Self-interest promotes the public good

[Dr.Who]

A discussion of the Invisible Hand of Adam Smith.

Subtitled: "Cooperation Without Coercion."

"[The] Invisible Hand states that if each consumer is allowed to choose freely what to buy and each producer is allowed to choose freely what to sell and how to produce it, the market will settle on a product distribution and prices that are beneficial to all the individual members of a community, and hence to the community as a whole. The reason for this is that self-interest drives actors to beneficial behavior. Efficient methods of production are adopted to maximize profits. Low prices are charged to maximize revenue through gain in market share by undercutting competitors. Investors invest in those industries most urgently needed to maximize returns, and withdraw capital from those less efficient in creating value. All these effects take place dynamically and automatically.

It also works as a balancing mechanism. For example, the inhabitants of a poor country will be willing to work very cheaply, so entrepreneurs can make great profits by building factories in poor countries. Because they increase the demand for labor, they will increase its price; further, because the new producers also become consumers, local businesses must hire more people to provide the things they want to consume. As this process continues, the labor prices eventually rise to the point where there is no advantage for the foreign countries doing business in the formerly poor country. Overall, this mechanism causes the local economy to function on its own."

"In economics, the invisible hand, also known as invisible hand of the market, is the term economists use to describe the self-regulating nature of the marketplace.[1] This is a metaphor first coined by the economist Adam Smith in The Theory of Moral Sentiments, and used a total of three times in his writings. For Smith, the invisible hand was created by the conjunction of the forces of self-interest, competition, and supply and demand, which he noted as being capable of allocating resources in society"

http://en.wikipedia.org/wiki/Invisible_hand

I think it is worthy of note that the invisible hand requires a trifecta of self-interest, competition, and supply and demand. If one were to remove, for example, competition, then self-interest may not be balanced at all and the greed so many attribute falsely to capitalism might rear its ugly head and actually grow to the monstrous proportions they fear. Though perhaps I should not have called it a trifects since Smith said that those forces work in a free market. In a regulated market their effects would naturally be limited to the detriment of all.

 

[pocketfullofshells]

I build a factory to sell crap to some other area. ( state or nation) I pollute like crazy, because its cheaper and in my own self interest...People around start getting sick, houses turn blackish...I am making more money so who cares, its my self interest to do it...The People protest...I don't care as I am not selling them anything so as long as my self interest says sell cheap to my buyers who are not around here...I keep doing so....Damn kids are getting really sick, old people as well...can't even go outside...Workers say we need to do something or they will strike...to bad unemployment is high, so in my own self interest I just start firing those who speak up, and hire cheap labor to replace them...who cares more for me...and they ignore that I am killing the town, its in there own interest to get paid....while i am at it, its realy costly to transport all this toxic material to get processed...Screw it, the river is cheap and easy and serves my interest.....

Self interest for the public good....ok so really its self interest for my own good Screw the rest.

 

[Dr.Who]

I build a factory to sell crap to some other area. ( state or nation) I pollute like crazy, because its cheaper and in my own self interest...People around start getting sick, houses turn blackish...I am making more money so who cares, its my self interest to do it...The People protest...I don't care as I am not selling them anything so as long as my self interest says sell cheap to my buyers who are not around here...I keep doing so....Damn kids are getting really sick, old people as well...can't even go outside...Workers say we need to do something or they will strike...to bad unemployment is high, so in my own self interest I just start firing those who speak up, and hire cheap labor to replace them...who cares more for me...and they ignore that I am killing the town, its in there own interest to get paid....while i am at it, its realy costly to transport all this toxic material to get processed...Screw it, the river is cheap and easy and serves my interest.....

Self interest for the public good....ok so really its self interest for my own good Screw the rest.

Is it true that the invisible hand always results in every business being altruistic? No. it is true that most will be. Are businesses ever bad? Yes, and that is the purpose of government - to stop people from harming others. If you had merely described a business that was not as good as it could be you would have a stronger point. But as soon as you described a business that actually harmed people you would be prosecuted under the law. The invisible hand describes large market forces but does not say that there is no government to enforce justice and protect the innocent.

