The Profit Motive
CIS Occasional Fbpen 3
The Profit Motive
Department of Philosophy
University of Reading
THE CENTRE FOR INDEPENDENT STUDIES
1980
Published November 1980 by
The C e n t r e f o r Independent Studies
All rights reserved
National Library of Australia
Cataloguing i n Publication D a t a
Flew, Antony, 1923The profit motive.
(CIS occasional papers; 3)
ISBN 0 9596485 8 5.
1. Economics. 2. Philosophy. I. C e n t r e for
Independent Studies. 11. Title. (Series).
@
The C e n t r e for Independent Studies 1980
Printed by Lindsay Yates & Partners Pty. Ltd
4
Preface
This third Occasional Paper publishes t h e proceedings of t h e
Centre's Inaugural Occasional Seminar held a t i t s S t Leonards
o f f i c e on August 11, 1980. The Paper by Professor Antony
Flew of t h e University of Reading, deals with a topic of
special i n t e r e s t t o t h o s e concerned with issues c r i t i c a l t o t h e
workings of a m a r k e t economy.
Much of t h i s Paper f o r m s
t h e basis for a c h a p t e r in a new book by Professor Flew, The
Politics of Procrustes.
We thank t h e publishers, Maurice
Temple Smith of London f o r permission t o use Professor
Flew's address a s Occasional Paper 3.
In t h e f i r s t section of his Paper, Professor Flew
discusses t h e notion t h a t t h e prof i t motive is necessarily and
uniquely selfish. If the pursuit of profit is selfish he argues,
t h e n why not t h e pursuit of wages, rents, fixed i n t e r e s t or
whatever?
He also f e e l s t h a t t h o s e who would c r i t i c i s e a s
selfish, an economic s y s t e m which allows people t o pursue
t h e i r own i n t e r e s t s , a r e making a f u n d a m e n t a l e r r o r for i t is
not necessarily t r u e t h a t a n i n t e r e s t e d action is also selfish.
In t h e second p a r t of his address Professor Flew puts
f o r w a r d t h e proposition t h a t t h e foundation of much
antagonism t o t h e c o n c e p t of profit c a n b e found in t h e
writings of Aristotle.
He believes t h a t Aristotle was
especially in e r r o r , a s have been so many since his t i m e , in
believing t h a t t r a d e is in essence, exploitation.
In other
words, t h a t in a trading a r r a n g e m e n t , a gain by one is a loss
by another.
This e r r o r of thinking is so much a n a c c e p t e d
view, t h a t i t is (and h a s been) a major source of economic
ignorance. As Professor Flew so c o r r e c t l y s t a t e s , 'trade is a
reciprocal relationship 1 . In f a c t , both gain f r o m t h e trade.
The third section of Professor Flew's Paper examines
He is
t h e role of t h e profit m o t i v e in wealth creation.
especially c r i t i c a l of investment decisions m a d e in t h e public
s e c t o r ; one of his main concerns being t h a t those who m a k e
and c a r r y out such decisions a r e generally too f a r removed
f r o m t h e consequences of t h e decision, whether for good or
bad and a r e not subjected t o any proportionate personal
change of f o r t u n e s a s a result of t h e action, e x c e p t of course
t h a t politicians might lose t h e i r s e a t s and governments m i g h t
change.
The modern d e m o c r a t i c process provides a r a t h e r
precarious m e a n s of making sound investment decisions. The
government dinosaurs of t h e past l i t t e r our history books, b u t
phoenix-like, t h e y m a y be a s topical a s tomorrow's new
railway project or dam.
This Paper is published a s a contribution t o t h e d e b a t e
on economic and social issues and is a reminder t h a t many of
today's problems have their sources in t h e writings of t h e
past.
It is worth remembering once again t h e words of
Keynes: 'Practical men, who believe themselves t o b e quite
e x e m p t f r o m any intellectual influences, a r e usually t h e
s l a v e s of s o m e d e f u n c t economist
Soon or l a t e i t is ideas,
not vested i n t e r e s t s which a r e dangerous f o r good o r evil.'
In his discussion of a n issue usually f r a u g h t with
misunderstanding (and s o m e t i m e s passion), Professor Flew
p r e s e n t s s o m e challenging insights.
Nevertheless, his
conclusions a r e his own and while t h e C e n t r e f o r Independent
Studies is pleased t o b e able t o publish this Paper, t h e views
of t h e author c a n n o t b e considered t o be t h o s e of t h e C e n t r e ,
i t s Advisers, Trustees, Directors or officers.
. ..
Greg Lindsay
The Author
Antony Flew is Professor of Philosophy a t t h e University of
Reading, U.K.
He studied a t t h e Universities of Oxford and
K e e l e and has held teaching appointments a t t h e Universities
of Aberdeen, Oxford and Keele.
He has also held visiting
a p p o i n t m e n t s a t t h e Universities of Adelaide, Melbourne,
Pittsburgh, Malawi, Calgary and t h e Australian National
University.
Professor Flew has w r i t t e n t h i r t e e n books including;
Sociology, Equality & Education; The Politics of Procrustes;
God and Philosophy; Crime or Disease; Evolutionary
Ethics; and An Introduction t o Western Philosophy. He has
e d i t e d a f u r t h e r e i g h t books and has published over 100
articles, c o m m e n t s , reviews etc. in learned journals and o t h e r
publications worldwide.
