Reconciliation of Self-Interests with Public Interest

Every economic market is driven by self-interest, and depending on the type of market, part of this self-interest may or may not be reconciled with public interest. Every business individual in a healthy business environment, such as the market, has personal self-interest that leads economic activity. A businessperson's self-interest can be reconciled with the public interest in order for the market to work efficiently and smoothly. There are various open market characteristics that influence an individual's market actions (Hamminga 1983, p. 36). In fact, most of these factors are determined by the public interest in the market. The Australian housing market is such an epitome of global markets which outlines this reconciliation between the individuals and the public. This relationship between the self-interest of the people and the public interest can be explained by different economic schools of thoughts. Such theories include the traditional economic school of thought, the neoclassical economic school of thought, and the Marxist school of economic thought. The Australian housing market can be used to differentiate and compare these economic schools of thoughts in a contextual way. Though there are many differences between these schools of thoughts, they address the same issues of the market. The Australian housing market has some important trends in the interest of buyers, sellers, investors and the general public. This paper will establish if the Australian housing market reconciles self-interests with the public interest. Analysis of the market shows that the market trend has been affected by the individual’s interest and the public interest in the market factors.

The classical economic school of thought outlines some of the open relationships between the government and the economic markets, for example, the Australian housing market. It is also known as the liberal economics and was developed between the 18th century and the 19th century by professional economists such as Adam Smith and several others. It was the first developed economic school of thought and afterwards it was replaced by the neoclassical economic school of thought. The fundamental principle of this theory asserts that the economic markets will always operate best in an environment with very minimal or no government interference, just like the Australian housing market without the government interventions. Since the emergence of the classical theory, there has been an improvement in organized economic system. The theory holds certain assumptions in the economic market. These economic assumptions have been evident in several international markets like the Australian housing market.

The first assumption asserts that the economic market is the self-regulating environment of economics. According to the theory, it is believed that a free market can regulate itself without any intervention from the government. This means that the economic market can achieve their natural equilibrium without any outside intervention. The classical economists argue that the market economy can achieve the real natural level of the gross domestic product or the general output. Since this GDP is a self-adjusting mechanism and an individual can adjust his or her capacity independently, there is no need for outside intervention from the government or any other institutions. From this evidence, it is due to this theory that the Australian housing market has retrieved back their real level of GDP. Consequently, there is no need for money supply and inflation rates while calculating the real gross domestic product, hence, government interventions are not vital.

The theory also assumes that absence of the external intervention creates flexibility of prices of goods in the market. Only money can affect the level of prices and wages in the market (Eltis 2000, p. 13). There are also flexible interest rates due to equality of both savings and investments in the market. It is due to this flexibility that the market will maintain its equilibrium. The classical economists also assert that the nominal and real variables can be analyzed in the absence of the support of outside interventions. The constant balance enables the supply to create its self-regulated demand (Jaeger 2006, p. 330). According to the Say’s law of economics, the classical school of thought is believed to create an environment where production creates surplus income to demand all the output in the market. This classical economics theory assumes that there will always be net saving and spending in a market without the governments’ interventions.

From a critical review of the classical economic school of thought it can be concluded that there is no need for the outside interventions from various institutions, for example, the government, to achieving the success of the economic market. Markets such as the Australian housing market have achieved prosperous success due to this theory. Some laws also support this theory such as the Say’s law on economics. The Say’s law supports the argument that a higher level of the gross domestic market can be achieved in an environment without government intervention.

The neoclassical economic school of thought provides an approach to the economic relationship between the supply and the demand of the individual’s needs and desires in the market. The theory asserts that the individual’s rationality and abilities play the main role in maximizing the utility and profitability. Most economists believe that the most central concern of the customers in the market is the maximization of their personal satisfaction with the products (Perlman and Walker 1990, p. 991). This theory was developed by economists to create an alternative to the classical economic school of thought in the 20th century. This theory relates the price demand and supply of the customer’s needs in the market. Due to the forces of demand, the customers’ interests can control and determine some of the market forces, such as the price of the products and the demand in the economic market and, therefore, influence the supply. The approach of this theory focuses on the control of products output, distribution of income, and supply and demand in the market. In fact, the determination of these factors is influenced by the factors of production, customers’ needs, and profitability of the market. This theory is the most used economic theory in most markets across the world. Just like the classical theory, the neoclassical theory also holds basic assumptions towards the economic markets like the Australian housing market (Campbell and Marshall 2002, p. 170).

