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 back into more money than you paid for it, and that money would in turn get you more labor than you would have received in trade for your labor at the time. What you would gain if you sold stock for a price higher than what you paid for it (assuming we factor in inflationary changes) is the ability to get "free labor" -- that is labor worth more than the labor you expended to earn the money to buy the stock in the first place. The buyer is thus trading his labor for less of your labor at the time, but he either expects or hopes to recoup the difference and more, or he feels that what you have purchased with your labor is now worth more than it was when you purchased it, or it is worth more to him, at least. It is as if you had purchased some item he now wants more, in a sense, than you did or more at least than you do now. He is willing to pay more for it, give up more labor for it than you did. But if people hold on to stock, or any commodity, while its price falls to the original levels or to above the original levels, from some level it rose to after the purchase, the money people thought they had at the higher prices, or thought they would have when they sold their stock at the higher prices -- the money the higher prices gave to the value of their held stock based on other people's trading -- that money is gone, or to be more accurate it never existed, and it represents no labor. It does not exist but it does not disappear off the face of the earth, because it was never there to begin with. It is no different than finding something you place a sales value of $150 on and then not being able to sell it. You didn't lose the $150; there never was any $150, nor any $150 worth of labor, that price represented. If you had bought the thing for $5 and put a $150 resale price on it, and failed to sell it, you are out $5, not $145. Even if Jones sells an identical thing for $150, and you cannot, you are not out $145 worth of labor. Jones is just fortunate that he gained $150 worth of someone else's labor by essentially doing no labor (or minimal labor involved in making both trades -- his purchase and his sale). What you lost was not labor, but the opportunity to gain other people's labor. In particular you lost the opportunity to do what Jones did, either along with him or perhaps instead of him, by finding his customer before he did and completing the deal he did. You missed out on his deal or a deal just like it. If you invest X amount of money in anything, and other people's trading that commodity drives the price up, you have only accrued the possibility of making your labor worth more than it otherwise would have been. That is, if you invested X amount of savings into something that becomes worth X plus Y amount of money, then if you sell at that price and reap Y amount of profit, you have profited at no additional labor on your part. Your profit is the result of other people's labor that they have given to you for this commodity.  If the worth of your investment goes down by Y amount, then, if you sell, you will have lost part of the benefits your labor had earned at one time. You will have simply given your labor away or lost it, or wasted it, in the same way that you waste labor if you make something you cannot sell, and the same way you give labor away if you contract with someone who does not pay you and is ruled not to have to pay you for any services you performed for them. If you borrow the money to make an investment that goes sour, you then will either lose your labor represented by savings you have to dip into to pay back the loan, or you will lose future labor as you work to pay off the loan. But if you bought something at a fair price, for use, rather than investment, if the price goes down or up, you have lost or gained nothing but the opportunity to have bought it for less or the "opportunity" or penalty to have to pay more for it. All that has happened if the price goes down is that the labor you traded for the item was translated into money that is now worth relatively more to the seller of the item than the labor the house represented when he sold it to you. You, again, lost nothing but an opportunity to have saved some money and to have bought the item for less of your past labor (or future labor, if you borrowed money to buy the item) than you did. If a company's stock becomes essentially permanently worthless, then all the labor that went into forming that company, investing in it, and even in a sense working in it (except for what one got in immediate return for the work -- one's salary) will have been wasted effort. It would be like building something to sell and then not being able to sell it or to use it. The investors and the workers together will have channeled their labor into making goods or services that have to be thrown away or given away, essentially. Insofar as they were working for building something that would yield a profit or some sort of continuing social benefit and not just for a short term profit, a short term social benefit, or their own enjoyment or personal growth, they have wasted their labor. But a company that is functioning well and earning profits at a rate it needs for any future continuation or expansion, does not need to have its stock prices become overvalued, and it can ride out any drop in its stock prices that essentially undervalue it (assuming it won't be taken over and ruined or cannibalized, of course). In short, the vicissitudes of markets have potential significance for the actual meaning and benefits of labor and the quality of life labor can bring. And the vicissitudes of the market have a potential significance for distributive justice of the benefits of shared labor and other burdens. But that significance is not as straightforward as just looking at the dollar value of any given market. This is one more case where the "meaning" of money has to be understood, not just in a numerical sense, but in the sense of what money represents in terms of the distribution of burdens and benefits related to labor and what labor produces.

 

Ethical and Philosophical Foundations of Economics by Richard Garlikov Chapter 31 (an addendum chapter) Regressive Taxes The political rap on taxes like the sales tax is that they are unfair because they are regressive, meaning that  they cost low income families a greater proportion of their income than wealthier families.  I want to examine this particular issue, because while taxes may be unfair or bad for any of a number of reasons, "regression" by itself is not one of them. It may be that some regressive taxes are unfair taxes, but it will not be because they are regressive. Take the sales tax as a typical example of what is a regressive tax, particularly when food and prescription drugs, or other necessities are subject to it. The claim is that since sales tax is a strict percentage of the cost of the items purchased, the low income families have to pay just as much tax as the rich on the necessities they purchase and therefore have to pay a larger share of their income toward sales tax on those necessities than the rich do, since a larger portion of their expenses are for necessities, not having as large a discretionary part of their income, if any. Contrast this with something like personal income tax where those who earn more money pay a higher percentage of tax in a step-wise scale, while those below a certain level of income pay no tax. There are also taxes where the percentages are the same, but the wealthy typically pay more -- such as automobile tags or home property taxes -- because they purchase more expensive items and thus have to pay higher taxes, though those taxes may or may not be a larger percentage of their income then what less wealthier people pay. Notice first that in this sense of "regressive," necessities themselves are regressive, in that the low income families are more likely pay a higher percentage of their income toward necessities than do the rich. Both of these statements, of course, assume that the rich do not have a proportionally higher set of needs for food or medicine. In the case of medicine, that may not be true, for a wealthy ill person may have to pay proportionally more of his income toward pharmaceuticals and their sales tax than does a healthy low income person. Moreover, insofar as wealthier people spend proportionally more of their income on sales taxed goods, though they may not all be necessities, wealthy people may spend as high or even a higher proportion of their income on sales tax than do lower income people. But it is probably safe to say that on average lower income people tend to pay a larger percentage of their income for sales tax on necessities than do wealthier people. The question though is whether, if this is true, it is unfair. For purposes of discussion here, I do not want to question whether it is fair that there are rich and poor or unequal incomes in the first place; nor do I wish to consider people that may have higher incomes for unfair or unjust reasons. For the purpose of this discussion only, I will stipulate just for hypothesis sake, that we are talking about a population where everyone's income is fair and just, because I only want to consider whether regressive taxes are unfair by their very nature.  With any purchase, there are two aspects, but in any political discussion, unfortunately normally only one of those aspects is mentioned, depending on which side one is espousing. The two aspects of any purchase are the cost and what you get for that cost. Typically those arguing against taxes talk about the cost but not about what services that cost provides. Typically those arguing for programs talk about what the program provides that is important, but not about the cost. The issue of fairness will depend in part on whether one is getting a good deal for one's money -- whether the product or service is worth the cost. If you buy something good that you need at a fair price or, even better, at a fraction of the cost, that is normally a good deal. If you get something bad or that you do not need, it is often a bad deal no matter how little you pay. The question for any government tax-supported program ought to be how necessary and how good it is, particularly in relationship to the cost. But the argued polarizing political issue almost always is, though it should never be, how good it is apart from the cost or how costly it is apart from whether it is good or necessary. Another issue involving fairness in the matter of regressive taxes is how the burdens and benefits are divided. It is not fair, for example, to expect people to sacrifice at great expense or risk to themselves for the mere, particularly inconsequential, benefit of others. First, there are special circumstances where one incurs special obligations to others. If one borrows money or makes a promise or accepts a purchase order or payment, one is obligated to pay the money back, keep the promise, deliver the order or provide the service even if it causes some hardship to do so. There are, of course, possible extenuating circumstances that may override such obligations, but without such circumstances, the hardship is not sufficient to negate the obligation.  But even without incurring special obligations, we all have obligations to help others when the help would mean a lot to them and not cost us anything or much at all. As the cost or risk to the agent increases or the benefit to the recipient decreases, the obligation decreases until at some point the cost is so great or the benefit so small, that it is not fair to expect anyone to do the act, though it is not wrong for them if they wish to. At some point beyond that, however, it would even be wrong for someone to do an act that is extremely costly for almost no worthwhile benefit to anyone else. Some sacrifices are foolish and wrong. For example, if a fire fighter risks his/her life, with only a small chance of success, to save a child from a burning building, that is admirable though not obligatory. But if a fire fighter goes back into a building engulfed in flames in order to retrieve the child's teddy bear, that would be wrong. The above paragraph is not a paragraph about what determines all our obligations. It is only a paragraph about the issue of fairness in how much we should be expected to do for others. I am not saying that we only have obligations to do what benefits others, nor am I saying we only have obligations to benefit others when it does not cost us anything or make us risk anything. I am saying here that it is not unfair to expect people to help others under certain conditions -- that wealthy people cannot say it is unfair to have to help those less well off in cases where they can, particularly in those cases where the cost to them is relatively little and the benefits to others are relatively great. With regard to consideration of fairness alone, the obligation decreases, but does not thereby necessarily disappear, as the proportion between the benefits and the costs decreases.  So, for purposes of this discussion, let us assume that there is a tax which is regressive and that it provides a real benefit. For example, let us assume it provides not just schools, but actual, meaningful education for students. If schools provide little or no benefit to students and the community, or if they provide little benefit in proportion to what the taxes cost people, then this is a bad tax whether it is regressive or not. That is why we have to assume that the tax provides reasonable value and benefit in order to see whether regressiveness makes it wrong. Let us also assume, what also may be a counterfactual, that payment of the tax for education does not prevent a family from providing a better education for its children by sending them to a private school -- that this tax is not what makes a better, private education for families unaffordable. If a tax for education does rob families of the chance to better educate their children, then, whether regressive or not, it might also be a bad or wrong tax. So, by assumptions then, we have a regressive tax that provides a good education for children and that does not keep anyone from better educating their children. The tax is levied in a community where those who are wealthier are not somehow unfairly wealthier to begin with. The question then is whether the tax is fair. With regard to regression, the concern of fairness is typically reserved for issues of fairness to the poor. But we also need to be concerned about fairness to the rich. So the tax should not put some sort of undue burden on the rich, whatever that might be. And moreover, the tax should be such that it is better and fairer than any alternative tax that might fund education. In other words, if the alternative to a regressive tax unfairly burdens wealthier people or foists on them unreasonable obligations, the regressive tax might still be better if it also does not unfairly burden those less wealthy. What we are looking for essentially is an effective tax that also is the most fair and reasonable. And the question is only whether such a tax might be regressive. To be regressive does not mean that the tax in absolute terms or formula is the same for everyone as in an 8% sales tax. It just means that it costs lower income people a higher proportion of their income than wealthier people. So even if lower income people got some sort of a price break or rebate for sales taxes they pay, it could end up that though they are no longer paying the same tax rate as wealthier people, that the tax is still regressive because even with the differential formula they are paying a higher percentage of their income toward the tax. However, to keep this simpler, I will presume the regressive tax in question is a flat rate tax charged equally to everyone. Is such a regressive tax necessarily unfair? It will not be unfair to the wealthier if it costs them relatively little compared with the amount of good it provides others, and if there is not a fairer or otherwise better alternative to provide at least as good a benefit. Arguably a good community education system even provides benefit to the wealthy, since the more educated everyone is, the more talent and skill available even to the wealthy than would be available if only a fraction of the community were educated. While most of the time political arguments to this effect talk about the costs of building prisons to house the uneducated who turn to crime, I would contend the real cost to the community for not truly educating the lower income members is not (only) the costs of crime, but the opportunity costs lost from not having as many people available to make real and significant contributions. That leaves the original issue. Is the tax, because it is regressive, then unfair to the lower income members of the community? Not necessarily. If they get something worth the cost or more; and if the tax does not unduly rob them of something more important than education that they could afford or have without the (size of the) tax, then the tax, whether regressive or not, is not unfair. Suppose, for example, that all 8% of a sales tax goes toward education, and that a family with income of $15,000 buys $10,000 worth of taxed goods, all of which are necessities, thus spending $800 of their $15,000 on sales tax for necessities. That is 5.33 of their income.  Contrast that with a family with a $200,000 income which buys $50,000 worth of taxed goods, half of which are for food, clothing, prescription drugs and other "necessities" though many of the items or their costs will not really be what might be considered necessary. Some of the costs of clothing will be for designer labels; much of the food will be prepared or gourmet items or restaurant purchases. Still, the family will pay $4000 in sales tax, and $2000 of it will be for food, clothing, pharmaceuticals, etc. That will be 2% of their income for sales tax and 1% of their income for the tax on the food, clothing, etc.  The lower income family thus spends more than five times the percentage of their income on sales tax on necessities that the wealthier family does. And perhaps even ten times if the wealthy family had been more frugal in their clothing and food purchases. The argument based on percentages then is that because low income people have to spend 5 to 10 times the proportion of their income on sales tax for necessities that wealthy people do, sales tax is grossly unfair to low income people. Nevertheless, notice that the wealthier family is contributing five times the amount toward education that the lower income family is. It is not clear just from these numbers that this is somehow unfair to the lower income family. But even more, suppose that the school system spends $5,000 per pupil to operate. And suppose that both families have one child which they send to public school. During the 13 years the child is in school (K-12), the low income family will have contributed $10,400 for an education on which the community spent $65,000; the rich family will have contributed $52,000. (People without children in school paying sales tax, and other sources of revenue, such as property tax and state income tax, will make up the difference between school expenditures and sales tax revenues.) The wealthier family will have contributed, in sales tax alone, to 80% of the cost of the child's education. The lower income family will have paid for 16% of their child's education. So even though the low income family pays 5 to 10 times more of the percentage of their income toward schooling that the wealthier family pays, the wealthier family pays 5 times more of the cost of the schooling than does the lower income family. The lower income family gets a $65,000 education for $10,400 whereas the wealthier family has to spend $52,000 for the same education for their child. Of course, one pays sales tax longer than 13 years (and, of course, many families have more than one child that attends public school), so both families with one child will eventually pay more for education than what these numbers indicate, but the wealthier family will still pay five times the amount overall that the lower income family does. On the one hand they can afford it, but that does not mean the lower income family should not have to contribute something for an education that theoretically is worth far, far more than what they are paying. If we just look at percentage of income paid in sales tax for education, it appears the lower income family has to pay far more of its share than the wealthier family. If we look at the return on investment, the lower income family gets five times more for its money than does the wealthy family. The lower income family gets a 6.25 times return in educational dollars; the wealthier family gets a 1.25 times return. Both sets of numbers apply, so it is impossible to tell just from looking at these kinds of statistics whether the situation is fair for either family.  What is needed is to look at issues other than these in order to tell whether the tax is fair for either family. Just pointing out the tax is regressive is not sufficient to show it is unfair. One has to point out that it is unaffordable for low income families and that it gives them back too little in return, and that there is some reason why those who can pay more ought to do so. An argument could be made, just looking at the numbers that the wealthier family is giving back to the low income family a great return for the lower income family's investment. And if the low income family has sufficient income to live a decent life along with paying taxes, it is not necessarily an unfair situation. Moreover, if they have children by choice and if there were nothing unfair about what determines that their income is lower, regressive taxes would not necessarily be unfair just in themselves. It is only if lower income people were having to pay a disproportionate, unaffordable, or unreasonable amount for public services for which they would get little in return that would make such taxes unfair. And it would only be if the rich ought to pay far more than they do that would make some tax rates, regressive or not, unfair. But those things cannot be determined by looking at whether a tax is regressive or not. Regression is irrelevant.

