Material Problems Have Moral Solutions

This article was originally published at ValuesandCapitalism.com on April 18, 2013.

Is material prosperity the key to moral improvement?

For Marxists, the answer is yes (as explained in my last post). In fact, according to Marx’s narrative, the moral and social ills of society are directly attributable to material poverty. The only way to improve moral life, then, is to first improve economic conditions.

But history tells a different story.

In his book “Economics as Religion,” economist Robert Nelson tells the story of Zambia in the late twentieth century. As one of Africa’s poorest nations, Zambia was, for many years, the number one recipient of foreign aid. Hoping to improve the economic life of the Zambian people, nations around the world poured millions into Zambia in an attempt to spur investment and economic growth. But after three decades of aid, Zambia’s economy actually worsened—its GNP was smaller than when the aid first began.

Needless to say, economic factors alone are not enough to improve the moral life of poor people. In fact, causation is precisely the other way around.

The Zambian story shows clearly that without strong moral foundations—especially with regard to theft and property rights—economic growth is almost impossible. Wealthier nations could pour all the capital they wanted into the Zambian economy, but as long as officials failed to respect the rights and lives of their countrymen, it would never make a difference.

In the early twentieth century, famed economist Frank Knight argued a similar thesis in response to progressives and socialists who sought to use government economic programs as a means to eradicate societal ills. He wrote in 1939:

The idea that the social problem is essentially or primarily economic, in the sense that social action may be concentrated on the economic aspect and other aspects left to take care of themselves, is a fallacy, and to outgrow this fallacy is one of the conditions of progress toward a real solution of the social problem as a whole, including the economic aspect itself.

According to Knight, then, social progress occurs not when public officials realize that all social problems have economic causes, but rather, when they understand that this idea is a fallacy. Instead of reforming economic policy, then, to try and improve social conditions, human beings everywhere ought to remember that the source of social ills is not necessarily economic, and that even economic problems may not have economic causes.

For example, consider poverty. Of course, many people around the world are born in to poverty and never escape it. Others are the unfortunate victims of fraud, disease or natural disasters that have taken a permanent toll on their economic life.

But it’s no secret that many economic problems have their cause in moral or familial breakdown. The children of married parents, for example, have more economic resources, more parenting from their fathers, and face less risk of psychologically traumatizing parental break-up. According to the US Census Bureau, children of divorce are more likely to be in poverty, diminishing their prospects of paying for a college education. Additionally, even the poor themselves are extremely likely to name drug abuse as the number one cause of poverty.

Material prosperity is important for societal health. It facilitates saving and investment that drive the engine of economic progress. But material deprivation alone is not the cause of societal breakdown.

Helping the poor, then, is often more a matter of moral support than an issue of economic policy.

The Material and Moral: What Marxism Misconstrues

This article was originally published at ValuesandCapitalism.com on March 21, 2013.

Few economists take Karl Marx seriously. His economics, they say, is riddled with basic fallacies, and his political philosophy is more religious than scientific—the product of irrational conviction more than impartial observation.

But despite this general distaste for Marxist economics, his belief in prosperity as a cure for social and psychological problems has become a central tenet of American public opinion.

In 1859, Marx wrote:

The mode of production of material life determines the social, political and intellectual life process in general. It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.

In short, Marx believed material deprivation is the source of social, political and intellectual conflict. Instead of viewing a strong moral consciousness as the source of economic prosperity, he blamed the lack of prosperity for moral decline.

In the early twentieth century, the progressive movement gained widespread popularity for advancing a similar belief: They viewed in economic engineering—material enrichment—as a means to engender a more civil society. “To permit the moral ideas to percolate through continually lower strata of the population,” progressive economist Edwin Seligman wrote, “we must have an economic basis to render it possible.”

As the twentieth century progressed, this idea spread—especially among the elite political classes. By finding the source of moral and social ills in material causes, politicians could justify power grabs that gave them more control over the economy.

Such sentiments are even seen in the philosophy of President Obama. Speaking at a fundraiser in 2008, he blamed small-town Americans’ apparent frustration with immigrants and their “clinging to guns or religion” on economic factors—namely, high unemployment. Material causes, he implies, are the underlying source of moral and social decay.

