SYSTEMS MATTER Part 7: SELF- INTEREST

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

There are really only two ways of trying to coordinate the activities of the people of this world into systems of culture and economics. First you must sell those people on a delusion and false promise that they will become better off from their buying into your offer to collectively take care of them . . . if they will fully agree to submit to your centralized system of control, even if it includes coercion; or second, by the voluntary cooperation of individuals based on the pursuit of their own self-interest.

One of Adam Smith’s keenest observations reported in his book, An Inquiry into the Nature and Causes of Wealth of Nations, is that each nation found by Smith to be wealthy was promoting an economic system that allowed for individuals to have the freedom to make choices that served their self-interests. Interestingly enough, all attempts by those individuals to enhance their own interests were, at the same time, furthering the interests of others.

Smith interpreted this to mean that individual pursuit of self-interest will unintentionally produce collective good for the general society. A system could be successful by combining the freedom of individuals to pursue their own objectives with the intense collaboration and cooperation of others in producing our food, clothing, housing, or any other conceivable need.

Smith’s insight was that both parties agreeing to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange will take place unless both parties benefit from the deal . . . everybody has to end up better off! No coercion, no outside force, interference, or violation of freedom should impede the free cooperation of individuals, all of whom can benefit from the transaction. That is why, as Smith put it, an individual entering into a deal with another individual may intend only his own gain, but, at the same time, like an invisible hand, promote an end that was no part of his intention. That end is the simple fact that the other individual in the transaction also ends up better off. As Adam Smith would say it:

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. (1)

I discovered, in my own business dealings in our Jackson Brothers Investments enterprise years ago, that to pursue and conclude a successful business deal it was more advantageous to not address myself to the other person’s humanity or talk to him about my needs or necessities, but to the advantages he would experience should our proposed deal be put together. The deal must be good for both parties or it will not successfully go together and stay together.

If, by some stroke of good fortune, a person could ever discover the depth of this one cultural and economic principle, the fatal flaw of collective, centralized socialism would be exposed and understood. For example, the cultural economic model Marx and Lenin were unwisely espousing was a model of contraction and not one of growth, production, and expansion. It was doomed to fail from the start. Wealth is built on production. Socialistic redistribution is built on contraction.

The redistribution system keeps taking away from the corpus itself, as well as the incentive to replace it and develop new growth. At some point the redistributive model will go bankrupt. Never has it worked over the long haul. If there are human institutions, including revolutions, that can induce individuals to extend themselves for the glory goal first and their self-interest second, such earthly institutions have not yet been found.

In a communal setting, individuals will continue to put effort into the scheme only as long as the hippy endeavor is capable of giving them what they were looking for when they signed up. Individuals continue to make precise calculations of what they feel their physical and mental capital is worth in trade. They cannot be persuaded to make a bad trade over the long haul by promises of some distant reward. They may waste a few years of their life chasing the illusion, but, eventually, they will walk away from the painted hippy bus.

The collective state could not fool the shoe factory workers in Armenia into extending themselves, even though their comrade overseers fed them the deceptive hope that if they kept working with all their might, things would get better. The workers indicated to me that the most common greeting to one another as they arrived for work at the big warehouse each morning was, “As long as the comrades pretend they are paying us a decent wage, we will pretend that we are working a decent shift.”

After a certain point, workers do not intend to work harder in order that everyone else will obtain a little bit more; because that usually means that they have to give up things like leisure. That reticence is especially true where a significant part of the whole group has no intention of working harder, but still expects to receive more.

In a model based on growth and production the worker can pursue that self-interest goal by discovering and choosing an innovative way to work less but more efficiently. Suddenly some new invention or method is hatched and the same effort is put forth, but the level of production is increased. There is no such option available in the contraction or redistribution model of Marx and Lenin. People under such a system have no incentive to work harder or be more innovative because they cannot keep the fruits of their labors for themselves. Productivity inevitably falls.

In a very real sense, what my new friends in Armenia had found out was that they were being offered less for working more. It came as no surprise that continually less was being produced for the system as a whole. And even if the army boots were produced and shipped nobody could wear them. The goods did not satisfactorily meet the demand of the redistributive system. Therefore, the economic system continued to contract and did not grow. The wealth of the nation decreased.

When designing a nation’s economic and cultural system that does not allow for individuals to pursue self- interest, the leaders always eventually come to the same conclusion as did Marx, The class struggle necessarily leads to the dictatorship of the proletariat. In common language that means that more rules are imposed. More individual freedom is taken away. At the end of every violated rule is ultimately a gun.

