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.