Adam Smith identified and named the concept of the invisible hand in his book “The Wealth of Nations.” The invisible hand that’s the driving force in a market economy is each individual promoting his or her self-interest. Consumers aim to achieve the greatest satisfaction from their spending. Entrepreneurs try to earn the highest profits for their firms. Workers want the highest possible wages. Property owners attempt to get the highest possible prices from the rent and sale of their resources.
Another way to envision the invisible hand is one in which the outcome to be explained is produced in a decentralized way with no explicit agreements between the acting agents. The second necessary component is the process is unintentional. Independent actions are neither coordinated nor identical with the actual outcome, which is simply a byproduct of those actions. This is why the process is called invisible.
One of the best descriptions of the invisible hand in a market economy is found in the classic essay titled “I, Pencil” by Leonard E. Read. Read showed that in spite of the simplicity of a wooden pencil, no single person knows how to make one. As he traced the complexity of the division of labor and development of resources that go into making a pencil, he beautifully demonstrated the degree of cooperation necessary to produce anything. Our standard of living is a result of people producing things and coming up with new processes beyond the capacity of any one individual. It’s almost like the economy is guided by an invisible hand.
In the beginning of 2020, the United States economy was healthy and the work of the invisible hand was evident as record numbers of people were gainfully employed and economic indices indicated continuing prosperity.
Then COVID-19 was introduced into the lives of Americans, and various government agencies in all 50 states began to take control of the economy in an effort to stop the spread of the deadly virus. Travel was restricted, devastating cruise lines and airlines. A glut of oil and natural gas caused prices to drop. Meat processing plants were closed and animals needlessly slaughtered. Grocery prices escalated because products were limited. Millions of Americans lost their jobs. In a manner of two months, a vibrant economy was destroyed.
The invisible hand was stayed.
Social unrest by groups of individuals desiring to destroy the fabric of our nation has added another disruption to the intricate workings of the economy. Protection of property rights, enforced by the rule of law, is fundamental to America’s history. This protection resulted in one of the best economies in the world and enabled its citizens to attain a high standard of living.
Rebuilding a strong economy will take much longer than it took to destroy it. Government agencies must relinquish control over the economy. Central planning has demonstrated it doesn’t have the skills to direct an economy. Agencies responsible for maintaining law and order must do their jobs. Free people to work in their best interest and protect their property. The invisible hand of the market will return to this country a vibrant economy.
Phyllis Hunsinger is founder of the Freedom & Responsibility Education Enterprise Foundation in Grand Junction. The foundation provides resources to students and teachers in Western Colorado to promote an understanding of economics, financial literacy and free enterprise. For more information, visit www.free-dom.us.com. A former teacher, principal and superintendent, Hunsinger wrote “Down and Dirty: A ‘How To’ Math Book.” Reach Hunsinger by email at firstname.lastname@example.org.