Adam Smith's Invisible Hand: Lessons for Governance

Adam Smith (1723 – 1790) was a social philosopher whose ideas significantly informed the discipline of Economics at least up until the late 1940's (the post war period) even though significant opposition had started to emerge decades before that time. The way in which economics theory, particularly the classical and neo-classical schools, adopted and applied his thinking to their theorization served to further remove him from being understood as the philosopher that he was, to being seen an one of the first generals of the field of economics. However, the writings of Adam Smith, as I have come to understand them are potent with implications that point toward the broader operations of a society. And it is for that reason that I have taken to write this article on this blog.

The invisible hand, as proposed by Adam Smith, illustrates the self-regulatory operation of markets as social agents go about selling and buying to maximize profits and utilities, respectively. Furthermore, with the onset of the industrial and scientific revolutions, the production functions of firms or call them, producing entities, has radically been reorganized. The market encompassed not only the theatre of buying and selling of consumables necessarily but also the buying and selling of labor for production and wages also. All this occurred within a context of secularization, that is, the debasing of traditional and metaphysical foundations for power and social organizations towards a scientific base for morality and authority. Science was seen as representing humanities ability to continuously conquer nature by demystifying it, and then going on to use those scientific discoveries for uniform, un-fragmented reason which would form the basis for social bonds and social organization, and production of course.
 

The power of such a background of secularization, and the belief in science as a vehicle for a more uniform, reason-embedded basis for social life, is further advanced by Adam Smith's invisible hand theory. If indeed, social or economic agents were operating within a market for profit and utility maximization informed by a morality and mode of activity anchored in science, then automatically the market's logic of self-regulation was ultimately the expression of the micro-activities of scientific logic. It is therefore not strange that the invisible hand was seen as inherently advancing the interests of humanity. The logic of the invisible hand was as an articulation of the logics of individual actors at their specific markets.

However, the resource allocation power of the market, as an entity in itself was left in flux. As industrialization took deeper roots in the operations of the social, the invisible hand or the market seemed to acquire an existential quality of itself independent of the actual actions of the individual market participants. The price mechanism determined demand and supply. The price mechanism also determined where that supply would be "supplied". And weak demand excluded itself automatically from supply. The repercussions spun without society, and lead to the eventual formulations of theories such as those of the Keynesian School. The debate about this dualism between the market, as an entity in itself, and the actors, as social agents, is nowhere more heavily contested than in the realm of contemporary social theory. Here, it is articulated as a dualism or duality, depending on who is arguing, between social realities (structures) and social actors (human beings), and whether indeed humanity is in charge of their own history, as the enlightenment presupposed, or if in fact the structures (for instance, the market), are imposing on humanity a pre-determined, so to speak, course of history.

Adam Smith's invisible hand points to a more general problem about the actions of people as thinking and conscious agents within social systems that seem to have an inherent ability to impose on the person or people what needs to happen at any particular time in history. Many feel extremely disempowered by such a condition, and reject it as an argument of fatalism. I, however, see it as an opportunity for collective action towards a goal alongside a built-in mechanism that locks activity within certain parameters in keeping with whatever ideals a given people chose to celebrate. This is immediately problematic for some social thinkers because the uniformity as envisaged by the enlightenment period, also presented the human actor as a rational, science informed entity. Post-Structuralists such as Foucault, devoted a lot of time in arguing that people's psyches are not uniform and are not strictly adherent to scientific logic, rather people essentially struggled between pleasure and reason within a world in which the standards for behavior had been steadily corroded by science itself. A good example is medicine, which is a hard science, and yet more and more, it’s become fractured in terms of professional opinions about ailments. It has also become more personalized, meaning that, people are able to access different sources of medicine and apply it to themselves all in the name of Science. Science itself seems to have been taken up by the "market" (here used as a metaphor) and its standardizations have become extremely fractured. There is therefore no single basis for morality or behaving generally (and this is pre-emptive of postmodern thinking).

However, the basis for argumentation or debate within society has not been established in a country like Malawi. The problems that characterize the fragmented state of society in post-industrial countries such as those of Europe can, in my humble opinion, be traced back to a science led expansion logic, especially in Europe following their political revolutions (such as the French Revolution). Late-comers such as Japan, China, Brazil, India, and even the USA amongst others, demonstrate a more "spirit" led expansion logic. Spirit in the sense that certain positions regarding what development and governance entails were only arbitrarily taken. Arbitrary in the sense that science did not inform such positions, but rather, it was instrumentalized in bringing them to pass. I think the Scandinavia is also a good example of such "spirit" led expansion. Reason only served to lead the realization of those positions overtime.

Malawi has that to its advantage. We can either allow a self-manifesting otherness to impose on the general course of our development in the Adam Smith fashion, or we can attempt to galvanize ourselves around a central general idea. Such ideas could be formulated out of a simple effort in which we take stock of our own human suffering and then deciding that we will no longer tolerate it. We could then endeavor to empower our economy and our governance institutions in serving those priority areas while deliberately neglecting others. We can choose to deliberately frustrate the market in accordance with those ideas. This is in keeping with the argument that we can induce a desired course of history albeit at the expense of other courses. But at least then, people can debate about rights or whatever else concerns them on a full belly, under good shelter, under response and efficient government, and a society that generally works. By the way, there is nothing scientific about the American dream or indeed how they call themselves the greatest nation in the world. But these "propagandas" serve to galvanize activity, and to have a more "spirit" led development project than one that is determined by the otherness of automated structures. Such a dry and spiritless liberalism will only culminate in prolonged stagnation for Malawi, or at best, a type of development that seems alien to her people.

I have been reading extensively the literature around the politics of international economics. It is clear from the arguments that pure economics will not sustain a development effort. The visible hand of the State and civil society must intervene even within the contentions of rent seeking behavior, externalities, and other market distortions. The key is not to keep the market efficient, but rather to keep the hopes of people central to the efforts of developing at reasonable efficiency opportunity costs incurred within the market. And herein do we find the central role of governance. It must facilitate the entrenchment of a Malawian idea of progress, and be part of the economic development that must bring about that change we would like to see. This does not necessarily require a big and authoritarian government. It only requires an efficient and responsive one. And of course, one that has decided to grow past the infancy state of its backward politics. Adam Smith, inadvertently, teaches us that through his classic invisible hand theory. And the State led development projects of the Asian Tigers as well as the Latin American Giants further cements my assertions. To end it, albeit poetically, "the market must work for us ~ we must not work for the market."