Healthcare and the Invisible Hand

Economics Political Theory
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(This article was originally posted on the blog Free Market Physician - a site dedicated to discussion of free market solutions to health care problems.)

The Invisible Hand

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

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

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Nice post CTY. Good to see someone who understands the proper use of the term “capitalism”.

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“It is not selfish to be self-interested” - Adam Smith

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Sooner or later, if there aren’t enough people who “understand” the proper (your) definition of capitalism, you’re just going to have to bite the bullet and use the definition accepted by everyone else. Although I agree wholeheartedly that Mises’ treatment of the term is pretty accurate, practically nobody accepts that definition as complete.

Properly understood, the healthcare problem is one of government failure, not market failure. A Misesian capitalist economy would not tolerate the sort of intereference and regulation and licensure that define the current system. Unfortunately, most everyone believes that the current market is “capitalist” in essence, and thus they see the failure of healthcare provision as a problem endemic to capitalism. If you are trying to convince them that “capitalism” is the answer, then you’ve already lost the war.

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no third solution

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Sooner or later, if there aren’t enough people who “understand” the proper (your) definition of liberty, you’re just going to have to bite the bullet and use the limited freedoms and tolerate the unlimited violence accepted by everyone else.

I like your blog. It is heroic.

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we’re already biting that bullet! :slight_smile:

But also, there’s a difference between putting something in to practice (like Liberty) through agorism or whatever, and arguing semantics with someone who thinks that capitalism = state-sponsored corporatism. You probably can’t convince people that their definition (and the definition held by most) is incorrect. If everyone hates what they think is capitalism, the best course of action is to take that at face value and say “you know what, I hate that system, too. (whether we call it “capitalism” or “zoop” is completely inconsequential.) But there is an alternative where people are free and rent-seeking is unheard of, etc.”

If you have to call that new system “capitalism,” most people have already stopped listening…

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So why bite another?

Poppycock. You blog prolificly. You’re constantly arguing against the state and for liberty already. Why so shy about using a term in it’s proper context?

Or are you a Carsonite, here to pick up some traffic to your blog, but generally looking down at the Misoids from a pro-union perch with disdain?

If you can’t convince people they are incorrectly defining a word, good luck trying to bring down the state apparatus.

Nonsense. That is dishonest and cowardly. Mises struggled to present what he believed in, he wasn’t an appeaser or a charlatan. He reaped the negative consequences and blowback of that, but he wouldn’t be who he is without that legacy of being unyielding, and regretting that he was not even tougher in the face of tyranny.

Perhaps you will show your masters your fleeting posterior when they redefine rent seeking and freedom? Oh wait, they’ve already done that too. Freedom is obedience, and rent seeking is now capitalism. Ha!

It is unfortunate, particularly that the libertarian-left seems to be obsessed with class warfare, unionism, communism and pseudo-socialistic structures, and they are the ones propagating this nonsense about capitalism, urging libertarians to abandon language after liberty.

If you won’t fight for the meaning of your own words, how will you ever fight for liberty? By the passive strategy almost no one seems to practice (but love to talk about) called Agorism?

This is a sore subject for me. I’m tired of so-called anarchists and libertarians taking their cue from statists and the sleep walkers on what to believe, and what words mean what. It’s weak, and it reflects the subservient and ineffectual nature of the movement.

FSK has a good point. Don’t play definition games. And I probably shouldn’t. It is an avoidance tactic, but at least it is not selling out.

Welcome to Mises btw. I’m one of Kevin Carson’s “Misoids”. I believe in stupid ideas like capitalism, free markets and I am in the George Reisman group.

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The statist-left co-opted the term liberal, the statist-right co-opted the term capitalism, etc. I try to avoid the definition game, too. It never leads anywhere, that’s all I’m saying, too. Whenever and wherever libertarians are accusing one another of being mindless statists, there’s probably a semantic disagreement. And that doesn’t get any of us anywhere. I’m not at all shy about using a term in its proper context, I’m just saying it’s difficult to sell people on the idea that “capitalism” works, when what they’ve always know as capitalism is an abysmal failure in almost every sense of the word.

When you say “capitalism,” I might know what you mean. But most people don’t. We need to be mindful of the fact that certain words carry with them certain implied definitions, (right or wrong), and that one consequence of that fact is that people tend to tune out the rest of the argument if they disagree with what they believe to be your premises. Now, your premise does not seem to be that corporate welfare and state-sponsored corporatism is AOK. But when you use the term capitalism, lots of people are jumping immediately to that conclusion, and this clouds their ability to conceptualize anything else we might add to the conversation.

