Tuesday, April 24, 2012

399: The Utopia of the Free Market - Can it be stopped?

The free market, which nowadays is experienced as inevitable, unescapable has not been always the dominating economic principle.

In a previous lecture I told you that till the 16th century we speak of a subsistence economy.

A subsistence economy only possesses enough goods to be used by a particular oikos, tribe or nation to maintain its existence and provides little to no surplus for other investments.

It is a kind of economy, which is not driven by a constant need for growth. The market was at most a place to obtain some additional consumer goods.

But put a bunch of people together with a Randian attitude, which means driven by rational self-interest, and you can witness "The Tragedy of the Commons".

An example of a common is in  medieval land tenure in Europe, shepherds sharing a common parcel of land, on which they are each entitled to let their cows graze.

The idea comes from ecologist Garrett Hardin and was published in Science in 1981. The tragedy of the commons is a dilemma arising from the situation in which multiple individuals, 

acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource, even when it is clear that it is not in anyone's long-term interest for this to happen.

In Hardin's example, it is in each shepherd's interest to put the next (and succeeding) cows he acquires onto the land, even if the quality of the common is damaged for all as a result, through overgrazing. 

The shepherd receives all of the benefits from an additional cow, while the damage to the common is shared by the entire group.

If all shepherds make this individually rational economic decision, the common will be depleted or even destroyed, to the detriment of all.

In a way this happened in 16th century England, where the commons were not depleted but made to private property of the local gentry.

It happened in 1989 in Mongolia after the fall of communism and the free market made its entrance and prizes dropped.

In 1991 the number of animals, mainly goats that have a devastating effect on grasslands, was doubled, and the results were dramatic.

Like in the 16th and 17th century, because of this rational self-interest behavior, tenthousands of people lost their means of living and became contractors, hired workers.

A vast reservoir of workers who fitted in perfectly in the system of production of the free market. people who went to the big cities looking for work.

Do we now have to conclude that modern man as homo economicus public goods ("commons"), fisheries and water resources inevitably will destroy due to his on personal gain oriented behavior?

Do we go under due to the Tragedy of the Commons?  My answer is "NO". There are already examples where the free market has to step back. Maybe you know these examples too?!

The Discussion

The text was lost due to a harddisk crash and totall loss of data on that disk.
Maybe I'll be able to get is from a student's logfile

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