Collective-Interest and Public Goods
Just as important as self-interest and private goods in the free market.
Previously, we have seen that self-interest is the driving force behind people exchanging goods and services with each other. It is the primary motivation for both acquiring and selling a particular item. If that item is for the benefit of an individual, then it is what I call a private good or service. Private goods are usually produced in large quantities and are purchased by individuals. If the item will benefit a group of people then it is what I call a public good or service. Public goods are produced in very low quantities and are paid for by a group of people. The people who purchase a public good have shared ownership of that good.
When you have the self-interests of a number of individuals being coincident, you have a collective-interest. The group of individuals with this common interest should not be thought of as a single entity with a singular interest. Their collective-interest emerges from the individual self-interests. Collective-interest is still self-interest, just mutually shared by a group of people. The group will typically appoint an agent to represent them in economic transactions.
Free Market and Public Goods
Just as self-interest leads to the production and exchange of private goods and services, collective-interest leads to the production and exchange of public goods and services. The first service that the collective-interest leads to, is the market itself. It is in the self-interest of each individual in the society to have a market where they can exchange their produce for that of others. The free market itself is a process that arises from the need of the individuals in the economy to satisfy their shared self-interest in being able to acquire goods they cannot produce themselves.
Public goods and services include things like roads, electricity, and the police service. Basically, goods and services that are currently usually provided by the government. They are in the collective-interest of the public, but as we have pointed out, collective-interest is also self-interest, just scaled up to account for more people. Thus we should expect that the free market should be able to provide public goods and services, just as it provides private goods and services. This is in contrast to the approach currently taken by society. We assume that the government should provide these public goods and services, and the result is that we have no market forces in play for public goods and services. As we will see later, the free market can provide these goods in a way that allows market forces to prevail. The government still has a role to play though.
Perhaps the reason why we currently do not have market forces in the provision of public goods and services, and why we defer to the government in this case, is because we don’t understand that the provision of public goods and services is still an exchange on the market. Just as two individuals exchange goods in barter, the provision of a public good or service is an exchange between the public service provider (government) and the general public. It is just a scaled up version of the basic exchange, and thus the dynamics are more complex. This understanding also leads to the realisation that taxation is unnecessary and completely backwards compared to what we should actually be doing.
The Balance Between Private and Public Goods
A free market should be able to increase the intrinsic satisfaction of the general public in two ways. First by meeting the self-interests of the individuals, through the exchange of private goods and services, and secondly by meeting the collective-interests of the public, through the exchange of public goods and services. Of course, private goods may be exchanged for public goods and vice versa, and that is what actually happens in the bartering paradigm’s solution to the taxation problem. The free market is not rigid with respect to what may be exchanged for what.
Satisfying the individual self-interests and the collective-interests requires finding a balance between the two. There is only a limited amount of resources available so we can only allocate so much to public goods and services versus private goods and services. If we allocate too much to private goods, we will not have enough for public goods, and public infrastructure may suffer. Likewise if we allocate too much to public goods, we may not be able to satisfy the needs of the individuals in the economy. Finding a balance is key to having a properly functioning economy. But no person or group of persons knows how to allocate the resources, and the allocations required may change with time. In today’s society, the government claims to know how to allocate resources for public versus private uses, and they do this by setting the tax rate. The true free market process allows the proper amount of resources to be allocated to public goods versus private goods. This happens because, in the bartering paradigm, people have to exchange private goods for public goods. They will exchange only if it increases their intrinsic satisfaction and therefore will only give up what is in excess of their private needs for their public needs. The balance is naturally found by the exchange process.
Self- and collective-interest are the driving forces behind the free market. The purpose of the free market is to meet these interests and find a balance between the two.
