The invisible hand and the invisible elbow

In his famous metaphor, Adam Smith described the unintended benefits of market behaviour as guided by an ‘invisible hand’. We all go about our business and pursue our own interests, he postulated, and often do more public good than we expected in the process.

It’s a poetic idea, one that has been elevated beyond Smith’s original intentions over the years. It’s also been elaborated on by Michael Jacobs in his book The Green Economy. He suggests that attached to the invisible hand is an invisible elbow. “Elbows are sometimes used to push people aside in the desire to get ahead. But more often elbows are not used deliberately at all; they knock things over inadvertently.”

That’s a nice description of negative externalities, the unaccounted for damage done to society or the environment in the course of business. Most of our environmental problems are not deliberate, and those that are usually constitute a crime of some kind. Nobody planned to slash the numbers of small birds in the suburban gardens of Southern England, or boost the rates of childhood asthma, or raise the sea level. They’re the unintended consequences of otherwise good ideas.

Of course, once we know about those consequences, we have a responsibility to fix the problem and prevent further harm. Externalities need to be priced in so that the polluter pays, and the environmental or social costs of business are not offloaded to others. Regulation always lags behind, so we have to be vigilant and responsive – if we had acted to price in the cost of carbon when we first understood it, climate change would not be the disruptive prospect it is now.

The market is often talked about as a benign or positive force, but there will always been externalities, abuses, and unintended consequences. When you hear people talk about the invisible hand, don’t forget the invisible elbow.

9 Comments on “The invisible hand and the invisible elbow”

  1. DevonChap March 10, 2015 at 1:18 pm #

    Of course it is not only markets that have unintended consequences. State provision, charity and regulation have unintended consequences, abuses and externalities. Yet you rarely write about them, certainly nowhere near as much as criticizing markets.

    • Jeremy Williams March 10, 2015 at 2:44 pm #

      I’m not sure that’s true. I try and keep the blog positive in tone overall, but in the last few weeks I’ve criticized the UN, charity communications, a technology or two, the sharing economy, and writers that I like and admire. I’ve praised a number of innovative businesses or market-based strategies, such as the circular economy and shareholder activism.

      If markets do come up frequently, it’s because that’s the dominant philosophy of our time and the context in which we operate. You could say exactly the same about the politicians or government policies that get mentioned.

      • DevonChap March 10, 2015 at 9:21 pm #

        Interesting that you don’t mention regulation. It is your favourite solution to problems. Of the roughly 45 posts this year 4 are pro increased regulation. Not one criticizing regulation (Or government)

        If you want to write about unintended consequences it seems odd to miss out the many cases from regulation. A blind spot.

        Just like when you got upset that pharmaceutical companies hadn’t developed an Ebola vaccine. It wasn’t governments, regulation or charities you chose to criticize, but the market.

        • Jeremy Williams March 10, 2015 at 9:32 pm #

          How many posts have I written this year praising innovative businesses or market based solutions? I count around ten. Seems fair to me.

          Seems you’re just hypersensitive to criticism of the market.

          • DevonChap March 11, 2015 at 12:42 pm #

            I counted 1 pro market post. Businesses aren’t the market.

            My major point is that you don’t seem to be able to mention the market without talking of its limitations while you talk of regulation without mentioning its big limitations.

            Especially apposite in a post on unintended consequences. Regulation is famous for unintended consequences yet you talk of more regulation here without blushing.

          • Jeremy Williams March 14, 2015 at 7:23 pm #

            I write about great businesses that are doing the right thing socially and environmentally, and proving that you can do so profitably. If more companies learned from them, regulation wouldn’t be necessary.

            I think I write a pretty balanced blog, but that’s subjective. As a free market advocate, you obviously feel differently and that’s fine.

    • rostale March 19, 2015 at 3:40 pm #

      We have Rush Limbaugh for that.

  2. Lefty Righty (@leftyorrighty) March 21, 2015 at 6:51 pm #

    If you’re going to refer to the invisible hand, at least understand how Smith used it. It was to about how people tend to invest close to home.

    • Jeremy Williams March 23, 2015 at 9:41 am #

      Sure, I realise that I’m talking about the way it is commonly understood rather than the exact context of Smith’s argument.

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