The Morality of Wealth

Following from my OWS musings the other day...

It occurs to me that the simplest formulation of a message from the OWS protests is the antithesis to Gordon Gekko's mantra of "Greed is Good" - the protestors are making the case that the acquisition of wealth is a moral evil.

To be sure, they are also advocating a certain amount of wealth as a civic right (and possibly as a human right). It is possible to construe this as indicative of a certain underlying confusion regarding either their ends, or the means by which they can be achieved. But it is also possible that their animus is not directed against wealth per se - rather, it is too much wealth that identifies the targets of their wrath.

This raises the question of "how much wealth is too much?" Although OWS spokespersons of varying degrees of authority might venture widely different answers to that question, I'll suggest here that the broader sympathy in society for OWS' position, if not in all its details or manifestations, stems from the sense that "good" wealth is earned; any wealth beyond earned wealth is "bad." People tend to view Social Security as "earned" wealth, and they tend to view inherited wealth as "unearned." These are generalizations, of course; but this hypothesis explains why a person who is wealthy in absolute terms may be perceived as morally justified in their wealth, and why a person in relative poverty may still be considered unjustified even in the meager income on which they depend. People who disparage "welfare" may well feel differently about its provisions for veterans of armed conflict; there again, pacifists who view volunteer service personnel as taking pay for morally questionable purposes may consider this "unearned."

The morality of wealth, then, has two dimensions. It is firstly measured in the raw amount of wealth one possesses; but, perhaps more importantly, it is determined by the manner in which one acquires that wealth. We can go further: we can say, fairly safely, that wealth acquired purely for its own sake will seldom be considered morally justified reward. We can also say that wealth acquired through exploitation will be deemed immoral. In the former case, we identify an aspect of "earned wealth" - that it is a means to some other end, essentially incidental to that end and earned in proportion with the justness of that end. In the latter case, we see further that the means to the end must also be just in order for wealth accrued ancillary to those means to be "earned." We can conceive of a noble end employing morally questionable means; it is unlikely that money acquired in the pursuit of such an end by such means would be considered "earned."

This analysis of whether income is earned or not is complicated by subjectivity. For one thing, envy is a factor that can distort our notion of what is "earned." Unless we have a very clear and objective view of what opportunities we ourselves as earned, we are apt to identify those beyond our reach as "unearned." Resentment is toxic; it clouds our judgement. Neither is this resentment a one-way street - it is quite as easy to contemplate a wealthy man resenting the relative pittance drawn by an unemployed student, as to imagine the reciprocal situation.

Another factor to consider is the human propensity to judge others by the standards and values of our own experiences. It takes an unusual character to form values that are not self-justifying; the wealthy banker who seems exploitative to the protestor who lost his job in the recession will argue that he is reaping the rewards of his own wise investments, and moreover is enabling opportunities for others to make wise investments of their own; he will argue that the failure of others to make decisions that prove as profitable as his should not be blamed on him, and he will reject the possibility that his decisions worked out because of dumb luck and accidents of circumstance, let alone the notion that his decisions enriched himself only by denying others access to their rightful share.

We are all generally much better at recognizing bad luck when it strikes us, than we are at appreciating good fortune. What we call "good fortune," when we do acknowledge it at all, is actually nothing more nor less than a Bowdlerization of "unearned wealth" - by definition we do not "earn" good fortune. Chance operates irrespective of merit, and the distorting effect of human subjectivity makes us, as a rule, incompletely aware of its operation. We equate randomness with equidistribution - the 'cluster effect' illustrates this cognitive fallacy. Another manifestation of this kind of thinking crops up when we consider distribution of wealth; intuition tells us that the fairest distribution is the one dictated by chance, the one that by definition is least tainted by deliberate willed choices and therefore minimizes the likelihood of anybody having more "unearned" wealth than anybody else. Intuition here is quite false, of course; if everybody enters a lottery and buys a single ticket, they each have equal chance of winning, but equality of opportunity will not translate into equality of outcomes. To achieve the intuitively desirable equality of outcome requires a seriously distorted inequality of opportunity, one that exactly counterbalances the random distribution of opportunity among a population of individuals. It should be noted that the intuitively desirable outcome is therefore only achievable by maximizing the distorting effect of deliberate willed choice, and that the operation of this willed choice will necessarily take the wealth that some individuals would have by fortune (and so be strictly "unearned" but not thereby immoral since it was not acquired by choice but by circumstance alone) - this in fact is the textbook example of the noble end (equality) subverted by ignoble means (arbitrary redistribution of property).

The central paradox here was well described by Derek Parfit in his refutation of utilitarian arguments. He was able to demonstrate that, if we consider any two populations, one of which has higher 'utility' (a measure of happiness, or wealth, or "good" by some abstract measure) than the other, and we adjust the 'utility' of the two populations, reducing the greater and increasing the lesser, so as to equate them and increase the total utility of the two - then repeat this process, introducing a further population whose 'utility' is lower than the newly-homogenized population and merging it into another combined population of yet greater total utility - we reach what Parfit calls "the repugnant conclusion:" a very large population whose total utility exceeds that of the original group but whose average utility is barely positive.

