Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 24
Freedom

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 "fairness...is difficult, if not impossible, to define precisely." "Fairness...is 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)     Endnote 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 Ramifications 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. Amazon.com 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 Amazon.com'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 Amazon.com 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