The free markets, altruism and Adam Smith !!
11-05-2008
, 08:32 PM
“An individual who intends only to serve the public interest by fostering government intervention is led by an invisible hand to promote private interests, which was no part of his intention.”
It must be said that any person who intends only to serve public interest, intends only to serve their own interest. All humans act in their perceived best interest, whether their economic utility comes from social status, financial reward, or the inner happiness felt by seeing a fellow man prosper, every person that ever has existed or ever will exist will only act in what they perceive to be their best interest.
For the purposes of this discussion, to get around this fatal flaw, I will assume that this individuals self interest is perfectly aligned with that of society as a whole. I shall not discuss how those in power always seek more power, I shall not discuss corruption or how people in power misuse it because their views are be skewed by ignorance, religion or perhaps lunacy as was almost certainly the case of Hitler whose only intention was to make the world a better place.
I shall undertake a utilitarian approach by which to measure the success of the individuals attempt to serve the public best interest and say that when ever net social economic utility is increased our individual has achieved their goal. My final assumption shall be that this individual will have unlimited physical force should he choose to utilize it. The reason for this is because as I see it, it is the only feasible way in which to have any power and to exert influence over people, I cannot give our individual unlimited money as we all know money does not grow on trees and if it did then the value of money would be worthless as inflation became infinite.
So to gain resources our individual will use coercion to gather resources, and will try to reallocate these in a way that maximises social welfare. And so it was said “The road to hell is paved with good intentions.”
To begin I shall look to government who I shall naively assume acts in society's best interest. Government works by responding to complaints. An individual or organisation will complain to government about a problem in society and government will respond by trying to maximise social welfare. There is however an inherent problem in this system. Rarely will a person complain to government on behalf of society, economics can easily tell us why this is. The cost borne by the individual who complains will almost always be greater than any benefits the individual directly accrues from their action. So the only complaints that government will receive will be where the economic cost of the complaint is less than the benefit gained.
The vast majority of these cases will be where a small segment of society, receive the benefit. This comes about for many reasons. Isolation is one of them, benefits going to farmers in Wales probably wont benefit me. Another is that large costs uniformly applied to society rarely come about because the resistance is so large, and if they do exist they will not for any lengthy period of time as the quantity of labour ready to repel these imposed costs will be immense.
Now this is where we find the root of the problem, we are facing the invisible hand. However this one is very different to Adam Smiths. Communities can be described as micro economies and it is these micro economies where the benefits will go, and society is were the costs will lay. Hundreds of examples of this time and time again throughout history. I'm going to through caution to the wind, trust my theory and say that the majority of subsidy's are actually to the detriment of society and that the actual benefits lie with any number of small but resolute and potent segments of society. Protectionism slows down economic growth and yet farmers all over the developed world receive subsidy's from their governments. Trade barriers such as tariffs and quotas rarely benefit anyone but the workers of the industry's they protect and yet there are laws all over the world imposing restrictions on trade. So perhaps the government is not so good at achieving our goal of public interest.
Our individual will do better, he knows where the government went wrong, he shall weigh every decision not on the individual but on society he does not have to worry about his constituency or the voters.
So how will our individual go about making the world a better place. I think the best place to look would be the markets, use the price mechanism. I am ignoring the possibility of changing our inefficient overbearing, government as I find the idea of having an efficient government that doesn't distort the market and impede civil liberties far too abstract and fantastical for this essay. I think that our individual should seek profit. Because where there is a profit to be made there are consumers who are willing to purchase our yet to be produced widget. By seeking profitable opportunities, consumer and producer surplus will be found and these are benefits to society which are unbiased and reflective of simply the price mechanism. The price mechanism after al is simply a indicator of what the people want. However once again private interests have been promoted, that of the individual, he is left with profit. He has increased his economic welfare by more than that of anyone in all likelihood. But this is of no matter as now he can simply engage in true altruism by founding a charitable intuition, providing something to those which the free markets wont, public goods, or providing something that those who are financially unfortunate cannot provide for themselves.
I once heard Milton Friedman quote Thoreau, who so poignantly said “If I knew for certainty that a man was coming to my house with the concious design of doing me good, I should run for my life.” And I agree, people are incompetent, ignorant, I alone know my utility function and that of no others. To pretend that I know how to make you better off than you know yourself isn't altruism its arrogance.
I should like to end this essay in very much the same way it started, and that is by ending it with one of the most poetic descriptions of the free market I have ever read, however this time I shall not vandalise Adam Smiths word .
