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When, in 1776, Adam Smith defended capitalism by suggesting that the pursuit of one's own interest would lead by an "invisible hand" to the well-being of all, he was almost right.

The "market," allegedly ruled by the law of supply and demand, is the agent lurking behind that invisible hand, and at first this market assured that capitalists' own interests would lead them to produce what people needed. Competition then assured the best quality and lowest price. So everyone (almost) benefited.

If Andrew Carnegie benefited more than others, so what? The steel industry he helped create formed the basis for America's great industrial development, which was to everyone's advantage. If Henry Ford became a multimillionaire, more power to him. After all, the automobile became a source of enormous wealth and pleasure for a growing and prosperous middle class.

But things are not always what they seem.

Capitalists soon realized that "demand" does not mean "need." It does not even mean "want." It means whatever a person with money is willing to buy. A hungry pauper who needs and wants food creates no demand, but a millionaire who wants a yacht does. So it is no longer universally true that the law of supply and demand leads to the well-being of all.

A part of what capitalists, when pursuing their own interests, produce leads to the well-being of the wealthy (and another part leads to no well-being at all: Consider cigarettes; high-calorie, low-nutrition food; ineffective dietary supplements). Still, much is produced that benefits ordinary folks, and even what does not at least has value in the sense that it increases the total wealth in the world, even if it is not equitably distributed.

But things get even murkier when capitalists realize that it is possible to pursue their own interests without producing anything at all. This is where we are today, when huge fortunes are amassed not in any productive process, but in the financial markets, where buying and selling arcane financial "instruments" and the artificial inflation of stocks allow billions of dollars to change hands in short periods of time, and sedentary, nonproductive traders reap the benefits.

If capitalists accumulate fortunes without producing anything of value, where does that fortune come from? One can amass wealth by producing it, or one can amass wealth by extracting it from others. In this case, the answer is obvious: It comes from the shrinking middle class, whose wealth and income have decreased dramatically in recent decades.

When you produce nothing, you can win only if someone else loses. While Andrew Carnegie got rich producing steel, many of today's billionaires become rich by figuring out ways to siphon wealth from others. There is nothing illegal about this; most would not even find it immoral. It is just the way things work. Wealth no longer trickles down; it trickles up.

This is why we find today's staggeringly inequitable distribution of wealth that Elizabeth Warren, Bernie Sanders and others speak so eloquently about.

But what can they do about it? On the one hand, Sanders rails against corporate greed, which suggests he thinks the problem is due simply to character flaws or moral depravity. But Sanders also calls himself a socialist, which suggests he thinks the problem resides in our economic system, not in our characters.

There are as many meanings of the term "socialism" as there are people who use it. In its most extreme sense, it requires a dismantling of the capitalist system, a heavy-handed dictatorship to assure it does not arise again and the implementation of a top-down economy geared toward meeting human needs. We have seen how well that works, and in any case it is not something a president, even with a friendly Congress, has the power to implement.

There are less extreme forms of socialism; some even call the welfare-state liberalism found in many Western European nations a form of socialism. This requires high taxes on the very wealthy, with the funds used to assure that human needs such as food, shelter, medical care and education are met.

High taxes on the wealthy are not new. For most of the last century, they were much higher than they are now, reaching 90 percent or more even during very prosperous times. Programs to help the poor are common too. So with a friendly Congress, it is not impossible to imagine a Sanders administration making some headway in alleviating the worst of the economic inequities he rightly identifies.

But the problem remains a systemic one. As long as it is possible to amass wealth in nonproductive ways, the welfare-state approach, even led by Bernie Sanders, will remain a temporary bandage, not a long-term solution.

— Michael Goldman, of Philadelphia, is a professor emeritus of philosophy at Miami University. He can be reached at goldmam@miamioh.edu. He wrote this for The Philadelphia Inquirer.

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