Now lets pretend that there is no government: Your business continuing is quite a fantastical scenario but in a free market it could rarely and not for long take place. Only with the coercion of the state could such a factory continue for long before the workers did leave (out of self interest they chose lower pay over working around mercury), and the buyers did stop buying ( they didn't like the melamine in their toothpaste) , and the protesters did have effect (even if they only protested to get donations), and yes even the rioters who sabotaged the plant (even if they only did it to steal your truck tires). Your partners don't like the way you do business and you are forced to buy them out (even if the only reason they didn't like the way you did business was because it made their wives feel icky). Then your investors decide that they can turn just as much profit at another company that is not evil. Since you have to live somewhat near it is not long before your own daughter gets sick and you have to rethink things. You go to church or a civil organization and hear messages that lead you to be more interested in the benefits to community (even if you only do it to avoid hell). Your conscience that your mother instilled in you (because she wanted the neighbors to think she was a good mom) or that God placed in your heart convicts you to change. Oh, I forgot that the other nation got tired of getting your crap so they first placed tariffs on your good then went to war with your country. Which got your countrymen pretty mad and they burned you place to the ground before the bombs did.

And all these players were operating on self interest.


For your scenario to work many things need to be true. For my counter balancing factors to work only a few of them, often only one, need to be true.

 

[pocketfullofshells]

Is it true that the invisible hand always results in every business being altruistic? No. it is true that most will be. Are businesses ever bad? Yes, and that is the purpose of government - to stop people from harming others. If you had merely described a business that was not as good as it could be you would have a stronger point. But as soon as you described a business that actually harmed people you would be prosecuted under the law. The invisible hand describes large market forces but does not say that there is no government to enforce justice and protect the innocent.

Now lets pretend that there is no government: Your business continuing is quite a fantastical scenario but in a free market it could rarely and not for long take place. Only with the coercion of the state could such a factory continue for long before the workers did leave (out of self interest they chose lower pay over working around mercury), and the buyers did stop buying ( they didn't like the melamine in their toothpaste) , and the protesters did have effect (even if they only protested to get donations), and yes even the rioters who sabotaged the plant (even if they only did it to steal your truck tires). Your partners don't like the way you do business and you are forced to buy them out (even if the only reason they didn't like the way you did business was because it made their wives feel icky). Then your investors decide that they can turn just as much profit at another company that is not evil. Since you have to live somewhat near it is not long before your own daughter gets sick and you have to rethink things. You go to church or a civil organization and hear messages that lead you to be more interested in the benefits to community (even if you only do it to avoid hell). Your conscience that your mother instilled in you (because she wanted the neighbors to think she was a good mom) or that God placed in your heart convicts you to change. Oh, I forgot that the other nation got tired of getting your crap so they first placed tariffs on your good then went to war with your country. Which got your countrymen pretty mad and they burned you place to the ground before the bombs did.

And all these players were operating on self interest.


For your scenario to work many things need to be true. For my counter balancing factors to work only a few of them, often only one, need to be true.

China and many sweatshops prove your theory wrong, also early America....workers when they have nothing, will take any job and ignore the risks as they feel they have no choice...

 

[Hobo1]

Certainly the invisible hand works most of the time to drive an economy stronger. But there are cases where government regulation is necessary to protect its citizens. Environmental regulations to control industrial pollution is one example. We have seen that the banking system does not have the built-in "checks and balances" normally in play with the the invisible hand (ie, pure capitalism). So long as government recognizes its role is to protect the citizens, and business recognizes that the government does have that role, then everything is fine.

The problem arises when government becomes too altruistic and starts to look after the citizens like a mother hen watches over her chicks. Excessively generous social programs a even controlling the size and scope of government are examples where little by little the government becomes too large and too generous. It is one thing to provide a safety net for the nation's poor. It is quite another to try to "balance" society with income redistribution and overly generous social programs for those people at the bottom of the economic pyramid. All nations can expect to have people in society who cannot care for themselves, through no fault of their own. Those people need a safety net to make sure we do not have the walking dead fill our parks or seek shelter in a drain culvert. Any great nation has an obligation to provide a minimum level of help to the poor in proportion to its wealth. But there is a limit.

