The Invisible Hand Isn't Broken

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The current economic crisis has led to any number of calls for us to rethink the market system. The meltdown in the financial sector, it is argued, constitutes proof that Adam Smith's "invisible hand" cannot do the trick. But people may want to think twice before leaping to the ostensible safety of the state.

The idea that the self-interested behavior could be good for the economy did not originate with Smith, but he provided the theoretical ammunition for this view and remains the historical figure with whom it is most closely associated. Smith's view of things was that businessmen do indeed pursue their self-interest, but that such behavior can redound to the best interests of society as a whole -- higher national wealth, lower goods prices for consumers, etc. -- if that self-interested behavior is encased within a competitive market environment. This, of course, is Smith's famous "invisible hand" argument, which has been championed by some as an argument for minimalist government and derided by others as a myth that has been disproved by events.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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