Economic Fallacies: "Capitalism Based on Greed"

The "Capitalism Based on Greed" fallacy says that greed and selfishness are inherent in capitalism.

The assertion that capitalism is based on greed and selfishness is one of the most common fallacies. This fallacy has many layers, but we must first acknowledge that greed exists within capitalism, just as it does in every economic system! Greed extends back to Adam and Eve exiting the Garden. Furthermore, greed is not confined to the wealthy. It exists among all classes of people, and it always has. Greed is given concerning the human condition until Christ returns. But is it the basis for capitalism?

Capitalism gradually emerged in Europe over several centuries. Many factors led to its development. New crop rotation methods created a boom in agriculture production more than a millennium ago. Monasteries, who owned vast tracts of land, put these new methods to work. Their strong work ethic combined with these improvements created an agricultural surplus, freeing some for work other than subsistence labor. As the monks prospered, markets began to form around monasteries. Merchants moved close by and sought trade with the monks and other merchants. Cities eventually sprang up around these markets. New international business methods sprang up with the Knights Templar as they facilitated pilgrimages to and from the Holy Land. Beginning in the thirteenth century, the Medici family in Italy founded a banking system encompassing all of Europe. Double-entry bookkeeping was invented. Greater and greater precision was developed in monitoring and analyzing production and trade.

Adam Smith identified key elements contributing to Europe's wealth expansion by the eighteenth century. Just like Darwin synthesized observations about biology into a coherent model, Smith did the same for economics. The ideas of labor specialization and trade were at the core of his analysis.

Rather than have each individual develop a myriad of skills to provide everything they need in life, Smith observed that everyone should specialize in his best activities. They should pay others to do those tasks they do less well. This would result in all work being done at the best quality and most efficiently. (Smith expanded this idea to trade between nations, with nations each specializing in specific goods. This is at the core of the comparative advantage model.)

I exchange my goods with you (which I produced at better quality and more efficiently than you could) for those you produced at better quality and efficiency than I could. Because we each have specialized in our labor, we can produce our respective goods cheaply. We sell them for more than it costs to make them but for less than what it is worth for the buyer to make them (otherwise, the buyer would make their own.) If I've made 100 tables and you've made 100 plows, we can each exchange our excess products. One of my tables will be worth more to you than it is to me, and one of your plows will be worth more to me than it is to you. We each win in the exchange, and wealth is created purely by the exchange. (See the "Trading Game" example I wrote of earlier in the Zero-Sum Game post.) Money facilitates these transactions so that we are technically swapping goods directly. The key point is that specialization and trade result in endless win-win transactions. Endless win-win transactions are the basis of capitalism, not greed.

Profit is another word disparaged by critics. The difference between what it costs the producer to create the good and what the buyer paid for the good is the profit. Many people falsely characterize profit as greed because the seller gets more for something than it costs the seller to make.

First, no item on the face of the planet has intrinsic economic value. Economic value is whatever amount someone is willing and able to pay. If a non-coerced buyer with (relatively) complete information chooses to buy a product for more than it costs the producer to make the product, that is the product's economic value.

Second, profit is a premium paid to the seller for the risk the seller took in bringing the product to market. It serves as an incentive to do more of the same. The seller may extract a portion of the profit for personal consumption, but most businesses and corporations use the profits to improve and expand production, generating more wealth, jobs, and profits. Any producer focused exclusively on profit will ultimately collapse because of customer inattention. But if there is no profit, the enterprise will die as well. Profits are to business what food is to the body. They are essential but not the ultimate purpose for existence. Set the price too high, and buyers will not buy. Set the price too low, and production costs will not be covered. Sellers cannot charge what they please just because they are greedy.

Yet another layer to the "Capitalism Based on Greed" fallacy is the widespread misconception that, dating back to Adam Smith in the eighteenth century, capitalism has been explicitly based on selfishness. Adam Smith wrote two major works that must be treated as a unit: Theory of Moral Sentiments (1759) and The Wealth of Nations (1776). Smith never affirmed selfishness. He did affirm appealing to the self-love or self-interest of others (terms he used interchangeably.) Selfishness excludes concern for the other while self-interest/love can incorporate concern for others. In Theory of Moral Sentiments, Smith explicitly uses Jesus' admonition to "love others as you love yourself." In The Wealth of Nations, we find this famous but widely misunderstood passage:

It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. (Wealth of Nations)

Notice that Smith is not asking us to act according to our self-love. He is saying that we should appeal to other peoples' self-love as the basis for meeting our needs in our economic exchanges. Smith wasn't the most orthodox theologian, but he did seem to have a Calvinistic notion of human depravity. Smith did not believe an economy could function with people simply depending on others to behave benevolently and with goodwill. It is far better for the butcher, brewer, and baker to see their fortunes tied to our own fortune. We become economically integrated by seeing other peoples' happiness and satisfaction as directly linked to our self-love/interest.

