The Soul of Economies: The Power of Philosophies to Transform Economic Life by Denise Breton & Christopher Largent ~ Part 1


I. Is Greed Good?
The line goes something like this: economies don’t have anything to do with religion or philosophy, because they’re just self-interest in action. Selfish passions run the show. We don’t go to economies for wisdom but for profit. When we get near economies, we don’t think. We just want.

Which is great: wants keep economies going. In the real world, “greed is good”—a line in the movie Wall Street taken from an Ivan Boesky speech. According to the Boesky-view, without the perpetual motion of greed, economies would stagnate. In other words, without wants pushing us, we’d just sit on our tails.

Yet there’s a hitch. Greed starts the race to buy up available goods—the real-life game of Monopoly. Driven by greed, we turn economies into wars for acquisitions. The result? As in the board game, a few win by sending the bill to everyone else. Rents go up, as do taxes, fees, and costs. Economies managed like Monopoly boards eat away at the middle of economic society, until only the poles remain: the super-privileged and the super-poor. Which then is it? Is greed good for economies, or a danger to them?

Expecting economists alone to answer this question is asking too much, because the question involves more than what supply/demand curves can chart. It’s not even a question for economic theory. Greed can take over any system, and it doesn’t matter whether the system is capitalist, communist, or socialist.

In the end, how we deal with greed goes beyond economic theories. It even goes beyond moral issues. The issue is philosophical. Is Boesky’s message to the graduating students correct? Does his philosophy—his map—describe economic reality? If it does, then it won’t cut any ice to say that we shouldn’t be greedy on moral grounds. What works carries the day.

Selfishness vs. “Enlightened Self-interest”
Adam Smith didn’t think Boesky-maps work at all. However much they may describe a certain side of human nature, they don’t get at the heart of economies. Not that Smith wasn’t keenly aware of greed in economies. Writing first as a moral philosopher, Smith wrestled with the question of what regulates the passions, greed in particular. He figured something must check greed; otherwise he didn’t see how civilization could have survived. Only after tackling the philosophical question in his first book did he publish the second, The Wealth of Nations, the work that inaugurated modem economics.

Given his background in moral philosophy as well as his experiences in 18th century Scotland, Smith knew how destructive selfish ambitions could be. Letting greed take over economies wasn’t an option. He had seen “selfish merchants” do this, and he knew it didn’t work. But he was practical as well. The passions can’t be controlled by superficial means. One group telling another what desires they should or shouldn’t have, he argued, won’t work. Wagging fingers alone can’t hold greed in check.

Instead of denying the passions, Smith sought to yoke them to constructive goals. Specifically, his “invisible hand” operated on each individual’s self-interest, which, if sufficiently enlightened, can’t be separated from the interests of the entire economy, that is, the collective good.

Smith appealed to something philosophical, namely, to our ability to think out the consequences of our actions long-term and large-scale. The more we understand economies as whole systems on which we ourselves depend, the less we’re likely to act in ways that weaken them. Our enlightened awareness of how economies work and of our place in them shapes our interests.

Enlightened self-interest and selfishness aren’t, therefore, synonymous. As Smith understood them, they’re opposites. Enlightened self-interest builds economies. Selfishness destroys them, which is what Smith believed monopolistic merchants were doing to Britain. The Wealth of Nations documents many historical disasters which Smith traced to the avarice of powerful merchants. “Say yes to greed” wasn’t his choice.

Instead, he sought to enlighten self-interest out of its selfishness by exposing the dangers inherent in letting wants run loose. For economies to develop, he argued, individuals can’t prosper at the expense of systems, nor can systems thrive at the expense of individuals. Both do well, or both suffer.

Not that Adam Smith had all the solutions. But he put his finger on the problem: economic health can’t be separated from the aspirations of individuals, and these aspirations must go beyond selfish gain.

Greed in the Making
Why, then, do Smith’s interpreters so often turn him on his head, as if he were a champion for money-grubbing? Why do greed and selfishness command such a following in spite of all Smith’s warnings? Not because we’re necessarily that greedy, but because we believe—as Smith’s interpreters claim—that these responses reflect the realities of economic life. In the end, we think either that greed can’t be restrained, or that without it economies would fizzle. The root is philosophical: we take greed and selfishness to be what economies are all about.