The theory asserts that the decision and control of the economic issues and factors in the economic market are always made rationally. The factors are always considered based on the full information about the products and services delivered to the customers. The final products must safeguard the customers’ interests and satisfaction. For example, before deciding on the prices for goods and services in the market, the demand and supply forces must be considered concerning the effects on the equilibrium of the economic market. This shows that the decisions made in the market must reconcile with the maximum needs and satisfaction of the individuals and customers in the market. According to this theory, the consumers are assumed to compare the terms of sales of goods and services to satisfy their needs before purchase.

The theory also presumes the interest of both sellers and buyers in the economic market. The main aim and interest of the customers are to capitalize on the satisfaction of their needs with the available products in the market. The companies, on the other hand, aim at maximizing their profitability while minimizing the cost of production of the goods they deliver. All the interest of the customers and the companies must be safeguarded for efficient economic activities in the market. It should not go without noting that the concepts of this theory are to provide market equilibrium by use of the available products. The market equilibrium can only be achieved in case the customers and the companies achieve their respective interests and goals from the market.

The two economic schools of thoughts present relatively similar ideas and approaches. They outline what is happening in various world markets, such as the Australian market. The concepts can be applied in the everyday work of the economic markets. Some of the assumptions held by theories are critically directed towards the interest of both the public and the individuals in the market though they act independently.

The theories hold the similar assumption that both the sellers and the companies can influence the market equilibrium. The doctrine of equilibrium states that the market equilibrium is determined by the forces of demand and supply. The demand is influenced by the satisfaction of the potential customers while the supply is determined by the favorable supply conditions of the sellers (Mehra 2011, p. 30). All these factors jointly affect the market equilibrium and determination of other factors such as demand and supply level.

The two theories also outline how some of the market factors can be influenced by the interests of market stakeholders. From the classical economic school of thought, the interest of the buyers can affect the demand and, hence, the sales in the market. According to the rule of demand and supply, lower demand leads to a decrease in prices. Similarly, the increase in supply to the market will lead to an excess of products in the market forcing the sellers to lower their prices. In the case of the neoclassical theory, the interests of the customers can affect the prevailing prices in the market. In the same way, the interest of the companies for higher profitability can lead to an increase in the market prices by the sellers.

The theories also present the idea that other outside forces and interest, such as the government, can not intervene and affect the vital decisions in the market. Markets such as the Australian housing market have not been affected by the government interventions. The main groups of individuals that affect the decisions of the market are the sellers and the buyers. They jointly influence the level of demand and supply in the market.

Though the two theories present relatively similar approaches to the economic market, there are, however, some differences in their assumptions of the economic market. The classical theory supports that the investors and the other market stakeholders can affect the prices of the market products (Perlman and Walker 1990, p. 991). However, the neoclassical theory asserts that only the demand and supply forces can affect the prices of the goods in the market. The two forces of demand and supply affect both the demand and supply of goods in the market and, hence, the prices.

Consequently, the classical economic school of thought relates the Gross Domestic Product with the interest of potential individuals in the market. The neoclassical theory, however, does not include the gross domestic product as one of the factors influenced by the interest of individuals in the market. The interest of the buyers, which affects the demand, can only affect the sales volume in the market and, hence, the total GDP (Eltis 2000, p. 13). On the other hand, the neoclassical theory asserts that the interest of the individuals can affect the money flow in the market which ultimately affects the economic activities in the market.

In conclusion, the two theories explain how the economic markets relate to the individual’s interest. Although the two theories may present conflicting arguments, the ideas relate to what is happening in markets in real-life situations. Both theories have been applied in some markets like the Australian housing market, which has stepped out as a developed economic market. The economy of this market can not be compared with any other regarding the relation between individuals in the market. There may be reconciliation between the public interest and the individual interest, but, according to the theories, the individual interest must not reconcile for efficient economic growth. It should not go without saying that some of the outside interest is not vital for decision-making. From the discussion above, some outside factors such as the government interventions are not appropriate in determining forces in the market. For example, the government intervention is not considered while determining prices in the market, since it does not affect the demand and supply directly.

References

Campbell, H., and Marshall, R. (2002). Utilitarianism’s bad breath? A re-evaluation of the public interest justification for planning. Planning Theory, 1(2): 163-187.

Eltis, W. (2000). The classical theory of economic growth. Basingstoke: Macmillan.

Hamminga, B. (1983). Neoclassical theory structure and theory development. Berlin: Springer.

Jaeger, M. M. (2006). What makes people support public responsibility for welfare provision: self-interest or political ideology? A longitudinal approach. Acta Sociologica, 49(3): 321-338.

Mehra, R., Piguillem, F., and Prescott, E. (2011). Costly financial intermediation in neoclassical growth theory. Quantitative Economics, 2(1): 1-36.

Perlman, M., and Walker, D. (1990). Perspectives on the history of economic thought. Volume I: Classical and neo-classical economic thought. The Economic Journal, 100(402): 991.