Wednesday, November 10, 2010

Economics and Morality

Just some quick musings for a change of pace early in the morning.

1. The original intent of capitalism's inventors, Adam Smith and Jeremy Bentham, was to level the playing field.  The goal was that the pleasure of the coal miner counted as much as the pleasure of the king.  Capitalism was birthed in ultilitarianism, the greatest pleasure for the greatest number, where everyone's pleasure counted the same,  The philosophical background of capitalism is thus egalitarian with the goal of maximizing the happiness of society.

2. To that end, the laissez-faire, free enterprise system built on the premise that people can look out for their own interests.  If everyone does, then merchants will not charge more than they can get away with and consumers will buy as cheaply as they can.  The ideal result is thus the greatest good for the greatest number.

3. John Stuart Mill already recognized some complications to the theory.  For example, people do not always act in their own interest.  Also, we can question whether all pleasures should count the same.  Our take away is that consumers need to be informed and, in various ways, protected, for the system to work as Adam Smith intended.

4. By the mid-1800s, the Industrial Revolution began to reveal even more complications to the system, captured aptly in some of the European revolutions of 1848 and then later in the Bloody Revolution of 1917 in Russia.  While history has soundly rejected Karl Marx's own Hegelian predictions and suggestions, his critiques of capitalism are harder to deny. 

Capitalism empowered certain individuals on such a scale that the "little man" could not possibly compete.  What average or even above average individual has the capacity to compete with Wal-Mart?  Factories ran over the little man and could replace him or her in an instant.  If she gets sick, if the management is tyrannical or pays pitifully, most individuals are powerless--the very individuals capitalism was meant to empower.  The reality is that people get stuck, don't know where else to go, don't know what to do.  The late 1800s and early 1900 (think, The Jungle, The Grapes of Wrath) revealed nothing like Adam Smith or Jeremy Bentham's dream.

5. So unbridled capitalism of the late 1800s simply recreated the divide between haves and have nots in a different way.  Protections price gouging laws and anti-trust laws are meant to keep the system in balance so that free market principles can actually work.  Consumer protections do the same.  The goal of capitalism was not to reward those in a position of advantage or greater know how to be able to get rich.  The goal was to create a system where everyone could thrive.

6. History has vindicated Hayek's economic approach over Keynes', one that radically deregulates, does not fix prices or pump money from the government into the system.  Perhaps it is true that a Hayek approach after the Great Depression would have ended the Depression sooner, as opposed to F.D.R's more Keynesian approach.

7. However, here is where morality and the underlying philosophy of capitalism comes into play.  When Milton Friedman and others went to Chile, yes, their Hayekian principles got the economy under control.  But what a painful year to get there!  The same for Eastern Europe. 

The bottom line is this.  Utilitarianism is a macro-system.  It does not take the individual into mind.  It's goal is for, say, 90/100 people to be as happy as possible.  But in the process, it allows for the immense unhappiness of the other 10.  This is the brilliance of the Bill of Rights and a "universal ethical egoist" system over a purely utilitarian system.  It is simply unacceptable from a moral perspective for 10 people to starve to death while on a fast track to make the world a better place for the other 90.

So we have to take into consideration whether anyone starved to death in that really bad Chilean year.  And the situation in Russia after Jeffery Sachs Hayekized it is filled with organized crime who took all the capital for themselves.

Moral Principals going forward
1. Capitalism is far from a divine right.  It is a mechanism we affirm because it is the economic system that holds the most potential to maximize happiness.  It's philosophical goals were originally not entirely different from those of Marxism or socialism--it is just effective while we can see that socialist economics are a complete failure. 

A key point is that we have to get over the labels, as if the label capitalism equals good and the label socialism equals bad.  This is ignorant and illogical.  Each idea must stand or fall on its own two feet and the overall goal of maximizing societal happiness without running over individual rights must be kept in view.

2. History has vindicated Hayek over Keynes as an economic method.  However, history has also shown that unbridled capitalism does not achieve its underlying goals either.  When all regulation and control is taken away, capitalism becomes oppressive with a very few gaining immensely and the vast majority suffering.  Protections for the consumer and worker are essential to keep such things from happening.

