The Invisible Hand Is a Gentle Hand

Discussion in 'Politics & Law' started by Truth-Bringer, Oct 24, 2007.

  1. The Invisible Hand Is a Gentle Hand

    What would a truly free society look like?

    By Sharon Harris

    The enemies of freedom have always maligned the free market. They have perpetuated myths like "dog-eat-dog capitalism," "survival of the fittest," "the law of the jungle." Robber barons. Heartless monopolies. A ruthless Wall Street fleecing a helpless Main Street.


    It's time to speak out for the free market and individual liberty.

    The great economist Adam Smith wrote that a free society operates as if "an invisible hand" directs people's actions — in such a way as to serve the interest of the whole society.

    That invisible hand is a gentle one. A free market is a gentle market. A free society is a gentle society. A cooperative, compassionate, and generous society. An abundant and tolerant society.

    David Friedman, in his book The Machinery of Freedom, notes that there are only three ways to get something: (1) by trading, (2) by receiving a gift (from love or friendship), or (3) by force ("do what I want or I'll shoot you"). Honest, peaceful people operate in the first two ways. Criminals and the state operate by force, aggression, coercion.

    The gentle invisible hand vs. the visible fist of force.

    You want to see dog-eat-dog? Look at the Waco massacre of the Branch Davidians. Look at the Ruby Ridge shooting of Vicki Weaver. Look at an IRS audit. We don't have a dog-eat-dog business world; we have a dog-eat-dog government.

    Dog-eat-dog is defined as "ruthless or savage competition." This is an absurd description of the free market.

    And besides, it's unfair to dogs.

    In truth, the marketplace has a civilizing, humanizing effect. If honesty didn't exist, the marketplace would invent it, because it's the most successful way to do business. In the free market we see, not a survival of the fittest, but a survival of the kindest. Survival of the most cooperative. Survival of the friendliest. A gentle Darwinism, if you will.

    In a free society, the most considerate prosper. As Thomas Sowell says, "Politeness and consideration for others is like investing pennies and getting dollars back." A smile has currency.

    There are built-in incentives in the marketplace for service, courtesy, respect. The invisible hand becomes a friendly handshake between cooperating adults. As John Stossel pointed out in his ABC special, "Greed," notice how — when you purchase something at a store — the clerk says, "Thank you," and you say "Thank you" as well? It's a mutually beneficial exchange, and both parties are better off.


    Let's look more closely at cooperation. The gentle invisible hand vs. the visible fist of government

    Here's a question for you: Would you rather visit Wal-Mart or the Department of Motor Vehicles? Of course, at the DMV you get something free — free grief, at no extra charge.

    At the Smith Food King market, when there are more than three people in line, they open a new register. At the Post Office, when there are more than three people in line, two of the clerks go to lunch.

    In a free society, people are treated as customers or potential customers. The customer is always right — even when he's not.

    Yes, there are rude people in the marketplace. But it's easy to quit doing business with them.

    Contrast that to dealing with the government. Perhaps no one has ever better summed up what its like to interact with the government than the French political theorist, Pierre-Joseph Proudhon. In 1849, he wrote:

    "To be governed is to be watched, inspected, spied upon, directed, law-ridden, regulated, penned up, indoctrinated, preached at, checked, appraised, seized, censured, commanded, by beings who have neither title, nor knowledge, nor virtue. To be governed is to have every operation, every transaction, every movement noted, registered, counted, rated, stamped, measured, numbered, assessed, licensed, refused, authorized, endorsed, admonished, prevented, reformed, redressed, corrected."

    Sounds as though he had some experience dealing with government.

    Compare that to the gentle hand of the free market. If you don't like the way one grocery store treats you, you can go elsewhere. If you disagree with your church, you can choose another denomination — or none at all.

    But with government, we don't have that choice. What if you don't like the Motor Vehicle department? Can you get your drivers' license somewhere else? Or try telling the IRS you don't like the way the government spends your money, and see where that gets you.

    The gentle invisible hand vs. the visible fist of government.

    Adam Smith said "It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard for their own interest."

    In the marketplace, people tend to be well mannered — even if they hate you. The profit motive can even overcome racism, sexism, homophobia, and other prejudices. Even the most racist businessman eventually realizes on some level that "I might hate the color of their skin, but I love the color of their money."

    Rest of article here

  2. CMK_Eagle

    CMK_Eagle Registered Member

    The problem with advocating a completely free market is that it requires assumptions which don't hold true. One classic example is the energy business. In a free market, if I own a hydroelectric plant, the upstream waterways and the power lines in an area, I would have an unassailable monopoly. The costs of building new power lines to every home and business in the region would be huge, as would the cost of building a new power plant. My only costs are maintainence on the turbines and generators. This would allow me to charge far above the price in a perfectly competitive electricity market, creating a huge distortion in the economy, and thus huge inefficiency.

