Search Results for: Scott Rae

In some quarters, Ayn Rand and her philosophy are upheld as the quintessential defense of capitalism? How should we appreciate and assess her ideas in this area?

Rand lived under Russian socialism and saw it for what it was—a terribly inefficient system that denied human beings their creativity and innovative traits. She promoted the market as the best system for producing prosperity and was rightly skeptical of government getting in the way of business. However, she was an ethical egoist who maintained that self-interest was all that was necessary as a moral guideline. She and her followers actually hold that altruism is intrinsically demeaning because it is a handout. I take her views on the market as being pretty good, but would reject her ethical and psychological egoism.

Behavioral economists have argued that, more often than not, irrationality and impulsiveness drive financial decision-making, whether among individuals or on behalf of groups (e.g., Wall Street financial traders), compared to decision-making driven by rational self-interestedness. How should we think about these factors, given a broadly theistic view of human nature?

Human beings are not homo economicus, as Marx suggested. We are not entirely objective, self-interested economic actors, as some libertarians insist. There is a good deal of what Yale economist Robert Shiller called “irrational exuberance,” echoing a phrase originally coined by Alan Greenspan in the mid-1990’s. The stock market, for example, defies rationality at times, more often than investors care to admit! Emotion plays a role in ethical as well as economic decision making, and only a reductionistic view of human nature would insist otherwise. Being both made in God’s image and fallen at the same time suggests that our economic decisions are complex combinations of factors that we still are trying to understand fully.

Given the current global financial crisis, obviously something clearly failed monumentally. But what exactly failed? How should we understand the morality of the crisis?

This is a very involved discussion—I’d summarize it by saying that the combination of short-sighted public policy (cheap money for so long among other things), regulators and ratings agencies who dropped the ball and perverse market incentives, created a perfect storm of conditions in which greed could and did flourish for a time. Capitalism didn’t fail—at a minimum the financial system failed, which is not the same thing a capitalism failing. And it failed primarily due to the financial system making a bad bet on housing prices never really falling. Their model of spreading out risk actually incentivized a variety of parties, from homeowners, to lenders, to mortgage brokers, to commercial banks, to take very unwise risks. And when those “chickens came home to roost,” some were allowed to suffer the consequences of their poor decisions (ie. homeowners being foreclosed on homes that they should never have bought, for example). The application of moral hazard (the view that if you don’t have to pay for your financial sins, you’ll commit them again) to the “too big to fail” banks is a bit more complicated (though the government did let some fail—Lehman Brothers). The bailout money was designed to unfreeze bank lending to businesses—which had essentially stopped in late 2008-early 2009. That was a worthy goal and an important function of the financial safety net. There’s some evidence that mortgage lending has really changed and tightened up, but there’s also evidence that on Wall Street, not much has changed. There are lots of good accounts of the financial meltdown—I’d recommend Financial Shock, by economist Mark Zandi.

Among evangelicals, in the last few years there’s been an increased amount of chatter and organization of endeavor around the issue of “social justice.” In light of capitalism as an economic and moral-cultural system, how might we best think of “social justice”, its meaning and implications for bringing about good for other people?

Social justice is a proper ordering of society, in which God’s righteousness pervades the institutions of society. The term has become almost a buzz-word for left-leaning political applications of Scripture. The major terms of the debate are not about the ends of an economic system, but the best means to achieve those ends. It begins with business having a good answer to the question, “what are we in business for?” Not just to make money, but to contribute to the common good, to enhance human flourishing and provide a place for people to do meaningful work in supporting themselves.

As you say in your last chapter, “Capitalism can’t do it all.” How can we discern what are nonmarket goods and services?

Some goods and services are what we call “market inalienable.” That is, they should not be subject to market forces, because doing so involves violation of important values or virtues. For example, we decided long ago that human beings should not be bought and sold in the open market because to do so violates a fundamental principle of human dignity. This is why some forms of surrogacy that involve the clear purchase and sale of children should be illegal. Others should not be available on the market because of their potential for serious harm should they be misused, or the ease with which they can be misused. There is some debate about other products and services, such as prostitution, reproductive services, organs, etc.

