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Arkar Hein

Sayar Jim

Mordern World History (Market and Hierarchy)

23rd August, 2010.

Interplay of Market and Hierarchy: How could the synergic system lead to the better economy?

What, how and for whom products and services shall be produced in a particular nation

has been certainly the most controversial paradox for many economists. There are two

contradictory systems that suggest the best system to run the economy of a particular nation.

First, Adam Smith, the Scottish intellectual, proposed not to interfere with how the individual

greed encompasses the country’s economy, metaphorically known as an invisible hand. On the

other hand, unlike the principle of free market, the controlled system regulates the country’s

economy through the direction of government or designed hierarchy that is presumably

considered to know its nation’s interest best.

In The Wealth of Nations, Adam Smith reveals that “Each individual is continually

exerting himself to find out the most advantageous employment for whatever capital he can

command... By pursuing his own interest he frequently promotes that of the society more

effectively than when he really intends to promote it…” (Smith), extolling that the invisible hand

could bring the nation with prosperity. In contrast, leading German economist of 19 th Century,

George Frederich List, insisted that nations have to adapt its economic policy in accordance with

its needs and situations, and further advocated the protective system, which utilized the import

taxation to encourage the internal market. If we take a glance upon the industrialization in

Europe, we could conspicuously see the interplay of market and hierarchy, a thin line between

the struggle and the conservation. In fact, the destiny of European countries’ economy had never
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been in the invisible hand; rather the state allocated the market share in an internal market and

protected their infant industries through tariffs and financial back up in order to survive in the

competition between their neighbors in an external market.

During the late 18th century, British government deliberately engaged in wars not only to

expand their market but also to exploit the resources for its empty island. In one account,

MccNeill stated that “The vast increase in governmental expenditures, nearly all for war

purposes, surely affected supply and demand for every article exchanged within the British

Economy”, showing that state intervention the market. Furthermore, as MccNeil mentioned,

Welsh and Scottish armament industry would not subsist and prosper if there had not been

“assured market” of British Imperial Army. Since half a million men were enlisted in Army and

Navy (MccNeil), the market demand concomitantly shifted from ordinary commodities to guns

and cannons. In that way, the consequent stages of industrial revolution ensued, allowing the

innovations of steam engines and railroads as the military demand sustained and prospered the

early British industries of steels and irons. Hence, we could vividly see how the hierarchy and

market interplay and regulate both internal and external markets.

Meanwhile, countries in Latin America, African, and Asia, however, became export

oriented as they supplied the sky-rocketing demand from the West during the industrial

revolution in 19th century (Bentley 782). Most of the profits were drained and went abroad

because the plantations were generally own by foreigners. Small wages then resulted into less

demand for native manufactured goods. As a result, lack of substantial reliable market and

investment funds, further, restrained the rise of industries in such countries. To exacerbate the

situation, the free-trade was imposed and consequently restricted the opportunities for indigenous

industrialization by allowing the surge of foreign products. In that case, the free market system
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oppressed the budding local businesses and industries from rising towards the competitive and

perhaps the threatening one.

By that instance of how the market was manipulated by the natural selection, many

people argue that free market shall not be really free since it would soon be monopolized by the

stronger. Then, Karl Marx, the progenitor of Communism, again suggested that laissez-fare

capitalism would widen the gap between the workers and the individual capitalist since the

market will not allow a fair-square competition – the stronger shall always persist – and

eventually proceed into the class struggle. Thus, history substantiate that free market economy

would not alone stabilize and maintain the country’s economy. Likewise, the hierarchal

economy, on the other hand, could not singularly dictate the country’s fate. The historical

evidence for the short-lived central planned economy was the demise of Soviet Union in 1991.

Being as the first country to be revolutionized as the Socialist, as envisioned by Karl Marx and

Lenin, Soviet Union regulated its economy through the state institution that planned the

country’s economy for years ahead. Nevertheless, no one knows better than the individual what

to produce and where to be employed. As Adam Smith states in Wealth of Nation, it is just a

mere “propensity in human nature” that enables human to produce and trade what he requires. In

the other word, it is self-love consciousness that make human to foresee which kind of goods has

an advantage for him to manufacture. Not discerning what is really needed for the people, the

economy controlled by the government could not efficiently regulate the division of labor and

thus eventually end up with the sudden downfall. In addition, instead of promoting the fair

competition, rather the central planned system becomes riddled with corruptions and inefficacy.

Without an artificial selection – the intervention of government, it is impossible for

nascent industries to survive in the wild competition against the stronger one from foreign
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countries. At the same time, such government involvement shall be limited in rule and regulation

so that it will not unduly restrict the individual freedom of employing his or her capital. Upon

considering all the evidences that I mentioned before, neither the market nor the hierarchy

entirely escalate the economy of the nation; hence, only the synergic system that interplays

market and hierarchy could certainly create more sustainable and stable economy.

Work Cited:

• Smith, Adam (1776). An Inquiry into the Nature and Causes of the Wealth of Nations.

• McNeill, William H. (1982). The Military Impact of the British Industrial Revolution.

The Pursuit of Power, Technology, Armed Forces and Society since AD 1,000. University

of Chicago.

• Bentley, Jerry H. & Zeigler, Herbert F. (2000). An Age of Revolution, Industry, and

Empire, 1750-1914. Ch. 30, The Making of Industrial Society. Traditions & Encounters.

McGraw-Hill Higher Education.