The Fallacy of the Invisible Hand

Probably the most recognized economist in the word, (past, or present) are John Maynard Keynes, and Adam Smith. Smith was responsible for the invisible hand theory which stated that if an individual looked out for their own self-interest, then they would inadvertently help out the community and the individuals. This is the bedrock principle of “free market” capitalism which has seen its popularity over the decades decrease. One of the reasons why is because of all the economic recessions and income gap that has occurred in the last 200+ years which contradicts Smith’s theory of the invisible hand.
The only time that capitalism seemed to work even was when it was heavily regulated by the government from the 1930’s to the 1980’s. The great depression caused this move to regulate the economy after the market crashed in 1929. The invisible hand failed because if self-interest was supposed to serve the economy, then surely there would not need to be no regulation in order for “free market” capitalism to work. Throughout history, every time the economy has been deregulated there has been a major downturn in the economy. The more freedom you give these business individuals, it seems the more they want and the more they take from others in order to maximize their profits. Society be damned.
The paradox of ego should tell the individual to put their community first, but the temptation of profits is too much for a lot of him/her. That is the main flaw of the invisible hand theory. In order for a free market society were the invisible hand guides the rational business person to the ultimate goal of self-interest which accidently helping their community is if every business person was to behave in a rational manner, and as history has shown through the years. Most people are not rational, especially when it comes to money.
Smith wanted to try a new theory and he thought that if a business person saw their profits go up, then they would want to share them with others helping not only themselves, but the community as well. What Smith did not count on was how inherently greedy people can be. The old saying of “give em an inch and they will take a mile” could be rephrased to, “give them a milliliter, and they will go to the moon.”


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