The Profit Motive
Antmy Flew
I.
THE PROFIT MOTIVE
UNIQUELY SELFISH
AS
NECESSARILY
AND
Nowadays in Britain, and I e x p e c t in Australia also, i t is
constantly a s s e r t e d and assumed t h a t , in a s much a s (private)
profit is an essential c h a r a c t e r i s t i c of anything approaching
w h a t Adam Smith called 'the obvious and simple system of
n a t u r a l liberty', t h e r e f o r e such e c o n o m i c a r r a n g e m e n t s must
be m o r e selfish t h a n their a c t u a l or possible rivals. Thus, in
t h e summer of '72, under t h e headline 'Waiting for a Sign
from t h e Egoists', The Times of London reported t h a t Archbishop C a m a r a of Brazil had asked a m e e t i n g of members of
both Houses of Parliament: 'Why do you not help t o lay b a r e
t h e serious distortions of socialism such a s t h e y exist in
Russia and China? And why do you not denounce, once and
for all, t h e intrinsic selfishness and callousness of
capitalism?"
To t h e Archibishop's question t h e best f i r s t response is
another: 'Why is i t t h a t we never hear of t h e r e n t motive or
t h e wages motive?'
Perhaps t h e classical distinction
between profit and r e n t is obsolete. But, if i t is proper t o
speak of a profit motive, i t should b e equally proper t o speak
of a wages motive. By parity of reasoning w e shall t h e n have
t o a d m i t into our new economic psychology t h e fixed i n t e r e s t
motive, t h e t o p price motive, and t h e b e s t buy motive. And,
of course, if i t is proper t o argue t h a t those who a r e paid
wages must b e s t i r r e d by t h e wages motive; t h e n i t h a s t o be
not merely proper but positively refined t o say t h a t t h o s e
whose wages a r e paid a t longer intervals, and called a s a l a r y
or even compensation, a r e inspired by, respectively, t h e
salary motive and t h e compensation motive:
And, when folks understood their c a n t
They changed t h a t for 'emolument 1;
Unwilling t o be s h o r t or plain,
.2
In any thing concerning gain
..
My i m m e d i a t e counter- question h e r e raises t w o points
against t h e Archbishop. The f i r s t is t h a t i t is misguided t o
insist on applying t o psychology a system of c a t e g o r i e s
originally developed in, and appropriate to, economics. To
insist on doing this is r a t h e r like postulating a s e t of chess
motives, distinguished one f r o m a n o t h e r by r e f e r e n c e t o t h o s e
similarities and d i f f e r e n c e s which have been found r e l e v a n t
t o t h e i n t e r e s t s and purposes of chess theoreticians; and t h e n
labelling t h e s e f a c t i t i o u s postulations with expressions drawn
f r o m t h e t e c h n i c a l vocabulary of chess - t h e knight's move
motive, t h e Foolls M a t e motive, t h e queening motive, or w h a t
have you.
The second point is t h a t , if you are going t h u s t o
introduce any member of s o m e set of economic or chess
concepts into your psychology, t h e n i t is irrational and
a r b i t r a r y t o introduce one only without t h e others; t o speak
of t h e knight's move motive without t h e queening motive, f o r
instance or of t h e profit motive without t h e wages motive.
S t r i c t l y a s an aside: i t is e n t e r t a i n i n g t o recall t h a t in
A Treatise of Human Nature David Hume m a k e s t h a t very
methodological m i s t a k e which I have just noticed.
Hume
concludes: I.
a man, who desires a thousand pound, h a s i n
reality a thousand or m o r e desires, which, uniting t o g e t h e r ,
s e e m t o m a k e only one passion;
tho 1 t h e composition
evidently b e t r a y s itself upon e v e r y a l t e r a t i o n of t h e object,
by t h e p r e f e r e n c e he gives t o t h e larger number, if superior
only by an u n i t e i 3
Noticing t h a t suggestive 'or more 1, one is t e m p t e d t o
go on t o urge: t h a t before decimalisation t h e desire f o r a
thousand pounds was - 'in reality 1 - t w o hundred and f o r t y
thousand old penny desires; t h a t now i t has diminished t o a
m e r e hundred thousand new pence hankerings; and t h a t a
desire f o r a thousand p i a s t r e pounds must, by p a r i t y of
reasoning, realiy b e an American billion of almost
indiscernible a t o m i c yens. The mind boggles a t t h e unfolding
..
vista of possible implications of o t h e r currency d i f f e r e n c e s
and equivalences f o r t h e psychology of t h e notorious gnomes
of Zurich and t h e infamous moneychangers of Beirut: But
enough is enough t o i n d i c a t e t h e n a t u r e of t h e f i r s t general
objection t o t h e e c o n o m i c psychology implicit in all t h i s loose
talk about t h e profit motive.
My second line of response t o t h e challenge presented
by Archbishop C a m a r a is t o insist t h a t no one - not even a n
Archbishop - h a s any business simply t o assume t h a t t h e
desire t o m a k e a (private) p r o f i t is always and necessarily
selfish and discreditable;
notwithstanding t h a t t h e
corresponding desires t o obtain a wage, or a salary, or a
r e t i r e m e n t income, a r e - apparently - not.