Eventually, all the promises of the revolution run dry, the people realize that the redistributive system has gone bankrupt, and there is no such thing as free. When that happens, and there are no material rewards as incentives to expand output, the leaders must always resort to coercion, force, and punishment. The workers must then make uneconomic trades of their labors.

In the old Soviet Union, for example, the most severe penalties were reserved for economic crimes. Those crimes could even be as simple as bartering with your neighbor some eggs you saved out of your chicken project in exchange for a bit of coal he had not yet burned that winter. Those infractions were deemed as draining the productive effort from the official economy.

In 1961 the death penalty was reinstated for economic crimes, and even in 1966 it was reported that one fourth of all crimes in the Soviet Union involved misappropriations of state property. (2) It was state property because everything was state property. Those trades for the workers’ labors did not conform to the imposed ideology.

There is a positive correlation between economic freedom and prosperity. The genius of the free market concept is that it does not try to coerce or compel the individuals to work. Instead, leaves the individuals free to choose to work and it rewards their work by letting those individuals keep the fruits of their labor. Back in 1776, Adam Smith reported it this way:

That security which the laws in Great Britain give to every man that he shall enjoy the fruits of his own labour, is alone sufficient to make any country flourish . . . The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance . . . capable of carrying on the society to wealth and prosperity.(3)

Indeed, systems matter!

Next Week: Self-Interest vs. Selfishness

            (Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson   

Permissions granted by Winston-Crown Publishing House

  

www.jameswjackson.com 
 

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

SYSTEMS MATTER Part 6: A PRODUCTIVE NATION

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

In retrospect, the economic part of the Marxist/Leninist plan of total revolution in 1917 was pathetic . . . almost laughable. They knew nothing of economics or running a business, let alone a nation, or more ludicrous, the world. If you have been reading just these posted weekly articles over the past four years, you already know at least ten times more about economics and business than did Marx, Engles, Trotsky, and Lenin put together!

The communist coterie was so concerned with the total revolution and the smashing of all Russian systems that no serious thought at all was given to the basic systems of managing the economics of a nation. . What shall the dog that is chasing the car do with the car should he catch it?

The junta was desperately preoccupied with killing the czars and their families and grabbing the uncalculated wealth of the Czar’s golden egg. They just knew that if they could capture the treasure chest of the wealth that was stored somewhere, they could spend their time and creativity in distributing the booty and controlling everything and everybody forever. They never gave a worry about the question from whence cometh the golden egg? They figured that the golden egg was stored in the banks and they would own the banks. They just presumed that business would simply run itself as it always did, only they would own it and there would be no bourgeoisie involved. Obviously, the businesses were too big to just fail!

Karl Marx’s theory was that someday soon all proletariat workers around the world would angrily rise up en masse and kill the bourgeoisie bosses. They would get sick and tired of the bosses exploiting them because they were cheating every worker. The claim was that the bosses always kept the surplus value of a commodity that was created by the worker. That was theft.

That generalization was based on Marx’s misunderstanding of how the real world works. He touted that the value of a product should be determined only by the value of the labor that went into producing it. Only the laborer was entitled to receive the proceeds from the commodity or product produced, and there should be no such thing as surplus value for the bourgeoisie bosses to steal.

The conclusive answer for Marx was to let the proletariat own everything, and then it would not be necessary or possible for the rich bosses to get their hands in the middle of the process and steal the money rightly deserved by the workers. There would no longer be any expenses such as rents, costs of raw materials, utilities, or anything else, because the workers would own everything themselves, and everyone could keep and divide the entire value generated by all efforts. There would only be true value. There would be no such thing as surplus value.

Of course, it would never work. But with the frenzy, the emotion, and the very idea that all the people would be wealthy and all their wants supplied, they were moved to action. No one else would have anything more than what someone else personally possessed. That line of emotionally charged promises bought out the very souls and brains of the proletariat peasants. Because of their personal desire to receive something for nothing, and the hope that the government would take care of them from the cradle to the grave, they were convinced to pick up guns and kill those who would dare keep them from receiving their promised dream.