In a recent interview, a member of an organized crime family rued the violent methods he claimed he had to use. However unfortunate it maybe, he said, extortion, bribery, and murder reflect economic reality. The price of not conforming to this reality is financial oblivion: a lifetime of drudgery and counting pennies.

His response isn’t as perverted as it sounds. Philosophically speaking, it simply pushes textbook notions of economies to their logical extremes. Not that economic textbooks endorse crime. But they depict economies as governed by scarcity. In the worlds that follow from this premise, unlimited desires compete for finite resources, gain to one person entails loss to another, and greater powers swallow lesser ones—all for the purpose of maximizing profits.

In other words, reducing economic reality to a herd of horses running after one bucket of oats narrows our economic options. Either we adopt desperate methods, as the mobster did, or we slip to the bottom of the economic ladder. Horse sense says that we either eat or starve. We either play Monopoly, or we’re out of the game.

The only thing that keeps this description of economies from collapsing into utter chaos are the institutions and mores of society. But mere conventions crumble under such fierce economic drives. When we’re pressed by circumstances or fear, the mobster’s methods seem worth a try. How else can we survive?

The question is, do economies work this way? Is the mobster’s or even the textbooks’ view the best characterization of economic reality?

II. Rethinking Economies: How do they really work?
To start with, economy refers to how we manage our household, which is also its original Greek meaning—“oiko-nomia”. Economies are our ways of handling the basic needs of human life: food, housing, clothing, transportation, education, cable TV, PCs, and VCRs.

Economies develop systems for meeting these needs. Each person contributes to the system, which then makes these contributions available to everyone else. The more efficient the system, the more time we have to develop other-than-economic talents.

As well managed systems, economies run smoothly. They become virtually invisible in supplying goods and services and then moving them to those who need them. When crises arise, economies handle them. More importantly, well managed economies prevent economic crises.

Economies become flawless servants to something greater, namely, us and our lives. We know we can depend on them to manage the household for us, so we can get on with our real life’s work, whether it happens to make money or not.

A sure sign of bad management is when we don’t have time to think of anything but household problems. Every relationship takes on an economic hue. Meeting basic demands becomes a life consuming activity, until we have no time or energy left for anything else.

Moreover, any disturbance can spell disaster. Losing a job or contracting an illness can wipe us out and put us on the streets. One or two major banks or corporations going bankrupt can trigger a collapse of the financial system. Third-world countries defaulting on loans can bring down the world economy.

But this isn’t invisible management; it’s front-and-center breakdown. When economies don’t help us and only burden us, their reason for existing disappears. Why have them? We’d be better off fending for ourselves.

Turning things around—mastering economies instead of letting them master us—means rethinking what economies are all about. It means evolving our philosophy of economies, which starts with reexamining our premises. What assumptions do we use to manage our households?

1. Which premise should we use: scarcity or creativity?
To manage things, we first take stock of what we have. Early 19th century economists, especially Thomas Malthus and David Ricardo, emphasized what we don’t have. Because the earth is limited, they insisted, its resources must also be limited. We humans, though, have unlimited desires, especially as we multiply our populations into the future. No matter how much we have, they claimed, we always want more. Our hunger won’t be filled. As a result, there’s never enough. Resources are always running out.

To Malthus and Ricardo, the “economic realities” of scarcity and overpopulation seemed so terrifying that wars, famines, and plagues began to sound like natural saviors, delivering the human race from its own shortsightedness. If these are saviors, though, there’s not much left to be saved from. One Malthusian economist can ruin your whole day.

The limits of our knowledge. The premise behind 19th century fears—persisting today—is that economies are closed systems, bound by fixed quantities of material goods. No matter how large economies become, they remain closed, thus limited. Their territory is fixed, which means there’s only a fixed quantity of resources available to us.

But that’s a strange premise. Economies involve not just resources but our management of them. Economist and sociologist Kenneth Boulding, for example, bases economies on “know-how”: knowing how to produce and exchange goods and services. On this premise, economies have to do less with procuring things and more with restructuring and combining them.

Assuming that scarcity of resources limits economies is like assuming that chemical elements limit chemistry, foods limit cooking, or notes limit music. The key lies not in what we have but in what we do with it.

Discoveries in chemistry, for instance, aren’t made by collecting the largest number of elements. The best meals aren’t those with the greatest quantities of food. Nor are the best symphonies those with the most notes. The value of each lies in their ingenious arrangement.