No doubt all
t h e s e various desires a r e i n t e r e s t e d ; in t h e sense t h a t those
who a r e guided by any of t h e m a r e - in t h e i m m o r t a l words of
Damon Runyon, t h e Balzac of Broadway - 'doing t h e b e s t t h e y
can1. But, precisely because this does apply equally t o all,
we c a n find no ground h e r e f o r condemning one and not t h e
others.
This neglected f a c t is awkward for t h e denouncers.
For no one, surely, is so starry- eyed a s t o believe t h a t any
kind of e c o n o m i c organisation c a n dispense with all such
i n t e r e s t e d motives: 'Every economic s y s t e m devised f o r
ordinary human beings', w e may read even in a Fabian T r a c t ,
'must have self- interest a s i t s driving f orce'.'
If, t h e r e f ore,
one such s y s t e m is upon t h i s particular ground t o be
condemned a s 'intrinsically selfish and heartless', t h e n , by t h e
s a m e token, all must be. Y e t t h a t , of course, is precisely not
w h a t is wanted by those who thus denounce capitalism root
and branch, and a s such; while tolerantly discounting a s more
or less 'serious distortions' whatever f a u l t s t h e y can, however
reluctantly, bring themselves t o recognise in t h e a l r e a d y fully
socialist countries.
A f u r t h e r f u n d a m e n t a l m i s t a k e here is t o identify t h e
i n t e r e s t e d w i t h t h e selfish.
This is wrong.
For, though
selfish actions a r e perhaps always interested, only s o m e
i n t e r e s t e d actions a r e also selfish.
To say t h a t a p i e c e of
c o n d u c t was selfish is t o say more t h a n t h a t i t was
interested.
The point is t h a t selfishness is always and
necessarily o u t of order. Interestedness is not, and scarcely
could be.
For example: when t w o healthy children e a g e r l y e a t
their dinners i t would, presumably be c o r r e c t t o say t h a t t h e y
a r e pursuing e a c h their own i n t e r e s t ; and, if t h e r e w e r e any
choices involved, no doubt t h e economist would describe t h e m
a s thereby maximising their utilities.
Y e t this is no
sufficient reason t o s t a r t reproaching them. Time for t h a t
a f t e r brother has grabbed and e a t e n sister's dinner too, or
perhaps in s o m e less f l a g r a n t way refused duly t o consider
o t h e r s and t o r e s p e c t t h e i r proper claims. Again, e v e n when
m y success c a n b e won only a t t h e price of someone else's
failure, i t would be inordinately a u s t e r e t o insist t h a t i t is
always and necessarily selfish for m e t o pursue m y own
interests.
Is anyone prepared t o say t h a t rival c a n d i d a t e s
c o m p e t i n g f o r s o m e c o v e t e d position a r e culpably selfish in
not all withdrawing in order t o c l e a r t h e way f o r t h e o t h e r s ?
The upshot, t h e r e f o r e , is t h a t i t will not wash t o
dismiss any one economic s y s t e m a s 'intrinsically selfish and
heartless':
simply because t h a t s y s t e m depends upon and
engages i n t e r e s t e d motives; or even simply because i t allows
or encourages people t o pursue t h e i r own i n t e r e s t s i n c e r t a i n
situations of z e r o sum conflict.
If t h e r e is something
peculiarly obnoxious a b o u t wanting t o m a k e a (private) profit,
i t will have t o be something about making a (private) profit,
r a t h e r t h a n something a b o u t just wanting t o acquire s o m e
economic good; or even about competing t o a c q u i r e s c a r c e
e c o n o m i c goods in any z e r o sum c o n f l i c t situation, a s such.
11. THREE ARISTOTELIAN MISCONCEPTIONS
That i t is indeed essentially scandalous t o m a k e a p r o f i t - and
hence, presumably, correspondingly scandalous t o wish t o do
s o - is an i d e a both a s old a s t h e Classical G r e e k philosophers
and a s topical a s tomorrow's p a r t y political broadcasts.
Consider w h a t was said by t h e one who has had, and a l b e i t
mainly through Aquinas and Hegel continues t o have, by f a r
t h e g r e a t e s t influence.
Paradoxically, t h e economic thought of Aristotle is
found mainly in t h e Politics. One c h a r a c t e r i s t i c is t h a t h e
a c c e p t s a s n o r m a t i v e whatever he believes t o be, a s i t were,
t h e intention of nature.
For t h o s e inclined t o follow t h i s
lead i t should b e salutory t o discover where i t took
Aristotle: 'Now if Nature makes nothing purposeless or in
vain, all animals must h a v e been m a d e by n a t u r e for t h e s a k e
of men. It also follows t h a t t h e a r t of war is in s o m e sense a
n a t u r a l mode of acquisition. Hunting is a p a r t of t h a t a r t ;
and hunting ought t o be practised, not only against wild
animals, b u t also against those human beings who a r e
intended by n a t u r e t o be ruled by o t h e r s and refuse t o obey
t h a t intention. War of this kind is naturally just.I5
No one a f t e r reading this will be surprised t o find t h a t ,
when Aristotle thinks of an ideal universal provider, this is
Nature, and not, a s i t would b e today, t h e s t a t e .
