We need to hunt down and kill Adam Smith’s Invisible Hand.

September 27, 2007 | By | 12 Replies More

Why fear the Invisible Hand?  Because the invisible hand is evil.  As construed by those conservatives currently in power, it is the economic equivalent of the Devil. 

This conclusion is going to come as a shock to many conservatives, because they give homage to the invisible hand as though it were the Fourth Person of the Holy Quartet. 

Before going further, let’s consider the literary origin of “the invisible hand.”  The phrase was coined by Adam Smith, as recounted by Wikipedia:

In The Wealth of Nations and other writings, Smith claims that, in capitalism, an individual pursuing his own self-interest tends to also promote the good of his community as a whole through a principle that he called “the invisible hand”. In detail, a free competitive market ensures that those goods and services perceived as most beneficial, efficient, or of highest quality will naturally be those that are most profitable. Thus, self-interest striving for profit has the side-effect of benefiting everyone by increasing standards. Smith saw the mechanism for this as being the free price system.

Conservatives have grabbed this metaphor of the invisible hand as though it were both descriptive and prescriptive.  The current use of the phrase by conservatives is admittedly more expanded than Adam Smith’s original use.  The modern conservative claim is not only that the invisible hand controls the economy.  They also claim that the invisible hand should be in charge.  They believe that millions of private purchasing decisions are automatically and deftly coordinated by the omniscient and omnipotent Invisible Hand. We do the bidding of the Hand.  We benefit “the good of the community as a whole” when we buy our whiskey, our triple cheeseburgers, our stacks of gambling chips, our Barbie Dolls and our Hummers. 

Conservatives are convinced that the Hand orchestrates all of our private local urges into decisions that are also “best” for our communities and our world. When we race out to buy anything at all, then, the Invisible Hand allegedly smiles Its approval. To violate the Will of the Invisible Hand would be to contravene the will of God, for conservatives.  Lucky for us, however, even our most impulsive seemingly-irresponsible purchases cannot, by definition, violate the Will of the Invisible Hand.  Everything we buy is pre-approved by the Invisible Hand.  Foolishness is the equivalent of intelligence, by the grace of the Invisible Hand.

To be socially responsible (according to conservatives), we don’t need to give any thought to our purchase decisions.  Nor does government need to regulate any industry.  It’s all taken care of by the Hand.  “The Free Market will take care of it,” conservatives assure me, “no matter what it is.”  It is the Government that screws up the economy; the remedy is to stay out of the way of the healing powers of lassie faire, they say, i.e., kill government spending.  When we stay out of the way (by not interfering with the Majesty of the Hand), the Invisible Hand watches out for us, takes care of us and solves all problems in an utterly perfect way.   That’s what conservatives claim, even though they dramatically and irresponsibly increase government spending.

I disagree.  It’s time to judge the Invisible Hand by the damage It has wrought. It’s time to be irreverent, even blasphemous.  It’s time to mock the Hand and then kill it.

Under the Hand’s reign, we have seen our forests, soil and air contaminated.  The Hand has repeatedly given Its approval when we frivolously waste non-renewable resources like oil and fresh water.  The Hand has is conspicuosly silent now, however, in light of the total loss of commercial quality fish from most of the North Atlantic. The Hand approves that we are spending big money on foolishly while many of our schools are desperate for funds.  The Hand has allowed pesticides and toxins spread far and wide, despite the fact that we have almost no idea how these chemicals are affecting the health of humans. Our individual spending decisions are making us fat and sick and stupid, but that’s all OK by the Hand. 

All of this can only lead to one conclusion. The Invisible Hand is not benevolent.  Based on the waste, pollution and reckless spending allowed by the Hand, it is clear that the Hand is evil.  It’s time to publicly acknowledge the Hand’s evil and destructive intent so that we can make some big changes.  What’s the biggest change? 

We’re going to have to start thinking for ourselves when we make purchases. 

We can’t depend on the Invisible Hand to keep us “helping” our communities in blissful ignorance anymore.  No purchase should any longer simply be presumed to be beneficial–many purchases are damaging to the community and to our environment. There needs to be a counter-weight to private decisions to consume and confiscate.  No purchase should any longer be considered completely local–many products have wide-ranging damaging effects.  Nor should purchases any longer be presumed, in the absence of evidence, to be community-enhancing or amoral.  Many private purchases are destructive and immoral. We need to acknowledge that dollars are not fungible and that every purchase has moral consequences.