Theory must not be implemented merely with a view to the quickest recovery.  The lives of a societies individuals are a moral element in the equation that must be considered.  I am neither enough of a historian or an economist to say, but it is possible that FDRs policies were the more moral course of action even if they slowed down recovery from the Great Depression.

3. The implementation of economic theory must always be driven by the impetus to maximize the happiness of society at large without destroying individuals.  Again, the "fittest" do not have a divine or evolutionary right to accrue wealth at the expense of the little man.  This contradicts the founding goals of capitalism in the first place.

4. We need to make a clear distinction between my property and the system that can facilitate the accumulation of wealth.  For Christians, it is important to realize that my "net worth" today is something quite different from any biblical understanding of wage or property.  In biblical terms, property is something I inherit and a day's wage is somewhat standard throughout the world. 

There is no divine right or innate justice to market wages.  They vary according to demand and the state of the system.  In philosophical terms, we have no basis to say that the $250,000 salary of one person is more of a "possession" to that person than the $20,000 of someone else.  It is the system that has assigned a different value to each person, not necessarily the amount of work he or she has done. 

The long and short of it is that the Tea Party person does not have the same claim on every penny of that money as she might think she does.  It is not a concrete possession like a car in the driveway.  The system gave that amount for work and the system can take it away without either action being either morally right or wrong.  The moral significance of money in a capitalist system does not map directly or neatly to the moral significance of property in an agrarian one.

I don't know if I have done these ideas justice, but these are some of my musings at the turn of the twenty-first century.


Angie Van De Merwe said...

The biggest obstacle in our society to co-operation is considering all aspects of such economic projects, and the people involved with a project.
Americans have the "right to know", and this is the basis of the business contract. Information also protects from unethical "hiding" of another's intentions. This is why beauracracies are hard to hold accountable. There are just too many places and ways to hide the 'unethical". The 'unethical' is not the illegal, but the immoral...because it does not consider all the human elements.

As to "market" salaries, it would be hard to defend that it is moral to "take advantage of another", by a lack of information, unless that is agreed, as to job description and responsibilities and negotiating salary. Contracts should protect all parties.

Labor unions were organized to "fight to the right of the worker", but I wonder if today's "market" calls for a re-thinking of such an organization. It seems that as our nation has discrimination laws, the labor union doubly protects the "minority", while inadvertedly ignoring the right of the white worker.

A little over 3 years ago, teachers in the Marion school system had a problem with negotiating their salaries and benefits. Should the "market" be the local economy, the context of the organization, or the larger world "market"? This is also something that needs to be "pondered"....

Angie Van De Merwe said...

When our jobs have been outsourced because corporations can get others to do the job at a lower costs, how are we to understand and look at the corporations responsibility toward "their people" (Americans), or their ethics, regarding "slave labor"?

Ken Schenck said...

Angie, I think your comments well reflect how complicated the implementation of economic philosophy becomes in terms of concrete, real world realities. I believe our current prosperity to some extent rides on the fumes of adjustments to capitalism made here and there over the last 100 years. It is a strange unwieldy mess to be sure and difficult to see how to streamline it politically. What I strongly disagree with is the almost pure libertarian approach of some in this latest wave who would obliterate both the good and the bad in adjustments made for "moral" reasons this past century. They would almost take us back to The Jungle.

Angie Van De Merwe said...

I just sent you an article with another way to protect the middle class. This is something that needs to be thoughg about, because it is the middle class that protects "abuses of power".

Angie Van De Merwe said...


Are you suggesting that the contract, which protects trust and defines the expectations between the employee and the employer, is to be "written off", as a re-direction of heart toward God? "God will protect"???????????? This is absurd! And it is what has sickened me about fundamentalist Christianity!

Angie Van De Merwe said...

It is a lttle disconcerting to hear that some states are facing "other" legal documents that vye for attention, other than our Constitution. International law is being considered at the state level as it concerns contracts. Does this undermine our sovereignty as a nation?

::athada:: said...

