Invisible Hand

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From the Wikipedia [1]:

"The invisible hand is a metaphor created by Adam Smith to illustrate how those who seek wealth by following their individual self-interest, inadvertently stimulate the economy and assist the poor. In the general opinion, in The Wealth of Nations and other writings, Smith claims that, in capitalism, an individual pursuing his own good tends also to promote the good of his community, through a social mechanism that he called “the invisible hand?."

Discussion 1

Deception ? ... excerpted from Adam Smith Lost Legacy :


"It was a metaphor Smith used only three times and he never said “that when this invisible hand exists, when we all pursue our own interest, we end up promoting the public good, and often more effectively than if we had actually and directly intended to do so.” That is a modern construction placed on the metaphor and has next to nothing to do Adam Smith"


"Smith didn’t ‘coin’ the phrase at all. It was a well-known phrase going back to classical times (Ovid), and was widely used in the 17th and 18th centuries in both religious tracts, sermons and books, and in literary works (Shakespeare, Defoe, Voltaire and others."


"He ( Adam Smith ) used the term not in his discussion and analysis of markets (Book I and II of Wealth Of Nations), but in a discussion of the choice of export/importing versus investing in domestic businesses (Book IV of Wealth Of Nations on his critique of mercantile political economy). It had nothing to do with ‘regulating’."

The Invisible Hand and Cooperation Theory

David Sloan Wilson:

"The old concept pretends that the pursuit of individual or corporate self-interest robustly benefits the common good, as if “led by an invisible hand” in the words of Adam Smith. This is also the essence of the term “laissez-faire”, which is French for “leave it alone”. Nobody believes that an economy can truly be a free for all—certainly not Adam Smith, who invoked his metaphor only three times in the entire corpus of his work. A fuller reading reveals that he was amply aware of the need to regulate economies. Nevertheless, those who have made the invisible hand their central metaphor regard laissez faire as by far the better path to take than its alternative—centralized planning.

I am not the first person to declare this notion of the invisible hand dead, but my grounds for doing so are somewhat novel. Evolutionary theory makes it crystal clear that the unregulated pursuit of self-interest is often toxic for the common good. This conclusion becomes especially strong when we conceptualize self-interest in relative rather than absolute terms, a distinction that separates much evolutionary thinking from much economic thinking. When we absorb the fact that “life is graded on a curve” as the evolutionary economist Robert Frank puts it[1], then we can see that nearly all cooperative efforts require time, energy, and risk on the part of the cooperative individuals that place them at a relative disadvantage compared to less cooperative individuals within the same group." (

Discussion 2: Commentary by Michel Bauwens on P2P vs markets

The functioning of the invisible hand, a result of interactions by 'peers' in the market, would suggest that a market is a peer to peer social dynamic. Is that a correct interpretation? Here are some thoughts on the relation between P2P and the market.

P2P and the Market

P2P exchange can be considered in market terms only in the sense that free individuals are free to contribute, or take what they need, following their individual inclinations, with a invisible hand bringing it all together, without monetary mechanism. But they are not true markets in any real sense of the word: market pricing nor managerial command are required to make decisions regarding the allocation of resources.

There are more differences:

- Markets do not function according to the criteria of collective intelligence and holoptism, but rather, in the form of insect-like swarming intelligence. Yes, there are autonomous agents in a distributed environment, but each individual only sees his own immediate benefit.

- Markets are based on 'neutral' cooperation, and not on synergistic cooperation: no reciprocity is created.

- Markets operate for the exchange value and profit, not directly for the use value.

- Whereas P2P aims at full participation, markets only fulfill the needs of those with purchasing power.

Amongst the disadvantages of markets are:

- They do not function well for common needs that do not assure full payment of the service rendered (national defense, general policing, education and public health), and do not only fail to take into account negative externalities (the environment, social costs, future generations), but actively discourages such behavior.

- Since open markets tend to lower profit and wages, it always gives rise to anti-markets, where oligopolies and monopolies use their privileged position to have the state 'rig' the market to their benefit.

P2P and Capitalism

Despite these differences, P2P and the capitalist market are highly inter-related. P2P is dependent on the market, and the market is dependent on P2P.

Peer production is highly dependent on the market. The reason is that peer production produces use value, through mostly immaterial production, without directly providing an income for its producers. Participants cannot live from peer production, though they derive meaning and value from it, and though it may out compete, in efficiency and productivity terms, the market-based for-profit alternatives. Thus: 1) peer production covers only a section of production, while the market provides for nearly all sections; 2) peer producers are dependent on the income provided by the market. So far, peer production is created through the interstices of the market.

