Adam Smith’s Invisible Hand Is at Our Throats
BY TRANSCEND MEMBERS, 31 Mar 2014
John Scales Avery – TRANSCEND Media Service
The “invisible hand”
As everyone knows, Adam Smith invented the theory that individual self-interest is, and ought to be, the main motivating force of human economic activity, and that, in effect, it serves the wider social interest. He put forward a detailed description of this concept in an immense book, “The Wealth of Nations” (1776).
Adam Smith (1723-1790) had been Professor of Logic at the University of Glasgow, but in 1764 he withdrew from his position at the university to become the tutor of the young Duke of Buccleuch. In those days a Grand Tour of Europe was considered to be an important part of the education of a young nobleman, and Smith accompanied Buccleuch to the Continent. To while away the occasional dull intervals of the tour, Adam Smith began to write an enormous book on economics which he finally completed twelve years later. He began his “Inquiry into the Nature and Causes of the Wealth of Nations” by praising division of labor. As an example of its benefits, he cited a pin factory, where ten men, each a specialist in his own set of operations, could produce 48,000 pins in a day. In the most complex civilizations, Smith stated, division of labor has the greatest utility.
The second factor in prosperity, Adam Smith maintained, is a competitive market, free from monopolies and entirely free from governmental interference. In such a system, he tells us, the natural forces of competition are able to organize even the most complex economic operations, and are able also to maximize productivity. He expressed this idea in the following words:
“As every individual, therefore, endeavors as much as he can, both to employ his capital in support of domestic industry, and so to direct that industry that its produce may be of greatest value, each individual necessarily labours to render the annual revenue of the Society as great as he can.”
“He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end that was no part of his intention. Nor is it always the worse for Society that it was no part of it. By pursuing his own interest, he frequently promotes that of Society more effectively than when he really intends to promote it.”
In other words, Smith maintained that self-interest (even greed) is a sufficient guide to human economic actions. The passage of time has shown that he was right in many respects. The free market, which he advocated, has turned out to be the optimum prescription for economic growth. However, history has also shown that there is something horribly wrong or incomplete about the idea that individual self-interest alone, uninfluenced by ethical and ecological considerations, and totally free from governmental intervention, can be the main motivating force of a happy and just society. There has also proved to be something terribly wrong with the concept of unlimited economic growth. Here is what actually happened:
Abuses during the early Industrial Revolution
In preindustrial Europe, peasant farmers held a low but nevertheless secure position, protected by a web of traditional rights and duties. Their low dirt-floored and thatched cottages were humble but safe refuges. If a peasant owned a cow, it could be pastured on common land.
With the invention of the steam engine and the introduction of spinning and weaving machines towards the end of the 18th Century, the pattern changed, at first in England, and afterwards in other European countries. Land-owners in Scotland and Northern England realized that sheep were more profitable to have on the land than “crofters” (i.e., small tenant farmers), and families that had farmed land for generations were violently driven from their homes with almost no warning. The cottages were afterwards burned to prevent the return of their owners.
The following account of the Highland Clearances has been left by Donald McLeod, a crofter in the district of Sutherland: “The consternation and confusion were extreme. Little or no time was given for the removal of persons or property; the people striving to remove the sick or helpless before the fire should reach them; next struggling to save the most valuable of their effects. The cries of the women and children; the roaring of the affrighted cattle, hunted at the same time by the yelling dogs of the shepherds amid the smoke and fire, altogether presented a scene that completely baffles description – it required to be seen to be believed… The conflagration lasted for six days, until the whole of the dwellings were reduced to ashes and smoking ruins.”
Between 1750 and 1860, the English Parliament passed a large number of “Enclosure Acts”, abolishing the rights of small farmers to pasture their animals on common land that was not under cultivation. The fabric of traditional rights and duties that once had protected the lives of small tenant farmers was torn to pieces. Driven from the land, poor families flocked to the towns and cities, hoping for employment in the textile mills that seemed to be springing up everywhere.
According to the new rules by which industrial society began to be governed, traditions were forgotten and replaced by purely economic laws. Labor was viewed as a commodity, like coal or grain, and wages were paid according to the laws of supply and demand, without regard for the needs of the workers. Wages fell to starvation levels, hours of work increased, and working conditions deteriorated.
