Ethical and Philosophical  Foundations of Economics
An Online Book On the Ethics and Philosophy of Economics

by Richard Garlikov

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Table of Contents

Chapter 1: Five Questions
Chapter 2: Economics and Ethics
Chapter 3: The Purpose or Merit of an Economic System
Chapter 4: Judgment
Chapter 5: Goods and Services
Chapter 6: Economic Progress and Real Progress
Chapter 7: Economic Participation
Chapter 8: Fairness
Chapter 9: Hayek's Claim Further Examined
Chapter 10: The Invisible Hand Explained
Chapter 11: Profit
Chapter 12: Jobs vs. Costs
Chapter 13: Different Earnings
Chapter 14: Channeling Labor (Including Letting It Flow Freely)
Chapter 15: Skewing
Chapter 16: Social Goals
Chapter 17: Money, Labor, and Trade
Chapter 18: Inflation
Chapter 19: The Ethics of Money
Chapter 20: Voluntary Taxes and Public Buying "Brokers"
Chapter 21: Investment and Consumption
Chapter 22: Quantifying Qualities of Value
Chapter 23: Ethical Values, Economic Values, and the Culture of the Work Place
Chapter 24: Freedom
Chapter 25: Economic Systems and Human Nature
Chapter 26: Other Authors
Chapter 27: Money, Trade, Dividing Work, and Leisure
Chapter 28: The Problem Free Markets and Majority-Rule Democracy Have In Common
Chapter 29: Ramifications
Chapter 30: The Meaning of Market Prices
Chapter 31: Regressive Taxes
Chapter 32: The Economy and Tax Revenues
Chapter 33: Ramifications of Increased Productivity: A Paradox In Approaching Paradise
Chapter 34: Pricing
Chapter 35: A Proposed Model for Overcoming the 2008 Financial “Meltdown”
Chapter 36: Fair Economic Trade Across Generations
Chapter 37: When Economic Process Displaces Purpose
Chapter 38: Additional Comments on Fairness of Income (Two Major Issues)
Chapter 39: The Intersection of Ethics and Economics


Ethical and Philosophical Foundations of Economics
by Richard Garlikov


Ethical consequences sometimes seem to result from business or economic policies and practices; and when those consequences seem to be most egregious, business leaders, boards of trade, politicians, governments, and economists may look for ways to remedy them and prevent their reoccurrence. It is my suspicion that this generally involves merely tinkering with those proximal causes most closely related to the undesirable symptoms, rather than understanding the ethical and philosophical foundations and ultimate causes in any economic system or policy. 

Economic systems are or tend to become formal or formalized(1) systems. That is, they become procedural - governed by rules and regulations, rather than by general principles which may also take into account results or important outcomes. Games, sports, legal systems, organizational policies, and other areas of life are very similar in this regard. They all face the same problem: formal systems can yield results that are greatly at odds with what informal rational judgment outside the system knows to be right. When the results achieved within the formal system are most egregious according to outside informal judgment, judgment will often prevail and the formal system will be amended or it will be overridden in some way. When the results do not seem quite so bad, they are often let stand, with the argument given that one has to accept certain anomalies in order to have rules that prescribe everyone's behavior, because living within a rule-governed system is best for everyone overall.

That argument is itself open to question, however, for at least four reasons. (1) If egregious results can be overridden, less egregious results, particularly if they severely affect a (small) group of people are not necessarily more sacrosanct. (2) There is no a priori reason to believe that a formal system which permits bad results is better than no formal system at all; and there are some cases where informal systems work better, particularly one based more on general principles rather than specific rules, and which include principles that permit remedy for arbitrary or capricious judgments interpreting them. (3) It is perhaps always possible that a formal system with different particular rules will be better than the current system, and so rules may need to be added, deleted, or amended to minimize the number of anomalies. And (4) a system might have a way of, at least to some extent, incorporating informal rational judgment into it -- as in allowing something like ombudsmen to override formal rules under circumstances they can justify with good reasons.

What happens in any formal system is that rules and regulations are utilized or developed which seem to be fair, which seem to be necessary and useful, and which seem to capture the spirit and purpose of the endeavor being established. Unfortunately not all circumstances or applications of the rules can be anticipated, and three different kinds of problems will typically arise in any formal, procedural system. (1) The loophole problem -- instances will arise that meet the letter of the rules but which will appear at least to some people to violate their spirit or the purpose of the enterprise. (2) Instances will arise where even sincere and faithful adherence to the letter and the spirit of the rules leads to an unanticipated, undesirable result because the rules will be incomplete, contradictory, or because one or more of them will not have accurately captured what was intended or what was unconsciously understood. (3) Unanticipated circumstances will arise for which the rules are inadequate or antiquated, yielding undesirable results. An example of the this last case arose in American football when kickers became so strong that kicking the ball off from the 40 yard line virtually eliminated "kick-off returns" and their potential excitement because kick-offs routinely went beyond the field of play for a touchback. 

The American collegiate and professional football experience with "instant replay" checking of disputed referee calls is a good example of the last part of the second kind of flaw. Instant video replay analysis of the accuracy of on-field officials' calls was instituted because from time to time during football games officials made mistaken calls that were obvious and important. But the procedures instituted to detect and correct the errors did not address the real problem. This is true of the collegiate experience with rules governing instant replay official review and with both of the, so far two, NFL attempts. Coaches were allowed to request replay reviews, and play was held up while the video was analyzed. This slowed down the game so much and did not make sufficient difference most of the time to warrant the time and trouble, so "instant replay" officiating review was dropped. But, of course, this left the original problem that "instant replay" analysis was intended to prevent. It is my view that the way the original instant replay was conceived and formalized is where they went wrong. The original, and current problem, is that some calls in football are not only wrong and not only important about the outcome of the game, but they are also seen that way by all the fans watching the game on tv, and those who see the replay in the stadium on a large screen. Those calls are the only ones that need to be reversed -- the obvious and egregiously wrong calls that everyone watching tv sees. A referee who could stop the game and reverse such calls could simply be stationed in a booth with a tv, acting when, and only when, an obviously wrong call was made. That would not slow the game beyond what is both necessary and acceptable to fans. Fans do not expect perfect referee judgment about every difficult or close call; what they do not want is for really terrible calls to be made that are obvious to everyone but the referees. Understanding that would help football administrators develop better policies for instant replay review than they have so far. Instead the current instant replay rule in professional football requires that coaches make a challenge, and give up a time-out if the challenged call is upheld. Plus, play has to be stopped and the referee who made the call has to do the review -- sometimes allowing him to repeat the error if it involves misinterpretation or misunderstanding of a rule. And coaches only get two challenges a period, so if there are four bad calls during a period, at least two of them will be ignored. "Instant replay challenges" then, as they are formally instantiated, do not reflect the intention and point of allowing all and only obviously egregious calls to be overridden more or less automatically whenever they occur.

This book is intended to explain the underlying philosophical and ethical foundations and repercussions of economic principles and of economic systems by examining them within the context of five puzzling questions about economics. There are three general approaches throughout: (1) exposure of conflicts between formal economic rules or systems and rational judgment where such conflicts exist, (2) translation of statements about money and financial wealth into statements about their actual meaning and consequences for human actions and values, particularly in regard to changes in benefits and burdens, such as labor and products, since statements about money do not necessarily logically imply the statements about quality of life that they tend to psychologically imply, and (3) presentation of perspectives that relate ethical concepts, principles, and values on the one hand to economic concepts, ideas, and practices on the other, because many economic concepts, ideas, and practices, perhaps particularly ones thought to be "natural" or "obvious", seem to stem from moral values and ideas, even if only subconsciously or unconsciously.

(To Chapter 1)

1. By "formalized" I mean being formal to a great extent, even if not designed that way and even if not fully prescriptive of all behavior. "Formal" systems in social enterprises, such as law are not fully governed by formal rules that prescribe every behavior, since they tend to permit what is not expressly prohibited. This in itself, however, indirectly governs all behavior because it leaves no remedy for actions that, rationally, obviously should have been prohibited in hindsight, but which were not prohibited in the system. And it does not leave remedy for sanctions against those behaviors which are proscribed but which, from a strictly rational point of view, should be or should have been permitted. (Return to text.)



Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 1
Five Questions

This book is the result of reading and reflecting about economics in order to discover answers to the five questions given below. Those answers shed light on economics in general. In economics (as in many other areas of life) mechanisms that contribute to a particular set of goals in particular circumstances often become taken for granted as necessary and important in themselves. They take on a life of their own or seem very natural. If circumstances or goals change, or if additional goals arise, the original means or mechanisms may become an impediment, and yet not even be suspected as a problem. Old habits are not only difficult to break; they are often more difficult to recognize as unnecessary or as likely sources of problematic consequences. The questions below, and the answers to them that form much of the rest of this book, help show some of the hidden assumptions about economics and economic mechanisms. 

It will turn out that economic and financial instruments or mechanisms (such as, money, credit, stocks, bonds, etc., including trade in general) have many different kinds of consequences, not all of which are desirable, and they have many kinds of unrelated functions, not all of which are compatible, and not all of which are well-served at any given time. Many of these functions involve intangible, though important, values, and some of these values are ethical ones. Unfortunately, when significant conflicts or problems arise between economic and ethical or other intangible values, the mechanisms responsible for that generally are at a deeper level than where remedies are usually sought.

The Five Problems

(1) Suppose (even if this is pure fantasy) that an automobile company was able to discover a way to inexpensively produce a safe, non-polluting automobile that was also inexpensive to maintain and operate -- virtually trouble-free, ageless, indestructible, and that efficiently used cheap, readily available fuel. This would seem to be a wonderful invention, but given that so many people's livelihoods depend on automobile manufacture, sale, maintenance, repair, insurance, and fuel production and distribution, etc., such an automobile would cast large numbers of these people out of work, would ruin the economy, and would probably cause social chaos. Something that seems like it ought to be a perfectly wonderful boon would turn out to be a tremendous burden. Why should that be? Or how could that be? Similar questions could be asked with regard to medicine or any field of endeavor where tremendous physical improvements would cause economic disaster instead of concomitant economic improvement. Or, it could be asked with regard to the drastic cutbacks in the military in response to the fall of communism in the Soviet Union and that country's apparent ceasing to be an enemy and military threat. In this case, greater security causes economic hardship on those people who lose military jobs and those towns and industries that depend on military bases and military contracts for their economy. Why is this? Doesn't this show something is wrong with regard to economics or that there is some sort of at least potential dichotomy between economic well-being and actual well-being?

(2) Politicians, political economists, business leaders, etc. always seem to emphasize costs when they are talking about programs they do not like, and they emphasize increased economic (employment) opportunities when they talk about programs they do like. But all increased employment costs someone money when employment is paid for, and all the expenditures of one person or group are income for the person or group it goes to. Purely from the standpoint of spending or saving money -- of money simply changing hands or not, which is the total of what such political or business arguments involve -- arguing that we need certain programs because they create jobs and that we ought not to fund certain jobs because they cost money is inconsistent or hypocritical, since the programs that create jobs also cost money and the ones that save money also cost jobs. There has to be more at issue. What is "that more"? 

(3) How can a depression or recession begin or end relatively abruptly, simply because of money matters, when the amount of work to be done and the people and the physical resources to do it do not change that much? For example, why was 1928 such a great year and 1930 such a terrible one in the United States even though there were almost no physical differences between them -- there was not destructive war or catastrophic plague. There were not more mouths to feed nor fewer people to feed them. There was not less house building material nor fewer houses needed nor fewer people to build them. [Since asking this question I have read John Maynard Keynes' explanation of the cause of economic depression, but if I understand his view correctly, there is a more general explanation, of which his addresses only one specific case (see Chapter 6 -- "Economic Progress and Real Progress"). Further, he realized there were ethical (or political) issues involved as well as purely financial ones. But he was troubled by how to bring certain financial matters more into balance with ethical ones. I think that is the wrong way to look at the problem. I will show later that the financial aspect of economics is actually, in the modern world, only a part of what economics is about, not the whole, and that ethical ideas are, or ought to be, an inherent part of economics not an external source of conflict. The difficulty is getting the best economic policies that successfully do what we need them to, not getting the most financially rewarding policies and then trying to resolve them with our opposing moral views. When looked at that way, many of the kinds of financial policies that lead to ethical conflict would never have seemed the most attractive economic policies to begin with.]

(4) It has long seemed that some work pays more than it is somehow worth and that some work pays much less than it is worth, and that, moreover, somehow the work that paid the most also often garnered greater esteem in the community, even though the product or service frequently was less valuable than that contributed by work that did not earn such esteem. For example, even a relatively mediocre professional golfer may earn much more money and more adulation or respect than a very competent medical researcher, even though medical research seems more important than golf, or medical research may be much more difficult in many ways than playing golf. Or the wealthy owner of a number of tobacco stores or greasy fast food restaurants probably will make more money and be accorded more community esteem (particularly if he contributes some portion he hardly would miss for community projects, charity, etc.) than a nurse, school teacher, librarian, coal miner, truck driver, or garbage man. Even at a low economic scale, a person who sweeps up at a hamburger joint is frequently valued as a far more contributing member of society than is someone who collects welfare or "sponges off his parents" in order to write poetry or paint pictures he cannot or does not sell. How is work valued monetarily? (It is not just supply and demand. For example, in the United States teachers or nurses in short supply will never in my life time, earn as much as doctors or movie stars even if doctors and movie stars were in great supply.) And why does the earning of vast sums of money for work frequently also earn disproportionately more respect or admiration, and power, than the doing of work which seems at least as hard and/or at least as important but which is not as financially rewarding? 

(5) Can everyone make a profit? Can everyone make more money than he/she spends, or does one person's making a profit necessitate that someone else must therefore have a loss? Is everyone's profit someone else's loss? If so, does that mean we are destined to have winner's and losers, even if from time to time some winners and some losers may switch places?

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 2
Economics and Ethics

I mentioned "ethics" in question #3 in referring to Keynes (specifically he raises the issue in the last chapter of his General Theory of Employment, Interest, and Money) but I will try to show that much of economics relates to ethics, since (1) all our actions, including our economic actions, have ethical components; (2) economists, when they are doing economic philosophy, as opposed to economic science or psychology, tend to give ethical kinds of arguments(1) -- as do businesses and unions, labor and management, and politicians or government officials when they are arguing for particular laws or policies or debating wage/benefit proposals; (3) many economic principles and policies become much clearer, and their benefits and limitations less obscured, when examined in the light of ethical ideas and theories instead of in purely financial and scientific terms or objectives; and (4) social/economic systems function within ethical, social, and cultural contexts, often prospering or working harmoniously only insofar as values and behaviors are commonly accepted, expected, assured, and reasonably able to be relied upon or taken for granted(2)

Economic policies deal ultimately with values and choices about labor and lifestyles; and ethics is the attempt to understand values, and to understand better and worse choices and actions. There is no way to eliminate ethical considerations from economic policy without risking developing simply a consistent and self-regulating economic system whose ends may have no relevance to human needs and goals -- an economic system that makes humans mechanically adapt to it rather than one that recognizes and reflects, and tries to realize and respond to, human needs and humane values. Efficiency toward a wrong goal is not the sort of efficiency to be prized. 

Economics is both a matter of science and of ethics. It is a matter of science insofar as it studies and understands the mechanisms (causes and consequences, and their effectiveness) of production and distribution of goods and services. It is a matter of ethics insofar as it studies and understands the fairness and overall (not just monetary or financial) justification of the (methods of) production and distribution of the benefits and burdens of a group, society, community, culture, country, region, or the world at large. 

Presently economics is considered primarily a science, and its ethical component is dealt with as "political economy" or "political philosophy", but I think this is an error because I think (1) political decisions themselves are subject to moral scrutiny, and (2) political decisions are often made without particularly deep or philosophical understanding of the implications and principles that are really involved. In some democracies, for example, a majority may vote for its own self-interest on economic matters, though that may not be the fairest or most justifiable decision that could have been reached; hence, the phrase "the tyranny of the majority". 

Or legislative mutual back-scratching, or intimidating political power plays by influential legislators, may bring about policy that is not even in the best interest of the majority, but only of certain legislators. And, further, at the shallow level that political debate and news media reporting tend to float, important decisions, when not based on sheer self-interest and greed, are often based on unreasonable, unreliable, unexamined, and, often, erroneous ideas of what policy or law is to the greatest benefit, or what has the greatest justification or fairness. I think it would be difficult to argue that every majority political decision in some country is the most reasonably virtuous or ethically justified decision for everyone, or even the wisest or most advantageous pragmatic one for those who voted for it. One needs to be able to say more about an economic policy than that it had particular financial consequences and that it was politically popular. One needs also to be able to talk about its fairness and about its non-monetary consequences and about its overall justification or lack of justification. All this will be clearer as I discuss particular issues. However, I do want to make a few general comments about ethics here.

First, just some verbal distinctions: I tend to use the words "ethical" and "moral" interchangeably without meaning to imply any particular distinction between them. I take one sense of "ethics" to be synonymous with "moral philosophy" -- the attempt to rationally and reflectively understand all the issues involved with right and wrong, good and bad, value, etc. And, unless the context were to clearly imply otherwise, I do not mean by either "ethics" or "morality" conventional or social morality, or religious morality, but rational, reflective morality. Nor do I mean by saying that something is right or that it is ethical that it simply meets the standards or prescribed practices of any particular group, religious or otherwise. 

Also unless the context were clearly to imply otherwise, I do not mean by either "ethical" or "moral" that something is "right" but merely that it involves issues of right and wrong or good and bad. For example, if I want to give "ethical arguments" for a particular position, that means I will be giving arguments involving issues of ethics, not necessarily giving saintly arguments. In this usage, to say something is a matter of ethics is not to claim it is right, but to claim it involves issues of right and wrong. 

These are important points, because what happens all too often is that a particular ethical argument against some particular economic or business philosophy, practice, or policy will be refuted, or there will not be agreement about what the correct ethical position ought to be regarding it, and the mistaken conclusion is then drawn that ethics has no place in the matter or that the issue is better considered apart from any considerations of ethics. However, it does not follow from there being ethical disagreements or arguably mistaken ethical proposals about particular issues that those issues are not a matter of ethics at all nor that ethics need not be taken into account in evaluating them.

There is another usage of "ethical" and "unethical" that one needs to be very careful about. To say "Jones is unethical" can mean either that "Jones does the wrong thing" or that "Jones never takes ethics into consideration." Those are two very different kinds of claims made by using the same words. To imply or infer that someone is totally unprincipled just because they make what you believe to be wrong choices or because they believe in principles or ideas that you think are mistaken, is unreasonable and unfair. People may, of course, be unprincipled and do wrong things, but doing the wrong thing, or the thing someone else believes is wrong, does not by itself indicate it was done with lack of scruple or without careful consideration and concern for doing what is right. I find it is far more helpful in most discussion about matters of policy and law to keep the topic to what is right or wrong and to what ought to be done or ought not to be done then to try to infer people's moral character from their moral positions and to castigate their character perhaps simply because you disagree with their moral views. Determining someone's moral character has to take into consideration more than just their conclusions about what is right or wrong.

Many people incorrectly believe that ethics involves only choices that are difficult to decide or actions that are difficult to do; that is, (1) decisions about controversial issues -- such as questions about abortion, capital punishment, war, freedom, euthanasia, civil disobedience, sex, etc. -- or (2) decisions that require sacrifice, where one feels obligated to do something one does not want to do or that goes against one's own self interest, such as when one turns in a large sum of cash he has found, decides against sex for humane or ethical reasons, though in the heat of passion with a desirable and willing partner, reports his rather high golf score accurately, behaves graciously in a disheartening losing effort, etc.

Ethics is much broader than this though, since many right things to do are also rewarding, fulfilling, fun, or simply painless (attributes which actually contribute to their being right, barring significant contrary attributes), and since many ethical actions are not difficult to decide at all. Most people most of the time have no desire to murder anyone or burglarize homes, so though it is right that they do not go around murdering people and burglarizing homes, it is not a difficult question to decide (or one that is even pondered). Nor is it difficult to refrain from these actions. Similarly it is not generally difficult to hug your children or your spouse affectionately even though that is a good thing. Nor is it difficult normally to eat good tasting food that is also nutritious when you are hungry and the food is available to you. Or consider paid vacations. These are times that companies pay their employees not to come to work, often insisting that overzealous workers ought to take the time off and go have a good time. (And often not just so that they can come back and work even harder, but because they have "earned" the right to have a good time and not worry about work.) Learning good "manners" as a child is often hard work; but once acquired, those manners may be second nature. That does not make them any less right. Many "right" or ethical practices become institutionalized or are so normal a part of society that little thought, and no agony, is accorded them. 

Or consider the following case of simple kindness: suppose a pleasant stranger comes across town to your office because he has mistakenly been referred to you for services. You know that he needs to go back across town to a different office, but instead of just telling him that, you also call that office to make certain that is where he needs to go and that they will be able to help him if he goes there shortly, asking them to look for him. Doing that may make you feel very good, and it certainly was not difficult to decide or to do; yet it is a very good thing to do, better than simply sending the person futilely back across town or even just making him go find a pay phone somewhere to verify the information for himself. 

Being good or doing right does not always demand difficult deliberation or self-sacrifice. A person who enjoys doing good things is not somehow, because of his joy, being less ethical than someone who does those same good things only with long contemplation and sheer will-power. Both are doing the right thing; one is simply to be commended in addition for his efforts and determination; the other for his natural kindness.

I view all our actions as being ethical in one way or another; any action is either right or wrong, obligatory or not, over-and-above the call of duty or not. It is simply that many actions are so obviously right that it might seem strange to speak of them that way, since no one would have questioned otherwise. For example, an adult at home about to pour himself a glass of juice from the refrigerator might reach up to the cupboard for any of a number of glasses. Choosing a glass may be a matter of whim, personal preference, or pure chance; and none of the choices would in general be wrong. Any choice is an o.k. or right choice, but it would be strange for someone to tell him that, making it sound as if there were some question or as if he needed praise for picking that glass. (With children, of course, there may be some glasses they should not reach for or use because they are likely to break them or spill juice using them or get too much juice, etc. So saying something to them about which glass they chose or ought to choose may be appropriate.) Similarly which shoe one ought to tie first is not an issue; either one is right to tie first. Any of a number of options in many cases is (equally) right; and that is so obvious that one need not agonize over it, think about it, or comment on it. For example, it might be wrong to eat your dessert first at dinner (because it ruins your appetite on less valuable calories than the food it keeps you from eating), but there is no wrong choice in deciding from which part of your main course to take the first bite. One person may begin with his fish, another might take the first bite from his potatoes, a third might begin with the vegetable, or the jello, or whatever. Any of these foods is right to begin with, though adults don't generally think about it that way (because it is so obvious), and it would be strange to commend anyone for his choice of first bites.

There are, of course, difficult ethical choices many times. (1) Some choices are difficult because we do not really know enough facts in the matter. For example, should you punish your child for a particular wrong action in order to get him to really understand and appreciate the seriousness of his deed and to make certain he does not repeat it. Or is punishment unnecessary and unwarranted. Or will punishment in the particular case be more destructive than constructive. Sometimes it is difficult to know what one ought to do, but the difficulty is not with ethical matters, but with factual ones --trying to know what the child's understanding is and whether it needs further improving, and what would best help it be improved. (2) Some cases are difficult because what we think we ought to do goes against what we want or desire to do. Having to share something you really do not want to share. Turning in money that you found or returning a check that was sent to you in error or giving back the excess change that a clerk gave you unknowingly by mistake. Refraining from some available sex that you know would be hurtful in the long run but is especially tempting at the time. Staying on a diet when you are starving and the food you want is right there in the refrigerator. Becoming a front-line soldier in a just war of self-defense. (3) Some choices are difficult because there are good reasons for doing one thing and also good reasons for doing the opposite. Some cases are complex enough that depending on which features of them you look at, the right choice seems to change. These latter cases are perhaps particularly difficult when society is badly divided in the way people view the action in question and yet has to make some sort of law or group choice about what is right. This is made even more difficult by the nature of much public debate that is more posturing than rational, more shallow than reflective, more concerned with victory than with reaching understanding and satisfactory resolution or just accommodation, more concerned with rhetoric (playing to the news media) than with substance. Such debate does not genuinely try to resolve conflicts but tries instead merely to ignore the merits of the opponents' sides. (4) Some cases also genuinely bring into conflict two different cherished ethical principles that we believe are both right. For example, issues of invasion of privacy, or restriction of certain kinds of speech or activities, in order to try to prevent public harm; or questions about civil disobedience and the morality of obeying or disobeying an arguably bad law that is hard to raise enough consciousness about to get changed.

Fortunately, a great many ethical choices are easy to make, and a great many that seem difficult, turn out, with patient examination and careful analysis, not to be. They divide into individual components that are easy to understand and weigh against each other. Even those that are difficult, often can be resolved in a way that accommodates differing views, though the accommodation may not have been one that would have been initially apparent. I use the word accommodation rather than compromise, because I believe that many times both parties (in an ethical problem that involves two parties) can be perfectly satisfied without having to surrender anything important. For example, as a photographer I sometimes take pictures of families that include teenage boys who invariably do not want to smile, but whose mothers want them to. There are a number of ways normally to resolve this problem. First, the teenager might be shown to understand that he does not need to grin like a fool in order to have a pleasant expression that will please his mother. Usually he is under the false impression that she wants him to look like the Cheshire cat, and that is not normally true. Second, because of the way I do the pictures and the kinds of packages I offer, it only costs me a dollar or two more to take a few extra pictures of them where some are the way the teenager wants it and some are the way his mother wants it -- so they can divide them up among themselves according to their own tastes. Further, once the pictures are ready, normally, the teenager will see that the really serious pictures are not as flattering to him as he thought they would be -- that they are too angry or unintelligent looking; and the mother will see any huge grins look too silly, so that the soft, pleasant looks turn out to be the favorites of both. By getting a picture everyone likes, I can, of course, sell more than if I get pictures none of them like or can agree on, so everyone comes out ahead. And even if I fail, and they argue acrimoniously about the pictures later, at least it prevents the acrimony from occurring before the pictures and thus virtually preventing any chance of getting a pleasant one, or one any of them like. Whatever the merits of emotionally heated disagreement, making people better subjects for a family photograph are not generally one of them. Accommodating parents and children in this kind of situation does not necessarily mean having them compromise, since none of them has to give up anything.

In another case, one time I took group and individual pictures of a family and gave them the roll of film, for a fee for the shooting. In this kind of circumstance I guarantee the photography as long as they use the labs I direct them to. Unfortunately in this instance, the initial lab tried to do this family an extra favor by numbering the pictures for them, but accidentally mis-numbered them. When the family had a great many enlargements made at the other lab, a significant number of them were the wrong pictures. The second lab was totally blameless; they simply enlarged the negatives according to the numbers they were given. I took the responsibility, though I felt not at all to blame. The lab that numbered them was primarily at fault, though they and I also felt the family should have noticed that some of the pictures did not line up with the proof numbers, since some of their group photos had negatives that were clearly individual portraits. But since the family did not notice that and had spent a significant amount of money at the second lab, was very nice in explaining what had gone wrong and how disappointed they were, and would probably not have liked to be told it was their tough luck, I paid the second lab to reprint the correct pictures for them, and worked out the following accommodating deal with the first lab, by which I think no one lost anything. The first lab recognized their mistake but did not want to be on the hook for the amount of money wasted on the set of enlargements. Nor did I think they should be. Since they were also a camera store, they and I agreed for them to sell me, at a price that was either a small markup or none at all, some equipment that I had wanted but never would have bought at full price. The total discount I received on the equipment was more than what I paid for the re-printed pictures. They lost no money (though they had to "work off" their mistake -- but with easy "work" --simply ordering equipment for me), the family lost no money, I got equipment I had wanted but otherwise would not have bought, or could not have purchased so inexpensively. Further, that first lab/camera store and I have had a very good relationship over the years since the incident. I believe no one lost anything in this resolution to the problem. And no one gained anything that was unfair. There was not compromise, but accommodation. 

I believe that economic choices, as all choices about our actions, are also ethical choices -- choices that are morally right or wrong. Some of them are easy to decide. In some cases any of the options are so obviously equally right that one knows that without having to think about it: at an amusement park, should a child spend his last ticket on one ride or another. Ethically it does not matter which ride, because there is no moral difference between the two. The options are equally (morally) right. Of course, a more obviously moral choice may be called for if one is trying to decide whether he should use the last ticket himself or give it to his little brother. But suppose the little brother says: "That's o.k., I still have a ticket left too." The older child may feel relieved and eagerly look forward to his last ride, not because he now does not have to make a moral choice, but because this moral choice is so easy to make, since it would seem irrationally self-sacrificing to give your little brother your last ticket for him to have his last ride and your last ride too. 

Obviously by the way different supposedly "special interests" groups press for their "side" on controversial economic legislation, there are some economic issues that are more difficult to decide. Many of these have to do with issues of fair treatment and of maximum overall benefit, such as which group of people it might be best or most productive and fairest to tax if taxes need to be raised, or whose taxes might most fairly and justifiably be lowered if a tax cut is workable. Similarly, issues about welfare programs, health insurance programs, or programs such as social security, which are not welfare programs but which are also not fully self-supporting by the previous contributions of those now collecting from it. Or issues about trade protection, government subsidies, fair labor practices, etc.

However, I hope to make clear in this book that many of these problems are made difficult in the first place, or are made more difficult than necessary, by our losing sight of what economics and economic policy is supposed to do. They are also made difficult by hidden assumptions that are not accurate or that do not imply what we think they do. I will argue that, if the purpose or merit of an economic system is kept clearly in mind, and assumptions and their implications are clearly understood, many problems we now have would either readily be solved or lend themselves to being much more easily solved than they now can be. I do not necessarily propose to solve these problems here, particularly in specific practical ways, but to lay some philosophical groundwork for people who are much more astute about specific business and government workings than I, and who are much more astute about implementing the practical means to attain the goals that philosophical analysis might unveil as most useful and worthy.

(To Chapter 3)

1. Milton and Rose Friedman point out for example in Free to Choose (pp. 95-96) the unfairness of the way benefits are paid to Social Security recipients. And on page 97, they argue that, though ostensibly it is established to benefit the poor, the Social Security system does not help the poor as much as it helps those better off because the poor tend to pay taxes into it for more years and receive benefits for fewer years than the rich. The Friedman's deem this a "perverse" effect, but that is clearly meant sarcastically, for they are essentially arguing that this is most unfair. And fairness is a moral criteria, not a scientific one. (Return to text.)

2. For example, because it is impossible to spell out everything in any contract or to anticipate in advance ways that people might behave inappropriately, there have to be certain assumptions that contracted services will be carried out in some reasonable way - e.g., that your minister won't show up to perform your wedding drunk or in a garish plaid suit, that s/he won't say mean things at your wedding, or tell the congregation you are unlikely to succeed in your marriage. No contract or agreement tries to spell out every possible inappropriate behavior because that would be impossible to do, and is usually justifiably considered unnecessary. But contracts only work because there exists underlying assumptions and shared understanding about appropriate behaviors. Where such understandings are not commonly shared, serious difficulties can, and do, occur.

This same idea applies to the need for laws. In a homogeneous society with common tastes and mores, fewer laws are needed because there is more common underlying acceptance about what behaviors are right or not. Legislatures and governing boards of all kinds don't tend to try to spell out every possible violation, but to make laws prohibiting those things that either have happened in the past that were offensive or that had bad consequences, or that they know are likely to happen if people are left to their own devices. In a society or culture where no one expects certain kinds of behavior ever to occur, they are not likely to (think to) outlaw it.

This will have importance later in the book, because a free market society functions better socially where there are shared values about what services and products are proper to trade and how it is proper to trade them.  (Return to text.)


Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 3
The Purpose or Merit of an Economic System

I want to make clear what I think the point or value of an economic system or economic thinking is.(1) Defining an economic system is itself problematic, for it might include only those people involved with each other in a particular way, anywhere in the world --for example, ship builders in Japan, oil companies in Great Britain who buy those ships, bankers in New York who finance them, and the people who work the oil fields in Saudi Arabia to supply them. Or an economic system may include all the inhabitants of a specific geographical or political area, such as a country or region, even though many inhabitants do not actively participate in the economy -- e.g., are out of work and do not make a contribution to it, or in some cases are self-sufficient and do not take part in trading with others.(2)

First, a couple of examples and comments to make clear the reason behind an assumption I will soon state. Although many famous doctors and surgeons have invented instruments that have helped them make medical breakthroughs, they could not have done nearly as much good for patients if they had to manufacture all their own equipment and perform all aspects of medicine, surgery, and hospital care, construction, and maintenance themselves.

Second, as great a golfer as someone like Jack Nicklaus is, he could not have made nearly as much money as he has and he could not have entertained or thrilled as many people as he has if there had not been golf courses around, ways to travel to them, and televisions and television networks and crews to show the sport to millions of viewers. Nicklaus could not have played such great golf and also manufactured and manned the necessary television and travel equipment or constructed and maintained by his own hands the courses on which he plays. He probably could not have even played golf so well and also made his own set of golf clubs, golf balls, and shoes. 

Finally, if we lived in Paradise or Eden, where all that was desired or necessary was available to each of us, with little effort or need for cooperation and division of labor or specialization, we would not need money or trade. And oppositely, if we were ship-wrecked on a desert island where there was no food, water, or usable resources of any kind, specialization, division of labor, and trade or money would be of little value or benefit. If one person were marooned by himself anywhere, the idea of division of labor or trade would have no practical importance.

Therefore, assuming that few, if any, individuals can produce or provide themselves with as much as they want or need or, could reasonably have, the essence of an economic system or economic community is that people working at specialties or in combination (particularly in those endeavors that knowledge, technology or machinery enhance) can fairly reduce their burdens and yet produce or provide more than they could individually. In cases of division of labor and specialization, individuals or groups of individuals can produce more of a particular service or product than they want or need for themselves, and can thus reasonably and fairly share the excesses of their individual Goods or Services with each other. Economic improvement occurs when greater "shareable" and shared excesses occur of wanted or needed Goods and Services that are distributed so that a larger number of deserving people can have both fewer burdens and more of the things they want or need. Economics is the study of how people divide labor and resources and the attendant burdens and benefits; and it is the reflective study of how people can do it more beneficially, i.e., more productively (increasing the benefits and/or reducing the burdens) and/or more fairly.

One of the central tendencies in this book will be to examine economic policies and practices in terms of the benefits and burdens they (might) cause, instead of just in terms of how quantities and distributions of money are affected, for it is a central tenet of this book that how people are ultimately affected by economic policies and practices is important -- not how money is affected. Money is only important insofar as it affects quality of life. But economic discussions often lose sight of that, and it is imperative not to allow that to happen when thinking about money or when discussing it. Ultimately it is not how much or how little money anyone makes but how well or how poorly their needs are met; and the amount of money they have does not necessarily reflect how well their needs are met. If, just for example, one can travel anywhere in a country one wants to on public transportation purchased with tax money, and if one does not mind riding public transportation, or finds it more useful for one's lifestyle -- e.g., one reads while riding instead of having to attend to driving -- then a person in a country with good public transportation may be richer, in terms of having his needs met, than a person who earns more money but has to spend it, or even just a part of the difference, along with time and energy, on purchasing, using, and and maintaining an automobile. 

Or, as "60 Minutes" reported about one small town's experience with Wal-Mart, everyone's initially saving money when a store opened there eventually "killed the town twice". When the Wal-Mart opened, it drove out of business many of the small store owners. That eventually diminished the base from which Wal-Mart drew customers that the store itself eventually closed. So the initial benefit that Wal-Mart bestowed of saving everyone in the town money on merchandise they bought ended up causing irreparable burdens to the people in the town. Economic systems are like ecological, or any other complex, interdependent systems, in that changes tend to have multiple and rippling effects. To focus on any one factor, such as cost savings, is usually to ignore other likely important consequences. And if they do not explain how (proposed) economic policies actually affect human beings in ways other than just their finances, economic analyses can be narrow to the point of being not only harmful, but to the point of being ridiculous. 

On a recent radio program, a financial expert dispensing advice to callers, pointed out that it would be catastrophic if medical researchers discovered how to prevent and reverse physical aging. The context of her comments was in regard to the Social Security system in the United States, and what she should have meant was that if researchers find a way to prevent or reverse the physical aging process, then we would obviously have to reconsider the notion of retirement and pensions because the current systems are all based practically and philosophically on the ability and social need to work and on actuarial sorts of data that would no longer be applicable. But she may actually have meant exactly what she said -- and may have been more concerned about the "economic" aspects of the matter than the human aspects. (And even when economic matters themselves are what is at issue, they tend to disguise what is involved at the level with what those numbers mean in terms of benefits and burdens. For example, monetary figures about damage to property occurring from natural disasters are usually reported as "losses", even though the rebuilding effort will bring a substantial amount of work and profit to those in the building industry. Or, recently the "costs" of fixing the Y2K problem are considered most expensive, even though other computer industry sales for products and services are considered "gains" in the economy. So if you buy a computer for $2000, that is considered to be good for the economy, but if you then have to spend an extra $50 making sure it works in a certain way, that additional $50 is bad for the economy. And if computer manufacturers redesign their products so that they aren't susceptible to the Y2K problem, that effort and the ensuing sales once again contribute to the economy, rather than "costing the economy" the amount of money involved. There is more involved in this sort of thing than just the financial numbers involved.)

I believe it is absolutely crucial, therefore, for any economic discussion or debate to be, not just about money, but about how people are actually affected, in terms relating to human activities, needs, desires, values, etc. And it is crucial to consider all the effects, not just those one prefers or on which one is inclined to focus.

Now, the reason I say above, in explaining the point or merit of an economic system, sharing the "excess" of what one produces rather than sharing what one produces, is because it is the excesses over and above one's own needs and wants that is, with one exception, the essential feature of (economic) progress through cooperation. Suppose you and I each make a sandwich and dessert for lunch that costs us the same amount and takes us each 15 minutes to prepare. If I trade you a peanut butter sandwich I have made for lunch for the bologna sandwich you have made for your lunch, and we both like either one, neither of us has really gained anything. But if I can make two sandwiches in 8 minutes and you can pack two desserts in 8 minutes and if the cost comes out the same, then I can trade my extra sandwich for your extra dessert and we have both gained (seven minutes in the morning -- plus less work at the supermarket and less work in the kitchen). We gain even more if I am a better sandwich maker than you and you are a better dessert maker than I. 

The exception mentioned above where progress occurs without the trading of excesses, is the trading of my sandwich for yours simply in order for each of us to get variety. Trades of this sort (my house in New Mexico for your house in New York, or my farm for your farm machinery business, the present I get for Christmas that I don't want for the present of equal cost that you get for Christmas that you don't want), bring about a sort of qualitative progress rather than a quantitative one. Such trades are important when they occur; they are not as typical as trading of excesses of specialized production.

With modern industry, the trading of excesses is carried to the extreme that virtually all one makes is excess to be traded to others. (That is, with the exception of people who are working for others for a mere fraction of return from their labor -- such people are producing excesses for the business owners or managers, not for themselves, since they may not be able to afford the amount they need or want of the product they are producing. Still, on say a Mercedes assembly line, each worker is producing an excess of what is needed for one car, and they are pooling the excesses in order to make more cars in a given time frame than what any of them could make if they had to each build a whole car by themselves. more cars than they need for themselves.) 

Or consider a baseball trade. It is generally not particularly helpful to trade your only good second baseman for someone else's only good third baseman (assuming they have equivalent offensive skills and get along with teammates equally, or make equal "leadership" contributions to their teams). It is more advantageous for your team to trade an extra third baseman who is better than another team's third baseman for their extra second baseman who is better than your second baseman, in order to fill a void each team has at the position they are trading for without creating a similar void at a different position. Of course there are some unfair economic exchanges where someone takes advantage of someone else and gains more than the other party, but the idea in any fair (which is what I am interested in for now) economic exchange is to give up things which are of less value to each party than the things they are each getting. That way both increase their lots in life and are not just breaking even.

Now economics as a science is the study of how people actually operate in this regard -- particularly formally or legally. It is the study of how people in various societies divide their labor and resources and how they share with each other -- particularly the study of general principles or general mechanisms involved, and the consequences of those mechanisms. (Black market or underground secondary economies are usually distinguished as such from the country's legal or formal economy. And, further, economics seems not to pay too much attention to informal or unpaid labor and working arrangements, which I will argue later is a mistake that tends to incorrectly influence some economists' views of how people tend to work together and what systems are most stable or progressive.)

There are a number of ways that economic improvement occurs (assuming for now a fair distribution of burdens and benefits): (1) the discovery or creation of services, (2) greater efficiency in production (for example, discovering or making better fertilizers or chemicals to improve farming or pharmaceutical output; the invention and use of machinery that can do proportionally more work of the required sort than the number of people required to build, maintain, and operate the equipment; or better management of resources and labor, as in design of assembly lines, etc.); (3) greater efficiency in physical distribution (e.g, more and better highways, waterways, railways, air travel; more and better planes, trains, trucks, etc., faster loading and unloading methods, greater carrying capacities; more and better distribution networks of non-material goods or services: e.g., the way network and local television, cable and satellite television, video tapes, radio, audio tapes, records, compact discs, phone lines, computers and fax machines, etc. distribute information and entertainment; (4) greater economy of scale for manufacture, distribution of product, providing of service; (5) greater knowledge about what is wanted or needed by whom, and what can be supplied by whom; and (6) greater facilitation of trade and trade arrangements. Improved travel methods or conditions, improved machines, improved working conditions, improved communications about peoples needs (and wants) and capabilities, improved training and improved knowledge and wisdom in general, etc. can contribute to each of these areas of improvement. And, in the opposite direction, economic progress and stability are impeded by those things which make productivity and distribution less efficient, that impede trading transaction, that make less accessible accurate knowledge about potential supply and actual demand, and that diminish scales to less than optimum potentials. 

Trade or the market (whether free or regulated or totally state-controlled) are usually considered to be the mechanism for distribution of each person's (or group of people's) excess production of goods and services. AI gave involved trading. But there are other mechanisms: neighborliness; organized community volunteerism; good samaritanism; gift giving; charity (which is one kind of gift giving -- based primarily on the recipients' needs which he can not (afford to) supply for himself, instead of on other reasons such as wanting to share something or simply to give joy; social and/or historical convention and/or biological habit as in parents providing for their own young children, grown children providing for their own aged parents, or husbands and wives dividing labor between them without its being some sort of business or trading transaction [until divorce lawyers try to tally it up as such in retrospect so they can argue who produced more that needs to be paid back or that is theirs personally to keep -- i.e., reckoning what each person produced in excess of his or her own personal needs and how it was distributed to the other person and at what monetary or trade value, etc.]; death bequests-inheritances (which is a special case of gift giving, since when you die you will have no needs or wants and everything you have is excess and will end up of no use to you no matter what -- whether someone else gets to benefit from it or not; taxation; slavery and the psychological or economic equivalent of slavery where people "voluntarily" do more work for less than it is really worth (or should be worth) because otherwise they could not survive well at all -- not because there is not enough to distribute in the society of which they are a part, but only because of conventions concerning distribution in the society in which they live, conventions that may seem fair or natural, but which are actually ethically arbitrary and often wrong.

I would venture to guess that, contrary to what one might think, most of the work that is done in society is not of an "economic" trade or exchange basis, but is of a neighborly or gift sort. At least a substantial amount of work in society is of that sort. Friends, families, neighbors and co-workers do a great deal for each other that no one keeps a specific balance sheet about as long as there seems to be reasonable general reciprocity. Even professional relationships abound in helpful work and gestures which are not specifically "billed" or charged for and for which no direct exchange is expected. Contrary to some rhetoric, greed or pure self-interest is not the normal cause of labor; and that is easy to see in two kinds of cases: (1) people who are greedy and selfish and who do nothing without some payment or incentive stand out as being selfish and greedy and lazy and unhelpful. If everyone behaved that way all the time, we would not notice the few who actually do behave that way. (2) When relationships break down and people start to act in guarded, unfriendly, distrustful ways, seeking only what is best for themselves, and doing little out of simple kindness and generosity, that is a noticeable situation, and one in which relatively very little gets accomplished. Further, it is a very difficult and uncomfortable way for most of us to operate; and it is clearly not the way we normally interact with others. (I will discuss Adam Smith's view of enlightened self-interest later, since it is often misunderstood and mistakenly pointed to as the belief that pure self-interest alone can foster cooperation, and is somehow the underlying psychological mechanism that drives a market economy.) 

Economists and business leaders need to be very careful to understand the actual mechanisms and motivations of human behavior if they are going to try to enhance business by means of them. It is very easy for a social scientist to notice and to study the behavior which proves his point and to ignore as irrelevant, and outside the scope of his area, the behavior which actually is contrary to it. If I am correct about exchange and greed not being our normal, necessary, or most important motivation or means of interaction, then economics that studies only those kinds of interactions which are based on self-interest and exchange will, of course, yield skewed (and false) results about how people behave and what kinds of incentives need to be employed to influence their behavior. Hence, in this book I will be talking about behavior which may not seem at first blush to be "economic" behavior, but which I think is important for us to see ought to be considered to be economic behavior, if economics is the study of how we do, in fact, interact to decrease our burdens and increase our benefits in fair and justifiable ways. We do not simply trade with each other, and economics therefore is not just about making trades. It is about how we "share" or divide resources and labor, and about how we ought to do so. 

(To Chapter 4)

1. I say "point or value" because the Nobel laureate economist Friedrich A. Hayek, argues that a market system has no central purpose, but instead consists of a vast number of reciprocal actions toward "the reconciliation of different purposes for the mutual benefit of the participants...." He believes that one of the chief characteristics of a market, and one that is necessary for a successful market system, is the "purposeless spontaneous order" of these varied reciprocal actions, brought about, not by directed compliance toward a "unitary scale of concrete ends" or a particular governing belief about what is important, but by "members of a free society hav[ing] a chance successfully to use their individual knowledge for the achievement of their individual purposes...." Even to the extent, however, that Hayek is right about "the market" having no specific originating purpose or overall design dictating a goal toward which all its individual spontaneous transactions tend, that does not mean there is not a particular merit to the overall enterprise, nor that there are no general principles (moral or otherwise) which apply to the enterprise as a whole or which ought to and could apply without disturbing the spontaneity or success of the individual transactions. Nor does it mean there are no unfair burdens placed on innocent third parties which need to be remedied. 

I will be more specific as I proceed, but it should be clear that something does not have to be designed in order to have value -- penicillin has merit without having been designed by those who use it; and there is a point to using it, without its necessarily having had some purpose to begin with. The free market has certain general benefits even though those benefits may not have been intended; and there are some threads common enough to most or all particular socially beneficial, as well as individually advantageous, transactions, that we can describe those threads even if we cannot generate a design or algorithm to mechanically or automatically generate the advantageous kinds of transactions that contain them. And just as there are certain causal and statistical factors at work in a market, though they were seen only upon scientific study, there are, I will try to show, certain moral and philosophical factors at work as well, though some of them are seen only upon reflection. In fact, many laws or rules in codes of professional conduct are attempts to prevent market transactions which are thought to be socially burdensome even if they are mutually beneficial to the parties of the transaction. Most people already recognize that not every transaction two parties might themselves agree to (e.g., bid fixing or embezzling with an auditing cover-up) is one that ought to be permitted.

(Return to text.)

2. There is a particularly troublesome and consequential complexity in trying to designate or define what an "economic system" is because not every trade relationship is between members of the same social, geographical, or governmental entity; and not every social, residential, or co-citizenship relationship involves trade or commerce. 

Further, there are ways of distributing burdens and benefits in society that don't involve trade or commerce, but that effect trade and commerce. And it is misleading to categorically lump them as part of the economic system or not to count them at all as part of the economic system.

Yet we often designate or define economic systems by social, geographical, or geopolitical membership; we tend to designate "economies" or economic entities in terms of those, usually governmental, social units - Detroit's economy, Japan's economy, Alabama's economy, etc. Sometimes the designation is geographic or a mixture of geography and similar sociological conditions, as in the economy "of the Northeast, " "of the rural South," or of "urban inner cities" or "large cities".

However, members, residents, or citizens of the same social or geopolitical group don't necessarily participate in "an economy" in the same way, in an important sense of "same", not just in the sense that they don't all do the same work or contribute the same amount or receive the same benefits for their labors. And it is misleading in some important ways to group them together, whether you include or exclude them from the economic system under consideration. What is misleading is to confuse social policies and practices with economic policies and practices, even though the two often are intertwined, and perhaps justifiably so. 

Take some simple examples. Children in a family or in a community that has sufficient resources not to need to put children to work at daily jobs, receive benefits from a community or from their parents without contributing to the economics of the family or society (while they are children). In a slave "economy" on the other hand, slaves contribute a great deal to the economy, but get back very little from it. 

In communities, there may be (1) people who are unemployed, (2) people who work together and trade among themselves, (3) people who work and/or trade primarily with people outside the community (e.g., who deal primarily in foreign trade or in interstate commerce), (4) people who have a disproportionate amount of burdens (e.g., have to do most of the work for the minority of the reward), and (5) people who have a disproportionate amount of benefit (e.g., have most of the "economic" rewards for a minor or negligible contribution of the work). In some very important sense that is difficult to spell out precisely in general terms, slaves and their masters, children and their parents, industrialist leaders and the unemployed are not part of the same economies or the same economic systems just because they simply happen to live together in some city, state, country, or family. Yet economies and economic systems typically refer to such social or geopolitical entities.

If this were just a matter of degree of participation, it would be unnecessary to state this. To say that the combined assets of Bill Gates and some penniless homeless person is over 50 billion dollars would just be a statistically misleading representation in the form of an unkind joke. But everyone would understand its meaning; and everyone would understand that their average incomes were billions of dollars only in a "mathematical average" sense, not in an equal partnership sense. That is not the problem in talking "economics".

The problem is it is often extremely difficult to separate or to distinguish economic relationships from other kinds of relationships, because, particularly under interdependent social conditions, those who work and trade with each other often have important impact on those who do not. Take a really simple case first. Suppose that school students bring their own lunches to school. And suppose that three or four students decide to work together to make their lunches because one is able to make really good desserts, one can make great sandwiches, one has a way with soup, etc. and that it is easier and more cost effective for each of them to divide their labor and trade among their specialties. Each of the three or four students participating in this effort is part of an economic system of commerce. The other students are not. However, suppose that some additional students want to participate with the initial group because the food looks so good. They may pay for their food or they may have something to offer in trade that the initial group members want. The economic system has expanded, but the non-participating students are still not a part of it. No problem so far; the trading/catering kids have one system for getting their lunches; the other kids have a different system (or no system). But now suppose one or both of the following things happen:

(1) the catering students start to corner the best food in the neighborhood market, thus making it difficult for the other students to get even as good of lunches as they were bringing on their own before,

(2) some of the other students want to participate, but they cannot because either they have nothing the catering group wants, or the catering group wants to exclude them, or doesn't want to work any harder even if it means getting greater benefits.

At this point, it seems less clear that there are two separate systems or that there is a system some of the students have, while others do their lunches differently. It starts to seem appropriate to think of it as one system that harms or excludes some people. At issue is not so much how we describe the situation as is how we think about it. For example, in the initial stages, no one would feel sorry for the kids who are not part of the original three; but in the latter stages, one does start to feel sorry for them perhaps. In the case of (2)'s occurring by itself, this may even seem odd because the students under (2) have not lost anything materially from what they had originally; they have simply not gained as much as the kids who are able to trade. Yet how we describe it will eventually influence how we (or perhaps more, how others) will think about it. Should we call the initial stages one economic system, two systems, or no system? Should we call the later stages one system or two systems, or still no system? While clearly the non-participants in the early stages of the enterprise cannot have any legitimate complaints about the three initial students working together, can they have any legitimate complaints once the enterprise starts to affect them in the ways described?

Or suppose, we have two different countries whose policies and practices in relationship to business and commerce are identical. They have the same customs, laws and principles applying to contracts, to fraud, to pollution, to manufacturing, etc. Anyone doing business in one country could easily open a business in the other. However, suppose that in one of the countries, the people feel that it is important to take care of the people who do not or cannot participate in the commerce of the country - say, the unemployed, or the starving artists who cannot sell their work. So they institute some sort of program or plan to share the benefits of their commerce with them. And suppose in the other country, the people involved in the commerce don't want to share with the unemployed or the starving artists. So they don't. The question I wish to ask then is: While it is clear that these two countries have different social systems, and perhaps different ethical values, do these two countries have the same economic system or different economic systems? 

I don't think there is a simple objective answer to these questions. And I certainly don't think we can legitimately build our answer into the "definition" of what an economic system is or ought to be, for that would end up determining ethical and philosophical issues by what seems to be definition, rather than by more proper and complex analysis of, and reflections on, the issues.

I raise this (these) issue(s) here, not in order to answer them, but in order to point out some things we need to keep in mind in some of the ensuing discussions. It will make those discussions more amenable to dissection and analysis.  (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 4

Too much and for too long we seem to have surrendered personal excellence and community values in the mere accumulation of material things. Our gross national product --if we judge the United States of America by that-- that gross national product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwoods and the loss of our natural wonder in chaotic thrall. It counts napalm and it counts nuclear warheads; and armored cars for the police to fight riots in our cities. It counts Whitman's rifle and Speck's knife and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debates, or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile; and it can tell us everything about America except why we are proud that we are Americans.  --Robert Kennedy 

Ethical considerations, and consideration of other intangible values, involve judgment. And judgment involves reason (for an explanation of what I mean by "reason", see the essay "Reasoning and What It Means To Be Rational"). Insofar as economics involves issues of ethical and other intangible values --issues of benefit and burden, general rights and obligations, worthwhile ends and reasonable means, and issues of fairness-- economic principles and practices involve judgment and reason to try to make certain they are correct. When we formalize economic ideas such as the contribution/distribution mechanism, problems and anomalies can occur, go unrecognized, and get incorporated into the formal structure, yielding problematic consequences which we mistakenly think must be justified because they seem to result from our original principles. It is difficult to imagine a set of rules or standards so specific and so unerring that in every situation, under every set of conditions, they automatically gave the right answer as to what is the most beneficial, fairest, and overall justified course of action. Even if a system of rules or principles were developed that seemed to do that job correctly over years or decades, it is unlikely that it could guarantee that it would not err in the future under different, perhaps totally unanticipated, conditions or circumstances. Nor could it guarantee it had not erred in the past when looked at in light of ideas that had not been considered or thought of before. If, at any time, anyone gives reasons to believe that an economic system is not operating in the best interests of society, that argument would have to be examined from outside the operating rules or standards of the system, for those rules and standards would automatically dismiss or deny the argument that contradicted them. To say that a system which is operating according to principles is not operating in the best interests of society is to challenge the principles by which it is operating. Those principles then cannot be the judge of their own wisdom and ethical merit. 

I think we are not yet ready to say that in complex areas of life, such as economics, we have all the answers and understand all the principles that we need to and it is possible to go on "auto-pilot" and never have to pay attention or use judgment about the results. I believe that our legal system and, in simpler form, rules of games tend to show the practical kinds of problems that arise with many specific rules or regulations in open-ended contexts. In the realm of legislation, there are laws written which turn out to be bad laws, laws actually counter-productive to their purpose. Sometimes, as in the case of loopholes, laws are incorrectly phrased or they can be complied with in ways that were unintended, unanticipated, and undesired. Sometimes laws are passed which are intended to be helpful, but which do more harm than good; the actual consequences of a law may not conform to the expected ones. In some cases, new inventions or discoveries make new laws necessary or old ones obsolete; organ transplant and other medical discoveries have brought about a host of new moral and legal concerns; and so has computer "hacking". In some cases, such as Sunday closing laws, changing social customs and beliefs, force change. Specific laws just do not always pass the test of time. Changing conditions or new perspectives often make change in them desirable. If constitutional laws once passed were immutable, and the priority of any inconsistent laws the only aspect up for review, it seems likely we would soon find ourselves in a society less than desirable. Our only hope is continuous reasonable reflection and judgment about the directions we are heading and the means we are using to get there. If we are going to make mistakes, at least continued reason and reflection offer the opportunity to discover them.

Even in as relatively simple a game as football, rules are periodically seen as needed changing. Collegiate and professional leagues, at this writing, continue to wrestle with the issue of official calls which seem patently incorrect on video tape. Hash marks are narrowed or widened as offenses or defenses tend to dominate the game in ways that make it not as exciting or not as competitive. Goal posts are moved back, and rules are changed about the spotting of the ball after missed field goals, when kickers become proficient from so far away that field goal attempts take some of the significance out of defense.

Given what happens in sports and in law, it is simply hard to imagine that anything as open-ended and intricate as economics could have both its scientific and its moral elements captured perfectly in principles that would be accurate and precise enough to preclude the need for judgment and that would never again require judgments to be made about their overall justification, their benefit, or their fairness.

What I am discussing are the kinds of problems referred to by Robert Kennedy above where gross national product takes on a function it cannot fulfill and was never intended to have, as being a measure of the full value of an economy. One does not want to be in the position that, I believe, Disraeli already claimed about Americans: "They mistake comfort for civilization." Nor does one want to be involved in the Nixon-Khrushchev kind of debate where one claims superiority of their economic system by virtue of the greater power of their rockets and the other claims that superiority on the basis of the much greater quantity of television sets. One simply does not want to equate wealth or quality of life generally with amount of money or with amount of products and labor available, unless money and the products and labor available can be shown to specifically be of worthwhile benefit.

The whole value of any economic practice is to improve (or keep from worsening), the quality of life. Any economic practice that essentially diminishes, or obstructs the improvement of, the quality of life is a counterproductive one; any that improves, or prevents the worsening of, the quality of life is a good one.

Therefore every economic practice needs to be examined in light of how it effects people and their quality of life, in order to determine whether it is a good practice or a bad one. That does not mean merely examining how much money is made (or spent or lost). It means looking at how much good or harm is done by that money's being made, spent, or lost. There is not always a direct correlation between money, trade, and quality of life, certainly not always a simple one.

Of course, people may disagree in some cases about what is the measure of quality of life -- of what things are good or bad, desirable or undesirable, helpful or harmful. People may disagree about what counts as an improvement or what counts as a decline. But those disagreements need to be made explicit and resolved, not ignored or allowed to remain hidden, in order to make good judgments about the economy.

One of the points of this book is to try to get economists and others who think about, or report on, economic matters to understand and discuss economics and economic principles and ideas in terms of their actual effects on people and quality of life, not just in terms of formulas and numbers, and particularly not just in terms of amounts and flow of money. Most economics books do not tend to do that. There may be a few paragraphs here and there about how certain economic conditions affect living, but for the most part, there is very little explanations about how economic rules, principles, and practices relate to daily life, labor, resources, productivity, burdens, benefits, and the quality of life as it is actually experienced. (Federal Reserve Board chairman, Alan Greenspan pointed this out to Congress in a wry pithy comment during one set of hearings when he voiced concern about the stock market's being so overvalued that it might someday lose a trillion dollars, and then said that an amount that large would actually show up somewhere in the economy.) I will argue that in too many cases then, ideas that improve an "economy" actually force a decline in quality of life, because we have lost sight of the point, because we have confused means with ends, and because we have mistaken symbols for substance.

This is not a book that argues for or against capitalism, communism, socialism, or any other sort of particular economic system; it is a book that will try to explain what sorts of things to look for, and how to recognize them, in order to be able to assess or judge the real merits of any economic practice, principle, or entire system.


When I speak of labor throughout this book, I do not necessarily mean mere physical labor, nor do I mean just mental and physical effort. I mean any human resource that can be used in work. That frequently includes knowledge or learning --whether by discovery and invention or by learning from someone else. In some cases knowledge applied with labor does what no amount of labor without that knowledge would do. Knowledge put to use prevents and cures diseases, grows more food and prepares more interesting ways of enjoying it, invents and improves useful machine, improves means of travel and communication, creates finer crafts, stimulates the mind, helps warm and shelter the body.

In some cases, particularly in the modern industrialized and computerized world, specialized knowledge is necessary to be able to perform some work well enough to be able to earn a living at it, or even to do it at all. In many cases knowledge is the key to saving time, money, and labor. That is obvious to anyone who noticed how long it took to perform a task he was learning as opposed to how long it took once he learned all the steps and became proficient. It is also obvious with regard to the invention, awareness of, and facility with, time-saving and labor-saving machines. 

But knowledge and understanding is also important for social and emotional well-being. Belief and understanding influences emotions. For example, the anticipation of enjoyment brings excitement; the expectation of misery brings dread. An understanding mind can find beauty or interest or see reasons for doubt and despair where others might see only what appears to be mundane and normal. Many people would save time and trouble if they understood themselves and others better, and if the values they learned and developed, and the pursuits they made to realize and achieve them, really met their needs and served them well. This is obvious in the extreme cases of adults who were so emotionally deprived and abused as children that they have beliefs and pursuits in life that cause them and others much agony. But it is also true of those who lead relatively normal lives but who pursue socially accepted values which are not in reality the most humane or reasonable. Such people then often feel empty, frustrated, diminished, or unsatisfied even when they get what they want and are doing everything society tells them they should. Many marriages begin with socially inculcated, but extremely unrealistic, expectations, and in many cases child rearing is made much more difficult than necessary by societal notions about children. On a broader scale, frustration and loss of potentially joyful and useful social interaction often results from confusing the graceful tact and honest civility that permits and encourages proper social and emotional intimacy with an overdeveloped ritualistic etiquette that stifles and prevents it. Civility and understanding promote the benefits of social interaction though they sometimes may allow social errors. But a formalized mechanical etiquette meant to eliminate those social errors far too often prevents the great amount of good while precluding only minimal harms.

The complaints of materialism's being encouraged by certain economic systems is the often reasonable, sometimes not reasonable, lament that in those systems people tend to mistake the value of "things" for the ends those things are really meant to achieve. An easy example is children's toys and the kinds of advertising that promote them. Children are made to desire certain toys because those toys are made to appear to bring excitement and stimulation. But all of us have been disappointed by toys that did not do what they appeared to do in that regard either because the advertising was essentially fraudulently unrepresentative (as in dramatic camera angles, time lapse sequences, fictitious animations, etc.) or because we did not understand it was the imaginative use of the toys that made them fun and exciting. Unfortunately most toys do not come with imaginative use included, and it is also not sold separately. Similarly, those brought up on television, without access to hearing radio dramas and comedies, don't understand that in terms of the mental stimulation, radio was every bit as exciting as television. Reading can be every bit as exciting as either. (When people think reading is too slow, they are obviously not talking about reading something really enjoyable, for no one would say it is worse to have longer enjoyment than shorter; or they simply do not have time for enjoyment, which is sad when their life and leisure is not in their control; sadder still when it is and they do not exercise that control to bring them reasonable joys.) And each can be informative or entertaining in its own special way.(1)

Because I am a photographer, I tend to marvel at the incredible array and high prices of cameras that are supposed to help people take better pictures with greater ease and less understanding. For people who just want snapshots, they are extremely helpful in that regard under most normal conditions -- some of the very expensive ones are good under some very difficult conditions. But as of this writing, most people who want to take really good pictures would be better off trying to gain the knowledge how to do that instead of working harder at their job to earn enough money for an expensive camera that they still do not use properly because they have not learned or figured out what they need to do as the photographer to make a picture come out good. The art of photography is not so much knowing how to work the camera technically, but in knowing what makes a good subject for a picture, how to find or form that subject, and in knowing what things your camera can or can not capture the way you want to. Technical innovations do not solve the aesthetic problems; and it is the aesthetic problems that many people who spend lots of money on these cameras are really trying to solve. 

But creating or buying and selling things to meet needs that cannot be addressed by things alone is not a mistake of economics but a mistake of knowledge about what ends we really do want to pursue and about what "things" or actions actually are likely to aid that pursuit and which ones will not. In some cases, of course, manufacturers and distributors hypocritically or fraudulently take advantage of the naivete of buyers; but often the manufacturer or seller is as ignorant of this knowledge as the buyer, and thinks he is doing the buyer a service. Many products and services fail to fulfill the need they were in good faith expected to fulfill. 

Further, it is not the fault of telephone manufacturers that too often we have little of importance to say to each other, or of camcorder makers that we have little of interest to show each other, and that we become estranged rather than intimate; it is not the fault of stereo manufacturers that people do not know how to enjoy Beethoven but instead have to listen to things they can enjoy more immediately or more directly, and more quickly. After all, these same manufacturers have, by their products, made the music of Beethoven, the voice of Caruso, the words of Churchill, the works of Michelangelo, and the ideas of Einstein more accessible to more people than ever before; and it is not the fault of microwave oven manufacturers that most people do not know how to cook anything really delicious and exciting. From a purely economic standpoint because of many of these things, more knowledge, art, and worthwhile social interaction are more available for less cost and effort than ever before in the history of mankind. Whether we use them to make our lives more enriched rather than more alienated has less to do with our economic system than to the social ends which we allow an economic system to be channeled. 

This involves questions of knowledge and understanding, and of having social values and a social system that encourages and facilitates learning; they are not questions of economic systems -- unless people make the judgment, or passively default to the idea, that social goals are purely economic ones. (And in a market economy then people would have to judge or assume, that (1) economic goals are purely financial ones, (2) that market transactions are the most financially profitable ones, (3) that financial profit should be the prime social goal and should be sought by any means no matter at what non-financial personal or social costs.) That is not the belief of most people. At this point there are clear socially acceptable limits to market transactions, not everything is legal or socially acceptable that is profitable. To say that in a market economy people cannot tell the difference between acceptable social practices and unacceptable ones, other than by whether they meet business or financial principles or not, is like saying that a tennis professional could not play tennis with his young children or mixed doubles with his wife and social friends without trying to beat them as badly as he could. Even in the financial stratospheres of professional sports, most athletes, though they want to win and cash in on their winnings, do not want to win by default against an opponent unable to play his best. And many athletes, as many other businessmen, still turn down higher salary offers from other teams or companies if they are living in cities where things other than financial wealth make them or their families happy. People are able to distinguish when market financial forces ought to be allowed to apply and when not. 

There are forces at work to change that, but those are more psychological forces than economic ones. It is natural to apply successful ideas in one field to problems in other fields. Sometimes that works, but sometimes it does not. People may bring to business the things they learned in sports. They may bring to education the things they learned in psychology. They may bring to university management the things they learned in business, or to business innovation the understanding of creativity they learned from the arts. At this writing there is a trend to try to bring business or market techniques to education to improve it. The question of these kinds of transfers of technique is how much of any one area can apply successfully to how much of the other area. All such efforts need to be evaluated empirically and by judgment. Regarding empirical evaluation, for example, Elizabeth Anderson argues ("The Ethical Limitations of the Market"; Economics and Philosophy, 6, 1990; Cambridge University Press) that operating schools by market principles will preclude people from having a voice in how they operate, since she holds that in the market people have no voice but only the option to purchase or not to purchase ("exit"). Milton and Rose Friedman, in Free to Choose, argue that the market would give parents more options. That is an empirical matter, though I suspect neither will be right as a matter of general course. There are many successful private businesses and industries that ignore or do not understand customer's interests and are able to get away with it when customers have no better place to turn. There are many businesses and government agencies, on the other hand, who care about people's needs and interests, and who are adept at discovering them and catering to them. If the same people who honestly believe they doing a good job in public schools today regardless of what parents and others say, were to be in charge of private schools they still ran the same way, parents and others would have no more or less voice than they did before. In the market one has a voice to those businessmen who will listen; and one has an option in the public or private sector, only when an option (including exit) exists. The market works to meet needs when the market provides real alternatives to undesirable products and labor; it does not work to meet human needs when everyone competes with each other by putting out products and services that are merely different in the way they are undesirable. As one who has watched teachers, administrators, and school boards and superintendents repeatedly ignore what citizens seek academically, I have no reason to believe, as Dr. Anderson does, that citizens have voice in the operations of public schools now. (One principal in a local public school system I am familiar with even explicitly told a parent one time that she did not care what sort of program the parent wanted for her child since this was a public school, not a private one, and she did not have to cater to the desires of parents.) But I do not believe, as Dr. Friedman does, privatizing schools without changing out the staff or administration would give any different options or give the public more voice. In the area where I live, private schools are not in general significantly academically better than the public schools and, though different sometimes in other ways, are basically not that very different instructionally.

Any changes also need to be evaluated not only empirically with regard to the improvements or diminutions they bring about in regard to their stated goals; but they need to be evaluated with regard to broader judgment about whether those goals are the important ones, whether the instruments monitoring their achievement are accurate or not, and whether they are justified in light of the other kinds of harms or benefits (i.e., side-effects or unexpected consequences) their use causes or promotes. Evaluating free market techniques applied to new areas is no different. When businessman Fob James became governor of Alabama, he wanted an "inventory" of students' abilities. Tests were devised to be given at certain times. At issue, however, in Alabama, as elsewhere, is the question of what tests actually measure. To use James' analogy, it is not clear whether the "inventory" procedures he installed measure things of importance, or whether they keep track of trivialities while missing qualities of significance. Measuring knowledge, even if one could accurately do that, does not measure understanding, reasonableness, inventiveness, nor the ability to communicate. Nor does it measure curiosity or desire or ability to learn on one's own once one is out of school (and the average person is out of school far, far more than he or she is ever in school).

Unfortunately, many areas succumb to market judgments incorrectly, and then face periods of agony where people notice something is wrong but are not quite sure what, because the assumption is deeply embedded that the market techniques are not at issue. Advertisers influence print and television news, and network business offices force news and program directors to pander to short-term public interests. Pandering is in fact a problem in many areas of business because too many businessmen confuse pandering with serving the public. They argue that not to give the public what it wants is not smart business and is arrogantly trying to force your tastes on others. There are middle grounds between giving people whatever they think they want and are willing to buy on the one hand, and offering what you think is best for people though not enough people want it. One middle ground is to supply enough of what people want to make sufficient profit to offer what only a few want at first, and hope that other's tastes will improve as they are exposed. Another is to try to change tastes by subtle or interesting improvements in quality of what already is marketable. A third is by using successful promotional techniques to market initially undesired things of quality and value -- to make good and perhaps complex things as desired as fun and easy things. These middle grounds are not even necessarily anti-market practices, for promoting new or expanded lines is often more profitable than sticking merely to what sells today.

(To Chapter 5)

While a picture is supposed to be worth a thousand words, that is only true about those things which can be pictured. Many things, such as the descriptions of emotions and feelings, or some complex ideas, concepts, or relationships, can be expressed better in words than in pictures.  And many times the way an author would describe what might be seen in a movie or in a picture, is far different and far better than the way the viewer thinks of it when seeing it.  Movies made from books such as Jane Austen's novels, for example, pale in comparison to the books themselves, because it is her characterizations of what you are watching that are so observant, interesting, witty, and wry.  When you watch a movie made from one of her novels, it is like attending the events she writes about without getting to hear her observations about the event.  But it is knowing her observations that make it so interesting. It is not just seeing what she sees, but hearing or reading about the way she sees it that would be exciting about going to something with her. (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 5
Goods and Services

We tend to speak of all products and labor as goods and services, but since some products are not especially good to have or produce, and some labor is more a disservice than a service, when I speak of the kinds of products and labor that are benefits to produce or trade I will call them Goods and Services with the G and the S capitalized. For example, if cigarettes are as harmful as many would claim, then cigarettes are simply a product, not a Good; and to call them "goods", and the advertising that promotes their sales and use a "service", and count them as such in the Gross National Product or similar measures, is very misleading. And it is misleading in a way that has harmful consequences, because it makes it appear that any legal job provides a benefit to society, since it is a good or a service; and that is just not true. Some jobs --though there may be some disagreement about which ones they are-- may be overall bad for society or provide a disservice to the community. Unnecessary products and labor that waste limited resources such as energy, or that squander timber which is not replaced, or that incommensurately pollute the environment or cause other unnecessary health hazards, are not Goods and Services. And there needs to be recognition of that fact in economics and in political economy. I myself, because I believe that reaching one's potential for doing and appreciating good is of great importance, would also classify work that has no, or relatively little, real value --even if it does no "positive" harm-- as labor and not a Service. For example, assuming that "responsibility" is taught by each kind of job, if a student who could be learning more useful skills, in addition to learning responsibility, as a plumber's or computer programmer's assistant works instead at a fast food restaurant doing menial labor that will not be especially useful to him or to anyone else, then it seems to me that the fast food job is not a Service, but is merely a service only in the sense of simply being paid labor.

Now, of course, there will be disagreement about what jobs or work produce Goods or Services, and which produce harms, disservices, or merely no relative real good or service at all; but facing that disagreement would be better than having everyone think any paid labor or marketable product is a service to society or a good thing, and that any unpaid labor or product --such as poetry that someone is unable to sell at a given time-- a bad thing. 

It seems to me, for example, that a Mozart's or a John Lennon's youthful works made a greater contribution to their development and ultimately to society, though they may have brought them less money at the time, than some other form of labor, say working in a financial institution, might have. The fact that John Lennon was eventually able to reap great financial reward from his music, and Mozart was not, says nothing about the relative merit of their music. And, marketability is not the factor which makes for real value or even the recognition of real value. Lennon's later songs did not improve just because he made more money writing and performing them. Or for example, a painter's death may make his paintings more economically valuable, but their sale price is not what gives them artistic (or personal) merit. The artist's death does not improve the quality of his/her existing, past works, even if it increases their monetary value. Paintings, once finished, do not become better as their sales price increases. And they do not go from bad to terrific because they go from unmarketable to invaluable. 

The point is that though in many cases it may be obvious that money is not necessarily the measure of real value, there are honorific terms used by economists applied to instruments which basically measure money. And this tends to hide the obvious, to our overall detriment. For example, if a higher GNP is considered better than a lower GNP, and is a measure of the "goods" and "services" done in a the country, then the tobacco industry tremendously improves the GNP not only by sales of tobacco, but by giving doctors a great deal more work -- work that pays a great deal of money. So, although no one would argue that we need more cigarettes so we can have more disease that necessitates more doctors, substantially the same argument in disguise makes great sense to many people, and has great backing, when the cry goes up about the losses to the economy (or to the GNP) if we were to make tobacco illegal. We have legitimate concerns, of course, about the loss of livelihoods to people in the tobacco industry, but that is for a reason that is different from whether they are producing a Good or a Service or not. The remedy for that concern is to support them and help find them useful work, not to keep paying them for work that essentially costs us all more.

In a market or any sort of economy that does not have a publicly or governmentally recognized measure of value apart from economic standards whose (perhaps forgotten or disguised) basis is ultimately money, then any time an industry generates jobs and monetary profits, to that extent it takes on the aura of a necessary, good, or important industry. If then there is some non-monetary reason to believe that industry is harmful or doing a disservice, the argument for eliminating the industry meets opposition (apart from self-interest of people who profit from that industry) by the amount of economic "good" the industry is doing. But in the sense of what an economy ought to be doing --increasing Goods and Services (fairly, etc.)-- the industry is not really doing any economic good. It only seems to be because we are measuring money, in the form of goods and services, not measuring (real) Goods and Services. If economics did what it ought to, and if there were reasonable ways to provide fair distribution of Goods and Services to people who were being put out of work because it becomes apparent that their work was harmful or unnecessary, then a clear argument that shows an industry to be counter-productive to the well-being of society could not be effectively met by any claim that, in spite of the harm it was doing, the industry was necessary or important or good for financial economic reasons; or that closing it down would be terrible for economic reasons. There would not be, and should not be, any such thing as "economic" reasons apart from the amount of (real) Goods and Services an industry fairly provides. 

From a purely economic standpoint --unrelated to the question about the right of people to be able to buy cigarettes and smoke if they want to-- if the tobacco industry for example is poisoning people, and if doctors are necessary to treat that poisoning, and if we all spend much more health insurance money than we need to in order to pay for smokers' medical costs, then there ought to be a way to eliminate all that cost and all that unnecessary labor by eliminating the tobacco industry; and there ought to be a way to pay for supporting and retraining tobacco farmers and manufacturers out of the money saved, and still have some left over. It cannot possibly be an economic advantage, (i.e., a Goods-and-Service-producing advantage) to have people making other people sick, tie up labor for treating people who are unnecessarily then made sick, and for everyone to have to help pay (i.e., contribute part of their labor) for that.

Now the economic counter-argument to this might be "Yes, ideally you are right; but in the real world money and profit are stronger motivating factors than 'doing good'. And in the real world, if products or services are made illegal that people want and can afford, --even though it may harm them or the rest of society-- a criminal market will arise to meet the demands that will end up costing us more (as during Prohibition or with the illegal drug trade) than if the industry is kept legal. And furthermore, you are infringing on people's freedom to have their desires met, and on the freedom of others to earn a living by doing so."

Now the answer to both parts of this argument is that there are plenty of activities, such as contract killing, that are illegal, and that we would not legalize for economic or, hopefully, any other reasons. The reason we can make such activities illegal is that there is sufficient agreement that such harmful things ought not to be done in spite of how many jobs they might provide. With drugs, alcohol, tobacco, etc. there is not such a consensus. But an industry does not need to be made illegal in order to be minimized or eliminated. Instead, the demand can be aggressively sought to be reduced. Advertising techniques can be used to discourage the use of products just as effectively as they can be used to encourage their use. In 1990 efforts began to be made to put psychological and peer pressure on people not to use illegal drugs, and not to drink if they are going to drive, use power tools, or in other ways acutely endanger themselves or others. Modern television advertising techniques, among other things, are being used. If such techniques and pressures prove more effective at making the true risks understood than just the simple past messages such as "Do not drink and drive" or "Alcohol and gasoline don't mix", they will effectively cut down on some of the dangers of "improper" alcohol use, in a way less costly and more effectively than prohibition. The drug ads are interestingly different in that they portray drugs to be a personally terrible thing (ambulance and morgue scenes of cocaine users or "This is your brain on drugs!" -- the egg frying in the pan) regardless of whether it harms others or not. (Either alcohol is not that personally terrible, the evidence is not conclusive enough, or not enough people are willing to try to say that it is.) In the late 50's or early 60's, as the health risks to smoking were becoming better understood, a number of anti-smoking ads appeared on tv that were somewhat like the drug ads are today, trying to show that smoking was not good for your own health and that it was not really as attractive to smoke as you might think. Whether more people smoke or not than used to I do not know; but I suspect a much lower percentage of people now smoke than used to --or that would smoke now-- if the ads, and other things, had not occurred. And even if I am wrong about the effectiveness of these ads or of advertising in general about products that are harmful or useless, the point still remains that there may be ways other than the illegalization of harmful industries to minimize their sales. And these ways might infringe on no one's freedom. My arguments were (1) not that all harmful or useless work be made illegal, but that it be eliminated wherever possible, and (2) that there never should need to be an economic reason or necessity to keep or promote an industry once it can be clearly demonstrated that the industry is useless or harmful. Further, it is often that such economic arguments (i.e., the need for an industry simply in order to allow jobs that distribute money) give a kind of psychologically reinforcing, though false, blessing to an industry or to a product or service; and that reinforcement makes it more difficult to show the industry actually not to be promoting the public good. 

As I will show in the next chapter, which discusses the "automobile problem" raised at the beginning of this book, the part of economics that tends to promote work which is not really helpful or that is actually harmful, is not the part effecting contribution to others (or society), but the part that endeavors to distribute the collective benefits from others (or society). Pressures for individuals seeking (distribution) to earn a living, frequently conflict with society's needs. This will become clear in the next chapter, but it is manifest also in some cases of domestic and foreign competition, where individuals or industries at a competitive disadvantage seek protectionism, which in some cases may not be in the best interest of society (in terms of paying lower prices), but which is in their own self-interest without society's making some sort of fair and reasonable provisions for them to find new and more useful work. If there were a distribution system that better promoted Goods and Services instead of just products and labor, it would make for a better economic system. Some misght argue that there can be no such better distribution system -- that to tamper with distribution will automatically reduce people's incentive to make a contribution, and therefore reduce the size of the total "pie" that is being distributed. I will give some reasons later to show why I think that is not necessarily true; but whether it is true or not is an empirical matter, not a merely logical or a priori one. I seriously doubt that enough economic and political, sociological, philosophical, or group psychological experiments have yet been tried for us to know what the best and most acceptable or most reasonable economic system is.

