In this—what I can only hope for Walter Williams’s sake is a video from the 1970s (otherwise it’s time for some new glasses)—the laissez faire economist makes the case that greed is good. He argues that greed, channeled through the free market, provides outcomes that would be unprovided in a system driven by alturism. Williams gives the example of ranchers in Texas struggling to round up missing herds in harsh weather to provide beef to consumers in New York—consumers that the Texans may very well hate. It is greed, not alturism or kindness, that motivates such commitment to providing beef, and thus enriches the lives of both the ranchers (with a paycheck) and New Yorkers who can now eat beef.
I have two thoughts on the video. The first is that, while Williams certainly understands that economics is not about money, here he places too much emphasis on financial gains. It’s certainly true, IMHO, that many people do not think hard enough about what outcomes would materialize in a non greed-driven system, to adopt Williams’s terminology. But more pervasive is the misunderstanding of what money is and how it is used. I don’t mean the money is store of value, unit of account, medium of exchange definition. Well, maybe I do, but I don’t like to put it in those terms. Fundamentally, money is not wealth. That is to say, if I have a stack of fiber-based paper with dead presidents on them, I can’t do much with it. I can’t eat it. I can’t burn it (very well). It won’t keep me warm. It isn’t much fun to play with. So a litteral stack of money is pretty useless to me. But what I can buy with it is extremely valuable.
And that gets me to my second point. After we realize we shouldn’t couch things in terms of “money,” but in terms of the goods and services we can purchase—in other words how we use the money is what’s really important—we approach what I think is one of the most misunderstood points in economics (for the layperson). The things that we buy with the money help to accomplish the very goals that those who eschew a money-based system advocate. Importantly, we spend money primarily on our friends and family: we go on trips with them, we buy cars so we can get to them (and drive them around after we do), we go to baseball games with them, we buy phones to talk to them, we buy new microwaves so we can spend less time cooking and more time having fun with them, we buy food to put in that microwave to eat with them, we buy books to read to them and with them, the list goes on. We are social creatures and as far as I can tell most of our money is spent on enriching the social connections that are important to us. And in the modern world, many of these are labor and time saving devices that allow us to spend more time with our family and friends, not less as is implied by a the-pursuit-of-money-is-evil mentality. Indeed, data shows that leisure time across the world is increasing, not decreasing.
(The above point is one reason why I think those who promote non-GDP alternatives fundamentally misunderstand the importance of GDP and what it really measures. This is a popular view among college-educated leftists who like to think they are outsmarting economists without really understanding much about economics. Ironically, those like Amartya Sen and Martha Nussbaum, who innovated the Capabilities Approach, while moving beyond the GDP measure, openly recognize its importance. But this is a post for another day).
Sure, some money is spent on ourselves too. A lot even. And some (a lot?) is also spent on frivolities, if we want to term a certain type of purchase as such. A $300 dress when an $80 dress would have done, for instance. Further, in the later case the extra $220 could have been given to a charity. There are problems with this type of reasoning though, which I want to avoid at the moment for simplicity. I simply want to point out that there is a difference in the social value of an $80 dress and a $300 dress, even if they are the same in every respect except price. Note that I’m not implying that one or the other has more social value, the specifics of that value depend on the social context of the purchaser. For some, frugality is part of the way they construct their identity and connect socially with others. “I only paid $80 for this dress” is part of a different social experience, and indeed creates a different social trajectory, than, “this dress cost me $300.”
This is all simply to say that when we pronounce that people act in their self-interest (or toward “greedy” ends), what we should be saying is that people act in their social self-interest, since, as I’ve argued here, money is a means to connect socially, either directly by allowing us to spend more time and energy on our family and friends (as in the first examples), or by helping to construct an identity that is used toward social ends (such as the case with fashion).
Further, constructing self-interest in this way integrates nicely with non-monetary self-interest, which has been increasingly studied in economics and is obvious in such activities as editing Wikipedia entries. Here, there is clearly no monetary benefit, yet people spend hundreds of hours doing it. It is a special type of hobby that has net positive externalities in a wide-reaching way that most hobbies don’t. Using a social self-interest framework can also better account for human motivations that are part biological and part environmental like competitiveness. Certainly, some of the richest people in the world who seek to “collect” wealth, if you will, do so not for reasons that can be described by any sort of traditional notion of self-interest. More likely, they do so for reasons of competitive drive or similarly poorly understood rationales. These motivations might also include orientations toward constructing narrative heroic legacies, probably important for presidents and senators, or the need to create and share new inventions in order to intentionally fuel creative destruction, perhaps what was at the core of Steve Jobs’s drive toward transformative design.
Finally, viewing things socially also comports more closely with what we know from survey data. Namely, that people are not mainly motivated by money in the workplace, for example. Instead satisfaction rests on factors such as whether they have a best friend, a good manager, and have their hard work recognized. So while Williams articulates some important points about what he calls “greed,” he leaves left unexplained the finer points of what is a more fundamental, and more complex argument.
In recent years Subjective Utility Theory (SEU Theory)—the “cold” version of self-interest, if you will—has been buttressed by advances in behavioral economics that attempt to add “warmth” and “depth” to the economic understanding of decision making and explore the limits of human rationality. The field has elucidated concepts such as “framing,” in which people’s decision making is affected by the surrounding environmental context. For example, if a person, say, watches a sad movie, they will subsequently make different decisions than if they had watched a childhood favorite (at least until the effect “wears off”). So-called “crowding out” of intrinsic motivation by substituting monetary payment is another finding of the field. But economics has a long way to go to explain how such effects are constructed both socially and biologically. Framing and crowding out work differently for different people so while economics can now explain that certain phenomenon take place outside of the standard neo-classical framework, it still has a long way to go in explaining why and accounting for the variation among communities and individuals.
I used “cold,” “warmth,” and “depth” in quotations in the paragraph above because it is clear that economics and strict models of SEU Theory, in which humans are utility maximizing agents, have alienated much of the general public because they present a robotic version of human affairs that differs greatly from the way the average person lives. And so the theories are cold in the sense that they are absent of emotion and complexity, while modern economics has indeed tried to add complexity and depth to models of human choice and validate the importance of emotion, context, and the limits of human knowledge. So Williams’s use of the word “greed” matters because language matters, especially to the average person who poorly understands the tenets of classical economics much less its modern incarnations and addendums. Once we say “greed” is good, or people only live to maximize their “self-interest” we’ve turned a lot of people off to economics, no matter how hard we try to redefine those terms in clever ways or convince people that what we’re saying is actually true using praxeology as a philosophical basis of human action. That’s why I think it’s important to talk about self-interest in social terms and make clear that economic well being is, in fact, simply a channel to social well-being. What “well-being” means in this context is still to be explored, and I suppose whether self-interest is socially motivated at all remains an empirical question. But I think it is a question that needs exploration and one that fields such as neuroeconomics are only beginning to address.
That is all.