We need to start thinking more when we make purchases, or else we will continue to crap up our planet to such an incredible extent that the next generation will curse us every day for our failure to think.   

It’s time to kick the fiction of the Benevolent Invisible Hand out of our lexicon.  But first, it is time to expose the Hand for what it has become for too many people who currently hold political power: The Invisible Hand is an excuse for our collective refusal to think, our failure to care about others and our failure to care about even our own future. 

The current version of the Invisible Hand amounts to a total abdication of responsibility. It is a license to hurt others and destroy our own future. It’s time to kill the Hand before it kills us.


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Category: American Culture, Economy, Good and Evil

About the Author ()

Erich Vieth is an attorney focusing on consumer law litigation and appellate practice. He is also a working musician and a writer, having founded Dangerous Intersection in 2006. Erich lives in the Shaw Neighborhood of St. Louis, Missouri, where he lives half-time with his two extraordinary daughters.

Comments (12)

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  1. Niklaus Pfirsig says:

    Every conservative I've met like to argue in favor of unfettered capitalism. They also obviously do not understand the concept of a free market. They will seriously tell you and anyone else that a free market is one without government control. They are wrong. A free market is one where every seller has free access to the marketplace and every buyer has complete freedom to negotiate a price. This implies a market without government or private control.

    Capitalism is concerned with only the supply side of the supply and demand formula. In a free market system, there is a balance between the Capitalists and the Consumers (the demand side)

    A good and simple example is a Farmers Market.

    It starts with a lot of truck-patch farmers selling fresh fruit and vegetables from the back of their trucks parked in a vacant lot.

    They all have about the same inventory, so the customers will buy from the farmer with the best produce and the lowest price. If the customer doesn't like the price/quality combination from on seller, she goes to the next one and the next or haggles the price until satisfied. This is about as close to a free market as you will ever see.

    now one of the farmers finds out that there was a bumper crop of tomatoes in the next state, while locally tomatoes didn't grow well. So he borrows some money for gas and produce, drives over to the next state and buys a truckload of tomatoes to sell in the farmers market. Since one farmer can sell more tomatoes at a cheaper price, the market ceases to be a free market (for tomatoes only) because the other farmers can't compete on the price.

    The next year is a good year for tomatoes, and all the farmers have plenty of tomatoes, so the price goes down. The tomato guy from the year before (who has become a produce broker and no longer farms truc patches) talks all the farmers into setting a minimum price on tomatoes, and the market is no longer free because the sellers are not competing with each other.

    Then the owner of the vacant lot decides to charge rent to the farmers. This eliminates the smaller truck patch farmers in favor of the produce brokers, by raising the entry cost into the market.

    Before long, the local grocers complain about the unfair competetion from the farmers market, since farmers market in now all produce brokers and not actually farmers. They lobby the city council to pass an ordinance that requires each vendor n the farmers market to have a business license that requires the seller to maintain a permanent structure at the farmers market. All of this expense is padded on to the consumer. The free market is dead and buried.

    The consumers get tired of paying too much for tomatoes, and buy much fewer tomatoes. The produce brokers form a Tomato advisory council which then lobbies the city council to pass an ordinance that requires everyone to eat a minimum amount of tomatoes per week.

    We live in a society run by monopolies and cartels, where consumers are considered a resource to be exploited and managed for the profit of the few. If you think the last example was silly, think on this. The insurance industry has long benefitted from state and local laws that require certain types of insurance for certain people(e.g. , auto insurance and homeowner insurance ) and they have fought any legislation that would limit premiums. They are now attempting to do the same with health insurance.

    Auto dealers in California once tried to get a state law passed that would outlaw ownership of a car over 9 years old, unless registered as an antique. ( one of the requirements for an antique car registration was that the car had to be over 20 ears old) Fortunately the "ugly car" bill did not pass.

    In the revolutionary war, the tea dumped in Boston was not only taxed, but the crown required the colonists to buy it.

    Note: for the reader that are familiar with truck-patch farming. Truck patch farming is a practice of planting garden crops in the corners of fields where the tractor-drawn plows were unable to work. For a tiny fee, the truck-patch farmer would rent field corners from the big farmers, and work these small patches with garden tools carried from place to place in the back of a pickup truck.

