How Good is Greed?

By George P. Brockway, originally published May 2, 1988

 1988-5-2 How Good is Greed Title

                THE OTHER DAY, in talking about profit maximization and utility maximization, we refrained from referring to their common, everyday name, which is “greed.” Conventional economics says that producers are profit maximizers and consumers are utility maximizers. We let it go at that and examined some of the logical implications of those propositions (” Serving Two Maximizers,” NL, March 7). Today, we’ll look at a few more.

Ivan Boesky was not so picky. He once told the graduating class of a California college that it’s good to be greedy. Most people shrink from such bravado, especially now that Boesky’s stock market activities have forced him to take early retirement. But economists are made of sterner stuff and will, if pressed, admit and even insist that economic agents are greedy. Since everyone is some kind of economic agent-a producer or a consumer or both-they are saying that everyone is greedy. I think that is manifestly untrue.

There are three possible resolutions of the issue. The most popular is to forget all about it. (This is the way ordinary people and ordinary economists handle hard questions.) The second is to claim that, whether or not people really are greedy, they act as if they were. (Even though this is the type of approach favored by Milton Friedman, it gets us nowhere because it raises the same questions of fact: Does Sister Teresa really act as if she were greedy”) The third way is what is known in mathematics and in economics as partial analysis.

Many years ago when I took Latin (it would be an exaggeration to say that I studied it), I was charmed by the grammatical construction with the silly-sounding name of “ablative absolute.” One of the most famous of these is ceteris paribusother things being equal. The phrase is invoked so frequently by economists that they often drop in its abbreviation ritualistically, as a Tibetan monk spins a prayer wheel. “Cet. par.,” they will say, and go about their business. What they are doing is holding unchanged all except one of the factors of a situation or equation, and then varying that one to see how it affects the outcome or solution.

To laymen it often looks as though economists were simply shadowboxing, because other things generally are not equal; but partial analysis is a perfectly legitimate procedure, and in the majority of economic problems the only procedure. It is used all the time in business, as a means of assigning costs to different parts of an operation, deciding which advertising pitch pulls best, and so on.

On the greed question partial analysis merely tells us that, other things being equal, people want more of whatever it is they want. Moreover, cet. par., people want more money because, cet. par., money is the means of getting whatever people want (even if the best things in life are free). Thus Mother Teresa,

who may be perfectly altruistic and scornful of anything for herself, may, other things being equal be eager for more money to support her charitable causes. She won’t compromise her beliefs to get that money, but cet. par.-that is, putting those beliefs aside-she’ll go for it. And I, holier than thou though I may be, am the same.

None of this is to say that Mother Teresa is greedy, or that I am or that you are. We may sometimes act out of self-interest, just as the most depraved miser may sometimes act altruistically. Other things being equal-all contrary considerations aside-the miser would be happy to be a benefactor of his fellow-men, or some of them.

The same sort of reasoning applies to every honorable or dishonorable activity you can name. Aside from things I will not or cannot do, I’d rather be rich than poor (I hear that rich is better). I’d also like to be an internationally respected philosopher and a better bird watcher, have a better second serve, and (in my less wary moments) be Vice President of the United States. All of these motives are true under the partial analysis rule, and they are no less true than the fact that I am greedy.

Unfortunately, we’ve proved too much. Greed can be established as a universal motive under the partial analysis rule, and only thus, but every sort of motive-including contrary motives -can likewise be established.

It would be a weak and erratic economics that would be based on my second serve; yet one based on greed is in principle no better. Both can show what people do on certain assumptions; the assumptions are valid, cet. par., and so are the showings.  It may be contended that some of the assumptions-the second-serve postulate, for example-have trivial consequences. But who knows? It was not until two millennia after Euclid that the implications of the parallel-line postulate began to be understood. Scientists properly insist that knowledge is good in itself, regardless of its apparent usefulness. The partial analysis rule seems to leave us in a world without form, a world where anything goes.

The first thing to notice about any motive is that it implies a value judgment. A motive is not like a physical force, which acts willy-nilly; a motive is diffuse and impotent without a value judgment. Rich is better; benefiting one’s fellow-men is better; a winning second serve is better. The value judgment is certainly personal. I opt for being rich; you may judge otherwise. But it does not stop there. I cannot become rich without enlisting your support or at least your forbearance. Nor can I benefit my fellow-men if they are unwilling (there are even people who don’t read this column). And my second serve is meaningless unless you are across the net lunging desperately as it slices abruptly away. I can’t even improve my golf game unless someone maintains the course[1]. Consequently, a motive including, of course, the economic motive- must be defined in the light of a value judgment that cannot be merely personal but has to be social as well. So we come to ethics and public policy.

Economic questions cannot be posed except in ethical terms. It can be said (other things being equal) that a reduction in the supply of oil will cause an increase in its price. The effects of the increase can similarly be traced throughout the economy; and on the basis of these studies policies can be proposed and analyzed-taxation, subsidization, nationalization, conservation, or perhaps laissez-faire. It may even be assumed that the economic agents involved will act, cet. par., to maximize their gains in the short run. But the choice among policies will not turn on the relative extent of these gains, either individually or in the aggregate. The choice will turn on the national purpose, which is an ethical question and a historical question.

WE AMERICANS have a tendency – often a dominant tendency – to confuse national purpose with short-term profit maximization. Perhaps the frankest statement of that confusion was Calvin Coolidge’s “The business of America is business”; but a fat anthology could be made of similar statements, both earlier and later. It would make dispiriting reading. Happily, a larger anthology could be made of inspired documents that we all, including Coolidge and his admirers, recognize as the symbols of our democracy.

It is further true that there are some questions we will not submit to the market for answers. We will not buy our battle tanks from the Soviet Union, no matter how cost effective they are. We may import golf carts from Poland, but we will not buy howitzers from Czechoslovakia, even though the Skoda works has solid experience and an unexcelled reputation. We will not contract with China to supply us with Silkworm missiles made to our design and specifications, although we could thereby save half or more of the cost.

We are clear-headed enough on that level, but badly confused elsewhere, more confused now than we were a few years ago. We see that the procurement of battle tanks is not, fundamentally, a question of short-term profit maximization. How long before we see that the so-called social issues are not such questions, either? In this connection John Maynard Keynes wrote, “But, chiefly, do not let us overestimate the importance of the economic problem, or sacrifice to its supposed necessities other matters of greater and more permanent significance. It should be a matter for specialists-like dentistry. If economists could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid!”

Professor Frank Hahn of Cambridge replied by referring to the title of Keynes’ book and noting “the singular lack of dentists who have written ‘general theories.”” Every dentist I’ve known face to face has been full of general theories and has told me about them, but Hahn’s point is well taken, as Keynes surely would have agreed. Economics is concerned with more than the price of oil.

Partial analysis can do nothing with the big questions. It is all very well to say that, cet. par., everybody is greedy. But it is very bad to conclude that the encouragement of greed is the proper objective of public policy. The big questions are ethical and historical. Whether full employment, for example, is a proper objective of public policy is an ethical question. What full employment is – should children be counted, should women, should blacks, should braceros, should strikers-is a historical question, and one whose answer has changed mightily since World War II and is still changing. This is the way it is with what we say finally matters.

The New Leader

[1] Those who knew the author are aware that this is the least of the reasons he could not improve his golf game….

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