Over the past few days I’ve read it a thousand times if I’ve read it once: Liz Truss was knocked down and out by the invisible hand of market forces.
No human agency was involved, as it isn’t involved in hurricanes, earthquakes and tornados. It’s all that force majeure at work business. Nothing personal.
This approach to economics has always bothered me, and now more than ever. To begin with, exactly what were Truss’s sins that made that putative invisible hand lash out? What did she do that was so awful?
She didn’t want to raise the rate of corporate tax, which seems sensible, especially for a country that heavily depends on attracting foreign investment. In parallel, she sought to get rid of the 45p tax rate that didn’t exist even under Blair. That would have stopped her ‘Conservative’ party from sliding to the left of Labour, which doesn’t strike me as a felony.
Granted, Truss wanted to pay for the very marginal tax cuts with increased borrowing, without the necessary cut in public spending. But she saw that as strictly a temporary measure, made necessary by the combined effect of two blights: Covid and Putin. Once the nation caught its breath, Truss was going to take a chisel, if not a sledgehammer, to the social budget.
She promised as much, and there was no obvious reason to disbelieve her. After all, she was trying to put into effect exactly the policies she had campaigned on, those that the Tory rank and file had voted for when choosing Truss as their leader.
If that’s what made that invisible hand swing with so much deadly force, one is justified to doubt its sanity. But is it really invisible? Perhaps if we focus our eyes, we can actually see it in all its three-dimensional glory.
The expression was popularised by Adam Smith, even though he didn’t coin it and only used it three times in The Theory of Moral Sentiment and The Wealth of Nations. Since Smith treated his economics as a derivative of his primary discipline, moral philosophy, the concept of the invisible hand was supposed to merge the two.
Smith essentially attributed demiurge powers to the market, whose invisible hand unerringly guides private individuals to public virtue. He saw an economy as a giant cauldron into which individuals toss their private self-interests to produce a stew of collective goodness.
That was a sort of alchemy, with the gold of morality extracted from the base metal of amorality. Such unalloyed idealism can only work in ideal conditions or something close.
Edmund Burke, a deeper thinker than Smith, anticipated that such conditions would remain unattainable, and he knew why: “The moment that government appears at market, the principles of the market will be subverted.”
At that time, in the 18th century, government couldn’t “appear at market” as it saw fit. The simple expedient of a currency pegged to the gold standard acted as a natural restraining mechanism. (Opponents of the gold standard say, correctly, that it inhibits the state’s ability to react to economic emergencies with sufficient flexibility. What they leave out is that the gold standard also prevents the state from what Burke identified as “subverting the principles of the market”.)
Since then government has slipped such tethers by abandoning the gold standard and replacing it with the printing press. Instead of acting as merely a referee, the state has thus become both the star player and the coach, with all other players modelling themselves on its patterns of play.
Currency stopped being merely a way of denominating the amount of goods and services available, a means of their exchange. Instead it became a lever with which governments and government-like setups could control the workings of the market.
It then transpired that simply adding millions of private self-interests together didn’t produce public virtue (any more than pooling millions of individual votes delivers wise government). It produced instead a frantic traffic in buying and selling with no red lights, except those found in the district known for such fixtures, with the state combining the function of policeman and pimp.
This emphasised the fundamental difference between nature and market. The first is impersonal, the second is made up of people.
That was the case in the 18th century too, but the people making up and driving the market were different then. In those days they were mainly, almost exclusively, those who produced goods and provided services. Today they are predominantly state officials and economists, either academic or hands-on, those working in financial companies.
State officials impose, with economists happily accepting and fostering, a whole raft of ideological constraints under which the market is supposed to operate. At some point, the machine inevitably becomes overloaded, sputters, slows down to a crawl or even crashes.
Faced with such downturns, those chaps heave a sigh, shrug their shoulders and, taking a leaf out of Adam Smith’s book, make some vague noises about inexorable market forces and the invisible hand. However, in this instance the metaphorical hand is very much visible: all they have to do is look at their own.
It’s not an invisible hand that has been steadily debauching Western currencies with inflation; it’s state officials and economists. It’s not an invisible hand that created a huge dependent underclass that consumes without producing; it’s state officials and economists. It’s not an invisible hand that is smashing to bits the energy driver of our economy; it’s state officials and economists. It’s not an invisible hand that has turned finance into a casino where blackjack is played with marked cards; it’s state officials and economists.
They have effectively turned democracy and free market into spivocracy, where Smith’s principles no longer apply, certainly not at any macro level.
Smith, along with his followers in Austria, Chicago and elsewhere drew up an ideal towards which all economies should strive. The closer they get to that ideal, the healthier they’ll be.
Yet those ideals, along with all others coughed up by modernity, have parted ways with reality. They survive only as empty phrases looted from their original owner and distorted beyond any recognition. ‘Invisible hand’ is one such purloined phrase; ‘market forces’, another.
Such forces do exist, but it’s not they that crushed Truss’s modest, bungling attempts to introduce a modicum of sanity to our economic behaviour. At play there were other forces, those of ideological tyranny imposed by the dogs of spivocracy that modernity has let slip.