Reforging Adam Smith: Currencies Beyond the Gates of Self-Interest

Reforging Adam Smith: Currencies Beyond the Gates of Self-Interest

It seems the shadow of Adam Smith, and the motivating principle of self-interest he so eloquently articulated, still loom over our now adumbrated economy. Part of that principle indicates that if we are true to our natural instincts, we will recognize that our self-interest is served through our interest in others’ well-being. On the positive side, one can see the origins of modern philanthropy in this construct. But, what is one to make of self-interest as it applies to the Federal Reserve Bank bail out (granted through guarantees) of a major investment house whose fortunes were tied to the subprime loan market? From Smith, one would think that lenders have an interest in the success of their borrowers. Maybe some of the loan originators did have an interest, but all that disappeared as the loans were bundled, securitized, sold, and the extractive investors fed their needs in total disconnection from original purpose and relationship between lender and borrower. This looks more like a form of self-interest in which the predator harbors a natural interest in the survivability of its prey.

The shadow of Smith’s socio-economic theory is that an individual’s (or corporation’s) self-interest turns to greed and suffers from the condition of “neverenoughness.” In this light, it is important to note the strange-but-true rights of a corporation as equal to those of an individual. Both can celebrate the same freedoms and suffer the same diseases, and, then be cured according to their wealth, class status, and access to power. What to make of the bitter difference between the speed with which the Federal Reserve and JP Morgan responded to the financial crisis of one of their own (creditors) versus the glacial and heavily politicized response to the conditions of the debtors? This is the worst of self-interest, one that excludes “the other” for the benefit of the few—a strange kind of economic wealth-class protectionism. Likely this is not the benevolent self-interest that Smith had in mind. While this critique is not the primary focus of this article, it is essential backdrop; and, it would be hard to ignore the emergent irony when a captain of industry, such as Bill Gates, plays the Adam Smith card.

A friend recently sent me a transcript of Bill Gates’s Economic Forum Speech from Davos this last year. It is remarkable for several reasons, not the least of which is that Gates was looking at Adam Smith’s self-interest in a light that addresses and frames “the other” in terms of stark real economic need (in which he includes computer technology) rather than a more generalized interest in fellow human beings. He also suggests that capitalism can find a way to solve the poverty it has been a part of creating; at the same time, his analysis of wealth creation and its concentration is direct and pointed. His is, of course, a privileged view and he was speaking to a privileged audience. However, despite his inability to leave the market-driven, self-interested model and language behind, he was bringing renewed focus to what is essentially an altruistic concept—an awareness of interdependence, and the limitations of a free-market economy devoid of any ethic other than profit and shareholder value.

The following are excerpts from Bill Gates’s speech:

I believed that breakthroughs in technology could solve the key problems…but breakthroughs change lives only where people can afford to buy them—only where there is economic demand. And economic demand is not the same as economic need. There are billions of people who need the great inventions of the computer age, and many more basic needs as well. But they have no way of expressing their needs in ways that matter to markets. So they go without.
If we are going to have a serious chance of changing their lives, we will need another level of innovation. Not just technology innovation—we need system innovation.

Why do people benefit in inverse proportion to their need? Market incentives make that happen…We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well.

The genius of capitalism lies in its ability to make self-interest serve the wider interest…This system driven by self-interest is responsible for the great innovations that have improved the lives of billions. But to harness this power so it benefits everyone—we need to refine the system.

As I see it, there are two great forces of human nature: self-interest, and caring for others. Capitalism harnesses self-interest in helpful and sustainable ways, but only on behalf of those who can pay.

Such a system would have a twin mission: making profits and also improving lives for those who don’t fully benefit from market forces. To make the system sustainable, we need to use profit incentives whenever we can. At the same time, profits are not always possible when business tries to serve the very poor. In such cases, there needs to be another market based incentive—and that incentive is recognition. Recognition enhances a company’s reputation and appeals to customers; above all, it attracts good people to the organization…The challenge is to design a system where market incentives, including profit and recognition, drive the change.

I like to call this new system creative capitalism…This hybrid engine of self-interest and concern for others serves a much wider circle of people than can be reached by self-interest or caring alone.

