Saturday, May 24, 2014

Greed Wasn't Always Good

Greed wasn't always good - the moral strictures of the Catholic Church frowned on self-interest and usury. But that gradually changed, and pursuit of self-interest came to be seen as acceptable if it provided benefits to the wider society. This underpinned the commercial revolution of the eighteenth and nineteenth century, where businessmen were seen as creating prosperity for all. Of course, those businessmen were usually engaged in some sort of productive activity, and their behavior was still held in check by moral restraint, generally speaking.

Then, over time, the pursuit of naked self interest became rationalized, and the moral vision of society changed to became a war of all against all to get as much as possible for yourself and your offspring, and the Devil take the hindmost. This coincided with financialization and globalization, where the gains made by financiers and corporations came at the expense of the wider society (such as offshoring jobs, getting people into debt, and raiding pension plans). Adam Smith became replaced by Ayn Rand:
We sometimes forget that the pursuit of commercial self-interest was largely reviled until just a few centuries ago. “A man who is a merchant can seldom if ever please God,” St. Jerome said, expressing the prevailing belief in Christendom about the relative worthiness of a life devoted to trade. The choice to enter business didn’t necessarily deprive one of salvation, but it certainly hazarded his soul. “If thou wilt needs damn thyself, do it a more delicate way then drowning,” Iago tells a lovesick Rodrigo. “Make all the money thou canst.”

The problem of money-making was not only that it favored earthly delights over divine obligations. It also enflamed the tendency to prefer our own needs over those of the people around us and, more worrisome still, to recklessly trade their best interests for our own base satisfaction. St. Thomas Aquinas, who ranked greed among the seven deadly sins, warned that trade which aimed at no other purpose than expanding one’s wealth was “justly reprehensible” for “it serves the desire for profit which knows no limit.”

It was not until the mischievous moralist Bernard Mandeville that someone attempted to gloss greed as anything other than a shameful motive. A name now largely lost to history, Mandeville became a foil for 18th-century philosophy when, in 1705, he first proposed his infamous equation: Private vices yield public benefits. It came as part of The Fable of the Bees, an allegorical poem that described a thriving beehive where dark intentions keep the wheels of commerce turning. The outrage Mandeville stoked had less to do with this causal explanation than with the assertion that only by such means could a nation grow wealthy and strong.

Greed, as such, became an acquisitive exercise that fell on the wrong side of this divide. Some of these activities, like the mugger’s, were fairly prohibited, but those of, say, the mean-spirited merchant were checked by censure and disgrace. These forces did not eradicate selfishness, but by the moral distinction they maintained, they helped establish a new ideal of the upstanding businessman.

That ideal was famously embodied by Smith’s friend, Benjamin Franklin. In his Autobiography, Franklin presented himself as the epitome of a new American Dream, a man who emerged from “Poverty & Obscurity” to attain “a State of Affluence & some Degree of Reputation in the World.” Franklin found nothing to be ashamed of in riches and repute, provided they were turned toward some broader purpose. His success allowed him to retire from the printing business at 42 so that he might spend the balance of his life on initiatives—civic, scientific, philanthropic—that all enhanced the common good.

The example of Franklin, and those like him, gave reason for optimism to those who understood the mixed blessing of free -markets. “Whenever we get a glimpse of the economic man, he is not selfish,” the great English economist Alfred Marshall wrote toward the end of the 19th century. “On the contrary, he is generally hard at work saving capital chiefly for the benefit of others.” By “others,” Marshall principally meant the members of one’s family, but he was also making a larger point about how our “self-interest” can expand and evolve when we have achieved financial security. The “love of money,” he declared, encompasses “an infinite variety of motives,” which “include many of the highest, the most refined, and the most unselfish elements of our nature.”

Then again, they also include lesser elements. Andrew Carnegie might have proclaimed that it was the responsibility of a rich man to act as “agent and trustee for his poorer brethren,” but the steel magnate’s beneficence was backstopped by cheap labor, dangerous working conditions, and swift action to break strikes. Besides, the active redistribution of wealth was something of a side-story (and a subversive one at that) to the moral logic of free markets. The Invisible Hand worked not by appealing to the altruism of exceptionally rich men, but by turning an antisocial instinct like greed into an unwitting civil servant.

Still, by the early 20th century, some believed his services might safely be dismissed...
Enter Keynes, Schumpeter, and Ayn Rand -
“I think greed is healthy,” an apparent acolyte told the graduating class at Berkeley’s business school in 1986. “You can be greedy and still feel good about yourself.” The speaker was Ivan Boesky, who shortly thereafter would be fined $100 million, and later go to prison, for insider trading. His address was adapted by Oliver Stone as the basis for Gordon Gekko’s “greed is good” speech in Wall Street. An exhortation to shareholders of a sagging company, it reads like a corporate raider’s war cry, with Gekko the grinning avatar of Agency Theory.
 Greed Is Good: A 300-Year History of a Dangerous Idea (The Atlantic)

And since we're on the subject of changes in moral sentiments over the past few centuries, here is another one I've posted before:
Prior to the late 18th century, the dominant school of economic thought saw poverty as a social good, essential for economic development. It may well have been granted that, other things being equal, a society with less poverty is to be preferred, but other things were not seen to be equal. Poverty was deemed essential to incentivize workers and keep their wages low, so as to create a strong, globally competitive, economy. Nor did the idea of what constitutes “economic development” embrace poor people as being necessarily amongst its intended beneficiaries. There was also widespread doubt about the desirability of, or even the potential for, governmental intervention against poverty. ...

[There] was little reason to think that poor people had the potential to be anything else than poor. Poverty would inevitably persist, and was indeed deemed necessary for economic expansion, which required a large number of people eager for work, and avoiding hunger was seen as the necessary incentive for doing that work. ... [Beyond] short-term palliatives to address shocks, there was little or no perceived scope for public effort to permanently reduce poverty. And a world free of poverty was unimaginable—after all, who then would be available to farm the land, work the factories and staff the armies?
Poverty used to be seen as a social good (The .Plan) And see Hunger Makes People Work Harder, and Other Stupid Things We Used to Believe About Poverty (Citylab)
Philosopher and economist Bernard de Mandeville explained in 1732 that if countries can't have slaves, the rich people who live there at least require a vast and permanent underclass to prop up the economy and their personal good times.

In the span of 200 years, these commonly held sentiments have of course come to be seen as deeply wrong-headed, in total opposition with today's notion that poverty is something we'd rather eradicate than exploit. The history of how we so dramatically changed our minds on the topic (and the related responsibilities of government) is chronicled in a fascinating new National Bureau of Economic Research working paper by Georgetown University economist Martin Ravallion.

Most fundamentally, as Ravallion writes, we've gone from thinking that poverty is a necessary ingredient for economic development to thinking that poverty constrains it. Numerous related assumptions have (mostly) fallen along the way: The poor were at fault for their own poverty (through moral weakness, alcoholism, laziness, a penchant for making too many babies). The poor were born that way, and nothing could be done about it. Besides, poverty had its own utility: If people weren't hungry, they wouldn't work. Thus, poverty was a social good.
Of course, those sentiments never went away, and they are honestly believed and steadfastly promoted by our sociopathic wealth class. No wonder the middle class is disappearing.

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