Greed is Not So Good

Matthew Continetti steers us to a fascinating treatise on Capitalism by the eminent Jeffrey Friedman, which argues, in part, that the popular interpretation of Capitalism's dependence on self-interest and greed is wrong. Mr. Continetti quotes Dr. Friedman:

UCLA economist Armen Alchian showed in 1950 that capitalism would succeed even if capitalists weren't motivated by self-interest—and many capitalists, such as the founders of Google and Whole Foods, were not motivated by self-interest ... Smith's parable of the baker, to whose benevolence we do not appeal when we buy our bread, is actually a lesson in unintended consequences, not in the wonders of greed ... The baker intends to make money, but he can do so only by providing his customers with bread ... that doesn't mean that greed is always good, or benevolence bad. Nor does it mean that greed accounts for the success of capitalism.

I have a few quibbles with Dr. Friedman. For instance, benefiting buyers is not an unintended consequence of the baker's actions; it is a necessary condition to selling bread, without which no baker would stay in business long.

But, by and large, I think Dr. Friedman is correct. In the first place, Capitalism does not have some corner on greed. Socialists can be greedy, as can Popes, Saints, and social workers. Greed is a common human emotion, and Capitalists, as human beings, can sometimes be greedy. But Capitalists also run the gamut of other human motivations as well: sense of excellence, envy, charity, benevolence, anger, pride, sloth, kindness, and love.

Which is to say that greed is a very poor explanation of why Capitalists do what they do. But it is also a very poor explanation of what Capitalists do. "Making money" is a mere slogan, and tells us as much about Capitalism as it does about Art and the artists that produce such works. Certainly, artists work and expect payment, but that is an aspect of their work, not the substance.

In its simplest sense, Capitalism is freedom, the freedom of letting people do what they deem important. As such, what a Capitalist does is as many and varied as there are objects or goals in the world. But, in all this variety, Capitalists have one common characteristic: a singular commitment to an individual ethic of self-responsibility.

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Whatever he has and is trying to accomplish, a Capitalist takes personal responsibility for the process, looks to himself to make sure that his part gets done properly. Self-responsibility is not self-interest; it is more akin to Christian Stewardship than anything else.

It is true that economics and accounting play a large role in what a Capitalist does, but that is a function of the Enlightenment revelation that the economy and businesses follow certain very defined laws of behavior.  Profit and Loss is not an ideology or a way of living, it is a scientific fact, and anybody that tries to get along in the world without some modicum of knowledge of the subject will fail miserably. This includes Christians, Marxists, Communists, butchers, bakers, and welfare recipients. Capitalists, as self-responsible players, are simply being appropriately hard-headed about the reality of the world.

The benefits of Capitalism derives from this principle of self-responsibility, and points us to why other systems just do not work as well. As the famous parable about making a pencil tells us, the simplest economic transactions involve hugely complex decisions made by hundreds of thousands of disparate people all across the world.  Few of the people involved in the making of a pencil knows much of anything about any of the others, nor do they seek such knowledge. In the making of a pencil, each person is concerned with his own job, with what he puts into the process. Lumberjacks cut trees; truck drivers transport the wood; miners on the other side of the world dig graphite; manufacturers invest millions in machinery to cut the wood; and etc. One person, or even a committee of people, simply cannot have the huge range of knowledge, expertise, and physical ability to do all of the work that needs to be done to make a pencil.

Capitalism is what makes this process work, as each little part of the process is given the attention and expertise needed by individuals and groups taking responsibility for what it is that they need to do.

Despite appearances, the most hierarchical organizations invented by Man, whether a Catholic Church, a Communist dictatorship, a multi-billion dollar corporation, or an Army, depend for their success on subordinates taking responsibility for their work and providing what no executive class can: knowledge about what is actually occurring on the ground, and the creative response to that information that will enable the group's goals to be achieved.

Capitalism incorporates this wisdom explicitly and transparently into what it does. Non-capitalist organizations tend to bury this wisdom in ideology or ignorance, and as a result, achieve their goals and purposes inconsistently, if at all. And when they do achieve anything, it is more often accompanied by inefficiencies and a sickening waste of its best resources: its people.