The Encyclopedia of Libertarianism

Natural Harmony of Interests

The notion of a natural harmony of interests plays a significant role in libertarian thought. It is predicated on the idea that individual interests are harmonious insofar as acting in one’s own interest furthers the interests of the community. Improving the general welfare is an unintended consequence of self-interested behavior. This unintended consequence is based on what Jacob Viner calls the “coordinating, harmonizing, and organizing function of free competition.” The main points of contention regarding this doctrine concern the question as to how widespread and extensive this harmony is and the question of whether state action is required to put in place the right institutional framework to ensure that interests are harmonious.

The idea that the interests of a large group of individuals could be naturally harmonious became prominent in the late 17th and early 18th centuries through the work of Richard Cumberland and was taken up by the Physiocrats in France. It received a highly detailed and systematic exposition by Adam Smith. What is probably the most well-known description of the harmony of interests can be found in the Wealth of Nations, where Smith claims that “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.” It is this harmony that underlies and explains Smith’s famous “invisible hand.” The coordination of the desires of a disparate group of people is possible because there is at work an invisible hand, a function of individual interests being harmonious. There is no need for intervention, no need for a conscious intelligence to bring about beneficial results. The general welfare will naturally improve as an unintended consequence of everyone acting according to his or her own self-interest. The key exponent of this idea in the 19th century was Frédéric Bastiat, who wrote a book titled Economic Harmonies in which he discusses many instances of this general harmony. In the 20th century, it was primarily the work of Ludwig von Mises that provided a detailed description of the way in which interests are harmonious and of the principle that we serve ourselves best by serving others. This notion is closely related to what Mises calls the sovereignty of the consumer—the idea that producers in a market system have to please the consumers if they are to be able to compete. Those who serve the consumers best will benefit the most. The key debate at the end of the 20th and beginning of the 21st centuries regarding the harmony of interests concerns whether state action is required to put into place an institutional framework that allows for mutually beneficial voluntary exchanges or whether the gains from trade can be realized without third-party enforcement through various self-enforcing mechanisms.

The harmony of interests leads to beneficial results by means of voluntary exchanges. A voluntary exchange is only performed if it is in the interests of all parties involved, allowing everyone to realize the mutual gains from trade that derive from the division of labor and from comparative advantage. This stricture obviously applies to both intra- and international trade. The interests of different individuals and nations are essentially harmonious, and thus there should be freedom of exchange inside and among nations. The harmony also generalizes beyond the relationship between producers and consumers and encompasses all voluntary economic interactions, such as those between employers and employees. This scalability highlights the idea that trade and other economic interactions more generally do not amount to a zero-sum game, but are mutually beneficial. There is no fixed pie that is to be divided and shared in such a way that one person’s gain causes a loss to someone else.

The natural harmony of interests strongly supports a system of free markets, or what Smith called a system of natural liberty. If left alone, he argued, the economy will naturally develop for the better. As Smith noted, “Little else is required to carry a state to the highest degree of affluence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.” The interests of various people are harmonious, and, hence, no interference is required. Serving others is an unintended consequence of serving ourselves. Because people will take care of their own good, there is no need for the state to look after the public good. All we need for the common good to flourish is that men act in their own self-interest, which they are by nature inclined to do without any external assistance, guidance, or direction.

The harmony of interests is a general feature that holds with only few exceptions, such as in cases of natural or government-created monopolies. Such exceptions are rare, however, and the vast majority of voluntary human interactions are such that the interests of the parties involved are not essentially at odds, but can be furthered jointly. This fact supports a strong presumption in favor of liberty and against government interference. Most conflicts of interests that actually exist are the result of interventions by the state, such as the establishment of barriers to entry or exit that bring about artificial monopolies. State intervention often produces artificial and unnecessary conflicts of interest. The state shifts the strategic structure of agency from one of cooperation to one of competition for rents. People then are no longer competing to serve their own interests by serving the interests of the consumers, but are instead competing for limited and fixed benefits handed out by the government. The result is a battle for political power and political favors. Rent seeking rather than production becomes the strategy that self-interested individuals will follow given that the state has put into place an antagonistic incentive structure. Bastiat nicely captured this phenomenon when he described the state as “the great fiction by which everybody tries to live at the expense of everybody else.” As opposed to the artificial conflicts produced by the state, we can describe the market as the great mechanism by which everybody manages to benefit everyone else by benefiting himself.

