So Much for the Invisible Hand

The economist Adam Smith used the metaphor of the invisible hand to theorize how a free market – one which allows individuals to maximize their profit potentials – can benefit all the individual members of a community. Intended as an argument against protectionist government regulations, this theory basically says that as social creatures, we are driven by self-interest, but that this drive is ultimately good for society as a whole. Based on essentially the same principle as Darwin’s notion of natural selection, the logic behind Smith’s theory dictates that just like disadvantageous traits in plants, animals, and humans, inefficient business models will cease to exist.

Which brings us to the current context of global economic downturn and bagazillion dollar bailouts. It would appear that when the shit hits the fan, even free-market enthusiasts get cold feet. America, once a champion of free trade, is set to pass a $900 billion dollar stimulus plan that includes a (somewhat softened) “Buy America” provision. Similarly, in an attempt to stave off the inevitable, the dinosaur-like North American automotive industry is being rescued from extinction.

And in Canada last week, Prime Minister Stephen Harper’s budget passed with an $85 billion dollar deficit. This, despite the fact that until now, Harper’s political identity was firmly rooted in free-market economics. His master’s thesis, written in 1991, demonstrated that government interventions in the market served political, rather than economic interests. Clearly, Harper knows that if he had applied his free-market ideologies to last week’s budget, he’d likely be out of a job before the next election.

Which leads me back to Smith’s invisible hand. Smith’s entire thesis rests on the notion that as social creatures, we are driven by self- interest. Based on the recent Canadian example, one must conclude that he is correct. Although it seems that in this instance, the self-interest of a political leader trumped the imperative to allow self-interest to govern the market. For better or worse, it would seem that Smith’s invisible hand has been shackled.