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 6
Economic Progress and Real Progress

The reasons why such a technological advance as major automotive improvement would cause economic problems are that (1) it eliminates the needs for the services of the people who made their living by meeting the demands of the old technology or conditions. (2) But it does so without creating a new or different need that these people in particular could become adept at fulfilling or would be peculiarly qualified to be readily trained for (such as in the case of, say, the development of a modified engine that is more efficient but that still needs service or repair and which (only) already trained mechanics could most readily learn with only a little extra training or a proper manual).(1) (3) There might not be any other sufficiently paying work they would be particularly suited for because of their previous training; so they would essentially have to learn a new or different trade from scratch(2). (4) A free market economy has no way to absorb into the work force a huge number of people whose skills become obsolete or unnecessary in a very short period of time. (5) Yet working is the (main or only) way most people earn money to be able to do business (i.e., trade) with others for things they need, and (6) there will be things these now unemployed people will need. (7) They will be unable to buy these things, and people who sell them will be unable to sell as much, so they too will be affected and in turn affect those they purchase from. Essentially what an advance of this sort does is to eliminate the need for trading with --i.e., buying from-- these people any more, until and unless they can learn a new trade that is still in demand.(3) Until they do so, they no longer help produce Goods and Services that would otherwise be unavailable without their work. (The same problem arises for these people, though with some differences for the rest of us, if something besides technological advances makes their service unnecessary -- for example, competition, foreign or otherwise, at a price and or quality they cannot match.) Unfortunately, they may not be able to learn a new trade or find a new economic niche of supplying a desired and affordable otherwise unsupplied Good or Service in a time frame that keeps them in sufficient money for food and shelter. To an uncaring society or in a system that could make no value judgments about human concerns, that would not be a technical or economic problem; it is simply the luck of the draw about who survives and who does not --the law of the economic jungle. It is also not necessarily a problem in a society or environment where individual self-sufficiency is possible and reasonable --where a person who loses his job is able to sustain himself somehow (as a farmer might, for example) without having to be part of an economic network(4). It is a problem to a civilized, compassionate society that wants to be fair. And it is a problem to a society that believes people working together generally can, do, and should help each other more than they cost each other, so that throwing people out of the system, in the long run hurts those left in it more than it helps them. (And this refers, not to the negative aspects of chronic or "institutional" undesirable unemployment and poverty -- crime, social unrest, etc. -- but in terms of the lost total "positive" benefits society will do without, even if they never realize they are doing without something, whether it is leisure or whether it is additional Goods and Services.) 

The economic problem with the new car, or any invention, discovery, social development (such as the end of military threat), etc. that eliminates the need for much work, arises because generally (and supposedly) one earns from society in return for producing what society affordably needs or wants that is not otherwise available to them (that is, one's distribution from society is supposedly equivalent to or commensurate with one's contribution to society) and insofar as one does not contribute to society's affordable but unmet needs, one cannot get anything from society -- even if one is not lazy and it is not one's fault his particular skills and service are no longer considered necessary or worth trading for. The rest of society -- those who are still working and meeting other needs -- essentially now are freed from having to purchase or trade for the labor of the people whose labor is made unnecessary; but if at the same time there is no new work for the newly unemployed to begin, and if those still working will not share with them either their work (thus having more leisure) or the excess resources they are able to save by not having to purchase (i.e., trade for) these people's labor, then there is no way for the newly unemployed to enter into the contribution-distribution market. It is important for the unemployed if they cannot enter into the distribution part of the market when their original contribution is no longer necessary. And it is important for the rest of society if the newly unemployed cannot enter into the contribution part of the market because they are then idle instead of contributing.

Looking at this in different words, suppose that everyone is working and everyone's needs are met by the collective fruits of that work, and that labor serves not only as a contributing factor to the total well-being, but as a criterion or measure for how much one deserves to get back from the total output -- a standard for dividing up that total output. A technological advance of the sort in question 1 reduces the amount of need and eliminates the labor that went toward the previous need, but does not, by itself, change the distribution system. And so there is no way to spread the benefit of the reduced need to the people whose labor is no longer necessary. Without either (a) a new means of distributing the total production of society or (b) some new labor (or sharing of the remaining labor), if the need for people's previous labor is eliminated, so is their means of sharing in that production. If distribution is tied directly with contribution, then the elimination of the need for a particular contribution also eliminates the means of distributing (among those whose labor is no longer of use) the benefits of the elimination of that need. If technological advance like this happened to all labor at once, in all fields of human labor and need, the result might be Eden or paradise and everyone would be self-sufficient and content. The problem arises when it happens to some members of society and not to others. Those whose labor is not needed still have need for the labor of others but, without some redistribution of work or some form of "charity", they have no access to it because they have nothing to trade for it.

Some form of retraining for new work or for redistribution of remaining work in this particular kind of case seems, prima facie, to be the best way to solve the problem since it does not seem fair to say either (a) your work is no longer necessary, so you must starve out in the cold or (b) your work is no longer necessary, so the rest of us will work to sustain you while you do nothing. Solution (a) makes you very unlucky through no fault of your own; solution (b) makes you very lucky through no effort of your own. Both seem somehow unfair or wrong. There is an ethical relationship between working and benefitting from the work of others, the nature of which I will discuss more fully later in discussing fairness and desert. Essentially one wants everyone who can to pull at least his own weight (and, preferably, more) and do their fair share, while receiving a fair return for that work. 

It seems to me there are only two ethical solutions (for a compassionate and fair society) to solving the problem of those unemployed through the problem of their work's becoming obsolete. Society needs a way of reabsorbing them into the workforce as quickly and as painlessly and as fairly as possible either by (1) there being reasonable (suitable) new work for them to do -- which they find on their own or which society helps them find, or by (2) society's having a mechanism to redistribute all the current work that is still necessarily being done so that everyone participates in it, but now with more leisure time than all had before. In other words, the new invention should benefit all, either by allowing previously unmet needs to be met or by providing more leisure for all by letting the amount of work still needed to be done, to be done by more people -- those who were previously working to meet needs that the new invention meets better.

In the case of severe recession or depression, the contribution-distribution system is also disturbed, but this time because there is a severe and widespread breakdown on matching needs with available labor to meet those needs. It is not that needs can be met without the labor of some who then may be left out of the system, but that something has gone wrong in matching up trading, i.e., the contribution/distribution (labor/compensation) system while there is still work to be done and people to do it, but no systematic or methodological way to combine the two. There may be different reasons for this breakdown in different kinds of economic systems, e.g., wrong information or terrible mismanagement in a centralized command economy; but in a market economy, it is caused or exacerbated fully or in part by the unavailability of money (and/or credit) --the normal, and often controlling, means of exchange of labor and products-- where it needs to be in order to allow and facilitate trade. Keynes was able to show that under certain conditions (and there are other conditions as well), a capitalist, market or mixed economy might "stabilize" (reach equilibrium) with money in the wrong places to do any good for automatically employing people in needed tasks, and also in the wrong places to be able to flow to the right places automatically within the system to begin to do so.

What Keynes argued was that, as long as full employment in a given society was not reached, the level of unemployment was dependent on the level of consumer demand among those with wealth, and on the monetary interest rate. I believe there is a more general statement of this cause of unemployment: as long as any segment of society is (economically) contentedly self-sufficient, they have little or no economic incentive to include those left out of the economy in terms of either production or distribution. Just as a wealthy country can co-exist next to a poor country because the wealthy country is at least self-sufficient and does not need to have anything to do with its neighbor, so can this same situation occur within a country between different groups of citizens. There do not have to be geographic boundaries to be economic boundaries. This happens most easily perhaps, and is perhaps most obvious, when the advantaged, (relatively) self-sufficient group is readily distinguishable from the disadvantaged group (as with regard to gender or racial traits) but it is equally true with regard to physically indistinguishable poor who are, for example, undereducated, unwise in the ways of economic affairs, or without entry level access to positions where their talents or ideas might show and be appreciated and rewarded (e.g., authors who cannot get publishers to read their good works or who do not see the merit in them, and inventors, like Chester Carlson, for example, who cannot interest corporations in their inventions -- his invention ultimately becoming the Xerox machine, which could very easily be something none of us ever heard of). 

For reasons I will discuss more fully later (primarily keeping some form of individual choice and freedom as opposed to government control), the Keynesian or economic remedy (assuming population growth is reasonable and not Malthusian) for such problems is to use formal (rather than specific content) methods which manipulate consumer demand among the wealthy, and to manipulate the rate of interest so that investment (in more labor, more people) becomes attractive. I believe that in an advanced technological and industrial society this can lead to even further imbalances of wealth and employment (as investment is made in machines made by fewer and fewer people, and as communications can make companies more efficient with fewer workers); or it can lead to greater pollution or rape of resources as more unnecessary things get made and sold merely in order to provide people with a place in the economy, instead of redistributing the work that is done now so that everyone has more leisure to enjoy what is already produced. This is not meant to be an argument against invention or technological progress; but it is meant to point out that labor or employment, merely in itself is not progress. To induce the rich to spend their money getting others to do harmful or useless tasks is not likely the highest form of economic progress for the society as a whole. Further, I think it is not a particularly useful remedy, since the additional benefits can still be appropriated primarily among the already wealthy, rather than among the poor, just as a wealthy country can, by innovation and technology, produce more and more for itself and other technologically advanced (paying or trading) countries without including its poor geographic neighbor in the profits or increased benefits. Investment can always be in greater luxury for the few rather than in greater necessities for the many -- as long as all the needs of the few can be met, which, in a technologically advanced society, does not require full employment. I will argue later that there could be more direct ways of bringing the poor into the economy without the government's taking away individual freedom or infringing on personal choice.

There are six different arguments for doing so. (1) Compassion is right for people who can afford to act compassionately. (2) Hard-working, deserving people should not be abandoned just because they, through no fault of their own, had their skills become obsolete. They should not be discarded like old tv sets or obsolete computers. People should not be treated like inanimate things. They should not be treated only as means of benefit. (3) Obsolescence or unemployment could happen to almost anyone, and society's collectively trying to ameliorate its effects by (re-)training and (re-)employing people in useful, suitable work they have some talent for and interest in is basically an insurance policy for all. (4) In a population that does not outstrip the resources available to support it, the average person in a technological/industrial society can contribute far more than he or she consumes, so that each person employed in society can contribute more than he or she takes, thus benefitting everyone-- if his or her labor is employed wisely, producing Goods and Services. (5) In chapter 10, "The Invisible Hand Explained", I will argue that the there are peculiar limitations to the mechanism that Adam Smith, and economists since, have referred to as "the invisible hand". The limitations are essentially that in certain cases finding a beneficial economic niche to fit into may take more knowledge or insight than one or one's trading partners can reasonably have by themselves. If so, society's helping "the invisible hand" overcome those limitations will simply make even more useful the mechanism that economists from Smith on have extolled as being of tremendous economic and human benefit. (6) It is wrong to require people to support a social/political/economic system while excluding them from full participation, particularly benefits of that system. Insofar as an economic system requires certain social behavior and sacrifices from everyone, everyone should have fair opportunity (Chapter 8) to benefit from it. A system cannot rightfully unnecessarily burden some merely in order to benefit others.

The case presented by this car problem is not totally unlike the current United States problem of unemployment arising because of competition from Japan. However there are sufficient other factors involved in that problem that it will be more appropriate to discuss it in chapters that focus on issues of trade and on an explanation of money.

(To Chapter 7)

1. The work needed for these obsolete workers does not necessarily have to be a totally new job. If there were a mechanism for absorbing people into already existing jobs, whereby people shared work and gained leisure without losing other benefits, that would suffice. Theoretically, the advanced new cars introduced in the problem, because they are much less expensive to build, buy, and maintain, and because they do not have to be replaced, free people from having to work as hard to earn money for automobile needs. If people collectively then chose to redistribute the remaining necessary work among everyone available to do it, and if there were a mechanism that allowed this, the increased benefit and "profit" would be less work and greater leisure time for everyone, as opposed to forced idleness (which is not the same as leisure) for some while everyone else works as hard as they did previously, either for less money or for money which may simply buy less, and decrease in value due to inflation -- inflation caused by the reduction in products (i.e., less efficient cars) available because they are unnecessary. If new products and services do not become available to purchase with money that was previously spent on cars, that money will have less or no value to the person who earned it. And it will either be siphoned off by inflation or it might be siphoned off as a welfare tax of some sort to support the people who lost their jobs because of the invention that was such a benefit to everyone else.  (Return to text.)

2. The more a society has its labor divided and specialized, the more efficient it is in trade, as long as trade occurs, but the less efficient it is in reabsorbing into trade those workers whose particular skills and training have been rendered obsolete or unnecessary. That is because these people need to re-train to be useful. In a society that is not as specialized, those whose previous work was rendered unnecessary could step into other jobs more easily - if there were a mechanism that either made such jobs available, or that allowed workers to share jobs so that each had more leisure without losing benefits because of it.  (Return to text.)

3. This assumes the unemployed individuals cannot be self-sufficient. If they are self-sufficient, they may experience a temporary diminution in lifestyle, but are not put into a life-threatening situation nor one necessarily of poverty and all that entails. There is a difference between the ethics of a socio-economic system where participation is necessary for survival or for reasonable quality of life and a socio-economic system in which participation is reasonably optional. If one can leave the farm to work in the automobile industry or any other business, and return at will to the farm, the economic system that produces goods and services will expand and contract as people enter an leave it, but being a part of the system will not be a necessity, and there will be no great disasters as it shrinks or as jobs within the system become unnecessary and are eliminated.  (Return to text.)

4. A totally interdependent society (where everyone's well-being is dependent on everyone's cooperation or companion efforts) has greater obligations to allow opportunity for the inclusion of deserving people who want to join than does a society in which interdependence is not necessary for survival or for financial flourishing. If being part of an economic network or system is not necessary in a society or is not important, society has less obligation to incorporate people into existing economic networks or niches. But as the importance of being part of the economic system increases, so does the obligation of the society that uses that system to allow opportunities for deserving or innocent people to participate. It is one thing for a group to allow individuals to be on their own if they wish; but it is another for a group to tell others they cannot participate when that would unnecessarily consign people to death or unfair sacrifice.  (Return to text.)


Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 7
Economic Participation

Foreign trade, to the detriment or exclusion of domestic sources of the same products, is just another way of aligning those who participate together in an economic system and those who do not. Just as a wealthy self-sustaining country can geographically border a poor country, and just as there can be a self-sustaining rich class and subsistence level poor living in one country, there can be those in two or more countries that benefit and sustain each other while their more immediate neighbors or fellow countrymen are unable to participate in the trade relationship. Economic systems do not necessarily coincide with geographic boundaries or socio-political systems; economic compatriots may not necessarily be geographical compatriots. It is always, of course, possible that in one region or country, everyone will find their needs best and most economically served by their countrymen all fully employed, and so the economic system and the state will coincide purely for economic reasons. But that is not likely; at some point, outsiders may likely provide better services or cheaper prices, and thus purely in regard to trade, may be better trading partners. Of course, one may (prefer to) trade with one's own countrymen for non-financial reasons, or for mixed financial and non-financial reasons (which I will explain shortly) just as one may patronize a slightly more expensive store because it is more convenient or because you like the owners or workers or ambience better. Financial considerations are not always the only basis for choosing a trading partner.

A mixed financial and non-financial trade impetus for doing business with one's neighbors or countrymen arises when one feels humane obligations for one's neighbors or countrymen and yet trades with distant people for economic reasons and then shares the profits with the neighbors or fellow citizens in the form of charity or welfare payments or some other sort of subsidy. One may actually be spending more money that way, then by buying from the neighbor to begin with. But one may not realize that. If one did not care about the neighbor, one could keep his profit, but if one were going to care about the neighbor and want to have as much profit as possible, the financially more profitable arrangement may be to trade with the neighbor to make him self-sufficient, even if the particular product costs more than it does abroad.

Of course the best solution is for one's deserving(1) neighbors and fellow citizens, and every other deserving person in the world, to be fully employed meeting each others wants and needs with the minimally necessary amount of undesirable work and burden for everyone. The problem is that, for various reasons, needs and the labor to meet those needs do not always logistically correspond. For example, there may not be enough need in a community for two homebuilders but there may be need for more than one. Or there may be three homebuilders in that community but none in another community that needs only a part time builder. Or there may be demographic changes over time such as in school teaching, where fewer school teachers are needed one year than another. Or, as when the polio vaccines were discovered, new work had to be found for the researchers working toward finding a prevention for polio. But since many jobs require prolonged training or expensive equipment, one cannot simply change abruptly from job to job as conditions and needs change, particularly when changes are abrupt or unforeseen. In the days of Adam Smith, when most skills could be learned fairly readily, when whole companies or industries were not made obsolete in relatively short periods of time, and when it took much labor to meet even the most basic needs of people, the market could probably more easily line up needs and available labor than it can today. Part of the function of economic systems is to get the best possible correspondence between needs and available labor to meet those needs, with the least difficulty and with causing the least (or no) other sorts of problems, such as coercion, discrimination, unfairness, domination, etc. Insofar as a market economy can do that, it is a good system, but insofar as the market cannot do that in the best way, it needs modification.

[Keep in mind I am only talking about certain kinds of needs-- the needs which labor could be available to meet. I am not talking about needs that could not be met no matter how much labor was available, such as a cure for a kind of cancer or psychosis or for a mode of instantaneous travel (ala the Star Trek transporter) that has not been invented or discovered yet. Those are not purely economic matters, if economic matters at all (apart from determining how much potentially successful labor is involved in the search). Labor alone, without adequate knowledge or without adequate tools or resources to begin with, is not always sufficient to meet a need. Economic systems would not be reasonable or necessary if there were no needs or if there were no way to meet any needs no matter what the social arrangements. Economics would have no purpose in paradise and it would be of no use on a desert isle that has insufficient resources for anything to be fashioned from any amount of labor. Nor am I talking about needs for which labor could be available but only at the expense of meeting other needs which are of equal or greater importance.]

Economic principles, policies, or systems fail:

1) when there are unmet reasonable desires with idle capacity to meet those desires.

2) when there are unmet serious needs with the capacity to meet those needs channeled into far less necessary or totally unimportant products and services.

3) when there are potential improvements in the quality of life that are unable to be actualized merely because of policies or principles, not because of lack of knowledge or resources.

4) when labor is employed in a way that produces more harm than good, particularly when that is done merely to mechanically solve in compliance with economic policies the problem of distribution of society's wealth.

Economic principles, policies, and systems succeed when all deserving people are burdened the minimal amount necessary to meet the maximum needs or give the maximum benefits to all who deserve them in proportion to their desert.

Of course, there can be disagreements about what desires or needs are reasonable, serious, necessary, or important, and there can be disagreements about what might be improvements as opposed to merely changes. And there can be disagreements about how much or what someone may deserve. Economics alone cannot solve those disagreements, and as economics ought not even to influence or prejudice the outcome in unreasonable ways. It may not be obvious and there may be no consensus about when the quality of society is as good and as fairly distributed as it could be; but when the quality of society is acknowledged to be far less, or far less reasonably distributed, than desirable, particularly when there seem to be resources and knowledge available to remedy the situation, one needs to consider the failure of economic principles as a possible cause or contributing factor, and economic experimentation on local scales as possible remedies. Such experimentation need not necessarily be drastic. Economic principles that work need not be thrown out with those that do not work; and whole new policies or systems, with their own attendant difficulties, need not be instituted where only minor or particular changes need to be made. To argue that an economic system could be much improved is not to argue that it needs to be drastically changed or totally replaced; and it is not to argue that all of the features of it are totally without merit or its results without any worth.

I have been discussing mechanisms that allow and promote the use of available labor to meet important needs and desires. The usual economic terminology is "supply and demand," but I believe that is an inadequate perspective. First, "demand" only refers to "effective demand", that is (potential) customers who are willing and able to pay for the supply. There are numerous situations, however, where people with needs do not have the money to pay for those needs, and where there is idle capacity to serve those needs (e.g., empty hospital beds with uninsured ill people needing care, surplus food with hungry children, latchkey children and lonely but capable elderly people who need companionship, etc.). Hence, there is no effective demand, no active supply, and needs or "real" demands go unmet. It seems to me there should be some economic means of solving such situations just as there have been economic solutions invented over time to solve other kinds of mechanical impasses between available labor and resources on the one hand, and the needs they could meet on the other.

A second reason "supply and demand" is not as useful a way of looking at this as is "available labor and needs (or potential benefits or improvements)" is that the product or service in demand may be detrimental to society or even to the individuals involved in the transaction. The laws of supply and demand, though they could apply to every form of labor, clearly ought not to. The judgment as to which services and products ought to be fostered, condoned, or permitted is a judgment prior to the question of how effectively they might respond to supply and demand.

Third, effective demand in undeserving hands can channel labor away from the legitimate needs of others. Obviously a successful thief would have effective demand. But so might a legitimate business that legally wastes or plunders resources (human or otherwise) or capital with no commensurately worthwhile service or product to show for it. The "S&L scandal" of the 1980's and 1990's is not, as it is frequently portrayed, the loss of billions of dollars; it is the transfer of billions of dollars from the hands of people who had earned it, into the hands of people that did not earn it but who spent it anyway. That spending was an effective demand and probably stimulated much economic activity, just not the economic activity it "should" have. For example, it may have stimulated the production of expensive decor for private offices instead of farm products to feed more children or instead of construction of mid-priced homes. Ten million dollars divided among five people will be spent differently, and stimulate different labor, from ten million dollars divided among 10,000 people. If that ten million dollars is all spent domestically, it is not a loss to the country in terms of money either way. But then neither is stolen money that is spent in the country. What is lost is money in the hands of those who deserve it, and what may be lost is labor available to supply the needs of those who legitimately deserve to be able to trade for what will meet those needs.

(To Chapter 8)

1. By describing someone as deserving of something, I do not mean to imply some particular criteria of desert, though I would probably argue that people were deserving of something insofar as they earned (worked or contributed toward) it and/or insofar as they did not forfeit the right to it. For example, children and those who cannot work, are deserving of what reasonable benefits society can afford to give them because they have not done anything to forfeit their share of an interdependent society's bounty. But any capable person who, for no good reason or cause, willingly shirks making any contribution to society or who commits crimes or misdeeds related to the benefit in question, I would argue does forfeit at least a certain amount of the bounty of those who do produce.

I realize there are disagreements, not all rational, about issues of desert, even if those may only be vague or intuitive notions, or not ones which we might like at all if we saw them actually spelled out. The principles involving desert should explicitly say so; but what counts toward a person's being deserving or undeserving can be discussed separately. Even when agreement cannot be reached about a criteria for desert, it is important to know that, and thus to know one is operating with a principle that involves an identifiably troublesome component.  (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 8

I would like to elaborate on the part of my description of the essence of an economic system having to do with the fairness of distribution of burdens and benefits among deserving people. First and foremost, what it means for people to be deserving, or for burdens and benefits to be divided up fairly, is independent of any particular idea of what constitutes a fair distribution or a deserving person. The notions or meanings of fairness and desert are logically prior to any particular principle that tries to spell out the criteria for what is fair or who is deserving. For example, someone may think it fair for a person to own the apples he picks from a tree with his own labor; someone else may believe those apples rightfully belong to the person whose property the tree is on; someone else may believe the apples should belong to the person who can make the best use of them and not to either of the two other people if those people were to let them rot unused. Although there might be disagreement about who deserves the apples and what the right criteria for desert is, there is no disagreement here about what being deserving means. Disagreement about who has the rights to the apples is not a disagreement about what it is to have rights to the apples, but about what gives someone the rights to the apples. The disagreement is not about what it is to be deserving, but about what constitutes the legitimate grounds for being deserving -- about which theory of desert captures, without exception, all and only those cases that our reflective intuitions would judge as being cases of desert or cases of a just or fair distribution. So although I may have some stated or unconscious and implied leanings at present toward a particular criteria or theories of fairness or desert that could be discredited, that alone should not discredit the idea that an economic system should strive toward a fair distribution of burdens and benefits among deserving people. 

There are a number of criteria by which we judge people to be deserving. Some of these conflict with each other. Some of these conflicts are difficult to resolve, even with effort and reasonable reflection. These are not necessarily meant to be complete lists, but are meant to be useful for illustrating some points.

We often judge a person to be deserving of:

1) the things s/he lays claim to before anyone else does, whether by invention, discovery, or getting to some place or some object first.

2) the things s/he builds, collects, or in general labors to produce.

3) the things given to him/her, traded to him/her, or otherwise voluntarily transferred to him/her by someone who rightfully owned them.

4) those things necessary for life that occur naturally and are abundant enough for all to share without any reasonable controversy (such as air -- at least as this is written).

We judge some labor to be more valuable than others, or more valuable under certain conditions; and, again, we do so with sometimes conflicting criteria:

1) labor that is physically difficult because it takes great strength

2) labor that is physically difficult because it takes great physical endurance

3) labor that is physically difficult because it takes arduous physical perseverance

4) labor that requires relatively greater intelligence

5) labor that requires concentration

6) labor that requires mental perseverance

7) labor that requires any other sort of skill

8) labor that requires any other sort of talent

9) labor that is unpleasant to perform

10) labor that takes a long time or much effort to learn how to do (or, more generally, labor that requires any of these other things to learn how to do).

11) labor that is more productive of greater good by improving the quality or quantity of Goods and Services.

12) labor that requires great risk or great cost

13) labor that relatively few other people are willing to do

14 ) labor that is necessary or important.

15) labor that takes more time.

Any of these criteria can be nullified if they result from artificial or unreasonable contrivance for their application. For example, #15, labor that takes more time only because the worker slows down to an unreasonable pace to make it take more time, is not labor that is therefore more valuable. Or, for example with regard to #4 or #10, if intelligence or much effort is required for certain labor only because these are artificially and unnecessarily used as screening or weeding out (credentialling) devices to keep a labor supply artificially lower than it really needs to be, then they do not increase the real value of the labor.

The standards for judging whether conditions 1 through 15 are met or not are also sometimes open to question. For example, labor that is unpleasant or arduous to most of us or to any one of us may not be to the person performing it. Deciding whose judgment to accept presents a problem, as when a friend gives you a present she easily makes herself but which would not be easy for you or for anyone else to make. It may therefore be far more valuable to you and others than it is to your friend.

In a market economy, labor is simply worth what people are able and willing to pay for it. That may make it valuable -- in terms of what it will be awarded (paid or traded) -- or not very valuable. To some extent market values are based on some of the criteria stated in 1-15 even if the bargaining over a psychologically acceptable wage or price do not mention them (and even if people do not consciously articulate the principles they have in mind) because people will make judgments based on them as to how much they are willing to pay for product or service, particularly if it is not a necessity but is a convenience or luxury, and because people will make judgments based on them as to how much they are willing to work for to provide the service or product. Insofar as a market economy does not take into account the above kinds of methods of judging a fair price or wage, it simply ignores them. In part it does this because it is difficult to try to decide the value of labor on the basis of principles like 1-15 above, not only because there are so many variables, but because different principles may conflict. (For example, labor may be physically difficult but not take much skill or mental effort, and it may be enjoyable or easy to the person doing it but not to many others.(1)) And in part it does this because there are mechanisms at work that multiply many times the effects of transactions based on the kinds of criteria in 1-15. 

In part it does this because many people simply think it is a legitimate and optimal way of rewarding labor. [The remainder of this chapter will discuss such claims, but in Chapter 13, where I discuss differences in earnings, I will return to this topic from another consideration.] Noted conservative economist Friedrich Hayek (Published in Il Politico, 1966. Reprinted in Studies in Philosophy, Politics and Economics, 1967), refers to a free-market system of distribution as a "catallaxy" instead of an economy because he argues that "economy" implies an arranged distribution (as by, say, a central government), whereas the "the spontaneous order of the market resulting from the interaction of many... economies is something... fundamentally different." And he goes on to argue that "Rules of just conduct can require the individual to take into account in his decisions only such consequences of his actions as he himself can foresee. The concrete results of the catallaxy for particular people are, however, essentially unpredictable; and since they are not the effect of anyone's design or intentions, it is meaningless to describe the manner in which the market distributed the good things of this world among particular people as just or unjust." And "The essential points of this conception of justice are... that justice can be meaningfully attributed only to human action and not to any state of affairs as such without reference to the question whether it has been, or could have been, deliberately brought about by somebody...." "The concepts of a 'just price', a 'just remuneration' or a 'just distribution of incomes' are of course very old; it deserves notice, however, that in the course of the efforts of two thousand years in which philosophers have speculated about the meaning of these concepts, not a single rule has been discovered which would allow us to determine what is in this sense just in a market order. ...because a just remuneration or distribution has meaning only within an organization whose members act under command in the service of a common system of ends, but can have no meaning whatever in the catallaxy or spontaneous order which can have no such common system of ends." "We might therefore question whether a deliberate choice of the market order as the method for guiding economic activities, with the unpredictable and in a great measure chance incidence of its benefits, is a just decision, but certainly not whether, once we have decided to avail ourselves of the catallaxy for that purpose, the particular results it produces for particular people are just or unjust." "All endeavors to secure a 'just' distribution must thus be directed towards turning the spontaneous order of the market into an organization or, in other words, into a totalitarian order." [By totalitarian, he means governmentally controlled, whether or not the government is a democracy.] 

This is not totally different from Robert Nozick's view [Anarchy, State and Utopia, Robert Nozick, New York: Basic Books, 1974] "There is no central distribution, no person or group entitled to control all the resources, jointly deciding how they are to be doled out. What each person gets, he gets from others who give to him in exchange for something, or as a gift. In a free society, diverse persons control different resources, and new holdings arise out of the voluntary exchanges and actions of persons. There is no more a distributing or distribution of shares than there is a distributing of mates in a society in which persons choose whom they shall marry. The total result is the product of many individual decisions which the different individuals involved are entitled to make." Nozick then goes on to argue that if a society has just rules of acquisition (or original ownership) of things and just rules of transfer of things owned from one person to another, that the dispersal of things will then not likely form a pattern that some theory of just distributions would impose. If people are left to their own devices to fairly exchange or buy whatever they want, new "distributions" of wealth will quickly diverge from a status quo. Nozick believes that a just dispersal of goods is one that comes about from the fair exchange of things people have fairly earned title to -- whatever that dispersal happens to be [with certain safeguards against monopolizing resources built into the rules of acquisition and transfer]; that people are reasonably and justly entitled to what they come by fairly and squarely according to just rules of ownership and transfer of ownership. In short, the means (of fair trade) justify the end (of distribution).

It seems to me that Hayek and Nozick are missing the points of what those who want a market system to include a just (re-)distribution of society's benefits and burdens, are really seeking. First, Hayek states "Though it is widely believed that the conception of an optimal economic policy ... presupposes... maximizing aggregate real social income ... this is in fact not so. An optimal policy in a catallaxy may aim, and ought to aim, at increasing the chances of any member of society taken at random of having a high income, or, what amounts to the same thing, the chance that, whatever his share in total income may be, the real equivalent of this share will be as large as we know how to make it." Thus, Hayek has no difficulty accepting that a catallaxy or free market can have a purpose or policy at which it aims, and at the same time be a spontaneous order generated freely among people. And Nozick believes that there is some notion of fairness in ownership and trade that we can legitimately incorporate into a free market system (1) that will prevent certain kinds of dispersals (such as monopoly) that are not desirable, and (2) that will bring about desirable states of dispersal, though they will not conform to some pre-determined pattern of distribution. 

Hayek and Nozick have some valid points, but they do not invalidate the concern for (re-)distribution of wealth within a(n otherwise) free market economy. In Hayek's terms, there is no reason to believe that a catallaxy with some limitations or boundaries or unimposed operating principles is significantly less a catallaxy, or that if it is significantly less, that it is less in some important or crucial way. To say that a modified or principled catallaxy is not a catallaxy in important ways, or that it does not give the same benefits as a totally unprincipled or purely arbitrary or licentious catallaxy, would require further argument. Of course, a market can become over-regulated, if that means it can have counter-productive regulations or operating principles, whether imposed or spontaneous (i.e., arising from within or as part of the general pervading moral or spiritual values of a society). But it is not clear that even in a catallaxy of the sort Hayek advocates, there cannot be operating principles that govern the individual transactions in ways mutually acceptable to the parties involved, and it is not clear that there cannot be acceptable modifications of the results of many such transactions if everyone agrees such modifications are beneficial. Even on Hayek's (narrow) view of what is beneficial, modifications would be acceptable if they lead to increasing the chances of any member of society of having as large a share of income as we can make it. And Nozick is willing to allow operating or governing principles in individual transactions, just not ones that impose some particular distribution pattern. Further, Nozick, as Locke, realizes there are some outcomes which are not desirable, and the rules involving individual transactions need to prevent those outcomes from occurring.

Further, Hayek seems incorrect when he claims that just distribution has meaning only within an organization with common ends for all members. It seems to me that we ordinarily think of two-party transactions as being fair or unfair just in themselves in a number of ways. One kind of unfairness is knowingly taking advantage of someone's trust when one charges them, say, double the usual price of something and they pay for it out of that trust. This is not totally different from cheating a child by giving him two shiny pieces of metal (dimes) for his one paper dollar. A second is the case of taking advantage of someone's misfortune to charge them a lot more than normal or than what one could get if it were not for the particular unfortunate circumstances. This is basically gouging; as when a mechanic charges a tourist much more to repair his car than he could get from someone with the time to get other estimates and realistic opportunity to get repairs done at a different place.

What Nozick and Hayek seem to me to really be arguing is (1) that as long as no really terrible outcome arises, the market should be allowed to function freely as parties in individual transactions see fit, (2) that society or the government ought not to impose or steer toward some particular good result, though they may regulate to prevent terrible results, and (3) that it is not a limitation of market freedom for parties to have trading principles which personally (or corporately) guide or motivate them in their individual transactions, especially when those principles are not involuntarily forced on them.

If I am correct, neither Nozick nor Hayek would object to the least disturbing possible remedies to market generated systematic exploitation of an arbitrarily (i.e., capricious or morally indefensibly) generated permanently disadvantaged class, should it occur, or to any other egregious conditions which might be generated by seemingly harmless and reasonable principles and transactions considered individually. Further, neither Nozick nor Hayek seem to have objections to individual's or group's being motivated in their transactions by social or moral principles which they freely believe in. In fact, it seems to me that what gives credibility to Nozick's and Hayek's views not to interfere with individual transactions is that many such transactions seem inherently fair or right, simply because often they are guided by principles such as 1-15 above.

And although Hayek argues that no single rule has been discovered which would point out or generate "just prices", "just remunerations", or "just distributions of income", that does not entail that we cannot recognize unjust prices, unjust remunerations, or unjust distributions of income. For example, although 1-15 above are not necessarily complete and although in some cases they may conflict, it seems to me that we could say a fair wage (or share of economic benefit) is one that is reasonably supported by at least one principle on a complete list of that sort. John Stuart Mill's eloquent condemnation of exploitation through inherited wealth by those who do no work at all is essentially the condemnation of a particular instance of distribution of wealth based on no moral merit or morally reasonable justification at all. Mill, in his Principles of Political Economy, is writing about capitalism of the mid-nineteenth century, and the "communism" he is discussing is not necessarily Marx's model, and is most likely purely an economic model, not the repressive, brutal, centrally controlled, and centrally controlling, bureaucratic communism of the 20th century Soviet Union: 

"If ... the choice were to be made between Communism with all its [problems], and the present state of society with all its sufferings and injustices; if the institution of private property necessarily carried with it as a consequence, that the produce of labour should be apportioned as we now see it, almost in an inverse ratio to the labour --the largest portions to those who have never worked at all, the next largest to those whose work is almost nominal, and so in a descending scale, the remuneration dwindling as the work grows harder and more disagreeable, until the most fatiguing and exhausting bodily labour cannot count with certainty on being able to earn even the necessaries of life; if this or Communism were the alternatives, all the difficulties, great or small, of Communism would be as dust in the balance."
Steps have been taken in capitalist societies, since Mill, to ameliorate or prevent that kind of result of capitalism. And it is a not yet finished process. Even the most recent "backlash" against the U.S. government re-distribution welfare system, is not that it is wrong to give money to people who cannot find work, but that it is wrong to give money to people who can work but who do not -- when there is work to be done that they could be doing. The position by many is that welfare programs should be turned into "workfare" programs, whereby those who are able to work should do something for the community in order to earn their government payments. My point is, not that workfare is necessarily the best remedy, but that people believe there ought to be some relationship between contributing to society when one is able, and benefitting from it. Mill decries at once those who benefit much without contributing and those who contribute much without benefitting. Workfare is a call for those who benefit to also be asked or made to contribute in ways they are able. It is impossible for me to imagine a society that we would admire running smoothly for very long if there were no moral principles operating in either individual transactions or in the overall result. If virtually every transaction two people or two groups agreed upon --for whatever reason-- were perfectly legal, and if any distribution of burdens and benefits resulting from that were permitted, and if there were no moral principles operating at all in any given transaction but each agent was out to only get what he believed was the best deal for himself, it seems we would have an economic jungle that would probably would give little stability, security, or individual or social benefit. I think Hayek's and Nozick's arguments are compelling only insofar as we already believe that most individual transactions will be morally justifiable in some way, or conform to some moral principle or other, and only insofar as we see that occasional transactions which do not conform to any morality do not cause so much social distress that it becomes a serious social problem. At this writing, the junk bond/insider trading scandals, the savings and loan scandals, the BCCI scandal, the apparent PAC money domination of Congress and congressional elections, etc. do not provoke revolution in the streets, but instead calls for tougher laws, better government and business leaders and managers, political reform, or support for different political candidates. It is still thought such behavior is morally unacceptable and that the right laws and the right people can help prevent or better limit it. It is impossible to imagine a society accepting the view that "whatever goes" economically ought to be tolerated and applauded, and that all of society could acceptably behave like Wall Street wizards, Madison Avenue manipulators, sweatshop owners, unfettered Savings and Loan administrators, environmental rapists, lobbyists and Congressmen who take money wherever they can get it, or pimps and pushers who would sell anything. 

So the question then is what sorts of bad situations or consequences does a free market economy tend to generate, and how can those things be most acceptably and reasonably prevented without damaging the good consequences of the market, if that is possible. If it is not possible to prevent or ameliorate the worst consequences of the market without losing the benefits of the market, than Hayek's question of whether to choose the market (catallaxy) at all as opposed to some other economic system becomes relevant.

Hayek's notion of a catallaxy not to be tampered with in terms of overall result seems to me to make sense only in circumstances where individuals are in some sense economically independent of each other, whereby someone's or some group's increased prosperity does not take away from another's status quo. Hence, if you and I begin making school lunches for each other in some profitable way, as explained earlier (e.g., where I bring sandwiches and you bring desserts and we swap a sandwich for a dessert), there is no reason for us to have to make lunches for other students or colleagues. We are not taking anything from them by our arrangement. But if our arrangement infringes on other people's ability to make their own lunches, then we have obligations to remedy that. One can morally justify increased benefits that are not at someone else's expense, not benefits which result in other people's involuntary expense. A distinction has to be made between catallaxic associations that cause no harm to others outside the relationship, and those that do cause such harm. (And by harm, I do not mean simply becoming relatively wealthier than someone else in a way that makes him feel envious or inferior. I mean actually preventing his being able to improve his circumstances.) Modern industrial society is interdependent in many ways. And both kinds of catallaxic arrangements may occur. 

What I wish to do now is to consider the issue of fairness of opportunity in regard to a market economy that has widespread interdependence, for one of the major criticisms of the market is that it does not always lead to fair opportunities. The following are the basic premises I will be assuming:

1) People who contribute to society's or to another's well-being or improvement deserve, without some good reason to the contrary, to get back from society benefits in proportion to what they actually do, or try to, contribute. (This is in accord with what would be a complete set of principles of the sort listed in 1-15 above.)

2) In proportion to the necessity and importance of being part of an economic system, the economic system ought to permit and provide opportunity to all deserving individuals to participate in as substantial a way as their ability permits.

3) People should be assisted as necessary to be able to reasonably contribute to society in a manner consistent with their potential, and expected to do so as they become more capable. (E.g., children going to school, the unemployed being re-trained.)

4) People who cannot contribute (much) should be treated in a humanitarian way, commensurate with society's ability to do so, and to the extent qualities other than current contributions merit (e.g., convicted felons serving prison sentences would not have the right to as much "free" benefit as incapacitated people who had been active, unselfish community volunteers, etc.).

5) There should be no unnecessary or artificial barriers to being able to make a contribution to society or to being able to receive a reasonable distribution from it. 

6) Rewards should not be permitted for demonstrably unfair or unreasonable practices. Reasonable, justifiable, procedures should be established to expediently determine the fairness and reasonableness of new and questionable practices ahead of time.

7) Attempts at improving benefits and decreasing burdens should be at least as important as trying to maintain the status quo of burdens and benefits.

Fairness of Opportunity

The contemporary argument of many "conservatives" is that by affirmative action programs, "liberals" unfairly, unproductively, and unreasonably try to legislate equality of results rather than equality of initial opportunity. They argue that equality of initial opportunity is the only legitimate economic equality that should be accorded people in a democratic, market society, and that as long as people have equal initial opportunity, it is fair that some may succeed far more than others, and that some might not succeed at all. They contend it is unfair to change the results of fair competition (where some people benefit more because they earn more as compensation for contributing more through greater effort or efficiency or skill) in order to make certain that everyone has the same success, or every group success in proportion to their proportion in the population. And they contend the potential for greater success (or failure) through one's efforts (or lack of effort) is a critical incentive for productivity. 

That some "liberals" want equality of results, regardless of effort or ability, may be true; there are people who believe, not without some reason, that circumstances, character, and ability are outside of everyone's control, and that results which depend on these things, are therefore arbitrary and cannot or should not be a legitimate basis for morally justifying differences they foster or create. Certainly there are some circumstances that contribute to an individual's success which are more a matter of luck than of anything he in some sense deserves or earns. For example, the fact Jack Nicklaus could make far more money than Bobby Jones just because television existed in his time and not in Jones', and because there were far more golf tournaments in Nicklaus' era, does not mean Jack Nicklaus was in some way more deserving than Bobby Jones. Even a strenuous work ethic in some cases may not make someone more deserving, if, say, it is compulsive or at the expense of neglecting one's health or one's family.

And some "liberals" may want equality of results at the present time because they believe until a reasonable period of time passes where results are forcibly equalized, there will not truly be equal opportunities for all. These people see equality of results as a means for bringing about equality of opportunity, not as an end to be sought in itself, and not as a position to be maintained once everyone truly does have equality of opportunity. Part of that argument is that there need to be role models to inspire children of disadvantaged groups, and that others as well need to see that, given a little help under current supposed unequal circumstances, people who were thought incapable under any circumstance of success in certain jobs actually can be quite successful. And part of that argument is that power bases need to be distributed among some members of currently disadvantaged groups if other members are to be able to unprejudicially earn what they deserve, assuming (what is not always true) that members of disadvantaged groups are less likely to be prejudiced against other members of their "own" group. 

However, a great many people believe that although many things are beyond an individual's control, all normally endowed people have sufficient attributes to succeed in a modern democratic, market economy if they are given a fair starting chance under equal competitive conditions. And many further believe that most people are given a fair starting chance under such conditions in today's modern democracies. Hence, these people believe that an appeal to fairness no longer justifies tampering with the system's initial opportunities, competitive conditions, or results.

I will leave it to others to debate and find evidence about how fair the starting opportunities or competitive conditions really are or how much success is determined by circumstances within a normal individual's control. Instead I want to examine the idea that there are only two issues involved in fairness: (1) equality of initial opportunity and equal competitive conditions, and (2) equality of results. I will try to show that there is a third aspect involved, and that it is this third aspect where concern should be focused.

First, however, let me point out that rare isolated and individual examples of success by the "disadvantaged" or of failure by the "advantaged" do not show there is no problem. Such examples only show that unfairness can sometimes be overcome; not that there is not unfairness. What we seek is general fairness, not just the occasional, and statistically unlikely, triumph of extreme luck, ability, or effort against generally unfair odds.

What I wish to argue is that equal initial starting places and equal opportunities in one sense do not necessarily yield equal or fair opportunities in another, very important, sense. And we see evidence of this in many ways. The sense of fairness that I want to discuss is the sense that the particular outcome of a competition is not obviously overwhelmingly, or highly probably, predetermined and readily predictable, particularly when important matters rest artificially on that outcome(2). Let me give some examples. 

(1) Carl Lewis is the world's fastest human. I am not a runner, and I am not as young as Mr. Lewis, nor in as good athletic condition. In a sense, if he and I were to run a 100 meter race, if we start together, the race will not be fair. In another sense, of course it would be. I have had as much opportunity to become a good runner as he has. I could have trained and sought good coaching, etc. And I could compete against him with as much opportunity as all those who lose, quite fairly, to him today. Not beating him or not being able to beat him is not what makes our race unfair in the sense I am concerned about; it is not having any reasonable chance of beating him that would make such a race unfair. If he and I were both five years old and had never raced each other or been timed, and we ran a race where he showed he could beat me by 30 feet over a 100 yard distance, that would be a fair race. But once we know he is that much faster than I, the next race between us would not be fair (and it would not be fair to force me to run against him) in the sense I am discussing, unless I am given a handicap. The point of a handicap in sports is to give a player known to have much less skill the chance to beat the obviously better player. Handicaps are thought to make contests more fair in this sense, not less. Handicaps are not fair when one player does not have an obvious advantage (whether earned or not) over another for the particular contest. And the fact a player or team wins a number of games or championships in succession does not by itself show them to be invincible, and does not by itself call for a rules change or a handicap system to be instituted.

(2) If a normal six year old is made to compete in math against a normal ten year old, other things being equal, generally it will not be a fair contest because the six year old has almost no chance of winning. It does not matter that they are asked the same questions or that they each have pencil and paper, similar calculators, or whatever.

(3) Suppose that we are choosing tug-of-war teams, 15 people on a side. Suppose that we want to have teams that are fairly chosen. Consider the following possible ways of choosing teams, any of which might be considered fair because both sides have equal starting places and equal opportunities for getting the best players. (1) Each team is chosen by lot (blind drawing), one player at a time. That gives each team equal opportunity to have the best participants. (2) Team captains are appointed who are equally good, and they get to choose the players they want. (3) Teams are chosen by either of the above methods, with the proviso that they have the same number of players and the same amount of total weight of players. Any of these things are fair in the sense of initial opportunities and similar circumstances. But any of these methods can still lead to totally mismatched teams, which, once that is known, then makes any further contest between them unfair. 

(4) Suppose we play Monopoly, starting even, and one of us wins. Would it be fair to start the next game simply continuing from the resulting conditions of the first game, but giving all the losers of the first game a few hundred dollars re-start-up money? Probably not. Each new game needs to be started evenly, not just the first game.

Notice, it is not the fact that one person or team might always win or eke out a victory that makes the contests unfair in the sense I am discussing (so equality of result is not at issue). Nor is it the initial starting point or the playing conditions of the competition that are considered unequal (so equality of opportunity in that sense are not at issue). What is unfair is that in each of these contests, it is obvious one side does not any longer have a "fighting chance" or any reasonable chance to win. It may be their own fault; it may not be. Either way, but particularly when it is not their fault, the contest is no longer fair in a sense we all understand and in a sense that we all think is important. The opposing sides are so obviously mismatched or lopsided in capability that there is "no contest" between them; the results are essentially easily predictable.

Statistical results enter into this only in the sense of being one indicator that there is an unfair advantage. Suppose, for example, that after the first two hundred World Series were played, it turned out that the team with the "home field advantage" always won. Suppose no one could prove the cause of that but that nevertheless, it always happened. I suspect that at some point, we would begin to think the way the Series was played was simply unfair, because we would start to see that it was virtually impossible for the "visiting team" to win. Of course, that has not happened, so the home field advantage-- which is, as its name indicates, recognized as an advantage-- is not seen to be an unfair advantage.

In regard to democratic, market economics then, what ought to be sought is the same thing as in each of these examples, not equality of opportunity for its own sake, nor (statistical) equality of result for its own sake, but a reasonable opportunity to be able to succeed, and a reasonably equal possibility to succeed. Equal initial opportunity only gives an a priori reason to assume an equal possibility of winning; it may not be a reason that stands up -- as in once the tug-of-war sides are actually determined and it turns out that one side is simply much too strong for the other side. Unequal results over a long run do not prove unfair possibilities (illustrated also by my "ping pong" case later), but they gives grounds for suspicion. Likewise, equality of results, obtained through competition, shows equal chances of winning but does not show fairness, if there is handicapping and if the handicap on the otherwise better competitor might be unfair or unreasonable.

Fair Handicap and Advantages

So the question becomes what constitutes fair handicaps and advantages and what constitutes unfair ones. Let me return to sports first, because in sports issues of fairness seem to be paramount (perhaps even essential to legitimate victory and to profit), since fair competition is the point or essence of sports and since sports competition that seems unfair would have few interested fans or willing competitors. Further, since virtually every player and spectator seems to have some notion of fairness, and yet they all arrive at sufficient agreement to allow play, sports can be seen as a laboratory for practically and theoretically examining and refining some of our intuitions about fairness and for showing what kinds of principles of fairness might be collectively acceptable. Some of these principles might then be harmoniously transferred to economics.

First, in sports, with the exception of certain All-Star games, (or emergency circumstances like the earthquake during the Oakland-San Francisco World Series) the rules are not changed during any given season or game. The rules are changed, when necessary, for future seasons. For example, when Dean Smith's teams perfected the "four corners" stall, shot clocks were not instituted for the second half of the season or for any games in the first season the stall was shown to be so effective, even though the "four-corners" offense was not liked by fans other than North Carolina's.

Second, no one says a particular game or series is unfair just because a really good team is playing a really poor team that season. This is even when the odds are overwhelmingly against the poorer team's winning. Especially during expansion years, some teams are so pitiful that they have almost no chance, though perhaps some hope, of winning against a strong, established team; but few feel that is unfair.

Third, professional major league sports have policies between seasons (such as drafts, trading rules, etc.) that try to balance the opportunities for the following season's being a "fair new start" so that one team's winning a championship does not give it a further advantage for the following season. In fact, most drafts work as an advantage in indirect proportion to the teams' order of finish.

In short, the emphasis seems in sports not to be on the fairness (in the above sense of balance or reasonable or equal chance of winning) of a particular game so much as it does on the fairness of a season or the fairness of a season in the somewhat near future. (Fairness in a particular contest is important, of course, but in the sense of both teams being accountable to the same rules, the officials being honest and competent and calling plays impartially.)

Of course, in economics, there are not distinct seasons. And a person or company does not get an advantage for the following year by doing poorly in the preceding one. Nor in some cases should they. (In sports also probably something drastic would happen if a team and its management never really tried to win and did not seem to care about winning and year after year did nothing to take advantage of each additional opportunity for improvement it was given. If its fans did not quit showing up and its lack of revenues make it fold, the league might still throw it out as an embarrassment, let alone an economic drain.)

However, I think something of the notion of a period of time, rather than any given competitive event, also holds in economics, and in a market society. For example, we tend to think it wrong for the economic sins of the fathers to be visited on the sons (though there are mixed feelings about visiting the economic good fortunes of the fathers on the sons), meaning that we think that children should have opportunities of certain sorts (e.g., education, community recreational and social activities, etc.) even if their parents are not in a position to provide them, and that no one's economic fate should be sealed for the worst at birth just because they may not be born with extraordinary talent or extraordinary luck. We also think that people should have opportunities during their adult lifetime to improve themselves and their economic lot, especially when they have the potential to do so. Finally, there are laws against monopolies because they are are viewed with suspicion even when they have fairly earned their dominant market position. The concern is not that someone achieves a dominant share of a market (as long as they do it honestly) but that domination does not perpetuate itself just because it was once achieved. Domination from time period to time period has to be, in a sense, re-earned each time, not just accrued because of the perks attending power. The ideas, whether right or wrong (and they seem to me to be empirical questions), are that in business, as in sports, (1) competition (at least fair, non-cutthroat competition) gives better productivity, and (2) that competition is enhanced by the reasonable belief one can win, or can at least improve one's position over a period of time. And the view seems to be that society will be better off over time if even a business that is clearly superior enough to dominate a market, is still forced to face some sort of balanced competition. Insofar as that is true or reasonable, then it is in society's interest to try to be sure business is to that extent competitive, even if certain advantages have to be given to those who keep getting beat.

Society's being sure that business is competitive does not necessarily mean society has to bestow any special advantages, however. Experience, even the experience of defeat, is sometimes a great teacher. We have all seen a pitcher strike out a batter in a crucial instance only to see that batter hit a home run off the pitcher the next time up -- some of that is just learning from previous experience. When I was in high school I learned to play ping pong at a neighbor's by playing him over and over again. He was pretty good, and our first few games were 21-0. But our points started lasting a bit longer, and eventually I would win a few points during a game; then more; until finally I could beat him at least half the time. I did not need some special help or advantage in order to become able to beat him; I just needed some experience playing against him or someone else who was fairly good. And I felt that all along. Even when I was being shut out, I felt I would someday be able to beat him. I did not feel permanently disadvantaged nor that I would never have a reasonable chance to win.

I want to return to professional American sports because the kinds of advantages given each year to losing teams strikes me as interesting. First, in a sense, nothing is taken away from the winning teams. They do not have to give up their best players to the poorer teams. They do not have to give up managers. They do not have to play a harder schedule, etc. Instead, they are rewarded with the choice of new players -- just not the initial choices (unless they have traded for initial choices). In other words, they are not deprived of anything, and they are even helped; they are simply not helped as much as those who need help to achieve balanced competition. The concept is to boost everyone but to boost more those who need more help. No team suffers in the absolute sense, just in the relative sense as each team is helped to improve to a higher level. All teams perhaps benefit, and benefit fairly, from this. 

(It is perhaps a somewhat ironic application, in one of the most capitalistic, achievement-oriented, merit-driven, and perhaps "decadent" enterprises --professional sports in America-- of the Marxian principle: "From each according to his abilities to each according to his needs." Perhaps it was equaled only by the opposing irony that in athletics in the supposedly egalitarian Soviet Union, the emphasis was on building superior teams that dominated their sport. Professional sports leagues in America try to evade or restrain free enterprise among rich teams and talented players in order to prevent the most talented from forming dominant teams, while sports in Communist countries seems to eschew socialist, egalitarian principles in order to favor talented athletes and assemble dominant teams. Strict, simplistic social and economic ideologies are not always exemplified by a country's major institutions.)

Further, each team is helped in a way that requires understanding of the sport, and playing or managerial skill, in order to take advantage of the opportunity. The opportunity is intrinsically connected to some ability in the sport, not an advantage that automatically counteracts incompetence in it. Management still has to be able to pick and mold talent to best help their team. It is not that they are given an automatic advantage in the next season, by say, starting every game with a scoring advantage or getting to play more players or adhere to fewer rules, or some such. Past champions do not have to bench their starters sooner or make them play with one arm tied behind their backs, etc. The advantage is an opportunity advantage, not a specific performance or scoring advantage. (Except in rule changes of certain sorts and except in things like golf handicap play, which I will get to in a moment.) 

Finally, everyone understands that the point of the whole enterprise is to help everyone benefit by having the most competitive and best league available. It helps because it has more fan appeal, but it also helps because competitive athletes tend not only to want to win, but to win against the best that can be thrown against them. That makes performances better and victories worth a great deal more.

In the exceptions mentioned above-- rule changes, and also golf handicaps-- something different is going on. In golf handicapping, what you are doing is conceding the outcome of the normal game of golf and are playing a slightly different game. By having handicapping, you are saying in effect "I know you can beat me at straight golf, so let's not play straight golf; let us play golf that gives me an advantage in certain ways or on certain holes, and then let me see whether you can beat me at that game also." Or one could ask to play match play golf instead of medal play golf. Those are two different games, though they may look the same. In match play, you count the number of holes you win, not the total number of strokes for the round. Match play might allow an inconsistent "streaky" player to beat a steady player he might never be able to beat in medal play. When it is played for that purpose, it is saying, "There is no point in playing medal play golf against you; I concede that game (or that version of the game) to you; that is not a fair competition because you will win hands down. Let's play golf with this other way of deciding victory and see whether you can win that way (as easily). Let us make more of a contest out of it."

When the rules of a sport are changed, as when the NCAA basketball program added a shot clock, or a football league moves the goalposts or changes the position of the hash marks, or baseball modifies the "balk" rule, that might be for a number of reasons, and it might include reasons that actually penalize a certain player or team in a certain way. Some rule changes are simply for increasing fan appeal and have nothing to do with giving one team a visible edge over another. Moving the goal posts back in football and changing the spot of the ball on a missed field goal was done in order to make defense more meaningful and prevent teams from advantageously attempting field goals they had little chance of making. Although a few teams at the time had more accurate long range kickers than others, other teams were fast catching up in this regard, and the rule change did not harm any team unduly. However, the NCAA basketball shot clock was a different story, as was the change in hash marks, and the balk rule. The balk rule in baseball was most recently changed when one pitcher figured out a move within the old rule that let him pick off runners on first base almost at will. That gave him a competitive edge as a result of his own study and practice. It was decided, however, during the off-season that the advantage to him, and to any other pitcher who could learn the move, was unfair to base runners, or did not allow the excitement fans wanted in base running and in attempting steals. So the rule was changed even though it deprived this player of an ability he had developed. Similarly, when the shot clock was installed during all but the last few minutes of a college basketball game, that evened up the competition at the expense of North Carolina which had perfected the stall and could stall at will for most of a game once they had built up any kind of lead at all. The hash mark rule change in football (and the illegal-downfield-bump rule) opened up offensive football more than it had been, and arguably harmed those teams that had successfully been designed, constructed, and coached to take advantage of the previous rules. These were rule changes that, though they made the game more interesting for fans and though they, as in the balk rule, made the rules of the game better capture the intended spirit of the game, still penalized players who had used their skills to take advantage of the rules as they had been stated. Such actions, however, are rare in sports, and they are usually only undertaken under one or more of the following conditions: (1) to make the playing of the game more like it seems it is "supposed" to be -- i.e., close an unanticipated "loophole" in the rules, (2) save the game from losing substantial fan interest, or generate substantially more fan interest, (3) remove some special, peculiar, especially non-athletic or seemingly so unfair advantage (such as drug induced strength or reflex) that a team or player has which promises to negate the opportunity for years to come of any other player or team to win. I would say all of these fall under the general idea of saying the previous rules were for a game that was either not interesting enough on its own or not competitive enough to be interesting, so that it needs to be given up for a similar game but one which is more interesting or more "fairly" competitively balanced.

Much of all this can be transferred to economics and business. (1) What society needs is for all individuals to make the best reasonable contribution they can and to have realistic opportunities for successfully contributing to the reasonable extent of their potential, and to be compensated commensurately. Although someone might temporarily benefit by another's failure, the more people can contribute to society, the more there is for each of us to share. Failure only decreases the pie, even if someone benefits from a particular failure by getting a bigger share himself. What is more desirable is for everyone to enlarge the pie as much as possible and get a fair share of that larger pie. So in that sense, the more people and companies that are economically successful, the more everyone benefits, just as in sports, the more competitive a field or league is, generally, the better it is for everyone playing.

(2) Economic policy should aim at improving the most those who could benefit the most from help, while also helping, or at least not taking anything away from, those who do not need much help to reach their potential.

(3) Help needs to be administered in the form of real opportunities to improve in the future, not in the form of automatic success in the present with unfair assistance. No one should be deprived of a fair advantage he has earned, but that advantage does not need to carry over indefinitely into the future. For example, an important minority company that, through no fault of their own, does not have the knowledge or expertise to compete with a larger company (that has plenty of other work available it could more helpfully be doing) could be given an opportunity to gain that knowledge, but should not be awarded a contract (unless it is part of the teaching experience) just on the basis of being disadvantaged. And the help that is given needs to be real help, not just a priori or seeming help. The methods need to be demonstrably helpful, even if they do not help in every case; or it needs to be proved that there is insufficient potential for any method to be helpful -- that the company just is not fit, and cannot reasonably be helped to become fit, to survive in that endeavor.

One form of help --analogous to professional sports drafts-- might be to require, or devise attractive incentives to encourage, college graduates to spend a year or two with a "disadvantaged" but viable (not hopeless) company in their field, so that those graduates learn from the experience of the people in the company and bring enthusiasm, newer ideas, and different contacts to the company.

In something like promotions involving exams, those believed to be unfairly disadvantaged could be given special tutoring or given extra training, but they should still have to score the best on the exam (or whatever the criteria used) in order to win the promotion. They can be given additional opportunity to earn success, not simply given success.

(4) If there are limited resources or benefits that have to be competed for by more people than can have them, then other things being equal (such as the productivity with which each might utilize them), what is essential, in terms of fairness, is that each competitor has a realistic opportunity to succeed on the merits of his relevant potential. If there are arbitrary or unfair obstacles, there needs to be reasonable assistance to overcome those obstacles. If the starting line is not equal, the course needs to make up for the inequality, so that the person with the best relevant qualities, not the person with the best accidental or irrelevant circumstances, has a good chance of winning. And, if the lanes of the course are unequal in length or difficulty, the start (or finish) needs to be staggered to make it equal. It is not the starting line, but the whole course, that needs to be fair. And the test for a fair course is not that the initially disadvantaged person wins. There are other ways to determine the fairness of a course or the fairness of anything. These are open-ended, requiring insight to discover, and requiring logical evidence and judgment to evaluate.

(5) Achievement in one area should not, by itself, be grounds for advantage in an unrelated field. A good student should not be assumed to be a good teacher or businessman; a successful businessman should not be assumed to be a good board of education member; a successful engineer should not be assumed to be a good museum board member; a successful football player or businessman should not be assumed to be a successful public official. Unrelated fields should be like new seasons, open to fresh competition with fresh opportunities.

(6) The rules of business and governmental policy need to be fair and to promote the "spirit" of what an economic system should be about. Rules should not be changed lightly or arbitrarily. Whenever possible rule changes should not give an advantage to one group or another in a given business unless a company has obviously violated the spirit of fair business practice and gained an unseemly or unfair advantage that ought to be taken away.

The one difference between sports and economics, however, is that competition is crucial to sports; and there have to be contest losers (though all can gain financially and socially, etc.). For sports to be successful as a business there have to be contest winners and losers. Economics not only does not require losers, but it is ill-served by wasted or unfairly rewarded labor, which is what economic loss tends to be. Competition in economics is only a means to greater efficiency and productivity of benefits and reduction of burdens, not a goal or an end in itself. Hence, the form of societal assistance to the disadvantage outlined above, should not so much be to foster competition (especially where competition will produce wasted labor or wasted talent), but to help people find a fair and successful niche in the economic system, a niche where they can contribute successfully to society and be rewarded from society (in trade) for that contribution.

Any rule change that affects style of play will always affect the records of different kinds of teams differently, favoring some and disfavoring others. So that although rule changes are formal and "universalyzable" in Kant's sense (which Hayek finds important), they are not without consequence for particular teams, at least in the near future. Presumably such rule changes are made over the protests of those owners who would be immediately hurt by such changes and are pushed through by those owners who believe they would most immediately benefit. All might see merit in the rule changes for the fans or for the "game" but some might want to postpone instituting such merit until they have had better opportunity to first deservedly earn what they could from the kinds of teams and strategies they have worked hard to develop. Any time a rule change of this sort is contemplated, relative team success will be effected no matter how the rule is decided. So there is no neutral position possible.

Also economics is different from sports in that it seems far more complicated. It is relatively easy to fine-tune the rules of sports to get them to conform to some idealization of the game or simply to get more fans interested by bringing about parity through formal draft procedures, etc. The economy seems much more difficult to manipulate to get desired and desirable outcomes without simply having to adjust those outcomes after they occur under the existing rules and conditions. (And if economics could be formally fine-tuned to make dispersals come out more optimally, those who would be relatively hurt by such new dispersals would find the new rules as "unjust" as they now find forced re-distribution of their earnings. There are no value-neutral positions when you contemplate whether or not make changes you know will have different consequences.)

Most importantly, sports, no matter how seriously taken by some people, are simply a game, and one season's being taken advantage of by someone who finds a loophole in the rules he can use to his favor all season long, or who develops a brilliant strategy that almost always insures victory, is not a matter of terrible or ongoing importance in the way economics is. Victories (or losses) in one season in sports do not necessarily enhance (or impede) success the next season or in the season after that. Franchises can be "turned around" rather quickly with the right personnel or strategy changes. But economic conditions tend to promote and reinforce themselves, for better or for worse. Although, of course there are periodic dramatic tales of reversals of fortune, for the most part in a large, impersonal, free market economic system, poor people will stay poor and the wealthy will maintain or increase their wealth. Not redistributing wealth, or not creating new opportunities for less wealthy to attain more wealth, in some cases could be permanently devastating to some people in a way that their favorite team's losing all their games for one or two seasons could not begin to rival.

This is not to say that all re-distribution plans are necessarily fair or optimal or desirable, nor that the market economy or catallaxy does not have any aspects without merit. And there may be some re-distribution plans which do not distort some valuable particular free-market aspects as much as other plans that may be less desirable and less effective. 

For example, in one city in the country one group is trying an interesting experimental program whereby people who do volunteer work are given credit for the amount of service hours they put in. This then will allow them to receive volunteer services if and when they need it for that same amount of hours. Many of these people were already doing volunteer work anyway, so this was not so much a recruiting program as a rewarding program; though it may have recruiting benefits for other "volunteers". It makes volunteerism into a kind of large scale group barter system where barter takes place (1) over time, instead of in simultaneous exchanges, and (2) among a number of people, so that the services you give one person are not in exchange for that person's services in return, but a third party's service who appreciates what you did for the second party, and who, in turn, will be "paid" by a subsequent party.

There are two concerns raised by the organizers: (1) that the credits may not be redeemable in the future because there are not (enough) volunteers to make them good then, and (2) people that move to a different city will not be able to use them there because the system is only local.

This strikes me as an interesting "economic system" experiment; and indeed, words like second economy or subsidiary economy were used to describe it. I consider it an economic system because it meets my idea of people working together or pooling resources in order to distribute burdens and benefits in a way that is fair and allows every individual to receive more than they can provide for themselves. 

The most salient feature is that all volunteer work, regardless of what it is, is treated equally; only amount of hours put in counts, and all hours are rewarded by services in return for the same amount of hours, regardless of what those services are. There is no determination that some kind of hours of labor are worth more than some other kind of hours of labor -- no determination that some labor is worth more, in the sense of deserving more credit for it, than other labor, even if one kind of labor may affect more people or do more good (in whatever way "more" good might be determined).

Now, one solution to the question of redemption of credit -- whether future redemption or moving-away redemption would be to allow credits to be transferable, particularly to allow credits to be transferable for money (that is, sold). So that someone who moves or who does not want to wait till they need services, could redeem their credits for money and use that however they want. This would be like having third parties pay for volunteer work; thus buying volunteer work for the money. This may not be an acceptable solution for two reasons, however: it defeats the spirit of in-kind trading that is meant to allow help for people who have actually helped others -- not just people who have the money to buy help and who may not have ever helped anyone themself; and it essentially turns volunteerism into simply another job in a way, so that it is no longer strictly volunteerism. It will just be that the organizers do not themselves pay their volunteers in terms of money. If money is to be had, it must be received from a third party. But organizers have a choice to make about the transferability of credits. They may want to make them non-transferable at all, or they may want to allow them to be transferred only to family or to needy people the volunteer designates, or not for money. At any rate, this is one kind of possible economic experiment that is independent of communism, socialism, capitalism, etc. but which is simply a way to try to effectively employ and compensate some labor and resources.

(To Chapter 9)

1. A Federal Express television commercial had an interesting theme. Two employees of some company are discussing work in the bathroom unknowingly being overheard by their boss. One is terribly worried because he has more packages to ship than he can handle. His co-worker tells him about the FedEx "point, click, and ship" software that can do the work in a flash. He brags it has made him so productive that he has been able to sneak time off for long lunches, golf, and other sorts of leisure. The interesting aspect of this ad is that not only does the boss become angry at this person, but we expect and accept such anger. Yet this is the person who is most productive. Apparently the accepted anger is that he is not being as productive as he could be. Still it seems peculiar in a way that we think it justified for a boss to be angry at the employee who is so productive he produces leisure time for himself that his boss never even noticed.  (Return to text.)

2. I say "rest artificially" on an outcome to distinguish between the following kinds of cases. If the only way one can eat is to catch one's food by running after it, and he can catch food, but I cannot, that is not an artificial consequence of his greater speed than mine. But if there was ample food, but someone, with the power to enforce his will, decides it will only go to those who can win races, then Lewis's eating and my starving rest artificially on his being the faster of us. (Return to text.)


Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 9
Hayek's Claim Further Examined

I wish to examine for a moment further Hayek's claim "Though it is widely believed that the conception of an optimal economic policy... presupposes... maximizing aggregate real social income.. this is in fact not so. An optimal policy in a catallaxy may aim, and ought to aim, at increasing the chances of any member of society taken at random of having a high income, or, what amounts to the same thing, the chance that, whatever his share in total income may be, the real equivalent of this share will be as large as we know how to make it."

I agree that maximizing aggregate real social income is not a proper or complete economic policy, but that is not for Hayek's reasons that catallaxies need to be left alone. It is because the best total social income may occur in a society where distribution of benefits and burdens is so grossly unfair that we would condemn it on moral grounds. Taking an extreme case first:imagine that a state where 40% of the labor force was enslaved to work 15 hours a day gave the highest aggregate income, but that the slaves received only enough of that income to sustain themselves. Suppose the other 60% of people simply worked enough to make certain the slaves did their work properly. We would say such a system is less justified than one where, say, everyone works 8 hours a day with reasonable compensation for what they do, but that the total income is somewhat less than that of the slave state. Even using Hayek's principle, and giving everyone a fair chance (say by a lottery) to be masters or managers with the highest possible income, still would not be sufficient to make such a slave state appealing. Simply having a chance, or chances to earn a high income is not what is crucial. First, the chance has to be real in some sense, and perhaps to a certain extent, continuous in a way I will address shortly. Second opportunity for income should be generally based on contribution to the economy, not just exploitation of it. Third, the chance for a higher income should not come at the expense of others if that is unnecessary for there to be a chance at a reasonable income for a larger number of deserving people. And finally, since a "chance" at high income is not as good as an actual high income, it seems to me it would be wrong for a society to maximize merely chances at high income if it could reasonably actually maximize everyone's income. To have a system which "maximizes the opportunity for any given person to get the most" is ambiguous. It can apply to a case where all people have the chance to make a great deal of money at the same time, or it can mean that each person has the opportunity to make a great deal of money, but not all of them can actually make that money at the same time. For example, a $50,000,000 lottery will give everyone an opportunity to win $50,000,000 but only in the second sense, not the first.

For the case not to be so extreme, simply imagine any society divided into those who work hard and those who work much less, with those who work the hardest, often receiving the least share of the aggregate. If the difficult labor is involuntarily and undesirable, if there is no really good chance to improve one's lot by one's socially or economically benevolent efforts, if one only improves one's lot at the unnecessary expense of someone else, and/or if those who benefit most make no reasonable and commensurate contribution, it is difficult to imagine that to be a desirable society even though it might meet Hayek's principle of giving everyone the greatest chance at having a high income or of having the largest share of income we know how to make. Of course, a catallaxy or any economy could operate that way; but it is doubtful that it should, and that there would not be a better catallaxy or economy.

I do not believe there is going to be any simplistic operating principle for the best economic system or catallaxy in an interdependent society, none simpler than the principle I proposed near the beginning of this work as being the point of an economic system -- maximizing the benefits and minimizing the burdens of the greatest number of deserving people in the fairest and most reasonable way. Judgment is always going to be required to decide fairness and desert. And judgment is going to be necessary to decide the proper balance in particular circumstances between increasing burdens over benefits on the one hand and being fair on the other. Otherwise we run the risk of saying that seemingly reasonable (individual) rules are more important than reasonable results. I would think what we want is the system or systems that have the most reasonable rules and the most reasonable results, and that allow whatever reasonable modifications wise judgment requires whenever it becomes obvious that the economy is not functioning in the most desirable possible way. Most people have somewhat intuitive ideas of what constitutes a fair, efficient, productive, beneficent economy. The challenges are to articulate these in a consistent and comprehensive or complete way, and then to come up with operating principles which most closely reflect those ideas and help us achieve that kind of economy. That is a complex enterprise, that I suspect will not have a simplistic or obvious algorithm. It may even lead to a number of different, mutually exclusive, hopefully non-antagonistic, systems which different people find more comfortable for themselves.

But returning to Hayek, if we look at his principle of trying to maximize the chance of any individual's having as large a share of income as possible instead of trying to maximize the social aggregate, it appears that we run the risk of having less for everyone (else) than might otherwise happen. The obvious non-economic example is any team sport, where cooperation generally leads to higher aggregate scoring than does individual attempts at heroics. Sometimes the best player on the team will even score more himself through team play than he would if he were trying to hog the ball. Of course, if you play with a system that gets each person the most points he could possibly score, the team aggregate will also be the highest it could be. But the reverse is not necessarily true; the highest aggregate score may not give each player the most points he could have scored had he played a different way.

Economically the same is true. A person intent on making the best individual deals he can for himself, may not end up the best he could, and may not end up in the best overall society he could. And anyone in a system which gives the best overall society may not end up as wealthy as he might have been in a society with less overall wealth. But everyone who lives in a society where everyone makes the most they could make in any society, will automatically live in the society with the best aggregate as well. Unfortunately, this latter case is not the most likely one to occur or to be able to be generated. When it is not, choices have to be made about which outcomes are the best ones to allow or to try to achieve, and about which principles to follow regarding individual transactions in order to try to achieve those outcomes. And choices have to be made about how to determine in a fair way who should benefit most when two people cannot benefit equally. Those choices get made individually, and to some extent by society collectively. I think there are better ways for individuals and societies to deal with this than to have principles which simply try to maximize aggregate social good or which simply try to maximize individual wealth. 

Philosopher John Rawls has proposed a policy that among other things, does not allow certain kinds of distributions unless the least advantaged also benefit. I think that is too strong; if one is inclined to think along these lines, otherwise justifiable transactions should be allowed that do not significantly harm the least advantaged, even if they do not help them. If what you would do helps you, but does not significantly harm anyone else and there is no other reasonable objection to it (such as, you are undeserving of any additional benefit to begin with because you are lazy or dishonest) there is no reason you should be held back just because others would not benefit as well as you. I say "significantly harm" the least advantaged because, I can conceive of situations where doing slight harm to people that are already disadvantaged might do enough good to those, say, just a little better off than them that even the disadvantaged would agree it is better for them to make the small sacrifice. Further, Rawls' distribution principle by itself does not determine how benefits should be distributed when they cannot be distributed equally. And it makes no mention of how someone became disadvantaged to begin with, which is probably significant as to how deserving they are; for if one is disadvantaged through his own choices and fault, one is perhaps "owed" much less than is one who is disadvantaged by circumstances beyond his control, particularly if he has done much good for the community or tried to, or would in the future if just given additional opportunity. Moreover, the problem also has to be solved in any given situation whereby assisting the disadvantaged fosters further disadvantages that then need further assistance.  For example, if feeding a hungry population were to foster a Malthusian further increase in that population, the problem of starvation will only have been postponed or transferred, not solved. Solutions, not postponements or increases, must be found for the problems of the disadvantaged.  

Moreover, assuming we could have a solution instead of a temporary measure of help, it seems to me that a better principle than Rawls', but along his own lines, is that as long as resources are available and reasonable to use in this way, the necessities of the disadvantaged should come before the conveniences and luxuries of others. However, conveniences and luxuries of the least advantaged do not necessarily need to catch up to the conveniences and luxuries of others before those others can move even further ahead in conveniences and luxuries.  Again I think we have better and more complex intuitions than Rawls' principle captures.

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 10
The Invisible Hand Explained

"By preferring the support of domestic to that of foreign industry, [an individual] intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he 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. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." (Smith, p.423)

" has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. ...It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." (Smith, p.14) 

"The pressures of the marketplace direct the selfish activities of individuals as if by an Invisible Hand (to use Smith's wonderful phrase) into socially responsible paths. Thus the workings of the competitive system transmute self-regarding behavior into socially useful outcomes. The Invisible Hand-- the words that describe the overall process-- keeps society on track, assuring that it produces the goods and services it needs." (Heilbroner and Thurow, 1987, p.28)

"The story of the United States is the story of an economic miracle and a political miracle that was made possible by the translation into practice of two sets of ideas.... One set of ideas was embodied in The Wealth of Nations.... It analyzed the way in which a market system could combine the freedom of individuals to pursue their own objectives with the extensive cooperation and collaboration needed in the economic field to produce our food, or clothing, our housing. Adam Smith's key insight was that both parties to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange will take place unless both parties do benefit.... That is why, as Adam Smith put it, an led by an invisible hand...." (Friedman and Friedman, p.xv)

The logic and machinery of the invisible hand is not that difficult to see, and the "hand", or at least the mechanism, becomes visible, if one realizes that each individual in a society or in a market economy is the center of a great many transactions between himself and many others, so that a great many links are formed among a great many individuals. There are not just two points (individuals) connected by one line or one transaction, but a network made of points from each of which radiate many lines, each connected to another point that has many lines radiating from it to other such points, etc. It then becomes quite clear how points even at one end can be connected, via the network, to points far removed from it. There will be many possible paths (or transactions) linking many people. A Mr. C may have a transaction with both Ms. B and Mr. D that ends up not only giving C what he wants, but also B and D what they want. C could be a realtor that brings together a buyer and seller, or any such sort of broker or retailer. Or C could be a publisher who interconnects authors and salesman who interact with retailers who then interact with the public to finally bring the author's ideas to them in the form of a book. It is as if you had a giant jigsaw puzzle where each piece could connect itself to two or three or four other pieces. If each piece did that, the whole puzzle would put itself together. Each person does his or her part in forming and keeping together the net. No one has to organize the whole thing, because each person simply joins with a few others who also join with a few others and pretty soon there is a whole network. Mr. A gets Mr. B to help him do something; B enlists C's help to do something related to his new task; C enlists D's help to do something else related to his task; and at some point A, D, and perhaps countless others may all be helping each other out, sometimes without even knowing it or knowing each other. In many cases it is probably easier to join into such an already established organization or enterprise than to try to get one started, especially if there are "holes" or niches to fill in or edges where a logical extension is obvious or easily demonstrable. The reason this network approach works better in many cases than centralized control is that participants at each "node" or intersection of the network tend to have the knowledge and flexibility to accommodate each others' needs efficiently when such accommodations are possible and in the interests or willingness of both parties. Central planners may not have enough knowledge about the needs of employees or (potential) customers to offer, or even find out, what is desired. Or they may impose obligations on employees that render them ineffective, or less effective than they could be, in discovering or meeting the needs of (potential) customers.

Now it is Adam Smith's, the Friedmans', and a host of others' view that, with regard to economics, it is far better, much more efficient, and often impossible otherwise, to let each person freely learn, decide, and form what connections he or she needs to make to further his own goals than to have government planners try to design and build the overall network and force connections to take place. The enterprise is too complex, and the details too numerous, for central planners to be able to anticipate, allow for, or correct, to permit centralized planning and organization without major mistakes and snags and also without trying to force people to do things they do not want to do, have no incentive to do, and often won't then do well, if at all. 

I take it that this view is an empirical claim about reality, that facts or experiments would prove or disprove if sufficient "pure" cases could be examined. And I also take it that it may possibly not be an all or nothing proposition, that it is possible certain enterprises or organizations may work out, and even work out best, or even only at all, when they are centrally planned, and others may work out best when they are allowed to grow in this sort of network fashion. In some cases a mixed practice may work out best --planning and coordination with flexibiity and some independent, shared decision-making at "lower" levels.

The notion of multiple relationships interweaving or evolving themselves into an undesigned, but efficient and fully functional, network explains how cooperation between individuals grows into a quilt or network of cooperation on a large scale. It does not, however, explain a number of things about networks or systems of networks. (1) What, if anything, guards against or insures that the overall network and each section of it are good things, since, for example, a crime network could grow this exact same way? (2) What, if anything guards against or insures that some individuals in it do not do things which unfairly engender cooperation, since fraud, cheating, dishonesty, or extortion, for example, could also induce cooperation in a network, particularly when the fraud is difficult to detect by the individual victim or takes an extended period of time for the results to surface that allow its detection? (3) What, if anything, guards against or insures that networks do not come into conflict with each other or act counter-productively toward each other? Or the more general form of this latter question, what guards against or insures that networks which seem to work, actually do work the most productive, efficient, or best way they could both for the individuals themselves involved in each network, and for everyone outside of that network, whether they are in a different network or not? (4) What insures that everyone will be able to enter into a network that wants to or needs to? Cannot networks conceivably stop adding members when all their members are sufficiently satisfied with the whole enterprise and their part in it? And if so, what of individuals who might need to or like to join, and who might be able to contribute, but who simply than do not have the opportunity because there is no niche or perceived need for them?

There are a number of ways to answer these questions. With regard to (1) and (2), codes and laws or sanctions often are developed, either by people within the network or by others outside of the network (e.g., legislators or regulating agencies) to describe which ends are unacceptable and what means are unacceptable to attain even good ends, and these laws and codes include sanctions to try to foster their being obeyed. 

Further, Adam Smith argued that the self-interest(1) of each individual would be important, or perhaps even sufficient to encourage honest and benevolent cooperation, since each person would see that such cooperation benefitted him more than it cost him. Unfortunately there are three kinds of self-interest, and although Smith seemed clearly to have only one of those in mind, his references to self-interest have been taken out of context and the cooperative benefits of one kind of individual self-interest is mistakenly applied to all three. It does not work with the other two, however.