Where you draw that fine line between vital government service and intervention and an overly protective, overly generous government intrusion into society is an eternal debate. It is important to realize that business and citizens are subservient to the rule of law as defined by the government. However, very few mechanisms are in place to control the scope and growth of government. Government has a close resemblance to Bermuda grass - it slowly but steadily spreads throughout society. The US Constitution is one of those rare mechanisms for contriol. In the final analysis, wiser heads in society must prevail and occasionally use some RoundUp to cut back the size and scope of government. This is where democracy trumps the excesses of both the government and the invisible hand - as we are seeing right now. Shall we call it the "invisible pendulum" of Democracy?

 

[Dr.Who]

China and many sweatshops prove your theory wrong, also early America....workers when they have nothing, will take any job and ignore the risks as they feel they have no choice...

Chiina is not a representative example because the invisible hand operates in free markets and China is a communist gov.

Early America is a good example. By todays standards we think that workers at that time had it very bad. But in comparison to settlers and pioneers and trappers and explorers and soldiers they actually had a life that was very comparable. The risk to a worker were about as great as the risk to many other persons.

Just prior to and during the industrial revolution conditions may have been equally bad when we compared workers to others but the conditions were bad BECAUSE the employers oppressed them. So lets talk about that. By then a free market was corrupted. The robber barrons and tychoons had the full cooperation of the US government to allow them to abuse people. And yet it was the actions of people forming unions that broke the abuse. The example proves that the self interest of the unions corrects the wrongs of the corporatists (by which I mean corporations that cooperate with government to manipulate the system).

 

[Dr.Who]

Certainly the invisible hand works most of the time to drive an economy stronger. But there are cases where government regulation is necessary to protect its citizens. Environmental regulations to control industrial pollution is one example. We have seen that the banking system does not have the built-in "checks and balances" normally in play with the the invisible hand (ie, pure capitalism). So long as government recognizes its role is to protect the citizens, and business recognizes that the government does have that role, then everything is fine.

You said a lot of great stuff in there. To add to it..

Laws are created by statutes that originate with the legislative bodies in accord with the consitution and the defined purpose of government - to protect rights i.e. to protect people from harm.

Regulations originate from various government entities which are not answerable to the people and very often are intended by politicians to manipulate the structure of business or society. This weakens the protection that free markets and competition gives us this necessitating even more regulation in a never ending cycle of whack-a-mole.

What you described above are better called laws and should originate as such and only for the proscribed purposes of government. Laws when they comply with the constitution are good.

What you have described in the section I did not copy are more accurately described as regulations. The abuse of regulations is rampant in this country and the politicians have become so use to abusing them that they come right out and say that they want to create regulations to reshape society.

In short, what I am trying to say is that the times where it is necessary for the gov to make regulations to protect its citizens are few and far between and that if something is harming a person then a law is the correct step to take.

 

[GenSeneca]

From my Blog:

But Don't Businesses Need to be 'Regulated'?
by David Wilens (July 24, 2009)

Laissez-faire capitalism calls for a separation of state and economy, without regulation of private sector businesses by government. But don’t businesses need to be regulated by governments to protect people’s individual rights?

The answer is: no, they don’t.

But then, if businesses are not regulated, what would stop them from rampantly making dangerous products, defrauding consumers, breaching contracts and committing (and getting away with) other injurious actions?

The answer is: not regulations, but rather laws – properly formulated, to protect the individual rights of everyone. As the foregoing makes clear, the fundamental distinction is one between the proper concept of laws, and the concept of regulations.

...

In a capitalist society there is no justification for regulations. If a business negligently, knowingly, intentionally or recklessly acts in a way that violates others’ rights, it should be prosecuted and held accountable; it should not be ‘regulated’. For example, if a car company creates or markets unsafe models that cause injury or death to others or their property, such as the Ford Pinto during the 1970’s, the solution is to convict and imprison the officers and engineers who knowingly approved the dangerous design and levy heavy fines against the company; it is not to start telling all car companies how to design their gas tanks or chassis or engine blocks or whatever. If a CEO of a major corporation directs the accountants to “cook the books” by greatly overvaluing assets and causes the company’s bankruptcy, as was done at Enron Corporation, the solution is to prosecute the CEO and the accountants for fraud; it is not to start specifying how all companies are to conduct their accounting procedures (as the American Federal Government did with the Sarbanes-Oxley Act).

