What Happened to the "Hidden Hand?"

Periodically, when the Geek is feeling entirely too masochistic to read the usual dull, tendentious and all-too-often agenda driven works of academic historians, he returns to his favorite piece of intellectual torture--Das Kapital. The current global exercise in the markets' version of the China Syndrome required another visit to the narrow guage view of history put forth by Karl Marx.

Showing his inherently schizoid nature, the Geek followed that excursion by reacquainting himself with Adam Smith's Wealth of Nations and touching base with a strong Adam Smith maven--Allan Greenspan's memoirs.

When the reading was over, the Geek was struck with a couple of salient lacks shared equally by Marx and Smith, and, of course, Greenspan--

"Wait one, Geek!" I hear you interrupting, "What do you know about micro or macro-economics, your thing is history?"

All the Geek can do is agree. The dismal science is not one with which the Geek is overly well acquainted. However, decisions about economic matters are made by human beings, by Joe the Plumber as well as the glittering elite of international finance. You have to remember that the study of history is the study of the record of human choices, good and bad. History is the sum total of all humans' hopes and fears, strengths and weaknesses, greed and altruism, all the good and evil of which people are capable.

To those exemplified by Marx, Smith and Greenspan, economic matters are strangely isolated from the realities of the human condition. Reading these men one is left with the impression that while economic imperatives operate on people, people and their choices have little to do with the processes of wealth creation, distribution and usage.

One human emotion runs through the writings of Smith and Marx as a bright thread. Greed. Both men quite explicitly acknowledge the power of greed as a motivator of economic choice. Greenspan makes the same point.

Smith and Greenspan seem to agree with the noxious character Gecko, in the movie Wallstreet, in extolling greed as a good. Marx does not share this favorable position on greed, or "self-interest," as Smith termed it.

There is a sub-text to Smith and Greenspan (and to a somewhat lesser extent, Marx.) That sub-text is that the market is inherently rational. That it is an institution of rationality based on the enlightened, knowledgeable pursuit of self-interest.

Get a grip, boys!

Humans are not primarily rational. Greed is not the primary emotion motivating decisions whether in the economic area or any of the others which comprise the human experience.

The primary emotion of humans is fear. Naked, unadulterated fear. Not anxiety. Not apprehension. Not even worry. Fear, pure and simple.

We are all born globally afraid. Life's journey consists of restraining, controlling, domesticating fear. Turning the voracious wolfpack in our guts from feral creatures eager to devour us from the inside into a useful and well tethered band of watchdogs warning us of danger.

The wolves of fear are always straining at the leashes. Always trying to break free. Always seeking a way to gnaw and yowl. We are all--each and everyone of us--fractions of a second away from being eaten alive by our fears.

Life is inherently risky. As a species we emerged to occupy a precarious ecological niche. Fear was and is necessary, utterly essential, to stay alive. Fear, like fire, is a wonderful servant but a terrible master.

All human institutions have emerged to address the risks and fears of life. They all exist, all justify their existence, by how well they serve to reduce and distribute risk. By appearing to provide a reason to keep our wolf packs of fear under control.

Greed (or self-interest, if you prefer a milder term) is the flip side of fear. In a manner identical to the striving for power, status, prestige, potency, greed is a mechanism by which individual fear is addressed, the individual's risks apparently reduced.

The Democratic Socialist's call for "fairness" is an attempt to reduce risk through distribution. The more widely risks seem to be distributed among a group, the less reason exists for any individual to give free expression to fear.

The free-market capitalist's call for minimal regulation of his activities is motivated by an attempt to reduce risk through distribution. Or, to err on the side of accuracy, to reduce risk by displacement. The free-market capitalist seeks to place his individual risk onto the backs of others. To reduce his fear by transferring it to others.

The point that Smith, Greenspan and, yes, even Marx missed is simple. The capitalist is not the only or even the major risk-taker in a market oriented economy. Arguably, the worker takes a much greater risk. While the capitalist may have many places for investment (after all, distribution of money equals distribution and thus limitation of risk) the worker has only one job. Lose that and the worker loses all.

In addition to the worker, the employee of a capitalist enterprise, there are many other actors with as much at risk as the capitalist. Suppliers and customers for example. Or the town where the business is located.

Life is risky and fear is universal. It is no surprise that the capitalist, large or small, seeks to distribute risk, reduce his own vulnerabilities and keep his wolves under control. The market model might serve to be an effective way to do this, to protect and reassure not only the investor but also the worker, the buyer, the seller, and, heck, even the tax collector.

However, the market can only be both free and effective if all players, no matter what their role might be, act on the basis of equal, perfect information and with a supreme detachment from the emotions, particularly fear and its direct anodynes such as envy and greed.

Perhaps there is a world where that sort of halcyon situation exists. But, planet Earth is not to be found among their number. As a result the free-market so admired by Adam Smith and Allan Greenspan will never be a perfect or even an effective means to reduce and distribute risk--to assist us in the never ending task of keeping our wolves of fear under control.

The record of socialism whether of the European Democratic sort or Soviet style Communism is no better historically than is that of the free-market. Perfect fairness, true equality is a chimera, and a dangerous one at that.

In so far as talents, abilities and motivations of people differ, inequality and unfairness of outcome will necessarily result. In any system dedicated to the proposition that society can and should guarantee equality and fairness, some will find the loopholes.

Some will find ways and means to become somewhat more fair and equal than others. Still others will harbor bitter resentment and sour envy. We all meet our inner wolves in different ways. We all hear the warning barks of our watchdogs within differently.

History powerfully argues that the answer to economically based fears is not found in systems. Neither the hidden hand nor the government dictate can assure outcomes which are non-risky, not likely to produce fear in one form or another.

The answer, history suggests, is to be found within each and every one of us. It is to be found in how well we understand the evolutionary psychology which lies between our ears and how it expresses itself. The answer to fear is the knowledge necessary to keep a firm hand on the leash.

History teaches that when humans give in to the wolves within, they become howling beasts on two legs.