The three kinds of self-interest are: 1) self-interest whose satisfaction does not really affect other people (e.g., playing golf by yourself on a weekend afternoon, or reading a book before going to bed if doing either is not to shirk some sort of responsibility); 2) self-interest whose satisfaction would harm others (e.g., theft, fraud, rape, vengeful homicide --again, the kinds of things which laws try to address and prevent); and 3) self-interest of the sort Adam Smith, the Friedman, and others really have in mind, the satisfaction of which also, benefits other people. Adam Smith realized that people do tend to cooperate with each other in good ways toward good or mutually satisfying ends, especially ends they could not achieve on their own or not achieve as easily on their own. Observations of even kindergarten children have shown that they can be very spontaneously cooperative in their own free play. Children building a project out of blocks will work together to get it done faster, often dividing up the labor, say between those who build and those who gather the right kind of blocks. There may even be one or a number of architects, someone who demonstrates a design of part of the construction and then does one part of it while others replicate his efforts in different segments that they then all join together.

The problem in describing cooperative enterprises or networks as growing naturally out of people satisfying their own self-interests is that it can only likely happen beneficially for society from this third kind of self-interest, not all kinds of self-interest. Furthermore, I would argue, that in many cases this kind of self-interest is not even best described as self-interest at all. And I am not talking about cases of self-sacrificing altruism and even martyrdom, which in fact do sometimes occur, though they are not what guides most of us any more than does unmitigated, self-serving greed. For the most part, in regard to personal or immediate relationships, we try to avoid gaining at other deserving people's expense, and we try to help others if it does not cost us more than we think fair. We particularly tend to help those we think deserving when just a little work on our part may give them great benefit. As our "costs", risks, or efforts increase, or their potential benefits decline, we may be less inclined to help unless there is also some additional benefit in it for us. Many times we do things for others which do not cost us much, if anything, and which help them a great deal. We open doors for people carrying parcels or who are on crutches. We let someone with one item and money in hand in front of us at the supermarket when we have a full shopping cart. We permit other motorists sometimes to enter a lane ahead of us if they are not likely to be able to do so otherwise, etc. Of course, we do not always do this; and not everyone does it even sometimes. But most people do it far more frequently than proponents of self-interest recognize or admit. And though they may gain some satisfaction from being benevolent, they do not act benevolently in order to have satisfaction; they do so to help others. Smith, Friedman, and others mistake the side-effect of certain activities as the cause of them; they mistake one (often minor, if even existing) benefit --what the agent gets as a reward for himself-- as the main cause or stimulus of the agent's action. 

Further, in regard to those acts which we engage in because they bring benefit to both parties in the transaction, the kind Smith, et al, are basically addressing, referring to them as transactions of mutual self-interest only focuses on half the motivation. Both parties are each helping as much as they are being helped; mutual giving is as much a part as is mutual receiving. Many people in fact do not want to knowingly take advantage of others. 

By using simply the term "self-interest" to describe the main impetus for a free market economic system, it gives many people the impression that any form of greed or selfishness, or any form of desired idleness which does no active "negative" harm to anyone else, will contribute to society. This in fact is a potentially very harmful philosophical or psychological principle to promote, being somewhat self-fulfilling (as I will argue shortly it can be), since laws and law enforcement cannot possibly keep up with individuals or networks intentionally bent on their own gain regardless of the (often unwitting) expense of others. Smith may be correct that we cannot always depend on the benevolence of others to promote someone else's or the common good; but there would be a lot less mutual or common good, if any at all, if people generally did not have and act on a sense of benevolence, mutual benevolence, and fair play. If one indiscriminately joins all three types of self-interest above under one convenient label, and then espouses it, one is as likely to promote harmful greed and laziness as one is to promote transactions of multipli-mutual and societal benefit. Perhaps even more likely. By not discriminating between these three forms of self-interest, we unwittingly promote as an ideal one of the worst, lowest, and most divisive human qualities --pure selfishness at the unnecessary and unjustified expense of others. Smith's and the Friedman's and others' promotion of self-interest is really of the third sort of self-interest listed above; and it only works, or has worked in the past, to perform the economic miracles it has, under two conditions: (1) when the general moral climate or understanding in a society includes an acted upon appreciation of the virtue of a certain amount of altruism, and an acted upon understanding of the good(2), and (2) when vast powers of harm and destruction (including not only weapons, but life-endangering pollution or contamination of vital resources, and wholesale powers that promote social or psychological evils) cannot easily be possessed by people that do not have or act on such an understanding. 

Most people do not realize, given the numerous doctrines, along with Smith's, that preach the inevitability or benefits of self-interest, how selfless much of people's motivation naturally is; and prescriptions for people to follow their own self-interest in terms of some sort of obvious personal gain, help mask and eliminate from people's behavior a genuine desire to help others or to make improvements in something. This happens in two ways: (1) by conditioning us to goals different from our natural inclinations, and (2) by actually making it irrational to be altruistic or helpful unless one gets an "external" reward. 

Regarding (1), one example is that all too often in school, a genuine love of learning can be transformed into a desire to get good grades or extra credit, so that if a fantastic course is offered for no grade or credit, many students will not sign up for it, who otherwise would have loved to have gained the information. They confuse the goal of learning, which in many people is a natural kind of joy, with the goal of getting a good grade or some sort of certification in return for a certain amount of tedious labor, because they have been conditioned to a new goal. It has been said that if sex were taught in school in the same manner that other subjects are, few people would want to have sex without some kind of added incentive. Similarly, there are pressures at work, when self-interest is repeatedly espoused and employed politically, economically, and organizationally, that make us feel selfishness is right and that make us forget our tendencies toward benevolence and helpfulness --particularly benevolence and helpfulness that costs us little, yet means much to others.

In regard to (2), if you believe everyone else is acting selfishly, and would not help you unless you make it in their self-interest to, then it would often be rational to act selfishly yourself. There would be less point in helping others if doing so would help them get ahead of you or get more than you that they will not share with you. There would be little point in your making efforts on behalf of others since no one will do it for you. People who act selflessly in a selfish society would just be the chumps who other people take advantage of, and who do not get as much out of life as they would if they tended to their own concerns instead of helping other people who would not help back. One of the greatest harms of the Smith argument that people act in their own economic self-interest is the self-fulfilling nature of its own promotion. Insofar as people erroneously come to believe that everyone else is acting only in their own greedy, short-sighted, and purely selfish, self-interest, it would be rational for them to act that way themselves. Hence, the successful promotion of the Smith doctrine without reference to the particular kind of self-interest Smith had in mind --cooperative, benevolent, and mutually advantageous self-interests-- tends to promote too much of the socially harmful kind of self-interest, rather than the socially beneficial kind.

And total, or unsocial, selfishness is not the most pronounced normal or natural trait of individuals. A great many people will go out of their way for others if they can help; and most people will do things for others if it does not cost them very much to do it. The main, natural, operating principle of most individuals is not so much seeking their self-interest but cooperating to the extent it is not to their self-detriment. It is satisfying to help people who appreciate your efforts, as well as those who reward your efforts, and you tend to want to continue helping them. It is satisfying because you like helping deserving people; it is not satisfying because, and you do not do it because, it is in your self-interest. It is quite natural to help a neighbor with a problem he cannot quite solve himself --whether by having a helpful idea or by actually pitching in with a certain amount of labor and time-- as long as it is not something that requires great risk or a hated effort on your part, and as long as you help him out in a way he appreciates or that is to his benefit even if he may not realize it. It is pleasurable to do things that make other people happy or that benefit them. It is pleasurable because we like to do that; we do not do that because it is pleasurable. Of course, people pretty soon stop trying to help others who take advantage of them or who don't appreciate their efforts, but that is because they are working for no good reason at all (not even the other person's happiness) and are actually losing ground by their work. That still comes under the operating principle of not wanting to do things that are to your own detriment. Although we do not always seek our own self-interest, that does not mean we need to be martyrs or sacrificing for no good reason. People sometimes do make a certain amount of sacrifice for others, but usually it is for a reason they believe to be worth it. People's self-interest does not always need to be aroused to provoke them to action. There is too much obviously selfless volunteer work done for both friends and for strangers or a whole community to argue that greedy self-interest is the prime motivating factor in human relationships. 

And pursuit of self-interest is not always even successful and sometimes shouldn't be. We would hope that people would not help someone like Hitler even if it were to their own material advantage. And we tend to feel sorry for people we like who go into a line of work they dislike even though they may make a great deal of money that they do want. The money gained is not worth the non-monetary costs.

In terms of Smith's butcher, brewer, and baker, it is equally plausible to assume not that these three are actively seeking their own self-interest, particularly with each transaction, but that they are simply working at jobs they somewhat enjoy, jobs that help others because of the way a given system or community has developed, and jobs that they believe also make their lives easier or more pleasant for them than if they were not cooperating with other people. Many kinds of cooperative division of labor tend to make life better for almost all involved, even if a given transaction may not be to a particular party's advantage or to either party's mutual advantage. If everyone does their fair share and helps each other out, more people will ultimately benefit than if everyone either labors by himself in isolation or if no one trades labor except for where he sees immediate, direct personal benefit. And, unfortunately, even when cooperative division of labor is a detriment to some of the people involved (people whose lives would be better if they were not involved in it, because they are giving up far more than they are getting in return), it is often difficult for them to see they are worse off; so they will still labor within the system though their real self-interests are not being met in the way they believe they are.

The difference between self-interest that is helpful and self-interest that is harmful is the difference characterized by the high road of capitalism and the low road. The high road of capitalism is the one traveled by those who seek to maximize the kind of self-interest that is also helpful to others. It seeks to bring about transactions that provide real mutual benefits, not transactions that are purely selfish, one-sided or unfair or which bring about only short-sighted, narrowly focused, ephemeral benefits that may ultimately cause much more harm than good. The low road of capitalism is the one traveled by those who seek the most self-gain regardless of whether there are benefits or burdens to others. It is traveled by people who are often short-sighted, greedy, and purely selfish -- people who believe that no transaction is wrong which is not illegal, and that even illegal transactions are acceptable if there is little chance of detection, conviction, or intolerable punishment. In a technological age where individuals can multiply benefits or damage thousands of times more than people unaided by technology, it is highly unlikely that the attitudes of those on the low road of capitalism can bring about the societal benefits Smith, the Friedman, and others expect of capitalism. That can only be done by those on the high road. The low road is one of legalism and technicalities or loopholes, not one of moral concern, compassion, and wisdom. And it should be fairly obvious that the law cannot do the work of conscience and moral sensibility. Written words do not always accurately capture the idea or spirit intended; and the police and courts cannot be effective where large numbers of people have no conscientious regard for each other, for obeying the law, or for doing what is right. The high road cooperative self-interest of Smith's (and others') baker is not the low road, selfish self-interest of those who legally cheat others or prey on their suffering, of those who legally poison fields and streams and sell weapons to those who would use them against innocent victims, or who support legislators that pass laws that give them unfair advantage. The low road leads to little social benefit and much potential harm; and it leads to much suffering and an unfair distribution of the few benefits and many burdens it does manage to engender. As Smith, I do not expect benevolence alone to effect the help we all have occasion for, but that does not mean we cannot distinguish one kind of self-interest from another and cannot promote that self-interest which is in the interest of others also, and do what we can to discourage, or at least not further promote, the kind of self-interest which is socially harmful.

However, even if this socially beneficial "right kind" of self-interest is successfully promoted and fostered, problems (3) and (4) from above remain. (3) What, if anything, guards against or insures that networks do not come into conflict with each other or act counter-productively toward each other? Or the more general form of this latter question, what guards against or insures that networks which seem to work, actually do work in the most productive, efficient, or best way they could both for the individuals themselves involved in each network, and for everyone outside of that network, whether they are in a different network or not? (4) What insures that everyone will be able to enter into a network who wants to or needs to? Cannot networks conceivably stop adding members when all their members are sufficiently satisfied with the whole enterprise and their part in it? And if so, what of individuals who might need to or like to join, and who might be able to contribute, but who simply than do not have the opportunity because there is no niche or perceived need for them? 

Earlier I described the Invisible Hand mechanism as working like a self-building kind of jigsaw puzzle where each piece worked to find its own meshing pieces, so that by doing so, the whole puzzle came together. That kind of mechanism makes sense for enterprises where there are only specific "matches" for each individual piece, and where no pieces have one side that will match more than one other piece. If you consider a Rubic cube that tries to assemble itself in this method, a problem can arise. Anyone who has ever worked a while with a Rubic cube sees that the further one gets with it, the more difficult it becomes because one starts to have to temporarily give up some matches one already has in order to make a greater number of matches. This becomes more complex and involves a greater number of what I call "neighboring" matches the further one progresses. You may have to temporarily break up three neighboring individual block matches in order to achieve six. You may have to temporarily break up six in order to achieve nine or twelve. If we were to construct a self-working Rubic cube where each individual block had to find neighboring matches, blocks that found such neighboring matches first would have no reason to give up those matches just because other blocks were then unable to find matches for themselves. Once (1) competition for "neighboring niches" enters into this sort of mechanism, and (2) once sufficient neighborhood matches for some individual blocks is "satisfying" or "comfortable" to them, it becomes more difficult for the optimal result (i.e., in this case, the fully "solved" cube) to occur. That is because individual blocks with neighboring matches (i.e., regional or local niches) will not want to give up their gains in order to speculatively help another block find its niche, especially when there is no guarantee the "sacrificing or helping" block will not lose its own niche by doing so. 

What would be required for a self-working Rubic cube to "freely" optimally resolve itself is the existence of a plan by which all blocks could see they would only temporarily give up local matches in order to allow everyone to have their own local match. There is always the possibility that a dictator block with sufficient power and insight could force blocks to temporarily give up their positions, but there is no reason to believe such a block would help others return to their position once it has achieved its local niche. And anyway, if results are equal, then since voluntary cooperation is preferable to forced cooperation, the voluntarily self-correcting Rubic cube would be preferable to the forcibly self-correcting Rubic cube.

With regard to actual social systems instead of fanciful self-resolving jig-saws puzzles and Rubic cubes with character traits, the points are the same. (1) If X number of people in a society can form associations that are self-satisfying, they have no reason based on self-interest of any of the three sorts, to go to any effort to expand that association to be inclusive of people not necessary to make that association work. (2) Individual cooperation may produce a satisfying local arrangement but one that is not nearly as satisfying as a more universal arrangement; or individual cooperation might produce an arrangement that is not as satisfying to as many individuals, the same amount each, as a broader association would be. (3) An optimal, or better, resolution or arrangement might be so complex that insight into the "big picture" and then planning, and coordination might be necessary to bring it about because individuals working alone or in small combinations may not be able to see beyond their local needs and satisfactions. (4) All other things being equal, if such a plan is discovered, voluntary cooperation, if it can be achieved, is a better method of obtaining the desired coordination than is forced cooperation. 

There is no reason to believe that the mechanism of the invisible hand -- the creating of vast networks by the interweaving multiplication of mutually beneficial, isolated transactions of the individuals involved in them-- necessarily works in the best interests of all those involved, and certainly not of those left out, when the enterprise becomes impersonal, when there is competition for niches that are limited by short-sightedness and selfish greed, rather than by limited resources, and when there is a comfort level of success reached by those in a working system who have no personal or individual necessity to expand the system to take in more people.

There is also no reason to believe that networks or systems cannot and do not form which are more harmful than beneficial either to many of those involved or to those outside who are nevertheless effected by the system. Relying on people's perceived self-interest to be their real self-interest, and relying on people's local or immediate self-interest to be the same as the larger or long term interest of society is to have unwarranted faith in the mechanism.

This does not mean there needs to be centralized control in order to have the most efficient result. That would be the mistake of throwing out what works with the invisible hand model in order to correct what does not work. There is a difference between central planning with voluntary cooperation, and central controlling. And there is a difference between isolated planning and cooperative planning. In a complex situation, centralized control with isolated "top-down" planning and no monitoring feedback is as prone to failure as is no planning or coordination at all. Maybe even more. The Rubic cube is not easy to resolve even when it is being worked by one person in control of all the blocks; centralized control in a complex situation does not guarantee sufficient understanding to promote success. Further, for a complex social setting, rather than a merely mechanical situation, centralized control can lead to individual worker emotional and psychological alienation and dissatisfaction that make even the otherwise "logically or mechanically right" general plans susceptible to failure. The benefit of the market is that it takes into account what people want and will accept (and even can influence what people want and will accept to a certain extent). Dictatorial centralization does not do that and can commit egregious errors of judgment. However, the market, insofar as it only addresses perceived interests, and those sometimes very local or short-sighted, does not necessarily address or respond to real interests or important interests which are not recognized by enough people to generate market changes. Centralized planning tries to take into account real interests and needs, but too often fails because it does not meet people's perceived needs (particularly the need for freedom of choice and some control as a provider/worker and as a beneficiary/consumer/ customer). 

It seems to me there are ways to combine the advantages of both the market and central coordination, while reducing the disadvantages of both. That primarily is to have accurate and important information continuously available and flowing at the appropriate times between workers and planners (when they are different) on the one hand and between planners and consumers. The latter is done by many companies now in regard to surveys of consumer interests and also test-marketing products. But it is done in order to discover consumers' perceived self-interests, not necessarily their real interests. And it is often done while withholding information that the consumer needs in order to be able to make a rational choice. There are, of course, forces at work to prevent such a free flow of information, but those forces are able to operate to a large extent because of the mistaken pervasive notion that satisfying perceived self-interests, or perceived local interests, however one does it, as long as one does it legally, is justified and beneficial to society.

Further, there are similar wrong, purely greedy, short-sighted self-interest forces at work to impede collaboration between workers and planners (or managers). One important element in a society that I could not represent with the Rubic cube is the possible interaction between planners and workers. Workers have knowledge of immediate and local problems even though they may not, from their work alone, see "the big picture". But planners who see a larger picture may not have sufficient understanding of the local details and problems to be able to plan or coordinate satisfactorily. The understanding of both perspectives is necessary in order to increase the chances of success. And that understanding often needs to be very current in both realms --global and local. It may do no good for a worker to become a planner, if the work environment changes once he becomes a planner; the "worker knowledge" he had may not any longer be the same working knowledge he needs to make plans for the future instead of only making plans that would have worked in the past. This is a difficult problem to solve in most complex situations, but one that needs to be addressed.

(To Chapter 11)

1. Although discussions of this sort talk about people's self-interest, they really are about people's perceived self-interest, which may not be their actual self-interest. People can, and do, make mistakes about what is in their self-interest; sometimes they come to see their errors later themselves; sometimes they do not, but would agree they had made a mistake if they knew all the facts. The question about crime (i.e., intentionally harmful) networks above also could be asked as well about networks formed that unintentionally harm the members and others though everyone may mistakenly believe they are doing great good and working in everyone's best interest.  (Return to text.)

2. There is a great deal of social and/or ethical knowledge that is unconscious or tacit. In a close-knit, fairly homogeneous community, unregulated and unspecified behavior is more likely to be acceptable than in a diverse community. Expectations tend to be met without anyone's even realizing they or the other person even had them. What seems normal behavior to the one person seems normal to the other. The success of the Invisible Hand relies heavily on (most) everyone's rowing in the same social and ethical directions generally, without having to spell out all the details of every transaction in some sort of precise, legalistic document. Trust and mutual understanding are important in transactions because legal documents and sanctions cannot be as effective as people's responsible inclination to do the expected thing, and to know what that is. In a diverse or heterogenous society, the Invisible Hand is less likely to work because culturally developed similarity of behaviors and expectations will not be as common. The principles of the Invisible Hand will still be operative, but the results will not be as likely because people are less likely to meet each others' expectations in completing mutually agreed upon transactions, even where they have the will to do so. Over time misunderstandings of these sorts can be worked through, but business relationships and cultures need to be developed in order to do that. 

A simple, amusing case of cultural differences involving a sales transaction occurred for me the time I visited England and stayed with a friend's parents. In order to show my appreciation for their hospitality, I bought them an electrical appliance they did not have, but which I knew they would like. The price seemed very low to me and I kept inquiring of the sales clerk why that was - thinking that I might be missing something. The clerk assured me that was a normal price in England and that the quality of the product was exceptionally good. My suspicions were somewhat relieved, but as I started to leave the store with the gift, he asked what sort of (electrical) plug I needed. I didn't understand the question, because in America all electrical plugs for appliances of this sort are the same. He explained that in England, houses built before a certain date of standardization had any of three or four sorts of electrical outlets, so appliances did not come with plugs already attached. I figured this is where a substantial extra cost would be charged, and was prepared for the worst. But he explained the cost of the plug had already been included in what I had paid; he only needed to know which one to give me. In other circumstances, even in one's own country, one is not always so fortunate. Periodically one finds out that products or services are not as complete as one expects, and the cost to make them complete can be substantial.  (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 11

"The claim to remuneration founded on the possession of food available for the maintenance of labourers, is ... remuneration for abstinence, not for labour. If a person has a store of food, he has it in his power to consume it himself in idleness, or in feeding others to attend on him, or to fight for him, or to sing or dance for him. If, instead of these things, he gives it to productive labourers to support them during their work, he can, and naturally will, claim a remuneration from the produce. He will not be content with simple repayment; if he receives merely that, he is only in the same situation as at first, and has derived no advantage from delaying to apply his savings to his own benefit or pleasure. He will look for some equivalent for this forbearance: he will expect his advance of food to come back to him with an increase, called in the language of business, a profit; and the hope of this profit will generally have been a part of the inducement which made him accumulate a stock, by economizing in his own consumption; or, at any rate, which made him forego the application of it, when accumulated, to his personal ease or satisfaction."  --John Stuart Mill, Principles of Political Economy, Bk I, Ch. II, section 2

"The net produce of the country is the measure of its effective power; of what it can spare for any purposes of public utility, or private indulgence; the portion of its produce of which it can dispose at pleasure; which can be drawn upon to attain any ends, or gratify any wishes, either of the government or of individuals; which it can either spend for its satisfaction, or save for future advantage. [It is the] excess of production above the physical necessaries of the producers...part of which forms the remuneration of the capitalist, and is called profit of stock."  --Ibid. Bk I, Ch. XL, section 1

"In reckoning...the net income and the net profit of the entrepreneur it is usual to deduct the estimated amount of the supplementary cost from his income and gross profit.... 

"... The above definitions of income and of net income are intended to conform as closely as possible to common usage. It is necessary, therefore, remind the reader that in my Treatise on Money I defined income in a special sense. ... with the result that on this definition saving exceeded investment by the amount of the excess of normal profit over the actual profit. I am afraid that... use of terms has caused considerable confusion.... For this reason and because I no longer require my former terms to express my ideas accurately, I have decided to discard them-- with much regret for the confusion which they have caused."  --John Maynard Keynes, The General Theory of Employment, Interest, and Money, Ch. 6.

Profit is not an easy concept. Is it possible for everyone in a society to make a profit over the same time span? Yes and no. There are two ways everyone can make a profit, and one way in which not everyone can. In one sense, not everyone can make a money profit if there is a given, or relatively constant, number of people with a given, or relatively constant, aggregate amount of money. For someone to make a money profit in such a society, the money he accrues that is more than the money he spends must have been money that another person or other people lost. To make a profit that is not at someone else's expense, more money must come into the group. Of course, it could come from some other group or society, but that simply pushes back the question to whether all people can make a profit without someone's taking a loss. Again, the answer, if one is speaking of money profit, would have to be "No" if the amount of money remains constant.

If the money supply is increased, by, say, the government, or by a gold strike (if society is on a gold standard), then people could all make a monetary profit if they all got some share of the increased amount of money.

However, such an increase in money, or in money profit, may not make people any better off in terms of the amount of Goods and Services available, or available for them to purchase. If two men marooned on a desert island, working as hard as they can to cooperate and build a better life for both of them, find a chest of buried treasure --if it consists merely of paper money, or of gold or silver in a form that they cannot use-- they will not profit in any real sense by that find or increase in "money". It will not help them build anything or meet any of their needs, other than possibly aesthetic ones, any more efficiently or any better than if they had not found it. On a two-man island of plenty (food, comfort, climate, shelter, mental stimulations, health, etc.) the discovered treasure would also not add to their real wealth, other than in providing additional aesthetic pleasures or exploratory or historical issues to think about. Similarly, in any (bounded or closed) society working at full capacity to meet its needs, finding gold or diamonds or increasing the money supply among everyone equally (or proportionally somehow) would be of no help (other than, of course, the non-monetary uses that could be made of gold or diamonds or paper). Everybody would be richer in money, but not in the things that one buys with money -- the things money is for. When there is more money, but no more Goods and Services to be had with it, the money becomes worth proportionally less. What essentially happens is that the value of the unit of money, in terms of what it might purchase (as an intermediate in trade) is less.

However, if the money is not distributed evenly or proportionally, people who find it might even quit working or reduce their work load, and simply trade their newly found money to others for their needs. In such a case, they, as individuals, make a money profit and a life-style or material profit, but the total profit in the society may actually decrease as the total amount of Goods and Services decreases because of the idle potential labor. The person with the money may be better off in the sense of having a bigger benefit and less burden than he had before, even though there is more burden for everyone overall and less benefit for everyone overall than there was before. If the kind of work the person was doing previously cannot be done by someone else, than an entire kind of Good or Service may be lost, not just a certain amount.

In a society that uses money as a means of exchange, an increase or a decrease in money can affect the amount and kind of Goods and Services available, depending upon the kind of person who receives it and what he chooses to do with it. This is also true with regard to a constant money supply that becomes concentrated into the hands of fewer people. If people work primarily or only for money, and if money is unavailable to them for the labor they are doing, than they either have to change their labor to provide products and services those with the money will purchase, they have to rely on the charity of the people with the money, or they will have to do without money. [Even if people labor in a direct barter method, they still have to do the kind of work someone with access to the kinds of things they want is willing to trade for.]

Obviously we believe there is something wrong with a person's counterfeiting money, and I would argue that is because we believe he does not deserve to benefit from the distribution of other people's labor since he has contributed nothing important to the total amount of Goods and Services available to others. He has nothing of any real value to trade. He is receiving distribution of society's benefits without contributing to them for no reason other than his greed and sloth. This is a problem of fairness, and is separate from the other, also serious, problem that undetected counterfeit money can cause inflation or some other kind of imbalance between available money and available labor and products. 

The situation with regard to fairness and desert is very similar for someone who might find a great deal of lost money, or who might be given some largess, for no particularly good reason by others acting individually or by the government (i.e., others acting in concert, perhaps in some official way). The money he is trading for Goods and Services does not represent any contribution he has made. He is taking from the total stock of Goods and Services without giving anything to it. Similarly, gambling --except for its entertainment value of excited anticipation and hope-- provides no Good or Service and is simply a mechanism for re-distributing money in society, not adding to the total amount of Goods and Services. And by taking out of useful work those who work in the gambling industry, and those who win enough at gambling that they give up useful work, gambling as a professional industry, apart from its entertainment or thrill value, decreases the total amount of Goods and Services available. (The difference between gifts and gambling winnings on the one hand compared with counterfeiting on the other is that counterfeiting adds to the (apparent) money supply and can imbalance the money/labor relationship, whereas gambling and money-gifts do not change the overall amount of money available compared with the amount of available labor.)

On the other hand, a person who collects a great deal of money in a money economy (an economy where people primarily work and trade for money), whether by gift or by earning it, who then for whatever intention, burns that money or buries or hoards it so that it is no longer available for trade or for paying labor, may seriously disrupt or reduce the amount of labor people will do (and thus the total contribution of Goods and Services to society), because he has taken away the means of paying for that labor. This is true as long as no one who could replace the "lost" money realizes the need to do so. Labor will be lost until the money supply is increased or the value of the remaining supply is increased by people realizing they need to work and trade for less money -- and (when all do this) still get the same amount of individual and total benefit and burden.

And, consider the case of someone who collects a great deal of money and chooses to employ people with it who he can find willing to work for it. If the labor is available, the money may be used to build and run a cathedral. Or it could be used to build and run a brothel. Or it could build and run a good school; or a lousy school. Or a hospital, or research center, or automotive design shop, or social/political research center, or a dog food factory. Whatever route is taken with money, as long as the labor is available and willing to be employed in that way for it, the money has material impact on the quality of life in the community it serves -- because of the kinds of products and labor that it stimulates and thereby produces. Money that is channeled toward products and labor that do not provide real Goods and Services is like money that is buried or burned. If those products and labor not only have no benefit, but are harmful as well, than they not only waste labor that could have produced Goods and Services (benefits) but create additional burdens as well. It is not the amount of money available, but the amount that is available in relationship to available labor, and how it is used to employ labor, that influences the quantity and quality of benefits and burdens in a given society.

Finally, people can can, as many people do, not end up showing a money profit (i.e., not increase their  financial savings) in some period of time because they spend all they make.  Nevertheless, they have profited from the money they made and spent by being able to purchase products and labor (or Goods and Services) they wanted for their labor.  There is a vast difference in a money economy between making and then spending all of an amount of money (whether we are speaking of individual income, corporate income, or government income and expenditures) on the one hand, and making and spending no money on the other, even though the monetary balance in both cases ends up zero.  The difference is that when you make and spend money, you produce things for others and you get things from others; trade occurs, to the mutual beneift of the participants.  You gain in the things you have purchased and others gain by the things you have sold.   If you neither make nor spend any money in a money economy (and are not bartering) you are not trading and therefore you are not benefiting from trade and you are not benefitting others by trading with them.  If you are not self-sufficient, you may even starve to death or live a very poor existence.  Whatever potential labor you could do, whatever Goods or Services you could provide for others in trade, remains potential, not actual, and is ultimately wasted and lost.  The flow of money is important in a money economy in order to allow for trade (other than barter), and it is what keeps the economy working, even if no one were to make a monetary profit.  There would still be real profit, in terms of what is gained by having participated in the trading --the economic-- system.  When the flow of money is impeded for any reason, trade is impeded and the gains from trading are lost because trading is diminished or lost. Potential labor goes unused and never becomes productive labor, so the benefits and "profit" (in terms of Goods and Services) do not materialize and are therefore lost.

Real Profit

There is, I believe, a more significant or more primary way to understand the notion of profit, then to think of profit as the amount of money one accrues or the money difference between what one spends to do business and the amount one takes in from the business he does. I want to speak of two kinds of profit -- (1) social or overall profit, and (2) individual profit. And I want to speak of these kinds of profit in two different ways -- (1) absolute and (2) relative.

Social profit is the total addition of benefits (i.e., Goods and Services), minus any increased burdens, of course, contributed to a society for whatever reason or by whatever means (i.e., inventions, efficiency, management, available labor supply, techniques, technology, greater accumulated knowledge, change in economic system, or whatever). Individual profit is the addition of such benefits, minus increased burdens, that an individual receives. (There can be, therefore actual individual profit, or average individual profit.) 

Absolute profit is the amount of increased benefits (minus increased burdens) a society or individual gets from working in an economic system with others (specializing and trading surpluses, etc.) rather than by everyone's individually trying to meet their own needs. Relative profit is an increase in absolute profit from the absolute profit of some previous period, some other system, or some other set of conditions. We tend to think in terms of relative profit almost exclusively, but it is important to recognize that there is a great deal of (absolute) profit in many societies and systems which we tend to take for granted and not notice.

Further, we might speak of profit in certain kinds of Goods and Services, as opposed to overall or total benefits -- for example Americans and Western Europeans on average profit more in food and medicine than did their counterparts of the 17th or 18th centuries. At the same time they may profit less in terms of friendships or public safety.

This notion of profit, in these forms, corresponds to the notion of being better off than one was, or would be, in a different kind of social and/or economic system or stage of knowledge and technology. This has nothing necessarily to do with the amount of money one makes or keeps, but with what increased benefits one has or can get. Even in a money economy, it concerns not how much more money one makes than he needs to spend, but how much more benefit he has, or has been able to purchase, than he had before. Benefits that are had but not purchased may be in the form of beneficial "externalities" (e.g., cleaner air, better public health, more abundant food supplies, new discoveries and inventions, etc.) Or they may be in the form of increases in things of intangible value, such as leisure, for all other things being equal, increasing the amount of leisure(1)
available to anyone or everyone profits them. 

When profit is thought of in terms of money rather than in terms of the additional benefits people have, anomalies occur in those situations where money profits do not actually bring increased benefits to society or even to the individual who makes the money profit. 

In this notion of profit -- increased benefits in proportion to burdens-- which I believe is the most important sense of profit, everyone in a society can make a profit at the same time. If an invention or a business arrangement, management plan, or a new form of cooperation increases everyone's standard of living --increases everyone's benefits and/or reduces their burdens-- then everyone has profited from that even if not everyone has made more money. (This profit does not have to even be excess accumulation or accumulation of more goods. If three people, for example, go into a Chinese restaurant and order three different, say, equally priced, dishes that they share equally among themselves, they each have a greater variety than if they had each dined on only one dish. If that variety in itself is an additional benefit, they have profited from dining together and sharing, even though they each had the same amount of food and spent the same amount of money as they would have, had they dined alone or not shared.)

Suppose three computer companies develop significantly faster computers at the same time, and suppose that businesses who use computers purchase these kind instead of the previous models. Assuming these coompanies produce higher quality Goods and Services, there might be any number of scenarios where no one makes any more monetary profit than they did before, yet more people are better off because of the improved computers. Everyone who uses the improved products benefits or profits from those improvements, even though competition may have kept any one company's monetary profits from increasing.

Society seems to me to recognize to at least some extent that free market monetary profits are not the most important ends or even means to good ends. Through social pressure or through law, society often forbids or attempts to forbid doing certain kinds of labor and hiring, or trading for, certain labor; e.g., prostitution, gambling, counterfeiting, moonshining, stealing, fraud, certain kinds of advertising, murder or contract killing, insider trading, selling military capabilities or information to enemies or potential enemies, etc., etc. The rationales for making activities illegal would be interesting to examine. I suspect there are at least two basic rationales: (1) the work creates more harm than good; i.e., it brings harm or risk to society and thus is a cost (whether monetarily or non-monetarily) to society, as in unlicenced or unregulated medical practice, drug dealing, contract killing, and selling military secrets; and (2) payment for the activity is an unfair and undeserved distribution of the profits or benefits of society when the activity is clearly not work that contributes to the benefit or profit of society, as in counterfeiting, theft, fraud, insider trading.

Arguably there are other activities, now legal, socially acceptable, and even psychologically attractive, where money profits actually work against increasing benefits, and may even work toward greater harm. Technology and industry that causes regional or global health and safety risks only in order to make available more items of mere convenience or to insure the availability of luxury items to a few, may be profitable in a monetary sense and even in some psychological or ephemeral way, but they would not be beneficial overall. (Sometimes short-term money profits even prevent longer term money profits, when prudent investments are not made with the money to insure the continued success of a given business; but my principle concern here is that even when short-term and long-term monetary profits do not conflict, such profits may not really present real increased benefit to society, or even sometimes to the individuals who earn them -- as when someone works long hard hours at producing a financially profitable, but marginally important or useful, faddish product, and misses out on helping rear his children or developing significant relationships with family and friends, or forfeits personal activities that might make his life healthier and more worthwhile, though less financially wealthy. Some of the types of things in which increased money profits cause overall burden rather than benefit are just being discovered; others have been known for some time. Unfortunately that knowledge is not always widespread enough to work against the attraction of producing monetary profits. It is important that the concepts of monetary profit and monetary cost are not the only concepts businessmen and economists understand as benefits and burdens -- as profit and loss. They need to understand that, at present anyway, monetary profits and costs are only one kind of profit and cost. Many businessmen, of course, already recognize this, as do many workers. So a company may build a building in a pretty site with a great number of amenities, such as a gym or walking area around a lake, providing, for a fixed one time cost, attractive conditions that will attract workers for perhaps sufficiently less salary to more than pay for itself in the long run. Or that may make them more productive because of increased health, happiness, vigor, or longevity. Where people live near the businesses they own, they may make decisions or improvements that are not cost-effective but which improve the quality of life for all in the area, including themselves. For example, a local owner is less likely to want to pollute his own water supply with probable carcinogens just to make a greater monetary profit. A business may want to make college scholarships available to members of its community, not just because it may be good advertising for the company, but because it arguably will help produce a better overall community -- a community of more productive and capable citizens.

Economists are now trying to quantify benefits and burdens in order to put a money value on them. Recent efforts have been made to try to put a dollar value on leisure or on pollution (clean-up) costs or even on human life in cost/benefit analyses. Such methods may work, but they seem to me to be working backwards and may ultimately prove very harmful. Cost/benefit analyses work backwards when they give people the idea that things are only bad, wrong, or burdensome because they cost more money than one wants to spend on them, rather than that the cost is imposed as a sanction --as one additional way of trying to prevent the harm from being done. And they end up being harmful when people with sufficient money decide that the cost is worth the wrong-doing, as when a wealthy person disdains driving safely because he can easily pay the fines if he were to be caught, or as when a car company decides it is more financially profitable for them to neglect certain reasonably remedial safety defects than to build them and add them to the price of the car. It seems to me that money costs ought not to determine nor risk determining our important values, but ought to reflect them when possible and ought not to be made to seem equivalent or more important to them when they are not. Certainly we would not want murder to be sanctioned only by a costly fine, so that those willing and able to pay would be free to commit the crime. Similarly, one does not want harmful negligence or gross incompetence to be allowed to continue simply because someone's insurance company is willing to pay for it and spreads out the costs among clients who are not negligent or incompetent. Monetary costs and monetary sanctions are not sufficiently strong enough sanctions to discourage some people from wrongdoing, especially, of course, if they can make a profit in spite of paying fines. Grossly negligent medical malpractice, for example, as long as it is not a criminal matter, simply costs everyone but the offending physician more money --by raising all physicians malpractice insurance premiums, the costs of which are passed on to patients-- and does not curb the malpractice. 

Thinking of profit in terms of money is, however, primarily backwards because real profit is made, not when one makes more money, but when one uses that money to acquire Goods or Services that improve ones life. In this sense, spending money (wisely) is when one makes the profit. (The only exception to this is when money savings gives one a feeling of security about being able to meet one's needs or desires in the future for things that are more expensive than what one might be able to buy at that time otherwise.) 

Also, it is extremely difficult, if not impossible, to try to express certain benefits or burdens in terms of money. Even trying to determine a monetary value of something as apparently innocuous as leisure time (see Chapter 22, "Quantifying Qualities of Value) seems to me to be fraught with more than just mathematical problems and concerns. Obviously some hours of leisure are worth far more than others -- leisure to do something you really want or need to do is worth far more than leisure time that you have nothing personally necessary or interesting to do. Vacation time for your honeymoon or to attend your child's wedding is more significant than a week off when there is little to do or to be able to plan or enjoy. So therefore no fixed, permanent, absolute monetary value can be placed on "a leisure hour", especially if such a value encourages, say, employers or customers, to expect you to work for them for any "overtime" hour they want just because they are willing to pay you slightly more than the value of "a leisure hour", or if it leads to the false notion that the value of any leisure hour is the same as that of any other leisure hour. One employer I knew thought you owed him whatever forty hours each week he wanted, even if they were at odd times, and even if they were not continuous on a given day, as if working 8-10 a.m., then 11-1, 3-5 p.m., and 9-11p.m. on one day constituted an eight hour work day. 

Also, different people put different value on an hour of their work or an hour of their leisure. Some people prefer leisure to work, in general; others prefer their work to leisure because they enjoy their work, and the money it brings, more than they enjoy their average time away from work. One corporate administrator told me that his company has two virtually identical operations in two separate cities, one city in the South and one in the Pacific Northwest. Employees in the South request weekend work and even frequently request to be allowed to work instead of taking vacations. They want their vacation pay and the pay for the work they do (which would otherwise be done by a substitute who would be paid). Employees in the Pacific region live for their leisure time and do not make polite responses when asked to work overtime on weekends. Overtime pay is not sufficient to make them even consider giving up their weekend time let alone a vacation. Traffic becomes congested beginning about 4:30 every Friday afternoon as campers and cars with boats in tow head out of town to nearby recreation areas.

I am not saying that there are no ways to formulate or represent some of this in monetary numbers; but that the danger is that the original numbers might take on a life and significance of their own that overshadow their intent to be a representation of reality, not a reality itself. If a worker needs or strongly wants leisure at certain times, it would probably sometimes be beneficial for an employer to recognize the importance of that leisure and not just to assume some amount of money could automatically compensate for the person being asked or forced to work at that time. I do not know that all these kinds of things can be made concrete in a formula, especially a formula that an employer might expect an employee to have to be happy with. 

It is an empirical question whether employees who have flexible working hours and flexibility about overtime, with understanding employers or managers, are more productive or not. And it may be able to be determined empirically whether they are more satisfied employees or not. If so, an economic concept such as "the financial value of a leisure hour" may jeopardize that flexibility and attendant productivity and job satisfaction.

I own my own business and set my own fees and hours. I try to be fairly consistent, but there are some jobs and clients and times that I bid higher for and others that I will bid lower for than the average. Some times are more convenient (have less opportunity personal costs), some jobs are more interesting, and some people are nicer to work with than others, so that the monetary value of it does not need to be as compensatory as would be doing other jobs for different people or at a different time. There are some jobs I would not do, and some people I would not work for (unless absolutely forced to) for any price, so I do not quote a price, even a ridiculously high price, that might be accepted. There is an old joke about the man who asks a woman if she would sleep with him for $1,000,000. She ponders that for a minute and says she probably would. So he asks if she would sleep with him for $10. She angrily asks him what kind of a woman he thinks she is; and his response is "We have already determined that; now we are just haggling about the price."

What is necessary is that research, discussions, and debates about burdens and benefits, costs and profit not be limited to those things that are especially quantifiable or that can be easily understood in terms of money. The notion of benefits and burdens is likely to be fairly complex. Even "happiness", if that were quantifiably measurable, would not correspond very well to our everyday notions of benefit, since our level of expectations tends to increase with our successes. New benefits tend to long outlive the happiness they first generate, as we come to take them for granted. Many proposed burdens and benefits may be intangible or difficult to demonstrate or even describe, let alone quantify in financial terms, but that just means we need to be more attentive and understanding, not purposely less sensitive to them because they are not (initially) recognized financially.

(To Chapter 12)

1. Although it will not usually be problematic for discussion, the concept of "leisure" is more complex than it appears. One may or may not, for example, earn money in one's leisure; one may or may not work very arduously in one's leisure. For example, one might go to college at one's leisure even though doing homework, attending class, and studying for exams is a lot of work. Yet one may also have leisure time at work, during working hours. And if one's everyday labor is something one really enjoys or feels "called" to do, one may find it difficult to distinguish between one's work and one's leisure; one may even do extra work during one's leisure because one enjoys it so much, and not consider it work. Or two people might disagree about what constitutes work and what constitutes leisure. A golf enthusiast, for example, may think that golf professionals having nothing but leisure, though the professional may feel he works hard at his career. 

I believe that a helpful definition of leisure is that time, or those activities, not spent in pursuit of earning or acquiring the necessities (and to some extent, the normally expected conveniences) of life, nor in doing what one has to do, but in doing something one wants to do. This leaves open the question of whether someone who works hard, at something s/he may not particularly enjoy doing, in order to make a great deal of money to buy very expensive conveniences and luxuries, is spending leisure time working or not. They would probably not see it as leisure time, but those who think s/he is working much harder than s/he needs to might see it as spending his/her leisure working.  (Return to text.)


Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 12
Jobs Versus Costs

The second question from chapter 1 is: politicians, political economists, business leaders, etc. always seem to emphasize costs when they are talking about programs they do not like, and they emphasize increased economic (employment) opportunities when they talk about programs they do like. But all increased employment costs someone money when employment is paid for, and all the expenditures of one person or group are income for the person or group it goes to. Purely from the standpoint of spending or saving money -- of money simply changing hands or not, which is the total of what such political or business arguments involve -- arguing that we need certain programs because they create jobs and that we ought not to fund certain jobs because they cost money is inconsistent or hypocritical, since the programs that create jobs also cost money and the ones that save money also cost jobs. There has to be more at issue. What is "that more"?

The answer is built into the question. From a purely financial viewpoint, creating jobs costs money; and saving money costs jobs, or at least causes cutbacks in earnings among those still working who would earn the money that is being saved. But this does not mean it does not matter from an economic standpoint what you decide about the programs in question. The question ought not to be simply one of political preference where legislators simply describe the programs they like (or that they think will benefit them politically at the next election) as creating jobs and those they do not like (or that will not benefit them politically at the next election) as costing money. If this is all legislators are doing, they are like the married couple who cannot agree about a purchase where the husband claims $600 for earrings is exorbitant, but a reasonable amount to spend on a set of golf clubs or a VCR, and the wife thinks just the reverse. In such a case, the issue is not one of extravagance or savings but one of priorities how to spend money.

However, more is involved with regard to government spending or cutbacks. There are more important aspects legislators ought to consider in these kinds of costs versus jobs issues: (1) is the return to the public worth the cost; that is, (a) is something worthwhile being done with this money, and (b) is it important enough to warrant the expenditure for this project at all. (2) Is it fair or otherwise reasonable to use tax money (or other public funds) for this project, or is there some other way that project could or should be paid for (say, by private means or some sort of private sector/government partnership). (3) Is the money being spent in the most useful or efficient way possible to secure the goal sought? (4) Is there not a more important way to spend or use that money, a way which also satisfies the first three criteria? (Obviously if there is a more important use for the money, it should take precedence over the use in question.)

Regarding 1a, obviously if the program is not worthwhile, it should not be started or continued.

Regarding 1b, if it is worthwhile, the question is whether it is important enough to do, or whether there are more important uses for that money (either by the government, or back in the hands of the citizens, or as surplus -- i.e., savings for anticipated future needs). For example, a community may want to construct bicycle paths that they know many people would use and enjoy, but if there are many elderly people who cannot get to their doctors or the grocery when they need to, or if there are people who cannot afford transportation to get to available jobs across town, some sort of public transportation service may be more important. Or if people feel taxes are too high, it may be arguable that if there are no more important needs than bicycle paths and not all that many people would use the paths, they ought to just refund the money to the taxpayers.

But suppose the project is worthwhile and important enough to do. That still does not mean it ought to be done by the government. If, in a (primarily) market economy, the market could support the project reasonably there is no reason to use public money to do it instead. This is for two reasons. First, if those who will benefit can amply afford the service, it would be unfair to make those who will not benefit from it to have to contribute to paying for it. There may be extenuating circumstances to the contrary, but they would need to be heard and weighed. In an economy where there is much government involvement with programs that help various groups, it might not be unfair in some cases to help a group that could pay its own way, if they have not benefitted previously by some projects primarily for them. For example, a community might set up a program for senior citizens, citizens who have contributed to others in the community and who could, if they chose to, set up such a program themselves, but at greater cost to themselves than for what the city could do it. That might be a reasonable and fair use of city resources. 

Second, in a (primarily) market economy, if a non-government worker could and would do the job and earn a satisfactory living from it, it is unfair to use part of his tax money to keep him from having the job because you give it to a government worker. Government should not use the tax revenues from private enterprise to compete against private enterprise. That is unfair. In the city where I live there is a public university that has a number of profitable enterprising programs on its campus. Many of those programs compete with private businesses in the city. I believe that is unfair. Without some specific extenuating circumstance, it is unfair for the university to use its prestige and privileges and the buildings and staff it pays for from tax dollars to compete against, and take business away from, the people who provide those tax dollars.

Unlike those who believe that government should provide services that they can do better than private enterprise, and unlike those who believe that government can do nothing better than private enterprise, I believe there is no necessary general difference between the quality or efficiency of government work and the work of private business. Some government employees are better than others; some private workers are better than others. Some government employees are very conscientious about money they spend; many are not. But that is also true in private business, particularly where the money being spent is not one's own but is simply money one manages for owners who individually have little say in the running of the business and who collectively do not have enough knowledge to know whether money is being spent most wisely or efficiently. The normal standard in profitable return is not whether it is the highest one could get, but whether it is one that is acceptable(1). The only point where a potentially higher return tends to be pursued is where the owners or managers know or believe that a higher return could be accomplished. That is difficult for most people to see just on the basis of theories or undemonstrated, intangible reasons. Seeking potential improvement by means of change --particularly when it involves significant change-- tends to be far less a goal of most people or organizations than is the goal of not getting too far behind others. It is easy for people to see when another company or government accomplishes more in the same field, and thereby demonstrates or proves (instead of just arguing) that a greater profit can occur. Merely rational arguments to the effect that change will bring measured improvement, tend to fall on deaf ears. The market only provides direct feedback as to whether a business is fit to survive (i.e., no survival without sufficient profit); it does not provide feedback about whether a business is profiting financially as well as it could be, so the market cannot serve to automatically weed out programs that are far less than ideal -- as long as they are simply good enough to survive. Judgment based on other sorts of evidence has to be used to do that, but that is true of all businesses that survive and of all jobs in those businesses. Profits do not by themselves show their cause or their potential limit. It is difficult to track down inefficiency in a complex organization simply by looking at profit margins of various departments, particularly the departments that do not obviously or immediately contribute to current financial profitability, e.g., research, or the pursuit of employee satisfaction. (Much of legitimate government work will not have feedback based on profitability because much government work deals with trying to insure fairness rather than productivity; and there are not physical signs of fairness in the way there are of productivity.)

To say that there is no necessary general difference between the quality or efficiency of government workers and workers in private industry is not to say there are not differences. It is always possible that there are pervasive rules in some particular government or agency or office that might tend to foster inefficiency or poor quality. But that is also true in any private company. What I am arguing is that there is no reason to believe that, without some specific cause, any government enterprise would necessarily be worse than a private enterprise simply because it is run by a government. I see no reason to believe that governments attracts more of their share of foolish, spendthrift, lazy, inept, or corrupt workers than private industry. When government programs fail, it is because of some specific flawed ideas, flawed programs, flawed goals, flawed work, flawed decisions or decision procedures, flawed management, flawed implementation or whatever, not because the program was a government one. When one private business fails where another one in the same environment succeeds, it is not because one was private and the other one was not; it is because one was run better, or had better luck, than the other. There will be some specific reason, not just the reason of private enterprise. Similarly, when one country wins a war against another, where the war is a total national effort on both sides, led by each side's government or government-funded military, the victory is not because one side was led by government and the other not, but because one side did it better or had more resources or more luck than the other. 

There is inefficient and inept government leadership; but there is also that kind of leadership in the private sector. Periodically there is good, successful government in the form of particular administrations or departments who know how to get good things done well. But governments, like any business of comparable size and scope, tend to become victims of inertia. Rigidity tends to replace flexibility; standardization tends to replace innovation. And acceptability tends to replace perfectability as a standard -- the tendency becomes to believe "if it works, (and if it sells,) it is good enough, so don't waste resources trying to improve it, especially radically, because it is unnecessary or because you might do more harm than good." And state and local governments, like many businesses tend to copy each other, so that not only is there little innovation and flexibility within a given government or business, there is little difference among governments or among businesses in the same industries.

Of course, standardized practices are good only in proportion to the value of the practice. If a policy is the best possible one, the more pervasive it is, the better; if it is a terrible policy, the less pervasive the better. Monopolistic and conformist oligopolistic practices are neither good nor bad in themselves, whether government or private. They are simply good when the practices are good; and bad when the practices are bad. As of this writing, it is difficult for me to believe that flexibility and innovation are no longer important in either government or business. I do not believe we have achieved all the success we need or could achieve. And I do not believe our present management and policy decision techniques are likely to be the best ones we could discover and employ. For example, it seems to me that both governments and businesses need to develop better methods of experimentation in order to safely and effectively test new ideas in products as well as services. Improvement, and experiments that test ideas for improvement in practical (and probably small scale) ways, should be the goals of large government and big essentially non-competing businesses as much as they are the goals of small businesses trying to get a substantial edge on each other. It should not take the success of a competitor that threatens one's livelihood or business altogether to spur organizations to improve.

One way a government might use its funds is what I call "seeding". Seeding is the term I use for an organization's using its resources to develop self-supporting (or minimally dependent) enterprises, rather than enterprises which need continuous funding in order to survive. It is the concept that it is better to promote self-sufficiency among those you feel responsible for than to continually have to provide them with what they need. As someone once said, it is better to teach a man how to farm and to provide him seeds one time than to have to keep giving him food that you cultivate and harvest yourself. Let me give one example of how I think not enough seeding is done.

In Birmingham, Alabama, a number of businesses, many of them large and influential, decided that the individual and piecemeal approach to giving money to the arts -- which they each believed was important to do -- was not the best way for them to contribute to the arts. They believed it was not always effective or even fair, since some artists or arts organizations might be able to get more money than necessary while others did not receive enough to survive. Also, it was costly for each business to have to deal with solicitors and to make reasonable decisions about the disbursement of money they wished to contribute. (To forestall Milton Friedman's objection that this is not a legitimate business of business, let me hypothesize that it is the collective desire of the owners, workers, and shareholders of all these enterprises that the arts should be supported and that doing so collectively brings a greater profit --in the sense of benefit, whether financial or otherwise--to everyone than anything they could individually purchase with their share of the money (as profit) donated to the arts.) So they organized an arts foundation to which they each contribute annually, to disburse the funds among artists and arts organizations vying for contributions. 

I believe this is not a substantially more effective or fairer way to spend such money; and it does not help make the arts more self-supporting or more profitable. Seeding would. If the money were used to, say, encourage and publicize the following kind of program, more businesses, artists, and the public would benefit. And they would benefit in a way fairer than the way the arts foundation distributes money -- which is by their view of the needs and by their selection of worthy grant proposals. If the money were used to get businesses to patronize artists in the following way, the arts, the business community, and the public would be better served: encourage businesses and government offices that are frequented by the public to display art by local artists that these artists loan on consignment to them in the hopes of selling. Businesses would benefit by having "free" decor (or music, or whatever); artists would benefit by having greater exposure to freely promote their work; and the public would benefit by having greater access to the work of more artists. 

Furthermore, if the program were promoted correctly, a greater number and a greater variety of artists, could have a chance for success, rather than the few lucky ones who receive the blessing of those who run the arts foundation. Large organizations, like a symphony orchestra, could be allocated money or resources to make recordings that could serve as a greater, and continuing, source of revenue, rather than have that money just serve as payment for ephemeral performances, thus making those performances more cost-effective and available to a wider audience. Such recordings do not need to be flawlessly superb, merely good enough for local consumption at a commensurately reasonable price. There would, of course, be details that need to be worked out, but the point is the goal of seeding and bringing the benefits to a wider audience, as opposed to continuous funding and dependency on that funding by a smaller percentage of beneficiaries than could be reached.

There is an old riddle. You have entered a cave seeking shelter. It is about to turn dark and very cold outside, and with just enough light left in the cave you come across the following objects: a candle, a torch, a kerosene lantern, kindling, and logs for a campfire. You have only one match. What should you light first? The answer, which is somewhat of a joke, is: the match. Few people get that answer because they take the question to really mean, which of the objects in the cave should you try to light first with your match. That is the reasonable way to take the question. And, of course, the way to figure out the answer is to figure out what will give you the most benefit from your resources, and particularly from the crucial resource -- the match. For example, the campfire is important to light, but trying to start a campfire with just a match is very difficult and probably would end up wasting your match, so that you would have nothing. If there is not a serious draft in the cave, the candle may be the easiest, safest thing to light first and the most useful thing to then use to light the lantern and the torch with, using the torch to light the kindling to light the campfire. The point here is that you want to use your resources whenever possible in a way that makes them grow and last as long as possible. The same is true with money and with labor. It ought to be particularly true with tax money or any money you use from other people on their behalf. 

Now many people would say that is the difference between consumption and investment, but I do not believe that is the proper distinction. No matter what you do in the above case you expend your match. (Or if you simply save it, you waste it altogether, since it is only useful when it burns.) The point is to expend it in the wisest way, in a way that is most likely to give the most reasonable or best return. So returning to the original question of whether to fund a particular program with tax money, let us assume that there are two possible uses of the tax money that meet requirements 1a, 1b, and 2; the project is important and warranted, and it is a fair use of taxpayer's money. But criteria 3 must still be met. The question is what is the real goal of the program and how can it best be met. Employment for its own sake --what critics of government "direct" jobs programs call "make-work" programs-- is hardly a legitimate reason, since any program will do that. As someone wrote, if that were the point of a program we could put everyone to work on one of two teams, those that dug holes that were not needed, and those that filled them back in as they were dug. If the government must employ people, taxpayers want them to be employed in ways that serve the most useful and important purpose possible. 

Some people say, for example, that the unemployed should at least be picking up litter on the highway. They should be doing something useful. But my criteria is that they should be doing the most useful work possible for them, and that may not mean simply picking up trash one piece at a time. It may even mean being paid to go to school. If a person, for example, in Texas is an out of work geological engineer, you want to be able to put him to work in a way that somehow uses, if not his specific training, at least his general education and general ability and intelligence in a way that gives us back the most for our money. To have him just picking up litter on the roadside is not likely the best he can do for us or for himself. So instead of spending the money to put him to work doing something that does not utilize his particular abilities, it might be more appropriate for the government to have a job re-training or re-locating or even just a job-finding service for people who do not have the resources to re-train for, find, or relocate to a new job. That would be far less expensive, and far less wasteful of this person as a resource, than employing him at some menial task until oil prices rise high enough for him to find a geological engineering job in Texas. 

That is, it would be less expensive for us if it were done properly, which is a concern -- since just having programs does not mean they are good programs or ones that get the most effective results. Many employment agencies whether government or private do enough work to get by (which may require a bit more in private business, but not that much more), filling the easiest jobs they can, but not going out of their way much to do much more. So if a geological engineer goes in for job placement, he may be told of a job available for a typist (though he may not type particularly well) or for an aide in an infant day-care center (which he may not have the temperament for or which someone with much less education could do well) and the "counselor" will feel they have "done their job". I assume there are better ways to do this.

If I am correct, government jobs should be ones that do work which is justifiably important, that cannot be done (sufficiently) by private enterprise, that are fair to have taxes or public funds (e.g., lottery funds) for, that meet their goals in the best possible way, and that are at least as important to have done as any other that would use that same money. I would now like to try to explain what kinds of work private enterprise in a free market cannot do or should not do, work that is then necessary for a government to -- or if not a government, at least some sort of joint venture, non-market enterprise, like the arts foundation mentioned earlier that was founded and funded by a large group of businesses acting in concert.

Markets essentially allow people to trade things they are willing to give up for things they want. Markets do not easily handle, if at all, five kinds of things: (1) what economists call "externalities" -- benefits or harms that are not part of the costs or profits of a transaction; "free rider" kinds of things such as when a neighbor fixes up his house or lets it deteriorate, it effects the value of your house, or when pollution that a factory does not pay to prevent, harms an environment downstream that the factory is not paying to clean up, or when people copy a book, compact disk, or computer software program instead of buying it. (2) things that are too big to be organized or paid for by just one person or small groups trying to trade among themselves individually, but which a great many people want or need and would be able and willing to contribute toward. Examples usually given are roads, schools, or armed forces for defense. (3) Appreciating the difference between what is desired and what is desirable, thus (a) allowing transactions to be carried out that are actually harmful or wrong in some way, even though the people involved directly in the transaction (think they) want them, and (b) allowing some good things not to happen because not enough people (believe they) want them or see the need for them. There are all kinds of both cases: buying and selling harmful products, cheating or defrauding people who have no way to know they are being cheated, losing long term benefits by reaping shorter term ones that are not as overall valuable, letting knowledge or skills be lost to future generations because a current generation may not appreciate them enough to help them survive, etc. (4) Maintaining an informative overview of the whole process, in particular helping keep track of needs, potentials, and possible problems or conflicts. This is in order to help people see a more global view than they may be able to see in their own niche. In the Rubic's cube analogy (Chapter 10, "The Invisible Hand Explained), it is to have someone who can point out and help coordinate, and fairly and rationally facilitate, the changes necessary which might be to everyone's ultimate advantage even though it necessitates someone's temporarily giving up their local advantage. (5) Having a mechanism to allow participation by those outside of any apparently self-sufficient market.

That a market is unable to do these things does not mean that a government as such needs to do them. For example, it was a group of business leaders who set up the arts foundation in Birmingham, not the city government. Or it might mean that there ought to be many boards or groups established to handle different problems, that we should not expect one body to be responsible for everything. Or some things may fall under these categories at one time, but not at another. For example, as mass multi-way communication and information becomes more readily available, it might become more feasible for people to band together to finance bigger projects privately. If someone thinks some project is worthwhile, he can announce it to many people and let those respond who would be interested in financing it. They do not all need to meet in the same place to be able to discuss an idea and come up with a plan. Say someone thinks a road needs to be built or widened. Enough people might think this is a worthwhile enough project to be able to finance it and make it pay off for themselves. Many firms hire their own security guards; groups of people may want to be able to hire their own actual police without having or using a city-wide police force. In this age of giant multi-national corporations, many of which are bigger than many country's governments, it is not clear the market will not someday be able meet the needs which are now too large for separated collections of individuals and small groups to meet. The problem of not realizing common interests or being able to arrange mutually beneficial programs may diminish as communication dramatically improves, uniting people by mutual interests rather than simply by geography. The problem of maintaining some sort of overview of the whole economic system (4, above) may also decrease or disappear as it is handled by private information-gathering and communications firms.

Problems (1), (3) and (5), however seem not to be problems for which the market by itself has (automatic) mechanisms to solve or resolve, although there are some attempts being made to understand and treat externalities in financial terms, and there are some attempts being made to prevent harmful activities by making them financially burdensome, treating harms as expensive business costs. In Chapter 22, "Quantifying Qualities of Value", I give reasons why I do not think it will be easy or even possible to treat externalities, such as the value of leisure time, in financial terms. But I also do not think certain kinds of other values can be reasonably treated economically. For example, consider the speed limit, and fines for speeding, through a school zone when children are present. Suppose the fine is $100. The fine is not what discourages most people from speeding; their own concern about hitting a child does. Of those who do not have that latter concern, if one is wealthy enough, and if there were no penalty for hitting a child other than a monetary fine, one might speed through the school zone. But we do not want to be in the position of implying it is all right for wealthy people to risk running over children, since they can pay for that risk; what we want is for people not to speed through school zones and put children at unwarranted risk. Similarly we do not want people to take harmful drugs or to rob people's homes or to commit murder. Penalizing them for such acts, whether financially or non-financially (jail, capital punishment, community service, etc.) is not as good as effectively preventing such acts in the first place. From a purely pragmatic psychological standpoint it seems to me that levying financial costs on wrongful behavior, as effective as that might be in some cases, is not the most effective deterrent, especially when the fines are in fixed fees, rather than being progressive in regard to assets. For example, when a jury awards a financial penalty in a civil wrongful death case, it should not mean to a company they now need to incorporate into the cost of their product that figure as the cost of fines for an expected amount of such wrongful deaths, essentially charging people for the chance to kill them. You don't want Ford, for example, making the cost/benefit determination that it is "better for them" to sell slightly defective cars because it will be cheaper for them to pay penalties for the expected number of wrongful deaths than it will be to make the cars safer. You want them to do the right thing, not the cheaper thing. And putting any dollar amount on a value always risks that to some person or some company some day that dollar amount won't really cost as much as the value actually means, especially after a long inflationary period which would then essentially deflate the worth of values.

I am not saying what things make for better actions and better social consciences; I am not sure. Experimentation in molding social consciousness, conscience, and conscientiousness probably would be helpful. It may be, for example, that promising any uncaring company the whole hour of scrutiny on something like CBS' "60 Minutes" may be a more meaningful threat than any particular fixed rate fine. It may be that criminal penalties might be more effective. It may be that particular kinds of commonly-held values courses need to be taught to all young children. I simply doubt, from the way (wealthy) people and (wealthy) companies have been known to flaunt laws when they could easily afford the fines, that fixed-rate fines by themselves are effective. Even just being put out of business may not be sufficient incentive to get people to do their work right, if the risk of being caught and penalized that way is not all that great.

One example of the effectiveness of government requirements at getting compliance, rather than just mere fines, was explained on the radio one day by a spokesperson for a highly competitive, but polluting industry. Everyone in the industry knew they were polluting and everyone knew also that their pollution could be cut drastically by installing expensive devices. They also knew that the costs of such devices could easily be passed on to the public, but only if all the competitors installed the devices, so that no one could gain a competitive price advantage by continuing to pollute and sell for less. They were all willing to install the devices, but only if they could be assured all the others would also. They essentially wanted the government to set pollution emission standards so that everyone had to comply.

Of course, governing organizations do not need to be government organizations. Many private organizations such as churches, community subdivisions, businesses, professions, industries, etc. have their own governing bodies which tell what kinds of transactions may be wrong or undesirable whether they are desired by two parties willing to transact them or not. What you want from governing bodies, whether governmental or not, is for them to set the right kinds of regulatory rules, not just any rules that may or may not work, or that may work, but in a way that is more harmful, unfair, burdensome, or unproductive than is necessary. You want regulations, like you want anything else in life, to be the least burdensome while being as effective as necessary, and as fair or otherwise right as possible. Unfortunately, there are two sides of the same coin that tend to jeopardize regulations being that way in the United States (apart from their being ineffective because "bad" industries were able to use influence to get water-downed regulations). Both have to do with laws being written too specifically, though for different reasons. First, some regulators tend to require a particular means to solve a problem instead of simply requiring companies to solve the problem in any legitimate way they can, which may be a way far less burdensome or costly than the means the regulators require. Second, we live in a society that follows the rule of law, not generally the rule of intent of a law (the exception being some higher court rulings). Laws do not always correctly say what they mean, or anticipate all possible way of compliance, and therefore allow "loopholes" that any rational person knows is a loophole, but that courts have to uphold. It might be helpful if laws and regulations were written both with a general intent as well as with specific language, and if, at least in the most obvious cases, people and companies could be held legally accountable for ignoring the intent of the law even if they complied with the letter of the law though clearly by means of a loophole. This may be problematic in some cases, but what we have now is problematic anyway. I think experimenting along the lines of writing overall policy goals and allowing flexibility to capture the intent of those goals would show whether this might be better or not.

Problem number (5) above occurs because networks can always form which are satisfactorily self-sufficient for those involved in them, and which then have no reason to take in more participants. As explained previously, this is obvious with regard to a wealthy country's existing next to a poor country, or wealthy and poor neighborhoods existing in the same city. Poor people, even with job skills may not have job opportunities if their services are not seen as needed. I was once turned down for a job one time by an honest manager who said: "You would be really good at this work; unfortunately I don't have a need for any more good people at this time." This kind of situation can face whole groups of people. And it becomes particularly problematic as invention and technology reduce the number of laborers required to meet particular needs. In a market economy if new "needs" do not appear, there is no incentive from within the market to incorporate those outside the system -- no way for them to earn money; and no way or incentive for the system to supply them with goods since they have no money to pay for them. 

And those on the outside, with sufficient skill to participate in the existing market have to displace others from their jobs or their earnings in order to join the system. They cannot simply add their skills to the market; they have to replace or partially replace someone in the market. For example, when women began to join the labor force in large numbers in the 1970's, they had to try to win jobs and portions of wages from men who wanted them, instead of being able to increase the output workers were producing. There was no market for such an increased output. This caused much male resentment and hostility. Minorities face the same problem. During World War II, when women went to work in the factories and stores, they were not taking jobs away from men. Men had to leave those jobs in order to serve in the armed forces. Essentially, war created new jobs for men while the war was being waged, and women filled the jobs left vacant by the men who served in the military. Women also filled newly created civilian jobs in the defense industry. When new needs are created that people in the self-sustaining market are willing to pay for (as they are in war), then the economy does expand to take in those outside it without thereby displacing someone already in the economy. When needs are not created that people already in a self-sustaining market are willing to pay for, than those outside the economy cannot enter it except by displacing someone inside.

The ideal is to see to it that everyone (who can and wants to) contributes to the whole pie that they can fairly and reasonably then share. The market can only do that when workers are obviously needed; it does not do it when workers are not obviously needed. And they are not obviously needed when output is sufficient to satisfy everyone already involved in the system. In such a case, something external to the market is necessary to try to use otherwise unemployed labor outside the system to meet otherwise unmet needs of those involuntarily outside the system -- especially when system inclusion is virtually necessary for decent quality of life (as in an interdependent society).

It seems to me that regarding economics, an interdependent society (whether through government or otherwise) in a market economy needs to try to make the following occur, whether through the market, or external to it:

  • 1) Everyone understands that the work ethic is expected and desired -- that to receive distribution from the market, one must contribute to it if one is able.
  • 2) Participation is not closed to anyone and that reasonable jobs are available for people who need them; and promote the understanding that "greater participation in the system ought to bring about greater benefits for everyone (when those benefits are shared fairly)". This should apply as well to those who lose jobs through no fault of their own due to such things as unforeseen inventions, discoveries, or shifts in needs or fashion.
  • 3) Establish reasonable fairness guidelines so that people cannot be cheated, gouged, or taken advantage of for the profit of others. And try to promote the understanding that satisfying one's (economic) self-interest at the expense of others is not as desirable as satisfying one's (economic) self-interest due to benefitting others. 
  • 4) Set the limits of what activities will be (legally) allowed in the market. 
  • 5) Recognize that money is not the only value and that many values cannot be translated into monetary amounts. Try to prevent or ameliorate policies which erode this understanding.
  • 6) Devise ways to fairly and reasonably pay for or distribute "externalities", so that good externalities can be increased and bad ones decreased instead of having market forces causing just the opposite.
  • 7) Monitor, and make available, as much as possible some sort of overall view of current and likely future economic (benefit/burden) conditions, not so much in terms of financial or monetary factors (which can be misleading or unhelpful), but in terms of quality of life factors, particularly trying to insure against, or at least inform sufficiently to help minimize, the co-existence of unmet needs and underemployed resources that could meet those needs. Simultaneously, try to prevent or provide information to help prevent the over-employment (i.e., squandering or abuse) of important resources for unnecessary uses.

    (To Chapter 13)

1. The Jim Gray/Pete Rose situation and how it was handled brings together this point with others made in this book. NBC sports reporter Gray angered many baseball fans and viewers when he persisted in badgering Rose to confess to his alleged gambling just after the ceremony that allowed Rose to return to a Major League Baseball field for the first time in 10 years, when he and other baseball greats were introduced as the fans' choice for the best players of the 20th century. Fans called NBC to protest; and the protest was enough that it was reported on the news and made Gray have to give an on-air response. The New York Yankees, who were sweeping the World Series from the Atlanta Braves refused to talk with Gray after the third game except, in a public rebuke to his face while he was on camera, to tell him they would not speak with him because of the way he had treated Rose. But the next night, the Yankees not only spoke with Gray on camera, they had to accept the World Series Championship trophy from him on NBC after they won the final game. 

It is not unreasonable to suspect that NBC executives "reminded" Major League Baseball how much money they contributed to the coffers that allowed baseball to be the lucrative profession it is, and that the league reminded the players of that. Without television, baseball players would earn far less because viewing baseball could not be "mass produced". There is a profitable partnership among the networks, sponsors, players and league. It is further not unreasonable to suspect that executives at NBC sports were angered by the Yankees' position and felt themselves to be, probably justifiably, in a superior enough position with sufficient sponsors and sufficient viewers to be able to ignore the moral outrage of the fans and Yankees. 

The point is that as long as there is sufficient profit believed to be obtainable for a sufficient amount of time, the executives in charge would not need to take into account fans' and players' wishes if they themselves do not agree with them or care about the incident. Since there will be no public election, as there would be in government, to serve as a referendum on their judgment and behavior, and since no meaningful backlash among sponsors or viewers is likely to result because there is no feasible way to organize it, the network can disregard the wishes of however many people may be upset with their actions. Even if this kind of behavior ultimately costs network television dearly as people eventually tire of it and as alternative forms of entertainment become more prolific, there is no financial incentive for the particular executives to care. Even in government, leaders can afford to anger certain constituents over some issue as long as they do not alienate them on sufficient other issues to lose their vote. In either government or business, those who make decisions do not need to consider the concerns of those they do not believe can impact their own personal positions, even if that is a majority of people (as long as the majority is not believed able to be organized to respond in a meaningful way).  (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 13
Different Earnings

A restatement of part of question (4) from Chapter 1: Why do some people make more money, or accrue more benefits, than others, particularly when the work they do does not seem as important as the work the people do who make far less?(1) The answers to this involve both technical or sociological issues and moral ones. I will discuss the technical/sociological aspects first, and then the moral ones.

Of course some people make more than others because they work harder, longer, or more efficiently. When all other things are in some sense relatively equal -e.g., two people are working at the same sort of work under equivalent conditions -- those are not the questionable cases, since essentially if people are being paid by the "quantity" of work they do, i.e., commensurate with the contribution they are making, those who do more in these ways should obviously earn more money because they are producing more. But some people work long hours and train many years for work that does not pay as well as other jobs that may or may not take such effort. The real question is not about individuals so much as it is about work: why is it that some kinds of work pay more than others, particularly when some that pay more seems less important or takes less effort? 

And though supply and demand for the kind of work or quality of skill involved has some relevance, there are too many important kinds of jobs that pay too little, even when the demand for skilled labor exceeds the supply of workers available, for it to be the only or most important factor.

From a technical or sociological standpoint the following are ways to make more money in a society whose economic system is based somehow, at least philosophically, on a principle of just, or deserved, reward for worthwhile contribution to a cooperative, social enterprise -- as opposed to a society that merely distributes benefits and burdens on the basis of power to take and keep what one wants. (I will discuss the "moral" concept of just or deserved reward, following the sociological principles below.)

One way to make more money is to do the kind of work that can be "mechanically multiplied" (i.e., mass produced and mass distributed) relatively inexpensively in regard to the unit cost or the cost of the initial labor. My favorite example of a product in this regard is the frisbee, since it can be mass produced so inexpensively and sold for so little, and is so popular, it nets a handsome profit (I presume) just from the sheer quantity sold. But some services can be multiplied too -- entertainment, for example, or the teaching of certain things-- can be done once and distributed to millions or billions at the same time over television or at any time via video tape, film, audio tapes or compact disks, computer disks, or through books. Hence, a popular "tv minister" reaches far more people than the minister of a small church, though they do "the same thing", Arnold Palmer entertained more people through his sport because of television than Bobby Jones could have, and software programmers who create software of more general use can make more money than those who do specialized work for particular small businesses. Multiplication or mass production of work simply allows more than one person or small group to benefit from (and thus purchase and pay for) work that can be done essentially one time or that can be multiplied each time it is done.

A second way to make more money is to be an investor in a successful enterprise rather than a lender to it or a salaried worker in it. Lender's only receive interest in return; investors receive a percentage of the profits. This is not only true of money investments but of labor investments. An actor, for example, may work in a film for a fee or for a share in the profits. A share of the profits of a wildly popular film is better than the fee; but a straight fee is better than a share in a film that is a flop or only slight success.

Third, one might delegate work to others and receive a share of their profits from each of them. Franchises do that; multi-level marketing plans do that; business owners do that; in an indirect way some business managers do that -- by helping employees increase overall profits that lead to raises for managers.

Fourth, one can earn more than another for the same work if one is fortunate enough to work for someone who appreciates his or her work more and who has (control of(2))more money to be able to pay for it. Working for the appreciative poor or the unappreciative or ungenerous rich is not as profitable (per unit of labor(3)) as working for the appreciative and generous rich. The price-setting aspects of "supply and demand" for labor in fact enters, to some extent, at this point, because the effective or financially rewarding demand is only what people with money or in charge of money (as in the case of managers or boards) are willing to pay for the service; "demand" from an economic sense is not how much something is needed by just anyone, but how much something is wanted or needed by people willing and able to pay for it, whether out of their own money or out of funds they control for an organization. However, even supply does not always affect this factor, since a generous and appreciative boss may retain at higher salary a long-time employee out of loyalty (or favoritism) rather than fire him and hire someone just as good who is willing to work for much less.

A corollary to this is that work in a field that is generally appreciated or believed (whether accurately or not) to be needed --by those who have (access to, or control of the spending of) money-- is more financially rewarding than work in a field that is not so appreciated or felt to be needed by those with (access to, or control of the spending of) money. This is where nurses and school teachers and other people who are generally considered to be common laborers lose out. I have heard one private pre-school administrator of one of the best pre-school programs in the city say that she could not raise tuition to pay her teachers any more or to buy additional classroom materials because the parents would pull their children out of the school. The tuition was not more than a dollar or two a day, and most of the parents drove big Mercedes and Volvos and had car phones (at a time car phones had just come out and were very expensive). Pre-school was simply low on their list of priorities for expenditures. Teachers of older children generally fair little better in the public esteem. Many people feel teachers are overpaid. I personally believe nurses give more patient care than doctors and, in some cases, are even much more medically competent and knowledgeable, but I think the public, and many hospital administrators think nurses are not that important, and that any certified nurse is as good as any other, so if you can get enough nurses to get by and pay as little as possible to do so, that is good enough. Doctors are thought much more important by the general public, and the public is willing to pay more or to pay for insurance that will end up raising the costs of medical care. The perceived importance of practicing physicians, and the fact that people generally seem to put more value in not losing ground than they do in gaining even more ground, also explains why practicing physicians frequently make much more money than research physicians or public health physicians though the latter two may train equally as long and have to know just as much, and even though public health doctors and research doctors may bring about much more total benefit. Public health and research doctors, when they are successful bring us additional health benefits and improve the overall status quo. Physicians in private practice tend to treat those who believe they need treatment to maintain or to get back to their original state of health.

It turns out in practice too, that competition does not generally occur when the supply of services thought important is increased. Doctors do not have to conspire to keep prices high. As long as sufficient patients and insurance companies are willing to pay whatever is asked for services they give a high priority to, even an abundant supply of doctors in one locale can charge as much as they want.

So there are different sociological answers to the original question: people like rock stars or athletes may make more than doctors because they can mass produce their services to a far greater extent. CEO's can make far more than doctors because they can take a share of the profits of many other people's labor. Doctors can make more than nurses because people are willing to pay them more. Similarly Mercedes salesmen can make more than even teachers who teach the children of wealthy people because many people who are able to afford a Mercedes are willing to pay more for a car than for their children's education. (Teachers in general make less than Mercedes salesmen or dealers, however, because there is more money available in proportion to the Mercedes people than there is in proportion to the number of teachers needed, since teachers are needed not only for the children of wealthy people, but also for the children of poorer people as well.) Financial specialists can make more than many other people because they have control over the money that people need, or want, to operate in a market economy. Lawyers can make more money than many other people if they live in a market economy that is operated according to laws, particularly laws that are complex and not necessarily rational in some obvious ways, and that thus require a specialist for assistance. Financial experts and legal experts have skills that generally are needed by people--in a money oriented market economy operated by complex legal rules-- where important sums of money are at stake.

Generally, unless individuals have (access to or control of) amassed wealth, labor intensive, personalized services or customized products cannot generate as much revenue as ones mass produced for the same or lower price. That is, unless someone is working for someone with control of a lot of money or resources, one cannot make as much money or receive as much trading with fewer people rather than with more. The personalized services that generate the highest revenues are the ones thought important by people with (access to or control of) money. The divisibility, "poolability", transferability, ready convertability, and permanence or storageability of money allow insurance funds and taxes, or organizational fees and dues, to exist and to grow and thus pay higher unit costs for services and products thought valuable by the contributors to, or managers of, such funds.

Once this is understood, there are two problems that can be pointed out: (1) the economic system skews or distorts distribution (i.e., rewards for work) by distributing wealth in some cases not for the amount of work or effort or importance, but simply for the kind of work that fits in best with the kind of system in operation. There arguably are times when this reasonably seems backwards -- when the system takes on a life of its own instead of reflecting the values of the society. So that although a rock star or tv producer may generate good entertainment of some value (i.e., providing joy or insight or expression), the financial rewards for that value are out of proportion to the financial rewards for the value of a neurosurgeon or inspiring classroom teacher. And the private practice physician, because of the way the economic system works, may make far more than the research physician or public health physician who may contribute far more to improving more people's health.

Reward is skewed in such a system as well by often being disproportionate to ability, effort, skill, hard work, persistence, long hours, training, knowledge, etc. Such a system of rewards has produced some important good by people seeking riches who knew how to work within the system to achieve them -- people who would not or might not have done that work if the reward for success would not justify the effort or the risks. But that does not necessarily justify not seeking to discover feasible ways to prevent results that are so skewed they defy reasonable values about the relationship between contribution and reward -- distributing more from the public pie to those who contribute less to it than those who contribute more. The fact that relatively free market capitalism has produced much of great value, perhaps more than any other system so far tried, does not mean there are no possibilities for improving it. Fine tuning to prevent harmful excesses or to promote even greater good, as long as such fine tuning is not detrimental, is not unreasonable tampering. Most organizations, financial institutions included, tend to fine-tune and alter policies when flaws appear or when improvement seems likely. The policies are never thought to be more important than the results they cause. The only question is whether changes made in any policy bring about better or worse results. That is always in part an empirical question.