As for deterring future violations of rights by others, whether they be businesses or individuals, this will be accomplished by holding the violators of rights accountable for their actions. In this manner inferior and dangerous business practices will be abandoned, and be replaced with safer and better ones over time.

In sum, businesses (like individuals) should be held accountable for violating others’ rights – but no, they should not be ‘regulated’.​

 

[Hobo1]

In sum, businesses (like individuals) should be held accountable for violating others’ rights – but no, they should not be ‘regulated’.​

I agree completely if you define regulations as rules generated by internal governmental departments acting to "clarify" Congress's original law. Furthermore, Congress should draft and pass laws that give clear and unambiguous direction - thus avoiding interpretation by the bureaucracy.

 

[pocketfullofshells]

Chiina is not a representative example because the invisible hand operates in free markets and China is a communist gov.

Early America is a good example. By todays standards we think that workers at that time had it very bad. But in comparison to settlers and pioneers and trappers and explorers and soldiers they actually had a life that was very comparable. The risk to a worker were about as great as the risk to many other persons.

Just prior to and during the industrial revolution conditions may have been equally bad when we compared workers to others but the conditions were bad BECAUSE the employers oppressed them. So lets talk about that. By then a free market was corrupted. The robber barrons and tychoons had the full cooperation of the US government to allow them to abuse people. And yet it was the actions of people forming unions that broke the abuse. The example proves that the self interest of the unions corrects the wrongs of the corporatists (by which I mean corporations that cooperate with government to manipulate the system).

its hard to take anyones words on economics who thinks China is actually communist in anything more then name.

 

[ProudLefty]

From my Blog:

But Don't Businesses Need to be 'Regulated'?
by David Wilens (July 24, 2009)

Laissez-faire capitalism calls for a separation of state and economy, without regulation of private sector businesses by government. But don’t businesses need to be regulated by governments to protect people’s individual rights?

The answer is: no, they don’t.

But then, if businesses are not regulated, what would stop them from rampantly making dangerous products, defrauding consumers, breaching contracts and committing (and getting away with) other injurious actions?

The answer is: not regulations, but rather laws – properly formulated, to protect the individual rights of everyone. As the foregoing makes clear, the fundamental distinction is one between the proper concept of laws, and the concept of regulations.

...

In a capitalist society there is no justification for regulations. If a business negligently, knowingly, intentionally or recklessly acts in a way that violates others’ rights, it should be prosecuted and held accountable; it should not be ‘regulated’. For example, if a car company creates or markets unsafe models that cause injury or death to others or their property, such as the Ford Pinto during the 1970’s, the solution is to convict and imprison the officers and engineers who knowingly approved the dangerous design and levy heavy fines against the company; it is not to start telling all car companies how to design their gas tanks or chassis or engine blocks or whatever. If a CEO of a major corporation directs the accountants to “cook the books” by greatly overvaluing assets and causes the company’s bankruptcy, as was done at Enron Corporation, the solution is to prosecute the CEO and the accountants for fraud; it is not to start specifying how all companies are to conduct their accounting procedures (as the American Federal Government did with the Sarbanes-Oxley Act).

As for deterring future violations of rights by others, whether they be businesses or individuals, this will be accomplished by holding the violators of rights accountable for their actions. In this manner inferior and dangerous business practices will be abandoned, and be replaced with safer and better ones over time.

In sum, businesses (like individuals) should be held accountable for violating others’ rights – but no, they should not be ‘regulated’.​

It would be your position then that 111 people sick from tainted turkey is a pretty small price to pay? How many would be dead if it wasn't for the presence of neutral observers who can stop the selling of tainted foods?

Did you ever give a thought as to why these food inspectors, and other government regulators, are there in the first places? Do you believe mine and quarry rules and regulations were just busy work dreamed up by government employees with too much time on their hands?

 

[Pandora]

Did you ever give a thought as to why these food inspectors, and other government regulators, are there in the first places? Do you believe mine and quarry rules and regulations were just busy work dreamed up by government employees with too much time on their hands?

A whole thread should be started on this topic.

The government is targeting, and closing down small family owned organic farms & Amish farms.