  2. grumpypilgrim says:

    What I don't understand is why so many conservatives look at a free economy, see people behaving in a manner that benefits society without being ordered to do so, and recognize that Adam Smith's "Invisible Hand" is merely a natural result of letting people make their own decisions; yet, when these same conservatives look at other aspects of human society — marriage, parenting, scholarship, altruism, charity, self-government, etc. — and again see people behaving in a manner that benefits society without being ordered to do so, they imagine into existence an "Invisible Hand" with supernatural powers, to which they sing hymns, write psalms, whisper prayers, and fall onto their knees to worship…and quickly condemn anyone who doesn't believe in the same imaginary god they do.

  3. jim says:

    "now one of the farmers finds out that there was a bumper crop of tomatoes in the next state, while locally tomatoes didn’t grow well. So he borrows some money for gas and produce, drives over to the next state and buys a truckload of tomatoes to sell in the farmers market. Since one farmer can sell more tomatoes at a cheaper price, the market ceases to be a free market (for tomatoes only) because the other farmers can’t compete on the price."


    It's not a free market because one person undersells the rest?

    Seriously, you folks need to go back to high school and relearn economics, or at least use the captcha I am seeing and open a book.

  4. bubba gump says:

    Free market should have no government involvement, save for common law stuff, like enforcing contracts and prosecuting theft.

    Most of the points made in this article are really also caused by the government.

    1) "Is it really beneficial to divert so many of this country’s resources to the Iraq occupation? We could really use that money at home."

    Nothing free market about this issue, this is a government issue.

    2) "Under the Hand’s reign, we have seen our forests, soil and air contaminated. "

    The number one polluter in the U.S. is the Federal Government. (http://www.adti.net/environment/congressRecord_pryan102800.html)

    Also, the 'public' ownership of forests has resulted in the Federal Government selling off our 'public forests' logging rights to logging companies. These companies don't own the land, and have no financial incentive to care for the land because they don't own it. In a free market, there would be no public land. Private land owners take better care of their land. Private, managed forests have a reputation for being less fire prone, and for being better cared for, because the owner wants to maintain their investment.

    Air and water contamination can be handled in the free market under common law. If you can show that someones pollution is damaging you or your property (I.e. they're leaching poison into the creek that you use to drink water from on your property), then you can sue them for damages and they have to make reperations. The government is to blame for this problem, as they have changed the rules on liability of polluters.

    Government cannot create wealth, it can only create restrictions on people and reduce wealth. If you want to form a happy commune with rules on how you do business, that's fine, but don't try to force it on everyone.

    Government is force. It is nothing without force. It can only govern at the point of a gun. The free market can't make everything perfect, but it will always beat being told what to do at the point of a gun.

  5. Erich Vieth says:

    Bubba Gump: My point is that relatively unrestrained purchasing decisions are geared to satisfying short term urges and wants that are well on their way to over-exploiting and ruining the natural resources we desperately need to keep our country inhabitable. Our consumers and industries, freely engaging in billions of decisions to purchase and sell goods and services, are ruining the planet in a blindered effort to satisfy short term cravings.

    For instance, it's not government regulation that has essentially emptied the Atlantic Ocean of edible fish. It's the LACK of regulation that allowed huge areas to be overfished.  Uncurtailed private decisions to buy and sell fish emptied the North Atlantic.  It's the classic problem of Tragedy of the Commons.

    Yes, the free market brings efficiencies, but it is amoral and present-oriented. Trusting in the "free market" is proving to be a recipe for disaster. I wish people would quit being so naive as to argue that blind faith in the Invisible Hand will provide us with all of our needs.

    If you think that regulation is the problem, just consider the mega-slums that exist in many countries. See here or here and here. These mega slums in cities like Nairobi, Lagos, Mumbai and Dhaka should be utopias, according to your theory because there is virtually no government regulation. The power of government doesn't penetrate to the millions of people in these areas. There are totally free markets. So what is life really in these places that don't suffer the choking effect of all of those cursed government regulations?