For Smith, this integration of behavior based on interlocking self-love was not the highest expression of human behavior. In Theory of Moral Sentiments, he wrote:

And hence it is, that to feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety.

In short, Smith thought human nature necessitated an economic system of interlocking self-interest, but he believed society should produce individuals that aspire to higher virtues of compassion and benevolence. There have been Modernist thinkers who have promoted a Social Darwinist approach to economics, particularly in the late nineteenth to early twentieth centuries. Yet something more akin to Smith's view has predominated in Western society.

Another advantage of Smith's perspective is that it made the expansion of markets to total strangers more feasible. Sustained benevolence and compassion require social and geographic proximity, which is possible only with a limited number of people. But an arrangement where the entire populous sees their personal interests tied up in meeting the needs of complete strangers allows for an enormously greater number of market opportunities.

Finally, we have to introduce the issue of capital into our discussion. With the advent of steam power and later combustion power, producing factories that exponentially increased productivity became possible. It made canal and railroad construction technological possibilities. But undertaking these enterprises required the amassing of large sums of capital beyond what any individual or small group of individuals could gather and put at risk. Corporations with share ownership and limited liability emerged to facilitate this process. When people see the net worth of billionaires on display, they too often envision a bank account with stacks of money in it. In fact, the great majority of their wealth exists in various debt and equity instruments invested in productive enterprises. That capital is at work creating goods and services, as well as jobs and other benefits, for society. Opposition to owning this much "money" becomes an expression of opposition to large-scale private enterprises, whether it is intended to be or not.

Some will no doubt point out the mansion, yachts, and other extravagances some wealthy folks indulge in, but those extravagances provide jobs for many people who supply the goods and services to the wealthy. There is no zero-sum game at work here, whereby the wealthy having nice things causes the poverty of others. We may reflect on what impact extravagant living is having on the spiritual well-being of the very wealthy, and we may question their generosity toward others, but the presence of selfish and greedy people within a capitalist system is a far cry from the accusation that capitalism and free markets are based on greed.

[Index]

Comments

[Rick McGinniss]

I know this is an old post, but I've been debating economic issues with my very postmodern 25-yr-old daughter who has lived in Latin/South America for the past 5 years (but is now working as a cook at the Bluebird Bistro here in KC). As part of our dialogue, I forwarded several links from your blog. This is her response:

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i think i am not completley in agreement with Smith that we should appeal to others self-love in our transactions. i understand what he is saying, and i think it can work when you know the butcher, or the brewer because when there is relationship, you can see what your product does to others and understand its value to the consumer (instead of just numbers) but when that concept is opened to a global market where butchers aren't even providing meat anymore, but the cattle are sold and butchered and then processed and sent out to the masses, it is infinatly easier to only see the numbers and not the consumers or even the production process (ex. factory farms). i think it's alot easier for greed to take over and silently take any humanity out of the transactions. it's the whole lack of community.

so i do understand how the capitalist system (in theory) is very good and works. but in the US (currently) i think it is much more based on greed. and it can be, because it is faceless. i have very little possesions that i could tell you who made it. but i could tell you what brand it is. so the brand (and the corporations behind the brand) become the only butchers available, because they are so big that they can reduce costs and sell things cheaper and since i (the consumer) don't really care about where it comes from, but need to save money because of the limited capital i have from my exchanges with these huge merchants, i am almost forced to keep supporting their greed and blind production. and there is no relation in the consumption.

i hate that. i think that is part of what i want to change with my restaurant or any business i have. i think that is why i enjoy latin america so much. because i can kNOW my butcher or brewer, and not expect to get his products from charity but to be able to know who and what i'm supporting. and if something happens in our local economy it will affect us both, and we (since we are depending on each-other) will be able to figure out a way for us to both weather the storm.

