The two faces of capitalism

Why you don't need to be selfish to believe in capitalism.

I wrote this article a couple of months ago but forgot to publish it. I have put it up now because having gone to the effort of writing it, it seemed a shame to let it go to waste. This is why some of it may seem a bit dated.

People who read this blog regularly will know that I do not have a high opinion of Naomi Klein. Her work rests on dubious assumptions and baseless attacks. Her latest article for the Guardian does nothing to change that.

In a previous blog on Miss Klein’s work, I attacked her claim that Milton Friedman was a fundamentalist by saying: “Market fundamentalists do exist but they tend to be marginal figures like Murray Rothbard and Ayn Rand rather than the architects of Machiavellian conspiracies on a global scale.” Little did I know that Klein, in fact considers Rand to be an influential thinker whose work has “liberate[d] entrepreneurs to pursue their narrowest advantage while claiming global altruistic motives - not so much an economic philosophy as an elaborate, retroactive rationale.”

Rand is certainly an extraordinary individual. A Russian immigrant to the United States who went on to become a hugely successful novelist and screenwriter, she also created her own political and ethical system with a band of disciples committed to advancing it. According to Rand morality is an illusion and truly great individuals act solely in their own interests without giving thought to the impact of their impact on others. If Rand were indeed typical of free marketers then capitalism would indeed be a dreadful creed. She is anything but. Rand is to capitalism what Osama Bin Laden is to Islam. Her ideas are extreme, intolerant and belong solely to a bizarre fringe. Klein pins her argument for the importance of Rand on her influence of Rand on the young Alan Greenspan. The problem is that he is (to my knowledge) the only policy maker of any note, who could be considered a Randian and even in his case the actual difference that Rand’s ideas have made is debatable. As Fed chair, he seemed less like a market zealot and more of a latter day Keynesian. Rand must have been turning in her grave as time and time again, Greenspan bailed out the US economy with cheap money.

Klein suggests that Rand is merely reproducing the ideas of Adam Smith. The reality is very different. The difference between these two thinkers shows just how little a market economy has to do with amorality. Both Smith and Rand explore how humanity can benefit from the actions of self interest individuals but Rand takes this principal much further. Smith is concerned principally with commerce and industry (his great book is called ‘the wealth of nations’), while Rand makes no effort to set a limit on self interest. Smith’s ‘Theory of moral sentiments’ is a hymn to the value of charity. By contrast, characters in Rand’s books that show generosity are scorned. To see the value of wealth accumulation as a driver of wealth creation does not require you to give up on the idea that in much of life concern for others is a great and noble virtue.

One thing that Klein does not seem to get is that there is a distinction between self-interest and selfishness. It is quite possible to do something that makes you better off but which does no one else any harm (and in fact may be benefiting them). To my way of thinking, this is not selfishness because that requires you to be causing harm to others. This is no semantic difference, it is key to how operates in practice. While self-interest is rewarded, there are laws to prevent selfish behaviour such as lying, stealing, bribery, breaking contracts and using violence. For the market to work there must be legally enforceable limits to the harm people can do to each others. Without them you will have anarchy (or Yeltsin’s Russia as it is otherwise known). This idea was not alien to Smith who imbibed against the power of monopolies, while Rand would doubtless have seen the competition commission as an undue restriction on the strong for the benefit of the weak.

At the root of the different viewpoints of Smith and Rand are fundamentally different views of morality itself. Rand’s philosophy simply turns the world on its head and makes virtue into a vice. Smith is attempting something much more complicated, to set how to create a good society composed of people who are not necessarily good. If we look closely at his famous saying that ‘it is not for the benefit of society that ‘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.’ We see not a celebration of self interest but a statement of how Smith believed things were. Smith might wish us to be entirely virtuous but he knows we’re not. He understood that to try to build a socialist utopia on such shaky foundations was futile and we would be better off trying to turn mans vices into virtues through the market.

To be a free marketeer a la Adam Smith is miles away from being a cold hearted, Randian sociopath. Trying to win an argument by claiming that your opponents are greedy rather than misguided is low and even Naomi Klein should know better.