Monday, February 13, 2012

The Shadows of Capitalism

I'm no economist. I still haven't gotten around to reading Freakenomics and I confess that I understand little about this complex subject. I guess none of that matters anymore when it comes to blasting an opinion into cyber-space. Nevertheless, I humbly confess that the opinion offered here is unpolished. At the same time, I feel that my society is becoming increasingly dissatisfied with the nature of Capitalism and I too share this concern. Ever since listening to one of those "Great Courses" lectures on The Enlightenment I've been thinking about Adam Smith and economics. This is my lament regarding one giant shadow side to Capitalism's "Invisible Hand."

Advocates of Capitalism often argue that competition between businesses and industries brings about the best products and thereby the greatest good for society. This philosophy (as far as I understand) is founded upon the concept of the "Invisible Hand." This idea presumes that competition among each and every individual will indirectly guide the economy toward the good (hence, the "invisible hand").

There is no doubt that this economic theory is sometimes true. If it weren't for competition, we might not have great products like this laptop beneath my fingers. Or cellular phones. Or, God help us, anything from Apple Inc.! Advocates of Capitalism also like to mention that we might not have the health technologies or medicines that we have without the competition of Capitalism. Maybe true.

This is the fundamental influence of Adam Smith. He is the father of modern economics and largely responsible for Capitalism as we know it. He was one of the key figures of the Enlightenment and you can surely read more about him on his Wiki. I have no time to delve into biography here.

The reason for mentioning Mr. Smith is twofold. First, his influential work on economics, An Inquiry into the Nature and Causes of the Wealth of Nations, is two-hundred and thirty-six years old. It was published in 1776 - the same year as our Declaration of Independence. Isn't it ironic that both our government and political economy are trying to live by the paradigms of 1776? I just find this a bit unnerving (like old wine and old wine skins).

It warrants mentioning that the economic paradigm running our country is 236 years old.

Secondly - and more relevant to this post - is that Adam Smith is the source of the now famous idea of the "Invisible Hand." Here is what Mr. Smith wrote in the Wealth of Nations:

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other eases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. [emboldened by me]

Here you have a nice summary of Smith's approach: pursue your own self-interest, make the best product(s) you can, and society will be benefitted indirectly. I have emboldened some key words and phrases as they capture the spirit of Capitalism: individualism, self-interest, indirect (not direct!) care for others. I seriously have yet to understand how Capitalism's indirect care for others can harmonize with Christianity's explicit claim to directly care for the neighbor... but that's another post for another day.

What I want to say here is that Capitalism does not do what it claims to do [anymore]. Despite the theory that the "Invisible Hand" will guide the market toward better products and better lives, the opposite is true today. Here's how I know:

[from top: "Drive-N'=Grill" portable grill; "Doggles" goggles for dogs; "Booty Pop" butt inserts; Combo Taser/Mp3 Player] ... and OTHER SUPERFLUOUS PRODUCTS...

It doesn't take more than three pages of Sky Mall to realize that the "Invisible Hand" has lost its direction. Indeed, most of the products that are produced today are utterly superfluous and only "better" society once we are convinced that we "need" such products.

One of the many shadows to Capitalism nowadays is that competition has outlived its necessity. It is true that competition may have been the way to the "wealth of the nation" before industrialization, technology, media, and excess advertising. But today, when I can walk into CVS, Rite-Aid, Walgreens, Target, and Wal-Mart for many of the same products, we are living in an entirely different world than Adam Smith. Capitalism guided by the "invisible hand" of competition is no longer a betterment to society.

Economists who have noticed this are working together to offer new paradigms that fit our current world. One of the newest economic theories is called "ecological economics." This school of thought "aims to address the interdependence and coevolution of human economies and natural ecosystems over time and space," (from the Wiki). Try a Google search for ecological economics and see what you can dig up.

What is certain is that Capitalism is not the only option. There are alternatives. I am optimistic for an economy that puts the well being of others over the profit margin for Doggles.


  1. The thing about capitalism is that it requires a bottom 10%. I doubt Adam Smith, assumed that this bottom 10% would be without sufficient food, shelter, healthcare, education...nor that it would fall on specific races, genders, or subgroups. It's definitely not as relevant as it used to be...

  2. It won't surprise u to read the name Reinhold Niebuhr in my comment on your blog. He was an inveterate and balanced iconoclast toward the left and the right wings of the political-economic spectrums. The problem he saw in both instances, from Smith to Marx, was naïveté about the self-interested ness of human nature. On the one hand people never will be sufficiently generous on a grand scale; on the other hand, there is no such thing as a limited oligarchy if they control both primary forms of social power: the political and the economic.

  3. Don't be surprised that Smith's isn't a Christian philosophy. It's not. It's utilitarian. What we know is that it produces the highest standard of living for the most people. This is visa-vi material wealth. Pretty sure Christianity doesn't profess to be the guarantee to material wealth. Also, it would be hard to say that we run the economy on the same principles of Smith. Economist have long acknowledged the inefficiencies of markets. Thus anti-trust, subsidies, regulation etc. The power of Smith's argument is that the most efficient way to get output from people is to focus it around their self interest. Enough for know, I have to answer some work e-mails.