THE BUSINESS SYSTEM: GOVERNMENT, MARKETS, AND INTERNATIONAL TRADE

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his own gain" anyway, the best e 9
ural" motivation and conomic arrangement is one that recognizes this "nat-
nd allows it free play. in competitive markets that force self-interest to serve
the public interest. However, this theory of human nature, critics have claimed, is clearly
false. First, human beings regularly show a concern for the good of others and constrain their
self interest for the sake of the rights of others. Even when buying and selling in markets, the
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constraints of honesty and fairness affect our conduct. Second, the critics claim, it is not
necessarily "rational" to follow the rule "give away as little as you can for as much as you can
get." In numerous situations, everyone is better off when everyone shows concern for others,
:e
and it is then rational to show such concern. Third, critics have argued, if human beings often
te
behave like "rational economic men," this is not because such behavior is natural, but because
le
the widespread adoption of competitive market relations forces humans to relate to each other
as "rational economic men." The market system of a society makes humans selfish, and this
to widespread selfishness then makes us think the profit motive is "natural."41 It is the institutions
u
of capitalism that engender selfishness, materialism, and competitiveness. In actual fact,
e
human beings are born with a natural tendency to show concern for other members of their
a
species (e.g., in their families). A major moral defect of a society built around competitive
4 n. markets, in fact, is that within such societies this natural benevolent tendency toward virtue is
4 o- gradually replaced by self-interested tendencies toward vice. In short, such societies are morally
!re defective because they encourage morally bad character.
iat As for the argument of von Mises and Hayekthat human planners cannot allo cate
ial
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resources efficientlythe examples of the French, Dutch, and Swedes have demonstrated that
ifi- planning within some sectors of the economy is not quite as impossible as von Mises and Hayek
imagined.42 Moreover, the argument of von Mises and Hayek was answered on theoretical
ro- grounds by the socialist economist Oskar Lange, who demonstrated that a "central planning
trY board" could efficiently allocate goods in an economy without having to know everything about
consumers and producers and without engaging in impossibly elaborate calculations.43 All that is
a necessary is for the central planners to receive reports on the sizes of the inventories of
Ise producers and price their commodities accordingly. Surplus inventories would indicate that
to lowering of prices was necessary, whereas inventory shortages would indicate that prices
iu-
should be raised. By setting the prices of all commodities in this way, the central planning
ip-
ety board could create an efficient flow of resources throughout the economy. It must be
to acknowledged, however, that the kind of large-scale planning that has been attempted in some
Ic communist nationsparticularly the former Soviet Unionhas resulted in large-scale
e failure. Planning is possible so long as it remains but one component within an economy in
ac which exchanges are for the most part based on market forces.
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vi-
th
e The Keynesian Criticism
in-
er-
[e
n
The most influential criticism of Adam Smith's classical assumptions came from John Maynard Keynes
(1883-1946), an English economist.44 Smith assumed that without any help from the government, the
automatic play of market forces would ensure full employment of all economic resources including
labor. If some resources are not being used, then their costs drop and entrepreneurs are induced
to expand their output by using these cheapened resources. The purchase of these resources in
turn creates the incomes that enable people to buy the products made from them. ,Thus, all available
resources are used and demand always expands to absorb the supply of commodities made from them
(a relationship that is now called Say's Law). Since Keynes, however, economists have argued that,
without government intervention, the demand