Thursday, December 16, 2010

The Invisible Hand, Why Not Let It Work?

There was a revolution of thought that sprang forth in 1776 with two great writings that changed the face of the world forever. One we are hearing a great deal about today, once again, The Declaration of Independence,by Thomas Jefferson and edited by John Adams and Benjamin Franklin. The other, not quite as well known, not as short and succinct, but equally earth shattering in its implementation was "An Inquiry Into the Nature and Causes of the Wealth of Nations," by Adam Smith, most commonly known as "The Wealth of Nations."

In Wealth of Nations, Smith passionately promotes the simple, yet revolutionary idea that individuals are fully capable of setting and regulating prices for their own goods and services. He argued for free trade, yet stood up for the little guy. The Wealth of Nations gave us the very first, and frankly still the best description of the workings of a market economy. Smith's writing is witty, readable, yet a work of genius. It is filled with the significant theories that form the basis for our own capitalist system. His ideas were embraced by his contemporaries across the pond in places like Boston, Braintree, Philadelphia, New York, and throughout Virginia by those with names like Washington, Adams, Franklin, Jefferson, Hamilton, and others, and became the foundation of our own system of government and economic engine. They revolutionized the way our government, and later many governments and individuals viewed the creation and dispersion of wealth, and continues to do so today.

Smith's core principle can be found in his reference to the "Invisible Hand" of competition. He believed that if left alone, and not interfered with, the invisible hand of competition would correct all wrongs eventually. If a business owner was producing shoddy products, charging too much, and ripping off his customers, it would only be a matter of time in a totally free market society that someone would see an opportunity to go into competition with him and serve those customers a better product, at a more fair price, with integrity and run the crook either out of business, or back onto the straight and narrow way to save his own business from ruin.

This same theory extends to employees as well. If a business owner is mistreating, cheating, and abusing his employees, in a totally free market society, someone else, likely one of his better employees, to compete against the tyrant and will lure away the best and brightest employees to his company, leaving only the poorest employees to the bad employer dooming him to failure.

You may ask, if this theory is so great, why doesn't it always work today? The biggest problem with "The Invisible Hand" is that it has very rarely been tried without restraints and without intervention and manipulation. Governments are constantly stepping in with regulations, rules, and programs of all kinds to manipulate the system to try to make it "fairer" less dog eat dog, whatever. What it does is muddy the water and won't allow the competition to actually do it's job of shifting the business and wealth from the weak, or bad company to the strong and or good company. Government wants to level the playing field, by doing so, you don't get the best, you promote mediocrity and keep the weak alive.

Corporations are often somewhat Socialistic as well, they too try to level the playing field, make it safe and protect those who are not strong enough to survive on their own at the expense of those who could be even better if their wings were not continually clipped for the "greater good."

We as a society are so focused on protecting the weaker from failing that we hold down the strong from reaching the levels of success they could. Prince Charles in one of his most lucid moments once commented on the state of economic affairs in England before Margaret Thatcher employed Reagan's supply side economics, that "England became so enamored with the poor and downtrodden, that all of England became poor and downtrodden."

The only time in history where these principle were actually allowed to work was during the time of the great Robber Barons. History has tried to paint them as evil capitalists and selfish megalomaniacs. However, if you truly study the history of the times, those impressions we have been fed don't fit the reality nearly as well. To socialize America, progressives like Teddy Roosevelt, Woodrow Wilson, and Franklin D. Roosevelt had to demonize the tycoons, but it was those same tycoons who created the explosive growth and innovations that made the richest nation on earth for all to be attained. It was the unrestrained freedom they enjoyed that changed the world through better and cheaper steel, transportation, fuel, and more, and in some cases financially carried America through some rough spots.

If you want to see another economic explosion unlike anything in any of our lifetimes, take government's and corporation's feet off the brakes, release the creative juices of our entrepreneurs and let them dream their dreams, and chase them without roadblocks. You would see more new innovations, more growth, more success, and more wealth, not just for a few, but for our nation. In other words, let's let Adam Smith's ideas truly release The Wealth of Nations!!

1 comment:

  1. Let's deregulate so we can see more great innovations like credit default swaps and mortgage backed securities!