Response to the comment by Michael Haimson

I will respond in blue.Michael's comment is in black

Very interesting post,
A few things...

The basis of a market economy is the fact that we covet each others assets. That is what makes the system work. That is why private property is a success while state/bureaucratically controlled lands and businesses are failures.

Merrian- Webster offers the following definitions of "covet":

transitive verb 1 : to wish for earnestly <covet an award> 2 : to desire (what belongs to another) inordinately or culpably intransitive verb : to feel inordinate desire for what belongs to another

The Mitzva offers a metric for the second sense "to desire (what belongs to another) inordinately or culpably". "Inordinately or culpably" is legally prohibited at two points:

a) If one makes an actionable plan to transfer property ownership against the owners will

b) If one executes such a plan.

Torah law demands that we respect our fellow citizens right to private property as an expression of law equal in significance to ourselves. To deny property rights of another is therefore to affirm that I am myself the source of causality- not natural law. This affirmation is the basis of irrationality because it encourages purely tactical magical thinking and discourages deep thought and strategic planning.

The fact that most businesses fail is not due to the inadequacy of man's planning, but due to the tumult of the marketplace. In order to succeed in the market one must invest capital and labor into a concept that is based on one's own flawed sense of perception of the demands in the marketplace. The fact that we were able to advance this far with such an anarchic system speaks volumes of the benefits of the system.

Also, don't forget that many businesses fail after a long period of success, that is another aspect of the market (creative destruction). Ask the buggy makers how they felt after Henry Ford starting his work.

I can certainly agree that imperfect knowledge and changing conditions are also important
factors in business failure. These would of course be intimately connected to magical thinking as well. The question needs to be asked: did the business diversify in anticipation of changes in the market due to strategic factors? Did the business embrace change or vainly attempt to maintain itself in the face of change. Kuhn in the "structure of scientific revolution" points out that the irrational inflexibility is a product of thought itself not just business thought. We naturally cling to theories that appeal to us personally, magical thinking, rather than flexibly adapt to the sovereignty of natural ideas.

Now when it comes to bubbles you have to realize that bubbles form around all booming industries. The life cycle that most new industries follow are quite standard: An individual or group of individuals revolutionize the marketplace with a new innovation, they go through a period of isolation or doubt from the market until they are shown to be profitable, slowly the elite of the market jump on the train as it's leaving the station and you have a runaway success. The problem begins when it becomes so mainstream that the mainstream market believes that they too can prosper from it, what happens then is that you have huge malinvestment due to the hubris of many credit institutions that release more credit into the market than can be handled. This over investment causes huge problems which develop into a bubble and can only be fixed by a correction (most economists cannot predict when or if a bubble has formed). Then you usually see a mass wipeout of mainstream investors, and then the industry that has grown up around the new innovation settles down and becomes more stable (Tech Sector is pretty hot today).

But the interesting thing that happens is that the over investment during the bubble years may have long term benefits, such as the Trillions of dollars spent on fiber optics that have never been used (And that caused Global Crossing and the like to go bankrupt) are being used by developing nations at marginal cost, helping develop huge nations and bring jobs and new businesses to the world market.

Self interest and a dynamic free market have been the hallmark of human achievement in my view. What you (and the Ralbag) are suggesting is quite vague and similar in sound to other plans that call for economic planning in the mold of an elite or some philosophy. While I agree that this cycle is quite destructive to some parts of humanity, there really is no other system out there.

And just to make a final point, it is impossible to enlighten everyone to the point that they realize that by acting in accordance with a higher philosophy when it comes to their economic affairs is the best way to go, and we must realize that having people act in their own interest has worked thus far. Whenever we don't have self interest (brilliantly understood by the proponents of private property) we have inefficiencies in the economy that cause undue suffering to the entire population.

Aren't you describing the very process I am speaking of? The spoiled children rush into a market they dont understand with as Greenspan says "irrational exuberance". Then they burn their fingers and get experience with the failure of magical thinking. Then they learn to invest based on rational factors. All I am saying is that if Greenspans were more succesfull in their Pirkei Avot like teaching the cycles of nature could be made much less volatile. This would be done through the new educational system giving people a mature sense of their true "self interest" you were writing about in your blog- not a command economy.