Alexander C. Cartwright ‘13
During yet another evening spent in the library, I found myself in a debate with a friend of mine. After hearing about a documentary he had seen about the destructive power of markets, I quickly took up the task of defending economic freedom. After more than an hour, he seemed convinced that I could overcome all his objections, but he ended the conversation by explaining- the problem with market-based systems is that people are constantly rewarded for good behavior, instead of just being the best they can be they are tied to incentives and rewards, not service to others. Surely I cannot refute this point. While we know that things like performance based pay and merit based rewards drive productive behavior, we still need to ask ourselves if encouraging people to react to such incentives is a good idea. However, monetary rewards, and other market-based incentives are not only effective, but also can be justified by the very criteria critics use to reject markets: service to others.
The claim that rewards can alter one’s behavior in a negative way is certainly not without merit. Of course, we want to teach people how to make good moral choices and how to live for something beyond the next reward. Thus, a capitalistic, pay-for-performance based work ethic seems to come with some non-ideal, if not immoral, element. A system run completely by rewarding people might breed unprincipled citizens, driven to get bigger and bigger rewards on an endless, unfulfilling ego chase. Rewards with personal benefits might not encourage people to help their communities beyond themselves. People could be so focused on rewards that they inherently distrust each other, or even break laws and justify their actions on the incentives that encouraged them to do so.
However, discounting capitalism because participants are rewarded for good behavior instead of an intrinsic desire to serve is an unwarranted criticism. Merely receiving a reward, like a payment, for doing good, does not exclude such an action from being service. In fact, Adam Smith points out “It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest” (An Inquiry into the Nature and Causes of the Wealth of Nations, Chapter 2). Just because the butcher is reacting to incentives (profits) and acting out of self interest, does not exclude him from simultaneously doing service. The butcher, brewer and baker must all serve their customers in order to make themselves better off.
We can certainly conclude that the butcher, baker, and brewer in this case are not being altruistic. Responding to incentives, like profits, certainly lowers (if not eliminates) an action’s altruistic character, yet the same is not true with service. In other words, one can still do service without being an altruist.
The fact that service does not require altruism goes largely unnoticed, yet this misconception is at the heart of this faulty criticism of capitalism. In a market-based system, the butcher, brewer, and baker systematically cannot become better off without serving others. The market system requires that we serve others in order to receive rewards. Thus, incentivizing people actually encourages good behavior and service to others. Plus, the incentives, or rewards, act as signals we can use to tell producers were they can serve others best.
Critics of this self interest-service model quickly, and correctly, point to how people often receive unjust rewards by influencing laws and government. The service requirement in a market-based order is all but erased once those writing the laws are rewarded by special interests. While this critique is accurate, and extremely discussion worthy, critics should be careful not to blame an economic order for a political shortcoming.
When people face incentives, in a market context they are rewarded for how well they serve others. Companies are rewarded for better and better service, while entrepreneurs spend entire days figuring out how to serve the consumer better. Most importantly, everyone is encouraged to do service because it is the only way to make oneself better off. That is, voluntary trade is mutually beneficial; it requires both parties to be better in the end. Markets don’t make us inherently good, perfectly moral, or inherently altruistic, but they require us to serve others and provide us with signals that show how we can serve best.