    Another example of where theory breaks down is the requirement for perfect availability of information. If you don't like dealing with a particular business, you have to be aware of a suitable a replacement. To make an informed decision, a person needs all relevant information about his options. Obviously there would be a market for providing such information, and this exists in our current economy. However, not everyone can afford a subscription to Consumer Reports.

    There is also the problem that people don't always make rational decisions. People will stick with brands they're comfortable with, even if there's a better option. People also place an irrational value on instant gratification. If offered $100 today, or $200 in one year, most people will chose the $100 against their interests.

    All of these deviations from theory help to explain why some level of regulation is required for a well-functioning economy.
  3. But of course, if you charge too much, then people will simply do without. You would also have to stay lower than what a gasoline generator would cost - or people would simply convert to using those.

    Secondly, such a situation would motivate others to develop alternative power much, much faster than would have ever taken place otherwise.

    Governments should have no power over peaceful, honest, voluntary activities. Here's a perfect example of why:


    Dairy Industry Crushed Innovator Who Bested Price-Control System

    In the summer of 2003, shoppers in Southern California began getting a break on the price of milk.

    A maverick dairyman named Hein Hettinga started bottling his own milk and selling it for as much as 20 cents a gallon less than the competition, exercising his right to work outside the rigid system that has controlled U.S. milk production for almost 70 years. Soon the effects were rippling through the state, helping to hold down retail prices at supermarkets and warehouse stores.

    That was when a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga's initiative. For three years, the milk lobby spent millions of dollars on lobbying and campaign contributions and made deals with lawmakers, including incoming Senate Majority Leader Harry M. Reid (D-Nev.).

    Last March, Congress passed a law reshaping the Western milk market and essentially ending Hettinga's experiment -- all without a single congressional hearing.

    "They wanted to make sure there would be no more Heins," said Mary Keough Ledman, a dairy economist who observed the battle.

    Rest of article at:

  4. CMK_Eagle

    CMK_Eagle Registered Member

    Which would still result in a far greater price for energy than in a perfectly competitive energy market, and thus be very inefficient.

    Again, the problem with an entirely unregulated economy is that there are industries which are natural monopolies. Those which have highly inelastic demand and very strong economies of scale, such as utilities and other forms of basic infrastructure, easily gain the power to drive prices far above what they would be in a perfectly competitive market.

    That's fine, but a firm with such a monopoly would easily acquire enough capital to buy off potential competitors.

    Furthermore, they would still have extremely high startup costs. They would have to pay for research to develop their new technology, they would have to build factories and power plants to produce their energy, and they would have to build their own infrastructure to distribute their energy to the public. Each of these cost barriers alone could easily be enough to prevent new entrants to the market. I'm not likely to invest in a startup company if it's going to take 50 years for that investment to pay off.

    Yes, I'm well aware of the problems of regulatory capture. However, in an industry where competition is impossible or impractical, it's better than allowing one firm to set the price for a necessary good for which there is no practical substitute.

    Not really. The dairy industry is one of the prototypical examples of a perfect competition, and thus is one for which there's little economic case for regulation.
  5. Bottom Line - the vast majority of monopolies could not exist without government intervention:

    "Monopoly: A right granted by a government, giving exclusive control over a specified commercial activity to a single party." - AMERICAN HERITAGE DICTIONARY, 1982

    Creating Monopolies That Control Us

    Everything else is voluntary. If you don't want the product, then you are not forced to buy it. But government will force you to "buy" its "products" and "services."
  6. CMK_Eagle

    CMK_Eagle Registered Member

    Perhaps, but there are such things as natural monopolies. It would be a disaster to have multiple companies trying to provide competing roadways.

    As far as the link you provided;

    1) Oil, like dairy, meets several of the criteria necessary for perfect competition. It's a mostly uniform product, it's difficult to monopolize distribution, and the economies of scale don't price out smaller refiners. Therefore Standard Oil was not a natural monopoly, and its loss of market share was entirely predictable.

    2) The notion that phone companies could have maintained the shared useage of each others' lines indefinitely is absurd. Those lines aren't free to maintain. There would naturally be conflicts between companies with market shares disproportionate to the extent of their networks and those with vast netoworks of phone lines but few customers. Furthermore, growth would be slower as a company would derive only a fraction of the benefits of installing new phone lines, but be forced to pay the full costs.

    That's not to say that the government should ever grant any company a legal monopoly, and that's not what I mean by a natural monopoly.

    Well, I'm not so foolish as to think that economic principles don't apply equally to government as they do to any other industry. However, you still haven't proven that, at the very least, when it comes to basic infrastructure-related natural monopolies, government regulation does more harm than good.

    Furthermore, not everything is voluntary. If the Los Angeles Aqueducts were to be sold to a private company, how would the market prevent it from charging greater than market price for water? Deserts don't support cities of 12 million people. Sure, someone could try to build desalination plants, or more aqueducts, but those would be incredibly expensive projects, especially when the cost of duplicating the underground water distribution system is included. Even so, such a project would take decades to complete, during which such a monopoly would be entirely free from competition.

Share This Page