|The Rise of the Science of Economics and the Idea of Gain - Part 2
| by Mordecai Plaut
From the book "At the Center of the Universe".
Another common mechanism is the collection of goods by a central authority such as a king or chieftain and their subsequent redistribution to retainers and soldiers. When the taxes or tribute is collected as goods or labor, its subsequent distribution serves the economic function of providing for the needs of those who do not themselves produce goods. Finally, some economies are organized by households often consisting of large, extended families and even including slaves, peasants and others. In such cases, all members of the household produce for themselves and the rest of the group. The head allocates resources and production.
Many early and primitive societies had markets, but these were small, local affairs. They were regular and stable institutions. Sometimes they had elaborate rituals or superstitions attached to their operation. Their aim was not the advantage of their participants but the efficient exchange of goods. They remained small scale affairs with a limited circle of attraction.
The Talmud, a work completed about 1,500 years ago, speaks of rewarding residents of small villages by allowing them to fulfill a certain obligation on the regular "market" day rather than the day of the week on which residents of the larger cities discharged their obligation, in consideration of their servicesin "supplying their brethren in the large cities with water and food." (6) This indicates that it was clear at those times that the institutional purpose of the markets was mainly the supply of provisions. Also, the provision for a reward for the market activity of the small-town food producers indicates that the market itself did not provide sufficient reward, hence that those participants could not have been motivated by hope of gain.
Although we might impute a motive of gain to an individual in any of these other systems, nothing about the system itself suggests that we should. In many cases, there were strong institutional limitations on the accumulation by many of the individual participants. One driven by hope of gain would find himself continually frustrated. On the other hand, markets cannot regulate an economic system properly if all the people are not driven by hope for gain.
It is very important to realize that the descriptions given above do not fully characterize any institution as it actually functioned. The descriptions emphasize the economic aspect of those systems, as people have been wont to do for the last 200 years. In practice, all these mechanisms were embedded in social, political and religious institutions of one kind or another. Life was not compartmentalized in either thought or fact. Custom, law, authority, tradition, pride, concern, a desire for social approbation, and other such noneconomic motives were what ensured that men labored and produced. The motive of gain was not prominent or powerful. Even today, there are many people for whom issues of honor or emotion are much more important than pecuniary gain. Notable examples are people of some Middle-Eastern cultures for whom matters such as honor are much more important than money. Even more notable examples (although they are getting harder to find) are "non-working" women in the West. Managing a household was always work performed for social and emotional motives, not monetary gain.
The ascendancy of economics and its emphasis on material production has influenced many other fields. About a hundred years ago, archaeologists began to define man as a tool-using animal. Ignoring other more unique and significant aspects of his development such as language and social organization, scientists concentrated on man's capacity for material manipulation. Lewis Mumford writes: "The description of man as essentially a tool-making animal has become so firmly embedded that the mere finding of the fragments of little primate skulls in the neighborhood of chipped pebbles . . . was deemed sufficient by their finder, Dr. L. S. B. Leakey, to identify the creatures as in the direct line of human ascent, despite marked physical divergences from both apes and later men." (7) Not only economists came to believe that man had always been concerned with making a living.
It is interesting to note that gain can only be a motivator when money is involved. Before the use of money became widespread and common, when all people dealt mainly with consumer goods themselves, they were not as likely to turn towards gain. When one deals with the stuff itself, it is very obvious that, beyond a certain point, there is little reason to have more grain or wine. Money is in a sense an abstraction relative to the goods it represents. As such it is unlimited, as are all abstractions. Thus, the pursuit of unbounded gain is enabled and suggested by money. Until modern times, money was not in widespread use for daily transactions.
In order for the market to be able to regulate effectively, all the elements necessary for production must be for sale in the market. This includes not only the regular commodities and manufactured goods, but also "pseudo" commodities, namely, land, labor and money. It is well established that land had to be removed from its feudal matrix in the military, administrative, legal and political spheres. Until land could be traded on a purely economic basis, the market could not be fully successful. Similarly, labor must be for sale to the highest bidder and not bound to a particular lord, locale, or pursuit by law, custom or superstition. Money too must be for sale on the market. Whatever is not sold in the market can certainly not be regulated by it.
The price of land is called rent, the price of labor is called wages and the price of money is called interest.
Interest had always been perceived as a gain. This perception can be understood in at least two ways.
Aristotle writes that interest is unnatural. A natural increase in wealth is one which comes from wealth which naturally increases. Examples of a natural increase include the multiplication of livestock, plants and other living things. He explains that money does not increase of itself. When money begets money through interest, there is no real increase in real wealth, only a gain to the lender. With animals and land, there is a natural increase in real wealth from their employment. Interest paid on a loan is just a loss to the borrower and a gain to the lender. No real increase is represented by the payment.