But the market and capitalism is equally dependent on P2P. Capitalism has become a system relying on distributed networks, in particular on the P2P infrastructure in computing and communication. Productivity is highly reliant on cooperative teamwork, most often organized in ways that are derivative of peer production's governance. The support given by major IT companies to open source development is a testimony to the use derived from even the new common property regimes. The general business model seems to be that business 'surfs' on the P2P infrastructure, and creates a surplus value through services, which can be packaged for its exchange value. However, the support of free software and open sources by business poses an interesting problem. Is corporate-sponsored, and eventually corporate managed FS/OS software still 'P2P'. The answer is: only partially. If it uses the GPL/OSI legal structures, it does results in common property regimes. But if peer producers are made dependent on the income, and even more so, if the production becomes beholden to the corporate hierarchy, then it would no longer qualify as peer production. Thus, capitalist forces will mostly use partial implementations of P2P. The tactical and instrumental use of P2P infrastructure, collaborative practices, etc.. is only part of the story however. In fact, contemporary capitalism's dependence on P2P is systemic. As the whole underlying infrastructure of capitalism becomes distributed, it generates P2P practices and becomes dependent on them. The French-Italian school of 'cognitive capitalism' (i.e. those that emit the hypothesis of) in fact stresses, in my view correctly, that value creation today is no longer confined to the enterprise, but beholden to the mass intellectuality of knowledge workers, who through their lifelong learning/experiencing and systemic connectivity, constantly innovate within and without the enterprise. This is an important argument, since it would justify what we see as the only solution for the expansion of the P2P sphere into society at large: the universal basic income. Only the independence of work and the salary structure, can guarantee that peer producers can continue to create this sphere of highly productive use value.

Does all this mean that peer production is only immanent to the system, productive of capitalism, and not in any way transcendent to capitalism?

P2P and the Netarchists

More specific than this generic relationship that we just described, peer to peer processes are also contributing to more specific forms of distributed capitalism. The massive use of open source software in business, enthusiastically supported by venture capital and large IT companies such as IBM, is created a distributed software platform that will drastically undercut the monopolistic rents enjoyed by companies such as Microsoft and Oracle, while Skype and VoIP in general will drastically distribute the telecom infrastructure. But it also points to a new business model that is 'beyond' products, but rather focuses on services associated with the nominally free FS/OS software model. Industries are gradually transforming themselves to incorporate user-generated innovation, and a new re-intermediation may occur around user-generated media. Many knowledge workers are choosing non-corporate paths and becoming minipreneurs, relying on an increasingly sophisticated participatory infrastructure, a kind of digital corporate commons.

The for-profit forces that are building and enabling these new platforms of participation represent a new subclass, which I call the netarchical class. If cognitive capitalism is to be defined by the primacy of intellectual assets over fixed capital industrial assets, and thus on the reliance of an extension of IP rights to establish monopolistic rents, and if the vectoral capitalists described by Mackenzie Wark derive their power from the control of the media vectors, then these new netarchical capitalists derive their power from the enablement and exploitation of the participatory networks. Think how Amazon build itself around user reviews, how eBay lives from a platform for worldwide distributed auctions, or how Google lives off user-generated content. Though these companies may still rely on IP rights for the occasional extra buck, it is not in any sense the core of their power, which relies in their ownership of the platform.

But more broadly, we can call netarchical capitalism this brand of capital that embraces the peer to peer revolution, and ideologically, all those forces for whom capitalism is the ultimate horizon of human possibility. It is the force behind the immanence of peer to peer. Opposed to it, though linked to it in a temporary alliance, are the forces of Common-ism, those that put their faith in the transcendence of peer to peer, in a reform of the political economy beyond the domination of the market.

Market Transcendent Aspects of P2P

Indeed, our review of the immanent aspects of peer to peer, on how it is both dependent and productive of capitalism, does not exhaust the subject. P2P has important transcendent aspects which go beyond the limitations set by the for-profit economy:

- peer production effectively enables the free cooperation of producers, who have access to their own means of production, and the resulting use value of the projects out competes for-profit alternatives

Historically, when such germs of higher productivity have been present in society, though they were first embedded in the old productive system, they have led to deep upheavals and reconstitutions of the political economy. The emergence of capitalist modes with the feudal system is a case in point. The fact that leading sectors of the for-profit economy are deliberately slowing down productive growth (in music, through patents) and trying to outlaw P2P production and sharing practices, is particularly significant.

- peer governance transcends both the authority of the market and the state

- the new forms of universal common property, transcend the limitations of both private and public property models and are reconstituting a dynamic field of the Commons.

At the time where the very success of the capitalist mode of production, actually endangers the biosphere and causes increasing psychic (and physical) damage in the population, the emergence of such an alternative is particularly appealing, and corresponds to the new cultural needs of large numbers of the population. The emergence and growth of peer to peer is therefore accompanied by a new work ethic (Pekka Himanen's 'Hacker Ethic'), by new cultural practices such as peer circles in spiritual research (John Heron's cooperative inquiry), but most of all by a new political and social movement which is intent on promoting its expansion. This still nascent P2P movement (which includes the Free Software and Open Source movement, the open access movement, the free culture movement and others) which is also echoed in the very means of organization and aims of the alterglobalisation movement, is fast becoming the equivalent of what was the socialist movement in the industrial age: a permanent alternative to the status quo, and the expression of the growth of a new social force, i.e. the knowledge workers.

