THE MYSTERIES OF THE MARKET: Keywords: American communism, Socialism, market economy, the mysteries of the free market, Adam Smith and the Invisible Hand, good intentions and the economy, the spontaneous orders.

THE INVISIBLE HAND

OPEN THE ABOVE LINK TO START

A buyer and a seller. If they were bartering, who is who? Money confuses what you see

II

 THE MYSTERIES OF THE MARKET

A meditation about forgotten lessons of American Exceptionalism

By Xuan Quen Santos

 

THE MYSTERY DEEPENS

One of Smith’s mentors and colleagues, Adam Ferguson (1723-1816) was also a Scottish philosopher and historian. In his book "An Essay on the History of Civil Society" (1767) he had argued that social institutions are of a higher order than social organizations because they come about from what people do and not from the intentional design of individuals or governments. He explained what he thought about their origin with the phrase "the result of human action, but not of human design". This explanation is the first recognition of a truly “social” phenomenon worthy of study. If a wise sage of the past, or a great legislator, or a noble king, or a brilliant innovator did not come up with the ideas that allow a community of individual people to successfully act together, who did? Who thought of the division of labor that today we call specialization? Who invented the function of money? Who sets the prices in the market? Who established the units of weights and measures? How did they come about? The first mystery about the economic system or process was unveiled but not explained.

A METAPHOR GOES AWRY

Adam Smith, in an effort to illustrate the concept of his mentor about how spontaneously and unnoticed over the time, the most important institutions of community life appear as a result of what people normally do, and not as a result of somebody’s design, gave us a tangible image. The metaphor appears only once in each of his two more famous books. In “The Wealth of Nations”  (1776) Smith wrote: “Every individual…neither intends to promote the public interest, nor knows how much he is promoting it…he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as is in many other cases, led by an invisible hand to promote an end which was no part of his intention” (Book IV, Ch. 2). In “The Theory of Moral Sentiments” (1759) Smith had illustrated how the rich people… “consume more than the poor, and in spite of their natural selfishness and rapacity…they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life” by buying from the poor what they produce or by employing them (Part IV, Ch. 1).

Teachers, like Ferguson, Smith, and I understand the value of using a metaphor of something tangible and of familiar experience to illustrate a complex abstract concept. Even today, the idea that the economic system is autonomous and does not need a manager is counterintuitive to the careful management we all do with our private business. Using the metaphor of the leading hand, like a parent leads children on the right path, or like the teacher leads the students towards discovering the right answers, or like a security guard leads a senior citizen walk a crosswalk. It would have been better to change the phrase into a clear simile by writing “They act as if led by an invisible hand”. 

THE INVISIBLE HAND CONTROVERSY

There was  no hand, and nobody was leading. That is why it was invisible. But the hand became the most famous detail of the monumental and lengthy inquiry of Adam Smith into the economic behavior of people and how it results in the complex phenomenon we have called “the market” for millennia.

It did not take long for THE INVISIBLE HAND to stir controversy. Since the XVIII century, there is more literature criticizing, mocking, and misinterpreting the metaphor that appears only twice within the texts of hundreds of pages written by Smith, than any other aspect of his many valuable contributions. The politicians immediately saw it as a threat to their power and positions even if they didn’t understand its full implications. Others saw it as a magical force that guides people’s actions in perfect harmony giving the idea that the human activities of commerce are perfect. Of course, the enemies of freedom and liberty found it insulting to their fundamental idea that common people need to be led. Pious people mistook the metaphor for a reference to some pagan goddess of the market such as Tyche or Fortuna, advancing the idea of predestination.

The ones that took it as a personal offense to their beliefs and jobs were many religious intellectuals that found it impossible to accept that actions with questionable motives, maybe even immoral motives, could result in promoting the public interest, the wellbeing of the community. They were not interested in the invisible hand. How could evil acts promote the public good? Instead of looking for an answer to the nature of the phenomenon illustrated by the metaphor of the “invisible hand”, they objected mainly to the proposition that the public interest in building a good community could result even when some of its members were not motivated with good intentions nor were pursuing virtuous goals. Smith gave many examples of this occurrence, but one famous paragraph in particular describes clearly the dilemma created for them.

Smith wrote about the reasons why people participate in the activities of the market:  “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 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. (Book I, Chapter 2) The example was quite shocking, not only because religious beliefs and rituals were very much part of everyone’s lives, but also because it is obviously not limited to the butcher, the brewer and the baker. It applies to all the services, crafts, and products that are traded, bought and sold in any and all markets. It applies in a universal way, in any culture, in any part of the world, wherever voluntary transactions take place, at any time in history.

Notice several key details. Adam Smith took the position of a typical consumer’s point of view. In a hyperbolic interpretation leading to the old strategy called Reductio ad absurdum (a method of argumentation that involves refuting a proposition by demonstrating an absurd outcome if the proposition is assumed true), critics conclude that it means: business people are motivated by greed. I am sure you have heard this phrase often, particularly coming from religious and political leaders. The former find their conclusion abhorrent and sinful, the latter find it the justification to intervene and manage the economic system, even using pious moral motives to justify the use of soft violence inherent in the use of political power. Not looking for a good example, the grandest stage of the pious and powerful, where all Kings and Presidents still go for a blessing, made it available without asking.

