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What is meant by the invisible hand, and what did Smith say about it? I see this a lot, but I'm not sure what it means when I see it. There are others with dif

by ue_ 9y ago

What is meant by the invisible hand, and what did Smith say about it? I see this a lot, but I'm not sure what it means when I see it. There are others with different views of capitalism, such as Marxian economists, Proudhon, neo-Ricardians, post-Keynesians etc. Marxian economists in particular with interesting things to say about the origin of profit, alienation, commodity fetishism and classes within capitalism.

lr4444lr 9y ago
http://econlib.org/library/Topics/Details/invisiblehand.html http://econlib.org/library/Topics/Details/invisiblehand.html Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.
dsacco 9y ago
"The invisible hand" is a notion that Adam Smith wrote about that essentially captures the idea of social benefits being an emergent consequence of self-interested parties engaging in the markets together. You can read more about it here, including the (exactly three) specific passages in which Smith used the term: https://en.m.wikipedia.org/wiki/Invisible_hand#Other_uses_of_the_phrase_by_Smith https://en.m.wikipedia.org/wiki/Invisible_hand#Other_uses_of... The specific point of the phrase is that the individuals produce a net benefit to society through no intention of their own, it just happens to be a happy side effect of their work. EDIT: Don't shoot the messenger, people.
- ue_ 9y ago
  How is this any different to "trickle down" on a large scale? If you encourage capitalistic self-interest enough, it will create benefit? Why not just create the benefit directly instead of going the roundabout way of having people act in their own self-interest, fostering mean-spirited relationships between people, competition instead of cooperation and general wastage of resources? But perhaps there are other laws within capitalism. The law of value, for instance, which its recognition by capitalists and relative ignorance of it by wage labourers leads to Marx's theory of surplus value - this is the side effect of this self-interested activity of labour.
  - muninn_ 9y ago
    Trickle down referred to giving tax breaks to rich people so that they would buy expensive things (like Ferraris) and that this spending would spur economic movement because people have to sell, make, and repair Ferraris. The money they receive they would then use to buy groceries or a new TV. This is far different than the notion of the invisible hand, if only we counted government influence (deciding winners and losers). > If you encourage capitalistic self-interest enough, it will create benefit? Yes. Look around. I don't discount the role government has played when it does do good things, but the wonders of the world today are largely driven by the desire to do some work in order to gain some measurable economic benefit. Period. You can't just create "this benefit directly". How would you do that? I also think your general perspective on business is being warped by your obvious bias. Competition in industry does not necessarily lead toward mean-spirited relationships, or destructive competition. It can, but look at the tech industry, if anything, the opposite has happened. Also, the wastage of resources is almost laughable. I say this not to be condescending, but because if there is one entity on the planet that is inefficient, it's government. Businesses go out of business if they don't use resources in the most efficient possible way. A government just prints more money, or if worse comes to worse, passes laws or regulations that distort the economy. There are countries that do better when it comes to private-public cooperation, namely Scandinavian countries, but even those companies are capitalist countries and recognize that government does not have the capacity to guide economic development as a whole compared to the free exchange of goods and services. It's helpful once in awhile to jumpstart an industry, like solar/wind power in the United States, but government should largely stay out of business (aside from obvious regulation and protection).
    - TeMPOraL 9y ago
      Waste of resources is a good point. Both governments and private industries waste a lot, but the kinds of waste are different. For starters, in such discussion I'd ignore money, because as good as it is for being a proxy for everything, it's still ultimately an arbitrary, abstract quantity. Printing money, in a way, is fine. We should talk about waste in terms of real resources - like energy and human time. > Businesses go out of business if they don't use resources in the most efficient possible way. Except often there are more businesses than strictly needed, and the surplus production is a waste. But more importantly, in a saturated market every bit of fuel, paper, metal, every kilowatt-hour and every man-hour spent on advertising is a waste of resources. Simple as that. The companies play zero-sum games on such markets, where every action is meant to cancels out effects of actions of other companies. Governments don't advertise, because they don't play the competition game (at least not internally). Point being, there's lot of waste, public and private alike. Some is probably unavoidable thanks to thermodynamics alone, but it would be worth our time to consider how to build systems that waste less energy and human time just to operate.
hbt 9y ago
keep in mind this was written prior to behavioral economics or Neuro economics or study of cognition. understanding why people make the decisions they do and how they all fit in a large system remains a work in progress. we certainly know more now to simply call it the invisible hand