In fact the aim of peer to peer theory is to give a theoretical underpinning to the transformative practices of these movements, an attempt to create a radical understanding that a new kind of society, based on the centrality of the Commons, and within a reformed market and state, is in the realm of human possibility.

Such a theory would have to explain not only the dynamic of peer to peer processes proper, but also its fit with the other intersubjective dynamics, i.e. how it molds reciprocity modes, market modes and hierarchy modes; on what ontological, epistemological and axiological transformations this evolution is resting; and what a possible positive P2P ethos can be.

A crucial element of such a peer to peer theory would be the development of tactics and strategy for such transformative practice. The key question is: can peer to peer be expanded beyond the immaterial sphere where it was born?

The Expansion of the P2P mode of production

Given the dependence of P2P on the existing market mode, what are its chances to expand beyond the existing sphere of non-rival immaterial goods?

Here are a number of theses about this potential:

- P2P can arise not only in the immaterial sphere of intellectual and software production, but wherever there is access to distributed technology: spare computing cycles, distributed telecommunications and any kind of viral communicator meshwork

- P2P can arise wherever other forms of distributed fixed capital is available: such is the case for carpooling, which is the second mode of transportation in the U.S.

- P2P can arise wherever the process of design, can be separated from the process of physical production. Huge capital outlays for production can co-exist with a reliance on P2P processes for design and conception

- P2P can arise wherever financial capital can be distributed. Initiatives such as the ZOPA bank point in that direction. Cooperative purchase and use of large capital goods are a possibility. State support and funding of open source development is another example.

- P2P could be expanded and sustained through the introduction of the universal basic income.

The latter, which creates an income independent of salaried work, has the potential to sustain a further development of P2P-generated use value. Through the 'full activity' ethos (rather than full employment) of P2P, the basic income receives a powerful new argument: not only as efficacious in terms of poverty and unemployment, but as creating important new use value for the human community.

However, as it is difficult to see how the use value production and exchange could be the only form of production, it is more realistic to see peer to peer as part of a process of change. In such a scenario, peer to peer would co-exist with the other intersubjective modes, but which it would profoundly transform.

A Commons-based political economy would be centered around peer to peer, but it would co-exist with:

- a powerful and re-invigorated sphere of reciprocity (gift-economy), centered around the introduction of time-based complementary[2] currencies[3]

- a reformed sphere for market exchange, the kind of 'natural capitalism' described by Paul Hawken, David Korten and Hazel Henderson, where the costs for natural and social reproduction are no longer externalized, and which abandons the growth imperative for a throughput economy as described by Herman Daly

- a reformed state, that operates within a context of multistakeholdership, and which is no longer subsumed to corporate interests, but act as a fair arbiter between the Commons, the market and the gift economy

Such a goal could be the inspiration for a powerful alternative to neoliberal dominance, and create a kaleidoscope of 'Common-ist' movements broadly inspired by such goals.

The Book

* Book: Bas van Bavel. The Invisible Hand? (OUP 2016)



Branko Milanovic [4]:

"Van Bavel’s key idea is as follows. In societies where non-market constraints are dominant (say, in feudal societies), liberating factor markets is a truly revolutionary change. Ability of peasants to own some land or to lease it, of workers to work for wages rather than to be subjected to various types of corvées, or of the merchants to borrow at a more or less competitive market rather than to depend on usurious rates, is liberating at an individual level (gives person much greater freedom), secures property, and unleashes the forces of economic growth. The pace of activity quickens, growth accelerates (true, historically, from close to zero to some small number like 1% per year) and even inequality, economic and above all social, decreases . . .

But the process, Bavel argues, contains the seeds of its destruction. Gradually factor markets cover more and more of the population: Bavel is excellent in providing numerical estimates on, for example, the percentage of wage-earners in Lombardy in the 14th century or showing that in Low Countries wage labor was, because of guilds, less prevalent in urban than in rural areas. One factor market, though, that of capital and finance, gradually begins to dominate. Private and public debt become most attractive investments, big fortunes are made in finance, and those who originally asked for the level playing field and removal of feudal-like constraints, now use their wealth to conquer the political power and impose a serrata, thus making the rules destined to keep them forever on the top. What started as an exercise in political and economic freedom begins to look like an exercise in cementing the acquired power, politically and economically. The economic essor is gone, the economy begins to stagnate and, as happened to Iraq, Northern Italy and Low Countries, is overtaken by the competitors." (