what i fear from so many "blind" markets is that there is a lack of humanity that gives so much opportunity for greed. if "Imperialism is the effort to politically and economically subordinate foreign peoples" (which is impossible to separate from greed) and the US (and many other large, rich, develloped countries) are practicing "imperialism by [a] capitalist nation[s]" then these systems have a very big probability of being based on greed alone.

and i completely dissagree with what he says about people with yachts and everything providing services and jobs and money to the world. that's like saying the plantation owners provided jobs and services and food and housing to the slaves because they had enough money to invest buying land and slaves and starting a plantation. like they are the heroes throwing candy at the rest of us who get to watch thier parade go by. which i feel propogates the very greed that drives them into the hearts of the little men who serve them by showing off what luxuries and comforts money can bring. it causes people to lust after money--- which is greed.

[Michael W. Kruse]

Rick, I'll chime in with a response tomorrow but part of the answer is in one of my recent Jesus Creed posts. Click here.

[Michael W. Kruse]

The primary theme I hear from your daughter is a desire for connectedness and genuine community. It is a common them I here from young adults and people drawn to emerging church communities. I want to affirm this. We are living through cultural shifts that probably rival the Reformation 500 years ago and it is disorienting. I share some of her longing for this. But as we move to economic analysis, it is important realize the distinction between what Ferdinand Tonnies called “Gemeinschaft und Gesellschaft” … community and society … writing 130 years ago.

We are limited in the number of people we can be in relationship with. There is something called the Dunbar number. It says that maximum number of people a person can maintain a sustainable social network with is 150 people. There are few examples of communes that survive beyond a generation or two. As the community becomes larger, “free-riders” emerge … people who don’t contribute equitably to the success of the community. People can no longer personally know others on a day-to-day basis so group accountability and group solidarity declines. Factions begin to emerge as dissidents want to emerge in different directions. The Hutterites live communally and have so for generations, but they also divide their communities when the reach about 120 people. You are probably aware that in church growth theory, something happens when a congregation passes through the 100-200 in worship attendance stage. It ceases to be a “family” church and becomes a “programmatic” church. We are limited in the number of people with whom we can have sustainable, somewhat intimate, relationships with.

Therefore, if we are to limit our economic activity only to those we know personally, and they are to do the same, and our aim is to be able to have personal witness to the circumstances under which goods come into existence, here is what we face.

Our communities will have, at the outside, no more than 150 people. That will include children, the elderly, and those unable to work for whatever reason. So we have maybe seventy workers. There will be no trade with other communities because we will not be able to observe the circumstances under which they extracted raw materials and made goods. Therefore, everything we produce will need to come from the natural resources that exist within a few miles of our community. (Sorry. No more coffee, tea, or water with lemon (no citrus fruits), along with a variety of other menu options, at the Bluebird dinner in Kansas City.) Here is excerpt from a Jesus Creed post (I’d encourage you to read it) about make a no. 2 pencil.

“Raw materials are extracted to create graphite. The graphite is transformed into graphite rods. Trees are grown and harvested. The lumber is processed into wooden cylinders that will hold the graphite. Tin is extracted from the ground. The raw tin is processed and rolled it into tiny cylinders for eraser holders. Raw materials are extracted for the eraser. These materials are processed and shaped into an eraser heads. Dye is created that will go into the paint that will go on the pencil ... Getting the picture? Countless people in various locations are accomplishing all these tasks. But there is more.

Consider the sophisticated machinery involved at every step in this process. Each of those machines contains countless parts made of many different materials. Each of those was made from raw materials that had to be extracted from the earth, processed into components, and then assembled. These machines are also part of making a pencil.

We can go deeper beyond this to the machines that created the machines to create the pieces for the pencil. How about the machines that assemble the pencil? We haven't even touched on the transportation and communication infrastructure that allows us to move these components and final products from place to place.”

Now envision a community of seventy workers trying to make something as simple as a no. 2 pencil using only resources native to K. C. and without trade with others. How much time and energy would this take? Now let’s expand this to clothing. Someone has to grow the cotton and wool, or find a way to duplicate synthetic fibers using only K. C. indigenous resources. Machines must be constructed … probably using only wood because iron ore for making steel is not found here … to turn the raw material into cloth and then make it into clothes. Hand processes could be used but would very time consuming. How about laptop computers? Check out this map that shows the components that go into a laptop computer made in Shanghai. They come from every continent on the planet. How will our seventy build a laptop?

