9.10.2016

The Invisible Hand

When I was a kid, I remember watching David McCallum in The Invisible Man. In each session he became invisible at least two times. He's still going strong as an actor, and I now enjoy his quirky act as the Chief Medical Examiner "Ducky" in NCIS.

The Invisible Hand is the metaphor introduced by Adam Smith in 1759 describing his notion that individuals' efforts to pursue their own interest may frequently benefit society more than if their actions were directly intending to benefit society, which has been used as basis for the assumption that trade and market exchange automatically channel self-interest toward socially desirable ends.

Jonathan Schlefer writes in a Harvard Business Review article that there is no invisible hand. He uses a rather nifty analogy to describe the concept:

"The invisible hand sees market economies as passenger planes, which, for all the miseries of air travel, are aerodynamically stable. Buffeted by turbulence, they just settle back into a slightly different flight path. General-equilibrium theory, as it developed in the 1960s and 1970s, suggests that economies are more like fighter jets. Buffeted by a gust, they wouldn’t just settle into a slightly different path but would spin out of control and break asunder if “fly-by-wire” computer guidance systems did not continually redirect them to avert disaster."

Chris Matthews comes to the same conclusion in his article in Fortune. He also can see the reason why US politicians keep referring to it and why the American people continue to believe it.

"For those who are already wealthy, they have little to gain from economic interference. Others are reassured that by simply looking out for themselves they can work towards the greater good. If the invisible hand reflects reality, we have no moral obligation to look beyond our own interests. How convenient."
Matthews continue to point out that Smith also highlighted the benefits of spreading power across many people in a society. Governments can indeed become too powerful, but those who wish to see no government regulation whatsoever have hijacked Smith’s metaphor.

However, David Sloan Wilson argues in an Evonomics article that the invisible hand theory can be made to work if you use evolutionary and complexity theory for example in the form of Multilevel Selection Theory.

"As a basic matter of tradeoffs, traits that maximize the relative fitness of individuals within groups seldom maximize the fitness of groups, relative to other groups in a multi-group population. The general rule is: Adaptation at any level of a multi-tier social hierarchy requires a process of selection at that level and tends to be undermined by selection at lower levels. Or, as another Wilson (Edward O.) and I put it in a 2007 article, “Selfishness beats altruism within groups, altruistic groups beat selfish groups. Everything else is commentary.”"

It's my guess that all the above can be useful when investigating the increasing focus on concepts such as "peer-to-peer economy" and "collaborative economy" as exemplified in the article by Michel Bauwens and Franco Iacomella published in the book "The Wealth of the Commons - A World Beyond Markets and State".

"The peer-to-peer vision relies upon the three major sectors of society – the state, market and civil society – but with different roles and in a revitalized equilibrium. At the core of the new society is civil society, with the commons as its main institution, which uses peer production to generate common value outside of the market logic. These commons consist of both the natural heritage of mankind (oceans, the atmosphere, land, etc.), and commons that are created through collective societal innovation, many of which can be freely shared because of their immaterial nature (shared knowledge, software and design, culture and science). Civil society hosts a wide variety of activities that are naturally and structurally beneficial to the commons – not in an indirect and hypothetical way, as claimed by the “Invisible Hand” metaphor, but in a direct way, by entities that are structurally and constitutionally designed to work for the common good. This sphere includes entities such as trusts, which act as stewards of physical resources of common use (land trusts, natural parks), and for-benefit foundations, which help maintain the infrastructure of cooperation for cultural and digital commons."

For excellent work in Swedish about the collaborative economy I refer to the works of ├ůsa Minoz and Sara Modig and the excellent report "ABC i kollaborativ ekonomi"!

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