Two stories about capitalism, which explain why economists don’t reach agreement
Why is it that if you know an economist’s political leaning you can guess many of his or her factual beliefs? Would raising the minimum wage would help or hurt the poor overall? Is austerity or stimulus is the more reliable route to economic recovery? Is rising income inequality a drag on growth? Is Piketty’s data sound? These are factual questions, not value judgments, so why don’t economists converge? It’s the same for historians. If you know which party they vote for, you can guess their general views on capitalism, and on the recent debates about whether slavery in the American South was crucial for its development (by providing cotton for the mills in Manchester), or irrelevant for the spectacular flowering of capitalism in the 19th century.
The answer, in part, is that there are two basic master narratives about capitalism that have been circulating in the West since the time of Adam Smith. One story is that capitalism (and business more generally) is exploitation, so we need a strong government to keep the greed and amorality of capitalists in check. The other story is that capitalism is liberation. People were mostly serfs and peasants until capitalism came along and freed people to keep the fruits of their own labor, so we need to keep government’s role to a minimum, given how prone it is to capture, corruption, and inefficiency. Let the markets work in peace.
I’ve been seeing these stories all around me since 2011, when I moved to a business school at the same time that the Occupy Wall Street protests broke out. I find it so helpful to know these stories that I turned them into 70 second video montages to share them with others. The two montages are included in a talk I gave in November at the Zurich Minds festival, which you can watch below.
The talk explains the most useful concept I have encountered in recent years – the concept of “wicked problems,” which refers to problems that activate the moral and political identities and desires of the experts, thereby warping their thinking.
Wicked problems (like poverty, education, or racial inequality) activate all the post-hoc reasoning and biased searching for support that I described in chapters 3 and 4 of The Righteous Mind. They are so different from tame problems (like curing cholera), which can be very challenging technically, but they just sit there and let the experts converge upon solutions. My hope is that a better understanding of moral psychology can help people to think clearly about economic debates, which are usually also wicked problems with moral implications.
I have also made the two montages available as separate files, in the hope that teachers and professors will find them useful for showing in classes that discuss morality, history, politics, or economics.
You can also download the two separate stories at: www.ethicalsystems.org/capitalism
It’s interesting that both videos say that capitalism was “invented.” I would submit that’s solely the perspective of the left.
Those on the right would say that capitalism (if you choose to call it that) naturally emerged as a product of several factors, including property rights, the free exchange of goods and services, the enforcement of contracts, and political liberty.
Neither Adam Smith nor anyone else invented capitalism. Thinkers like Smith were simply insightful observers of the commercial society emerging around them.
I agree. Capitalism happens when people are free to do as they please with their own bodies and the fruits of their labor. It wasn’t invented it is what naturally happens tyranny is rolled back.
Hunter-gatherers were pretty free without “capitalism.”
Want to Make Hunter-Gatherers Irrational? Expose Them to Free Markets
http://bit.ly/1pAIwrD
Three Voluntary Economies
It is hard to imagine modern capitalism without limited liability legal entities, which certainly were invented.
“It is hard to imagine modern capitalism without limited liability legal entities, which certainly were invented.”
True. They were invented by governments, who chartered them, usually to restrict markets to people close to the government(i.e. the BEIC). That way, the wealth of those corporations was available to the government, usually in wartime. However, modern corporations are an expansion far beyond that, to allow freedom of association of capital, without high risk of impoverishment for the individual investor because of actions taken by other investors or officers.
Who invented property rights? Lions use property rights?
If you say humans did not invent capitalism, then you simply state that we have no free will, no other way to make society, no other way to make rules. Gun laws, drug laws etc. is all a natural thing…That is okay if you think that, but I disagree.
Adam Smith wrote down how humans had chosen to structure society and also came up with some solutions on how to make it better. Many people have done that. Not one human invented society, it was more humans that did that, but it was invented by humans.
“One story is that capitalism (and business more generally) is exploitation, so we need a strong government to keep the greed and amorality of capitalists in check. The other story is that capitalism is liberation. People …”
I think your version of the first story is already an watered-down version – in its pure form, is not a question of “we need a strong government to keep the greed and amorality of capitalists in check”: the “strong government” bit is assumed as a given, and the choice is portraid simply as a choice between a strong government at the service of the “rich and powerfull” (and full of references to a “primitive accumulation” made by force) or a strong government at the service of “the people/workers and peasants” (if anything, I think the promoters – or some of them – of the first story are much more prone to see the government/state as a contigent insititution that could be abolished in a different society than the promoters of the second story).
It is rather heartening after many decades to see the beginnings of articulation which accept that the particular forms of social intercourse of have come to be commonly labeled as “Capital-ism” are now being recognized as resulting conditions rather than some seen as forms of systems or structures.
The resulting condition, unlike say “Social-ism” is not a system with an objective or purpose, but results from the objectives and purposes of the individuals and groups interacting with particular freedoms and within particular constraints; not limited to the material or economic – as Tyler Cowen never tires to remind us of “Markets in Everything.”
One of the reasons that resulting condition is so linked with morality
is the exposition of choices of objectives and purposes and the choices of means for attempts at their attainment. To the extent there are choices there will be degrees of what is seen as “capitalism;” historically observed as feudal, mercantile, commercial, industrial, financial and now managerial. What we are observing is a concept of relationships, human and material, much like “property.”
I think your definition of wicked problems is actually much better that Rittel and Webber’s. As I recall, their definition of wicked problems is essentially poorly defined problems, although they don’t frame it that way. Cholera is not wicked because we know what cholera is and what a solution looks like. We don’t know what poverty is (it’s a subjective moving target).
The problem isn’t ‘poverty’ (which is hopelessly vague); it’s deciding how much a minimum level of support for the least fortunate in a given society should be. This re-frames ‘poverty’ as a solvable, non-wicked problem in Rittell and Weber’s world. However, in your world, it’s still not solvable because there’s always scope for moralized more/less comparisons (“do more” vs “doing too much”). Framed in terms of ‘poverty’, some people are always less wealthy than others, so it’s impossible to ‘end’. Makes you wonder why people who view these problems as moral imperatives aren’t satisfied with working on them through non-coercive means, but that is a question in your world of work as well.
Relates to my other objection with the original wicked problems idea: the authors (or maybe its more their followers fault) are fairly oblivious to the idea that maybe problems like this are just not amenable to centralized solutions. There are other ways to solve problems than central planning, but this doesn’t leave much scope for central planners to operate. Not positive that’s a fair objection; just based on my recollection of the article.
Bravo for your videos. But I do have to challenge your characterization of market based “capitalism as liberation” as advocating “Let the markets work in peace.” That’s not what Adam Smith said:
“The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations.”
People drive the economy, not markets. Which is how your video portrays it.
It’s about letting people work in peace. Markets are one (but certainly not the only) social institution, the rules of the game as it were, that enable people to “work in peace.”
“Creating value” or” creating wealth” is the more beneficial business model?
Indeed these stories are useful tools. Frustratingly though, a lot of us on the American “left” (and especially Democratic politicians) are already behind the moderate story, while the right paint us as anti-capitalists. The videos and stories passed around by older right wing Americans resemble this “Liberation” story quite strongly.
There has been much real progress in understanding these issues but this work product is actively repressed in our institutions. The role of banking and credit is well explained by Steve Keen and Michael Hudson and by professor Werner. Also kudos to Hyman Minsky for explaining financial crises. We are not lost in the intellectual wilderness as we once were. The answers are out there.