Of course, such beliefs are rarely applied on a micro-scale. For example, when witnessing a robbery at a convenience store, no one immediately blames the poor economy for the crime. The fault lies with the perpetrator, as it would with any other crime in any other place.

But jump to a diagnosis of society as a whole, and such analysis is frequently applied on a macro-scale, in ways that marginalize the importance of good morals and personal responsibility. If only poor people were better off, politicians say, problems of theft, drug use and unplanned pregnancy would simply go away. The proposed solutions are material, but the behavior is a question of morality.

How should we think about this issue? Are economic forces really to blame for moral decay? Of course, poverty can make people desperate. Hunger can make things like theft or deceit seem like reasonable options. But to what extent is material deprivation the source of societal problems?

I’ll explore that question in my next post. In the meantime, I welcome your thoughts and comments.

Read the article at ValuesandCapitalism.com.

Minimum Wage: Good Intentions, Bad Policy

This article was originally published by ValuesandCapitalism.com on February 15, 2013.

Minimum wage is supposed to help poor people. That’s why two out of three Americans support raising it to $10 an hour. And that’s probably why President Obama, during his State of the Union Address last Tuesday, called for raising it by more than 20 percent.

But as any logician knows, public support for an idea doesn’t make it true.

Minimum wage has always had public support. When the first federal minimum wage legislation—the Fair Labor Standards Act—was passed in 1938, it was thought to be a major victory for the working class. The idea of protecting workers from the profit-motives of their employers was thought to be humane. But the slightest bit of economic investigation tells a more complex story.

Henry Payne cartoon

Cartoon by Henry Payne

Wages are the price for labor. They are the compensation workers require for their time and efforts. As with any price, regulatory controls—whether a price ceiling or a price floor—distort the market, creating either a shortage or a surplus. If the price of milk is capped at $1 per gallon, grocers will soon run out, as customers buy more than they need while prices are low. If the price of bread is not allowed to fall below $10 per loaf, grocers won’t be able to sell their stock as consumers will wait until prices drop to buy bread.

In the same way, minimum wage—a price floor on labor—creates a surplus of workers. At a price of $7.25 per hour, workers who are willing to sell their labor outnumber business-owners willing to hire them. There is only so much money to go around, and—like the grocery store’s customers—businesses cannot spend more on wages than they earn in revenue. And of course, not every type of labor is the same—some jobs simply aren’t worth paying someone $7.25 an hour to complete.

The result: Fewer jobs and permanent unemployment for those unable to produce more than $7.25 worth of goods for their employers. Hardly a means to help the working class.

Now in real terms, $7.25 an hour is a low wage. In fact, workers earning minimum wage today earn less than those did in the 1950s—before the age of quantitative easing and rapid monetary inflation. But that doesn’t make a minimum wage hike any more justifiable.

Despite the good intentions of its modern-day propagators, minimum wage is a questionable policy that should raise eyebrows for anyone concerned with the plight of the poor. At the very least, think twice before supporting a minimum wage hike. History suggests it might not have Mr. Obama’s intended effect.

Read the article at ValuesandCapitalism.com.

Self-Interest: A Powerful Force for Good and Evil

This article was originally published at ValuesandCapitalism.com on February 7, 2013.

Economists are confusing. They often disagree about the most basic of ideas. But one thing no serious economist rejects is the important role of self-interest in promoting economic growth.

In fact, this idea has been a mainstay of economic theory for centuries. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,” wrote Adam Smith in 1776, “but from their regard for their own interest.”

Today, the importance of self-interest is all but taken for granted. Schools use grades to encourage students to learn. Employers offer bonuses for high-performing employees. Governments offer tax credit for environmentally friendly choices. Today, doubting self-interest’s role as a catalyst for economic growth is almost unheard of.

But unfortunately, pursuing self-interest can go too far.

In the introduction to his book “Economics as Religion,” Robert H. Nelson defines two types of self-interest. “Legitimate” self-interest, he says, is expressed through market processes: as people seek their own benefit, they produce and exchange in conjunction with others in order to build wealth. This is the same kind of self-interest Adam Smith described.