How about medical devices and pharmaceuticals? Where will doctors get there training? What source of power will be used for devices? How will books be printed, music be recorded, photographs printed? Are we going to build cars and trucks? Out of what? What will our homes be made of? And while our seventy are pursuing answers to all these challenges they will grow their own food and pray that more than a year or two of bad growing seasons happens because there will be no market options for obtaining food.

In reality, this isolation takes us back to an existence that would be similar to ancient societies. All of our time will be consumed with agricultural production. Life expectancy at birth will return to historical averages of about thirty years, with only half of those who reaching their first birthday leaving beyond their mid-forties. One in four children dying before age one and a high rate of mothers dying in childbirth. Famine and epidemics would periodically return, decimating the community.

Community … face-to-face sustainable relationships … are essential for human well-being, but we can’t project the functioning of a community on society. It is impossible for us to have personal knowledge and interaction 300 million people in the U. S. or nearly seven billion in the world beyond. There have to means for coordinating for each community to coordinate and cooperate in the affairs of countless other communities and individuals who they will never personally know to our mutual advantages. I wrote in the Jesus Creed post:

“At each step in this [pencil production] process, buyers and sellers are calculating the supply and demand for their one part of the process. But here is the amazing thing: There is no pencil czar monitoring the need for pencils and assuring that they are supplied. No one knows how many pencils are needed and no one knows how to make them. The vast majority of participants in this pencil making process have no clue that they are even contributing to the ultimate creation of a pencil. Yet through independent responses to dynamic information and incentives (i.e. prices), a sufficient number of pencils appear at a reasonable price every day.”

Your daughter seems to characterizing the problem as choice between having goods (ex. iPods, laptops, no. 2 pencils, durable affordable clothes, medicine, reliable food supply, etc.) as a choice between having them through large impersonal economic exchanges or through locally made alternatives. That is not the choice. The choice is have them through large impersonal economic exchanges or not having them at all!

We need to think about how we construct genuine communities in our culture. There has been tremendous disruption. The vast web of economic relationships that now span the globe do present challenges in terms of achieving accountability and justice. But the answer is not a return to creating everything locally.

There are legal restraints that limit what corporations can do. The challenge in some locations around the globe is insufficient rule or law. Workers and consumers can’t get remedial judgments and relief like we can in our country. In polls of people living in emerging nations it is not uncommon to have 75-90% of the people respond positively to having foreign corporations in their country because they nearly always pay more and have better work standards.

By analogy, consider the automobile industry. About 40,000 people are killed every year in auto accidents in the U.S. We could save those lives by banning automobiles. But what would we be giving up? Is the answer to quit making automobiles or to keep making them … enjoying the good they bring … while being vigilant on reducing the number of deaths? Similarly, should we end global trade or promote it … enjoying the good it brings … while being vigilant at reducing injustices?

“Imperialism is the effort to politically and economically subordinate foreign peoples.”

The goal of capitalism is expressly not to subordinate others economically but to engage the in others in a mutually beneficial trade. Free trade means both parties to a transaction enter it without duress and with relative transparency about what is involved in the transaction. Many Latin American nations are dominated by a corrupt ruling elite. There have been (and are) capitalist interests who have entered into business arrangements with the elites of these nations, creating virtual monopolies, putting them outside the reach of the law for abuses of peasants property rights and exploiting labor. Military power from caplitialist nations has at times been complicit. That is not capitalism and it is not free markets! It is imperialism by capitalists and capitalist nations. The answer is to work for governmental reform, protection of property rights, and the rule of law in emerging nations so that indigenous competition can emerge and people can choose who to buy from and who they will work for. They need more capitalism, not less.

There are two ways people improve their living standards. A) they increase their income relative to the goods the buy, or B) the cost of the goods they need declines relative to their income. I’m going out on a limb and assuming when she says “huge merchants” I can probably substitute Walmart as an example.

Economic studies show that while Walmart has kept wages down for some (though also likely creating jobs for some low-skilled workers who otherwise would have been without), its role in keeping the prices of the basic staples of life down (and thus compelling others to compete by keeping their prices down) has done far more to improve the living standards of the poor in the U. S. over the past generation than any other development. This explains in part while Walmart is wildly popular in poor communities but the wealthier the neighborhood the less receptiveness there is … even to the point of trying to block them in poor neighborhoods. There is a certain degree of classism and elitism by the wealthy telling the poor they know what is best for them.

