The Invisible Hand

A Concept All Too Often Forgotten or Not Understood and Left Out of the Debate

(Free Market Physician welcomes its first guest contributor, CATO, to the forum. Thanks for your submission.)

Earlier this week I watched a documentary, made by a physician, addressing the problems facing our medical system. I was hoping that the physician would reach a free-market based conclusion. However the documentary appeared to be more of an elitist version of Michael Moore’s “Sicko.” The producer/physician made the following statement: “Our healthcare system is a bizarre blend of the worst of capitalism and the worst of socialism. It isn’t a system at all. We need to get over our fear of the government and embrace the idea that in healthcare somebody needs to be in charge so we can keep our eye on the prize which is health, not profits.”

I’ll have to admit the first part of his comment tugged at my heart strings. I remember thinking - has capitalism failed us? After all, the only logical approach to fixing healthcare is the free market system, right? After much thought I realized that we don’t even have a capitalistic system and I guarantee that we don’t have the worst of a socialistic system. We should call our system for what it is - interventionism and corporatism. Capitalism implies that a free market is in place. Our healthcare system is so heavily regulated from state and federal agencies that hardly any free market forces exist.

Another statement in the movie that I found to be disturbing was when a former editor of the New England Journal of Medicine said “I don’t believe that Americans are born as greedy cowboys who don’t care about the community and who’s aim in life is to be richer than anyone else. This happens to many Americans because they are bathed in that ideology.” After hearing these comments I started to wonder if they had forgotten, do not understand, or have lost faith in the “invisible hand.”

The invisible hand is a fundamental economic concept that is all too often forgotten and left out of the debate. Adam Smith, the father of economics, described this concept in his magnum opus The Wealth of Nations. Smith said that when man intends only to increase his own gain he is “led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.” In other words when everyone does what is in their best interests, society benefits as a whole. It is as if by pursuing individual self interest there is an invisible hand pushing society towards it’s best interest as well. Smith did not state that when government does what appears to benefit itself it in turn benefits society. He was referring to individuals.

Capitalism is one of the purest forms of democracy. With each dollar, individuals are able to vote and give proper value to the goods and services they consume. Our current healthcare system is almost void of capitalism and it is not surprising that there is not an invisible hand pushing society towards an optimal state. Consider these questions - Who owns your healthcare dollars- your vote in the system? and - Do you own the decision what to do with those healthcare dollars? More than likely, half of it is owned by an employee-based health insurance company, and the other half is owned by government to fund Medicare and Medicaid. The decision on how the dollars are spent are left up to those respective single payer systems.

Before World War II American’s paid cash for medical expenses. Rich and poor received care regardless of ability to pay and government intervention. During WWII the government implemented wage restrictions to reduce incentives to work in the private sector. To counter that obstacle the private sector offered health insurance to compete with government restrictions. In 1965 the Medicaid and Medicare was signed into law. Then in 1973 the Health Maintenance Organization Act was passed.

All these programs have transferred ownership of healthcare dollars from individuals to a select minority with the promise of managing healthcare dollars more wisely. Unfortunately this has not been the case. With the convergence to single payer systems our healthcare system has been insulated from free market forces, driving up costs and thwarting the invisible hand. To counter and restore capitalism to the healthcare industry, health savings accounts are starting to appear, returning ownership of healthcare dollars to the individual.

The concept of the invisible hand may seem contrary to utopian ideals because it implies that individual greed is good. The concept that American’s “aren’t born greedy and it is explained by an ideology they were taught” is completely erroneous. It is human nature to pursue one’s personal interests. We need to get over the concept that greed, doing something for personal benefit, is a bad thing. We need to embrace the idea that individuals, not government will serve the best interest of not only themselves but society. Putting everybody in charge by giving individuals ownership and the power to decide how their healthcare dollars are spent, returns the incentive to reach the prize which is health and profit.

CATO