    In Manila less than 10% of homes are connected to sewerage systems. In India only 17 of 3700 cities and large towns have any kind of primary sewage disposal. It is estimated that most Indians and Africans defecate in the open. Men often defecate into plastic bags which they then throw away. It is easier for men to urinate, but for women more conscious of propriety especially in Muslim culture, the situation is appalling. “To urinate or defecate, women and girls – in countries which shelter women from the public gaze – have to wait until dark.”

    Then there is the problem of water borne disease in the world’s new mega-slums. Digestive-tract diseases arising from poor sanitation and the pollution of drinking water – including diarrhea, enteritis, colitis, typhoid and cholera – are the leading cause of infant and child death in the world. UNICEF estimates that up to 80% of deaths from preventable diseases (apart from HIV/AIDS) arise from poor sanitation.

    Mexico City residents (population 22 million) inhale shit: fecal dust blowing off Lake Texcoco during the hot, dry season causes typhoid and hepatitis. In Rangoon, where the military regime has brutally moved hundreds of thousands of inner-city residents…they cook and defecate in the mud directly in front of tiny plastic sheets under which they sleep, ravaged by cholera, dysentry, dengue and malaria. In Baghdad’s giant slum of Sadr City, American bombing has resulted in raw sewage seeping everywhere.

    Now THAT's how truly free markets turn out. Perhaps you'll argue that it's always government to blame whenever things turn shitty. I would argue the opposite. Too bad there is not a strong enough government to step in and help clean up these catastrophes.

    If you'd think about it, you'd realize that many things that keep life bearable are not handed over to the free market, lest they be exploited and destroyed.  Therefore, we let government step in and regulate water, electical, sewage and other utility services, in addition to police, fire-fighting, roads and bridges, courts of law and libraries.  

    If it's totally free market you want, you'll end up with isolated gated communities located amidst mega slums, huge areas of dog eat dog.

  6. Erich Vieth says:

    In case it's not apparent, I do believe in a huge role to be played by the free market in setting prices among most goods and services. I also believe, however, that we need government to play the role of referee–to make sure that competition is fair and that resources critical for the country's survival don't end up totally in private hands where they can be squandered. There needs to be a free market and government oversight to counterbalance each other. I am not arguing for socialism. What I'm fighting against is the argument that an unregulated free market is per se benevolent. In some ways it is and in other important ways it is clear that the lack of regulation has resulted in devastation of natural resources critical to our future survival.

    Another case in point. A relative of mine is convinced that the "free market" will simply solve all of our country's future challenges. Just close down the government and we'll somehow have no energy worries at all. The market will supposedly take care of everything. I find this position untenable in light of the abuses by big oil. It's happening all over, where huge corporations have taken over Congress to the extent that they are no longer regulated. Big banks, Pharma, the Insurance industry. These industries have taken control of Congress, yet they clearly don't have the interests of Americans at heart. They care only about their stockholders.

    As though the "Free Market" is going to cause these all-too-powerful industries to become altruistic.  Here's what I would ask the Invisible Hand Pollyannas:  On what do you base your fantasies?

  7. Erich Vieth says:

    John C. Bogel, the "Father of Index Funds," (Vanguard Funds) weighs in on this issue. He says "There are some things must be entrusted to government and some things that must be entrusted to private enterprise." With regard to many modern corporations, "There's no accountability." The big problem is with the financial sector of our economy: "The financial side of the economy is dominating the corporate side of the economy." Banks, money managers and insurance companies are subtracting great value from our economy." Bogel asks: "What is enough?"

    Here are some additional notes I took based on Bogel's interview:

    Americans believe that we are the worlds great values creator, but we excel at bread and circuses. Social security is in a great crisis. We are bankrupting ourselves to fight the Iraq war, which is a war over oil. One imperative need: to create a political system that is not driven by money.

    Further, China owns 25% of our federal debt. What will we do when they start buying up America's corporation?

    "I salute capitalism, but we've taken it too far . . . we've got the wrong bottom line . . . This is unsustainable." We need a federal standard for fiduciary duty that mutual funds are operated for the long term benefit of those who own the securities. We are engaged in the "folly of short term speculation." We have moved from "manager's capitalism" [CEO's] instead of "owner's capitalism."

    Bogel argues that we need a society that treasures deeper lasting values such as poetry and art more than chasing dollars in the form of financial papers.  Bogel concludes his interview by quote a sign that hung in Einstein's office:  "There are some things that count that can't be counted.  And there are some things that can be counted that don't count."