 

Ethical and Philosophical Foundations of Economics by Richard Garlikov Chapter 32 (an addendum chapter)  The Economy and Tax Revenues For the following, I wish to talk about tax money used efficiently and effectively for necessary or seriously important services. In practice, of course, there are forces and mechanisms at work that waste tax revenues and that make government inefficient or ineffective. But (even) if those things could be eliminated, the remainder of this chapter would still apply. "Wasted" tax money and government ineptness and inefficiency are serious problems, and they may even be impossible to eliminate by the nature of any tax system, but I want to examine "taxation" in something that might be considered an ideal theoretical form where tax revenues are used wisely and well -- assuming they and government are necessary. Taxes seem today to be used for at least three different kinds of theoretical purposes, though these are not necessarily totally distinct from each other: 1) To provide services (nearly) everyone uses (or wants available, for potential cases of need) that they could not easily or feasibly, if at all, buy individually or piecemeal (such as fire or police protection, or air quality monitoring/control). Theoretically people contribute their affordable portion and receive the service as they need or use it. This is not usually a fee per usage basis, though it might be if, in addition to tax revenue, fees are assessed, such as in a metered use of drinking water provided by a municipality. When there is no fee per usage, those who might contribute the least may in some cases use a service the most; and vice versa. Some people may never use the service (e.g., may never have a fire), but they are willing to pay for having the service available as a guard against risk. Some services may be more used by more people than others; e.g., roads are more used than fire departments. 2) To provide a service for special groups, though people outside the groups contribute their tax money. A local government might build a senior citizen center even though not all its citizens are seniors at any one time and even though not all its seniors may use the center. Government might provide schools even though not all the people who pay taxes for schools have children (of school age).  One theoretical rationale for this kind of tax use is that all the projects collectively might be used by most or all citizens, even though some groups will use one while other groups use different ones, and that it would be too difficult for members of each group to try to coordinate to build what they each want or need. This is a special case of the first tax use above then, since the usage of all the services is simply distributed in groups of some sort which change membership over time, rather than being distributed more randomly to anyone at any time.  Another theoretical rationale is that even though some groups may benefit directly from a particular service, all citizens might benefit indirectly. For example, a better-educated community conceivably has more products and services available to purchase than would exist in a community with far fewer educated people who are unable to provide as many products or services. 3) To provide services just for those with special needs who cannot afford to provide for their own needs. This may be for merely humane, charitable purposes, whether temporary or more permanent; it may be for a kind of insurance purpose for those who actually have difficulties that all of us have some risk or potential of having occur. Government might, for instance, provide some sort of job-training or job-finding programs; or it may be for an earned benefit of some sort such as health and disability benefits, etc. for veterans, particularly those who may have participated in combat or other risky situations in order to serve or protect the country. Theoretically the services are open to all, though few might need them. And theoretically there is a difference between temporarily helping those who can, to get (back) on their feet and become contributing members of society again, and helping those who cannot get back on their feet at all through no fault of their own.  Taxes in Market Economies Using Money As I am writing this, the U.S. economy is in a slow, if any, growth mode and tax revenues are seriously low in many states and municipalities in part because of it, while the U.S. and state and local governments are under demand to provide a great many services. Even with trimmed budgets and services, to prevent deficit spending, many legislatures want to raise taxes to pay for providing the necessary services, but this would seem to be a hardship on people who are direct victims of the business slowdown or downturn that has caused them loss of income, and which in turn causes the loss of tax revenues based on personal incomes and spending. I want to try to analyze the issue in this chapter. If we look at a small economic community, such as the one I described previously where a number of students in a school organize themselves to have better lunches than the cafeteria provides and better than each student can provide himself, we can see that it is very difficult to add students who want to participate when the system is in equilibrium, and it is very difficult when students who are participating opt out of the system. I am talking about those situations when they do not occur simultaneously, so that one person can simply replace another and easily allow the system to stay in equilibrium. So in our system, one student makes a meat dish or sandwich, another makes dessert, a third makes vegetables, a fourth brings something to drink, another brings some sort of fruit dish, etc. We can make the system and the meals as simple or elaborate as we want, but what I want to consider is when the system is working perfectly such that everyone has a lunch s/he really enjoys and feels it is worth the labor and cost in terms of what they are providing. I want to call this the equilibrium position. It could occur with two students. It could occur with three students. It could occur with ten students. It can be a full trade system where everyone included trades an item with everyone else who is included; or it can be a trade system where individual participants trade with those whom they want to trade, but not everyone trades with everyone in order to have each item provided. For example, someone who makes soup may not want desserts, but since the dessert maker doesn't want soup, that is okay. The point is that everyone is satisfied with the arrangement as it stands and no one feels s/he is overworked or underpaid. What I want to consider are the following two cases: (A) A student from outside the system wants to be included in it. (B) A student in the system wants to quit the system or participate to a lesser degree; e.g., is willing to give up the vegetables or the dessert. If one student wants out when another student wants in, and they are willing and able to simply exchange places satisfactorily to all concerned, there is no problem. The problem arises when (A) and (B) do not happen simultaneously.  (I want to ignore, for purposes of this discussion, the case where there are sufficient other students that a whole new system could be organized along with the existing one, so that there would be two sets of trading groups with each in its own equilibrium. That is an important possible solution to A but it is not usually possible or likely to be able to implement in a typical complex economy.  Normally one has to somehow try to fit in to the existing trade mechanisms.) For the student to opt into a system at equilibrium, an easy way to do it would be for him to offer something everyone (or, more precisely, everyone from whom he wants something) wants, so that they each produce one more of what they are making, and trade it to him for what he provides. Then the system will be back in equilibrium with the original participants working a little more but receiving more in return. When the other students are already at full capacity, it will not be possible for the system to include the new student unless some original participants change whether or how they trade with at least one of the other participants. Suppose the new student offers a different kind of sandwich and that the dessert-maker prefers it. If they begin trading, then the original sandwich maker now is out of the dessert loop, unless he can trade a sandwich he makes to someone for their dessert. This can become complicated or impossible to work out, depending on who wants what and what each person is willing to give up having in place of it.  When someone wants to cut back in the system or to opt out of it altogether, it again will often be difficult or impossible to establish equilibrium. Suppose the dessert maker wants to opt out or to cut back, but everyone else still wants desserts. Some new arrangement will be necessary among the participants and it may not be easy, or even possible, to work out. When the economy is bigger and works with money instead of barter, the problems sometimes get masked because, for example, a baker can tell a regular customer (who, say, makes the drinks) he is sold out of eclairs (because a new person came in earlier and bought one or because the baker has tired of making so many), and the drink maker will sell out of drinks before one of the other regulars can get one (or he may have drinks left over if that is what the baker is cutting back on in order to make fewer eclairs. It may be this round-robin can go on indefinitely with no one's realizing what is causing his not being able to have all the things he wants though he has the money to pay for it. But what has happened is that a new entrant into (or someone's cutting back in) the economy has thrown it out of equilibrium in a way that has caused a shortage, likely a rotating or revolving shortage so that not necessarily the same person is inconvenienced or put out of work or unable to buy the same product each time. Even if the new member can make something that helps erase the shortage, it can be difficult to work the system back into a new equilibrium. If someone moves out of the school district or decides to go back to making his own lunch, the same kind of problem arises. It will be easy to see it in a direct or relatively direct barter system, but in a larger, money based system, it may be more difficult to see other than that each individual will find eclairs, say, missing from the shelves no matter when he goes to buy them. Eclairs will be unavailable, and at some point, people will think they have extra money, but the extra money will turn out to be worthless unless someone else comes into the system to sell something the original people want, and is willing to buy what they are selling. Money in an economic system makes non-simultaneous transactions easier, and money in an economic system allows different increments of non-commensurate labor to be able to be equated somehow; e.g., a plane can be manufactured, and bought by an airline who hires crews to maintain and operate it, while selling tickets to individual passengers, with financing making building and buying the plane possible - all of which would be virtually impossible to arrange through barter. But the toll for this convenience is that money and labor can get out of sync in ways that do not show where the problem lies. There can be more or less money than labor available at a given time to utilize it at the same value it had. There can be money in someone's possession who has nothing he wants or needs to spend it on. There can be people with labor to give but cannot find or access the people who could use it who also have the money to purchase it with. You can store money for future use, but if the storing of it messes up the economic system's equilibrium in such a way that it puts people out of work, there may not be things to buy with it that one wants later, and so one will have labored for money, but not for anything one needs or would have exchanged the labor (or done the labor in the first place).  Let's return to the original lunchroom group now. Suppose that the system becomes complicated in such a way that the group, before they are at full capacity, decides they need someone to keep track of everything and to keep it operating smoothly in some way, facilitating the trading, perhaps providing refrigerated storage or ovens to heat food, etc. So they hire someone to do that, and reward that person with lunch. Let us say this system is at then at full capacity. Suppose there are eleven members in the fully operating system. That means ten of them actually produce food products and one of them does not. The administrator, who is not producing food, is not trading with each of the other members in the same way they are trading with each other. They each give him some of their food, but he gives each of them nothing in return individually. What he is providing is labor that makes their individual trading with each other possible. It may look like his role is dispensable, but it is not. Or it may be that his role is dispensable for some of the participants, but not for the rest or for the group as a whole.  One question that now might be raised is whether the administrator is a governor (i.e., a government public servant), or is a manager (i.e., a private businessman in trade with the others, providing them with a service). If he is a governor, then what he is paid for his services would be essentially tax revenue, whereas if he is a manager, his lunch is private, business income. It seems to me that at this point there is nothing, which would not be purely arbitrary, that can distinguish whether he is a governor or a manager. He could have a term of office, but that would not be any different from a template kind of contract. He could have powers over the group, though they derive in some way from the group that has hired or elected him, and his performance must somehow please enough of them that they all retain his service. If not he could be fired or non-renewed at the end of his contract if he is a manager, or recalled or voted out of office at the end of his term if he is a governor. Both managers and governors have powers bestowed upon them by those they serve. I will say more later about the lack, and simply apparent, differences between government and private business. If the enterprise grew and grew, perhaps adding entertainment, homework assistance, tutoring, carpooling to and from school, etc. at some point other administrators might be appointed to do various rolls, including some who would make rules by which the enterprise needed to operate. Whether collectively they would be properly called a legislature or a board of directors, again seems arbitrary. The point is that they are somehow supposedly facilitating the enterprise, but are not part of making the products or providing the services that the enterprise trades among those interested in participating. In other words, once a system of division of labor and trade becomes very large and needs facilitators to help out the producers collectively, the designation of those facilitators as part of the government or part of corporate management seems somewhat arbitrary in terms of their actual role in the enterprise. Even if we call governments only those institutions which manage a "whole" society of some sort, instead of a small portion of it, there are clearly worldwide international business organizations that are bigger than some (local) governments, and which manage a more diverse population. In a multinational corporation that has many different enterprises under its purview -- manufacturing anything from food to automobile tires -- there may even be more in common among people governed by a local government than the people managed by the large corporation. And just as people can choose not to be managed by a given company's executives -- by quitting the firm-- people can also choose not to be governed by a particular government -- by moving to another country, or in part by trading their citizenship for that of another country's. But apart from what kind of system we call it and apart from whether it works on barter or money trade, the main aspect of our school lunch, or any collective trading enterprise, is the collective work and the trading of that work. Money and financial vehicles may facilitate that work and trade, but they are not the only way to facilitate them; and it is the labor and its products (and some psychological aspects of labor -- e.g., whether it is voluntary or involuntary, coerced or pressured, etc.) which are ultimately what is important in an enterprise. And money sometimes masks what is actually happening with labor and its products. There are a number of ways that trade in a particular good or service can diminish. Producers might end or diminish their production. Producers might die, retire, or go into other work. Raw materials or means of production or distribution might become unavailable or unaffordable. Goods or money might be saved, either by hoarding or any other reduction in consumption. For example, needs may be eliminated and thus the goods and services which would have met them will not be necessary and will not be traded for, and diminished confidence in having sufficient money in the future may cause people to refrain from purchasing lower priority items. A decline in market values can be one cause of diminished confidence in the future. Prices can change in a way that makes some previously affordable goods become unaffordable. Priorities can change in ways that affect price or psychological demand. Fear of future availability might prompt hoarding. Interest rates, investment, or other financial vehicles and instruments can become unworkable, unpopular, or undesirable. The way in which trade is reduced is significant for the well-being of the members of society. When trade is diminished in a way that creates a new equilibrium among equal or higher priorities and needs, there is no reduction in the quality of life. But if a new equilibrium must be established among lower priorities and needs, or if an equilibrium cannot be established at all, where each contributes and each receives a satisfactory portion of the total contributions, then the reduction in trade also reduces the quality of life among at least some members of the community. If a trade reduction simply leads to increased desirable leisure fairly distributed, that can be a good thing. When it leads to forced idleness or unemployment that takes one out of the trading loop against one's will, that is a bad thing. The problem, when there is one, with any change in an economy or trading loop is that different members of any given loop or trading equilibrium are affected differently and cannot as easily re-establish themselves in a new equilibrium. Inflation, for example, hurts those on fixed incomes. New inventions put some people out of work who must take time to retrain for new work. Some work takes longer to learn than others. Some work cannot easily be divided to make increased leisure available to more people who need jobs. A dramatic rise in the price of some necessity, such as gasoline and heating oil might reduce sufficient people's disposable income that it causes temporary or permanent loss of jobs among those who produce conveniences or luxuries. Eventual market saturation of a product that caused an economic boom when it was new (such as computers and the Internet), can bring a serious economic slowdown. Taxes and trade both get complex quickly because there are multiple purposes, multiple results, and convoluted eco-system relationships in which a change in one factor has multiple, often automatic ripple effects that are impossible to isolate, without disturbing something else in an equally problematic way, and difficult even to trace.  Some financial mechanisms cannot adjust appropriately to change very easily, quickly, or automatically. For example, property taxes based on market values may not be fair to some property owners when market values change in ways that are unfair or unrealistic (see chapter 30). Consumer "confidence" and thus spending habits may change drastically with changes in various market values, as well as for predicted revenue decreases due to other causes. Or tax revenues for necessary public services may decrease just because trade in private goods diminishes, whether for a good cause or a problematic one.  Suppose, for example, using the automobile case from the first and sixth chapters, that people need to spend less on cars, or that they need less health care because everyone is healthier due to better nutrition, new vaccines, and better preventive information. That diminishes the tax revenues based on trade. And while it might provide more leisure or more purchasing power of other things for those who would have previously needed to purchase cars or health care, it can wreak havoc with those services paid for by tax revenues collected from the sale of automobiles and medical care. It can also wreak havoc on the employability of those who formerly supplied cars, car maintenance, or health care. As money is alternatively concentrated and dispersed it affects different markets differently, with concentrated money able to purchase bigger projects and with dispersed money able to attract less expensive, more individualized goods and services. Some financial vehicles concentrate and disperse money -- e.g., banks that create loans for individual mortgages or auto loans from customer deposits, and taxes that pay social security or welfare recipients, disaster victims, etc.  In some cases, individuals and institutions either trying to enter a trading system or displaced somehow in one that was previously functioning well for them, may be able to find a niche in the (new) trading system themselves. But, in some cases it may take some kind of help or coordination from those individuals and organizations, whether private or public, who can see and affect the "bigger picture," seeing where jobs and needs already exist, are reasonably anticipated, or could be created, and providing or coordinating training for the unemployed and the underemployed. Now, it seems to me that when (reasonably or at least decently) efficient and effective governments experience serious tax revenue reductions, the appropriate response should be dependent on the specific causes and results of the revenue reduction.  If trade diminishes because less work is necessary, that creates a very different set of conditions from when trade diminishes because some individual or group is essentially hoarding money -- by selling without commensurate buying or investing, whether as individuals or as in some foreign trade imbalances. In the former case -- where less work is necessary -- tax and other government policies need to reflect fewer needs, and in the case of hoarding, tax and other government policies need to be aimed at getting money and trade "flowing" or circulating again. In the former case, decreased tax revenues might reflect a decrease in necessary services -- as when "peace breaks out" and defense (spending) needs are less. In the latter case, taxes might need to be levied in some way on hoardings/savings past a certain point. Just raising or lowering taxes on the basis of overall government revenue needs (or perceived needs) is too indiscriminate. Taxes need to be a fair and reasonable reflection of the work, trade, needs, abilities, benefits, and burdens in or available to the economy. They should not just be a matter of numerical calculation -- and certainly not numerical calculations based only on the government's isolated income-expenditure needs apart from what the entire economy (i.e., system of division of labor and trade) is doing or trying to do, and how well it is doing it.  If, to begin with for example, it is the case that trade decreases because some consumers have fewer unmet needs and restricted or curtailed desires for goods or services and are able to reduce their spending voluntarily or quasi-voluntarily (as in the case of cutting back on travel because of concerns about terrorism or cutting back on other purchases because of loss of "consumer confidence"), then, assuming the same income, those specific people have a greater portion of their income that is typically considered disposable, but for which there is no real disposition to spend. Theoretically, if there were some way of tapping into the portion of that money which would have gone to taxes had it been spent, it would replace the lost tax revenues. If we were just to look at, say, lost sales tax revenue (based on an 8% sales tax), then theoretically the government could collect 8% of the money saved by people from not spending it on taxable goods. But we still now have to worry about the people out of work who are unable to find work because consumer needs and desires are simply lower than they were previously. It could be that these people will find work in a new industry that attracts disposable income. In that case, government should proportionally reduce or end its boosted taxes so that the people taxed are able to purchase the goods or services from the new industry.  But it may be, though, that the government will need to stimulate or secure job re-training and increased employment opportunities. This might be done with tax revenues or it might be done by private business with some government incentive. For example, it could be that seeking a reduction in the standard work week would suffice to have companies employ more people, working shifts, to take up the unemployment slack and smooth out the work/leisure proportions for everyone, so that more people each work less time instead of some people working long while others are unemployed. After all, if we started from the opposite situation -- one where everyone lived together on a paradise island with no collaborative needs, and a need appeared for some kind of work to be done that would benefit everyone, the first inclination would probably be to share the labor fairly among all people, so that no one had to work for very long. Working in reverse, as mass production, vaccines, market saturations, and other sorts of need-reducing or labor-reducing measures come into place in an economy working full time, theoretically there should be more leisure evenly divided among people. If it is the case that whatever causes the reduction in trade also causes a reduction in the needs and purchases of the government, then a tax reduction would be in order, along with some mechanism to fairly even out the work/leisure hours among people. Or it could be that as consumer needs are met, more labor could be employed to provide necessary public services. The revenue for that could, again, come out of greater disposable income people have as they reduce consumption, for greater disposable income is not really disposable if there is nothing to purchase with it. Greater amounts of money appear to make us wealthier, but wealth is not a matter of money, but of the ability to meet more needs and desires. As the amount of unmet needs and unfulfilled desires decreases, less money is necessary, and additional money has little value. But it is also the case that greater leisure, coupled with volunteerism, can possibly reduce the need for government services or for tax revenue. For example, mentoring programs can reduce the need for school programs, since mentors can often teach children individually or in small groups more than teachers in classrooms with inflexible programs will. Government agencies might get more for the tax money by initiating and fostering mentoring programs than by pouring more money into schools under some circumstances. What is desired is that benefits and burdens of work are distributed in efficient, effective, reasonable and fair ways. Free markets do that to some extent, but, as far as I can see, the main differences between markets and public or government institutions are that (1) markets tend to allow more competition in some cases and less centralized control -- though that is not always true, and is certainly not always necessary; large companies can be fossilized by bureaucracy and governments do not often need as much central control as they too often have; and (2) market purchases seem to be voluntary in ways that government services are not -- in that in the market you do not have to buy what you do not want or need, but taxes are in some cases coerced and do not feel voluntary or worthwhile. So there is more a feeling or perception of freedom with market transactions and purchases than with payment of taxes. And while people complain of waste in government, they seldom think that prices of goods and services in the market include fat due to waste, extravagance, or unreasonable, excess profit. Yet, that is perhaps as often the case as it is in government. Businesses do not necessarily operate as "lean" as competition is alleged to compel.  But in cases where desires are manufactured by psychological manipulation, there is not real freedom even though there is the perception of freedom. More importantly, not all purchases are happily paid for. Many necessities are resented, many times prices are considered too high but a consumer feels "over a barrel" to pay it. Interest often feels like it is somehow unnecessary or unfair. And credit card bills, even when paid each month in full, often are resented because one has already tired of the product one purchased with the card. General Motors used to run an ad campaign that said your car was your freedom, but many people feel more like a car is an albatross around their neck. Instead of feeling good about buying a new car, they feel they have just sunk themselves further in debt with car payments, increased insurance payments, car tags, maintenance, etc.  Similarly with regard to income. To some extent, as trade equilibria are constantly adjusting, salaries are not totally unrelated to taxes. Employers will often have to pay more to workers who have higher taxes because their financial needs will be greater. Cost of living (including taxes) are taken into account in salary considerations. But that tends to be ignored later. So someone successfully negotiates for a higher salary that accounts for higher taxes, and then resents having to pay the taxes because he thinks he would have that higher salary anyway. But he might not, and probably wouldn't.  Moreover, the employer has restraints on salaries in the form of his own business costs apart from salaries. So if there is some overhead for the business that must be paid out of gross income, that, in a sense, comes out of the employees' potential salaries before their salaries are computed, rather than after they are computed like taxes do. Similarly with sales tax and the cost of items. Overhead costs are not tacked on at the register like sales tax is, so they are not usually as visible or as maddening. But if workers received a paycheck that simply dispersed a company's gross income apart from salaries and then had "deductions" for company overhead and expenses, they would probably find those deductions as upsetting and frustrating as tax deductions. They would feel they were being asked to pay for goods and services the business uses, and they might start to find fault with amenities they now think are really nice. Or, if purchased items had a price tag that reflected only the cost of the materials involved, and then other overhead costs were added to the price at the register, people would be even more upset than they are about sales tax, just as they often are upset when the labor for automobile repair is more than the costs of the parts and they see the two fees itemized separately instead of just receiving one aggregate bill..  But whatever the reason, psychologically the resentment people might have toward higher prices is not the same resentment that some people harbor toward taxes when they feel the tax money is spent on services of which they disapprove. People in countries where taxes are spent the way they want them often feel better about higher taxes than Americans feel about lower ones.  But I would contend there is not as much real or conceptual difference between paying taxes and buying things as is often portrayed or thought. The difference seems to be more a matter of perception and psychology than anything else. On "Car Talk" Tommy and Ray Magliozzi talk about unnecessary fees in the private sector when they advise you to stay away from auto mechanics who own large boats because they say you will be charged for his boat payment that will be hidden in his parts and labor fees. So that while some people might think a mechanic who charges more than another, or who "finds" more wrong with your car, is the better mechanic, Tommy and Ray point out he might just be the mechanic with the higher material appetite to satisfy. But apart from Tommy and Ray talking about auto mechanics, most people seem to resent having to pay a fraction of a cent to cover the tax deductions for a businessman's three-martini lunch far more than they resent paying the additional three or four cents embedded in the price of some necessity that covers the company's expenses for the three-martini lunch in the first place. To me it is a distinction without a difference. And when economists talk about how too much tax can kill incentive to create or expand a business, so does too much overhead or too high potential start-up costs. Obviously, in a high risk venture, huge start-up costs might be more chilling than in a low risk venture. But there are other kinds of things to take into account in the notion of overhead as well. Sometimes people just don't like paying for certain services even if it benefits them. One year, I took the baseball team/individual pictures for a local youth league. There were some 50 teams. I took the photos on one weekend all day Saturday and half of Sunday, shooting the teams and the individuals. I guaranteed everyone's satisfaction with the individual pictures or I would re-shoot them. If it rained on the days scheduled we would reschedule for a different weekend instead of shooting them indoors as other photographers do who take this sort of picture. As far as I know, all the parents were happy with their pictures and thought them much better than those they were used to getting. However, the league administrators were not happy because I had charged a dollar or two more per package than other photographers and they felt they could not mark up the pictures as much as they had in the past. Why they accepted my bid then, is a mystery to me. It turns out they quote the parents a higher price than the photographer charges them, and they keep the difference for the league without telling either the parents or the photographer. I was unhappy to find out they did that because I had given them a bid based on what I thought was a good price for the parents. I might not have participated if I had known they were going to make me look like I was charging more than I was. But at any rate, they felt it was too high an overhead for them for what they wanted to do and what they wanted to make. They presumed the parents would not want to pay more, so they could make their usual profit. I don't know whether the parents would have happily paid more or not. I also suspect that parents would have been unhappy to find out the league took their own cut (similar to a tax) out of the picture fees. In something somewhat similar to that, I turn down people offering to broker my services to a community of which they are a part because they claim they are offering a free service to their clients, but in reality they are giving advice to their clients based on who pays them the most to recommend them. I consider that unsavory advising or representation. And I also would have to raise my prices to take into account their cut if I were going to employ them to do this. I also turned it down because they said people would hire me on their advice, and that is not the way I want to get customers. I want people to hire me because they like my work, not because I paid someone they trust to tout me. But the point of these stories is that overhead costs are hidden for good psychological (though bad ethical) reason because otherwise they would cause the same sort of resentments that taxes do. Taxes are just one form of expense, and any form of expense can be too much to make starting, expanding, or continuing a business worthwhile. It is just that taxes are not specific to some particular business expense. But purchase of a truck to deliver goods is not that much different than payment of taxes to construct and maintain the roads the truck uses. When trucking companies balk at road taxes, they might want to see whether they would prefer instead to build and maintain their own roads just because they could see that as a different kind of expense. I don't think it would make them feel better about the (size of the) expenditures. But as Galbraith has noticed, psychologically there is a big difference in people's minds between paying for private goods (e.g., cars or trucks) and paying for public goods (e.g., in this case, roads), and people seem willing to pay more for private goods than for public ones even though, the public goods may be as, or even more, necessary in order to make the private goods useful. Trucks without roads would be just parking lot adornments. As in many other economic factors, if we look at the actual work being done in any economy -- the actual benefits and burdens, labors and rewards, and their distribution -- a different picture emerges about the nature, function, proper role, proper source, and proper amount of taxes than what appears from just looking at government balance sheets. And the contrasts, if any, between taxation and other sorts of overhead private costs do not appear to be as great as is often thought or portrayed.