Modern economists, speaking from the viewpoint of a modern economy where money can be used to purchase productive plant and machinery, reply that the interest is, in fact, a share in such production resulting from the investment of the money by the borrower.
In Aristotle's time, money was associated with commerce. Capital did not play such an important role in production then as it does now.
This consideration, however, only applies to loans made for productive purposes, and does not by itself justify taking interest from consumer loans. Economists say that in case he would borrow, the consumer must pay for diverting the money from productive uses. This argument is no justification for the practice but merely a restatement of the fact that there is a single market for all monies. Whereas in the case of loans made for productive purposes the interest may be justified on the ground that it represents a share in the real increase in wealth resulting from the use of the money, in the case of loans to consumers there is no such thing. The interest there is pure gain to the lender, even today. The fact that it is necessary to the market system of economy is just another manifestation of the importance of gain to that system.
There is another, more radical reason for considering interest to be pure gain. Let us consider the fundamental case of lending, when one individual loans money to another. Clearly the money that is being loaned is a surplus. Perhaps sometime it will be needed for use, but insofar as it could be lent and inasmuch as it is lent -- that is to say, at least for the time that it was actually borrowed -- it must be surplus. One who starts with a surplus and would further increase it, is after nothing but gain. To be sure, there are justified in considering a standard case to discover the standard meaning of interest.
In our modern economy, not only are individuals motivated by gain, but our productive institutions are geared towards gain alone, namely, the accumulation and acquisition of wealth for no material reason. By far the larger part of the wealth which is generated nowadays is produced by organizations which are legally incorporated. Although there is no distinct, well defined entity which corresponds to the corporate body, the corporation is considered a legal individual which can enter contracts, sue in court, incur liabilities and so on. To some extent the interests of a corporation are those of its employees and to some extent those of its stockholders. The interests of a corporation can certainly conflict with those of its employees (for example, if they should be fired), and they could certainly conflict with the interests of some of its stockholders. Perhaps they could conflict with the interests of most of its stockholders, too, as in a case where the corporation is worth more in liquidation than as a functioning enterprise. In any case, it is certainly possible for a corporation to have interests which are other than those of anyone else but itself, so to speak. Many large organizations can become quite distant from their constitutive elements. However, a corporation per se has no real need; it needn't even be. Thus all productive effort on its part is, at least technically, nothing more than gain.
In modern life, there is scarcely an area which is not touched by the motive of gain. It forms an essential part of our theoretical description of our economic system. It is the inevitable goal of our productive organizations and the inevitable result of our financial structures. There are individuals -- important and economically significant individuals -- whose actions can only be understood if they are presumed to be the result of a desire for pure acquisition and accumulation.
Although it is only some of the people, all of whose motive is gain all of the time, yet it seems that for at least most of the people, some of their motive is gain most of the time. In other words, although it is the minority for whom gain is always the overriding consideration, nearly everyone sometimes has gain as at least part of his or her motive. Most people are sophisticated to the point that rarely do they do anything purely for a single motive.
The pervasiveness of gain in our culture and its full legitimacy suggest that it enters into many decisions. The extremes and the ambiguous middle are carried over into the material goals people set themselves: Some of these are pure need, some are pure extravagance and gain, and most have elements of both in differing proportions.
Although it is difficult to isolate it, it should be clear now that it is demonstrable that gain is a motive in modern life -- and an important one.
Another, more personal way to demonstrate the presence of this motive in ourselves is by monitoring our reactions to others who lack this motive. Having made a deliberate choice to isolate themselves from these aspects of modern culture, the Yerushalmis mentioned earlier are largely insulated from artificial desires. The bounty of the modern economy is such that few lack the necessities of life even if (not surprisingly) many still suffer from want. Concerned, as they mainly are, with what they need, it is easier for those Yerushalmis to be happy with what they have, to appreciate the essential limits of the flesh, and to channel their longing for increase towards Torah, the are of spirit, intellect and character.
(1) This is not meant to imply that there is no such motive, but only that it is not obvious what it could be, and that it certainly could not be for any physical end.
(2) Smith, Adam, The Wealth of Nations (New York: Modern Library, 1937), p. 14.
(3) Heilbroner, Robert, The Worldly Philosophers (New York: Simon and Schuster, 1966), p. 20.
(4) Polanyi, Karl, The Great Transformation (Boston: Beacon Press, 1944), p. 37.
(5) Ibid., p. 43.
(6) Babylonian Talmud, Megilla 4b. See also second comment of Rashi there.
(7) Mumford, Lewis, Technics and Human Development (New York: Harcourt Brace Jovanovich, 1967), p. 5.
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