Saturday, November 12, 2011

Adam Smith's Invisible Hand and Globalization

This article was written in praise of Noam Chomsky for correctly interpreting Adam Smith's concept of "the invisible hand" in a speech he delivered to the OWS protesters. Adam Smith's reference to the IH has been used by free market economists to justify selfishness or self interest, and to negate the need for the state. Since each individual acting in self interest unknowingly enlarges the public good, selfishness or self interest is good. This leads us to an atomistic concept of social welfare. Social welfare is the sum of countless individual economic decisions made to benefit the individual. There is no need for an entity beyond the individual to increase social welfare.

Unlike most economists who have not studied Adam Smith, Noam Chomsky has actually read him. He referred to Smith's use of the invisible hand to explain why merchants who prefer to do business domestically for their own gain, enlarge the economy to everyone's benefit. Chomsky argues that Smith was against globalization. His purpose was to hoist the free marketers, who benefit from globalization at the expense of domestic labor, upon their own petard of Smith's invisible hand.

Smith was actually a moral philosopher. He felt a need to go beyond self interest as the means to the good society. He used the concept of sympathy for others as a guide that should be followed to enhance the moral society. Our individual actions would be informed by the impact that our actions might have on others. Empathy or sympathy for others was the mitigating factor that he added to the idea of self interest. We might call this enlightened self interest.

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