BANQUETING WITH THE POOR AND ASKING FOR MORE
Catholic Pope Leo XIV celebrating the 9th World Day of the Poor

RELIGIOUS LEADERS CONSPIRE WITH POLITICIANS

Just today, November 16^th, the Catholic Pope Leon XIV celebrated a grand banquet of lasagna with 1300 guests in the palatial halls of the Vatican. Most headlines highlighted his message to the governmental leaders of the world. “I urge heads of state and the leaders of nations to listen to the cry of the poorest”.  It just happens that today is the 9th World Day of the Poor established by his Jesuit predecessor. The press releases described the guests as homeless and destitute people of Rome. A careful review of the photographs tells a quite different story.  The pope said. “There can be no peace without justice,” he added. The implication in this typical rioters’ phrase is that poverty is the result of injustice. Leo XIV’s words follow specific criticisms he made of the current policies of the United States about illegal immigration and their demands for governmental entitlements in health, housing and food assistance. In synchrony, just today, many notorious Catholic bishops began a TV campaign with the same criticism. My point is just one, putting aside the details. We find one of the most influential religious organizations appealing to the political systems -the governments- to use their power to interfere in the economic system -the people’s pockets- in order to advance their own purposes. Of course, the pope also appealed to the spirit of benevolence of the faithful.

Christian clerics at the front lines on Anti-Ice Riots

AN IMMORAL PARTNERSHIP 

It has been recently exposed that Catholic Charities and many other NGO’s linked to Catholic parishes and bishops, have been receiving billions of US tax-payer dollars in recent years to provide free services to migrants in sheltering them after their illegal crossings, transporting them inland, providing legal assistance, and food and shelter. We have now begun to see many clergy that identify themselves with the Roman Collar as part of the violent anti-ICE riots. I am sure many of them are not Catholic, but of other denominations, because they are angry women.

Who does not appreciate a real sale? Is it greed?

The end of the reductio ad absurdum argument is simple. Who are the consumers in the economic system? The answer is “all of us”. We all consume, it is an essential part of life, it is called surviving since our primitive times. Instead of just taking what we need or want, like animals do, we engage in voluntary transactions with others to exchange what we want or need for what they have. This is the basis of the market. How can we participate to consume? Say’s Law says it all: in order to consume, we must first produce something of value that we can exchange. In other words, we are all also producers first in order to be consumers.

If you think that business people perform their economic function because they are greedy, so are you. Why do you always look for the lowest price for the same goods? Because you are greedy! Why do you love the liquidation sales? Because you are greedy! Why do you take all the gimmick offers for discounts, free credit, BOGOs…? Because you are greedy! Why do you cut and save coupons for discounts of two for one offers? Because you are greedy!

Save Money. Live Better - Always Low prices. Always - Always the Low Price. Always.
Is the largest merchant in the world appealing to your greed or to your best interests and common sense?
Sam began out his old Chevy truck, in a small town. Look at the town now (Bentonville, AR)
Competing offering good service and low prices, Walmart is now all over the world. What they have saved the consumers is thousands more that what they have paid in salaries, and millions more of what they have distributed as profits, mainly to the investors-consumers/workers.

Once we determine that you are at least as greedy as Smith’s butcher, brewer and baker, it follows that we are all as greedy. If the whole market, not just sellers, moves by greed, and the market i s obviously a good institution, perhaps the use of the word greed was the error. Are we not acting as consumers in the best interest of our economy, our household, our children and our future? So are the butcher, the brewer and the baker.

Read the words carefully selected by Adam Smith to describe our motivations when we go to market: benevolence, own-interest and self-love.

Those of us who have read Adam Smith know that many years before he published “An Inquiry into the Nature and Causes of the Wealth of Nations” (1776), he had published “The Theory of Moral Sentiments” (1759). In it, he proposed that what makes up the bond that leads to the forming of human communities is “sympathy”, the recognition that we can identify with others sentiments and needs. Smith was writing as a moral philosopher exploring topics that now we identify with sociology. At that time, scholars were trying to use reasoning to justify our knowledge and beliefs and specifically avoided the use of religious concepts. Love is an overused and ambiguous word in English that is frequently used in Christian traditions. Its conceptual scriptural origin in Greek had nine different words for related concepts. Benevolence is a specific word that in our current usage may be synonymous to good will or with good intentions. Own-interest and self-love are just describing a behavioral science law of motivation. All our purposive actions, in the market or in any other activity, seek a result that is better for us than our present condition. They are not the ugly “greed”, they are common sense.

Adam Smith, in his exploration of sociology, discovered two important things. Good-will (benevolence or ambiguous love) does not explain all the good things that happen in a community to contribute to our wellbeing. There seems to be other mechanisms that correct some of our moral deficiencies. That is one of the mysteries of the market he unveiled and led to his extensive “inquiry”.