Selfish-Interests Separating and Feeding Off Society

by Juan

November 18, 2013 4 minutes • 736 words

Table of contents

Flaw #3: It Separates Markets, Governments, and Societies from Each Other.
The Effects of the Flaws of Economics

Flaw #3: It Separates Markets, Governments, and Societies from Each Other.

Selfish interests, knowingly or unknowingly, divides economic participants from each other in a laissez-faire system (instead of encouraging them to work together) in order to take advantage of opportunities the separation creates, similar to the divide and conquer strategies of imperial rulers.

This system reduces the power of government and exposes society to the dangers that vested interests can bring. An example was the Coolidge administration wherein regulation was reduced and tariffs were put up by the selfish hand. This, together with the popularity of stock trading and buying on margin (PBS, n.d.), also created by selfish interests, eventually led to the Crash of 1929 and the Great Depression.

To solve the “disequilibrium” in microeconomics, John Maynard Keynes proposed to use the power of government in generating employment in what is now known as “macroeconomics”:

Keynes

The central controls necessary to ensure full employment will, of course, involve a large extension of the traditional functions of government…Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism, I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.

The General Theory of Employment, Interest, and Money, Chap. 24, Sec. 3

Unlike businesses which act on selfish-interest, governments are bound to serve society. Its “visible hand” has the impossible mission of fighting the selfish hand of business, which supply the taxes for its existence. The collapse of Bretton Woods, and more recently, the increase in “quantitative easing”, bailouts, and fiscal deficits, show how helpless governments really are under the selfish hand.

To Smith, both micro and macroeconomics should show consistent behavior, as both are made up of human actions:

Smith

The same maxims which would in this manner direct the common sense of one, or ten, or twenty individuals, should regulate the judgment of one, or ten, or twenty millions.

WN Book 4, Chap. 3, Par. 40

Due to the Selfish-interest dogma, however, they become contradictory. While a government may use its visible hand to create regulations, taxation, price controls, and public spending, the selfish hand can counter it by lobbying, exploiting tax loopholes, withholding production, and bribing for public contracts leading to ever-increasing concentrations of wealth. In my opinion, the Great Depression was the first and best proof that economics based on Capitalist dogmas was meant to fail. Keynes simply applied countermeasures against them since Communist dogmas were a far worse alternative.

Economic Problems	Keynesian Countermeasure
Selfish Interest	Government Intervention
Monetary Manipulation	Bank Regulation
Profit Maximization	Fiscal Policy
General Theory of Equilibrium	Aggregate Demand-Aggregate Supply Model

Table 1. Keynesian Countermeasures against the Selfish Hand of Microeconomics

The varying degrees of understanding of societal interests by different leaders have consequently created different kinds of economic systems:

Though those different plans were..introduced by the private interests..without any regard to, or foresight of, their consequences upon the general welfare of the society..they have given occasion to very different theories of political œconomy. (Book 1, Chap. 1, Par. 8)

Economic Theory	Nature	Value	Base	Best Result
Capitalism	Selfish Interest	Nominal Prices (money)	Roaring Twenties	Great Depression
Communism	Dialectical Materialism	Labor Theory of Value (Marx)	Stakhanovite Productivity	Great Leap Forward
Welfare State	Human Dharma	Nominal Prices (money)	Swedish Quality of Life in the 1930’s	Iceland Financial Crisis
Socio-Economics	Human Dharma	Labor Theory of Value (Smith)

Table 2. Comparison of economic philosophies

The Effects of the Flaws of Economics

These flaws create the following problems:

Destruction of Nominal Value

Stock market crashes (Crash of 1929, Dot Com Bubble)
Non-stock market crashes (Mississippi Bubble, Housing Bubble and Sub Prime Crisis, Japanese Asset Price Bubble, )

Misallocation of Resources

Currency Crises (Asian Financial Crisis, 2008 Credit Crunch, Argentine Crisis)
Debt Crises (Latin American Debt Crisis, Eurozone Crisis)
Stagflation
Poverty and Inequality

Knowing the flaws of economic systems, as detailed in The Wealth of Nations, allows the possibility of creating a new system that learns from those flaws. More importantly, Adam Smith has already exposed, in The Theory of Moral Sentiments, the roots of those flaws and has suggested solutions over 200 years ago.