“Illegitimate” self-interest, on the other hand, is expressed in the form of deceit, coercion and violence—seeking their own benefit, people enrich themselves at the expense of those around them. This type of self-interest is usually condemned, and often illegal.

But while illegitimate self-interest may be rare in the United States on a large scale, this is not the case in many parts of the world. Political violence is common in east Africa. Government transparency is deficient in communist China. Police corruption is rampant in places like Sudan, Mexico and Afghanistan.

Americans often analyze these disadvantaged nations and blame certain public figures or features of regional economies like the presence of oil, drugs or famines. But what we often forget is that the same drive for success that fuels our own economic success creates economic disaster when unaccompanied by strong moral values.

This is because self-interest is the most powerful force in the world. It fuels profit-making and charitable enterprises alike. It drives technological progress and entrepreneurial innovation. Yet without strong social pressure to restrain self-interest, economic mayhem results—regardless of financial conditions. As Nelson shows, the nation of Zambia was for years one of the largest recipients of foreign aid in Africa, yet the Zambian economy actually worsened during this same period. Much of this aid, he argues, went straight into the hands of oppressive political rulers who used it to serve their own ends without regard for the rights of their countrymen.

What Zambia lacked was a social system that upheld the values required for economic growth—values that encourage self-interest in the market yet condemn it as a way to harm others. Until these values exist, no amount of investment or aid will do any good. Self-interest will rule, as it always does, but only through the violence of those whose self-interest overcomes their respect for the rights of those around them.

Self-interest is the fount of economic growth. It is the catalyst for innovation and production. But it can also be the prime mover behind violence and corruption. Needless to say, values and capitalism go hand in hand. If either is left without the other, the economic blessings of self-interest will never be known.

Read the article at ValuesandCapitalism.com.

What if Money Was No Object?

Money_closeupThis article was originally published at ValuesandCapitalism.com on January 10, 2013.

“What would you like to do if money was no object?”

This is the question asked in a trending Youtube video narrated by the late philosopher Alan Watts. It encourages young people to live and dream as if money didn’t matter—as if money was no object.

Inspiring, to say the least. The notion of dreaming and living without regard for financial reality can open the imagination to entire worlds that money had rendered unrealistic.

But profound narrative, dizzying imagery and hypnotic music aside, this video reveals an attitude about money that is hostile to economic prosperity and, more importantly, living a moral life. For despite what Alan Watts, Hollywood and Occupy Wall Street might say, money is a vitally important feature of the social world that we simply cannot do without, and using it is a moral issue.

First, money is simply a medium of exchange, and recognizing its usefulness is a good practice.

Whereas some activists might cite money as the root of evil and social injustice, that is simply not true. As every student learns in Economics 101, money is purchasing power. It represents the ability to acquire material ends. Those who most efficiently supply the needs of their fellow human beings will earn the most money.

For example, consider money’s origins. In the ancient world, barter trade was man’s primary means of exchange. If John wanted apples but produced only oranges, he traded oranges for apples. If, however, no one with apples wanted his oranges, he was out of luck. But instead of simply going without, John would trade his oranges for something the apple-growers wanted—like grapes—and then trade those grapes for apples.

After a while, others caught on to this means of barter, and different media of exchange arose. All members of John’s society began to accept gold coins in exchange for their goods, knowing that these coins could then be exchanged for anything. Gold became money.

Money, then, is both a media of exchange and a means of calculation. It allows individuals to acquire things they want and to more precisely determine the value of their goods and services.

In that light, why ignore money? Why pretend like money doesn’t exist when choosing a career? Yes, money restricts options and makes some dreams impossible. But without money, there would be very few dreams whatsoever.

While pursuing a life in which money doesn’t matter may be exciting, it is a total fantasy.

Second, God has much to say about money, and none of it involves pretending it doesn’t exist.

Both the Old and New Testaments are littered with hundreds of verses about money. Common to all of these verses is the idea that the creation and use of money is a moral exercise. Whether it is God’s command to “use honest scales and honest weights” (Leviticus 19:36), His rejection of “diverse weights” and “false balances” (Proverbs 20:23) or his lament that Israel’s “silver has become dross” (Isaiah 1:22), it is clear that money is significant to God’s law and human life.