(2) The second problem with a system that distributes income in ways not necessarily consistent with quality of contribution is that because large amounts of wealth can attract and channel available labor, putting large sums of money into the hands of people who understand how to succeed in the skewed parts of the system rather than how to make the system contribute more, is not necessarily helpful. Philanthropy to worthy "causes" ameliorates this problem where philanthropy exists and is pursued wisely. But philanthropy and wisdom do not always guide how skewed fortunes (or any fortunes) are used. Further, wealthy people tend to influence government disproportionately and they also tend to be put on influential boards. It is arguably not helpful in too many cases to have doctors, or rock stars, or bankers making influential decisions that effect social policies, schools, economic programs without some reasonable degree of wisdom and understanding in those areas. Since the way money is used affects so many people's lives, it behooves an interdependent society to try to make certain that large sums are used wisely in an attempt to bring greater benefit. It certainly behooves an interdependent society to try to make certain such sums are not used to cause harm or greater burdens. This does not necessarily mean forced taxation to control such earnings, especially since that only changes who makes the decisions about how to spend the money, not how such decisions are made or how wise they are. It may mean having programs in place to help inform those with fortunes of the economic and social consequences of various possible ways of using their money. To have a total hands off policy is to allow the system to dictate human and social values instead of serving them -- while at the same time using social, political, and governmental policies and forces to feed such a system and make large numbers of people contribute to it and live by it. Insofar as government and society use or permit a particular economic system, they have the responsibility to try to make that system best serve those affected by it instead of simply making certain those affected by it simply serve it to whatever end the system will permit. 

Notice that as long as wealthy persons or organizations invest and/or spend the money they make (or save it with organizations that invest it), it does not matter financially or monetarily how financial fortunes are made or who makes them, because the money continues to circulate to other people in the society. The difference between tobacco companies' making money selling cigarettes, Disney Productions' making money building theme parks, Michael Jordan's making money playing basketball on tv, and the Catholic Church's building hospitals with its accrued money is not a financial difference but one that involves how labor is channeled -- what products and labor are produced. The difference to society is not a monetary difference, but a difference in the amount and kinds of Goods (or products) and Services (or labor) available. When money is spent on labor that does harm or labor that does not do as much good as needs to be done, the money is not lost, but time and important Goods and Services are lost because labor has been channeled into the wrong directions. It is not that we cannot have "guns and butter" (as the proverbial comparison goes) because there is not sufficient money to produce both at the same time, but because there is not sufficient labor to produce both at the same time. So if the entity that has money prefers to buy or invest in guns, then labor will be used to produce guns -- labor that would otherwise have been used to produce butter if the money had been in the hands of those who preferred to buy or invest in butter. 

If beer companies invest their amassed money in televising sports events, the "harm" (if any) they do society is not in squandering money, for the money will not evaporate; the "harm" (if any) they do is in channeling labor away from better purposes it might have been applied to (if any) in order to provide "mere" entertainment. Once the money is dispersed among the labor needed to play and broadcast sports, it cannot be used as powerfully as it could be when it was concentrated in the hands of an entity with the power to control how it is spent. And if other Goods or Services are needed that require concentrations of money in order to be produced, time is lost until money can be (re-)concentrated in the hands of those who would produce the more important Goods or Services. But the total amount of money in society is not lost. If beer companies spent money on medical research and health facilities rather than on televising basketball games, the differences that would show up in society would not be in how much money there is but in which people (with which skills) have money and in what sorts of services and products are available. If the money spent on health care actually produced more and greater health benefits, there would then be a society with greater health but with less entertainment, particularly televised basketball.

The Ethical Aspects of Differential Earnings

In chapter 8 ("Fairness"), I listed criteria by which we often judge people to be proportionally deserving of goods or services. Those criteria, as I noted, could often come into conflict with each other or be negated by particular circumstances. But they also can cause unequal earnings among different people or for different kinds of work. Free markets ignore those criteria by allowing people to earn whatever they will accept that others are willing to pay them, no matter how much (or how little) that might be. Socialist and communist systems ignore those criteria by (theoretically) giving everyone either the same share of the total or a proportion of the total based on their needs in some way. Although a complete and accurate list of criteria of the sort given in Chapter 8 may not be consistent and may be difficult to rank in terms of priority, ignoring them, either in favor of totally free-market transactions or in favor of equal or proportionally equivalent results for everyone regardless of their contribution, causes other sorts of problems.

The problem with mandating equal or equivalent results is that it removes the incentive to contribute by those who need such an external incentive as some sort of pay for labor. Not everyone needs that kind of an external incentive in order to work, but many people do seem to, at least in a society that does not have a strong work ethic based on religion, ethics, or some other social motivation. Furthermore, it seems unfair to rob someone of payment for work that seems to merit it based on one or more of the criteria listed in Chapter 8. Therefore societies that eschew a type of quid pro quo merit system of earnings for work performed, need to have some other incentive for social (economic) contribution, and perhaps some way of recognizing or rewarding particularly large contributions to the economy. This problem for economic contributions in such societies is not significantly different from the problem market economies tend to have with regard to rewarding people for non-market or non-economic contributions to society. For example, in a Birmingham, Alabama suburb a year ago, two black high school young men went into the burning home of a stranger after they smelled smoke coming from the house to a friend they had driven home after school. They rescued three elderly people who would have died otherwise. This was a social contribution that was neither required by law nor remunerated by market practices. One of the young men even went into the smoke-filled house against his own desires and better judgment because, as he said "I kept thinking I would not want to be left in this house by anyone who might be able to save me." The effort to save the three people was not prompted by free market considerations.

But different sorts of problems, just involving work, arise in a society that allows earnings to "seek their own level" by allowing people to charge simply whatever the market will bear for whatever people are willing to trade: pandering to baser or lower desires in order to sell products or services (and even promoting baser or lower desires that can easily be pandered to), deception, false advertising or sales claims, bribery, monopoly, undeserved power, corruption, real and metaphorical or psychological prostitution, gouging, taking advantage of the plights of the poor or those in other forms of need, etc(4). Again, these, however, would only occur in societies, or by individuals, that don't have some sort of intrinsic or highly conditioned scruples against them(5). To make any transaction legal between consenting parties does not mean that bad or immoral transactions would necessarily take place; those only take place where there is not sufficient understanding nor powerful forces or sanctions discouraging them. Markets, particularly in societies where diverse cultures either live together or can influence one another (such as through films or media) often can erode such forces or sanctions, but they don't necessarily have to. But the converse is perhaps more likely in actual practice - although markets don't necessarily erode such forces or sanctions, they often do and perhaps are usually likely to. Hence, governmental laws and/or regulations organizations within markets (such as by boards of trade or professional associations) often are established, to provide extrinsic sanctions against transactions that are considered to be somehow wrong or intolerable.

(To Chapter 14)

1. To begin with, I am presuming to talk about an economic system that permits differential earnings and differential accrual of savings based on work and trade. I will also then discuss systems that redistribute earnings (e.g., by taxation or some other form of after-trade fees) and systems where prices or income is not based at all on the work done or the trades made, but on fixed (perhaps relatively equal) salaries. There are not only social/technical and moral factors within each kind of system, but there are also such factors to consider in determining which sort of system is preferable, or in determining the optimal way, if any, of combining such systems.  (Return to text.)

2. I say "control of" parenthetically because the operating factor here is not whether the person for one whom is working is spending his/her own money or not; it is whether they have money available to spend from any source. For example, a CEO or board of a successful company or of a government organization may have control of a great deal of money, even though it is not their own. Similarly, a patient with good health insurance can pay a great deal more for health services than he might be able to afford out of his/her own pocket because s/he has control, in a sense, of a source of money pooled for particular uses. (Return to text.)

3. This is a somewhat imprecise way stating this. For example, banks and other companies that lend money to relatively poorer but creditworthy people may make more money from a great number of smaller loans than they do from fewer but larger loans to wealthier people, to whom they may make loans even at less interest. The point is that one can make more money for the same amount of work from people with (access to) more money than from people with (access to) less money, other things being equal. Robin Hood stole from the rich, it is said, because they were the ones with the money to steal; there was no point in stealing from the poor. That is why people work for the rich in some cases as well. (Return to text.)

4. The "evil" of all these kinds of transactions are social or ethical evils; they are not evils in any sort of totally free market sense. In a totally free market, if you can get someone to agree to any economic transaction, whether it is buying something, selling something, providing a job, or providing labor for a job, no matter how ethically or socially repugnant that transaction, or the conditions that made it need to be accepted, that is simply the luck of the draw. (Return to text.)

5. I have been told there is an office of cardiologists in the Birmingham who do their best not to turn away any patients for lack of money, though they don't have the resources to be able to do this if it were widely known. They performed one normally costly procedure for one man whom they have pay them $5 per month as a token of his respect and appreciation for their helping him out. Law offices that provide pro bono work are also making social contributions for other than economic reasons or market principles. The market is not the only possible source of social motivation, nor is it necessarily a successful force for the erosion of traditional social or cultural practices and beliefs. (Return to text.)


Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 14
Channeling Labor
(Including Letting It Flow Freely)

Of the standard triumvirate, "land, labor, and capital", labor (including knowledge) is the variable that determines the end products of a society from a fixed set of resources.(1) Labor is also important to human beings directly in that how one labors, particularly when one labors for a substantial amount of time, in large part directly determines one's quality of life -- apart from the indirect (e.g., monetary or "purchasing potential") one may derive from one's labor. Given particular finite resources, the ends to which labor employs itself or can be, and is, trained and employed to work those resources determines the economic conditions of a society, and any of its social conditions that are derived from its economic conditions. 

The Soviet and American space programs were some of the most dramatic examples of how the direction of labor influences what can be or is accomplished. The pyramids of ancient Egypt are another. War also demonstrates what a society can accomplish (for better or worse) when it channels a great deal of labor toward a particular goal. The rebuilding of Europe and Japan after World War II are further examples. Of course, no matter how directed or how much effort, labor probably is insufficient to accomplish every goal, but labor is necessary to accomplish many goals. Wasted labor accomplishes little more than no labor; enjoyable wasted labor has some benefit apart from its lack of accomplishment; unenjoyable or detested wasted labor is a worse burden than no labor.

Any collection of people who labor together, no matter what their number, can be unproductive(2) in two ways:

1) by inefficiently pursuing some desirable goals.

2) by pursuing some wrong goals, sometimes especially when this is done efficiently and effectively. For example a company might very effectively channel resources into a product that, unknown to them, is about to become obsolete. By working efficiently, it might develop by far the best and the most cost-effective models of the soon-to-be obsolete product. Or a school district might channel all its resources into a highly effective model of education that turns out students with the best grades, but who cannot achieve much outside of school, or who cannot think for themselves and who are thus benefitted by their education only to the extent they are around others who lead them in beneficial directions they can most readily follow.

But productivity is not the only measure of achievement. The means used to achieve productivity are important too; and so are goals besides productivity. Slavery or military rule or strong centralized control of whatever sort may be very productive, but that hardly justifies them, even if they were most productive and indefinitely able to be sustained. Even productive, freely given, hard work may not be justified if it is not as fairly rewarded as it should be, or if leisure would be a better end than what the labor produces. 

Good organizations, whether business, government, or whatever will be those that are able to continually determine the right goals and avoid wrong goals (financial and non-financial), and most efficiently pursue them in the fairest and most humane way. I would suspect there is more than one form of good organization, though there may be some principles common to all. 

What strikes me as interesting, however, is that many people seem to seek, willingly accept, or tolerate, different standards of management behavior for different kinds of organizations and for different types of goals. A person for example may want government to give him the most freedom possible and then happily go to work for a company that is so regimented it even tells her or him how to dress, what hours to work, what his or her job function is, what equipment to use, what constitutes legitimate absence or paid absence, what health care policy they have company access to, etc. Or a person may think he or she operates best with the most freedom, but that his or her employees operate best when coordinated or controlled, not because he or she has any particular evidence to feel that way, but just because of intuitions or ego. Or in some areas of life what is considered a legitimate monetary incentive is in other areas considered to be a bribe at worst, or temptations toward a conflict of interest at best. Those who work for incentives whose goals one supports are considered to be admirable, knowledgeable business people who can find opportunities and take advantage of them; those who work for incentives whose goals one does not support are considered to be greedy, unprincipled opportunists always willing to sell out to the highest bidder. There is no simplistic answer about what degree of freedom or voluntarily accepted centralized control or coordination is better with regard to the organization of labor. 

There are potential advantages and disadvantages to both freedom and centralized control or management. The trick is to try to put together as much as possible the advantages of both while eliminating the disadvantages of each. The ultimate goal is to channel labor in the most humane, fair, and efficient way possible toward the best possible financial and non-financial ends. 

The advantage of centralization is that coordination of many people or groups is much more efficient. Sometimes without centralization, coordination is not even possible because key people or groups will not "buy into" an idea -- even if it is a good one-- and participate. Sometimes ideas are not even thought of because no one is looking at a "bigger picture" than what their immediate work group normally does. (See Chapter 10, "The Invisible Hand Explained")

One disadvantage is that immediate feedback of the problems with the directives does not always efficiently find its way back to the planners and coordinators. So problems that could readily be solved by a person working on his own (or a small group) are ignored or allowed to fester and grow while information works its way back to central planners and new directives are issued and communicated in response. Further, central planners do not always have a real "feel" for the problems at the working level, and may not come up with as good a solution as people at the working level given the authority to act. Central planners may even compound problems that they don't truly grasp. 

The second disadvantage to centralized planning is the "too many eggs in one basket" problem, when too many resources are channeled into a faulty idea or program, without other resources channeled into other directions that might be able to facilitate necessary changes. Channeling all available resources in one direction makes it very difficult to make some necessary changes, particularly large ones, in a short amount of time.

Finally, a problem of centralized, or top-down, management is the lack of daily or immediate psychological incentive for those at the working level to do a good job, since the ideas they are implementing are not theirs and since the rewards from good work are often diffused, distant, or minor by the time they get back to them. The proportionally smaller one's part in an enterprize, even a monumental enterprize, the less immediate "psychic reward" or satisfaction or incentive there is to participate with much enthusiasm or conscientiousness. (This may be compounded if there is a pecking order such that those at the top --particularly if they appear to do little "actual" work-- get a disproportional amount of the rewards.)

Oppositely, freedom to apply labor as one, or a small group, sees fit, can prevent altogether, or lead to great inefficiency in, a worthy enterprise that needs direction and coordination. But freedom in the work place often leads to great breakthroughs in new directions, since people often will channel much energy into otherwise unexplored areas they find personally interesting or potentially rewarding (whether financially or otherwise). Numerous scientific advances have occurred because scientists felt free to pursue their ideas. Similarly in business, where Chester Carlson comes most prominently to my mind. He labored long and hard on his own to invent an instant copying process (later to become Xerox) while large companies saw no reason for such a machine even to exist ("There is already carbon paper, for making extra copies of document").

Further, indirect control tends to sprout in free enterprise systems, often by means of incentives that may be more or less effective. Indirect incentives, such as tax code changes, complicate the issue of freedom and control. There is no easy answer whether incentives manipulate and control (but in less obvious ways) or instead just provide reasonable opportunity; therefore there is no easy answer whether incentives enhance or negate freedom. (In this regard incentives tend to be like peer pressure -- they tend to make people do things by making them want to do things they would not otherwise do or want to do. Anything which manipulates people's desires impinges on freedom, but not always in a bad way, and not necessarily to the extent that it feels, or ought to be seen as, coercive. The concept of freedom is not as straightforward as it seems; see chapter 24, "Freedom".) 

Also, incentives are not often very precise, and do not often give predictable results, attracting either insufficient or too much labor or energy for a particular enterprise. They are like open invitations for which the uncoordinated response is thus unpredictable and often harmful. Tax code manipulations notoriously overstimulate enterprises they were simply meant to boost slightly, or foster unexpected undesirable new enterprises altogether. Tighter monetary policy may harmfully shrink an economy it was only meant to slow in expansion. A forecast for the need for, say, electronic engineers in the next decade may bring a glut of engineering school graduates at that time. When a university predicts severe dorm overcrowding, that may cause students to seek alternative housing in such large numbers that numerous dormitory vacancies occur. There are various ways sometimes to fine-tune incentives and make their results more predictable, but gaining any knowledge of these often requires a certain amount of experience (trial and error) and thus cause severe problems for people while those in charge of incentives try to hone their skills. Coordination by incentive may permit some sense of free choice, but it does that often at the cost of inefficiency and waste -- sometimes bringing great personal hardship to its victims. Finally, incentives are indiscriminate and often attract people of dubious potential or dubious skill to an enterprise, as much as they attract those who could be most effective. As everyone knows --but only when they are talking about programs they do not like-- having incentives, such as money, to solve a problem does not guaranty solutions or desirable results.

The issue of whether to manage or channel labor at all, or, if so, how to channel or manage it most humanely, fairly, efficiently, and most effectively is extremely important for any group of people, whether a business or a country. And it is more complex than just choosing between (what seems on the surface to be) freedom and (what seems on the surface to be) efficiency.

(To Chapter 15)

1. Capital is derived from labor. The specific nature of the capital that is produced depends on labor's producing it. "Land" actually does not mean land, but refers to the working and living space available and to the natural resources (or raw materials) available in the land to be worked on, and that are necessary to be worked on in order to produce needed or desired benefits. But if technology will ever support human undersea or sky and space living and working conditions, working space will become a virtually unlimited resource, as long as there is the labor and the raw materials necessary to "build" it. This is just as high-rise buildings meant more space on a given amount of supporting land. Raw materials are the limiting factors of what can be produced, but given adequate labor and increasing inventiveness (another aspect of labor) for getting at and using them, it is difficult to say what the end-product limits are of the resources ultimately available.  (Return to text.)

2. A group of people can be judged to be relatively productive (or wasteful and unproductive) by either of two criteria. They can be relatively productive compared to other similar groups working in different ways to achieve the same ends. Or they can be relatively productive (or unproductive) compared to some possible ideal use of their labor. This latter sense of efficient or wasted use of labor is often difficult to determine, especially without experimental results that then show relative unproductivity in the first sense -- results that show a similar group's working in a different way is actually more productive. Many of the arguments for free-market capitalism involve the claim that it has produced the best economic results compared with any other system; but many of the arguments against either free-market capitalism or particular elements of free-market capitalism involve the claim that changes would produce an even better system, one closer to the most ideal system possible. The first is an argument about actual results; the second, one about potential results. 

But even comparing actual results of two different systems is not entirely objective or straightforward, as when Nixon argued more color tv sets showed the superiority of capitalism (as practiced in the United States) and Khrushchev argued that greater rocket power proved the superiority of Communism (as practiced in the Soviet Union) -- to use a simplistic example. Less simplistically it is sometimes difficult to compare two society's who have radically different balances in the distribution of radically different amounts of end-product. Is a society with more leisure and more recreation better or worse than a harder working society with more, say big homes? Is a society that has more benefits which are unequally or unfairly distributed better or worse than a society which has fewer benefits but has them distributed more equally or more fairly?

Comparing the actual with an alleged potential is perhaps even more difficult, unless some reasonable, and reasonably safe, experimentation can be done. There are experiments periodically, on various scales, by various businesses or governments. In the U.S. one state government may try a lottery to raise revenue in a way that is resisted less than tax increases. Others may follow depending on the results of the first one's attempt; or they may follow with modifications; or not follow at all, for non-financial reasons, even if state lotteries prove to be financially successful. It is my guess, from what I have personally seen of, and informally read about, many businesses and governments that they do not experiment enough on safe, small scales. How many states might ask a volunteer county or city to try out some suggested new state practice in order to see whether it might work on a smaller scale first, supporting that county in the event the experiment fails? How many business leaders will give employees or divisions a chance to try out some new idea on a small scale, adequately supporting them in case the attempt yields poor results? How many school districts will supportively allow one school or one grade level, or even one teacher, to try out something that is radically different regardless of how much philosophically arguably better it might seem? Of course, some governments and businesses allow and support small scale experimentation of arguably reasonable innovation. But it seems to me that inflexible, homogeneous rigidity, regimentation, and tradition or inertia rule far, far more. And I see little general difference between businesses and governments in this regard. (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 15

Not everyone's needs can all be met. Sometimes that is because there is not enough knowledge, as when medical cures are not yet known, engineering concepts not yet invented, and social problems not yet fully understood. Sometimes it is due to the forces of nature which still hold us at their mercy -- prolonged and widespread drought, tornado or hurricane, unexpected earthquake, flooding. Sometimes there are insufficient resources or materials to meet needs. Sometimes there are not enough people or sufficiently skilled people or tools at hand to do what needs to be done, or insufficient transportation to put them at hand. Sometimes those who could help are unaware of the particular needs of others and are simply not available though they could have been. All these kinds of problems have to do with our actual physical and knowledge limitations in the world, limitations that are not arbitrary or artificial, although people may negligently or irrationally compound problems, as when they build large cities in known earthquake zones or arid areas, willingly ruin good farmland in order to foster unnecessary construction projects, or irresponsibly lead risky or unhealthy life-styles.

And, of course, there are the human evils of meanness, inconsiderateness, and negligence that are not yet within our grasp to collectively eliminate. 

But there are also what I consider to be arbitrary or artificial problems, problems for which the remedy is known, but not applied, though for bad reasons. Many of these reasons have to do with practices, conventions, or rules that are either arbitrary or that have some merit, but not in the particular case. For example, when a university closes classes at 25, excluding one student who needs the course, and who could easily be accommodated in the course. Or when a pizza place has a special on one-item pizzas and would rather alienate potential customers and lose business by charging the regular, significantly higher, price for a two-item pizza instead of simply charging a little extra for the second topping when someone wants it. Or the famous Jack Nicholson scene from the movie Five Easy Pieces where the waitress would not serve the toast he wanted for any amount of money but would serve a chicken salad sandwich on toast with something like fries and pickle. (His solution, of course, was to order that, asking her then simply to "hold" the fries, the pickle, and the chicken salad -- although, to show his disdain for their stupid policy of not serving toast by itself, he added she should hold all those item "between her knees".) Or when the rules of a game do not allow for the obvious mistake of an official who errs badly on a crucial call.

Economic skewing is another one of those cases where strict adherence to otherwise useful general rules and policies or practices cause burdens and problems that are not otherwise difficult or impossible to solve. Skewing causes problems when there is work that needs to be done and people available to do it, but the two cannot come together simply because money is required, but unavailable, to bring them together, while at the same time "excess" or "potential" money is "somewhere else" not doing anything or not doing as much good as it could be doing in the hands of either of these people. Although money does not actually cause things to happen in the physical world that could not be caused by some other means or facilitated by some other incentive or motivation it is a convenient, psychologically effective, and often very efficient, productive, and frequently relatively uncoercive way to attract and utilize available resources and labor. All goes well (ignoring questions of fairness) if and when the flow and use of money efficiently, productively, and without coercion facilitates the utilization of resources and labor in a manner that provides the most benefit with the least burden. And new financial mechanisms are constantly being invented and incorporated in the financial realm when thought to be helpful in the physical world, and discarded when found to be detrimental there. But there are general situations in which the money realm actually impedes the utilization of labor and prevents benefits that could otherwise occur. This is where money, needs, and available labor do not "line up" right. It happens when there is either insufficient money altogether (though sufficient physical resources) or when the total amount of money is commensurate with physical resources available but has somehow become misaligned with it. In such a case money "pools up", aggregates, or collects where it is doing insufficient good, leaving too little money (again, compared with resources) to employ available resources where they are needed.

If any economic system that involves an intermediate means of exchange for labor is to actually be of the greatest real benefit, that means of exchange has to be in the right place at the right time, in order to be used properly. It is extremely difficult to get this to happen or to help it happen. It is extremely difficult, if not impossible, to guarantee this will always happen in any given economic system. Monitoring and judgment are needed. Monetary policy tries to do this after monitoring such things as unemployment, idle plant capacity, and GNP; but it is a somewhat blunt or indiscriminate instrument, particularly when it does not take into account the idle availability of resources that could be used to meet important problems. Increasing total money supply does not help when the money is still unable to get where it is needed, but only continues to be channeled away to unhelpful places. And increasing money supply too little does not help either.

Fiscal policy (specific government spending) can be a help, but generally it tends to be a blunt instrument as well, particularly when it creates more problems in the physical world (by taking money away from the places better served by its presence) than it tries to solve, and even more particularly when it does not solve the original problems anyway, often through bureaucratic ineptness. Spending money does not guarantee spending it effectively, whether in government or the private sector. 

Let me give an example of skewing involving private enterprise, a woman wanted to open an apparel shop that catered to women cancer patients who had had surgery or were undergoing radiation. Bankers in their infinite wisdom did not understand the market for such an enterprise and refused her loan requests. She borrowed from other sources and began anyway, is now successful, and is courted by banks who would like to loan her money. It is in general very difficult for bankers to know the viability of new products and services. Had she not been able to borrow from anyone, a need (and in this case, what economists call an effective demand -- one which consumers are able and willing to pay to have met) would have gone unmet, a market untapped, and her expertise and labor unused. There is no telling how many enterprises that would be successful are never able to begin, for lack of money, though that money could be available. And there are many which are known to fail for lack of sufficient start-up money to get through the initial period. Further, recession or depression can terminate a business that under normal (non-skewed) conditions would be perfectly successful. 

Notice, I am not talking here about money that is all tied up in other ventures which need labor and which thus need these loan applicants to come and work in them instead of trying to start their own businesses. I am talking about money that is available to bring together effective demand with effective labor, but money which is not employed for that purpose. The opposite is when money is poured into enterprises which are unnecessary or for which there is insufficient real (non-monetary) demand or need.

Misalignment of needs, labor, and money seem apparent in a number of larger areas. Children and the elderly need care that family members are not now willing or able to provide. And there are many people out of work who could care for them if there was money available. But children and the elderly without money cannot pay these people. And these people cannot afford to work for free, if they are to pay their own bills. So needs go unmet and labor that could meet them goes unused.

Second, many competent women and minorities are having to compete against white males for a limited number of good jobs instead of there being an expansion of new business and ever greater productivity to absorb all the new people who want to work. Instead of women and minorities being treated as if they were more hands and minds to do important work, they are being treated as more mouths to have to share a fixed amount of money and labor demand, even though there are countless unmet real needs in society. 

This seems particularly wrong when monetary wealth attracts or siphons off labor to produce luxuries and conveniences for the more wealthy, while the less wealthy are not able to purchase sufficient labor to meet more basic needs. Poorer people may be better customers for financial institutions that make large numbers of small loans to them at profitable interest rates, but for the most part poor people are not the best customers for most businesses. In skewed economic situations where money flows more to the already wealthy, without the invention of new luxuries or conveniences the number of profitable careers tends to dwindle relative to the number of people qualified for them, while at the same time the less wealthy do not have sufficient money to put labor to use effectively.

The old joke is that "it is a recession when your neighbor loses his job; a depression, when you lose yours. That reflects the problem in a non-compassionate society that government is not forced to intervene to halt skewing until allowed to or forced to by a constituency that it listens to -- whether in terms of numbers or importance. This does not happen until that constituency itself is confronted by the skewing process. And that can take a long time, since many people, particularly wealthier people, are not personally affected in any tangible way by the loss of labor that does not serve them in some important, fairly direct way. In the meantime large numbers of people are psychologically tormented and their talents are squandered because society does not have a way to put them to use. That waste of talent and labor tends not to be an influential factor in social attitudes and policy making because loss of potential increased benefit is almost never as compelling as loss of current benefits. 

Education of the young, for example, is rarely seen as a community investment with great potential for future community progress and prosperity, but is seen as a drain on community resources. Even parents of school children think of education as being of benefit to their children and to themselves through their children. They do not see it as a benefit to themselves that their neighbors' children are educated. They would if they could see that their neighbors' child was going to discover a cure for heart disease or cancer or the deterioration of old age. Everyone is grateful for the work of Jonas Salk, but few want to make the effort to produce the next Salk. 

Recent political arguments have pointed to statistics that every dollar spent on developmental pre-school programs for the disadvantage, like Headstart, saves society many more dollars in the future on prisons, police, welfare, etc. Even this somewhat strong "negative" argument of how much worse off we will be without investment of this sort is apparently not all that politically persuasive, so never do you hear the "positive" argument of how much better than now we might be with such investment.

Remember, I am pointing out a problem -- the problem of money not being where it needs to be to put people's talents, potential, and labor to use -- I am not arguing for government intervention, automatic or otherwise, as the necessary solution. Private enterprise solves this problem to a certain extent by private loans and by investment opportunity. And, governmentally, in some cases there are tax advantages for risking capital to develop new ideas and potential benefits. But this does not do enough because there are too many people unemployed and underemployed, and it is too difficult for people who have ideas to have the opportunity to experiment with them to see whether they really would benefit others in society.

Finally, skewing on a simple level is avoided whenever people do things for each other that does not require payment. Most of us do things for each other all the time without asking for payment in return, particularly monetary payment. We do things for our spouses or children or parents. We do things for neighbors, or sometimes for strangers in need. In many cases the subjects of our benevolence cannot pay us; in some cases we just don't want them to; in some cases it seems silly to pay or to have to do bookkeeping that is more trouble than the assistance one is offering in the first place -- as if at the dinner table we each had to pay for others to pass the food around to us before they would do it. And periodically there are major social efforts where skewing is solved by direct action that avoids waiting for money to get in to the right hands in order to allow the service to be performed. One example is when farmers from one region fly livestock food to farmers of another region of the country hit by severe weather that has ruined the feed crops. They have feed to spare for such an emergency, and want to do it even though the farmers in the damaged area cannot afford to pay for the food and its delivery. Similarly when people help each other after a disaster of some sort. If one waited for the economic system to come into play to bring about the work needed, it would not occur or would not occur in the necessary time frame.

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 16
Social Goals

It has been said that the best government is the least, or least intrusive, government and in particular that the government of business is no part of the business of government. I want to examine these ideas, for they seem simplistic, and they seem to lead ultimately to the view that the best government would be no government at all. I wish to examine, particularly with regard to economics, what a reasonable role of government ought to be, and will contrast my position with that of Milton and Rose Friedman's as stated in Free to Choose.

First, however, let me make a distinction between a country's formal government and any other non-business, national society-wide organization established to meet societal needs that business seems unable or unwilling to address or to address satisfactorily. A government or society may establish or give special privileges to an organization, such as a utility, even though the government may not own or operate the organization itself. There may not even be special privileges for the organization. I will use the terms "societal organization" or "social organization" to describe these sorts of entities as well as government entities that act in the same way. If a society perceives a need that business does not supply, and the people in that society collectively establish some mechanism to meet the need, then I am not concerned about whether they do it through government. The point is that they are doing it outside of the normal economic or business mechanism of the society. It may be that neither government nor business is the proper mechanism to meet society's needs or desires in a certain arena, but that some societal collective(1) effort is needed. That is the issue I want to discuss; not whether government itself is necessary for these kinds of enterprises, but whether business alone is adequate to do so.

Now one often sees the argument that governments are often totally unproductive at meeting a given need, or they are much less efficient, and more wasteful, than private business would be. The reason given is that government officials and agencies do not have a vested interest, as a businessman would, in meeting the needs of the people he serves. He will get paid regardless of how well or ill he performs his job. Taxes are regularly and forcibly collected en masse and distributed without regard for whether the taxpayer is actually getting enough for his money or not. Without competition, and without sales or income that is a mirror or measure of how satisfyingly and satisfactorily an organization is doing its job, there is no indicator for how well it is performing, and there is no penalty for performing poorly. There is not even an indicator of how much need or demand there is for the service or product. In business, there is a direct penalty for not performing well or meeting a demand -- business failure. Thus there is incentive for a company to satisfy its customers and to perform a desired task in a desired way.

Of course, any government or societal agency that is not doing its job well or that is not performing a needed or desired service ought not to be allowed to continue in the way it is operating. The claim that a social mechanism needs to exist for any particular purpose is never meant to be the claim that an organization ought to exist even if it does not have a meaningful function or does not do the function it was meant to, or does not do it very well at all when there are far better ways for that function to be done. No honest and sincere person would argue for the existence of a government or social organization that collects tax money, dues, or contributions of any sort, that does not do the job very well that it is designed to do or that does not do a job that is in any way important. The claim that the government or society ought to have a postal service, educational system, armed forces, criminal justice system, welfare system, or whatever is never meant to be the claim that society ought to have those things whether they perform well or not and whether they serve a needed function or not. Good performance, for a useful function, is the intent. The question is whether there can be mechanisms outside of economic or business ones that can work, work better than business mechanisms, or work where business mechanisms cannot work at all. Are there organizations society needs that cannot be established on a business model or that cannot work as well as they should if set up on a business model? Why or why not?

I have pointed out elsewhere that government does not have the monopoly on incompetent or lazy workers or managers. Nor are government organizations the only ones with workers who spend money they do not directly have to earn from a customer. In any large business organization there are many people who do not ever work directly with customers. There are managers, accountants, clerks, buyers, etc. who may never actually sell anything to a customer of the company. They do their particular job and collect their paycheck, but they do not directly take in any money for the company. The measure of their value has to be determined by means other than how much money they take in. And today, even CEO's are sometimes judged not only by how much profit the company is earning presently, but what the prospects for the future are (which cannot be judged or measured by current income). And all people can be judged not only in comparison with competitors or their predecessors, but against some expected ideal. A person may not retain a job if they are making millions of dollars for a company if the company believes someone else could make tens of millions. So the question is not one about whether individuals who work for the government are somehow different or do different kinds of things, or are judged differently from individuals who work for private business, but whether there are fundamental differences between business agencies and societal agencies that make it difficult or impossible for the societal agencies to work as well as business ones. And the question is also whether there are any functions that society ought to perform that business cannot provide or cannot provide very well. And if so, why, and what sorts of functions are they?

The question in a free market economy comes down to what sorts of things, if any, people and communities want and need that they cannot purchase on their own --that individuals or families, or even large corporations cannot afford to purchase-- and which therefore must either be purchased collectively or done without. Examples generally given, even by "conservatives" are things such as armies, police departments, judicial systems, roads and highways. Milton Friedman says, following Adam Smith for the first three of the four items, that government(s) should provide (1) protection from foreign violence and invasion, (2) a system of justice, (3) public works and public institutions which benefit all but not in a way that would financially profit a smaller group that would finance them on their own, and (4) protection for those individuals in a community that "cannot be regarded as 'responsible,' " such as children. But in the United States there are a host of other programs and services the government promotes, one of the largest being the various public school systems for kindergarten through twelfth grade and the subsidization of state universities in some cases. Friedman is one who argues the government ought not to operate schools or universities because they do not do it well and will not do it well, and that the government supports and props up schools which fail to meet their students needs, and which would thereby be forced out of business if they had to operate in a free market economy, having to meet the needs of their customers or not have sufficient customers and income to continue. On the other hand, countries like Japan believe it is important to help and subsidize certain industries in order to help them have a competitive edge in the world market.

There are at least four different issues involved in this whole question. The first is whether private business really could meet the needs of clients with anything less than government ownership, organization, control, or subsidy. The second is whether private business could do a better job than a societal or government organization. The third is whether the product or service is worth the cost at all. And the fourth is whether or not the product and service simply ought to be provided just to those who can afford it -- such as are private schools, private medical insurance (and thus coverage for expensive medical treatments), private security guards, etc. -- leaving out those who cannot afford it.

One proviso at this point is that if there are certain kinds of goods and services that an economic system, say a market system, seems unable to provide because of the financial mechanisms customary to it, that does not mean a new financial practice cannot be invented that would solve the mechanism problem and thus allow private business to provide the product or service desired. The invention and feasibility of long term mortgages allowed people to borrow sufficient money to buy homes they could not otherwise afford. Balloon mortgages allowed people to buy homes at a time that rampant inflation made fixed term mortgages too risky for lenders. Some financial inventions work better than others, but one should not be too quick to say the private sector or market cannot find a viable mechanism to provide a particular good or service; one can only say that at a given time such a mechanism does not exist.

Throughout the book I make mention of services I argue that a society ought to provide. That is not intended to mean government ought to provide it, nor that business could not provide it. It simply means that if business does not provide it, society should find some mechanism or organization to provide it. Non-school, community youth baseball, football, soccer, and basketball programs or organizations are examples of non-government, non-business organizations that provide a public service. Some charitable or service organizations are other examples, although many charitable organizations tend to be run as a business and are not what I have in mind. Some industries or groups of businesses organize auxiliary groups such as chambers of commerce, industrial or business boards (like the board of Realtors), or, in the case of physicians, medical societies. These are privately funded or volunteer organizations which meet a need the market can not or does not provide, and which are not operated under business or market principles. Their value is judged by means other than the amount of money, if any, or profit the organization makes. One can argue how well or ill such groups serve the general public instead of the people that pay for them, but in principle at least, they are established to meet a need the market seems unable to.

I will leave the questions of whether private business can best, or at all, meet some particular need for others to decide with particular arguments or empirical demonstrations. Whether, for example, an expanded version of Federal Express or UPS could deliver all mail better than the Postal Service does is not primarily a philosophical matter, but an empirical one. And I will leave for particular arguments the question of whether particular products or services are worth the cost at all. I give such arguments about some services throughout the book. My concern here is the question of whether societal organizations (government or otherwise) ought to provide goods and services for people who cannot afford them, at the expense of those who can. I wish to consider the issue of the reasonableness of community services for those who cannot afford them. Why should people of means help those in a community without such means?(2)

The main arguments against what is essentially a redistribution of funds are that (1) taxes restrict freedom of choice about how to spend what one has earned; the government will decide for you how to spend your hard earned money; and (2) if people have not contributed enough to society to earn sufficient money to pay for what they want and need, then that is too bad, but it is not the problem of those who are working, and cooperating with other workers, to actually make their lives better. This latter argument is not dissimilar to Hayek's view of what a market is -- the arrangements by individuals to trade in certain ways, that has nothing to do whatsoever with those not involved in the particular trade. If you and I want to trade clothes for food, and someone else wants to get clothes and food from us, then let him earn it by providing something we both want. If he does not do that, we do not need to give up what we have worked for in order to provide him a gift of clothes and food. We have no obligation to help out a neighbor just because he lives near us, if he is not doing anything to help us out or earn our help. We are not being selfish to keep what we make; he would be selfish to expect us to do otherwise. [Endnote #1]

Since I am not arguing that social programs need to be government programs, and since I am not arguing, and do not believe, that all government programs need to be funded by tax dollars (state lotteries, for example, raise money for some government programs on a voluntary participation basis, not tax collections), I will not address the first argument, which is in essence the complex and difficult political philosophy question of what constitutes fair and justified governmental rule, in this case with regard to taxation and expenditure. That is an issue that even those who support taxation for particular purposes, such as funding a military, might raise with regard to a vote that plunges the military into a particular war particular taxpayers do not believe is justified. This first argument is about a problem that is neither primarily economic nor one about freedom versus compulsion. It is a question of the best and fairest form of (social) organization of any sort, once it is decided that an organization is necessary or important.

I wish to answer the question of why goods and services which people cannot earn in a market economy need to be provided for them at all. There are a number of different reasons.

First, however, there are different conditions under which this issue might be raised. And they will yield different results. If there is plenty of reasonable opportunity for people to work in order to be self-supporting or to contribute to society in a reasonable way at a fair profit(3) (I will explain what I mean by a reasonable way, at the end of this section) and those opportunities are disdained by a person able to do the work, or he voluntarily and intentionally squanders his profits from his labor in an unreasonable way, it seems to me there is no reason to share with him the fruits of other people's labor(4).

The only issue that arises in such a case is how to make certain that his sloth does not punish his children or other people dependent upon him, by keeping them from goods and services they, as innocent bystanders, need in order to live a decent life and become financially able.

If there is not much opportunity for someone to work or to be self-sufficient, and resources are so scarce that people cannot viably part with the little they do have, then it just may be too bad for the individual in question. Nature is sometimes cruel, and does not always provide enough resources for everyone to survive. 

If there is not much opportunity for work or to be self-sufficient at a given time, and resources of the whole community are not so meager as to preclude reasonable sharing, then I believe a community should help those less fortunate for the reasons I give below. In short, I am concerned primarily with the reasonable economic policies of a society of abundance, which may be quite different from the reasonable economic policies of a society of scarce resources. [Endnote #2]

The issue as it pertains to children in part involves what a society ought to provide to those who cannot contribute to the economic well-being of society and who do not have private means, such as savings, family or friends, willing and able to meet their needs. Furthermore, the case of children is in some way like the case of anyone temporarily unable to work, rather than the case of someone who is permanently unable to work. Although children cannot generally contribute much economically to society (particularly a society whose economy depends on knowledge or technical expertise) while they are children, they will in most cases be able to in the future, with the right upbringing and training. So supporting children, or anyone temporarily unable to contribute much economically to society, is not a totally charitable enterprise. Some "return" for such support will generally occur.

It seems to me there are many different reasons the more economically advantaged in society should aid those far less advantaged, and that society would want to establish feasible, fair, efficient, and effective mechanisms to bring this about. Some of these reasons have to do with the potential benefit involved for those who are economically advantaged, though not all of them involve such a "return" for one's efforts.

1) It seems to me that one is normally better off living in a good community than in a bad community, even if one has less personal money in the good community than in the bad community. Insofar as helping others helps them (someday) make a contribution to the community, rather than being a continuing drain on the communities resources, or worse, being destructive to the community, giving such help raises the chances one will be living in a better community in the future, and therefore be better off. Someone once said that Paris attracted so many striving artists and writers because in Paris you could have little money and yet not feel poor. Insofar as that kind of environment then has enriched mankind through the contributions these people were able to create because of the help they received, there was an overall return on the investment. The same is true with regard to supporting research or education. Insofar as a company or a society supports people who are trying to become more creative and productive, benefits will accrue as the people being supported are successful. Individual support may not "pay off", since not all research leads to useful discovery; but the overall system of support should produce overall benefit, as the value of the individual successes far outweighs the costs of the failures. With regard to researchers and students, one is supporting them to work, but at work that may not end up individually being useful. It is not that students and researchers are idle, but that their labor is not necessarily beneficial to the community at the time.

We cannot know the missed opportunities we may have had by denying some people and groups access to a better education or better work opportunities simply because they were poor or in some way merely the subject of malevolent prejudice. I cannot but think that if we could divine the opportunities we have missed, we would find chilling ironies involving individuals holding back the very people who would have solved the problems that most sorely and sorrowfully afflicted those who held them back --the woman who could have saved the company from financial ruin, the black person who would have found a way to heal the paralysis caused by spinal cord injury, the rural child of inferior schools who would have discovered the means for his state or region to escape its poverty, the Hispanic that might have discovered ways to make large, heavily populated urban areas substantially more livable and desirable. It is not so impossible to imagine how much better off we would likely be if we quit seeing others simply as potential mouths that would take some meager portion of the bread we do not zealously and self-righteously safeguard, and began instead to see them as potentially creative minds and working hands that would help create more bread for all of us. 

And just on a more ordinary level, apart from the idea of valuable inventions and discoveries, people who are treated decently are more likely to treat others decently. Crime, distrust, and emotional torment are less likely in a helpful, "neighborly" society than in one where everyone tends to be isolated, self-absorbed, greedy, and opportunistic in the sense of taking unkind advantage of others in order to increase one's own well-being. All the police, army, and private security forces, along with the entire criminal justice system --all at immense cost-- cannot provide the kind of security and peace of mind and more productive channeling of resources possible in a kind, decent, "neighborly, community.

1a) Community health is a particular case of this idea, since epidemics often know no artificial boundaries once unleashed. It behooves a community to provide at least the kind of health care to everyone to try to avoid such epidemics that cannot be controlled by mere isolation, separation, deportation, alienation, or incarceration.

2) The first reason was an empirical claim about how a community which treats everyone decently, compassionately, and helpfully will end up being a better community. There is a moral claim that accompanies that as well. Even if someone you befriend when they need help, does not help you out, they at least have an obligation to do so, incurred because of your assistance to them. If you do not help others when you can, and when they need help, it seems to me you then forfeit any deservingness for their assistance when you might need it. Someone you mistreat or do not help when he could use your help, and you are in a position to give it, may voluntarily be kind to you when you need help, but he has little, if any, obligation to do so. And especially, you have no claim to his assistance if the things you did needlessly and selfishly caused a burden to him.

3) Since no one is immune from infirmity and calamity, making certain that everyone's basic needs are met insofar as is possible, is a form of insurance for you. Having private insurance does not necessarily do that. Such insurance may be insufficient or inadequate for any of a number of reasons that are not necessarily the buyer's fault or that the buyer may be unaware of until too late. What you want is for a community to do the best and fairest they can for you if calamity befalls you; and that may be something that is hard to provide for yourself in a purely business, legalistically structured policy with a private company.

4) Similarly, business success and reversals are not totally within an individual's control or efforts, particularly when one does good work, but is part of a company or industry that his or her efforts alone, no matter how good, cannot make successful. Particularly in a rapidly changing, technological, and global society, one's product or service could be unforeseeably rendered obsolete or uncompetitive in a time too short to make adaptations. Again, a community that helps each other out with the resources they have available, offers a form of insurance to help people get back on their feet and become contributing and self-sufficient again.

5) Compassion. It seems to me that compassion is an admirable trait that ought to be cultivated, and exercised when necessary. As I have argued, people are not necessarily greedy and self-centered; they can be compassionate. And it is better to be compassionate than selfish. Compassion does not require martyrdom, however, so this is about helping each other when it is possible and reasonable, not unreasonably and unjustifiably sacrificing what one needs for oneself.

6) The joy and satisfaction of helping others when you reasonably can. Helping others in many cases is not necessarily sacrificing, nor an effort that is totally of one-sided benefit. There is frequently a pleasure or satisfaction in doing things for other people. This is particularly true when they are obviously appreciative of your efforts.

7) It seems to me that many people have interests they would like to pursue, which in some cases we refer to as "callings", and that some interests turn out to be more profitable than others purely by accident or chance. One can imagine Ben Hogan's or Jack Nicklaus' mother voicing the concern as they were teenagers whether they ought not be spending their time more usefully than on the golf course. Had either been born a hundred years earlier, they would not likely have become as financially successful if they stuck to golf, and ignored such maternal admonitions. Some people like to work in an area of research or engineering that may or may not be particularly popular at the time, but the work interests them, not the glamour, profitability, or popularity of the field. I worked with a man when I was in college who did genetic research when the field was fairly new. He was a physician, and it would have been much more lucrative for him to practice private medicine than to do university medical research. But he ended up winning the Nobel Prize for his work. At the time I knew him, he had not yet done the work for which he won the prize, and there were periods of external pressure to abandon the not very lucrative endeavor of research. Not every researcher, however, wins the Nobel Prize or receives much social reward, recognition, and external gratification for their work. The lack of such reward or recognition can sometimes be an impediment to their doing the work (for long). The financial success of a given endeavor is often more a matter of fate and fad than of any demonstrable usefulness or importance. The fact that a gifted hard-working basketball player can make more money, in a given society at a given point in history, than a talented, hard-working public health physician is more a matter of historical circumstance than design or desert. I am not suggesting that society pay for everyone's pursuit merely of their own desires. But I do believe everyone would be better off if there were some sorts of mechanisms or at least social sanctioning for people to be able to pursue their interests, research, and "callings" as much as possible -- particularly those interests which have a potential contribution to society -- instead of having to make money at something one does not particularly care for or see as socially useful, but which earns a living. I don't know what percentage of the population foregoes its callings or interests in order to make a living at something they dislike or find rewarding only in a financial way, but if many people do, society might be better off if there were some systematic mechanism for giving people opportunity to explore areas that they believe to be worthwhile. The people who get to explore would be individually better off; and the rest of us might be better off if their explorations prove socially fruitful. Many of the great inventions and discoveries we wouldn't want to do without today, came from people who had to pursue their quest in spite of obstacles for doing so. I do not think it was the obstacles that made the effort work out; and I wonder how many things have been lost because people didn't really have a fighting chance to pursue their interests simply because their interests were not popular at the time they had them. As things stand now, only people who work for employers that understand the potential for research and development, or people who can win over investors, or win grants, have the luxury to pursue ideas outside of their own basements. I would think a society of abundance could set up other, and more accessible, avenues for such pursuits, whereby those who pursued interests that were lucrative (especially by chance) could help those pursue interests which are not popular at the time.

8) We do help each other out within a given company or even within industries, by sharing health insurance, allowing reserves for sick pay and paid vacations, sharing work when others are ill or on vacation, etc. It is not that philosophically large a jump to do the same thing for the bulk of society, other than it might be somewhat more difficult to "police" and weed out real malingerers, an important issue for many, but different only in degree from the problem of catching malingerers in any given company, particularly a large company. 

9) In much of modern society, there are not the freely available raw resources for those who will only take the risks, and make the effort, to tap into, and labor on, them. One can no longer head west and homestead property or start farming on unowned vacant land. Most, if not all, the resources are owned or spoken for, or if they are publicly owned, they have rules and regulations about how they can be utilized. Those who own the properties or who control the (resource) rights to properties, control access to whose labor, and what labor, might be applied to those resources. Insofar as that is true, there are constraints, often financial ones, put on people who might otherwise apply their efforts and talents to those resources. A society with abundant resources, that, through whatever mechanisms, purposely or unintentionally, denies some of its inhabitants opportunities for productive labor is not morally neutral in regard to responsibility for those they do not let reasonably contribute in order to make a decent living. They are responsible because they are unnecessarily and unjustifiably forcing certain kinds of idlness, not just simply permitting it. People that control access to abundant resources deny people opportunity when they deny them access to those resources. They are causing harm, not just being uninvolved with their neighbors' life, and they need to redress that harm in some reasonable way.

10) In a society divided into groups with quite different incomes or sources of money, that labor which is able to will often tend to gravitate toward serving the more affluent members of society for higher prices, rather than increasing volume at lower prices. Poorer members of society will find themselves shut out from certain services or products because those who provide them will find sufficient income just serving the more affluent. Providers will seek more leisure rather than additionally serving the needs of those whose payments would only be marginal. A doctor, for example, might close his office on some days rather than treat those who could only pay a limited amount for treatment. A car dealership might cater only to the luxury car market rather than also keeping a supply of less expensive models. Though in one country, the two societies will find themselves the equivalent of side-by-side countries, one of which is wealthy and the other poor. In this case, the less affluent members of society get squeezed out of goods and services they otherwise would have had and would have been able to earn. It is not as if they cannot work or do not work, but their work does not earn them the benefits it would have if the more affluent were not, in a sense, siphoning off goods and services that would otherwise be available for customers at lower prices. In such a case, some form of redress or accommodation would, I believe, be justified because the wealthy are thereby keeping services from the less wealthy, although they are not doing so intentionally and may not even realize they are doing it.

Reasonable Work

Again speaking here primarily about an affluent society, it seems to me that the greatest return from a person's talents requires him to work up to his potential and to therefore be in a job that allows him to utilize that potential. One of the jokes during the hard times of the domestic oil industry was "what do you call geological engineers in Houston?" The answer is "Waiter". Similar jokes could be made about aerospace engineers when the airline industry suffers and the government makes cutbacks in defense and in space research and development. Without scorning waiters or their intelligence, it would seem that society is losing out if it does not have a feasible mechanism available to help potentially or demonstrably good learners do something besides waiting tables, if those people want to work and want to do something that uses more of the kinds of abilities and skills than waiting tables does. 

And it seems to me not a feasible mechanism to simply allow only those who can afford the time and money to re-train or return to school. There need to be more effective and more encouraging mechanisms than that. People with great potential to contribute do not always have the time or money to get additional training, particularly college training, if they also need to work for immediate wages and if they have other kinds of family responsibilities. Scholarships, for example, may not be sufficient incentive or use if there is no way for someone to meet living expenses while in training; and loans may not suffice if they are too costly to pay back even if one is able to get work in the new field once he finishes training. 

There need to be mechanisms that make retraining more feasible or mechanisms that help pay for the person to use their skills, if those skills are important but not just fashionable or in enough current demand to be economically feasible without some sort of subsidization. 

I am not espousing "a free ride" for people, since that is often unproductive and since society does not have the obligation to provide a free ride, when less assistance will accomplish just as much, and be fairer to the people paying the bill. Nor am I espousing some huge, inflexible, centralized program that ends up causing more trouble than it is worth. I am basically saying that society should see the cultivation of human resources and abilities as an investment with potential good return, not just as something that helps an individual improve his own financial circumstances at society's expense. And I am saying society should try to develop mechanisms that channel that view into action. And since the incentive to train or retrain is made even more unappealing if society seems generally hostile or indifferent to whether one tries to actualize one's capabilities or not, the mere societal appreciation of the efforts of those seeking to improve themselves should even prove more encouraging.

(To Chapter 17)


Endnote #1 It seems to me this argument only has merit in cases of institutions that do not adversely affect those people who do not participate in them, especially those who cannot participate in them. If I and others form an organization that does not harm you in any way if you do not participate in it, but you have no service to offer us to make it worth our while to let you join with us, we have no obligation to make you part of that organization or to give you any of the benefits of that organization. However, if we have an organization that causes burdens or hardship to non-members, than it seems we have some sort of obligation either not to exclude anyone or to at least ameliorate or prevent the hardship we cause. I believe a case could be made that modern society is such that not to be a part of the economic system is a severe burden, and not just a disappointment or inconvenience. Most people are not born on farms or in the kinds of communities where they could be reasonably self-sufficient. To be on one's own in a large city or any other environment where self-sufficiency is difficult because all the good resources are divided among members of a group, is a severe liability, not just an inconvenience or the absence of a luxury. If, through no fault of one's own, one does not have reasonable opportunity for an education leading to a reasonable job, that is a severe burden today, not just an inconvenience or inconsequential bad luck.

Part of the problem with exclusive clubs that cater only to certain kinds of people (e.g., wealthy white males) is that many business dealings go on in them that therefore exclude people that some dealings ought not to exclude. John Kennedy pointed out, when asked about the propriety of press club functions that excluded women reporters, that he thought it was all right for male members of the press club to merely fraternize without having women members present if they so chose; but that it would be wrong for them to hold working meetings or to socialize in ways that influenced their professional success, and exclude the female members from them. I think there is merit to such a distinction. I believe that a distinction can be made between organizations that cause non-members undue harm, and those which simply do not let them participate in benefits that are in some sense "extras" or luxuries. (Return to text.)

Endnote #2 The view of many conservatives is that (government) redistribution of resources robs a society of incentive to work, and that socialism and communism are significantly less productive than a free market system, since without the incentive to work, few people will do it. Hence, the whole economy becomes weaker as more and more people try to sponge off the labor of fewer and fewer workers. Finally the system will collapse altogether. Churchill put it succinctly when he said that in capitalism there is unequal distribution of abundance whereas communism allows for the equal distribution of scarcity. For many, the notion of a communist or socialist work ethic is a contradiction, with ample historical example to support that view. 

The problem for any economic system is to balance fairness and productivity, not to eliminate one at the expense of the other. This is difficult for a number of reasons. (1) Fairness is essentially a moral concept, not an empirical one -- although empirical results, such as strikes and insurrections occur, when people feel they are treated so unfairly that they will not willingly submit to it any more. And balancing empirical results with moral concepts is not always easy, particularly when what seems fair to one group or generation may not seem fair to another, (2) It is difficult to tell, without experiment sometime, which elements of a socio/political/economic system effect productivity either for better or worse; and the fear of making things worse tends to inhibit experiments seeking improvement. Many social changes occur after riots or such widespread and obviously bad conditions that there seems little to lose and much to gain, by such experimentation. It is in relatively good economic times that people in power and people of means are particularly loathe to make any changes they believe might result in a severe decrease in productivity to achieve more fairness. (3) Different economic conditions may need different principles of distribution, but it is apparently difficult for governments to implement temporary measures and to keep them only temporarily, or to tie their existence to particular conditions, so that they can be self-eliminating. Any law tends to take on an inertia, life, and constituency of its own that makes it hard to eliminate when its usefulness has passed. (4) Purist ideological mind-sets tend to make too many people think that any modification of any aspect of one economic philosophy (whether capitalism, socialism, communism, or whatever) moves them entirely into an abhorrent system or starts them on a slippery slope toward that system; and that any criticism of any capitalistic or socialist practice or principle makes one a socialist or a reactionary.

It is also difficult to balance fairness with productivity, since there are a number of mistaken views of what constitutes either. I discussed these issues earlier, but let me point out here that I certainly do not equate economic productivity with either GNP or with greater material wealth; and I do not equate fairness with equality of distribution of wealth, nor with "the going (market) wage rate" in a given occupation. Philosopher John Rawls believed that reasonable rules for fairness could be derived if people made them up without being able to tell what position in society one might have. If you did not know whether you were to be a doctor or a stockbroker or a teacher, the rules for distribution you would choose, Rawls thinks, would be likely to be fair ones. I disagree. Many people think that there is no reason for anyone to be poor in a capitalist, free market system other than one's own laziness or lack of ability. They also believe that ability for marketability is a fair determining factor for wealth. People who hold such a view will be inclined to vote for free market capitalism because they believe it will afford them the best opportunity of a good position in life, even though they may not know what that position may be(5). So it seems to me that little is gained by voting for economic rules under Rawls' hypothetical veil of ignorance.

And although I do not believe that the most aggressive, acquisitive, fashionably talented, marketable, politically powerful, self-serving, or lucky people ought to have everything they can get, neither do I believe that we all ought to have equal profits regardless of effort. I tend to be inclined toward distribution rules that take into account effort; contribution; overall per capita wealth of the society; distinctions between distributions of luxuries, conveniences, and necessities; compassion; and fairness of real opportunity to contribute and to share in the distribution. And although the most reasonable principles of fairness may not yet have been discovered or widely agreed upon, that does not mean they could not be, or that the reasonable public pursuit of such principles would not be immensely economically beneficial.  (Return to text.)

1. A socially collective effort, in the sense I am using it, does not necessarily need to involve everyone. Just as there are charitable organizations that collect voluntary contributions for particular needs, businesses and governments could operate in the same way under certain conditions. Many utility companies, for example, have programs by which people can add an additional amount to the utility bills in order to assist paying for the utilities of poorer people. Not everyone contributes to such a fund. Governments could designate such funds for various projects that people wish to give voluntary contributions. Such voluntary taxes exist already in some states for people who purchase vanity license tags or special tags, such as those for supporting schools or the environment. Since voluntary contributions cannot always be counted on in the way taxes can be, then either programs served by voluntary funds need to be implemented on a pay-as-you-go plan, instead of by the expectation of contributions, and/or such programs, if they need long-term commitments, can be contractual ones for some particular span of time. Plans of this sort eliminate one of the major sources of friction of taxation - the forced contribution of one's money to a cause one does not support at all but for which a majority of citizens or representatives have forced them to pay.  (Return to text.)

2. There are circumstances under which democratic government (or any benevolent government) will be at odds with certain kinds of business practices. Those are the cases where fairness and other ethical or social values conflict with either productivity or with financial profit. The financial profit at issue may be the profit of the entire business or it may be the profit of certain individuals in that business. The fairness may have to do with distributing benefits and burdens fairly throughout society, or with regard to the workers in the business in question. These are cases essentially where constituencies of business conflict with those of government --business constituencies being those workers, investors, owner, suppliers, and customers who benefit from the products or services the business offers. Since governments may be concerned with fair distributions of burdens and benefits as well as productivity, and businesses may be only concerned with productivity or profit, government and business (or government and business ownership/management) may conflict. Conflicts also result where the profit motive conflicts with other ethical or social values, as in preventing the sale of donor body organs, company trade secrets, child labor, or good school grades.  (Return to text.)

I have argued that business profit includes, or ought to include, more than financial profit, but insofar as businesses don't hold that view, and insofar as those who are disadvantaged are represented by the government, conflicts may arise. This is not to say that fairness should always outweigh profit, efficiency, or productivity, nor that profit, productivity, and efficiency should always outweigh fairness. It is merely to point out that this is a potential difference between government and business that may sometimes put them at odds with each other in a way that has nothing to do with accountability, idleness, bureaucracy, etc.

3. By a fair profit, I do not mean something like "the going rate". The going rate is not always a fair payment. The going rate of many jobs is well below the value of the work they produce, but for reasons such as oversupply of labor or systematic under-appreciation of the value of the work or of the person doing the job (such as when women or minorities get paid less for the same work as white males), it has to be accepted by those needing work. The more unfair the going rate is, the more the use of such labor approaches slavery or essentially theft of wages. When the only jobs available are those that have unfair wages, it seems to me that the people who eschew them are not being totally unreasonable or undeserving of some sort of help by the more powerful in society, and the people who take them deserve to be helped to have a better life than their wages alone will permit.  (Return to text.)


4. The fable of the industrious ants who all summer stored food for the winter and warned the short-sighted, frivolous grasshopper to do the same, is well-known, and applicable here. The grasshopper had every opportunity to put food away for the winter, but did not. The ants had no obligation to feed him for the winter, though had they had enough food, they might have shared with him if they felt he really had learned his lesson and would not repeat the mistake. However, had the ants somehow cornered the market on food gathering before the grasshopper arrived on the scene, and had they taken far more than was necessary, and left nothing for the grasshopper to be able to gather, though he was willing to, I think that the fable would have turned out differently and allowed the grasshopper to take or to steal (back?) some of the food. Similarly, if people do not have access to decent jobs at decent wages in a given social order when such jobs and wages could be available, it seems to me that they have every right to at least peacefully try to change the social order into one which allows everyone who can work to have the opportunity to get a reasonable job at a reasonable wage.  (Return to text.)


5. I saw one wealthy businessman or government official (I forget who) say one time on television that if he lost all his money today, he could easily be a millionaire again in a relatively short time. And his implication was that anyone is easily able to become wealthy. If a Rawlsian-style "veil of ignorance" vote were taken, this man would vote for exactly the sort of economic system and society already existing. But I believe that is because he thinks of "position" as a particular career or job, which he thinks is unimportant. But "position" in society involves far more than one's career choice or result. It involves one's contacts, friends, family associations, knowledge of how to attract money or opportunity, desire to attract money or opportunity, knowledge of how to fit in, etc., etc., etc. To get a meaningful Rawlsian vote, you would have to disabuse anyone of the notion that nothing matters except one's own initiative and effort. Would, for example, the person who made the above claim, make it again if we not only took away all his money, but took away all his friends, took away his experience, turned him into a young minority person in an urban area with poor schools and high crime? If we count those things as "position", would he still vote the same way in a Rawlsian election? I don't know. He might be more likely to vote with the sort of "blindness" Rawls envisions; but I am not so sanguine about even that. It is easy to be wed to the view, when you have been successful, that anyone, under any conditions ought to be able to do what you did. If that view is not actually true (as I suspect it is not), then holding it is the sort of blindness to one's future position that will not yield the fair rules Rawls thinks blindness would give. People likely to hold that view will often point to the rare cases of individuals who rose from abject circumstances to become successful, wealthy, and powerful. They seem to miss the point that those cases are so much the exception that the conditions in which they occurred ought not to be the standard for which we strive in order to reproduce the results with any great frequency.  (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 17
Money, Labor, and Trade

As almost any economics text will point out, money (and I include here checks, credit cards, etc. --when there is money to make them good, and in those situations where they can be used just like money) is a very useful medium of exchange for trading products because (1) it is generally or universally accepted and therefore widely convertible to available products or services (and thus allows multiple party, sequential or non-simultaneous trades rather than your having to find someone whose specific product or service is what you want and who will be willing to trade it for the specific product or service you have to offer), (2) it is portable, (3) divisible (in a way that an airplane or a cow is not), (4) combinable (so that, for example, many people, even from different parts of the world, can invest "together" in an enterprise to which they could not contribute their personal labor, individually or in combination), (5) and durable (does not decay or spoil). Also (6), as John Stuart Mill pointed out, money makes trade generally easier by setting a standard by which other things can be readily compared with each other, so that people don't need to calculate how many tires are equivalent to how many hamburgers or cars or cigarettes or wallpaper rolls. Except under certain conditions (i.e., when money "changes value" over time or across borders) $100 worth of tires is worth $100 worth of hamburger or wallpaper rolls, etc. Each trader can price his item one time --in money-- and then look for trades with similar prices.

However, money, because of its widely accepted value for trading purposes, takes on the property, not only of a medium of exchange, but as a commodity itself --though a special kind of commodity; one of virtually universal desirability and necessity, with properties and potential properties that can greatly enhance or severely retard economic stability and progress by their management or mismanagement. Further, since money is an abstraction (i.e., under certain conditions an abstract equivalent to goods and services), it can be manipulated mathematically and psychologically in ways that (without those certain conditions) have no physical or ethical relationship to labor or trade. Certain physical, psychological, and ethical anomalies can occur that cause economic harm in terms of amount and direction of work that can be done or the effectiveness, as well as the fairness, of distribution of work and its results. Money can collect in places where it does little good and (simultaneously or independently) not be available in places where work is needed or wanted that cannot be purchased, even though idle or underemployed skilled labor is available and willing to do it. Money can collect in places where it ties up labor for work that is less necessary or useful than other possible ways of utilizing that labor. Money can go where it does not seem to be earned or deserved; and it does not always go where difficult or legitimate work is done. In short, the use of money, for whatever good it may contribute to, does not automatically nor always assist important, desired, or desirable production, and may help unfairly distribute benefits and burdens. The use of money (i.e., any durable, widely accepted, divisible, combinable, portable medium of exchange) allows a number of good things to happen (which might not so easily happen, or even happen at all, without such a medium) that bring about economic progress. But it also allows for some things to happen (which might not happen at all or perhaps not happen so easily without such a medium) that bring about economic weakness, instability, or harm.

There are a number of issues, phenomena, and ordinary, relatively uncontroversial judgments that all interrelate with the ideas in this chapter. It is impossible to discuss them all at once though they often come into play simultaneously in interrelated ways. I have chosen an order that I think will be instructive, but it is not the only order that would be useful. The order of introduction of the ensuing observations and the points they support is not meant to imply anything about their relative importance; it is merely a logical way of sequentially describing or dissecting and putting into perspective things that do not occur sequentially or in isolation from each other.

The essence of what I am going to try to show is that (1) normally, though it is not normally apparent, we think of economics as being limited (in a sense I will shortly explain) by ethics and by psychology; and (2) when an economic system obviously fails in regard to either ethics or psychology, societies tend to circumvent and supercede economic principles and forces in order to more directly influence satisfactory outcomes. (3) Economic systems sometimes fail in regard to ethics or psychology, but not in an obvious enough way for consensus that non-economic forces need to intervene or change the economic mechanism. (4) Properties of money sometimes cause production, distribution, and trade problems, yet mask doing so.

When I say that economics is normally limited by ethics and psychology, I mean that ethical judgments and psychological limitations take precedence (and legitimately so) over economic principles, policies, and practices. When economic policies and practices are thwarted by human nature (i.e., our psychological tendencies and habits), insofar as psychology cannot be changed, the economic system must change or fail. To be successful, economic principles must work with human nature, not contradict it. And although human nature and psychology allow for much variety and flexibility, there are limits to what is economically and socially "practical". With regard to ethics, when economic principles overwhelmingly conflict with our collective sense of values, it is the economic principles that we change. When economic forces tend toward obvious and egregiously undesirable results, we use other means to make certain those forces do not triumph. We do that both when we are trying to prevent terrible evils that economic considerations by themselves would bring about, and when we are trying to insure obvious and important good or right that economic principles by themselves would neglect or thwart. Though not all social or economic problems result from using money as a medium of exchange, many of them have to do with the actual properties of money, with psychological mistakes money tends to foster, and with moral issues that money tends to camouflage. Those are the ones this chapter addresses.

I want to make it clear from the outset, however, that this is not a sermon on money's being "the root of all evil". I take it the term "money" in that expression is symbolic or representative of either greed or the overzealous pursuit of the kind of material possession that is at the expense of greater non-material goods (i.e., inhumane and excessive, counterproductive materialism), and what I am interested in here is the problems caused by money with regard to things other than greed or excessive materialism as such. Of course greed, in the sense of trying to (whether legally or illegally) get back (distributed) from society or a community more than one's fair share for what he or she contributes, does cause individuals, communities, and economic systems much havoc. 

Trying to get more than one's fair share illegally (e.g., theft, embezzlement, selling illegal goods and services, kidnapping, extortion, etc.) causes obvious problems, but greed of that sort, and those problems, would exist even without money. Many things besides money can be stolen, extorted, taken as ransom, etc. Further, although money sometimes contributes psychologically to the acceptability of legally channeled greed as something that is "good" when (1) greed is merely considered the same as self-interest, (2) monetary profits are confused with "real" profit, and (3) money accumulation is confused with wealth, I have tried to dispel the first two of those beliefs in other sections of this book. The third view is relevant here, but not only with regard to greed. There are numerous reasons to amass money, greed being only one; but many of the purer motives for amassing money cause many of the same kinds of problems that greed does for reasons I will try to make clear soon. Throughout the book I give examples of non-material Goods that are important and that need to be kept in mind as benefits when obtained (or burdens when lost) and that need to be included in or juxtaposed with "economic" profit and loss, whether that profit and loss are described in terms of money or in terms of the things money may or may not buy.

Ethical Limitations On Economics

Let me point out what seems often to be forgotten by many people, particularly those economists who advocate using the financial or market models in the greatest possible number of realms of life. There are a great many possible kinds of trades and transactions that are reasonably and sensibly prohibited, from hiring murderers to bribery and baby-selling. There are some things in other words that money cannot buy, that are not open to purchase --not because there would not be willing buyers and sellers or traders, but because it would cause more problems than it solves, some in terms of fairness, some in terms of efficiency, and some in terms of unsavoriness at best and great harm at worst. 

The free market system, even in a generally free market economy, does not pervade all areas of life, and arguably ought not to. One of the most generally accepted definitions of economics (apart from adherents of Hayek) is "the system a society chooses to allocate its scarce resources". But many such allocations are not made on the basis of money at all, and in some cases sales and purchases or economic trades would be illegal. In many cases, money is not permitted to do the talking. Even such havens for successful entrepreneurs as country clubs do not generally auction off or sell golf tee-off times or tennis court times. There is usually some sort of sign-up system that has nothing to do with money or the relative wealth of members. Wealthy colleges are not allowed to pay officials for throwing sporting events against poorer schools. Babies and children are not to be bought or sold or traded for. Nor slaves. Nor stolen property or things one does not own or have clear title to. Nor illegal products or services such as drugs or sex. The bodies of deceased loved ones are not sold for dogfood or fertilizer even though that would bring a profit; much of a profit compared to the costs of burial. In some cases one has to have a business and/or professional license to do certain transactions, or one must have a union membership or professional license to perform certain labor; one cannot do something just because another person is willing to pay to have it done. 

Police, elected officials, and judges are not supposed to be paid for special favors or to ignore wrongdoing. In a number of situations drawings are held or some other form of chance is used to see who gets a desirable scarce resource. A coin is flipped to see which football team gets a choice of kicking or receiving, or side of the field. And the other team gets the choice the first team eschews. If the team that wins the toss chooses field side, they cannot also choose whether to kick or receive. In such a case, even the luck of chance can only win for you one desired scarce resource, not both of them. Money avails either team nothing in this regard, and should not. Teachers do not sell the best seats in class or give the best grades to those who could pay for them. Job promotions are not supposed to be given to those who pay for them (whether in money, or in other personal services or favors, such as sex, though there seems to be some disregard to this latter by some of those on top and some of those working their way up). 

Sports leagues also have elaborate plans for hiring new players --drafts, chance drawings for order of participation in drafts, free-agency rules, expansion pools, monetary limitations of various sorts. In many cases the least successful teams get first choice of best available new talent, certainly an anti-free-market hiring system. The plan is in order to try to keep balance or parity in the sport and thus make the sport overall more exciting for more fans, by preventing increasingly greater residual or perennial domination by a team that happens to be athletically or financially successful one year. Whether this is fair to new players with great talent is sometimes at issue, and there are other mechanisms at work to deal with that problem. The point, however, is that team wealth is not supposed to be the only or the determining factor for hiring the best players. 

There are also a number of regulatory restraints on doing business, including the financial markets, many self-imposed by members of the trade themselves or members of the overall business community. In some cases regulation is welcomed by an industry that realizes the most efficient way to do business is not the right way to do it, but where no one can afford to be inefficient and ethical if others in the industry will not also be. Not all regulations, whether government or privately imposed, are without merit, even though they may prevent transactions between willing partners. In fact, one of the ways of looking at the ideal role of regulation, whether by government or by self-policing industry mechanisms, is to prevent those voluntary transactions that would be good for the agents involved but which would harm innocent or deserving others in society. Such regulation is meant to preclude those acts that would normally be considered wrong or unethical, and that would never be voluntarily entered into, if everyone had a stronger sense of ethics. Unfortunately particular regulations are not always the most appropriate regulations or the morally best solutions themselves, and therefore the ideal in this regard is not met. And also unfortunately, external regulation is not nearly as effective nor as tolerated and embraced as internalized ethical understanding and principles. Where there is externally sanctioned regulation instead of internally embraced ethical understanding, resentment arises from having to comply with unappreciated regulations, and loopholes are sought to circumvent the spirit of the regulation while meeting its letter. When people act appropriately out of ethical understanding and conviction, they normally do not have such resentment about what they "cannot" do, and they normally are not seeking to comply only with the letter, not the spirit, of what they know is right.

There are also a great many areas of life where we do things for each other without money, and that even the government tax agents would not consider barter or have us pay taxes on. Two families may take turns baby-sitting each other's children. A friendly passer-by may jumpstart the stalled car of a stranded motorist or might change a tire for a person unable to do it for himself. Many good Samaritans would even refuse payment for helping out. Most married couples still frequently divide labor without monetary payment, even though this often means the spouse that does most of the housework ends up with less of the money because housework and child-rearing in a marriage is normally not compensated at maid and nanny rates. People may volunteer or pool all kinds of labor to build a barn or church or school or playground, or to build or make more energy efficient, homes for disadvantaged people. Churches and schools need and get all kinds of volunteer, unpaid labor(1). People often freely volunteer not only their unskilled labor, but often their professional labor. Many people will use the skills they normally charge money for to do something free for someone they feel deserves charity, a reward, a favor, or just simply a helping hand. One might also put great professional effort into doing something for someone one likes simply for giving them joy or seeing that joy on their face.

Community consensus (whether local, regional, national, global, or whatever) about economic or quality of life goals makes real economic accomplishment much easier, by allowing the suspension or modification of otherwise normal economic practices and beliefs. When a country fights a war or has a particular natural disaster strike many of its citizens,(2) non-market efforts necessary to cope are met with much less resistance, even enthusiasm; and "normal" economic policies tend to be suspended or ignored when they are seen to be impediments to achieving certain goals. For example, in wartime, jobs are expected to be held for (or given back to) those who serve in the military. There are laws in the U.S. that protect the jobs of reservists called up to active duty. And public sentiment even without such laws, in times of "popular" wars would likely punish any employer known to fire war veterans for not having remained at their jobs. As of this writing, public sentiment in the United States is gathering momentum in favor of unpaid "family leave" for workers who need to tend to sick children, infirm parents, school problems, or other kinds of family emergencies that can happen to almost anyone. But paid family leave is not, at this point, even a consideration. And few employers are understanding enough to hold a job for an employee who "only" wants to take some time off in order to work on something important to him or to have some time just to contemplate or replenish his spirit. Most people reading this would say "of course, no employer would do that". But it may be that under certain circumstances that could be most productive and profitable for a company. Even when some companies show success from (or with) such behavior, other companies are not likely to buy in immediately, but will feel they cannot "afford" it.

During times of national consensus about the suspension of normal economic practices and policies, not only are employers expected to make sacrifices, but customers tend to accept the inconveniences so that those sacrifices are not as great. As labor is channeled into the war effort, customers tend to remain loyal to companies whose capacities are diminished because of it. Interruptions in services and supplies because of sacrifices to the war effort (or hurricane relief effort) are more acceptably and even cheerfully borne by those customers effected. That will be less so, at least at first, if family leave policies become the law and cause such interruptions, just as interruptions in service are not happily accepted by customers "just because" employees are on vacation. And it is virtually impossible to expect customers any time soon to accept interruptions caused by a company's making adjustments to an employee's absence in order to contemplate life or work on some idea he thinks important. Even if we all wanted those things for ourselves, as we want vacations, somehow they seem frivolous or not in the spirit of progress. Not like efforts to accumulate more money or sell more things or stage community golf tournaments.

In fact the rise and acceptance of spectator sports as hugely profitable business is a form of community consensus about what is economic progress and worthwhile goals that people of past centuries (and I suspect future ones too) probably could not explain or imagine. Professional athletes are not only not considered idle labor, but are paid handsomely to do what they do, and are admired and respected as people for their prowess and efforts. A company, for example, which would not think to give its employees a week off, apart from vacation, to play some non-business related golf will pay those employees their salaries to be absent from work if they are helping stage a golf event the company sponsors. And customers may willingly accept the costs and burdens such business practices pass on to them because they think it is a good thing the company is doing. Community consensus about values and goals is what makes this sort of thing possible.

And this is different from simply saying that the free enterprise system simply gives people what they want, for a price. Consensus brings about a mind set that allows the suspension of normal free market practice when it is widely believed that free market practices will not provide what is wanted. Consensus says profit and price are not as important as winning a war, relieving the suffering of a particular disaster, promoting sports in a community (or chess matches or ballet or high school academic programs), or taking care of one's elders or one's children. Consensus allows the suspension of ordinarily valued "economic" financial principles in order to promote broadly agreed upon goals when we do not know how to achieve them through the normal theories and practices of the economic system. And consensus does not always come from purely financial or monetary considerations; that is why leadership (from whatever sources), education, information, perspective, and communication are potentially as important as economic principles, in achieving a better or at least more broadly desired quality of life. These things help us understand when (financial) economic principles alone impede or slow achievement.

Conversely, "black markets" --or the illegal buying and selling of illegal products and services-- flourish where a (perhaps substantial) percentage of society does not agree with the view that certain products and labor are wrong to trade even though they are illegal. 

Money as "Moral Credit"

There is another way of looking at money besides its being a medium of exchange. It can be thought of as a particular kind of moral credit quasi voucher given by people who purchase products or services to those they purchase from, telling other members of society that it is all right to share their labor or products with the person who holds the money because that person has contributed to society through his/her previous labor which s/he has traded for the money. Money acts to vouch for a person's being entitled to distribution of society's labor because the person with the money has supposedly made a contribution of their labor in order to earn the money. (Loans and financial investment act in a slightly different way, and have a two-fold nature. They give or establish moral credit for labor expected to be performed in the future, a portion of the fruits of which will be shared with the lender/investor. And they are a transfer of the rights to what the lender/investor has earned through his/her past labor. Money gifts also act in this latter way.) The money is evidence they have worked and earned the right to a portion of the fruits of others in the society who labor (or in the case of loans/investment, money is evidence they have promised and are expected to work and deserve a portion of the fruits of the labor of others, and that the person who have loaned/invested the money have worked and earned the right to a portion of the fruits of the labor of others.) Having money is a sign one has made a contribution of service, or that one has duly received it form someone who has. The money is then supposedly proportional to the contribution. The nearest this comes into public consciousness is perhaps when people give a great deal of respect to someone who has earned a great deal of money because they believe (whether accurately or not, and whether reasonably or not) that person must have done a great deal of good for society in order to have earned so much in return. This is different from respecting someone for good they have done with their earnings, or from "honoring" someone wealthy for good you hope they will do (for you or your organization) with their earnings.

Part of the point of trade, as opposed to just giving things away or looking for free gifts, is the notion of swapping one's labor for someone else's in a kind of fair or even exchange. When you barter fairly with someone (with neither side taking advantage of the other), you know each has earned the others' labor because you each get some product or service for your own labor. When money is swapped fairly for a service in that way, the money bestows on the one paid a public sign of quasi merit or deservingness of someone else's labor or product. When you buy something from someone for $100, you are essentially giving him a voucher or an IOU that he can cash in for a service or product from anyone willing to take his IOU to pass on to others for their services or products. Most people are willing to accept the IOU (that is, the money), at least for a service they believe legitimate to provide (e.g., something they believe is moral, legal, and not overly burdensome psychologically or physically compared with what the money can buy them). But the money does not always have to be accepted as trade for a service. That is why I used the word quasi in describing money's public significance as a sign of deservingness. Some people, who are already too overworked or busy will not be able to accept it because they have insufficient time or energy available to labor for you for your money. Or it cannot buy a product that is unavailable. Some honest people will not take another's money for a service they do not feel they can perform well enough to deserve the money. And some people will not cash in an "IOU", as represented by money, for someone they feel does not deserve what they are selling at any price, for reasons other than the spender's past labor. (On National Public Radio's All Things Considered one night a shopkeeper told about refusing to sell something she had lovingly and painstakingly made, to a woman who she thought had no real appreciation for the item and who had been quite arrogant about her collection of such items and her intention to add this one to it. The shopkeeper even refused the woman's offer of much more than the original asking price.) Or some people will refuse to provide a product or service, for any amount of money, to someone they believe earned that money illegally or immorally (i.e., will refuse to take money they feel is "dirty"). Some people will not accept money that was made in some unearned or undeservedly earned way(3); for example, a lawyer for the working poor may not sell his services to an oil baron whom he feels has achieved his wealth through luck, through loopholes in the system, through inheritance, through taking advantage of labor that worked cheaply out of the need for mere survival, etc. Money is a sign that it is all right to trade with someone who offers it, if you want to; it is not a sign of an obligation to trade your work for their money(4). One's money may "not be good" in some circumstances.

