Without quite realizing it, without ever deciding to do so, we drifted from having a market economy to being a market society.
The difference is this: A market economy is a tool for organizing productive activity. A market society is a way of life in which market values seep into every aspect of human endeavor. It is a place where social relations are made over in the image of the market.
This cold “Logic” has caused police to focus on ticketing and jailing, there is no longer any incentive to solve violent crimes. Rapes go un-punished while focus is given to 20year minimum sentences for having an illegal plant.
The privatization of our schools has left us with an educational system that is ranked 25th of the worlds top 50. With only 75% of students graduating high school. Rampant cheating to reach meaningless metrics while de-funding those most in need.
Our political systems have reached crisis levels as well, with congress entertaining far right conspiracy theories as national business while ignoring catastrophic issues such as climate change, illegitimate wars and the erosion of our freedoms to justify the cost of an immense national security apparatus which serves only to control through fear and feed a prison industrial complex. Which has enslaved more humans than the rest of the world combined, in a race to achieve the lowest cost of labor. A direct contravention of purported beliefs in freedom, dignity and the pursuit of happiness. Which are used to erect an apocryphal
platform of self-righteous exceptionalism which seemingly serves to hasten the self-destruction of civilization for temporary shareholder value.
In the aftermath of the stock market crash of 1987, the New York Times headlined an editorial “Ban Greed? No: Harness It,” It continued: “Perhaps the most important idea here is the need to distinguish between motive and consequence. Derivative securities attract the greedy the way raw meat attracts piranhas. But so what? Private greed can lead to public good. The sensible goal for securities regulation is to channel selfish behavior, not thwart it.”
The Times, surely unwittingly, was channeling the 18th century philosopher David Hume: “Political writers have established it as a maxim, that in contriving any system of government . . . every man ought to be supposed to be a knave and to have no other end, in all his actions, than his private interest. By this interest we must govern him, and, by means of it, make him, notwithstanding his insatiable avarice and ambition, cooperate to public good.”
The idea that base motives could be harnessed for the public good is what I term economic alchemy. And in Hume’s time it was definitely a new way of thinking about how society could be governed.
During the Middle Ages, avarice had been considered to be among the most mortal of the seven deadly sins, a view that became more widespread with the expansion of commercial activity after the twelfth century. So it is surprising that self-interest would eventually be accepted a respectable motive, and even more surprising that this change owed little to the rise of economics, at least at first.
How this came about, you will see, is a remarkable story, one that is finally running its course in light of mounting evidence not only that people are not really all that knavish, but also that treating citizens as if they were knaves may lead them to act is if they really were knaves! But I am getting ahead of the story.
It all began in the sixteenth century with Niccolò Machiavelli. “Anyone who would found a republic and order its laws” he wrote in his Discourses, “must assume that all men are wicked [and] . . . never act well except through necessity . . . It is said that hunger and poverty make them industrious, laws make them good.” Hume, it seems was channeling Machiavelli!
It was the shadow of war and disorder that made self-interest an acceptable basis of good government. During the seventeenth century, wars accounted for a larger share of European mortality than in any century for which we have records, including what Raymond Aron called “the century of total war,” which happily is now finished.
Writing after a decade of warfare between English parliamentarians and royalists, Hobbes (in 1651) sought to determine “the Passions that encline men to Peace” and found them in “Feare of Death; Desire of such things as are necessary to commodious living; and a Hope by their Industry to obtain them.” Knaves might be preferable to saints or at least likely to be more harmless.
The year before Adam Smith wrote in his Wealth of Nations (1776) about how the self-interest of the butcher, the brewer, and the baker would put our dinner on the table, James Boswell’s Dr. Johnson gave Homo economicus a different endorsement: “There are few ways in which a man can be more innocently employed than in getting money.”