Improving people’s living standards is not a matter of “greed and blind production.” It is an act of stewardship. It is a social good and the market should reward businesses that achieve it. Expansion of business is not a win-lose undertaking where a greedy person takes from another. In a market economy, it is a win-win undertaking. The customer wins because she is getting greater value (however she my define it) by buying the new stores products. (If she wasn’t, she wouldn’t be shopping there.) The store wins through an increase in sales. There is no blind production. If there is no market for a product, businesses will not produce it. If the produce too much, they are stuck with inventory and lose money.

The reality is that markets have a tendency to punish greed, or at least channel it toward productive ends. If someone wants to make a lot of money, then they will have to do so by excelling at meeting customer demand. With rise of the internet, businesses that engage in ethical or questionable practices risk being exposed, causing harm to their business prospects. Competitors are more than happy to help such indiscretions come out. There are strong incentives to be a good global citizen. Thus, when she writes, “what i fear from so many "blind" markets is that there is a lack of humanity that gives so much opportunity for greed” there are other ways greed is checked other than by personal relationship. Furthermore, personal relationship doesn’t always prevent or stop greed.

Finally,

“and i completely dissagree with what he says about people with yachts and everything providing services and jobs and money to the world. that's like saying the plantation owners provided jobs and services and food and housing to the slaves because they had enough money to invest buying land and slaves and starting a plantation.”

No. It is nothing like a plantation. Yacht building is a high tech enterprise where workers enter the boat building industry of their own free will and are paid very well. There is no involuntary servitude. Stopping yacht construction, a specialty within the boat construction industry, simply means less work for these skilled workers, forcing them to look for other lines of work that may or may not be as high paying.

Returning to the start of this book, we need to evaluate how things operate at the community level and the society level. Community level, ethics is probably best governed by the ethic of the Golden rule, do unto others as you would have them do unto you. We know each other. We care for each other. We know each other’s proclivities, strengths, and foibles. We don’t necessarily distribute things among ourselves based on some economic calculation. The family is the base example of this but we good envision a larger community living in more integrated ways. But we can’t have this relationship with more than, at most, a few dozen people.

At the societal level ethics is probably best governed by the ethic of the Silver rule, don’t do to others what you don’t want done to you. We can’t know 300 million others personally enough to love them according to the Golden Rule. We don’t know how to individualize our actions to serve them. Thus, goal becomes setting standards and protocols that prevent us from damaging others with our actions. I’ve already gone way to long and can’t unpack all that right now but distinguishing between our ethics and norms for community and mass society is paramount.

How is that for a thesis? :-) Don’t know if it makes any sense but there it is.

[Rick McGinniss]

Thanks, Michael. I really appreciate your time in responding to her questions. I will invite her to check this out.

And, yes, the huge merchant is Walmart. :-)

[Taylor Steelman]

Dear Mr. Kruse,

Rick’s daughter (Katie) has tuned me into this conversation I would love to chime in if that’s alright. I was very excited to hear you all have been discussing these questions so in depth; they seem to be looming large just beneath the surface of our culture and it’s hopeful to hear of people confronting them with some earnestness.

I have obviously been considering these problems myself (could you hear some self-congratulation in the previous lines? :)

With regard to your initial blog, I agree with most all of your defenses of capitalism – 1) the system of specialization and trade is the most efficient and mutually beneficial way to provide ourselves with our basic necessities (and luxuries) 2) that any human system will necessarily have greed somewhere in it 3) That “behavior based on inter-locking self-love” is an efficient means of procuring our basic needs as well as meeting those of others.

There are, however, some things that startle both of us about the limitations of contemporary capitalism: “The vast web of economic relationships that now span the globe do present challenges in terms of achieving accountability and justice. But the answer is not a return to creating everything locally.” Indeed, there is overwhelming evidence that very large corporations are threatening to accountability and justice. But how big are the challenges and what does it mean to us that justice is compromised? Consider the following facts (many of which you’ve likely heard):

1.) “The richest 1 percent of Americans currently hold wealth worth $16.8 trillion, nearly $2 trillion more than the bottom 90 percent. A worker making $10 an hour would have to labor for more than 10,000 years to earn what one of the 400 richest Americans pocketed in 2005.” (The Nation, June 11th, 2008)

