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.

Increased productivity

I suspect many of the opinions expressed by Tapu Misa in this article are incorrect. I do not wish to discuss them save address this comment on wages:

For the first time in American history, rapid increases in productivity have not been accompanied by corresponding gains in wages; at the same time, the minimum wage has lagged behind increases in the cost of living.

It does not seem to me that increases in productivity should necessarily lead to increases in wages. It does seem that it should lead to an increase in standard of living.

Productivity gains should be sought. If a product at least equivalent in quality can be produced with lower cost in labour hours and source materials this is a good thing. As such the seller could make more profit per item. However in a competitive market the seller has an incentive to price the widget below that of his competitor to increase his market share. As such it may be that the profit per widget is unchanged though the cost of the widget to the consumer is less. Other manufacturers can introduce productivity gains and lower the cost of their widget, or improve the widget and sell a higher quality unit for the previous price.*

What I am suggesting is that increases in productivity should not automatically lead to an increase in profit which the socialists advocate be shared with the workers. Rather, in a competitive environment productivity gains should lead to decreased price.

But note that even though this does not increase wages, the standard of living can increase as these cheaper items cost proportionally less of one's income.

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*I am aware that some productivity gains coexist with a lower quality item, though a significant drop in price may allow a much larger proportion of society to own items previously the domain of the rich. I am not advocating low quality, but some people may prefer a low quality item over the alternative—no item. And price drops are often proportionally greater than quality loss.