Adam Smith showed how a constitution for knaves might actually work at least as far as the economy is concerned. The economic actor, he wrote “intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” By which he was referring to as diety leading the errant man along a path of his lords plan despite his own intention. This particular wrinkle is covered more here: https://www.huffingtonpost.com/jim-burklo/the-invisible-hand-of-god_b_7184112.html
This is hardly making the case for laissez faire that later generations have attributed to Smith. But it is a milestone in the emerging view that motives other than self-interest could be pernicious. The sentence following one of Smith’s rare references to the invisible hand makes this point: “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.” Which obviously cannot be maintained given the levels of inequality that we witness today.
The result, remarked John Maynard Keynes in a 1926 pamphlet, The End of Laissez Faire, was that “The political philosopher, could retire in favor of the business man – for the latter could attain the philosopher’s summum bonum [greatest good] by just pursing his own private profit.” Which also kicked off the decline of philosophy as a practice in the west. Where the transformation from a market economy to a market society began.
Less than century after Smith’s Wealth of Nations, Lewis Carroll’s Alice had taken the economists’ message to heart. When the Duchess exclaimed, “Oh, ’tis love, ’tis love that makes the world go round,” Alice countered, if only in a whisper: “Somebody said that it’s done by everyone minding their own business.”
From there, it was a short step to thinking that while ethical reasoning and concern for others should inform one’s actions as a family member or friend; the same did not go for shopping or making a living and eventually political life as a whole. True philosophical morality was replaced with economic conservatism for leadership and that is when the transformation to a market society was complete.
And so it came about that since the late eighteenth century, economists, political theorists, and constitutional thinkers have embraced Hume’s maxim and have taken Homo economicus as their working assumption about behavior. Partly for this reason, competitive markets, well-defined property rights, and efficient and (since the twentieth century) democratically accountable, at least in appearance, states are seen as the critical ingredients of governance. Good institutions displaced good citizens as the sine qua non of good government.
In the economy, prices would do the work of morals.
Neither Hume, nor Smith – author also of The Theory of Moral Sentiments — nor any of the other great classical economists had imagined that people really were knaves in fact. Hume, in the sentence following the passage quoted at the outset added: “it appears somewhat strange, that a maxim should be true in politics, which is false in fact.”
John Stuart Mill played a leading role in restricting what was still called political economy to the study of “such phenomena . . . as take place in consequence of the pursuit of wealth. It makes entire abstraction of every other human passion or motive.” But he immediately termed this “an arbitrary definition of man.”
Unmitigated self interest was always just a handy simplification, one that in the late 20th century greatly simplified the eventual rendering of much of economics in mathematical form. But Homo economicus is now in retreat.
“ Samuel Bowles explains why economists have come to have second thoughts about Homo economicus.
Smith’s invisible hand has always needed the helping hand of both public policy and personal morality. Smith’s economy was not the stateless world of sociopaths that so many students of economics encounter in their intro courses. Smith’s insistence that self interest be constrained by elementary morality now resonates in unlikely places.
As the housing bubble burst in 2008 and the financial crisis unfolded, many U.S. homeowners found that their property was worth less than their mortgage obligation to the bank. Some of these “underwater owners” did the math and strategically defaulted on their loans, giving the bank the keys and walking away. The banks knew this would happen, they knew they were giving out bad loans. But they did not care. Why ? They had a “bet” against the loans they gave out failing, in the form of insurance that the home buying purchased and paid for as a part of the mortgage contract. So the selfish interest of the banks led directly to giving out bad loans. To the advatange of society ? Can you really belive that ?
The greatest challenges now facing the world—including controlling the spread of epidemics and managing climate change and governing the knowledge-based economy–arise from global social interactions that cannot adequately be governed by channeling entirely self-interested citizens to do the right thing by means of incentives and sanctions, whether provided by private contract or by government fiat. With economic inequality increasing in the world’s major economies helped along in many cases by flagrant abuse of legal and moral standards, one may also now doubt Dr. Johnson’s reassurance that “there are few ways in which a man can be more innocently employed than in getting money.”
The novel 18th century idea that economic self interest might under the right institutions sometimes be mobilized for social purposes remains essential to tackling these problems. Markets remain an essential and vast arena of human cooperation (albeit unintended). But the idea of an economy of avaricious knaves waiting to be harnessed for the public good by a discredited economic alchemy now appears to be anything but harmless.