Self-interest or greed?

Apr 12, 2009 Features / Columnists, Ravi Dev

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The great US ex-slave Frederick Douglass once observed pithily that crops can never be produced without first breaking apart the earth nor can the life-giving rains come without thunder and lightning. He was reminding us that very few, if any; improvements in the collective human condition ever arrive without breakdowns, upheavals and struggle.

A few centuries ago the west stumbled on a new way of organising production – dubbed “Capitalism” – that delivered undreamed of wealth and improvements in living conditions for some. But unfortunately, at the same time, debilitating by-products such as the exploitation of others and the ravaging of both the social and physical environments were unleashed.
Its early grand chronicler Adam Smith described capitalism’s central feature, the profit motive that fuels the supposedly impersonal “market”, in 1776 as follows: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

Over the years, it appears that there has been a confusion over Smith’s usage of the term “self-interest” as the “invisible hand” that would guide the market to deliver the “goods” that society needs has contributed greatly to the debilitations that some unfortunately see as inevitable by-products of capitalism.
Twenty-seven years before he wrote his magnum opus, Smith had produced “The Theory of Moral Sentiments” in which he clearly defined self-interest not as selfishness or greed, as some would have it, but as an innate psychological need to win favour with other members of our society. When he revised the latter book after the 0Wealth of Nations had been published, it is important to note that he did not alter his original formulation of what he thought was “self-interest”: moral sentiments and self interest are coterminous.

It is a subtle point that bears development at this time when the excesses of capitalism has once again brought the world to the brink of a meltdown that could plunge billions into poverty. All of us are innately pushed to “better” ourselves but this is ambition not greed. As I have said before, greed in the uncontrolled, unmediated primeval id; to be human means to control its untrammelled self-centred demands by the ego and super ego – developed and nurtured by and within society. Untempered greed will bring down the whole edifice – as we are witnessing once again – destroying even the “masters of the universe” that rise up in every age believing that they can “beat the system”. Greed must be sublimated into “self-interest” of the Adam Smith formulation.

But we cannot ignore the reality that somehow our methods of socialisation keep on throwing up individuals who are only driven by their id and greed. As one commentator Madison noted, not long after Smith, in an analogous context (politics): “If men were angels, we would not need governments.” In addition to the demons of the id, we recognise also that none of the institutions that we design around our values will ever work perfectly (hence imperfect socialisations to begin with) so we create macro-institutions to deal with these exigencies. And so in matters economic, from early in the day markets have been regulated so as to mitigate the inevitable excesses precipitated by greed and “imperfect markets”.

Part of the problem is that there has been a stubborn insistence in some quarters that Adam Smith’s “invisible hand” meant “no hand” in the workings of the much-abused term, “free markets”. But they speak from both sides of their mouths. Take, for instance, the creation and issuance of money, which is regarded as the sine qua non for the creation of markets in the modern sense of the term. These have been regulated, by definition, from the earliest days, by the institutions that issued them in the first place and later by governments. One can’t very well have everyone creating money and expect markets to function. The problem is that those who ritually invoke the ethereal “free market” do so only when the regulation in question hinders their efforts to make excess profits over what other regulations allow them to make in the first place.

Take banking, for instance. Government regulations the world over allow banks to create money out of thin air by a multiple over and above the amount that is deposited. Thus they make money, coming and going – once by paying lower interests to depositors than borrowers (double digit figures in Guyana) and then by lending the excess money created through the magic of regulation. Yet these bankers complained when they were prohibited from investing depositors’ money in speculative vehicles and then had the regulations repealed.
After making trillions of dollars of profits, which the bank operators pocketed, when their greed-fuelled speculative bubbles inevitably collapsed they now expect to be bailed out at the tax-payers’ expense. In a perfect demonstration of the workings of the id-greed imperative, bankers expect profits to be privatised but losses socialised.

Karl Marx’s early critique of Capitalism (“Das Kapital” 1867) was remarkable for its prescience in highlighting several of its inherent contradictions but the attempts to institutionalise his insights failed miserably in our own lifetime. It would appear that, ironically, Marx was too idealistic about man and his greed. To paraphrase Churchill’s aphorism about democracy, capitalism is evidently the worst type of economic system – excepting for all others that have been tried and failed. We cannot give up on socialising ourselves into becoming more sensitive and responsive to the overall societal good – if for nothing else that society is simply a collection of us, the individuals. But in the meantime we have to get back to regulating the markets that have been subverted once again so that we can ensure some accountability.
And then again, maybe the two imperatives are not unrelated. (To be continued)

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