How Does the Invisible Hand Work?

[Xerographica]

How many of you truly understand how the invisible hand works? Here's a simple test to find out.

Should taxpayers have the option to directly give their taxes to the government organizations that they believe are underfunded?

Yes = you understand how the invisible hand works
No = you do not understand how the invisible hand works

This test is simple...but it's not perfect. If you answered "no" but believe that you do understand how the invisible hand works...then compare your justification to all the justifications of other people that also answered "no"...Unglamorous but Important Things. Just search that page for keywords to find a justification that closely matches your own.

What about fairness?

Perhaps you truly do understand how the invisible hand works but you don't believe that it would be fair for wealthy people to have more of a say than poor people. But if you argue for fairness of spending in the public sector...then do you also argue for fairness of spending in the private sector?

Do you think it's fair that your favorite sports athlete or favorite actor or favorite musician or favorite author has more money to spend then you do? If you don't think it's fair then why do you purchase tickets to their matches or purchase their DVDs or purchase their songs from iTunes or purchase their books? If you didn't think it was fair for wealthy people to pay more taxes in the public sector...then what would stop you from engaging in ethical consumerism by boycotting them in the private sector?

What about logistics?

Non-profits are able to plan their budgets despite the fact that donors can make donations whenever they want. So why wouldn’t government organizations be able to plan their budgets despite the fact that taxpayers would be able to pay their taxes whenever they wanted?

[Up The Deise]

Please google I, Pencil by Leonard Read.

That would be a good place to start in trying to understand how the invisible hand of the market place works.

[thoughtomator]

2012 version: The invisible hand reaches into your wallet and takes everything possible for the government and the banks.

[brandon]

I voted 2 but maybe I understand the question differently than it's intended.

[Travlyr]

Fiat money creates controlled markets based on the force of law and the threat of violence. Prices are determined by a mixture of supply & demand with both supply and demand carefully manipulated with incentives. For example, farmers are paid to not grow crops to keep supply down and prices up. Or, farmers are encouraged to grow more corn than necessary because ethanol production is subsidized.

With 100% redeemable currency (real money) the invisible hand works. All products are produced by mixing the Earth's resources with labor. Valuable products can be traded, and since money is a medium of exchange, all commodities produced can be considered as valuable money and all services are valuable as well. The most valuable money has proven throughout history to be precious metals because they meet the characteristics of high quality exchange. Durable, divisible, desirable, portable and scarce.

Imagine a small economy of free people using sound money. The economy is divided up among 100 people with each owning 640 acres of land with water rights and mineral rights. There are farmers, inventors, manufacturers, educators, miners, energy producers, restauranteurs, doctors, plumbers, electricians, bakers, a full functioning society with everyone freely exchanging the miner's coins, the farmer's food, the manufacturer's goods, valuable services, and so on. Banks are not necessary in an honest free functioning society.

If there are too many farmers, then some food will go to waste driving the prices down. If a flood prevents the farmers from producing enough food, the prices will go up. If there are too many automobile manufactures, then the higher quality cars drive the lower quality car makers out of business. They have to go find something else to do. If there are too many doctors, then the less knowledgeable doctors will have to improve their game or become waiters. If there are too many restaurants, then the lower quality joints will not be able to compete. The amount of precious metal is limited so the miners must be careful to only mine a certain amount each year or when their land becomes barren from valuable resources, they must find something else to do. Clothes makers must make high quality clothes or go out of business. The price of goods are based on supply and demand of each good or service. The economy is vibrant, interactive, and purposeful.

In fact, most people would rather get something for free rather than work for it, so honest free functioning societies need some method of restitution from thieves. That is where law, judges, sheriffs, and prisons come onto the scene. They are a drain on production.

[Xerographica]

Travlyr, let's try and figure this out...

Point A = People here do not understand the invisible hand
Point B = People here understand the invisible hand
Point C = People here understand the invisible hand and currency issues

We both want people to get from Point A to Point C...yet you want them to go directly to Point C while I would be extremely happy if we managed to help them to get to Point B. Getting people to Point B would be a giant step in the right direction.

Now...look through all these responses to pragmatarianism...Unglamorous but Important Things...and see if you understand the challenge that we are up against. The challenge has nothing to do with the government...it has nothing to do with aggression or morality...it has nothing (at least initially) to do with currency issues...it simply has to do with our own failure to help people understand how the invisible hand works.

Talking about currency issues does not help people to get to Point B. The fact that it doesn't help them to get to Point B means that you're part of the problem rather than part of the solution. The invisible hand is complicated enough so we really don't need to complicate the issue even further.

