A term used by E. K. Hunt to describe the second half of the capitalist incentives to privatize gain and socialize costs. It increases private gain to create negative externalities (such as pollution) rather than bear their costs: thus negative externalities will be maximized "as if by an invisible foot". See also the propaganda term Invisible Hand.
The Achilles heel of welfare economics is its treatment of externalities. . . . In a market economy any action of one individual or enterprise which induces pleasure or pain to any other individual or enterprise and is under or over priced by a market constitutes an externality. Since the vast majority of productive and consumptive acts are social, i.e., to some degree they involve more than one person, it follows that they will involve externalities. . . . . If we assume the maximizing economic man of bourgeois economics, and if we assume the government establishes prop erty rights and markets for these rights whenever an external diseconomy is dis covered [the preferred "solution" of the conservative and increasingly dominant trend within the field of public finance], then each man will soon discover that through contrivance he can impose external diseconomies on other men, knowing that the bargaining within the new market that will be established will surely make him better off. The more significant the social cost imposed upon his neighbor, the greater will be his reward in the bargaining process. It follows from the orthodox assumption of maximizing man that each man will create a maximum of social costs which he can impose on others. Ralph d'Arge and I have labeled this process "the invisiblefoot" of the laissez faire . . . market place. The "invisible foot" ensures us that in a free-market . . . economy each person pursuing only his own good will automatically, and most efficiently, do his part in maximizing the general public misery. . . . To paraphrase a well-known precursor of this theory: Every individual necessarily labors to render the annual external costs of the society as great as he can. He generally, indeed, neither intends to promote the public misery nor knows how much he is promoting it. He intends only his own gain, and he is in this, as in many other cases, led by an invisible foot to promote an end which was no part of his intention. Nor is it any better for society that it was no part of it. By pursuing his own interest he frequently promotes social misery more effectually than when he really intends to promote it.
"A Radical Critique ofWelfare Economics," in Growth, Profits, andProperty, ed. Edward J. Nell (New York: Cambridge University Press, 1980), pp. 245-246.
- Joseph Berliner to describe the reallocation of capital among competing firms as some "win".
- Herman Daly: "While the invisible hand looks after the private sector, the invisible foot kicks the public sector to pieces."
- Michael Carter and Rodney Maddock to describe a prisoner's dilemma situation leading to inflation.
- Markets: Guided by an Invisible Hand or Foot? [More...]
- "Adam Smith and his disciples today see markets working as if they were guided by a beneficent, invisible hand, allocating scarce productive resources and distributing goods and services efficiently. Critics, on the other hand, see markets working as if they were guided by a malevolent, invisible foot, misrepresenting people's preferences and misallocating resources."
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