Another question that arises concerns the nature and kind of interest that is at issue. The interests that are harmonious are what Tocqueville and Mises classify as “interests rightly understood.” That is, we are concerned with long-term interests, rather than with what counts as an agent’s immediate interest. Although spoliation and aggressive behavior may be advantageous in the short run, long-run interest clearly dictates peaceful cooperation and productive behavior. As regards the kinds of ends that are harmonious, some qualification also is required. Obviously in a just society the interests of murderers and thieves, as well as of those who wish to live at the expense of others, are and should be frustrated. However, it is not these kinds of interests that are at issue when we claim that there is a natural harmony of interests. Rather, we are concerned with material ends broadly understood and the interest that all have in attempting to better their material condition. It is long-term self-interest that is harmonious, not some kind of perverse interest that essentially involves the suffering of others.

The fact that short-term interests can conflict and that it is long-run interests that are harmonious implies that certain background conditions for a stable and coordinated society must be met. Long-run interests must be taken into serious consideration, and the present and immediate future must not fully absorb the consideration of individuals. For long-run interests to become salient, individuals must be able to interact in a secure and peaceful setting. Property must be protected and contracts upheld, otherwise long-term planning will be useless and repeated reciprocal cooperative interactions will be impossible. When living in a Hobbesian state of nature and when immediate survival is the issue, the harmony of long-run interests will largely be ignored and will thus be ineffective. Consequently, peace and security are preconditions of the harmony of interests.

The idea of a natural harmony of interests underscores the importance of an adequate system of incentive structures. We can understand human actions as falling somewhere on a spectrum ranging from peaceful, productive, and cooperative behavior, on the one hand, to spoliation, on the other hand. Individuals will act in one way or the other. The relevant question is whether they will act in a peaceful and cooperative manner or one that involves conflict and antagonism. Where on the spectrum between production and spoliation a society finds itself is at least partly determined by the incentive structures that individuals face in making their decisions. To the extent that people do act in accordance with their own interest, the incentive structure directly influences their behavior. By altering the incentive structure, one alters self-interested behavior. State intervention often shifts or modifies the incentive structure, such that opportunism and spoliation, rather than production and cooperation, become the optimal strategy in some cases. As has been extensively argued by libertarians, the right incentives to ensure a socially beneficial outcome are provided by the institution of private property. Clearly defined and enforced private property rights ensure the best allocation of scarce resources and allow for the coordination of the actions of vast numbers of individuals. That is, to achieve this optimal allocation, there is a need for the right kind of framework within which humans act and interact.

Once it is accepted that the harmony of interests requires some form of institutional framework, the question arises as to what status this institutional framework possesses in the theory of the natural harmony of interests. It would appear that this framework is in some sense “unnatural” and the product of human action. Accordingly, it becomes questionable whether the harmony of interests can be classified as being “natural” in a meaningful sense. Two different approaches can be identified with respect to the question of the role and status of these apparently unnatural frameworks within which human action and interaction take place. Some theorists have put forward a moderate account of the natural harmony of interests according to which state action is required to put in place and maintain the required institutional framework. Provided that such a framework is in place, the interests of different individuals will be harmonious. Interests are harmonious when private property rights are respected, and therefore there is a need for state action to put into place the required background conditions. Although state action is required, however, it should be noted that such action on the part of the state should be of a general and rather abstract nature. That is, the state should look after the protection of private property rights and the enforcement of contracts. There is no need for specific interventions or interferences. All we need is the establishment and maintenance of the rule of law. The state only has to set up the right institutional framework, rather than micromanage human interactions. To put it differently, the state should set the general rules of the game, rather than dictate particular outcomes.

The more radical approach takes the harmony of interests to be natural in the sense that the gains from trade can be realized through voluntary means without any need to have recourse to government action. This more radical version of the natural harmony of interests is often defended by anarcho-capitalists. According to this view, self-enforcing institutions will and do emerge spontaneously. Although certain frameworks are required, these frameworks naturally arise and do not need to be deliberately imposed and enforced by government. They are endogenous and do not have to be imposed exogenously. The harmony of interests is a natural harmony in that the institutions and frameworks that allow this harmony to become fully effective are the result of a natural process. Rather than requiring political institutions, various social norms, rules, and mechanisms are available to achieve successful cooperation among strangers without requiring third-party enforcement, including signaling, selection, exclusion, inclusion, and reputation mechanisms.

 

Further Readings

Bastiat, Frédéric. Economic Harmonies. Irvington-on-Hudson, NY: Foundation for Economic Education, 1996.

Friedman, David. The Machinery of Freedom: Guide to a Radical Capitalism. La Salle, IL: Open Court, 1989.

Mises, Ludwig von. Human Action: A Treatise on Economics. Auburn, AL: Ludwig von Mises Institute, 1998.

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. Indianapolis, IN: Liberty Fund, 1982.

Stringham, Edward, ed. Anarchy, State and Public Choice. Cheltenham, UK: Edward Elgar, 2005.

Viner, Jacob. “Adam Smith and Laissez Faire.” The Journal of Political Economy 35 no. 2 (April 1927): 198–232.

Originally published .