[FindLiberty]

I hope the invisible hand will eventually give up on gov-fiat currency, stick up its middle finger and seek out "sound money".

Unfortunately, the recent China/Iran gold-for-oil deal might result in some velvet-gloved fist(s) to start killing soon, by dropping bombs.

[crh88]

The question is flawed, there should be no taxes or government organizations to worry about funding in the first place.

[Xerographica]

The question is flawed, there should be no taxes or government organizations to worry about funding in the first place.

Scroll down on this post...Unglamorous but Important Things...and read my section on anarcho-capitalism. Like I said to Travlyr above...we can't get to Point C without first getting to Point B. If you're not helping people to get to Point B then you're part of the problem.

[Travlyr]

Travlyr, let's try and figure this out...

Point A = People here do not understand the invisible hand
Point B = People here understand the invisible hand
Point C = People here understand the invisible hand and currency issues

We both want people to get from Point A to Point C...yet you want them to go directly to Point C while I would be extremely happy if we managed to help them to get to Point B. Getting people to Point B would be a giant step in the right direction.

Now...look through all these responses to pragmatarianism...Unglamorous but Important Things...and see if you understand the challenge that we are up against. The challenge has nothing to do with the government...it has nothing to do with aggression or morality...it has nothing (at least initially) to do with currency issues...it simply has to do with our own failure to help people understand how the invisible hand works.

Talking about currency issues does not help people to get to Point B. The fact that it doesn't help them to get to Point B means that you're part of the problem rather than part of the solution. The invisible hand is complicated enough so we really don't need to complicate the issue even further.

The Invisible Hand
Imagine a small economy of free people using real money. The economy is divided up among 100 people with each owning 640 acres of land with water rights and mineral rights. There are farmers, inventors, manufacturers, educators, miners, energy producers, restauranteurs, doctors, plumbers, electricians, bakers, a full functioning society with everyone freely exchanging the miner's coins, the farmer's food, the manufacturer's goods, valuable services, and so on.

If there are too many farmers, then some food will go to waste driving the prices down. If a flood prevents the farmers from producing enough food, the prices will go up. If there are too many automobile manufactures, then the higher quality cars drive the lower quality car makers out of business. They have to go find something else to do. If there are too many doctors, then the less knowledgeable doctors will have to improve their game or become waiters. If there are too many restaurants, then the lower quality joints will not be able to compete. The amount of precious metal is limited so the miners must be careful to only mine a certain amount each year or when their land becomes barren from valuable resources, they must find something else to do. Clothes makers must make high quality clothes or go out of business. The price of goods are based on supply and demand of each good or service. The economy is vibrant, interactive, and purposeful.

Xerographica, you are making it far too complicated. First things first. The invisible hand is easy to understand once you understand the difference between unsound currency and sound money. You keep trying to apply the invisible hand to a fiat system. It is impossible.

Everyone in the above scenario (invisible hand economy) is producing either a valuable product or service and exchanging with others to meet their needs so prices of goods and services are determined by supply and demand of needs, wants, and nature. If too much of a good, or service, is produced (excess supply) then prices go down. If not enough goods, or services, are produced (low supply) then prices go up. If a lot of people want beef (high demand) then prices go up. If it becomes a vegetarian society (low demand) beef prices go down. The invisible hand ONLY works with real money.

[Xerographica]

Travlyr, there's a difference between saying...

A. the invisible hand only works with sound money
B. the invisible hand works better with sound money

Look around you...all the products you see were made available as a result of the invisible hand working...despite our fiat system. The computer that you're typing on...the programmer who developed this website...the company that is hosting this website...the company that this domain name is registered with...all demonstrate that the invisible hand is working.

You can say that the invisible hand would work better with real money...but you can't say that the invisible hand ONLY works with real money...the evidence is all around us that this is not the case.

People don't need to understand currency in order to understand how the invisible hand works. Once we help everybody understand how the invisible hand works then we can move on to tackling the issue of sound currency.

[Travlyr]

Travlyr, there's a difference between saying...

A. the invisible hand only works with sound money
B. the invisible hand works better with sound money

Look around you...all the products you see were made available as a result of the invisible hand working...despite our fiat system. The computer that you're typing on...the programmer who developed this website...the company that is hosting this website...the company that this domain name is registered with...all demonstrate that the invisible hand is working.

You can say that the invisible hand would work better with real money...but you can't say that the invisible hand ONLY works with real money...the evidence is all around us that this is not the case.

People don't need to understand currency in order to understand how the invisible hand works. Once we help everybody understand how the invisible hand works then we can move on to tackling the issue of sound currency.

