A Refutation of Adam Smith’s Theory of the Invisible Hand of Capitalism

Adam Smith’s market theory-the bible of free enterprise and every conservative politician who has fought tooth and nail against regulation of industry-presupposes a whale of an idea: that narrow self interest will eventually provide the greatest good for the greatest number of people.

Under the theory of Smith’s, the private and selfish goal of every person is allegedly led to the greater good of all by an invisible hand. One may well wonder exactly how it is for the greater good of all that, for instance, the marketplace is overwhelmed by a product that most users consistently complain about and assert they wouldn’t use if there was a viable alternative on the marketplace.

Surely, all but his biggest supporters accept that Microsoft CEO Bill Gates has an extremely narrow interest in making sure that his product is used by every single computer user on the planet. How many people would buy the argument that this lack of competition truly benefits mankind? The often lurid history of how Mr. Gates transformed Microsoft into a world power has been more than fairly documented so I won’t waste words by going into a shallow interpretation of here, instead I will merely ask the question that should be asked of any follower of Adam Smith’s. How does a monopoly or even a pseudo-monopoly-which is created entirely out of narrow self-interest-achieve the greatest good for greatest number of people?

The price of the latest Windows updates have, actually, remained fairly stable. What I wonder, however, is how stable would they be if no computer on earth could run without it. That would be the ultimate in narrow self-interest. Would it then be the greatest good for the greatest number of people if they had nothing to turn toward to run their computers besides a product made by one company?

Mr. Smith proposed a laissez-faire relationship between government and business. Basically, he wanted to keep government out of business as much as possible with little regulation or control. In 1878 John D. Rockfeller was in control of over 90% of the oil refineries in the United States. What if he’d been able to attain control of the remaining 10%. What if one man had controlled the entire oil refinery business in the US? What if one man had been allowed to control 90% of the oil refineries in the US? Would this really have served the greater good? Would it really have made the country and the world a better place had the US government not stepped in and declared such a practice illegal?

I wonder how many people are happy with their current cable service? I know I’m not. I know my family is not. I know many of my friends and acquaintances are not. The prices are outrageous and the choice, though it would seem to be over sixty channels, usually comes down to the broadcast networks one can receive without cable and maybe four or five other stations that one watches regularly. Yet, we have no recourse except for satellite service, the cost of which makes it hardly an issue worth considering for most people. If the government stood by and allowed the current monopolistic structure of the cable television industry to stay in place, how long would it be before cable companies began charging on a per channel system? Without competition, consumers have no ability to defeat the narrow self-interest which is supposedly doing them good. Yet the lack of competition is, indeed, the greatest benefit an entrepreneur can ever hope to gain.

Even with government control and regulation, consumers have yet to benefit, but I do believe one day we will have a choice when it comes to choosing cable service as well as local telephone service and power service, all of which are or at one time were dominated by a monopolistic entity which, I firmly believe, had no thought toward providing the greatest good for any, but rather the greatest profit for their highest level executives. I shudder to think of the cost to Americans if any of these industries were allowed to continue their selfish polices ad nauseum without concern of ever dealing with competition.

Is it my belief that history has shown that single-minded self-centered interests rarely do turn out to be for the benefit of the greater good. Government controls have been shown to be a necessary tool in controlling and halting megalomaniacal desires and compulsions. Perhaps Mr. Smith’s biggest mistake was in assuming that narrow self-interest is ultimately guided by private goals that are beneficial. Perhaps his vision was flawed by naivete and in seeing in human beings a goodness that isn’t necessarily there.

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