ARRA News Service
ARRA News Service facebook page  
News for social, fiscal & national security conservatives who believe in God, family & the USA. Upholding the rights granted by God & guaranteed by the U.S. Constitution, traditional family values, "republican" principles / ideals, transparent & limited "smaller" government, free markets, lower taxes, due process of law, liberty & individual freedom. All content approval rests with the ARRA News Service Editor. Opinions are those of the authors. While varied positions are reported, beliefs & principles remain fixed. No revenue is generated for or by this site - no paid ads accepted - no payments for articles. Fair Use doctrine is posted & used.
Editor/Founder: Bill Smith, Ph.D. [aka: OzarkGuru & 2010 AFP National Blogger of the Year]
Contact: editor@arranewsservice.com (Pub. Since July, 2006)
    Home Page

One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors. -- Plato (429-347 BC)

Thursday, December 22, 2016

What Is the "Invisible Hand"?

by Art Carden:
“As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. 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.”Adam Smith, Wealth of NationsWhich better guides the use of a society’s decentralized knowledge: the invisible hand of the market or the visible fist of the state? Adam Smith began An Inquiry into the Nature and Causes of the Wealth of Nations by explaining that people have become more productive because they have been able to specialize and divide labor. He identified and explained something really marvelous. The invisible hand of the marketplace helps us make use of others’ knowledge and encourages us to help ourselves by helping others. The invisible hand of market exchange—and voluntary action more generally—generates the ordered use of social knowledge according to the visions, plans, and expectations of the many members of that society, rather than according to the visions, plans, and expectations of state functionaries.

The "Invisible Hand" Describes the Communal Benefits of Personal Actions
In the passage above, Smith makes one of his most bracing, important, and often misunderstood claims. The invisible hand of the marketplace converts our self-interest into the public interest. We intend to make the world a better place according to our preferences, with the result being an unintended increase in others’ capacity to make the world a better place according to their preferences. By working to maximize our own well-being, “every individual necessarily labours to render the annual revenue of the society as great as we can.”

Smith observes a pattern and an outcome. An investor, entrepreneur, or manager directs his time, talent, and treasure toward the industries that will yield the largest revenue. To the extent that he supports “domestic industry,” it is not because he wishes to do so per se but because this is most conducive to “his own security” as measured by his desire for profit and his tolerance for risk.

He encounters four problems, though.

First, his wants are unlimited. No matter how much he has, he can almost certainly think of ways he could use even more. This needn’t be selfishness or greed. I enjoy traveling, for example, and I plan to do more of it as my income increases. I can also think of spiritual, humanitarian, and intellectual causes I would support more generously if I had more money.

Second problem: Resources are scarce. If Adam takes a bite of an apple, that is a bite Eve cannot take. The baker cannot knead bread dough and chop firewood in the same instant. That blob of plastic can become a coffee stirrer or a guitar pick, but not both at the same time. Material resources are scarce.

Third problem: He doesn’t share others’ talents, tastes, and values. Should the land be used to grow apples in the first place, or should it be used to grow oranges? Should the baker knead dough or chop firewood? Guitar players and coffee drinkers might have very different views about how specific bits of plastic should be used. That is not to say there should be only guitar picks to the exclusion of coffee stirrers or only coffee stirrers to the exclusion of guitar picks. Rather, a given unit of plastic of a given type, composition, and quality can only be used for one or the other.

Fourth problem: The investor, entrepreneur, or manager doesn’t share others’ knowledge. In thinking about examples for the previous paragraph, I reflected on how little I know about chemical engineering and plastics. If I wanted to make coffee stirrers or guitar picks, I wouldn’t know where to begin. Maybe “buy some plastic,” but I don’t know what kind of plastic is most appropriate for coffee stirrers and what kind is most appropriate for guitar picks. There are people in the world who do know—and some of them are probably reading this article—but I’m almost totally in the dark.

Free Markets Allow Us to Trade Freely and to Divide Labor Based on Our Wants and Talents
This is where the invisible hand of the market comes in. Voluntary market exchange reveals the patterns of specialization, division of labor, and production most consistent with consumers’ preferences. Others’ talents, tastes, values, and knowledge constitute the invisible hand. I convey information about my own talents, tastes, values, and knowledge with offers to buy or sell. Others convey their knowledge by their willingness to accept my bids and offers. I am being led by the invisible hand of others’ knowledge toward patterns of specialization and production that leave us most satisfied, given that we are all free to accept or reject any offer.

As the economist Paul Heyne put it in his book Are Economists Basically Immoral?, market exchange means “everyone wins, or at least everyone with the right to be consulted.” The parties to the transaction are the ones who have skin in the game, and they are the only ones who have the right to be consulted.

Observers who disapprove of others’ actions and exchanges too often want to substitute the visible fist of the state for the invisible hand of the market and prohibit the buying and selling of goods and services of which they do not approve. In doing so they destroy potentially valuable knowledge about, for example, the risks I am prepared to take. Furthermore, the state allows observers to substitute their own reasoning without paying a meaningful price beyond simply having an opinion about something. It’s easy to conjure up a vivid nightmare scenario in which I am breathing my last in a hospital room, the air heavy with my regret at having eaten genetically modified almonds, for example. Just because we can imagine it happening doesn’t mean it is probable enough for us to worry about. When we substitute the visible fist of the state for the invisible hand of the market, we essentially say that some knowledge as expressed by some voices has no place in the social conversation—and more important, we divert resources away from the patterns of specialization and production that yield maximal social output, or an increase in well-being for all.

Art Carden is grateful to James Otteson for an e-mail exchange that clarified his thinking on some of these points.
-------------
Art Carden is Associate Professor of Economics at Samford University’s Brock School of Business. H/T Intercollegiate Review (IR) who shared this article with the editor. IR is published by the Intercollegiate Studies Institute (ISI) and is dedicated to advancing the principles that make America free, virtuous, and prosperous.

Tags: Art Carden, the Invisible Hand, Adam Smith, Intercollegiate Review, Intercollegiate, Studies Institute, To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. and "Like" Facebook Page - Thanks!
Posted by Bill Smith at 4:29 PM - Post Link

0 Comments:

Post a Comment

<< Home


national debt
Don't miss anything!
Subscribe to the
ARRA News Service
It's FREE & No Ads!

You will receive a verification email
& must validate you subscribed!

You Then Receive One Email Each AM
With Prior Days Articles / Toons / More


Also, Join us at:
Facebook.com/ARRANewsService


Recent Posts:
Personal Tweets by the editor:
Dr. Bill - OzarkGuru - @arra
#Christian Conservative; Retired USAF & Grad Professor. Constitution NRA ProLife schoolchoice fairtax - Editor ARRA NEWS SERVICE. THANKS FOR FOLLOWING!

Action Links!
Arkansas State Senators
AR State Representatives
Arkansas Governor Office
Arkansas Attorney General
Bankrupting America
US House of Representatives
US Senators
Family Research Council
GrassFire
NumbersUSA
Ballotpedia
Judgepedia
Sunshine Review

Facebook Accts - Dr. Bill Smith
Pages:
ARRA News Service
Arkansans Against Big Government
Alley-White Am. Legion #52
Catholics & Protestants United Against Discrimination
End Taxpayer Funding of NPR
Overturn Roe V. Wade
Prolife Soldiers
Project Wildfire 4 Life
Republican Liberty Caucus of Arkansas
The Gold Standard
US Atty Gen Loretta Lynch, aka Eric Holder, Must Go
Veterans for Sarah Palin
Why Vote for Hillary (Satire)
FB Groups:
Arkansas For Sarah Palin
Arkansas Conservative Caucus
Arkansas County Tea Party
Arkansans' Discussion Group on National Issues
Blogs for Borders
Conservative Solutions
Conservative Voices
Defend Marriage -- Arkansas
FairTax
FairTax Nation
Arkansas for FairTax
Friends of the TEA Party in Arkansas
Freedom Roundtable
Let's Mine AR Lignite NOW!
Pro-Life Rocks - Arkansas
Republican Network
Republican Liberty Caucus of AR
Reject the U.N.

Patriots
Exchange
Links

Request Via
Article Comment

Links to ARRA News
A Patriotic Nurse
Agora Associates
a12iggymom's Blog
America, You Asked For It!
Americans for a Free Republic
America's Best Choice
America's Whatchtower
An Ol’ Broad’s Ramblings
ARRA Twitter
As A Matter of Fact
As The Crackerhead Crumbles
Baaad Media!
Black & Right
Blogs For Borders
Blogs for Palin
Blow the Trumpet Ministry
Boot Berryism
Cap'n Bob & the Damsel
Chicago Ray Report
Chuck Baldwin - links
Citizen Pamphleteer
Common Cents
Conservative Hideout
Conservative Observer AZ
Conservative Voices
Conway Real Deal
Defeat Obama's Agenda
Diana's Corner
eGOP News
Florida Pundit
Franklin Online Outreach
Freedom For US Now
Free Zone Media Center
For God and Liberty
Garland County Republicans
Greater Fitchburg For Life
Guns and Religion
Lasting Liberty Blog
Liberal Isn't Amy
Liberty's Lifeline
Maggie's Notebook
Marathon Pundit
Monkey in the Middle
NASA Satellites
No Runny Eggs
Okie Campaigns
Our Voices Arkansas
Patriot's Corner
ProLifeBlogs
Publius Forum
Randy's Roundtable
Real Debate Wisconsin
Religion and Morality
Right on Issues that Matter
Right Reason
Rocking on the Right Side
Saber Point
Saline Watchdog
Secure Arkansas
Sentry Journal
Sultan Knish
Teresamerica
Stop Obama Satire & Cartoons
The Arkansas Patriot
The Audacity of Logic
The Blue Eye View
The Bobo Files
The Born Again Americans
TEA Party Cartoons
The Conservative Citizen
The Foxhole | Unapologetic Patriot
The Liberty Republican
The Lid
The Looking Spoon
The Maritime Sentry
The O Word
The Path to Tyranny Blog
The Real Polichick
TOTUS
Truth About Obamacare
Twitter @ARRA
Warning Signs
Women's Prayer & Action
WyBlog

Editor's Managed Twitter Accounts
Twitter Dr. Bill Smith @arra
Twitter Arkansas @GOPNetwork
Twitter @BootBerryism
Twitter @SovereignAllies
Twitter @FairTaxNation

Editor's Recommended Orgs
Accuracy in Media (AIM)
American Committment
American Culture & Faith Institute
American Enterprise Institute
American Family Business Institute
Americans for Limited Government
Americans for Prosperity
Americans for Tax Reform
American Security Council Fdn
AR Faith & Ethics Council
Arkansas Policy Foundation
Ayn Rand Institute
Bill of Rights Institute
Campaign for Working Families
Center for Individual Freedom
Center for Immigration Studies
Center for Just Society
Center for Freedom & Prosperity
Citizens Against Gov't Waste
Citizens in Charge Foundstion
Coalition for the Future American Worker
Competitive Enterprise Institute
Concerned Veterans for America
Concerned Women for America
Declaration of Am. Renewal
Eagle Forum
FairTax
Family Research Council
Family Security Matters
Franklin Center for Gov't & Public Integrity
Freedom Works
Gingrich Productions
Global Incident Map
Great Americans
Gold Standard 2012 Project
Gun Owners of America (GOA)
Heritage Action for America
David Horowitz Freedom Center
Institute For Justice
Institute for Truth in Accounting
Intercollegiate Studies Institute
Judicial Watch
Less Government
Media Reseach Center
National Center for Policy Analysis
National Right To Work Foundation
National Rifle Association (NRA)
National Rifle Association (NRA-ILA)
News Busters
O'Bluejacket's Patriotic Flicks
Open Secrets
Presidential Prayer Team
Religious Freedom Coalition
Renew America
Ron Paul Institute
State Policy Network
Tax Foundation
Tax Policy Center
The Club for Growth
The Federalist
The Gold Standard Now
The Heritage Foundation
The Leadership Institute
Union Facts



Blogs For Borders

Reject the United Nations

Adopt Our Troops in Prayer


Thousands of Deadly Islamic Terror Attacks Since 9/11

FairTax Nation on FaceBook
Friends of Israel - Stand with Israel
Blog Feeds
Syndicated - Get the ARRA News Service feed Syndicated!
ARRA Blog Feed

Add to Google Reader or Homepage

Add to The Free Dictionary

Powered by Blogger


  • How To Exchange Links!
  • Comments by contributing authors or other sources do not necessarily reflect the position the editor, other contributing authors, sources, readers, or commenters. No contributors, or editors are paid for articles, images, cartoons, etc. While having reported on and promoting the beliefs associated with the ARRA, this blog/site is not controlled by nor funded by the ARRA. This site/blog does not advertise for money or services nor does it solicit funding for its support.
  • Fair Use: This site/blog may contain copyrighted material the use of which has not been specifically authorized by the copyright owner. Such material is made available to advance understanding of political, human rights, economic, democracy, and social justice issues, etc. This constitutes a 'fair use' of such copyrighted material as provided for in section Title 17 U.S.C. Section 107 of the US Copyright Law. Per said section, the material on this site/blog is distributed without profit to readers to view for the expressed purpose of viewing the included information for research, educational, or satirical purposes. Any person/entity seeking to use copyrighted material shared on this site/blog for purposes that go beyond "fair use," must obtain permission from the copyright owner.
  • © 2006 - 2017 ARRA News Service
Creative Commons License
Creative Commons Attribution Noncommercial Share Alike 3.0 Unported License.