The government is not invisible. When they use their unlimited money supply... UNLIMITED CURRENCY SUPPLY ... to manipulate the supply and demand of goods and services, it is the visible hand. They control the markets with licensing, regulations, mass purchases, and preferential treatments. It is easy to see when you understand the difference between sound money and unsound currency.

[Xerographica]

Travlyr, the issue isn't whether the visible hand constrains the invisible hand...clearly it does. The issue is simply that people don't understand how the invisible hand works. The question then becomes...what are we doing to help people understand how the invisible hand works?

[Travlyr]

"Gold, Peace, and Prosperity" by Ron Paul and "The Mystery of Banking" by Murray N. Rothbard

It becomes plain as day.

[nayjevin]

"The Invisible Hand" is a confusing term that begs to be criticized by those who do not understand it. The concept is a dramatization of spontaneous order, which is a confusing term since it isn't really spontaneous.

[Xerographica]

Travly...so if somebody didn't know anything about how the invisible hand works...would you send them those documents or this article....A Marvel of Cooperation?

If you believe that those documents are as plain as day when it comes to explaining how the invisible hand works...then how do you explain the results of this poll...Ron Paul vs The Invisible Hand?

[Travlyr]

Travly...so if somebody didn't know anything about how the invisible hand works...would you send them those documents or this article....A Marvel of Cooperation

I would suggest that people first learn the difference between real money, which is not taught in government schools, and monopoly money, which is taught.

Frederic Bastiat's classic essay, "What Is Seen and What Is Not Seen" was written during a time of sound money. That is how the broken window fallacy should be applied -- to Sound Monetary Systems of limited money supply. Today we endure an Unsound Monetary System of unlimited money supply. The Broken Window Fallacy does not apply the same to unlimited money supply as it does to a limited money supply. In other words, a false premise delivers a false conclusion.

If you believe that those documents are as plain as day when it comes to explaining how the invisible hand works...then how do you explain the results of this poll...Ron Paul vs The Invisible Hand?

False choices.

Ron Paul is reintroducing the invisible hand by advocating sound monetary policy and laissez-faire free-market capitalism.

When people understand the difference between real money and fake money, then the visible hand of market manipulation is easily seen in our current fiat money system.

http://scripturalscrutiny.com/2012/0...counterfeiter/

[Xerographica]

Travlyr...so Bastiat's opportunity cost concept is currently a false conclusion? What about Hayek's partial knowledge concept? Is that also currently a false conclusion?

[Travlyr]

Travlyr...so Bastiat's opportunity cost concept is currently a false conclusion?

Bastiat is not the failure. People who apply his opportunity cost concept of sound monetary principles to unsound monetary system arrive at false conclusions. That is much like saying the invisible hand is operating while markets are being visibly manipulated by the hand of government. It does not compute.

What about Hayek's partial knowledge concept? Is that also currently a false conclusion?

Lol... Where did that come from? It is a little off topic, isn't it? Why don't you start a new thread with a poll and everything.

[Dr.3D]

Put on a glove and pretend it's a blind date.

[WilliamC]

Personally I'm trying to understand it through a combination of game theory, Ramsey theory, and evolutionary dynamics, but that's just because I like making things complicated.

So long as the only coercion acting on individuals is the coercion of nature (i.e. the incessant need to fight off hunger, thirst, fatigue, ill-health, and such) and not the coercion of government, then the vast majority of folks will act more-or-less rationally and peacefully to provide for themselves and their families; only a minority would rather use violence to take from others.

But the minority tends to gain power precisely because they are willing to use preemptive violence and because too many governments restrict the rights of their citizens to defend themselves adequately. Why? because the minority of aggressors are drawn to the power of government and use it to further their own ends of course.

So I think the invisible hand always needs the backing of concealed carry, so that wanna-be thieves and muggers never know who is armed and dangerous and will therefore be much more self-restrained.

Even evil people are capable of responding to respond to rational self-interest.

[Xerographica]

Travlyr...can you offer an example of arriving at false conclusions with the opportunity cost concept?

Ok, so you don't understand how Hayek's partial knowledge concept is part of the invisible hand concept. Guess you didn't read the entire article that I shared with you...A Marvel of Cooperation.

You're right...maybe I should create a new topic with a poll. If you don't understand how Hayek's partial knowledge concept is part of the invisible hand concept then you're probably not alone in this regard.

[Travlyr]

Travlyr...can you offer an example of arriving at false conclusions with the opportunity cost concept?

The minimum wage law.

In a society that relies on sound money exchange minimum wage laws cause unemployment. That is easy to see because if an employer is forced to pay more for labor than the laborer produces then eventually the losses will drive the employer out of business.