2.) “The top fifth of U.S. households claims 49.2 percent of national income while the bottom fifth gets by on 3.6 percent.” (www.census.gov)

3.) “The richest 10 percent of families own about 85 percent of all outstanding stocks. They own about 85 percent of all financial securities, 90 percent of all business assets.” (Interview with Edward Wolff, economics professor at NYU)

4.) “The privileged participate more than others and are increasingly well organized to press their demands on government. Public officials, in turn, are much more responsive to the privileged than to average citizens and the less affluent. The voices of citizens with lower or moderate incomes are lost on the ears of inattentive government officials, while the advantaged roar with a clarity and consistency that policymakers readily hear and routinely follow.” (American Democracy in an Era of Rising Inequality, 2005)

This last statement puts it gently by not explicitly mentioning the influence of campaign contributions on the political process by corporations via PAC’s (FYI corporations are now attempting to overturn legislation which makes it illegal for them to contribute directly to campaigns. As they are granted all the civil rights of citizens they are appealing to their the first amendment freedom of speech rights- see Citizens United v. Federal Election Commission). The information here raises a question that became the subject of Michael Moore’s current movie: is capitalism compatible with democracy?

I think it true that with our current political system we as a people could hypothetically organize and let our voices be heard…and we can and should. To modify Gandhi’s statement about the British– we ought not be angry with the owners of our country for taking power from us, we ought to be angry with ourselves for giving it to them. But how are the rich so politically organized? Or, better, how does money talk so loud? Because, as Smith says, it can appeal to our self-love.

I have read a decent amount about how Wal-Mart appeals to many people’s self-love (it is, after all, the 34th largest economy in the world raking in more than $315 billion annually). The question is, however, are they actually acting in most people’s self-interest? Stacey Mitchell, senior researcher at the Institute for Local Self-Reliance, sees the hidden long-term costs outweighing the always-louder short-term benefits (sound familiar elsewhere in our economy?). Mitchell cites many examples of how Wal-Mart dupes people into giving them their money and labor.

1. ) Wal-Mart and other major retailers use sophisticated marketing strategies such as “loss leader” pricing - using their economic strength to endure months of losses on certain staple goods (sometimes on entire departments) when they first open up. Then, after most of the competition is no longer able to compete, they crank the prices back up to regain their losses – only now they have more freedom to adjust them because the competition is down to just a handful of retailers, if any. (When it comes to competing businesses, the larger they are, the fewer they are. Diversity in the market seems to protect both consumers from high prices and workers from low wages

[Taylor Steelman]

2.) Wal-Mart also promotes the creation of jobs when auctioning their Big-Boxes to different counties for tax subsidies. While the jobs that are created come visibly and all at once, the jobs that are lost (lost necessarily, as new demand for retail is hardly present in the communities Wal-Mart moves into) are often as numerous, less public and trickle away bit by bit.

3.) And how good are the jobs Wal-Mart creates? They explicitly try to maintain a high turn-over rate because new employees cost less and can perform the same low-skill work. “(T)he cost of an Associate with seven years of tenure is almost 55% more than the cost of an Associate with one year of tenure, yet there is no difference in his or her productivity,” said a Wal-Mart human resources executive (article on MSNBC). They also explicitly do not pay most of their workers living wages… which makes their low prices more appealing to them. Benefits are offered after one year of full time employment, but the cost of the premiums relative to the wages make it unaffordable to anyone who is supporting even one child. (I can get her sources on these if you like).

4.) In addition to undercutting independent retail ownership in communities, it has also sent over 3 million American manufacturing jobs abroad. Most of these jobs are exploitative by both our standards and those of the foreign workers. Once Wal-Mart persuades workers to adjust their lives and those of their families to work for them (which isn’t difficult considering their poverty- most offers will seem too good to refuse), they have such leverage that people will work something like 75 hour weeks at 17 cents/hour (even if that isn’t what they were originally promised). Most in these countries cannot just quit and throw their resumes on CareerBuilder- they’re desperate and will compromise their human dignity to [barely] feed their families. (Many of the manufacturers aren’t even Wal-Mart, but foreign contractors erected by Wal-Mart to give them instant plausible deniability of labor crimes). Mitchell cites accounts of entire manufacturers losing contracts in both China and Mexico because their employees filed complaints or tried to unionize- no wonder it is “not uncommon to have 75-90% of the people respond positively to having foreign corporations in their country.”

