On Business and the Economy


Business – honest business, that is – is beautiful. For it isn’t just being busy; it’s being busy with a purpose. And that purpose is to create well-being. There is no nobler human activity than delivering what others are voluntarily willing to pay for.

In my earlier essays, I’ve deliberately kept away from economics. This is the first of a new set, in which I plan to rectify that.

Trade

I’ll begin with the context, in which all economic activity takes place. All of us have needs and desires – for food and other basics, for goods and services, for pleasant experiences. And we all have resources too. Our time and energy, our skills and knowhow, our possessions and tools, our savings, are all resources we can use to get our needs and desires satisfied. And the mechanism, through which we exchange resources for satisfactions, is trade.

For trade to go beyond barter, some form of money is necessary. Money offers three benefits to trade. First, as a generally accepted medium of exchange. Second, as a unit of account, to measure the market value of goods or services. And third, as a store of value.

One further thing is necessary to support trade between disparate individuals and groups. That is, a system of objective justice, which at need can hold to account those that cause damage to others, try to cheat others, or dishonestly fail to keep to their side of a bargain.

In such conditions, honest individuals will seek to create and to offer a flow of wealth to others. And, in return, they will receive a corresponding flow of wealth from the honest people they trade with. From any such trade, as long as there is no fraud or coercion involved, each party will expect to gain a nett benefit. For if not, why would they have agreed to the trade in the first place? Thus, an economy based on honest trade increases the overall well-being of all parties. And it provides for good people not only satisfaction of needs and desires, but also incentive to develop their talents further, and opportunities to create more well-being.

The economic ideal

I’ll describe how the human economy ought to be, by means of a thought experiment. Picture, if you will, a rolling, grassy plain at dusk. And, standing on that plain, many human beings. A few hundred, or a thousand, should suffice. Now imagine that some, or several, or many, of those human beings are emitting, like great candles, a glow of bright light. Watch, now, as that light reaches other human beings on that plain. Each absorbs some of the light which reaches them. And, in their turn, they start to emit light, and to glow; some more brightly, some less.

Imagine, for a moment – only – that each of the human beings in this chain gives out only half as much light as they take in. What will happen? The light will slowly fade and die. If there is to be more light, it must come from outside.

But now imagine that each human being contributes at least as much as he or she takes out. What happens? The light grows gradually brighter and brighter, until it’s as bright as day. Imagine the people on that rolling plain, all creating well-being and fulfilling themselves. See them happy, smiling and bathed in light! Now that’s what I call a sustainable economy.

Productivity

So, how can each of us produce light? The productive careers, which we can follow, are of many kinds. But I classify the avenues, by which we can create wealth, under five headings: Business, Genius, Science, Improvement, Support.

The biggest group in numerical terms are Business people. Business is the provision of goods or services, for which other people are voluntarily willing to pay. And the productive people in this category divide into several types. First, there are the workers or producers. These are the people at the sharp end, who directly deliver the services or make the goods. Second, there are the skilled workers, who apply their skills and creativity to productive tasks which others cannot do. For example, accountancy, quality assurance, or designing new products or services. Third, there are the entrepreneurs and managers, who take on the task of making things happen, and who organize themselves and others to produce.

I find honest entrepreneurs to be especially valuable to the economy. Now, many seem to think that the value of a piece of work depends only on the amount, and perhaps the quality, of the labour put into it. Yet this Marxian “labour theory of value” is an obvious crock. For, as the proverb has it, beauty is in the eye of the beholder; and thus, value is in the mind of the buyer. But what an entrepreneur does is create an environment, in which people can live their economic lives as if the labour theory of value was the truth. He takes on himself the lion’s share of the risk in his projects. And so he enables his workers, at much reduced risk to themselves, to share in the benefits of business.

Genius is the second, and the rarest, of the ways to create wealth. Among people of this category in the past, I might name Archimedes, or Mozart, or Henry Ford. Geniuses come in all shapes and sizes, but they all have three things in common. They’re creative. They’re ahead of their times. And they change for the better some aspect of the world, just by doing what they do.

