Are Markets Moral?

E. Skidelsky, E. Skidelsky

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137472748
• Topic: Economics
• Subtopic: Economic Policy
• Index: Economics

This volume scrutinizes the functionality of a capitalist market society, which is usually praised for the efficiency and dynamism, rather than for its morality. It addresses the dualism behind capitalism's encouragement of greed, which is usually considered to be a moral failing, while also being a driver behind economic growth.

Session 1

Restraining Insatiability

Robert Skidelsky

My interest in insatiability was triggered off by Keynes’s prediction in 1930 that 100 years hence people in rich countries would have enough, and therefore work less. This was based on an assumption about productivity growth. That prediction turned out to be partly wrong. Although average incomes have risen, much in line with Keynes’s prediction, average hours of work have fallen much less. This suggested that he underestimated human insatiability. My son Edward and I wrote a book called How Much Is Enough?, which was an inquiry into the meaning and causes of insatiability. This is a further exploration of that topic, which suggests one or two modifications of the view we took in the book.

The dictionary definition of ‘insatiable’ is, not surprisingly, ‘not satiable’, that which cannot be appeased and which always craves for more. In economic life, we can think of two sources of insatiability: love of goods and love of money. The question is, really, which is the more important? Which is the driver of the system we now have? Conventional economics only recognises one source of insatiability: the love of goods. It treats money simply as a means to satisfy our wants, while recognising that our wants may be insatiable. Money as such has no utility. Desire for money as an end is irrational and needs special psychological explanation. We know that there is the psychology of the miser, who is someone who loves money for its own sake, but that is regarded as a species of disease.

I want to put forward an alternative hypothesis, which is that the true insatiability – the insatiability that knows no limits at all – is love of money, not love of goods. My hypothesis is that the marginal utility of goods shows a tendency to decline, whereas the marginal utility of money shows no such tendency. This is because love of goods comes up against the limits of use and usefulness, whereas money contains all the imaginable possibilities for use without requiring a decision about spending it. It is an imagined world, with no reality check. Schopenhauer calls it ‘frozen desire’, which is also the title of a fine book by James Buchan.¹ The deepest thinkers about money have long recognised its power to transform itself from means to an end, and – in the extreme – to crowd out all other ends. There is the legend of King Midas: everything that he touched, including food, turned to gold, and therefore he starved to death.

In King Midas’s day, money was gold, and the legend only makes sense in a world of commodity money. One had to dig for gold; and digging for gold was at the expense of digging for food. There was an absolute limit placed on the accumulation of money: the opportunity cost of starving to death. In a world of fiat money there is no limit to the amount of it that can be created. The desire for money can therefore expand without limit: all the central bank has to do is to print the stuff. No one in today’s world need suffer King Midas’s fate. The accumulation of money has lost its economic sting.

There is a strong argument that the recent economic crisis was a crisis of love of money. The frenzied pursuit of money by the financial system carried us to a pinnacle of fake wealth, far above any concrete utility; when its production temporarily froze, the temple came crashing down. Now attempts are under way to reboot the economy by pumping up the money supply. It follows from this that any attempt to curb insatiability must start with taming money, with re-establishing it as a means, and making it more difficult – legally and morally – to accumulate as an end. It is only secondarily that we need to find ways of reducing the hunger for goods. That somewhat reverses the emphasis of our book, in which we argued that hunger for goods was the thing that needed to be restrained. I am just putting this forward as a hypothesis: I am not committed to saying that one is more important than the other.

Let us start at the opposite end with the urge to consume, treating money simply as a facilitator of this. It is hardly surprising that economics started from this point, because work was the effort needed to wrest a living from the soil. ‘The end of production is consumption’ said Adam Smith. Money was a bit player in this struggle for consumption. It appears in economics simply as a means of exchange, which allowed a larger variety of goods to be consumed from the same output. Psychological and spiritual insatiability was recognised always to be there, but I think it was in some way regarded as derivative of physical need: as in greed for food. Economics has always accepted the materialist theory of history.

The invention of credit – which dates from as early as 3000BC – alerted thinkers of antiquity to the possibility that money could be detached from need; that it could, in fact, breed itself. Hence Aristotle’s ban on usury: charging interest for the loan of money. That ban ruled throughout the Middle Ages, was only gradually lifted in the West and is still the official law of Islam. Money’s natural purpose, Aristotle held, was to acquire the good things of life. If it was used to breed itself, it was an unnatural vice, like sleeping with one’s mother. Dante placed usurers and sodomites, both violators of nature, in the seventh circle of hell.

