The Invisible Hand Isn't Broken

By Daniel Indiviglio

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.

This article available online at:

http://www.theatlantic.com/business/archive/2009/07/the-invisible-hand-isnt-broken/22095/