His
pronouncement is oddly reminiscent of 'the original position 1
a s stipulated by Rawls: 'On a general view, a s w e have
a l r e a d y noticed, a supply of property should be ready t o
hand. It is t h e business of n a t u r e t o furnish subsistence for
e a c h being brought i n t o t h e world; and this is shown by t h e
f a c t t h a t t h e offspring of animals always g e t s nourishment
f r o m t h e residuum of t h e m a t t e r t h a t gives i t i t s birth.16
(i) It is significant t h a t , a f t e r this high-minded
Classical f ormulation of t h e shabby familiar doctrine t h a t t h e
world owes us a living, Aristotle, like Rawls, emphasises
acquisition r a t h e r t h a n production:
'The natural f o r m ,
t h e r e f o r e , of t h e a r t of acquisition is always, and in all cases,
acquisition f r o m f r u i t s and animals.
That a r t
has t w o
forms: o n e which is c o n n e c t e d with
t r a d e , and another
which is connected w i t h t h e m a n a g e m e n t of t h e household.
Of t h e s e t w o forms, t h e l a t t e r is necessary and laudable; t h e
f o r m e r is a m e t h o d of exchange which is justly censured,
because t h e gain in which i t results is not naturally made, b u t
is m a d e a t t h e expense of o t h e r men.17
Aristotle's point is t h a t t r a d e is in essence
exploitation.
The acquisitions of t h e t r a d e r must, Aristotle
thinks, b e made a t t h e expense of t h a t t r a d e r ' s trading
p a r t n e r ; whereas t h e only c r e d i t a b l e acquisitions a r e those
achieved f r o m non-human n a t u r e direct.
Shorn of t h e s e
notions of what is and is not in accord with t h e intentions of
N a t u r e , Aristotle's is t h e s a m e thesis - and t h e s a m e
misconception - a s we find in John Ruskin's book, Unto this
Last: 'Whenever m a t e r i a l gain follows exchange, for e v e r y
plus t h e r e is a precisely equal minus'.
It has for c e n t u r i e s been, and still remains, a most
popular misconception; perhaps now especially in a f o r m
r e f e r r i n g particularly to all t r a d e in labour (power).
For
instance: t h e author of a r e c e n t book on Social Justice, who
reveals no other Marxist cloven hoof, tosses off, a s if this
weri: t h e most uncontentious of truisms, t h e remark t h a t 'the
mystique of capitalism
disguises t h e t r a n s f e r of benefits
from worker t o employer under t h e f o r m of a n equal
e x c h a n g e of values, through t h e device of a f r e e c o n t r a c t of
employment'.
This f i r s t Aristotelian misconception
nevertheless provides a happy occasion to quote f r o m A.E.
Housman's Juvenal a blistering rebuke t o a rival scholar's
lapse: 'Three minutes' thought would s u f f i c e t o find this
out; but thought is irksome and t h r e e minutes is a long
time'. O
The crux is t h a t t r a d e is a reciprocal relationship. If I
...
...
'
...
a m trading with you i t follows necessarily t h a t you a r e t r a d ing w i t h me.
Trade is also, f o r both parties, necessarily
voluntary.
Nothing which you m a y succeed in seizing f r o m
m e by f o r c e c a n , by t h a t token, be e i t h e r acquired o r
relinquished in t r a d e . So, if any possible a d v a n t a g e of t r a d e
t o t h e t r a d e r could b e gained only a t t h e expense of s o m e
corresponding disadvantage t o his t r a d i n g partner, i t would
appear t h a t in any c o m m e r c i a l e x c h a n g e a t l e a s t one p a r t y
must b e e i t h e r a fool, or a masochist, or a gambler.
But of course, a s all must recognise when not e i t h e r by
t h e o r y or by passion d i s t r a c t e d , t h e t r u t h is t h a t t h e seller
sells because, in his a c t u a l situation, h e would r a t h e r r e c e i v e
t h e price t h a n r e t a i n t h e goods, while t h e buyer buys because,
in his a c t u a l situation, h e would r a t h e r pay t h e price t h a n b e
without t h e goods.
Ruskin was, t h e r e f o r e , diametrically
wrong. It is of t h e e s s e n c e of t r a d e ; n o t t h a t any a d v a n t a g e
for one party c a n b e achieved only at t h e expense of t h e
o t h e r ; but t h a t no deal is m a d e a t a l l unless, whether rightly
or wrongly, both p a r t i e s believe t h a t t h e y stand t o gain
t h e r e b y - or a t l e a s t both p r e f e r t h e deal actually m a d e t o
any available a l t e r n a t i v e deal, and t o no deal a t all.
Certainly one of t h e trading partners, or even both,
m a y be mistaken or in s o m e o t h e r way misguided in his
decision t o deal. Certainly t o o t h e a c t u a l situation of e i t h e r
party, t h e situation in which i t s e e m s b e t t e r t o him t o m a k e
t h e deal t h a n not, may be in many ways unfair o r
unfortunate.
But all this is contingent, and hence t o t h e
present question irrelevant. This question is: 'What is and is
not essential t o t h e very idea of trade?'
Mutually
s a t i s f a c t o r y sex is a b e t t e r model h e r e t h a n poker played f o r
money. For in t h e f o r m e r t h e satisfactions of e a c h depend
reciprocally upon t h o s e of t h e o t h e r ; whereas t h e l a t t e r
really is a z e r o sum g a m e in which your winnings precisely
equal, because t h e y are, my losses.