Then you have the idea in Gibbon in the 18th century that money gives more active energy to the powers and passions of human nature: that is, it quickens the growth of wealth, but does not supersede the purpose of wealth creation, which was to expand consumption. In the Gibbon/Smith story of early economics the desire for money is simply a desire for the goods money will buy, both for oneself and others. That is how I interpret it, anyway.

However, Smith has already blurred the distinction between needs and wants. Aristotle’s natural needs become Smith’s natural desire for improvement – a kind of divine restlessness – and so the physical yields to the psychological. Money’s role in releasing and satisfying restlessness is a standard defence of the role of money, because it liberates people from old restrictions. Here is Jevons on the hierarchy of wants: ‘The necessaries of life are so few and simple that a man is soon dissatisfied in regard to these, and desires to extend the range of enjoyment. His first object is to vary his food, but there soon arises the desire of variety and elegance in dress, and to this succeeds the desire to build, to ornament, and to furnish; tastes which – where they exist – are absolutely insatiable, and seem to increase with every improvement in civilisation.’ This is the continuation of the Smith view of an inborn desire for improved quality, which is quickened by a money economy.

I would query Jevons’s use of the word ‘insatiable’, because by a ‘hierarchy of wants’, which is what he is describing, he means to say – and I quote – ‘that the satisfaction of every lower want in the scale created a desire of a higher character … The highest grade in the scale of wants, that of pleasure derived from the beauties of nature and art, is usually confined to men who are exempted from all lower privations.’ That, to me, does not suggest a progression from a limited amount of gadgets to a huge number of gadgets, but rather from lower to higher wants, from the material to the aesthetic. Jevons’s idea of a hierarchy is actually very close to Keynes’s idea in Economic Possibilities for our Grandchildren,² where we progress from the material to the spiritual.

We then move on. In our book, Edward and I take up the analysis of insatiability as left by Jevons and his generation. In his book, The Joyless Economy, the economist Tibor Scitovsky provided a psychological underpinning for Smith’s urge to improvement. His main idea is that every novelty leaves one unsatisfied, creating the urge for further novelty, and he posits a psychological addiction to novelty, which has a physical basis like any other addiction. Every pleasure leaves you dissatisfied, so you want more and more. There is no progress in Scitovsky from lower to higher pleasures: with technological progress a virtually unlimited supply of novelty is available to feed jaded appetites. Scitovsky, like Galbraith, also highlights the role of advertising in provoking restlessness and producing more desire.

The economist’s explanation of insatiability for goods starts, then, with individual restlessness. There is a sociological tradition, though, whose starting point is the idea that wants are insatiable because they are relative. In this account, insatiability is not driven by an inborn individual restlessness, but by a constant process of comparison with others. Veblen’s theory of conspicuous consumption is the most famous of these contextual theories of insatiability.

Both the economic and the sociological accounts of insatiability see it as attaching to love of goods. I want to query this, because I think the desire for more goods is not limitless. Goods are bought for use, even if the only use is display. Although you can extend the use and the variety of goods almost without limit, you cannot extend it without limit. Ultimately you run up against the opportunity cost of novelty: its cost in terms of other desired goals. I suspect that the desire for novelty would have come into conflict with other objects of human striving much sooner but for money.

So we turn to money. Veblen grasped the truth of money’s exemption from the law of diminishing marginal utility. Here, he puts it rather graphically, in a remarkable essay called The Limits of Marginal Utility, ‘the hedonistically presumed final purchase of consumable goods is habitually not contemplated in the pursuit of business enterprise. Businessmen habitually aspire to accumulate wealth in excess of the limits of practicable consumption, and the wealth so accumulated is not intended to be converted by a final transaction of purchase into consumable goods or sensations of consumption.’ Here is the theorist of conspicuous consumption saying that businessmen accumulate far in excess of what they want to consume, now or later. For them there is no hedonic treadmill. Let us pursue this.