Money as a Claim on Labor

Except for those situations just mentioned where someone "forfeits" the right to purchase something with his money, money may also be looked at as a claim on labor. Trading with someone is essentially trading your labor for theirs. When one side pays in money, that money becomes a claim on someone's labor. There is an old joke about one person's winning $100 in a bet from another. He is so proud he says he is going to frame the money so he can look at it every day. The second person says "Then in that case, I'll write you a check." He would like to do so in order to keep the $100. If instead of betting, he had bought a $100 chair, then paying by a check that is never cashed means he gets the chair for no labor of his own. And if he has already done sufficient labor to allow him to cover that $100 check, he can then trade that same labor "again" for (essentially) twice the amount of labor he otherwise could, because the chair-provider labored for him for nothing. 

If you think of money as equivalent to a particular number of person-hours of labor (or units of skill or units of expertise -- anything having to do with some form or other of labor, whether mental or physical), then paying for something with money you earned from your previous labor means bestowing on the seller the right to have others do something for him which he will give up his "voucher" (the money) for. Giving someone money in payment for a good or service "vouches" to others that he has performed such a service and therefore deserves in return what he trades the money for. Buying a good or service with money completes the trade one began by performing a service or parting with a good for that money. And with regard to money someone else pays you for your labor, if you hold that money (say, in a drawer, as opposed to investing it or loaning it, or putting it in a bank which does those things), then you are saving up or storing up, or postponing getting, the benefits of your already completed past labor in order to get someone else's labor in return for yours, but simply in the future.

This way of viewing money puts trade imbalances into perspective different from the way they are often understood. In money, trade imbalances favor the nation making the most money; but in labor and products, trade imbalances favor the nation giving up the money, because they are getting things in return for money, for which they do not have to do labor to get back. As long as the other country does not intend to buy your products or services with that money, you may as well be writing them checks they never cash.(5) Consider the U.S.-Japanese trade imbalance (or the imbalance with any country from whom we import more than we export, thus giving them the supposedly favorable balance of trade). If the Japanese do not buy American products, or buy things from a country that will, then essentially the Japanese are laboring for us (building us cars and electronic equipment) for uncashed checks (i.e., unspent dollar bills); they are trading their labor for our money and not requiring us to labor for them in return. The more monetary profit Japan makes from us, essentially the more work they are doing for us for nothing. Money is only good as a means of exchange in trade --as a means of purchasing labor or the products of labor.

The television ads and the protectionist lobbying claims that our "unfavorable" balance of trade hurts us are only true in certain regards. Any hoarding of money "skews" the relationship between labor that is available, and the money that activates that labor. As will be explained later, if you have any group of people among whom just the right amount of money is flowing to keep them all laboring and trading with each other, anything that disrupts the flow of money, distorts or confounds the trading and therefore the laboring process as well. When the Japanese (or any countries) sell to us but do not buy from us, they are hoarding our money and disrupting its flow and thus our laboring process (jobs). But this disruption is no different than if Americans hoarded money. What has to be done is either to entice the hoarding to stop or to make allowances in the money/labor/trade relationships in society for it to continue --by considering the imbalance of trade payments as being made in checks that essentially will not soon or ever be cashed, so that the money is still available to those that need it to be available, in order to sell their labor for it. Money that is taken out of circulation has to be accounted for somehow in relationship to tradeable labor (i.e., being the intermediary in trade that allows trade to happen), or it is no longer an intermediary for trade and thus slows or halts trade. When money is taken out of circulation by not being spent for a period of time, it causes to go idle for that time the amount of available potential labor it could purchase. If the time in question is too long and too many people withhold purchasing sufficient labor from the same source, that source may be unable to earn a sufficient living to stay in that business. From the idle laborer's point of view, unless there is other work for him to do, this is unfortunate; but it is not unfortunate otherwise from the standpoint of society if no one would ever care to purchase that particular kind of labor (i.e., making that labor obsolete). It is unfortunate, however, for society as well as the individual worker, if, merely by postponing purchases they will someday want, people allow or cause to become extinct the kind of labor they will then have to do without when they finally do want it. A business cannot survive only on the hope or promise of possible future sales.

For example, suppose you grow food and that you trade what you do not need to a friend who makes clothes. He trades the excess clothes he makes to you for that food. Suppose that you trade in money as a way of keeping track (since your trades otherwise may not be simultaneous) and that you simply keep passing the money back and forth between you as you trade with each other. Then suppose you find someone who will sell you clothes for less, but does not want to buy your food. Suppose they will even extend you credit after you run out of money, and that this is still cheaper from buying from your friend. Now a number of things happen. You are getting clothes for nothing (other than pieces of paper you call money), and you can either just give your excess food to your friend, since he is your friend, or you can cut back on your labor and force your friend to find food elsewhere, either by producing his own and not making so much clothes, or by finding another market for his clothes, or by going into a line of work the clothing makers you are trading with will trade with him for so he can buy food from you for you to pay off your debts if you want to. But you may not want to work so hard --you have essentially unlimited credit, after all. What is the problem for you?

The problem for you is that your new clothes maker could simply stop your credit, stop making clothes for you, or could seek repayment (and may have a legal claim on your farm as that payment). If he stops making clothes for you, and your friend has gone out of the clothes making business and cannot start up again, you are stuck without clothes. If you have to pay your debts with your farm, then you are stuck without a means of trade or food. If you have shared your food with your friend and allowed him to keep his clothes-making facilities, and if you legally do not have to give up your farm for payment of your debts, than no harm is done. You simply resume trading with your friend. He may have stockpiled clothes, or simply enjoyed more leisure, since he did not have to make any for you.

All this is the kind of thing that happens with national trade imbalances, say Japan and the United States. Insofar as there is a trade imbalance, Japan is essentially hoarding our money, and giving us their labor for that money without using our labor (by not buying our products). We have to choose then what to do with that excess, otherwise idle or unemployed, unpaid labor we have. But that choice depends on the problem that we do not know when and how Japan may want to spend its dollars. It is like paying a bet with a check that is hung in a frame on a wall --but which may be taken out of that frame and cashed at any time. If it is not cashed, we have the money to spend, but we cannot spend it if we always have to keep the money in the bank to honor the check in case it were to be cashed. The check problem is solved because checks do not have to be honored after a certain period of time. Money can only be partially solved that way.

A country could, for example, say that unless the trade imbalance is satisfactorily addressed by the "creditor" nation by a certain period, any future sales (of any sort --real estate, labor, products) to foreign countries will have a tariff, thus devaluing money that is not spent before the tariff goes into effect. Or the debtor nation could (threaten to) refuse to sell much at all to foreign countries, thus devaluing the money altogether that was not traded back to them for goods and services before that became policy. In other words the debtor nation would be welshing on their earlier one-sided trading, not because they were trying to steal past products from the supplying nation, but in self-defense of the supplying nation's knowingly skewing the buying nation's domestic economy by disturbing its money supply and therefore its money/labor/trade system. That would be like saying in the three person example above that the third party cannot, at some future time, take the farm or buy or take all the food the farmer produces simply because they were hoarding money by practicing one-sided trading earlier. If there is no mechanism for getting money savings or hoardings back into an economy, or somehow replacing it, employment will be diminished by the amount taken out of circulation. Money is durable and therefore can be stored, but labor, or particular labor, is not; nor is unpaid, idle labor that needs trade and money to survive even while being idle. Out of work people cannot just go dormant until work appears; they have needs they need money to meet. An economic system needs a way of employing and paying for temporarily idle labor without devaluing savings. Savings is legitimate, but how to have savings and trade simultaneously is a problem. Loaning out or investing portions of savings is not the total answer to the savings/hoarding problem because (1) some loans or investments are lost, (2) interest does not always have a relationship to actual or physical progress, and (3) not everyone can get loans when they need them, especially when interest rates are high.

Money as Representing Labor

Money allows labor to be represented in discrete portions. Sometimes this is a good thing. Thus we can speak of one hour's worth of labor at some particular monetary value. In reality labor may not be worth amounts in particles, since a task that takes four hours and costs $200 may not be worth anything at all if it is left three fourths unfinished; the fourth that is done may not be worth $50 if the remainder is not completed. Unless someone can be found to finish a job for the same price and can do it at least as well the first person would have done it, a part of a job is not worth the money that the fractional monetary value represents. Three fourths of major surgery left uncompleted is not worth one fourth of the total amount had the surgery been completed. One fourth (the building) of an automobile is not worth one fourth of the total cost of a functioning automobile. A taxi ride half way across a desert is not worth half of an intended taxi ride all the way across the desert to the other side.

Many exchanges that are made with money could have been made just as well without money, e.g., by direct trade or barter. And money facilitates some trades which could theoretically have been made without money, but which would have been much more difficult, time-consuming, and wastefully inefficient to do that way. For example, if I have something you want and you have something another person wants and he has something I want, and we are all willing to trade, we need to be brought together or we need to agree to the trade and allow it to take place over time so that when I see you, I give you what you want and remain content to wait until you and the third person make an exchange and you or he brings me what you owe me from him. Theoretically even complicated, large multi-party exchanges could work this way, and some do, but they are so much trouble that for practical purposes they seldom occur.

Consider the complex situation where hundreds or thousands of workers build something like large, passenger airplanes. Airlines buy them and then pay for them (or repay the loans for them) by charging passengers to take them places in the planes. These people pay for those tickets from a fraction of the money they make from selling their goods or services. Theoretically everything could be paid in direct goods and services, but that would require such work to keep track of and deliver that few such planes would ever get built.

Even interest transactions, which at first seem to be merely about money, could be expressed in goods and services: e.g., if you let me use your gun today to go hunting, I will return your gun and give you one, or part of one, of the turkeys I shoot. If we wanted to, which usually we do not, we could invest in a new company, not by putting money into it, but by getting a group of people together who are willing to feed, clothe, and shelter workers in the new enterprize until that enterprize brings in sufficient money for them to move out onto their own and then repay everyone in the goods they produce -- paying more than the equivalent services we gave them by giving us enough goods and services to count as interest on that re-payment. Or we could take people into our homes and provide for them while they go through law or medical school in return for legal and medical work they perform for us later. To make their services include an in-kind interest payment, they would simply have to repay, say, $10,000 worth of room and board with, say, $11,000 worth of legal or medical services. (That is, if 100 hours of legal service were equivalent to 1000 hours of room and board, it would take 110 hours of legal work to include the interest for each 1000 hours of room and board.)

Even financial institutions could be thought of as giant repositories for all kinds of good and services that could be used by people until they become able to give them back, along with additional goods or services they themselves now produce (or what they trade for those). This would all be cumbersome and complicated, of course, but theoretically that is what we are doing when we do all this using money instead. Money facilitates the whole process by being easier to keep track of, by allowing things to happen at a greater distance (e.g., someone in New York can invest in an enterprise in Paris or Albuquerque by swapping his labor for money, sending the money to someone in Paris or Albuquerque to swap back into needed goods and services), by allowing the combination of labor from different people to jointly support new investment, and by allowing individuals to contribute toward new enterprise with whatever fraction of the fruits of their labor they can afford to contribute. By being able to combine the equivalent of fractions of labor from different people, money allows people to invest in enterprises they might not be able to support by themselves --by turning sums of their fractional labor into other people's whole labor.

The loss of money in investment or to a loan that is not repaid is generally translatable into the (at least partial) support of people in an enterprise that did not pan out sufficiently to produce enough tradeable goods or services to give a return. It is not that the money disappeared into thin air; it was paid out for things that were consumed and could not then be traded back for money. The money was traded (i.e., paid) to others who did not have to repay it to the people you loaned it to or invested it in. It in essence went to support what turned out to be non-useful labor. And it means that you have depleted a storehouse of useful extra labor that you had accumulated by trading your services for the future services of other people. The services you then purchased by your investment were of no value to you. You traded past services for services that could have been of great value to you but which instead returned nothing to you. It is not unlike planting crops that get ruined in drought; it is wasted labor. Of course, by "wasted" I mean only wasted in the sense of having no material return. In some sort of moral, existential, psychological, or spiritual and emotional senses, the person who plants crops that drought ruins is quite different from the person who plants no crops (does no work) at all. And collectively, investment and labor tend to profit society even though some labor does not give an immediate return or sometimes any return at all. If a percentage of labor is going to fail to pay off, and it is impossible to tell ahead of time which labor will fail, then collectively there is a big difference between not laboring successfully and not laboring at all. Not laboring at all gives no collective return.

There are other properties of money that cause trade anomalies or break downs in trade. One obvious case where goods and services and their monetary equivalent part company is when the value of money changes relative to the value of all goods relatively simultaneously, that is, when there is inflation or deflation of currency, whether occurring naturally or by manipulation. When inflation or deflation occurs, money gains or loses value compared to all other goods and services; those goods and services do not change value with regard to each other EXCEPT where exchanges occur that take place over time and include money as a medium. In these latter exchanges, the value of one's labor, represented as being "stored" in money one has traded it for, changes as the value of the money changes. For example, suppose 10 years ago one hour of your labor was worth one hour of the labor of another particular person so that you regularly bartered or swapped out your services to each other evenly on an hourly basis; and suppose that was also true today, but that in the meantime inflation had cut the value of money in half so that both of you now charge others twice what you had charged for the same work 10 years earlier. If, instead of agreeing simply to swap out services on an equal time basis, you had taken money from your neighbor 10 years ago for an hour of your work, and simply set it aside to pay back to him when you needed his services ten years later, your hour's worth of labor then would only buy a half hour's worth of his work now. That is not the kind of labor trade one tends to want to make.

What inflation does is to decrease the value of money and thereby to alter the value of any labor or trade that is contracted for a later time, but in fixed amounts of money at the "value" of the money (i.e., what it would buy) at the time of the contract. Deflation increases the value of money over a time span, because of the overall decrease of the cost of goods and services. Inflation and deflation are monetary occurrences that affect the value of the return we get for our labor by affecting how much future labor we will be able to exchange our past labor for (past labor whose trading worth is "stored" in money).

Long term, fixed-rate contracts, and savings stored as fixed amounts of money not indexed to inflation nor tied to inflation-related interest rates, are the sorts of things affected by inflation that skew the value of people's labor. It is clear to most people that inflation tends to devalue money. What is not so obvious is that it essentially then lessens the trade value of the contribution one made in the past without actually lessening its real or actual and moral contribution or benefit. If for purposes of this discussion we equate the value of work with its actual labor time, it is obviously not fair for a person to make a 50 hour contribution and then only get back 25 hours worth of work in trade for it, simply because the medium of exchange he stored what was owed to him became worth less. (Foreign exchange rate changes act in this same way as inflation and deflation in this regard.)

Much of what we call inflation, however, is not true inflation. It is not inflation when one sector of the economy (i.e., one kind, or group of related goods and services) becomes relatively more expensive than the rest. That is merely a relative change in the value of, or the demand for, that sector of the economy. Such a relative change can occur for any number of reasons --scarcity of materials or skilled labor, more education or expertise or effort required because the task required has become more difficult in some way, or its criteria for being judged has changed in some way, more expensive equipment required, greater demand by people willing to pay more for the service, tolerated price gouging (whether by individuals, monopoly, collusion, oligopoly or however), improvements in the service, etc.

Trade and the value of labor are also effected by the way money comes into or goes out of circulation, and by where it goes. The mere printing of money by a government, or the finding of gold when a country is on a gold standard can cause inflation. The hoarding of money can bring trade to a halt. Imagine a large society that is a sort of perfect Adam Smith free market economy, where everyone is employed and busy working and trading with each other and everyone is contributing and feeling that he is getting a fair return for his work. Suppose they are trading with each other by using money (or checks and credit fully backed by money) as their exchange medium. Then suppose that a fire in the bank burns a substantial amount of money and the records of who had how much. And suppose there are no other records. Arguably this could severely damage trade now, even though there is still the same amount of labor available as before and the same needs to be met. By altering or removing substantial amounts of the medium of exchange, without a way to compensate for doing so, the laboring and trading relationships get adversely effected even though nothing has happened to people or the non-monetary parts of the world. Substantial hoarding of money can do the same kind of thing. It takes out of circulation money that is necessary to keep trade flowing at a desirable, level. By correlation, if sufficient new money does not come into circulation to keep trade flowing when the amount of available labor or fruits of labor increases (either by population growth or by new discoveries or inventions), labor and trade will be adversely effected in the same way.

But where money "flows to" or collects (or pools) is as important as how much is available to circulate. For example, hoarding cuts down on circulation, not because there is not money available to circulate, but because it is not being allowed to circulate in the way it needs to in order to keep everyone contributing and being distributed to (i.e., working and being paid or traded to for their work). Though the effects of hoarding are the same as if money were burned or insufficiently printed, hoarding is not quite the same because the money is available to be used and could be put back into circulation. But money does not have to be hoarded to end up in the "wrong places" and thereby adversely effect trade. I will explain that shortly, but first examine the opposite kind of case, the case where too much money goes into circulation.

If everyone is working at appropriately full capacity (which is different for different societies or under different conditions -- e.g., 30 hours/week, 40, 60, 96), and all is flowing smoothly, adding more money in some reasonably equal way, and with everyone knowing it, will only effect (increase) prices, not provide more labor or change distribution. Similarly but opposite, suppose someone has a severe loss of a resource that is useful and somewhat valuable to the community -- suppose a chicken coop goes up in flames and kills a great number of chickens, or suppose a hard freeze during the growing season destroys many oranges. Now there will be the same amount of money there was when everything was flowing smoothly, but there will be less to distribute, less to buy with that money. If there is an insurance or re-stocking mechanism in the community, that money can be used to pay for the farmer's starting over to re-supply the community when he has built back his farm. All will remain stable except that the community will have to do without chicken or oranges for a period of time. However, if there is no resupplying mechanism or the chickens or oranges cannot be replaced (or the farmer dies, moves, or decides not to go back into farming), then there is more money than necessary for the same amount of labor minus the farming, and it is very likely prices will now change on the remaining labor and commodities. There is also the question of how the ex-farmer will enter the market, if he does, and how that will effect labor, trade, and the flow of money.

These questions would have to be answered even if the trade economy of that community did not involve money. If a farmer loses a crop or stock that everyone wants to see replenished, they will have to give the fruits of their labor to the farmer in order to see him through the time when he has nothing to give them in return. They will be "paying" him but getting nothing in return except the ability to buy future chickens or oranges. If that farmer simply goes out of the farming business, new trade relationships will have to be established since people will have things they used to trade for oranges or chickens that they either have to keep themselves or trade for other things or discontinue to produce since there may not be anything available they would want. In a money economy, however, this may not be as easy to see. When people go out of business for whatever reason, others may notice they can no longer buy some things they wanted, but they see themselves as being wealthier because they now have more money. They are actually not wealthier, but poorer, since less is available to trade for, and either prices of things will go up, or they will have more money but less to buy. If you have more peaches or steel than you need for yourself and no one else needs them or can trade you anything for them, you are obviously not better off. But if you have more money then you need for yourself or can trade for anything, you are in the same predicament; it just probably will not seem that way.

Suppose now we return to our perfect Adam Smithian community and make a different kind of change. Suppose that by cutting down on his consumption, someone in the community is able to amass more of one or more products (either what he produces, or what he has collected in trade) than he has immediate need or use for. There are a number of options for him now. He might cut back on his labor (which, of course he could have done before he traded for more than he needed). He might share with the rest of the community or some people in it. He might charge less for what he produces. He might save for a longer period of time so that he can quit working altogether and meet his needs by trading away the stuff he has amassed or so that he can survive in case he has to quit working or in case he develops extra needs (i.e, save for a "rainy day"). He might exchange this extra stuff for different extra stuff. Or he might be able to entice someone to work for him or with him, or to entice someone to change the work they do, thus affecting the goods and services available to the rest of the community. He might, for example, entice a seamstress to make him very fancy clothes that take time away from her other customers, because he can pay her more than they can. 

Notice that all these choices have consequences for the rest of the community, not just for himself. If he retires altogether to live on his "savings", he removes from the community future Goods or Services. This assumes he can sell or trade what he has amassed, which, if he does, takes future business away from those who make it, though it gave them business when he traded for it. If he hires the seamstress away from her other customers, the other customers will have to do without or find someone else, or offer her more than he does -- which will take things away from others or make them have to work longer hours to produce more. His actions will effect others, not just himself. This is not any different than if the example were done using money that he had saved; it is just that the effects on the rest of the community are not always as obvious. A more beneficial use of his savings would be to successfully (which is difficult to know ahead of time) employ someone to (i.e., pay for the upkeep of someone while they) try to invent or discover a better method of doing something -- that is, essentially to employ someone to do research into improvements in labor. 

Retirement, whether forced or otherwise, always takes labor away from a community. It does so by the elimination of the work the person was doing; and it also does so by the taking from others what they could have traded for had the retired person not still been consuming without continuing to provide labor benefits. In other words, the retired person is still taking things out of the community without contributing to the community what he could. ("Economically" death differs from retirement in that death removes from a community not only the contribution of the deceased, but also the need to provide products and labor for him/her.) There may be good reasons to permit retirement and thus to remove labor from a community while still having to provide goods and services to someone who is no longer making a contribution of goods and services, -- e.g., (1) because working harder when you are younger may be preferable to working when you are older even though you wouldn't have to work as hard when you are young if you are going to work longer in life; (2) because in some cases or in some jobs older people may not work as productively as younger people so that more hours put in younger in life may be worth more to the community than hours worked when one is older; (3) because some work is psychologically and physically harder on old people and they should not have to bear it if they don't want to; (4) because people sometimes lose touch with future needs after solving their own contemporary generation's problems; and can't make as much a contribution -- in some cases (i.e., cases where experience is not as helpful as innovation); etc. Of course, retirement presumes that leisure is preferable to slowing down at work or working part time, or continuing to work altogether just because one enjoys one's work. Retirement, in terms of no longer having to contribute in order to be fairly distributed to, presumes that there is only some specific amount of contribution one needs to make in order to not have to do so any longer once one has reached one's quota of contribution or contributed labor. 

This will be more acceptable to societies that have fewer needs or demands that require human labor to meet; and less acceptable for societies that require more labor in order to have their needs met. A joke that appeared in Readers' Digest when I was young was about a group of soldiers about to engage an enemy of vastly superior force. Just before the battle their leader told them they would be outnumbered twenty to one, but he expected every man to fight as hard as he could. During the battle one soldier was found relaxing against a tree, and the leader demanded to know why he was not fighting, since he was obviously not hurt. "Sarge, I already got my twenty." That is obviously a situation where retirement is not desirable; it is not like everyone having to pick a half-pound of blueberries for pies, and the person who picks the fastest getting to relax once he "gets his half pound". As of this writing, in the United States the population is living to an older age and the proportion of people at "working age" in relation to those retired is shifting. Other things being equal, it may be that full retirement for people living longer, especially when their numbers increase in proportion to those working, may not be as acceptable or reasonable as when there are fewer retired people in proportion to the working population. This is obvious when one talks about labor needs and labor supply (contribution and distribution in terms of Goods and Services); it is less obvious when one talks about it merely in terms of money. Money obscures the relationships in cases where retired people seem to have money to retire on or where there seems to be enough money (e.g., social security or tax money or whatever) available to support them, but which in reality then is costing everyone additional labor or the fruits of labor that could be directed toward the needs or desires of others.

The caveat above was "other things being equal". Other things are not necessarily equal. In cases where technology and industry can produce more with less human labor, a smaller human labor force can, of course, support more people who are not working, and who have been deemed still deserving to be distributed to because they contributed their fair share of labor already. And even if a working labor force cannot meet all the desires of everyone if it is also supporting a non-working group of people, there may be a fair way to divide a limited number of conveniences and luxuries among those working and those not-working while still meeting everyone's basic and more important needs. This is not necessarily easy, but at least the problem can be defined in a way that makes sense. Describing the problem merely in terms of money makes it even more difficult, not only to define but to resolve fairly and reasonably. 

Where problems arise that make this difficult to see are where retired people seem to have earned their retirement, based on money they have (i.e., savings), but where that money does not represent any reasonable reflection of the amount of goods and services available now or in the near future. If there is sufficient money in a community at a given time to match the goods and services available and the needs for those goods and services, and the money is in the right places to keep trade flowing in order to match up goods and services with the needs for them, that does not guaranty that under other conditions, that same amount of money will still do that. There is no reason to believe that money flowing into savings at one point will be able to purchase goods tomorrow that it could have purchased yesterday, even without inflation. If those goods are not available tomorrow, money will not be able to purchase them. The extreme examples would be where people retire and those who remain to work die, or go off to fight a war. Or those who work could simply channel their labor toward the kinds of things that satisfy the needs and tastes of younger people not older people, particularly where those who have the most money to spend see to it (like in the seamstress case above) that those who work meet wealthier people's desires for luxury rather than other peoples' needs. Or there may not be the kinds of resources available that an older population might need --adequate medical or nursing care or transportation to grocery stores, adequate recreational or activities or opportunities to work at something one might enjoy and be able to make a contribution to. Money does not always hire labor to meet its holder's needs or desires. Even when there are people available who are able and willing to be employed in ways that someone is able and willing to pay for, the labor force may not be adequately trained or knowledgeable or the facilities and resources they may need to do the work, may not be readily available. Particularly in work that requires long term training or tools and resources that take time to construct or acquire, it is not easy to create a labor supply either for just a few individuals or for a population whose needs were not anticipated and prepared for ahead of time.

The non-alignment or misalignment of money and labor comes into play in a number of areas. Suppose there is sufficient labor available to justify there being more money in the economy to put that labor to work and purchase its products. Suppose that money is used to purchase stocks in companies that arise to employ that labor. If those investments do not pan out to create sufficient output, then stock owners will have received less for their money than that money was worth, and the money put into the economy to support the increased labor and its output will be extra money that may not be used in that way. That extra money may simply be used in the already functioning system and be divided among those already with income. And the people who would have worked at the companies could be left out of the system, both in terms of contribution and distribution.

Or, to begin with there may have been idle labor because there was insufficient money to pay for its being put to work. In a barter economy, for trade to take place there has to be a convergence of mutual interests. Let me designate people by alphabetic letters A, B, C, etc. and indicate something they have to trade by a (+) and something they want with a (-). So that A (+ extra milk, -cereal) might trade with B (+ extra cereal, -milk) so that they could both have cereal with milk. For trade to occur in a barter economy, A's and B's of the sort A (+x, -y) and B (+y, -x) need to come together, or some more extended trades might be possible if, say, the following kind of group were recognized: A (+x, -y), B (+y, -z), C (+z, -x). A could give x to C for the z which he then trades to B for B's y. This could occur whenever such a chain, no matter how long, was recognized. A problem with direct swaps or direct trade of this sort is recognizing such chains and being able to bring together the participants over time and distance. That problem is more acute when what any of the participants have to offer or need is part of something that cannot physically be divided. A (an airplane assembly line worker or company stock owner (+ 1/200th of an airplane, - 1 steak, - other things) and B (+ cattle, - airplane trip). 

Money, because it is widely acceptable and therefore convertible into and out of virtually any available good or service, and because it is divisible, combinable, transportable over space, and durable over time, helps solve these problems. In a well-functioning, stable money economy, all kinds of chains can be formed because people can accept money for the things they are willing to swap and can get available things they want for that money. An airline can buy a whole airplane and sell individual tickets, while airplane manufacturers can pay people money to build planes from stockholders' money they then repay with profit. The people on the assembly lines can take their pay to the grocer who has bought meat from processors who bought it from cattlemen, etc. None of these people have to know each other or be affiliated with anyone who knows all of them. 

Breakdowns in such chains as these occur, however, under certain conditions as well. There still may be people with needs and money but nowhere to have those needs met. That is there can be A (+ money, - youth serum) and no B (+ youth serum). There may be people who have a product they cannot convert to money because the product is unpopular or because the product cannot be useful to someone who would like it and who has money. E.g., A (+ house for sale, - money) and no B's with money who want or could use that particular house in that particular location. There can be personal breakdowns where people who have a service or product will not trade it, even for money, to people they do not want to. Winston Churchill did not like to part with the paintings he painted that he did not like because he did not want anyone else to see them, and he did not want to part with the paintings he really liked, so he kept almost everything he painted. Also, the shopkeeper mentioned earlier who refusal to sell to a woman she did not like. These cases seem benign enough, but the bad cases are where people are excluded from trade on the basis of bigotry and prejudice rather than because they are morally undeserving or because someone does not want to part with a product of his labor. And there could be trading chains that break down because the people with needs do not have either money or services that people with money will buy from them, though they have services or potential services that other people without money would like. In such cases there could coexist A (- home, + musicianship, - money), B (- baby sitting, - money, + home building skills), C (+ money, - Mercedes, - food), D (+ Mercedes), E (+ food). C, D, and E could trade with each other, but if A and B have no money and no one cares to buy food from B since they can buy it from E, A and B are left out of the trading system. 

In short, money does not always get where it needs to be to promote labor and trade, any more than barter does in cases where there are not convergent needs. Let me point to a peculiar kind of case, but one which, on a grander scale, is wreaking havoc with the current American economy. Imagine again our perfectly functioning Adam Smithian economy with everyone working and meeting each others' needs as well as can physically be done. Suppose an outsider offers this group one or two of the members' services for far less money or return goods or services than those members charge. People begin to buy from him. But suppose he buys nothing or much less than he could, in return. Soon he ends up with much cash, but if he has need of little or nothing from the people he is supplying, he gets little or nothing in return but their money, which he holds. Some strange things start to happen then, and these are different in a barter society than in a money society.

In both society's, the people whose labor the outsider undercuts lose their livelihoods. In both cases the rest of the community may help them out or may ignore them. They might let them share in the work that is still being done in return for what they were earning before, or they may just let them starve.

What is different between a barter economy and a money economy, however is that, though the outsider is only meeting needs and not taking (all the) labor (he could) in trade for it, in the money case he is taking what is necessary for trade to continue among anyone, while in the barter case, he is doing nothing to disrupt the trade between those whose services he has not undercut. As more and more money is sent from the community, unless that money is somehow simply replenished, trade will come to a halt, since money will not be available to trade with. The outsider is simply hoarding. What seemed like a good thing to the community -- more goods for less money or goods in trade-- turns out to be disastrous in the money economy though a good thing in the direct trade economy. (It is a good thing in the direct trade economy as long as there still is enough goods to support everyone after the outsider has been traded with. In the case where the outsider takes no products or services in return for what he supplies, other than money in the money economy, he will be a great boon to the direct trade society since he takes nothing away from them for what he gives them, but he will more quickly bring to a halt the money society because he will more rapidly deplete their trading resource.)

In a money economy, the opposite case from the outsider who takes nothing but money, in return for providing goods and services, is the counterfeiter who provides only money in return for goods and services he uses. The outsider contributes without being distributed to (in terms of goods and services); the counterfeiter gets distributed to without contributing. In terms of labor the counterfeiter is like a thief; the outsider is like Santa Claus. In terms of money (as long as the counterfeiting is not discovered), the outsider is like a thief and the counterfeiter is like Santa Claus. Yet both can have ruinous effects on a money economy because they misalign the monetary world and the world of goods and services.

Production/Distribution Problems

I would like to distinguish three kinds of economic production/distribution problems: 1) knowledge or physical 2) trade, monetary, or system, and 3) moral. 

A knowledge or physical problem exists when it is not known how to produce or distribute what is desired, or when the resources necessary to produce or distribute products and services are not available. In the nineteenth century, flight was a knowledge problem. If a country wants to farm but has barren soil and no access to sufficient fertilizers or water, they have a physical limitation problem. Knowledge or physical problems are very real types of problems in the sense that social or economic changes or manipulations alone will not solve them; invention or discovery or access to physically unavailable resources are necessary. War, drought, famine, pestilence, lack of knowledge or skill, are all very real problems.

What I am calling a trade or monetary or economic system problem is one that is difficult to solve for very different kinds of reasons. It is the kind of problem caused by the lack of a mechanism within an economic system to allow the production or distribution of what is physically possible and generally agreed to be desirable, but which laws or rules or policies prevent. These problems are particularly difficult when few believe exceptions should be made and when it is not clear how to change the laws or rules without making them even worse (i.e., the cause of more or greater problems). A barter system does not allow the kinds of trades or production, for example, that a monetary system allows relatively easily. A free market capitalist system does not necessarily have a mechanism to put people back to work meeting other people's needs and getting trade flowing again once recession or depression have taken a deep hold. 

A moral economic production or distribution problem is one that is physically possible to solve and has no mechanistic rule preventing it, but is one that arises from the moral limitations of the economic system in regard to the fair and reasonable distribution of burdens and benefits. For example, when, as has happened on a number of occasions, farmers in one section of the country airlift feedgrains they can spare to farmers in another section of the country whose farms have been flooded or drought stricken, it is not for profit and not for greed. It is an empathetic and sympathetic humanitarian response. It is to make a contribution where it is needed and where it is known it will be appreciated. Further, it is the kind of thing that is right and good to do, and is not prohibited, but it could not be afforded if everyone had to be paid a profitable amount for contributing. This is a way of solving an economic problem that is not a "physical" problem. And it is done on a moral basis, sharing with those who one feels deserve it. And once it has occurred or been reciprocated, it begins to serve as a kind of non-profit insurance as well, not so much for individual farmers with problems but when whole groups of farmers have problems beyond their control. 

Farmers are not the only groups that help each other out in this way. A dental supply company owner I mentioned this example to said that independent dental supply companies throughout the country have funds set aside for each others' use in time of need. And they establish credit for dental supplies to young dentists starting out who are not "bank creditworthy". Charities and volunteer civic groups and religious organizations often do work they know needs to be done and which is physically possible to do but which is not economically possible to do. In Birmingham, women's auxiliaries to the symphony orchestra raise hundreds of thousands of dollars by annually organizing a "decorator's showhouse", where interior designers voluntarily decorate a mansion type home that the public pays to walk through. My view is that they raise these hundreds of thousands of dollars by doing millions of dollars worth of free labor. But that is the only way this could be done because there is not an economic mechanism to employ (i.e., pay for) this labor in this way. Similarly with regard to all the volunteer baseball and soccer programs in which coaches and "team mothers or fathers" volunteer their time. These are valuable programs that are organized and function just like businesses in terms of the channeling of labor and the providing of services, but money is not what makes them run or allows them to operate; and money is not available to do so. 

Economic systems have rules that have moral consequences about the distribution of burdens and benefits. And it is extremely difficult to make general economic principles that do not cause some sort of morally counterintuitive or counterproductive consequences. If there is no mechanism within the system itself for allowing the resolution of such moral anomalies, then the system may permit, promote, and cause moral imbalances of burdens and benefits --imbalances which require a specific moral remedy, not an automatic, mechanistic one. 

There are both logical and psychological causes for the skewing of money with regard to labor. The logical causes involve properties of money, the psychological causes involve issues of value that money sometimes masks, and confusion between money as wealth (money as a commodity itself) and money as a means of increasing wealth (money as a means of exchange and labor channeling).

I have already discussed the logical things that involve amount and distribution of money -- such as there being more money than labor available, more labor than money, generational or population changes, technological increases that reduce labor needs, etc.

Psychological causes of the skewing of money with regard to labor are:
1) the fact that money tends to flow to accumulation points -- people or companies that are able to attract disproportionate amounts of money. These may be consistently the same occupations or accumulation points over time or they may vary over time, but even when different groups or occupations become the top money-makers, there tend to be money-makers (i.e., accumulators) and money-losers in a given society at a given time. This can happen in barter or non-monetary trade situations also, but it is more noticeable and more obviously problematic in those kinds of economies. In some cases there is a logical rather than psychological cause for the accumulation of money. The logical cause is when high volume, mass production distribution results in large total profit from Goods and Services that are not individually disproportionately priced. The psychological instances are when excess or disproportionate prices are accepted because the good or service is considered more valuable.

2) short term monetary profit goals that are counterproductive to long-term profitability even for the individuals making the decisions. This can happen in a non-monetary economy, but would be more noticeably problematic since most commodities have durability or storage or upkeep responsibilities that money does not have. 

3) short term profitability goals that succeed because they take profits away from future generations or exclude those generations from the economic system. These are cases, for example, where accumulating pollution or other sorts of dangers (such as the "profitable" build-up of weapons of mass destruction) are allowed or where resources are used at a rate exceeding their replenishment or at a rate exceeding reasonableness.

4) profitability goals that succeed because they exclude contemporaries from the economic system, carving up and dividing the pie among fewer individuals.

5) psychological loss in confidence in currency or in the country, or its economy, causing inflation. 

Money in the right places can facilitate matching supply and demand, but money in the wrong places acts as a barrier to matching demand and supply. This is easy to see in another kind of extreme case --the case of money coming into the hands of someone who uses it wisely versus coming into the hands of someone who uses it unwisely, and wastes it, loses it, or simply lights cigars with it. Say someone inherits wisely earned money and wastes it, or say someone wisely earns money by useful labor and then makes mistakes with it or loses touch with the market, or becomes mentally incapacitated in a way that makes him squander it unwisely and ineffectively. 

By "wise" and "unwise" use of money, I do not mean simply personally profitable or unprofitable to him, but profitable or unprofitable to the community(6). There are ways of spending money that benefit oneself and a community --by increasing the size or quality of the "pie" (i.e., total benefits, or more precisely, benefits over burdens) available to all and getting one's fair share of that improved pie. There are ways of increasing one's own profits at the expense of others --by taking a bigger slice of the same pie or an even smaller one. And one can also diminish one's own fortunes and the community's by helping ruin the pie and getting a worse piece for yourself in the bargain.

But examine some less extreme cases, cases not involving simply wasting or squandering money, that show the flow of money does not always automatically go where it needs to in order to facilitate matching up needs or interests on the one hand with the available labor on the other hand that could and would be happy to satisfy those needs and interests.

Look first at major league and college sports. It did not take long to become apparent that once money got involved in the competitions, it could cause problems that defeated the original purpose or intentions of them, which was to see which teams could win --in some sense using the players that they had through some sort of natural means -- like who already lived in the city, or who already attended the college in order to get an education. Once winning, as opposed to competing hard for the fun and psychologically exciting rivalry of competition, became important to people who were willing to spend money on trying to win, then those people tried to "import" (hire) the best players available. If there were a limited number of clearly good players, and if money could bring them together in a way that chance or natural events would not, then they could dominate a sport in a way that took all the real athletic competition, and excitement , hope, anticipation, or joy, out of the seasons. Dynasties could be established if a team who won, won enough money to be able to hire better players to help them win again and thus make more money to hire the best players for the following year. Winning teams got wealthier, and wealthier teams had the best chance of winning. The money and the victories would pool up in the same places, leaving relatively poorer teams relatively unable to effectively compete without something short of a miracle happening. In many areas of life, a totally free market tends toward domination or monopoly in just that way. 

Now there are ways around this, but they are of a nature external to the market either by being non-market or by manipulating the market in artificial or imposed ways. Drafts were instituted in major league sports, whereby the worst teams got first choice of the new players for next years. Players were not free to change teams, nor owners free to try to get them to do so. Free agent legal rulings altered this latter protection against market forces because it was taking too many important freedoms and possible benefits away from players in a way that seemed unfair in too many cases. Drafts and prohibitions against luring players to change teams for more money are non-market solutions to the problem of monopoly or monopolistic type domination.

Recently the NBA has tried a market manipulation to solve the dilemma of maintaining competition in the light of free-agency and still allowing some sort of team and player freedom. They have placed salary limits on whole teams, so that teams are free to pay individuals whatever salaries they want, but no team can spend more total money on their players' salaries than any other team. That prevents a team from being able to use its wealth to buy a whole collection of the best players who all want to make the most possible money. Time will tell whether this remedy works without causing more problems than it solves and whether it will continue to be fair and legal. There may come a time where players' salaries are determined by their skills, team value, and popularity, but where the league collectively pays those salaries so that a player would gain no monetary advantage by being on one team rather than another, and where teams would trade players or players "shop" teams for reasons other than financial benefit, but this sort of arrangement may also lead to monopolistic domination, though for things less tangible, and perhaps less offensive, then money. Domination, by itself, in sports does not seem to lessen spectator interest, and may even heighten it. Arnold Palmer's success and then Jack Nicklaus's success in golf seemed to increase the interest and money flowing into the sport. Bjorn Borg's domination of Wimbledon did not harm that tournament. Various teams' success in sports (the Yankees in the late 20's, the Packers with Lombardi, the Bears with Halas, the UCLA Bruins with Wooden, etc.) does not seem to diminish enthusiasm when it is due to skill or strategy rather than money. And of course, money does not always do the job; many highly paid athletes or expensive teams have bad years. It may be interesting sport when a "hired" team loses; it seems to be less so when they continuously win.

These ideas carry over into areas more important than sports. At this writing, incumbents in Congress enjoy great power which tends to keep them in money to spend on re-election, with enough disparity over what their challengers can raise that they tend to win handily. Efforts are being made to limit the amount of funds people can either raise or spend on elections, or to limit the ways in which funds can be raised for elections. As in sports, the idea is to keep the rich and influential from retaining power simply because of a previously attained advantage, in this case the influence to attract money and the money to help retain influence. This works easier in sports because it was in a majority of owners' best interests to vote to keep competition "fair". Unfortunately with regard to elections, the people who most benefit from "unfair" rules, the incumbents, have to be the ones to change them. That is harder to bring about.

Finally, we do have notions of fairness in business, though they may sometimes be vague, ill-formed, ill-conceived, counterproductive, or even contradictory. We do not believe all is fair in business, even when unfairness "works" or is efficient. We view monopoly, even when it works well, with suspicion; and condemn and criminalize bribery, price-fixing, collusion, gouging, and fraud. We argue about what even constitutes a monopoly and whether government is a monopoly or not, or whether government(-controlled) monopolies are acceptable, if private ones are not. The point here is not that there are illegal or undesirable products and services, which there are, nor that there are undesirable and illegal ways of doing worthwhile business, which there are; the point is that monopoly in business --even when it results from fair business practices and fair initial competition-- is viewed as a skewing of money and power that is either dangerous, inefficient, or unfair to those who wish to compete with it in the future. The problem with dynasties and monopolies is not how they got that way, but how they stay that way. The fact that a person, team, or business "wins out" in the past fairly over another that they are better than does not mean they ought to be able to use their advantage unfairly to defeat competition in the future, when the competitor would actually be better if the playing field were fair or level.

Monopoly is just one way of skewing money and power. It concentrates large portions of it into one place, which may not be the most useful place to have it. Money can also be spread too thin to be useful. The point of investment, in fact, is to get sufficient money in one place to be able to bring together the labor and material to do a job that cannot be done if that labor and material cannot be coordinated. Amassed money can often coordinate labor quite effectively. Money can be spread too thin in another way, also. Individual buying power is generally not as strong as group buying power. A group of individuals may not be able to afford individual items (say, television sets or automobiles) for themselves if they act separately, but may talk a company into decreasing the prices so that they can all buy from that company in concert. It is more efficient for the company and insures a financial profit for the seller that might not be possible by simply gambling on sufficient individual sales at the lower price. Group buying power can promise ahead of time the sufficient volume of sales to bring about financial profit for the seller at lower selling prices. Group buying power tells a seller ahead of time what his volume will be, so he can more efficiently plan, and also so that he can divide his financial profit by that volume, instead of having to sell at a higher price in case he sells fewer than anticipated. It is a way of pragmatically determining the real, or a real initial supply-demand curve intersection ahead of time, and eliminating the labor and materials risk and cost (otherwise passed on to the consumer when possible) of potential over-supply or the excess profit of scarcity based simply on less than anticipated demand. If one is laboring on speculation of making a profit, one has to build in a risk cost. That risk cost can be eliminated where costs and profits can be more precisely determined before labor is done. So although increased demand is generally considered to make prices rise, it is only competitive demand that does that; consolidated demand tends to lower prices.

There are a number of things that can go awry to mess up a money-based trading system. If someone hoards money because his needs are met without it, and no new money comes into the chain, trade will be impeded as more money piles up untraded. If money is simply lost (e.g., burned) and not replaced, the system breaks down. If someone's skills are not what anyone at all wants, the system breaks down. If what someone with money wants is not made by anyone, the system breaks down --especially if he will not spend the money on something else, thereby essentially hoarding it. If what someone (or a group of people) could make requires more money or more products than any one person or particular group of people has (like an airplane or an automobile assembly line that can produce thousands of cars in a year), even though a number of people would want the products, the process breaks down. Conversely, if a number of people with a need have individually insufficient, but collectively sufficient, money, the process breaks down if they do not know of each other. If someone has needs but no money or skills, the system can leave him out (even if he could acquire skills). If someone has immediate needs, insufficient money, and latent skills or skills needing time or practice to develop, or products that require time to make, the process breaks down. Conversely if someone, A, could finance a person's time to develop something A would want, but A does not know there is a person who could and would do this, the system breaks down. If someone trades a skill or product for too much money or too little money, the process breaks down --trading for too much money is like hoarding, or it means one person's labor is now worth more than another's, and trading for too little money limits the seller's ability to be a buyer in the system. If it limits it too much, it may make him unable to be a seller (contributor) in the system as well. If there is a chain of people who could all meet each and only each others' needs, but they do not have the resources to find each other, they are unable to enter a system. If there is such a chain of people, and they find each other, but do not have the money to "get the chain" moving, and cannot get the money because they cannot pay interest --though they could pay back an original interest-free "seed money" loan-- they cannot enter a system.

Further, from a psychological, ethical, and human standpoint, as opposed to a mechanistic standpoint, a person may be able to enter an economic chain, and thrive in it by providing something for money in order to meet some of his needs or desires though he may not be able to meet the need of doing with his life what he really would like to do, would be good at, and would benefit him and others. A person can be "underemployed" in the system or simply unhappily employed in it. The system then can work successfully while not working satisfactorily or optimally. It works successfully from the standpoint of continuity and employment or utilization of all who could participate, but unsatisfactorily or less than optimally from the standpoint of meeting all the needs or desires that could be met of those participants. It provides sufficient benefits for its acceptance and perpetuation, but not all the benefits that people could have.

If one thinks of the economy as a single stranded chain of the sort above [A(+x, +money, -r) ... Z(+r,-money,-t)], then one has to somehow jump into the chain (in a sense, even as it is moving) at a point where it has an opening. And if one understands that there is not just one single stranded economic chain that we all participate in sequentially, but numerous, interweaving chains, the point is that it is difficult to form a new chain and get it connected with other chains or to form a new link to get connected with an existing chain. This is true even if the new chain or the new link would improve the whole mechanism substantially. New ideas are difficult to get accepted into the chain(s). Most people seem less able to deal with ideas than with dramatically demonstrated results, but the testing and demonstrations themselves often require a new small chain or a small break in an existing chain, and there is much inertia generally preventing this. Returning to the analogy of the Rubic cube, when most people have a niche in which they are comfortable, it is difficult to persuade them that a bit of risk or experimentation could find them a better niche (a niche in a better cube). Or, in the case of the unknown, it may be difficult to prove that exploration is worth the risk. Yet, in some cases exploration pays off extremely well; and collectively, the benefits of the explorations that succeed arguably outweigh the costs of the ones that fail. Still, most economic systems, including market economies, tend to entrench the status quo at any given time rather than encouraging exploration and experimentation with progress in mind. Overall although carefully-done experiments and well-implemented change can be extremely beneficial to a society, individual failures can be prohibitively expensive to those involved; hence, individual experiments require more courage or daring than would be most beneficial.

The prevention or repair of these problems even in a money economy, requires measures that are external to individual trades themselves. Information to match available needs (or desires) with available or potential labor willing or happy to meet them, is one of the important measures. Mechanisms that allow resources and labor to be pooled over time and over distance need to be developed. Understanding of real needs has to develop and be available in a way that makes sense and is acceptable to people. Understanding of beneficial and harmful unexpected side-effects has to be achieved and explained in intelligible and acceptable ways. Mechanisms need to be developed to allow and encourage the participation of those not automatically incorporated into the system who would like to be included. This includes children who have not yet contributed; older people who can no longer contribute; the temporarily or permanently incapacitated, simply for reasons of humanity, not for reasons of benefit; those whose skills are underutilized, underappreciated, or merely undeveloped, and those whose particular skills become obsolete, but who could happily re-train with some help, into currently useful labor. Mechanisms need to be established where explorations for improvements are sought and tested, not discouraged. This is especially true when a new niche dislodges someone else from their established niche or makes them less productive in it. There needs to be resources directed as much toward improving the whole pie as there is in everyone's trying to get a better piece no matter the cost to others.

Suppose our time-slice perfect Smithian economy again, with enough money in circulation and circulating for everyone to earn a living and trade with each other. All participate; all contribute and are fairly distributed to. Suppose then that someone invents, say, a computer program that people would like to have. Where will the (additional) money come from to allow it to sell and allow people to buy it, without taking money away from others whose work is still necessary and continuing. I picked a computer program as the example, because it is the kind of thing that is easy and relatively inexpensive to mass produce and which does not take resources away from other labor or products to make. If additional money does not enter the system to support its purchase, it cannot be purchased without someone else losing something. However, if additional money is made available for people to purchase the program, but some of them use that money for something else, an inflationary or other kind of monetary imbalance can occur, with money "pooling up" in places that can cause physical imbalances later.

As technological and manufacturing capabilities increase, capacity for new inventions, new ideas, new or additional services, and new or additional patterns of business increase with it. If lack of money or imbalances of money prevents this capacity from being realized, then the full benefit of the economic system is not being realized. When there is physical capacity for books and butter but not the monetary capacity for both, then there is a flaw in the system, since the system should be helping to realize the greatest possible potential, not prevent it. When there is the will and the capacity, but not the wallet, then something is wrong with the system. In what ways, the system can be modified without being made worse is then open to question. But it seems to me that there should always be a financial way to do what is important and for which there is the physical capacity. There are real impossibilities and there are artificial impossibilities. There are barriers of logic, physics, and (accurate) ethics to doing some things. These barriers cannot be surmounted. There are barriers of psychology and social behavior to doing some things. Some of these barriers may be impossible to surmount; others, simply difficult. There are limits to the state of knowledge and understanding at any given time, and these can only be pushed back with time and effort. All these are real barriers to progress. But our economic systems are contrived and conceptual systems. They are neither fixed nor immutable; and they should not be permanent barriers to work and efforts that are not limited by logic, physics, ethics, psychology, or lack of knowledge. When there is need, knowledge, labor, and materials available to do a job that is right to do, money alone should never be an impediment to seeing that job is done. When it is, there is something wrong about the way money is working in the system.

There are attempts at solving some of these problems; some perhaps more successful than others: e.g., investing in stocks and bonds allows group concentration of resources; money or capital or labor loans over time, with or without interest charged, help develop products or services that take time to bring to fruition; charity and some tax revenues support the permanently incapacitated; insurance protects the temporarily incapacitated; public schools, compulsory education, public and parental support for children while in school, and salaries for company trainees, contribute to the preparation of children and trainable adults for their later participation in the process; retirement funds and tax programs contribute toward the elderly; jobs programs and unemployment insurance or welfare try to sustain people while they survive or try to find useful service; public and private research tries to find better ideas and products, or identify and eliminate unsuspected problems; brokers of various sorts try to match people's needs with available services. As these measures develop, some of them, such as brokerage services, or the fruits of research and development, become part of the system of services or products traded. Some can be done fairly and well without government help, regulation, or money collection (taxes, tolls, licenses, fees, lotteries, government-owned alcoholic beverage stores profits, etc.); others may function more fairly or better when done governmentally, because a way is not able to be devised to successfully and fairly do so within a trading chain. Some of these things begin life not as trade in themselves, but as things which try to improve trade or improve society in a non-trade way altogether (as with boards of trade or government commissions). But insofar as people get paid for providing a Service which contributes benefits to the economy as a whole, they become part of the economic system even though they do not involve individual trades or transactions that benefit some particular person at a particular time.

In a barter relationship, labor exchanges (or fruits of labor exchanges) take place either simultaneously or at different times where one exchanges a good or service not for another immediately given good or service, but for a future one. Credit is a promise of paying back a service with work (or the fruits of work) in the future. Trades may be non-simultaneous for a number of reasons, not all of which are because the "initial receiver" cannot immediately return the service. Sometimes it is the initial giver who needs to have the reciprocating transaction postponed. If I have something you want but what you have to give in return is something that I have no current use for but will in the future, I might be happy to give you what I can now in return for your providing me with your service in the future. I have some friends who are quite good singers trying to build careers at singing. Photographs help them at this point and do not take that much labor on my part; they are short of money now, but I have no current use (other than pleasure) for them to sing for me. However, I have two young daughters who may some day have weddings where my friends' voices would be really nice to have. My friends feel bad about my just giving them pictures; I hate to take their money, which is of more value to them at this point than it is to me; they like the idea of paying back at a future date in a service of their labor for mine, assuming that will be feasible. The idea seems attractive to both of us. So I am giving them the photos for a possible or probable future return of their service. 

Money is different in this regard, but the difference is not especially simple. Money that is loaned or invested, or applied to one's own or an employee's training or education, is money that one hopes to get back in the future with profit (apart from whatever personal satisfaction learning something bestows), of course -- more profit than one could have earned oneself by employing the resources the money would have purchased; it is not money that one is trading for an immediate good or service. Money that is payment for a good or service rendered at the time does seem to be an immediately reciprocal transaction. But, on my view of economic transactions, it is not. Money paid for a good or service is not a returned good or service, but is a broadly recognized and accepted credit promise or voucher that can be used almost anywhere in return for an available good or service of your choice when you decide to "cash it in". Money is only good for what it will buy, and it buys nothing (other than security, which is not unimportant) until it is used. Then when it is used, it again is traded to someone else for a past (i.e., debt payment), current, or future good or service for which they receive only the promise of being able to use it for a good or service they want.

The possession of money in a sense signifies (whether accurately or not) that one either has contributed to (someone in) society by a good or service that they have provided, or (in the case of an advance or loan or investment) that they are reasonably expected to in the future. And its possession is then a voucher or sign (again, whether accurate or not) that this person is "ok" to give back labor or goods to because he deserves it in return from (someone in) society. In a sense, money is a kind of moral voucher of desert or merit for the work that others contribute to society. 

Money in this sense represents work that has been done or that could be done. It is therefore extremely important that the amount of money in a society in some way lines up with, or accurately reflects, the amount of work that can be done.

When there is more money than available labor, inflation sometimes results, and people do not get back a fair return for the labor they provided. When there is too little money in relationship to labor available, or if money is in the "wrong" place to be used, labor gets underemployed (accept for volunteerism, barter, etc.). Money gets in the "wrong" place when there is the right overall amount of it, but it is not, or cannot be used for goods and services that are somehow important and potentially or reasonably available. The simplest case of money being in the wrong place is when it is hoarded in a way that disrupts flowing trade, or trade that would otherwise take place if the money were circulated. 

A different kind of case of money being in the wrong place is when it gets into then "closed societal loops" that keep it from flowing back to other segments of society. If we start with our smoothly functioning Smithian economy, and changes occur that cause a segment of the population to be left out of the process, neither contributing nor being distributed to --not because of any fault or unwillingness to work of their own, but because of lack of apparent need or use to those with money, of their services, say by, invention (as in the initial case in this book of the automobile industry workers) or because they are part of a population growth that is not absorbed, or because of hoarding or savings that do not find their way back into use-- we can end up with two groups within a single community, one of which is economically prosperous and one of which is economically poor. The prosperous segment may see no need to employ for any serious compensation members of the poorer segment, and so the latter remain generally left out from the trading circles of the former. And, of course, not beginning with a perfectly functioning Smithian economy to begin with makes the situation occur all the more easily. In a case where money is getting into such a closed loop, inflation and unemployment can occur simultaneously because there are essentially two societies, one with decreasing money and work, and one with increasing money but with less work to do as one serves a decreasing population --the population that is making more of the money. In this case inflation can occur, not because there is extra money added to the original population that does not reflect potential goods and services or get used for actual goods and services, but because the population using the money shrinks; and if they are comfortable with the level of goods and services they can produce and acquire for themselves, they will have more money than previously necessary for those goods and services.

Being self-supporting (as an individual or as a group) is a somewhat relative concept. It can mean anything from having the bare essentials to survive, to having all the luxuries that are physically able to be provided. Any group or segment of society that is comfortable at whatever level of sufficiency or group self-support may see no reason to try to include people left out of that group. There is no economic incentive to increase burdens and there is no economic incentive to increase burdens for benefits that will only get people back to where they were if they had not increased the burdens to begin with. Enlarging or expanding an economically satisfactorily self-supporting population to include others is a moral decision, not an economic one. (Of course, one can fear rebellion or war from a nearby population that is not included, and so there can be economic incentive in that regard, since war or revolution is costly. But I am assuming a case where there is adequate defense, or where the poor population is also not aggressive or is powerless to rebel or improve their position by rebellion.) When the West Germans voted to re-unify with the East Germans, it was not necessarily because they feared the East Germans or because they were seeking a strong economy. The West Germans already had a strong economy. When Israel helped Ethiopian Jews get to Israel it was not in order to strengthen the Israeli economy. When a country excludes foreigners who are well-trained and industrious, it is not for economic reasons, but because they do not want to have to include those foreigners in a society and economy they are currently satisfied with -- one they find sufficiently self-supporting to not have to trouble with changing. Oppositely, when a country excludes from work minorities or women or whatever segment of the population that is willing to work and capable of working or being trained, it is not for overall economic reasons, but because they do not want to expand the economy to include those segments. 

Unfortunately, when the economy does not expand to appropriately utilize new available labor that labor will either be lost or it will displace or partially displace current labor. If there are two people competing for one job, instead of two jobs for them to do, only one will get the job or they will have to share it. If there is only money available to pay for one job, then they will have to share the money or one will have to do without. If there is additional work to be done that would improve the society for more people or for everyone, then the better course is obviously for there to be a mechanism that creates a second job somewhere (and the additional money to pay for it) for the second person. If there is not additional labor need, but there are people out of work who simply want to work or who it would be fair to have work (since they are having their needs met by others), then a more ideal economy would have a mechanism whereby they could share the work without anyone's having to give up any benefits by doing so. Though this latter may seem Utopian or unrealistic, it is not; and it is part of what happens, for example, when the work week for a large part of the population is reduced, not by reducing output but by "spreading out" the work among more people, each working proportionally less. 

There are other other possible ways for people to "share" jobs without having to divide the benefits and burdens among the whole working population by a reduced work week. In sports, for example, reserve players play less, and although usually paid less, are still paid substantial amounts of money. Team sizes are determined by overall league economics more than by the economics of a particular team or the decisions of players about how to divide the work and the money. For example, baseball teams would not likely entertain the idea of cutting their rosters to 13 players in order to save money. Nor are they likely to eliminate, say, the shortstop position by moving a fast third baseman over a little, and paying him a bit more to do both his and the previous shortstop's job. League expansions generally create additional teams, not additional players on a team or additional positions in a game (though the DH in baseball does the latter by dividing up the pitcher's offensive and defensive roles and assigning the different parts to different players). Giving people paid vacation or increasing vacation lengths, and having sufficient staff to take up the slack for vacationing people, is another way of spreading the same amount of work and money among more people. Increasing paid vacation time among more workers is another way of "spreading out" work (and therefore leisure as well) among members of a population when there is enough to go around but more people need to share in doing it, rather than in providing additional products or other services.

Money and Channeling Labor

Money, by itself will not channel labor when the available potential labor is unwilling to do the work for that amount of money. What people will do for any given amount of money depends on their character, their circumstances, their values, and their knowledge and understanding of the situation and of the consequences of their actions. Money coupled with persuasion will channel labor more effectively than either alone. But channeling labor by the concentration of money and leadership (persuasion) does not always benefit society. Many societies have been misdirected into wars that cost them dearly. And many societies have directed energies toward social policies that brought great harm, sometimes out of prejudice, bigotry, or hatred, but sometimes out of good intentions and mistaken understanding or mistaken expectations. 

Individuals and companies as well can make the same kinds of mistakes. In a complexly integrated society or world, what seems prudent locally may not be beneficial on a larger scale, even when it is locally successful. As described in the explanation of the "invisible hand" what may be good for a neighborhood may not be good for a larger society, and may not even be what is ultimately best for the neighborhood. An individual or company may do things that make it successful in the short run at the expense of greater success in the long run. And, of course, an individual or company may do things that make it successful at the unnecessary expense of others. Being competitive by cutbacks (U.S. Steel) is different from being competitive by bad working conditions or harms (poisons in pesticides, etc.) to the environment, but the issues are similar in that people are harmed in the name of financial profit. This is a bigger problem than any one company can solve; more of a societal problem. And it needs to be addressed either by law or by boycotts of companies that pollute and kill or enslave; not because of efficiency and profit but because of moral fairness of distribution of reward and burdens. And because, in case of poisons, it is not better nor richer to have more money that you die sooner with. People who live in an economic system that makes more money and has more things available because of methods that pollute the atmosphere to the point of poisoning themselves, do not die richer than people of simpler economies who did not even have as many conveniences but who lived longer, happier, and breathed cleaner air. And a society does not profit by financially profitable cutbacks that irreplaceably eliminate resources the society may someday need.

Sometimes, an individual or smaller group does not have sufficient money to take an avoidable short term loss in waiting for the benefits of a long term gain. Sometimes they do not have sufficient power to persuade other necessary parts of society to cooperate in what is necessary for overall social gain, so that even if the smaller group were willing to take a short term loss, they could not benefit in the long term nor would society benefit, since the sacrifice would be for nothing. One executive one time on the radio explained that all the companies in his industry wanted a particular pollution control law passed that they would have to comply with because they each thought it was important to clean up the air by installing expensive equipment whose costs they would pass on to customers; but since no company could afford to go first and then be uncompetitive, all would have to do it for any of them to be able to. None of them were in a position to enlist cooperation or compliance from the others without the government's forcing total compliance by making lack of compliance very expensive.

A smaller group can succeed at the expense of others in a larger group by causing harm for contemporaries or by causing harm for (potential) future generations. As one comedian put it one time: "I don't understand all these environmental concerns about the future; I say let's not have kids and just have a really terrific time while we trash this planet." That is the longitudinal equivalent to burdening one's contemporaries while bringing profit to one's self. There are ways in which this attitude brings the perpetrating group success, and ways in which it brings failure even to them. (Poisoning one's self or one's own beloved grandchildren unintentionally because of careless disregard for others is not to succeed no matter how much money one makes from such disregard. Having to live in fear of people whom you unnecessarily caused to become dispossessed, desperate, and dangerous is not the most successful way to live even if you can afford ample hired "security". In many cases it is better to have less money yourself and live in a great community than to have more money but live in a terrible or undesirable community.) It seems to me that any society has the obligation and the right to try to prevent some of its members from harming others in ways that are avoidable and that would be unfair. And society particularly has an obligation to keep from being an accomplice in the unnecessary and unfair burdening of its citizens who are trying to comply with it and for whom it is organized. Any government economic policies which cause or permit unnecessary unfair distributions of burdens and benefits are particularly anathema since it is in essence forcing or allowing people to contribute to their own victimization. This is not to say that unequal wealth is unfair or wrong or that unequal wealth is unnecessary for the greater good. What is wrong and unfair is for burdens to be placed on some merely so that others benefit in ways that are unjustified. An easy example is the case of fraud, say, where government finds out that a television evangelist is using the public airwaves to solicit charitable donations for the truly needy, but which he spends only for his own benefit. A more complex and difficult case is where a company is accorded great privilege and power because it does much good, but where the company utilizes some of that privilege and power to achieve more gain at the expense of others than is necessary for them to bring reasonable benefit to themselves and to others. For example, although it may be financially more profitable for Detroit and General Motors to displace the residents and culture of Poletown to turn it into a GM plant, it is not clear it is necessary or fair for them to do so. At least not in certain ways. It is not clear that it is fair for a government to put a toxic waste site in a place that is picked just for its convenience and profitability when that site essentially dispossesses or harms people who have lived there for a long time and who have contributed to the well-being of the total community.

When these kinds of things happen, what is essentially occurring is that a part of the community that believes it is self-sufficient is able to impose burdens on others who they feel are not necessary or important to their self-sufficiency. This can occur even in a non-monetary, barter/trade society, but it is probably much easier to achieve in a monetary society, since money profits can be different from quality of life profits. GM can, say, buy the condemned Poletown property from residents who do not want to leave and make it look like they have done them a favor by giving them more money than they could otherwise get for the property. But if the people cannot replace what they had for that money (and they had a community, not just a house), then GM might as well have given them a cost equivalent number of goats for their homes. That would have been more obviously unfair. With money, unfairness is not always as obvious, especially when a society equates wealth or benefit with money. 

A similar case is the subsidizing of tobacco farmers (again, assuming that tobacco is harmful, as the evidence seems to indicate) because doing so brings monetary profits to the government or keeps elected representatives in office. In this case the tobacco farmers are allowed to operate because they are considered more important to the government and the (monetary aspects of the) economy than is the health of those they harm. A controlling segment of a community can decide that tobacco farmers or GM are more important than the health of smoking teenagers or the contentment of Poletown residents. Discussing these decisions only in money or money-making jobs, and thinking of money as the only form of wealth or economic benefit, disguises the physical reality that the money transactions actually represent. One can talk about the GNP or about keeping people gainfully employed. What tends to get lost then is the actual value (or cost) of that GNP or that employment in terms of the real benefits and burdens to the society, and how they are distributed. It is easier, for example, to argue that farmers need jobs and money than it is to argue that we need the tobacco they produce. Of course, the people who grow and process tobacco need jobs and money; but there are more beneficial and contributing ways for them to earn it than by growing and distributing tobacco.

(To Chapter 18)


Child labor laws are even circumvented in a perverse way, because it is legal for schools to require students to do "community service" - work at school or somewhere else for no money, while it is illegal for them to work for pay when they are under some particular age, so that they cannot be exploited. They can be exploited for "points" or credit toward graduation, but not for money they could spend to get something they might actually want. (Return to text.)

2. Some "sufficient" number and kind of population of people seem to need to be affected by a disaster in order to mobilize the widespread support and sentiment I am discussing. If just a few people are affected, or if they are not geographically connected in some sort of community (e.g., people seem to care less about 50,000 deaths throughout the U.S. in automobile accidents each year than they do about 50 people killed in a disaster in one town or city), or if they are people who are for any reason thought undeserving, there tends not to be sufficient support and sentiment to affect normal economic pursuits. (Return to text.)


3. Money's being in the "wrong" hands is part of a phenomenon I call the "skewing" of labor and money. Skewing of the sort I have in mind here comes about when a person or group earns, in some reasonable sense, far more (or less) than their past labor, and their future use of the money, is worth, though they are breaking no law, and in many cases not even doing anything wrong. Skewing in the gaining sense occurs, for example, when someone wins a state lottery; which is certainly legitimate, but which gives him more money than his labor contribution to society "earns" other than as a part of a contribution to the enterprises funded by the lottery. When you invest in something that pays off big, you can earn far more money than you, in some sense, deserve --certainly far more money than had you just lent someone the money you invested at reasonable interest for him to get started. The payoff in some cases is worth far more than the gamble or the original investment. Insurance benefits paid for losses, particularly death, also bring in more money than what is proportional to the contribution of the beneficiary. Skewing is the earning of a smaller or bigger piece of the pie than in the proportion that you helped enlarge or shrink the pie, or will. And it is the earning in some sense of more than your efforts deserve. Even when you invent something extremely popular, like a frisbee, or write something like a best-seller, you get far more income than just your efforts might have been worth. Even discovering a valuable life-extending pharmaceutical or medical procedure may earn far more than is in some vague sense reasonable. Skewing also occurs when one is an unproductive member of an organization that is successful and is still rewarded just because the organization distributes its wealth among all its members, whether they have contributed or not to the organization's success. 

Skewing in the losing sense happens when you invest in something worthwhile and reasonable and it fails or is not as successful as it really is valuable. It also occurs when you are forced by adverse circumstances to work for less than your labor is in some sense worth, or when you work that way out of ignorance or in some other way are taken advantage of. It occurs when you are not adequately reimbursed for your inventions (e.g., your employer automatically owns the patent rights on anything you invent, pays you a salary and reaps millions from your invention). It occurs when a worthwhile business is driven out of business by unfair means. It occurs when your money (for your labor) is stolen or embezzled, or when you are defrauded. Or when the bank or insurance company you put it in fails. It occurs when your business fails for no negligence or fault of your own. It happens when your skills or knowledge become obsolete in a way no one could anticipate. It happens when you work for someone who dies before paying you for your work and there is no way to recoup payment for your efforts. It occurs when money changes hands but is incommensurate with benefits. Skewing in the losing sense occurs any time labor is performed that is not in some sense adequately compensated or rewarded in proportion to the benefits it added to the world (or to a business organization).

There is, of course, a sense in which payoffs from insurance, investment, lotteries, etc. may be argued to be earned to a degree which is commensurate with the amount of good done - if one wishes to argue that the investment, premium, or ticket purchase contributed to a total greater good (e.g., causing greater education if the state runs a lottery for funding education). However, the person who contributes without winning has made just as worthy a contribution and is not rewarded as much. And there is therefore still some sort of skewed imbalance between what was contributed and what was received for the contribution. 

It may be difficult to demonstrate a particular case is a case of skewing; the point is to recognize it can exist, and that at least the most egregious and dangerous cases need to be prevented or remedied in some way. It is also helpful to understand it so that wealth is not in itself equated necessarily with merit, or the lack of it with no value or no legitimate effort. (Return to text.)

4. Except under certain conditions where people do have a moral and legal right to labor they are willing to pay for. For example, minorities cannot be excluded from hotels or restaurants. Even lack of payment may not give one the right to refuse service, as in those cases where hospitals are required to treat the emergencies of indigent persons. (Return to text.)

5. There are refinements necessary and ramifications pertinent to this that I will discuss later. (Return to text.)


6. It is one thing to waste money by choosing a bad consuming option over a better consuming option, or a bad investment option over a better investment option. It is a different matter to waste money by choosing a bad consuming option over an option that would have been one of good economic infrastructure development. If a child uses his lunch money to buy a recording instead of buying lunch with it, he has simply opted for a preference that is not what we intended. Similarly if a business or government chooses to spend money on building tennis courts instead of building swimming pools. But if a business or government neglects its economic infrastructure in order to build either tennis courts or swimming pools, it has reduced its chances of doing other things later, including building courts and pools that it might have been able to do. That is like having a child spend his college tuition on partying or on a sports car. It costs opportunities that may not be able to be regained later. But, as the examples in the text will show, this is also not a matter just of financial investments; there are intangible things of greater value than money that can be lost by poor choices, even if they produce great financial profit. What is important is to increase the individual and collective benefits the most, whether they are financial or intangible. A simple example for here of a non-monetary investment -- an investment in time-- is the difference between teaching your children how to do something that is frequently needed to be done, versus doing it yourself. It will take longer to teach them than to do it yourself on any given occasion, but it will save you much time in the long run if you taught them so they could do it themselves from then on. (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 18

Inflation is the relatively equal proportional rise in prices of products and labor and the attending decrease in the value of money because of it.(1) It makes a fixed sum of money easier to get, because it is worth less compared to your products and labor, but it makes the money you already have, and the fixed sums you have contracted for before the inflationary period, worth less in purchasing power than what you traded it for. Other things being equal, in a true inflationary period, your labor at the end of the period is worth the same as it was at the very beginning compared to other people's labor (i.e., the products and services you can trade your product or service for); it is just not worth the same amount of money. So that any labor converted into (i.e., traded for) money at the beginning of the period, is labor that was wasted in proportion to the amount of inflation. And any contracts that involve fixed or unchanging amounts of money to be paid out for a product or service over the period which turns out to be inflationary, make the contract worth proportionally more for the person who ends up with the good or service and less for the person who is being paid the money.

Contrary to recent terminology, however, inflation is not the general rise in prices of one or a few sectors of the economy, though such price increases might be part of an overall proportional rise in prices as the other sectors "catch up". It is not really inflation one is talking about when one says "Over the past decade, inflation in health care costs (or, say, in construction costs) have increased 63% more than the average rate of inflation." In such cases, houses or health care cost not only more in money, but more in the amount of contemporary labor that one would have to do to trade for them. That is not inflation, but is simply a rise in prices in health care or housing. It can represent any (or a combination) of seven factors: (1) one gets more from a doctor or a contractor, so that the increase in cost represents a proportional increase in what one receives -- this happens when one buys a bigger house (or one with more features) or when one gets medical treatment that might not have been available in the past; (2) people are willing to pay a higher proportion of their earnings for the same housing or medical care they paid less for earlier. This constitutes an increase in the relative value to people of housing or health care; it is a reflection of the fact that health and housing are more important to people -- as when people are more likely to be interested in, say, cosmetic surgery than they were previously, --or that it is scarcer, as in housing in a booming urban area. (3) There are greater costs involved, not because of higher cost prices to the contractor or the physician, but because he has to pay more people to be able to offer the same amount of service himself. This does not increase the amount of home or health care one gets, but increases the number of people one is supporting by buying homes or medical treatment. This happens when malpractice insurance increases or when construction licenses and taxes or inspection time increases. (4) People have greater "disposable" income --can get more luxuries and conveniences for their labor (money) as more products and services are available at cheaper costs-- so that they are willing to spend more on housing or health care without having to give up other necessities. (5) Greater income becomes concentrated among a smaller proportion of people, who are then willing to spend more on homes and health care and other things they want because they have greater income, though the general population does not. Their income may be sufficient and there may be enough such people that they drive up health care costs and essentially make adequate or better health care available to fewer people. In this way recession and inflation can co-exist. (6) Gouging: contractors and doctors find out that they can get almost anything they want for their services because enough people will figure out how to pay it (medical insurance arises, home mortgages are available). This may occur through oligopolistic practices or through physician shortages (whether intentionally controlled or unavoidable) in a free-market. (7) The same amount of medical care supports more people, such as those involved in health insurance, management, etc. as delivery and payment becomes more complicated. If a society has to support not only physicians and nurses for medical care, but health insurance company employees as well, it will likely spend more money overall on health costs even though not all of the money is going to those who provide the medical part of the care. This would, of course, not be true if insurance companies were able to take their wages out of money they actually saved for clients by reducing physician and hospital charges, but that is an unlikely circumstance. Health insurance cannot reduce overall costs of the system because it adds many more people to the system who live off it even though they provide no medical care themselves of any sort. None of these things, separately or in combination, is inflation. 

Gouging involves making an ethically unfair profit for a genuine (as opposed to fraudulent) service or product. As far as free market economics is concerned, technically there is no such thing as an unfair profit, an outrageous price, or therefore gouging. In the free market, a price is only too high, if no one will accept it. Anyone willing to accept a high price is doing what they want out of choice. And any price you can get for your services is a fair price. Gouging is an ethical, not a business or market concept. But then so is our disapproval of contract killing, fraud, counterfeiting, baby selling, etc. All of these things could have a place in the market if we did not try to prevent them by non-market means. Gouging occurs when one takes advantage of another's needs. It seems particularly odious, the more "basic" or important those needs are. Charging $12,000,000 for, say, a work of art does not seem reprehensible (from a purely transactional standpoint --as opposed to an opportunity cost (how that money might be better used) standpoint-- because anyone who is willing to pay that is doing so out of their own free choice; but charging someone extreme prices to make extreme profits to relieve their suffering, seems cruelly unfair. Their choice, though in some sense free, is not exactly voluntary or totally free. This does not have to be just health related -- for example a mechanic in a small town might charge a stranded motorist an exorbitant price to help him get somewhere that is important to him on time. 

Insurance, particularly insurance for which a great many payoffs are made in a scarce or oligopolistic market, has a curious way of probably driving prices in insured fields higher, as long as fees are able to be collected over and above the insured amount. It does so by passing certain costs on to people who are not buying the service being charged for. The concept of insurance is an important one in that insurance helps spread out among many people the financial (labor) part of the burden of relatively costly but unlikely disasters that basically strike unpredictably, unavoidably, and randomly. Everyone involved pays a little bit in order to avoid a large loss if they are the one who accidentally incurs the problem insured against. So far, that is a reasonable and fair idea. The process gets perverted, however, when all the following happen: a) insurers pay "the average" or "the going" rate charged for the work insured against or they pay some lesser percentage of that rate -- call either of these payments "the base" rate or benefit; (b) the vendor doing the work is allowed to charge the client whatever additional fee, over and above the base rate the client is willing to pay for, especially when the excess amount is purely profit; (c) this drives up the going rate or average cost for the service, and the insurance company then raises its base rate to compensate for that (in part to be competitively more attractive to its potential clients); and (b) and (c) then continue to "loop" or repeat. Step (b) is able to occur because psychologically a customer tends not to mind paying an additional relatively small amount for what is in total a rather expensive product or service. If your insurance company pays $100 for an eye examination, you may not object to having to pay an additional $10 out of your own pocket -- it seems at the time like getting a $110 service for only $10, because one does not count the premiums one has been paying. Similarly if your car is damaged and the insurance company pays $1200 but the body shop charges an additional $100. The problem is that this process can quickly spiral out of hand as base rates climb to catch up with the co-payments or additional charges.. 

When operated this way, insurance goes from being simply a protective plan to its becoming a collective pre-payment plan for continually more gougingly expensive services that some people may not ever use, or that they pay more for over time than they would have had they simply saved their money. A group of people not using a service at any one time is now paying (some or all of the costs) for the services being used by others when they need it. Somehow psychologically this seems acceptable to us when it concerns necessary services; it would seem preposterous for conveniences or luxuries. "You never know when you might need a business photograph to be made, so if each of you will pay me $2 per month, I will do a picture of you when you need it for your company for only $6 instead of the normal fee I charge." This is different from a pre-paid bank "Christmas Club" type of plan, because only some people will get the benefit of everyone's pre-need contributions.

It seems highly probable to me that if physicians, for example, were not allowed to charge additional fees, or if insurance companies told customers the maximum additional fee --in the form then of a co-pay-- they could be allowed to pay, or if insurance companies paid the actual amounts medical bills show (which they do not) and did not raise their benefits for purely profit price increases by physicians and hospitals, medical costs would not be so high or rise so rapidly.

In periods of rising inflation, changes may occur that causes some businesses to fail before a new non-inflationary equilibrium is reached, because the prices of all products and services will not likely all rise at once and because the equilibrium quantity of money needed to proportionally match all prices and costs at a new time for the same available products and services at a previous time will not have been reached. Necessities can often rise in price without much loss of demand, but conveniences and luxuries cannot. And mechanisms for increasing the amount of money in circulation to pay for equally rising costs need time to adjust. There is also the problem of "fixed income" or of incomes and prices determined by fixed amounts of money, rather than by what the money would purchase. Loans repayments, retirement income, etc. if made at fixed rates, buy less over time than the value of products and labor they represented earlier. In some cases that may be unfair to the people receiving the money - unfair in that it no longer serves as adequate or commensurate recompense for the contribution they made to earn it.

Inflation and "Pressure on Wages/Prices"

In the United States, business news reports during periods of relatively full employment say that the Federal Reserve Board is concerned with pressures on the economy to increase wages to keep workers from going to other jobs and then, of necessity to pay for those higher wages, by raising prices, thus starting a round of inflation. So interest rates may be raised to slow the economy in some way by making less money available at interest prices people are willing to pay. It seems just as likely that some prices will also rise from greater employment if more people can afford to pay more products and labor, particularly necessities, and those who supply them then think they can get by with raising prices. As more money is available to be spent, companies will try to increase profits by raising prices of things like bread, as well as by selling more bread. Since there is not always true competition in a free market, companies may choose to raise prices when others do rather than to compete by price for an increased proportion of the market. 

If my model of money is correct - that the amount of money available for products and labor needs to be commensurate with the potential amount of products and labor available, in order to facilitate trade and participation in the economy- then, theoretically, control of interest rates, along with bank reserve requirements, and the sale of bonds will expand or decrease the amount of money available in the economy to accomplish this. However, because there are inequalities inherent in where money is pumped into or out of the system in times of change in the money supply by these methods, although the end result may be the commensurate amount of money and labor is equal overall, it may not be that the money is in the right places to employ labor the most effectively, the most fairly, or the most reasonably. And it may be that prices will not rise proportionately equally, so although there is inflation for the most part, not all people and not all prices or companies are affected equally. Some may prosper while others suffer losses.

Inflation in a Non-Money Economy

If we look again at our school lunch example of trade without use of money, suppose we have a group of students dividing labor and sharing the Goods from that labor. Suppose one person makes an appetizer, another makes the entree, another makes vegetables, a fourth provides fruit, a fifth provides dessert, and someone else brings drinks. Suppose these things all take the same amount of time and effort to make and the same amount of trading to purchase the ingredients for, so that we have a fair and equal system that has voluntarily grown. There are a number of things that can happen.

