THE BASIC DATA OF ECONOMICS
“Je ne connais que trois manières d’exister dans la société: il faut être mendiant, voleur ou salarié.”
1. The Moral Foundation (the Business Principle)
The struggle against scarcity (deficiency of means) is the eternal basis of every human economy. It characterizes all ages, all climates, all social systems. The forms which this struggle assumes, however, show the greatest diversity. We may divide them into two principal groups: the individual forms and the social forms. The individual form of this struggle is exemplified in the isolated, exchangeless economy of a Robinson Crusoe with which we are here not concerned. We shall give our attention, therefore, only to the social form of the struggle against scarcity.
The social form of the struggle is manifested in the different methods men use to obtain those things which nature has not freely supplied. There are, in principle, three such methods, as a result of which we see three kinds of struggle. There is, first, the ethically negative method of using violence and/or fraud to procure for ourselves, at others’ expense, the means of overcoming scarcity. The second method is the ethically positive one of altruism, thanks to which goods and services are supplied to us without our being required to give anything in return. The third method does not lend itself easily to such brief description. It is not founded on egoism, if this implies that individual well-being is achieved at others’ expense. Neither is it founded on a selfless altruism, if this implies that individual well-being is neglected in order that others may benefit. It is, rather, an ethically neutral method by which, in virtue of a contractual reciprocity between the parties to an exchange, an increase of one’s own well-being is achieved by means of an increase in the well-being of others. This method, which may be termed “solidarity,” means that an increase in my well-being is achieved in a way which not only does not deprive others of well-being but which yields them, as a by-product of my gain, an increase in their own well-being.
In concrete terms, I may obtain the wherewithal to live either: by selling adulterated butter (first method); or I can be the object (or subject) of a gift of butter (second method); or, by following the axiom “honesty is the best policy,” I can acquire a fortune by attracting more and more customers with butter of irreproachable quality, kind and courteous service, finding out where I can buy butter cheapest, keeping a neat and attractive shop, etc. (third method). Whereas people are “handled” in a public facility such as the post office, in our shop they are “served.” In this last case I obtain the means which allow me to satisfy my needs neither by violence, exploitation, fraud, nor illicit profit, nor by accepting alms or gifts, but through the supplying of an equivalent service or good (performance principle). It is this method, based on the principle of reciprocity, of value given for value received, which is commonly referred to as “business.” It is the business method which characterizes that form of the struggle against scarcity which is based on exchange and the division of labor. Regarding the economic system in this way, however, raises several important questions and it is upon these that we must focus our attention.
In the first place, the three methods are by no means rigorously separated, but, on the contrary, overlap to a degree. Plainly, there is an essential distinction between defrauding your neighbor in the struggle for survival and accepting a charitable gift from him for the same end: the first and second methods are incompatible and cannot be employed simultaneously. But it is possible to combine the first method (fraud and/or violence) with the third (business), and also the second method (altruism) with the third. “War, trade, and piracy—an inseparable trinity,” declares Goethe’s Mephistopheles (Faust, II, 5), and, in truth, the history of the trading and colonizing nations is a history of invasions, piracies, and oppressive exploitation. It offers us a depressing demonstration of the truth that when left to our own devices, we tend to choose the first method and return nothing in exchange for a service received. Only the powerful influences of religion, morality, and law appear able to induce us to adhere scrupulously to the third method.
There are a variety of procedures for avoiding the rendering of a service equal to one received. Leveling a revolver at someone is one of the quickest but also one of the riskiest ways of getting something for nothing. Much safer and more efficient are the devices of special privilege and monopoly for they can be tricked out in ideological trappings which may make them seem not only innocuous but even beneficial to the general interest. The modern problem of monopoly can ultimately be defined in no other way than as a distortion of the principle of equivalence or reciprocity in exchange effected by means of the method of exploitation. Solving the monopoly problem, therefore, means nothing other than finding a way to eliminate this distortion.
