Thursday, August 23, 2007

The ways of the rich and the Chinese 

I absolutely loved this story of Hetty Green, the Witch of Wall Street. While a miserable miser, Jeffrey Tucker tells us, she nevertheless did good:
Capitalism doesn't create misers; it turns their ways toward productive good. Hetty hurt no one but herself and perhaps her son with a wood leg. The market economy localized the effects of her sins and contained them. In the market, she created massive value to society and was rewarded for it; one shudders to think what she might have done with power under a socialist tyranny.

It is even hard to argue that she hurt herself. She was as happy as she could be just the way she was, and no amount of forcing her to be otherwise could have improved the situation. She embodied traits that we think of as being awful but she worked in an industry that allowed these traits to be turned to good for all. That is a credit to the market economy! Indeed, it is the highest praise of the free market that it can find a place even for someone so awful as this.
The problem of teaching economics or history is that most writers hold up images of the rich that paints them as Hetty Greens. While there are other misers, most of them benefited from using government for rent-seeking. Many others though used the market to make money by offering consumers more of what they wanted at a lower price. We can deride the Vanderbilts and Rockerfellers, but we may do so while riding a cheap flight on Southwest Airlines, which makes money the same way. (Coyote Blog makes this point more fully.)

The term robber baron is simply name-calling regarding competition; it's what the losers call the winners among the sellers, without any regard for the benefits provided the buyers. Don Boudreaux points out this fallacious thinking regarding the effects of trade between China and Africa. The fear of China as the world's largest exporter has always struck me as an odd fascination: if China wants to subsidize trade and transfer wealth from itself to the US and other trading partners, why are we complaining? I'd think it would be the Chinese themselves who should complain; alas, they live in a country where complaining is, um, not rewarded.

The inability to think clearly about trade, and to understand that the creation of wealth is just a marker for the creation of value for the others participating in the transaction, is what leads to threats of bad economic policy. For our part, universities need to teach better what the products of the market transaction are for society. Here's one example.