"Invisibile foot" - One of the lessons of the CBS Pilot Course by Wisdom University
Updated: Jan 9
The concept of the invisible hand was introduced by Richard Cantillon, a Franco-Irish economist and investor. Furthermore, the British economist and philosopher Adam Smith introduced this concept in 1759, trying to explain that when individuals perform actions for their own interests, they, in parallel or later, bring social impacts, also in income distribution.
Furthermore, Adam Smith used the term in his book “The Wealth of Nations” (1776), in which he argues for "restrictions on imports from foreign countries of such goods that may be produced in the country." The idea of trade and market exchange that automatically channels self-interest toward desirable social goals is a major justification for the laissez-faire economic philosophy, which lies behind the neoclassical economy. In this sense, the central disagreement among economic ideologies can be seen as a disagreement on how powerful the "invisible hand" is. Along with the idea of market economy, other economic systems have been developed in the world in which the forces that were new during Smith's life, such as large-scale industry, finance and advertising, are not very important or very present and, according to Slater & Tonkiss, also have reduced its effectiveness.
Adam Smith, trying to explain the theory of the invisible hand, took as an example a landowner who, with his imagination, consumes all the products that results from the harvest, but in practice, since his stomach does not have the skills/space in proportion to production, is obliged to distribute production among those who realize that production, those who serve him in the palace, among those who ensure order in the economy (of greatness), etc. So, according to Adam Smith, “the rich ... are led by an invisible hand to make the same distribution of the necessities of life, which would have been done in the same way as if the whole earth had been distributed equally among all area residents”. They, unknowingly, advance the interest of society and make it possible to allow the species to reproduce. Adam Smith also links this to people's desire to be respected by members of the community in which they live, and people's desire to feel respected.
According to Adam Smith, “the annual income of any society is always exactly equal to the exchangeable value of all the annual products of the sectors of the economy of that country ...and each individual tries as much as possible to use the capital of its in support of domestic industry, dealing with that sector or industry, the production of which may have a value as high as possible”. At this point, it seems that Adam Smith thinks that throughout this endeavor, the individual in general, in reality, neither intends to promote the public interest nor knows how much he is promoting it, but since the individual prefers to support the development of his country than the development of foreign industries, he actually does nothing but aims for his safety and only for his benefit. In this state he is guided by an invisible hand, by means of which an end is finally realized, which was not even part of the goals of the individual. And, "even those who are poor or just employees ... enjoy their share of everything that is produced and what constitutes the true happiness of human life, and, these are by no means inferior to those who would look so much up from them. In the ease of the body and the serenity of the mind, all the different levels of life are almost on one level, and the beggar, who stands on the sidewalk, possesses that security for which the kings fight". It seems that Adam Smith denounces the "stupidity" of the owner (described in Theory of Moral Sentiments - Wealth of Nations) as an unproductive work, stating that although "a man becomes rich by employing a large number of producers, he grows poor by keeping a multitude of servants at the same time”.
At this point many authors think that Adam Smith's approach from microeconomics turned to macroeconomic approach, especially after the instruction he made in France and the contacts he had with French economists and philosophers of that time.
The concept of the invisible hand as we use it today, seems to be a generalization beyond Smith's (two) original uses. The phrase "invisible hand" was not popular among economists before the 20th century. Among well-known authors in the international arena at the time, the term was not familiar. Alfred Marshall never used this expression in his book “Principles of Economics”. William Stanley Jevons never used this expression in his book “The Theory of Political Economy”. It seems that only Paul Samuelson mentions this expression in his textbook "Economics" (1948), in which he writes that Adam Smith was so excited by the recognition of an order in the economic system that he proclaimed the principle of the invisible hand as a mystical principle according to which every individual, in pursuit of his selfish good, as if guided by an invisible hand, achieves the best for all, so that any interference by the government in the competition of cheap is almost certainly harmful. It seems that according to this interpretation, theoretically, if each consumer is allowed to freely choose what to buy and each manufacturer is allowed to freely choose what to produce, how to produce and how to trade, it is the market that decides on the distribution of the product and for the prices which are beneficial for all the individuals of a community, and thus for society as a whole; this is because self-interest pushes the actors towards careful behavior. Collection is realized by methods for profit maximization. Low prices are applied to eliminate competition and make as much profit as possible. Investors invest in those industries that promise quick returns. All of these effects occur dynamically and automatically.
