Adam Smith (The Wealth of Nations) wrote:
[The individual] generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. …[He] intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
Thus became the organizing principle of modern capitalism: The individual pursues his or her own self interest and that in doing so the greater good is achieved for all.
Smith implies as well, and contra Rousseau, that one should not and cannot act with the purpose of benefitting society as a whole (the general will, say). To do so will frustrate the “industry” of the individual; writ large, the product of all individuals will be compromised, and the overall economy will perform below its maximum.
There is, we must admit, a certain elegance to the prescription. We are freed, indeed encouraged, to behave without regard to the general welfare. We do what we want and let the chips fall where they may, knowing that the “invisible hand” will sort out everything for the greater good. No need to plan, certainly. No need for a czar of bread or any other commodity or service.
Yet, we must acknowledge that the invisible-hand-led market has yielded some rather perverse outcomes, not the least of which is gross inequality. We must also consider market failures, environmental degradation being chief among them. One could make the case that rational behavior at the individual level actually yields collective irrationality, in which the very survival of species are at stake.
Against Smith, we might ponder the following:
From humanitarian and ecological viewpoints, many aspects of the capitalist economic system are irrational; although they are certainly rational from the more limited standpoint of the individual business or capitalist seeking to make profits. For example, because most people lack their own means to produce income, they must sell their labor power to companies, which in turn must normally pay a high enough wage for the reproduction of workers and their families. However, although requiring people to work in order to live, the economic system does not guarantee a job for everyone who wants and needs to work. Nor do the available jobs necessarily pay sufficient wages for a decent existence…Practices that make eminent sense for the individual capitalist or company, such as paying only the minimum wage necessary in order to obtain sufficient workers with the needed skills, end up being a problem not only for workers, but the capitalist system itself. Low worker income contributes to problems of effective demand.*
In seeking to maximize profits (the difference between revenues and costs), the employer pays the lowest possible wage to his or her workers. Makes sense, you might say. But when all employers, or at least a significant portion of them, do the same, workers lack sufficient income to buy products and services produced by those employers. Of course, workers could purchase on credit, foregoing future income to satisfy immediate needs or wants. That would seem to be the preferred solution of the employers. However, and as it happens on occasion, workers react to accumulating debt by curtailing purchases in favor of deleveraging. If enough workers do the same, the problem of effective demand returns.
Yet, this system of production and consumption bodes ill for the planet as a whole, since waste is ignored. In effect, we billions of humans soil our own nest. The unanswered question: Will we deplete the natural resource stock before we render the earth uninhabitable?
* Fred Magdoff, “A Rational Agriculture Is Incompatible with Capitalism,” Monthly Review, March 2015