The “Invisible Hand” and “Reverse Invisible Hand”

Invisible Hand

by Gordon Anderson

GordonThe economic debates we hear between the right and left today tend to be wars of words based on unscientific suppositions, or statements of faith. Thus, the battles between economic ideologies that often underpin the rhetoric of Republican and Democratic candidates tend to reflect the type of belief we would call “primitive religion” if it were a discussion of some other aspect of human life. Both statements that “an invisible hand of the market can bring happiness to all” and “government redistribution can bring happiness to all” are suppositions that contain an element of magic akin to the common religious belief that “if you are faithful to scripture, God will bless you.”

The Book of Job in the Old Testament is about a faithful man who suffered afflictions, not blessings. The Holocaust is another example of a people faithful to scripture not being protected by their God. Similarly, poverty in the West serves as evidence that a free market economic system does not automatically lead to the happiness of all who live under it. And, the collapse of communism in the USSR is evidence that government allocation of economic resources leads to economic collapse and misery. It is time to move beyond the naïve rhetoric of our inherited economic dogmas and attempt to understand why they rely on a lot of magic and how the scientific study of human economic nature can lead to better solutions.

The Invisible Hand 

In the debates between left and right, free marketers on the right often cite Adam Smith and his “invisible hand” of the market, while socialists on the left consider the invisible hand to be an article of faith. The socialists are right. The term “invisible hand” is a non-scientific name given by Smith to explain a phenomenon he observed. Like the idea “the tree god makes the wind blow,” this type of supposition is a label attached to an observed phenomenon to describe human experience and observation without scientific explanation.

What Smith referred to as the invisible hand has been studied scientifically by psychologists and economists who understand that, in competitive market environments, human beings pursuing their own ends are forced to serve others or starve. In a free market transaction, the seller has to provide something to the buyer that he is willing to pay for, and both buyer and seller “win.”

Continue Reading→