The invisible hand at 250 |
AS the US gears up to celebrate 250 years of independence this coming July, another anniversary is quietly being celebrated in economic circles around the world. This year marks 250 years since the publication of Adam Smith’s monumental The Wealth of Nations. Like Newton and Darwin, this book truly established Smith’s ideas as foundational for the coming generations.
Smith is considered the father of modern economics. ‘The invisible hand’ is one of Smith’s most famous ideas; when individuals pursue their own self-interest in a free market, they unintentionally benefit society as a whole. Smith’s invisible hand is often employed during protracted debates on the efficacy of market capitalism. Some people believe that this idea establishes the indubitable superiority of free or unregulated markets over government planning and state regulation — the notion that unregulated markets always provide superior economic outcomes.
Libertarian scholars have interpreted Smith’s work to reject any regulatory or redistributive (taxes) role for the state, arguing that endless gains accrued through unregulated markets are vastly superior, while the state is nothing more than a source of inefficiency. Like Victorian-era children, libertarians argue, the state may be seen, but not heard. According to libertarians, Adam Smith’s message may be best summarised by the catchphrase ‘greed is good’.
Such interpretations of the invisible hand, however, are largely misconceptions. Smith’s ideas need to be understood in the context of immense social upheaval in Britain, beginning in........