The essential knowledge we need—about how fallen human beings behave, and about how to control the effects of such behavior—we already have.
It may be helpful to offer crude working descriptions of economics and greed. Economics encompasses the particular set of human relationships that are involved in buying and selling, in commercial exchange. Greed is the desire to make maximum profit in transactions without thought for how others directly and indirectly affected by the transaction gain or lose by it. There is no thought for a larger or a common good.
Greed is endemic in relationships that involve commercial exchange. That is to say that everyone is sometimes tempted to it, and that many people are consistently motivated by it. It is a fact of life. The need to regulate it is recognized in laws on weights and measures, on contracts, on printing currency and on other ways in which people try to maximize profit at others’ expense. But greed itself, of course, is not illegal. Nor are those driven by the desire for wealth monsters. They belong to us.
As financial transactions become more complex and abstract, they encourage a culture of greed. People whose central desire is to become wealthy are attracted to courses and institutions that explain how money works and how to manage it. The most ambitious succeed, and join firms that have a reputation for being millionaires’ crèches, where making money without regard to its social context is the object of the firms.
There they work in an environment in which greed is taken for granted and endorsed. If successful, they can look forward to high salaries and bonuses, become partners in their firms and later take their places on boards and advisory bodies and as lecturers in business schools.
When responsible for their firms, they naturally shape them to expand the culture of greed. They focus not on the contribution that the firm makes to society, nor on building loyalty between clients, workers and management, but on the unremitting pursuit of profit and the return to shareholders. And people entrust their money to these firms in hope of larger returns.
The culture of greed shapes what comes to be accepted as economic knowledge. Theories that reward greed are publicized and held to be true. They are given publicity by financial journalists and canonized in economics classes, and become the accepted wisdom of bureaucrats. The results can be seen in the acceptance of prima facie daft theories of efficient markets and of the benefits of extending private ownership of public utilities and services. These theories soon became financial orthodoxy, and greatly increased private wealth at a social cost.
The part played by the culture of greed in the global economic crisis was to weaken the trust required for economies to function well. The immediate cause was the multiplication of instruments that diffused responsibility for debt. That may have been dealt with. But the culture of unbalanced pursuit of profit remains, and it encourages people to place the same trust in the markets that they would in loan sharks, and in governments that they would in compliant police. Trust grounded in mutual greed is precarious.
This is why the issue of corporate salaries is so important. Salaries are a statement of values. Only those who are thoroughly immersed in the culture of greed would believe that their firms will attract good candidates only if they are offered several million dollars a year and bonuses to boot; only those thoroughly immersed in the culture of greed would be attracted by such demeaning invitations.
So in order to defend the trust that lies at the heart of the economy, governments should regulate salaries—at least in companies that enjoy an effective public guarantee because they are too large to be allowed to fail. Regulation, of course, is symbolic; its merit is to remind the government that its duty is to ensure that markets serve society.
But when our generation is judged, it will be for seeking our own narrow interests without thought for those of future generations. The tranquility of greed must not be left undisturbed.
Andrew Hamilton is the consulting editor for Eureka Street. www.eurekastreet.com.au.
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