March 08, 2009

In Mandeville’s infamous “€œFable of the Bees,”€ that witty writer makes the case that private vices generate public virtues. Specifically, he argues that the craving for gain, advancement, and luxury drives men to economic activity and fruitful cooperation”€”which, channeled and organized by the Market, ends by advancing society and enriching the Common Good. Conversely, one could count on general impoverishment if society were made up of ascetical, world-denying mystics, or even humble Christians content with simple lives in this world, since their eyes are fixed on the next. In other words, “€œGreed is good.”€

Now, less cynical advocates of the market economy (such as Adam Smith in his Theory of Moral Sentiments) tried to file off the sharper edges of Mandeville’s theory, noting that honesty, fair-dealing, professional integrity, and a whole host of non-market values were in fact essential to make a market economy viable. Smith was proved right by every financial bubble and politically-sponsored scam from the Tulip Bubble to Boris Yeltsin’s Russia and Bernie Madoff’s America. 

In our own time, historians such as Christopher Dawson pointed out that it was, in fact, world-denying ascetics in the persons of Benedictine monks who served as educators, agricultural innovators, and magnets of order around which thriving communities gathered. Max Weber showed that the rise of capitalist prosperity depended on the thoroughly theological priorities of tight-fisted Calvinist businessmen, who produced without consuming”€”the better to serve their earthly vocations as stewards.

One of the clearest-eyed advocates of a free market economy, Wilhelm Röpke, took Smith’s insights even further: Looking at the social and moral decay caused by the economic effects of the Industrial Revolution”€”its uprooting of millions from rural communities, displacement of traditional craftsmen, and concentration of huge populations into tiny, unliveable quarters in squalid conditions”€”Röpke worried that an untrammeled market might well destroy the very social capital that Smith had argued it needed to function. Even worse, a culture that fawned over the most successful practitioners of self-promotion and ruthless competition would tend to promote corruption, protectionism, political patronage, and a whole host of other evils that harnessed the power of the State to the self-interest of the wealthy. In reaction, the masses”€”cut off from their traditional modes of organization in village and church”€”would turn for protection to socialism, Communism, or rabid nationalism. Such movements, if they succeeded, would only make matters worse by concentrating wealth in still fewer and less accountable hands, namely those of bureaucrats. Hence, the resistance to moderate regulation of business intended to preserve transparency and fairness would lead ineluctably to the political control of ever more national wealth, and the shrinkage of the private sector. The more wealth that’s in the hands of the State, the less freedom each citizen has”€”since an ever higher percentage of his wealth (and hence, his time) is controlled by the government. Thus Röpke predicted, in the early 1940s, the economic history of the next 60 years.

I”€™ve already written here about the decline of thrift“€”the economic face of the governing virtue of Prudence. The State helped drive this degeneration by embracing Keynesian economics, which can be boiled down to this theory: That instead of looking for investment capital to the accumulated savings of the populace (deferred consumption), clever government policies (i.e., magic) can make it possible to fuel investment without any savings. Instead of deferring consumption, we can simply defer the payment. The money you and I put on our credit cards to shop at Best Buy will help the store expand. Multiply this event a few million times, and the whole economy grows”€”allowing us to make enough money to pay off our credit cards… eventually. Any glitches that foul up the Rube Goldberg mechanism can be fixed by government loans, bailouts, or debt guarantees. Assuming an infinitely growing economy”€”never slowed down by the absence of capital, since the government can always print more money”€”the pyramid never has to crumble.

Except that it did. I remember reading last year some economist observing with wonderment that America could go right on increasing its consumption and standard of living, even as it produced ever fewer tangible goods. (Think of the old joke that you can”€™t make a country rich simply by getting everyone to hire his neighbor to do his laundry.) What, exactly, did America do to justify its prosperous place in the world”€”what value did we add? Here was the clincher: We offered a “€œsafe place to invest,”€ and “€œextraordinarily sophisticated financial instruments”€ that maximized wealth. Instruments like… those derivatives that split up the debt on risky mortgages into so many different tiny slices that nobody, at any point in the process, had any interest in saying “€œNo”€ to an unemployed Mexican grape-picker buying a $750,000 home. 

Put bluntly, we closed down our country’s physical plant and turned the place into a casino. We skimmed a lot off the top, but we offered the best games in town. Our waitresses were hotter, the watered drinks were free, our security guards had nukes, and the floor show featured Siegfried and Roy. We tried to pursue prosperity by catering to the instant gratification of every conceivable human desire”€”and when we ran out of those, we got very good at coming up with new ones.

In 1980, who knew that we needed Twitter at the beach? Bariatric surgery? Transgender dorms at ex-Methodist colleges that charge $40,000 a year to teach women’s studies? We didn”€™t just feed the vices, we came up with new ones”€”and found ways to make them “€œpay.”€ Of course, the people who”€™ll really pay for our spending spree will be our grandchildren, who”€™ll inherit the brain-bleeding debt we”€™ve run up, which both political parties are eagerly expanding as you read this. Isn”€™t it funny how the guy who invented this system, John Maynard Keynes, was gay? In those days before “€œdomestic partners”€ could adopt, he was… immune to fears about grandchildren, and quipped once, “€œIn the long run, we”€™re all dead.”€ Just the man to plan for our heritage. When the tight-fisted, hard-working Confucians who take receivership of Americasino”„¢ come in to assess the property, sweep up the pizza boxes, discarded condoms, and popper bottles, they will shake their brainy heads and wonder: “€œWhy did we ever give these people gunpowder in the first place?”€ 


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