[OPE] Finance as the Economic Equivalent of HIV

From: michael perelman <michael@ecst.csuchico.edu>
Date: Mon Oct 13 2008 - 19:06:13 EDT

Capitalism presents many problems. One of the thorniest is the ability
of capital to invade the structure of any attempt to reform it, turning
it to destructive purposes. Economists often draw the moral from such
outcomes that efforts to reform the market are destructive -- evidence
of what they call the law of unintended consequences.

The law of unintended consequences was one of the first discoveries of
political economy. Usually, the purpose of invoking this principle was
to demonstrate how the market worked to people's benefit. The most
famous example, of course, was Adam Smith's invisible hand.

Smith, Wealth of Nations, I.ii.2, pp. 26-7: "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. We address
ourselves, not to their humanity but to their self-love, and never talk
to them of our own necessities but of their advantages."

Smith's colleague, Adam Ferguson, suggested a more general application,

122: "Every step and every movement of the multitude, even in what are
termed enlightened ages, are made with equal blindness to the future;
and nations stumble upon establishments which are indeed the result of
human action but not the result of human design."

Ferguson, Adam. 1793. An Essay on the History of Civil Society, 6th ed.,
Duncan Forbes, ed. (Edinburgh: Edinburgh University Press, 1966).

Not surprisingly, the son of former prime minister Walpole coined the
word, "serendipity" 1754.

At the same time, capital makes the control of destructive behavior
necessary. Even in Smith's day, bakers with attempt to improve their
profits by adulterating bread -- hardly an act of social beneficence
and, perhaps, suggesting a different meaning for the invisible hand.
Regulating bakers is not terribly difficult, so long as the public is
able to commit a sufficient number of regulators to check on the bread.

Finance is something altogether different, deliberately creating
unintended consequences. Like the AIDS virus, finance can quickly adjust
to almost any regulation. In addition, even the most well-intentioned
regulation will have to pass muster with an army of lawyers, lobbyists,
and political contributors before it can pass into law. Last-minute
adjustments make it possible to insert little additions that make laws
and regulations more favorable to capital.

Rest at


Michael Perelman
Economics Department
California State University
Chico, CA
530 898 5321
fax 530 898 5901
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Received on Mon Oct 13 19:14:35 2008

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