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The invisible right hand and the invisible left hand

By Gilbert Holmes - posted Wednesday, 1 September 2010


In 1776, Adam Smith published his work, The Wealth of Nations, within which he detailed the actions of “the invisible hand” of economics.

The basic concept of Smith's invisible hand is that; when self-interested parties compete against one another, rather than there being one winner and one loser, benefit often results not only for both parties, but also for the broader society.

The actions of Smith's invisible hand are easily observed. As a simple example of this, let's say, while desperately trying to make a dollar, I invent something useful; a cup. Having invented this magical item, I then sell as many cups as possible at the highest price that I can get.

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Let's say that it costs me $1 for every cup that I sell, but that I sell them for $20 each, and I quickly become exceedingly rich. Far from ripping off my customers, however, from their perspective they are getting a great deal. Instead of walking down to the creek five times a day for a drink, now they only have to go there once a day to fill up their cup. The $20 that they spent may be saving them $5 worth of time every day.

We can also see that because each of the cup owners now only has to go to the creek once a day, a significant amount of previously unavailable energy has been freed up, which can of course be applied to other useful purposes. Extending the example still further, someone from the next village might see what I am doing and set up another cup selling business. This might mean that in order to gain customers, I have to drop the price of my cups to a measly $3.

Since its release, the profound and simple logic of Smith's invisible hand has switched on the “lightbulbs of the mind” of generations of apparently deep thinkers and economic policy makers.

Leading directly to the idea that free competition between self-interested parties is the engine of a healthy economy, Smith's invisible hand has provided something of a social conscience for free market capitalism. It is the single most important concept that has driven the laissez-faire agenda over the last few centuries, and which continues to drive laissez-faire economic's most recent manifestation, neo-liberalism.

Unfortunately, in describing the positive results that spring from self-interested parties competing with one another, it turns out that Smith’s invisible hand only gives us half the story. Smith has left out of his theory the simple concept that there are times when we co-operate together, and that positive economic outcomes can also be derived from this co-operation.

It appears that we may actually be looking at two invisible hands!

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Looking at these two invisible hands, we can call the positive effects of competition the “invisible right hand”, and the positive effects of co-operation “the invisible left hand”.

Like the invisible right hand, the actions of the invisible left hand are also easily observed. Let’s say that two backyard gardeners, instead of each owning a wheelbarrow independently, decide to share the use of a single wheelbarrow. While it may cost each of them $5 worth of time to negotiate the usage of the wheelbarrow, each has saved $40 on the purchase cost. What's more, because the resources are being used efficiently, there are now more resources available for use by the rest of us.

If they were to look only at the actions of this invisible left hand, someone might be forgiven for thinking that, instead of competition between self-interested parties, it is actually co-operation within a mutually supportive community that is the engine of a healthy economy. Such is apparently the thinking behind communism.

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About the Author

Thirty-something Gilbert Holmes lives with his wife Catherine in Brisbane. They are expecting their first child. Gilbert has a long standing interest in yin-yang polarity, and most recently has turned his attentions to understand polarity in relation to political and economic philosophy. He is working on a book on this subject. Gilbert is an advocate of a decentralised, direct democratic society, with a balanced, cooperative/competitive economic system. You can read more at polaritycorner.blogspot.com

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