At the same time the federal government is letting large farms that have had problems with people getting sick from eating their product. Diseased animals, maggots and other gross and disgusting problems continue to operate.

I am not so sure it's that the government cares about having the cleanest safest farm as much as they care who has enough money to lobby them like the huge farms.

 

[Dr.Who]

its hard to take anyones words on economics who thinks China is actually communist in anything more then name.

A quick survey of the net indicates that there are still plenty of experts who claim that China is communist despite the debate.

Since they still have so much government control of the economy as to not have free markets the statement that they cannot be used as an example of how the invisible hand works (or doesnt work) is still valid.

In short, china is still one of the most heavily government controlled economies in the world even if it is still not as controlled as it once was or if the distinction between them and others is blurry because others have increased their gov control of the economy.

I find that your attempt to destroy any statement on economics I ever make based on one very debatable fact on china to be a logical fallacy. I won't claim that we should never accept your word on some broad category because you have made one logical fallacy.

 

[Dr.Who]

It would be your position then that 111 people sick from tainted turkey is a pretty small price to pay? How many would be dead if it wasn't for the presence of neutral observers who can stop the selling of tainted foods?

Did you ever give a thought as to why these food inspectors, and other government regulators, are there in the first places? Do you believe mine and quarry rules and regulations were just busy work dreamed up by government employees with too much time on their hands?

Are the tainted turkeys a hypothetical case or did I miss something?

Anyway, tainted turkeys would clearly be a dangerous product and Gen clearly said that laws should be used to prosecute any company that sells defective products.

Laws to protect people from having their rights violated are things we all agree on.

Regulations to monkey around with the economy, to pick winners and losers, and to make busy work are not needed.

 

[Hobo1]

A quick survey of the net indicates that there are still plenty of experts who claim that China is communist despite the debate.

Since they still have so much government control of the economy as to not have free markets the statement that they cannot be used as an example of how the invisible hand works (or doesnt work) is still valid.

In short, china is still one of the most heavily government controlled economies in the world even if it is still not as controlled as it once was or if the distinction between them and others is blurry because others have increased their gov control of the economy.

I find that your attempt to destroy any statement on economics I ever make based on one very debatable fact on china to be a logical fallacy. I won't claim that we should never accept your word on some broad category because you have made one logical fallacy.

Communism is not just a governmental system, it is a whole package of economic, social, plus governmental form. Theoretically, the label of Communist vanished when China embraced an economic form of capitalism and free enterprise.

In truth, China is moving to a new form of national organization. It is absolutely not Democracy, it is not socialism; people have been struggling to find the correct label for years. Its economic system is officially called "Socialist market economy with Chinese characteristics". And the current governmental system is moving towards "Socialist Democracy". Both of these terms seem internally conflicting (oxymoron).

To put any modern label on the current national organization is only adding to the confusion. Better it not have a name than to say it is Communism and let the student study Chinese structure in the 21st century to understand how the country works. Perhaps someone could find a better term in this Wikipedia list of forms of government:
* Androcracy
* Anarchy
* Aristocracy
* Autocracy
* Communist state
* Confederation
* Consociationalism
* Corporatocracy
* Corporatism
* Demarchy
* Democracy
* Despotism
* Empire
* Ethnocracy
* Fascist state
* Federation
* Feudalism
* Garrison state
* Gerontocracy
* Green state
* Hierocracy
* Isocracy
* Interregnum
* Kakistocracy
* Kratocracy
* Kleptocracy
* Kritarchy
* Kritocracy
* Kyriarchy
* Logocracy
* Matriarchy
* Mediocracy
* Meritocracy
* Minarchism
* Monarchy
* Nanny state
* Nation-state
* Monocracy
* Nomocracy
* Noocracy
* Ochlocracy
* Oligarchy
* Panarchism
* Pantisocracy
* Parliamentary state
* Patriarchy
* Plantocracy
* Plutocracy
* Police state
* Polyarchy
* Presidential
* Puppet state
* Republic
* Socialist state
* Sociocracy
* Squirearchy
* Stratocracy
* Sultanism
* Superpower
* Supranational union
* Synarchy
* Technocracy
* Thalassocracy
* Theocracy
* Timocracy
* Tribal
* Tyranny
* Unitary state
* Welfare state
Good luck