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The Invisible Hand of the State

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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.

— Adam Smith, The Wealth of Nations

As Adam Smith observed in 1776, when people seek to benefit themselves through voluntary trade, they unwittingly benefit society at large. This phenomenon is often referred to by the metaphor of the “invisible hand,” as if a there were a mystical force guiding ordinary, self-interested persons towards order and productive behavior in the marketplace. Indeed, the explosion of trade occurring on a global scale over the past three centuries has ushered in an age of previously unimaginable interconnectedness, innovation, and standard of living for the whole of humanity.

Persons acting through the modern nation-state — whether well-intentioned or not — have a similarly predictable track record. No single person can be said to have directed every action of government over the same span. And yet, as if guided by a similarly supernatural force, those who act through the means of state power tend towards predictable outcomes of their own.

States impoverish their citizens.

In economics, people value everything subjectively. So when two people trade, we can infer that each makes the other better off by trading for what the other person wants more than what he already has. That is why trade is a “positive sum” and the social phenomenon of money has been called “reciprocal altruism.” When two people trade with one another, both parties benefit. That is all the market is, but on an unfathomably large and complex scale.

Despite the abundant wonders of the market, it is often said that the government cares more about our well-being than those who want to sell us burgers and smart phones. After all, those people seek profit! Social workers and police officers, on the other hand, are presumed to be selfless and disinterested. But even accepting the premise that every person in government is truly benevolent, bureaucrats would be unable to function as efficiently and dynamically as market actors.

Government is unique in that it is wholly disconnected from freely entered transactions. No one who works in government is compensated through the fruits of trade. Instead, government receives its revenue solely through taxation. Because of the disconnect from voluntarily entered transactions, government is heavily insulated from the forces that enable market calculation to take place. Ludwig von Mises wrote that “a bureaucrat differs from a non-bureaucrat precisely because he is working in a field in which it is impossible to appraise the result of a man’s effort in terms of money.” Even with the best motives and academically ordained experts, central planning of any service or good is simply grasping at straws in the dark.

Regardless of how legitimately well-intentioned a bureaucrat may be, every dollar that is taken as government revenue is a dollar that cannot be spent voluntarily in the market. And preventing people from spending their own money on goods and services of their choosing stifles the creation of real wealth.

Further, any harassment of business by government can only hamper economic efficiency and give businesses incentives to direct their resources to influence political outcomes instead of focusing on satisfying consumers themselves. Although that impact often goes unseen, the principle remains the same: every action taken through state means necessarily detracts from overall economic prosperity.

States bend the truth.

In the market, public exposure is vital for private entities to succeed. Since neighborhoods are not forced to eat at a single restaurant, restaurants must attract potential customers and keep them coming back or risk going out of business. That means every restaurant has natural incentives to research, advertise, and ultimately deliver food that satisfies customers enough to induce them to come back, all while remaining profitable and maintaining a positive reputation. If a business fails in any of those categories, it withers and dies (unless it’s “too big to fail” of course).

Government, on the other hand, operates as a monopoly in a given territory and extracts all its revenue from taxation. Instead of having to constantly compete with other providers to be actively chosen by consumers, the state must persuade its citizens only to remain tolerant of its ongoing operations — a far lower standard to meet. When an entity is divorced from individual consumer choice and is impervious to feedback signals from profit and loss, its emphasis invariably shifts from providing services to maintaining complacency in the existing status quo. Instead of being penalized for failure as in the case of the market, government failure tends to justify applying more resources towards the failed solution.

The state therefore has a strong incentive not to focus primarily on providing services but rather on tailoring information to fit its narrative. As Alexis de Tocqueville wrote of the state’s natural effect on the minds of its subjects, “The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd.”

At the end of the day, the state does not have to sell you anything; it does not have to convince you to do business with it; it only has to convince you that there is no better option. In practice that often entails self-aggrandizement (exuding an aura of legitimacy and relevance in all matters), misdirection (scapegoating domestic and foreign factions), and controlling the way its citizens think (public schooling, confining peaceful behavior to “officially approved” areas).

As Mises said, “It is a fact that no paternal government, whether ancient or modern, ever shrank from regimenting its subjects’ minds, beliefs, and opinions.”

That does not require that any bureaucrat have ill motives or malintent, but when applied to the state apparatus at large, information naturally seems to bend itself.

States return humanity to warring tribes.

Nothing symbolizes the invisible-hand metaphor better than the handshake. A handshake conveys mutual respect and cooperation, necessary conditions for all trade. When trade occurs throughout society, it fosters a climate of inter-dependence despite differences in sex, race, nationality, and culture. The handshake epitomizes the essence of all society: the bond of interconnectedness that arises through voluntary cooperation from individual persons acting freely.

But for those who choose to act through the apparatus of the state, a far more apt symbol is the fist. Beneath all its rhetoric, whitewashing, and special pleading, the state’s only real tool is aggressive violence or the threat thereof. The state’s very existence is predicated on a territorial monopoly. As the oft-applicable adage goes, “If all you have is a hammer, everything looks like a nail.” If your only tool is aggression, everyone looks like an enemy.

True to form, the previous century witnessed states taking their violent behavior to a previously unimaginable scale. Through wars, genocides, purges, and forced famines states slaughtered hundreds of millions of innocent people like cattle. Hundreds of millions of individual persons, each with his own childhood, personality, dreams, and potential. There is no way to ever account for the total impact of such unfathomable annihilation of human life. Only through the state’s lens of collectivism can violence take place on such an obscenely anti-human scale. There is simply no other means through which people can act that could even scratch the surface of the sheer pestilence wrought upon humanity by government.

The natural result of market behavior is to foster peace and individual freedom. The natural result of state behavior is to trample the individual person in the name of the Nation. People who have never met each other are made mortal enemies on the basis of tribal membership and are not only given legal permission to murder one another, but are ordered to by their chieftains. “Collateral damage” is accepted as necessary, as any consideration of ethics and base morality is blown to bits along with guilty-by-association civilians.

State power swells most to the beat of the war drums. For this reason, states will always tend to factionalize its citizens against one-another, foreigners, and even abstract, vague concepts that serve as boogeymen for political gain. Persons acting through the state exhibit the nastiest, least rational, and most herd-like behavior in all of humanity.

Conclusion

The market is what happens when people pursue their own ends peacefully using cooperation and voluntary organization. Through trial and error, the natural effect of that process is to maximize prosperity for all — as if guided by an unseen benevolent hand. The state has precisely the opposite effect. Even if bureaucrats and politicians have the best possible motives, those who work within the state and control it are always steered towards the same old outcomes — waste, deceit, and violence.

So isn’t it time the state gets an “invisible hand” metaphor of its own?

This article was originally published in the July 2017 edition of Future of Freedom.

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    Will Tippens is a lawyer living in Nashville, Tennessee.