Professor Marglin on "Institutionalised Greed"

On last Friday, 8 June, I posted an entry titled, "sustainability versus institutionalised greed around the world".

Harvard Professor Stephen Marglin, responds as follows:

"I want to reinforce your excellent statement about the meaning of institutionalized greed, especially the paragraph:
Most important: the entire culture, worldwide, is now oriented to making a quick buck – that is why we have so few bright youngsters who think as their first priority of joining the government or multilateral agencies – everyone wants to go into consultancy or investment banking or the financial industry (and only those who "fail" at this go into other areas) – well, that is too broad a generalisation – but I think you see what I am aiming at
"Everyman for himself and devil take the hindmost" is inscribed on the doorposts of the church of economics, and economics is the dominant religion of our times. Attached is an anecdote from my forthcoming book (The Dismal Science: How Thinking Like an Economist Undermines Community) which makes your point."

The excerpt, that Professor Marglin attached from his forthcoming book, reads: "That the foundational assumptions of economics are cultural myths rather than universal truths was brought home to me forcefully some years ago in Moscow. Shortly after the fall of the Soviet Union, a Finnish colleague and I had gone there to recruit Russians for a collaborative intellectual enterprise on the scope and limits of economics in addressing ecological problems. One afternoon we had a particularly lively discussion, and there was a general interest in continuing into the evening. The Russians proposed supper at the apartment of Sergei and Lena. Sergei was associated with the School of Cultural Politics where the afternoon meeting had taken place, but in fact we knew Lena much better since she had been our interpreter since our arrival. Lena had already given us a warm welcome and excellent dinner the evening before, so it took considerable reassurance from her to convince us that six or eight people descending upon her would not be a major inconvenience. Her only concession was to allow us to purchase some food and drink for the occasion. We went to a gastronom, a delicatessen/grocery store, which despite being a state enterprise was reasonably well stocked. Both because of the long lines and the clumsy system (you got a ticket specifying your purchase, went to a cashier to pay, and then back to the sales person for the goods) the process took a while, but for me the chance to see what more or less ordinary Muscovites could purchase in early 1993 outweighed any inconvenience. At last we were done: a lot of smoked fish, some wine and vodka, and enough other things to make a reasonable supper.

As we emerged from the gastronom, Lena, quite out of the blue, said: "Terrible, terrible.” Earlier remarks had prepared me for some cryptic if not apocalyptic comment, but nothing seemed particularly terrible to my untrained eye. "What's terrible?" I asked.

"Milk."

"Milk?"

"Yes, milk. It's terrible. Here they sell milk for 54 rubles per liter (approximately $0.09 at the then current rate of exchange) and at the kiosk in front of our apartment house it costs 92 rubles."

Jokingly, I responded: "That's not terrible; it's a great opportunity."

Now it was Lena's turn to be surprised: "Great opportunity? What do you mean?"

"Simple. You buy milk here for 54 rubles and sell it in front of your house for, say, 75. You make a lot of money and the folks in your apartment get their milk cheaper.” Once an economist, always an economist.

Lena thought about this for a moment, and then said "It won't work. You can't get the milk there. You can't buy gas.”

"Listen," I said. "If you can make money from buying milk cheap, you can find gas."

Lena was silent for another moment, and then shook her head, her exasperation with this uncomprehending foreigner showing through: "No, it still won't work. Even if you could find gas, there is no transport."

Now I began to feel a challenge. Here was first-year economics. Here was freedom for Lena's apartment house from the bondage of 92-ruble milk and a tidy profit in the bargain. "Look, if there is enough money in it, all these obstacles can be overcome.”

After some more back and forth, a light bulb went on just above my head: all this talk about "is" was really a cover for Lena's misgivings about "ought.” The difficulties were not logistical but moral. As a matter of right, milk ought to sell for the same price in front of her apartment house as at the central gastronom. And it was immoral to bring this about through the mechanism of the market and the incentive of profit.

I realized that what was second nature to me was totally alien to Lena. Doubtless the quickness and sureness of my responses owed something to my professional training, but my profession was only frosting on the cake of market culture. Most people reared in a market culture, economists or not, would have no trouble understanding rudimentary arbitrage, even if they could not define this term.

I realized two other things. First, while it was certain that 70+ years of communism were part of this story of cultural difference, Lena's resistance to the logic of the market ran much deeper, the product more likely of centuries of wariness than of decades of communist propaganda.
Second, however ingrained market logic might be for the present generation of Germans, Frenchmen, and Americans, hardly a century ago Lena's suspicions could have been found all over Western Europe and the United States. It oversimplifies to identify the populism that swept the American prairies in the 1890s with wholesale condemnation of the logic of the market, but I do believe that many populists would have taken Lena's side of our exchange rather than mine.

But we don't have to go to Russia or back to 19th century Kansas to see resistance and acclimatization to the logic of economics. Every year thousands of undergraduates all over the United States take courses in the principles of economics, partly, perhaps, because they are persuaded it is useful preparation for business or law school, but partly, I am sure, for enlightenment. Many ask (with Adam Smith) how morally to justify a world based on self-interest. Parents may have urged the importance of looking out for number one, but Smith’s idea of an invisible hand propelling self-interest to serve the general interest sounds too much like other forms of adult hypocrisy of which they become, as they grow up, increasingly aware. Imagine the relief, not to say exhilaration, to learn sophisticated arguments why looking out for number one is a social virtue. And if there remain any doubts, students can always draw sustenance from the source of the wisdom of Economics 101: the arguments come from professors of economic science—objective, unbiased professors who have no other ax to grind than that of Universal Truth itself. (There remains an unconvinced minority. No matter how hard they try, they just don't get it. Needless to say, these students tend to limit their further exposure to economics. Given this selection bias, it is no wonder that economics is not a hotbed of introspection about its premises.)".

That is pretty startling writing coming from a mainstream economist, but it shows that things may be beginning to change.

For those readers who are interested in getting hold of Professor Marglin's book, here are the details of the book: THE DISMAL SCIENCE: HOW THINKING LIKE AN ECONOMIST UNDERMINES COMMUNITY (to be published soon by Harvard University Press, USA).

The official description of the book reads: "Economists celebrate the market as a device for regulating human interaction without acknowledging that their enthusiasm depends on a set of half-truths: that individuals are autonomous, self-interested, and rational calculators with unlimited wants and that the only community that matters is the nation-state. However, as Stephen Marglin argues, market relationships erode community. In the past, for example, when a farm family experienced a setback--say the barn burned down--neighbors pitched in. Now a farmer whose barn burns down turns, not to his neighbors, but to his insurance company. Insurance may be a more efficient way to organize resources than a community barn raising, but the deep social and human ties that are constitutive of community are weakened by the shift from reciprocity to market relations.

"Marglin dissects the ways in which the foundational assumptions of economics justify a world
in which individuals are isolated from one another and social connections are impoverished as
people define themselves in terms of how much they can afford to consume. Over the last
four centuries, this economic ideology has become the dominant ideology in much of the
world. Marglin presents an account of how this happened and an argument for righting the
imbalance in our lives that this ideology has fostered."

The Harvard edition in hardcover is due to be published in January 2008, ISBN 0-674-02654-3 $35.00 £22.95 E32.30

The other HUP book by Stephen A. Marglin is: GROWTH, DISTRIBUTION AND PRICES

Stephen A. Marglin is Walter Barker Professor of Economics at Harvard University. Sphere: Related Content