This is brilliant. Great economic lay thinking that can help us navigate this mess, without slinging mud and making it messier.

I have long thought that market wages can be considered "fair" without necessarily being just in a moral or theological sense. A Bolivian woman selling papaya on the street for 14 hours a day makes far, far less money than me. This might be fair, but certainly not just.

Some fear that some world gov't will take this to a communistic extreme, but that's just rejecting reality for a paranoia about the slippery slope. It appears the modern Tea Party is so afraid of the slippery slope that they've backed up and fell down the other side.

Martin LaBar said...

Thanks for doing this.

One of the reasons for using international laws is that we are a global economy, and many companies in, say, Indiana, have contracts with companies in other parts of the world. Such contracts, it seems, should reasonably meet the legal requirements of both nations.

Angie Van De Merwe said...

It is NOT that easy! (I don't think) different countries have different ethical/legal standards, in regards to contractual agreements. And that is only looking at the contract itself, not whether one should enter into such a contract in the first place.....

Angie Van De Merwe said...

This is the "subject" for me today, for my "learning curve", it seems. It started out with a report that the D.C. area was in the Top Ten for "well-being and health" and the median income of $85,000.

It brought many questions to mind. Why would D.C. area advance a higher level of "well-being and health"? How was this measured and what does "well-being" mean?

Of course, D.C. is a high cost area that must grant its workers an above average salary. But, what drives these figures are government contracts. And everyone knows that when the governemtn gets their hands into economic adventures, there is corruption, waste, etc. etc.

International commerce has driven political policies, as well. But, there should be a separation of powers, so to speak. Private corporations should be, just that, private investments. And government should be about the business of protecting its citizens by upholding the Constitution, and not protecting corporate intersts (or the monied) at the expense of a citizen.

Bob MacDonald said...
This comment has been removed by the author.
Bob MacDonald said...

Oh dear - my comment didn't get lost - Ken please erase the duplicates - sorry

Ken Schenck said...


Angie Van De Merwe said...

The problem is not with average America, is it?

Yes, if one believes that credit (presumption) is what drives the consumer's insatiable lust for more. But, this is so, as to profit margins as well, or as to speculative markets...

So, bottom line, each man lives according to his own conscience, but must live within his means. And that "means" is the debate about what is "the necessary". MYOB...don't lust after another's "garden"...and make your own choices according to your own values.

Bob MacDonald said...

Angie - it's an interesting phrase that you use: 'average America'. I think I agree with you that 'the problem' is not there. But I don't know where to locate the problem - it seems it really does stem from things that may have happened years ago that have affected our consciences in ways we are not aware of (like colonialism, or the opium wars). So how do we - each individual - change? I can't change on a 'big' scale - I must change day by day, moment by moment, as I hear the call of others to me, and me to myself, and the mystery of the internal dialogue, however we 'interpret' that.

Sometimes I say yes to what I hear, sometimes - hey let's think about that, and sometimes no.

Angie Van De Merwe said...

But, at the same time, those that live beyond their means (the government presently and others individually) make demands upon the 'system of society' that has caused the stresses that we all feel! This is what maddens me!!

Why should "Joe, the Plumber" not have enough work because the person down the street can't afford to fix their bathroom professionally? Or my husband or I, who have chosen to not go the path of risk, money-making, or speculation pay for those who've been irresponsible or "take the risks" in thier life choices?

I mean, I struggle, sometimes, with what "could have been" or "we could have had", if we'd chosen another path, but it is a poor substitute for family and friends... I don't allow myself to go there too often or for too long. That isn't healthy...

Angie Van De Merwe said...

I re-read your last entry and missed that you were trying to get at the "global issues". I think that "global issues" will always be there, and we have so many issues at home presently BECAUSE of such thinking with trying to rectify or change the system.
Haven't you heard that corrupt government are many times the culprit of the poor not gettting their 'humanitarian aid"?

I am not dismissing those that do such work. More power to them. But, your suggestion that "colonialism" was a culprit, is anachrostic. How could we be otherwise? And how can the world work differently? Everyone knows that there will always be discrepancies...this is how "evil" is justified, isn't it? So, bottom line, one cannot have a system to rectify the system, one can only do what is in their conscience to do...(I really resist/resent those that try to "manipulate my heart strings", as it speaks of disrespect for my own personhood!!)

