Invisible Hand, no 31

What do they teach at the University of Virginia that an obviously bright and articulate student, like Zack Fields, writes with such passionate certainty and anger that he trounces the views of Jack Bogle, a visiting former CEO who warns of the ‘impending crisis of capitalism’ and exclaims that "values should be embedded in business"?

Mr Bogle, Zack Fields reports, “then cited Adam Smith's belief in the importance of ‘propriety,’ ‘generosity’ and ‘love of that which is noble’ with respect to business behaviour”.

But far from Zack Fields finding common ground with Mr Bogle, a critic of ‘capitalism’ predicting a ‘pending crisis’, he launches into a tirade against anything with which ‘capitalism’ is, or has been, associated.

“These are all laudatory sentiments, but they also contradict the ideology of the invisible hand, which says that selfish action will ultimately maximize societal welfare. Bogle is absolutely right -- it would be wonderful to trust our corporations. It would also be idiotic.”

I am bound to ask politely: what is this ‘ideology of the invisible hand’? Maybe somebody’s presentation at the University of Virginia of the ‘ideology of the invisible hand’ includes the silly (even ‘idiotic’) notion “that selfish action will ultimately maximize societal welfare”, but such nonsense never had anything to do with Adam Smith or anything he wrote, and if it is taught in Virginia (surely not?) the tutors have got it (irresponsibly) all wrong.

The tone of Zack’s rendering of his repetition of ‘selfish action will ultimately maximize societal welfare’ owes more to his tutors’ debt to Bernard Mandeville’s ‘Fable of the Bees: or Private Vices, Public Benefits’ (1705, 1714, 1729) than it does to Adam Smith. Indeed, as early as 1759, Smith, in his ‘Theory of Moral Sentiments’, severely criticises Mandeville for purveying such views on selfishness in his ‘Theory of Moral Sentiments’ and he demolishes any concession to Mandeville’s (or anybody else’s) view that selfishness does any good for society, or even could do so.

There is no succour for any tutor to argue that in “Wealth of Nations” altered these views of Smith. He taught moral sentiments and political economy together to the same students at Glasgow and such a glaring contradiction would have been commented upon by them (for they were every bit as bright and articulate as Zack, but alas much poorer: see Smith's Lectures oo Jurisprudence, 1763-4).

Zack continues with this theme, however:

“More fundamentally, because each person lives in the short term, each capitalist participant will engage in what Bogle called "counterproductive" short term behaviour. If we do not live forever and we are maximizing our own utility in line with invisible hand ideology, there is no reason to maintain trust through the end. At some point it is profitable to cheat one's neighbour”

which leads Zack to his piece de resistance:

“A self-proclaimed believer in "free enterprise," Bogle does not realize that the mechanics of market competition cause the income inequality, exorbitant CEO pay, and corruption of accounting agencies that he views as a mutation of the virtuous marketplace. Moreover, the ideology of the "free" market serves as a convenient rationalization of our inhuman treatment of one another in daily market exchanges.”

Markets do not create income inequality – these existed for long before markets appeared and before the revival of commerce a thousand years after the fall of the Roman Empire. ‘Exorbitant’ distribution of incomes to the rich and powerful were not noticeably absent in feudal society and what preceded it. These societies suffered the ever present fragility of what passed for justice and the associated tyrannies that were experienced by the majority of humans, many considered worse than expendable, for generations.

Criminality is vulnerable to the laws of justice. The fact that Zack knows so much about ‘corruption of accounting agencies’ and ‘our inhuman treatment of one another’ is because freedom, liberty and justice make these things known to all. In many parts of the world, the ‘vile rulers of mankind’ control the media and hide their crimes.

And be sure, ‘daily market exchanges’ do not cause ‘inhuman treatment’. They enable millions to access most of the things they need, including the poor, every day of their lives in countries like the USA, Europe, and the West’. Of course, everybody could be ‘better off’ and many should be, but without the ‘daily market exchanges’, denigrated by Zack Field, the lot of the very poorest really would be dire, with no hope of reprieve.

The very poorest in the West are a long way from the dreadful poverty of Africa, parts of Asia (including Russia and parts of the Middle East) and Central and South America, as are the articulate students of the University of Virginia.

Humans do not create poverty; it is the absence of wealth creation that is the bed-rock of poverty. Defective as all human societies are and have been, no alternative system of wealth creation has achieved as much as even the most defective of market economies, while the best of the market economies (based on liberty, security and justice) do even more, right across the income distribution. Where would you rather be poor: in Charlottesville, Virginia, USA, or any town or village in Africa?

[Read the article in The Cavalier Daily, “Rationalising the Market” by Zack Field, University of Virginia, Charlottesville, USA:
http://www.cavalierdaily.com/CVArticle.asp?ID=25908&pid=1398]