in World War II. Today, only a fifth of adult Americans are
smokers. No thanks to the industry. Once again, government intervention,
vigorously and persistently opposed by the tobacco industry, has curtailed
marketing and has publicized the health hazards of smoking, saving the
health and lives of millions.
We are all quite familiar with these �market failures,� and
many more. It is obvious that, in numerous undeniable cases the unregulated
free market fails to �make everyone better off,� as Milton Friedman would have
us believe. So why, if market failures are so compellingly obvious, should we
even bother to mention them? The answer is that our present government is
dominated by individuals who behave as if they don�t recognize these malevolent
consequences of free markets. So one after another, regulations and laws
designed to correct market failures are being dismantled, as government
regulatory agencies are staffed with lobbyists and officers from the
corporations that these agencies are charged to regulate.
But why do markets fail to produce optimal results for
society at large? Railroad tycoon, William Vanderbilt (1856-1938) said it all:
�the public be damned, I work for my stockholders.� Moreover individual
entrepreneurs and workers also want and strive for what is best for themselves.
Indeed, as any neo-classical economist will insist, personal want-satisfactions
(e.g., profits) are what drive an economy.
Implicit in market absolutism and libertarianism is the
belief that what is best for each individual and each corporation is best for
all individuals -- in other words, for �society at large.� As President
Eisenhower�s secretary of defense, Charles Wilson, put it: �What is good for
General Motors, is good for the country.� (For a refutation, see my "Good
for Each, Bad for All").
Market absolutism, like "young-earth creationism"
and biblical literalism, is a dogma, and thus it is untouched by hard evidence
and practical experience. "Market -- good; Government -- bad.
Period! Now don't confuse us with the facts."
Those who are not captivated by the dogma of market
absolutism (i.e., most of us), know better. We trust the scientists who tell us
that pesticides damage the ecosystem, that CFCs erode the ozone in the
stratosphere, that the continuing use of fossil fuels is changing the climate.
And we know that smoking causes lung cancer and premature death -- the
cigarette packs tell us so, not because the tobacco companies warn us out of a
sense of social responsibility, but because the government requires them to
print the warnings.
Government regulation, and laws restricting commercial
activity, arise, not from dogma, but through accumulated practical experience
and political action. As human institutions they are imperfect, which means, to
be sure, that they are sometimes excessive. The appropriate response to
�insolence of office� is reform, not abolition of the office -- reform through
the same processes of practical experience and political action.
As
James Galbraith puts it: �A new spirit of pragmatism surely requires that
we discard the metaphor of market determinism -- whole and entire. No more let
us bow and scrape before that altar. Markets have their place -- they are a
reasonably open and orderly way to assure the distribution of services and
goods. They are not a general formula for the expression of social will and the
working out of social problems.�
Corporations quite properly work for the stockholders, and
private individuals, in their economic activities, work for themselves and
their families. But when these corporate interests and private activities cause
social harm, who or what is most authorized to act in behalf of society -- of
all the people?
The solution is the same in all civilized societies: the law
and the government that enacts and enforces the law. To be sure, law and
government can be despotic and oppressive, and when they are, �it is [the]
right, it is [the] duty� of the people �to throw off such government.� (The
Declaration of Independence). Such "despotism" surely includes the
situation that we face today, as the corporations that should be regulated by
government, instead have taken control of the government. However, in liberal
democratic countries, law and government, unlike private enterprises, are
authorized to act in behalf of the public at large. This the unregulated free market
cannot do and must not presume to do.
There is nothing new or startling about these political
principles. They are enshrined in our founding documents:
We hold these truths to be
self-evident: that all men are created equal; that they are endowed by their
Creator with certain unalienable Rights; that among these are Life, Liberty,
and the pursuit of Happiness. That, to secure these Rights, Governments are
instituted among Men, deriving their just powers from the consent of the
governed, That, whenever any Form of Government becomes destructive of these
ends, it is the Right of the People to alter or to abolish it, and to institute
new Government . . . (Emphasis added).
And note in the Preamble to the Constitution, these
enumerated legitimate functions of government: � . . . establish Justice,
insure domestic Tranquility, provide for the common defence, promote the
general Welfare, and secure the Blessings of Liberty to ourselves and our
Posterity.�
And yet, the dogma of the ruling elites would ordain that we
put all these founding principles aside, and in matters of public interest and
social welfare, �let the market decide.�
These individuals have the nerve to call themselves
�conservatives.�
Copyright � 2007 Ernest Partridge
Dr.
Ernest Partridge is a consultant, writer and lecturer in the field of
Environmental Ethics and Public Policy. He has taught Philosophy
at the University of California, and in Utah, Colorado and Wisconsin. He
publishes the website, The Online Gadfly
and co-edits the progressive website, The
Crisis Papers.