The, perhaps equally repugnant, conclusion we can draw from Parfit's thought experiment is that a degree of relative wealth inequality may be optimal. With a nod to John Rawl's model of social justice - in particular, its concept of the "original position" behind the "veil of ignorance" from which its minimax provisions abstract the rules that provide for minimal support standards for the poor in society - we can add that wealth inequality is optimal IFF social mobility is maximal: in other words, wealth is only truly immoral if it is made unattainable to any member of society. Genuine equality of opportunity is the hallmark of a just capitalism.

D is for ... Demand

Demand is an important concept in economics; it is a measure of how many units of a commodity on a market are likely to be sold, or more prosaically a measure of desirability - of value - for that commodity. Demand is not a perfect correlate to desire: it may be that somebody wants something very much, for example, but simply cannot afford its market price. Demand is related to supply - the number of units of a commodity available at market - through something called Say's Law. It is named for the classical French economist Jean-Baptiste Say, although he no more discovered it than Marjorie Latimer discovered Latimeria chalumnae. Of such accidents of history is authority made.

Say's Law, in his original formulation if not the original French, simply asserts that "products purchase products." Living as we do in a capitalist society, we're accustomed to think that money purchases products - but, of course, we're also accustomed to think of our dollars, which are merely currency, as money. More on that another time. For now, I'll paraphrase Say in saying that the currency we exchange for some product only has value in being exchanged for other products; Say, for whom money was what Gresham would call "good money", didn't believe any sensible entrepreneur would hang onto money when he could exchange it for property before it depreciated. In our post-Keynesian world, we might have a different view, but we'd still have to allow that ultimately the value of any currency is as a medium of exchange, superior to barter only in that it does not require a "coincidence of wants" (for instance: if I have a cow I wish to barter for three pigs, I must find an owner of three pigs who wishes to barter for a cow. If we instead exchange for money, or currency at a pinch, the transaction becomes much easier to accomplish even though it now necessarily involves a middleman).

The more of some commodity there is on a market, ceteris paribus, the more likely it is to constitute a glut, an overabundance coupled with a falling-off in demand. If every man can simply draw breath to obtain air, nobody is going to pay a premium for the privilege. At the other end of the scale, where supply is scarce, demand for a commodity, ceteris paribus tends to increase. There is thus a dynamic of supply and demand; where the amount of goods demanded is roughly the same as the amount supplied, a price equilibrium exists. The nature of this price equilibrium varies with the forces of supply and demand in a free market, as this graph demonstrates:



The supply curve S, it can be seen, varies inversely with the demand curve D. Further, an increase in demand from D1 to D2, assuming constant supply, increases both the price and quantity of the commodity at market; a decrease from D2 to D1, assuming constant supply, decreases both. It should be apparent that variations in supply can likewise impact the price of a commodity on the market; the graph depicts an idealized situation in which the price is purely a function of supply and demand and neither producers nor consumers can artificially influence either factor. There are, in fact, numerous ways that real markets distort this picture. An obvious one occurs when one or more producers manage to "corner the market," or control so great a share of the market that they are able to manipulate supplies to maintain artificially high prices. One producer accomplishing this is said to enjoy a monopoly; several acting in concert form a cartel. OPEC is a cartel that controls the supply, and hence the price, of crude oil; the Federal Reserve is a cartel that controls the supply, and hence the price, of currency.

Although governments generally enact antitrust legislation to restrict the advantages of monopolies, there remain many such examples of cartels and monopolies that are allowed to remain, usually because it is politically expedient for them to do so - it can therefore fairly be stated that no genuinely free market, of the sort envisioned by Adam Smith when he extolled the "invisible hand" of the market, exists in society. Governments also constitute monopsonies - purchasers who "corner the market" from the other side, and can dictate prices to vendors because without them there is no market for the goods - in some sectors, for example the healthcare and defense industries. It can therefore be argued that governments, by involving themselves in the market either directly - as monopsonistic consumers, for example - or indirectly - in applying price controls such as minimum wages or agricultural subsidies, for example - distort the equilibrium between supply and demand, and create the kind of inequalities that, in an idealized market abiding by Say's Law, cannot arise. Certainly, inflation - the overproduction of money, leading, in accordance with Say's Law, to a loss in purchasing power of that money - is a direct result of manipulation by central banks like the Federal Reserve.

The relationship between price and demand embodies a property called "marginal utility" - this is, the added usefulness of a slight (or marginal) increase in supply of some commodity. The concept of marginal utility actually applies more broadly than conventional market scenarios: absolutely any rational decision to pursue any goal in the satisfaction of any need can be modeled with a marginal utility curve, making marginal utility a function of rational decision-making, and rational decision-making a function of barter. Ludwig von Mises termed this praxeology: the ambitious science of human action, specifically concerned with the factors influencing the decisions people make. Marginal utility theory replaced the Marxist labor theory of value, which viewed all profit necessarily as exploitation of labor (that is, profit becomes possible only if the laborer is paid less than his labor is worth; what merit this position has is chiefly in illustrating the departures from the ideal of Say's Law in the labor market).

I'll be returning to this otherwhen.