Adam Smith and the Invisible Hand
"every individual necessarily labours to render the annual revenue of the society as great as he can. He
generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.
By preferring the support of domestic to that of foreign industry, he intends only his own security; and by
directing that industry in such a manner as its produce may be of the greatest value, he intends only his
own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was
no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his
own interest, he frequently promotes that of the society more effectually than when he really intends to
promote it. I have never known much good done by those who affected to trade for the public good.
generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.
By preferring the support of domestic to that of foreign industry, he intends only his own security; and by
directing that industry in such a manner as its produce may be of the greatest value, he intends only his
own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was
no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his
own interest, he frequently promotes that of the society more effectually than when he really intends to
promote it. I have never known much good done by those who affected to trade for the public good.
"But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from
their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew
them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain
of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the
meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those
good offices which we stand in need of. 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. Nobody but a beggar
chooses to depend chiefly upon the benevolence of his fellow-citizens."
their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew
them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain
of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the
meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those
good offices which we stand in need of. 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. Nobody but a beggar
chooses to depend chiefly upon the benevolence of his fellow-citizens."
Property Rights in Communist China
Friedman on Greed
Friday, April 5, 2013
This summary of an article from the WSJ describes the reasons that rice production in the US is decreasing. It would be a good introduction for opportunity cost, supply and demand, and incentives.
Tuesday, February 26, 2013
What was the role of government in R&D for fracking?
This article argues that the government's role in supporting the research and development that led to the technology for fracking is less than President Obama claimed. The discussion illustrates that the profit motive can and does lead private firms to invest in research and development of new technologies, even when the results are uncertain and unknown. The debate about whether the profit motive alone is sufficient is an ongoing.
This article does two things well. It shows that comparing the cost of ownership of two cars is difficult. It also shows that without government incentives all-electric cars are not cost-efficient at current prices.
One of my pet peeves with the all-electric car is that the drivers will often pay less than the full cost for the electricity that they use, making the social cost of the car higher than the private cost. I anticipate that many drivers will plug in their cars when they arrive home from work. This tends to overlap with the time periods of peak demand for electric companies. Since peak-load users typically pay the same price as non-peak users in the US, the peak-load user is paying less than the marginal cost of their electricity (and is being subsidized by the off-peak). The social benefits of the all-electric car diminish if they make economic sense only when the government subsidizes the purchase price and off-peak users subsidize their operating cost.
Subscribe to: Posts (Atom)
This article does two things well. It shows that comparing the cost of ownership of two cars is difficult. It also shows that without government incentives all-electric cars are not cost-efficient at current prices.
One of my pet peeves with the all-electric car is that the drivers will often pay less than the full cost for the electricity that they use, making the social cost of the car higher than the private cost. I anticipate that many drivers will plug in their cars when they arrive home from work. This tends to overlap with the time periods of peak demand for electric companies. Since peak-load users typically pay the same price as non-peak users in the US, the peak-load user is paying less than the marginal cost of their electricity (and is being subsidized by the off-peak). The social benefits of the all-electric car diminish if they make economic sense only when the government subsidizes the purchase price and off-peak users subsidize their operating cost.
Subscribe to: Posts (Atom)
No comments:
Post a Comment