Furthermore, Léon Walras developed a general equilibrium model, according to which individual self-interest when operating in a competitive environment produces unique conditions in which society generally maximizes; Vilfredo Pareto illustrated the social optimization; Ludwig von Mises wrote about revolutionary improvement; Milton Friedman called it "the possibility of co-operation without coercion"; Kaushik Basu called it "the obvious theorem of well-being". Gavin Kennedy argued that the use of the term "invisible hand" in today's world economic development conditions " is inconsistent with respect to the rather modest and undefined way in which this term was used by Smith". Kennedy thought that if the term "invisible hand" is used as a symbol of freedom and the economic coordination as what is currently happening, then this term should be separated from Adam Smith, because there is little evidence that Smith gave this term the importance and the cultivation it currently has. Daniel Klein argued that even if Smith did not intend to use the term "invisible hand" as it is currently used, this term should not become ineffective. Stephen Marglin argued that while the term "invisible hand" is "the most consistent phrase in Smith's entire work, it is also “the most misunderstood phrase”.
It was the Adam Smith's successor himself, David Ricardo, who, although echoed the work of his predecessor, wrote that "Smith's argument is incomplete because it neglects the role of foreign investment in the country's economy."
Having a pragmatic and at the same time conservative approach to this view, I think Richard Cantillon's invisible hand, the works of the Italian Saint Antoninus of Florence and Ibn Khaldun's reasoning on this issue are more important points of reference than Adam Smith’s works. This view comes from the fact that Adam Smith has never claimed that all the work of personal interest necessarily brings benefits to society. Smith has never claimed that all public goods are produced through individual labor. He simply said that in a free market, economic agents tend to sell and trade products that are demanded by their neighbours. His proposal is simply that in a free market, people usually tend to produce the goods their neighbours want. This, then, is the narrow concept to which the term invisible hand relates. As the size of the community increases, the term ends because in these communities the individual interest, ultimately, aims to bring about unwanted results.
I agree with many researchers who think that the term invisible hand can be applied to any individual action that has unplanned, unintentional consequences, especially goals that stem from actions that are not orchestrated by a central command and that have a supervised and modeled effect on the community, on the basis of a development model, or economic model, or even a socio-cultural-economic model; but what worries me, even more, is the global effort that the idea of the invisible hand of it also applies to areas that are not directly related to the economy. This is because the current order, not being able to manage development, seeks to control society by controlling the economy, and the best way to control the economy is control through psychology, anthropology, sociology, etc, disciplines of great value to laissez-faire economic philosophy.
This tendency of the current system to apply the term invisible hand to other disciplines related to individual and social thought, seems to be encouraged because (as Nobel laureate Joseph E. Stiglitz claims), “the reason the invisible hand often seems to be invisible is that often it is not there at all”.
These developments in laissez-faire economic philosophy have nothing to do with what Francis Hutcheson calls "personal intuition" and / or "moral sense," which comes from the incomplete convergence between private and public interest, and that is the result of the functioning of social mechanisms and not just because of the rational self-interest. This is exactly what Adam Smith points out: "by acting according to the dictates of our moral abilities, we necessarily pursue the most effective means of promoting the happiness of mankind," the part that is being abused today. Here, it seems that Adam Smith exaggerates it completely with the part of "necessity" and "promoting the happiness of humanity", a very obvious exaggeration even for the time when he has contributed and not in our days, when moral values seem to have fallen in proportion.