What are the necessary conditions for capitalism to flourish?

The infrastructure must be right—including things like a well-established rule of law, protection against fraud, incentives for innovation such as patent laws, and a cultural system in which market participants have internal moral resources capable of restraining self-interest.

How might the church, as a local moral/cultural institution, help teach and train people about the virtues of capitalism, and the role of Christian presence in a capitalist society?

This is very important—for one, churches should affirm business as a morally serious calling in which a person can bring honor to God by doing his or her work with excellence and integrity. This is what Paul means in Col. 3:23 when he commands that we “in everything we do, do our work heartily as unto the Lord. . . for it’s the Lord Christ whom we are serving.” Further we need to affirm that there is nothing wrong with success, ambition or making money. Third, we need to affirm that business is a crucible in which our spiritual formation occurs.

Noted sociologist Daniel Bell wrote in his influential 1976 book, The Cultural Contradictions of Capitalism, about how capitalist systems are constituted by distinct yet related social systems: the moral/cultural, the economic, and the political. How are these systems and their institutions interrelated?

I agree that these three systems function to provide checks and balances for the others. Typically, when the moral/cultural system fails to provide moral limits to the economic system, then the law steps in. And the frequency with which the law is involved testifies to the relative weakness of the moral/cultural system. I think the financial meltdown is a good example of the failure of both the law and morality to rein in excesses on Wall Street—but both are reacting, mostly appropriately.

What are the “virtues of capitalism”?

The virtues that are both required and nurtured by participation in the market system are things like service, trust, promise-keeping, truthtelling, diligence, thrift, and what might be called “entrepreneurial traits,” such as innovation, creativity, etc.

As you know, University of Southern California philosopher, Dallas Willard, has been working on a book length project concerning “the disappearance of moral knowledge.” In the absence of moral knowledge, in what sense, if any, can the virtues of capitalism expect to thrive, let alone survive?

I would suggest that even though moral knowledge is on the wane, there is still a reservoir of some shared values, sufficient to make the economic system function. Think for example of how many transactions are completed that are based on trust—most credit transaction fit that description. In the absence of moral values, capitalism becomes Darwinian, and then it becomes essentially state-sponsored, as the law steps in to regulate more and more, analogous to what exists in China.

What do you take to be the most substantial criticism of capitalism? How might it be considered and answered?

That capitalism does not distribute the goods of society in an entirely equitable way. Capitalism is very good at creating wealth, but distribution is another matter. I don’t have a problem with merit being a primary basis for distribution. And I believe that the economy is not a zero-sum game—that the rich can get richer without it being at the expense of the poor. But I am troubled by the increasing gap between rich and poor and worry about what that might do to social stability if that’s a long-term trend.

What do you take to be the most prevailing misunderstanding of what capitalism is and what it does?

That it is based on greed. Michael Moore called capitalism a system of “legalized greed.” Adam Smith said nothing of the sort in The Wealth of Nations. He distinguished between greed and self-interest (which the Scripture does too) and maintained that the social virtues of compassion and justice moderated the pursuit of self-interest. Scripture commends self-interest (Phil. 2:4—look out not only for your interests, but also for the interests of others).

Could capitalism, as an economic system, fail to adequately work, in some sense and in some way, if a culture is driven by the satisfaction of desire as an end?

You get people in business without ever thinking about what they are in business for, other than making money and advancing their careers. This is why people can’t wait to retire, because their work has become divorced from any meaningful purpose. Capitalism will not cease to work—it’s just that the market will reflect those values, as it is already beginning to do.

You can learn more about The Virtues of Capitalism by visiting the book’s Facebook page. Part three of our interview with Scott Rae continues here.