EDUCATORS’ PERSPECTIVE
In Defense of Capitalism Part III: It’ s Not All About Self-Interest
By Brian Grinder and Dan Cooper
The war against capitalism has intensified since the economic meltdown in 2008. Capitalism has always had its critics, but it seems to be increasingly unpopular among young people today. In the last two“ Educators’ Perspective” columns, we discussed the increasing antagonism towards capitalism and argued that colleges and universities must educate students about all facets of capitalism so that they can make informed decisions about its future. To this end, we offered a working definition of capitalism and argued that capitalism is not a transitory system en route to an ultimate economic system which will bring heaven to earth; capitalism operates in the here and now. It offers hope for the future, but it does not promise an economic nirvana. We now turn to the issue of self-interest as an economic motivator.
Self-interest, a key driver behind modern economics, finds its ultimate expression in utility maximization. To maximize utility, each individual acts out of selfinterest in order to maximize his or her level of satisfaction, pleasure or utility. When taken to the extreme, outside of all other ethical considerations, utility maximization leads to absurd notions.
For instance, former Seventh Circuit court judge Richard Posner argues that“… some rapists derive extra pleasure from the fact that the woman has not consented. For these rapists, there is no market substitute— market transaction costs are prohibitive— and it could be argued that, for them, rape is not a pure coercive transfer and should not be punished if the sum of satisfactions to the rapist exceeds the victim’ s pain and distress.”
The legitimization of rape from an economic standpoint is not only absurd, it is reprehensible. Posner acknowledges that thinking of rape in terms of wealth-maximization theory“ will strike many readers as a limitation on the usefulness of that theory.” What an understatement!
The fat man sank back in his chair and let his body go flaccid. He blew his breath out in a long contented gust.“ That’ s wonderful sir,” he purred.“ That’ s wonderful. I do like a man that tells you right out he’ s looking out for himself. Don’ t we all? I don’ t trust a man that says he’ s not. And the man that’ s telling the truth when he says he’ s not I distrust most of all, because he’ s an ass and an ass that’ s going contrary to the laws of nature.”
Bernard Mandeville( left) and Claude Frédéric Bastiat( right)
Homo economicus( economic man), defined by economist Tomas Sedlacek as“ a rational individual, who, led by egotistical motives, sets out to maximize his benefit,” is a mere caricature of humanity. Although important economic insights have been gleaned from viewing humans as utility maximizers, the failure to see beyond mere materialistic notions of humanity has left economics in an impoverished state.
The debate over self-interest’ s role in the economy can be traced back to Plato and Aristotle, but it found its sharpest focus in Bernard Mandeville’ s( 1670 – 1773) work The Fable of the Bees: Or Private Vices, Publick Benefits. Published in 1714, The Fable of the Bees includes the poem“ The Grumbling Hive,” along with Mandeville’ s commentary on the poem.
— Casper Gutman, The Maltese Falcon
Mandeville describes a vibrant beehive economy where:
… every Part was full of Vice, Yet the whole Mass a Paradise; Flatter’ d in Peace, and fear’ d in Wars, They were th’ Esteem of Foreigners, And lavish of their Wealth and Lives, The Balance of all other Hives. Such were the Blessings of that State; Their Crimes conspir’ d to make them Great.
Mandeville argued that greed was necessary for economic progress. In the poem, when the gods agree to suddenly rid the beehive of all vice, it withers and dies. The sudden removal of vice from the beehive is what would be described today as an economic shock. Such a shock would adversely affect the beehive for some time, but it probably would not lead to its demise. On the other hand, had Mandeville chosen to rid the hive of all virtue, the economic shock would have been far more devastating.
Adam Smith, contrary to popular belief, disagreed with Mandeville’ s position on greed. In The Theory of Moral Sentiments, Smith criticized Mandeville’ s position several times. According to Sedlacek,“ Mandeville is the only one whom Smith so directly criticizes, ridicules and caricatures.” For instance, Smith described Mandeville’ s work as in“ almost every
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