So it is said that Adam Smith said that self interest leads to collective interest.

This is obviously not the case. We do not have a society that maximises the collective good*.

My question is, Is there a way to engineer society such that self interest will lead to a collective interest?

*It can be argued that the very poor are not as poor as they were a short time ago, but this is not what I am asking about.

  • $\begingroup$ Could you please back up your claim that Smith predicted a "near equal society" with a quotation and source? $\endgroup$ – Giskard Sep 4 '18 at 9:59
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    $\begingroup$ Also, the current phrasing of the question is really broad. Provision of public goods and mechanism design are wide fields that cover some aspects of this. $\endgroup$ – Giskard Sep 4 '18 at 10:01
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    $\begingroup$ “[The rich] consume little more than the poor, and in spite of their natural selfishness and rapacity…they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.” $\endgroup$ – ctrl-alt-delor Sep 4 '18 at 10:35
  • $\begingroup$ I am not really sure about the context of this quote, but it seems to be about subsistence. The majority of present day consumption does not consist of daily necessities. While the poor and the rich indeed eat about the same amount of soup, they spend vastly different amounts of time on golf courses, spas, holidays, have access to different levels of health care, etc. $\endgroup$ – Giskard Sep 4 '18 at 14:18
  • $\begingroup$ I don’t have time now to create a good answer, but the field of public goods is usually the closest to answer your question. Perhaps you could refine your question by saying if you’re looking for individual approaches or macro approaches. $\endgroup$ – JoaoBotelho Sep 4 '18 at 22:01

Well, there's mechanism design. We use game theory to study what people do and then reverse it and ask ourselfs what set of rules induce people to rationally choose to do what the mechanism designer wants them to do.

In an auction, we charge the second highest price to the winner, that's a Vickrey-Clark-Groves mechanism. In voting, one might want to apply the Goeree-Zhang mechanism, for example.

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    $\begingroup$ The other answers sound awfully political and unrelated to economics. $\endgroup$ – Pedro Cavalcante Oct 7 '18 at 16:48

Redefine self interest to be LONG TERM self interest. The rich do much worse off in a demand starved economy, with something like 50% of the population living paycheck to paycheck. The post war Golden age was strong, because employers felt a sense of community with their employees. Then Friedman revived that Greed is Good stuff, leading to the shareholder revolution, and then the government supercharged it by allowing companies to pay executives in stock options and allowing firms to do stock buybacks. Which meant that absolutely no one running large corporations had any incentive to invest, and expand the business which would pay back in years, if at all. It was much easier to just monkey around with the stock price and IBGYBG.

It would also help if economists remembered that there is no such thing as a market that isn't created, or at the very least allowed to exist because of government rules and new rules aren't always bad.

But there is always power dynamics too:

We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome — as it may well be under the pressure of the masses — the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the ‘sack’ would cease to play its role as a ‘disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.

  • $\begingroup$ A have improved the punctuation, However can you improve, by clarifying paragraph two “It would also help if economists remembered that there is no such thing as a market that isn't created …”, and give a reference to the quote. Thank, $\endgroup$ – ctrl-alt-delor Sep 6 '18 at 9:09

The answer is, we shouldn't engineer a society. But we should respect us as beings with the ability to bring our own purposes in harmony with our fellow ones and with the greater society. This is almost often a hard task, but only we could do it. I would understand Adam Smith so, that it is possible to bring out of realizing self-interests the best for the society. It is possible, but not a natural law. Our whole self, our intelligence, our emotions our morals and everything what makes us human is required that this becomes possible. Therefor no recipe exists to bake an perfect society. If we delegate responsibilities to an higher instance we loose some of the power to make the world a better place.

My perspective comes from Degrowth. It is a relative young movement, which tries to form an economy where is more harmony in our relationship with living nature and it wishes to create possibilities for a good live for everyone on our planet earth. We learned that we only can reach this goal if we talk about and work for this target. We can only show points where the current economy fails, to reach this goal. But we don't have an plan and maybe will never have one, who says us, this is the way we must go. Everyone is responsible to define for his- or herself what good live means. We make small steps, and ask after nearly every step, is it right or wrong. We think our world has room for many societies, maybe some are planned other ones are complete chaotic but the art of this kind of economy is, that they all can prosperous coexist.

The concept of self-interests is often misunderstood as being the same as private interests. If a fence is required to protect my private sphere from the rest of the world this is already an lost in the self-interest to not enclose the view to the wider world.

We all live in a very exciting time. The value of land is still the most well-founded orientation to assess things. But the scientific knowledge and the economic use of land have made it possible that more people from less land could live sustainably. We currently overuse our resources excessively, but we believe that the human species can only survive on a viable globe. That's why ecological argriculture is so important. Degrowth collaborates with Nyéléni movement for food sovereignty and Via Campesina.

Another key element is communication. The plenty of energy provided by fossil fuels is used to build a network that help us to work together globally. Not the interests of a particular group satisfy our own interests, but the joined interests of all of us.

We should not overestimate the power of choice. Today we can choose between electric power from fossils and from renewable energy sources. But we are confronted with the hard truth, that the right choice is to use less power at all. We must stop in believing that energy is not scarce because it is relative cheap. It is cheap because it is a good which does not differ in quality, but it makes a big difference where it comes from if the home of people is destroyed to produce it. Similar sad stories can be told about our food, our clothes and nearly everything what we consume. Why do we need to call some products fair traded? We need free trade and free trade should be identique with fair trade, every time and everywhere.

  • $\begingroup$ You make good points. I asked because I thing that we always engineer something, sometimes unintentionally. We need to avoid doing it badly. I also think that self interest alone is not the same as group interest. Are there parts that we need to pay attention to? $\endgroup$ – ctrl-alt-delor Oct 6 '18 at 19:54

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