34 ms·

The Other Invisible Hand

43 points by gHeadphone 5y ago

ClumsyPilot 5y ago
I always knew the other hand was up to no good
IfOnlyYouKnew 5y ago
One instance of this misunderstanding that comes to mind is the feverish insistence of some people that "corporations must always act in the interest of shareholder value" and the idea that anything else quickly lands decision-makers in jail. That notion takes the principle that capitalism allows selfish interests to also work for the greater good, and turns it into a religion, where any attempt to directly act with non-selfish motivation is considered a moral failing. Any actual CXO knows full well that it's rarely obvious what's in the shareholders' interest, that they have rather large discretion and, in a worst case, can always invoke some positive PR value of whatever altruistic decisions they take. As for criminal or civil liability, there has been like one case concerning this idea in the history of US corporations.
- JackFr 5y ago
  You seem to misunderstand the point of maximizing shareholder value. If the managers of a company behave in a way that troubles the shareholders, a lawsuit is a very inefficient way to go. You simply take your capital elsewhere.
  - jgeada 5y ago
    What capital is that shareholder taking elsewhere? Once a company has sold a share, it no longer has much direct interest in the value of that share on further transactions (much like a publisher only gets value from the first sale of a book, all other sales of that same book produce no value to the publisher). Sure, further share sales may become more difficult, but that is a distinct effect.
  - IfOnlyYouKnew 5y ago
    Sure….. I’m referring to an argument of the form “that’s not evil, it’s what they are legally required to do’ Examples; https://news.ycombinator.com/item?id=27564034 https://news.ycombinator.com/item?id=27564034 (the platonic ideal of this fallacy) https://news.ycombinator.com/item?id=27702670 https://news.ycombinator.com/item?id=27702670 https://news.ycombinator.com/item?id=2731253 https://news.ycombinator.com/item?id=2731253 https://news.ycombinator.com/item?id=6653519 https://news.ycombinator.com/item?id=6653519 https://news.ycombinator.com/item?id=3698084 https://news.ycombinator.com/item?id=3698084
horrified 5y ago
If an entity needs to cooperate to survive, it is selfish to cooperate. I feel like the author, like many other critics of economic theory, have not fully understood economics. Also, the selfish gene metaphor was misleading in the sense that it is of course nonsense to ascribe any kind of motivation to genes. I think it was useful to break a common misconception, that evolution would work for the benefit of the individual.
- IAmEveryone 5y ago
  If I were to list a dozen behaviours, such as "gives to charity", "moves all income to offshore accounts to save taxes", etc, you would probably be able to sort them into "cooperative" and "selfish". So those are well-defined categories. That one might just be a detour to the other doesn't seem to be relevant. And, of course, the problem is that, far too often, fans of economic theory make the opposite mistake, and consider cooperative behaviour as a failure of rationality, when in reality they are just not thinking it through to the end.
  - klipt 5y ago
    It depends on what level you look at. Cooperation between individuals in a company could be for the selfish gain of the company. Cooperation between entities like companies can be for the selfish gain of even larger entities like nation states. Cooperation between nation states, e.g. members in the EU, can be for the selfish gain of the group, at the expense of states outside the group that get second class treatment.
  - s1artibartfast 5y ago
    This misses the point, as does the original article. In the economic framework, "selfishness" just whatever personal objective a person is optimizing for. Cooperation is tactic for achieving "selfish" goals, and not necessarily at odds. People donate to charity in the pursuit of what they personally value. I agree that some "fans of economics" make the mistake of viewing outcomes that don't increase a personal bank account as irrational. Well respected economic thinkers clearly understand that people have other goals in life. On the flip side, "critics of economics" make the opposite mistake, thinking that values in life besides maximizing your bank account are at odds with economic theory.
ncoehuenuthue 5y ago
Attempting to derive moral prescriptions from an interpretation of evolutionary behavior is bizarre, and I doubt the author would be willing to be internally consistent in such a practice. For example, the universal subjection of species to parasitism and predation have driven many advantageous genetic modifications, but I hardly think the author would make a public claim in support of enshrining parasitism and predation as moral principles. I find that advocates for these kinds of socially-based moral systems have never offered a way by which they, personally, will suffer for my benefit. Rather, it's always posed as a justification for why I, personally, or some illusory other, will be made to suffer for the author's benefit. It's tiresome.
- onlyrealcuzzo 5y ago