John Fielden’s book, “The Curse of the Factory System” was written in 1836, and it describes the condition of young children working in the cotton mills. “The small nimble fingers of children being by far the most in request, the custom instantly sprang up of procuring ‘apprentices’ from the different parish workhouses of London, Birmingham and elsewhere… Overseers were appointed to see to the works, whose interest it was to work the children to the utmost, because their pay was in proportion to the quantity of pay that they could exact.”
“Cruelty was, of course, the consequence; and there is abundant evidence on record to show that in many of the manufacturing districts, the most heart-rending cruelties were practiced on the unoffending and friendless creatures… that they were flogged, fettered and tortured in the most exquisite refinements of cruelty, that they were in many cases starved to the bone while flogged to their work, and that they were even in some instances driven to commit suicide… The profits of manufacture were enormous, but this only whetted the appetite that it should have satisfied.”
Dr. Peter Gaskell, writing in 1833, described the condition of the English mill workers as follows: “The vast deterioration in personal form which has been brought about in the manufacturing population during the last thirty years… is singularly impressive, and fills the mind with contemplations of a very painful character… Their complexion is sallow and pallid, with a peculiar flatness of feature caused by the want of a proper quantity of adipose substance to cushion out the cheeks. Their stature is low – the average height of men being five feet, six inches… Great numbers of the girls and women walk lamely or awkwardly… Many of the men have but little beard, and that in patches of a few hairs… (They have) a spiritless and dejected air, a sprawling and wide action of the legs…”
“Rising at or before daybreak, between four and five o’clock the year round, they swallow a hasty meal or hurry to the mill without taking any food whatever… At twelve o’clock the engine stops, and an hour is given for dinner… Again they are closely immured from one o’clock till eight or nine, with the exception of twenty minutes, this being allowed for tea. During the whole of this long period, they are actively and unremittingly engaged in a crowded room at an elevated temperature.”
Dr. Gaskell described the housing of the workers as follows: “One of the circumstances in which they are especially defective is that of drainage and water-closets. Whole ranges of these houses are either totally undrained, or very partially… The whole of the washings and filth from these consequently are thrown into the front or back street, which, often being unpaved and cut into deep ruts, allows them to collect into stinking and stagnant pools; while fifty, or even more than that number, having only a single convenience common to them all, it is in a very short time choked with excrementous matter. No alternative is left to the inhabitants but adding this to the already defiled street.”
“It frequently happens that one tenement is held by several families… The demoralizing effects of this utter absence of domestic privacy must be seen before they can be thoroughly appreciated. By laying bare all the wants and actions of the sexes, it strips them of outward regard for decency – modesty is annihilated – the father and the mother, the brother and the sister, the male and female lodger, do not scruple to commit acts in front of each other which even the savage keeps hid from his fellows.”
The landowners of Scotland were unquestionably following self-interest as they burned the cottages of their crofters; and self-interest motivated overseers as they whipped half-starved child workers in England’s mills. Adam Smith’s “invisible hand” no doubt guided their actions in such a way as to maximize production. But whether a happy and just society was created in this way is questionable. Certainly it was a society with large areas of unhappiness and injustice. Self-interest alone was not enough. A society following purely economic laws, a society where selfishness is exalted as the mainspring for action, lacks both the ethical and ecological dimensions needed for social justice, widespread happiness, and sustainability.
Our greed-based economic system today
Today our greed-based, war addicted, and growth-obsessed economic system poses even greater threats than it did during the early phases of the Industrial Revolution. Today it threatens to destroy human civilization and much of the biosphere.
According to a recently-published study by Oxfam, just 1 percent of the world’s population controls nearly half of the planet’s wealth. The study says that this tiny slice of humanity controls $110 trillion, or 65 times the total wealth of the poorest 3.5 billion people. The world’s 85 richest people own as much as the poorest 50 percent of humanity. 70 percent of the world’s people live in a country where income inequality has increased in the past three decades.
This shocking disparity in wealth has lead to the decay of democracy in many countries, because the very rich have used their money to control governments, and also to control the mass media and hence to control public opinion. The actions of many governments today tend not to reflect what is good for the people (or more crucially, what is good for the future of our planet), but rather what is good for special interest groups, for example, the fossil fuel industry and the military-industrial complex.
An excellent description of the military-industrial complex was given by US President Dwight D. Eisenhower. When he retired, he made a memorable farewell address, containing the following words: “…We have been compelled to create an armaments industry of vast proportions. Added to this, three and a half million men are directly engaged in the defense establishment….In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. “
In another speech, Eisenhower said: “Every gun that is made, every warship launched, every rocket fired, signifies in a final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. The world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, and the hopes of its children.”
