Adam Smith believed that, in the words of the character played by Michael Douglas in Wall Street, "greed is good." Smith argued that while human greed knows know bounds, and our desire for wealth, freedom, and longevity is infinite, at the same time our ability to consume is finite. Thus though the wealthy maintain a desire to obtain yet more wealth, they will only be able to consume but a small portion of that wealth which they create. The wealthy will only be able to eat about the same amount of food. They will only be able to sleep in one bed. They were only be able to wear one shirt. So as they have others collect them the best sweetmeats from the far ends of the earth, and have palaces built, or have shirts made from the finest silk, they will employ others who will be paid such as to allow those vassals to eat, sleep, and clothe themselves in not so very different ways from the wealthy. And those thus employed though live more modestly, will obtain the same satisfaction as the wealthy since there is no greater satisfaction to be had in the sweetmeats, palatial bed, or silk shirt, than there is in the bread, bunk and cotton shirt of the peasant, or so Adam Smith argued.
Lately I am finding that the Chinese make some mean cycle gear that improves my winter cycling experience greatly over my peasant latex, but there is a more profound problem with Adam Smith's theory of the "invisible hand": it depends upon the existence of an impartial spectator.
Adam Smith argued that our rapacious desire is fuelled, not by our bodily needs, but our desire to look good to ourselves in our mind's eye. Smith's metaphors are optical. He claims that we separate off a part of ourselves, like a mirror or camera held directed at ourselves on a selfie-stick, from which viewpoint we observe ourselves and choose those actions which we find ourselves most in sympathy with. "That looks good we think," and choose the silk shirt, "That's cool we think" and build ourselves a palace. The problem arises in the extent to which we view ourselves from the position of an impartial or partial spectator.
As you can see I have photoshopped the image above. I could improve it further, make myself younger, healthier thinner, and my house tidier. As bookshelves-full of research have shown, there is nothing so biased and partial as how, Westerners at least, view themselves. We view ourselves with spectacles so rose tinted that we believe ourselves to a charming shade of pink.
Smith was right to argue that we split off a side of ourselves from which vantage point we view ourselves, but he was wrong to argue that this vantage point is impartial. Our mind's camera loves us dearly.
This fact has two important implications.
Firstly, that we judge our behaviour from the viewpoint of simulated self-loving other, or imaginary friend, implies that this mode of self evaluation is itself evaluated positively. That our self love is self-lovable, and we are proud of our pride creates a self-sustaining situation in which we continue to evaluate our behaviour in a self-enhancing way.
Secondly, contra Adam Smith, if we judge our behaviour not "impartially" but from a biased self-loving point of view, then the outcome of this descision making process will not always lead to an increase in utility for humankind as a whole. We may hoard our wealth and rather than attempting to create more wealth, attempt instead to live off the interest, or collect rent on our past endeavours or those of our forebears. In the extreme, we may be able to justify the use of force to extract wealth from others that we then use to our own ends.
Thus, the existence of a partial spectator then this could lead to a self sustaining system which negative outcomes: a bad invisible hand.
I should have made the hand holding the camera invisible.