If, as unfortunately happens, the method of “pure business” is often combined with fraud and exploitation, it is just as frequently commingled with elements of altruism. Indeed, business in the real world is not as ethically neutral as we at first supposed. There are businesses which embrace more or less an element of self-sacrifice (and, therefore, of uncompensated “giving”) and of genuine service. The medical profession is one example. Then, too, we expect of the scholar and of the artist that they put devotion to their vocations before mere gain, and that in practicing their profession they be not motivated by the principles of the delicatessen-owner. In these cases, the pure business principle is subordinated to a certain moral standard which we may call professional ethics. Members of such professions frequently have or are expected to have a strong service instinct. Expressions such as “trade” or “business,” applied to the professions of medicine or law, are felt to be out of place and demeaning. But even the pure businessman who adheres unbendingly to the principle of exact reciprocity in exchange does not, by so doing, remain completely neutral in an ethical sense. His unbending conduct, and the conduct of those with whom he does business, is at bottom conditioned by the acceptance of certain ultimate principles, for the lack of which the business society itself will in the long run founder. It is, therefore, of great importance not to forget the moral reserves which nourish the prosaic and in itself ethically neutral world of pure business, and with which it stands or falls.1
The proportions in which the three methods are found and in which they are combined determine in the final analysis what we call the economic spirit of an age. The evolution of our own times can be better understood in the light of the double moral standard which has for so long prevailed: a sterner code is applied within the narrow circle of our own family and friends (internal morality) and a laxer one is employed in our dealings with strangers (external morality). For a soldier to steal from his bunk-mates is regarded as a low form of treachery, while to practice the same theft upon the occupants of a neighboring barrack passes for a feat of cunning. And let the same soldier return laden with loot taken from the citizens of a conquered country and his mates will give him a hero’s welcome. The evolution of the last few centuries can then be regarded as a process in which the domain of internal morality has been continuously enlarged while its content has been simultaneously diluted. In the Middle Ages, trade among the small group of provincial guilds was rigidly circumscribed while a large place was reserved to charity—a natural outgrowth of the deeply religious spirit of that time. But beyond these confines there was much unscrupulous and unrestrained exploitation. In the course of the development which saw the rebirth of ancient morality (humanism) and the secularization of the substance of Christian morality, the principle of sacrifice lost much of its force, even among members of the same family. In its stead appeared a new principle, and one which served at the same time to reduce the practice of violence and exploitation to negligible proportions, viz., the selfsame business principle we have been discussing.
Not all of the consequences of this development were happy ones. “Business” has occasionally lain its cold and impersonal hand on the family, requiring children to pay their parents for room and board; and science, art, even religion itself, have become commercialized to a lamentable extent. On the other hand, the general use of the business method has had the effect of narrowly circumscribing the area in which violence and exploitation can be profitably employed and of enlarging the sphere of activities yielding equal benefits to the participants.
A proper appreciation of the differences among the three methods aforementioned will prove helpful in dispelling a double confusion met with today at almost every turn. On the one hand, there is the common mistake of attributing to the third method (business) acts which properly should be put to the account of the first (fraud, exploitation, etc.). Some of us still cling tenaciously to the belief that business is nothing else than a shameless picking of other people’s pockets, especially so when it is a question of as abstract and mysterious a business as the modern stock exchange. Just as deeply ingrained is the habit of describing business operations in terms suited only to acts of the first category. People speak of the “conquest” of markets and of the “imperialist exploitation” of foreign countries without realizing that they are confounding two entirely distinct categories of acts. The myth that the employer always necessarily exploits his employees is another of the same series of errors.
On the other hand, the second and third methods (altruism and business) are also frequently confused. It is a confusion deliberately encouraged by a certain breed of businessman who desires to have people see in him the devotee of self-sacrifice and disinterested service, though in reality he is motivated solely by business considerations. He speaks of “serving the customers,” he puts himself “at their disposal,” he bids us “be at home,” as if, like St. Francis of Assisi, he had nothing in his heart but the disinterested love of his fellow man. Each shop, each factory, becomes a kind of “studio” where work, relieved of its grosser motivations, is carried on on a higher and nobler plane. Cloaking ordinary business operations with such pious phraseology serves not only as effective advertisement, but is in the vanguard of the democratic instincts of our time. There is still, perhaps, unconscious resentment of the old contempt attaching to “people in trade,” and it is comforting if the illusion can be created that one is not simply working out his life within the drab business framework but that he is a dedicated being, a member even of a superior class. The “canonization” of business, if we may use the term, is particularly noticeable in the United States (witness the emergence of the peculiarly American doctrine of the “social responsibility” of business). It is accompanied by a tendency to relegate to a lower class all the professions which do not originate in business (scholars, civil servants, artists, career military officers). It is a process which has been made easier by the commercialization of these professions and the consequent perversion of the true hierarchies of rank and value—a grave American malady and one of which Europe, too, is beginning to exhibit the symptoms.
This complex of problems is one which properly should be of the greatest concern to economists. Indeed, before we pursue our inquiry any farther, it is necessary to stress the artificiality and extreme fragility of the pure reciprocity principle (business principle). “Business” is a product of civilization and it cannot exist for long in the absence of a specific constellation of conditions, chiefly moral, which support our civilization. The economic ingredient in the constellation is, as we shall see, free competition. But free competition cannot function unless there is general acceptance of such norms of conduct as willingness to abide by the rules of the game and to respect the rights of others, to maintain professional integrity and professional pride, and to avoid deceit, corruption, and the manipulation of the power of the state for personal and selfish ends. The big question of our time is whether we have been so heedless and unsparing in the use of our moral reserves that it is no longer possible to renew these vital props of our economic system and whether it is yet possible to discover new sources of moral strength.