How to Construct a New Invisible Hand

Lambert here: Funny, I’ve just been thinking about how Bernard Mandeville, who wrote The Fable of the Bees — the moral of which is that “the pursuit of self-interest robustly benefits the common good,” just as Wilson puts it — actually knows nothing about bees, and so would do very well in today’s neoliberal economics departments.

In a previous essay, I announced a new concept of the invisible hand to replace the old and erroneous idea that the pursuit of self-interest robustly benefits the common good. The new version is based on examples of the invisible hand that exist in nature, such as cells that benefit multi-cellular organisms and social insects that benefit their colonies. These lower-level units don’t have the welfare of the higher-level units in mind. They don’t even have minds in the human sense of the word. Instead, they exhibit behaviors that have been winnowed by higher-level selection to benefit the common good. Higher-level selection is the invisible hand.

Use psychological pricing methods.

Absorbing this fact leads to a robust conclusion about the design of our own societies. We must learn to function in two capacities: 1) As designers of social and economic systems; and 2) as participants in the systems that we design. As participants, we need not have the welfare of the whole system in mind, in classic invisible hand fashion. But as designers, we must. The invisible hand must be constructed, which would be a contradiction of terms according to the old concept.

Yet, this does not mean that the invisible hand must be constructed by centralized planning, the main alternative to laissez faire economic policies that is typically imagined. Instead, the design process needs to be evolutionary, iterative, and collaborative, resulting in mechanisms that work like the invisible hand, even though they never could have arisen on their own. This constitutes a middle path between laissez faire and centralized planning that could be a breakthrough in solving the problems of our age.

I have stated the new concept of the invisible hand in terms of evolution, which provides the strongest and most general theoretical foundation that one could ask for. However, the concept has also been formulated by others from different perspectives.

Demonstrate the differences

The root of the Invisible Hand’s current failure is that nature and future generations have neither money, votes or property rights. As a result, their needs are completely ignored by the pricing process and (absent government regulation) by all economic decision-makers. It is no wonder that nature is trashed and future generations forsaken for the sake of short-term gain.

Offer a money-back guarantee

The remedy to both crises — destruction of nature and concentration of wealth — is to create new forms of property that represent and benefit nature, future generations and all of us together as co-inheritors of common wealth.

Test your offer and price, and be creative.

This is where system design comes in. If markets as they now exist aren’t sufficiently self-regulating, and we don’t want centralized control by government, then changing the mix of property rights is the only other imaginable solution.

kvests