System refinement and system innovation are always afoot in the capitalist-entrepreneurial mind set. But neither questions the basic assumptions of the system itself. I am not critiquing capitalism, but rather the interpretation of it that said at one time that laissez-faire and now free-markets is the only reasonable approach. This makes perfect sense if the people setting the rules are the ones most likely to benefit.

The abuses of the market and capital systems lie primarily in two arenas. The first and most obvious one is the economic sphere where the underlying purpose is meeting people’s material needs through the production of goods and services. In this arena, overproduction and overconsumption are the culprits motivated just as Gates indicated by market share and profit. The consequences of this are starkly visible in the wealth gap. The second and less blatant arena is the domain of rights. Contrary to the basic principle of equality in the rights realm, those who have benefited most in the economic sector also have an interest in influencing government, law, policy, and financial markets in self-serving ways. For example, the credit card industry or its hired representatives craft and marshal through Congress the new bankruptcy law. This is just one of many such aberrations of the rights process. For another perspective, it is interesting to look at who stands for free trade on one hand, and for fair trade on the other. Both are based on capitalist market models, yet their social outcomes are radically different. To be successful, fair trade necessitates an interest in the other.

It is significant that Gates is putting caring for others on a par with self-interest and, as the former has gotten short shrift in modern economic life except in the domain of philanthropy. But, does it make sense to try to meet the caring aspects through capitalism no matter how creative? I do not think there is an economics text which places caring in any economic framework. While our lives depend on it, it cannot be manufactured and it is “priceless.” And by the way, last I cared to reflect on it, caring seems like an infinitely renewable resource. The problem is the conventional tools of capitalism are not designed to sustain these deeply human life-sources. Gates is suggesting recognition as the motivational tool to get markets to support the needy. I would suggest that this would self-limit: The stockholders would only go so far with it, it would wear thin in time, and it would likely be misused to gain market share. These are, in the end, essential to the character and purpose of capital markets.

There are new or emerging tools to meet the economic needs of those outside the market economy, but they are not refinements of capitalism. Instead, they come under the general heading of complementary currencies. They are complementary because they are not meant to replace federal or governmental issued currencies; they are called currencies because they are a means of exchange in an interdependent self-governed economy. There are many forms of complementary currencies solving social problems in many places around the world. The stories are profound and empowering. ACCESS Foundation is a keeper of some of these stories as well as a resource for the field of complementary currencies. One system, called TimeBanks, is entirely based on time rather than money (www.timebanks.org). Such currencies are generated by the communities that will use them, and since they are under community control there can always be a sufficient amount. There is no purpose or value in restricting the circulation. They could be used to offset the problem that the cartoonist B. Smallen so cleverly pokes fun at in this emergency room scene—the admissions person asks the patient to wait while they find a market solution. He reminds us that market solutions are not the answer to every socio-economic problem, just as technology can never solve moral dilemmas.

Complementary currencies are rooted in ancient traditions of gift exchange and community life. They are now re-emerging in new forms which call upon the human faculties of trust and community-spirit, faculties which we do not get to practice very often in an economic context. And yes, they are entirely dependent upon the new computer-based technologies for recording, tracking and portability. So, in this sense, Bill Gates is both right and to be appreciated. Technology at its best is a means, not an end. The blessing is that there are social entrepreneurs who are using that technology as part of solving the deeper systemic human problems that economic science has found intractable. Organizations developing complementary currencies need more time, more support, and more buy-in, so to speak. Their genius is that they are based upon the most timeless and effective concept in economic life: matching unused resources with unmet needs. This is not about manufacturing 3000 choices for each commodity to please the consumer market; rather, this is about making efficient use of what rises up from an inexhaustible (so far) resource—caring.

Fortunately, Gates did not mention Smith’s proverbial invisible hand. It would have attached market forces to a divine purpose that even the grand designer might have found offensive. But to elevate and celebrate caring as an economic reality is a gift and opportunity for a whole new dialogue, one that looks beyond “creative capitalism” to a more decentralized and localized economic interdependence and pluralistic means of exchange. Capitalism is not wrong, just limited. We need more and different meta-capital tools that incorporate the real need for and economic value of the intangibles that support, rather than suppress, the human spirit and its cultural expressions.

John Bloom
© 2008