The-Morality-of-Capitalism-PDF

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Human Betterment through GlobalizationBy Vernon SmithIn this essay, economist and Nobel Laureate Vernon Smith traces thegrowth of human wealth through the spread of markets and explainswhy global capitalism generates human betterment.Vernon Smith is professor of economics at Chapman Universityin California and a pioneer in the emerging field of “experimentaleconomics.” His research has focused on commodity and capital markets,the emergence of asset bubbles, business cycles, finance, naturalresource economics, and the growth of market institutions. In 2002he shared the Nobel Prize in Economics for “having establishedlaboratory experiments as a tool in empirical economic analysis,especially in the study of alternative market mechanisms.” Hehas published widely in academic journals of economics, gametheory, and risk, and is the author of Papers in ExperimentalEconomics and Bargaining and Market Behavior: Essays inExperimental Economics. Smith is also world renowned as a teacherand has developed programs to utilize experimental economics notonly to generate new insights into economic processes, but also toteach the principles of economics.This essay is excerpted from a speech delivered at “Evenings atFEE 42 ” in September 2005.My message today is an optimistic one. It is about exchange andmarkets, which allow us to engage in task and knowledge specialization.It is this specialization that is the secret of all wealthcreation and the only source of sustainable human betterment.This is the essence of globalization.The challenge is that we all function simultaneously in twooverlapping worlds of exchange. First, we live in a world of personal,social exchange based on reciprocity and shared normsin small groups, families, and communities. The phrase “I oweyou one” is a human universal across many languages in whichpeople voluntarily acknowledge indebtedness for a favor. From107
primitive times, personal exchange allowed specialization of tasks(hunting, gathering, and tool making) and laid the basis forenhanced productivity and welfare. This division of labor madeit possible for early men to migrate all over the world. Thus,specialization started globalization long before the emergenceof formal markets.Second, we live in a world of impersonal market exchange wherecommunication and cooperation gradually developed throughlong-distance trade between strangers. In acts of personal exchangewe usually intend to do good for others. In the marketplace thisperception is often lost as each of us tends to focus on our ownpersonal gain. However, our controlled laboratory experimentsdemonstrate that the same individuals who go out of their way tocooperate in personal exchange strive to maximize their own gainin a larger market. Without intending to do so, in their markettransactions they also maximize the joint benefit received by thegroup. Why? Because of property rights. In personal exchangethe governing rules emerge by voluntary consent of the parties. Inimpersonal market exchange, the governing rules—such as propertyrights, which prohibit taking without giving in return—areencoded in the institutional framework. Hence the two worldsof exchange function in a similar way: you have to give in orderto receive.The Foundation of ProsperityCommodity and service markets, which are the foundation ofwealth creation, determine the extent of specialization. In organizedmarkets, producers experience relatively predictable costs ofproduction, and consumers rely on a relatively predictable supplyof valued goods. These constantly repeated market activities areincredibly efficient, even in very complex market relationshipswith multiple commodities being traded.We have also discovered through our market experiments thatpeople generally deny that any kind of model can predict theirfinal trading prices and the volume of goods they will buy andsell. In fact, market efficiency does not require a large number ofparticipants, complete information, economic understanding, or108
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The Morality of CapitalismWhat Your
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ContentsIntroduction: The Morality
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Introduction: The Morality of Capit
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China, Morocco, the United States,
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in a friendly sense.” 9 The word
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Marx saw the “bourgeoisie” as i
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usinesses rising and falling more r
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and one an economist, and an interv
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Section IThe Virtues ofEntrepreneur
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is why I was mentioning the sophomo
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our society are motivated by purpos
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promote microfinance in poor countr
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ownership of wealth, was highly str
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in the world for a couple of hundre
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without a strong business sector th
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lightning rod and Watt’s steam en
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Competition and CooperationBy David
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advocates of “back to nature”
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that the associations within civil
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For-Profit Medicine and the Compass
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Profit and CompassionThat’s too s
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The Paradox of MoralityBy Mao Yushi
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after assessing the situation, sett
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efrigerators and color TVs, are onl
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epair trade are crowded out by the
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person, followed the principle of e
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if in return for A taking the bigge
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The Moral Logic of Equality and Ine
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Page 64 and 65: eliminate or to establish inequalit
Page 66 and 67: earned by the poorest 10% of the po
Page 68 and 69: Adam Smith and the Myth of GreedBy
Page 70 and 71: them to lobby the state to create c
Page 72 and 73: strangers, but when we haggle for t
Page 74 and 75: Ayn Rand and Capitalism: The Moral
Page 76 and 77: the welfare state, which redistribu
Page 78 and 79: Welfarism: The Unchosen ObligationT
Page 80 and 81: Egalitarianism: “Fair” Distribu
Page 82 and 83: A worker is hired because of the an
Page 84 and 85: To live by reason we must accept in
Page 86 and 87: Economic outcomes in the market—t
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Page 92 and 93: The Market Economy and the Distribu
Page 94 and 95: no unfavorable, economic results. O
Page 96 and 97: owner, actual or potential, reflect
Page 98 and 99: losses prompted by the chance of, o
Page 100 and 101: We are not saying, of course, that
Page 102 and 103: well-being reflects a potentially c
Page 104: discrepancies. The difference was c
Page 108 and 109: Global Capitalism and JusticeBy Jun
Page 110 and 111: preferences, and infrastructure. It
Page 114 and 115: any particular sophistication. Afte
Page 116 and 117: These young people are returning be
Page 118 and 119: etterment through exchange and the
Page 120 and 121: of diverse cultures. In this manner
Page 122 and 123: primitive magical-religious communi
Page 124 and 125: to censure, repression, and margina
Page 126 and 127: That is why the best defense of our
Page 128 and 129: A Little Further Reading for Fun an
Page 130 and 131: Dr. Tom G. Palmer is executive vice
Page 132 and 133: 14 Karl Marx and Friedrich Engels,
Page 134 and 135: Index of Proper Names(Chinese names
Page 139 and 140: The Pierre F. and Enid Goodrich Fou
Page 141 and 142: Students For LibertyA Free Academy,
Page 143 and 144: Additional Resources for LibertyThe
Page 145: “We need to change the narrative
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