    For more on Bogel, see here.

  8. grumpypilgrim says:

    "Further, China owns 25% of our federal debt. What will we do when they start buying up America’s corporation?"

    This is a much more serious threat than most Americans realize. Not only are U.S. dollars flooding into China, giving the Chinese ever-increasing buying power in America, but the value of the U.S. dollar relative to the Chinese yuan has been dropping fast (see http://finance.yahoo.com/currency/convert?from=US…. A falling dollar means that when the Chinese do come to buy U.S. companies, those companies will be selling at sale prices.

    This reflects one big difference between China and America: China takes a very long view — on the order of decades to centuries — while America takes a very short view — on the order of one or two fiscal quarters. In the long run, America might just find its beloved capitalism losing to Chinese communism. Given that America has existed for two centuries and China has existed for more than twenty, I hope Americans appreciate this danger sooner rather than later.

    Given America's tendency to not see such dangers coming, I urge any American with children to enroll their kids in Chinese (Mandarin) language classes, instead of any of the European foreign languages. Twenty years from now, Chinese will be a much more important international language than it is today — probably not as important as English is today, but almost certainly more important than any alternative.

  9. Erich Vieth says:

    Trust the Invisible Hand is a smokescreen for allowing crooks run our country. It's truly unbelievable that so many people want to just assume that the "market" is a benevolent force for all. As though the fact that coffee shops and snow-cone stands pop up on beaches will guarantee that common citizens are protected from sophisticated financial schemes run by huge financial institutions that have drained our governement and cultural institutions of many of their higher values only to replace them with worship for the bottom line.

    Blind faith in the Invisible Hand is, in reality, a willingness to turn over all power to people with lots of money who desire yet more money. Common folks have very control over the Invisible Hand. Much less now than ever before. They need to wake up to this fact before the middle class is entirely eviscerated. The terrifying numbers are everywhere. http://www.dailykos.com/story/2007/4/2/162947/539

  10. Erich Vieth says:

    See also this previous post: Don't hold your breath that good things will just happen. http://dangerousintersection.org/?p=1500

  11. Erich Vieth says:

    Here's a Salon.com piece setting forth Ron Paul's views that the invisible hand (the free market) is a cure all for our energy and ecological woes:

    On energy, I would say that the reliance on the government to devise a policy is a fallacy. I would advocate that the free market take care of that. The government shouldn't be directing research and development because they are bound and determined to always misdirect money to political cronies. The government ends up subsidizing things like the corn industry to develop ethanol and it turns out that it's not economically feasible. So, my answer to energy is to let the market work. Let supply and demand make the decision. Let prices make the decision. That is completely different than the bureaucratic and cronyism approach.

    On environment, governments don't have a good reputation for doing a good job protecting the environment. If you look at the extreme of socialism or communism, they were very poor environmentalists. Private property owners have a much better record of taking care of the environment. If you look at the common ownership of the lands in the West, they're much more poorly treated than those that are privately owned. In a free-market system, nobody is permitted to pollute their neighbor's private property — water, air, or land. It is very strict.


  12. spiker says:

    Niklaus Pfirsig observes

    "now one of the farmers finds out that there was a bumper crop of tomatoes in the next state, while locally tomatoes didn’t grow well. So he borrows some money for gas and produce, drives over to the next state and buys a truckload of tomatoes to sell in the farmers market. Since one farmer can sell more tomatoes at a cheaper price, the market ceases to be a free market (for tomatoes only) because the other farmers can’t compete on the price."

    This is silly and does not even begin to grasp what Smith is talking about

    Of course, this whole thing starts with an article who's author does not even have the decency to quote smith directly, but decides wikipedia is sufficeient. No doubt it is easier to read a wiki article than wade through The Wealth of Nations and develop an understanding of what Adam Smith was talking about.

    At any rate, to get back to Niklaus Pfirsig's observation, he is right to the extent that his concept of a free market includes the ability of the customer to decide: "If the customer doesn’t like the price/quality combination from on seller, she goes to the next one and the next or haggles the price until satisfied.

