After Adam Smith’s classic “The Wealth of Nations”, or at least after its modern interpretation, it is not unusual to hear it said that the best economic system is that in which individual forces are allowed to do whatever they want because they will automatically organize themselves to produce the best consequences for the good of all. That is the theory known as the “invisible hand” and the author was Adam Smith during the 18th century, just prior to the beginning of the industrial revolution. It says that there is no need to worry about final outcomes because natural order, or this “invisible hand”, will always provide the best result imaginable. The only obstacle in its way may be the actions of a government trying to do even better. At that moment failure appears on the horizon, for the government is trying to interfere with a process. Frederich von Hayek was the main intellectual behind this idea idea.

In the midst of the terrible economic storm we are currently weathering we must conclude that Adam Smith was mistaken, or that his mythical hand is, maybe, too invisible, for we cannot see it anywhere in the chaos we are now forced to witness. It is difficult to imagine a situation worse than that which we are living today. The different governments in the world have had to deal with the facts — they have been looking desperately for a solution and, to avoid paralysis, they have thrown billions of dollars into the market, hoping to prevent higher unemployment, bankruptcy and misery. For that is the situation millions of people and their families are being forced to endure: plain misery. It is hard to accept that we are expected to contemplate the disaster with the same feelings as we contemplate a sunset. And to accept the fact that before the disaster exploded nothing could have been done to prevent it.

This doctrine of Adam Smith presents itself as the defender of liberty, but paradoxically at its base lies the idea that liberty really doesn’t exist. We believe that we act freely, but the truth is that what we call free action is really no more than that of animals, that is to say, instinctive acts. So, when governments try to force us to act otherwise, they are supposedly destroying the “proper balance of nature” according to this doctrine. Where this doctrine fails is this: liberty exists and we can make good or bad use of it and suffer the consequences. That is the reason why prevention of disasters and supervision of actions carried out by people involved in the economy ranks among the main duties of a government. Competence, of course, is the best means of achieving progress and wealth, but there has to be loyalty among the competitors and also towards the customers. If people are free to lie, to corrupt government officials and to steal, in one way or another, we can be sure no hand, visible or invisible, will appear to prevent the destruction of society. Within every society there is a normal desire for growth but the rules which ensure everyone’s safety must be obeyed. In contrast, when greed starts to influence the decisions of everyone, then disaster is knocking at the door. In that scenario, people will go to any extremes in order to achieve their personals goals, even to the extent of destroying others, their businesses and their families. At least in Barack Obamas’ opinion, this is certainly what has happened now.

It is not easy to arrive at and maintain a position of economic equilibrium, but crises are never as fatal as this doctrine would have us believe. So, now seems to be the time to recall that principle which, by its application, permitted the Roman Empire to last so long and to endure so much: The precepts of the law are these: to live honestly, to injure no one, and to give every man his due. (Digest, 1.1.10: Iuris praecepta sunt haec: honeste vivere, alterum non laedere, suum cuique tribuere.)

Articles related to Adam Smith's dream is now a nightmare

• 

  A Silence of Complicity: Where were the experts when the world economy crumbled?

  Two things should shock us when we try to consider and measure the present economic situation of the world, especially in those leading countries where ...

• 

  We are in this economic mess because we spent money that never existed

  The present world-wide recession shows no sign of reaching an end and the possibility of starting again on a path of growth seems very remote. ...

• 

  Britain gets Shock Doctrine’d

  It’s Britains turn for the Shock Doctrine. The Conservatives and their Liberal Democrat toadies have used the veil of the budget deficit to eviscerate the ...

• 

  An interview: Noam Chomsky on Burma, human nature, and religion

  MK: What do you make of the situation in Burma? NC: As long as India and China support the junta there’s no reason for them ...

• 

  The Big Three Bailout: A problem of expectations

  The doctrine of laissez-faire has been revitalized as Republican and Democratic administrations alike now profess their firm commitment to [the] theory that economic efficiency and ...