One of my sons gave me a stack of books for Christmas:
- Common Sense Economics
- The Constitution of Liberty – Frederich A. Hayek
- The Law – Frederic Bastiat
- Knowledge and Decisions – Thomas Sowell
I am currently reading Common Sense Economics: What Everyone Should Know About Wealth and Prosperity and really learning from and enjoying it! This book is written by three college professors: James D. Gwartney, Richard L. Stroup, and Dwight R. Lee in a surprisingly easy to read style intended for the average person.
Common Sense Economics
Part 1 – Ten Key Elements of Economics
- Incentives matter.
- There is no such thing as a free lunch.
- Decisions are made at the margin
- Trade promotes economic progress
- Transaction costs are an obstacle to trade.
- Profits direct businesses toward activities that increase wealth
- People earn income by helping others.
- Economic progress comes primarily through trade, investment, better ways of doing things, and sound economic institutions.
- The “invisible hand” of market prices directs buyers and sellers toward activities that promote the general welfare.
- Too often long-term consequences, or the secondary effects, or an action are ignored.
People earn income by helping others.
I found #7 particularly interesting because we often hear in the media and in political discussions that wealthy people exploit others to gain their wealth and that big capitalist corporations are bad, and other broad statements like these. Politicians love to pick on this group and blame all sorts of evil social problems on their greed and selfishness.
However, when you stop and think about it, this view cannot be true. If I want to increase my wealth (as I am trying to do everyday at my business, or you are by working each day at your job) then I have to figure out how to help others in ways that create more value to them. If I am unwilling to do this, my chances of wealth and employment go down dramatically. The only way I can grow my business is to help more people in ways that are more valuable to them.
Even people who are not motivated by a strong personal desire to improve the world around them have to develop skills and perform actions that are valuable to others.
There are big exceptions to this general principle such as we witnessed with the 2009 Bernie Maddof scandal where he actually did become wealthy for a time by exploiting others. However, look at what happened. He was found out and is now paying the consequences. Thankfully, our market economy tends to weed these “bad apples” out and expose them for their unethical and criminal behaviors. Thankfully we have a legal system that generally prosecutes those who break the rules of fairness and who overrun the rights of others.
The bottom line is that I agree with the authors that wealth comes from providing products and/or services that other people value.
Perhaps the point is better stated as “People sustain income by helping others.” There are far too many examples of deceitful people making a quick buck, but to your point, the majority of them are weeded out.
Your Maddof example brings to mind Michael Novak’s (author, The Spirit of Democratic Capitalism) three legged stool analogy of a successful democratic capitalistic system. The three legs being: 1. Political freedom (the rule of law); 2. Economic freedom (a market economy where people can be owners); and 3. Moral responsibility (truth and fair play). According to Novak, if one of the legs is significantly weakened or removed, the stool topples.
I also think greed is often wrongly defined and turned into misleading political talking points. Much of what is labeled as “greed” is more accurately self-interest – and these are two very different things. Using your example, if I want to increase my wealth and go to my job to do so, I am protecting my family and own self-interest. This is a good thing. Where I become greedy is when I start trying to get/steal/swindle more than my share for the service I am giving. For instance, not working and expecting to be paid violate Keys 1 and 2 above; abusing my employees violates key 1 and Novak’s 3rd leg….
I also find it interesting when politicians call capitalism evil or bad. Capitalism is an economic system that is morally neutral, so if we accept their claims, we must conclude that people are evil or bad (or at least the people engaging in capitalism). So if it’s true that people are bad, then wouldn’t the economic system that offers the most safeties and checks against bad actions be preferred? If the answer to this is yes, then we come full-circle to concluding that capitalism is superior to socialism or communism precisely because it has the most checks and balances against bad actions or bad people. Because, after all, government can regulate and punish wrong-doing in business, but it becomes much harder, if not impossible to regulate and punish wrong-doing in government.