A recent trip to Russia produced one of those rare, small epiphanies
that makes the observation of human nature so endlessly fascinating. I
had taken along a large bag of Snickers candy bars with which to
appease the children of my various hosts. But these treats proved to be
extremely popular with adults. They were consumed soon after dinner on
my first night in Moscow, amidst repeated exclamations about how
"fresh!" they were. It was explained to me that Snickers are hot
commodities for Moscow speculators--they hold them for six months or so
and then sell them for many times the original purchase price. This is
by no means the strangest feature of the post-Communist economy that is
emerging in Russia. (Counterfeit cigarettes cheap, Russian-made
cigarettes packaged in recycled Marlboro boxes--are pretty odd.)
Indeed, it does not seem strange at all when it is viewed in its
context. Markets are springing up in the ruins of Communism like weeds
in the ruins of an abandoned building. That this is so should come as
no surprise to anyone. And this, in itself, is revealing.
When the opportunity presents itself, people will make a buck.
What is remarkable is how frequently the opportunity presents itself.
The case of the Russian entrepreneur who speculates in Snickers is not
unlike that of the American entrepreneur who speculates in agricultural
commodities. When a commodities broker buys a farmer's wheat at a fixed
price per bushel before the wheat is even planted, he is speculating
(i.e., taking a risk) that the wheat will actually sell for a higher
price at harvest time. The farmer, on the other hand, trades the
possibility of a higher price (and the risk of a lower one) for
certainty and security. When a Russian entrepreneur holds a shipment of
Snickers for six months, he is also speculating that the price will go
up. The supplier who sold him the Snickers is trading risk for
certainty and, perhaps, the steady cash flow he needs to continue to
import goods. And as long as some people prefer the certainty of less
money now to the possibility of more money later--because they prefer
security to risk or because they need a steady cash flow, or for some
other reason still--any market, even a "black" market, will provide
numerous opportunities for such speculation.
The chaotic, hyperinflationary Russian economy has produced a
substantial number of speculators in the brief period since the
collapse of Communism--speculators in real estate, consumer goods,
currency--and it has made many of them quite wealthy, at least by local
standards. The response of the Russian populace to this phenomenon
mirrors the response of Americans to successful speculators in our own
economy. Financial speculators who reap enormous profits from correctly
anticipating market fluctuations are not generally respected in the
United States; they are commonly thought to be unproductive parasites,
and probably criminals as well. In a like manner, Russians commonly
lump together all successful members of the emerging business class
whether they be drug dealers or currency speculators or real estate
speculators or importers dealing in consumer goods--and characterize
them as "mafia." And, like Americans, they resent the disproportionate
economic and political influence, and the relatively high standard of
living, that accrue to successful speculation.
Of course, some speculators are criminals, and it is quite natural to
resent those who live well off ill-gotten gains. Indeed. it is a
natural, though not very laudable, tendency of human beings to resent
anyone who has whatever one does not. And the results of speculation
are not always entirely congruent with the preferences of consumers:
Russians would like their Snickers to be fresher (and they would like
to be able to buy less profitable items like needles and thread).
Everyone would like to buy their food at lower prices. Americans would
like to see less of the instability in large companies and financial
institutions that results from unsuccessful or especially predatory
speculation. These are understandable sources of resentment, even if
they are not entirely rational. But I think there is something more at
work here.
It is worth noting that people are generally quite resistant to
the argument that speculators make an important contribution to the
market--that there might be less food, no Snickers, a lower level of
economic activity in general without the activities of speculators.
That speculators can profit from taking risks, providing capital,
improving efficiency, and so forth, is more likely to be seen as a
defect in the market than a virtue of speculators. What is at work here
is an idea that has been in place at least since the medieval
injunction against usury.
Thomas Aquinas, along with other medieval philosophers and
theologians, argued that lending money at interest is morally repugnant
because "this is to sell what does not exist, and this evidently leads
to inequality which is contrary to justice." (Summa Theologica II-II,
Question 78) The speculator, like the usurer, traffics in what does not
exist, at least not yet. The speculator does not grow any food or
import any Snickers. From one perspective, it seems that the speculator
produces nothing, but profits from the productive activities of others.
