MIA: The Invisible Hand

Fantasy Finance

Here’s a thought. What if all of modern finance is an elaborate hoax, a fantasy perpetrated on an unsuspecting world by an unscrupulous coalition of evil power brokers, determined to ensure that free market agendas are secured in their own interests?

Exaggeration this certainly is, but it contains the nub of an idea that’s been around for over a century. This is that modern finance is built on foundations that aren’t really secure. Laissez faire may be many things but it isn’t necessarily fair, and this isn’t an inevitable consequence of economics but a decision made by people. Perhaps the invisible hand is invisible because it doesn’t exist.

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Adam Smith’s Monkey Business

The Theory of Moral Sentiments

Before Adam Smith got round to inventing economics in The Wealth of Nations he invented social psychology in The Theory of Moral Sentiments. Under Smith’s synthesis it’s sympathy that’s the glue that brings people together, underpins human morality and drives the engine of economic progress. Without fellow feeling there’s no basis for any kind of exchange, whether of simple gifts, bodily fluids or physical goods.

Smith, of course, was a man way ahead of his time. However, it’s still rather remarkable to discover it’s taken to the twenty first century to uncover the evidence that his intuition was not just correct as a theory of economics but is actually built into the structure of our brains. If you’ve ever bounced out of a feel-good film, full of effervescent vim you’ll know exactly what Smith was on about: we’re designed for sympathy and thus built for trade.

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