Neither Marx nor Lenin understood that it wasn’t just the hours of labor of the proletariat workers that determined the value of a commodity or product. Perhaps they did not wish to understand, if understanding limited the possibility of their dreams of total revolution coming true. The leader’s wild rhetoric implied that after the revolution the proletariat would be in total control of the new world. But the politburo never entertained another thought different from Marx’s own words that The class struggle necessarily leads to the dictatorship of the proletariat. Vladimir Lenin would be that ruthless dictator at any cost. The resulting power and spoils would be his personally, if only the revolution could be successfully accomplished.

Even when it dawned on Lenin and the revolutionaries that there would be some management required after their successful and bloody revolution, Lenin calculated it to be no problem at all. They were the revolutionary leaders, and the politburo consisted of the elite thinkers when it came to all things concerned. Their intelligence would figure out the answers to such simple and bothersome matters as business and economics.

The all-wise comrades finally formulated a plan of economic management called the Gosplan. Gos was an abbreviation for the Russian word for government: thus, the Government Plan. Gosplan figured out the strategy. Gosten figured out and set prices. Gosnab decided the allocation of the supplies, and Gostude handled issues of wages and labor assignments. It seemed to be a right-tidy management package.

Gosplan was designed and written for a five year model. The plans never worked! They tried to modify them to one year. That never worked. The truth is that communism and resultant socialism has never figured it out.

Can you even imagine the egoism and arrogance necessary to believe that you personally, or even your appointed Gosplan group, could successfully coordinate such an assignment? The complexities of trillions of necessary decisions to be centrally made would be an administrative nightmare.. You could never get it right.

In the country of Armenia, I stood in a very large building that had been formerly used as a leather processing plant and a facility for manufacturing of shoes. The old Soviet Communist forces that had occupied the country and run the shoe operation had long since pulled out and returned to Russia. But some of the old workers had subsequently gone back into the old building and started up a leather processing plant and a shoe factory on a free market basis where they owned and operated the business.

Through my translator I engaged the successful owners in a long and revealing conversation. I wanted to know how the Gosplan functioned under the communists. They laughed aloud. It didn’t! They told me that a large number of people were assigned to the shoe manufacturing part of the operation. Some people were assigned to stamp a pattern on the leather, others cut out the leather pieces, others sewed the upper part of the shoes together, and others were in charge of stitching the bottom soles onto the uppers and pounding an appropriate heel on the shoe. Other people were assigned to dying the entire shoe, drying them and packaging them in large crates, which were shipped off to somewhere and stored in warehouses. Everyone had a quota to meet.

But the constant problem was that, more times than not, all the workers just sat around and sipped vodka. Something would break down in the leather curing and tanning operation and there would be no leather available for making shoes. Many times the leather operation would never receive the horse or cow hides because the butchering plants never had enough animals to kill and skin out.

They explained that the reason for the shortage of the animals was because they had miscalculated in the Gosplan how much hay and grain it was going to take to feed the animals, and even if the animals had produced babies, the offspring would die, which would affect the proper number of animals that were needed for the years to come. If they didn’t have enough feed for the animals, or the weather was not cooperating with the Gosplan, then everybody involved in the whole leather and shoe production could only sit and wait for someone to figure out how to revise the Gosplan.

No one really cared whether they produced the number of tons of shoes or the number of animal hides required, or for that matter, the amount of hay required each day to feed the animals. It wasn’t their fault or concern if someone down the line or up the line messed up. They received the same kind of housing, the same quality of clothing, the same allotment card for the same kind of bread and the same measured handful of vegetables whether there were any shoes produced or not.

One of the new entrepreneurs was laughing and slapping his knee as he recalled for me an incident that had taken place right there in that old facility under the management of the Soviets and their Gosplan. Their shoe operation had been assigned a quota to produce a given number of tons of military boots for the Soviet army. They were to be manufactured by a certain date, placed into huge crates, and shipped to a central warehouse. The orders from the Gosnab planning group of the Gosplan central committee had not stipulated what size the shoes should be, the style, or the color . . . just so many tons of military boots.

“Guess what we did,” my new friend howled. “We found the heaviest leather we could find and made every one of the pairs of boots size fifteen with no dying of the leather, placed them in huge crates, and let the Soviets pick them up and deliver them to their destination! They could figure out who else they wanted to make the smaller sizes. When the loads arrived at the central warehouse, the Gosplan people actually sent us a commendation and some vodka for having met our quota of tons, but no army could have ever worn those huge boots.”

Next Week: SYSTEMS MATTER: Part 7: Self Interest

            (Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

 © Dr. James W. Jackson  

Permissions granted by Winston-Crown Publishing House

  

www.jameswjackson.com   

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com