Economics 101 & Public Square & Theology 101

What Is the Invisible Hand Guiding Us to Flourishing?

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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 in many other cases, led by an invisible hand to promote an end which was no part of his intention.

                                                                                                                                                          – Adam Smith, Theory of Moral Sentiments

Last week we discussed the market process to better understand what markets do and how they do it. The beauty of the process is that it doesn’t rely on anyone to be “in charge” to make things work. In fact, quite the opposite is true: when we try to direct the market process, we usually get bad outcomes.

This leads us to principle #11 in our series on the biblical foundations of economic principles. In the words of the authors of Common Sense Economics:

Principle #11: The “Invisible Hand” of market prices directs buyers and sellers toward activities that promote the general welfare.

This is scary for many people to contemplate.

  • Someone, some smart Ph.D. or sophisticated computer system, must be in charge of all this buying and selling to make sure people get what they need, right?
  • How is it that we obtain food and water for sustenance without anyone making sure that it happens?

As Christians who understand the creation and design of human beings, we should rejoice in this rather than fear it.

Our anthropology is intentional. We don’t believe that we are evolutionary accidents. On the contrary, we know that God created us with creativity and with purpose. He created us to work, build, contribute and flourish (Genesis 2:15; Genesis 1:27-28; Jeremiah 29:4-7; Psalms 72:7). Our humanity means two things:

  • We each possess unique skills and talents which allow us to contribute to the world.
  • We also have limitations.

One of our biggest limitations is our knowledge. We don’t know how to operate an economy. No one person does.  As economist Friedrich Hayek put it:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Hayek referred to this as the Fatal Conceit. Realizing that no one person or group of smart persons could be in charge to plan an economy requires a certain level of humility. We don’t possess the required knowledge. If we pretend we could or can possess all the relevant knowledge, we do so at the risk of ourselves and others.

Economist Arnold Harberger said this in an interview for the documentary Commanding Heights:

…the forces of the market are just that: They are forces; they are like the wind and the tides. If you want to try to ignore them, you ignore them at your peril. If you find a way of ordering your life which harnesses these forces to the benefit of society, that’s the way to go.

However, God knew what he was doing. The market process is a tool to help us coordinate our activities. It brings us into one large global community with each other, and offers us the opportunity to use our gifts to serve others. This helps us fulfill the cultural mandate. It allows us, through our work, to bear the image of God which is so crucial for our dignity as humans.

We couldn’t coordinate the global or local supply of clean water if we wanted to. Thousands of people coming together, driven by the pursuit of their unique gifts and skills, is the only way for us to get our daily supply of life-giving water.

We can’t force people to be innovative and entrepreneurial. We wouldn’t know how to direct them. Yet in the pursuit of their own gifts and their own interests, humanity is given life-saving food, water and medical treatments.

The power of what Adam Smith described as an “invisible hand” is God’s designed order. Some theologians refer to it as an example of God’s providence. He knew how to create us, and he knows what we need to achieve flourishing. Now it’s up to us to achieve it.

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  • Jim Price

    “How is it that we obtain food and water for sustenance without anyone making sure that it happens?” Twenty two years ago I sat in an elegant country club, overlooking a golf course. Inside there were 30 of us talking about sewers and water mains, I remember feeling a little queasy when lunch was served. An expert was there to tell us where the next growth was to occur. Engineers were there to tell us how much new water mains and sewers would cost. Politicians were there to suggest ways to finance the project and some of us were there because we were in a position to explain it to the community with the hope that they would not rise up in opposition.
    I certainly agree that most people do not give their water supply a second thought and especially their sewer lines. Yet a lot of us have spent a lot of time trying to make sure that others do not have to think about where their water comes from.
    This doesn’t detract from your article, merely just wanted to join the conversation.

    • Nathan

      That’s a neat point Jim, at certain levels there exists community goods that require top-down planning. I wouldn’t want to rely on the benevolence of the expert, the engineer, or the politician to design a good sewer though – I feel a lot better knowing they can be fired, unelected, or rendered irrelevant if I pack up and move.

      Your comment made me think about this continuum where on one end top-down planning is effective, in the middle there’s a knowledge problem where the “right” solution is known by individuals, and then on the other side where the “right” solution is impossible to know by anyone except maybe in hindsight. The top-down planning is most often effective for infrastructure type things that are necessary-but-not-sufficient for wealth creation. In the middle, people make daily decisions based on local knowledge and prices which minimize inefficiencies and produce value. And then on the far end there’s breakout innovations that produce real wealth and are only distinguishable from the legions of failed attempts in hindsight.

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