Tuesday, March 11, 2014

Improving Lives, Or Trampling On Them? Invisible Hands Don't Trample.

"The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it." 

Adam Smith (1723 - 1790)

This 18th-century quote is so appropriate today!  And accurate!

Why is it that gubments worldwide, and statesmen worldwide, think they can control the private sectors in their countries to the degree that their "control," as they hope, can shape economic policy positively?

Notice Adam Smith's use of the word "capitals."  Capital is one of the factors of production, which is defined as also including land, labor and entrepreneurs.  Capital comes in many forms.  Certainly a big part of the capital I bring to my job as a home inspector is my education and its application by virtue of my experience.  A "trained eye" is just that.  But that's not all.  I have tools, and a camera, and software, and the like, and the ability to use those factors of my production to create reports that inform home buyers of what my experience has determined pertains to their purchase.  All of those things, and more, make up my business capital.

Why is it that gubments, and statesmen in those gubments, or councils, or senates (to use Adam Smiths' words) worldwide think they can control the private sector, and that sector's various capitals, to the degree that these factors of production can be manipulated and controlled to create economic growth?

Of course they have no hope of controlled economic improvement.  IT IS IMPOSSIBLE!

Impossible you say?  Of course!  Nobody anywhere even knows how to make a pencil, so how can any gubment, person or council know how to most efficiently direct the trillions of combinations of activities that make up every day's activities in any market place?

Adam Smith, in his famous book The Wealth of Nations, from which the above quote was taken, proposed that what most efficiently guides and directs any market place is an Invisible Hand overall.  Each of those trillions of combinations of activity is trying every day to bring to the market their good or service.  Most do their small part without any knowledge of the majority of what the market place is also bringing to pass to aid them!  It took zillions of people, and the employment of factors of production, to bring you that shoelace that you tie on your shoe.

As regards gubment involvement in the marketplace's Invisible Hand, Milton Friedman suggested there is also an Invisible Foot.  He said, "When government attempts to substitute its own judgments for the judgments of free people, the results are usually disastrous.  In contrast to the free market's invisible hand, which improves the lives of people, the government's invisible foot  tramples on peoples' hopes and destroys their dreams."  (emphasis mine)

This perfectly complements the Adam Smith quote above.  We have come full circle.  What Adam Smith called "folly," Dr. Friedman called "trampling."

What's the difference?

When markets are manipulated and controlled, economic growth is IMPOSSIBLE.

Gubment manipulation and control stultifies, tramples and destroys.  Invisible Hands don't trample.

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