Saturday, January 30, 2010

Self-Interested Morality

If you are to read only one article this week, I commend this New York Times article about the father of capitalism, Adam Smith, and some of his lesser known ideas:
Adam Smith, free-market partisan: this image dominates, even in market-weary times. Politicians invoke him as a near-deity. Think tanks and consulting firms use his name as a synonym for free-market policies. So dogmatic is he imagined to be in his famous book “The Wealth of Nations” that the feminist writer-activist Riane Eisler not long ago wrote a corrective titled “The Real Wealth of Nations: Creating a Caring Economics.”

The implication that his economics was uncaring might have disturbed Adam Smith, for he was hardly the man that many now think him to be.

While he believed that markets could channel self-interest into efficient aggregate outcomes, he argued that this was no excuse for selfishness: “When the happiness or misery of others depends in any respect upon our conduct, we dare not, as self-love might suggest to us, prefer the interest of one to that of many.” That quotation is not from “The Wealth of Nations,” Smith’s best-known work, but from “The Theory of Moral Sentiments,” his lesser-known opus. It was republished by Penguin this week to mark its 250th anniversary, and it offers a reminder that Smith was a subtle, complex thinker whose ideas about markets and those who use them would embarrass many of his present-day devotees.
One interesting aspect of the protests against health care reform, tea party activism, etc., has been how in the protesters' arguments, free markets have been equated with liberty and, hence, with morality itself. Since people seem to have more opportunities to better themselves under capitalism (which I happen to agree with), capitalism is freedom. Therefore, capitalism is the morally preferable path for humanity. People should be free to make choices about their lives, free from government intervention. Since free market capitalism gives individuals that freedom, all government intervention is diametrically opposed to freedom and is, therefore, anti-spiritual.

What this tells me is, since self-interest is the basis for free markets, self-interest is the morally superior way!

I recently watched a very interesting Frontline interview with Rick Lake, CEO of California Check Cashing, a payday lending company that advances cash to customers who write a personal check which is not cashed until the customers' next payday. For a simple fee, of course. Write a check for $300, get $255 in cash. Translating the fee to what it really is, interest, comes to...a 460 percent annual rate of interest on a two week advance. Four. hundred. and. sixty. percent.

Some snippets from the interview:
You seem to be saying that all of you are in a sense ... exploiting your customers, and that's the reason why it's OK.
Your term is "exploiting," OK? But I want to ask you, does the consumer have a choice? This is America, where we have a choice, correct? ... So that consumer has a choice on what products to use and when to use them. ...
There's legislation that's been proposed to create a Consumer Financial Protection Agency [CFPA] ... to set down rules and laws. And I know the banking industry is lobbying that if it does happen, it should cover what they call non-bank banks like payday lending. ... Is that OK with you?
It's OK as long as they don't eliminate choices. If it's about disclosure and education -- which I think it would be a great thing if they would embrace our industry and the customers that we serve and teach financial education somehow through our outlets -- I think that can be a good thing. But again, I'm concerned that anytime there's a government body to protect us from ourselves what the ramifications are from that.
What the government is supposed to do is protect us --
Protect us from ourselves.
-- from damaging ourselves or damaging others.
Is that the role of government? I thought that was the role of each and every one of us as an individual. ...
For the record, I'm not a fan of the CFPA idea, because I do believe government shouldn't be about protecting us from ourselves. That includes requiring stupid warning labels. That said, the whole payday lending business is an appalling reminder of capitalism's amorality. While people like Mr. Lake should have the freedom to engage in businesses like these, this is not an advertisement for capitalism being morally superior to other systems. The Times article begins with this quote from Glenn Beck:
“If I could sell sponsorships on this chin right here, I would,” he said. “It would just say, ‘Third chin sponsored by Goodyear.”’ He called himself “the most enthusiastic capitalist since Adam Smith.” 
and ends with this reminder of what Adam Smith thought about the mindless pursuit of riches:
The ambitious man, Smith writes, comes to believe “that the lustre of his future conduct will entirely cover, or efface, the foulness of the steps by which he arrived at that elevation.” It is this sense of impunity that worried Smith about the wealth pursuit. 
So, the next time you hear someone, particularly a religious person, extolling capitalism without limits, tell them to actually read Adam Smith. Capitalists need a dose of humility. IMHO :)


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