Sunday, 10 February 2013

The invisible hand and central planning

I have not read Adam Smith and it may be that his metaphor has been extended beyond the original intention; yet the invisible hand is frequently used in the context of free trade, with the suggestion that government leave alone.
By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.
Freedom of trade in general leads to greater economic prosperity than that of a centralised economy: the invisible hand guides better than the economic planner.

I agree with this is general. It seems, however, that the metaphor implies that a less informative process is more productive than a more informative one; that a planner is less productive than no planner.

The thing is that there is planning, it is just that it is extended to all the buyers and sellers in a marketplace. All those minds making decisions about their economic options contain a vast wealth of information; more information than any group of planners could have. It is not an invisible hand that guides, it is an invisible collective knowledge that decides.

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