 

Ethical and Philosophical Foundations of Economics by Richard Garlikov Chapter 33 (an addendum chapter) Ramifications of Increased Productivity: A Paradox In Approaching Paradise I want to use Adam Smith's famous paragraph about the pin factory as a springboard to discuss the ramifications of increased productivity. In this paragraph, from the first chapter of The Wealth of Nations, Smith explains how division of labor and specialization increase productivity.  "To take an example, therefore, from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations."  Notice first of all that the point he is making is not just that ten workers can make ten times the amount of pins that one person can, because, though that would be an increase in the number of pins available to the market, it would not be an increase in per person productivity. His point is that by working together each person can improve his own individual productivity essentially by anywhere from two hundred forty to four thousand eight hundred times in terms of the number of pins he could have produced. Hence, not only are there far more pins now available to people who want them, but it takes far fewer people to make that number of pins with this manufacturing method than it would have without it. So the methodology of division of labor gives a great additional supply of product without requiring anywhere near a proportional increase in labor.  What I want to do is to look at the (potential) ramifications of productivity increases. And to simplify the matter, I want to first use the imaginary example that in a pin factory with 100 workers, someone invents a machine that needs only one worker and that makes the same number of pins that all the workers together made. For additional purposes of simplification I want the machine to have been easy and so inexpensive to make that we will call its cost negligible. Alternatively the machine could cost something but that cost would be small or negligible compared to paying workers' salaries. For my purposes, the overall logic turns out to be the same as long as the cost of the machine is less than the cost of paying the workers it replaces, but we won't have to bother with keeping track of worker versus machine proportional costs in doing the math1. For the same reason, we will also assume that the factory owner is who invented the machine (or owns the patent on any such invention by his workers), so he doesn't have to pay the inventor. What would the ramifications of this invention be?  There are a number of possibilities:  (1) The factory owner fires all but one worker whom he keeps to work the machine. If this were to happen, the factory's total pin output per day would be the same as it was, and society would not gain anything in terms of the number of pins available from that factory. The workers would lose their means of earning a living (except in a few circumstances below), and would have to seek other ways to do that. If they are able to find other work to supply society with additional products or services, society benefits from having those additional services and products.  In terms of profiting financially from the machine in this scenario, there are a number of possibilities:  If the factory owner keeps the price of the pins the same: (A) He could keep all the new profits.  (B) He could share some of the new profit with the sole worker remaining  (C) He could pay each person he fires severance pay or even pay them their full salaries until they find other work, no matter how long that takes. (This would require either an exceptionally nice factory owner, or it would happen in the case of equally shared ownership of the operation by all the employees, except perhaps the person retained to work the machine.)  If the factory owner reduces the unit price of pins, either a little or substantially (as long as it is not too close to the point where he makes no additional financial profit from the machine above what he made from the workers): (D) He could make a price reduction that still allows more profit than he had made previously. He could still divide that profit among his remaining worker or among the fired workers, or keep it all for himself. If this option is chosen, society gains, not from having more pins, but from having to pay less for pins, so that they do not have to labor as much for the purchasing of pins or so they do not have to pay as much as what they produce toward pins. They could buy other things instead.  So either society benefits by greater leisure or by being able to get more for the same amount of labor (or somewhere in between, in a combination of increased leisure and increased purchasing ability).  (2) The factory owner keeps all, most, or some of the workers and increases total pin production by essentially 100 times per worker. Society would gain by having many more pins available than they did before, assuming, of course, that there is a need and afforded demand for the pins. If any workers are laid off, they could be treated the same as they were in A or C above.  When methods of production increase the possible per worker supply of a good or service, whether by a new machine or by a new organization of labor, society as a whole gains by having more leisure available for some of its workers, by more of the good or service available, or by having more purchasing power to buy other things, assuming there are other things to buy.  The individual original workers may gain more leisure without losing any income (not likely except perhaps temporarily in a severance pay case, or in the case of their ownership of the factory to begin with), may gain leisure at the expense of being able to earn a living, or may find new work.  If they find new work, their income for that work, all other things being equal, will have to come from what customers (i.e., the rest of society) have available to pay for it. Again there are a number of possibilities:  (I) The workers can only make the amount of income from their new trade that is the difference between what people paid for pins previously and what they will have to pay now for pins. In other words, the workers new wages will come from purchases made with the savings on pin costs because the new customers of the workers who have changed jobs will only be able to afford what they have left over from saving on pin costs. Insofar as the pin factory owner keeps as his own income what previously would have gone to workers, there is less income available for workers in their new jobs, unless  (II) The new jobs the workers find offer a product or service that people are willing to pay more for than they paid for pins. Customers then will either cut back on pin purchases even if pins are cheaper than they were, or they will work harder to produce more which they will then trade for the new product or service, or they will dip into savings (i.e., stored goods or money). Or unless  (III) Increased pin production from option (2) above allows more of other goods and service to be available than were previously possible with a more limited supply of pins (perhaps there can now be more tailors who make more clothes, or some such, or perhaps some whole new use is found for pins that will allow the production of something never previously available). This would allow increased trade in the society as a whole because there would be more goods to be traded, and perhaps more people trading them.  The money aspect of trade would have to somehow catch up to equate with that or reflect it. As you can see from this simple example, the ramifications of increased productivity can be varied. And they are made far more complex when many different increases in productivity occur in different segments of the economy at roughly the same time. Even if changes in productivity only took place for limited discrete periods of time, instead of continuously, the consequences could be, and often are, quite varied and tremendous (perhaps proportionally far more at first for displaced workers than for the rest of society, though perhaps for all of society in some cases). Moreover, if new equilibria are to be reached so that displaced workers are not simply left to starve to death or be left out of the economy altogether, it can take a long time for the consequences of productivity to be spread out into that new economic equilibria. Since change is continuous, and seems to be advancing now at a faster and faster pace as new knowledge and inventions beget ever increasingly more new knowledge and inventions, new equilibria are generally not so much achieved as they are simply pursued. This creates chaos for many and proportionally greater hardships, often devastating temporarily or longer, for some.  Yet what we are talking about here is simply greater productivity, which ought to be a boon to civilization, since greater productivity always lets there be either an increase in goods and services available or an increase in leisure (which is essentially a decrease in required labor). The challenge is to find a reasonable and fair way under the circumstances to deal economically with increases in labor productivity (and perhaps concomitantly in those situations where labor decreases in productivity through reductions in available resources or skilled labor, etc.). The mechanism needs to be fair simply because morality prima facie requires fairness where possible. And the mechanism needs to be reasonable, as does any economic mechanism, in at least the sense that it does not cause any unnecessary loss of incentive to achieve and thus cause an overall decrease in productivity.  I include the phrase "under the circumstances" because what is fair in one set of circumstances is not necessarily fair in another. For example, if you have just a little to distribute among a lot of people, it is not unfair to give all of it to one deserving person; but if you have much to distribute among a relatively small group of deserving people, it is fair to distribute it either equally or in some proportion of merit. Or, as I have said throughout this book, what is fair to do with increased productivity in a society of relative mutual independence from each other, may be quite different from what is fair in a society where there is much mutual interaction and dependence. If no one else helps you have the lifestyle that lets you invent something of great value, you do not have the same kind of obligation to share the profits from that invention which you have to share them in a society where other people's work has given you the opportunity to be creative, or a society where what you do with your earnings affects other people's lives and opportunities.  But what is necessary, I contend, is not just to find a monetary or financial way to deal reasonably and fairly under the circumstances with productivity changes, but to find reasonable and fair ways to deal with them in terms of the actual human costs and benefits that money ought to represent, but which it often masks, just as elaborately complex pyramid schemes often for a while mask their actual limitations.  And though I have used the pin factory and mechanical invention as the introduction to this issue, the same problem arises (with multiplied complexity) when the increase in productivity or at least of profit, comes not from invention, but from the transfer of work, not to machines, but to people who will do it for far less money, such as workers in developing nations. The human costs and benefits of that action needs to be able to be seen clearly in ways that are only partially represented in terms of unemployment of the old economy and new standards of living in the developing countries. And financial explanations make that explanation even less clear because "cost of living" differences come into play that are difficult to take into account in human terms of what benefits and burdens people actually have in relationship to the amount of money they earn.  Paradox Approaching Paradise As I have pointed out in previous chapters (3, 6, 7, 29, and 32) there is no need for trade in a paradise where everyone could meet their own needs and desires with a minimum of work and a maximum of leisure.  And it seems reasonable to assume that if in a paradise, some need for some work did happen to crop up, that people who would benefit from it would try to figure out a way to divide it up fairly among themselves. Perhaps they would all take turns doing it, or they would somehow simultaneously share it to get it done faster, if that were possible.  Or if it is something that lends itself to division of labor, they might all work at different parts of it. There seems to be little problem of fairness in adding some labor to a paradise "economy", but there is a great problem of fairness in distribution of labor in going from a complex trade economy toward a paradise economy.  Diminishing leisure and adding work to an economy seems to be easier and less problematic from a fairness perspective than does diminishing work and adding leisure.  Yet the various points along the way going in either direction might be the same.  It is just generally socially easier to distribute work acceptably than to distribute leisure acceptably. And one of the places where this is most apparently problematic now is in the kinds of cases above where machines and other mass production techniques can add leisure by doing work for people and where an increased supply of labor (such as in developing countries) holds the potential for allowing everyone to do less work overall and thus have more leisure.  But we don't have a good automatic economic or social mechanism in place for adding workers in order to increase leisure for all, instead of having the new workers simply replace the previous workers, thus forcing more "leisure" on them than they can afford to have. In a paradise economy where work crops up, it would be unreasonable for one group to say they will do all the work, but they will also then keep all the benefits of it.  It would be more reasonable for everyone to figure out a way to share the work and the benefits.  But that is not what tends to happen in coming from the other direction toward a state of more potential leisure for everyone if it could only be distributed fairly. Churchill is reported to have once said "The inherent vice of capitalism is the unequal sharing of blessings.  The inherent virtue of socialism is the equal sharing of miseries." But I suspect that dichotomy arises in that way primarily when economic advances are going in the direction of more potential leisure for everyone rather than more potential work for everyone.  It is, for example, easier in some way to assemble people to begin a new company than to cut back on the number of people the company needs.  If five people out of ten who are not working begin a new company that produces a new product or service, there is no apparent problem moral issue with that, but if a company of ten people needs only five people to do the work, a moral problem seems to arise. We are able to distribute new work more fairly than we are able to distribute newfound potential leisure. But the other aspect of the economy where this problem is most serious is in the explosion of "information technology" which is essentially the increasing distribution at ever decreasing costs of digitized or otherwise electronically reproducable data -- whether for information or for entertainment. With the advent first of analogue transmission and recording capability, but even moreso with the advent of digital transmission and the virtually perfect recording capability of what is transmitted, the unit cost of reproducing and distributing digitized material becomes extremely small -- approaching a state of economic paradise of access once the material has been digitized and the networks are in place for distributing any and all digital information.  Yet, since this now raises the spectre of radically decreasing the amount of work necessary to distribute information and entertainment to people, it raises the issue of fairness of distribution of the increased leisure which digitalization affords society.  And while Sony and ASCAP reached one solution to the problem, we have yet to be able to generalize it or invent a procedure to generate similar such solutions as the needs (which ought really to be considered opportunities) arise. Apart from some clearly unfair ways of assigning new, increased labor (as in drafting only economically disadvantaged people, "blue-collar" workers, or people not in college, in times of war to do the labor of fighting), as we increase the amount of work that needs to be done, we seem to have less social economic difficulty than when we decrease it.  That is because we have few mechanisms (such as reduction of hours in the standard work week, decreasing the age of retirement, or increasing paid vacation time) for distributing newfound substantial (potential) amounts of leisure in ways that are and that seem both fair and not damaging to the work ethic.  As technology and globalization brings the potential and the promise of more abundance, more leisure, and less potential need for work for everyone, it is increasingly important to bring into the economy mechanisms which will distribute that abundance and leisure fairly, productively, and reasonably.   (To Chapter 34)                                                                                                     I am presuming also that it takes fewer people and hours of labor to make the machines than the number of total workers (and their hours) that the machines replace, and not just that the workers who make the machines are paid less in wages than the workers the machines replace -- the idea's being that the machine replaces workers for an overall savings of labor, not that it simply tranfers the collective wages of the pin makers in a reduced amount to workers who make the machines.  If it only did the latter, it would only be an increase in productivity for the pin factory, at the expense of the machine makers, not an increase in productivity for the overall economic system. (Return to text.)                                                  For my purposes here, I wish to include as leisure, not only play and idleness, but that "work" which the person doing it counts as enjoyment or as a leisure activity (no matter how much effort it might take), rather than as what he (reluctantly or not) needs to do in order to earn a living or achieve some extrinsic end.  So if someone enjoys discovering things, her own self-initiated "research" would not be something she considers work.  If someone enjoys teaching or coaching it would not be work in the sense I intend here.  Of course, in ordinary language we can talk about some leisurely activities (such as practicing at golf or tennis) as being hard work, but that is not the sense I am using it.  Hence, in an island paradise some people might be doing what looks like hard work or labor, but since they are doing it for enjoyment, it is a leisure activity for them, not "work" in the sense intended here.  That same activity, for someone else who does not enjoy it and/or who is forced by circumstances to do it, might be very hard work indeed.  I make this distinction because I do not mean to imply (and would vigorously deny) that in paradise no one would do much of anything -- that everyone would be slothful and lazy.  I suspect some people would do quite a lot, but they would not consider it to be work. I realize I am making something of a loose distinction here because someone might find some aspects of golf not enjoyable as other aspects, and he might consider those to be work.  Or someone might have to work hard to teach a student a difficult concept, and the teaching may not be as as intrinsically pleasant as the perhaps extrinsic reward of seeing the student eventually use the concept in a worthwhile or enjoyable way. It is difficult in some cases to distinguish what is an intrinsic reward from an extrinsic one.  For example, if one does not like running, but likes the way running makes him feel near and after the end of a long run, is the reward of running intrinsic or extrinsic?  I don't know, but for the point I am trying to make here, it does not matter to have that precise a distinction. (Return to text.)

Ethical and Philosophical Foundations of Economics
by Richard Garlikov

Chapter 34
Pricing

Pricing as Rationing Limited Resources Price accomplishes a number of things.  One of them is to ration products and services, where there is not enough of a product or service for everyone, without making it seem like deliberate rationing.  Those who can afford it will be able to buy it, and those who cannot will not. That is, market pricing apportions or distributes products and labor to those who can afford to pay for it.  Pricing as Establishing Relative "Value" of Labor and Products If everyone can afford to pay, there will be no rationing in the sense of keeping something from someone or limiting distribution. In that case price does not serve a rationing purpose as much as it establishes the relative economic or financial value of different kinds of labor (and products) in relationship to each other even where there are sufficient products or services from that labor for everyone to have what they want. For example, presumably there would be enough CD's that could be made of any musical album or of any software to more than saturate the market, but they will have a price that will make them more than some other products and less than many others. For those products or services which everyone can easily get for themselves, there is no cost (no price) because there is no need to ration nor to pay for someone's time or effort to produce or distribute the product or service.  In a sense when you purchase a product, you are often actually paying for the labor and time (and lifestyle living expenses) of someone else to make it or otherwise acquire and get it to you. In some cases, of course, people may charge extremely high amounts for things that cost them very little labor (e.g., coming across an antique in their basement or a rare and valuable baseball card), but for the most part when you buy a typical product you are paying for the labor (plus profit) that went into its manufacture and distribution.  If lamps just "grew on trees everywhere", one would normally not need to pay for them. Pricing as Rationing Based on Supposed Desert One of the rationales for using pricing either to ration or to differentiate the value of different kinds of labor is that price theoretically will distribute goods and services among those who contribute the most to society and thus who earn the right to have more given to them in return.  Money is the medium for this, since, theoretically one makes more money by contributing more in the first place -- either by selling more in terms of quantity, or by selling a given quantity of labor at a higher price because it is more in demand and thus, supposedly, more important or more valuable.  And then one uses that money to buy more of what is available through the collective efforts of everyone. Unfortunately theory does not always conform to practice, since what can be mass produced, or what is in demand by wealthy people (or people who pool their wealth as in insurance plans, investment banking, etc), can make more money than products or services which cannot be mass produced and cannot find willing wealthy patrons (or collectively willing and wealthy patrons in the form of insurance companies, investors, etc.).  Moreover, what is in demand and is profitable may not be good for society, as in cigarettes, unhealthy junk food, low level, mindless forms of entertainment, etc.  Pricing as Market Freedom Rationing by price also has a socially acceptable psychological rationale, which runs counter to one of the main contentions of this book about the importance of judgment, in that rationing by price seems to be objective and automatic and not to be arbitrary, controlled, or biased in the way that other rationing methods are or seem. Because judgment is often irrational and unsound, it is more suspect than it ought to be. I think, of course, that the solution to bad judgment is not to eliminate judgment but to improve it through collective evidence and reasoning in public forums that seek truth rather than advantage or pre-determined specific biased outcomes.  But with regard to rationing by price, many people think that is normal or acceptable because then no one is deciding specifically what gets produced, or how much, or who gets what.  Anyone can get anything who can afford it, and theoretically anyone can afford any particular product or service if they work enough or work at the right things.   There is, depending on how you look at it, either freedom or the illusion of freedom in the free market mechanism. Freedom and the illusion of freedom are important because they give people a sense of control or autonomy or choice in what they do and what they earn and purchase. And that tends to be a motivating factor in working and in making purchases with one's earnings.  And it takes (other people's) personal judgment out of the matter of deciding who is worthy to receive goods and services, thus tending to minimize hostility over how social benefits are distributed within the economic system.  That hostility occurs instead in the political realm in political battles between those on the one hand who want to redistribute benefits from the economic system, through taxation and expenditures, in a way different from the way the economic system itself distributes them, and those on the other hand who think particular redistribution plans (or any redistribution plan) are unfair or unwise because they tamper with the incentives and objective, automatic mechanisms of the economic system.  Theoretically it is supply and demand and competition that sets prices, not the autocratic determination by any specific individual or small group of what others ought to consider valuable.  So the mechanism gives the appearance of being objective, mechanical, automatic, and taking into account the desires of individuals.  And while that is partially true, or true in many cases, there are notable conscious and unconscious forces and mechanisms at work that prevent the market as being as responsive as it might be and that make prices, opportunities for making contributions, and opportunities for earning money not as automatic, objective, or free as they are supposed to be or as they sometimes appear to be. The question is always whether there is any way to change either the system or people's psychological impulses within it (through education or justifiable cultivation) to improve it rather than to harm it.  Much of what occurs within a free market system is based on people's psychology in the sense of what they wish to purchase (fashions change in everything from clothes to food or diet fads), what sort of work they want to do, how much they want to charge for their work if they have any choice at all in pricing their labor, especially if they want to price it for less than the market will bear.  For example, I personally believe that the more important something is, the more it should be available, which means in some cases charging much less for it than one could get, or in some cases giving it away. To some extent that is the opposite principle under which the system usually operates, whereby the more important something is to others, the more money providers will charge, though it has not always been that way.  But to me, charging more for necessities that do not necessarily cost that much to produce, is tantamount, or very close to, gouging, which is normally a reprehensible practice.  Moreover, it is not necessary to make a profit on necessities if a profit can be made on conveniences or luxuries, so while markets overall need to produce financial profits to sustain and promote further trade, not every item in a market needs to produce a profit, just as not everyone in a corporation needs to be a salesperson or part of a manufacturing assembly line in order to contribute to the overall success and financial profitability of the company. I also personally think I should charge nice people less (when I can) than people who are not as nice.  Similarly with people who are deserving in some other way -- for example helping a prodigy acquire the tools and education to develop his/her talent to the fullest.  It should not, it seems to me, be the wealthy collector who has the Stradivarius or Guarneri violin, but the person who can play it the best and do the most with it to create the most musical pleasure for people. Supply and affordable demand are not the only way to set prices or distribute products and labor. Charging less for necessities or giving things away to those who deserve it because of talent are possible within the free market system (not just as a charitable extra), but only if people see the system as working to allow each person to make the best contribution while earning a decent living and, in some sense, a living that is commensurate to the contribution, where that is reasonable and fair, instead of seeing the system either as being there to bring them the most personal benefit, or as automatically working in such a way that the more money they make the more good they must be doing.  If one is working or living by oneself alone on the prairie or in the forest, one has responsibilities only to oneself, but if one is part of an economic community and part of a civil community that is intertwined with the economic system, then one, it seems, acquires mutual responsibilities with others in that community.  How much and what those responsibilities are is a complex matter, dependent upon many factors, but the nature of living in a community seems to entail at least some responsibility to lend an unremunerated hand where it is deserved, necessary, and possible.  There are many benefits to community living that are not simply traded equally in reciprocal transactions, and just as one tends to receive unaccounted benefits from some people, one should be prepared to bestow them on to others, especially when one cannot do something in return for the people who helped them.  Particularly if you cannot pay back someone's beneficence to you, you can pass it on to others. Of course, one can charge the maximum the market will bear (or price one's goods and services optimally to make the most total revenue) and then give to charity if one wants to make a contribution over and above the products or services one provides in one's career.  Many people do that, sometimes making a fanfare out of their contributions for self-aggrandizement or as free publicity to increase business. Instead they might have charged less to some or to all and made their additional charitable social contribution that way.  There are many ways, within the free market system, to make a contribution, over and above simply doing whatever it takes to make the most money.  And, in many cases, making the most money, even if one gives substantial amounts of it to charity, does not mean one made the greatest possible contribution anyway. Cost of Living Pricing and Intellectual "Property" or Labor Pricing is also about earning enough to live on, not just meeting one's business expenses. Lifestyle desires influence that to some extent.  Those with simpler tastes or sufficient revenue from investments or other sources might charge much less than those who are trying to make much more money, assuming the market will bear either amount. Money that goes toward living expenses also accounts for the willingness to charge less in some cases for larger quantity orders or to consistent, repeat customers, since one does not need to make as much money per unit of labor or unit item over and above one's costs of doing business. As was pointed out in Chapter 6, "Economic Progress and Real Progress", however, one needs to be able to produce for oneself or earn in trade, or have money available for, any living expenses in a market economy, since otherwise one cannot buy what one needs.  Typically that means being able to sell products or labor.  Generally that means pricing items to cover the costs of production, distribution, and cost of (lifestyle) living.  If anyone can produce the same service or physical products for less, and attain sufficient purchasing power for their desired lifestyle, they can compete with you, but they still have to work to do that.  They cannot use your work for their profit, except through theft in the case of physical products, and some sort of fraud or refusal to pay you for services already rendered. But intellectual property is different in this regard.  Moreover, for personal or "physical" services and for most products, production costs exceed distribution costs.  But intellectual property is different in this regard also. Intellectual property needs skill and usually time to create, but once that creation is done, in the age of information, particularly digital information, typically (and increasingly) the distribution costs are extremely low.  And since ideas are easy to copy, and take far less time to copy than to create in the first place, "pirates of intellectual property" can price their items to make a profit without having to include the creativity labor costs (which are basically the cost of living expenses necessary during the period of time it takes to discover or invent and perfect the idea). The trick is to balance distribution costs to pay production costs and reasonable profit. Copyright, as it stands, does not do that for three reasons: (1) black markets make piracy profitable, (2) piracy is difficult to prevent, and (3) when enforcement of copyright does succeed, it allows, and thus sometimes permits, excessive profit by allowing monopolistic or unfair (gouging) pricing based on essentially an artificial shortage or something akin to hoarding or extortion.  Mechanisms are needed to make neither piracy nor legal "monopolistic" gouging an attractive option, while letting as many people as possible benefit from the relatively inexpensive distribution of intellectual property (that is, inventions, discoveries, art, etc.)  Creativity should be able to be profitable but not, through artificial barriers, at the expense of distribution and availability. Pricing and Market Efficiency Pricing also allows for productivity by making it profitable to produce what is desired but not available without (additional) labor, and by reducing the amount of labor to make things which are plentiful, and thus not profitable to continue to make, and keep them from being wastefully or inefficiently overabundant.  Pricing tends to channel labor toward what can be produced that is desired and away from what is undesired in that sense and is the sort of automated mechanism for doing so which economists tend to extol. (Remember though, of course, that what is desired is not necessarily what is desirable, and vice versa.) Pricing does not necessarily work to produce (more of) what (additional) labor by itself cannot produce. If there is insufficient raw materials for labor to build from or to be able to produce in order to build from, and if there is no known replacement product available to meet the same need, increasing prices only serves as a rationing mechanism, not as a spur to increased productivity in regard to that product.  Inflation, Money Supply, and Price  The money supply affects prices only in combination with other factors. There is a difference between inflation on the one hand and, on the other hand, price increases based on increased demand for a particular segment, or segments, of the economy.  Prices can increase in a particular segment of the economy if the demand increases in proportion to the supply and those in charge of the supply want to raise prices. (As above, there is nothing in a free market system that says one must raise prices just because one can.)  Increased availability of money can contribute to increased demand either for a segment of the economy, or across the economy as a whole.  If people all want to use increased money (or credit) to buy the same things, that will potentially increase the price of those products and services sought, if supply cannot keep up with demand. It does not increase the price perhaps if supply can keep up with the demand.  Moreover if people use increased money or credit to pursue different things, that lessens the chance that supply in any given area will be unable to keep up with the demand.  It is inflation only when prices rise for almost everything proportionally because nothing increases but the amount of money in circulation for the same products and services as were made before in the same quantities.  Inflation and deflation cause differential problems for those sorts of financial arrangements which are independent of current price values for products or services. Fixed (retirement or annuity) incomes, loan repayments, foreign monetary exchange, or any other financial transactions based on numerical amount of money alone, rather than on what that numerical amount of money will purchase in the current market are such independent financial transactions.  For example, a $100,000 loan paid back at an interest rate lower than inflation will not purchase as much for the lender as it would have at the time he made the loan.  It works out well for the borrower, but not the lender.  Similarly, if one retires on a fixed income, as inflation grows the money buys less and less, and is less a reflection of the actual contribution one made to the economy when one was working and productive.  For example, baseball stars of 50 years ago may have helped make the game into the valuable commodity it is today, but may only accrue from it a quantity of money based on their incomes at the time, not on how much they helped the game grow to earn.  In some ways this is not much different from an actor's choosing to receive a particular fee for a film performance rather than a percentage of the income, when the film then turns out to be a financial success in part because of his performance.  His income is not commensurate with his contribution in such a case. But for ongoing trading purposes, inflation and deflation, based on an essentially equally distributed increased or decreased money supply, change prices without changing value because as one has more money, one has to spend that proportion more of it in price increases for the same thing.  If a dozen eggs gives the seller one dollar profit and it takes the sale of 10,000 dozen to buy a car, you are in the same position selling eggs vis-a-vis buying a car, as you are if a dozen eggs yields fifty cents profit, and a car is $5000.  You still have to sell 10,000 dozen to buy a car. The relationship between the value of labor of the egg producer and the value of the automobile manufacture's labor does not change in regard to each other, even though the prices they each charge might. Of course, inflation, in the sense of equal distribution of increased money supply equally spread around, and prices all rising in the same proportion because of it, seldom happens.  Instead prices might rise in a particular sector of the economy for some reason, and then only those who sell necessities or otherwise in-demand items can increase their prices commensurately.  There is typically a lag in price increases in those sectors that are marginally in demand or that are most dispensable, if they can ever catch up at all.  It is also usually said that inflation will occur with an increased money supply in an economy that is at full capacity, but even at full capacity there can be shifts in fashion. So additional money in the hands of some people might cause a shift in what is produced rather than just increasing prices for what already is being produced.  Moreover, it is not always clear what "full capacity" or "an economy" means, especially in a supposed global economy, but even in local economies where people, are either underemployed in terms of the quality of what they could be doing, or where people could increase their working hours if they wished to.  And very few, if any economic systems, of any size appear to be at full capacity, other than perhaps in times of dire or all-out war, where every possible amount of "extra" labor is directed toward the war effort. But the point is that it is not the amount of money in circulation that necessarily causes either inflation or individual sector price rises. Pricing serves different purposes, has multiple functions, and is not just the automatic cause and effect that might be characterized by the application of formulas to products and labor.