  Do you believe we currently live in a system where no one is suffering for anyone else's benefit? It seems like there's a lot of that already going on. A change might be unfair to you, but it might be more fair to everyone else.
  - ncoehuenuthue 5y ago
    I don't believe things are anywhere near ok, and I think most people would agree with that. But the article in question is a high-minded discussion of ideals. I would personally consider the definition of cooperation to be explicitly voluntary. The Aztecs believed that by ritually sacrificing their fellow people that the needs of the many would be met at the expense of the few. Because this was belief universally understood to be true, anyone who did not want themselves to be sacrificed would be considered selfish and anti-social. A socially-minded morality would insist that people to be sacrificed had a social duty to do so. An individually-minded morality would insist that people should only be sacrificed by their own choice. I don't believe either description to have much to say about the morality of human sacrifice or the practicalities of cooperation. I think that the evolutionary-psychology from whence human sacrifice was born (I can save food for the winter -> sacrificing things in the present can improve my future -> sacrificing is a good strategy in general) has not left the human psyche. You can remove human sacrifice from the religious idols on the mountain, but you can't remove the impetus to sacrifice other people for a perceived gain. I honestly can't provide you with a perfect moral or economic system. I just don't believe anyone else can either, so it's best not to force other people to go along with anything.
roussanoff 5y ago
As an economist, I strongly believe this is a strawman argument. Economists have studied cooperation for decades. Methodological individualism that the article mentions is not an assumption that everyone is waging war against each other, and the war against each other does not follow from methodological individualism. Game theory was interested in cooperation, especially across many time periods, for as long as it existed. Avner Greif has done amazing work on the rise of cooperative institutions. These things are a part of standard curriculum for any economics major (although maybe not a 101 class). This is not to say that economics is free of issues, but the claims of the article reveal that the author has no idea about what economists care about and have cared about for decades now.
- JackFr 5y ago
  Two thirds of the way through this all I could think of was “strawman”. He talks about the invisible hand but doesn’t even namecheck Smith or his central thesis. If he understood that, he might understand that Jeff Bezos got rich not by exploiting people but rather by improving people’s lives
  - GavinMcG 5y ago
    Why not both? More effective exploitation of labor is a competitive advantage that lowers costs and thereby increases profits and/or allows for lower prices. Exploitation of workers and value delivered to consumers are entirely compatible.
    - wizzwizz4 5y ago
      Also, Amazon uses (used? it might have stopped) its influence to prevent sellers from selling things cheaper off Amazon, meaning the Amazon tax gets applied to the product everywhere – reducing consumer incentives to buy things without Amazon. This is neither exploitation of labour nor delivering value to consumers.
    - marcusverus 5y ago
      If Amazon were uniquely exploitative, why would anyone work there? In the US, the number of available jobs has regularly outstripped the number of unemployed, which is to say that there is no shortage of jobs--and yet folks are choosing to work at Amazon rather than any other alternative. The most straightforward explanation for this would seem to be that working at Amazon is the best option available to people who work at Amazon, which doesn't seem to be compatible with the idea that Amazon is somehow uniquely exploitative. .
Mc91 5y ago
Even though the metaphor is only touched on lightly here, in Wealth of Nations, Adam Smith says, in a chapter on tariffs - "By restraining, either by high duties, or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them...By preferring the support of domestic to that of foreign industry, 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." In Smith's example, the invisible hand is something that is working in the market against free trade between countries.
- vannevar 5y ago
  Yes. The "invisible hand" reference in Wealth of Nations is probably the most egregiously misused term in history. It's only mentioned once in the entire work, and as you point out, the context is completely different from that to which it is usually (and incorrectly) applied. The phrase is commonly used to promote the idea that markets are self-regulating, requiring no state oversight, because they supposedly trend toward some form of equilibrium. In reality they do no such thing, for there is no equilibrium to trend towards.
- cherrycherry98 5y ago