Other students may emulate this model and start their own group. That should not affect the trade of the first group then, for all it involves is another group of students dividing and sharing their labor rather than making their own individual lunches. As with the original group, the point is to (1) be more efficient in preparation of lunch, and (2) to benefit from each others' special culinary skills, so that the "profit" is saved time and energy, and more delicious food.

However, suppose some students want to join in with the original group, which is at full employment (but not at full capacity) in the sense of having balanced trade with each other, balanced work, and balanced benefit. An easy solution would be to take over the position of one of the initial group's members, perhaps someone who wants to go back to making his own lunches, or who will graduate from or drop out of school. But suppose no one wants to leave the initial group. Now there are a number of possibilities:

(1) The new person can offer some different benefit, perhaps a ride to and from school for everyone (who, we will say now walks to school) in exchange for lunch. If that is accepted, we still have a balanced trade situation with a new profit -- time and effort saved from walking to school for all the original people, and better lunch for the new guy without his even having to prepare his lunch.

(2) The new person can offer an additional food treat of some sort that everyone might accept in exchange for making one more portion for lunch. Again, we have an increased, but still balanced, trade situation.

(3) The new person can offer to do a portion of the work of one or more of the original members in return for a portion of their lunch. He may make two of the meats for one person in return for an appetizer and a dessert. Or he may make two of the meats for one person and make two drinks for another in return for an appetizer, a dessert, a vegetable, and a fruit. Now the trade situation has become unbalanced in the sense that some of the people are doing more work than others and receiving more benefits for it.

(4) The new person might offer to trade something, such as a ride to school, to one of the people for part of his lunch, so that the new person is not part of the lunch-making group as a group at all. The old group is still balanced as it was, but one member of it has traded his benefit of being in the group for something he considers to be worthwhile.

(5) The new person might offer someone in the group something for them to join a new group or to do something for him/her that prevents his/her still working with the old group. The old group, in order to stay balanced will have to adjust by doing without what that person made and thus making one fewer item to contribute, or by adding a replacement member. 

Suppose a different situation altogether now. Suppose (6) one of the members of the original group only eats half of each of his lunches, and somehow preserves the other half for future use. If he started with the group his freshmen year, he can retire from the group at the beginning of his junior year and live off the half of the food he has saved. This will mean the group will have to adjust as they did in (5) if they want to maintain the status quo.

None of this changes anything in any sort of inflationary way. In fact, it is difficult to imagine anything causing inflation in this trading organization. Suppose we go back to (1) above and the person giving the ride to school wants two items from each person's lunch. To recoup that they can each make one additional item for each other as well as the first item for the driver. Even if the original six people are maxed out making lunch for the others (i.e., are at full capacity) the only cases that would change anything are (1) and this last one, where they would each have to do without one or two items from their lunch and could not replace it, but would receive for those things the ride to school.

Until and unless money is added as a different commodity to be traded for, and unless money has a way of being added or subtracted to the system in some way not related to what is being traded for, there is no way to get inflation into the system, or any system, which trades goods or services for other goods and services.

Suppose (7) that the dessert-maker one day decides he would like larger portions of everything else in return for his desserts, and that the others all like his desserts so much that they agree to make larger portions for him/her. The others then decide that the larger portions look so good that they want them too. And suppose that everyone agrees, including the dessert-maker. At first, all that happened was that the dessert became more valuable then the other foods, but after a while the value of the other foods caught up. Now everyone is doing more work for lunch, but everyone is also getting more lunch. If the dessert-maker holds out to make the same-size portions of dessert, and everyone acquiesces to exempt dessert from the size-increase, everyone but the dessert-maker is doing more work, and getting more; the dessert-maker will be getting more for the same amount of work, so again his/her work will have increased in value, but there will still be no inflation. There can only be inflation (or deflation) when there is something serving as an intermediary for the trading of goods and services and the "value"(2) of that thing falls (or rises) in proportion to the value of the goods and services themselves, while the relative value of the goods and services to each other stays essentially constant.

There are a couple of ways the value of money changes: (1) additional quantities of money are added to, or removed from, the system while the quantity of goods and services stays the same or changes more or less than the amount of money. (2) The reverse, where the amount of money remains constant but the quantity of goods and services available changes. (3) The overall amount of money does not change, but the portion of it that is being used for trade among the available goods and services changes. E.g., if someone or some group is hoarding a large proportion of money, keeping it out of circulation, those who are trading for goods and services with the amount of money left in circulation will have to make adjustments in their prices. For inflation to occur with these changes, however, there must also be an equalization of proportional pricing among all the goods and services. 

Until that happens to some great extent, differential rising (or falling) prices will only reflect different values of the goods and services involved. In the 1970's when OPEC raised oil prices, they were able to get and hold the new price while they were united because oil was a necessity for industrialized nations, and those who were able to pay for it, chose to do so. Those who provided other necessities, such as utilities, were able to increase their own prices, in order at least to compensate for the higher energy costs sustained by the companies and by their employees and investors. People who did work for these companies and people were able to then take their fair share of that money, etc. As everyone tried to compensate for the increase in energy and ensuing other costs, they raised their prices where they could. While some people could not, and suffered accordingly, at some point, all those who were able to achieve close to their previous standards of trade essentially completed an inflationary circle. Because of the temporal and piecemeal nature of this process, there is not only inflation that occurs, but also a certain amount of valuation changes, where some people lose and some win, as their goods and services lose or gain relative value to other goods and services in the economy. That could only be prevented, and permit only inflation, if the original price increase in oil were immediately offset by all other prices and contractual payments, and if the right amount of new money needed was added to the economy in all the correct places simultaneously. That would be difficult to compute and to implement. If it were easy to compute and implement, no initial inflationary price hikes would occur if everyone knew they could gain no advantage from it, and would only waste community resources that ended up accommodating the initial change and accounting for it.

Notice that even in a directly controlled, centralized economy, as long as trade is done via money, inflation and deflation can occur because it is not easy to keep a balance between the goods and services available and the amount of money in circulation, particularly the amount of money circulating where it can do the most good or even where it can keep trade simply functioning at the highest levels. None of these things is stable in themselves, let alone as a system. Drought or abundant harvest affect the quantity of available goods; new inventions or applications, new business ideas, organization, etc. effect the quantity and types of goods and services available, as do population changes and changes in the import prices of necessities such as oil.

(To Chapter 19)

1. Money can lose value in ways other than inflation. If you are unable to purchase with it what you want or need because the products and services you seek are not available, the money you have to pay for them will not have the value for which you had earned it or held it. If there were no products or services available that you could buy with it, it would obviously have no value. Money can also lose value when currency is outlawed or replaced without substitution. In the U.S. today, Confederate money is not worth anything other than for its antique value.  (Return to text.)

2. "Value" in this sense means "trading value" only, since money has no great value of its own (except as art or a collectible, or as note paper or as coins to flip to choose between two options) other than what it will purchase. In this sense, talking about a rise or fall in the value of money just means that it takes larger or smaller quantities of money to trade for the same goods and services.  (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 19
The Ethics of Money

The ethics of money in a money economy is both forward looking and backward looking. Money should be morally earned and, in an interdependent economic system that is operated primarily by money, money should be morally spent, invested, or used, particularly large concentrations of money. If it is not morally used, invested, or spent in such a society, then that kind of society has, I believe, the right and the obligation to take economic measures that somehow make up for money's not being correctly utilized, particularly large concentrations of it. The reason money needs to be morally utilized is that if it is not, it makes difficult or impossible the normal trade relationships of a society that is based on a money economy. And since people are dependent on each other and on the trade relationships of society for their very well-being, anything which disrupts trade relationships can bring great harm. Large concentrations of money have disproportionally greater influence to do good or harm than small amounts of money that is dispersed among a number of sources. 

By being morally spent or utilized, I do not mean that everything everyone spends money on needs to be somehow good for others or to be an investment. I mean only that there needs to be enough money, circulating in the right places, to make possible and feasible important work that should be done when there is (potentially) willing labor available to do it. To paraphrase Shakespeare, money that is resolutely earned should not all be dissolutely spent. Too much dissolute spending channels labor into activities that are of less social benefit, and it takes away from the supply of labor that might otherwise benefit others. If money is not being morally spent, then the social system is not likely increasing benefits and decreasing burdens as much as it might. This is recognized by many who think that too much government can increase social burdens, not lessen them. But it is just as true that money spent on any unproductive or destructive enterprise can increase social burdens in the same kind of way. As money lures people out of one profession into another, it may leave stranded the people who depended on those workers previously.

Notice, this does not require financial freedom to be curtailed or for money to be taxed at a high rate. (In some cases taxes are loathsome to people because they feel it is money that government takes rather than earns, money that is undeserved, and therefore money that is not morally earned(1). People also, of course, loathe taxes they believe are misspent by government.) Although government is not necessarily always the worst social administrator, it is not necessarily always the best either. What makes money morally spent is not who spends it but how it is spent --what it is spent on. There is no reason private individuals and groups who have resolutely earned money cannot understand social obligations regarding the work that could be done with money they amass. These social obligations occur where great amounts of money are concentrated because, in a money economy, great amounts of money bring about the power to harm and to help people; and the use of money for one purpose tends to at least temporarily make other purposes difficult or impossible to accomplish. In a simple case, suppose that money is spent to pay grocers not to sell food to certain people. And suppose grocers were the only source of food for people. Clearly there are cases where such a use of money would be immoral because it would be harming innocent people needlessly. Well, the same kind of thing happens, only not as obviously, and not as maliciously, if money that could go to successful cancer research is instead used to build an amusement park, grow tobacco, maintain a symphony orchestra, or fight wars. 

This is usually explained as a guns-versus-butter issue in economic books, or is discussed as opportunity costs, and merely reflects the point that we cannot always afford to do everything we want. But I believe that way of describing what I am discussing here camouflages important social and economic issues, because some ways of spending money increase economic growth and the possibilities of social benefit, while some ways of spending it decrease economic growth and add to the social burden --even though the amount of available labor is the same. The choices are not always between two things that cannot both be afforded, but are sometimes between things which are productive and those which are destructive or less productive. Money used productively does not merely bring different benefits, or benefits to different people; it can make more things affordable than money spent less productively. It may involve something as simple as the difference between eating all your chickens and breeding them. Breeding them gives you more to eat in the long run than does eating them to begin with. It is not just a matter of whether you get to eat chickens now or later since you cannot do both; it is also a question of how much chicken you will be able to eat altogether.

I think we all have the obligation, recognized or not, to spend some money, or channel some labor, productively. Not all labor needs to be productive, since it is pointless merely to produce things for future use that we never let be used. Surely some consumption for the sake of individual benefit alone is important. But to unnecessarily destroy or consume an unfair or unreasonable proportion of that which could be more productively used to benefit more people for a longer period is, I believe, morally as reprehensible as taking from someone something they already have.

In an active money economy, money tends to be both being amassed and being dispersed by different people at different times. Money that is amassed tends to be dispersed as it is spent or used. A bank or insurance company, or the government or a business may amass large amounts of money at any given time. They may invest it or loan it out or spend it in any number of ways. But eventually much of that money gets dispersed. Suppose the source that has it decides to build a building with it, or invests it with someone who builds a building. That money is then scattered among all the laborers and suppliers who contribute toward building that building. In a money economy (as opposed to a slave economy or a volunteer economy) the building would probably not have been built without the money's being amassed and concentrated in the first place; and once it is built, that money is no longer concentrated. Yet concentrated money, and the concentrated labor, it can bring, often is more potentially productive than that same amount of money, or labor, dispersed. If it takes four people working together simultaneously to do a job, then one of them cannot do it at all, let alone in four times the amount of time. In a simple case, suppose it takes two people to carry a long, fairly heavy pole. It does no good to be able to hire one person to move the pole, no matter how long you can pay him to work; you need to be able to hire two people, even if for only a short time. Or, if you take six equally talented basketball players and have them play five against one, giving the solo player the ball five times more often, he will still not likely score nearly as many points as the five. It is crucial to concentrate money at times so that labor can be coordinated in those projects that require groups of people working together to accomplish something. It does no good to have the money to hire an airplane pilot if you cannot afford a plane. Hence some sort of mechanisms are necessary to try to concentrate money for those enterprises that required concerted labor and/or expensive materials (which come from other concerted labor): monetary profits, banks, stock markets, investment consortiums, taxes, etc. Still, it is often difficult to concentrate money for worthwhile purposes. Therefore, I believe, it is important to spend money wisely that is concentrated. Otherwise the beneficial opportunities of concentrated labor become lost until money is concentrated again. But it is not money that is lost when concentrated money is dispersed to pay for things; it is the particular channeling of concentrated labor that is lost until money can again be concentrated to amass that labor and pay for what only amassed labor can bring. When concentrated money is dispersed on unwise projects, what is lost is an opportunity to have produced, at that time, a different project with more important benefits. If government or private business builds, say, a high-rise apartment that people do not want to live in, and that they either let go to waste or that they live in but let deteriorate, what is lost is what the labor that built the high-rise might have accomplished that would have been more meaningful. If private or public schools use money to hire teachers who are not very good, what is lost is what the students might have learned if the schools had hired better teachers with that money. It is not that money by itself is squandered, for that money still is in circulation somewhere; what is squandered is the opportunity to have done more good with that money. Money often simply employs or channels available labor, and the value of what that labor produces constitutes the value of the money. The money, or some similar sum, can generally be re-concentrated, but the use of that particular time and labor cannot. Wasted money can be recouped; wasted labor cannot be recouped.

Profit Based on "Risk"

There is a curious argument given for charging very high profits for the results of developing and marketing goods or services based on risky research or risky investments. It is the argument that risk needs to be rewarded, either for its own sake, or to encourage such risk in order to make progress. I say this argument is curious because it does not seem to make sense just on its face. For example, if a pharmaceutical company finds a drug that will, say, prevent the common cold, why would it be justified charging an exorbitant price for it, if it can also make a huge profit charging less for it, especially if more people could then buy it? The question is not an issue of supply and demand because the claim under examination is not "We are going to charge a lot because we can get that price." The claim under scrutiny is the claim that "successful risk ought to be handsomely rewarded" - that somehow risk needed to develop the product adds a value to it over and above its development, manufacturing, distribution, and "normal" profit costs. I can understand that research costs (whether research is successful or not) need to be recouped or covered by any person or organization's income. I do not understand that risk is somehow separate from such research costs or that successful risk justifies much greater profit than if there had been no risk taken. Suppose someone not doing research happens upon an idea that turns out to be extremely successful. Suppose from its inception, it is obvious the product will be quite profitable if it is safe and effective, and that it does not cost all that much to demonstrate its safety and effectiveness. Is that product in any way more valuable than if it had taken years of research to discover? Not, other than however much more money went into the research that produced it.

Suppose the following: eight major pharmaceutical corporations fund pharmacological research in private labs and in universities all over the world, employing more than 5000 scientists in a hunt for, say, a cure for the common cold. Suppose that one small group of scientists in one university lab come across an actual remedy. Should that lab, and the pharmaceutical company that hired it, be entitled to more money than the other labs and companies which failed, even though the latter worked just as hard, and perhaps even contributed to the base of knowledge that actually let the successful lab achieve its success?

While it is clear to me that research and development in various areas is important and needs to be funded, it is not clear to me that success needs to be extravagantly rewarded by exorbitant profiteering simply because success is difficult to achieve and the labor that went into seeking it therefore needs to be far more than adequately compensated. If the actual argument is that the only way to pay for research is to charge extravagantly for the successes in order to recoup the costs of the failures, that would be a different issue, a legitimate one, and it would be open to empirical study as to whether some other means of paying for research might not be more effective and efficient. For it might be that a system which pays nearly as much for failed research and development as it does for successful research and development will ultimately be more productive and encourage more people to experiment. If, for example, it turned out that 5% of all ideas were good ones, in some sense more than worth the 95% of ideas that were not good ones, it would be more productive to encourage more people to work on their ideas, rather than scaring people away because they cannot afford failed risks or uncompensated labor. From a company's or society's standpoint, who achieves results is not as important as the fact that results get achieved. The real merit may belong in the effort, not the accidental or merely lucky result. It may even be important for society to chronicle failed attempts as much as it chronicles successes, particularly successes based on luck more than any particular actual foresight.

(To Chapter 20)

1. I suspect taxes are hated for a number of different reasons when they are hated, and that only some have to do with the idea of taxes being money that is not deservedly earned by the government. Most of the arguments against taxes are that 1) tax money gets wasted in appalling amounts or appalling proportions by government either through: a) inefficient use of it or by b) use of it for unjustifiable, misguided, wrong purposes; 2) burdensome taxes rob incentive for commerce and risk taking and therefore stifle the economy and produce more burdens or fewer benefits for the society; 3) taxes infringe on our individual liberty to personally choose how to spend what we have earned; and 4) the market can do more efficiently and more justifiably what the government tries to do, in many cases, so taxes to operate the government in these areas are unnecessary and unwarranted. In some cases, as during the American pre-revolutionary period against England, taxes are claimed to be unearned when they 5) are not democratically and voluntarily (through adequate representation) given to the government.

Wasteful government spending (#1), however, is not a claim that government does not earn money properly through taxation; it is a claim that government does not spend it properly -- that government does not have a moral right to money because they do not spend it morally justifiably. It is the claim that the government spends dissolutely what the people earn resolutely. It is not the claim that taxation itself is somehow morally wrong as a way to collect or concentrate money.

Numbers 3, 4, and 5 are about the government's right to earn tax money, and they go together in that taxes are less resented when they are seen to be voluntary contributions toward desired goals that the market seems unable to provide very well. Taxes considered in this way are more like dues or contributions to an organization that provides benefits that members cannot get individually or that they cannot get through market mechanisms alone. Claim number 4 tends to arise when there is disagreement about whether markets can or would do better that which government is doing, or wants to do, even if taxes are seen as voluntary. As such a disagreement, it is not so much a protest against taxes as it is an issue of whether a particular tax money for a particular purpose is the best way to accomplish that purpose.

Claim number 2 is a claim that turns on the consequences of using money in different ways. It involves a complex set of issues, part of which is "the psychology of incentive" (including risk and potential reward), and part of which is essentially the question in this chapter about how one party's getting and using money affects totally unrelated business activities beneficially or adversely. And it has to do with the constructive versus the destructive employment of money -- with mechanisms for channeling potentially available labor, through the use of money, in the most productive and reasonable ways.  (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 20
Voluntary Taxes and Public Buying "Brokers"

Concentrating money is one way --often effective-- of concentrating labor, since if there is labor available and willing to do work, it can normally be hired to do it for available money. Dispersing money disperses labor, other than labor that will work together for free or for possible future payoff. Tasks which require a greater number of workers to be able to be done, done well, or done with any reasonable efficiency generally need a supply of money or credit (the promised, and likely future, payment of money) in order to be accomplished. 

People with similar values in certain areas are more likely to voluntarily pool their money and/or their labor to accomplish something they all want in those areas that none of them can create or afford (to hire the labor to create) separately. They may build a church or a country club or even a business together. They may build a hospital or support a particular charity or civic activity. People with sufficiently differing values tend to be less likely to want to pool their resources toward more than the most basic common human needs that cannot (easily) be met without concentrated labor. 

Taxes are an attempt to pool money to concentrate labor toward governmentally decided ends. Insofar as people have any say in the amount of taxes they pay and how the money is spent, then the more agreement there is about ends, the more readily tax revenues can be raised without social discontent. The less people have any say in how much money is raised and what it is to be spent on, or the less agreement there is about what work needs to be done, the more that taxes will be a source of social discord. Mechanisms that require greater agreement in a community to pass taxes will have proportionally greater chances for social acceptance of the taxes. Such mechanisms are super-majorities (e.g., a two-thirds or three-fourths majority, rather than a half-plus-one majority) or formulas that require some consensus from known minorities as well (e.g., such as a formula that requires not only a majority approval from a large segment of society, but sizable vote from a minority group(s), say a 30% vote).

Stock markets, financial institutions such as banks or insurance companies, etc., are means of more voluntarily collecting money that gets concentrated into larger sums and that then can be utilized to concentrate labor. But these institutions tend to attract money for purposes other than doing particular work projects that contributors want to see accomplished. They collect money to provide insurance, banking services, investment profits, etc. People may buy stock in a particular company because they want to see accomplished the kind of work that company does, but for the most part the point is to make a profitable return on money, not to provide themselves or society with a service or product that would otherwise not likely be available.

It seems to me that besides having legislated taxes, there is no reason governments could not organize voluntary "tax" funds to do certain kinds of work that sufficient people feel is important to have done. That way money could be raised and concentrated for certain tasks without having to go through social and political strife and without the loss of some programs that a minority might be willing to fund. Further, if these taxes were voluntarily paid, there would be pressure on those in charge of the programs to operate them in a way that satisfies those who contribute. Some of these programs might even return a profit and attract money on that basis as well. There is no reason a job training program or particular kind of school, for example, might not require people they train to pay back some percentage of the money they earn from their training; or a business incubator program may be begun that ends up not only being helpful but profitable as well.

The objection to voluntary taxes is that projected revenues cannot be expected and counted on in the way that normal, often partially involuntary, taxes can be. This might actually be a good thing, because it means (or at least should mean) that the money will have to be spent on a pay-as-you-go basis, instead of borrowing against anticipated earnings. Or, if necessary, contractual agreements could be entered into whereby those who initially volunteer funds, incur a legal obligation to do so for an agreed period of time. But there is no reason that some projects cannot be funded this way where there are many people who want the projects and are willing to pay for them, even though a sufficient majority cannot be found in a legislature or council to increase taxes to pay for them. If a group of people can come together to build something such as a church building, there should be no reason why a group of people could not contribute toward the building of something like a new school building.

Beyond Revenue

The typical government program is one that raises revenue and then spends it to buy things that are owned by the public. But there is another way the government could operate in certain cases, and that would be to concentrate buying power without collecting money from everyone. Private enterprise could do this also, but it seems that government does not need to be left out, and in some cases would be more appropriate. I will give an example:

A lot is said today about getting computers into schools. The goal most frequently mentioned is to get one computer into every classroom, and wherever possible to have computers in the library or in a computer lab where students can access them to do work. This is a very expensive enterprise, and it is questionable that it is the most efficient and best way to introduce students to computers and to give them access to computers. A better way would be to organize buying groups to allow parents to purchase computers themselves for home use from private enterprises at bigger discounts. It is not easy to do much on a computer during a classroom period, whereas students with computers at home can learn much more and get much more out of them. An organized buying group can shave much money by taking bids from vendors eager to sell large volumes. Where schools or districts organized buying groups for computers, software, for Internet access, or for whatever is relevant to education, citizens could benefit from a government service without tax revenues being raised or spent. 

I worked on trying to find the benefit of such a program in the early 1990's when Internet access was costly and hard to find, and when computers were far more expensive. With just a few phone calls I was able to find a local vendor willing to sell computers designed primarily for student use that included printers, modems, and software for $300 less than the least expensive advertised price one could find at the time. This price was predicated on orders from 100 or more families(1). Moreover, I was able to talk an Internet service provider into allowing local school districts to combine to pay for one backbone site they could share instead of each having to pay for their own site. The set-up fee for a site at that time was so prohibitive only the wealthiest school districts could have afforded one. 

So government's could save people money instead of costing them money, if that was realized or thought to be a proper function of government. This is a way for government to assist private enterprise rather than to compete with it or to ignore its potential. It takes some of the risk, and the cost passed on to the consumer of that risk, out of private enterprise by letting potential suppliers know what their volume of business will be ahead of time before they do any work or have to buy parts or hire laborers. It provides opportunities for citizens and for businesses. And the reason it is in many cases a better function of government than on private enterprise itself is that, in the case of computers and schools, perhaps no private group would have done it or could have done it as a profitable function itself, since it was a one-time fairly minor bit of labor. Further it fostered education, which was in the purview of state government anyway. 

Businesses that can operate from large volume orders, particularly potential start-up businesses, can avoid risk and can pass on the savings risk entails. The typical retail operation stocks items they hope to sell. They have to stock the items so customers will be attracted to browse or shop. However, since the merchant has to pay for the items s/he does not sell also, the cost of what might not sell has to be incorporated into what does sell. This makes the price of what does sell higher than necessary, and, in many cases, less attractive to purchase, thus decreasing sales potential. Merchants in a position to stock only what they need as they need it, can make more profit and still sell at a lower price. This, again in the normal situation, fosters even greater sales because of the lower price. So government organizations in some cases are in a position to be able to foster commercial enterprise while saving their constituents money. All at no cost in tax revenue, and without government's having to be a supplier or a customer itself. It serves this function merely as a catalyst where appropriate.

(To Chapter 21)

1. Increased demand can reduce prices instead of elevating prices, if the increased demand is coordinated in such a way that suppliers can plan for it and desire it enough to bid for it. If potential buyers unite, instead of competing with each other (particularly for what is under-produced and often only produced on speculation of selling), and combine their purchasing power, they can lower prices available to them. (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 21
Investment and Consumption

Ordinarily investment and consumption are considered to be opposites in that we save and invest our money for future consumption or we spend money on things we now consume, thus not having for future use what is spent. Economists divide spending into investment and consumption, and they label goods to be consumables or capital goods. But I believe this is a categorization that is not the most helpful way of looking at investment and consumption.

I believe it is more helpful to look at goods and services in terms of whether using them depletes them (and possibly other goods and services), thus decreasing the number of future Goods and Services available, whether using them does not substantially change what is left, or whether using them helps us produce more or better Goods and Services than if we had not used them. Investment is generally assumed to be the last, consumption the first, of these alternatives, but they do not correspond exactly. For example, toys would generally be considered consumables; but insofar as the little flying propellor-on-a-stick toy brought home by Orville and Wilbur Wright's father to them, helped spur their interest in developing a flying machine, and gave them some clue how to do it, it helped bring into being Goods and Services worth billions or trillions of times its meager material value. In the Wright home that toy was an investment; in any other home, it was a consumable that eventually just sat in a box or went into the trash bin. A typewriter bought by Hemingway, a piano bought by Beethoven, or paper used by Shakespeare, had much more investment or instrumental value than a typewriter, piano, or paper purchased by the average person, who uses them up while giving us little in return for that use.

I assume that in conventional economics, putting money into a timber business is investing, but the lumber one produces may be a consumable or durable good; consumable if it is made into broomsticks, newspapers, or even houses, but durable if it is made into factories, hammer handles, or wine barrels. Further, there seems to be a substantial difference between clearing trees faster than you grow new ones back, and clearing trees slower than you grow them back. Clearing them faster uses up valuable resources; clearing them slower does not. A timber business that sows more than it reaps is investing in the future as well as consuming in the present, but a timber business that harvests more than it sows, especially if it harvests everything, is not investing in the future at all, but simply consuming, trees and wood even if it makes a vast financial profit and supplies a need or demand.

Of course it cannot always be known at the time whether a given action will be profitable in the sense of increasing benefits, not just money, (i.e., produce additional Goods and Services other than just what using it gives) or not or whether it might even be wasteful (i.e., squandered with little or no benefit). But we can think in terms of attempted production of additional Goods and Services (investment) and in terms of consumption that has no further intention. And we can often tell at some future time then whether an investment was successful or not or whether a resource ended up merely be consumed (providing a benefit only in its use) or squandered (not even providing much benefit in its use, misuse, or mere loss).

The point of my conception of investment and consumption is that if we have any concern for our own future, or for future generations, we need to think of investment as expanding opportunities for reaping future benefits, not as expanding opportunities for current or short-term benefits at the expense of future benefits, which would be consumption or squandering. Also investment needs not to be thought of as the spending of money in order to make more money, since a financial profit may not produce a real profit, or the most advantageous profit (as in when a timber business ruins a forest at great financial profit or the ivory industry destroys all the elephants or we collectively ruin the ozone and cause whatever harms that might bring about).

Further, we need to think of investments in terms of trying to maximize benefits (fairly), not just trying to create some additional benefits. For example, if a potentially great golfer decides to go into brain surgery and is moderately successful at it, or if a potentially great brain surgeon gives up medicine for golf, at which she is moderately successful, then both may be making a profitable investment, but not the most profitable investment they could make. They may not benefit themselves or the community as much as they could have. Or suppose a person who likes to think while she is driving to work alone instead chooses to car pool in order to conserve fuel. That may save fuel but may cost more stress or may cost productive ideas. Or someone who thinks better when in conversation or who really enjoys camaraderie during commuting may actually be more productive if they join the right car pool rather than driving alone. Sometimes one can experiment to find one's most productive activities, but unfortunately, sometimes investments, such as education or training may require choices that are difficult or impossible to know which may be the more productive investment of time.

Investment versus Consumption

I do not mean to imply that investment or savings should always be favored over consumption. Sometimes it should, but sometimes not. If you are a wine connoisseur with a particularly fine bottle in your possession, in which the wine will neither improve any further with age nor will deteriorate, it does not matter much whether you have it on a current very special occasion or a future one, unless anticipating drinking it would bring more pleasure than remembering drinking it. If an elderly Antonio Stradivari has offered to make you a violin out of a particular tree in your yard, consuming that tree now rather than waiting for it to propagate may be the best benefit you can have of that tree. There will be different circumstances, different consequences, different risks, and different benefits in different cases where investment and consumption are mutually exclusive. They need to be weighed and the best judgment needs to be made. There is no pre-determined general answer as to which is preferable.

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 22
Quantifying Qualities of Value

In their 1972 paper "Is Growth Obsolete" (Economic Growth, Fiftieth Anniversary Colloquium V, National Bureau of Economic Research; reprinted in The Measurement of Economic and Social Performance, National Bureau of Economic Research, 1973), William D. Nordhaus and James Tobin turn their attention to trying to quantify, or better quantify, some of the qualities of life not usually (adequately) taken into account by various economic measurements or indicators. They specifically discuss the value of leisure, of health and education, of externalities such as police, defense costs, pollution, and the "disamenities of urban growth". They quote Paul Erlich's assertion that: "We must acquire a life style which has as its goal maximum freedom and happiness of the individual, not a maximum Gross National Product."

Their purpose is to devise a purely economic, and therefore objective or quantifiable, measurable, indicator of well-being, their MEW -- "measure of economic welfare". In this paper they construct a "primitive and experimental" MEW, that avoids the criticisms directed at the inadequacies of GNP. They believe in short that a dollar value can be put on values and qualities we believe important, and that such dollar values can then be factored into economic policies, taking into account important values that "GNP" leaves out. In particular they argue their MEW shows that maximizing economic growth is still a reasonable policy, but it is not that claim which I wish to consider here. I want instead to discuss some of the issues of quantifying values or quality of life.

I believe it is a mistake, though sometimes a useful mistake, to quantify these "intangibles" because the value of the intangible is subject to change; and unless the method of quantification is subject to change in the same way, the dollar value assigned will not do justice to the real value of the intangible under changed conditions. A few examples will make this clear. 

(1) An executive one time told me that his company has virtually identical business plants in Birmingham, Alabama and in Portland, Oregon. Wages paid are very similar and jobs performed are virtually identical. Yet leisure time has far different value to the employees in Birmingham from what it has to the employees in Portland. Birmingham employees like to work overtime and often prefer to work (for double pay) during vacation periods. (It costs the company the same whether they pay a worker his vacation pay and a salary for working or whether they pay his vacation pay and a salary to the person who substitutes for him while he is on vacation, so monetarily it does not matter to the company, but the company wants workers to take vacations and generally to spend weekends away from work.) Portland employees generally refuse to work any overtime at all. The highways around Portland are said to be bumper to bumper with campers and cars pulling boats or carrying canoes, etc. by 4:30 each Friday afternoon. People have a desire to use their weekends in Portland in ways that the people of Birmingham do not seem as concerned about. The value of leisure time, if quantified, would have to reflect a difference in Birmingham and Portland, even though the same money paid to workers in Birmingham and workers in Portland buys roughly the same products and services.

(2) The same would be true of any particular weekend in either city. If a Birmingham employee's child is getting married and there is a formal wedding planned, with relatives coming from all around, no reasonable amount of overtime pay might be adequate incentive for a last minute change of plans. Or if it is going to be dismal weather some weekend in Portland, employees might find some overtime pay adequate incentive to work, particularly if they have some extra bills or would like to purchase some luxury.

(3) In general, an hour of leisure time you really are looking forward to or really need to be able to do something that is important to you, is very different in value from an hour of leisure time that you have nothing interesting to look forward to doing with it. Oppositely, an hour of interesting work is worth far more than an hour of drudge work. And an hour of interesting work, assuming one does not need respite, might be worth far more than an hour of uninteresting leisure. 

I am not saying this cannot be quantified; but that any algorithm for quantifying it must take into account in the right way that not all hours of work or leisure -- purely in terms of time -- are equal. And this has nothing to do with the marginal value of the least desirable hour of leisure or of work; because these may not be precisely the 39th hour of work each week or the 47th hour of the weekend or the third week of vacation, or whatever. The "opportunity costs" of an hour of leisure or of an hour of work are different depending on the needs and opportunities available. I am self-employed with frequent requests to work weekends, and I set my week-end rates differently for different kinds of jobs (depending on their ease and pleasantness) and for different kinds of uses I am otherwise planning for a given weekend. I would not want to work for someone who told me what extra hours I would need to work and what the compensation would be for each of those hours, regardless of my opportunity costs for them.

(4) Anomalies occur in setting specific, quantified values to certain things, if those quantified values are not set correctly or if they are not correctly updated periodically. For example, under current law as this is written, because of health care costs and medical improvements in saving lives that are seriously injured, it proves cheaper for a company to have to compensate an employee's death than to pay for hospitalization and disability. Hence, an expensive safety program that turns otherwise probably fatal accidents into expensive non-fatal ones might be ones that employers would eschew. In essence it pays an employer, in purely economic terms, to tolerate conditions that make sure any accident is fatal rather than non-fatal, if preventing the accident altogether is more expensive than paying the death claim. Similar cases arise in law, where a company, like an automobile company, can lose less money by paying likely lawsuit death settlements or verdicts than by incorporating safety features to minimize those kinds of deaths. This kind of case is not an argument to show quantification of values, such as life, are not possible, but to remind that such quantifications are meant to be measures of the value of something, and are not meant to take on a meaning or end of their own, particularly one that might end up defeating the purpose for which they were intended.

What Tobin and Nordhaus want and what many other economists want, is to be able to attach a dollar value to all the burdens and benefits of a given product or service, so that its "true cost" can be charged. Tobin and Nordhaus write, "The consumers of automobiles and electricity should pay in higher prices for the pollution they cause, or for the higher costs of low-pollution processes. If recognition of these costs causes consumers to shift their purchases to other goods and services, that is only efficient. At present overproduction of these goods is uneconomically subsidized as truly as if the producers received cash subsidies from the Treasury." 

The problems I mentioned above are in establishing, and keeping current, appropriate dollar values. And there are two causes of these problems: (1) no objective formula or algorithm can guarantee the correct quantification of a non-objective quality. Quantification of this sort requires judgment, and as conditions change, judgment must be applied again to make certain that the procedure and end result reasonably reflects the kinds of issues, values, and understanding involved in regard to the new conditions. (2) the values assigned have to somehow reflect the importance of the values to the people who have a greater interest in them, not those with a lesser interest. If, for example, a value could be put on the life or safety of a child, one wants it determined by people who care about children's lives and safety, not by those who see them as mouths to feed or as investments in future labor. You do not want a car company making decisions about safety features based on the probable future earning power of children, but on that and the kind of grief families would have to suffer about the unnecessary incapacitation or death of a child. You do not want people who can afford to buy private security or enhanced plumbing filtration making decisions about the adequacy of police protection and city water purification standards for other citizens who cannot, if they will do so on the basis of costs acceptable to them to upgrade those services privately for themselves. Those standards need to be set on some sort of basis of what would, or should, be acceptable to the people who will be most affected, not those who will be least effected.

Now what Nordhaus and Tobin and others want to do, is to make prohibitive, by cost, what would be morally and socially unacceptable or prohibited by principle or by law. And they want to make expensive what is undesirable but not totally unacceptable. I prefer the direct prohibition by law or principle --as long as the law is a reasonable one-- because I think explicit and direct, verbal principles have more chance of performing what you want them to, and being amended when they go awry, than do buried and indirectly acting principles which, after a while, people forget are operating, and which take on a life of their own whether productive or not. Further, although laws tend to be too broad or too narrow or to allow unintended and undesirable methods of compliance (loopholes), at least the problems with such laws then are above board and able to be seen and dealt with if the legislature or courts so desire. Principles that act indirectly tend to be more difficult to see as causally operating, and they still face the apathy of courts and legislators if they are faulty anyway. Further, indirect principles tend to have more unintended, unexpected, and undesirable consequences. Some of these consequences then also seem intractable because people are loathe to change principles that have taken on a life of their own (as ends, rather than as means) after they have operated a while, especially when those principles seem some how objective or "fair" (impartial) on the surface.

But there is one additional and, I believe, crucial problem with the notion of trying to put a dollar value on the various kinds of aspects of life that are valuable to us even if it is originally just for some sort of technical economic variable. There are millions of things caring, decent human beings do for each other every day which are done without a thought for what the reward or payment might be, because we know that in the normal course of life others will do for us many such things as well. To quantify all this would be tedious work at best, and to try to keep some sort of record of it would be a moral-bookkeeping nightmare. Further, it would be even worse to begin to demand payment as we go along: what would you charge to pass the salt, please? to answer a question? to let me use your phone a second, please? to tell me the time? to call 911? to give your spouse a message when s/he gets home? to let me pull my car into the lane in front of you please, since I got into the wrong lane by mistake? to smile once in a while or just act a bit more pleasant or polite? to tell me the name of the plumber you used last month? to look at this weed and tell me whether you think it is poison ivy? 

There are already cases where people charge for things one might think should be free -- technical support for expensive software you have already purchased where the included directions are not as clear as they might have been, for example; or where you have to pay the shipping costs to return defective expensive, new merchandise; labor time for a repairman to go get a part he did not have with him, etc. 

When people are able to put a dollar value on some behavior that was previously monetarily unquantified, there will eventually be some who think they should then be monetarily remunerated for that behavior. Sometimes this is very disturbing because it makes people seem meanspirited or cheap. On the way home from a short trip one time, one of my children caught the very end of her finger in the car door as she was getting out of the car at a cafeteria-style restaurant. The restaurant people quickly gave us ice and everyone was very solicitous; people in line to order food quickly and willingly stepped aside when they learned I was just looking for ice to treat the hurt finger. My daughter's finger seemed okay and did not seem to be anything that required medical attention. But when we got home, it turned out that my wife had hurt her leg while we were gone and had gone to a hospital emergency room for an X-ray. When we went to see her, I asked the doctor attending her whether he thought he should look at my daughter's finger. He examined the finger a moment and then said I should sign her in as a patient. I did, assuming he was going to have it X-rayed. We waited (and waited) our turn. When it came time to see him, he quickly just looked at it again and recommended just keeping some ice on it. The fee for the second look, which was no different than the first look, was $85; $10 of which was for the ice the hospital "gave" us. Apparently it was a lot better quality ice than the restaurant people had donated. I called the hospital and my insurance company the next day since I thought the doctor's behavior was outrageous. I wanted the insurance company to refuse to pay; and I wanted the hospital to expunge the bill. I doubt either of those things happened. As more behavior becomes financially quantified in some way, I would think this sort of problem would be compounded.

I realize that when behavior is NOT quantified in terms of dollar amounts, it leads to some people's behavior being taken for granted, such as if one partner does significantly more housekeeping chores and the other considers him/herself to be the "real" wage earner and thereby the "real" "worker". And I realize that sometimes costs have to be accounted for, since time and even inexpensive materials can add up as burdens that need some sort of remuneration. Further, I realize that one might need to put a price on one's time in order to serve as what I call a "nuisance fee" in order to prevent others from simply taking advantage of you or wasting your time because it costs them nothing. However, I am not certain that paying a mate maid/chauffeur, etc. wages (or even quantifying how much one would have to pay IF one were to pay) would improve the lot of marriages, or allow many to even be possible. And I am not sure that we would be better off if we conducted all aspects of our lives as though they were part of doing business, requiring an immediate trade or monetary remuneration.

While Nordhaus and Tobin are not arguing that all activities and time be calibrated in dollar amounts, or that those which are should be actually paid as labor, I fear these would be natural and harmful consequences of trying to determine the financial value of things such as leisure time.

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 23
Ethical Values, Economic Values, and the Culture of the Work Place

I have already written that economic decisions take place within an ethical framework and that where people agree about relevant ethical values, the economic decisions they make will not generally conflict with those values, even if there are no laws, regulations, or policies preventing it. Conflicts tend to arise between economics and ethics where there is insufficient ethical consensus to prevent, either by understanding, by law, or by social pressure, the economic decisions and activities that cause the conflicts. So if a company thinks it not wrong to market violent toys or video games to children in commercials for Saturday morning cartoons, and if there is insufficient legislative/political opposition to it, it will be done if it proves successful economically. Similarly with any other product or service. In the early history of America, slavery was a contentious issue because it was economical and only offended the ethical sensitivity of part of the population because it had long historical and cultural roots, and was sanctioned in the Bible. 

Moreover, even if there is sufficient consensus to pass laws against certain services or products, if society is split over the issue, a black market or simply an illegal market will operate anyway because sufficient suppliers and customers will be available. Black markets are generally attributed to the power of economic or capitalistic enterprise or to greed, but they only operate where there is insufficient internalized ethical agreement about the wrongness of what is being traded. Those who buy in a black market often do not believe they are doing anything wrong; they believe unreasonable restrictions have been unfairly passed. Even those who sell in a black market may feel the same, and not be operating purely out of greed or for a profit motive.

There are a number of principles, however, which, though they seem ethical and harmless in themselves, give rise to conflicts between ethics and economics, particularly when coupled with certain natural forces. Often this is to the detriment of ethical values and to people's long-range best interests -- sometimes even the willing participants, as in those cigarette smokers who develop addictions and illnesses later in life that make them wish they had never begun to smoke. The principles which give rise to conflicts between ethics and economics are: (1) whatever is legal is free to be pursued for profit by becoming a commercial enterprise, (2) it is better to have more money than less, (3) people may rightfully purchase whatever is legal to purchase and own, and (4) the desired is desirable. These become particularly problematic when coupled with the force of the unconscious desire to be like (certain) others (often portrayed as "keeping up with the Jones"even though "up" is not necessarily the direction), with the force of wanting (some things) just because you don't have them, with the force of youthful impressionability or malleability, and with the force of the increasing rapidity of invention and discovery of all sorts of things which turn out to have unfortunate uses, not anticipated or known in time to have kept in check. 

Individual liberty and autonomy are highly prized in many societies, but the arguments for it require or imply that they will not lead to great or egregious harm. No one, for example, thinks it okay for atomic weapons to be purchased over the counter by teenagers or the average citizen. The risk of large-scale catastrophe overrides the normal benefits and moral right to liberty and autonomy. Autonomy and individual liberty may take precedence over some slight risk to others, but not to catastrophic risks to others, and in some cases not even over catastrophic risks to oneself(1). This can normally be seen on the personal level, for as we rear our children, the rational approach is to give them increasing autonomy as they demonstrate understanding of danger and as they demonstrated a greater sense of responsibility and maturity to avoid it. One does not give a two-year-old carte blanche to play unsupervised in a yard near the street, but a six-year-old who has learned about the danger of being hit by a car might perhaps be allowed to do so. On the other hand, where there is no danger or likely terrible consequences, a two-year-old might reasonably be given certain freedoms, such as choice of play clothes to wear on a given day even if the child might pick a combination of colors or patterns the parent might not have chosen.

Unfortunately some great harms develop incrementally, and many are not generally recognized until it is too late, if they are recognized at all. Also, some activities have different value when they do not affect others from when they do, so that, as I wrote earlier, an action that is perfectly harmless when done by people in a more or less independent society, when done under conditions of relative isolation, or when done by relatively few people, may be harmful to others in a more interdependent society, under less isolated conditions, or when done by more people.

As to the principles and forces above that lead to conflicts, the first and third principles ignore that many things are legal only because no one, or insufficient people, saw the problems with them. Many products and services are legal because no one ever thought anyone would be so foolish or craven enough to do them or to trade in them that laws prohibiting them would be necessary. And many things are legal because they were never anticipated as possible inventions or activities. While new foods and drugs are illegal until approved, most inventions or discoveries or new sports or other activities are not illegal until proven safe and reasonable; they are legal unless and until they are specifically prohibited by law because enough legislators care that they have been found to be unsafe or otherwise undesirable. However, in many cases it takes time for products or services to be discovered to be unsafe or undesirable, and, by then, often it is difficult to outlaw what has become popular, particularly if profitable and wealthy interested parties have a stake in their continued commercial availability.

Of course, something's being legal to purchase does not mean it is right for just any person to purchase it. For example, the fact that anyone can purchase an automobile that is dangerous for them to drive because it is beyond their particular level of driving skill or maturity, does not mean it is right or reasonable, or even smart, to purchase such a vehicle. Or the fact that it is legal for a manufacturer to make and sell something quite profitably which s/he knows to be dangerous does not mean it is right for them to do so. Having a legal right to do something does not mean it is right (in all other ways) to do it. There may be moral grounds not to do it; there may be pragmatic grounds not to do it; there may be other prudential grounds not to do it. However, people, particularly young people, do not always do the wisest things, and companies interested in bottom-line profits are often reluctant to place prudence and morality above (potential) profit.

Next, the principle that more money is better than less is only true where money is neither pursued nor accrued to the detriment of other values, such as health, sufficient leisure, self-actualization, wisdom, the understanding and appreciation of other higher or nobler pursuits, civility, loving relationships, etc., etc. But it is very easy to forget unconsciously that money is not the most important thing in life when society, especially the media, tends to note success more in terms of money and the influence and power of money than anything else. And, as I noted previously, the pursuit of money will even make many people willingly give up many personal liberties and autonomy in order to be financially successful in an organization that is relatively authoritarian and narrow-minded. Those people will think nothing of giving up a liberty or other important things for the pursuit of private enterprise that they would never assent to give up if the government or anyone else required or requested. People will do things for money they would never do for any other reason, even if there are other ways they could make the money, and even if they don't need the money. The pursuit of money becomes a powerful personal and social influence when the purpose of having money is not kept in focus, and when other values are not kept in perspective. 

In Western culture, that perspective is not always kept. It is that reason, along with these other influences, that make some non-capitalist countries fear and resent capitalism, because they reasonably see the value of profit and earnings likely to encroach upon and take precedence, at least unconsciously, over religious or other values they hold to be, often rightfully, far more important. Even in capitalist countries many people lament the erosion of particular values though they do not necessarily see that capitalism or free enterprise - when pursued simply for monetary benefit- played a contributing factor. And even when they do see it, they usually cannot quite see how to prevent it without giving up free enterprise and the pursuit of money as a value that they consider important and necessary.

My own surmise is that what tends to happen in a free enterprise system and (any part of) society where basic needs of food, health, shelter, clothing, etc. are fairly well provided for, where there is not a strong ethical consensus, and where ethics (as reflective moral philosophy) is not taught or modeled in the media, principle (4) above -the desired is the desirable- in league with the other principles, allows markets to pander to low or base desires which are not illegal. Once basic needs are met, the most easily satisfied pleasures tend to become the ones most readily pursued and most readily served - these are normally the pleasures of the body, the senses, the immediate pleasures of the mind, and the immediate pleasures of group acceptance or esteem (often predicated on fad or fashion) rather than those pleasures of the mind which require cultivation(2). Often, but not always, they are the lower or more base pleasures. As long as markets are set up to serve any legal desire, great resources will be used to cultivate and cater to or even pander to these pleasures. Couple that with the peer pressure to emulate those who start trends or who seem to be having more fun, particularly among young people without already well-developed values or interests, and you have a recipe for the lack of pursuit of that which is neither immediately pleasurable nor obviously important. And if there are no forces at work modeling and presenting the importance, use, and pleasure of those values which are more difficult to achieve, people will tend to pursue them less and less, and businesses which provide them will become less numerous and less important. John Stuart Mill perhaps said it best in Utilitarianism when he wrote: "Capacity for the nobler feelings is in most natures a very tender plant, easily killed, not only by hostile influences, but by mere want of sustenance; and in the majority of young persons it speedily dies away if the occupations to which their position has devoted them, and the society into which it has thrown them, are not favorable to keeping that higher capacity in exercise. Men lose their high aspirations as they lose their intellectual tastes, because they have not time or opportunity for indulging them; and they addict themselves to inferior pleasures, not because they deliberately prefer them, but because they are either the only ones to which they have access or the only ones which they are any longer capable of enjoying. It may be questioned whether anyone who has remained equally susceptible to both classes of pleasures ever knowing and calmly preferred the lower, though many, in all ages, have broken down in an ineffectual attempt to combine both."

It is not either capitalism or free-enterprise by itself, however, that causes the erosion of values nor the addiction to inferior values; it is free enterprise coupled with the forces and other principles above in any society where there is the absence of reasonable and homogeneously accepted higher values and an absence of a successful way of imparting those values to the next generation(3). It is compounded by an over-generalization, common to youth, about the lack of need for all traditional values in a given society from the evidence that some socially accepted values actually are outdated or were bad values to begin with, causing the dismissal of truly important social values with the bad ones. This is the proverbial throwing out of the baby with the bath water.

The Work Ethic and the Culture of the Work Place

"The work ethic" can have at least two meanings: (1) working responsibly, carefully, maturely - trying to do a job right instead of just trying to get by (with whatever one can get away with) and instead of trying to do what is unjustifiably externally rewarded, or (2) a willingness to do whatever one's job or supervisors require, even when those requirements are not reasonable and may even be detrimental to oneself or to others. Institutions and jobs which may have begun with reasonable purposes often take on a life of their own that loses all sense of balance and proportion, and a person who is "a good worker" at such a job may actually be doing more harm than good to him/herself or to others. 

For example, one sees wedding directors who become so dictatorial and dedicated to the ceremonial aspects of weddings that, in the name of efficiency, they make the event unenjoyable for the couple, the families, and the guests they are supposed to be serving. They may feel they are doing the right thing for everyone or they may just be trying to make the pastor's work easier because he is their real boss. I have seen wedding directors keep a long line of people outside in the heat because they wanted everyone to sign the wedding book before they entered the sanctuary of a church with a small foyer. I have seen them dismiss the reasonable requests of brides and their mothers just because "that is not way we do that here." 

Or one sees news reporters intrude in the most obnoxious and disrespectful ways on people's privacy at times of great loss and grief, just to get something they can put on camera. Or manufacturers will order engineers to design products more for profit than for safety; and the engineers will comply. One sees school district administrators and employees dismiss the educational and logistical wishes of parents, not because they have legitimate arguments that the parents want something bad or harmful for their children, but because they are the "professionals" who therefore know what is best for all children and because they are the only ones who understand the institutional "needs of the schools." One school board member one time said that they could remedy a typical kind of school administratively-created problem -which he appreciated to be a serious problem- if only a few students were affected by it, but not if a lot of kids were affected (because that would essentially involve having to change a policy or a traditional approach that caused the problem). Presumably if he ran a restaurant he would meet the requests of a few customers who wanted something not on the menu, but if all his customers always wanted that food, none of them would be served because that would require a menu change....

The catastrophe of the Challenger space shuttle would have been avoided if the administrators of the company responsible for the rocket engines had simply heeded the engineers' request to delay the launch until temperatures increased later in the day to avoid the possibility of the kind of explosion that happened, instead of being afraid such a delay would make them look bad. They were so worried about looking bad over a delay and the voluntary admission of a problem with their design or materials, that they stupidly chose the sad and immoral option which ultimately made them look a million times worse because it was so deadly and so egregious. 

Kermit Vandivier chronicles a case in the third edition of Ethical Issues in Business: a Philosophical Approach (edited by Thomas Donaldson and Patricia H. Werhane, published by Prentice Hall), in which the B.F. Goodrich company falsified tests for an extremely faulty brake design they had won a government contract to produce - as though they thought no one would ever find out the brakes would likely disintegrate on trying to land and stop the planes they were on. The company fired the employee who reported the fraud and promoted the workers who tried to perpetrate it. They were the "loyal employees" and the "good workers."

Obviously having the work ethic in sense (1) above is a good thing. Having a work ethic in sense (2) is not necessarily a good thing.

But again, it is neither capitalism nor free enterprise itself which is corrupting in sense (2). It is free enterprise left to its own devices in a moral vacuum, or at least in the absence of the kind of moral values necessary to override the natural desire to keep a job, or require someone else labor, regardless of the non-monetary costs or burdens.

(To Chapter 24)

1. If an adult is so despondent over a temporary career or personal relationship setback that s/he is seriously contemplating suicide, most people would agree that some sort of intervention is more important than allowing autonomy at that time in that situation. Or similarly, emergency room physicians are often begged by people brought in suffering great pain from a serious injury to be allowed to let die; but they generally ignore the plea, and the accident victim after recovering is normally grateful they did.  (Return to text.)

2. People will cultivate activities that require substantial work to achieve the level of skill that makes them enjoyable, but they seem to need an internal incentive or strong external motivation. Or the work required for mastery must, in itself, be either pleasurable or stimulating in some way. Further, I believe the work normally has to be sufficiently obviously incrementally helpful toward improvement that it appears to be worth the effort to the person doing it. I believe one of the reasons (along with the peer incentive to be interested in them) video games, and, sometimes, sports, are so popular is that, while they are very difficult at first, they nevertheless are easy to improve at each time one plays them. Playing them yields the satisfaction of obvious improvement and the promise or expectation of eventual mastery. Even when that is an illusion, it is a strong motivating factor. Golf as a hobby, for example, has been said to be a triumph of hope over experience. A typical response by players when one makes an exceptionally good shot is "That will bring you back to play tomorrow."  (Return to text.)

3. One of the primary concerns of people in non-capitalist societies about free market capitalism (especially when coupled with elements of social freedom and democracy) is that the young will be corrupted -- that they will be lured away from important beliefs and practices by the availability of those goods and services which promise immediate satisfaction, even if in the long run they are ultimately less satisfying, less beneficial, or less stabilizing. Adults in those societies are less likely feared to be corrupted in this way because they will have seen the benefits, where they exist, of their traditional values, and because they are more 'set in their ways'.  (Return to text.)

This is not intended to be a complete analysis of what freedom is; it is intended to point out some important aspects of freedom related to economics and "free" markets. Free markets are not necessarily as free as the term implies because (1) there are often forces at work that irrationally determine (or at least highly influence) our desires, (2) there are arbitrary and/or artificial limitations on the kinds of trades and transactions which can or will occur, and (3) there are arbitrary and/or artificial forces at work that channel people into labor they would not prefer, and away from labor they would prefer, without those forces.

The perception of freedom is to a certain extent subjective. People who value order and security may feel freer in a society that has strict conformity, cohesive, stable values, a strong police force they trust or that imposes virtual martial law. People who resent that sort of social control may feel freer in a society where citizens can do as they please without being judged by society, or where they don't have to worry too much about arrest because of unbridled police, military, or state power even if it means potential crime makes it unsafe to go out alone at night. People with financial success in a free market economy may feel that kind of economy allows the most personal freedom; those who are financially unsuccessful, even if talented and extremely productive (such as an "unrecognized" artist, or an inventor ahead of his/her time) may feel the so-called "freedom to fail" is not a very worthwhile freedom to have and that free markets do not provide the most freedom, or at least not the most important freedoms.(1)

The right to travel, for example, is frequently considered to be an important freedom. However, it makes little difference to a person who cannot afford to travel that the state allows travel (for those who can afford it). He does not feel free, and in a sense actually is not free to travel. The restraint on his travel is not directly imposed by others. Nevertheless there is such a restraint because there is no provision for supporting travel for those without their own resources to pay for it. Similarly with regard to other areas where one is free to choose various options, but only insofar as one can pay for what one chooses. People who cannot readily make money even though they work hard, or who do not wish to have to pursue money, but wish to pursue some particular worthy endeavor that is not financially profitable and who feel they have a legitimate need that ought to be served, may feel freer in a society where services are provided on the basis of some judgment or criteria other than money. For example, suppose a poor person has a child who is a very talented violinist or mathematician. Many people may feel, as I do, that the child's talents should be developed as fully as reasonable by the society even if the parents cannot afford a tutor or an instrument and lessons. If there is no formal or systematic mechanism established for such situations, many children will not be as free to develop their talents as they could be.

Or in a free market system that supports voluntary individual transactions, it may be easy to establish a voluntary health system that supports medical treatment for those willing to pay for it but not one that supports medical research nor public health preventions. Poorer people may have no recourse for treatment, but even wealthier people may fall victim to epidemics that could have been prevented with better public health measures or to diseases for which a cure would have been found if there had been adequate and reasonable research. Free market mechanisms may not readily support or easily permit the sorts of measures that might make individual voluntary free market medical care most successful. Yet a wealthy person may not realize that he has limited his own health by channeling money into hiring the best physicians instead of channeling it into a better research and public health system. Hence, he will feel he has the freedom to pursue the best health care when in fact he has actually limited that freedom without realizing it. The best doctors in a mediocre system may not provide as good health care as mediocre doctors in a better system where there is more knowledge and less chance of contagion to begin with.

Moreover, how resources are channeled in any system depends on the values of those with the power to channel them. In a free market system, normally those with the power to spend money (whether their own or that of an institution whose money they manage) channel labor or influence its direction. There is nothing by itself in the nature of a free market system, however, which prevents wealthier people from channeling money into medical research or public health in the name of their own enlightened medical self-interest. The point above was not that free markets cannot have good public health nor good research based solely on free market transactions; the point is that freely exercised choices may turn out to be poor choices and actually limit overall freedoms - not just in health care, but in almost any area. The reason I chose the health care system as an example is that it illustrates, with a fair approximation to reality, that people tend to make short-sighted choices about how they spend their money because they tend to think about health care only when they are ill and in need of a doctor. Very few people would think or opt to invest money into research just in order to try to find a cure for a disease they may develop in forty years or to prevent an unknown future epidemic that might victimize them. And almost no one would think to regret not having done so even if in forty years they die from something that such an investment might have prevented or cured.

Freedom, License, and Following Whim

Now it is not the exercise of freedom to be controlled by forces one ignores; nor is it the exercise of freedom to be controlled by forces of which one is unaware, even though that may feel like freedom. It is not the exercise of freedom simply to give in to social or biological pressures that form one's desires. And it is not the exercise of freedom to allow oneself to be controlled by complex forces one does not fully understand when one fully well understands the consequences or end results of those forces and could counteract them by exercising judgment, choice, and intervening forces of one's own.

Suppose some day science discovers a way to fully control climate, but we do not want to give scientists nor politicians nor any group -- even a majority of the planet's population -- the right to govern and control our weather. And suppose that we can also fairly accurately predict weather far in advance. Are we freer, with regard to our weather, because no person or people are determining it then we would be if we permitted such determination? We are not. If you know there is a hurricane or drought coming and you won't let anyone prevent it who could, then you are the one exercising the power to determine our weather, though you are doing it by preventing intervention rather than by causing intervention. The control and the decision in either case is yours. The legal ramifications may be different between pushing a little child into the path of an oncoming car and intentionally allowing the child to go up onto a highway when you could easily stop the child with no risk to yourself or anyone; but the moral culpability is the same. It is no less the "playing of God" to allow consequences one could readily prevent than it is to bring about those same consequences by positive action. Neglect of power to prevent evil, when it takes little burden or difficulty to exercise it, is not better nor less morally culpable than the use of power to cause it. Nor does the neglect of the power to prevent evil raise the amount of freedom in the society where evil is not (allowed to be) prevented.

With regard to economic forces and freedom the point is the same. There are economic forces at work in all kinds of economic systems, and those forces are not, at this time, fully understood in many complex systems of economics. Nevertheless in many cases, the unobstructed consequences of those forces, and the direction of those systems, are quite predictable and in many ways amenable to intervention. One might forswear such intervention on a number of grounds, but one cannot legitimately do so on the basis of raising the level of freedom in the society, for people are no more free, no matter how free they might feel, when they are ruled by forces they do not understand than when they are ruled by anything else.

If the consequences of a (relatively) free market system are predictable and less desirable than the consequences of that system with certain modifications, then deliberately preventing those modifications is every bit as restricting as is allowing those modifications to be made. It is just that different people will be affected differently by either choice; neither side is fully free either way if freedom is conceived of as being free from external pressures and forces.

I asked a committed laissez faire economic conservative whether she thought it was fair that four doctors could go through medical school with the same amount of ability, dedication, perseverance, and effort, and that the one who chooses to be a Beverly Hills cosmetic surgeon should make many more times the amount of money than the one who chooses public health service, the one who chooses to pursue cancer research, and the one who chooses to practice medicine in a very poor community. Is there anything remotely moral or deserving about a system that would permit such a distribution of remuneration? Her answer was "And I suppose you want to be the one who decides how people should be allowed to spend their money!"

I will answer this question more completely later, but for now I will say only "No, I don't -- as least no more than anyone else." What she does not realize is that there are forces at work now that govern how much we can earn and what we can buy, and that the people of Beverly Hills can keep a disproportionate amount of medical care away from the people in Appalachia by the choices we permit them to make and the power we permit them to exercise. By giving people freedom to earn relatively large portions of money in certain ways and spend it in other ways, we are preventing or at least impeding that money from getting to people who have other values and who would earn it and spend it differently. One may fairly and uncontroversially make a great deal of money, but since money is power, the choices made by a very wealthy person impact on all our lives and in some cases keep from us the kinds of services and products we might desire because the wealthy person has been able to channel away from us for his own ends the labor we need and would otherwise have, had money not been concentrated in his hands, thus drawing labor to him.

One can justify disproportionate income in many ways --harder work, causing greater good, or any of the rationales given in chapter 8 - but one cannot justify it on the basis of the freedom to choose to go into the most lucrative professions, since which professions are lucrative depends on prior choices about the economic system that will allow or cause some professions to be more lucrative than others and that will consign some professions basically to poverty or to modest incomes -- and not necessarily because they do less good or are less worthwhile. Certain choices will be more lucrative and more financially compelling than others in almost any economic and social system, and a person with convictions about freely and voluntarily following pursuits that are financially poorly rewarded simply because of the nature of the economic system, is consigned to less affluence (or even to poverty) than had he chosen something more lucrative but otherwise less interesting or less justifiable to himself. The freedom to starve or to be financially poor in order to do anything that is undeniably good and held to be important by all reasonable people, but which is not rewarded financially within an economic system, sometimes because other people prosper disproportionately doing what is financially rewarded in the system even though it is undeniably unimportant and in some cases even harmful, is a strange sort of freedom to have. How an economic or social system is structured often will cause income levels to be associated in general with different jobs or professions. Those who would like to do something they believe important and worthwhile but which is not financially rewarded by the nature of the economic system, are then less free than those who are more interested in earning much money regardless of the nature of the work they do. They are less free to make money, but those seeking to make money may, in some cases, be less free to follow higher pursuits. Freedom is not just a matter of being able to do what you want, but it is also a matter of not having what you want controlled and manipulated by others or by intangible or unintentional forces.

Freedom of Behavior and Freedom of Will and Desire

If persistent advertising or if tax incentives work on 80% of people to get them to do certain things, are those people free, and are they freer than if they were just told what to do by the government or by large corporations? Is an enticement that is too good to pass up any different, from the standpoint of freedom than extortion in the form of a threat. Psychologically, of course, there is a difference, at least internally. But for any external observer, watching someone else succumb to financial enticements or peer pressures that have no validity in reason portrays a strange kind of freedom. It is the freedom of the moth to fly into a flame because it is drawn to it and compelled to do so. While there is an important internal psychological difference between being coerced to do something against one's will and being enticed or manipulated into doing it because you have been made, even if unintentionally, to want to do it, it is not clear there is much difference from the standpoint of freedom -- particularly if the action prompted, whether intentionally or not, is one that is wrong, irrational, or likely to be regretted by the person afterward.

When my daughter wanted to have her ears pierced, I told her she wanted it only because all her friends were doing it -- that almost no one left to their own devices would wake up one morning and think how grand it would be to puncture some part of themselves, even to make showing off jewelry somewhat more convenient; but she denied that and said she just wanted to do it, and that her friends' having done it first had nothing to do with it. She really believed that, and she believed that peer pressure was only about one's peers trying to talk or coerce one into doing something one did not really want to. She did not understand or believe that peer pressure was something that sometimes influenced or determined your will and desires, not just something that influenced your behavior in opposition to your will and desires. She resented my contention that she was merely succumbing to "pierce pressure", because she thought it an unfair and atrocious pun and because she did not feel she had been coerced or talked into something she did not want to do.

Yet economic and market, especially marketing, pressures work on people in the same way. People inclined to chase money, regardless of wherever else the chase might lead, will be seduced, or allow themselves to be prostituted, into whatever leads to acquiring money, even if it is not something they would ever have wanted to do if there were no money in it. And people inclined to "keep up with the Jones" or inclined to purchase what is fashionable merely because it is fashionable, will spend their money in ways that might not be reasonable for them nor good for society as a whole.

And add to this that the woman mentioned above, who asked me whether I wanted to determine how money was properly earned and how money was properly spent, would not permit free market drug dealing, judicial bribery or the auctioning of judicial decisions, baby selling, or a host of other currently illegal and immoral activity, even though it would permit more "freedom", and her argument becomes that much weaker. What she is saying is that she thinks it is ok for people to be able to spend money or earn a good living in ways that the status quo permits, but that it is taking away from freedom to change the status quo. But what constitutes the status quo is, in large part, the result of chance or lucky accident, and in some part the result of forces we do not, and would not, submit to any longer, even though we blindly accept their consequences and the effects of their remaining remnants. My view is that freedom often comes in part more from doing what one knows to be right rather than in doing what is controlled by forces other than such knowledge. Unfortunately we cannot always know what is right but must rely on what is reasonable. Rationality, however, does not give perfect freedom because sometimes the rational thing will be the wrong thing -especially if one is missing important information to make the correct decision, and does not know that. Still, it seems that the pursuit of what is right is preferable, and more likely to be in line with real freedom, than relying simply on what is desirable at a given time, particularly when it is realized that desires can themselves be controlled or influenced.

It is important, however, to distinguish between following one's own belief about what is right, and having an allegedly "right view" forced on one by others. To say that one is free when one does what one knows to be right, as I did above, is different from saying one is free when one has a right action imposed or forced on him or her. In high school Lincoln-Douglas debate, one of the topics was whether there should be a higher value on cultural sensitivity or the commercial use of free speech when the two conflicted. The topic seems to make sense because everyone takes it to mean whether commercial free speech should be limited when it conflicts with the sensitivity of those not doing the speaking. But if one takes the topic literally, there would never be a conflict between being sensitive to others and speaking freely because sensitive people are no less free to speak their minds than insensitive people. It is not a limitation of freedom to be decent to others because you want to and feel that is right. It is only a limitation of freedom to be coerced to behave toward others in a way you don't feel they necessarily have a right to be treated. My own view is that autonomy is more important than doing right if the wrong one does, or might do, is not particularly harmful or devastating to anyone, including oneself, but that autonomy is justifiably limited when one is about to do something terrible and irreparable. But the best course is to "raise people's consciousness" or help them become sensitive to the needs of others, so that they voluntarily do what is right. That allows both autonomy and right action.

So in answer to her rhetorical question above, it is not that I think I, or anyone else or any group, large or small, should have the power, just as sheer power, to choose how money can be spent or earned or taxed. However, someone or some group will make that decision, whether intentionally or not, whether knowingly or not, whether formally or not, no matter what is chosen, so what I am interested in is that it happens in the most reasonable and broadly acceptable way after as many people as possible are aware of the choices, the forces at work, and the consequences of all the alternatives -- all this being open to constant revision as new information, new consequences, additional forces, and new opportunities are discovered. I would expect that to enhance freedom, not destroy it.

Economics and Law, a Game?

One can take the view, as Hayek and many others seem to, that economic transactions need only satisfy the parties involved and ought to allow them as much freedom as possible to trade whatever and however they want, with no consideration of "higher" or more widespread social utility.

Doing so, however, raises the question of the legitimacy of laws and governmental policies that affect economic transactions. Either law is simply the selfish and sometimes arbitrary rule of the majority because the majority is powerful enough by their numbers and position or by their ability to take advantage of the political/socio/economic system, or law is some attempt, however difficult and however fraught with particular errors, to set the course of society in the direction consistent with ethics and morality. If law is just the arbitrary tyranny of the majority, there is no ultimately moral reason for those who undeservedly suffer from the law to obey it. If taxation or tax rates, for example, or special tax credits, or laws favorable to certain groups have no purpose other than to increase the power and wealth of those already powerful and wealthy; and if they have nothing to do with making life better for as many deserving people in society as is possible, there is no reason for those who are unable or unlikely to benefit from them ever to obey them voluntarily.

A view of law that states or implies that there is nothing wrong with the will of the majority or the will of the powerful acting through legislative majorities, would make law a kind of social game, one game of many possible games, that people could choose to play or not to play. If large numbers of people cannot benefit from the game, but can only contribute benefit to another group, it is not clear they have any moral obligation to play the game instead of opting for one that benefits them. They could steal or loot illegally because they have simply been unfairly, but legally, deprived of those goods. If there can be unfair laws that no one in power cares to correct, there is no reason for those unfairly disadvantaged to care about those laws.

And if law, say in America, is just a social game, then even though the Bill of Rights helps to prevent the tyranny of the majority by not allowing majority rule to tamper with, transgress, or ignore certain fundamental freedoms, insofar as the constitution or the courts do not recognize rights or obligations they morally or socially ought to, the constitution is just part of the game, although it makes the game somewhat more difficult for the majority.

My view of what the law ought to be, however, is the written and published codification of the principles a society, upon continual reflective consideration and sincere, honest dialogue, thinks it best to try to live by. The point of law ought to be to clarify to all and make explicit to all the principles of action that society believes will make it the best and fairest it can be, or there is no moral point in obeying the law. This does not mean there will not be conflicting points of view about what is best or fairest; this does not mean that mistakes will not be made, whether discovered by those who made them or not. The enterprise is too vast and too difficult to provide obvious infallibility; but the point is to reasonably try, since if one is not really even trying to pass the best and fairest laws, not just the most self-serving laws, then there is no moral reason, other than acquiescence or fear, for those unfairly burdened by laws to even care to obey them, especially if their disobedience does not do any great harm.

And since laws effect and control the economic system, what is true of laws and governmental policies in general ought to be true of economic laws and economic policies as well. They ought to be an attempt to create the best and fairest economic system possible. That does not mean there will not be disagreements and mistakes, particularly when there is insufficient evidence to make obvious conclusions; but there must be the sincere and reasonable attempt by government to create the best system, not just one that benefits those who are able to exert the most power and influence. If we are to rise above "the law of the jungle" where the most powerful can take what they want from those unable to defend themselves, then we must not simply substitute for it a "law of the economic jungle" where those who have the resources to exert economic control over others can simply use those resources to take what they want from those who cannot defend themselves economically.

Alternatives to "Freedom"

Freedom is important when compared with external control, bondage, tyranny, or restraint. However, the choice is not just between freedom on the one hand and enslavement on the other; there at least two aspects of freedom that need to be contemplated: (1) freedom that is nurtured versus freedom that is not (i.e., a "sink or swim" situation), and (2) freedom that is cooperative and healthy versus freedom that is mere license and may be socially destructive. It seems obvious that being prepared for freedom and being supported in it is better than just being told to do whatever you want and being told if it does not work out, that is too bad for you. And it seems obvious that free actions which do not harm others or oneself, or which actually help others and oneself, are better actions than free actions which are socially harmful or harmful to oneself. In a society where people are left to their own devices, many will fail that would not have failed in a more nurturing society. And in a society where people are left to their own devices, many will harm others that would not have done so if they had been raised in a society where they learned to consider more than just their own (short-term) needs and desires - whether they learned that because of enlightened self-interest or because of actual altruism or empathy for others.(2) Freedom which is nurturing benefits the individual, and freedom that is cooperative benefits the society (or other individuals in it). Insofar as nurturing someone else helps them contribute more and be less destructive, it is not only decent, but in the enlightened self-interest of society to help individuals. And insofar as being good to others in society fosters their helping you in return, it is not only the decent thing to do but it also is in the enlightened self-interest of any individual. Freedom is not therefore simply the ability and privilege to do anything one wants. And markets are not necessarily "free", nor promoting of more freedom, just because they allow people to earn or spend money anyway they want or can.

Feeling Free

All that being said, people's feeling they are free to act in certain ways is extremely important, whether they actually are free in any scrutinized philosophical or conceptual sense or not. This can be seen even in toddlers who do not want to be told which clothes to wear. If you tell them, or even suggest a particular outfit, they will sometimes refuse. Even if you ask them whether they would like to wear some particular outfit, they will invariably say no. However, if you give them a choice between two outfits, they will almost always happily choose one of them, without ever thinking that you have somehow limited their freedom, by not letting them choose from all the outfits in their wardrobe. They seem to feel happy and accepting if they have a choice, even if only among two different sets of clothes. That same ploy, however, usually does not work in a multi-flavor ice cream parlor, perhaps because they can see all the possibilities at one time and limiting their choices to two actually seems like a limitation. One does not tend to feel free when one notices limits or feels one's options are limited, even if they are not. Yet even if one does have limited options, one may feel free (1) if s/he feels those limitations are somehow "natural" or not anyone's fault, or (2) if s/he focuses on the options available and does not particularly notice or care about the limitations.

A feeling of choice is often an important incentive to action. People may work harder and be happier in an economic system in which they feel freer than in one where they do not feel they have much choice, even if, in the first system, their choices are confined or manipulated (whether accidentally or intentionally) to such an extent that they have almost as little real choice as those people in the system that allows no options. Manipulation can take the form of advertising, of course, but it can also occur from peer pressure that results accidentally from the choices of a few key people, apart from any advertising or attempted manipulation by manufacturers. It occurs when stores offer sales or when manufacturers offer rebates, even if they have raised the price first in order to be able to offer the sale price. Manipulation can even go against the normal supply-demand curve, in those cases where setting a high price on something makes it seem far more valuable and desirable than almost identical products with a far lower price. Manipulation occurs with the setting of various interest rates to stimulate or slow (certain sectors of) business and the economy by making more or less money (available to) circulate. Manipulation occurs through electoral processes that seem fair and reasonable even when they are not as fair or reasonable as they could be or should be. People, for example, do not seem to mind as much when a majority prohibits an action as when an individual or a committee or a court ruling prohibits it, even if the prohibition is the same. There are exceptions, and, of course, the "tyranny of the majority" is sometimes recognized, particularly by its victims, but people will often accept laws in a democratic society that they would not accept from a different form of government. Manipulation or limitation or expansion of future choices occurs by the choice of highway sites and designs, by the development or not of mass transit systems, and by other development by community leaders, builders, planners, etc. Not all such actions are conscious manipulations (and conscious manipulations often, in fact fail because they become known), nor are they necessarily effective whether conscious or not, but they tend to put into play forces that strongly influence decisions people make. But even when such forces limit the options people have, as long as they do not seem to the people involved to be limitations, a society and an economy may thrive where it otherwise would not. General Motors had an advertising campaign for a while that expressed what many Americans do believe, that "Your car is your freedom." Yet anyone who has lived where there is good mass transit, and pragmatic and aesthetic urban design, with attractive and pleasant walking conditions, might feel quite the opposite, particularly after a day of lengthy car pooling, a day of severe rush hour congestion, or a time-consuming, expensive, and inconvenient auto repair experience. It is often the case that the automobile only fosters the suburban sprawl and lack of mass transit it is then needed to overcome.

Voluntary Actions, Autonomy

The perception of freedom seems to be extremely important governmentally and economically, at least to many people, whether it is an accurate or realistic perception or not. A program which would be a dismal failure if imposed on a group of people against their will, might be a tremendous success if implemented because the people in the group wanted to do it. Self-motivation can be the difference between success and failure of any program, policy, or practice. That is why even good ideas often need to be "sold" to a group before they are implemented. Just explaining a good idea will not always "sell" it or convince people it is a good idea that deserves their best efforts. Moreover, a person who is made to feel s/he has an opportunity to work at a particular job is likely to do the job better than someone who feels forced by economic circumstances to do the job. There is a fine line sometimes between being forced by circumstances to do something and having an opportunity to avoid or get out of those circumstances by doing it. Some of this is a matter of perception; some of it is a matter of borderline cases that are too close to be able to call.

Because "freedom" is such a complex concept, it might be better to speak of actions which are voluntary or autonomous, meaning by this that a person chose to do them without any feeling of coercion on his or her part regardless of the basis for his/her choice(3). Giving in to psychological, biological, or social urges then may be considered to be voluntary or autonomous in that the action stems from your own choice, even if your choice is somehow determined by forces outside of your control, and even if it is not the choice you would make if you were looking at your options from a purely objective or reasonable point of view.

Now it is not necessarily unreasonable to give in to biological, psychological, or to social impulses or desires. Appetites do not necessarily lead people astray or down paths of future regret. They do not always cause choices or actions that are wrong. Even when there is no reason to do something other than that one has the desire to do it, that is not therefore wrong. It may even be a right or good thing. If one is hungry and the choice is between two foods that are equally healthy and one of them you crave, and the other you do not, it is reasonable to choose the one you crave, and it is good to get great pleasure out of it. There are a great many things in life where one's preferences or desires simply make one's choices then be the reasonable or right choice to make.

What is problematic are those cases where what is desired is also bad or wrong, often cases where one even knows ahead of time that one has a desire to do something, which once done, s/he will regret. Sometimes one will be torn between reason and impulse. But there are unfortunately many cases where impulse or desire will make you choose the wrong thing, but where you will never know it was wrong, particularly in those situations where social mores support or celebrate unreasonable choices and behavior. When a culture or sub-culture condones or encourages unreasonable behavior, it is difficult for those immersed in the group to see the irrationality that is clear to people outside the culture. Some people inside the group may see it, but they will have a difficult time getting others to agree.

Now economic planning is not only about dividing and distributing benefits and burdens the most efficiently and most fairly, but it is also about doing it in a way compatible with what is acceptable to human nature, particularly with regard to autonomy or voluntary choices; often referred to as freedom or liberty. What is the most acceptable to human nature is not always what is the most reasonable. And it is not always the way we would choose to do things if we were free of biological, psychological, and social pressures and desires to make choices which are not only irrational, but which are also bad or wrong. It is this aspect of business and of economics that causes conflicts and difficulties when different values and desires are held by different cultures or different people within a society. And it is this aspect of economics that makes rational planning or rational economic legislation difficult in societies where there is a diversity, particularly a conflicting diversity, of different desires and values, for it will often seem, and in a sense be, imposing and burdensome to force people to do what is right economically, even if it is ultimately in their own best interest.

I want to discuss one kind of example -- one different from typically discussed governmental or organizational management programs that are seen by some to impose taxes, regulations, responsibilities, or other burdens on people against their will. World-renowned, former child prodigy, violinist Midori gives concerts in New York schools to children. She, or her foundation, has also set it up so that at least one of these schools has instruction in musical instruments by professional musicians who come to the school to teach. The school principal and teachers are happy; the students apparently like it; the musicians are happy to do this. On a Public Broadcasting System program the principal and one or two of the teachers ecstatically praised Midori for doing this for them. And there is no doubt this seems to be a wonderful thing for the school and for the students.

My experience with schools, however, is that they are unlikely to have even entertained the idea for a program like this if it were offered them by a group of local, competent musicians who were not rich or famous or who were not affiliated with a famous institution. It is not seeing that students have music lessons that would likely prompt a school to establish a program like this; it is being able to associate such a program with a rich or famous person or renowned institution, that gives school officials the desire to accept the program. Otherwise school personnel tend to see the offer of such a program as meddling by people trying to tell them how to do their job. They also see such offers as criticism that they are not competent to teach children themselves or to know what things children need to be taught. The acceptance of Midori's program by a school is not terribly different from the appointment to a corporate or public institution board of famous or rich people, although boards also are either hoping for a donation from the person they appoint or they are assuming that a person who has demonstrated successful leadership in making money can also be a successful leader in the enterprise the board overseas. The irrational aspect of this is that it is the celebrity or reputation, not the specific expertise, of the person involved, that is attractive to those who appoint them. If a school or a board had to choose between someone rich and famous with no expertise on the one hand and someone with good ideas who was neither rich nor famous, they invariably will choose the former. Moreover, if someone not famous or wealthy presents an idea for a program, it will likely be summarily rejected.

There are cases where a rich or famous person does an excellent job and makes a great contribution. My objection is not that rich or famous people are not likely to rise to the occasion and make a valuable contribution to the enterprise. My objection is that there is not opportunity afforded to others to make as great, or even greater, contribution. Moreover, there should be some way at least to look for potentially successful leaders or programs based on the likely merit of the plans or skills required, not at the relative celebrity of the person who has made the proposal or who is a candidate for the position. There are many people who could make a contribution in schools and elsewhere, who would like to do so, but who are not given the opportunity simply because they are not wealthy or famous. That is a waste of potential labor and potential achievement.