Ethical and Philosophical Foundations of Economics by Richard Garlikov Chapter 35 A Proposed Model for Overcoming the 2008 Financial “Meltdown” As many of the financial experts have said, money and credit are frozen or jammed up in (and some has been lost from) our economic system since the implosion of the real estate bubble, which then affected or accompanied the collapse of the financial institutions and the stock market, and now the economy as a whole. I am suggesting here a remedy for how to get money, and thus trade, moving again, while immediately helping restore the value of savings and retirement funds.  The details will have to be worked out by mathematicians and statisticians more knowledgeable than I, but I will present the essence of the plan here, and the rationale for it.  The standard solution, and that being attempted in the U.S. today is to pump money into the system, and I am not opposed to that, as long as it gets in the “right places” in terms of being both where it is justly deserved and where it will also actually help the economy “get moving” again – i.e., facilitate trade, help people find or keep worthwhile employment, build or rebuild needed infrastructure to help foster and enable future progress, etc.  But I want to suggest a simultaneous strategy to facilitate trade more rapidly and also treat people fairly.  My idea is to increase the buying power of existing money rather than just putting more money into the system.  This will have the advantage of working more rapidly to restore trade, without causing debt.  There will be some inequity issues that will need to be addressed but no more, and possibly less, than with a strategy that puts government money into the economy. The bottom line is for everyone voluntarily to simultaneously roll back prices, wages, and loan amounts and loan payments to some statistically determined percentage(s) of what they were at the peak of the market values – or if able to be determined more easily, to what they were before the “market over-exuberance and boom”-- in order to compensate for the money/credit that was essentially removed from the economy by the market collapses or meltdown.  The reason for rolling back existing loan amounts and payments is that essentially, for example on a home loan, the loan was intended to be commensurate with the market value of the house, and would still be after a rollback.  If all is rolled back simultaneously, the lender does not lose any real or reasonable buying power from the repayment of the loan for a lesser amount.  The lender only loses the speculative fictitious buying power he would have if the loan had to be repaid for the original numerical value (as opposed to the buying power value) of the money loaned. The government can coordinate this effort but should not require it, because requiring it will have the same unfortunate results that price controls tend to have.  I think this is better, faster, far less expensive, and more fundamentally economically sound than simply trying to infuse money into the system to make up for the money lost, because this will not take time to work its way “through the system” in the way that the government is trying to do, as of the time of this writing, by giving money to various financial institutions and hoping that will free up the system as it gets into it.  There will be some fairness issues with my proposed solution, but those can be ameliorated or resolved in a way I will suggest; and there are always fairness issues in a market economy anyway, if not in all economic systems.  The immediate benefits (that is, prevention of further widespread severe economic harm) should dwarf the fairness problems of who benefited from, or before, the bust by selling products or services just prior to the market value’s plummeting, however, and I think the fairness problems can be solved in a reasonable time frame. There is one immediate fairness issue, however, that needs to be taken into account in doing the above calculations.  Some vocations did not have their salaries increase as much, if at all, relative to inflated market prices, and they should not be decreased as much relative to the collapse – that is why some benchmark pre-boom wage/price values may be better than trying to do an across the board percentage decrease for everyone.   Many kinds of jobs are the last to benefit from increased total prosperity (or apparent prosperity), and people who hold them would suffer a double penalty, if they were left “behind” during the boom and then were harmed even further during the bust and the adjustment to it. Even in the best of times, financial instruments, including money, credit, and interest rates, do not always line up with products and labor that people have to trade.  “Market values” present an additional problem in that it is not clear what they actually represent in terms of labor, since they fluctuate the way they do in regard to often unpredictable demand, rather than in regard to material production costs, amount of labor invested in producing them, etc.    In a market meltdown, particularly this one, where in part home loans were redistributed in various ways and sold as securities that no one could explain or understand, it was not clear what, in terms of labor and trade of labor, the money represented that was used to buy many homes.  It did not represent the sustained earning power of the labor of many of the people who bought the homes.  And it is not clear what the interest rates represented in terms of labor or any other kind of value. It seems to me there are two very different mechanisms at work to cause the current contracted or depressed economy: 1) some actually meaningful money (i.e., money that represents the trading medium for actual and realistic potential goods and services) is frozen in the wrong places, and 2) some money or apparent money, or expected market values on which money is put into the system, has actually evaporated.  The remedy for each of these problems is different, though the remedy for the second may help with the first.  First, money in the wrong places: When the economic system locks up in the this way -- because money is in the wrong places (as when it is hoarded or is being saved in a way that is not in use while the savings are accruing; or when it is spent on goods and services in another part of the globe or the economy that does not easily let it get back to other traders within the sector it was originally circulating), and is not being used as the medium for keeping trade functioning -- it is not much different from the problems faced by a pure barter system where trade cannot occur because supply and demand cannot match up between what two people have to offer each other in exchange, though they each have something to trade and want to exchange it for something else they prefer; i.e., when whatever person A has to trade is not desired by the person who supplies the service or product for which A wants to trade.  In a barter system, intermediaries have to be found who will trade you for something that can be traded to someone else for something that eventually will lead to what the person wants who provides what you want.  Money, as a universal exchange medium, eliminates having to find such a chain of people, because money is the universally accepted trading item for any good or service. Money also allows people to pool resources in investments and divide their income among many different product and service providers that is difficult or impossible to do in a barter system.  But when money gets out of sync with desired and available production and labor (goods and services), the trading system goes into a form of paralysis that prevents supply and demand from matching up.  That is what is happening now.  There are still people who have skills to supply goods and services; there are still people who want and need those goods and services, and who have goods and services of their own to trade, but the medium of trade – money – is not where it needs to be to allow those trades to occur, even though the money exists somewhere, but just not in places where it does trade any good. Moreover, putting money government funds into banks and financial institutions for people to borrow at interest seems both unfair and unproductive.  Banks loan out depositors’ (and investors’) money because depositors do not normally withdraw all their money at the same time.  In a sense bank loans are like check kiting schemes because banks can cover normal withdrawals even though they have loaned out some of the money from, say, a particular depositor, while keeping his money for him “on the books”.  The money is in some ways two places at once – in the hands of the borrower and yet available in theory to the depositor.  It is also not totally unlike someone’s “borrowing” (i.e., stealing) your car at night while you are asleep to go joy riding, and returning it with a full tank of gas before you wake up.  Apart from the morality issue, the practical problem arises when they can’t return it.  Money that was borrowed that could not be paid back is like the borrowed car that cannot be returned.  The system, though it works for the most part, is inherently potentially flawed because the depositor/investor may want to use the money at the same time as the borrower, or the person whom the borrower purchases something from with the borrowed money.  This problem is exacerbated when money, particularly borrowed money gets intertwined with market values that (rapidly) decline. Thus, second -- evaporated or lost money; lost by declining market value: Market values are fictions or at best projected trade value of goods or services – trade values that may or may not actually come to fruition.   Suppose for whatever reason, a few people are willing to buy homes in your neighborhood for twice what those homes cost a year earlier.  That will drive the market value of the other homes in the neighborhood much higher, but that market value will be meaningless if no other buyers are able or willing to spend that much to buy homes in the neighborhood.  Your home can have a market value of twice what you paid for it, but unless you get that money by selling your home (or borrowing on its increased equity) for that amount, the increased equity in your home based on this market value, is a fiction.  In some sense , even if you borrow on the equity in your home, putting that money in circulation does not really represent any increased potential labor or goods available in society, but only what is employed or put to use.  At most it represents a shift in what people will be willing to spend existing money on – a shift in what people will want to trade (their own labor) for.  Now when market value of a home or other item is lost because no one else wants to buy into that neighborhood at that price, no real value (such as labor) and no money in hand worth labor is lost – with one exception I will describe momentarily.  All that evaporated was “paper profit” or the dreams of what one might have done with that money.  That is not the case when money was borrowed on the increased equity which then disappears.  Now something is lost that pertains to labor.  If you pay back the loan, you cannot recoup that money by selling your home, and if the home was the security for a loan you cannot pay back, then the lender might not recoup (all of) the loan from foreclosing on the house and sale of it. But the main difference between these situations is that when market value disappears without a loan, there is, with the one exception, no money in circulation based on the market value, whereas when market value disappears after a loan is made based on it, that money is now in circulation without a corresponding product or service for it to represent.  It will either be used to employ people for other purposes or it will simply drive up the price of some goods and services in a way that deep pockets or “extra” money can selectively inflate some particular prices. The exception is an important one for consumer confidence, which helps drive spending and increase trade – people with a believed strong nest egg in retirement funds, home equity, and other assets of believed “stored” value will tend to spend more of their current income because they can consider it “disposable” in a way they cannot if they feel they will need it in the future. The simplest model for what I am suggesting is the following: imagine a society or community of 100 people where everyone is meeting each others’ needs and all are benefitting from division of labor and mutual trade.  Suppose that prices, wages, and commerce are such that $1,000,000 dollars in circulation keeps everything functioning.  Suppose for example that at any instant slice in time, each person has close to $10,000 available to them.  Then suppose that something happens such as a fire or theft from outside the community that destroys not any means of production and that harms no one (in the way war or plague or famine does), but which annihilates half the money, $500,000, that just simply vanishes from the system.  It seems to me that means that trade can continue unimpeded if all prices and costs are then cut in half to make up for the money that disappeared.  The relative balance of trade among everyone will still be the same as it was.  Each person will make half the money they did, but have half the costs and expenditures they did.  Proportions of profits to expenditures will remain the same and though people will make half the profit they did before, the profit they earn will be worth twice as much because it still buys the exact same goods and services twice the money bought before.  What has vanished here is the amount of money based on credit based on speculative market values that disintegrated.  In terms of stock market values at this writing, that is something like 1/3 has disappeared.  Yet people still have skills and still have the means of production and still have needs.  The trading mechanism needs to be adjusted to allow trade to proceed as it did before the market and system failures.  Nothing physically has happened to decrease potential trade; it has all been about the amount and placement of the money in the system. There is a significant aspect of this model however that needs to be taken into account, but I think that can also be accounted for in a reasonable timeline.  The significant element is that it matters at some point which way above that money disappears from the system. There are different consequences for the system if the money is, on one hand, stolen, hoarded, or accumulated without being put back into the system, and, on the other hand, if the money is burned or evaporates in diminished market value.  The difference is that stolen, hoarded, and saved money still exists to be spent, and it has to be accounted for in terms of balancing the (potential) money in circulation with the amount of available goods and services.  There is an old joke where a man is so proud of winning a $5 bet that he tells the loser he is going to frame the $5 bill he has won and keep it on his wall.  The loser responds, “Well, in that case, let me write you a check.” That way the loser can still keep his money because he does not have to subtract it from his bank balance.  If money is put into the system (or prices lowered) in order to account for the money taken out of the system, there has to be a mechanism to account for any of the replaced original money that might find its way back into the system as the economy starts moving again.  Otherwise that money might be inflationary or might skew the prices of the most demanded goods to put them out of reach of the less affluent.  It is very important that the calculation of how much to lower prices, wages, and loan repayments represents only the money/credit that evaporated in the decreased market values.  The amount prices, wages, and loan repayments are lowered needs to be a fairly accurate reflection of just the amount of imaginary value that disappeared from the “over exuberance” of the markets, not the amount that is simply being stored in fear as people wait for some sign of stability. It needs to be only fairly generally accurate though, since it is probably impossible ever to keep the amount of money in circulation commensurate with the amount of products and labor potentially available.  The population changes daily bringing in, and losing, people with various skills or labor; labor and skills die with people, and are acquired by others through education and their own inventiveness.  It is not important or possible to insure that the money supply exactly matches the amount of skill, labor, and products available but that it be close enough that trade can flourish in a reasonable beneficial and fair way. Last week in the New York Times there were reports that economists were starting to worry about deflation, as people were cutting prices to try to sell more.  The article made it sound as though economists were surprised and that they considered deflation a bad thing.  I would have thought cutting prices in hard times would have been the obvious and natural response.  But unless everyone does it basically at once, it is not deflation but merely a wave of wage/price changes that moves through the economy piecemeal and has devastating effects on those whose trades are less necessary, though still worthwhile and desired.  All other things being equal, those who sell necessities are able to raise prices sooner and lower them later in a changing economy.  In a meltdown that puts excess and undue pressure on those who sell luxuries or conveniences to those with relatively limited budgets.  (Luxuries sold to the very affluent are also sometime less susceptible to competitive pricing or a sour economy.)  It only becomes deflationary when the lowered prices work their way throughout the system and end up being fairly equal.  My plan is to skip the months and years of sequential price lowering that is painful to those who have to cut prices without being able to cut expenditures on necessities, and go right to the end result.  And I believe the end result ought to be related directly to the amount of money that evaporated from the system – money based on credit that was based on overly exuberant market value expectations and earnings.  The money that was actually put into the system, in the form of loans, which purchased stocks or homes (or, previously, Internet “dot com” companies) at inflated values, needs to be accounted for somehow.  It can be removed from the system (say, through taxation, or hoarding, that is not spent).  Otherwise it will skew prices in some (more demanded) sectors or it will cause inflation, which is the skewing of all prices in the same proportion across the board. Market values can be fragile, unstable, and unpredictable.  They are in certain regards a convenient fiction or imaginary value on which much trade is predicated.  Insofar as credit and prices are based on market values and predicted future market values, trade may flourish when there is labor to meet the needs of those with money or credit.  What we have seen happen so far this year is the disappearance and loss of something like 30-50% of market values in stocks at least.   But that was imaginary value in the first place, though it affected trade, prices, and the availability of credit – which is basically money added into circulation that can be traded for products and labor. When imaginary market prices are increasing and expected to increase even more, many prices go up in response to increased trade.  Some of that is inflationary, causing all or most prices to rise relatively commensurately (usually in sequence rather than simultaneously) as more money enters a system which has relatively constant products and labor available.  Some of it is only pseudo-inflationary for certain areas of the economy – those whose demand is such that prices can be raised just because people have more income and are willing to spend it on one thing rather than another, such as, in America, health care or wireless phones or bigger homes, more prestigious cars, etc.  This is not really inflation but generates a relative difference in pricing due to trends in demand.  It essentially makes one product or kind of labor relatively worth more than another, in an incommensurate way. What I am recommending is for economists, mathematicians, and statisticians to figure out how much money from a fully functioning system has evaporated in regard to market values and expectations – money that became available in the form of loans based on credit based on expected future earnings. Then they need to figure out the relationship between the value of that percentage decrease and the value of the percentage decrease in average prices of goods and services that would be caused eventually by it, and they need to suggest a date as soon as possible in which all prices, wages, and loan repayments are decreased by that percentage amount from what they were at the peak of the boom. That percentage needs to be made public and all people asked to comply with it.  That would likely force, through competition, compliance by those reluctant to participate voluntarily. Now, this will create fairness inequities in the system as those, for example, who got out of the stock market at its peak, or who sold houses for peak (overvalued) market values will have more money than  the value of what they sold to earn that money.  And lenders will be paid back far less money than what they loaned.  But there are a number of responses to this problem: (1) the money, which lenders are paid back after the devaluation of their loans, will still be worth, in relative purchasing power, what the old payments would have been worth at the time of the peak market values, (2) in any transaction that involves market values or supply and demand, there are always potential winners and losers anyway; loans and interest rates on fixed mortgages seldom match market values; and if you buy something that loses market value, you lost on that purchase compared to if you had waited till the price decreased. Similarly if you sell, and the market value of what you sold then increases. That is just a matter of luck (or predictive skill possibly) and the vagaries and vicissitudes of markets.  But (3) more importantly, selective taxation (or charitable donations or deductable investments that put that money to use), if deemed necessary and reasonably just, can help alleviate egregious unfair imbalances caused by this proposal if it is enacted. A word about speculation on continuing rising market values, easy credit, and unrealistic debt as being a cause of much of economic collapse that has affected the globe:  I do not think that is correct for the following reason: if there were builders and materials available to build homes, for example, and there were families who needed those homes, particularly working families who are contributing goods and services of their own to the other people in the community, then in an ideal economy there should be some way to bring that (potential) supply and demand together.  Otherwise there is (potential) labor being wasted while (potential) needs are being unmet, just as in a barter system where people with goods to trade cannot match up with people who need those goods, because the trading mechanism doesn’t match up their equivalent goods and services.  The primary purpose of an economic system is to facilitate trade – facilitate matching needs and desires with the products and labor that meet those needs and desires.  When an economic system fails to fulfill that function, it needs to be remedied, replaced, or supplemented as soon as possible so that it will.  Insofar as easy credit made potential goods and services available to those who needed it, that should be a good thing.  It is my view that if credit outpaced available money, then there must not have been the right amount of money in the system in the right places.  The credit is not the problem, because it made the system work.  Money was the problem because it was either insufficient in quantity or it was in the wrong places to let the system work to match (potential) supply with demand.  Had money somehow been available in the right places and quantities without unaffordable interest payments accompanying it, the system perhaps would have been still functioning properly.  And while I realize that government contracts that put money directly into the economy by the purchasing of goods and services has problems of fairness and efficiency, it at least bypasses putting money into financial institutions that then lend it at interest rates that essentially drive up costs in a different way and support a tier of middlemen who are unnecessary for the actual productivity itself. Finally, a word about fairness:  In a mutually interdependent economy like ours (as opposed to a self-sufficient existence that someone might have on the frontier or at Walden Pond for a few months or a year if one remains healthy), people’s actions and wealth affect others in ways they may not realize. For example, affluent people with large gas guzzling SUVs cause the price of gasoline to go up, affecting  the ability of less affluent people to use their cars or have as much money left for groceries or medicine.  And as we all saw with Enron and the collapse of the .com markets and then the housing and stock markets, innocent people’s pension funds and life savings can diminish or be lost in a heartbeat through no fault of their own – essentially wiping out the recompense they received for their labor over the years that contributed to the society as a whole.  If we are going to talk about fairness, the fairness should be about being able to receive and have a just reward for the contributions one’s labor has made.   The actions of other people and the unpredictable fluctuations of the market should not cause people’s remuneration for their past labor to evaporate just because they stored their earnings in a way that, though impervious to moth and rust, was not impervious to unknowable economic forces outside of their control.  We can sort out the fairness issues later, but the important thing now is not to lose future productivity by trying to work within a failed system that, left unremedied, will cause the permanent loss of many currently available goods and services that are important to have continue to exist.