One particularly revealing issue is debt. Unfortunately, debt is all-too-common among American young people. According to the Federal Reserve, 37 million young people have outstanding student loans. What is not so common, however, is seriousness about making debt payments. According to arecent uSamp survey, the vast majority of those who have not paid off their student loans want those loans forgiven. While those answering the survey may never consider the ethical issues involved, repaying debt is a moral imperative.

In Romans 13, Paul writes that Christians should “Owe nothing to anyone—except for your obligation to love one another.” David writes in Psalm 37,”The wicked borrows and does not repay.” In short, the importance of repaying loans cannot be more explicit. If one contracts to borrow money from another, that contract should be upheld. Defaulters should be penalized.

Undeniably, money matters to God. Debts should be repaid. Budgets should be kept. Forced loan forgiveness and dishonest inflation should be rejected and condemned. These are moral imperatives. To live as if “money was no object” is a dereliction of moral duty.

Finally, while living as if money doesn’t matter may be exciting, such a life is available only to those with money to spare.

Try telling a single mother of two that money doesn’t matter—that her career path shouldn’t be determined her ability to provide for her family. Or consider an unemployed graduate with no means to finance his college debt payments. For them, of course, money matters.

But perhaps the absence of want is why today’s young people are so repulsed by money. Generation Y is the most materially blessed generation in recorded history. When it’s a given that there will be food on the table every day of the year, it is easy to forget the importance of money as a necessary means to sustain life and cultivate a healthy society. But that doesn’t change the fact that money is important.

Like it or not, money is dinner. Money is education. Money is life-saving medical technology. Of course, there are more important things in the world than being rich. But the existence of money is an unavoidable feature of social life that everyone should consider—especially when making career decisions.

For further reading on this issue, see my article Where Money Meets Morality.

Read the article at ValuesandCapitalism.com.

Three Ways to Defend the Free Market

Lucky number threeThis article was originally published at ValuesandCapitalism.com on January 4, 2013.

Each year, almost 50 percent of Americans make New Year’s Resolutions. Most often, these include things like losing weight, working harder or spending less. Whatever they may be, the common thread among them is that they involve things we deeply care about—things we think deserve more of our time and effort.

In that light, it only makes sense that the free market should, in some form, be among our New Year’s Resolutions. And if this year is anything like last year, the free market will need all the support it can get. As critics of the free market grow stronger, it is up to liberty’s advocates to counter those attacks.

So this year, make defending the free market one of your resolutions. Commit yourself to discuss the ideas of liberty with friends and neighbors. Here are three tips to help you get started:

1. Raising questions is always better than giving answers.

Capitalism defends itself. It is logical, coherent and well-supported. The last thing it needs is your careless, back-of-the-napkin arguments that can sometimes do more harm than good.

Instead of arguing defensively with your friends, try raising some interesting questions. Ask them about their beliefs. Why do they think like they do? What do they think about our economic future? How do they propose the government deal with things like inflation, student loan debt and gun control?

If you’re like me, you’ll quickly find that questions build bridges and create mutual understanding. If you’re lucky, your friends will begin to seriously consider their own opinions, and will become more open to listening to alternative points of view. Helping others come to their own opinions will create more lasting change than asking them to adopt yours.

2. Everyone deserves respect, no matter how mistaken they may be (yes, even your crazy socialist uncle).

Granted, respecting your opponent can be difficult. How can someone be so educated, you might wonder—and yet wrong? How can that friend of yours be so blind to the harms of government debt when they have experienced the pains of bankruptcy in their own life? What makes your unemployed neighbor believe that investing more in the same government policies will help her get a job?

But the fact is, many people who are “hopelessly wrong” have the best of intentions in mind. Socialists believe their policies will bring economic fairness. Occupy Wall Streeters believe big banks harm the poorest of the poor. Progressives believe that more deficit spending will alleviate, not intensify, the current unemployment crisis. Only crazy people support ideas because they want to bring destruction and poverty to their fellow human beings.

So instead of snubbing your intellectual opponents, draw upon their good intentions for your noble purposes. Show them the free market is the solution they are looking for—not an oppressive, evil monster. Make sure they understand that you support the free market because you think it is fair, moral and wealth-generating—not because you are greedy and selfish. Most importantly, help them know that you are as concerned as they are about the plight of the poor, disadvantaged and unemployed—you simply believe the free market is the best solution.