One t e m p t a t i o n t o conclude t h a t t r a d e necessarily
involves a z e r o sum confrontation lies in t h e f a c t t h a t b o t h
buyers and sellers would o f t e n , if t h e y had to, pay more or
a c c e p t less t h a n t h e y do. Obviously i t is in such a situation
possible t o regard e i t h e r t h e more which might have been got
or t h e less which might have been given a s a n a d v a n t a g e
f o r f e i t e d by one trading partner t o t h e other.
But this,
which is perhaps o f t e n t h e case, c e r t a i n l y is not so always.
And both buyer and seller may be, and I imagine typically a r e ,
simultaneously in similar situations with regard t o s u c h
f o r f e i t e d possible advantages.
So i t cannot be c o r r e c t t o
infer, a s a general conclusion, t h a t all t h e gains of t r a d e m u s t
always b e achieved by one trading partner a t t h e expense of
t h e other.
Another less i n t e l l e c t u a l but in p r a c t i c e more powerful
t e m p t a t i o n lies in t h e unappealing human inclination r a t h e r t o
a t t e n d with e a g e r jealousy t o t h e gains of o t h e r s than t o find
a modest c o n t e n t m e n t in one's own; t o f o r g e t t h a t t h e deal
was t o your a d v a n t a g e in order t o resent t h a t i t was t o his
also.
Surely h e would not - a s you so ungraciously insist 'have m a d e his profits o u t of you1, had i t not also been t h e
c a s e t h a t you s a w some a d v a n t a g e t o yourself in your dealings
with him?
Y e t how t r u e i t is t h a t 'Few men c a n b e
persuaded t h a t t h e y g e t t o o much by those t h e y sell t o , how
extraordinary soever t h e i r gains a r e ; when a t t h e s a m e t i m e
t h e r e is hardly a profit so inconsiderable, but they'll grudge i t
t o those t h e y buy from1.l1
In general, and i t is a reflection which has a wide
relevance, economic a r r a n g e m e n t s a r e b e s t judged by
results.
C o n c e n t r a t e on t h e price and quality of t h e
product.
Do not officiously probe t h e producer's purity of
heart. If, nevertheless, w e a r e t o consider motives, then this
jealousy which r e s e n t s t h a t o t h e r s t o o should gain, and m a y b e
gain more t h a n us, must b e accounted much nastier t h a n any
supposed intrinsic selfishness of s t r a i g h t self - interest. Some
might even discern t h e hand of Providence a t work when i t
appears t h a t , f o r t h u s putting t h e resentment- of- profit
motive f i r s t , 'the envious society' of t h e United Kingdom pays
a heavy price in f o r f e i t e d economic growth.12
The second such reflection is t h a t t h e most minimally
prudent persons must always hope, and t r y t o ensure, t h a t
t h e i r suppliers have s o m e i n t e r e s t in supplying t h e m t o t h e i r
satisfaction; and this q u i t e i r r e s p e c t i v e of whether or not
t h e s e i n t e r e s t s provide t h e main or s o l e o p e r a t i v e motives of
t h e suppliers. You do not need t o be t h e t o t a l cynic t o f e e l
anxious a b o u t t h e quality and reliability of supply where t h e
suppliers have no i n t e r e s t in giving satisfaction, and t h e i r
clients have t o depend on t h e universal presence and s t r e n g t h
of 'the m o t i v e of community service'.
The author of The
Wealth of Nations was, a s usual, both dignified and r e a l i s t i c
when he wrote:
'It is not f r o m t h e benevolence of t h e
butcher, t h e brewer, or t h e baker t h a t we e x p e c t our dinner,
but from t h e i r regard f o r t h e i r own i n t e r e s t .
We a d d r e s s
ourselves, not t o their humanity but t o their self-love, and
never talk t o t h e m of our own necessities but of t h e i r
advantages. Nobody b u t a beggar chooses t o depend chiefly
upon t h e benevolence of his fellow citizens'.' 3
(ii) Aristotlels n e x t contribution is equal1y unfortunate,
and h a s been equally important. Immediately a f t e r t h e last
passage quoted earlier he continues: 'The t r a d e of t h e usurer
is h a t e d most, and with most reason
Currency c a m e into
e x i s t e n c e m e r e l y a s a m e a n s of exchange; usury t r i e s t o
m a k e it increase. This is t h e reason why i n t e r e s t is called by
t h e word w e commonly use [ t h e word tokos, which in Greek
also m e a n s offspring] ; for a s t h e offspring resembles its
parent, so t h e i n t e r e s t bred by money is like t h e principal
which breeds i t , and i t may b e called "currency t h e son of
currency".
Hence w e can understand why, of all modes of
acquisition, usury is t h e most unnatural 1 . l 4
IUsury1 is now, thanks f i r s t t o Aristotle and still m o r e
t o his medieval successors, such a bad word t h a t w e may a t
f i r s t fail t o realise t o w h a t he is objecting
It is not only t o
those very high r a t e s of fixed i n t e r e s t which would nowadays
b e condemned a s usurious.
Nor even is i t only t o a l l fixed
i n t e r e s t a s such; which, a s w e shall soon s e e , w a s t h e prime
t a r g e t of t h o s e medieval successors.
No, Aristotle's
objection here is t o any money r e t u r n upon a n y money
investment.
It is, he thinks, against n a t u r e f o r money t o
breed money.
The m o m e n t Aristotle l s point is a p p r e c i a t e d , it
b e c o m e s q u i t e c l e a r t h a t both his objection and his supporting
reason a r e superstitious and muddled. For a sum of money is
t h e convertible equivalent of any of t h e goods or collections
of goods which it might buy.