Ethical and Philosophical Foundations of Economics by Richard Garlikov Chapter 36 Fair Economic Trade Across Generations In discussing the relative benefits and flaws in different economic systems or models, much of the discussion is about what works beneficially and what is fair at any given time.  But it is also important to compare systems and economic models in regard to their benefits and burdens over a period of time, particularly across generations. [I include “economic models” in the above because systems themselves may have the capacity to remedy burdens without having to switch to a whole new system that throws out babies with bathwater.  E.g., one of the fairness evils in early capitalism was that those with resources could take unfair advantage of those without, particularly by forcing workers to compete against each other for work at the lowest wages.  Without having to resort to socialism or communism, the advent and eventual acceptance of labor unions replaced individual bargaining with “collective bargaining” in order to prevent, or at least diminish, the exploitation that competitive individual bargaining permitted and fostered.  The advent of minimum wage is another example of an adjustment in the free market system that was intended to prevent exploitation.  And although collective bargaining and minimum wage laws create some problems of their own, the point here is simply that they are attempted means within capitalism to address and remedy problems believed to be initially inherent in it. Not every problem within any given system requires discarding the system.] Imagine the following case: Two people agree to trade their labor with each other.  For simplicity’s sake, we will have them be in the same trade and of comparable skill, talent, work ethic, and methodology; two photographers.  They each have daughters.  They respect and like each others’ work. And both they and their families agree that they want each to photograph the wedding of the others’ daughter.  In order to make the trade comparable, let us say that it is the labor that is being traded, not the number of copies of pictures, and that each photographer will simply take the pictures and turn the negative or image or digital image files over to the other to have however many prints of whatever size they want.  And suppose that the weddings themselves will be similar, yielding about the same number of good photographs of the same sorts of things.  In other words, the point is to try to make this trade as even as possible in all ways.  Such a trade might happen in a free market system or even in a socialist system.  On the face of it, this would seem to be a fair and equitable trade that benefits both families. But consider the following additional piece of information.  The daughter of one photographer is 24 years old and about to be married in six months, and the daughter of the other is only 8 years old, and is not likely to marry for at least another 9 or 10 years or perhaps even another 16 or 20 years.  If this trade is agreed upon, there is a very real potential problem that is more likely to occur than if the daughters are both adults about to be married within a short time of each other.  The problem is that circumstances may occur between the times of the weddings that make it difficult or impossible for the father of the older daughter to take the pictures at the wedding of the father with the younger daughter.  To make discussion of this easier, I will refer to the father of the older daughter as the “older father”. One problem is that the older father might die or become unable to take good pictures before the younger daughter’s wedding.  In such a case, the older photographer will have worked without recompense.  He will have done his share of the work with no remuneration.  Another problem is that the younger family might move or hold the wedding in a distant city, thus adding travel and other expenses and labor to the work of the younger photographer in order to fulfill his obligation of repayment in kind.  This also makes the trade now uneven, though not as uneven as the death or incapacitation of the older photographer. Now one way around this potential problem is for the photographers to make this trade and secure it with money paid by the older photographer to the younger after receiving the pictures from the first wedding.  The money would be returned to the older photographer upon his completion of the daughter’s wedding.  If the older photographer cannot comply with the trade, or if the younger family decides to use a different photographer for any reason, then they would simply use that money to hire the photographer of their choice, whom for simplicity’s sake we will assume takes pictures of comparable quality to the  photographer for whom the substitution is being made. This would be a fair and equitable solution except for at least three possible problems.  First, the amount of work and expense may change in what is required to photograph a wedding properly between the two events.  E.g., suppose the first wedding is shot on film, yielding negatives, and the second one is shot digitally, yielding image files.  In terms of prints generated, the quality might be the same but the amount of work or expenses each photographer went to might be different, and the value of the results might be significantly different (since, in this example, one can do considerably more, much more easily and less expensively, with image files than one can do with negatives – such as e-mailing the photos to friends and family to see and to have).  The trade may end up being uneven in some sense in that the amount of labor or expense of the photographers may be different for shooting each wedding, and/or the personal value of what each family receives may be different even though they each are receiving the images stored on media that allow them to be retrieved and printed.  Second, the personal value of photography may change.  Perhaps something replaces photography – say elaborate video productions – as the preferred format for recording weddings.  Or there may be some other reason photography falls out of favor.  In this case, the younger photographer may have provided something of much more value at the time than the older photographer can provide in doing the “same” service. But while these are potential problems, there is a much more important one that I wish to discuss because it creates much more of a potential imbalance of fairness, I think.  The problem I wish to describe in more detail and discuss in this paper, is that money changes value over time, potentially rendering these trades unequal without some reasonable and fair way of compensating for the value change in money.  Now one obvious way to prevent the value of this particular money from changing is to invest it in something that will match inflation/deflation in the overall economy, paying back the investment to the older photographer when he gives the younger family the completed work he owes them. But there is no guarantee the investment will keep pace with inflation or deflation, or that the investment will be safe.  The crux of the problem I am trying to get to is for fair trade to occur between two parties who use a medium of exchange other than pure service/product for equal service/product barter, the medium of exchange must remain commensurate with the services or products being traded.  When it does, there is no problem of fairness in the trade, other than the two described briefly before this one, which are problems beyond social or economic control.  And the more general problem is the value of one’s labor over time, or from one generation to the next, in regard to the economy as a whole, rather than in regard to barter between two parties.  I will describe the more general problem shortly. But first I want to make a brief excursion, not for the religious purpose it may initially seem, but to use the beauty of the Bible as literature to state a point more eloquently than I can myself, and to show that the issues I am presenting here should not be perceived as being that radical or heretical for Christians at least.  In the Gospel of Matthew, Jesus preaches in the Sermon on the Mount: 6:19 Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal:  6:20 But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: In the context, it is clear that Jesus has in mind many points in these warnings.  The first is that there are spiritual values far more important than material ones.  Second one cannot equally value and pursue both kinds of values. (6:24 No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon.) Third, material things are fragile and vulnerable to ruin.  No matter how you store them, they may not be there in the future when you seek to use them. Fourth, do not try to trust to the future by the material goods you have stored up, 6:33 But seek ye first the kingdom of God, and his righteousness; and all these things shall be added unto you. I think that in a secular, economic context we can still profit from these passages. Savings and investments in money and material goods are fragile and vulnerable to forces of nature and forces of economics.  It is not just moth and rust but also inflation, depression, financial market and banking collapses, and the destructive consequences of war, disease, earthquake, flooding, and other natural disasters, that can wipe out our individual investments before we can utilize them, sometimes over time, sometimes in the blink of an eye. Whether or not spiritual/moral values and material ones necessarily conflict is perhaps debatable, but certainly in practice, most people seem to find it extremely difficult to pursue both in a way that clearly keeps the spiritual and moral ones transcendent above the material ones.  People fight each other over store bargains and places in traffic while shopping for Christmas presents to celebrate the love of Christ.  People pursue monetary profit over moral principles as long as they legally can, and sometimes beyond what the law allows. The cry is that “This has nothing to do with morality; this is purely a business issue.” Well, everything has to do with morality and with spiritual issues; the only question is whether it conforms to them or conflicts with them. And when there is conflict, the moral and spiritual values ought prima facie to be the overriding ones. The fourth passage above from John 6:33 is more difficult to interpret in secular terms, of course, but I think that if we could accept John Kennedy’s statement in his inaugural address that “here on earth God’s work must truly be our own”, we could not unfairly interpret it to at least mean the following: in a community that pursues and practices righteousness (i.e., doing what is right), material well-being will be provided to the extent it can be; and in a community that abandons the pursuit of righteousness, material well-being is in more peril then it is has to be, for others will not provide the available help they should to those who deserve it. I now want to return to the economic problem of the two photographers who trade their services many years apart.  The general problem presented by this example is the problem of the value of labor and trade over time and across generations. Insofar as each generation improves the living conditions for itself and the next, the succeeding generations owe them a debt that is difficult to measure or to repay.  Often, unfortunately, it is even difficult to notice. Much of what is beneficial in the past is only a temporary scaffold for future benefit; and when the scaffold vanishes after doing its work, it is soon forgotten and failed to be appreciated for its contribution.  For example, two lane country roads that today seem to be a burden when compared with the ability to travel much faster on superhighways helped provide the economic growth and the building of material products and equipment that eventually let superhighways be able to be constructed. Some of the old two lane roads and their bridges have deteriorated badly, or were never built to support heavy or large-size loads, and have only minimal use today, if any.  Another example is the exponential lucrative growth in many professional sports that were once played by athletes for relatively little compensation.  Television and innovations brought to television such as vivid color, instant replay, large screens, “high definition”, digital recording, satellite/cable or internet transmission, etc. have all allowed sports to be essentially mass produced or mass distributed far beyond the people who previously could only watch within stadiums.  Revenues have increased proportionally with the audience.  Today’s players who make millions of dollars playing these sports owe a debt, seldom paid, to those who played it for love and who made it popular to begin with.  The debt is not one that depended upon a mutual trade or agreement, but upon the goods and services that were provided by the previous generation as a beneficial side-effect of their efforts.  The older players helped create a value for which they are not compensated because the value did not come while they still had the ability to earn from their labor.  They earned what they could, but ended up creating much more of value than they could be paid at the time.  And there was no way for the players of the 1930’s to strike a bargaining agreement with the league of the 21st century, whose success they did not, and perhaps could not, anticipate.  It is tantamount to selling a Van Gogh for millions of dollars and not sharing any of it with him if he were still alive and barely subsisting in a nursing home, no longer able to paint.  Legally and transactionally, of course, there is no requirement to share one’s profits with those who made them possible, if they once sold them for very little in order to keep from starving.  But morally it seems reprehensible not to. With all the previous as prologue, it should be pretty clear that people often make a contribution to the future that is far beyond the payment they receive from it at the time, and that many forms of moth and rust can ruin, before they use it, the earnings they have saved for their futures when they will no longer be able to work as hard or as much.  Their payment for their labor turns out, through no one’s fault not to be commensurate with the current value of their labor, and the value of that labor that may even have been fair compensation at the time, becomes unfairly diminished and unappreciated over time. I offer no remedy here, but I think it is important to point out the problem in order to make it possible to address and to solve as reasonably as possible. It is wrong to ignore the problem or to think that individuals can provide for their future selves merely by themselves. There are and have been various piecemeal attempts to solve part of the problem at least minimally so that older people do not starve or lack life-sustaining necessities.  Social Security (in the United States) for example, with cost of living increases to try to adjust for inflation, invested retirement savings, Medicare, Medicaid, etc.  But these often barely scratch the surface of adequate payment for past service provided.  I also think it is wrong to believe that merely formal institutional financial instruments can be sufficient to achieve fair future compensation for past labor.  And the Great Depression and the current (2008) market meltdown illustrate the point all too well. People who have worked hard and saved with all due diligence have seen their efforts diminish in value or in some cases disappear.  Now it is one thing when unavoidable moth and rust (i.e., physical and social forces beyond our control) corrupt our material possessions, but it seems to me to be quite a different thing when existing goods and services fall outside our reach merely because the conventional intermediate means of storing up the value of our past labors fails though no fault of our own – particularly when those means were artificially contrived and invented to foster trade in the first place, and are within our control to change.  Money and other financial instruments are meant to be a means of facilitating trade, not ends in themselves.  Money, by itself, does not compensate for contributing labor – it is an IOU redeemable anywhere, supposedly, for other people’s labor.  And when it is redeemed through the purchase of goods or services, those who are paid then have the IOU that they can redeem as long as goods or services (i.e., products and labor) are available.  When money or other financial instruments which are invented and contrived to compensate labor for labor, fail to provide that compensation because of properties peculiar to money or market practices – as opposed to natural disasters, war, disease, drought, famine, etc. which make goods and services unavailable to be purchased -- then there needs to be a social or new economic remedy of some sort to restore the ability to trade based on what one has already contributed.  Otherwise contributions of past labor unfairly go unpaid, or insufficiently repaid, merely because of the inadequacy or failure of the trading medium.  And that is morally and spiritually wrong to allow (because it is within our power to remedy) in the same way it is wrong to neglect someone’s needs or deserts because the paperwork has been lost or because they did not meet some arbitrary requirement or rule, when we know from other evidence that they deserve to have their needs met and when we have the power to meet them if we choose. The problem in our financial markets, when they fail as they are failing today, is a problem of means or tools, not a problem of purpose or ends.  We must keep the purpose in mind – effecting trade and growth of necessities at least, insofar as is physically possible for us to meet our needs, not only by swapping goods and services “horizontally” in time between individuals with something to offer each other immediately and contemporaneously, but swapping goods and services across generations vertically in time, even when there was no specific contract or transaction for the goods and services rendered by the previous generations.

Ethical and Philosophical Foundations of Economics by Richard Garlikov The following utilizes some of the material in previous chapters in the book linked above, and makes some of the same points, but from a different, and additional, perspective.  It was written as a “stand alone” or self-contained article, but I include it as one of the chapters in the book, because it is different enough from the other chapters to belong with them too. Chapter 37 When Economic Process Displaces Purpose The efforts by the Bush administration and now the Obama administration to revive the economy from its meltdown remind me of the game of golf.  If any sane observer from another planet were to watch people play golf, the first question would probably be “If the object is to put the ball into the hole the most efficient way, why do you use those unwieldy, strange sticks to hit it there instead of just carrying it to the hole and putting it in with your hand?”  The difference between golf (or any sport or game) and economics though, is that golf is a game where developing proficiency at intrinsically pointless skills that do things in a difficult way is fun in its own right, and economics should not be a game whose mechanisms are acceptable when they have no merit, and particularly when they are harmful.  The point of golf is not to get the ball into the hole the most efficient way – but to get it in the hole the most efficient way using funny sticks in ways specified by the rules of the game, rules meant to make the task very challenging while still making it possible. Unfortunately, much of life is set up to follow what philosophers call a “rule utilitarian” scheme, which is that rules are put into place which are supposed to be the best ways to achieve a goal, and once the rules are in place, then, in order for everything to be fair, everyone must follow them, even if in a particular instance it might be advantageous, or even important, for everyone, to break or ignore one or more.  And everyone must play by (the same) rules to make the enterprise fair and so that everyone knows what is allowed and what is not, and so everyone can make plans based on that shared knowledge.  This is the theory, and it is a generally acceptable model for sports and games, but it frequently does not suit real life well.  It fails because there are cases where following rules can cause clearly bad results that could easily be avoided by breaking the rules that do not permit doing what is clearly right.  It also fails because the consequences of following the rules are not always fair, although the rules may seem fair to those who make them or who have the ability or means to succeed within them.  And it fails in those cases where the rules do not accurately foster or describe the behaviors they are intended to reflect, promote, or achieve. Occasionally it even fails in sports, when actions that fall under the rules actually hurt the spirit (and/or therefore in many cases the spectator value) of the game.  For example, when coach Dean Smith at North Carolina introduced the “four corners offense” which basically turned college basketball into a sophisticated game of “keep away”, it forced the NCAA to introduce the shot clock in basketball so that teams that were ahead at some early point in the game could not just hold the ball indefinitely for the rest of the game by adroitly passing it all over the “spread out” (into the four corners of the) half-court.  Also the balk rule in baseball had to be changed, after a pitcher who carefully studied the existing rule devised a way to pick runners off first base in a manner that made it virtually impossible for anyone to get a sufficient lead to be able to steal second base, or get past it on a single to the outfield, thus essentially taking “base stealing”, or taking an extra base on a hit, out of the game.  But because sports is a rule utilitarian enterprise, and normally rules do not permit changes in them during a season, both those sports had to endure a season of behaviors that met the rules while thwarting their ultimate purpose. While that may be tolerated in a game or sport, it should not be the way economics works, particularly under dreadful economic conditions. The rules should not take priority over their purpose. There are two central purposes of any economic system – and any economic mechanisms, rules, or guiding principle should help achieve them, not thwart or impede achieving them.   The first is to help individuals in any society which utilizes the system, achieve the greatest amount of benefit (or greatest amount of worthwhile benefit-over-burden) from their legitimate (i.e., moral) labor, and the second is to distribute fairly and rightly the benefits and burdens of at least mutual labor (and sometimes of life in general in the fairest, most reasonable way of all those who participate in the system and contribute to it, and in some cases, of those who are not able to participate in the system, such as children or others unable to work through no fault of their own, or who contribute in a way different from what is normally considered (paid) work – such as bearing and raising children.  In other words an economic system should take into account both productivity and moral principles. This typically in modern societies means the individuals involved exchange with each other the excess of goods and services which they produce by dividing their labor and working at what they each do best.  It would be ideal if the most productive system was also the fairest and also otherwise most moral, but in many instances these goals conflict with each other – as illustrated in Winston Churchill’s observation to the effect that capitalism provides an unequal distribution of wealth, whereas Communism or socialism provides an equal distribution of poverty (or misery).  When my children were young, one time they fought over some stupid cheap toy in the backseat of the car as we drove somewhere.  I told them to work out some way they could share the toy or each have it part of the time or I would take it away from them.  The older one told me to just go ahead and take it now.  I said, “But then neither of you would get to enjoy it.” And her immediate reply was “But at least that will be fair.”  Her emphasis on fairness to that extreme was unnecessarily detrimental to their productive mutual enjoyment of the toy.  One doesn’t want an economic system that is fair in that way – fair at so great an expense of benefit. On the other hand, John Stuart Mill, in commenting in his Principles of Political Economy on the difference between unfettered free-market capitalism as it was practiced in the middle of the 19th century in England and the ideals of communism proposed at the time, eloquently pointed out the flaw in the other extreme, whereby some were able to exploit others by an unfair and undeserved advantage: "If ... the choice were to be made between Communism with all its [problems], and the present state of society with all its sufferings and injustices; if the institution of private property necessarily carried with it as a consequence, that the produce of labour should be apportioned as we now see it, almost in an inverse ratio to the labour --the largest portions to those who have never worked at all, the next largest to those whose work is almost nominal, and so in a descending scale, the remuneration dwindling as the work grows harder and more disagreeable, until the most fatiguing and exhausting bodily labour cannot count with certainty on being able to earn even the necessaries of life; if this or Communism were the alternatives, all the difficulties, great or small, of Communism would be as dust in the balance." Now it seems elementary to me that any economic system, mechanism, policy, or proposal should be judged on the basis of its total impact on both 1) generating an increase of benefits over burdens, and 2) on fairness and rightness in distributing the benefits and burdens of life, or at least those of cooperative labor.  That is all that should be involved.  And yet, that is where the political discussions seldom, if ever, focus in practice. Instead, at best, “conservatives” emphasize productivity (by which they mean increasing the benefits or ratio of benefits to burdens), particularly for the individual, while ignoring fairness, and “liberals” emphasize fairness while ignoring problems that might cause for productivity.  That is a major problem in itself because it does not work toward finding mechanisms that strike a reasonable balance between the two. [To make clear here, though, by “fairness” I do not necessarily mean equal results for all or undeserved or unjustified reward for anyone.  Conservatives tend to fear that for people below a certain level of income at least, a guaranteed portion of society’s bounty will produce or foster sloth, and liberals ignore that may actually be the case sometimes. The concept of "fairness is too complex a subject to examine here (it is discussed in Chapter 8), but it one that should not be ignored nor treated in the superficial and mistaken, sometimes absurd, ways it tends to occur in public discussions.] But there are even bigger problems, because most economic policies and policy proposals simply introduce ways to try to achieve better results on supposedly objective scales, though those may not actually have anything to do with increasing worthwhile productivity or achieving reasonable fairness.  For example, one might increase gross domestic product (GDP) in any of a number of ways that yet do not significantly improve the quality of life or bring about a greater balance of benefits to burdens.  For example, if you had to choose between (1) living on an island paradise with plenty of friends whose companionship was enjoyable and where each of you could spend most of your time doing what you really wanted to do although there was a low or non-existent GDP because work and trade were not necessary, or (2) living in a major urban area where there was plenty of money, and a high GDP, but a high cost of living combined with many more serious needs than could be met by the labor available, would not the place with the lower GDP be the better place to live in terms of quality of life.  GDP is just one example of an objective financial/monetary measure that does not actually reflect what it intends to or seems to measure.  And too much economic debate centers around increasing such measures without trying to determine whether doing so would actually make us better off as individuals or as a society or not.  For example, it might be that we would be better off if, instead of working harder to increase GDP, we found ways to increase leisure time while producing enough necessities for all but cutting down on unnecessary products whose only purpose is to increase trade and GDP, not to make our individual or collective lives better.  The presumption that increased trade and increased GDP make our lives better is not necessarily true.  And there are many serious cases where it isn’t. Some “measures” of economic quality of life are akin to a business’s accounting procedures that show a higher or lower financial profit even though nothing is materially different in terms of amount of income and amount of expenses paid. The analogy with golf is the tinkering with the rules (e.g., whether one can improve the lie of the ball a bit in the fairway without penalty – “winter rules”) and with the technology of the balls and clubs in a way that allows one to hit shots with greater distance or accuracy with no, or very little, increase in skill.  