In little to no time, you’ll find that your friends and neighbors will start to be more attentive to what you have to say. As in all areas of life, your respect for others will translate into their respect for you.

3. Use your resources.

Like it or not, no one is going to change their worldview because of a 30-second coffee break conversation. Even if they are proven totally wrong, most of us would rather continue to argue bad ideas than embarrassingly admit defeat.

So instead of arguing, point your friends to some of the thousands of liberty-related resources available in print and online. Email them an article and ask them to respond. Send them a book about an issue you know they care about.

In fact, this is precisely why organizations like the American Enterprise Institute exist. Their scholars have studied these issues for decades and have prepared arguments that—like it or not—are stronger than yours may ever be. Whether Ludwig von Mises on socialismCharles Murray on welfare policy or Arthur Brooks on the morality of capitalism, scholars throughout the ages have advanced and defended the very arguments you are trying to make. Use them!

The ideas of liberty have been growing and evolving for centuries. You have no reason to fight the battle alone.

Read the article at ValuesandCapitalism.com.

In Praise of the Speculator

Flickr_-_Government_Press_Office_%28GPO%29_-_D441-138[1]This article was originally published at ValuesandCapitalism.com on December 5, 2012.

In recent years, the purported effect of oil speculators in raising the price of oil has sparked much debate and concern. Pundits of various political bents have sought an explanation for the rising price of oil among the activity of speculators, and legislation has recently been considered by Congress that would limit the profit margins of oil speculators with the goal of suppressing costs.

Summarizing perhaps the most prevalent belief about the role of speculators in altering the price of oil, President Obama argued this spring that the American people “can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage and driving prices higher, only to flip the oil for a quick profit.”

Additionally, initiatives like Stop Oil Speculation Now (now part of the National Airline Policy Campaign) have gained considerable support from industries that rely heavily on oil for operations, such as transportation and energy companies. These industries allege that financial speculators drive up the price of oil by buying and selling it with no intention of using it, and that such speculation must end if their corporations are to function efficiently—or “based on supply and demand fundamentals instead of profiteering strategies.”

But these critics of speculators grossly misunderstand the role of speculators in the modern economy, and if their attempts to limit speculators’ activity succeed, the economy will suffer.

To understand why, it is critically important to understand what a speculator does.

In reality, speculators are no different than any other market participant. They seek to exploit price differences in order to make a profit. This is no different than the entrepreneur who begins a certain line of production believing it to be an ultimately profitable investment. Ludwig von Mises explains this well:

The mentality of the … speculators … is not different from that of their fellow men … They guess what the consumers would like to have and are intent upon providing them with these things. In the pursuit of such plans they bid higher prices for some factors of production and lower the prices of other factors of production by restricting their demand for them.

When the popular media refers to oil speculators, they are usually referring to persons who buy and sell oil with the intention of making a profit, rather than using it for any “productive” purpose. Thus, stock speculators are generally defined as “traders who take a position in an asset solely to profit from a change in price.”

Allegedly, these people are driving up the price of oil and making everything worse for the larger public, who need oil in order to go about their daily lives.

Now while there is some apparent truth to the notion that speculators drive up the price of oil, it is not the case that if there were no speculators, oil would be less costly. Indeed, when speculators predict future increases in the price of oil, they bid up the spot price as they seek to increase their own stock in oil. They then plan to sell it at a later date for a profit. Thus, speculators turn future price-increases into present price-increases, often preventing a fall in prices in the present.

But imagine if there were no speculators. If the price of oil were to drop to $1.25/gallon, the amount of oil consumed would skyrocket. Indeed, considering the important place oil occupies in today’s economy, such an occurrence would lead to a general economic boom. And all because there were no speculators to buy up all the cheap oil, right?

Wrong. If there were no speculators predicting future price increases—future changes in fundamental supply-and-demand—there could very well be shortages of oil in the present, as the low price entices consumers to buy far more of it than they need. As Victor Niederhoffer explains:

When a harvest is too small to satisfy consumption at its normal rate, speculators come in, hoping to profit from the scarcity by buying. Their purchases raise the price, thereby checking consumption so that the smaller supply will last longer. Producers encouraged by the high price further lessen the scarcity by growing or importing more. On the other side, when the price is higher than the speculators think the facts warrant, they sell. This reduces prices, encouraging consumption and exports and helping to reduce the surplus.

