The Cheat Sheet

Acts of God, and the ‘invisible hand’ that rocks the economy

Venky Vembu | Updated on September 02, 2020 Published on September 02, 2020

Is this about Diego Maradona’s ‘Hand of God’ goal from 1986?

No, this is about a self-goal that Finance Minister Nirmala Sitharaman scored last week when she invoked the ‘force majeure’ clause to make a case for why the Centre would not make good the shortfall in States’ share of GST collections.

What did she do?

She said the Covid-19 pandemic, which has caused the economy to sharply contract, was an “Act of God”. That cop-out formulation — which typically a contracting party invokes when s/he looks to renege on an obligation — is disquieting at several levels.

Why is that?

Back in July 2017, when the Centre persuaded reluctant State governments to sign up for the GST, it pledged to compensate the States in full until 2022 for any shortfall they may face.

In a sense, it was a ‘sovereign guarantee’, and for the Centre to wriggle out of it now, citing the economic collapse following the Covid-19 outbreak shakes the foundation of trust on which Centre-State relations are based.

There’s something in that, yes.

Not just that. The fact that the Centre has invoked the ‘Act of God’ clause suggests a reluctance to bear any responsibility for the grave economic situation.

It is true, of course, that the pandemic accentuated the problem — not just in India, but in many countries around the world; but the Indian economy was already sputtering before Covid-19 struck.

True.

But Sitharaman’s invocation of the ‘divine’ clause was not the most bizarre instance by an Indian Minister. In 1977, after a tragic rail mishap in flooded Tezpur, Railway Minister Madhu Dandavate quoted the interim findings of the Commissioner for Railway Safety to say it was an “Act of God”, setting off a firestorm of protests.

Good Lord!

That’s quite a pantheon you’re adding to.

But what did you mean by the ‘invisible hand’?

Well, divine ‘influences’ on the economy have been the topic of debate ever since economist Adam Smith gave expression to his “invisible hand” theory. Smith used it as a metaphor to encapsulate the idea of unintended social benefits from individual actions.

What did he actually say?

The money quote, from The Wealth of Nations, runs thus: “(The rich) consume little more than the poor, and in spite of their natural selfishness and rapacity… they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society...”

There’s nothing about God in there.

You may think not, but keener minds than yours see a divine allusion there, particularly given the religious influences on Smith’s intellectual development.

In a 2011 research paper, ‘God and the Market: Adam Smith’s Invisible Hand’, Paul Oslington at the Australian Catholic University reasons that the “invisible hand” image “expresses the doctrine of providence.”

Other scholars too see a connection between the doctrine of providence and Smith’s ideas about self-interested behaviour mediated through market institutions working for the general good.

But in Oslingon’s estimation, “the invisible hand metaphor is Smith's acknowledgement of the possibility of special providential divine action in the economic system to guarantee its stability.”

Is that really what Smith intended to say?

Well, in this case, only God knows.

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Published on September 02, 2020
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