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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