Anonymous said...

I appreciate the give and take in your analysis; there is much I agree with.

What has to be kept in mind, a perfect system that is going to make 100% of the people happy, contented and prosperous 100% of the time does not exist. It’s a bit overreaching to even suggest such a thing is possible.

Speaking to one, and only one, issue about the Capitalist system as it has been played out in the U.S.; and which I believe does fit within Biblical morality at the same time; it allows for anyone, and I believe it can be anyone as far as the government is concerned, even a person with no financial standing at all; should he make an "honest" billion dollars, it’s his to keep (Taxes not withstanding).

Fewer than 1% of the people in the world could ever make that kind of money; fewer still would ever want that kind of money, and those who have that kind of money are fairly good and spreading it around. I'll take this system any day to a government where a few men/women meeting in a closed office will decide how much you will be allowed to make and/or keep. This is not Biblical morality to me; it comes under the heading of "thievery".

Jesus made the point that the poor you will always have with you. He wasn't suggesting we must see to it that a certain number of people are kept poor; and he wasn't condemning wealth, it was a recognition that there is a lot of variables that comes into play as to how an individual will live and there will always be those who make bad choices as well as many who will be forced to live in circumstances that clamp down on their ability to get out of poverty ghettos not of their own choosing.

To use the analogy of one very famous person, you don’t make a nation prosperous or balance the scales for the less fortunate by punishing those who are prosperous.

Anonymous said...

Hayek has been vindicated? That's news to me.

Ken Schenck said...

Anon, to me the debate to have as a nation is 1) how much tax, 2) how tax is distributed, and 3) what is tax used for. I think you implicitly accept the legitimacy of taxes.

Scott, I am but a novice, but it seems to me the Hayekian experiments of the last twenty years in South America and Russia have very quickly turned these socialist economies around.

Anonymous said...

Whatever the economics, everything takes place within a society, so at base there is always socialism. That some people by chance (nobody gets a lot of money by working for it) get more money than others destroys society, so society must stop that happening.

Jon Bachman said...

Ken, when you do get around to reading those economics books let me give you some authors that deserve your attention - in no particular order: Ludwig von Mises,Human Action - Henry Hazlitt, Economics in One Lesson - Fredrick Hayek, The Road to Serfdom - Percy L. Graves, Understanding the Dollar Crisis - Milton Frieman, Free to Choose - Fredrick Bastiat, The Law. If you read these volumes you will be well on your way to understanding free market economics,and why it is a gift from God.
The free market is simply a mirror of the way things are. Those that are enamored of government involvement in the economy through higer taxes or increased regulation, or tariffs and subsidies that benefit some at the expense of others continually try to change the image in the mirror by trying to change the mirror instead of simply trying to change what the mirror has revealed.
There is nothing to fear from free markets: "Where the Spirit of the Lord is there is liberty."

Ken Schenck said...

Jon, someone suggested Hazlitt to me this week. I'm really wanting something that is more comprehensive rather than idealogical. As you might see from the other post, theorists line up. I sure would like to read something that at least seems open minded.

Anonymous said...


I would be cautious is throwing Russia out as an example. That particular experiment has ended in kleptocracy and a slide back to one party, authoritarian, rule.

In Chile's case, the shift from leftist to rightist totalitarian regime and finally to a market economy blurs the situation to the extent that drawing any conclusion other that "totalitarianism is bad" seems unwarranted.

I am no economist either but the ideological nature of Hayek's libertarianism sets all my warning bells to ringing. It's easy to point out the problems in the world so these schemes, like socialism, always look good on paper. But proscribing solutions is a whole 'nother thing. My "ideology" says that if the answer is "elegant" or "self-evident" that it stands no chance in the messy reality that we are forced to actually live in.

Anonymous said...

Wow, Jon. You sure are handy with those slogans.

Slogans are fun as long as they are not mistaken for arguments.