01 October 2008

Public interest in private actions

In the complexity of modern commerce it should be recognised that there is no such thing as a "self-regarding" or a private action. ... Every industrial action, however detailed in character, however secretly conducted, has a public import, and necessarily affects the actions and interests of innumerable persons. Indeed it is often precisely in the knowledge of those matters regarded as most private, and most carefully secreted, that the public interest chiefly lies. Yet so firmly rooted in the business mind is the individualistic conception of industry, that any idea of a public development of those important private facts upon which the credit of a particular firm is based, would appear to destroy the very foundation of the commercial fabric.

But, although in the game of commerce a single firm which played its hand openly while others kept theirs well concealed might suffer failure, it is quite evident that the whole community interested in the game would gain immensely if all the hands were on the table. Many, if not most, of the great disasters of modern commercial societies are attributable precisely to the fact that the credit of great business firms, which is pre-eminently an affair of public interest, is regarded as purely private before the crash.

The Evolution of Modern Capitalism: A Study of Machine Production by John A Hobson, published 1906


Anonymous said...

But if you can see someone's financial position then you can see how they are vulnerable, and act to exploit it. Just ask Eddie Groves at ABC, or the other CEO's with margined shares.

In a non-limits poker game, if you know someone's betting stake you can win if you can bid a little more than they can match!

Sometimes a veil evens things up and keeps people "honest".

Disasters in modern commercial societies, particularly in the century prior to 1906, were instead due to the banking system first loosening then tightening credit -- and that power only comes to banks because government allowed them to practice fractional reserve banking. Creating money out of nothing is the source of all instability!

Bron said...

It is a balancing act between public and private, so I suppose a solution is to allow some special people to have a look what is going on behind the veil and let everyone else know if it is OK.

Wait a minute, we already did that, they are called auditors and regulators. Looks like they have been asleep on the job in the US.

Question is do we trust the Australian regulators when they tells us the Aussie banks are OK?