Tuesday, June 25, 2013

Myths of Capitalism VI (or, self interest)

Last time, I explained how capitalists use the term efficiency and how it is different from productivity. Indeed, an efficient economy, according to capitalist theory, might not be the most productive. There is, of course, more to say about capitalism, but let's shift gears a bit look at the ethics that underscore capitalism. Capitalism is about economics, but that does not mean that it does not carry with it an ethics. Most people -- including a lot of advocates of capitalism - contend that capitalism is about money. If you've watched the Lang and O'Leary Exchange, you know what I mean. One of the hosts -- who is into money -- also defends capitalism as the way to go. Yet, properly understood capitalist economics is not actually about money. It is about, as I indicated in my last blog, the allocation of goods and services as opposed to just producing more goods and services. And, it is also about individualism.

This is the myth that we we need to explore: capitalists believe that everyone is self interested and that means that everyone is greedy (they want more stuff). Remember the movie Wall Street? I have no doubt that there are a lot of advocates of capitalism out there who think that it is all about self-interest defined as wanting more stuff (or, money). But, does this explanation for human behaviour actually work? Does it make sense?

The answer is no. In fact, there are a number of problems with this way of explaining human behaviour. First, in explaining everything -- all human beings are self-interested -- it explains nothing. Think about it. It tells us that we all react in exactly the same way. If that is the case … why are people so different? Why, when given a choice -- pick your issue, oil sands development, shale gas -- do people react in different ways. If we all supposedly just wanted more, there would be no controversies. Instead, there are controversies because people are different.

But, wait, someone might say, sure people are different but they are all reacting out of self-interest. OK, for the sake of argument, let's allow that to be the case … what explains their different reactions? In other words, even if it is true that people are self-interested (and, I'm pretty darned far from convinced that that is the case), it doesn't help us explain behavioural differences. Hence, its useless as an explanatory framework and, as a capitalist might say, therefore becomes inefficient and should be weeded out of the market.  In other words, material self-interest either explains behaviour, in which case it has problems explaining behavioural differences. Said differently, it is useless because all it tells us this that people are self-interested no matter what they do and so it cannot explain why there are differences between people. It is a weak explanation that does not allow us to grapple with the complexity of human behaviour.

What is more, economists don't actually think that everyone is self interested. Sure … we are all introduced to economic man in our Econ 101 text, but if you stop 100 economists in the street, they will tell you that economic man is a modeling device that, at best, allows economists to very conservatively predict specific economic actions if certain policies are followed. The vast, vast majority of economists accept the fact that there is a lot more to people than material self interest. This proposition (that everyone is self interested) is, in fact, not really scholarly economics. Its more in the way of adolescent philosophy.

That sounds insulting, but I hasten to add what I am insulting is not capitalist economists but pointing out the differences between what they say and what they are often reported as having said. The capitalist economists I know have far more sophisticated ethical propositions and conceptions of human nature. In other words, the idea that everyone is self interested is a myth. If we can clear this myth away, we can start to think about what capitalism actually has to say about human nature. And, what it has to say is actually not much. In other words, human nature is not a question that interests economists as economists very much. They use it for modeling but as a philosophy, capitalism is actually predicated on a neutral position on human nature. (You will recall that I mentioned in an earlier blog that capitalism was a-moral.)

What do I mean by this? I mean that capitalists are more than willing to leave choices up to the individual. Now, they clearly believe in human nature to the extent that they believe in individualism. There are people who reject individualism, but … frankly, not many. Individualism is complicated, to be sure, and I'm no anarchist. What I am saying, however, is that in Canada today, one needs to look pretty long and hard to find someone who does not believe in some form of individualism (say, freedom of expression or conscience or due process of law, etc.). Capitalists don't have a great deal to say about individualism except to say that choices about an individual's life are best left to that individual, provided that they are a legally competent adult.

I noted this point in an earlier blog in my comment on lazy workers.  Why a person is not working is, for a capitalist, not all that important because they have the right to make the decision for themselves. I can attempt to lure them into working by appealing for their help or by offering a bribe (more wages) but exactly why then do not want to work is no business of mine. They might have a sick child; they might be lazy. It is irrelevant because as a legally competent adult, they have the right to be lazy if they want. That is their decision to make and not mine. In effect, this form of individualism becomes a deal: I promise not to mess around with your life and you promise not to mess around with mine. We agree to leave each other to make up our own minds about what is best and most important to us. It might be relaxation (let's call it recreation to make it sound better) for me. It might be work for you. Each of us is making up our own minds.

[As a digression, btw, this is the basis for the argument for same-sex marriage (or, one of them). It is none of my business to tell someone else whom they should or should not marry. As long as the people entering that relationship are legally competent adults and are making their decisions freely … my job is precisely *not* to have a view on it because it is none of my affair, so to speak.]

As this is applied to the economy, this becomes a defense of markets in the following way. The market, we recall, is about matching desires and needs with goods and services. Each individual is their own judge about their own desires (needs, let us assume, are at some level fixed). We let the market make this determination not because it produces more stuff but because I should mind my own business. I have no right to tell another individual that they cannot buy, say, a green shirt because green is an ugly colour (I am wearing green right now). A capitalist supports the market, then, not because it makes more stuff but because it allows individuals great scope to make their own decisions. Again, its not about getting more but about efficient allocation. Since I cannot know what another person actually wants … my best option is to leave it up to them to make that decision, hence markets.

Where does this leave us? It leaves us, again, I hope, some distance from mythology. Capitalism is not about money and everyone being greedy but, in its best form, it is about individuals making up their own minds about what is and is not important for them, what they will and will not pay for. Because I cannot tell what an individual might want or desire, my best course of action is to leave it up to them to make their own decisions, which means making their own purchases or, on an individual level, matching their personal desires with their ability to pay for goods or services.

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