3.3.5 Deviations from the Classical Economic Model
Economic power has been presented, so far in this book, in classical terms. Classical economic theory is predicated upon people and organisations behaving rationally in their own self-interest, guided by ‘the invisible hand’, to optimise wealth creation. This section looks at some of the ways in which the economy may not always behave as expected, as described in the following sub-sections:
- Individuals do not always behave rationally (18.104.22.168).
- Geopolitical events and other unpredictable changes in circumstances constitute what are known as ‘economic externalities’ (22.214.171.124).
- Restrictive practices, some of which have been endorsed by governments, affect the working of markets (126.96.36.199).
In addition to the above deviations, there can be criminal or immoral behaviour such as fraud, deception, theft etc. Regulation can combat many of these abuses when they are within a single country, but it is often difficult to pursue malpractice that originated in another country. In the absence of global regulation, the only defence against many abuses is vigilance – which in this book is categorised as Self-Protection (7.2.2).