  Smith's specific example is somewhat dubious given the tendency of corporations to off shore work to cheap foreign locales or purchase from foreign suppliers. It actually winds up being governments and not individuals who acknowledge the necessities of protecting domestic industry from foreign competition. For market actors (individual consumers to big business) the short term price advantage winds up dominating the self interest calculus rather than consideration of potential long term ramifications of being dependent on foreign producers. Regardless, this passage (if you expand it a bit) most concisely sums up one of the main themes of the book, which is why it's so often cited. The main takeaway here being that intentions don't always match outcomes. Governments often intend to improve society by intervention but make things worse. Free actors don't intend to improve society but often do so anyway (as an aside, despite this, Smith is actually LESS laissez faire than many expect). Shortly after where your quote ends he makes this clear, "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." This is reiterated in various ways as I recall and he's merely trying to apply it to this specific topic of importation here, though in hindsight what he considers the outcome of the self interest calculus is a bit wrong. Still, market actors acting in their own self interest of foreign trade do indeed produce the unintended consequence of enriching those trading partners.
golemotron 5y ago
> Every viable bio-social contract in multi-cellular organisms must enforce this rule: The health of the whole must trump the self-interest of any part. Otherwise, the parts become parasitic, gaining at the expense of the viability of the whole. Unregulated parts can kill their wholes. This sounds suspiciously like an argument for totalitarianism.
- Jtsummers 5y ago
  Regulation != totalitarianism It's also unnecessary for all regulation to be from governments. Regulation is a the result of feedback mechanisms (monitor and respond) which can include quite a few things. There are natural feedback mechanisms like the consequences on the environment or ecology (overfishing). There are market feedback mechanisms like price pressure. There are internal to the organization feedback mechanisms like when companies skip investment into maintenance and find their factories blowing up or simply not operating for hours, days, or weeks at at time.
- commandlinefan 5y ago
  Even in his worst-case apocalyptic scenario, by his own definition, you'd have a world full of individuals living their best, happiest, most free lives while the poorly defined "whole" is suffering (somehow?). If "society" is faring poorly but each and every single individual member of it is doing great, then maybe that view of "society" isn't something that needs to be nurtured.
f154hfds 5y ago
Saying that evolution necessitates cooperation is actually similar to saying economics 'necessitates' cooperation. Single companies (organisms) end up cooperating internally to compete with the unforgiving environment of free market. Additionally over long periods of time certain companies will form mutually beneficial symbiotic relationships to survive. In general capitalism and evolution are both much more about survival than cooperation, and when cooperation does emerge it is a means to an end rather than the end unto itself.
xyzelement 5y ago
As many pointed out this is flawed at the root. The author talks about examples of cooperation in nature and then says "oh too bad the economy isn't like that." (a small heuristic I can't help but share, I looked up the author and he's one of these people that hasn't figured out how to rotate an image so his face is sideways in his twitter profile) A little nuance or just thinking would reveal understanding and functioning of cooperation within an economy. In fact, the economy is a cooperation machine. The classic example of the butcher, the baker and the candle-stick maker who each "happen" to product things that the other 2 need, so that the 3 of them are jointly much better off is cooperation in its purest form. On a national level, economists "prefer" peaceful trade to war-time adversity. Good trade helps each country be better off (this is just the baker/butcher example magnified) which again is cooperation being used to benefit humanity. Now, companies. Google as a company is "worth" what is because it creates more than the individual employees could have on their own. Google creates value by creating an opportunity for them to cooperate well and is rewarded for it. A company is a cooperation machine. Even in relationships that are in some way zero-sum (what I pay my producer or what I charge my consumer), smart businesses are "long term greedy" meaning that they don't go for the opportunity to starve out their suppliers or consumers, instead they let them keep the margins they need to sustain the relationship long term. Now obviously, like nature, economies deal with competition. If my town can only support one bowling alley but there are two, the alleys compete to survive, same as animals compete to survive if their environment requires it. The author is basically disingenuous or silly because he takes two things that are basically analogous (competition for resources and survival in nature and in the economy) and contrasts the cooperation examples from one to competition examples from the other, which is as pointless as it sounds.
bsanr 5y ago
I have to imagine that most prefer organelle cooperation to, say, spontaneously bursting into flames while on a trip to the opera.
deleted 5y ago
[deleted]