5.) Considering the tax dollars that go to full-time workers on food-stamps, the tax dollars in subsidies (which mega-retailers can and do demand more of as alternative providers of shopping and jobs close down), the diminishing property values of surrounding land due to traffic and noise, the tax revenue that must be invested in roads, water, police and fire personnel that must now extend to the outskirts of town (where they build most), the pollution to ground-water from rainwater running off the over 600 million square feet of retail roof-tops (not to mention the parking lots), the cost of transportation from now having to drive to do all our shopping and working, the environmental/political consequences of sprawl (the U.S., 4% of the world population, uses 25% of the world’s oil), the loss of manufacturing jobs…how much is a low price really worth?

Like Standard Oil in the late 19th century, corporations will take Machiavellian measures to appeal to our self-interest and increase profits. Corporate Governance Advisor and Republican senator candidate from Maine Robert Monks explained in an interview:

To whom do these companies owe loyalty? What does loyalty mean? Well, it turns out that that was a rather naïve concept anyways as corporations are always owed obligation to themselves to get large and to get profitable. In doing this, it tends to be more profitable to the extent that it can make other people pay the bills for its impact on society. There's a terrible word that economists use for this called ‘externalities’… A corporation is an externalizing machine in the same way that a shark is a killing machine.

Texaco dumping 18 billion gallons of ultra-toxic wastewater in Ecuadorian village: externality. Shell doing the same in Nigeria: externality. When corporations are encouraged, if not required by law to increase shareholder earnings (federal Shareholder Primacy laws), “corners” (such as democracy and fairness) will inevitably be cut. Many corporations decide whether they obey laws by whether or not it would be profitable to break them and pay for the lawsuit (see www.corporatecrimereporter.com for the most expensive lawsuits in the world). In court, however, they can always plead the 5th or counter evidence by referencing the 4th amendment of unlawful search and seizure of property. Corporate personhood makes it very difficult for corporations to be prosecuted (in addition to their bottomless pockets), and limited liability makes it very difficult to actually hold anyone accountable. Thomas Jefferson said in 1816 “I hope we shall... crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country.”

While I do agree that legislation is a plausible means of regulating corporations so as to distribute wealth more evenly, respect international human and environmental rights, and maintain accountability to the people, I don’t find it a likely solution on its own. The corporate-political oligarchy is one and protects itself on both fronts (plus we obviously can’t control other countries’ governments to protect their citizens from injustices). I like capitalism’s built-in voting mechanism whereby consumers vote which products/businesses/business-practices stay in the market. In your last response you wrote “free trade means both parties to a transaction enter it without duress and with relative transparency about what is involved in the transaction.” I think this is true, and therefore free trade does not for the most part actually exist today. Many parties are being brought into transactions under duress and even relative transparency seems hard to come by. Only after years of gratuitously shopping at Wal-Mart, burning gasoline and eating fast-food did I finally discover what I was really paying for. I was not told at the register about child labor, wars and genocides over oil (Iraq and Darfur), or factory farms and growth hormones… yet I voted these things into existence with my dollar. Transparency? It seems that if these companies will not expose themselves, we the consumers must take responsibility for understanding how our money is put to work.

I think we will find it much easier to monitor corporations as well as hold them accountable when they are smaller (thus weaker in court, politics, and negotiations) and closer (both owners and workers). While it is naive to assume that total relocalization is the answer (and I don’t think that is what Katie was getting at), eventually we will begin see the very tangible societal benefits of more intimate economic networks in our communities (not even to mention the tremendous pressure to reduce transportation time in light of the twin challenges of Peak Oil and Climate Change).