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”
Thank you very much for reading this essay, any comment would be great, please be VERY critical of it any technical mistakes or flaws in my logic, any bias or spelling errors any grammar ANYTHING please point it out to me
It must be said that any person who intends only to serve public interest, intends only to serve their own interest. All humans act in their perceived best interest, whether their economic utility comes from social status, financial reward, or the inner happiness felt by seeing a fellow man prosper, every person that ever has existed or ever will exist will only act in what they perceive to be their best interest.
For the purposes of this discussion, to get around this fatal flaw, I will assume that this individuals self interest is perfectly aligned with that of society as a whole. I shall not discuss how those in power always seek more power, I shall not discuss corruption or how people in power misuse it because their views are be skewed by ignorance, religion or perhaps lunacy as was almost certainly the case of Hitler whose only intention was to make the world a better place.
I shall undertake a utilitarian approach by which to measure the success of the individuals attempt to serve the public best interest and say that when ever net social economic utility is increased our individual has achieved their goal. My final assumption shall be that this individual will have unlimited physical force should he choose to utilize it. The reason for this is because as I see it, it is the only feasible way in which to have any power and to exert influence over people, I cannot give our individual unlimited money as we all know money does not grow on trees and if it did then the value of money would be worthless as inflation became infinite.
So to gain resources our individual will use coercion to gather resources, and will try to reallocate these in a way that maximises social welfare. And so it was said “The road to hell is paved with good intentions.”
To begin I shall look to government who I shall naively assume acts in society's best interest. Government works by responding to complaints. An individual or organisation will complain to government about a problem in society and government will respond by trying to maximise social welfare. There is however an inherent problem in this system. Rarely will a person complain to government on behalf of society, economics can easily tell us why this is. The cost borne by the individual who complains will almost always be greater than any benefits the individual directly accrues from their action. So the only complaints that government will receive will be where the economic cost of the complaint is less than the benefit gained.
The vast majority of these cases will be where a small segment of society, receive the benefit. This comes about for many reasons. Isolation is one of them, benefits going to farmers in Wales probably wont benefit me. Another is that large costs uniformly applied to society rarely come about because the resistance is so large, and if they do exist they will not for any lengthy period of time as the quantity of labour ready to repel these imposed costs will be immense.
Now this is where we find the root of the problem, we are facing the invisible hand. However this one is very different to Adam Smiths. Communities can be described as micro economies and it is these micro economies where the benefits will go, and society is were the costs will lay. Hundreds of examples of this time and time again throughout history. I'm going to through caution to the wind, trust my theory and say that the majority of subsidy's are actually to the detriment of society and that the actual benefits lie with any number of small but resolute and potent segments of society. Protectionism slows down economic growth and yet farmers all over the developed world receive subsidy's from their governments. Trade barriers such as tariffs and quotas rarely benefit anyone but the workers of the industry's they protect and yet there are laws all over the world imposing restrictions on trade. So perhaps the government is not so good at achieving our goal of public interest.
Our individual will do better, he knows where the government went wrong, he shall weigh every decision not on the individual but on society he does not have to worry about his constituency or the voters.
So how will our individual go about making the world a better place. I think the best place to look would be the markets, use the price mechanism. I am ignoring the possibility of changing our inefficient overbearing, government as I find the idea of having an efficient government that doesn't distort the market and impede civil liberties far too abstract and fantastical for this essay. I think that our individual should seek profit. Because where there is a profit to be made there are consumers who are willing to purchase our yet to be produced widget. By seeking profitable opportunities, consumer and producer surplus will be found and these are benefits to society which are unbiased and reflective of simply the price mechanism. The price mechanism after al is simply a indicator of what the people want. However once again private interests have been promoted, that of the individual, he is left with profit. He has increased his economic welfare by more than that of anyone in all likelihood. But this is of no matter as now he can simply engage in true altruism by founding a charitable intuition, providing something to those which the free markets wont, public goods, or providing something that those who are financially unfortunate cannot provide for themselves.
I once heard Milton Friedman quote Thoreau, who so poignantly said “If I knew for certainty that a man was coming to my house with the concious design of doing me good, I should run for my life.” And I agree, people are incompetent, ignorant, I alone know my utility function and that of no others. To pretend that I know how to make you better off than you know yourself isn't altruism its arrogance.
I should like to end this essay in very much the same way it started, and that is by ending it with one of the most poetic descriptions of the free market I have ever read, however this time I shall not vandalise Adam Smiths word .
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”
Thank you very much for reading this essay, any comment would be great, please be VERY critical of it any technical mistakes or flaws in my logic, any bias or spelling errors any grammar ANYTHING please point it out to me
Last edited by Huggy; 11-05-2008 at 08:43 PM.