Speculators are thus a sort of “price-corrector,” seeking spot prices lower than anticipated future prices. By capitalizing on intertemporal price differentials, they prevent shortages and give other entrepreneurs means to gauge the future price and supply of oil. And as Niederhoffer shows, speculators can drive down the price of oil just as they can allegedly drive up the price of oil. To attribute only price hikes to them is mistaken.

Much more can and should be said about the benefits of speculation. Suffice it to say, however, that speculators are by no means an “unnatural” or harmful part of modern-day financial markets. We should be more careful than to immediately accuse them of messing things up for everybody else.

Read the article at ValuesandCapitalism.com.

Earned Success in the Free(lance) Market

Hammond_typewriter[1]This article was originally published at ValuesandCapitalism.com on August 20, 2012.

As I begin my last year of college, I think often about my post-graduation plans. Thinking often gives way to worrying, though, as the job market is weak and landing my dream job isn’t likely. So, like thousands of other frustrated Americans, I am considering freelance writing as a profession—at least temporarily. I have experience with it already, and it offers a relief from the incessant job-hunting that plagues so many today.

My decision, however, is not one solely of necessity. In fact, I rather like the spontaneity and risk involved with freelancing. I’ve enjoyed my experience with it so far.

But most importantly, I like the fairness of freelance work—merit-based reward that only freelance markets can offer. Indeed, working freelance gives me a deeper understanding of the fairness of free markets from a perspective others don’t necessarily have.

For most people, applying for jobs happens maybe once or twice every few years. For freelancers, it happens every day. Employers are always looking at their portfolios, evaluating their work, and deciding if they are good enough for the job.

It’s stressful. As a freelancer, I won’t necessarily know if I’ll have a paycheck next week. I won’t have a traditional long-term contract. No paid vacation time. No automatic raise after six months. If I decide not to work one day, I won’t get paid. But honestly, I wouldn’t have it any other way.

What I really love about working freelance is the knowledge that the better I do, the more money I will make, and the more successful I will be. Growing up, I did very well in school. My grades were about as high as they could possibly be. So working harder did not necessarily mean more reward. This was always frustrating.

But working as a freelance writer, I am rewarded according to how well I do my job, not according to whether I completed my tasks for the day. Reward is commensurate with quality. A job well-done makes the next one that much easier to land. And there’s no limit on how much or what kind of work I can do—there are always more articles to write, more work to be done, and more money to be made.

Will I ever be like Malcolm Gladwell or George Will? I doubt it. And like anything else in life, successful freelancing involves a bit of luck. But as a freelancer, I can have full confidence that the harder I work at being a better writer, the more successful I will be. People appreciate work done well, and they naturally reward those who do things the right way.

While the world of freelance offers a unique perspective on the fairness of free markets, don’t believe that the “permanent job” market is any different.

In fact, in a free market we are all freelancers—regardless of our job or title. We all try to sell our labor to potential employers, refine our skills to earn more money, and work harder in hopes of getting a promotion. If we show up early, we get rewarded. If we slack off, we lose our jobs (and getting another one becomes much more difficult). There really is no difference between freelance work and “traditional” work—freelancers simply switch jobs more often and receive their rewards (and penalties) more immediately.

So while freelancing offers an up-close view of the fairness of the free market, everyone—freelancer or not—has firsthand experience with this fairness. Success is earned in the free market, not granted arbitrarily.

Unfortunately, many seem to forget this fact and choose instead to blame the free market for economic inequality. Capitalism, they argue, leaves the masses in the dust of the super-rich and powerful. But in the course of their accusations, they wage war on the notion of earned success. They take for granted the idea of merit-based reward, and overthrow the principle undergirding their belief that good work deserves good reward. But of course, there is nothing as deceptive as an obvious fact. As long as our culture takes for granted the notion of merit-based reward, capitalism will be ever under attack.

In that light, maybe a little freelancing would do us all some good.

Read the rest at ValuesandCapitalism.com.