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Libertarianism and John Nash

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By sonofed
January 31, 2003

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I enjoyed reading TJ's post about the application of quantum principles to economics. While I think the article itself might be a bit of a stretch, it was an interesting read nonetheless.

There is another aspect of cooperative behavior theory I thought bore further discussion, and I'd like to get TJ and other's take.

Libertarianism is based on the idea of the supremacy of the individual. Hand in glove with Libertarianism goes the idea of free market capitalism, where each individual enters into contracts to exchange goods of value. The classic theory as stated by Adam Smith tells us that this free exchange of goods by individuals pursuing their own self interest results in the most efficient distribution of goods and services and results in the creation of the greatest overall societal wealth.

John Nash suggested that perhaps this idea was incomplete. He showed that the self-interested competition among individuals, in a scenario of any complexity, will result in a suboptimal distribution of resources. He concluded that a system where each individual pursued their own interests and the interests of the group as a whole (e.g. competitive cooperation) resulted in the most efficient distribution and the greatest creation of societal wealth.

Okay, so that leads to my question. If individual self interest leads to a suboptimal distribution of resources and less overall wealth, should we consider it acceptable for a third party (e.g. a government) to intervene to ensure that individuals take into account what is best for the group, in addition to what is best for them, since the overall society will theoretically be better off through that action. In other words, should a government have the power to limit the liberty of an individual because through their action the society as a whole will experience a greater benefit?

For the purposes of the discussion, let's assume that the government in question could in fact understand the optimal solution and implement it without prejudice. That's a broad assumption, given the history of government intervention, but let's just let it stand for now.

What do you think? If there was a wise and benevolent government, should they be able to suborn individual liberty for the betterment of society?


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