There can, t h e r e f o r e , b e
nothing obnoxiously unnatural about receiving a money return
upon an investment in money, unless i t would b e equally
obnoxious and unnatural t o ask for some return e i t h e r in
money or in kind for t h e use of t h e goods themselves.
There a r e t h r e e corollaries t o draw f r o m this
explication of t h e essence of money.
First, i t must b e
psychologically unilluminating t o speak of any money
motive; and, by t h e s a m e token, still more unilluminating t o
t r y t o develop a c o m p l e t e economic psychology upon a basis
of a s e r i e s of economic distinctions between various
m e r c e n a r y motives.
For t h a t someone wants t o m a k e a
profit or t o e a r n a wage tells u s nothing of w h a t he wants t h e
money for. Almost any desire can t a k e t h e form of a desire
f o r money. It is obvious t h a t this is a necessary consequence
of t h e essential n a t u r e of money a s a conventional i n s t r u m e n t
of exchange.
Aristotle himself elsewhere makes this point
about t h e n a t u r e of money.
But he misses its p r e s e n t
application.
Second, i t must b e wrong to hope t h a t t h e abolition of
money, or a reduction of t h e range of goods which money c a n
...
.
buy, might by itself reduce greed and competition. Certainly
i t is tautologically t r u e t h a t t h e p r o f i t motive, t h e fixed
i n t e r e s t motive, t h e wages motive, and all t h e other
f a c t i t i o u s motives listed or suggested in t h e previous Section,
a r e mercenary. All, t h a t is, m a y b e defined i n t e r m s of t h e
acquisition of money.
So i t might seem t h a t totally t o
abolish money, or t o reduce i t s i m p o r t a n c e a s a means of
acquisition, m u s t be t o abolish, or a t l e a s t t o weaken, all
m e r c e n a r y motives.
In an appropriately e m p t y sense this no doubt is true.
Y e t , unless t h e s e changes happened t o be accompanied by
s o m e t h i n g quite different, a n enormous transformation of
present human nature, people would presumably continue t o
pursue, and t o c o m p e t e for, whatever i t was which t h e y had
always wanted, but which money could not now buy.
In a
word: if c a r s a r e not on s a l e for money, but a r e available a s
a perquisite of public o f f i c e , t h e n t h i s will by itself tend only
t o increase t h e competition f o r such privileged official
places. The abolition of money must m a k e us vacuously less
mercenary.
But by itself i t could not so much a s begin t o
m a k e u s less m a t e r i a l i s t i c or less competitive.
Third, money, and t h e extension of t h e r a n g e of goods
and services which money c a n buy, a r e sovereign i n s t r u m e n t s
of choice; IIf all rewards, instead of being offered in money,
w e r e o f f e r e d in t h e f o r m of public distinctions o r privileges,
positions of power over o t h e r men, o r b e t t e r housing, or bett e r food, opportunities f o r t r a v e l or education, this would
mean t h a t t h e recipient would no longer b e allowed t o choose,
and t h a t , whoever fixed t h e reward, d e t e r m i n e d not only i t s
s i z e b u t also t h e particular f o r m in which i t should b e
enjoyed?'
I t is w o r t h noticing t h a t t h e medieval condemnation of
usury proscribed all and only loans a t fixed r a t e s of
i n t e r e s t . As a student of Religion and the Rise of Capitalism
t h e prophet of Equality had said: 'Medieval opinion, which
has no objection t o r e n t or profits, provided t h a t t h e y a r e
reasonable - f o r is not everyone in a small way a profitm a k e r ? - has no m e r c y f o r t h e debenture- holder. His c r i m e
is t h a t he t a k e s a payment f o r money which is fixed and
c e r t a i n , and such a p a y m e n t is
But Tawney also s h a r e s responsibility for spreading t h e
notion t h a t t h e leading Scholastics believed t h e just price f o r
any good or service t o b e one t o b e determined by some
c o m m i t t e e of official wise men. It now appears t h a t this is
a s wrong a s t h a t other g r e a t popular misconception a b o u t t h e
Scholastics - t h a t t h e y w e r e devoted t o a full- time flat- out
...
d e b a t e about t h e possible angelic population of a pinhead.
From Albertus Magnus onwards, w i t h t h e exception of a
handful of Scotist holdouts, all t h e leading figures s e e m t o
have defined t h e just as t h e normal f r e e m a r k e t price. They
w e r e very hot t o o on t h e point t h a t an a u t h e n t i c f r e e m a r k e t
must exclude both a l l f r a u d and a l l coercive monopolies;
which l a t t e r specifically included - w h a t a r e today by f a r t h e
m o s t powerful and l e a s t t r a c t a b l e - labour m o n ~ p o l i e s . ' ~
(iii) Aristotlels third unfortunate contribution is a
tricky and precarious distinction between t w o f o r m s of t h e
a r t of acquistion, acquisition f o r household use and
acquisition f o r financial gain. This must surely be t h e f i r s t
f o r e f a t h e r of t h e e v e r g r e e n antithesis: between, on t h e one
hand, production f o r (private) profit; and, on t h e o t h e r hand,
production for use or for t h e satisfaction of human needs.
Though evergreen, a moment's thought will show i t t o b e
false.