Then the purpose of the game – which is developing player skill in using certain kinds of sticks (not just putting the ball into the hole) -- is being thwarted by the acceptance of that technology, because the technology allows improvement in results that have nothing to do with the improvement of one’s skill level.  The apparent measure of success is not a real measure of improvement or success at all. Improve the equipment sufficiently, and you are relegating golf to carrying the ball to the hole and dropping it in.  Technological improvements within some limits may or may not increase the popularity of the sport, but the “purity versus popularity” aspect of sports is still a discussion about an artificial enterprise which has no real intrinsic purpose or value in the first place.  That is not the kind of discussion that best serves economic policy, because fairness and quality of life in the economic realm do have intrinsic value and are not arbitrary. This sort of thing happens in all formal systems – systems with rules that become more important than the purpose the rules were intended to achieve.  The means displace and become the ends.  We see it in the criminal justice system when loopholes and the skill of lawyers thwart justice instead of fostering it.  We see it in legislatures where rules intended to achieve mutual cooperation for the good of the society instead foster mutual cooperation for the good of the legislators even at the expense of the citizens they represent.  We even see it in football instant replay where rules that arbitrarily limit its use defeat the purpose of making sure no important official calls are allowed to stand when everyone viewing the game on television sees they are obviously incorrect.  E.g., if a coach has to initiate the replay, and can only do so twice during a half, then clearly some bad calls will go uncorrected.  The rationale that replay reviews slow down the game too much to allow more challenges misses the point entirely.  The coach should not have to initiate reviews at all, because the point of instant replay is not to review the calls coaches think are bad, but to correct the calls that the whole viewing audience sees are bad.  An official in the booth should be the one to call for the review or make the correction for every badly missed call, not just those in the last two minutes of a half, as the rules now stand.  A bad call is no more significant in the last two minutes than in the first two minutes of a game; if a team loses by five points, it does not much matter that they had a touchdown wrongly denied at the end rather than the beginning, or that the other team had a touchdown wrongly credited to them at the end rather than the beginning.  It is true that bad calls at the beginning have a chance of being overcome, whereas those at the very end do not, but having to overcome bad calls should not be part of the challenge of athletic competition, however psychologically interesting it might be.  And it certainly does not add a favorable dimension to the game when an early bad call cannot be overcome just because of some misguided, arbitrary rule. But while there may be some point, even if impure, in trying to make golf clubs that help you play the game more effectively, it is still a round-about way of getting the ball into the hole most effectively and efficiently.  In economics, it is asinine to be tinkering with the golfing equivalent of inefficient and maybe even ineffective “sticks” in order to achieve the ends that might more readily be achieved directly.  It is not only a wasteful process, but it is morally wrong if it allows significant unnecessary harm to occur while waiting for it to work or while waiting to see whether it works or not.  While people are losing jobs, homes, and the ability to purchase health care and other important goods and services, thus putting even more people out of work – in short while the economy is contracting – policies that try to get the economy “moving again” by tax breaks or by “bailout” infusions of cash to financial institutions seem to be as inefficient as hitting a ball off the ground into a distant, small hole with a bunch of thin sticks.  If innocent people are deprived of their money by a massive failure in the system, their needs to be a direct remedy if one is possible, not an indirect one that may or may not do the job. The morality of the endeavor is also not helped when many of the financial institutions receiving the money are those that caused the problem in the first place by programs that were clearly greedy and stupid, since their purpose was to make money through mechanisms which were at best not understood at all, and at worst fairly clearly basically a Ponzi scheme based on unrealistic, “exuberantly optimistic” market value growth that was unsustainable. The immorality of the enterprise is compounded further when 1) the money intended to help stimulate the economy and get it functioning optimally, fails to do so, 2) when it is placed in a financial institution where those who need and/or deserve it then have to pay (interest, loan fees, and time and labor to prove they qualify for it) to access and use it – which is like your insurance company’s giving the dealer a new car for you to buy when yours is stolen or wrecked instead of giving you a new car or part of the money for it, and 3) particularly when (retirement) savings – which is money saved from work already done long ago, that produced, and maybe still produces benefit, for society -- is not replaced in the process. Because investment is an essential part of the free market capitalist system, there should be some form of insurance that reasonably distributes the risks of reasonable investments – particularly perhaps involving pension funds.  Otherwise retirement savings becomes a mere gamble – which means that one could end up having worked for nothing, and have no way of getting back in trade the labor for one’s own earlier labor.  Savings essentially represents the deferral of getting return goods and services for the goods or services one traded to others for money.  Money is a medium for non-simultaneous trading of goods and services; and money invested in retirement accounts is a storage medium for trades that occur over an even longer than normal span of time. It would be different if some sort of physical catastrophe wiped out the sources and availability of the goods and services we have saved money to purchase, from the money we earned through the labor we contributed to the system.  If a war or natural disaster destroys skilled workers or complex equipment needed to provide things we want, money may not be able to replace or resurrect them.  But when what destroys the ability to purchase what is available, financially rather than materially – when the sources and means of production have not changed, but only something in the financial system has – then there should be some reasonable way to directly manipulate the system, not just indirectly try to manipulate it through suspect financial mechanisms (the “golf sticks”), to prevent people from losing what they deserve to have, particularly from past labor they have already contributed.  And similarly for people who are currently able to work, it would be different if a physical catastrophe destroyed the means of production – the means of their being able to work.  It would be understandable that there would be necessary dislocations and changes in jobs, tasks, and trade, but that should not the case when there is no loss in the means of production, but merely in the failed rules that comprise the financial mechanism that enables the process of trade and keeps a supposed account of who deserves what, based on what they have contributed. The further shame is that the rules under which our economic system works are invalidly thought to be fair and reasonable simply because they produce success for some who often are the ones who most extol their virtues. Any way of making money or achieving success at some enterprise will tend to seem fair to those who know how to “work the system” and benefit from it under the rules, even if they are not really contributing to the real improvement of people’s lives.  But that is not the measure of fairness. It is just another example of “winners writing history”.  And it does not take into account the potential opportunity costs.  Just because a system works very well for a portion of the population, and works acceptably well for a larger part of the population does not mean it is the best we can all do.  What we want is a system that is most fair and most beneficial regardless of what supposedly objective indicators it excels in that may not be related to fairness or worthwhile benefit.  What we shouldn’t want is a system that holds us hostage to rules and mechanisms we are afraid to change or abandon just because they happen to coincide with progress in the ability to purchase material goods and desired services, even when we know or could know that they do at an ultimate cost to us – as seems to occur when market values become “overly exuberant” or when “financial instruments” have no relationship to anything realistic and merely create monetary exchanges that benefit some while burdening others or eventually burdening the whole economic system once they reach a critical mass. Now part of the allure of free market capitalism is that in some ways our choices and work/trade decisions in it are voluntary and autonomous (i.e., “free and unfettered” in those senses of “free”), and because it is not able to be determined (by others) ahead of time who will succeed and who will fail. But freedom to fail by ill-fated choices and the vagaries of chance are not necessarily the criteria for a system’s being fairest and most beneficial.  As any coach in any team sport readily knows, autonomous and totally voluntary play by each individual will not likely be most productive or beneficial for the team’s standings, even if it produces benefits for the most talented or most aggressive and selfish players.  And it is not guaranteed even to produce that benefit.  But “freedom to fail” or to cause one’s team to fail is not normally a good characteristic or one worthy of pursuit. On the other hand, a closely coordinated team effort of poor coaching design that is merely forced on players against their will, will not produce good team results either, and may do more harm to the performances and statistics of individual players than is necessary or justified. What is needed is a system that tries to be reasonably moral (including individual autonomy)  and reasonably productive, even if it may not be totally optimal.  That requires knowledge of how human nature, including unintended consequences in a voluntary system works, and it particularly requires having agreed upon rules within the system that allow changes to be made (including changes in the other rules of the system) when it becomes obvious that personal gain for some is destructive overall, and particularly when the system is headed toward some catastrophe, as in the 2008 financial debacle.  Ideally the system would be one everyone or most people understand and see the benefits, so that the rules and principles followed are done so voluntarily and freely because people know it works out best for them.  That would be a far happier, efficient, more accepted, and more acceptable system than one in which rules are externally imposed only by law and have to be enforced by policing and punishment. What I am contending here is that the focus of developing or repairing any economic system, or any components in an economic system, ought to be on achieving some reasonable degree of productivity and fairness.  And whenever the “rules” or “mechanisms” in the system fail to do that – particularly when they drastically fail to do that – then there should be the ability in place to act outside the system in order to remedy the problems directly, rather than trying to “fudge” the mechanisms in the system to possibly, eventually achieve a semblance of productivity and fairness.  And this is true for every formal system, not just the economic system.  Whenever the rules in place clearly thwart or fail to achieve the purpose they are intended to serve, the effort should be made to find an acceptable, reasonable, direct intervention to override them. And, even without crises, there should always be an ongoing effort to make sure reasonably optimal rules, policies, and principles are operating to promote worthwhile productivity in a morally right way. (To Chapter 38) There are three ideas compressed together here.  The first is that in an interdependent, cooperative system of labor for mutual benefit, the burdens of work and the benefits from it need to be distributed in some fair, reasonable, and productive way, among those who work within the system.  In addition to that, in some cases, when the system produces an excess of benefit, it might behoove those in the system to try to take care of those who cannot be part of it, particularly when their inability to participate is due to no fault of their own.  While some helping of others is benevolent beyond the call of duty, there are cases where we do have obligations to our fellow human beings, particularly in proportion as our assistance costs us relatively little and provides important necessities or benefits to them. Third, insofar as an economic system dominates any society, I would argue it needs to allow access to all who are willing and able to work, and the access itself should be fair and reasonable, particularly in regard to encouraging and allowing each person to be able to make the best contribution s/he can. (Return to text.)   Ethical and Philosophical Foundations of Economics Rick Garlikov Chapter 38 Additional Comments on Fairness of Income (Two Major Issues) Commentary On N. Gregory Mankiw's "Defending the One Percent 1" While Professor Mankiw makes many good points in this paper, there are better arguments for taxing the wealthy than ones he attacks, and there are broader issues at work in those he does consider. For example, his own "just deserts" theory is grounds for taxing the wealthy for redistribution purposes if their wealth comes at the expense of other people's labor that is unfairly insufficiently rewarded. His paper begins by asking us to "[i]magine a society with perfect economic equality.  Perhaps out of sheer coincidence, the supply and demand for different types of labor happen to produce an equilibrium in which everyone earns exactly the same income.... "Then, one day, this egalitarian utopia is disturbed by an entrepreneur with ... a new product ... everyone in society wants to buy.... They each part with, say, $100. The transaction is a voluntary exchange, so it must make both the buyer and the seller better off.  But ... the distribution of economic well-being is now vastly unequal.  The new product makes the entrepreneur much richer than everyone else." The main question Mankiw then raises in this thought experiment (which he takes to "capture... in an extreme and stylized way, what has happened to US society over the past several decades") is whether "government policy makers should deplore the resulting inequality and use their powers to tax and transfer to spread the gains more equally."  He argues they should not. He points out that "addressing the issue of rising inequality necessarily involves not just economics but also a healthy dose of political philosophy.... Given the topic, that is perhaps inevitable. But it is useful to keep in mind when we are writing as economist and when we are venturing beyond the boundaries of our professional expertise."  It is my own view that "political philosophy" should be (but usually isn't) subservient to ethics (also called moral philosophy) and that economics, at least in the sense of economic policy making, and even in regard to many economic choices people make, needs to take into account ethics as well as the science of economic practices.   So I would say that where Mankiw says this issue involves a healthy dose of political philosophy, I would say it involves a healthy dose of ethics or ethical understanding, which is basically what he is writing about in this article.  I take political philosophy to be about the philosophy, and primarily moral philosophy, issues of governing.  It is essentially about the ethics and problems of governing (large) groups, perhaps particularly in regard to devising workable large-scale general rules (laws, regulations, policies, etc.), as opposed to determining what is right to do in particular circumstances toward specific individuals, insofar as there might be a difference. Now the instinctive and implied conclusion of Mankiw's proposed thought experiment is that, because it embodies the Pareto criteria that  no one has been made worse off, and at least one person, in this case the entrepreneur, has been made better off, there is nothing wrong with this kind of inequality.  I will challenge that in a moment, but Mankiw considers the challenge that "inequality is inefficient in the sense of shrinking the size of the economic pie.... If the top 1 percent is earning an extra $1 in some way that reduces the incomes of the middle class and the poor by $2."  His rebuttal to that is that the claim is based on, or  could result from successful "rent-seeking" -- government policies favorable to some at the expense of others -- which is deplored by economists, including him.  But he goes on to argue that the rise in income of the top one percent does not stem from successful rent-seeking and stems instead from higher education and greater talent, assisted by technological advances that allow (quoting Erik Brynjolfsson and Andrew McAfee book Race Against the Machine) "entrepreneurs, CEOs, entertainment stars, and financial executives [to] leverage their talents across global markets and capture reward that would have been unimaginable in earlier times (p.44)."  He holds that education can allow others to advance too and that when it doesn't, it is the result, not of successful rent-seeking, but of supply and demand, where education does not keep up with the demand for skilled labor, and those who have the skills needed will earn much more than those who do not.  Now whether the lower and middle classes have reasonable access to such educations is somewhat suspect, and Mankiw addresses it later.  But what he does not address is whether it is fair or not for the benefits of technology, which favor certain kinds of talent, to create such wide income gaps, even if the people at the lower end are/were not disadvantaged.  I will address that later in this paper. Moreover it is not clear there can be a government or economic position devoid of, or neutral in regard to, rent-seeking or any kind of "favoritism" when it comes to a reasonable distribution of income or profits generated.  For example, whether collective bargaining is permitted or not favors either labor or management.  If management can bargain with individuals and not with unions, they can exploit those with greater needs to work for lower wages and benefits, giving management and ownership (and perhaps customers) more benefit or profit at the expense of workers; if collective bargaining is permitted, workers gain an advantage at the expense of management and ownership (and perhaps customers). Similarly with regulation and deregulation, much of which has to do with responsibility for the moral and economic costs of preventing, minimizing, or remedying harmful 'externalities,' and with patents and copyright.  Without patents, those who do research or otherwise work hard to invent and create a product cannot easily recoup their time, money, and effort because others can just use what they have learned to make it.  But with patents and copyright, creators sometimes gouge consumers because of what is essentially a monopoly power, particularly when it involves something essential to life or to a good life. Government and economic policies and business practices have an effect one way or another on who benefits and who is disadvantaged, but insofar as there is competition between businesses or between business and labor, or between business profits and consumers' best interests, there can be no neutral policy or practice.  Ideally there need not be such adverse competition, but the ideal seldom occurs. For now, however, I want to go back to Mankiw's original thought experiment and question two of his claims about it. First, not all voluntary transactions redound to the benefit of both parties.  But for the sake of argument, let's assume that what the entrepreneur sells in this particular case does benefit the consumer, is good for him or her overall (unlike something like high fat, high sugar, high salt content food or tobacco that has bad effects and later costs), and the consumer remains reasonably happy to have purchased it and was not just an impulse buy or a regretted or problematic purchase made because of exploitative advertising or other sorts of social or psychological manipulation. The bigger question is how these transactions affect, or even skew, the economic system that allowed the original equilibrium.  If trade among all participants was such that everyone traded for what they wanted in a way that gave everyone the same amount of income (whatever that means in a case like this) doesn't the introduction of a new product that everyone buys, affect the system and alter the balance for everyone else, in at least two ways?  Suppose that what made everything work before was that labor was divided in such a way that everyone worked approximately the same amount of hours and they all met each others needs through trading at least some of what they made for at least some of what others made.  E.g., suppose a bunch of students join to make spectacular lunches for themselves at school, some making main courses, others, desserts, others veggies, others great soups, others great beverages, etc.  Now if one student begins to make something all the others want so much that he can trade it for two of what the other students are making, and if everyone were already working at full capacity, then 1) s/he will be depriving some students of one or more of what they would have had because they are getting what the other student would have traded for, and 2) s/he will be in a  bargaining position to offer others what they want if they make something s/he wants -- possibly taking their labor and previous products away from the other students. This may be fair, but it disturbs the equilibrium in a way that does harm someone at least temporarily. Of course, the scenario Mankiw has in mind may not work in this particular way, but insofar as it would, he has not shown it meets the Pareto criteria, because the entrepreneur would be harming others as an unintended consequence or side effect of his/her success. In fact, I suspect, it is likely difficult in an interdependent society to meet the Pareto criteria in a situation where income starts to rise significantly for a relative few, because it will likely affect others in some adverse way, at least temporarily, unless there is help for the persons who are disadvantaged to be able to weather their displacement and/or become part of a new equilibrium (such as in providing paid job training for new work).  The way most likely to meet the Pareto criterion, but most unlikely to occur, is for someone, or a group who is not making much of a contribution and not likely to, to go off by him/herself and build something away from society, in some sort of independent pioneer manner.  The Pareto criterion in an interdependent society otherwise, I think, is not likely to be fully met, but more likely simply to be met relatively more by one form of activity than another.  Mankiw's arguments work relatively better for any higher incomes which more closely approximate the Pareto criteria, since those higher incomes will less adversely affect the incomes or quality of life of others.  But there are other ethical considerations that need to be taken into account besides whether any group is harmed or not.  One of those is fairness.  There are a number of different kinds of unfairness that can occur and I want to talk about two of them in this paper: 1) unfair distribution of wealth based on uneven technological advance that accidentally favor one form of work over another, particularly when the favored work is less important in some significant sense that economics tends to ignore because it is difficult or impossible to quantify or to describe "objectively" apart from values, and 2) unfair distribution of wealth based on unfair wages, even if they are voluntarily agreed to. Fairness of Technological Advance and Differential Incomes Some labor can be "multiplied" by technology, particularly currently, digital technology.  Others cannot.  Sports and entertainment performances, for example can be recorded and/or broadcast to millions or billions of consumers, so that an hour's labor of a movie actor or professional football star can meet the demand of millions of potential customers/clients, whereas an hour's labor of a nurse, policeman, soldier, coal miner, and most school teachers cannot do that because it is extremely labor intensive and has to be personalized.  It has always been open to a few teachers to make a lot of money from writing books, but books by themselves, and even internet courses with all kinds of video and audio presentations, don't serve to teach most people well, because most students seem to have a difficult time learning difficult material without a teacher present to monitor and guide them and adapt the presentation of the material to their understanding.  This technological divide leads to hugely disparate incomes which often favor labor that is less important in some clear sense, such as the fact that the average NBA basketball player makes $5million a year compared with the average nurse's salary of $60,000-70,000.  Spectator sports and entertainment are not without merit; they bring joy to many and particularly good movies can change people's lives, but for the most part, they do not rise to the level of importance of social benefit that nursing or police work or plumbing or any of a number of kinds of socially beneficial work requiring personal or individualized attention does.  And it is further not clear that the salary of a CEO, particularly of a company that is able to be global because of communication and transportation technology is fair to be so much more than the salary of those doing the manual labor in the same company that creates and distributes products, particularly in businesses where CEOs make millions and laborers in the company make barely enough to get by.  That is essentially Darwinistic 'rent-seeking' by managers and CEOs at the expense of workers.  E.g., it is not clear to me that consumers would not pay an extra dollar, say, per shirt if the dollar went to third world sweat shop workers who sew the shirt, who now make 30 or 40 cents per day for the work they do instead of to the sweat shop owner or the companies that sell the clothes.  Mankiw writes: "Some of the largest disparities [of wealth] are observed between nations. If a national system of taxes and transfers is designed to move resources from Palm Beach, Florida to Detroit, Michigan, shouldn't a similar international system move resources from the United States and Western Europe to sub-Saharan Africa? ... Our reluctance to apply utilitarianism at the global level should give us pause when applying it at the national level."  But 1) utilitarianism just says one should do the act that promotes the greatest amount of good, which may not be done by wealth transfers, so utilitarianism is not the culprit here, and any flaws in it do not negate the rightness of wealth transfers if there are other grounds for them. 2) There in fact are calls for wealth transfers (though not by that name -- but calling for fair pay and for not doing business with companies that unfairly exploit their labor force) from more developed countries to developing ones, but they fall under Mankiw's own "just deserts" principle, and illustrate the problems that mutual agreements can be unfair and exploiting, even if voluntary and that rules, regulations, or policies of some sort will have to favor either workers or ownership and that there is no middle ground when at least one side will not voluntarily do what is right.   And even if Mankiw is correct about the importance and social and economic benefits of the financing industry and the exceptional talent of those in it, apart from any successful rent-seeking that exists, it is not clear that supply and demand or economic Darwinism is the fairest way to determine incomes or the most effective way to get the best financial results.  To say it works for the best for all, despite its flaws is to use the sort of utilitarian argument, Mankiw otherwise criticizes, often because it conflicts with "just deserts" or merit.  But there are flaws with utilitarianism other than that it ignores just deserts; utilitarian acts or policies can also be unfair and they can violate rights. I will return to the notion of fairness shortly, but because Mankiw mistakenly seems to think that the criticism of current distribution of wealth is based on utilitarianism, he misses the more important ethical issues with it.  There are a number of flaws in utilitarianism (chapter 26 at http://www.akat.com/MeaningOfLove/introeth.htm), primarily that it cannot deal with fairness, with rights, reasonable distribution of benefits and burdens, and with desert.  