In our controlled economy of unlimited paper/electronic tickets the minimum wage laws do not apply in the same manner. While most economists will still argue that minimum wage laws hamper employment, it doesn't have the same effect. If that was true, then the CEO's would not be making hundreds of $millions for golfing in exotic places with big shots while middle managers are tossing the producing slaves peanuts. Goldman Sachs is a perfect example. Success is all about influence not production.

Ok, so you don't understand how Hayek's partial knowledge concept is part of the invisible hand concept. Guess you didn't read the entire article that I shared with you...A Marvel of Cooperation.

You're right...maybe I should create a new topic with a poll. If you don't understand how Hayek's partial knowledge concept is part of the invisible hand concept then you're probably not alone in this regard.

I do not see how the invisible hand concept can apply to markets if the government has their hand in it.

Everyone values their time, goods, and services differently. Modern day indoctrination programs do not teach negotiation, but producers eventually learn those skills. If steady growth is natural, real money, then eventually prices are determined by supply and demand trade and they become relatively stable.

When growth is planned in secret (The Fed), fiat money controlled markets, then pricing becomes a guessing game. Producers have to rely on unreliable data.

Do you really believe that a home builder, plumber, carpenters, electricians, roofers, laborers, and all the other sub-contractors should perform hours upon hours of physical skilled hard labor to build a beautiful home while the banker steps in at the last moment, does virtually nothing, and takes twice as much money as all the workers combined? Is that what you consider to be the invisible hand?

[otherone]

The minimum wage law.

In a society that relies on sound money exchange minimum wage laws cause unemployment. That is easy to see because if an employer is forced to pay more for labor than the laborer produces then eventually the losses will drive the employer out of business.

One could argue that minimum wage laws are essentially price-fixing that cause inescapable under-employment. There is no competition for labor or incentive for workers increase their skills as everyone pays the same. Removing the laws would initially cause wages to decrease, but then competition for labor would result in increased wages.....kinda like the peasant revolt...

[Xerographica]

Travlyr, don't minimum wage laws cause unemployment completely irrespective of currency issues?

Again, if the invisible hand wasn't partially working...then it would mean that the visible hand was entirely working. Are you sure you really want to make that argument? Personally...I prefer to think that the invisible hand continues to work despite interference from the visible hand.

[Travlyr]

Travlyr, don't minimum wage laws cause unemployment completely irrespective of currency issues?

Again, if the invisible hand wasn't partially working...then it would mean that the visible hand was entirely working. Are you sure you really want to make that argument? Personally...I prefer to think that the invisible hand continues to work despite interference from the visible hand.

The invisible hand is non-existent in a system of unsound money. Think about it. Think about it on your own. Would a free market take Martin Luther King day off? Would a free-market close at 5:00 EST Greenwich Mean Time? Would a free-market take Christmas Day off? The fourth of July? No, free-markets don't care about men or women and their holidays. Laissez-faire free-markets don't even look at a clock.

Currency issues are not the only culprit that causes unemployment, but it is at the heart of it. Regulations play a major role. Nonetheless, please understand the difference between sound money and unsound money.

In a sound money system official regulations are virtually non-existent because people understand that the market is self-regulating. For example, if a firm is polluting the water then they get sued by water users, so pollution is abated by the potential polluter in order to stay in business. Employment remains at nearly 100% at all times because there is plenty of work that needs done in the world and plenty of people to do the work. Since nobody is telling anybody else what they need to pay for goods or services, then everybody is free to negotiate their value to others at free will. Unemployment is not even an issue. If one wants to work, then work.

In an unsound money system (which we've had since 1913) official regulations are very important. Do as you are told to do! If you don't, then go to JAIL ... Go Directly To Jail ... Do Not Pass GO ... Do Not Collect $100 Dollars ... Our money is Monopoly Money ... here are your kneepads. Minimum wage laws are needed to prop-up the Union Wage Demands and for no other reason. The free market closes at 3:00 EST and takes holidays off. Those in charge can even call a bank holiday if they like... at what appears to be random. They can qualify you based on your "history." Do you qualify for a single family home? Do you qualify for an apartment? Do you qualify for grants? Do you qualify for Section 8? Do you qualify for Social Security? Or disablement? Do you qualify for a job? Do you qualify for food stamps? Do you qualify for a credit card? Can you make the grade for College? DO YOU QUALIFY TO LIVE?

Pragmatism has NO place in a system of unsound money. Pragmatism is only valid in a system of honest sound money. Then it becomes very valuable. Very valuable indeed.