Tag Archives: John Nash

Adam Smith was wrong

Adam Smith is considered the father of modern [exchange] economic theory and his ideas about economics have influenced economists for hundreds of years. One of the basic tenets he is often credited with espousing is paraphrased in the Wikipedia article:

…when an individual pursues his self-interest, he indirectly promotes the good of society. Self-interested competition in the free market, he argued, would tend to benefit society as a whole by keeping prices low, while still building in an incentive for a wide variety of goods and services.

Some philosophers have taken this idea to the extreme, such as Ayn Rand in her book The Virtue of Selfishness. While it is clear that Smith was aware of far greater complexities in the exchange economic system than are captured in this abbreviated idea, they are less-often mentioned, or perhaps outright whitewashed, by an exchange economic establishment that would like to promulgate the simplistic notion that the market works best when it is unregulated and governed only by self-interest.

John Nash – Governing Dynamics

In his work on governing dynamics, for which he later received the Nobel Prize, John Nash addressed how an isolated strategy of self-interest does not necessarily lead to the best possible outcome. A fictional example of this principle was portrayed in the 2001 movie, A Beautiful Mind, as seen in the accompanying clip. In that simple account, John says of Adam Smith’s self-interest principle,

[Adam Smith’s theory is] incomplete… because the best result will come from everyone in the group doing what’s best for himself and the group.

This is significant in that it is exactly how civilitics differs from economics. Exchange economics gives each participant in the marketplace an opportunity to negotiate independently and maximize their own self-interest. As a result, self-interest, frequently manifested as greed, is the dominant principle. In contrast, civilitics shifts compensation into the public domain, creating a mutual dependence on both what is best for the individual and what is best for the group, just as Nash proposed.

This characteristic of self- and group-interest is intrinsic to civilitic systems because of the explicit lack of reciprocity in civilitic relationships. As a result, the reward system is negotiated upon the values of society instead of by self-interested greed, leaving little or no need for enforcement, regulation, or mandates to control civil behavior.