So, too, in economies: arrangement introduces order. Order multiplies the ways we use resources and so functions as an anti-scarcity factor. With order, we can do more with less—not by skimping but by being creative.

Without order, we don’t have access to resources at all. Oil was plentiful to the Comanches and Apaches, even a nuisance when it contaminated the water supply. But they didn’t use it. The ordered arrangement was lacking. As a result, neither the scarcity nor the abundance of oil was a factor in Indian economies.

Similarly, we’re surrounded by abundant energy sources: sun and wind, as well as the earth’s heat, motion, and magnetism. We could even be living on a huge geobattery. But all the energy sources imaginable aren’t of any use to us if we haven’t developed the know-how to tap them.

What we call scarcity, then, actually refers to our own limits—limits either of human knowledge or of its application. Scarcity isn’t an absolute fact, but a changing indicator of what we know and of what we’re doing with our knowledge. Of course natural resources are finite, but that’s not the issue. Economies thrive or fail on our responses to what we have—on how we manage resources.

If, for instance, two people are stranded in the wilderness, the one who knows how to forage will find food in abundance, while the other may starve. To the one who can manage what’s there, resources abound. To the one who lacks that knowledge, they’re scarce.

In the end, scarcity doesn’t describe reality but our perception of reality. If we accept closed-system premises, we regard scarcity as an iron law. But the so-called law describes us, not what’s out there. We create scarcity from the limits of our knowledge and the narrow uses of our creativity. No matter how much scarcity makes us feel trapped in limits, the walls binding us are our own.

Economies or a War?
Whether we reason from scarcity or anti-scarcity makes a huge difference. If scarcity governs economies, then we have to grab as much of the pie as possible or die off. By ignoring knowledge and creativity, the premise of scarcity reduces our role in economies to that of animals: can we gather enough nuts for the winter, or will the other squirrels take them all? Limited resources and unlimited desires meet as opposing forces in economies, making conflict inevitable. The war of each against all begins, giving power to those who grab the most.

But if economies challenge us to manage creatively what we have, then economies can develop away from scarcity. True, a struggle ensues, but not against others in a win/lose battle. The struggle is against ourselves—against the limits we impose on creativity by harboring too narrow a vision.

The Source of Prosperity.
If economies thrive on know-how, neither scarcity nor abundance determines economic health. Prosperity lies elsewhere. Writer-entrepreneur Paul Hawken illustrates this in his book, Growing A Business:

“The major problem affecting businesses,
large and small, is a lack of imagination, not capital.

A ready supply of too much money in startups tends to replace creativity. Companies with money buy solutions by buying consultants, lawyers, clever accountants, publicity agents, marketing studies, and on and on. Companies without money dream and… Small businesses, at least entrepreneurial ones, are formed in order to address problems that money alone cannot solve.”1

Scarcity of capital forces entrepreneurs to overcome obstacles in ways essential to success—through knowledge and creativity. By contrast, as business consultant Tom Peters observes, businesses flounder when they become “fat and flabby.”

The same logic applies to national economies. The more resources a nation has, the more it may drift into complacence. Abundant resources become cheap, leading to mismanagement and waste. No matter how badly the nation uses its resources, sheer abundance can bail it out. By contrast, countries without rich material resources are forced to survive by their wits. They have no choice but to be creative.

But even a richly endowed economy reaches its limits. The abundance dwindles. Sooner or later the nation has to develop real economic sinews: knowledge, imagination, flexibility, and ingenuity, as well as diligence, integrity, skill, and self-discipline. These qualities, not fixed amounts of things, build economic strength.

In short, the premise that scarcity rules economies is an emperor without clothes. It’s a myth. True, the perception of scarcity is useful for driving up prices, just as the perception of jackpots is useful for spreading lotto-fever. The fear of scarcity makes money for those who control the market when everyone else panics.

But economies don’t exist for the purpose of driving up prices or garnering profits. They exist to serve the needs of humanity. In this activity, scarcity, just like risk, poses economic challenges, but it says nothing about how economies meet those challenges. That’s for us to decide.

These two different starting-points reflect two different views of what we assume economies are all about.

Notes
1. Paul Hawken, Growing a Business (New York: Simon & Schuster, 1987), 33,35.

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