[T. Steelman]

A wide array of small businesses promotes diversity of products and services (thus more competition in the long run), more opportunities for entrepreneurship, more walkable and mixed-use communities, personal rapport with owners of community establishments, a louder voice for workers and buyers (the owners’ ears are just closer), more money in the local economy (independent local businesses tend to make much more use of local advertising services, accountants, banks, web-designers, etc. and the owners are shopping locally), community character (could you tell whether you were in suburban San Diego or Houston or Kansas City by anything other than the weather?), greater economic control and insulation (complex global webs of economic relationships need not be disentangled to oversee and protect a mostly regional economy), increased charity given to local causes (independent local businesses give much more to local non-profits percentage-wise than chains and are more in tune with local needs). Furthermore, local owners have a vested interest in their community as well as their company and will make decisions by weighing consequences in both spheres, as opposed to chains who know very little of local issues in their host communities. Ultimately, it seems that capitalism will begin to more closely resemble Smith’s vision when its participants – owners, workers, and consumers - are drawn closer together, both physically and socioeconomically. Ideally many of them will become the same people; it’s interesting to hear reports from employees who work in democratically-run, worker-owned businesses (ask the guys at Beluga Software in Olympia, WA or Collective Copies in Amherst, MA). As capitalism gets put on a shorter leash and forced to become more worldcentric, it seems natural that democracy would follow suit. I do not want to say that abrupt, absolute relocalization can or should occur, but I think by moving steadily toward the center of town we will find ourselves collectively acting out a deeper, spiritual centering toward the ideals of democracy and justice.

[T. Steelman]

In addition to the benefits of local independent business, locally-supported agriculture (such as Kansas City’s CSA) provides myriad unseen benefits. UC Berkeley professor Michael Pollan writes in his essay Farmer in Chief: “A decentralized food system offers a great many other benefits…Food eaten closer to where it is grown will be fresher and require less processing, making it more nutritious. Whatever may be lost in efficiency by localizing food production is gained in resilience: regional food systems can better withstand all kinds of shocks. When a single factory is grinding 20 million hamburger patties in a week or washing 25 million servings of salad, a single terrorist armed with a canister of toxins can, at a stroke, poison millions. Such a system is equally susceptible to accidental contamination: the bigger and more global the trade in food, the more vulnerable the system is to catastrophe. The best way to protect our food system against such threats is obvious: decentralize it.” He also elucidates how our eating habits are tied to the health care problem: “Much of what we’re growing today is not directly eaten as food but processed into low-quality calories of fat and sugar [in large part to facilitate mass-production and shipping]. As the world epidemic of diet-related chronic disease has demonstrated, the sheer quantity of calories that a food system produces improves health only up to a point, but after that, quality and diversity are probably more important… There are several reasons health care has gotten so expensive, but one of the biggest, and perhaps most tractable, is the cost to the system of preventable chronic diseases. Four of the top 10 killers in America today are chronic diseases linked to diet: heart disease, stroke, Type 2 diabetes and cancer.”

[T. Steelman]

I have to apologize for the excessive use of parenthesis throughout this response (it’s a bad habit, I know), but I’m looking forward to your thoughts :)

Oh, one last thing, about the Yachts… it seems economically it is not a zero-sum situation, however morally I would say it is. To someone considering purchasing a Yacht, a simple yet startling decision may come into focus: do I maintain and/or ramp up the amount of human energy devoted to producing Yachts by buying one, or do I maintain and/or ramp up the amount of human energy devoted to feeding people by donating to Oxfam? Far from even the mind’s eye as it may be, if a dollar is indeed a vote, opting to purchase a Yacht is necessarily voting against critical humanitarian causes. (Unfortunately there are HUGE untapped reserves of moral satisfaction to be sold…if only there were more demand). I recognize the slippery-slope of this argument- but I suppose it is for each of us to be honest with ourselves when discerning necessity from luxury in times of increasing scarcity.
I have to apologize for the excessive use of parenthesis throughout this response (it’s a bad habit, I know), but I’m looking forward to your thoughts :)

Oh, one last thing, about the Yachts… it seems economically it is not a zero-sum situation, however morally I would say it is. To someone considering purchasing a Yacht, a simple yet startling decision may come into focus: do I maintain and/or ramp up the amount of human energy devoted to producing Yachts by buying one, or do I maintain and/or ramp up the amount of human energy devoted to feeding people by donating to Oxfam? Far from even the mind’s eye as it may be, if a dollar is indeed a vote, opting to purchase a Yacht is necessarily voting against critical humanitarian causes. (Unfortunately there are HUGE untapped reserves of moral satisfaction to be sold…if only there were more demand). I recognize the slippery-slope of this argument- but I suppose it is for each of us to be honest with ourselves when discerning necessity from luxury in times of increasing scarcity.

[Michael W. Kruse]

Hi Taylor. Thanks for the feedback. I'm a bit overwhelmed by life at the moment but I will get to this eventually. (And personally, I like parenthesis.) :-)