Mankiw sees the desert issue, and possibly the rights ones, but not the fairness one nor the most important part of the "reasonable distribution of benefits and burdens" issue, which is in part related to fairness. The closest Mankiw comes to seeing the reasonable fairness of distribution issue is in saying that he had sufficient educational opportunity, equal to his own children's, even though his children have wealthier, more educated parents than he did. Mankiw's children probably do have more educational opportunities than he did if he is a good parent and if he has more knowledge of what it takes for them to succeed and how to expose them to that, and more contacts that would help them succeed if they have the genetic talents or predispositions he does. Still his parents were of a station that gave him sufficient opportunity for education and success.  There is a sense of fairness of any sort that is based on having a threshold level of opportunity or of met needs, even if others have more.  It is not just about marginal utility, which is what Mankiw mentions mistakenly as the criteria numerous times throughout the paper.  It doesn't matter, for example, whether the marginal utility of a billionaire's next dollar in terms of his/her happiness is less, same, or more than the marginal utility of a poor person for their happiness.  What matters is that a billionaire has far more than enough to survive on and live very well, whereas a poor person may not have enough to survive on or to do the things that people in certain economies ought to be able to do.  No, one doesn't need the best or most expensive education to succeed, but one needs a level of educational opportunity, when such opportunities are possible and should be available, that gives one a reasonable chance to succeed if one doesn't squander the opportunity due to one's own fault. So even if Mankiw's children have greater educational opportunities than he did, it is not an unfair advantage, because he and his children are/were each above the threshold opportunity level to be successful and live a good life. Inequality even in an interdependent society is not necessarily wrong.  But it is if it avoidably is at the expense of those whom it makes unnecessarily desperate while others flourish with far more than enough to live well.  In an interdependent society, insofar as possible, the necessities of many should be met before the conveniences or luxuries of the few are enhanced.  If a CEO is far more than just wealthy at the expense of his/her employees having to live off a wage which is only at the level of subsistence, that is an unreasonable and unfair imbalance of inequality.  Whereas on the other hand if someone has a 200 foot yacht while most others have only a 100 foot yacht, that is not an inequality worth addressing, unless it arises from cheating or other unfair practices.  There are other sorts of unfairness too; e.g., the fact that surgeons can charge so much more than policemen to save your life because they go to school longer, whereas a policeman may have learned his skills on the street or in the military while serving in combat.  We think nothing of the fact that a liver transplant might cost $300,000 for a child who will die without it, but we would be outraged if an emergency crew, fire department, or police station said they couldn't send anyone to your neighborhood for less than $300,000 because it would save your life and because they had trained long and hard to be able to do their jobs well and save you.  There is more to what makes inequality fair or unfair than just utilitarian considerations of the sort Mankiw addresses.  And it does not take a  complete theory of "fairness" in general to recognize different cases or forms of unfairness.  Sometimes economists and other social scientists mistakenly claim that incomplete knowledge and/or disagreement about difficult cases means there cannot be any reasonable judgments about more obvious instances.  Or they mistakenly think that science or reason can only apply to what is fully measurable in some objectively quantifiable way. Mankiw does consider the claim that "the incomes of the rich do not reflect their contributions to society." But I think he misses the point in his response, which is correct as far as it goes, but doesn't go far enough.  He says: "The key issue is the extent to which the high incomes of the top 1 percent reflect high productivity rather than some market imperfection. ...most of the very wealthy get that way by making substantial economic contributions, not by gaming the system or taking advantage of some market failure or the political process."  The problem is that insofar as wages are exploiting and unfair, even if voluntarily accepted by individuals needing work, the market system itself is a moral imperfection that needs some sort of moral remedy.  Redistribution of unfairly gained wealth is one such possible means for fairness.  Redistribution of wealth is not necessarily unfair if the original distribution of it is itself unfair.  Mankiw recognizes the problem in regard to rent-seeking, but not in regard to simply taking advantage of workers in desperate situations.  He says: "Steve Jobs getting rich from producing the iPod and Pixar movies does not produce much ire among the public.  A Wall Street executive benefiting from a taxpayer-financed bailout does." (Since this was written, there seems to have been some public ire over the treatment of workers who make iPods, but I do not know how much or whether it helped improve the workers' situation or not.)  The ire over taxpayer bailouts benefiting Wall Street executives is not because of successful rent-seeking.  E.g., Apple makes a profit based in large part of patents that it aggressively defends, which is a form of rent-seeking, though a potentially fair and reasonable one, and people are not irate over that form of rent-seeking that leads to success if the patent is not abused or the consumer exploited by it.  Reasonable patents are considered to be fair and reasonable for the most part, insofar as they help companies recoup their research costs for development and turn a fair profit.  The Wall Street case causes ire because the people who caused the collapse of the economy that threw many people out of work not only did not suffer from doing so, and were not punished for doing so, but prospered by doing it, even without the bailout.  And with the bailout, they prospered (even more), sometimes by receiving the tax money of those people whom they caused to lose their jobs and/or their homes.  Insofar as that is what happened, that is very unfair.  Even if there had been no bailout, it seems clearly morally wrong to allow people to prosper excessively who have caused such harm to others, particularly if they prosper excessively by causing that harm.  And insofar as that is not considered a market failure, then the market system is itself, to that extent and in that regard, a moral failure. Mankiw criticizes John Rawls' "original position" and "veil of ignorance" principles because they should not "supersede the right of a person to the fruits of his own labor."  But what Mankiw is not seeing is that the incomes of CEOs and of management and stockholders are not the fruits of just their own labor (and in one sense, shareholders earn money without any labor in the company at all -- not making the product or selling it).  When he critiques President Obama's point about how business is a collective enterprise, he takes it to be about government infrastructure and the relative contribution of the wealthy to its creation and maintenance in comparison with its contribution to their success.  But I think he is missing the point because I think Obama misspoke in a way above and beyond the "If you've got a business -- you didn't build that" much publicized misstatement.  Obama did (mistakenly or accidentally, or narrowly because of context, I think) use examples only involving government-provided infrastructure, but his larger point was that in our society much business success depends upon the work of others, not just one's own work: "The point is that when we succeed, we succeed because of our individual initiative, but also because we do things together."  Apart from any contribution of government or social infrastructure, that is particularly true with regard to any major company that has a relatively large number of workers, particularly when many of those workers make in income an incommensurate fraction of the profits they help produce that helps make management incomes so much greater and shareholder profits so much more. The morally most obvious and egregious cases are those, which occur from time to time, where management gets workers to agree to reduced wages or benefits because of financial losses or because profits are seriously diminished, only to turn around and raise management salaries and benefits with the money they save from doing so. When that happens, it is unfair to the workers who help the company thrive.  But that very same kind of unfairness in general is masked by the conventionally accepted myths that 1) supply and demand of labor determine a fair wage, 2) that voluntary acceptance of an offered wage is what makes income fair, and 3) that management is harder or ownership riskier, and that managers and owners have more important, or simply more, responsibilities than lower level workers, rather than simply having different responsibilities, and thus deserve more reward via a higher share of the profits generated by the company.  My view is that when someone helps you make a lot of money, you need to share with them a fair and generous portion of the profits they helped create.  One example would be if actors help a producer create a film which is not expected to be a financial success, by working for a pittance, basically donating their labor to him/her because they believe in the project, but the film becomes a huge box office triumph.  The producer should share the unexpected profits generously with the actors and crew that helped make it that way -- not rely on, or hide behind, the contract to avoid doing that.  It is only fair to reward people for their contribution to the profits they help you generate.  Mankiw says: "From the just-deserts perspective... confiscatory tax rates are wrong.... By this view, using the force of government to seize such a large share of the fruits of someone else's labor is unjust, even if the taking is sanctioned by a majority of the citizenry."  That statement is just as true when it applies to the legal and agreed to "seizing" of an unfair proportion of the profits your workers have helped generate that should rightfully be theirs as the fruit of their own labor.  It is no more morally right to keep an unfair proportion of the profit allocated to you by a voluntarily accepted salary coerced by supply and demand than it is to have to pay taxes legally imposed by a majority of legislators elected by a majority of other citizens.  There is an ethics underlying business practices and economic policies that need to be brought to the surface and evaluated reasonably.  Mankiw recognizes that and makes an attempt, but we can do better, and we should. See Also: The Intersection of Ethics and Economics   In case the link is no longer available, Mankiw's article was published in the Journal of Economic Perspectives--Volume 27, Number 3-- pages 21-34 (Return to text.) Suppy/demand myth of fair wage: This is wrong because it means one is not paid for the value of, or one's contribution to the earned profit for one's work, but is paid based on what others would charge in a bidding war for lowest accepted wage.  If you help me earn an extra $50, what I pay you for that should be based on your part of the contribution to earning that $50, not on the fact that someone else, particularly someone in desperate circumstances, would have done that same work for $5 or for $2. (Return to text.) "Voluntary" in the sense it is used in this kind of context seems to mean something like "not coerced by the person making the offer", but does not take into account the plight of the person which may coerce him/her to have to accept it.  As long as a person is coerced by circumstances, not by the prospective employer, that is too often mistakenly considered to be voluntary and fair even though it exploits the person's circumstances and takes advantage of him or her.  That is potentially applicable to any transaction or "voluntary" exchange, though there are some (arbitrary or possibly excessive) cases where it is recognized by people outside the transaction as gouging or exploiting, or basically extorting someone whose circumstances place them "over a barrel" in regard to you.  But once excessively low wages or high prices become some sort of norm, they tend not to be considered as being exploiting, except by some of the people who are being exploited because of their circumstances or by those who care about them.  (Return to text.) Ethical and Philosophical Foundations of Economics Rick Garlikov Chapter 39 Intersection of Ethics and Economics   Decent people often behave better and more cohesively during a natural disaster or hardship conditions than they do normally, and I think there are underlying ethical principles involved that can shed light on, and have significance for, economics in general. I want to discuss those here.  First, however, I want to make the claim that economics, or economics theory and principles, can and should be viewed in the broader context of ethics and was from the beginning, but the ethical principles and psychology of human nature were at first mistaken and then later even more mistaken before being lost sight of altogether.  The behavior of decent people in times of natural disaster or hardship is one illustration of that. In all areas of life ethics (synonymously referred to here as morality) – discovering, knowing, and doing what is right – should be paramount, and, contrary to the view that ethics and business or economics are, and should be unrelated (as in the claim “this has nothing to do with ethics; this is purely a business matter”), economics or business and finance are no exceptions to that.  Work and trade, business from sole proprietorships to global corporations, government regulations, taxation, along with the use of money for investing, saving, or spending, should involve doing what is right and should comply and be in accordance with the same correct moral principles as any other act.  Stated overly simplistically just at the outset here, that means economics should be about productivity, fairness, and not violating rights, and, if and whenever these three elements conflict, it should be about working out the best possible ethical configuration among them.  Making it sound as though productivity and fairness were incompatible, Winston Churchill is attributed with saying: “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” But the idea of economics should be to find some form of it that has the most reasonable blend of fairness and productive benefits or “blessings”.  And there is no reason this cannot happen voluntarily because decent people want to treat each other right and fairly and know, or should know, reasonably how to do that.  It is not about government overreach and overregulation, but about having ethics and ethical knowledge and deeper understanding be an integral voluntary part of everyone’s concerns, including their business interactions and relationships.  And, since fairness is sometimes an elusive set of concepts, it is probably more reasonable to seek preventing gross unfairness of any sort than to achieving perfect fairness of all sorts.  You don’t want blessings created at the expense of justice; nor do you want fairness causing the equal distribution of only poverty. Clearly unnecessary poverty is not a virtue or a worthy goal, but you don’t want to overcome it by the virtual enslavement of some by others. As John Stuart Mill pointed out most powerfully in his Principles of Political Economy, in writing about the economic theory of communism (long before it was adopted by the Soviet Union in the brutal, authoritarian way it was) in comparison with the Dickensian capitalism of the time and what seems to be the same sort of exploitation today of impoverished workers in developing countries, such as those in the garment and the electronics industries: "If ... the choice were to be made between Communism with all its [problems], and the present state of society with all its sufferings and injustices; if the institution of private property necessarily carried with it as a consequence, that the produce of labour should be apportioned as we now see it, almost in an inverse ratio to the labour --the largest portions to those who have never worked at all, the next largest to those whose work is almost nominal, and so in a descending scale, the remuneration dwindling as the work grows harder and more disagreeable, until the most fatiguing and exhausting bodily labour cannot count with certainty on being able to earn even the necessaries of life; if this or Communism were the alternatives, all the difficulties, great or small, of Communism would be as dust in the balance." What should be sought is an economic system that is the most productive and beneficial, while avoiding gross unfairness in terms of opportunities for making a contribution to the whole and receiving a reasonable share of the distribution for it – in other words securing a fair distribution of burdens and benefits (which in economics often equates with labor and compensation) -- and while also avoiding the violation of rights.  There may be different models or components in them for achieving that, and there may be disagreements from time to time about the proper balance, or what will accomplish it, but this should be the overall goal. This goal seems to surface most noticeably under conditions of natural catastrophe or disaster- or storm-related hardships even if they don’t rise to the level of catastrophe or disaster. In my Introduction to Ethics I develop a general moral principle by trying to take the best features of traditional principles in the history of moral philosophy while eliminating their flaws.  That is always a work in progress as new insights come to light which show amendment may be needed.   But there are common moral criteria with which all acts should comply and be evaluated:   the balance of benefits over burdens (or good over harm); i.e., the amount and significance of any good or harm done.  Normally one should be trying to do the most good and prevent the most harm for innocent and deserving people, where reasonable. There are exceptions, however, where the amount of good done seriously conflicts with any of the following other moral criteria. Fair (i.e., just or rightful) distribution of the benefits and burdens (good and harm) reasonable balance of benefits/burdens with people’s rights or with other obligations, particularly specially incurred ones no unfair or unreasonable burdens on people expected or required to perform acts or work  What constitutes rights, reasonable distributions, fairness, reasonable and fair burdens, etc. all need to be worked out through rational ethical understanding, insight, and discussion, but “fair” doesn’t necessarily mean “equal” or that one necessarily gets anything if one does not contribute what one could and should. There are rational and productive ways to work out disagreements.  Rational ethical dialogue often eliminates or at least minimizes many of the initial disagreements or those that tend to be divisive in political or public debate which too often takes place at a shallow and often self-serving level, with each participant only seeing their own, or their constituents’, needs and not the good of the whole or the legitimate benefits and needs of others.  In too many cases people don’t realize that ethics applies to all acts, no matter how small, and they instead allow custom, traditional practices, company policies, and arbitrary or misguided rules, principles, assumptions, and laws to determine their behavior. In economics and business, as in any formal system, too often formal rules and laws (even if well-intended) take on a life of their own and become entrenched even though (they become) ethically counter-productive.  In ethics courses I teach, most students these days have a very difficult time applying ethical principles to issues and acts normally guided by customary practices.  They don’t know how to apply the principles and don’t see why they should. It doesn’t even occur to them that ethics is involved.  When Vice President Spiro Agnew was asked about having committed crimes as governor of Maryland, he responded that he had not done anything wrong or different from his predecessors but that “morality had changed.”  But in truth morality (and laws based on it) had finally been seen to rightfully govern such acts and practices. It is blindness to the total purview of ethics and morality that is the only way I can understand how egregious business practices, which bring ruin to hundreds, thousands, even millions of innocent people, are carried out by people with the education and intelligence that should make them know better.  And it is this same blindness which accounts for why these practices are not made illegal or are not prosecuted under laws that might apply, by people also with the intelligence and education that should make them know better.  However, I am not as concerned here with legality and prosecution as I am with the moral blindness and insensitivity that permit the outrages that call for them.  I don’t think a formal system of law can capture all of morality, and the law cannot prevent wrong acts anywhere nearly as effectively as a knowledgeable and understanding conscience can.  It is not fear of punishment that causes most of us to do what we believe or know to be right; it is simply wanting to do the right thing.  Unfortunately too few people realize morality applies, or should apply, to business and economics, and fewer know how to apply it reasonably, because many mistaken principles and presumptions have become commonplace in business and in economics over the centuries.  I want to comment here on some of the most salient of those and try to put them into perspective.  The first economist, Adam Smith, showed how an economic system based on enlightened self-interest can flourish well, but unfortunately his message is misunderstood today by ignoring the “enlightened” part of the concept, which embeds far more ethical understanding than it might seem, because it involves knowing and doing what was right so that one was correctly seen to be fit to do business with.  And even “enlightened self-interest” lost its usefulness in economic self-policing once neighborhood and village censure, or the sort he wrote about, no longer applied to a customer base that expanded beyond local neighbors or a village to a population that is served by mass production and mass distribution.  It doesn’t matter to an immoral business person if a segment of the population discovers s/he is not morally scrupulous because s/he could rely on many more customers who did not yet know they were being cheated or who didn’t care that others were treated unfairly as long as they think they are getting what they want at a good price.  If you can clear $20,000,000 before being forced out of business without fear of prosecution, there is little long term business incentive not to.  And if one has no understanding or belief the practice is wrong, there is no incentive of conscience to refrain from it.  Smith’s concept of the “invisible hand” does still have merit however, when individual choices in a system voluntarily coordinate well to make the whole system function for the most productive, fairest, and ethical ways. People pursuing their own desires and knowing their own needs are often more motivated to make things work and better able to know how to work with others to (mutually) meet their own needs. However, not all people are in equal starting positions, or positions of sufficient strength to be able negotiate fair terms for themselves in working with others. And also, as the coach of any team sport knows, individual efficiency, skill, and dedication only work within a larger system when there is a threshold level of voluntary cooperation toward a common goal.  Without that minimal level of cooperation and coordination, players may be working against each other, even unintentionally, or at least not working with each other as a whole team, though they may want to and think they are.  But a coach who micromanages loses the benefit of players being able to adapt to their specific needs at the most optimal time, and also risks causing dissatisfaction among players who want more freedom to do what they think best to do their job as they see fit.  Individual autonomy, as Smith saw, is very important.  But it is not automatically beneficial to a larger group without at least sufficient coordination, preferably voluntary, uncoerced coordination, to prevent people from accidentally working against each other or rowing in different directions.  What this means, and what I want to explore here, is that for an economic system to operate optimally, there must be a balance of 1) freedom and autonomy of individuals on the one hand and 2) coordination toward commonly held, correct ethical goals – chief among them being the pursuit of greatest benefits and least burdens, most fairly and rightfully shared -- on the other. (1 and 2 are compatible when people voluntarily coordinate or collaborate whether by direct design or through indirect mutual accommodation as through networks of trade.) This is perhaps the broadest way to state it, but it is not the way economics and economic issues are normally thought of and discussed.   Instead economics is taken as a set of rules or practices concerning money, property rights, transfers of ownership, through what are considered to be voluntary agreements based on mutual consent.  Unfortunately, as with any formal rule-based system, the system does not always work beneficially, smoothly, fairly, and effectively.  I want to examine economics from an ethics perspective, beginning with how decent people tend to behave during natural disasters or disaster-related hardship conditions.  I say “decent people” because people who are not decent will try to take advantage of such conditions to loot whatever they can, over and above necessities to survive, not caring who they hurt or what is fair or right.  “Bad” people ruin things for good people and their (potential) behavior needs to be taken into account in any economic or legal system, but I think you don’t want pathological behavior to determine what the system should be; the ideal system should be based on what decent people do and prefer, and on trying only after that to prevent pathological behavior from disrupting it.  Behavior in a Natural Calamity In October, 2011 a very early, wet, heavy, huge snowstorm struck the northeast United States.  I was visiting my younger daughter who was expecting the birth of her first child. The idea was that I was going to help them by doing normal chores while they took care of the baby and while my daughter convalesced from giving birth insofar as was necessary. The day after I arrived, a week prior to her due date, the storm hit, and power went out in most of the state and large parts of surrounding states.  Power company workers, some from as far away as Oklahoma, brought trucks and equipment to reestablish power to homes and businesses.  It took nine days for power to be restored.  What I found interesting was that everyone pitched in to help each other, all voluntarily and all without regard for money or keeping score of who was working or working harder, etc. I want to discuss what I would say are the underlying ethical principle involved in that, which are important and which business and economics in general probably tries, but fails and then forgets to keep trying, to capture.   The storm did so much damage because it came early in the year when the trees, many of them old and huge, were full of leaves, and the snow stuck in such a way that its weight accumulated on those leaves and branches and broke them, knocking down the power lines under them.  In some cases wires themselves tore loose from connectors due to the weight of snow that fell and stuck to them.  Cable TV lines that were a quarter inch in diameter simply accumulated falling snow and ice that was an inch in diameter around them; the snow just stuck immediately to everything it hit.   So in my daughter’s neighborhood, there were downed power lines, downed phone and cable TV lines, and downed limbs, many almost as large as trees themselves.  Everyone was without power, but not everyone had trees down.  People came out to meet on the street to assess the damage, shovel the walks, and begin to remedy what they could.  Guys with gas power saws cut up limbs and others moved them to the curbs, people made sure power lines were not left dangling or lying where children might touch them if and when they became live.  They made sure people had food and shelter.  The homes which had gas heat and hot water were made available to anyone who didn’t. Two different families, one of which was complete strangers to my daughter and her husband, offered them use of their four wheel drive vehicles to get to the hospital whenever she went into labor. (The storm hit on a Saturday, and the baby was born on the following Wednesday, about half way through the power outage.  