43 points by gHeadphone 5y ago

I always knew the other hand was up to no good

One instance of this misunderstanding that comes to mind is the feverish insistence of some people that "corporations must always act in the interest of shareholder value" and the idea that anything else quickly lands decision-makers in jail. That notion takes the principle that capitalism allows selfish interests to also work for the greater good, and turns it into a religion, where any attempt to directly act with non-selfish motivation is considered a moral failing. Any actual CXO knows full well that it's rarely obvious what's in the shareholders' interest, that they have rather large discretion and, in a worst case, can always invoke some positive PR value of whatever altruistic decisions they take. As for criminal or civil liability, there has been like one case concerning this idea in the history of US corporations.

JackFr 5y ago
You seem to misunderstand the point of maximizing shareholder value. If the managers of a company behave in a way that troubles the shareholders, a lawsuit is a very inefficient way to go. You simply take your capital elsewhere.
- jgeada 5y ago
  What capital is that shareholder taking elsewhere? Once a company has sold a share, it no longer has much direct interest in the value of that share on further transactions (much like a publisher only gets value from the first sale of a book, all other sales of that same book produce no value to the publisher). Sure, further share sales may become more difficult, but that is a distinct effect.
- IfOnlyYouKnew 5y ago
  Sure….. I’m referring to an argument of the form “that’s not evil, it’s what they are legally required to do’ Examples; https://news.ycombinator.com/item?id=27564034 https://news.ycombinator.com/item?id=27564034 (the platonic ideal of this fallacy) https://news.ycombinator.com/item?id=27702670 https://news.ycombinator.com/item?id=27702670 https://news.ycombinator.com/item?id=2731253 https://news.ycombinator.com/item?id=2731253 https://news.ycombinator.com/item?id=6653519 https://news.ycombinator.com/item?id=6653519 https://news.ycombinator.com/item?id=3698084 https://news.ycombinator.com/item?id=3698084

horrified 5y ago

If an entity needs to cooperate to survive, it is selfish to cooperate. I feel like the author, like many other critics of economic theory, have not fully understood economics. Also, the selfish gene metaphor was misleading in the sense that it is of course nonsense to ascribe any kind of motivation to genes. I think it was useful to break a common misconception, that evolution would work for the benefit of the individual.

IAmEveryone 5y ago
If I were to list a dozen behaviours, such as "gives to charity", "moves all income to offshore accounts to save taxes", etc, you would probably be able to sort them into "cooperative" and "selfish". So those are well-defined categories. That one might just be a detour to the other doesn't seem to be relevant. And, of course, the problem is that, far too often, fans of economic theory make the opposite mistake, and consider cooperative behaviour as a failure of rationality, when in reality they are just not thinking it through to the end.
- klipt 5y ago
  It depends on what level you look at. Cooperation between individuals in a company could be for the selfish gain of the company. Cooperation between entities like companies can be for the selfish gain of even larger entities like nation states. Cooperation between nation states, e.g. members in the EU, can be for the selfish gain of the group, at the expense of states outside the group that get second class treatment.
- s1artibartfast 5y ago
  This misses the point, as does the original article. In the economic framework, "selfishness" just whatever personal objective a person is optimizing for. Cooperation is tactic for achieving "selfish" goals, and not necessarily at odds. People donate to charity in the pursuit of what they personally value. I agree that some "fans of economics" make the mistake of viewing outcomes that don't increase a personal bank account as irrational. Well respected economic thinkers clearly understand that people have other goals in life. On the flip side, "critics of economics" make the opposite mistake, thinking that values in life besides maximizing your bank account are at odds with economic theory.

ncoehuenuthue 5y ago

Attempting to derive moral prescriptions from an interpretation of evolutionary behavior is bizarre, and I doubt the author would be willing to be internally consistent in such a practice. For example, the universal subjection of species to parasitism and predation have driven many advantageous genetic modifications, but I hardly think the author would make a public claim in support of enshrining parasitism and predation as moral principles. I find that advocates for these kinds of socially-based moral systems have never offered a way by which they, personally, will suffer for my benefit. Rather, it's always posed as a justification for why I, personally, or some illusory other, will be made to suffer for the author's benefit. It's tiresome.