From another perspective, however, one might say that what the
speculator produces is the market itself (or, at any rate, that the
speculator facilitates the exchanges that constitute the market). From
either perspective, speculation appears to be a very pure form of
capitalist practice, and thus speculation is a magnet for any
resentment that capitalism engenders.
But it seems clear that this resentment is misplaced. Adam Smith's
original defense of the market economy provides a crucial insight into
how to think about the moral dimension of speculation. Although Smith's
argument that division of labor and freedom of exchange constitute the
most efficient mode of economic organization is most often cited by
contemporary defenders of capitalism, this is by no means his most
fundamental argument. For Smith also argued that the market economy is
the only economic system that functions to bring self-interest into
harmony with the good of society.
The Virtue of Capitalism
Smith, unlike many other moral theorists, did not construe the
common human inclination to pursue one's own self-interest as
inherently evil, as something incompatible with the moral life. Rather,
he construed self-interest as an essential feature of individual
well-being, and also as a force that might be directed toward the
public good. The great virtue of capitalism, he argued, is that it
accomplishes precisely this: capitalism is nothing more nor less than a
framework of laws and institutions which allows people to enrich
themselves (i.e., pursue self-interest) only, or at least primarily, by
providing goods and services that contribute to the well-being of
others. Capitalism transforms the pursuit of self-interest into the
pursuit of mutually profitable exchanges with the other members of
one's community, i.e., into pursuit of the public good.
Seen in this light, the speculator becomes a kind of economic
adventurer, a hero of the capitalist revolution, if you will. The
successful speculator is one who, through superior luck, imagination,
or intelligence, is able to identify previously unnoticed opportunities
for mutually beneficial exchanges. By facilitating these exchanges, the
speculator expands the economic horizons of a community in much the
same way that more traditional adventurers expand our geographical or
intellectual horizons. However, and this is a crucial component of
Smith's argument that is often forgotten, this process works only
within an appropriate framework of laws and other social institutions.
If the laws and institutions of a community reward exchanges which
benefit (some of) the participants at the expense of other members of
the community, these are the exchanges that speculators will
facilitate. If economic laws and institutions reward exchanges that
disrupt the economy, we can be sure that the economy will be disrupted.
Thus, the task of the political economist is a difficult one--to
establish a framework of laws and incentives that accomplishes this
harmonization of self-interest with the public good. People will
speculate. Whether or not this benefits the community depends largely
on whether or not society recognizes and seeks to exploit the potential
benefits of speculation.
The genius of Adam Smith's defense of the market is his recognition
of the complexity of human nature. The natural inclination to pursue
one's own self-interest is potentially anti-social, but it is also a
potential source of virtually unlimited economic progress. The
resentment of speculators that is pervasive in both post-Communist
Russia and the contemporary United States is, at least in part, an
attempt to simplify human nature by identifying the pursuit of
self-interest as something inherently antisocial, and thus as something
that must be suppressed in order to create a just and humane society.
And this has the seemingly paradoxical implication that post-Communist
Russia and the contemporary United States face essentially the same
problem. Both must seek to restore faith in the value of individual
entrepreneurship--Russia in order to create a market economy and the
United States in order to preserve the market economy that we already
have.
I am optimistic that Russia will succeed in this task. Despite
the resentment of economic success that is pervasive in Russia, most
Russians are quite well aware of the benefits of a more or less
unfettered market, and quite unwilling to return to the managed economy
of the recent past. (Even the reconstituted Communist Party claims that
it does not oppose the transition to a market economy but, rather, that
it simply wishes to mitigate the dislocations attendant on rapid social
change.) I am less optimistic that the United States will preserve a
market economy in the face of increasing resentment of successful
speculators. Decades of relative economic success have created a
political culture that encourages impatience and envy. Americans are no
longer willing to trust the "invisible hand" of the market, or to
undertake the difficult task of creating a political culture which
allows this invisible hand to harmonize self-interest with the public
good. Instead, they want to enjoy the benefits of speculations
responsive and expanding economy with out the costs.
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About the Author
Dr. Ahrens is Assistant Professor of Philosophy at Hanover College in Indiana
Reprinted with the permission of The Foundation for Economic Education (FEE).