The third of my headings is Science. Science, in a nutshell, is the use of reason to investigate reality, and so to add to the store of objective human knowledge. Those who create wealth through Science include many who are called scientists. But they also include those who seek understanding in other disciplines, for example archaeology or economics.

The fourth category is Improvement, the process of advancing human capabilities. One form of Improvement is education, leading out and elevating individuals’ talents. Another is engineering; that is, designing things which can benefit human beings, and making them work. A third is technology, which in the broad sense is making things possible which weren’t possible before. Those who create wealth through Improvement include those with a yen to make individuals, or humanity as a whole, more capable. Or who seek new, better ways to do things.

The last of my five categories is Support. This is an indirect means of creating wealth. A good example of Support is what a housewife does in a traditional marriage. By providing a comfortable, loving and supportive environment for her husband and family, she enables him to be more effective in his own wealth creation. But Support is common in the economy as well. An internal company accountant, for example, does not directly create any wealth. Yet he contributes to the success of his company, by analyzing and providing information valuable to others in that company.

To be effective in creating well-being in these ways, individuals must act in good faith, with honesty and integrity. They must avoid lies, cheating and deception. They must always do their best to fulfil their freely made promises. They must strive to give out, over the long term, at least as much value as they take in. These people are the truly productive, the nett emitters of light.

Co-operation and Competition

Two important facets of honest business are co-operation and competition. These are not opposites, as some would have it, but two sides of the same coin.

In co-operation, people work together, with each participant supplying his or her own skills, energy and work ethic. The result of such teamwork is, frequently, greater than the sum of its parts. For individuals have different, and often complementary, skills and abilities. Some, for example, find it easiest to work on one job at a time; whereas others can more easily switch between tasks. Some are creative, or can think “outside the box.” Others are more structured and focused in their thinking. And some have a natural ability to lead others.

The second facet is competition. Some like to pooh-pooh competition, framing it as something negative, like beating off rivals. But true competition is about striving to make ourselves more effective at whatever it is we do. I’ll summarize competition in four imperatives:

  1. Do it better.
  2. Do it quicker.
  3. Do it cheaper.
  4. Do what others can’t.

And the last of these is the most important. For it unlocks the key driver of economic progress: innovation.

The economic reality

To return to my earlier thought experiment. Everyone knows that the world economy, as it is today, isn’t like a spreading light. Far from becoming bright as day, such light as there is stutters and sputters; and sometimes seems about to go out. Many people find their work no longer fulfilling. It becomes a chore or a boring grind. Better opportunities, which ought to be there, aren’t. And some people become sidelined entirely. So, why isn’t the economy as it ought to be?

One possible reason presents itself. Look closer at the individuals on that rolling, grassy plain. Among the producers of light, you will find dark figures. These are people who are too young or too old to produce, or who are ill, injured, or mentally or physically disabled. These dark figures consume light, but they can’t generate light. Could these people be the reason why the light doesn’t spread as it should?

Look closer yet at those who generate the light. Many of them, you will find, produce far more than they consume. If they do enough, their extra productivity can make up for the presence of the dark figures. These productive individuals can and will support the load, as long as they have confidence that, over the long run, they themselves will at least break even. For no-one can reasonably grudge re-paying those who have helped them in the past, or investing in those who will help them in the future. And as to the disabled: “there, but for the grace of god, go I.”

But look closer again, and you will find, mixed in with the radiant producers and the dark non-producers, a third kind of individual. Like the others, they consume light. But instead of adding to the economy by being productive in their turn, they seek to damage or even to destroy it. It is as if they are trying to douse our light with some foul substance.

These “dousers,” as I call them, act in bad faith. Some of them scheme to take out of the economy far more than they put in. Some use their technical or communication skills to present a false picture of reality. Some feed off a gravy train of tax money, but bring no benefit to the people who are forced to pay that money. Some engage in political schemes, including fanning wars and raising trade barriers. Some steal other people’s resources for their own pet projects. Some seek to make economic life difficult for people they don’t like.