    The rest is flatly arbitrary. In the real market place vendors often do not " all have about the same inventory". and it is precisely because, to return to Mr. Pfirsig's example, a farmer might discover

    "that there was a bumper crop of tomatoes in the next state….. So he borrows some money for gas and produce, drives over to the next state and buys a truckload of tomatoes to sell in the farmers market."

    Mr. Pfirsig arbitraily assumes that said farmer can then "sell more tomatoes at a cheaper price". He forgets that the farmer borrowed money and is now responsible for repaying it or that the farmers in the next state who may in turn discover that the tomatoe crop in the neighboring state "didn't grow well" and raise their prices in response to the increased demand.

    But let us assume Mr. Pfirsig's assumption is correct and that our farmer who we will refer to as farmer Pfirsig-can "sell more tomatoes at a cheaper price", how does this mean the market ceases to be free? After all there are any number of things the other farmers can do to compete: They can cut their profit on each item or there may be other goods that can be cheaply bundled with the tomatoes.

    Farmer pfirsig may indeed benefit from knowledge about a bumper crop of tomatoes, but this doesn't prevent other farmers from discovering the same bumper crop or a bumper crop of lettuce, an excess supply of salad bowls or any number of things that might be cheaply bundled with their tomatoes.

    Lets assume Farmer Pfirsig comes back with his truckload of tomatoes and he is able to sell them for 75 cents a piece rather than the going rate of 1 dollar, but that while Farmer Pfirsig was in the next state, Cousin Pfirisg, who is selling local tomatoes learn's of farmer Pfirsig's plan and decides to take advantage of a local bumper crop of lettuce. And since we are being arbitray we can also assume that Cousin Pfirsig, ever the abstemious man, has managed to save a few thousand dollars in the bank without Farmer Pfirsig's knowledge ( After all he knows that farmer Pfirsig, while a great cousin is always

    borrowing money and rarely paying it back).

    Cousin Pfirsig is now in a position to try to make a deal with the farmers selling the local bumper crop of lettuce- and still being arbitray we will assume that each head of lettuce also sells for 1 dollar.

    Now it just so happens that Cousin Pfirsig while in church the previous morning ran into his friend Hector who picks lettuce for Farmer Brown and Hector lets on that Farmer Brown will make a profit of 30 cents per head of lettuce. Now armed with this information, Cousin Pfirsig offers to buy Farmer brown's entire crop, 1000 head of lettuce for 85 cents a piece.

    After thinking about it for a bit Farmer Brown decides that making a $150.00 profit now is better than trying to make 300 before the lettuce goes bad and since sales have been slow, it is quite likley that he may not be able to sell them all.

    Now by the time Cousin Pfirsig gets back to the farmers market, Farmer Pfirsig has returned and is selling his tomatoes like hotcakes. Cousin Pfirsig, who was likewise making 30 cents profit on each tomatoe he is selling decides that if the consumer buys two tomatoes he will charge only charge 75 cents per tomatoe and include a head of lettuce for 90 cents comming out to $2.40.

    Now Farmer Pfirsig is selling his tomatoes @ 75 cents a piece and lettuce is selling for $1.00 a head in the truck next to him. Seeing Cousin Pfirsig doing brisk business, Farmer Pfirsig may decide to team up with the guy selling lettuce and decide that not only will they offer the same deal but will let the consumer select each item, where cousin Pfirsig is preselecting what the consumer gets.

    Still another farmer-Farmer Green-faced with this situation decides that he can cut his profit per tomatoe allowing him to sell them for 72 cents a piece if the consumer buys 2 and he likewise makes a deal with the truck next to him selling cucumbers. Of course the farmer in the truck next door happens to be Granfather Pfirsig who is also giving away free salad bowls that he made teaching art class at the local public school; with the purchase of 3 cucumbers. Now our consumer has 3 deals to choose from and it is not even a question of which is the best deal. It is a question of what the consumer and the seller decide is the best deal. Indeed Farmer Brown may have been unwilling to take Cousin Pfirsig's offer or he may have counter offered, but it is precisley the ability of each party in either negotiation

    to decide what is the best deal for him that makes the market free and it will remain free until the negotiating parties are prevented from accepting a given deal because people who have no stake in the matter decide that a given deal is unfair or dangerous and should not happen. (The Alar scare in the 80s is one example of ill informed 3rd parties that felt tehy had a justification to interfere in this process).

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