Adam Smith’s ‘Invisible Hand’ is Supposed to Have a Conscience – Where Did it Go?
EconomicsA few weeks ago I was thumbing through the New York Times and read a beautifully written line by Charles Murray that, at least for me, summed up quite succicently how I felt about capitalism. He wrote:
… and capitalism is the best thing that has ever happened to the material condition of the human race.
And while capitalism has certainly enabled humans to increase our material consumption, I think to a large extent we have allowed it to do so at the sake of our our mortality; blocking out all empathy for others and blinding our conscience to the point that we have lost sight of what conditions of fairness and inequality we allow to exist within our society. As so many people continue to blindly pursue their own self-interests, I start to wonder if Adam Smith’s infamous ‘Invisible Hand’ continues to improve the living standards and benefits for all members of society? Who is actually looking out for the ‘common wealth’ these days?
I wish people who robotically and extravagantly praise unfettered capitalism would spend some time reading The Theory of Moral Sentiments by Adam Smith (of which the term ‘invisible hand’ is first used). By doing so they would gain insight and understanding of his intent (to be decided by themselves of course) for those members within a community who had excess. They were obligated by their humanity and moral compass to distribute their unnecessary excess, which in turn would benefit all members of society.
The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, 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.
I spent nearly two years of my life living in a country with the highest level of income inequality in the world – South Africa. I had a first hand account of the absurd inequalities that can exist when those who have don’t share and distribute the necessities of life with those who have not.
Without a doubt, it was the most emotionally taxing periods of my life. I would go from dining and drinking wine in elegant restaurants one week, to driving through protests in Gugulethu over access to basic social servies another. I experienced these similar situations day in and day out for nearly two years of my life. Being pushed and pulled between the economic polar opposites of society was stressful. I felt guilty a lot of the time.
One of the many things I learned during my time living in South Africa was that I don’t ever want to live in a country with such inequality between sections of society. However, inequality is on the rise in the USA.
Since the early 1980′s the Gini coefficient of the USA (which is a standard measure of income inequality that exists within a country) has only been getting worse (as in increasing amounts of inequality). In addition – thanks in large part to the the Occupy Wall Street protests – many people have become enlighten to the huge wealth and income inequalities that exist in the USA today. As Nobel prize winning economist Joseph Stiglitz highlighted in his May 2011 Vanity Fair article, the top 1% earned nearly a quarter of all income and controlled 40% of the wealth. Even still in 2007, 15,000 people earned 700 billion (which is equal to half of Brazil’s GDP).
Today, I don’t believe our nation’s wealthy feel the communal pressure or need to distribute excess because they are completely severed from the lives of the working and struggling members of society. Their lifestyle affords them the luxury of never coming face-to-face with the poor. This is a serious problem because as the divide between wealthy elite and marginalized communities continues to grow, it will only aide and activate the erosion of the social capital that enables our civil society to function. Countries with a lack of social capital are unstable ones.
Even still and in light of the statistics previously mentioned, I believe responsible capitalism (in which all costs and systemic risk are accounted for) can advance the interets of our society and close the gap of inequality. Louis Hyman of Cornell University’s School of Industrial & Labor Relations says it best:
We need to have capitalism work for us, not work us over.
As of late, capitalism has not been working for the majority Americans. I hope whoever is elected in the upcoming presidential election is capable of exercising their will over Congress to bring about a real monetary and fiscal policy change. A change capable of making capitalism once again work for all members of society and reverse the growing trend of inequality.
Keith has truncated the piece he quotes, and neither does he explain to what Adam Smith was referring, which may give the casual reader a misleading impression and prevent her “gain[ing] insight and understanding of his intent (to be decided by themselves of course) for those members within a community who had excess’.
Smith developed his parable of the “poor man’s son, whom heaven in its anger has visited with ambition” to emulate the rich and the awesome consequences for him. The desire for emulation was a curse, for which his body and spirit paid in due course. It was a “deception”, but it was “this deception which rouses and keeps in motion the industry of mankind” (183), adding that the earth by mankind’s labour has “redoubled her natural fertility” and “maintains a greater number of inhabitants”.
Agriculture appeared about 11,000 years ago, has had a multitude of regimes, all of them with a “rich” leading segment and an overwhelmingly larger labouring-poor segment. This is where the “proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest that grows upon them”.
Now it is “the rest [which] he is obliged to distribute among” the “thousands whom he employs”. And this is the key to what follows. Why is the landlord “obliged” and why have all his predecessor rulers of mankind been so “obliged” too, right through to the 18th century?
Adam Smith uses the metaphor of “an invisible hand” to describe its object “in a more striking and interesting manner” (“Lectures on Rhetoric and Belles Lettres, ([1762], p. 29), specifically, in this case to describe what was beyond doubt, a necessary object of the metaphor, his total dependence upon his labourers, servants, overseers and retainers who labour in his fields. The dependence was mutual: the “thousands whom he employed” had to be fed from the product of his fields, because without food – even for a few weeks – they could not labour, and conversely, without their labour there could be no “heap” of anything for anyone.
Smith also specifies the “necessaries of life”, which were part of the annual produce of the “necessaries and conveniences” and “amusements (luxuries) of life (Wealth Of Nations). By definition, human kind had consumed the “necessaries” since their ancestors were in the forests. Those necessaries were basic, absolutely so in times of dearth. No “proud and unfeeling landlords” shared the “conveniences” of life with the “thousands whom they employed”, and certainly no “amusements” – their wife’s luxury cloths, and trinkets.
The basic diet of necessities was no more than what their ancestors had drawn in the forests. The growth of “wealth”, miniscule as it may have been was not “shared” with the labouring poor, as can still be seen today. Keith draws erroneous conclusions from comparing the alleged “humanity” of Smith’s “proud and unfeeling landlords” as being somehow more “humane” than what he calls today’s ‘top 1 per cent’. Scale wise, it was the same, only the size of the wealth baskets have changed.
Incidentally, I have spent a number of years “ reading and studying The Theory of Moral Sentiments, and the rest of Adam Smith’s Works.