Self-interest represents the seeds that blossom into economic growth.

Job Creators or Robber Barons?

Oct 3, 2012 • Businesses, Economic Debates, Economic History, Economic Thinkers, Government, Households, Innovation, Macroeconomic Measurement, Regulation, Thinking Economically, Uncategorized, US Presidential Election • 227 Views    2 Comments

I have confessed before that I admire the entrepreneurs who have been called the robber barons.

Carnegie and steel, Rockefeller and oil, J.J. Hill and railroads, Morgan and money. These men and others from their 19th century world competed lethally. On the production side they sought to reduce costs. They battled for customers, they trampled competition and they manipulated prices. Still though, asked to choose between condemnation and admiration, I choose the latter.

Each fueled our economy. We got a capital goods sector, a transportation infrastructure. We got the foundation that let us build from consumer goods to services to our technological revolution. We got bigger homes, longer lives, refrigerators and cars and TVs and an educated populace. We had a rising economic tide that raised all boats.

And that takes me to an article in the New Yorker Magazine. Focusing on hedge fund billionaire Leon Cooperman, the article spotlights a response to President Obama’s message to the affluent about giving more to US society. In a letter to President Obama, Mr. Cooperman asks instead that the President focus on the unifying power of initiative and achievement that has inspired generations and propelled economic growth.

Mr. Cooperman’s comments took me to Adam Smith.  Rather than a benevolent government, Smith focused on how wealth is spread by self-interested business people.

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” (Wealth of Nations, Book 1 Chapter 2)

More specifically, Professor Smith explained how self-interest leads to voluntary exchange through which all benefit:

But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.” (Wealth of Nations, Book 1 Chapter 2)

And that returns us to the most affluent slice of our society. As with Carnegie, Rockefeller, Morgan and their brethren, might we support self-interest (and accept its opportunity cost) in order to fuel the economic growth from which rich, poor, the middle class and government benefit?

Sources and Resources: I do suggest a firsthand look at The New Yorker article on Mr. Cooperman and his letter to the President. As for Adam Smith, do read some here and here so that you can decide how you feel about his ideas. Finally, Stanley Lebergott’s Pursuing Happiness provides a brief and readable picture of our 20th century material progress.

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  • Christie

    First, let us remember that the Leon Coopermans of the world are not contributing to the wealth of our nation as do those who build companies. Leon Cooperman is NOT Andrew Carnegie. Hedge funds are about using lots and lots of money to make even more money. They have some utility in the stock market in helping to damp volatility, but overall they are destructive, not constructive.

    Second, perhaps you should read a bit more deeply in Adam Smith. He is not so one-sided as some like to make him out to be. For example:

    “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

    “To feel much for others and little for ourselves; to restrain our selfishness and exercise our benevolent affections, constitute the perfection of human nature.”

    “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.”

    “Labour was the first price, the original purchase – money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased.”

    “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”

    “With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eye is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves.”

    “The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”

    “All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”

    “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”

    “A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more, otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation.”

    “Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”

    “Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favor of the workmen, it is always just and equitable; but it is sometimes otherwise when in favor of the masters.”

    • adminEcon

      Thank so much! Next week, when we discuss Adam Smith in class, I will be sure that my class reads your response.

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