Mother and baby did well, even being at home for three days without power, but with a gas fireplace, water heater, and gas stove.)  Everyone worked together out of kindness, but I think there was more to it than that – underlying moral principles pertaining to work, productivity, and fairness. 1) Everyone knew that it was just a matter of luck who was hit the hardest and who was not – whose trees were down and whose were not, and 2) everyone knew that if they were the ones hit the hardest, or if they would be next time, everyone else would be helping them. 3) There was a sense that everyone was deserving of help, based in part on personal knowledge of neighbors, but also just from general behavior as people were friendly and helpful to each other.  (In this way it was behavior opposite that often seen on busy roads or in malls at Christmas time, whereby some people show lack of consideration and general civility or kindness.  Here civility, kindness, and friendship were most evident. I never met anyone trying to be selfish or take advantage of others for their own gain. Probably it happened in some places or under more dire conditions, but not that I saw.)  The work everyone did for each other was something like a mutually understood insurance policy that had no premiums other than kindness and good will and that required no payback other than for everyone to do the same if it happens again to whomever it effects most next time. 4) There was a sense that “everyone was in the same boat”, in some essential way, all hampered by the storm conditions, and that working together would help everyone, not just the person benefited by a particular task’s being done at a given time.  5) Everyone did what they could, with stronger, younger adults doing more of the heavy lifting, but with everyone supplying whatever else they could. 6) There was a certain joy in doing all this together, rather than its just being work, in part because fortunately no one had been hurt and it was a matter of pride to be able to cope. 7) No one felt exploited, put upon, or overly taxed in their work. 8) Everyone was appreciative of what others did.  One man in particular, who was a fireman, had a power saw and other power tools that he loved to use, and his wife had always said that if the neighbors would have let him snow blow their walks and cut down their trees, he’d have done that for the whole block.  Now was his chance to do much of that, and he was happy as a clam cutting up limbs for others to drag to the street in all the yards that needed it. My daughter’s next door neighbor was eventually able to find and buy a generator and he ran a line from it to her house so that we could have sufficient electricity for lamps, TV, computer, and cell phone charging, to get along fairly comfortably with the gas fireplace, stove, and hot water heater already in place. 9) Because the storm hit on a Saturday, many people were home anyway instead of at work, and thus they had time to help. Typical weekend events were basically cancelled anyway.  Also, even during the ensuing week, most things were shut down and there was not even TV to watch other than for people who had generators.  In short, people had time to help which did not take them away from anything more pressing or important. That put into play my idea of “win/not lose” rather than, or along with, “win/win” as an operating principle, which I think most people who are decent live by – where they will help others if it means a lot to the other person, as long as they are not themselves unnecessarily harmed or seriously disadvantaged by helping. It is not that one necessarily or always needs benefit from helping others, but one needs not to be (badly) harmed by doing so.  In some cases, some people will even make serious sacrifices for others, but that is not the norm and cannot be expected nor required, apart from specifically incurred obligations, such as honoring an agreement or keeping a promise, finishing something started that needs finishing, etc.  But most people will willingly help others if “it is no skin off their teeth”, meaning if the cost is not too great for them.  (This is the basis for the “what is fair and reasonable to expect of an agent” portion of my general ethics principle.)  The nine principles above, perhaps particularly 2, 3, and 4, are key to allowing people to afford to be generous, because they know that such generosity will be extended to them if necessary and if people are available and able to help them. There is no need to store up credit or wealth in the form of money, which is sometimes precarious and which is of no use when help is not available anyway.  Outside the neighborhood, a few businesses in the downtown area had power, and opened up, not just for business, but also to let people recharge cell phones and laptop batteries and go online to the Internet.  People who needed to do that shared tables, sat around on the floor, shared surge protectors that multiplied the power outlets, and did whatever they could to help each other, all in friendly, civil ways.  One restaurant let me stay at the table longer after lunch so that I could do my online teaching, and when I gave them extra money for allowing me to do that, they didn’t want to accept it.  When I insisted, they took it, but then brought my daughter and me ice cream as a token of return appreciation.     Fortunately even though the power was out for the nine days, there was no additional snow besides the initial 12-18 inches, and the streets and sidewalks were all cleared and passable by the end of the first day.  So you could walk or drive anywhere you needed to, but not many gas stations had power to operate their pumps, so no one drove any more than they had to.  Stores that were able to open, of course stuck with their standard business model in terms of selling their goods and services, but they and everyone else went well beyond that to offer for free whatever they could because, I think, of the principles above, along with a sense of community and compassion.  And I want to add that under conditions of these sorts, people of all different backgrounds chip in and have a basic humanity and ethic.  There was a sudden extremely heavy snowstorm in January 1982 in Birmingham, Alabama, and my wife, an elementary school teacher was pregnant with our first child.  She decided to drive the back way home, after working past the time when school dismissed for the blizzard, and when she got to an impoverished area of the county, it turned out that cars were getting stuck trying to get up a short but steep hill after a curve in one spot near the railroad tracks.  Men and teenage boys from this neighborhood were out helping push cars through the sticking point so that the drivers could get home in the storm. They did not ask for payment, though those they helped who could afford to should have rewarded them with it. They were simply there to help.  I think there are underlying principles, such as the one above, at work in these natural disaster and/or other emergency types of responses. I want to try to look at standard economics and business in light of those underlying principles because I think that business and economics, when done ethically, tries to make everything operate this way. But by using a formal system of checks and balances to insure fairness and productivity, conventional business and economics tend to be an ethical failure because of inherent flaws in formal systems and because people who have long ago lost sight of the ethical purposes of the formal system, in this case economics, confuse the formal system with its purpose --the means with the ends-- and the system takes on an arbitrary, pointless, rule-governed existence and false ethics of its own.  Examples are 1) the criminal justice system when the rules of evidence allow the obviously guilty to go free or permit the conviction of the likely innocent, and 2) sports, in those cases where there is no way to remedy obviously wrong official calls or prohibit forms of play that meet the letter of the rules but clearly violated the spirit of the game.  The purpose of business and economics should be to help people work and trade together in order to produce the most benefits with the least burdens, all rightly and fairly distributed as much as is possible and reasonable.  The basic ideas are that that 1) people working in concert or in combination (even if only indirectly in combination, as via “the invisible hand”, which can actually be explained through “visible” links combining groups of people who voluntarily work with each other for mutual benefit into a growing network) can accomplish far more and each benefit from it far more than if everyone had to meet all his/her own needs him/herself, 2) when people work in any way that is collectively beneficial through the contribution of each, the distribution to each of the benefits should be commensurate with the contribution made by him or her, apart from special circumstances. While that is not easy to measure, grossly unfair distributions should be avoided or remedied.  That is difficult to do once the system becomes formalized and people confuse the formality of the system with its underlying purpose.  Special circumstances involve those who cannot contribute (very) much – such as the young, the disabled (whether through age, infirmity, or injury), etc.  I realize there have been various failed attempts to create such a system, but sometimes that was because the system was forced on people rather than voluntarily chosen by them, and sometimes it was still not fairly or reasonably operated or became too bureaucratic or formally rule-governed. Sometimes it placed too much emphasis on equality or fairness while ignoring productivity; sometimes the reverse. While an ideal system may not be possible, it seems we can at least try to approach it and history seems to show various advances in the systems we have. Labor unions and child labor laws, for example, helped prevent some of the worst exploitive excesses of Dickensian or Darwinian free market capitalism.  Decreasing length of the work week helped divide the greater leisure made possible by machinery. At the very least we should know what the ideal is that we are trying to approach and achieve.  Too often there are political battles waged over poorly or partially formed, or poorly or partially articulated, notions of what is right economically.  Now this distribution of burdens and benefits needs to be considered over time and not just in slices of it.  For example, if some work you did and were paid for has unexpected benefits for everyone, you should receive remuneration for your contribution to those as well, not just what you were paid at the time based on the expected benefits.  E.g., if actors help you make a low budget film by accepting very little remuneration, if any, and the film unexpectedly becomes a box office smash hit, you should share the profits with them.  Cases like that are fairly easy to quantify.  It is more difficult to quantify less tangible, or long term infrastructure, contributions such as building roads and bridges, serving in the military, being a nurse, or teaching third grade.  Yet it is important to be able to quantify them in some way or at least to recognize them because people seek security over time, and that is not the same thing as storing or investing money made early to have later.  Money put into an unpaid loan or to a failed investment makes it appear as though one never made a contribution to the social good and are then undeserving of benefiting from it.  Even in the short term, being underpaid gives a falsely low indication of the amount of contribution one has made to the public good and therefore what one deserves in return for it.   Money is not simply a medium of trade, but it also serves in some ways as a form of scorecard about how much good you supposedly have done for the community and thus how much the community owes you in return when you have wants and needs for which you will spend that money.  Theoretically, if one considers money as a measure of productivity, the more money someone has, the more goods and services they have supplied to the community (or the more important the goods and services are which they have supplied) for which they were paid.  But money doesn’t always match up that way.  It doesn’t when workers are exploited and it doesn’t when luck or chance or historical “accident” is involved.  Luck has to be taken into account in some way, since much success (and failure) depends in part on luck, even when skill and effort are also involved.  The fact that athletes and (other) entertainers, for example, can make so much money depends on inventions that mass produce and distribute their services – television, recordings, digital distribution, etc.-- in ways not open to nurses, soldiers, coal miners, most teachers or anyone else whose work has to be individualized and “delivered” or provided in person because no invention has yet been contrived that will allow them to have an hour of their labor serve millions of people (customers/clients/patients) at the same time, in the way recordings and live broadcasts via television or Internet allow the work of athletes and entertainers to do.  Hence, fictitious police on television or in movies can make far more money than real cops, and even real physicians cannot make nearly as much money as television doctors Kildare, Welby, Casey, and House.  And the fact that one form of entertainment or one sport is more popular than another at any given time and place also involves a certain amount of luck. And it often takes great effort by many people to make any given form of labor a desirable spectator activity.  Football in America took on far more popularity with the advent of color television, and slow motion and stop-action instant replay, cameras with long lenses, high resolution, and its promotion by television networks such as ABC. Prior to that, nationally televised football games were rare (other than the primary bowl games) and had small audiences.   Look at the amount of work it takes for television networks not only to broadcast football games, but to explain and promote football, before, during, and after games, to make it more intelligible and interesting to fans, as if it were as complex as nuclear physics. Even the most talented football players today would not make nearly the income they do if none of that had happened.  Yet they had nothing to do with any of those developments.  Similarly, “March Madness” – i.e., the NCAA basketball championship – is now big business in America, but started in the following way in 1961, as explained in the New York Times (http://www.nytimes.com/2013/04/07/sports/ncaabasketball/eddie-einhorn-seized-on-broadcasting-college-basketball-games-in-1960.html?pagewanted=all&_r=0):  “[Eddie] Einhorn began broadcasting the early rounds of the tournament when there was no market for the games. Even for his first championship game, between Ohio State and Cincinnati in 1961, he said he paid the N.C.A.A. only $6,000 for the rights, but he could not find a station outside Ohio and Kentucky to show the game.  ‘He was ahead of his time, plain and simple,’ said the broadcaster Dick Enberg, who called games for TVS and introduced Einhorn when he was inducted into the National Collegiate Basketball Hall of Fame in 2011.  Bryant Gumbel added: ‘It wasn’t that long ago that no one was interested in putting these games on TV. It doesn’t seem possible now, but nobody cared.’ ”  In short, the money involved now in sports is not just because of the skill of the athletes who are playing.  Somewhat similarly, some work is incorrectly considered more important than others, and people with money or access to money (e.g., through participating in insurance plans) will willingly pay more for it.  Hence, physicians will make far more than nurses, even though good nursing care may be just as, or even more, vital to a hospital patient. Physicians will make far more than police, soldiers, or firemen, even though the latter three also save lives, and at risk to their own in addition. Cosmetic surgeons doing beauty enhancement in Los Angeles will make more than public health physicians or internists in rural areas or inner cities. Administrators will make far more than the people who do the work, even if the administrators contribute far less to the success of the work.  Good teachers make little in comparison to their value and the contribution they make to the next generation.  Women often in general make less than men, even when doing the same work.  Etc.  Physicians made far less money before the advent of wide-spread health insurance programs that began after WWII.  Many incomes are in some sense as much, if not more, the result of accidents of history than to relative contributions to society.  Or suppose different pharmaceutical companies and different researchers all pursue different promising paths of research for a treatment for some disease, and only a small percentage of that research, no matter how well-designed or how intelligently pursued, will pay off in the discovery sought.  Since no one knows ahead of time which research path will be fruitful, and all has to be done in order to find the one or few that are, isn’t the work of those who fail just as important as the work of those who succeed?  And isn’t success partly determined by luck in cases of that sort?  Should permanent financial reward be attached to the luck rather than effort involved in the reasonable pursuit of the accomplishment? If so, to what extent?  Money There are practical benefits of using money as a medium of exchange, as introductory economics books typically explain, but I try to point out that there are two other aspects of money in a free enterprise system: 1) money is used as an incentive to channel labor voluntarily; i.e., rather than dictating that people work at some job, money is used as an incentive to entice them to do it willingly.  It is of course perhaps more voluntary, and certainly more ethical, when higher wages, or at least fair wages, are offered for worthwhile work to people already doing well financially who want to do better, than it is when slave wages are offered to exploit those who are in financial dire straits who have to work for whatever they can get.  2) Money, because it is in some ways a mathematical construct which is not necessarily related to physical or moral reality (as in market “bubble” prices, usurious interest rates, and inflation), can flow into or collect and pool in places where it would not in a barter kind of situation or where it is not helpful in improving trade and the collective outcome of goods and services.  Moreover, wealthier people can channel labor toward luxuries, diverting it away from working to meet the needs of the (working) poor.  The unintelligible financial instruments that helped prompt the 2007 United States financial meltdown are an example of the use of money that doesn’t coincide with actual work or available labor.  And hoarded money is an example of how money can disrupt or halt trade (and collective work) rather than facilitating it.  Another example of the latter is when people who need work done have no money to hire the people who could do the work, and those who have the money don’t need the work done by the people looking for work.  Money can get skewed or be just as out of place as barter can be when those who have goods to trade and needs to be met cannot line up with the people who can meet their needs and need their goods.  It seems that there needs to be ethical, voluntary, non-market mechanisms to re-channel money when it gets skewed in any of these ways. That is different from merely political, typically involuntary and coercive, redistribution mechanisms, and the alternative is to let the economy suffer just in order to uphold failed policies and rules for the sake of some false sense of ethical objectivity and an unwarranted reliance on self-interest, even enlightened, self-interest and voluntary mutual agreements to promote the greater good for all or even for the individuals pursuing them.  One of the problems with associating money with amount of contribution to the public good is that those who work in industries amenable to mass production/distribution or who otherwise acquire wealth through luck, are given far more credit and power and influence than the actual contribution their own labor warrants. This influence is both in the form of how they spend their money and thus how they channel labor, and in the form of positions they are given on powerful boards or in government office.  Money is also in some sense “storable” or potentially lasting over time in ways that some products of labor are not. That is important for when one is not working or can no longer work. But, it does not necessarily do the job.  What working people seek is some sort of ongoing security through time that they earn through their labor; then they can spend with confidence any excess at any given time.  But they don’t get that because of fear of others’ greed, because of changing conditions, because of inflation or fear of it for fixed income, and because of the precariousness of investment or other forms of storing money, plus, increased cost of living based on other factors of social and technological progress that were not built into your previous income’s anticipation.  These things affect the flow of money and thus affect the economy, often in ways that are harmful rather than helpful.   What should really be the goal of an economic system is that all able people should be at work meeting the reasonable needs and desires of everyone and receiving a fair proportion of the total good they are helping to create; and that means that each person receives is their fair portion of the fruits of labor available, which may or may not have to do with the amount and location of money in society at any given time.   It does no good to have lots of money if there is no labor available to meet your needs, and there is something wrong if money is skewed in some way so that labor that is available cannot be employed for good and useful purposes.   The only real security is living in a society where people are willing and able to meet each others’ needs in some reasonable, fair, and productive ways.  That is not necessarily assured by money, and is in fact sometimes thwarted in a system where rules of money take on a life of their own.  Inflation and investments that fail through company mismanagement and greed, or simple market failures for any reason, for example, basically rob people of what they deserve in the future from the actual fruits of their labor that helped better the lives of others in the past and present. Decent people helping each other in a natural disaster or time of crisis understand, subconsciously at least, the ethics of all this.  That ethical understanding needs to be brought to the surface and made clear to everyone so it will voluntarily apply under normal conditions as well. That is no easy task.     For example, suppose a number of people form a trading partnership where the work done by each is pretty much equal at the outset, so what they trade with each other seems reasonably equivalent.  But suppose one of them figures a way to mass produce his or her products quickly and easily.  Is it still fair that he trades those products with the others for what takes them much longer to make?  I doubt the answer to that is a simplistic “yes” or “no”.  (Return to text.) Yes it is extremely challenging to analyze fairness.  But yet even little kids have a pretty decent understanding of what is fair and what is not.  They will invoke, often correct, ideas of unfairness in all kinds of games and sports.  Sometimes they get it wrong, but often they get it quite right.  The idea is to try to "unpack" or articulate our intuitive notions about it and refine them. My older daughter, at age five or six or so, was trying to wrestle a toy fire truck away from a little boy when I went to pick her up from Sunday school one day.  I told her we had to go, but asked her who had it first, thinking that would settle the issue over a "public" toy like that.  She defiantly said "He did!" which struck me as odd, so I asked her "Then what made you think you should have had it?"  She said "He took two toys, and he wasn't playing with the fire truck.  It's not fair for him to have it if he is not playing with it and someone else wants to play with it."  That is basically part of John Locke's principles of what gives people the right to private property they fashion from the common elements of the universe: 1) they mix it with their own labor – in this case taking it down from the shelf, 2) they leave enough for others to use, and 3) they don't waste any by taking more than they can use.  He was taking what he wasn't using and not leaving it for others. He was essentially hoarding toys because he took them off the shelf first.  Of course, she had not read Locke, nor had I read him to her or told her about his views on private property.  (Return to text.)   That same daughter as in footnote 3, however, once said I should take away from both her and her sister a Happy Meal toy they were squabbling over in the backseat as we drove somewhere, after I threatened to take it away if they could not figure out a good way to share it.  She said if I took it away from both of them that would at least be fair since neither one of them would have it.  I pointed out that was not the optimal sort of fairness to seek, and that it would be better if they could both have it in some fair way. (Return to text.) Normally the productivity portion would be an empirical matter open to testing by experimentation.  (Return to text.) “Beneficial” means what is best for people, not just monetarily or financially most rewarding; not all products are good (e.g., tobacco) and not all labor is a service. An economy that creates more products and labor may not be producing more goods and services in the sense of helping people have better lives.  (Return to text.) An act is right if and only if, of any act open to the agent to do, its intrinsic or natural consequences, apart from any extrinsic unfair rewards or punishments, bring about the greatest good (or the least evil, or the greatest balance of good over evil) for the greatest number of deserving people, most reasonably and fairly distributed, as long as no rights or incurred obligations are violated, as long as the act does not try to inflict needless harm on undeserving people, as long as the act does not needlessly risk harm in a reckless, negligent, heedless, or irresponsible manner, and as long as the act and its consequences are fair or reasonable to expect of the agent.* Rights have to be justified or explained or demonstrated; not just anything called a right is actually a right. Further, the amount of goodness created or evil prevented may, in some cases, be significant enough to legitimately override a right or incurred obligation that a lesser amount of good created or evil prevented may not. Overriding a right or incurred obligation is not the same as violating it. *What is fair and reasonable to expect of an agent:  It is fair or reasonable for people 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.) (Return to text.)   One way to view the beatitudes in Christ’s Sermon on the Mount (Matthew 5:3–11) is as a guarantee that nothing of real value will be lost for long, and what is of real value will be gained forever, if one will live in right ways, even if that seems to be making a sacrifice and not profitable here on earth. Insofar as that is true and believed, it affords the chance for people to voluntarily live by the light of their better angels without fear of too great a cost to them.  It affords the confidence to do what one should and what one knows is right. Economic theory should work to provide the same sort of earthly security insofar as it is available.  Anyone who works to the best of his or her ability should not have to fear that they will have to do without in a society of plenty that their work helped provide. That should be seen, not as an extrinsic incentive to work hard, but as a reassurance that it is not harmful to do what one knows to be right even if not financially profitable.  (Return to text.) We think nothing of physicians and hospitals charging hundreds of thousands of dollars for a liver transplant, but would think it outrageous if police charged that kind of money to answer a break-in call hostage situation, or kidnapping.  (Return to text.) as when a game of Monopoly ends and the money is then redistributed to start a new game, so that players can have the fun of playing again, or, in more important cases, such as in the NFL where large market teams help subsidize small market teams in order to generate (more) fan interest and appeal, and thus larger revenues overall, or even sufficient revenue to make the league viable and profitable at all.  Return to text.) For example, there would be something unfairly wrong with charging a military veteran of WWII more than he can afford for an MRI, because he risked his life to make it possible for it to be developed and available.  He didn’t get paid much for that (particularly if he could not afford  to go to college even on the GI Bill), and yet his contribution should be worth whatever services future generations whose lives and fortunes he made possible can readily afford to provide.  Similarly with any other underpaid worker who served the society well and/or to the best of their ability.  (Return to text.)