Now it may turn out that there is no way to do this without relying on the impulse to please celebrities. It may be, for example, that if students were not impressed by Midori's fame to appreciate her talent and the instructional program she offered them, that they would not be interested in learning music. It might be they are only doing it so they can someday show Midori what they have accomplished. But if fame is not the necessary ingredient for success of a program, then opportunities are being squandered whenever any person's or group's voluntary offers are rejected simply because they are not a celebrity in the community.

(To Chapter 25)

1. Even the source of a requirement influences whether people sometimes feel it is a restriction of their freedom or not. If a company or if business etiquette, tradition, or hope for success, requires employees to wear suits, they may not feel wearing a suit is a restriction on their freedom. But those same people would probably resent the government's requiring them to wear a suit while they do the same work. Many companies offer group health care insurance, and employees typically see that as a perk or benefit even though the company has chosen the provider and the plan provided, often with no input from many of the workers, and often though a different provider or insurance plan would better suit many of the individual workers. If you want to work for that company and you want group health insurance through them, you must accept their provider and plan, and yet employees don't normally see this as a forced purchase with no choice.  (Return to text.)

2. The questions, of course, are whether the state or individual families, or neighborhoods, or whole "villages" are better able to nurture, or what the relative roles and responsibilities of each ought to be. In the Massachusetts Bay Colony, for example, parents had the primary responsibility to educate their children to become productive members of society, but the colony itself was responsible for giving the child a productive education if the parents failed to do so. Both were, in a sense, responsible but the townships could not usurp the parents' role; they could only take over in a case of parental default of their responsibility. If we look just at school districts alone today in this regard, there is a vast difference, in regard to the relative roles and responsibilities of government and families, between systems that require attendance at a neighborhood school and those which allow district-wide or inter-district transfers. In some cases there might be an even bigger difference if vouchers made possible attendance at private schools. Various nuances are possible in all sorts of areas of life so that the answer to the question "Who has the responsibility to provide children with enlightened understanding?" does not have to be an all-or-nothing, simplistic one.  (Return to text.)


3. This is not a universal meaning for "voluntary" or "autonomous" either, so it will be important in any discussion to explain that one means some form of uncoerced action even if the choice was strongly influenced and not altogether free in some sense of being uncaused. Coerced choices are not free, but some uncoerced or voluntary actions are nevertheless not free either. What we tend to care about when speaking of having freedom and liberty is not being coerced. We do not care whether our desires are somehow free or uncontrolled; we only care whether we can voluntarily act as we desire.  (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 25
Economic Systems and Human Nature

Economic systems are part of social systems because they involve relationships and interactions among people; and these in themselves are not always easy. In a materially ideal world, economic arrangements would be unnecessary because everyone would have what they needed and wanted without having to trade or work for it other than to go out and pick it up. But in the real world, not only are material goods difficult to produce, but producing and distributing/acquiring them requires social arrangements, which themselves are often difficult to construct and keep harmonious (1) due to lack of agreement in some cases about which goals or means of achieving them are best and most just and fair, (2) due to misunderstandings about expectations, and (3) due to unforeseen consequences, particularly those in a complex interactive, continually adaptive environment or mechanism where any change in one part of the system has effects that can ripple throughout the system causing further changes and then changes in response to those . Some of these effects may even occur without their distant or ultimate causes' being noticed or readily traced and discovered.

Moreover, there is a difference between harmony engendered by mere compatibility and harmony engendered from compatibility that is also consistent with goodness, beauty, and truth. People engaged in a terrible act can be quite compatible and act in great concert to achieve deplorable goals, even in deplorable ways, often thinking they are behaving properly and reasonably. It is not easy to know what is right or even reasonable, and it is not easy to convince others (or to be convinced by others) when someone does know what is right or reasonable. So even if a society has operating, harmonious, compatible working and trading relationships in an economic system, that does not necessarily mean they have a system that best serves its members, even if the members think it does and even if they are happy. One, of course, is considered either an elitist or at least a meddler when one tries to tell someone else, or a whole society they are not doing what they could and should be doing, or that their system is not working as well as they think it is. But being convincing in any particular case is a matter of social psychology more than it is a point that is conceptually incomprehensible for people to understand in general. It is fairly easy to show people that happiness alone is not the hallmark of doing the right thing, especially if you point out to them people who are happy that you know they believe are only happy out of ignorance, or who they believe are unfairly or undeservedly happy. The difficulty is not in explaining the concept but in trying to convince people that it applies to some particular belief and behavior of theirs. And, of course, one could always be mistaken in thinking the other person or the other society is mistaken. Knowing what is right and what is best are not always easy things to know or to discuss clearly, coherently, reasonably, and reasonably dispassionately.

Because of all this, economics as a practice is even more difficult than just discovering better ideal theories or principles of division of labor and trade. Centralized economies or businesses face problems of motivation, innovation, and responsiveness to important (often subtle) operating conditions and client/colleague needs and wishes, particularly during times of change. Furthermore, centralized economies can have bad goals or bad means just as can free market economic systems where everyone is left to their own devices to trade whatever they might wish. Efficiency does not guarantee either quality, fairness, or utility. Free market systems, particularly in diverse, mutually dependent but democratic societies, face a host of problems from the known concerns about "externalities" to problems involving accommodating different social views, goals, and values. Even where all these things can be worked out theoretically, convincing everyone of the theory is not easy, and is often not even feasible, particularly in a heterogeneous, democratic society. While competition in a free market may benefit future generations or even current members of society as consumers, it often wreaks havoc on contemporary individuals and companies as providers and competitors. While the stability of a satisfactorily functioning centralized economy in a homogeneous society can breed stagnation, the progress potentially inherent in a free market, democratic society, particularly in times of swift scientific/engineering or social advances and changes, can be socially problematic, disruptive, and even destabilizing.

The ideal, of course, is to have the potential freedom and adaptive innovation of a free market economy with the social stability and potential fairness of a more controlled economy and society. Theoretically that can be achieved in a free society where everyone has sufficient knowledge of conditions and mechanisms and where everyone's individual desires actually reflect the most desirable values, goals, and quality of life, and the most desirable means of achieving them. That will require science and philosophy to provide the requisite information, perspective, and wisdom, information technology to make it available to everyone, and a good educational system to insure people can understand and appreciate it and respond to correct it where necessary. One sees rare glimpses of it in those communities or institutions where leadership makes manifestly available direction and explanations which are reasonable, knowledgeable, articulate, dynamic, believable, and persuasive, and where citizens are concerned, attentive, responsive, and knowledgeable and wise enough to distinguish good ideas from bad ones.

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 26
Other Authors

Even though my readings in the philosophy of economics did not answer the questions with which I began, they were informative, and I have been fortunate in finding general works and authors who have been unremittingly clear, logical, interesting, insightful and intellectually stimulating. There may be no finer collective examples of intelligible, reasonable, and well-crafted English prose on any technical subject anywhere than many of the diverse authors I found on the topic of economic philosophy -- John Locke, Adam Smith, John Stuart Mill, Robert Heilbroner, Lester Thurow, John Kenneth Galbraith, and Milton and Rose Friedman.

John Stuart Mill, in his Principles of Political Economy, as in all his writings, stands out particularly in this regard even in this group. No one else I have ever read has expressed complex thoughts as clearly, logically, precisely, and beautifully as Mill. But I also am particularly grateful for the enjoyably keen wry wit and wisdom of John Kenneth Galbraith, who writes not only with clarity and insight, but with the extraordinary, well-practiced talent to turn the brilliant, and often deliciously and devilishly barbed, phrases that make his books as pleasurable (to those of us who like that quality) as they are informative. And although all the authors I have read capably illustrate economic principles in terms of their expected practical results, Galbraith seems to me to have the most perceptive, persistent, and sometimes the singular, understanding of the relationship between specific economic principles and goals on the one hand, and, on the other, the more general social and practical principles and goals they should be, but aren't always, derived from, and which they should, but don't always, serve. It is important for economists (and the politicians who follow their advice) to periodically think about what direction they are headed, not just how effectively and efficiently they are traveling. Galbraith reminds them of that, though he often is chastised for doing so. The purpose of my book is to penetrate into the ethical and philosophical roots of economic concepts and principles in somewhat the same way that Galbraith delves into the social and historical ones.

Since my quest for economic philosophical understanding has taken me down a somewhat different, though in part overlapping, road than that generally traversed by economists, I want to try to show how the ideas in this book relate and intermingle with some of the issues and points these authors make. Doing so may give an added perspective to this work, and to the relevant aspects of theirs.

John Locke, Second Treatise on Civil Government:

Seventeeth century philosopher John Locke wrote of three principles he believed individually necessary and collectively sufficient for private ownership to be valid: (1) something belongs to a person if his work --the "mixing" of his labor-- has made it or gathered it up from resources rightfully available to him, (2) he has left, for others to use, enough of the abundant raw materials he worked from so that they, with their own efforts, can make or get what they need, as he did, and (3) he cannot rightly keep more than he can use, that which would thus spoil. In the passages where Locke writes about this, he was obviously thinking of food, shelter, water, clothing, and the like, the necessities of life that one could fashion for oneself from nature. He thought that there were more than enough resources to support the population of the time, so that the second principle listed above was to prevent depriving others from nature's bounty even if what one hoarded would not spoil. It is not clear how he would have viewed distribution of necessities in scarce supply, or what he might have thought an appropriate means for distributing luxuries such as stereo's, large screen televisions, sporty automobiles, designer fashions, and such.

Locke believed that using one's labor to make or gather something made it one's own because one's labor was in some sense "one's own", "The labour of his body and the work of his hands we may say are properly his." "[E]very man has a property in his own person; this nobody has any right to but himself." His claim seems to be that labor (without hoarding or limiting others' ability to meet their needs with their labor) is a sufficient condition for achieving ownership which "no one could without injury take from him." He does not address the issue of labor's being necessary for ownership other than to say "the penury of [man's] condition require[s labor] of him." Though in Locke's time one could obtain clean air without any more effort than drawing breath, such was not the case for obtaining food or water, neither of which leaps to an adults mouth without some effort on his part to get it there. Although he does not address it, with regard to the fable of the ants and the grasshopper (where the ants worked hard all summer to gather food for the winter, but the grasshopper just played and said he would get around to it later, ignoring the advice of the ants to work instead of playing; in the winter he had nothing and wanted the ants to share with him what they had gathered), Locke would probably say that the ants had every right to the food they gathered because they had gathered it, and the grasshopper had no right (of privilege) to what they had earned. (That is, the grasshopper had no moral claim on the ants' stored food, though they could share with him if they wanted to or if they felt they had an obligation of beneficence to help him out.) He does not specifically address whether from their own sense of benevolence they ought to freely share with the grasshopper, but his reference to penury without labor seems to imply that he sees no reason why they would have any obligation out of compassion to do so.

Further, he thought trading other things for what one made was reasonable, though he saw that the introduction of anything durable that could serve as money led to the amassing of more property than anyone would seek at any one time in terms of perishable goods. "Where there is not something both lasting and scarce, and so valuable to be hoarded up, there men will not be apt to enlarge their possessions of land.... For I ask, what would a man value ten thousand or a hundred thousand acres of excellent land, ready cultivated, and well stocked too with cattle...where he had no hopes of commerce with other parts of the world, to draw money to him by the sale of the product?" But he did not seem to think that problematic or in conflict with his other principles. "...since gold and silver, being little useful to the life of man in proportion to food, raiment, and carriage, has its value only from the consent of men, whereof labour yet makes, in great part, the measure, it is plain that the consent of men have agreed to a disproportionate and unequal possession of the earth...for they have found out and agreed in a way how a man may rightfully and without injury possess more than he himself can make use of by receiving gold and silver, which may continue long in a man's possession, without decaying for the overplus, and agreeing those metals should have value." He did not foresee how this might problematically effect the distribution of labor and resources in ways that could cause injury and hardship by keeping unused resources out of the hands of people that might well make use of them.

It is not clear how he would have suggested treating those unable to work, nor what he might have said about the validity of inheritance. Inheritance is a double-edged issue of merit, since although an adult receiver who is lazy and idle may not deserve what he gets, the giver who has earned his property by following Locke's principles, has the prima facie right to do as he wishes with that property, even if it is to give it to someone who does not deserve it. This is an issue of the conflict between rightful earning of money and wrongful spending of it (see Chapter 19). Also, Locke probably would not have imagined a world in which people were paid more to play games or to entertain others than they could hope to gain from direct efforts to meet the necessities of life, so, as with inheritance, it is not clear what he might have thought about athletes and entertainers or anyone's making the kinds of fortunes through the willingness of millions of people to pay them individually small amounts from their own earnings.

Locke also does not talk about fairness of distribution of the produce from divided labor. He gives the example of gathering apples in the woods as a case of earning those apples for oneself, as long as one does take more than one could use without spoilage, and as long as there were plenty of apples left others might pick for themselves. But he does not say how one might or should share with a person who plants an apple tree from which one picks fruit. Planting and cultivating an apple tree that bears more fruit than one could use oneself, especially if someone else picks the apples, causes conflict between two of Locke's principles, and makes one of them by itself difficult to apply. The planting and cultivating the tree would make the tree (and presumably its apples) yours, but not all of them if you could not use them all; and perhaps not if you were not the one who picked them. How should the tree cultivator and the picker, if they are different people, distribute the apples? They have both "mixed their labor" with the tree and its apples, but in ways different from two people both picking apples at the same time where one hands them down from a high branches to another who puts them carefully in baskets on the ground.

Nor does Locke address issues of patent or copyright of things which one person's using does not take away from others (see endnote(1)) such as when one photocopies a book instead of buying it, which in some cases might be like the issue of the apple tree and its fruit, or drinking from a river. "So that in effect there was never the less left for others because of his [taking] for himself. For he that leaves as much as another can make use of, does as good as take nothing at all. Nobody could think himself injured by the drinking of another man, though he took a good draught, who had a whole river of the same water left him to quench his thirst; and the case of land and water, where there is enough of both, is perfectly the same." Can one then take apples from the tree another has planted and cultivated? Can one photocopy a library book as long as one leaves others plenty of paper, or plenty of other copies of the book to buy? Can one hook oneself up to the cable tv outlet or use a satellite receiver as long as one is not taking the signal "from" anyone else who might want to get it?

But these questions notwithstanding, I think there is merit and intuitive moral appeal in Locke's three principles. When I picked my daughter up from Sunday school one day when she was around four years old, she was in a tugging match with a classmate over a truck that was one of the toys available for everyone in the classroom. As we walked out I asked her who had the truck first. She defiantly said he did, and at first I thought that should have ended the matter, but it turned out she still felt she had the right to the truck because he had taken two toys, could not play with both at the same time, and he was not playing with the truck. She believed that gave her the right to play with it, just as if it had still been in the common area waiting to be picked up by someone. She believed that his not playing with the truck, and merely hoarding it, negated his original first-come-first-serve right to it. Notice, this was a toy for anyone who wanted to play with it and who got it first, and that just having it by your side did not necessarily constitute playing with it. It was not something the other person had made or brought with him to school from his own private collection, or had any other claim to other than that he had got to it first that day. I felt that if she was stating the facts of the case right, that her judgment was correct. And I believe it was an intuitive judgment; I don't think she had read Locke behind my back or heard me speak of his ideas; she did not cite him anyway. There is a difference between mere industriousness on the one hand, say, in picking apples, so that your family can have apple pies or so that you can bake pies for the neighbors in trade for something they work at, and on the other hand picking up all the apples you possibly can, leaving few for others, simply so that you can sell them for a greater profit. It is the difference between industriousness and piggishness; and that difference is reflected in the far different moral values of the two activities. Industriousness is generally an admirable trait, the selfish hogging of things purely for your own advantage is despicable.

Notice that there are potential conflicts between Locke's first principle and the second or third, a conflict between what you can do with what you own, and not wasting or taking things away from others that you do not need. If you can do whatever you want with what you own, then you should be able to waste it, ruin it, or let it lie idle, even if there are others who might enjoy it or be able to make use of it. What Locke says about gathering apples seems fine enough -- one has a right to what one picks from public trees as long as one takes only what one can use and leaves more for others to pick. But suppose one makes things that endure far longer than apples, suppose one carves toys, and sets them out in a window for children to admire. One can amass a great collection of such toys in a lifetime. Is it okay for one to keep them to oneself, or to burn them if one wants, if one has little use for them, and there are people who would want them? Does an eccentric billionaire have the right to deface a famous work of art that he buys, burning it or painting over it, or purposely marring it in anyway? In a sense, the painting is not just his, even though he has purchased it; it is a public treasure that happens to be in private hands. If he despoils it in some way, he robs the public of something very important that they cannot replace. (And, I am told, in France he could face criminal charges.)

The same question can be asked about land ownership or ownership of any sort of means of production, such as a manufacturing operation; does one have the right to do whatever one wants with owned land just because one owns it, or does one have an obligation to let others use parts you have no use for, when they could make use of land but cannot get their own because all of it has already been taken? Does U.S. Steel have the right to close a steel making plant altogether because it is not profitable enough for them, though it could be profitable enough if owned by those who work in it, but who cannot afford to buy it? By taking more than one needs, when it precludes others from having what they need, one is actually harming other people, and doing it for no justifiably overriding reason.

Similarly one might ask the question with regard to money. In fact, with money, as long as virtually all resources are owned, and cannot be acquired by means other than money or the promise of money (credit), the conflict appears quite readily; some people make more money than they need, while others can barely get by, even though they work hard and contribute to society or would if they could get a job. Having more money than one needs when others have less than they need, in a world where access to resources virtually or generally requires money, where there is unemployment though able and willing workers, and where there are unmet needs that people without money would gladly pay for if they could, but people with money don't want and won't pay for, the excess collection of money by some does cause injury to others. In short, Locke's principles seem to conflict with each other in a society where penury is sometimes caused more by the parsimony of people than by the parsimony of nature, and where the parsimony of people seems somehow less acceptable than that of nature. And I believe, as I explained earlier in discussing his views in particular, Hayek fails to take into account, how much, in an interdependent society, some people's financial dealings cause economic harm to others -- by controlling or strongly influencing how labor is utilized, whether it is utilized, what products and services are available, etc. Business itself bemoans a high government debt which ties up money they could otherwise borrow at lower interest rates. But when any business ties up money in various ways, it also keeps that money out of the hands of those who might wish it to be used differently or in different business endeavors. As long as money influences labor and production as strongly as it does, and as long as money is distributed in ways that do not meet Locke's principles, then Hayek is not entirely correct that business transactions are simply private transactions between parties for their mutual benefit and thus essentially outside the purview of others' (moral) jurisdiction(2).

Galbraith recognizes throughout The Affluent Society and The New Industrial State that in a society of (overly) abundant productivity, further increasing output by means of additional, and reasonably unnecessary, productivity (particularly when you have to artificially stimulate consumer demand in order to sell your products) just to achieve greater income distribution through greater employment, is not the most reasonable or sanest way to address the problem of fair income distribution or economic security. Further, he argues that inflation necessarily accompanies full employment and full capacity unless certain kinds of wage-price controls are put into effect to stop the tail-chasing price/wage upward spiral, such controls being something few people think they want, not only because of ideological free market beliefs or misconceptions, but particularly in regard to their own wages. And he points out, rightly, I believe, that practices such as (increasingly earlier) retirement, child-labor prohibitions, and decreased work week hours, are methods of achieving less than full employment (in the sense of utilization of labor) without attaching the stigma of unemployment. I would add to that increasing paid-vacation time. Paying people for not working (which is what paid vacations, shorter work days, retirement, etc. essentially do) decreases the amount of productivity possible, but does so without commensurately decreasing the distribution. Paying people not to work, but keeping up the level of overall productivity, is also a way of giving other people jobs, by adding second and third shifts or by needing enough workers to cover for those on vacation or out sick, or to fill positions vacated by retirement. This is a form of redistribution of wealth by redistribution of jobs (contribution), and by paying people not to work so that others can have their jobs, essentially splitting the income from the work between them. In Locke's terms, what paid vacations, shorter work weeks, paid sick leave, early retirement, etc. do is to prevent people from doing more labor than is necessary for their own needs while leaving sufficient means for others to labor at to meet their own needs. Galbraith's recommendations to prevent unnecessary production and to prevent inflation are to have specific, somewhat limited and easily managed wage-price controls that effect only the inflationary kinds of wage-price spirals, and to raise unemployment compensation to rates that would afford a decent living, so that increased employment, particularly of those unskilled workers who can contribute relatively little worthwhile work, is unecessary for economic security.

While I agree that it is better to increase leisure than to produce unnecessary goods by means of tiresome or debilitating effort, I believe Galbraith's characterization of inflation is not quite right, and that his unemployment solution is not the fairest, because it disregards the relationship between contributing to society (with work) and being distributed to from society (by payment for that work), in a manner consistent with the principle of earning property by labor that Locke at least partially recognized.

By shortening the work week, giving paid retirement, having paid vacations and paid sick leave, etc. under conditions of increased or abundant productivity, one is dividing the fruits of the contribution of greater productivity among more people rather than having some people work more while others have no jobs. If one allows some people to work more than others, but then taxes them to distribute wealth to those who are not working, one is going against all of Locke's principles -- (1) taking away from people what they have earned with their own labor, (2) allowing some people to earn more than they need, and (3) not leaving enough resources available for those who would like to work. In addition one is then paying people for not working and is thus giving them something they are not earning. If, however, one allows some people to work less while others are then able to work who would not be able to, one is not breaking any of Locke's principles but is keeping them all. Hence, shorter work weeks, earlier retirement, etc. are Lockean ways of redistributing wealth and are apparently also more palatable ways then what Galbraith recommends. I think they are more palatable because I think Locke's principles, under certain circumstances, are both accurate and in accordance with our intuitions about labor.

There is another way of solving the distribution problem between the employed and unemployed besides cutting back on the labor time and having more people working less time and besides simply redistributing the wealth of those who work to those who do not. That solution requires putting to work those who are unemployed at jobs different from those already being worked at by those who are employed. Instead of cutting back on the amount of labor an individual does in a particular industry only in order to give other people jobs in that industry, get jobs for the unemployed in other industries, and be certain that sufficient money is added to the economy to pay for that increased productivity, and be sure that money is added in a way that pays for the labor, and not some other labor. This, of course, is not easy, and it is merely at this stage a theoretical solution on my part. But it is an alternative end, one that is both palatable and legitimate I believe, if means could be devised to implement it, and if the jobs created are beneficial jobs, not unnecessary "make-work" jobs and not harmful jobs. Galbraith is rightfully concerned that large companies, industries, and advertisers create work by creating unreasonable and in a sense unnecessary demand. Others argue that people already have desires or demands or insatiable appetites, but that sometimes they don't realize exactly what they want until they see it advertised or see its becoming fashionable. I am inclined more toward Galbraith in this regard, but with some difference.

I believe there are plenty of real needs that go unmet, while at the same time many items are produced which are unnecessary and for which the kind of artificial demand Galbraith points to has to be induced. Real needs that go unmet are needs for food, shelter, clothing, medical treatment, and a great many psychological needs such as certain kinds of understanding and sympathetic companionship (such as when one is ill or dying and does not want to be alone, or when one is stressed out and afraid or anxiety ridden, or just needs some kind of human kindness for whatever reason), child-rearing help, better learning opportunities of all sorts, and, for many people, intellectual stimulation, aesthetic stimulation, etc. Many of the things we need are the kinds of personal services that are hard or impossible to mass market, and are the kinds of things that either pay little or that cannot be afforded by many. Many of these things are things that are now done for little pay or by unpaid volunteers --church congregations, service guilds, hospital aids, coaches in the youth leagues of various sports, friends, neighbors, relatives, etc. In a society of abundance of the sort Galbraith describes, and which I think exists in industrial or technologically advanced societies, it seems to me that we would be better served, and keep in tune with Locke's principles, by having mechanisms available that encourage and allow people to work, for a fair and decent living, at meeting these kinds of needs, rather than for paying people to be idle, and rather than for encouraging them to work at demonstrably socially unnecessary and harmful tasks. But this will require some social ingenuity or effort to facilitate, particularly if we are to do it with some sense of freedom rather than by fiat or centralized control. I think such social ingenuity is not impossible. If ways can be found to make voluntarily rewarding the processing of tobacco into products that increase the chances for cancer and heart disease, if ways can be found to make voluntarily rewarding the production and sale of pet rocks, memoirs and movies about mass murderers and crooked politicians, deafening stereos, frivolous cable channels, fertilizers that grow grass but kill birds, and expensive toys that kids find entertaining for only a short time, and if ways can be found to make very voluntarily profitable the sale of clothes or athletic shoes with one designer's label or logo rather than another though there may be no useful or other distinguishing characteristic between them and other brands, then surely ways can be found to make voluntarily profitable attending or nursing the sick, befriending the lonely, teaching and learning, researching crippling and fatal diseases, attending to children, and meeting the needs of the isolated, the elderly, the disabled, the homeless, the poor, and the dying.

I stress the notion of making these things voluntarily profitable because I think that one of the main differences between government enterprise and private enterprise is the feeling of freedom on two fronts that many people have about business but not about government. Many people feel forced to pay taxes though they do not generally feel forced to buy things they choose to buy, even when buying necessities. And many people feel a burden in obeying government regulations that seems to them more oppressive than the burdens imposed upon them by employers. Galbraith, I think rightly, mentions that one might be far more a slave to company regulations than to government ones, and that one might be far more a slave to the desires created by advertising, tradition, or social fashion, than to the rules promulgated by government; but I think he, being a rational person, does not realize how important to many people the feeling of freedom is, even when it is a false or irrational feeling.

Being enslaved by the control of one's desires is both a more powerful form of control and yet frequently a more happily received one. Few people object to being victims of their appetites as long as they see no harm in them. But people frequently do not like being forced to do even what they know is right. There are, of course, exceptions. Some people feel overburdened by company policies they feel unfairly intrusive. And some people do not like spending vast amounts of money on cars or doctors and would prefer to have good public health and public transportation instead. Unlike General Motors says, these people believe that their cars are not their freedom. And people who are fortunate enough to live in a country where they feel the bulk of their tax money is well spent on things that enrich their lives by more than taxes impoverish them, do not seem to mind paying those taxes, even when they are proportionally much higher than the taxes in America. But at this writing, Americans at least, tend to be unhappy with what government buys for them with what they feel was their own money, and would prefer to spend it on things other people make them feel is more important than what government "offers", and makes them pay for.

At the end of The General Theory of Employment, Interest, and Money Keynes remarks about the importance of economic individualism(3) and gives reasons for its importance, including "the safeguard of personal liberty", but he does not analyze the notion of personal liberty or dwell on it. I think Galbraith clearly sees in a way that Keynes did not, that private enterprise does not necessarily encourage or permit very much personal liberty for most of those engaged in it. I believe Galbraith is right about business forces' manipulating people but that he does not significantly appreciate the difference it makes to people about their feelings of liberty, which is what I think Keynes was actually meaning. Some manipulations seem more coercive than others to the person who is the object of manipulation, and what business tends to achieve more effectively than government seems to, is the manipulation of people without their feeling manipulated. From a purely rational point of view, it makes little difference in terms of freedom whether someone is manipulated by control of his desires or by control of his options or actions, but from a psychological and social harmony standpoint, it often makes a huge difference. And it is a difference that can significantly affect the success or failure of given business, economic, or governmental programs. I believe it is important to many people that they feel free, whether those feelings are rationally justified and whether they actually have liberty in any rational or philosophical or deep sense at all. There is a politically and economically serious discontent that comes from feelings of (say, government) coercion regardless of whether those feelings are reasonable or not, and regardless of whether they are far less coercive than the advertising and other kinds of regulations, intrusions, and manipulations "voluntarily" accepted from private enterprise. (I will return to this matter shortly in discussing Galbraith's faith in the efficacy of wage/price controls in key areas to control inflation caused by full capacity, full employment.)

And although I do not want a government involved in the purely manipulative, purely selfish, often less than honest or honorable, and sometimes wastefully and extravagantly expensive kinds of salesmanship that permeates much of private enterprise, well-intentioned and justified leadership at times will fail without good salesmanship. There are times government leaders must take somewhat unpopular (economic) positions, but the more they can do to make those positions acceptable and desirable instead of just legally obligatory, the better will generally be the compliance, the acceptance, and the overall social harmony. This generally will involve far more than making speeches on behalf of one's program. Establishing reasonable forms and limits of government "advertising" or "social engineering" or propaganda is beyond the scope of this book. I think there could be legitimate and reasonable forms, but I think there are definite boundaries that government should not be allowed to transgress in attempting to persuade citizens of the importance and necessity of a given course of action.

Galbraith points out cases of differential inflation (Chapter XIV --"Inflation"-- of The Affluent Society) but he speaks of such differences sometimes as lags of one groups' increase of wages in keeping up with others. Unfortunately some groups' wages never catch up, and in the meantime, even for those groups whose wages will catch up, but are currently lagging, it is not exactly inflation that they are suffering from. It is a relative lack of economic demand for their services compared with the economic demand of other services. Differential changes in wages due to differential demands is not the same kind of true inflation in which all prices and wages rise more or less equally in proportion to the increased ratio of money to the goods seeking them all. In 1942 when, as Galbraith writes, "a grateful and very anxious citizenry rewarded its soldiers, sailors and airmen with a substantial increase in pay," Honolulu prostitutes raised the prices of their service, thus benefitting both from increased volume and higher unit prices. The fact that Honolulu school teachers and others that the armed forces did not patronize did not also get pay increases is not so much a case of inflation as a case of proportionately increased economic demand for a particular service. The fact that current (1993) medical costs are rising relative to other sectors of the economy is not part of general economic inflation (other than inflated prices in some cases) but is due to a proportionately greater increased demand for medical services relative to other segments of the economy, with, in some cases, additional medical services being offered, particularly with the addition of expensive new procedures and equipment. There is more health care possible, more health care available to those that can afford it, and perhaps people want more health care, or want it more than previously, so more money is being spent on health care than before --greater volume-- and in some cases higher unit prices because of greater demand. Further, health care costs rise disproportionately because health insurance allows for the payment of larger fees than health care facilities and providers could be able to even imagine collecting from individuals who would have to pay their own bills.

Similarly, many college tuition costs have recently increased at a pace greater than inflation as the demand for attending college in general (and those colleges in particular) grows and more people feel it is a necessary investment. The higher demand for college allows an increase in prices that has nothing to with inflation.

I believe that the full employment, full capacity wage-price spiral Galbraith refers to, and which he thinks can best be halted by wage-price controls, results from insufficient understanding of the relationship, and insufficient balance, between increased output (gross or net national products) and increased money supply, particularly when this affects different industries unequally. Theoretically, increasing the total output (productivity) of goods that can be sold simply increases the size of the goods and services we are dividing among ourselves. If 100 million people increase their productivity by 10%, than theoretically the fruits of that increase can be divided among the participating traders. People that produce more than they did in the past, will be able to trade with others who produce more than they did in the past.

The problem arises when companies or wage earners successfully try to make more in money increases than is commensurate with the increase in productivity. This can occur (1) when demand goes up so that people will pay more for that product by paying less for (or purchasing fewer) other products -- but this case is not inflation; it is a change in priorities or fashion. But it also can occur (2) when more money is added to the economy than is somehow warranted by the increased productivity. The amount of money added to the economy over and above what is warranted by the increased output, is inflationary. Because money behaves differently from products in the physical world, as explained in chapter 18, it is difficult, if not impossible, to judge how much money needs to be added to make purchasing power exactly equal increased output to be purchased. If too much is added, the effect will be generally inflationary, or differentially profitable in whatever particular industries people will spend the extra money. If too little is added, the increased output will be unable to be sold for its full price, or some other service or product will lose money as people have to use money they would have spent elsewhere in order to purchase the increased output. The amount of money available for (real economic) activity is important for labor and trade to be able to work smoothly, but so is the "location" or distribution of the money at any one time -- distribution, not in the sense of fairness, but in the sense of whether money is at an effective place to allow work that needs to be done, that people want done, and that there are people willing and able to do, for pay. In this sense of "distribution" barter is an economic system that does not have good distribution; it is fair, but not very effective. Similarly, money distribution can be fair, but not very effective. If, say, the steel industry increases output (at the same unit costs and prices) by 10%, and the amount of money necessary to buy that steel is added to the economy, but gets in the hands of people not interested in buying steel, but of buying bigger stereos, than that steel cannot all be sold (at the wanted price), and stereo manufactures can increase the price of their stereos because wealthier people will have more money they will be willing to spend on them.(4)

I believe there are two additional phenomena that show it is difficult or impossible, at this stage of economic knowledge to get money to have the intended kinds of economic effects in the physical world. One is the history of banking practices and government banking policies, which is a history of major changes and adjustment as it became obvious, sometimes painfully obvious, that intended policies were not having the desired consequences or were causing unforeseen and undesirable problems, or that at the least were not sufficiently general to work under unanticipatedly changed social/technological conditions. I realize that some of these policies were political or social in whole or part, and therefore may have failed or erred because of mistakes about human behavior or human needs rather than because of any misunderstanding of how money and financial policies work causally. However, there is sufficient evidence, I think, that there have been frequent errors in the understanding of how money, and policies relating to money, work on an economy, not just erroneous philosophical and psychological assumptions about fairness, the nature of real needs, or what incentives best govern human behavior, etc. Further, economics is a social science, and to some extent economists should understand the causal relationships of money and financial policies in terms of human nature. One cannot simply say that financial or money policies will do certain things if people will only behave certain ways in response to them, and not care or be able to reliably predict how people will actually act. The actual human response to any particular monetary policy is part of the phenomena the economist must understand and reliably predict (not ignore), I think, if his theories are to have merit as science.

The second phenomena which I think shows that we are not yet able to use financial types of policies alone (whether monetary, fiscal, banking practices, or whatever, either in isolation or combination) to help govern what people do and produce, etc., is the fact that quite talented and knowledgeable economists disagree about what sorts of financial manipulations will achieve or most effectively achieve what sorts of results. Again, I am not talking about the kinds of philosophical disagreements which exist among economists about what sorts of ends or goals a society ought to have or how wealth ought to be distributed in order to be fair. I am talking about contradictory disagreements over the necessary and sufficient, purely causal, means to produce agreed upon ends and goals. For example, whether a capital gains tax decrease at a given time will create more jobs or simply more profit taking.

But whether my idea of the cause of this kind of inflation is correct or not, I think Galbraith extrapolates too far from whatever success during World War II that wage/price controls may have had in curbing or checking this sort of inflation. Wars which have broad public support allow the suspension of normal economic trading practices in the same way that natural disasters do. When a society is cohesively engaged in a war effort, they will tolerate many policies, including economic ones, they would not tolerate under conditions of less monolithic national purpose. Curfews, gasoline rationing, blackouts, military draft, etc. are some of the kinds of practices that people willingly accept during war, but would not accept during normal peacetime. Similarly with regard to wage/price controls, which are seen during war as preventing profiteering, but are seen during peace as preventing free market choices. They prevent the very same free market choices during war, but during war that is seen as a good thing in order to try to make certain no one profits unfairly from the sacrifice of others. During peacetime, since people are not called upon to patriotically sacrifice (nearly as much), there is little concern about protecting their interests from profiteers who take advantage of "normal" market forces or people's needs. During "normal" conditions, price increases due to market forces such as increased demand, though it may take advantage of that demand, does not always seem to many to take unfair advantage of people. Even if Galbraith is correct that wage/price controls would curb or cure full employment/full capacity inflation, it is not a policy that would generally be broadly acceptable without consensus about broader social directions. And that consensus is not as likely to occur without some sort of war or disaster. Wars and disasters tend to make acceptable a much greater direct control of labor toward common ends than would ever be tolerated in a free market democracy during peace or normal times. In part that is because (apart from any obvious ineptness by "management"--whether government or otherwise) during wars and disasters management goals tend to be the same as workers' freely chosen goals, so there is less or no conflict between freedom and control.

Galbraith has obvious faith that government can serve people's needs, though he realizes government does not always do so in the way it should. His faith in the possible efficacy of government opposes Milton Friedman's and many other people's pessimism in that efficacy. But in his chapter XVII on "The Theory of Social Balance"(5) he in part gives two of the reasons I discuss in my chapter on social goals for why government [or, I would simply say society, in case government is not the best social means to use] should have public services at all. Put negatively, "Failure to keep public services in minimal relation to private production and use of goods is a cause of social disorder or impairs economic performance." From the positive gain side, "By failing to exploit the opportunity to expand public production, we are missing opportunities for enjoyment which otherwise we might have had. Presumably a community can be as well rewarded by buying better schools or better parks as by buying bigger automobiles. By concentrating on the latter rather than the former, it is failing to maximize its satisfactions. As with schools in the community, so with public services over the country at large."

However, this only partially addresses the issue raised by Hayek and others which is essentially that (call this argument ANT, after the fable of the ant and the grasshopper): one can, and should, consider the community to be simply those that work and successfully participate in the market system. Insofar as those people want to pool their resources to make schools or recreational areas they can do so and use those facilities themselves or charge a fee for others to use them. But there is no reason to freely include those who cannot pay. They have no right to participate if they cannot afford to, and [I assume, though Hayek might have some other solution, it would follow that] if those unable to pay threaten social disorder then we shall have to meet that threat just as we would have to meet such a threat from any foreign country that wants to take over our resources and the fruits of our labors. And even if it may be in our own best interests to provide schools for at least some of the poor so that they can become productive and then afford to enjoy the various facilities we have built, there is no reason to build parks for them or to share our hard earned benefits with them. As Galbraith has pointed out, [advances] that are not made, like babies that are not [conceived], are rarely missed.(6) We simply shall not miss the things that might occur if we were to invest more. One cannot invest in everything, so it is simply too bad if we miss some opportunities we did not know about. We cannot invest on mere possibilities; we need some higher probabilities for investment return in order to spend our money on these things.

Where Galbraith sees the community as some sort of cohesive "whole" or unit, people who hold the ANT view do not. And where Galbraith sees the benefits and the returns in the kinds of public investments that he espouses, those who hold the ANT view do not, or do not see them as worth the investment costs. In addition, people who hold the ANT view may also hold that not giving free services to the poor gives them an incentive to enter into the existing economic system whereas providing free services removes that incentive. But that is a separate argument and is an empirical one about what most effectively motivates people to work. I myself doubt that the causes of motivation are such a simple or general matter. Different individuals seem to me to be motivated by vastly different kinds of things, and peer and role model expectations and example seem generally to have more to do with incentive than desires for certain kinds of distant or general rewards. I will leave that for social scientists to investigate. The argument from motivation, however, is not central to the ANT argument which looks, not to the future, but to the past -- in order to see what people have earned or might reasonably be expected to earn, not what they might merely perhaps earn. When Galbraith says that by not having public investment "we are missing opportunities for enjoyment which otherwise we might have had, the "we" he refers to is the society taken as a whole, but for those with the ANT view, the society as a whole is not as deserving as those within society who have successfully participated in the economic system or market through their own labors and received their rightful reward for doing so. And if the "we" in question are simply those who can afford to provide the investment, those who hold the ant view believe the statement about missing opportunities not to be persuasive or interesting. They would rather have the bigger cars. And as I pointed out with regard to the preschool that my children attended, most of the parents seemed more interested in luxury cars with expensive conveniences in them then in spending a bit more to get additional educational services for their own children. Such people are not likely to invest in other children's education.

I personally agree with Galbraith's view that in modern industrial, affluent society, those who are very successful need to help the unfortunate who through no particular fault of their own are not, but I think both he and I need to bring more force to bear against overgeneralization of the ANT argument(7) than our vision of the ideal society. I have tried to do that in part by arguing that in many cases people are unfairly and meaningfully excluded from an economic system through no fault of their own (costing us their potential contributions, as well as costing them their potential distribution), that work or contribution is not always fairly rewarded in an economic system, that market forces don't always work in the same direction as rational judgment might in rewarding those who benefit society and penalizing those who harm it or give no benefit, that blind luck or the unrecognized efforts of others often play as much a role as judgment and hard work in deciding success or failure, that we can probably strike a more reasonable balance between certain kinds of consumption and certain kinds of investment, that too often concerns about the distribution of wealth prevent a highly probably increase in wealth for all (i.e., a much larger pie to divide), that the introduction of money into economic contributions and distributions causes some undesirable anomalies that need to be addressed, and that pure or strict quid pro quo "business" principles are not reflective of the way we actually tend to treat each other and should not be the general standard for how we behave toward each other.

Milton and Rose Friedman, in their book Free to Choose, argue that government solutions to supposed problems of the free market are at best often ineffective or inefficient, and are generally unfair and harmful (often even to those they are trying to help), extravagant and wastefully expensive, virtually impossible to eliminate, and essentially imposed on people against their wills, thus curtailing or destroying liberty and freedom of choice -- liberty being essential not only as an important personal end, but as a necessary ingredient, the elan vital of increased productivity. Moreover, they do not think that the nature of government permits government to do any better since constituencies that benefit from government programs and policies lobby so heavily for them and since there are no mechanisms to terminate failed programs other than the wisdom of legislators, a wisdom which they seldom, if ever, exercise, particularly against a vocal constituency. They would probably think Mill too optimistic when he observed that when the well-being of society depends on the wisdom and benevolence of government, it is at all times precarious. Unsuccessful market enterprises lose money or go bankrupt for lack of earned income; unsuccessful government enterprises tend to be expanded, supported by increased taxes or increased debt. Yet they recognize or agree that there are people who need assistance to survive, and they favor a negative income tax where people with insufficient income are given a certain amount of money to utilize in the market as they need to, thus meeting their own needs through freedom of choice and through use of market mechanisms which are more efficient and effective than government programs. They cite numerous specific examples in specific areas to justify their pessimistic despair about governmental prospects for social salvation.

Unfortunately even if their examples are accurate, it still leaves the problems raised in this book that free markets theoretically cannot solve, problems that need some sort of non-business mechanism or non-financial-profit motive to solve.(8) And it leaves the kinds of problems Galbraith and others point to when businesses, especially large (bureaucratic) corporations operate in some of the same ways government, especially large (bureaucratic) departments, operate. Although it is true that unsuccessful businesses cannot continue, grossly inefficient or unfair businesses can survive and even flourish for a long time, particularly when there is no real competition and cannot easily be any. Businesses often become or remain successful in ways that are less than desirable, less than beneficial, and less than reasonable. Further, through their access to national and international advertising, large corporations virtually blur the distinction between free choice and dictated homogeneity. Until government promulgations can even approach the success of market manipulations of desires, there is frequently far less need to fear government restrictions on freedom than corporate ones. At this writing, at least often when government limits your choices and your options, at least you tend to know it.

Further I believe the Friedmans give the average businessmen too much general credit for being "more than a calculating machine responding, only to monetary stimuli" and for recognizing self-interest as being more than "myopic selfishness, [and] exclusive concern with immediate material rewards" (pp. 18-19). Yet Milton Friedman himself has argued that the business of a corporation ought to be solely to give the greatest monetary return to its stockholders, and that the only social programs that business should contribute to are ones that save its stockholders money (e.g., by contributing to a stockholder's charities for him in order to earn a pre-dividend corporate deduction) or, "it may well be in the long-run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects."(9) Friedman persuasively argues that corporate executives are hired to maximize the return to stockholders, but he seems to me to have a limited notion of return, even when that return involves the purely financial self-interest of the stockholders. If stockholders live in the small community that Friedman refers to above, it may cost them less money in the long run to have the corporation treat the community well than for them to have to lay out their own personal funds for amenities the corporation collectively could have more economically provided or for remedies to problems the corporation caused the community by pollution or by fostering crimes -- crimes attributable to frustrations and anger over perfectly legal but nevertheless ruthless or inhumane mercenary corporate business practices. And if the stockholders do not live in the community where the corporation operates, presumably on Friedman's mistaken view, such costs to the community are morally irrelevant. Of course, Friedman can say that if that is what stockholders want to do, they can direct their corporate executives to operate more humanely and to do more good for the community they are located in at their own financial expense, but it seems that if "absentee corporate owners" are rapacious and totally self-centered, he sees nothing wrong with them profiting financially at whatever costs they can get away with to the community where they do their work. Repeatedly in Free to Choose the Friedmans seem to think there are few or no real Scrooge's in the world of business and few owners or bosses who will harm other people's lives just in order to make a dollar. Further, he thinks most managers, owners, stockholders, etc. enlightened enough to realize that their own self-interest requires both a long-range view and the humane treatment of others. But if even a small part of the corporate behavior that is reported in the news is accurate, executives and stockholders will too frequently take every advantage they legally can, and whatever illegal advantage they think they can get away with, or whose penalty they can most cost-effectively afford and still benefit from. Perhaps the Friedmans believe business owners would never take advantage of employees, and that there would be no sweat shops or their psychological equivalent, even when the physical surroundings are more pleasant and the hours somewhat shorter, if businessmen were just allowed to look out for their own self-interests.

Self-interest, no matter how broadly interpreted, is not going to consider the needs of future generations or the needs of people who have little to offer in trade for one's product or service, and whose patronage is not necessary for a satisfactory level of profit. Caring for future generations or those left out of the economic system (when there are plenty of people in the system to do all the trading one wants, and when there is no real fear of violence or insurrection from those left out) is not a result of self-interest but a result of concerns for other people. It is a part of benevolence; and though benevolence is frequently misguided, it is not to be maligned. Misguided benevolence can be corrected with awareness of its results. The problem with government is not that its benevolence is misguided; it is that it does not necessarily have any more benevolence than it needs to appear to have to attract sufficient votes to remain in office in a democracy or, more generally, sufficient power or support in any form of government. The "broad" self-interest of most legislators is hardly a model for children. It is no different from the "broad" self-interest of businessmen who need to be, or who only even need to appear to be, no more benevolent than necessary to attract sufficient customers. As I pointed out in my discussion of "the invisible hand", not all self-interest is benevolent; only that which somehow depends for its satisfaction on benefitting someone else. Benefitting those who cannot help you (or who might help you only marginally), and whom you do not need to benefit in order to attract other customers impressed by your generosity, is not a characteristic of self-interest but of benevolence.

In general the Friedmans argue that the free market, combined with the most governmental liberty, is the best hope to solve the problems they discuss. Yet the very problems they discuss are ones that the free market often seem unable or unwilling to remedy. I have pointed out other problems for the market in this book. Both Adam Smith and the Friedmans seem to assume there is sufficiently broad humane, ethical, and social understanding and consensus operating among individuals to foster fairness, encourage civility, and engender good. Whether Smith was right about his age or not, I think that assumption is unwarranted and untrue today. The Friedmans are most persuasive when they point out that government remedies and trade union remedies are often ineffective, and frequently worse than the problems themselves or market responses to those problems. That does not mean there are no problems or that there are no solutions different in kind from government regulation or union opposition. The Friedman's themselves propose a negative income tax as a way of helping those whose incomes are low, for whatever reason. It is not that the Friedmans are uncaring of those in poverty; it is that they think the kind of government programs that are supposed to help them, harm them more, and harm everyone else to some extent in the process. For reasons I have given throughout the book, I do not believe the market, even with a negative income tax, will solve the problems that can be solved and that people want solved. In some cases what are needed are methods by which market problems and market limitations can be pointed out and addressed in ways that work well and that are most freely adopted. It may take non-market remedies or organizations to do this, but those need not necessarily be governmental. It is important to keep in mind the difference between a problem and the failed solution to that problem; particular failed solutions, or even particular kinds of failed solutions, do not mean the problem is non-existent or insurmountable or nothing to fret about.

And the Friedmans seem to me to use freedom in a selective sense, a sense (1) that ignores employers' (often coercive and detested) regulations, (2) that ignores the kinds of concerns about the manipulations of desires by social pressures that Mill points out and by advertisers that Galbraith points out, and (3) that ignores the fact that in a free market society with certain civil liberties, only those with money, influence, or influential friends can afford to exercise many of those liberties (such as changing jobs, starting a business, getting good health care, going to better schools, meeting influential people, etc.) and that some liberties -- such as the freedom to walk alone safely down certain streets may not be exercised by anyone because of other freedoms of the society. Freedom is not the simple notion that the Friedmans seem to assume.

Nor are all cases of industriousness Lockean. There are not freely available resources lying around untapped just waiting for people with the "right stuff" --the energy, the will, the work ethic, or the daring-- to go out and make use of them without affecting anyone else. Most resources are already owned by someone, and most work affects other people one way or another, sometimes even costing other people their jobs. We are interdependent and mutually entangled in a great many ways that give us obligations to others in ways we don't even always realize or appreciate. In a modern technological society, our own actions have effects on others whether we mean them to or not and whether we are aware of them or not. As Mill points out, when money is spent on luxuries, that may attract labor to produce those luxuries - labor that would otherwise be used to provide necessities for less affluent people. It is one thing to extol (aspects of) a market system in which people can prosper without costing others anything. It is quite another to extol (aspects of) a system in which some people's enrichment results from, or in, other people's expense, particularly if that creates very wide disparities in wealth and well-being.

Further, as I have argued earlier, it seems simply unreasonably dangerous, in an age when industry and technology have the ability to do not only tremendous good, but also tremendous harm, for a society to have no sources outside of a given business or industry to try to monitor and prevent such harms --trying to keep Pandora's box closed. As much as any company might have good intentions, they can still make horrendously damaging mistakes. And companies with little, if any, social or ethical consciousness can do the same damage through negligence or design. It seems to me highly irrational and risky for a society not to have some sorts of mechanisms besides businesses or industries themselves to try to provide protection against potentially devastating accident, negligence, or greed. This need not necessarily involve regulation and control as we have come to know it and sometimes to regret it; but it means some sort of reasonable effort to protect ourselves from disaster even if it means in some cases causing us to be less productive or less free. There is no productivity or freedom in death. The Friedmans put much stock in freedom; but freedom, as numerous people have pointed out, is not always the greatest good, particularly when life itself is imperiled by it in ways that could be prevented. Death and liberty are not always mutually exclusive in the way that Patrick Henry was concerned. We need not be vigilant only against foreign enemies who would harm us and powerful government officials who would enslave us, but against business interests among us that have great power to do great damage without intending expressly to do so. There is more than one regard in which the price of freedom is eternal vigilance. I propose no solution here; there may be many; I am only trying to point out the problem. It is not a negligible problem.

The Friedmans write, in admonishing those who seek a fair society " difficult, if not impossible, to define precisely." " in the eye of the beholder. If all are to have 'fair shares,' someone or some group of people must decide what shares are fair--and they must be able to impose their decisions on others, taking from those who have more than their 'fair' share and giving to those who have less."

"In addition, if what people get is determined by "fairness" and not by what they produce, where are the "prizes" to come from? What incentive is there to work and produce? How is it to be decided who is to be the doctor, who the lawyer, who the garbage collector, who the street sweeper?"(10)

But precision in "defining" fairness is not what is necessary in order to have a society that is not unfair. And understanding what is fair in general is quite easily divorced from one's own circumstances by anyone who really is trying to decide what is fair, and not just what is in his own selfish interests. If people could not objectively or intersubjectively agree about what is generally fair, we could have no sports leagues, since sports, by and large, is essentially about fair competition. Nor could we have courts that anyone would respect. And business would grind to a halt, because all the fine print in all the contracts in the world would not be helpful if there was not general fair play in business and general understanding about treating each other fairly. Fairness is not an irrational, individual, totally subjective personal concept about which people cannot reach broad agreement without someone's imposing his views on another. Though there are disagreements about what is fair from time to time, those are either just the difficult or borderline or marginal cases, or they are disputes about self-interest, not fairness. It is not that people seek perfect fairness, but that they do not want egregious unfairness.

Further, neither equality nor gaining something for nothing is what fairness is about. The "prizes" will come from those who produce and go to those who produce, or who have some other legitimate grounds for having distribution -- the young, the infirm, the elderly -- not because they have rights or demands, but because good people who have blessings ought to share their blessings with others for the reasons given in Chapter 16. Fairness means things like having reasonable opportunities to develop and use one's worthy talents and skills when nature does not stand in the way; and it means getting a reasonable (not necessarily an equal) compensation for one's worthy efforts and results, again when nature does not stand in the way. When reasonable opportunities are denied by people to some and provided to others for no good reason, that is a kind of unfairness; when people work equally hard and equally long at jobs that are equally necessary or equally important but one is rewarded, just on the basis of some arbitrary bias, 10 or 100 or 1000 times more at the expense of the other, than that is a kind of unfairness. The Friedmans are right that life is not always fair and nature does not always distribute abilities and resources equally, usefully, or happily, but that does not mean that people do not need to be fair and reasonable with each other when they can. And it does not mean that some people should be allowed to take advantage of others just because of accident of being born into more fortunate circumstances. Many kinds of re-distribution would not be necessary if initial distributions were not unfair and people were not taken advantage of or denied the opportunity to contribute and be rewarded to begin with.

Further, there are some distributions that are fair in Nozzick's sense of being fairly traded for, which nonetheless work out to huge rewards because of the nature of the market, rather than because of some intrinsic merit for the work itself. There can be much money in mass production and mass distribution, particularly of items that can be made and sold or distributed relatively inexpensively so that great sums, for example, can be made with recordings or tv or radio broadcasts. These huge sums are far out of proportion in a sense that everyone understands to the work that went into making them, which might be all right -- but not when it also happens that these huge sums might not thereby be re-invested into useful work that might serve others. It is not that any rational person begrudges some sports superstar or popular entertainer for being lucky enough to be able to successfully work in a kind of industry that can generate mass sales, but it is important for the society and market from which that money comes that the money be re-invested in some way so that it can be put to use. Just as that money can cause harm to the market if it is hoarded, so it can cause harm to people by being used in bad ways or even in simply wasteful ways. Society does get harmed when money is used in ways that cause harm or do no good, when there are people who cannot get jobs that need to be done because the money has effectively been taken out of circulation from those jobs. It is a case where by taking too much, though one has earned it, one does not leave enough for others -- simply because the way the market works.

The Friedmans write about income distribution and incentive: "If Red Adair's income would be the same whether or not he performs the dangerous task of capping a runaway oil well, why should he undertake the dangerous task? He might do so once, for the excitement, but would he make it his major activity? If your income is the same whether you work hard or not, why should you work hard? ... If there is no reward for accumulating capital, why should anyone postpone to a later date what he could enjoy now? Why save? If there is no reward for maintaining capital, why should people not dissipate any capital which they have either accumulated or inherited? If prices are prevented from affecting the distribution of income, they cannot be used for other purposes. The only alternative is command. Some authority would have to decide who should produce what and how much. Some authority would have to decide who should sweep the streets and who manage the factory, who should be the policeman and who the physician."(11) But the alternative to the unfettered free market, with distribution chips falling wherever they may, is not just a command economy. When the draft was in force, people did jobs far more dangerously than Red Adair's for far less money, yet that was not necessarily their whole life's work. A non-military form of temporary service or reserve service may also be effective. The peace corps attracted a number of people without paying much, and they attracted some of the best and the brightest. The Friedmans themselves have forgotten that "man is not simply economic man", that people do things for more than mere money. And if the Friedman's wonder why people would work hard for no more money than other people get, how do they explain why many people today work at hard, dirty, dangerous, or alienating jobs for very much less than other people get? Further, many people who make a lot of money hate the jobs they have and feel pressured to remain in them in order to have any moments of freedom and happiness; perhaps in a different kind of society with different (equally freely) chosen ends, one might be happier and better off with a happier job that brings in less money. Many people seek that sort of life now. Many physicians work for relatively little money in research posts or public health. Teachers and nurses make little. And although some jobs may be difficult to "sell" without offering monetary incentive, many are not. It would sound funny, for example, to ask the Friedman's question thus: "Who would play golf or basketball or make movies for a living if there were not lots of money it in it?" The answer is a whole lot of people. There is no reason to think that money is most people's motivation or that some substitute besides lifelong total governmental command is the only way to fulfill certain societal job positions.

And moreover, the obverse of the Friedmans 'concern is of concern also, sometimes even greater concern. The pursuit of money may, and often seems to, impoverish both society and those who pursue financial wealth but who come up short of securing it and instead waste efforts that could have been put to much better use had they not been pursuing money. The easiest case to point out is all the would-be athletes that jeopardize their educations by putting inordinate amounts of time into trying to get good enough to have lucrative professional sports careers even though the mere numerical odds against their success is great, and all the proportion of failures cause much individual grief and obvious loss to society. If a student who could have been productive and happy had he or she learned the right skills instead misses acquiring those skills because they are playing some sort of ball to get good enough at a career they simply cannot make, the cost has been great, for them and for society.

In short, though Galbraith and the Friedmans would quarrel with many of each others' solutions for what appear to be good reasons, that still leaves the problems; and the problems should not be dismissed because some particular kinds of solutions have not worked. The search should be for solutions that are not (as) subject to the kinds of problems that either Galbraith or the Friedmans point out -- solutions that solve or ameliorate both market failures and government ones.

Philosopher John Rawls(12) argues that the rules which govern a society ought to be rules that people would accept if they did not know what their position in society would be. He seems to believe this would induce or make people generate rules that are fair. I do not share the belief in this outcome, because I believe those who believe in the ANT argument or in social Darwinism believe that in an unfettered market system those who should be successful will be, and that those who are not successful do not have any reason to be. They might change their view after they were to fail, but they might not. Either way, it does not solve the problem for Rawls that people can idealogically be wedded to the belief that certain kinds of rules are fair though there may be evidence they disbelieve, discount, or don't know about to the contrary. There is no reason to believe that if Ronald Reagan and Karl Marx were to be given the chance to be reborn as babies under random social or financial circumstances that they would want to be born into societies with the same economic rules or rules of distribution as each other. When I teach introductory ethics, one of the "thought experiments" I do with students in order to get them to see that not all acts that create the greatest good for the greatest number are necessarily the acts they would think best is to get them to choose between the following alternatives: a) a drawing among all the students in the course where the one student whose name is drawn will get $100,000,000 and the rest will each get $10, or b) we don't hold the drawing but each student gets $100,000. This seems to me to be one instance of Rawls' veil of ignorance. Most students opt for the sure $100,000. But once in a while a student will choose the lottery. If you vary the payoff amounts, particularly if you lower the $100,000 "sure" payoff, to $10,000 or $1500 or $500, you get different results and you get far less unanimity. Of course part of the difference can be traced to how much a certain amount of money might mean to someone in his current station in life, but I don't see that changing that person's station, or possibly changing it, might necessarily make him give up his view about the value of money versus risk. People that grew up in the Great Depression years often tend to have very different views about money and taking care of their possessions than people who grew up under affluent conditions -- even when the people reared during the depression become quite affluent. Certain beliefs and values are not necessarily related to being in some particular circumstances in the way Rawls seems to assume.

Similarly, there are people who have considerable advantages under a particular system who still believe that system is unfair; and there are people who at considerable disadvantage under a particular system who feel that system is perfectly just, reasonable, fair, or right anyway. I enjoyed academics and learning, and I fairly easily got straight A's in high school and then, with much more effort, got straight A's the first year and a half of college. Yet I thought, and still think, grades were an unfair assessment tool, and that rewards based on grades were not right. At the same time adults I knew who themselves had not received good grades in school seemed to genuinely respect, and admire, that I did. I thought their respect and admiration were misplaced, and was surprised they did not know better. I knew many students who I thought were better than I at certain kinds of thinking but they got poor grades because the skills they had did not show up on tests in the way that the skills I had did. I felt guilty about my good fortune because I thought it was somehow artificial and undeserved. Eventually I got into a program, based on my grades, that was not a good program for me to be in, and that I would not likely have selected or been selected for had grades not been the dominant criteria for probable success. That program, over the ensuing two years, caused me much unnecessary agonizing reflection about my future, and so, though I still continued to get A's and B's, and felt the same about grades that I had before, I no longer felt guilty about getting good ones. I was even more convinced, however, that grades were a bad and unfair way to judge merit.

And I think my view of grades, even when I was getting rewards for having good ones, is not dissimilar from many people's views about their own circumstances, whether economic or otherwise. People who are not wedded to ideologies because of their own circumstances or some other narrow perspective, I suspect have a sufficient general or initial understanding of fairness to be able to judge and reach agreement (after the presentation of evidence and discussion) about what is fair without having to lose their identities to do so. And those who are wedded to ideologies or who cannot appreciate evidence contrary to their initial views, I suspect would not likely have better ideas about what is fair if they did lose their particular identities or not know their future circumstances.

Rawls also holds that a just social or economic rule is that "Social and economic inequalities are to be arranged so that they are both:

(a) to the greatest benefit of the least advantaged..., and

(b) attached to offices and positions open to all under conditions of fair equality of opportunity."

"General Conception

"All social primary goods--liberty and opportunity, income and wealth, and the bases of self-respect--are to be distributed equally unless an unequal distribution of any or all of these goods is to the advantage of the least favored."(13)

But it seems to me that the most possibly reasonable approach of this sort would be to say that no one should be expected to accept a rule that would end up depriving himself of necessities in order for others to gain greater conveniences or luxuries. I cannot imagine anyone being able to reasonably hold that no one should be able to have a bigger yacht until everyone else has a yacht at least as big as that person's current one, though I can imagine that no one would knowingly accept rules which deny him necessities because someone else gets a bigger yacht than the large one he already has. And, of course, if conditions are in effect that meet Locke's principles, then one person's yacht has nothing to do with another person's necessities. Rawls' rule or my modification of it only has any merit at all under conditions where one person's gain actually depends on another's loss, not where one person's gain has nothing to do with another person's circumstances one way or the other.

Heilbroner and Thurow(14) hold a position somewhat like Rawls' for inequality: "We agree that inequality is justified if everyone has a fair chance to get ahead." But they also hold:

"We agree to inequality when it is the outcome of individual preferences."

"We abide by inequality when it reflects merit."

"Finally, we agree on violating the spirit of equality when we are convinced that inequality is for the common good."

They cite some problems with these views, but seem to think them worthy anyway, or able to stand up, saying in one case in particular "There is no correct solution for this or any other problem involving value judgments."

I would dispute there are no correct solutions to problems involving value judgments. There may be more than one correct or acceptable solution, and any solution may not be a simple or simplistic one, nor may it be readily apparent to people without explanation or without reasonable and reflective scrutiny. And people unwilling to be rational or reflective may not accept any solution, just as irrational and unreflective people may disbelieve science or anything they choose to. But that does not mean there are no correct answers (and by extrapolation, no incorrect answers) to problems involving value judgments. In fact, it is my experience that when people consider the same evidence and each others' reasoning about that evidence, there tends to be remarkable agreement about what is correct. That does not mean they are all correct. But the claim there are no correct answers in issues of value generally is made because there is so much disagreement about matters of value. And I maintain that is true to a large extent because people are working from different evidence and perspectives that they do not realize, do not examine, and do not share with each other, not because they have different values. And it is sometimes true because a solution that takes into account and resolves the perspectives and evidence of both sides has not been discovered yet. I find in teaching ethics that it is not that difficult to help students find mutually agreeable positions once you get beyond the sort of superficial analyses of situations that tend to generate disagreement. And frequently jury members from quite different backgrounds show agreement about complex court cases since they will deliberate over the same relatively small, particular, controlled amount of evidence presented in a trial.

But I would like to examine Rawls', Heilbroner's, and/or Thurow's particular views about opportunities for greater wealth or other social benefit being fair when they are available to all, when they are the outcome of preferences, or for the common good. Heilbroner and Thurow's view with regard to this latter position falls short for the same reason Rawls' does -- inequalities when everyone is well off are generally more acceptable than inequalities that give some people luxuries or conveniences at the expense of other people's necessities.

But I also think that inequalities are not made fair by having them "attached to offices and positions open to all under conditions of fair equality of opportunity" or by everyone's having a fair chance at them or a preference for them, whether by having more "merit" or not. Suppose that the only way great sums of money could be made were by playing tennis well enough to win one particular, or any of a number of, tournaments. In a sense such an arrangement would be open to all. If you wanted it to be "even more fair", we might have some sort of handicap arrangement; and there may be different categories by gender, age, weight, state of health, etc. And society can make certain everyone can have use of a racquet of his or her choice and all the practice time, training, etc. one wants on adequate courts. I maintain this would be an obviously terrible way of deciding how to share the total output of society. Not everyone wants to play tennis. And more importantly, not everyone would think it right to spend their time playing tennis when there are other things they think much more important. Further, it seems somehow arbitrary for tennis to be the determining factor when it might just as easily have been boxing or balance beams or chess or tiddly winks, in which case different people might have been the more successful.

In other words, just having the benefits attach to particular "offices" will already begin to skew or prejudice the outcome in favor of those with interests and abilities in those offices, and disfavor others. This would not be necessarily morally bad if it were unavoidable and there were no ways to share benefits; and it would not be necessarily morally bad if there were some morally good reason why a particular office is somehow more deserving of benefits than other offices. But, as I have tried to show, greater wealth tends to attach itself in a market society to offices in ways that do not seem to be morally relevant. The fact that some activities are more desired or prized by society at a particular time often seems to be a matter of pure historical accident rather than any universal human need; the fact that certain prized activities are accorded more monetary reward rather than simply, say, more honor, seems to be a result of historical accident or unnecessary choice as well; and the fact that technology at any given time allows mass production of some products and labors (such as stand-up comedy or plastic forks) but not others (such as child care or house cleaning) seems to be a morally irrelevant reason for attaching far greater wealth to those things that can be mass produced or distributed.

And just as it would seem both silly, unfair, and unreasonable to attach the benefits of inequality to tennis championships, no matter how fairly contested tennis matches were, that unreasonableness is not substantially minimized by adding additional sports or additional activities as long as there are obviously worthy activities excluded. I do not agree with Heilbroner and Thurow that it is fair for one person to be very wealthy and another to be living on the edge of poverty simply because one is predisposed toward tennis or law or politics or commerce, particularly commerce directed at aggressive financial acquisition, and the other toward farming or teaching. It is only in some uninteresting and morally unhelpful sense of "open to all" that certain vocations are open to all; they are open to all who are interested in them and who have any talent at all for them; and they are open to all who simply don't care what they do as long as it is something that is financially rewarding. The wealth of politics and law are open to all in the same way that the wealth of tennis or of legalized prostitution is. And it is no more right to make an interest in law or politics or selling plastic forks the determining factor in financial benefit than an interest in tennis or sex. Just as it is not right to consign someone to a lifetime of financial difficulty because they choose to farm, teach, or provide services to the poor. While it is obvious that dividing society's benefits solely on the basis of everyone's tennis ability or one's athletic ability would be unfair and absurd, the principle is the same if the division of benefits is made on everyone's ability at business or politics because (1) business and politics are not the only way to make a contribution and (2) because not all business or government work does make a contribution, even if it reaps great reward.

What is needed for something like the Rawls-Heilbroner-Thurow position to begin to be tenable is for special benefits to attach to all and only those people who do good work in all and only those vocations that are socially and morally good or worthy, and that every person who wants to and would do a good job in a good office, has such a job. If somebody chooses then to be poor because they do not care to do any worthwhile work or to do it very well, their poverty is fair. But this position still requires working out fair desert for those unable to work or those without much talent but who are willing to work. And it requires some way of making certain that, to paraphrase Shakespeare, money which is resolutely earned is not dissolutely spent -- if dissolute spending weakens the economy or society by channeling labor into harmful vocations, by disrupting trade (e.g., as in hoarding), or by causing any of the problems that would have been avoided by a wiser application or dispersion of concentrated money.

Heilbroner and Thurow also hold "the workings of the competitive system transmute self-regarding behavior into socially useful outcomes. The Invisible Hand-- the words that describe the overall process-- keeps society on track, assuring that it produces the goods and services it needs." "[Smith] showed his generation and all succeeding ones that a market system is a powerful force for orderly social provisioning.

"He also showed that it was self-regulating. The beautiful consequence of the market is that it is its own guardian."(15)

And though Thurow and Heilbroner recognize that the market mechanism does not always work to secure society's best interests, and may even work against those interests ("it may produce goods that are profitable to make, but harmful to consume.") I do not believe they fully appreciate how dependent the Invisible Hand's real success is on ethics or at least on socially accepted standards(16) of behavior, probably presupposed by Smith, that subordinates the market to its principles, rather than subordinating ethical principles and shaping society to the market. The market does not produce "goods and services it needs" [emphasis mine] but those which can be paid or traded for. It will produce what can be sold that is desired, but not necessarily what is desirable. Insofar as people will, for money or trade, produce, sell, or do what is undesirable or in some way bad, the market succeeds economically but fails morally, as the authors put it on pages 227 and 228. "This is not just an economic failure. It is a moral failure. Market systems promote amorality. We count as gains the increases in GNP that result from the market system, but we do not give much heed to the commercialism, the trivialization, the psychological frustration and dissatisfaction that also accompany so much market activity." Not to mention the actual harm people are willing to inflict upon themselves and others for money because the market entices them or drives them to do so.

I don't believe that Smith thought market systems promoted amorality; I believe he thought they promoted morality, or at least socially acceptable behavior because he believed people would see it was in their own best economic interests to behave in ethical or, at least, socially acceptable ways. If a vendor treated customers unfairly, they would go where they were treated better; if an employer mistreated employees, those employees would prefer to work for someone more acceptable. I think Smith would be surprised and disappointed by a society that let the market determine what was socially acceptable rather than having to conform to it, particularly if his misconstrued explanation of the Invisible Hand was used to justify the dominance of "pure" (or amoral) market principles or behavior over ethics and social standards. Smith more than likely was unable to anticipate many of the social and ethical problems that are caused or exacerbated by the immensity of national and international markets separating suppliers and customers by vast distances and essentially making them unknown to each other and often shielded or hidden from each other. And he probably did not anticipate the social, psychological, and ethical problems created by pronounced specialization and division of labor -- from alienation to diffusion beyond recognition of personal responsibility within organizations to ease of taking advantage of customers(17). And he was unlikely to have anticipated the scale of potential harm that technology and the power of the market might make possible.

Further, in a sense, much heed is paid to the "commercialism, the trivialization, the psychological frustration and dissatisfaction that also accompany so much market activity." It is simply not recognized by many people as a problem caused by market activity that is given over to an "Amoral Invisible Hand" theory rather than a "Moral (or Socially Acceptable) Invisible Hand" theory. It seems to me that "bad" ends are tolerated when they result from means that seem innocent enough, or means that produce useful and beneficial results under other conditions. But, as I pointed out in discussing Nozzick's view of this, means do not justify the ends; means that at a particular time result in wrong ends are not justified just because in other cases they are innocent or beneficial.

Foreign cultures opposed to Western ways understand this point, but overreact to it by tending to believe the market is responsible for the kind of society we have and that they adamantly oppose. But it is not the market that produces the outcome; it is the market unguided by social or ethical dictates that produces the outcome. The market is not amoral unless it is allowed to be. If I am right, the Invisible Hand was never meant to be a totally unguided hand that overroad moral (or social or cultural) forces. It was meant to be a hand that, with moral or cultural impact at individual points -- using self-interest to promote individual socially acceptable morality-- wove together in an invisible way, a good and useful fabric. The point was that societal progress could be made by individuals acting on their self-interest and individual needs --provided that self-interest was governed by moral or by at least socially accepted values. It was not purely selfish and socially harmful self-interest that was to operate, but self-interest that could be accepted when exposed to the illumination that a market would bring.

Frequently there is the failure to recognize that any economic system should only be a means to justified ends; and that at any time it becomes clear the system is creating unacceptable results, it is the system that must be modified in some way, not the ends. And ideally, the modification should protect in some important ways the entrepreneur and investors who were using apparently legitimate means in good faith to achieve both personally profitable and socially desirable ends, and which still could achieve them with the right modifications in the means. And, of course, the modification should be one which solves the particular problem without creating worse problems. And frequently there is the failure to recognize that any economic system may also not be able to solve certain kinds of problems and that some other solution may be necessary to supplement whatever good the economic system itself does.

There is not just one, but many sorts of moral or social failure, one of which can be much more easily remedied than the others, and which sometimes is, though not generally enough. The one that is easy to eliminate is the idea that the self-interest that the Invisible Hand guides into social usefulness is just any self-interest, rather than socially or morally acceptable self-interest. In the United States you can make and sell chocolate ice cream for a profit if you want to, but you cannot make and sell cocaine if you want to; nor can you sell babies if you want to.(18) It is unlikely that Smith would have written with as much enthusiasm about a similarly organized cocaine manufacturing plant or white slavery operation as he did the pin factory. There is no market reason or sound Invisible Hand argument that requires a society to tolerate business behavior that yields morally, socially, or culturally unacceptable consequences. That fact seems to be lost by people who mistakenly think markets ought to be allowed to have their own morality in order for them to work properly. But laissez-faire does not have to be construed as permitting morally or culturally unacceptable ends or behavior; it can legitimately be construed as intending to keep government from interfering with business that is operating well within morally or socially acceptable and legitimate bounds, both in terms of means and results.(19)

The second kind of moral/social failure has nothing to do with markets, but involves not knowing or being able to reasonably agree about what is right or wrong, good or bad. Insofar as a market reflects the values of a society, conflicting social values will also show up in the market. But a more culturally monolithic society, whether for better or worse, does not need to have that problem. Hence, foreign cultures may not need to fear a free market's destroying their values any more than we need to fear our free market's being extended to include baby selling.(20) The market can be tailored to a society that has essential agreement about moral priorities and that understand the market should be a means to higher ends, not the force that shapes those ends. Markets shape ends, as well as means, only when societies allow market forces to operate with little or no obstruction in a social and moral vacuum.

This does not mean that legislation alone is sufficient to stem market tides. Bootlegging during America's prohibition period, cocaine trafficking today, and black market forces in all sorts of prohibited but desired goods and services in general, demonstrate that legislation which does not reflect strong social and moral beliefs, is generally insufficient to stem market forces. Slavery, prostitution, child labor, judicial bribery, etc. will not tend to succumb to market forces at this writing because they are generally socially viewed as abhorrent.

Now new inventions (such as satellite communications), discoveries (such as surrogate motherhood), and forms of social organization sometimes create unintended and unanticipated conflicts with tradition, and insofar as the market fosters such invention, discovery, and institutions, it may make it difficult for traditionalists in any society. And any society that loses sight of the fact that Smith himself stressed, that money is not wealth, may foster conflicts between money and (traditional understanding of) well-being. But if a society has a good way of recognizing and resolving such conflicts, there is no reason to believe that a market in itself, will undermine the society or the worthy traditional values. Unfortunately many societies do not have good methods for recognizing and resolving such conflicts, but it is not clear that eschewing any sort of market is the best solution.

(To Chapter 27)



1. "Intellectual property," copyright and patent are legal contrivances invented for at least two purposes: to keep persons from falsely claiming that the work of others is their creation, and to allow the originators of any invention or composition to sell it exclusively (or to authorize others to sell it exclusively) without fear of competition. These are two totally different purposes since one is about receiving proper recognition and credit, and the other is about receiving financial benefit.

Copyright and patent are often said to protect intellectual property from theft, but there is a fundamental difference between theft of intellectual property (in the sense of reproducing it or copying it, not in the sense of stealing the only manuscript or a first edition, or some other particular physical manifestation of the work) and theft of physical property. The difference is that when one "steals" intellectual property by reproducing it, one is not taking it away from the owner; one is creating another copy for oneself, leaving the owner the same thing he had originally. That is not the case with physical property, for if a thief takes your car, you no longer have the car. But if someone else gains your ideas or any reproduction of your work, you do not lose your ideas or your copies of the work. Reproduction of something leaves even more for others than does taking Locke's draught of a large body of water, for one is using up none at all of what was taken, not just merely a minuscule portion of it. So the point of protecting intellectual property from theft is not to make sure the originator still has the property; the point is to make sure that s/he legally retains the economic value of having it.

As copyright and patent are practiced today, an ethical anomaly is possible, and sometimes occurs. The anomaly is that copyright and patent keep other people from having something they could easily and often inexpensively obtain. They do this in a number of ways. First, they do not allow anyone to make a simple copy of the work using their own labor and expense to do that; e.g., to use a photocopy machine or an audio . Second, they keep the price of legal copies artificially high through the use of, in essence, monopoly, so that although Microsoft, for example, could have, according to their own testimony, sold Windows 95 and 98 for as little as $49 and still made a profit, they chose to sell it for $89. They considered that a good price for the public because competing operating systems were priced at $129 and higher. However, the Windows operating system at that time was already well-entrenched and well-accepted, and stood to make a great many more sales than the competition. Furthermore, the system sold on a CD that cost less than a dollar to manufacture, and the CD was legally restricted to use for installation of Windows on just one computer, even though it could physically have been used to install Windows on hundreds or thousands of computers. Third, copyrights often outlast publication and availability of a work, and yet the owner of the copyright will not allow someone to make a copy of that work for him/herself. Television networks also have in the past bought the rights to a particular sporting event and then not televised the event (at least not in all viewing areas) because they could make more money showing something else.

The claim is that copyright is a good thing for an economic system because it gives incentive for people to create things, since they can then profit from them in a way that they would not be able to profit if their work could be reproduced inexpensively by others who would then have no need to purchase it at a price profitable to the creator. That, however, is an empirical claim, and it might be a questionable one because (1) many people do like to disseminate their work even if it does not make them any money; the Internet is a good example, because there is a great deal, not a dearth, of free information and free advice and free teaching available on the Internet, and (2) there are other ways of profiting from something besides having monopolistic rights to sell it: as of this writing, for example, network television does not sell its programming to viewers, but sells advertising space instead; similarly many Internet sites have advertising on pages where they give away things. Another approach is something like Netscape's: Netscape gave away free downloads of its browser in order to compete with Microsoft's browser and in order to make money in other ways from the widespread end use and potential of the browser. This is similar to mobile phone giveaways for people who sign up for cellular service for an extended time, or the recent Compuserv computer rebates, and free computers, for people who sign up for their Internet provider service for three years. Another approach is the one Sony worked out with the recording industry whereby copying of recorded music for one's personal use was permitted freely, but the price of blank tapes had an extra, minimal charge built in that essentially took the place of revenue lost to the industry by the practice. The assumption was that some percentage of the blank tapes would be used for the copying, for personal use, of purchased recordings.

But mostly the claim that copyright is a good thing is made by producers, and by consumers who can afford to pay for copyrighted works, rather than by those consumers who would benefit the most from stealing or buying stolen material. Until the late 19th or early 20th century, U.S. law protected publishers who stole and published copyrighted material from England and the rest of Europe. The U.S. was more a consumer of literary goods than a producer, and it was in their interest to allow piracy of intellectual property from the producer nations, just as China now seems to permit piracy of U.S. software, about which the U.S. is incensed. Consumers seem to have no difficulty decrying copyright, with their argument being that if pirates have an economic incentive to sell for far less than the producers, they are selling at a price the producers should have been selling at to begin with to have avoided the piracy and still make a healthy profit. That argument, of course, would need to include in it somewhere "development costs" to be more forceful, but at some point it seems to me to be a prima facie reasonable argument, and is the argument essentially that is given for economic competition in general and against allowing monopoly to be legal. It is the argument that a more reasonable price would both sell more of the work, make more products available to more people, and prevent piracy in the first place by rendering unnecessary and unprofitable.

Monopolistic pricing rights are more odious when they involve necessities than when they involve luxuries and conveniences because they keep those necessities out of the hands of less affluent people for no reason other than higher (perhaps even excessive) profit. Charging excessive prices for unnecessary luxuries does not seem to be particularly immoral.

There are other anomalies with regard to patent and copyright, though they are not of a moral nature. They protect the specific composition but not the ideas behind the composition. So it is not illegal to read a work and then to tell about what it says, as long as you do not quote without permission. In those cases where the ideas are more valuable than the specific application and can easily be applied in a different way, patent and copyright do not protect the element of most value.

Second, if I pay you to teach me your ideas or your artistic techniques, I can then charge others to teach them. Or I can apply them to my own work, as can my students or their students.

If you have physical property, I am not allowed to take it, but I am allowed to craft my own replicas of it, so, for example, a seamstress can make a reproduction of a designer gown, or an auto body worker might make his VW look like a Rolls Royce or a Mercedes. There is a certain irony in that physical property can be copied but not taken, whereas intellectual ideas can be taken but not copied.

Third, while it is not likely, it is possible that two or more people will independently get the same idea for, particularly, a patent. If that happens and one of the persons receives the patent, the other(s) will not be able to earn anything from their work or their idea. That seems unfair.

Fourth, there are ideas for new works that would utilize other works in part if they could, say as demonstrative examples in mass produced educational materials. But many companies charge so much for the right to use the work even in this way, that it makes the educational material prohibitively expensive to produce. Hence, an educational opportunity is lost because mass produced educational works do not fall under the fair use exemption division of the copyright laws (in the U.S. at least).

Fifth, there seems to be something wrong with employing law enforcement agencies and engineering skills and technology to prevent people from getting things they could easily get with their own labor and ingenuity. I am talking about building successive generations of scrambling and descrambling devices so that much effort and labor is put into preventing people from having for less money things one wants them to pay for. It would be interesting to compute the cost of offering cable or satellite movies or other entertainment if people were merely to provide their own hookups or ways of getting the material from a central hub without having to pay for descrambling and the original scrambling in the first place. 