But perhaps the worst of the dousers are those that seek to undermine the very foundations of the economy. They raise alarms about scarcity of resources. Yet they ignore the natural mechanism of market price, which encourages better ways of producing scarce resources, or at need the development of alternatives. They raise scares about pollution, global warming, health or safety, problems or other bad side effects of economic activity. Yet, instead of proving their case and seeking to make perpetrators compensate their victims, they want to douse the whole economy in a foul sea of taxes and red tape. Some of them even pooh-pooh the entire idea of a productive economy, giving it pejorative labels like “injustice,” “inequality” and “consumerism.”

Now, look at the people in those places, where the dousers have contrived to suppress the light. You will find yet a fourth kind of individual. They are not dousers; they are not evil or destructive. Like the non-producers, these individuals are dark. But they are not dark because they are too young, or too old, or ill, or injured, or disabled. They are dark, because the light does not reach them. They have no opportunity to take part in the world economy. There’s a name for these people; they are called the poor. The world’s poor are the ultimate victims of the dousers.

To sum up

All of us must trade with others to get our needs satisfied. Trade, money and an objective justice system are pre-requisites for a workable economy of many disparate people.

Everyone, who is able to deliver well-being to others, has an obligation to do so. Each of us can do this in many ways. For example: productive work, entrepreneurship, science, or improving or supporting others’ capabilities. We should co-operate with others, and strive to improve our own abilities. And we must always act in good faith, with honesty and integrity.

But among us there are those – I call them dousers – that fail to measure up to these obligations, and seek to damage our economy rather than contribute to it. Dousers are the ones that are responsible for today’s economic troubles, including poverty.

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5 comments

  • My understanding of the way the world works isn’t the same as Neil Lock’s. Likewise, my understanding of human nature is not the same. I don’t believe a system of ‘honest trade’ and ‘objective justice’ is possible in the perfect sense outlined here. It can be an aspiration under contingent circumstances, but it is an aesthetic rather than a real goal.

    In my opinion, the best possible ‘justice’ is simply what we agree on, taking account of our natural biases. In practice, this takes the form of what can be imposed by force and acquiesced-to, because it is not possible to reach an unbiased accord by agreement. To be plain: ‘justice’ and ‘law’ are really whatever the man with the most guns tell us they are. Indeed, the word ‘law’ has its etymological roots in right of state (right of force). Objective justice doesn’t exist because ‘justice’ in anything other than the aesthetic sense doesn’t exist. It’s just a dream.

    Let us say we all agree that people who get caught holding their fork with their left hand should be put in the stocks and have eggs thrown at them for five days – quite an imposition for left-handers such as myself. Let us say I have a lapse: I am seen by a reliable witness holding my fork in the illegal way. Do I still favour the prescribed punishment? You can extrapolate from my eccentric example: objective justice isn’t possible.

    • Tom, there is a difference between how the world works today and how in my view it should work. The latter is only a goal, yes; but I think it ought to be a real goal.

      What we suffer today is exactly what you say: “law” is whatever the man with the biggest armoury tells us it is. Your example with the fork bears this out; those in power can make whatever “laws” they like, however arbitrary, and have them enforced. And you’re right that the word “law” (lex) is rooted in state force.

      But when I talk about justice, I’m talking not about lex, but ius. Ius is law in the sense not of state force, but of agreements and commitments between people. And my conception of objective justice is “the condition in which each individual is treated, over the long run and in the round, as he or she treats others.” In such a condition, holding your fork in the wrong hand could not be a punishable offence, since it neither causes objective harm to others, nor is intended to cause any such harm.

      • But my point is that this goal is either practically impossible and therefore pretentious, or if possible, it is undesirable on account of being paradoxically totalitarian due to the need to change Man’s essential Nature in order to achieve it. As previously stated, we appear to have a completely different understanding of human nature.

        • Well Tom, we disagree about “Man’s essential nature.” I think it’s good, you think it’s bad. Since this is a matter of fundamental worldview, we won’t be able to shift each other’s positions by reasoned argument. A bit like a theist versus an atheist – though I’m not sure which of us is which in that analogy.

          That said, if you think you have a better way of doing things than the one I’m putting forward, I have no desire to stop you getting together with like-minded people and trying it out. As long as you don’t try to force me to join you, of course.

          • I don’t necessarily accept that what you understand as my view of human nature represents something “bad”. To my mind, good and bad don’t come into it.

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