onlyrealcuzzo 5y ago
Do you believe we currently live in a system where no one is suffering for anyone else's benefit? It seems like there's a lot of that already going on. A change might be unfair to you, but it might be more fair to everyone else.
- ncoehuenuthue 5y ago
  I don't believe things are anywhere near ok, and I think most people would agree with that. But the article in question is a high-minded discussion of ideals. I would personally consider the definition of cooperation to be explicitly voluntary. The Aztecs believed that by ritually sacrificing their fellow people that the needs of the many would be met at the expense of the few. Because this was belief universally understood to be true, anyone who did not want themselves to be sacrificed would be considered selfish and anti-social. A socially-minded morality would insist that people to be sacrificed had a social duty to do so. An individually-minded morality would insist that people should only be sacrificed by their own choice. I don't believe either description to have much to say about the morality of human sacrifice or the practicalities of cooperation. I think that the evolutionary-psychology from whence human sacrifice was born (I can save food for the winter -> sacrificing things in the present can improve my future -> sacrificing is a good strategy in general) has not left the human psyche. You can remove human sacrifice from the religious idols on the mountain, but you can't remove the impetus to sacrifice other people for a perceived gain. I honestly can't provide you with a perfect moral or economic system. I just don't believe anyone else can either, so it's best not to force other people to go along with anything.

roussanoff 5y ago

As an economist, I strongly believe this is a strawman argument. Economists have studied cooperation for decades. Methodological individualism that the article mentions is not an assumption that everyone is waging war against each other, and the war against each other does not follow from methodological individualism. Game theory was interested in cooperation, especially across many time periods, for as long as it existed. Avner Greif has done amazing work on the rise of cooperative institutions. These things are a part of standard curriculum for any economics major (although maybe not a 101 class). This is not to say that economics is free of issues, but the claims of the article reveal that the author has no idea about what economists care about and have cared about for decades now.

JackFr 5y ago
Two thirds of the way through this all I could think of was “strawman”. He talks about the invisible hand but doesn’t even namecheck Smith or his central thesis. If he understood that, he might understand that Jeff Bezos got rich not by exploiting people but rather by improving people’s lives
- GavinMcG 5y ago
  Why not both? More effective exploitation of labor is a competitive advantage that lowers costs and thereby increases profits and/or allows for lower prices. Exploitation of workers and value delivered to consumers are entirely compatible.
  - wizzwizz4 5y ago
    Also, Amazon uses (used? it might have stopped) its influence to prevent sellers from selling things cheaper off Amazon, meaning the Amazon tax gets applied to the product everywhere – reducing consumer incentives to buy things without Amazon. This is neither exploitation of labour nor delivering value to consumers.
  - marcusverus 5y ago
    If Amazon were uniquely exploitative, why would anyone work there? In the US, the number of available jobs has regularly outstripped the number of unemployed, which is to say that there is no shortage of jobs--and yet folks are choosing to work at Amazon rather than any other alternative. The most straightforward explanation for this would seem to be that working at Amazon is the best option available to people who work at Amazon, which doesn't seem to be compatible with the idea that Amazon is somehow uniquely exploitative. .

Mc91 5y ago

Even though the metaphor is only touched on lightly here, in Wealth of Nations, Adam Smith says, in a chapter on tariffs - "By restraining, either by high duties, or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them...By preferring the support of domestic to that of foreign industry, 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." In Smith's example, the invisible hand is something that is working in the market against free trade between countries.