No producer for a m a r k e t c a n e x p e c t t o m a k e any
profit a t all s a v e in so f a r a s o t h e r s a r e able and willing t o
purchase his products.
Presumably t h o s e o t h e r s - w e
ourselves - propose in some way t o use whatever w e buy,
judging t h a t i t is needed t o s a t i s f y s o m e of our wants. The
t r u e antithesis, of course, is between a m a r k e t and a
c o m m a n d economy. In t h e f o r m e r , producers produce w h a t
t h e y believe t h e y c a n find people a b l e and willing t o buy. In
t h e l a t t e r , w h a t is produced is whatever t h e a c t u a l power
e l i t e commands shall b e produced - which is likely t o be s o m e
combination of what t h e y want for themselves with w h a t t h e y
d e t e r m i n e t h a t t h e r e s t of us need.
HI. THE PROFIT MOTIVE IN WEALTH-CREATION
In t h e previous second p a r t of t h i s l e c t u r e I m a d e t w o policy
recommendations: f i r s t , t h a t w e should a t t e n d , in assessing
economic arrangements, t o a c t u a l public e f f e c t s r a t h e r t h a n
t o private purity of h e a r t ; and, second, t h a t we should t r y t o
s e c u r e t h a t anyone serving or supplying us has s o m e
recognised i n t e r e s t i n serving or supplying us well.
The
present, s h o r t e s t and final p a r t applies t h e s e recommendations t o t h e most crucial case. In a word: i t is of t h e
l a s t i m p o r t a n c e t h a t whoever m a k e s investment decisions
should have t h e s t r o n g e s t personal i n t e r e s t in ensuring t h a t
t h e s e decisions a r e maximally wealth- creating.
As usual t h e b e s t way t o show how very i m p o r t a n t i t is
t o do t h i s is t o point t o what happens when you do not. So
consider those many diagnoses of t h e British sickness which,
by eschewing any employment of t h e abominated word
'profit', contrive t o conclude: t h a t t h e main trouble is under
investment; and t h a t t h e only solution is still m o r e massive
c a p i t a l expenditure by government.
Hugh Scanlon, for
instance, a s President of t h e Amalgamated Union of
Engineering Workers got very fond of denouncing w h a t h e
loved t o call 'an i n v e s t m e n t s t r i k e by t h e capitalists t , and of
urging t h a t this anti- working class s t r i k e was one which
should be broken by massive outpourings of new- printed
public money.
By never so much a s u t t e r i n g t h e distasteful word
'profit' in this c o n t e x t , Scanlon, like t h e r e s t of our socialist
diagnosticians, diminishes t h e danger of e m b a r r a s s m e n t f r o m
challenging questions.
It would be awkward f o r him a s a
t r a d e s union boss t o b e pressed: e i t h e r a b o u t what successive
inflationary wage s e t t l e m e n t s have done t o t h e general level
of profitability; or a b o u t t h e s e numerous and notorious and i t
s e e m s mainly public i n v e s t m e n t s which have been going
wholly or partly t o waste, e i t h e r because of inter-union
disputes about manning, or b e c a u s e of agreed all-union
insistence upon overmanning. It would be awkward t o o for a
leading socialist and one of t h e c a s t e r s of t h e big bloc v o t e s
which d e t e r m i n e Labour P a r t y policy t o b e asked a b o u t t h e
i m p a c t on profitability and on e n t e r p r i s e incentives of
socialist fiscal, educational and social policies.
Above all
Scanlon and his like urgently require t o e s c a p e t h e c e n t r a l ,
f u n d a m e n t a l challenge: 'How t o ensure t h a t t h e investment
decisions m a d e a r e maximally wealth- creating?'
For, and
this is t h e point which, at l e a s t i n my own miserably declining
country, has t o be m a d e again and again, i n v e s t m e n t - unless
i t is t o b e just still m o r e precious s c a r c e resources down t h e
drain - has t o be wealth- creating; and hence, whether
publicly or privately profitable.
This is not t h e place, nor d o I now have t h e t i m e , t o
review t h e black record of r e c e n t s t a t e investments i n
Britain. It must s u f f i c e simply t o mention: t h e financial and
environmental c a t a s t r o p h e of t h e Concorde SST; t h e forced
f o r m a t i o n and ruinous rescues of British Leyland; t h e still
m o r e gigantic endowment poured i n t o t h e massively unproductive pit of British Steel, c u r r e n t l y losing over half a billion
pounds a year; and t h e general f a c t t h a t 'In 1975 t h e British
public corporations needed loans or subsidies of 58 p e n c e f o r
e v e r y pound's worth of n e t o u t p u t t h e y producedl.10
What is crucially and i m m e d i a t e l y relevant and
necessary is t o point t o reports f r o m t h e C e n t r e for Policy
Studies and e l s e w h e r e on how t h e s e disastrous public
investment decisions w e r e a c t u a l l y m a d e - w h a t pressures and
incentives a c t u a l l y were e f f e c t i v e upon t h e politicians, civil
servants, and o t h e r persons involved in t h e i r making.lg What
c o m e s o u t w i t h inescapable c l a r i t y f r o m e v e r y study of t h e
p r a c t i c a l m e c h a n i c s of t h e s e investments, and indeed of
public choice generally, is t h a t all t h e supposed a g e n t s of t h e
public i n t e r e s t a r e , being equally human, no m o r e y e t no less
inclined t h a n e i t h e r capitalist or t h e r e s t of us t o do t h e best
t h e y c a n f o r t h e m s e l v e s and f o r t h e organisations w i t h which
t h e y a r e identified. To p u t i t m o r e stuffily, t h e y t o o t r y t o
maximise their own utilities.
