[The following is my entry for the first ever Thorpe-Freeman Blog Contest, originally published at Notes on Liberty on May 22nd. My entry for last month’s contest, which was one of two runners up mentioned here, can be read here.]
A Tale of Two Hands
I came across Gary Galles’ recent article in The Freeman about Leonard Read’s analogy of government coercion as a clenched fist, “The Clenched Fist and the General Welfare.” I see a symmetry between this analogy and Adam Smith’s about self-interest unintentionally channeled into market organization, one that is so familiar to free market proponents and detractors alike that it is a common metaphor: the invisible hand.
Government coercion and market organization. Two very important concepts for any libertarian to master. Which one better provides for the general welfare? Smith and Read would contend the latter. The reasons for this are contained in the analogies. As Read and Galles point out, not much good can come from a clenched fist. Only violence and incompetence. It can punch. It can pound. That’s about it. What better description of government? Likewise, as Smith notes, the usefulness of markets is that they do better than government many of the noble things government tries to do, thereby rendering it redundant, if not unnecessary, in those areas. The all-too obvious fist of government regulations and mandates is no match for a more efficient, less obvious hand: self-interest.
The clenched fist of government coercion is quite visible. It holds up the occasional good it achieves, downplays the great expense at which such good comes about, and blames its own inadequacies on “free” markets. The invisible hand, however, is open. It is able to do more, and better, than the clenched fist, without stifling progress in other areas.
Coercion seems like a question of ethics, and organization a question of economics, but they are each, in essence, questions of both. What is unethical for an individual is also unethical for a group of individuals. And if made policy, it is no longer simply unethical, but uneconomical as well, because of the fear, uncertainty, and even exuberance that arises among market actors, leading to misallocation of resources into unprofitable lines of production.
The questions are irrevocably linked. Even natural, inalienable rights—ethical concepts—are, for our purposes, best understood as constructs devised to protect the economic interests (the pursuit, use, and extension of life, liberty, and property) of individuals. They exist to help us avoid, and ultimately, resolve what are really economically motivated disputes.
Cantillon, Smith, Menger
Mark Thornton’s “Cantillon and the Invisible Hand” suggests that Richard Cantillon was Adam Smith’s influence in his description (in The Theory of Moral Sentiments, 1759, and The Wealth of Nations, 1776) of the mechanism (self-interest’s effect of inadvertently providing for the general welfare) that he calls “an Invisible Hand.” In Thornton (2009), this standard interpretation appears to be upheld against several modern theories of the metaphor’s meaning.
With this interpretation and then further development of the idea to incorporate “newer” concepts, we can say that actions taken for personal gain accumulate in the marketplace in the form of signals indicating supply, demand, cost, loss, and profit, leading to various levels of further risk, production, and consumption, which have serendipitous advantages for others participants in the marketplace. The marketplace facilitates trade. In a free market, this means voluntary exchange. Since the Marginal Revolution, it has been acknowledged that voluntary exchanges benefit all parties to them, or they would simply not take place. Thus, the general welfare is provided for.
In The Theory of Moral Sentiments, on the subject of landlords’ relationships with tenants, writes Smith (pp. 184-85):
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.
Cantillon and Smith appear not to have incorporated the idea that landlord and tenant could each receive something they valued more in exchange for what they valued less. So how could they say that tenant benefit at all? Because the things they received were necessities, without which they might have starved.
Before the Industrial Revolution was in full swing, tenancy was often just a higher form of serfdom. Even so, the self-interest of tenants benefited landlords, not just the other way around. And there were relationships besides those of tenants and landlords. Merchants and laborers would have also had mutually beneficent dealings with tenants and landlords. But Smith focused on one aspect of one relationship in his first economic use of the phrase “an Invisible Hand.”
Market’s Good Invisible, State’s Evil Unseen
Because social benefits derived from self-interest go unseen, they are often taken for granted. It is assumed that man must either benefit only himself or rely on handouts. The first implies a zero-sum game at best and a Hobbesian jungle at worst. The second implies charity, but where that alone is insufficient in caring for the needy and the lazy, forced wealth redistribution. To the (sometimes willfully) unobservant, the concept of markets as fortuitous is an unfathomable alternative.
The clenched fist (government) often gestures towards the progress it has made. It has certainly made some progress for some. The favored classes. Individual autocrats placating the coalitions of their supporters, plutocrats pulling the levers of power, or democrats vying for public privilege. But, usually, some stable combination thereof. This progress comes at the expense of that (superior) progress which would have been achieved had producers’ wealth not been expropriated. But, as Bastiat (That Which is Seen and that Which is Not Seen, 1850) and Hazlitt, (Economics in One Lesson, 1946) have shown, this ill effect goes unseen, and so, government-driven progress is made out to be, by those with more influence, larger platforms, and louder voices, equal or superior to market-driven progress.
Why can’t they let things be? The world goes on by itself!