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.
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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