Like Aristotle, Marx noticed the dual aspect of money, both as a means and an end, and summed it up in the French proverb, ‘L’argent n’a pas de maître’. On the one hand, money was a means of liberation from feudalism – it liberated you from other masters – but, on the other hand, money has no master. In other words, it is the master. Quoting Goethe but echoing Aristotle, Marx wrote of money that it comes to have ‘love in its body’; he pointed out that, under the capitalist division of labour, the interests of consumption and accumulation were severed from each other. Labour as a commodity works to earn money to buy commodities for consumption – that is, goods – which Marx represented in the formula C-M-C’. But the capitalist parts with money to buy labour to make more money – M-C-M’ – the excess of M over M’ being the source of Marx’s surplus value. The accumulation of money is thus the dominant motive for business activity. Whether the capitalist also consumes conspicuously is irrelevant. Victorian businessmen were, on the whole, quite frugal in their habits.

Of course, Marx regarded surplus value as the source of business crises, gradually increasing in intensity. For the full system of labour exploitation to be established, money had to dethrone the traditional gods, and the splendid passage in The Communist Manifesto depicting the replacement of traditional social ties by the cash nexus was foreshadowed by Marx’s favoured passage from Shakespeare’s Timon of Athens, where Timon addresses a heap of gold he has dug up: ‘Thus much of this will make black white, foul fair / Wrong right, base noble, old young, coward valiant.’ ‘This yellow slave / Will knit and break religions.’

This testifies to the idea of the overwhelming power of money to transform, disrupt and destroy all social relations. You start thinking of it as a slave and you end up by worshipping it. It stimulates the passion for money itself, because money promises the power to fulfil all other passions. Keynes follows exactly this. He says, ‘the test of money measurement constantly tends to widen the area where we weigh concrete goods against abstract money. Our imaginations are too weak for the choice. Abstract money outweighs them. We want to diminish, rather than increase, the area of monetary comparison.’ Well, we have gone the other way.

So to conclude. Aristotle thinks only of natural need, but there is no limit to human desire. The hypothesis I have been advancing suggests that only by restricting the domain of money can human desire be prevented from limitless expansion. The way to restrict the domain of money is by restricting the rewards which attach to the accumulation of money. The principle would be to tax all accumulations not spent on consumption or adding to capital equipment.

That is what this line of thought leads one to, but the line of thought in our book was slightly different. We wanted to tax objects of consumption, because our idea was that insatiability had its root in the love of goods. So which view does one take? Perhaps the answer depends on where one looks. Households consume; businesses accumulate. The financial corporation, which is the dominant institution of modern capitalism, embodies the urge to accumulate in its pure form. My tentative hypothesis is that love of money is much the most disruptive force in present-day society and if one can, to some extent, demonetise the economy, that will simultaneously restore some of the traditional barriers to excessive consumption.

Perry Anderson

Let me express at the outset my admiration for the book – which I am sure you have all read – written by Robert and Edward, How Much Is Enough?, which is a powerful, elegant and level-headed work containing both a critique of the addiction to growth in the rich countries of the world and a set of proposals of how to check it. It gives us both a diagnosis and a remedy.

Our average incomes have increased nearly as much as Keynes thought they would three-quarters of a century ago, but the hours we work have not declined by anything like the amount that he expected, and there is little or no evidence that happiness has increased along with wealth. Moreover, current attempts to estimate subjective levels of wellbeing are, in their eyes, a mis-measure of their object, since not happiness conceived in any utilitarian mode but a good life is the proper goal of social thought and action. This good life comprises many elements that are not measurable at all, alongside health, which is, and security, which is only doubtfully so. Respect, friendship, personality, harmony with nature, and genuine leisure – not mere recreation – are clearly not measurable in the same way.

To steer us away from our current conditions of growth addiction towards lives that might realise these goods, Robert and Edward urge a series of practical reforms in the book. These include: the introduction of a universal basic income, financed from transaction taxes and carbon credits; a progressive expenditure, rather than income tax; statutory reduction of working hours; and the disallowance of advertising as a business expense. In this session, Robert has somewhat modified both the diagnosis and the remedies set out in the book, arguing that it is not addiction to ever-newer and newer commodities but to money itself which is the addiction to be broken. I...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Preface and Acknowledgement
• Notes on the Contributors
• Introduction
• Session 1: Restraining Insatiability
• Session 2: Equality and Corruption
• Session 3: The Moral Limits of Markets
• Session 4: The Meaning of Money
• Index