French artist Jacques Callot created 18 etchings known as “The Miseries and Misfortunes of War,” published in 1633. The works depict victorious soldiers burning down villages and hanging those who lost the battle. Is the case the same for economics? Is it to the misfortune of the larger U.S. population when one American accumulates enough wealth to become a millionaire or billionaire? Photo courtesy of Wikimedia Commons.
Paul Solman answers questions from the PBS NewsHour audience on business and economic news here on his Making Sense Business Desk page. Here is Friday’s query.
Mark P. Mallett — Sunbury, Pa.: Is wealth accumulation a zero-sum game? Must 333 million Americans each cough up $3 in order to create a billionaire? Are billionaires created at our expense? Is their gain our loss?
Paul Solman: “Is wealth accumulation a zero-sum game?” Well it’s certainly not supposed to be. The whole point of a competitive market system is to achieve a win-win, not zero-sum, outcome. Wealth accumulation in general doesn’t benefit everyone, but it results, in theory, in the greatest good for the greatest number.
Market participants compete with one another, producing goods and services ever more efficiently in order to satisfy more customers. Thus is overall “productivity” increased; the competitive market creates more with less. And most would agree that, all things considered, the market system has delivered as promised since it first took off in Europe some hundreds of years ago.
Before that, remember, competition over material resources really was zero sum. The ascendance of the West arguably comes with the gradual shift from this zero-sum mindset to win/win thinking, a shift chronicled by economic historian Albert Hirschman in an unforgettable 1977 book, “The Passions and the Interests: Political Arguments for Capitalism before Its Triumph,” still in print. In the book, Hirschman explains capitalist thinking as a reaction to the zero-sum horrors of Europe’s war-ravaged 17th century.
The wars of the 1600s were driven by passions, Hirschman argued — largely religious ones, as Protestantism battled Catholicism across Europe. But if those passions could be harnessed into equally spirited self-interests, might not the zero-sum tragedy of war be superseded by the win-win bounty of commerce?
Italian philosopher Giambattista Vico (1668-1744) wrote:
“Out of ferocity, avarice and ambition …
[society] makes national defense, commerce and politics .. .the passions
of men who are entirely pre-occupied with their private utility are transformed into a civil order which permits men to
live in human society.”
Here’s France’s Baron de Montesquieu in 1748:
“Peace is the natural effect of trade. Two nations who traffic with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling: and thus their union is founded on their mutual necessities.”
And Montesquieu again in 1769: “Commerce polishes and softens (adoucit) barbarian ways as we can see every day,” which may have been cribbed by the Scottish historian William Robertson, a contemporary of Adam Smith’s: “Commerce softens and polishes the manners of men.”
Smith’s friend, Samuel Johnson, wrote, he of the dictionary and Boswell bons mots:
“There are few ways in which a man can be innocently employed than by making money.”
And here’s a friend of Montesquieu’s, Voltaire:
“In the London Exchange, more respectable than many a court. You will see assembled representatives of every nation for the utility of mankind. Here the Jew, the Mohametan and the Christian deal with one another as if they were of the same religion, and reserve the name ‘infidel’ for those who go bankrupt … Upon leaving these peaceful and free assemblies, some go to the synagogue; others, for a drink; this one goes to have himself baptized in a large tub in the name of the Father through the Son by way of the Holy Ghost; that one has his son’s foreskin cut off … And all are content. “
(Voltaire was something of a scam artist, by the way; he made his first fortune cornering a lottery in Prussia, and died one of the richest commoners in France.)
Finally came Adam Smith himself whose “Wealth of Nations” — the Bible of what we now know as “economics” — was written as a manifesto against the zero-sum doctrines of “mercantilism” (in effect, crony capitalism) and colonialism. Smith argued that the merchant class was trying to run his beloved United Kingdom in its own interests.
He also argued that his country would be far better off trading with its arch-enemy France than fighting it, that it would be better letting its American colonies become independent than continuing to suppress them. Let trade flourish and both sides would prosper. Win-win. QED. (P.S. “Wealth of Nations” was published four months before the Declaration of Independence.)
So win-win, not zero-sum, is the theory behind capitalism. Unfortunately, the reader’s question is an increasingly common one in America these days as economic inequality continues to widen, much as it has for 30 years or more: Is market economics in practice now diverging fatefully, or even fatally, from its ideal form in theory? Is the “99 percent” receding ever farther from the “1 percent”? Are “billionaires” and the rest of America’s rich now taking so much of the market system’s bounty that there’s less, not more, for the rest of us?
In short, are we moving away from win-win and back towards zero sum? My guess: that question will continue to plague us for years to come.
This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions