A Discussion of Peter Foster’s Why We Bite the Invisible Hand Chapter 18 “Conclusion: Still Spinning After All These Years”
I have really enjoyed this book because Foster is asking the questions I have had.
Why do we bite the Invisible Hand? Why are people not more aware or concerned that attempts to replace the market system have led to repression, murder and poverty on a mammoth scale, while attempts to tame it, fine-tune it or give it a “human face” have so often ended in tears and unintended results? (p. 431)
Over these past 17 chapters, Foster has taken us through history, sociology, psychology, anthropology and more to find the answers.
Largely it comes down to a clash between our complicated, modern economic system that is so abstract and the world we would have lived in for thousands of years with fewer people we were more directly connected to and where resources were more limited.
Zero-sum “carcass economics” underpins a lot of people’s natural economic reactions.
Before industrialization, we did not have a way to meaningfully expand our resources generation after generation. Instead we had the carcass that had been hunted and one person getting some meant another getting less.
Foster has argued with this Malthusian thinking in the link above as I have in earlier works as well.
What I learned from Foster is how deeply rooted this thinking is.
It is not that Thomas Malthus was wrong when he wrote in 1798 and looked back over human history. However, Adam Smith writing a few decades before was looking forward and seeing the end of the Malthusian trap.
What has saved us is technology. Technology is not just computers; it is the process of turning inputs into outputs. Generation after generation, decade after decade, we continue to expand our available resources and the output they can generate, and that has been the source of our tremendous rise in our living standard.
Yet, most people would tell you we are running out of everything and the future looks dimmer than the past. All the good time are behind us.
Being wrong is not a problem until we start enacting policies based on wrong information.
Today, of all our primitive anti-economic intuitions, that of the zero-sum mentality may be among the most pervasive, and the most potentially damaging to wealth and freedom. (p. 431)
For years, academics have concerned themselves with “the Adam Smith problem” specifying what they see as a contradiction between his first work, The Theory of Moral Sentiments, and his second work, The Wealth of Nations.
The first work discusses man’s many motivations whereas the second one is focused on how self-interest is driven by an invisible hand to serving others.
There was indeed an “Adam Smith problem,” but it wasn’t that Smith might have changed his mind about human motivation between Moral Sentiments and The Wealth of Nations. It was the conflict between the complex human nature outlined in the first book and the emergent commercial environment outlined in the second, which its enemies would dub “capitalism.” (p. 431)
Foster is saying a correct reading of Smith recognizes he is talking about man’s behavior in two different arenas in the two books, and he does not mean to imply man is only motivated by self-interest when he wrote the second book.
Foster redefines the Adam Smith problem to capture the clash between our more natural, primitive way of thinking of economic interactions and the reality of what we call capitalism.
The rapid changes of capitalist society — while providing stunning material benefits — not only have placed novel stresses on our understanding and our moral faculties, they have provide opportunities for power seekers to exploit the resultant confusion. What makes this situation so complex is that the urge to power — like morality, to which it is closely connected — is so reflexive and unconscious as it is clever at rationalizing itself. (p. 432)
Psychology of Taboo
I think my favorite concept Foster introduced to me is the psychology of taboo coined by psychologist Philip Tetlock to describe “the tendency to regard some perspectives as so morally wrong as to be both beneath contempt and beyond examination.” (p. 307)
Foster points out that those of us who favor free market solutions need to realize that us pointing out problems with their top-down, government solutions is not going to yield a pro-con debate. They instead will act with revulsion to the challenge because they see any challenge itself as reprehensible.
Central planners tend to interpret failure not as fundamental and inevitable to their approach, but as merely indicating the need for more assiduous program tinkering and policy innovation. Policy inaction is inconceivable because it is considered morally inexcusable. (p. 444)
It definitely helps me understand why so much of policy debates seems to be two sides talking past each other.
Foster says the planner, policy wonk, interventionist will respond to any policy failure with the question, “Would you have us do nothing?” (p. 444)
And Foster says the answer is often, “Yes!” But only to the extent that it is government that should do nothing.
“Doing nothing” sounds irresponsible, but what it really means is government doing nothing. People facing genuine problems do not “do nothing.” They address them individually and by collective action without any need for policy guidance. (p. 445)
And so we are back to the Invisible Hand. Back to the question of can we trust individuals to make the right decisions better than an authoritarian planner.
Foster notes he is not saying there is no role for government, but we need to recognize that government is people, too, who can have conscious or subconscious drives for power that motivate them.
And that is what Smith was saying about the invisible hand. It is not that capitalism is a cure for self-centeredness or even bad judgment because those exist everywhere. It is just that the market can best channel these energies if it embedded with a functioning state system. Capitalism is not an anarchic system.
It requires property rights and laws to ensure the enforcement of contracts and the punishment of crime. It promotes and rewards honesty and prudence. It facilitates charity. (p. 446)
So it is not free market versus government. They need to work together. The free market needs these sorts of governmental protections, but it does not need the government to step in and run it.
I will give Foster the last word. Those who want to control the Invisible Hand have to face…
…their failure to grasp that the Invisible Hand is perhaps the most powerful and beneficent systemic force in human history, and that when you bite it, it always bites back. (p. 447)
Reference: Foster, Peter, 2014. “Conclusion: Still Spinning After All These Years” Chapter 18 of Why We Bite the Invisible Hand, Pleasaunce Press.
