The INVISIBLE HAND Versus The Government

I am a lover of debate; it’s the best way to learn and know other people’s thoughts. However, on this, I will take a stand, and make a skewed argument.

“Why do people work?” There is no straight answer to that question, every human being has their own motivation to work. However, irrespective of the motivation, every human being is driven to work by personal and self-interests. I will start with my favorite quote

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.” By Adam Smith, from the Book “An Inquiry into the Nature & Causes of the Wealth of Nations, Volume 1.”

Self Interest as a Drive

Across the globe, most countries run a market economy. A market economy is characterized by individuals owning most factors of production: land, labor, and capital. The allocation and use of these factors is controlled by market forces: demand and supply. The government plays an insignificant role in the market; thus, self-interest and competition play a major role and shapes the market.

From the operations of a market economy, everyone must have this intrinsic wisdom, we work to survive. Thus, from a tender age, we are trained to work as a means to survival. That marks the first intention for every human being’s motivation to work. Thus, a kid will go to school with the hope of securing a better job and an income that will meet their survival needs.

In the case of the baker in Adam’s quote above, a baker will toil to bake as a means to an end. The best way to their survival is to bake; they will bake the best break, first, to beat competition, and second, to lure you to give your money willingly in exchange of their bread. In an effort to meet their self-interest for survival, the baker will produce bread, which is valuable to bread lovers. In a market economy, the pursuance of self-interest produces a behavior, which benefits others.

Is the pursuance of self-interest greedy and immoral? Absolutely NOT. The term self-interest has some adverse connotation; however, it doesn’t always insinuate greedy and immoral behavior. Self-interest just means that we seek personal goals, survival, sustenance, growth… Self-interest drives hard work in a market, which is characterized by stiff competition for scarce factors of production. Thus, it’s a good thing.

Competition as a Regulator of Self Interest

The pursuit of self-interest has been blamed and attributed to many evils in the society. It’s been the source of corruption, cheating, and price extortion among other perils and a justification of government control. However, no one operates in the market in exclusion, all market economies are characterized by competition and lack of exclusivity. Any market is characterized by many self-interest seeking individuals and their self-seeking actions will keep the self-seeking actions of others in check.

Back to our baker case, a baker may be compelled to sell his bread at exorbitant price to maximize profits. However, that would drive their customers to competitors. Thus, the only way a baker can generate optimal returns is to make superior bread and sell it at an affordable price and with more convenience compared to competition. Even in a market without competition, any self-seeking person is forced to be optimal; otherwise, other self-seeking people will see an opportunity in the market, acting as its checks and balances.

An Invisible Hand: The Interesting Player

Have you heard about the Theory of The Invisible Hand? The Invisible Hand the silent player in any market economy. It is the product of the interaction between self-interest and competition. Any player in the market aims to serve their self-interest as opposed to the needs of the society; however, in the pursuit of their self-interest, they fulfill the needs of the society. The goal of any player is to earn an income, but in the process of earning an income, they produce a good that serves and benefits the society.

The Invisible Hand eliminates the need and role of the government in a market economy. Every player pursues self-interest, but competition maintains the checks and balances in the market, ensuring optimality in the market.?