The Invisible Hand of Dharma or the TaoSeptember 9, 2021 by Juan
The invisible hand concept by Adam Smith is one of the most important ideas in our proposed economic science, making up the Second Law of Value .
This Second Law leads to the effort theory of value which then replaces marginal utility. Without marginal utility, then the arbitrary marginal pricing and profit maximization of Neoclassical Economics cease to be logical as they necessarily violate the Fourth Law of Value .
Unfortunately, such a fundamental concept has been thoroughly corrupted by Paul Samuelson in order to advance his selfish “neoclassical synthesis”. Since then, it has been unjustly blamed for bad things about the economy and has even been denounced:
We bring back the original invisible hand by separating it from corrupted hand from Paul Samuelson:
Smith proclaimed the principle of the ‘invisible hand’. It says that every individual, in selfishly pursuing only his or her personal good, is led, as if by an invisible hand, to achieve the best good for all. In this best of all possible worlds, any interference with free competition is certain to be injurious.Economics
Of course, that is absolutely false, since Smith pointed to sympathy and benevolence (the direct opposite of selfishness), as the substance that keeps the machine called society running smoothly. Samuelson merely cherry-picked Smith’s views on self-interest, which to Smith was a ‘praise-worthy’ positive quality, and then corrupted it into selfishness which is a negative quality:
Regard to our own private happiness and interest often appear as very laudable principles of action. The habits of oeconomy, industry, discretion, attention, and application of thought, are cultivated from self-interested motives. These habits are seen as very praise-worthy qualities.. Our instinct for self-preservation instructs us to take proper care of our health, life, or fortune. A person who fails in this would be pitied instead of hated.Carelessness and want of economyare universally disapproved of because it shows a lack of attention to the objects of self-interest and not because of the lack of benevolence.Simple Theory Of Moral Sentiments, Part 7, Section 2, Chapter 3
Human creatures should be more careful and attentive (have attention to the self). This does not mean that they should be selfish.
The cause of the corruption of “self-interest” into “selfishness” is the word “self” that is present in both ideas*.
To solve this, we will instead use ‘personal interest’, using the Latin word ‘person’, meaning mask, instead of the English ‘self’ which means ‘I’. Metaphysically, a mask refers to an indirect ego, different from ‘I’ which is the direct ego.
To prove this, we cross-reference it with Japanese or Chinese language wherein 私 or 我 has one character while 自分 or 个人 has 2 characters. A word that has fewer characters is a more fundamental or direct expression than one with more characters, just as ‘Sun’ is more fundamental than ‘Sunday’.
Thus, Samuelson’s invisible hand leads to selfishness, while that of Smith implies personal preferences or choice.
If a man orders burgers instead of fries, we never say that he is selfish for burgers. We would only say that he is selfish for burgers if his entire self revolves around burgers as to eat it for breakfast, lunch, and dinner 365 days in a year.
The Original Invisible Hand: By Design
Now that we have flushed Samuelson’s invisible hand down the toilet, we can move to the one described by Smith.
Its best description is not in The Wealth of Nations, but in The Theory of Moral Sentiments, wherein he describes the innate human desire for things to work as they were meant to:
A watch that falls behind more than two minutes in a day, is despised by one curious in watches. He sells it perhaps for two guineas and purchases another at 50 which will not lose more than a minute in a fortnight.. What interests him is not so much the attainment of knowing the time, as the perfection of the machine created to attain it.Theory Of Moral Sentiments Simplified, Part 4
Humans have an innate desire for things to work as they were designed. This natural desire applies even to human systems such as resource allocation:
The proud and unfeeling landlord views his extensive fields, and without a thought for his brethren, he imagines to eat its whole harvest.. The capacity of his stomach is far less than the immensity of his desires and receives no more than that of the meanest peasant. The rest of the food he is obliged to distribute among his servants.. The rich.. divide with the poor the produce of all their improvements despite their natural selfishness and rapacity. They are led by an invisible hand to make nearly the same distribution of life’s necessities which would have been made, had the earth been divided equally among all its inhabitants.
Thus, without intending or knowing it, they advance the interest of the society, and afford the means to multiply the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who were left out in the partition. These last too enjoy their share of all that it produces. In the real happiness of human life, they [the poor] are not inferior to those who seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly on a level. The beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for.Simple Theory Of Moral Sentiments, Part 4 [emphases Added]
A ‘Flood-down’ Economy Based on Skill, Not ‘Trickle-down’ Based on Welfare
This perfection of the distribution of resources is thus done by employment. Instead of giving scraps and bits of their wealth as wages to employees, the wealthy give most of it through massive employment, naturally leading to full employment.
However, if the wealthy give away most of their wealth to employ anyone and everyone, then the overall wealth of society might decline very fast since not everyone works hard to match the pay.
To solve this, the natural rule is to employ people based on skill.