The t r o u b l e is t h a t t h e r e is no d i r e c t and necessary
connection b e t w e e n t h e s e utilities and t h e choice of t h o s e
i n v e s t m e n t s promising t o c r e a t e most wealth.
For, while
g r e a t c a r e is t a k e n t o ensure t h a t our politicians and civil
s e r v a n t s should not have any individual financial s t a k e in t h e
i n v e s t m e n t s which t h e y d i r e c t , t h e i r o t h e r personal utilities
a r e o f t e n in f a c t such a s t o encourage not wealth- creation
but wealth- destruction.
For instance, l a r g e and longestablished unions must, in t h e n a t u r e of t h e case, possess
m o r e political c l o u t t h a n o t h e r s perhaps still unformed in
industries not y e t born.
This m a k e s politicians
understandably e a g e r t o squander resources, t h a t a r e not
theirs, where t h e s e resources will be - and where t h o s e old
and powerful unions will o f t e n help t o m a k e t h e m ~ n ~ r o f i t a b lOe . ~ Again, and equal1y understandably, civil
s e r v a n t s a r e a p t t o identify t h e particular i n t e r e s t s of t h e i r
own e m p i r e s and sub- empires with t h e general public
i n t e r e s t . And so on.
The final moral is both old and t r u e , i t is one which we
have all, I hope, long since t a k e n t o our h e a r t s and minds
f r o m t h e Master, Adam Smith. If what w e want is t h e most
rapid i n c r e a s e of t h e nation's wealth, t h e n w e absolutely must
ensure t h a t those who m a k e investment decisions have
proportionate individual i n t e r e s t s in t h e resulting gains and
losses; i n t e r e s t s big enough, r e l a t i v e t o t h e i r own o t h e r
i n t e r e s t s , t o b e of major concern f o r them. Precisely t h a t is,
just a b o u t a s well a s is humanly possible, in f a c t secured by
w h a t Smith used t o call 'the obvious and simple system of
n a t u r a l liberty.'
NOTES
'Waiting for a Sign from t h e Egoists', The Times, June
27, 1972.
Bernard de Mandeville, The Fable of t h e Bees, edited
by P. Harth, Penguin, Harmondsworth, 1970, p. 66.
David Hume, A Treatise of Human Nature, edited by
L. A. Selby-Bigge, Clarendon Press, Oxford, 1896,
l(iii)12:141.
W.A. Lewis, The Principles of Economic Planning, The
Fabian Society, London, 1949, p. 7.
Aristotle, The Basic Works of Aristotle, edited by R.
McKeon, Random House, New York, 1941, 1256 B 206.
ibid. 1258 A 33-6.
ibid. 1258 A 37, 1258 B 2.
John Ruskin, Unto This Last, G. Allen, London, 1899,
p. 131.
David Miller, Social Justice, Clarendon Press, Oxford,
1976. p. 204.
A.E. Housman, Juvenalis Saturae, CUP, Cambridge,
revised edition, 1931, p. xi.
Mandeville, p. 113.
Helmut Schoek, Envy: A Theory of Social Behaviour,
translated by M. Glenny and B. Ross, Secker and
Warburg, London, passim.
Adam Smith, The Wealth of Nations, introduced by
E.R.A. Seligman, Dent, and Dutton, London, and New
York, 1904, I(ii).
Aristotle, 1258 B 2-8.
F.A. Hayek, The Road t o Serfdom, Routledge and
Kegan Paul, London, 1944, p. 67; and Ralph Harris and
Arthur Seldon, Over-ruled on Welfare, Institute of
Economic Affairs, London, 1979, passim; and Arthur
Seldon, Charge, Maurice Temple Smith, London, 1977,
passim.
s e e R.H. Tawney, Religion and the Rise of Capitalism,
Penguin, Harmondsworth, 1938, p. 55;
and also,
Tawney, Equality, Capricorn, New York, 1962.
s e e R. de Roover, 'The Concept of t h e Just Price', in
the Journal of Economic History, Vol. XVIII, 1958; and
J. Viner, 'The Intellectual History of Laissez-Faire' in
t h e Journal of Law and Economics, 1960.
Walter Eltis, 'Public Policy', in Ralph Harris (ed.) J o b
Creation - o r Destruction?, Institute of Economic
Affairs, London, 1979, p. 124.
see for instance: C. Jones, The L200,000 Job, Centre
20.
f o r Policy Studies, London, 1977; F. Broadway, Upper
Clyde Shipbuilders, C e n t r e f o r Policy Studies, London,
1976; J. Bruce-Gardyne, Meriden: Odyssey of a L a m e
Duck, C e n t r e f o r Policy Studies, London, 1978; G. &
P. Polanyi, Failing t h e Nation, Ausbacher, London,
1974;
W. A. Niskanen, Bureaucracy:
Servant or
Master?, Institute of Economic Affairs, London,
1973; Gordon Tullock, The Vote Motive, Institute of
Economic Affairs, London, 1976.
Sir Keith Joseph, S t r a n d e d o n t h e Middle Ground, The
C e n t r e for Policy Studies, 1976, p. 42.