As Greenspan said:
I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders.
So farewell to the mythical 'invisible hand' of Adam Smith.
And let's not be flippant about this: all our banking regulation, our economy, our society has been built on the basis of this assumption of the invisible hand. Smith only used the phrase three times (I'm told: I have not counted) but the inappropriate use of his is assumption that an individual pursuing their own self interests would simultaneously, and without their knowing it, promote the best interests of society as a whole has been the basis on which economists have promoted greed as the basis of well-being.
Those economists did, of course, ignore the fact that Smith believed that there were ethical constraints to which humans were subject which would limit the impact of this process. Economists removed those limits. Greenspan was at the forefront of this process. Gekko was made in his image. And now Gekko and Greenspan are wrong. Greed is not the solution: it has created the problem. It is the problem.
The era of 'more is better' is over.
The era of 'enough' has arrived.
It will have profound impact upon our society, our communities, the way we live and the quality of our life. We should never ignore the last. In the era of enough we will seek to balance those conflicting claims that are an inevitable part of living. The stress, the anxiety, the social failure, the lack of meaning with in our world of work, most of them have their current route in one thing: the irrational pursuit of material well-being that greed motivates.
When we seek balance we will, of course, have to meet material need. But need is not the same as want. Most of our wants are artificially created by the advertising industry whose one and only objective is to create a sense of deep dissatisfaction within us: to put it bluntly, to create unhappiness with our current state so that we buy more to supposedly alleviate that hurt.
The reality is that we have found that the hurt does not go away if we follow this path; it just gets bigger by the day. And we see that hurt around us: in lives wasted inside the advertising and other industries, in the destruction of our environment, in the stress writ large on faces and within the lives of so many adults, which is then transferred to their children.
Greenspan's admission is not just the clearest signal that we need more regulation (although it is that). It marks the end of the destruction created by this perverted philosophy of greed, of which he has been a principal exponent. It is the point at which we say more is not better, the world can provide us with enough to sustain our well-being if we manage ourselves appropriately, and if we do we can all in the developed and developing worlds alike can and will live better lives.
Of course it will be a challenge to make that progress, but make it we must.
This is the first day of a new economy.
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[…] guys in the City have also lost faith in the current economic […]
Not that you do this here, Richard, but Smith has so often been traduced that it’s worth dropping in a few original quotes to illustrate how distorted the a view of him the ‘invisible hand’ gang have promoted.
1. On unregulated business (referring to local rather than international, but clearly in conflict with the popular interpretation of the invisible hand line):
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices.”
2. the ‘invisible hand’…
… gets one mention only in The Wealth of Nations, and in a very specific circumstance around international trade – see e.g. Prof Gavin Kennedy on this here:
http://adamsmithslostlegacy.com/2008/04/adam-smiths-use-of-invisible-hand.html
3. On banking regulation
“To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law, not to infringe, but to support.
“Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.”
4. On equity
“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged.”
You could go on. I haven’t spent nearly as much time as I might like reading Smith, but even without doing that it’s clear that he was a varied and intelligent thinker and writer – not a narrow-minded ideologue.
He didn’t need to be right every time – who is? – to be a towering figure in founding economics. And he certainly doesn’t deserve the distortion of his work by the ‘invisible hand’ gang – or the abuse he sometimes gets from others who believe that distortion.
[…] guys in the City have also lost faith in the current economic […]
“The era of ‘more is better’ is over.
The era of ‘enough’ has arrived.”
Very interesting article. Interesting to read that Saisnbury’s, Tesco, etc announced last week that for the first time in 25 years demand for food actually fell.. by 0.1% (!) ..although this almost certainly will get worse. . .