When a school’s basketball team looks for players, it doesn’t base its hiring on the players’ friendliness, but on their skill. This is true for entrepreneurs hiring workers or outsouring jobs and production to other countries. This focus on skill is more fundamental than the focus on compassion or community:
When a patriot exerts to improve the public police, his conduct does not always arise from pure sympathy with the happiness of those who will benefit of it. A public-spirited man encourages the mending of high roads not commonly from a fellow-feeling with carriers and wagoner
Useful Skills = Private (Personal) + Public (Social) Interest
Here, Smith clearly states that public benefit from societal productivity does not come from the sympathy for others.
Libertarians jump into this idea in order to justify selfishness. They disregard the fact that the patriot is public-spirited in the first place and is focused on a specific goal or feeling, which is not selfishness or the feeling of the self.
Similarly, in our basketball team and entrepreneur example, we don’t need to mention that the team is passionate about basketball or the entrepreneur is passionate about creating goods and services. An entrepreneur that is passionate with only himself is really a miser and not an entrepreneur.
Smith likewise explains that the cause that drives public benefit in a free society is the personal interest or passion* of the person to work on something that both he and the society are BOTH interested in or passionate about.
*This is our second law of value
If a society were not interested in Jim’s product, then that product would not be sold and there would be no public benefit. Jim’s original interest in making that useless product would then not fall under the invisible hand. However, he can still strive to make his product meet the interest of the public by improving it through trial and error. He will only know that it matches the public interest after it actually gets sold.
Thus, employment (the sale of services) and sales (the sale of goods) are two of the many ways the invisible hand taps the energy from personal interest or passion, to diffuse its productivity throughout society to quench the needs of the public interest (called effectual demand)*.
*This is our third law of value
This mixture of public interest with personal interest usually creates confusion among shallow-thinking people.
- People with fellow-feeling (i.e. Socialists) often highlight Smith’s emphasis on the public interest.
- Skilled but selfish people (i.e. Capitalists), on the other hand, highlight his focus on personal interest.
From our Socratic dialectical analysis (an analysis anchored on metaphysical truths), we can see that personal interest naturally comes first, but is immediately followed by the public interest which is much more important.
A person can only make good products for others if he is interested in making goods in the first place. A singer can only sing beautifully for others if he likes to sing beforehand. The positive feedback of the market or the audience then encourages the seller or singer to sell or sing more.
Thus, personal interest only has a temporal (time-based) importance, but public interest has a bigger overall (space-based) importance. The variable, time-based nature of the match between personal and public interest manifests as the ups-and-downs of one’s career, or of a company’s profits, sales, etc.
A chef can create a new kind of dish for himself. Other people might try it, like it, and want to buy it. At that point, his personal interest contributes to the public welfare by giving people a new experience that they are also interested in. He then makes more, and other people ‘replicate’ and ‘mutate’ his idea as their own products to virally spread the new experience and benefit to all who have the same interest.
This proper and natural mixture of private and public interest then creates a pantrynomy which incorporates all the ideas and maxims from Adam Smith, David Hume, Socrates, and Asian philosophy (we’ll explain what Pantrynomy means later). Like an economy, which originated from the management of an estate, it starts with personal interest, incentives, and property protection in order to raise productiviy.
But unlike an economy, it switches to the public interest after the productivity has gone beyond the basics and before it gets maxed out. This latter innovation ensures sustainability by preventing* inequality and environmental destruction which both go against the Dharma (also explained later). ``
*This is our fourth law of value
Inequality is dangerous as it leads to protests, riots, crime, and revolution, the worst of which was the Communist Revolution which killed so many people around the world. Environmental destruction is dangerous too as it leads to storms, droughts, and diseases, the worst of which is the current Covid pandemic which has also killed many.
Human Institutions Unify Personal and Social Interest as an Artificial Organizing Principle
So far we have explained that:
- Personal Interest comes first
- Public Interest comes next, and is larger than the personal interest
- The personal interest matches the public interest through sale or employment
These 3 ingredients create value for the self and society leading to peace and prosperity. Human institutions, in the form of laws and policies, are then created to organize them.
When a person finds the chairs [disordered in his bedroom], he takes the trouble to set them all in their proper places. The whole propriety of this new situation arises from the superior convenience of having the floor clear. To attain this convenience, he voluntarily puts himself to more trouble than all he could have suffered from its inconvenience. Therefore, he wanted more of the arrangement of things which promotes the convenience, than the convenience itself..
Those institutions which promote the public welfare are frequently recommended by the same principle, the same love of system, and the same regard to the beauty of order, art, and contrivance.
We can say that human institutions are an artificial organizing principle which is a bit different from that of Nature, which Smith calls a ‘hand’:
Early humans only knew the visible hand that designed the first human institutions. They could only see the invisible hand of Nature, as their gods, in awesome natural phenomena and not in the ordinary ones.
Is this hand or organizing principle, whether natural or man-made, universal?
For it to be a foundation of a science, other civilized cultures around the world must also have descriptions of it. Fortunately, Asian philosophy has the concept of dharma, which will be explained in the next post.