It seems to me that there would still be ample profit, and there would be greater benefit for more people if the granting of a copyright or patent did not give total monopolistic rights to intellectual material, but instead allowed partial or regulated monopolistic rights that successfully addressed the anomalies.  (Return to text in this chapter.) (Return to text in chapter 34, "Pricing".)

2. When my ethics course students said that banks kept money out of the hands of black (potential) businesses, I invited a bank representative to respond, since I had heard that local banks had organized some sort of mechanism to channel money into black businesses. The (black) representative that visited the class explained that though banks were no longer allowed to discriminate on the basis of race, American black culture, for historically understandable reasons, did not generally know what things they needed to do to qualify for loans or for investment money, etc. He said that blacks needed to learn the ways of the financial institutions so that they could do the kinds of things that would allow them to utilize services that would then be available to them. I commented that I thought it was the moral responsibility --and ultimately to the benefit-- of those institutions to inform citizens how to utilize their services, since it is just as unproductive, and in some sense unfair, to keep knowledge about getting money away from people as it is to keep the money away from them in the first place. He responded that the banks were beginning to see that and to institute such programs.  (Return to text.)

3. Keynes, p.380  (Return to text.)

4. In a sense, or at least in some circumstances, the kinds of inflationary wage-price spiral Galbraith believes important to control seems to be that which is based more on profiteering than increasing profits legitimately, say, through increased production, increased efficiency, etc, or to get sufficient extra money in order to increase needed supply. However, though some cases of increasing profits merely through taking unfair advantage of buyers are obviously profiteering, other cases are not necessarily profiteering, such as when a manufacturer raises prices a little when there is increased demand, not in order to make "outrageous" or, in some sense "unnecessary" or unwarranted, profits but in order to have a comfortable profit margin when before he was perhaps living on the brink of economic survival. Further, keeping prices unnecessarily and artificially low sometimes keeps supply unnecessarily lower than would be desired and desirable. Wage-price controls as such, unless there is flexibility and some sort of appeals process that allows reasonable exceptions, cannot distinguish legitimate price changes from ones which are merely profiteering. I presume that the kind of wage-price controls Galbraith is talking about contain such understanding and flexibility.  (Return to text.)

5. Galbraith (1), p.203  (Return to text.)

6. Galbraith (1), p. 120  (Return to text.)

7. The ANT argument is a formidable prima facie objection for any form of egalitarian or utilitarian view of economic ends and policies -- any view that economics should benefit a society or community in the most equitable or broadest way, rather than simply benefitting those who actually join together in certain ways to get the fruitful work done. In order to rebut the ANT argument, one essentially has to show why the less affluent are not in any morally relevant way like the grasshopper in the fable, whose poverty is in some clear sense the result of his own fault and who is undeserving of assistance or another opportunity.

The ANT argument is different from so-called "social Darwinism", the view that those who prevail or flourish socially, politically, or economically are those who should because they are the most fit and therefore the most deserving. Scientific evolution does not make any moral judgments about the value of species that survives; it merely explains the forces at work that permit one species to survive rather than another or to prevail under particular conditions. If a time and conditions come that bacteria and fungi survive when higher level animals do not, bacteria and fungi will have proved the most fit, but not necessarily the most "deserving" in any moral sense. Other conditions might have produced other results.

Social Darwinists often consider the unfettered free market to be the ideal condition, and those who can best flourish in it to be the most fit and deserving. But I personally cannot see as the most morally deserving those who might be the most successful because they profiteer or who are the most successful because they produce luxuries for the rich while ignoring the necessities of the poor, though they have the capacity to provide for both or provide greater necessities with only a slight diminution of luxuries. On the social Darwinists view, if a violent, ruthless faction of society can successfully take over a country and maintain their position in it by force, than they are the most fit to run it. They are the most fit, however, only in the sense of "able" not in the sense of "deserving" or "desirable". Likewise those most able to prevail in a free market might not be the most deserving or desirable.  (Return to text.)

8. In Free to Choose the Friedman's argue that private schools will be better for education than government operated public schools. I have argued against that notion already in my response to Elizabeth Anderson's claim that there is a difference in responsiveness to (potential) clients between public and private organizations, specifically to parents' wishes about their children's schools. The Friedman's fear massive mediocre or deleterious uniformity imposed by a centralized government, but not that imposed by zealous salesmanship. There is no safeguard against bad schools except the knowledge and judgment of the community and the receptivity by those who run those schools to that knowledge and judgment. And it is not clear to me that any system can formalize knowledge, judgment, and receptivity.

Further, public school governance does not need to be centralized or to suffer from the flaws common to any centralized bureaucracy; and the current trend is to decentralize the operation and management of schools. Given deeply and broadly entrenched educational practices, however, I believe that in most cases decentralization will bring only cosmetic changes, if that. But private schools run just as much risk of eventually becoming some corporate monolithic McSchool's R Us as any public school. Perhaps in a different way, even more likely and more successfully. And there is no reason to believe that more popular schools will be better schools.  (Return to text.)

9. Friedman, Milton. New York Times Magazine, September 13, 1970, reprinted in Donaldson, Thomas and Werhane, Patricia H., Ethical Issues in Business (3rd Edition): "The Social Responsibility of Business Is to Increase Its Profits" (p. 217)  (Return to text.)

10. pp. 125-6  (Return to text.)

11. p.15  (Return to text.)

12. Theory of Justice  (Return to text.)

13. Rawls; pp.302-3  (Return to text.)

14. Economics Explained, p. 194-5  (Return to text.)

15. p. 28  (Return to text.)

16. (even if they are not quite the best principles that moral reasoning might suggest)  (Return to text.)

17. As specialization increases and as technology fosters the creation of more and more complex products and services whose relative quality at time of purchase can only be ascertained by people with specialized knowledge, consumers depend more and more on the wisdom and benevolence of manufacturers and vendors. Thus they lose much of the protection afforded by a market operated where the quality of a product or service is more easily and more immediately discerned, where consumers tend to have similar standards for judging quality, and where they more readily and easily communicate their judgments to each other. Although one can consult other specialists for their advice, the process is frequently like judging what movie to go see by reading reviews by critics who may have no more, and sometimes less, expertise or scruples than those who made the movie in the first place, or whose tastes or standards for judging may be vastly different from yours.  (Return to text.)

18. And even if you have a legitimate, socially valuable and personally profitable business, if your legitimate business practices give you such market dominance that you are essentially a monopoly in an important industry, you may have to give up certain practices or results of those practices. In such cases, the ends are seen not to justify the means, even though the means were (apparently or actually) legitimate up until the result occurred. Since I do not think monopolies, in and of themselves, are necessarily evil, it is ironic to me that "good" business practices may be outlawed if they lead to monopoly, but that the same principle is not observed about forcibly correcting "good" business practices that may lead to far worse or actually terrible results than monopoly -- such as the depletion of a forest merely for quick profit without sufficient reforestation to insure future income for the residents of the region or available wood for the potential customers of the future.  (Return to text.)

19. I believe that for Smith morality does control the market, but the "point of impact" where morality enters is in customer and employee acceptance of the practices and results of a business; and this assumes enough knowledge, enough freedom of choice and alternative options, and enough ethical (or social) understanding and conscience by customers and by employees to exercise that choice. The point of impact for Smith, in the society he was considering, ought not to be in the government's saying something is illegitimate that employees and customers don't have a problem with. Problems with this form of market self-regulation arise in a society where there are (broad) conflicts of moral value or moral understanding, or where there is broad lack of moral understanding, and where there is no accepted and reasonable method of resolving moral issues. (Such a society is often referred to as a pluralistic society, but I believe that misconstrues the problem. There can be many different customs and different, non-conflicting, equally valid traditions, values, and practices in a given society without there necessarily being significant unresolved moral differences between different sub-cultures in the society. A society can be pluralistic in many ways without having to be morally "pluralistic", that is, without having unresolved or unresolvable conflicting moral views.) A monolithic society with strongly accepted homogeneous moral views would be able to control the market through the kind of moral point of impact I attribute to Smith's model of the Invisible Hand. The market would not oppose the culture but would reflect and even reinforce it.  (Return to text.)

20. Conflict has arisen about the "market" for surrogate mothers who give birth to other people's genetic babies for a slight fee. And conflict arises periodically about the morality of some adoption practices that involve money. While there may be non-market related moral problems arising in any kind of baby adoption or transfer to other parents, and while in some cases it may be difficult to distinguish legitimate motives for transferring babies from motives that seem driven by market or monetary concerns, still the point is that we do not legally permit known or obvious cases of market-mentality baby-selling. And whatever black market baby-selling is done could be done in any culture or country; black markets are not peculiar to market economies or to Western culture.  (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 27
Money, Trade, Dividing Work, and Leisure

Theoretically what an economic system could do is to take all the work that needs (and is desirable) to be done, and take all the benefits that result from work and from nature, and divide these up so that everyone contributes to the work in some fair, just, and reasonable way, and so that everyone receives from the results and from nature in some fair, just, and reasonable way. There are ethical issues involved in what counts as fair, just, and reasonable, because not everyone has the same ability, the same opportunity, the same wants and needs, etc.

But there is a practical problem as well because even if a mechanism were established that accomplished the ethical contribution/distribution aspects to everyone's satisfaction at any given time, changes in the labor available or in the benefits available would require changes in the contribution/distribution system. And that is not always easy or feasible, depending on the system, particularly ones which are slowly self-adjusting and ones where money is part of the economic system, and the tool by which trade, particularly distribution of work and benefits, is accomplished. The automobile question is one example. 

The reason money as the medium of trade, as productive as that can generally be, causes a problem in certain cases is that it sometimes masks the alignment between needs/wants and the amount of labor available to meet those needs/wants. Suppose there is an economic system such that people are meeting each others' needs and wants as well as possible, and that sufficient money is available in the hands of everyone to keep this system functioning smoothly. What is important in terms of what products and labor are available is what the people involved can contribute. Money can only serve to facilitate or impair trade; it does not serve to create or reduce potentially available Goods and Services except as it serves to channel or obstruct available labor. If someone in this smoothly functioning economy dies, the amount of money in the system remains the same, but the available labor and the system of trading itself will be altered. Similarly, but opposite, if someone is available to come into the system and contribute to it, but no money is added to it to reflect what could be purchased from them, it may be difficult to incorporate them into the trading system because it will (seem, at least at first, to) take money away from everyone else. The money that is left would be worth more if it ends up being re-distributed in a way that allows the trade circle to continue with the new person added. But that will be difficult for people to recognize at first, if at all, so people in the first case will have more money than they did and will feel wealthier even though their money buys less, and people in the second case will have less money, and feel poorer, even though they actually (could) get more for their money. Or temporary money imbalances can throw the system off unless people are willing to redistribute the money by lending, extending credit, or in some other way giving labor without payment at the time.

If, at some measure of the dollar value of labor, there is in an economy at some time $12billion in money but only $11billion worth of actual available labor and products, then $1billion will be unable to be utilized to buy labor or products of labor (without inflation's first occurring). People collectively will have $1billion they can't really buy anything with. On the other hand, if there is $10billion in money in this economy where there is $11billion worth of actual labor, the equivalent of $1billion in labor will be unutilized (without deflation's first occurring). 

Furthermore, if there is an even match of money and labor/products available, say $11billion, but the money is at some point distributed in such a way that it is not in the hands of some segment of the population, say senior citizens, then that labor which is established and trained to meet the typical needs of senior citizens, rather than the younger population, will be unable to be employed; and the money that is equivalent to its value will not be able to be used to purchase anything (without inflation's first occurring, or without the labor that would have been used to meet the needs/wants of seniors being re-trained or re-established to meet different needs/wants of others). For that money to line up the available labor with the needs of seniors, it would need to be given by the people who have it to the seniors or those who would supply their needs. If other money is instead introduced into the system or if service providers were to work for free or at a reduced rate, then the total amount of money in the system would be more than the amount of labor available for hire, and people who have some of that excess money would mistakenly believe they can buy something with it. But they will not be able to because the products or labor the money represents will not exist. So taxes, charity, gift-giving or some other form of re-distribution of money is necessary when skewing takes place, in order to get the money and needs/labor unskewed, otherwise there will be an imbalance in the system between the amount of total money available and the amount of labor available to do it for that money(1)

Another way that trading in money rather than products masks potential problems is exemplified by the case mentioned in Chapter 3 about the Wal-Mart that opened in a small town, bringing lower prices, which seemed to be good, until it drove so many people out of business that there was insufficient money left in the town to support the Wal-Mart and it closed, "killing the town twice", as it was said. This would have been less likely to happen had labor and products been traded than money, or had the money traded been thought of in terms of trade of labor and products. What was happening in the town when the Wal-Mart opened was that Wal-Mart was trading customers goods for money, not for their labor or the products of their labor (except for the people it employed, of course). So people could buy from Wal-Mart, but few, if any besides employees, could sell anything to Wal-Mart. Actual trade of labor and products therefore was only one-way, and one-way trade is not normally going to be an effective trading system. The Wal-Mart case at the local level is the same in principle as the case of a severe trade imbalance at the national level (see Chapter 17). Wal-Mart was selling to the people in this local economy in the same way that Japan was selling to the United States in the years of severe trade imbalance in that relationship. People bought their goods because they undersold local producers, but they were not buying what local producers had to sell. In a small, local economy that sort of pseudo-trade situation shows up as a social and economic problem sooner, and is more difficult or impossible to solve in a system that cannot become self-contained, self-supporting, and self-sustaining.(2) If the townspeople had been bartering with Wal-Mart or trading actual goods and services instead of money, they would have realized immediately few of them had anything to trade for the goods Wal-Mart was selling. They would have realized before the Wal-Mart was even built that they would have had to sell what they had to offer outside of the town altogether if they were going to receive anything for their labor. Trade within the town would be severely diminished.

Now suppose you have an economy involving 100 people trading with each other, in a way, as above, where everyone is happy with the way benefits and burdens are shared, with the way work and its output are shared. If ten new people move into the community, theoretically one can total up the new amount of benefits and burdens they bring, and the re-distribution could take place in the same proportion and manner it was done before. However difficult that might be to actually incorporate into actual day-to-day trade, it may be more difficult to effect if money has to somehow be re-arranged or re-distributed first. It is, of course, theoretically possible that a system could be devised in which money re-arrangement (through loans, through investment, through interest rates, through manipulation of the money supply, through pricing, etc.) actually guided the labor/benefit redistribution, and made it easier to bring about, but that would have to be demonstrable, not just a matter of faith or appearance.(3)

It would have to work in all cases, not just (appear to) work in some. It could not, for example, work in a Darwinian way, in which only the survivors or beneficiaries were allowed to judge the effectiveness and value of the system. Natural selection (whether in biology or economics) is misnamed by calling it the survival of the fit, for something is fit or not, in the Darwinian sense, only in regard to a particular environment - and if the environment is changed for the worse in some sense, what is fit to survive may not be the best thing to have survive. E.g., if there is all-out nuclear war, it has been said that cockroaches will survive, because they survive almost everything. That will make cockroaches more fit than people, but only in this Darwinian sense, not in just any sense of relative value. Similarly an economic system that "works" for some people in certain ways cannot be judged solely by how well it works for them; it must also be judged by what the costs or losses are to (other) people along the way. One must take into account not only who or what is fit to survive in a system, but how "fit" in some sense the system itself is. You cannot say that person B, who flourishes in system B, is more fit in general than person A who flourished in system A, just because system B superceded system A. There has to be a weighing of the value of the systems themselves. Otherwise a well-organized group of extortionists and bullies can be said to be more fit than people who work hard, are honest, fair, and decent with each other, but who are intimidated by the thugs. Or in an economic system that favors materialism and mass production, personalized service and individual attention may be a "less fit" way of doing business than dispensing services by an assembly line. One current source of frustration with Darwinian economic "fitness" is the electronic menu phone-answering systems, which are, of course, cheaper to operate than paying trained employees to answer the phone, but it is exasperating to be the caller or the potential customer who cannot find or give the information s/he needs in an efficient way, if at all. The most economically fit or viable mechanisms are not necessarily the best or most generally fit mechanisms in senses more meaningful and significant to human beings.

Incorporating Leisure

Incorporating leisure into a dynamic economy is difficult for a number of reasons. First, labor-saving devices tend to be used to save labor only at first. Almost immediately afterward, if not from the beginning altogether, they become used in order to increase productivity, rather than to save time and keep the same volume of work, or, in other words, in order to increase leisure. Photocopy machines when first introduced saved time in making copies; now they save no time and are used to copy everything many times over. Computers at first saved secretaries time in re-typing material; so now much more material is demanded of them. The attitude behind the Fed Ex commercial described in Chapter 8 is prevalent - that if someone finds a way to do his/her work in half the time, s/he ought then to be doing twice the work, not taking time off. So if someone can find a way to do the work of two people, s/he will do it or be required to do it. What that means for a community is that if there is not enough work to go around, it will be distributed in such a way that some people will be fully employed while others are forced to be idle(4) or will be forced to do things in order to make a living that are not otherwise valuable to do.(5)

Second, it is difficult to share work when work is so specialized that it requires extensive training to be able to do it. One cannot just ask a friend, or even in many cases a colleague at work, to simply fill in for him/her while s/he takes some time off. You could not evenly reduce the workload of the members of a finely coordinated surgical team by adding one extra person to it, because that person could not fill in for the surgeon, the nurses, the anaesthetist, and any others necessary for the surgery.

Third, it is difficult to spread work out so that it is shared equally, particularly as changes occur that would theoretically allow work to be reduced. For example, in the above case of adding 10 new workers to an existing economy of 100 people. Those 10 people cannot just step in and do 8 or 10 percent of everyone else's work because division of labor does not generally work that way - even without specialization. There are situations, of course, where if a group of people were all doing the same thing in the same place, such as filling and stacking sandbags to build a levy before a flood, adding a number of people would readily allow the work to be done faster. But if you were to try to add one extra person to a company of 25 workers, just to redistribute the same amount of work among everyone, someone would have to schedule the work so that each person did approximately 4 percent less work. To absorb the Fed Ex commercial guy's free time throughout his company would be a difficult task, even if everyone could do everyone else's jobs as well as the other persons could. It would certainly be difficult to do on a daily basis so that everyone got to go home a few minutes early. It might be able to be done on a weekly or monthly basis where each person received a few hours off every once in a while, or a day off every third month or some such. It would probably be impossible to do it if the company had one plant in New Mexico and another in Rhode Island. Even working around each others' vacation time in a company is often difficult; and many workers feel they have to work so much harder before and after a vacation that taking a vacation is almost not even worth it sometimes. There is a humorous get-well card that says on the front, "Don't worry. While you are in the hospital, we are dividing up your work evenly among us and doing it with our own." The inside of the card reads: "That way everyone gets to go home a half hour early." Even if it were true that everyone were dividing up someone else's leisure on a job, it is unlikely they would be able to divide it evenly very easily. Going in the opposite direction, increasing the amount of labor everyone has to do because of some special project or deadline, it is difficult to spread the work out evenly among everyone involved. Normally a manager would not even try, except perhaps to make sure that excessive burdens do not fall on one or a few people while the additional burdens to others are only slight.

(To Chapter 28)

1. Whether labor is voluntary or paid (and, if paid what the amount is) matters in trying to calculate the amount of money needed in a society to match the amount of potential labor available, even if it is the same labor. Work that is done voluntarily or unpaid (the amount of which is substantial in many societies) is not, and should not be, taken into account in determining what the money supply ought to be. Similarly, different prices for the same (kind of service or product) will need to be accounted for somehow in determining how much money needs to be available for that sort of service. E.g., if two photographers charge very different prices for their work even though their work may be of the same quality, it is not clear how much potentially available photography service there is in money, though it may be quite clear how much there is in terms of how much photography can be done -- particularly if one is talking about something such as wedding photography, since weddings tend to occur on the same days so that if a photographer is booked for one or perhaps two that day, s/he cannot generally photograph another one. A photographer who charges $2500 for a wedding makes perhaps $5000 worth of potential wedding photography available on a given Saturday. One who charges $500 makes only $1000 worth of potential wedding photography available on the same day, if we judged by price alone. Yet they are both making available the same thing in terms of physical product. If housewives or househusbands had to be paid for the work they do as such, presumably a great deal of money would have to be added to the economy to permit that. Yet the amount of work done might be the same either way. When businesses begin to charge for services they formerly provided for free, or when business raise or lower prices, they are changing the amount of money-supply needs in the economy, not the available service supply. Such changes can be a source of monetary difficulties if they become sufficiently substantial.  (Return to text.)


2. In Chapter 17, I point out that it is the customer or buying nation in a continuous international trade imbalance situation that benefits the most, but, as I point out in that chapter, that is only if the customer nation has a way to take into account the depletion of money it is sending, which the selling nation is essentially hoarding. A self-sustainable nation has a potential way of doing that which a local economy does not have, or at least does not have as readily available. (Return to text.)


3. As I am writing this, the U.S. Federal Reserve Board yesterday raised short term interest rates because they believe inflation will otherwise occur. Unemployment is low. However, low unemployment in today's economy is the result of many workers being employed part time or in low level jobs, many with low pay and without benefits, such as health insurance. While they may be spending money on other things that would be in short supply or whose prices would go up because of increased demand (whether necessities such as bread and milk or luxuries such as larger tv's or entertainment sound systems), it is not clear to me that there is a shortage, or could be a shortage of something such as health insurance or retirement benefits. Changing interest rates alone is not going to change the skewing of money away from things such as medical insurance, which many people do not make sufficient money to afford.  (Return to text.)


4. Forced idleness when one is healthy is not the same as leisure because it is demeaning and boring in many cases and because it can mean there is no money being earned if one is not the beneficiary of welfare or charity. When someone expresses appreciation for having work, that generally means they appreciate having the opportunity to earn money from the work or the opportunity to show what they can do, or that they appreciate having something to do rather than being bored. Normally, however, what people call work is not something anyone appreciates having to do, even if they appreciate the results of it. If one works very hard at something one really loves doing for its own sake, one does not usually consider that work, even if that same activity would be considered (unpleasant or laborious) work to most other people.  (Return to text.)


5. By doing "trinket" or trivial work - that is, by selling products and labor that people will buy, not because they need it or even really want it, but because it is there and is bought on impulse or because it is "cute" or saves a little bit of labor, as in paying someone to carry something for you that you could easily carry yourself.  (Return to text.)


Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 28
The Problem Free Markets and Majority-Rule Democracy Have In Common

While democratic government is potentially good at protecting the many from the few, it is not good at protecting the many from themselves or from many others within society. As pointed out in chapter 17, government regulation can often prevent trade among willing beneficiaries when such trade will be harmful to others. But there is a serious problem in which majority rule democracy and free markets have a common failing.

Where there is insufficient demand for private enterprise to produce a Good or Service profitably, a "benefactor" of some sort -a third party with the means to pay for a product or labor for another person- is necessary to create the demand to supply it or provide the funds for its supply. Wealthy patrons, charities and foundations are usually thought of as such benefactors. Government is often such a benefactor in that taxes pay for programs for individuals who could not otherwise afford them. Insurance companies are another kind of benefactor in that they pool resources of individuals who may not need the service (at any given time) in order to provide it for those who do. Essentially they are pooling the inadequate (demand) resources of many in order to provide adequate (demand) resources for a few. Thus hospitals, automobile body shops, and other sorts of enterprises insurance claim payments tend to be spent with, can arise and prosper. Insurance does not work for products and labor that each person who pays a premium would want to use; it is a form of lottery that only is useful when a relatively small portion of those who pay actually need the product or labor they are paying for.

Unfortunately there are many important things that not everyone knows they need or would benefit from and would want if they had that knowledge. Education in various subjects or techniques is often one such area where this happens, because people often do not know enough to realize they would benefit from some particular field of study. But research into disease, particularly diseases that do not effect, or are not likely to effect, large numbers of the population (at any one time), is another field for which there is often not a sufficiently high threshold of demand to cause a supply to arise. Individuals are not even likely to be concerned enough about aging to voluntarily fund research on the process, though aging potentially affects most people (those who do not die young from injury, homicide, or disease), ultimately in ways that prove debilitating and/or fatal. The "arts" (meaning the "higher"(1) arts normally - those for which an appreciation normally has to be cultivated) are another area not in popular demand. Environmental protection and public health are other areas of things which are important but which people don't tend to be concerned enough to purchase as individuals. Deeply analytic news coverage is perhaps another potential Service not in high demand.

But whatever the Good or Service at issue is, democratic government (by majority rule) tends to reinforce the rulings of the market place because the very people who are not willing private consumers will normally see no reason to vote public funds for the same things in which they see no private value. And although a government representative might be willing to spend the public's money on something which will personally benefit him or her that s/he would not pay for out of his or her own pocket (e.g., junkets), the sorts of things I am talking about are not likely to be perceived to be of personal value to legislators any more than they are perceived that way by the general public. The only ameliorating influence is that in some cases legislatures can be educated sufficiently to vote paternalistically on behalf of their constituents against those constituents' wishes, but that is a difficult and risky way to conduct oneself in office.

As markets encompass more and more people, all potential consumers, to which advertising and distribution of products and labor become accessible and affordable, some of the above problem disappears. Mail order selling and its contemporary counterpart, Internet selling, for example can find sufficient demand --a sufficient customer base-- widely scattered throughout the world that no brick and mortar store, which has to rely on customers' living within reach, could begin to expect.

Still, the problem of desirable but undesired products and labor for which there is not a market, even globally, is one for which neither markets nor majority rule democracy have a built-in systematic solution. And the very nature that they have in common -the necessity of critical mass appeal- in fact makes this be a problem for free market economies in majority rule democracies.

(To Chapter 29)

1. The "arts" are considered by many to be "elitist". There are two ways in which the arts might be considered elitist, and unfortunately, one of those ways tends to cast the other, more important way, in a bad light. The ignoble way in which art is elitist is when it is the province of the rich who pay outrageous prices, often for outrageous things that have no real artistic merit, but which have some sort of snob appeal or false glamour pretentiously attached to them. There is enough of this sort of thing that it gives the impression the arts are only for pretentious people who have no real artistic interests or understanding, and who have more money than sense. But art is "elitist" in a different sense -- one that is not ignoble, and that has to do only with rarity of attainment, such as might be said of the same in sports in regard to the best performers being part of an elite group of athletes, or as one might speak of an elite group of scientists -- those with great knowledge in some esoteric and complex field. In other words, though the understanding and appreciation of the arts may be open to all, as long as only a few choose to study them sufficiently to gain it, they are, strictly by being a small percentage of the population, an elite group. Those who argue for making meaningful art and art education available to more people are actually arguing that art does not need to be, and should not be, elite in either sense, and that it is unfortunate that it is.  (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 29

There are a number of points made or implied in separate chapters that belong together now that they have been individually developed. 

The foremost issue is the alignment of the amount and placement of money (in systems trading primarily with money) with where it is needed to do the most good, both morally and economically -- economically from the standpoint of allowing the system to work well in terms of as much as possible "automatically" increasing participation in order to increase both productivity (including, where reasonable, creating greater leisure) and fairness of contribution and distribution, and in order to increase as much and as fairly as possible and reasonable the ratio of benefits to burdens. Because money is an artificial construct meant to facilitate trade, by concentrating labor (in a more or less voluntary manner, rather than by coercion  such as slavery or a draft, etc.) and dispersing the profits accrued from that concentrated labor, it should not be something that impedes trade merely because rules have been set up without a safety mechanism to allow adjustment for when the rules lead to either morally or economically unfortunate and unanticipated states of affairs. 

But there are a number of difficulties in knowing how much money is a reasonable amount to have available, let alone having mechanisms, such as loans, investments, tax redistribution, charity, etc. to have money go to the right places both ethically and to work productively. As I write this, for example, OPEC has lowered production in order, so far successfully, to raise the unit price of crude oil. By doing this they are making oil more expensive without changing what oil does or how it is used. It is not that oil is suddenly more physically valuable because it has been found to have healing powers or some other new use. The countries of OPEC are able, to some extent to determine the price of oil because they are acting as a monopoly in regard to pricing a desirable commodity. Providers of necessities and other highly desirable products and labor can do the same thing by any concerted effort, whether collaborative or not. The price one can get for any product or service is dependent on what people are willing to pay, and that amount is often arbitrary and always subject to change, often arbitrary change. When oil prices first increase as they have done, without a commensurate rise of other prices in the economy, people have to spend a higher proportion of their earnings on oil than they did before the price increase, or they have to enlarge their income by raising prices or by selling more in order not to have a larger proportion of their income go toward the purchase of petroleum products and petroleum-utilizing services. If somehow the economy is able to compensate or absorb the increase in oil prices, that price might be able to be kept even if more oil is supplied, as long as people are able and willing to pay that price. It is not necessarily true that oil prices will decline just because more oil is produced - as long as people are able and willing to buy it at that price, even if that means they have to cut back on purchasing other things. 

If this happens -- more oil's being produced at a higher price-- it affects trade and the economy, but not in the way it seems to. It is not that the overall economy is deprived of money, because all that is happening is that money is going to OPEC countries instead of to where it had been going. OPEC sellers then have more money to spend than they did. If they buy the things citizens of oil importing countries bought, from the same people, what will happen is that oil sellers will have some of the things that oil buyers previously had but may have no more. This will cause a redistribution of products and labor but not a change in the overall amount of products and labor. 

But suppose that OPEC sellers do not buy what others have bought before; suppose they employ people in their own country who otherwise were not employed or not fully employed. Now, people in oil-importing countries will be hit by a double problem: they are paying more of what they make, for oil, and they are not making as much money because they are not selling as many things (assuming, for the moment) that they cannot find new customers and cannot successfully raise their prices. 

At this point, "trade" or business in the OPEC countries will be on the increase, while it will be on the decrease in oil-importing countries. Yet, it seems to me that this is what I call an artificial (though very serious) problem for the oil-importing citizens and a later than necessary boon for the OPEC countries. 

If there were people to be employed in the OPEC countries before the change in crude oil prices and the influx of money, there should have been some way of putting them to work and involving them in the economy then. And if people in the oil-importing countries still want the goods and services of others who are now underemployed, there should be a way for that to work out. If there were more money in both economies, or if money were redistributed in a more optimal way - the OPEC sellers prior to the price hike, and the oil consumers after it - both would function the way they do in "better" times. 

There is a reason for not just adding money to these economies, however, but I do not think the reason, by itself, is a good one. 

The reason is to avoid inflation, but I do not believe inflation is necessarily triggered by adding money to an economy that is not at full capacity; and not even necessarily by adding money to some economic systems that are at full capacity, because it depends, I believe, in which ways they are at full capacity. 

Price inflation of a particular product or kind of labor occurs when the price for that labor or product goes up simply because it can -- simply because the price being charged will not diminish profits below a ceiling with which the seller is comfortable.  If a seller knows that people will buy his product whether it sells for $5 or $10, he can sell it at whichever price he feels most comfortable.  (Contrary to popular opinion, that will not be the higher price for every particular seller.  Many sellers are happy to sell their work for a price they feel does not take advantage of anyone, even if they could sell it for more.  But for purposes of this example, let us assume that if a seller can get more for his product or services, he will then charge more.) 

If the price of labor or product of one specific item or industry increases because something has become more popular rather than because there is more money in the economy, then there will not be general inflation or price rises because the money to pay for the price hikes will come out of cutbacks in other areas, whether cutbacks in saving, investment, or purchases of other things. 

Moreover, if the money that is added to an economy gets soaked up in purchasing this higher priced labor or product, other prices may not rise because there will then not necessarily be excess money in the hands of those who would purchase the things with those prices.  It will depend on what the seller of the successfully price-inflated product does with his additional profits.  If he buys the services of people who are currently doing other things that will not be missed when they are no longer done, it will not exert price pressures on other sectors of the economy.  In any modern economy, many people are underemployed in a sense seldom used -- they are working at something that is neither interesting to them nor particularly necessary or useful to others, but which others are willing to purchase if it is available.  It will not be missed if not available.  It is a successful trade item/labor but not one which is in any way necessary.  So an economy can be at full capacity in terms of what it is now producing, but not be at full capacity in terms of production of necessities or even conveniences or more "important" luxuries. 

If, however, money added to an economy is used simply to "chase" or demand the same products and labor supply, those prices will likely increase without capacities necessarily rising.  For example, suppose that money or employment were to increase in a given society, and that everyone wanted to purchase (more) bread with their new earnings. There are any number of possible outcomes: (1) bread might decrease in price because the unit costs of larger production might decrease, (2) bread might increase in price because there is more demand for it -- whether or not production also increases to meet the demand, (3) bread might stay the same price.  What happens with the excess money available in society will not necessarily increase the price of bread or affect its price in one particular way even if it affects the quantity of bread produced and sold. 

Moreover, if fashions or consumers change so that instead of buying bread, some previously less popular product is purchased with the additional earnings -- say, rice or pasta -- then the price and quantity of bread produced may be unaffected, but efforts that went into producing other things that are less desirable and less desired than rice or pasta will now go into mass producing rice and pasta.  Increases in money in an economy may cause all kinds of shifts in the work people do, without necessarily causing inflation. 

Of course, inflation may result, and the inflation, instead of just soaking up all the new money proprotionally equally, essentially not affecting anyone, may cause harm to some people because there are mechanisms in society that distribute money disproportionately.  E.g., long term contracts may not have inflation indices built into them so that lenders may get back money worth less than they lent, fixed incomes become worth less, etc.  But also, it may be the case that some businesses will not have sufficient demand to be able to raise prices as other businesses raise their prices in ways that soak up a disproportionate amount of the new money available.  For example, when the price of energy increases dramatically, necessary food or medical items and services can pass along cost increases because people will still need to eat and will still pay what they can for medical insurance and services.  However, to do that, they may cut back on auto purchases or on dining out or entertainment.  Some restaurants or movie theaters then may be forced out of business because inflationary pressures are not evenly exerted and are not, in that way merely a proportionally equal across the board rise in prices of everything. 

But it is not necessarily only necessities whose prices might increase with inflation of oil.  It might be the price of luxuries, since there may be an increase of the number of wealthy people at the expense of an even greater increase in the number of people who become poorer.  If the oil producers will buy luxury cars for higher prices, those cars can increase in price, and who will be hurt are the people who can not buy or sell intermediate price cars if they are unable to make up the money they are paying for energy such as oil. 

It seems to me this is one possible explanation of the so-called "stagflation" (combined  inflation with rising unemployment, a combination that seemed to astonish economists) that occurred after the oil price increases of the 1970's.  Those workers whose labor was perceived as less necessary than others became unemployed (or suffered decreased business profitability) as people tightened their budgets when energy and other perceived more necessary labor and products became more expensive.  This then essentially caused there to be relatively more money available in an economic system in which fewer and fewer people were participating.  So those who had money and were still participating in trade ended up having to pay more for the same products and labor than they did before.  This potentially leads to more belt-tightening and more unemployment until external causes or a change in attitude about spending and hiring can bring a reversal and start expanding the economic system -- in terms of the number of participants sharing viably in trade. 

As long as there are people whose services or products are perceived to be unnecessary, their contribution and distribution -- their participation -- in the economy will be at risk and they will probably be the first to suffer in a wave, or anticipated wave, of price rises rippling through an economy.  And these days there generally are great numbers of such people, since if you look through the Yellow Pages or walk through most malls or commercial areas, you will see a great many products and services  attempted to be sold that you and most of your friends could easily do without.  And as with the auto industry question in the first chapter, any economy that does not have a way to distribute money or trade to people whose work is (temporarily or permanently) not necessary, and which does not have a way to distribute leisure to those whose work is necessary -- by employing the unemployed to share the labor that is still needed; that is by re-distributing the perceived and purchased necessary labor -- will suffer economic disruptions that cause personal and social difficulties even though there might be plenty to go around for everyone if there were a mechanism available that could re-distribute labor and leisure in a reasonable, acceptable or desirable, and fair way. 

In line with this, but from a different perspective, some price inflation will result from their being greater participation in the economy and more goods and services available.  In 1950, middle class families had one car, if that, one television if any, no dishwasher, no central air conditioning, one phonograph player and one or perhaps two radios, etc.  Children might have a few toys, but hardly equaling the quantity of decent quality relatively inexpensive or expensive toys available today.   Families in 1950 did not need to make as much money or trade with as many people because there weren't as many things to buy or to feel one needed.  Today, in order to have the things that are all fashionable or desired, families must make more money.  Some of that comes from adding a second income, but part of it comes from charging more for the work one does, if one is able to do that successfully. 

Social, political economic policies seem to have as their ideal purpose encouraging either or both greater productivity and greater participation. The idea is to have more people producing more and then being able to fairly share the burdens and the benefits of their combined efforts and labors. This will happen ideally to decrease each individual's share of the burdens while increasing each individual's share of the benefits, or at least to increase each individual's share of the proportion of benefits to burdens. The issue of how to treat people who do not participate arises as a social issue and as an economic issue as well.  The free market works well socially and economically when there is sufficient employment to go around and when no one is left out or is underemployed in any sense of the word, so that all desired goods and services are provided by everyone for each other voluntarily.  Unfortunately that does not always happen. 

Are We Our Brothers' Keepers?

It seems to me that in some ways we are our brothers' keepers, and in some ways we are not.  The question "Am I my brother's keeper?" is, of course the famous smart-aleck response Cain gave to God in the Bible, when God asked where his brother Abel was.  Cain, of course, had already killed Abel.  The religious implication of the question is "Yes, you are," but this is a particular case, as is the case in the New Testament of the "good Samaritan."  God punishes Cain in the book of Genesis, but the punishment seems more for Cain's having killed Abel than it is for his being a smart-mouth to God when God asks where Abel is, or for his not thinking he needs to be his brother's keeper. 

For example, if Abel had decided to leave the family and start life by himself a thousand miles away, there would have been no reason for Cain to have to try to look out for him or keep up with his whereabouts in case God inquired.  In that time, it would have been almost impossible or would have required Cain to pick up and go with him, leaving his farm and crops. 

In my "Introduction to Ethics" I argue for a principle that includes a criterion for fairness in situations involving looking out for others.  This principle involves only those sorts of cases; it is not a complete principle of obligations in general, and it only forms part of a complete principle of ethical obligation in general: 

It is fair or reasonable for people to have to do things at little risk or cost to themselves that bring great benefit, prevent great harm, or create a much greater balance of benefit over harm, to others. Apart from cases where an agent has some special higher obligation that he has assumed or incurred, as the risk or cost to the agent increases and/or the benefit to others decreases, an agent is less obligated to perform the act. At some point along these scales, the obligation ceases altogether, though the act may be commendable or "saintly" to voluntarily perform (that is, it may be "over and above the call of duty"). At other points, the act may be so unfair to the agent -- may be so self-sacrificing for the agent to perform, even if voluntary, and/or of so little benefit to deserving others, that it would be wrong. (Not every act of sacrifice or martyrdom is all right or acceptable.) 

This principle applies to balancing fairness to oneself and to others in the aggregate, not just in individual cases, so that even if a particular case may seem to fall under it, it will not actually fall under it if it starts to make your total burden, with other people you have helped, be too costly to you.  For example, one day I happened to pass three stranded motorists.  I changed a tire for the first, took the second to a service station, but passsed by the third because I was starting to run late for what I needed to do, and there were plenty of other people around who could help.  It was not that the third person deserved my help any less than the first or second on an individual basis, but trying to help all three would have been burdensome that particular day. 

On this principle, Cain would not have had to keep track of Abel if Abel made that very difficult.  But the principle says that we are our brothers' keeper in those cases where it is not particularly burdensome to watch out for him/her and it does potential good.  Moreover, this principle certainly does not override our obligation not to transgress against the rights of others, such as the right not to be killed for the reason Abel was.  In the story of the good Samaritan, all that was required was that a hurt person lying in one's path not be ignored. It required some first aid and some compassion that was neither that costly nor that time-consuming.  Many people are quite willing to help others they feel innocent or otherwise deserving.  If one way to do that would be to help those who want to have economic opportunities become part of the economic system, then collectively there should be institutions set up that help that happen, and that do it fairly and effectively. 

If this principle is correct, then no economic system obligates participants to help those it cannot help without great cost to themselves, particularly if such help would do the potential beneficiary relatively little good, but it does obligate its participants to try to help those who might greatly benefit with little cost or burden.   Furthermore, it does not override anyone's obligation not to harm others if such harm violates their rights -- rights as explained in the "Introduction to Ethics." 

It has been my contention that some kinds of economic activities unjustly exclude or penalize those outside a system while benefitting those within it.  Such actions are then wrong unless there is some overriding factor that can justify the harm that is done or the rights that are abrograted -- and satisfying the greed or indulging the self-interest alone on the part of those within the system will not generally suffice.  Failure to help others become part of the system in a reasonable way (not in a harmful, unfair, extorted, permanently disadvantaged or wasteful way) or to benefit from it, where the overall cost is not relatively great to those already in the system, is then also wrong.  As people become easier to help or to incorporate within a good system in a fair and reasonable way, so that they can help themselves, the obligation of those already in the system to help them arises or increases.  It seems to me that Marx had the right goal in mind, even if the wrong mechanism -- in those implementations where freedom and decentralization are left out to the point of being detrimental -- when he wanted an economic system that would have as many contributors and beneficiaries as possible such that each contributed according to his gifts and abilities and each received from the mix in as fair a proportion as possible according to everyone's needs being met first where possible and reasonable to do that.  As I wrote at the beginning, the point of economic activity should be to lessen burdens and increase benefits by dividing labor in fair and effective ways and sharing the results, and that, theoretically at least, the more participants there are, the greater the benefits and fewer the burdens there should be for everyone. 

For an economic system or community to meet these obligations, there might need to be a mechanism in addition to relying on the employment needs of individual existing businesses.  Economic development groups of one sort or another might be necessary.  Or there might need to be organizations that can plan and execute sweeping changes that everyone might agree would be good, but that cannot be enacted piecemeal by any individuals or companies.  The example I gave previously was the recognized need for polluting companies to curb their pollution by installing expensive equipment to filter their waste or to convert it to something safe.  But no company could risk doing that on their own and trying to recoup the costs by increasing their prices, if their competitors did not.  So companies acted in concert to ask the government to require them all to make the changes at essentially the same time.  Likewise, institutions may need to use seed money to incubate businesses or to do research that may pay off in the aggragate but not pay off for particular individuals. 

Sometimes whole systems get out of alignment with all the participants' (and non-participants') best interests but there is no model within the system to be able to change it.  For example, it might turn out that some sort of half-day school, half-day apprenticeship program might be more profitable for almost everyone in a community than is requiring longer and longer academic educations before people can be employed.  Colleges might be better served as places where people can attend who want to be there than as places people have to go in order to get any sort of decent employment. Companies might be better off training their own employees instead of relying on schools to do that, and recouping the costs by paying less to apprentices than they would have to in taxes to operate ineffective schools.  Schools might have more motivated students and would not have to serve as many social/parenting functions.  Students could begin making money sooner and not have to begin their careers with huge education debts.  Yet without some sort of coordination outside of any specific college, school, business, etc. this would be an almost impossible change to bring about, even if people wanted to try it or thought it was feasible. 

In a free society, institutions tend to take on a life of their own and a direction of their own, as do then whole industries.  Symbiotic relationships then may develop which everyone can see are not the best way to operate, but which cannot be changed because there is no desirable mechanism to effect change.  There might, for example, be rampant unemployment and unmet needs, but there might not be a way of employing people to meet those needs without start-up capital that a bank or an investor might find too risky to bankroll. 

This does not mean that government or some other institution needs to force a solution on those who do not voluntarily accept it.  It means simply that institutions need to be developed that can elicit and develop support for change and then coordinate it so that transitions are as smooth and beneficial as possible.  It means that the legitimate fears, needs, and interests of those within the system who are getting along just fine without such change can be successfully accommodated. 

None of this is generally easy to do, of course, but any social or economic model that does not take into account either the importance of freedom (in the sense of voluntary, self-motivated actions) or the importance of coordinated efforts in an interdependent technological society, will always have problems caused on the one hand by coercion and bureaucratic inflexibility or on the other hand by lack of planning and lack of coordination and cohesiveness.  That is not only true within a corporation; it is true within a country or within the world, insofar as the world is becoming more and more interdependent. 

And none of this is as important for new, small, isolated economic systems or business enterprises as it is for established, large, interdependent societies with people who are not given opportunities they deserve to have to make the most contribution they can, and where there not being given an opportunity to be a part of the system actually causes them to be harmed.  In a community where business and economics are just starting or where the cooperative division of labor and trade among some members has no real effect on the lives of others, it is not particularly important to help better the lives of those not participating.  But in a society where  economic decisions effect the well-being of even those who are not part of the system, there are obligations to help or safeguard those innocent or deserving people who would be harmed or permanently disadvantaged or left out. 

Investment and Stock Prices and Values

When stock prices tumble headlines tend to be something like "Wall Street Suffers Huge Losses"; when they rise dramatically, "Wall Street Shows Huge Gains".  Moreover when the market falls precipitously, the news media reports that millions or billions of dollars have been lost; they may say that companies have lost millions or billions in capitalization or liquidity.  The following is typical, attributed to the Detroit News: "American investors have seen more than $4 trillion of their personal wealth disappear during the past year because of steadily declining stock markets." I want to examine what this means in terms of actual human value or practical implications.  What is "really" happening -- what does it really mean-- when stock prices rise or fall? 

First of all, stock prices do not necessarily reflect a company's profitability or even its potential profitability. stock had an astronomical price when the company had never made any profit and was losing hundreds of thousands of dollars a year.  There was some reason to believe the stock price was so high, that it was "overvalued" in the sense that the company could not possibly ever generate sufficient profit to justify that price. Then the year the company started to show a decent profit, its stock price fell precipitously.  Perhaps once it operated at a reasonable profit, people saw it was not likely to generate a much greater profit, and the stock prices perhaps dropped to some extent accordingly.  Perhaps they dropped too far, just as they had risen too far in the first place.  To a certain extent, stock speculation, particularly when increasingly more people enter the market as investors, and do so without sufficient information, is tantamount simply to gambling. 

Second, in some cases money losses in the stock market are like any money losses in gambling: money is not lost to the system; it only changes hands, and for every dollar lost by some people, there is a dollar gained by others. The amount of money available is not lost or changed.  Often, for example, you will hear that bonds or gold gained in the market "as investors pulled their money out of the stock market" and invested in bonds or precious metals.  Or you will hear someone say, "I was lucky; I got rid of my stock at just the right time.  I bought it at 20 and sold it at 100 and the day after I sold it, it went down to 35, and is still heading down."  The money lost by the person who bought the stock at 100 was gained by the person who sold it at 100.  Suppose you have a baseball card that you got with a pack of bubble gum and that someday someone offers you $100 for it.  If you sell it then you essentially made $100, and they essentially "lost" $100 but they have the baseball card.  If they do not ever sell it, their $100 is gone for good, but it has not disappeared; you have it, or someone you bought goods or services from has it, or someone they bought from, etc., has it.  If the person who bought the card from you goes to sell it and nobody will offer them more than a dollar for the card, then in some sense they have lost $100 because they wasted it buying something they didn't want, something that though it had value at least equivalent to $100 to them once, has lost that value, and they cannot recoup it.  But the global economy did not lose $100.  It is still circulating somewhere. 

Now if one buys a baseball card or some corporate stock in order to resell it at a profit, then one will lose a serious amount of money if the price of the stock or card plunges right after one has bought it.  But the person who sold the card to you, if he had only bought it at a low price in order to resell it for a profit, made a substantial gain on his investment.  If you do not sell the card and the price plunges, you have not "lost" anything other than that you might have not had to pay as much for it if you had waited to purchase it.  But all the speculative gains and losses of "I wish I had bought/sold something yesterday" or "I wish I had waited until today to buy/sell it" are not reall gains or losses; they are only what you could have made or lost.  It is like watching a roulette wheel land on number 23 and saying you lost millions of dollars because you didn't bet the farm on 23 before the spin.  If you did not bet at all, you did not lose anything.  You didn't win what you could have won, but you also did not lose what you might have lost.  When one does not sell stocks that are overvalued, or that decline to prices that are seriously undervalued, unless one sells the stock after it has gone way down, one has not lost money, but has only lost what one could have made had one sold the stock beforehand, just as one always loses money by not betting on whatever actually ends up winning.  In that sense, everyone loses money all the time because they don't bet on all the winning things they might have.  But we don't see headlines "Billions lost at casinos by people not betting."  Nor do we see headlines that say billions of dollars lost to the economy by gamblers who did bet and lose.  The Las Vegas chamber of commerce probably even brags about how much money is gained by their local economy from gambling losses.  That is what casinos thrive by, the gambling losses of patrons. 

Buying stock in a company is tantamount to working for a company by essentially giving them your labor -- except that what you give them is what you have traded your previous labor for -- money -- so that they can trade the money in for labor or products that they need to operate -- that they need to participate in the trading system, the economy.  You are investing in them because you think they will reward your investment (the fruit of your past labor) with a good return on your money, so that your original labor will now be worth even more to you.  Investing money in a company is essentially like working for them and living off your previous savings because you expect to get back more than you spend.  When one invests in a company in order to make additional money, one picks a company one expects or hopes to be profitable.  The more profitable you expect the company to be, the more you are willing to pay for its stock or the more you might be willing to work for it based on a percent of future earnings rather than for a somewhat higher salary now.  When you are wrong about their profitability, you will have labored for nothing as a worker on a deferred salary plan; and when you are wrong about their profitability, you will lose money that is the fruit of your previous labor, so the part of the labor you did that earned that money will have been wasted or in vain in terms of your benefit, but not in terms of  whom the work you did benefitted.  On the other hand when the company spent your money, or your labor, on things which did not help it profit, whoever received that money benefitted from his/her work, but your company for whom s/he did the work, did not.  When money is lost it is labor that is wasted or lost.  If you lose money, you get nothing for it; essentially getting nothing for the labor that brought you that money in the first place. 

Now suppose you buy stock that goes up in value.  What you have as long as you keep that stock and its price stays high, is the possibility of trading something of value for something else of value, either money or other goods and services that people might want.  You don't actually have anything of value itself.  You have to sell the stock or trade it somehow in order to get money or something else you want -- something tangible or interesting in a worthwhile way to you -- some good or service.  This is true whether you are an investor or whether you are the company with stock you can sell to get more money or goods or services. 

The price of stock simply reflects what people are willing to pay for that, and that willingness may be based on past and current earnings, likely earnings, speculative earnings, or wildly speculative earnings.  It may even be based on some sort of sentimental or "collector's" value.   I bought a token amount of Boston Celtics stock when it went public because my wife was a Celtics fan at the time and she loved telling people that she owned the Boston Celtics or that Larry Bird worked for her.  I gave her the stock as a birthday present.  I did not expect it to be profitable stock and it has not disappointed me in that regard; it so far never was worth much, money-wise, but it has been of great personal value to my wife.  In this regard it is the same as some collector's purchasing a baseball card or some other souvenir for more than any intrinsic or material value it might have, except that since we bought the stock from the Celtics organization, the money went toward the furtherance, in a very token amount, of professional basketball, rather than toward some other enterprise. In some cases, stock prices depend on both potential earnings and sentimental or collector value because the ultimate selling price, and thus the potential profitability, of some services or products is based on how desirable the products or services are to consumers.  If tulips or a new brand of designer jeans can be sold for far more than other flowers or than other jeans, simply because they are more fashionable, then stock prices in those enterprises will reflect earnings potential, but only so long as the products are that desirable to consumers. 

The price of a stock may become inflated if there is more money coming into the market than the market (or certain popular stocks) can ever pay back a decent return.  In those cases, the purchasers of stocks at inflated prices are not getting value for their money, and the people who sell the stock are getting more money than the value of what they are selling.  Buying stock at high prices, expecting commensurately huge dividends,  may increase consumer confidence and spending in various ways, and it may facilitate more trade and thus expand the economy by employing more workers and increasing production, but if that expansion of the economy in general does not somehow lead to increased profits for the companies whose stock prices are high, at some point stock owners are likely to become disenchanted and try to sell or get rid of their stock.  They may have to take a loss to do that.  Those losses may then negatively impact on trade in the economy as the people who took the losses will have less money to spend or less money they may be willing to spend. 

But all the trading of money for stock or stock for money does nothing to change the wealth of the economy unless or until it is translated somehow into increased or decreased trade, and distribution, of labor, leisure, production, or more or fewer Goods and Services.  What changes by the trading of stock is which things in the economy will likely be purchased, because a person who sells stock may buy totally differerent goods and services from (some of) the proceeds of that sale than someone who buys the stock might otherwise have purchased with that money.  But the bottom line with regard to economic improvement is not any increasing  monetary value of the stock market, but increasing the amounts of Goods and Services available (including leisure) to more and more people in a fair way.  When purchasing stock helps that happen, it benefits the economy, but the simple price of a stock, and the mere trading of stock, while potentially reflecting how much good it does the economy, does not necessarily reflect that, because it does not necessarily translate into the distribution of employment and production, let alone the distribution of Goods and Services.  One has to look at not just the bottom line, but what any bottom line means for what will or can be done.  When the price of's stock fell sharply, that may have decreased their ability to raise more money by selling stock, but if they did not need any more money to do what they do, and if they would not have spent the money that they potentially lost, there was no real harm done to their business.  And whatever harm was done to the people who paid too much for the stock was compensated for from a systematic standpoint by the amount of good it did for the people who sold it for more than it was worth. 

The Problem With Paradise

In chapters 3, 6, and 7, I point out in different ways that economic systems are pointless and unnecessary in paradise where everyone has easy access to everything they want.  Division of labor and trade would not be needed.  Problems arise for an economic system in the real world when a partial paradise is reached in some aspects of life by a significant number of people while others still have a great many perceived needs or unfulfilled desires.  The problem involving the hypothetical virtually perfect automobile illustrated the economic chaos that would result.  But a similar problem seems to arise when a market is "saturated" in a particular industry -- by which I mean here that for all intents and purposes everyone, who can afford it, has substantially all they want from the industry and any further sales or service is marginal compared to the period leading up to saturation of something many people might have wanted and purchased. 

The computer industry seems to me to be a good example. In the 1990's many people, businesses, and families decided they needed computers, and then newer model computers as more services were made available for computer users which the older models could not utilize.  As of the time this is written, in 2001, however, although home or small business computers are still improving in speed and gadgetry, the improvements are of only marginal interest or importance to consumers, and computer sales have slowed to the occasional replacement computer or perhaps, in some families, extra computers for each child to do their school work, and to communicate with friends.  The rush to the Internet has also abated, as most people who can afford it, and who have an interest in it, already have it.  So it is not surprising that new Internet companies and tech stocks in general are currently having a difficult time, particularly in those cases where stock prices were overly inflated and where the expectations of huge dividends were overly optimistic.  I believe it will take some new desirable or fashionable application that currrent hardware and infrastructure cannot feasibly provide, to boost sales again into boom times.  Something perhaps like the merging of satellite/cable tv and computers so that there will be the same access to movies and television programming that there currently is to still photographs, simple animations, short, choppy, tiny, video clips, and information in written form. 

Computers and the Internet have been a great boon to many people, but except in certain circumstances, they have not so much provided new services and products to the economy (besides the computer industry itself) as they have shifted the way already established, "old" business is done.  People can go online to get information or purchase things that, to a great extent, they could have got previously by phone or by shopping in a store, or by mail order.   It is faster online in many cases, sometimes more informative, and more convenient and perhaps more efficient for consumers and businesses, but much of it is not new products or services.  It has added jobs in the computer/Internet industry, but perhaps displaced or shifted those jobs from people who offered the services by phone or in stores. 

Where the Internet has added to commerce, besides in the computer/Internet industry itself, is the ability to sell certain kinds of content globally on demand that would be impossible to sell if material had to be printed,  shipped, and stored in sufficient quantities to make unit costs feasible.  For example, I am able to sell and distribute, and in many cases provide for free, various philosophical materials and services on the Internet that I could never afford to have published and shipped in print because the number of people seeking it is too small in any given geographical location. I have sold essays, transmitted over the Internet, to Australia, Singapore, and Iowa, all in the same day.  It would have been financially impossible to have stocked bookstores or libraries with those materials.  No bookstore owner in his right mind would want to stock something highly unlikely to sell in his/her store.  And I am able to help a certain number of students scattered  all over the world understand school material when they write seeking assistance.  I could never afford to advertise or to interact with these students in any way other than something like the Internet. 

With current technology, it seems to me that there is another potential boon for commerce on the Internet, but the software is apparently not widely enough available or sought to make it happen yet.  And business philosophy may not yet be compatible with the idea.  It seems to me that the stage is nearly set for anything that can be transmitted over the Internet to be sold for astoundingly low prices, and thus high volumes, because physical manufacturing, packaging, shipping, and storage would be eliminated, and financial transactions, and automated shipping of the files could all be done online automatically by consumer, in the way that much software sold over the Internet currently is made available. So one could sell information files online, but also music, voice, or other sound recordings, photographs, etc. The idea is that the demand would be so great to purchase, say individual songs, for $1, or two or three songs for $1, that it would make piracy or swapping files freely almost pointless and yet tremendously increase the profits of people who make recordings.  The reason it would make free swapping pointless is that there would be sufficient work and time involved for the purchaser to get a file, that s/he might be disinclined to do even more work just to save a friend one dollar. More music, or other sorts of recordings, would be available to more people, and trade might increase exponentially.  This is, of course, an empirical issue, and some small scale experimentation might need to be done to see whether it would be the boon for commerce and creativity that I think it would be. 

Intangible Values and Material Values

Economics has tended to be about material values and wealth which can be quantified.  It is important however to remember that material value and material wealth is only one kind of value and measure of quality. Financial values should not be considered the only values, and most people do not consider them to be.  An economic system should not be allowed nor encouraged to make numerical or financial considerations the only measures that count.  Intangible values, as I have argued, are often even more important than many tangible ones.  People in America who bemoan the commercialization of society and the displacement of humanitarian or religious values by greed and capitalism at its worst, need to understand how much more people from non-Western or more religious or humanitarian or generally non-materialistic societies have to fear the encroachment of a materialistic, capitalistic mindset that cannot, or typically does not, factor in intangible and/or communitarian, social values in deciding desirable corporate practices.  Individuals make choices all the time between pursuing money at the expense of other things of value -- leisure, time with family or friends, investment versus consumption, satisfying spiritual or religious needs, intellectual needs, artistic endeavor, service to the community or to individuals, fairness, decency, kindness, liberty, etc.  Economic and business practices need to be able to take those same sorts of things into account, or to allow them to be taken into account, in some meaningful and effective way.  They are part of the benefits that an economic system is meant to provide and multiply, not ignore or replace.  Economic systems need to facilitate, or at least allow, good judgment to be exercised in all matters, not try to serve as an automatic mechanical substitute for it. 
(To Chapter 30)

Labor can be concentrated and profits dispersed without money, either by forced or by voluntary concentrations of labor; e.g., slavery, conscription, etc. on the one hand, or by voluntary collections of workers on the other, as in barn-raising, school cleaning, Homes for Habitat, soup kitchens, etc.  The products of concentrated labor, that is, the Goods and Services produced by it (or what those Goods and Services are traded for), may be donated primarily or solely to others (as in Homes for Habitat or in feeding the poor), or they might be divided to some or total extent by those who participate in the labor (as in voluntary musical societies, clubs, churches, various "co-operative" enterprises, etc). 

It has been my contention in this book that money should, and generally does, translate into or reflect something tangible about labor and distribution of the goods and services that labor brings (or can be traded for).  For example, "loan interest" and "dividends" are not just monetary concepts.  In non-monetary terms the concept of interest and dividends for investment are essentially based on the notion that if you allow me to have part of what you have earned, I can use it (or other resources I have that I do not then need to trade for it) to produce enough goods or services that I can not only sustain myself, but have enough left over to return to you more than what you have lent me or invested in me.  Loans and investments are intended to be just two ways of collaborating and sharing labor and the fruits of that labor. The fact they normally involve money is only because money makes the enterprise work more easily than is doing it non-monetary trade.  However, we see samples of it in non-monetary trade when, for example, a neighbor borrows something and returns it along with a gift of something else in return, such as some vegetables s/he has grown or food s/he has made.  (Return to text.

Currently one of the politically conservative mantras of those who want to cut taxes is the supposedly rhetorical question "Who best can decide how to spend your money -- you or the government?"   But since pooled money can often do far more good than distributed money in many cases, that question alone does not solve the tax or no-tax question.  It is not "who decides" but "what is decided" that is important. 

These are only related questions when some particular individual or group is not likely to make good decisions, or when some particular or individual is particularly wise and likely to make the best decisions about what should be done.  An instance of this on the personal level would be to give a teenager a monthly allowance to buy his lunch at school and have some discretionary funds left over -- but then cancelling that allowance, or the lunch part of it, in order to pay the school the lunch money directly, if you have found out that the child has been spending all the allowance money on frivolous things and skipping lunch.  In my community a voluntary fund was allegedly began to collect money for building new schools, but the school administration did not spend it on that and did not actually have a separate fund they promised, and no one outside the administration knew what the money was being spent on, so the contributions were discontinued.  It was disappointing for the contributors, but at least not much money was lost -- certainly not as much as if this had been a tax matter that could not have been remedied as easily. 

Sometimes, however, neither private groups nor the government spends money wisely, so again, it is not who decides how to spend money but on what the money should be spent.  In Birmingham, Alabama, for example, many of the schools are not in good shape but the government was interested in building a domed stadium, while at the same time corporate donors were giving somewhere between 8 and 13 million dollars to finance the refurbishing of an old statue that has served as a landmark and symbol of the past steel industry prominence in the city.  For those interested in improving schools, neither the government nor private business was a good place to turn.  It would have been better for there to be some organ of society that could collect private donations earmarked for specific purposes, such as building schools or hiring teachers, and that would have to use the money for that to the satisfaction of the contributors if they wanted their donations to continue. 

In some cases individuals may want to spend money privately and in some cases they may want to spend it collectively by pooling their resources with others.  It might be best if governments were to have taxes only for what is absolutely necessary, but then also have pay-as-you-go projects and funds that people could support who thought them worthwhile and who wanted government management of the projects.  That way there would be the benefits of individual choice and voluntarily pooled money for coordinated community/regional/national projects, rather than making those two important characteristics be mutually exclusive. 

It is of course, difficult to watch people waste great amounts of money which essentially is a pooled resource that could channel labor into accomplishing a great deal of good.  It is difficult whether one is watching the government or watching wealthy individuals, whether they are wasting it themselves or giving it to others who will waste it.  I would argue that because money, especially a large quantity of money,  represents labor that could be put to use for great benefit, squandering it is wrong.  What constitutes appropriate or inappropriate uses of money is open to discussion, but the consideration needs to be made in good faith.  There will, of course be conflicting values that sometimes come into play -- such as whether passing on large estates to people who do little work is fairer or less fair to those who earned the estate through hard work and who want to bequeath it to profligate children, than is taxing it so that it can be put to use by those who will work.  This is like the question of whether a rich child without talent or a poor child with talent is the more deserving of education or piano lessons.  These are moral issues and social issues that need to be reflectec on and discussed within or beside an economic system, not ones that need to be made automatically or accidentally by a system that replaces good judgment. 

Some people think that awarding grants to individuals or groups, particularly for specific purposes is a good way of solving the who/what issue, and it does help, but still takes the money collected in the first place out of the hands of the citizens or consumerss and awards it to whom the granting body believes will use it best -- which may not be who will use it best.  As I wrote in regard to government, using arts money as seed money for certain kinds of self-perpetuating community-wide art business enterprises might be a far wiser use of the money than simply giving it to artists who know how to write compelling grants for possibly less than compelling one-time projects. 

The Gates foundation gives away one billion dollars a year, some 20 million dollars a week to enterprises they believe worthwhile.  Bill Gates feels he was lucky to have earned his money because he happened to invent and market something at the right time in the right way, and he feels the money should be put to use doing good.  I think he has the right idea about being fortunate and about needing to spend the money to do good. That is an admirable outlook. The question, however, is whether his foundation actually does make the best use of the money, or whether it would be better, and fairer, to let Microsoft customers know how much of their money was being collected for worthy discretionary purposes and let them request how it be spent.  Or would it be better to reduce the prices of Microsoft products by that much in order to let consumers in general have more money to spend as they saw fit -- especially if there were various funds and money-pooling resources available from which they might choose. (Return to text.

I say "perceived need" because trade is really about getting what one wants or believes one needs, not necessarily getting what one actually needs.  When people do not believe they need something, they tend not to trade for it.  When a whole society does not know they might benefit from something, they tend not to produce it.  People tend to count themselves as wealthy when they have everything they want, which often has to do with having everything, or more than, one's neighbors have.  "Rich" people in centuries past were quite content with their lives even though they had almost none of what we in today's  world would consider necessities.  (Return to text.


Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 30 
(an addendum chapter)

The Meaning of Market Prices

This chapter is not about just stock market values, but about an aspect of market prices or values in general. A feature of the stock market, however, will serve as part of the introduction to the issue I want to discuss. In August 2002, as I write this, the stock market has lost some 30% of its value over the last two years. When it was at its peak many of its stocks were said to be overvalued as a result of, in Mr. Greenspan's memorable phrase, "irrational exuberance."

My questions are "where did the money go, if it went anywhere?", "where was the money when the market was at its peak, if it was anywhere?", and "what do these amounts of money mean or represent? Especially, what do they represent in terms of labor and the distribution of benefits and burdens associated with labor?"

Let me give two other related situations before I explain further. A year after getting married, my wife and I moved into a new suburban subdivision because we found a house we liked within our price range and because the suburb was one that seemed well-suited to increase in value because of its location which I thought would be the next popular, high growth area, meaning the homes would increase in price when they were sold. It did increase in value during the ten years we lived there, though not as much as it did ten years after we moved away. But an interesting phenomenon occurred when we went to sell our house.

Some of the home owners had let the cedar exteriors of their homes deteriorate. Of those, most needed cleaning and re-staining, and one or two needed some repair work where some damage had occurred. In the two years preceding our putting our home on the market, there were three or four divorces in the subdivision, which had led to "distress sales" at bargain prices, in most cases in the homes that needed repair or re-staining. The new home owners did the repairs and the re-staining, and the neighborhood once again looked very nice. We had kept our house and yard up very well. We had re-stained the house a few years earlier; we had planted bushes and trees that provided shade and added beauty to the yard.

But when we went to sell, the real estate agents and their clients came around with their market analyses in hand and said we were asking way too much for the house because the previous sales in the neighborhood were for much less. When I pointed out that those were distress sales and that the homes had been somewhat rundown at the time of the sale as well, but now were back in mint condition, as they could clearly see, they did not care. The market determined the value, and in this case, that meant the previous market sale prices determined the price of the next sales as far as they were concerned.

That seemed irrational to me. We held on to our house until we found a buyer interested enough in, and able to see the value of, the house itself to pay much closer to the price we sought than to the previous sales' prices for other homes that were different in quality and that were sold under duress. We found such a buyer.

Second, when I was a child, baseball cards came with bubble gum. The gum and card together cost something like a nickel, and it was a large piece of gum. I think the card was advertised as being free with the gum, though, of course its cost was just figured into the price of the gum in the first place. Now some of those baseball cards are worth hundreds of dollars or more. I do not have mine any more because they were thrown out long ago but if I did have them, they might be worth a lot of money. Where did that amount of money come from? And have I lost it?

Market Value

Market value is, of course, said to be what people are willing to buy and sell for. But that is not quite the whole of the matter because it does not really explain what the monetary values mean or represent in terms of labor, trade, distribution of benefits and burdens, and quality of life. Nor does it say how those mutually acceptable prices are determined. 

Moreover, it is not necessarily what all people are willing to pay, but is only a sign or indication of what people are willing to pay (or sell for) because some person or people actually have bought and sold for that price. The apparent principle is that what one or a few will do -- particularly those who purchased most recently -- others will do also; or to put it another way, if the value or price of something changes, the new price is the value of the item and reflects the price others will pay also. But that is not always the case, particularly as circumstances and/or fashion and popularity change. 

There are even potential circumstances where market prices could not possibly be accurate. If, for some reason, people with means find homes they like in different neighborhoods and purchase them for greater than the previous market value, that will drive up the prices of homes all over town. But if no one else has the means to pay those kinds of prices, the "market value" of the homes right after the rich peoples' purchases will not reflect the actual possible selling prices of homes in all those neighborhoods. So to think of your home as an asset worth the higher amount of money would be a mistake. It would be to count unhatched chickens.

When a stock, such as is worth billions of dollars, but the company had not yet (until this past year) made any profit at all, what does the billions of dollars represent, and where did it come from? And when all that "value" is wiped out by a falling market and a "burst technology bubble", where does the money go, and what does it mean that it disappeared? What, in terms of things of actual value -- labor and products -- does that money mean or represent? Who won or who lost, if anyone? If you bought stock for $30,000 and it shot up to $130,000 on "irrational exuberance" and then went down to $90,000, how much, and what, have you gained or lost? Especially if you do not sell the stock? And what is the value of the company? Or what does it even mean to talk about the value of a company when its stock is going up and down based on speculation?

"Use" Value vs Investment Value

First, it seems that many things, such as stocks and homes or other things which are bought and which can be sold at a much later time because they are not perishable or consumable, have in a sense at least two different values: they have the value of what me might call their use, and they also have their perceived investment value. What I mean by "use" value is the value one would be willing to pay for something, say, if s/he were going to keep it, so that re-sale value would not even be a factor. Suppose, for example, I find a home I like at a price that seems reasonable to me for the style, quality, location, etc. Suppose I just want that home to live in until I die, and that I am not buying it for any sort of investment purposes. I may not even care whether the market value of the home goes up or down (as long as it does not attract riffraff for neighbors, of course) because I am not going to sell it. As long as the people in the neighborhood are decent people and take care of their property, etc. I will be content, regardless of who they are.

That is a very different case from that of someone who is "investing" in a home and hopes to make a lot of money when he sells it. While the "use" value will be of some consideration if he is going to be living in the home for a while, it is not the only consideration. Suppose that he would pay $100,000 for the home if he were going to be living there forever. He would not pay more for it because he does not feel it is worth any more than that to him. But since he is not buying it in order to live in it forever; he is buying it to sell it when he can make a desirable profit, he might be induced to pay far more for it, say $125,000, because he thinks he can make a lot more than that when he sells it in a year or two. The price he is willing to pay is now influenced, and might be substantially influenced, by what he thinks will be the future market price of the home -- a future price that may or may not actually come to be. Future prices are typically speculative. (But, of course, the decency of the people who will be your future neighbors is also somewhat speculative, so buying a house to live in forever has some elements of risk as well. In some cases neighborhood "covenants" try to reduce or minimize this risk.)

That future price will depend on supply and demand, but it will also depend on fashion because there might be a great many homes for sale in a city, but the homes that are more popular at the time, for whatever reason, will more likely sell for more even though there is an oversupply of homes for sale in general. The issue in supply and demand is not just how many different objects of a certain sort there are in proportion to the number of people who want them; it is also about the relative popularity/desirability of the different objects within that sort. If there are more homes for sale than buyers seeking them, the market for many of those homes may actually increase their price if many of the other homes are not of a popular type. For example, split level homes were popular at one time, but as of this writing, they are not popular at all. So a plethora of split level homes for sale in a community will not likely drive down the prices of the homes which are in vogue at the time. It is the available supply of the fashionable homes that will determine their market value, not the available general supply of housing in the area.

Notice that fluctuations in price caused by changes in popularity of style or location, are not fluctuations caused by inflation, since it is not all home prices that are going up, nor the price of all goods and services. The fluctuations in price due to changes in popularity is specific to just those things which are moving in or out of fashion. Antiques versus replicas are a particularly good example in that an antique may often have a much higher (market) price than a replica, even though the replica is newer and perhaps even better in many ways, and even though there might be a plentiful supply of replicas available which are in all "practical", tangible, or quality aspects the same as the antique.

Popularity or fashion makes items worth more simply because people are willing to pay more for it because they desire it more, and the price goes up either because of this or because of scarcity where demand exceeds supply. But not all high prices are due to scarcity. As perhaps with antiques, many are due to a prestige or psychological value factor, rather than because of the qualities of the product or service itself. If a celebrity, for example, is seen buying some item, the demand for that item might greatly increase, and its price may as well, but it will not be because the item itself has improved in some way or because it is scarce. The price may go up simply because sellers know people are willing to pay more of their income to purchase it. So something can change in monetary value without changing in quality and without becoming scarce.

Price is also a sign of the portion of the individual's or the society's whole "pie"(total profits and benefits from the economic system and work) at which a given kind of labor is valued by others -- the labor that provides the particular service or product. People will generally give up more of their own labor or their own share of benefits in a society (represented by how much money they are willing to pay), if they have to, for something they really want or think they need than they will for something they don't desire that much or do not think they need. Such valuations can be quite irrational as when people will pay more for clothes or cell phones than they will for their children's education or when collectively we pay more for plane tickets than for the things that might make plane travel safer. In The Affluent Society and sprinkled throughout most of his other writings John Kenneth Galbraith points out, often wryly, many of our apparently more irrational economic tendencies. Some of them, such as the clothes versus education, are just irrational choices, but some of them, such as paying more to athletes or to cosmetic surgeons than to teachers, nurses, medical researchers, or public health doctors, occur because of the formal systematic nature of a given economic system rather than because anyone makes arguably poor choices about what to purchase. (See chapter 13, "Different Earnings" for a more complete explanation of this.)

If we return to stock prices and home prices, the price other people get for their sale will now affect the price or value of your property or holdings, whether you are selling or not, and whether anyone wants to buy your property or not. If no one else is willing to pay what someone else paid for the Jones home, your market value is only ostensibly that last price paid for your neighbors house and it is only that price until someone is forced to sell at a lower price, in which case your market value will decrease even though you have done nothing to improve your home in the first case or to let it fall into disrepair in the second. This not only seems to be something of a bizarre situation but it is not clear on the surface of it what these different money values mean as they rise or fall -- mean in terms of how much, and which, labor and goods, are produced and distributed. This seems particularly problematic when the prices paid for something are not only based on current supply and demand, but on speculation about future supply, demand, and popularity. What does such speculation do in terms of the production and distribution of goods and services in a society? And where "is" the money that such speculation causes goods to have as their price or value?

Value Based on Business Profit vs Value Based on Expected Resale Profit

Stock values in a given stock trade transaction may be determined or influenced by a number of different things, that fall into two broad categories, though there is, in some cases, some overlap possible: value based on business profit (which is for the most part akin to what I called value based on "use" above, and value based on expected resale profit). 

The typical valuation of business profit is based on current or projected ratio of price to earnings, the p/e ratio, whereby one judges weather one is going to get, or is likely to get, a sufficient return on one's investment by comparing one's share of the profits from dividends with the cost of those shares. Projected future earnings may be more important than current earnings in cases where companies are laying groundwork for significantly increased future sales by developing new processes or capabilities for manufacturing, distribution, advertising, etc. or are developing new products that are expected to be in demand.

Value based on expected resale profit is of at least two sorts: resale of the stock at a higher price later, or resale of (part of) the company or assets of the company, if one is buying controlling ownership of the company and can dispose of it (or if one is able to persuade sufficient owners to do that). In this case one is trying to make a profit on sale of the company or its stock, rather than on profits from the work the company does.

In some cases, of course, the current and/or projected profitability of the company influences its stock price, but there are general market forces that can sometimes influence stock values that have nothing to do with the company's profits. An influential "tip" or rumor may drive a company's value up or down; a large influx of investor money into the market in general may drive up the prices of many different stocks as the demand for stock increases. Oppositely, of course, investor panic in a bear market, or the appearance of a bear market, may drive all stock prices down, regardless of company profitability.

But stock values of given trade transactions also then set the price of the stock until further trades occur to change it. And the latest posted sales price will often influence, whether rationally or not, the next sale price. Insofar as buyers simply follow well-publicized tips or trends, a stock price may rise or fall by a kind of herd mentality rather than by anyone's trying to be rational about p/e ratios, either current or future. And insofar as buyers see market prices pretty much inflating or deflating across the board because of influx of new, bandwagon money in a bull market or the fearful exodus of money in a bear market, stock values will be primarily influenced by speculations on future price valuations of the stock. Such influence is only rational to the extent one can reasonably predict the direction of the market in general.

If we make the distinction between investment in a company's profitability based on its work on the one hand, and speculative purchase of its stock based on its future re-sale price because of general market forces, then there are two different kinds of risks involved, though they are related in those cases where either exceeding or not meeting projected earnings affects the stock price more from image than from a realistic examination of its likely sales profitability; and they are related in those cases, where for no particular reason, a particular earnings announcement suddenly becomes influentially important to people who were previously not concerned about it -- people who suddenly begin to think that this particular company's stock prices may be somehow missed by the tide of general market forces. 

If one invests in a widget company because one thinks they will sell a lot of widgets and make great profits, in either the short or long term, one has to be concerned essentially with the market for this company's widgets. Will there be competition that undercuts the price? Will there be something invented that renders widgets obsolete? Will the economy in general make people unable to afford widgets or less willing to spend money for them? Will there be distribution problems or price increases that might cut into profits? 

But if one invests in the widget company for its speculated re-sale value because of general market forces, or because one wants merely to cannibalize the assets of the company, one may not care much about the sale of widgets at all, except insofar as they affect the stock price, if they do.

Furthermore, diversification within the stock market, by owning stock in different companies or different industries, will spread out the risk of loss due to failed business profitability of individual companies or industries. But it will not spread out risk of across the board (bear) market decline due to general economic disaster (such as recession or depression) or to general market forces.

Answers to the Questions

Market prices are thus only a guideline or an approximation to what price stock or other things might be able to be bought or sold at the time. And this might apply only to the initial buyers or sellers at a given time; others might be willing to pay more or not be willing or able to pay as much. Market prices are not necessarily then the amount of money for which all or much of the items or stock could be sold or purchased. In part, that is why those trying to purchase a large amount of stock or property in a given area will try to do it quietly so as not to drive up the cost by showing there is a large demand. And it is why those wanting to sell a large amount of stock or property might try to do it quietly also in order not to drive down the cost by showing a large supply to be available.

Until a company sells its stock or until an individual or institution sells stock or other commodities, they do not have the money or the labor money represents in their possession. And insofar as markets are volatile --with commodities subject to rapid and serious change in value-- it is risky to bank on the market value as being the monetary value one actually possesses. 

But changes in value or price are not peculiar to stocks or public investment type of ownership. It is true of even private ownership of any business in an age where technology advances so rapidly that it can render a thriving company obsolete. The standard economic example, of course, is the proverbial buggy whip manufacturers at the turn of the 20th century. In our current era, the digital age was touted to reduce paper usage and thus the demand for paper, though it may not have done that (yet), or at least not completely, since many people tend to save and print hard copies for safety purposes and for distribution at meetings and for easy access away from the computer, etc. It may seriously reduce, in the next ten years, the need for film or processing labs as digital cameras become more popular and more competitively priced. 

But competition and obsolescence are not the only phenomena that make a company become worthless. As we have seen recently, accounting scandals can reduce a company's value to virtually nothing overnight. As could fire or flooding, theft, mismanagement, embezzlement, low cost competition from overseas, disease in a food product, loss of a huge lawsuit, or any other sort of phenomenon that renders a company powerless to make a sufficient profit from the product or service it has to offer.

Not only is there rapid technological change, but in some cases there is rapid innovation of financing and investment vehicles, some of which, such as some "junk" bonds, will fail, and some of which, such as universal life insurance may not hold their value or be what customers expected. So financial or even legal and accepted accounting practices may be operating on unsustainable principles, not unlike pyramid schemes or other practices that turn out to be built upon a house of cards, even though they may not have seemed that way at the time they were created.

Particularly when market prices, for whatever reason, are inflated past any means of everyone's cashing in at that price or when they are inflated on the basis of p/e expectations that will someday obviously be impossible to meet, the value of that market cannot be what the market prices would seem to indicate. And when the prices are "corrected" or take the likely downward fall, there will be two different kinds of losses, one of which will be real, and one of which will be only apparent. 

If market prices fall below what you paid for the stock and if you sell that stock at the lower price, then you will have lost the value of the labor you used to earn the money to buy that stock (or you will have lost the value of future labor if you bought the stock by taking out a loan you have to repay out of future earnings). It will be the same as if you spent your labor building something or creating something no one else wants or will spend money on. Apart from the joy of creativity of labor, if there was such, you will have essentially labored for nothing in regard to the labor value of the loss you sustained. This is not totally dissimilar from what you lose when there is inflation that devalues your savings or fixed income in a way that makes your previous labor worth less in return for the purchase of other people's labor in trade.

But if market prices first go up and then go back down to what you originally paid (or higher), you have not lost anything but the possible opportunity to have traded the stock for money while you could still find someone willing to buy it at that price. Had you sold it at the higher price, you would have gained other people's labor essentially for far less labor than you were "trading for" (assuming we allow for inflationary rises in labor costs). You would have gained "free labor". You essentially would have turned your previous labor into money, then turned that money into stock, and then turned the stock bac