vannevar 5y ago
Yes. The "invisible hand" reference in Wealth of Nations is probably the most egregiously misused term in history. It's only mentioned once in the entire work, and as you point out, the context is completely different from that to which it is usually (and incorrectly) applied. The phrase is commonly used to promote the idea that markets are self-regulating, requiring no state oversight, because they supposedly trend toward some form of equilibrium. In reality they do no such thing, for there is no equilibrium to trend towards.
cherrycherry98 5y ago
Smith's specific example is somewhat dubious given the tendency of corporations to off shore work to cheap foreign locales or purchase from foreign suppliers. It actually winds up being governments and not individuals who acknowledge the necessities of protecting domestic industry from foreign competition. For market actors (individual consumers to big business) the short term price advantage winds up dominating the self interest calculus rather than consideration of potential long term ramifications of being dependent on foreign producers. Regardless, this passage (if you expand it a bit) most concisely sums up one of the main themes of the book, which is why it's so often cited. The main takeaway here being that intentions don't always match outcomes. Governments often intend to improve society by intervention but make things worse. Free actors don't intend to improve society but often do so anyway (as an aside, despite this, Smith is actually LESS laissez faire than many expect). Shortly after where your quote ends he makes this clear, "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." This is reiterated in various ways as I recall and he's merely trying to apply it to this specific topic of importation here, though in hindsight what he considers the outcome of the self interest calculus is a bit wrong. Still, market actors acting in their own self interest of foreign trade do indeed produce the unintended consequence of enriching those trading partners.

golemotron 5y ago

> Every viable bio-social contract in multi-cellular organisms must enforce this rule: The health of the whole must trump the self-interest of any part. Otherwise, the parts become parasitic, gaining at the expense of the viability of the whole. Unregulated parts can kill their wholes. This sounds suspiciously like an argument for totalitarianism.

Jtsummers 5y ago
Regulation != totalitarianism It's also unnecessary for all regulation to be from governments. Regulation is a the result of feedback mechanisms (monitor and respond) which can include quite a few things. There are natural feedback mechanisms like the consequences on the environment or ecology (overfishing). There are market feedback mechanisms like price pressure. There are internal to the organization feedback mechanisms like when companies skip investment into maintenance and find their factories blowing up or simply not operating for hours, days, or weeks at at time.
commandlinefan 5y ago
Even in his worst-case apocalyptic scenario, by his own definition, you'd have a world full of individuals living their best, happiest, most free lives while the poorly defined "whole" is suffering (somehow?). If "society" is faring poorly but each and every single individual member of it is doing great, then maybe that view of "society" isn't something that needs to be nurtured.

f154hfds 5y ago

Saying that evolution necessitates cooperation is actually similar to saying economics 'necessitates' cooperation. Single companies (organisms) end up cooperating internally to compete with the unforgiving environment of free market. Additionally over long periods of time certain companies will form mutually beneficial symbiotic relationships to survive. In general capitalism and evolution are both much more about survival than cooperation, and when cooperation does emerge it is a means to an end rather than the end unto itself.

xyzelement 5y ago

As many pointed out this is flawed at the root. The author talks about examples of cooperation in nature and then says "oh too bad the economy isn't like that." (a small heuristic I can't help but share, I looked up the author and he's one of these people that hasn't figured out how to rotate an image so his face is sideways in his twitter profile) A little nuance or just thinking would reveal understanding and functioning of cooperation within an economy. In fact, the economy is a cooperation machine. The classic example of the butcher, the baker and the candle-stick maker who each "happen" to product things that the other 2 need, so that the 3 of them are jointly much better off is cooperation in its purest form. On a national level, economists "prefer" peaceful trade to war-time adversity. Good trade helps each country be better off (this is just the baker/butcher example magnified) which again is cooperation being used to benefit humanity. Now, companies. Google as a company is "worth" what is because it creates more than the individual employees could have on their own. Google creates value by creating an opportunity for them to cooperate well and is rewarded for it. A company is a cooperation machine. Even in relationships that are in some way zero-sum (what I pay my producer or what I charge my consumer), smart businesses are "long term greedy" meaning that they don't go for the opportunity to starve out their suppliers or consumers, instead they let them keep the margins they need to sustain the relationship long term. Now obviously, like nature, economies deal with competition. If my town can only support one bowling alley but there are two, the alleys compete to survive, same as animals compete to survive if their environment requires it. The author is basically disingenuous or silly because he takes two things that are basically analogous (competition for resources and survival in nature and in the economy) and contrasts the cooperation examples from one to competition examples from the other, which is as pointless as it sounds.

bsanr 5y ago

I have to imagine that most prefer organelle cooperation to, say, spontaneously bursting into flames while on a trip to the opera.

deleted 5y ago

[deleted]