W.H. Hutt systematically destroyed “The General Theory” largely by using Keynesian definitions and terms. I don’t think it’s a cop-out to fight the good fight on someone else’s soil.

While we’re having a discussion, let’s (please) refrain from making baseless assumptions and allegations about one another. I’m a former Mises U. student (2006) and despite whatever differences we have (or might have in the future,) you can rest assured that I’ll never refer to you in the pejorative as a “Misoid” or anything else. And, the stuff about “pro-union” is just, wow, unfounded. I believe in stupid ideas like private ownership of the means of production, free markets, open borders, free association, voluntaryism, etc. Take it for what it’s worth.

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No one said education was easy. In order to oppose the notion of socialism, which for all intents includes fascism, then it’s important that we have more than “free market” as our opposing force. This too has been co-opted. What irritates me to no end, is that we run from defending ourselves. We turtle or roll over.

I get that. But I don’t think LvM would let that stop him from using the term capitalism today. I don’t buy into political correctness, and I’m really not feeling a strong opposition to the state that self-censors itself.

There is taking the fight to the enemy, and then there is allowing the fight to come to you. Very different strategies.

Fair enough. As I said, I enjoy your blog. I just don’t like much of the libertarian left.

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I agree with Liberty Student. Though, it’s worth nothing the word libertarian originally had a different meaning too… perhaps it wouldn’t be needed if we’d kept liberal to ourselves. The only label libertarians often take on, which I reject, is that of being right-wing. I think right/left analysis is pointless, and that if the terms are to be used at all, they must be used in their historical context. It’s better to define things in terms of how authoritarian or voluntaryist they are, not how “right” or “left” wing they are, which are terms that originate from an accident of history.

-Jon

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Laissez Faire is evil.

The Free Market is evil.

Capitalism is evil.

It gets harder and harder to try to argue a point when all you have is Newspeak.

I know I personally find it hard to defend ‘capitalism’…pretty much just type capitalism!= corporatism and be done with it. People aren’t such mindless sheep that they can’t recognize that when you are arguing against government interference in general that you aren’t advocating the corporatist system that they know isn’t the free market of laissez faire or capitalism. Mostly it’s just a cheap shot because they can’t respond in any logically consistent manner and reach for the ad hominem out of frustration.

What is ‘capitalism’ in Newspeak anyway? Probably need to know what words I’m provided by my masters after all.

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And what’s up with all these anti-property rights ‘libertarians’ anyway? Stole the land from the land granted pseudo-feudalist Mexicans who didn’t have any legal claim on it in the first place?

If the land were illegitimately gained and later on the rightful owner or their decedents were not able to be determined then the current owner becomes the rightful owner as long as they weren’t the person who stole the land in the first place. Nothing at all to do with tenancy unless it could be proved that the current owner was the thief in which case the current tenants would have the strongest homesteading case as they are already occupying the property.

Oh, I read your blog…

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I can’t tell if you’re being sarcastic or not. But lest you think I’m anti-free market, go back and re-read my first entry on this thread.

Most people see two colors: red and blue. They see two politics: left and right. They see two economies: capitalism and communism. Almost everybody here and abroad, think that we in the U.S. enjoy Capitalism, on the contrary, most people are such mindless sheep. We know the difference, but most people don’t.

I’m not sure if I follow this portion of the thread - is this related to something on my blog or did someone else bring up Mexico in the above discussion?

Did you miss the part in American History class about Manifest Destiny? I’d make the argument on behalf of Native mexicans or native Americans, who certainly had a valid homestead claim to quite a lot of land that is now the U.S. before they were systematically destroyed, diseased, or traded like cattle.

Although I’m inclined to agree that the current owner generally has a stronger claim than some faceless heir to a deposed native… But this is certainly an argument from practicality, not one of morality. Mere conveyance isn’t enough to transform bad title into good title, neither does the passage of time right historical wrongs. But that’s another discussion altogether.

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Back to the original subject, the problem with the current healthcare system is State licensing requirements for doctors. The number of slots in medical schools are carefully controlled by the AMA and the State. By restricting the supply of doctors, this guarantees prices are high.

No mainstream media source every correctly identifies the problem with the healthcare system. The core evil is State licensing requirments of doctors, restricing the supply. All the other aspects are patches and bandaids placed on a fundamentally corrupt system.

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For true, FSK.

I’m certain that Mises addresses this concept in Human Action, and Milton Friedman discusses Health Care at length in Capitalism and Freedom. To the extent that the market is distorted/manipulated by government licensure requirements and de facto cartels, the market is not capitalist or free.

I can cite both sources, if anyone is interested.