In a society of saints
On Sunday, Eamonn reviewed Tom Palmer's new book, The Morality of Capitalism. Summarising one chapter, Dr. Butler explained that
The Chinese economist Mao Yushi [presents] an interesting paradox. If we were all completely benevolent – looking out for the interests of other people rather than ourselves – we would have just as much conflict as capitalism is said to give us. We would be fighting shopkeepers to charge us more and reduce their quality. The arguments would be just as red in tooth and claw, but the incentives would all be to reduce value rather than to create and increase it, as capitalism does.
Perhaps. But managing conflicting priorities is not the only reason that we need a capitalist system; nor does the existence of a conflict in a community motivated by other-interest suffice to justify capitalism. A deeper understanding of the role of markets is required. As Samuel Brittan noted 13 years ago,
An economic system has at least five functions
1. co-ordinate the activity of millions of individuals, households and firms;
2. obtain information about people’s desires, tastes and preferences;
3. decide which productive techniques to use;
4. promote new ideas, tastes and activities which people would not have thought of without entrepreneurial initiative;
5. create incentives for people to act on such information.
Only the fifth, incentive, function of markets could be abandoned in a community of saints. The others would still be required for the saints to know how best to serve their fellows.
And as Friedrich Hayek taught us, the role of markets is to co-ordinate the vast and diffuse knowledge that is scattered in the minds of multitudes of economic actors. In Dr. Mark Pennington's synopsis:
Even in a world of perfect altruism, therefore, public-spirited planners could not obtain the information to engage in a process of conscious social planning owing to the cognitive limits of the human mind. In the market economy, by contrast, each entrepreneurial decision actively creates new knowledge... As the behaviour of the successful is emulated, more knowledge is produced and spreads throughout the market in a snowballing process, the results of which could never have been given to a group of minds attempting to simulate this process [deliberately]...
Rather than focussing on people’s motives for economic action, those who look to make the world a better place would be better placed focussing on results. What market-based systems offer us is not a more, or less, moral world but one that enables us to maximise the wellbeing of participants, both through providing the right incentives to economic actors and through maximising the efficient allocation of productive resources. To put it in the vernacular of philosophers, it may not be deontologically more moral, but it is more moral teleologically.
To close with a thought from Adam Smith:
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.