It seems that a part of the rebus is fulfilled by Lord Shaftesbur, who says that a fundamental unifying force "Will of Nature" is that which maintains balance, congruence and harmony, but this force, to act freely, requires individual pursuit of rational interest, and self-preservation and advancement. With regard to rational interest and self-advancement, I think the very existence of growing externalities shows that markets are not working well. The increasing levels of global pollution, the role of the banking and financial sector in an unrealistic but highly impactful economy, the limited budgets of individuals and families in the face of crazy marketing, the un-affordable tax levels for citizens of underdeveloped and of developing countries, the inequality between citizens and nations, the unequal access to resources, etc., are examples that the invisible hand is in fact the invisible foot, a foot that kicks hard, where there is as much distance between citizens and governments as there is with who live upstairs and have no idea how these people live down there, who look up to them like ants underfoot. Part of this invisible leg are also failures in fighting against drugs, failures in fighting against poverty, etc.
It is clear that Adam Smith is no longer suited to today's developments with the idea that “even those who are poor or just employees enjoy their share of everything that is produced and that which constitutes the true happiness of human life, and, these they are by no means inferior to those who would look so high above them. In the ease of the body and the serenity of the mind, all the different levels of life are almost on the same level, and the beggar, who stands on the sidewalk, possesses the same security for which the kings fight”. Selling the simplistic view of the individual economy of a respected scholar of the 18th century called Adam Smith, on / as a moral, cultural, social, psychological, legal, political and economic basis of our days, in the 21st Century is the greatest irony of human history.
This is actually the invisible foot. This is exactly what Milton Friedman, many years ago at a conference of Republican Representatives in the United States, stated as the "invisible foot" to discuss how state policies and regulations usually have the opposite effect of what is intended. The threats appear to come from both right-wing and left-wing approaches. This is because both sides of politics are, in fact, not part of the classic debate between liberalism and conservatism. No. It is completely wrong to think that there is a debate between these two political currents. In fact, the debate over the last 150 years on the world stage has been largely between liberals, neo-liberals, and pseudo-liberals. It has been a debate where, over time, less and less the voice of the specialist has been heard. It has been a debate where the voice of incompetence, immorality and irresponsibility has been heard more and more. This approach to the debate has led to a rise in populism and proto-fascist approaches in many parts of the globe.
But what is happening in the world in recent years is not the true face of capitalism. Even Marx himself wrote for the goods that the capitalism of his time had realized, but it is no longer about the capitalism of the first 200-300 years when Marx and others contributed. This system that we call “laissez faire economic philosophy” has taken full oppressive and exploitative features of all resources, all of them, human, natural and financial resources. In parallel, this system claims equality, mainly before the law and other social economic approaches, etc., which in fact have no value in the face of the loss of liberty, which is the most valuable thing, according to Richard Cantillon, Saint Antoninus de Florence, Ibn. Khaldunsi, and Adam Smith, Keynes, and Milton Friedman himself.
I think that since we have been “educated” that the main purpose of capitalism is profit, then that it makes us all enslaved. This is exactly why everyone is eager to have and do more than they can afford to spend. This endless greed for profit makes our perception of life and freedom quite different from what it really should be. This is the greatest illusion we experience as human society. We think that being rich means being free, as this has been sold to us being true. For this reason, we make every effort to be rich and this darkens our eyes in the face of the externalities mentioned above. This makes us more depressed and aggressive to each other, because maximum wealth leads to maximum use of resources, which as it requires maximum use of human resources, giving them, as a reward, a salary that is much lower than the real contribution and real productivity of employees, which causes the contradicts with the principle of freedom and human rights.
written by Prof. Enriko Ceko, Lecturer at the Economics and Social Sciences Faculty at Wisdom University College of Tirana (Albania).
Lecturer on behalf of the "CSB pilot course" core activity of the Erasmus Plus K203 Project "Cultural Studies in Business".
Published on April 11, 2020 on LINKEDIN - www.linkedin.com