Adam Smith, the founder of modern economics, suggested around 1759 that there is an “invisible hand” that works in our economy. What he meant by that was that as people act in their self-interest, as people are prone to do given human nature, it will have the unintended consequence of benefitting society as a whole. For a simple example, a baker’s primary purpose for baking more than she needs is to be able to sell the surplus for a profit. Given her specialization, the baker will be able to produce cakes and cookies and what have you more efficiently than her customers, and also save them the time and expense of doing their baking themselves. So, everybody wins.
Smith’s invisible hand is a powerful idea, as evidenced by its staying power for over 250 years. It is also the ethical underpinning for another powerful idea in economics – namely, laissez-faire, or free market, capitalism. The principles of free market capitalism are simple. Markets operate without government interventions, such as regulations and tariffs, with the market forces of competition and supply and demand regulating them. As long as Smith’s invisible hand continues to operate, with everybody continuing to win, this is all good. It has an added benefit for our titans of industry in that they don’t need to be challenged ethically because, even though they’re working unashamedly for their own benefit, they’re helping everybody else too. (Or so the story goes, anyway.)
For Smith’s invisible hand to continue to work, however, the market must remain truly free. The economist Alfred Marshall, among others, has pointed out that the invisible hand really only works when both producers (the supply) and consumers (the demand) are small enough and independent enough that neither can unduly influence the market. Let’s say that our baker’s customers become dependent enough on her that they no longer have the time nor desire to do their own baking. Our savvy baker sees this and realizes that she can now charge just a little bit more for her cookies and muffins. At that point, her customers may accept her higher prices or they may choose to walk to another baker down the street, who charges a little less. The fact that there are two bakers competing for customers’ business will keep excessive prices in check. But now let’s say that our still-savvy baker walks down the street herself and convinces her competitor to agree on prices for their items higher than either could charge without the agreement. The market is then no longer truly free.
In this simple case, several things could happen to help correct the market. A third baker could come on the scene and undercut the other two’s artificially high prices, people could go back to doing some baking themselves, or people could simply do with fewer baked goods. In less simple cases, like automobiles and airlines, these self-correcting possibilities are not as easy – most people can’t build a car themselves, for example. The more complicated the market and its corresponding products get, the easier market manipulation becomes. When this happens, as in our simple example, the markets are no longer truly free; there is market interference. But it is not interference by the government, interference that free-marketers universally detest. It is interference by the market participants themselves, interference that seems quite a bit more palatable.
Why is that? Because interference by the government tends toward the “benefitting society as a whole” side of the invisible hand, or at least tries to, while interference by the market participants themselves tends toward the “self-interest” side. Left to its own devices, the market will almost always tend toward the self-interest side. Economic history is littered with examples of this.
Lead in paint is a good one of those examples because, aside from a few lingering lawsuits and remaining lead paint on many older walls, the issue has been resolved. Sanity eventually prevailed (contrary to some other examples we will list) and lead paint was finally banned for use on residential and public structures, toys, and furniture. But it was a remarkably difficult struggle, taking many decades. Starting in the 1920s, the lead industry actively fought bans, restrictions, and warning labels, continuing to claim that lead was safe despite ever-increasing evidence that it is, in fact, poisonous. As the years went by, they went so far as to blame parents for “letting” their children eat lead paint chips. (Unfortunately, lead has a sweet taste.) When it was clear that they were ultimately losing the battle, they agreed to “voluntarily” reduce lead content, but not completely eliminate it, even though even small amounts of lead are toxic. Lead paint was finally mostly banned in 1977.
The list of other business interests willing to engage in this kind of behavior – placing self-interest above societal interest, even to the extent of letting people needlessly die – is long and includes, but is surely not limited to: the asbestos industry; big tobacco; silicone breast implant manufacturers; fossil fuel companies (with their almost universal refusal to accept some responsibility for climate change); banks (selling sub-prime mortgages and opening unrequested bank accounts, for example); and weapons manufacturers (with the willingness to sell almost anything to almost anyone (or any country) with a heartbeat and money in their wallet). The list of tools that industries use to accomplish their self-interested goals is just as long and includes lobbying, tying things up in the courts, misleading advertising, and self-promoted, quasi-scientific studies that by a happy coincidence end up supporting the industries’ claims. The examples listed here are extreme ones. Subtler examples include such things as persistently chipping away at labor unions, almost always putting quarterly profits above everything and everyone else, and slowly but surely consolidating into larger and larger (and, so, less and less competitive) organizations.
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