by ue_ 9y ago

lr4444lr 9y ago

http://econlib.org/library/Topics/Details/invisiblehand.html http://econlib.org/library/Topics/Details/invisiblehand.html Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

dsacco 9y ago

"The invisible hand" is a notion that Adam Smith wrote about that essentially captures the idea of social benefits being an emergent consequence of self-interested parties engaging in the markets together. You can read more about it here, including the (exactly three) specific passages in which Smith used the term: https://en.m.wikipedia.org/wiki/Invisible_hand#Other_uses_of_the_phrase_by_Smith https://en.m.wikipedia.org/wiki/Invisible_hand#Other_uses_of... The specific point of the phrase is that the individuals produce a net benefit to society through no intention of their own, it just happens to be a happy side effect of their work. EDIT: Don't shoot the messenger, people.

ue_ 9y ago
How is this any different to "trickle down" on a large scale? If you encourage capitalistic self-interest enough, it will create benefit? Why not just create the benefit directly instead of going the roundabout way of having people act in their own self-interest, fostering mean-spirited relationships between people, competition instead of cooperation and general wastage of resources? But perhaps there are other laws within capitalism. The law of value, for instance, which its recognition by capitalists and relative ignorance of it by wage labourers leads to Marx's theory of surplus value - this is the side effect of this self-interested activity of labour.
- muninn_ 9y ago
  Trickle down referred to giving tax breaks to rich people so that they would buy expensive things (like Ferraris) and that this spending would spur economic movement because people have to sell, make, and repair Ferraris. The money they receive they would then use to buy groceries or a new TV. This is far different than the notion of the invisible hand, if only we counted government influence (deciding winners and losers). > If you encourage capitalistic self-interest enough, it will create benefit? Yes. Look around. I don't discount the role government has played when it does do good things, but the wonders of the world today are largely driven by the desire to do some work in order to gain some measurable economic benefit. Period. You can't just create "this benefit directly". How would you do that? I also think your general perspective on business is being warped by your obvious bias. Competition in industry does not necessarily lead toward mean-spirited relationships, or destructive competition. It can, but look at the tech industry, if anything, the opposite has happened. Also, the wastage of resources is almost laughable. I say this not to be condescending, but because if there is one entity on the planet that is inefficient, it's government. Businesses go out of business if they don't use resources in the most efficient possible way. A government just prints more money, or if worse comes to worse, passes laws or regulations that distort the economy. There are countries that do better when it comes to private-public cooperation, namely Scandinavian countries, but even those companies are capitalist countries and recognize that government does not have the capacity to guide economic development as a whole compared to the free exchange of goods and services. It's helpful once in awhile to jumpstart an industry, like solar/wind power in the United States, but government should largely stay out of business (aside from obvious regulation and protection).
  - TeMPOraL 9y ago
    Waste of resources is a good point. Both governments and private industries waste a lot, but the kinds of waste are different. For starters, in such discussion I'd ignore money, because as good as it is for being a proxy for everything, it's still ultimately an arbitrary, abstract quantity. Printing money, in a way, is fine. We should talk about waste in terms of real resources - like energy and human time. > Businesses go out of business if they don't use resources in the most efficient possible way. Except often there are more businesses than strictly needed, and the surplus production is a waste. But more importantly, in a saturated market every bit of fuel, paper, metal, every kilowatt-hour and every man-hour spent on advertising is a waste of resources. Simple as that. The companies play zero-sum games on such markets, where every action is meant to cancels out effects of actions of other companies. Governments don't advertise, because they don't play the competition game (at least not internally). Point being, there's lot of waste, public and private alike. Some is probably unavoidable thanks to thermodynamics alone, but it would be worth our time to consider how to build systems that waste less energy and human time just to operate.

hbt 9y ago

keep in mind this was written prior to behavioral economics or Neuro economics or study of cognition. understanding why people make the decisions they do and how they all fit in a large system remains a work in progress. we certainly know more now to simply call it the invisible hand