Sunday, May 18, 2014

Capitalism and GREED ...

In a past era when I taught freshman survey courses in economic systems, one of the first conceptions that always seemed to demand attention was the role of "greed" in capitalism. Students mostly started the class believing that "capitalist" was an expletive because greed was somehow a fundamental characteristic of capitalism.  

Thus my class usually started with a mini-lecture on greed, i.e., an individual's desire to have more stuff that is much more intense than the felt desire of the "average" person.  The main point: greed is an impulse that motivates individuals, not a property of an economic system.  I recalled that in the sixth century Pope Gregory included "greed" in his list of the "Seven Deadly Sins," a list popularized by Dante in the 14th Century, and that the Pope's list harkened back to the writings of an Egyptian monk, Evagrius the Solitary, who in the 4th century included "greed" in his list of eight evil thoughts.  And none of those list makers were in any way concerned with an economic system; all were concerned with modes of thinking that imperiled a person's immortal soul.     

On the other hand, "economic systems" are alternative models of the arrangements by which people organize to satisfy their material wants. The people who act in the alternative systems are taken as they are, of high and low character, motivated by elevated thoughts and base feelings.

The greatest living economist is (IMHO) Deirdre McCloskey.  To paraphrase her formulation, a purely capitalist economic system exists when:

(1)  Each individual in a society exclusively owns his own labor and the products of his labor.

(2)  Each individual may freely exchange his labor or the products of his labor for the labor or products of others.

(3)  Each individual's conduct and rights to his property are governed by objective laws that are equitably enforced and customs of ethical behavior.

Notice that "greed" appears nowhere in the formulation. 

The essence of such a system is that no individual is forced to give up his labor or it's results, and only does so in exchange for something that he feels improves his condition.  Thus all trades in a capitalist system make both parties better off, whether they seek a high perch in heaven or to boot heroin with a punk rock group.

However, human impulses of all sorts, including greed, motivate individual decisions and action in a capitalist system.  People are presumed to act to improve their personal position, to "pursue happiness."  Under a capitalist economic system people gain the material means for happiness by determining the highest valued use of their labor and directing their efforts to that employment.  The greatest return is obtained by producing the highest valued good or service.  Thus, in a capitalist system, wanting (intensely) to have more stuff than the average person motivates the greedy to inventively satisfy the most intensely felt wants of others. 

All alternative economic systems can be represented in terms of the way and the degree to which the three properties of a capitalist system are modified.  And the essence of all alternative economic systems is the vesting of an anointed individual or group of individuals with the power to coerce others to specific ends determined by the anointed.  The anointed may become such by muscle or guile or virtue within any number of forms of social organization, be it family, gang, tribe, marauding horde, city-state, fiefdom or nation-state governed by leader, chief, king, oligarchy, or executive and legislature.  From the point of view of economic results, the form of the organization which distorts the capitalist pillars is immaterial.  

And while none of the alternative systems so formulated will have "greed" as a structural element, greed is just as present in all of the actors who operate within the systems.  The meaningful question is: what happens when greedy people make economic decisions in alternative systems.

In capitalism greedy people satisfy their base impulses by providing more value for others.

In alternative systems the greedy amongst the empowered inevitably sate their vices by coercing the productive to engage in exchanges that benefit the empowered.  This first reduces the welfare of the productive and ultimately reduces their production.