Today the world spends roughly 1,700,000,000,000 US dollars on armaments, almost 2 trillion. This vast river of money, almost too great to be imagined, flows into the pockets of arms manufacturers, and is used by them to control governments, which in turn vote for bloated military budgets and aggressive foreign policies which provoke the endless crises and conflicts that are necessary to justify the diversion of such vast sums of money from urgently-needed social goals into the bottomless pit of war.
The reelection of the slave-like politicians is ensured by the huge sums made available for their campaigns by the military-industrial complex. This pernicious circular flow of money, driving endless crises, has sometimes been called “The Devil’s Dynamo”. Thus the world is continually driven to the brink of thermonuclear war by highly dangerous interventions such as the recent ones in North Africa, the Middle East, Ukraine, South and Central America, and the Korean Peninsula.
It is doubtful that any of the political or military figures involved with this arrogant risking of human lives and the human future have any imaginative idea of what a thermonuclear war would be like. In fact it would be an ecological catastrophe of huge proportions, making large areas of the world permanently uninhabitable through long-lived radioactive contamination. The damage to global agriculture would be so great as to produce famine leading to a billion or more deaths from starvation. All the nations of the earth would suffer; neutrals as well as belligerents.
Besides supporting the appalling war machine, our bought-and-paid-for politicians also fail to take the actions that would be needed to prevent the worst effects of climate change. The owners of the fossil fuel industries have even mounted advertising campaigns to convince the public that the threat of anthropogenic climate change is not real. Sadly, the threat of catastrophic climate change is all too real, as 99 percent the world’s climate scientists have warned.
The world has recently passed a dangerous landmark in CO2 concentration, 400 ppm. The last time that the earth experienced such high concentrations of this greenhouse gas were several million years ago. At that time the Arctic was free from ice, and sea levels were 40 meters higher than they are today. Global warming is a slow and long-term effect, so such high sea levels will be slow in arriving, but ultimately we must expect that coastal cities and much of the world’s low-lying land will be under water.
There are several very dangerous feedback loops that may cause the earth’s temperatures to rise much faster than has been predicted by the International Panel on Climate Change. By far the most dangerous of these comes from the melting of methane hydrate crystals that are currently trapped in frozen tundra and on the floor of seabeds.
At high pressures, methane combines with water to form crystals called hydrates or clathrates. These crystals are stable at the temperatures currently existing on ocean floors, but whenever the water temperature rises sufficiently, the crystals become unstable and methane gas bubbles to the surface. This effect has already been observed in the Arctic seas north of Russia. The total amount of methane clathrates on ocean floors is not precisely known, but it is estimated to be very large indeed, corresponding to between 3,000 and 11,000 gigatons of carbon. The release of even a small fraction of this amount of methane into our atmosphere would greatly accelerate rising temperatures, leading to the release of still more methane, in a highly dangerous feedback loop. We must at all costs avoid global temperatures which will cause this feedback loop to trigger in earnest.
Human motivations were not always so selfish
For the reasons mentioned above, we can see that an economic system where selfishness and greed are exalted as the mainspring for human actions lacks both a social conscience and an ecological conscience. Both these dimensions are needed for the long-term survival of human civilization and the biosphere.
We must remember, however, that the worship of the free market and the exaltation of selfishness are relatively recent developments in human history. Looking at threats to the future, we can almost think of the Industrial Revolution, and the global population explosion that followed from it as false steps which our species has taken. During most of their million-year history, humans lived in small groups, not in great cities or nations, and sharing was part of their lifestyle. Perhaps that lifestyle is the one to which we should return if we wish the human future to stretch out another million years.
John Scales Avery, Ph.D. is a member of the TRANSCEND Network and Associate Professor Emeritus at the H.C. Ørsted Institute, University of Copenhagen, Denmark. He is chairman of both the Danish National Pugwash Group and the Danish Peace Academy and received his training in theoretical physics and theoretical chemistry at M.I.T., the University of Chicago and the University of London. He is the author of numerous books and articles both on scientific topics and on broader social questions. His most recent book is http://www.learndev.org/dl/Crisis21-Avery.pdf.
This article originally appeared on Transcend Media Service (TMS) on 31 Mar 2014.
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