The Positive Feedback of Capitalism

At RealClear Politics is a review by Robert Samuelson of the book, The Moral Consequences of Economic Growth, by Benjamin Friedman.

Friedman, a Harvard economist, has written a hugely provocative book ... arguing that rapid growth is morally uplifting. "Economic growth -- meaning a rising standard of living for the clear majority of citizens -- more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy," he writes. Further, the opposite is true. Poor growth feeds prejudice, class conflict and anti-democratic tendencies.

This sounds good, but it quickly becomes clear that the author of the book accepts altruism, a type of morality incompatible with economic growth (i.e., capitalism -- I set aside the question of whether Friedman explicitly discusses "capitalism".). Note how government intrusion into the economy in the form of child labor laws sneaks into a list of actual improvements.

Look at history, he says. In the United States, exploding economic growth after World War II coincided with a broad expansion of rights for women, blacks and the poor. During the prosperous Progressive Era, from roughly 1895 to 1919, the "idea of mass high school education first took hold." In 1912, the federal government created a Children's Bureau to discourage child labor. In the same year, Congress passed the 17th Amendment switching the election of senators from state legislatures to popular vote. In 1919, it passed the 19th Amendment giving women the vote. [bold added]

And if the next paragraph is an accurate characterization of Friedman's views, it goes a long way in explaining why Samuelson finds so many holes in the book's central argument.

People, Friedman argues, instinctively compare themselves to "two separate benchmarks: their own (or their family's) past experience, and how they see people around them living.'" When living standards rise rapidly, more people feel optimistic, unthreatened and tolerant. Economic growth isn't mainly about greed. [bold added]

I'm chalking the term "instinctively", which would altogether preclude morality, to sloppiness. But for an economist to make the point that people hope to live more comfortable lives out of one side of his mouth, but say that prosperity is not all about "greed" out of the other, he has to be someone who misunderstands or morally condemns greed.

Take tolerance for example. It is common, when there are economic disparities between two racial or ethnic groups, for members of the less-prosperous group to regard the more prosperous group as having prevented them from achieving prosperity. Conversely, the more prosperous group fears that the ambition of the less-prosperous will endanger its material well-being. When there is greater prosperity in general, both sources of tension lessen.

In fact, with more opportunity for all, it becomes clearer that one's effort is what matters, not what ethnic group one belongs to. In other words, for the poor to advance, it is not necessary that the more prosperous become "less greedy" and the success of the previously downtrodden is more easily understood as nonthreatening and, in fact, beneficial to those who were already prosperous. Not only is economic growth caused by greed, it makes the central role of greed clearer as individuals grow to appreciate the fact that life is not a zero-sum game, and that one man's success does not entail another's loss. But to a committed altruist, this point is lost entirely.

And if tolerance is an unexplained byproduct of this mysterious, greedless system of capitalism "economic growth", then so will child labor laws be regarded as phenomenon of the same order and moral import. Might capitalism have raised living standards to the point that adults could support their families? Were such laws really necessary, then? But this author (at least from what this review implies) fails to give credit where credit is due -- to capitalism -- and instead appropriates it for the woozy idea that prosperity causes people in general to feel more altruistic, so such laws get passed.

But altruism as such is only the half of the limitations in this analysis. The other half is the failure to appreciate the role of ideas in history, and this explains why Friedman's thesis falls apart later on. America and Europe did indeed make tremendous advances under capitalism while Germany, in an era of low prosperity, became a Nazi dictatorship.

One problem is that Friedman's meticulous scholarship unearths much contrary evidence. In the United States, the Great Depression didn't diminish democracy; instead it "fostered a broader commitment to opportunity and mobility for all citizens.'" Britain passed momentous reforms (unemployment insurance, old-age pensions) from 1908 to 1911, a period of weak growth. Among poorer countries, many (Chile, South Korea, China) achieved rapid growth under authoritarian regimes, though Chile and South Korea are now democratic.

Yes. The Great Depression was worldwide and different countries reacted to it differently. Why?

For the second time in less than a month, I find myself quoting the same passage from Leonard Peikoff's The Ominous Parallels.

"It is thus necessary that the individual should finally come to realize that his own ego is of no importance in comparison with the existence of his nation; that the position of the individual ego is conditioned solely by the interests of the nation as a whole ... that above all the unity of a nation's spirit and will are worth far more than the freedom of the spirit and will of an individual....

"This state of mind, which subordinates the interests of the ego to the conservation of the community, is really the first premise for every truly human culture.... The basic attitude from which such activity arises, we call-to distinguish it from egoism and selfishness-idealism. By this we understand only the individual's capacity to make sacrifices for the community, for his fellow men."

These statements were made in our century by the leader of a major Western nation. His countrymen regarded his view point as uncontroversial. His political program implemented it faithfully.

The statements were made by Adolf Hitler. He was explaining the moral philosophy of Nazism.

Now, ask yourself how many Americans really believe that "national unity" is more important than his freedom. Isn't our nation all about protecting that freedom? And might this little difference between the national characters of Germany and America have had something to do with how each reacted to the Great Depression? If one of these countries sounds like it is not "all about greed", it's Germany.

And if the course of a nation is shaped not just by economics, but by the ideas held by its people, might there be many ways for these factors to interact with one another? The acceptance by its people of the notion that the state should run insurance and pension programs is why Britain passed "momentous reforms" during "a period of weak growth". That's no great mystery, but how did South Korea move from an authoritarian regime to a freer form of government? That's an interesting question which requires a proper understanding of the moral basis for capitalism.

I don't plan to address that question, but I will sketch out how I might answer a question provoked by this book review: Does the prosperity achieved by capitalism increase a nation's overall level of morality? It certainly cannot make an individual more moral since we all have free will, but, as I pointed out in a comment on a post awhile back (and alluded to in my example on tolerance above), having many examples of people being rewarded for their efforts doubtless would make it easier for anyone growing up in such an environment to reach an implicit grasp of the idea that rational self-interest pays.

[Could] a community with similar values to mine could make it easier for me to raise my children properly someday[?] Certainly, I think that would be the case. Indeed, your point reminds me of a [question I got]... awhile back on whether I thought freedom might be infectious. Those issues are both related.

I advocate a code of morality called rational egoism, premised on the idea that man's life is an end in itself, and that "the good" is that which furthers man's life and "the evil" is that which injures it. A child growing up in a capitalist, rational society would have many more examples of people acting morally and succeeding in life to learn from in such a society. In a society like ours, he will have many fewer examples to follow and learn from. ...

So to answer your question: It would certainly be easier to raise one's kids in a better environment. (And even in our current culture, for all its faults, there are better and worse environments than I had. It's not like I grew up in the projects, for example.)a

In the sense that capitalism provides a child with a huge set of complex examples of (moral) cause and (practical) effect, he will have an easier time developing a morality of rational self-interest, or at least of overcoming the handicap of having been taught a flawed moral code.

This is the kind of understanding missing in the book being reviewed and in the review itself. I suspect that the book will provide a great deal of interesting empirical data about how prosperous societies develop, but that it is mis-integrated and thus fails by a long shot to live up to its promise. This is why a book review that starts out with a bang ("[R]apid growth is morally uplifting[.]") ends with a whimper ("The immediate dilemma involves the welfare state.). The welfare state poses no dilemma. It must be destroyed.

-- CAV