Discussion: (0 comments)
There are no comments available.
View related content: Economics
Hernando de Soto has a short, brilliant piece (subscription required) in the Financial Times arguing that the ordering of knowledge has been the key to capitalism’s triumph over the past century and a half. Only by knowing who owned and owed what, could a rational system of buying, selling, insuring, and producing take hold. The crisis of capitalism since 2008, in his view, is the culmination of a decades-long process whereby knowledge has been debased, hidden, and manipulated, depriving governments and business of the basic tools to know how to wisely allocate resources and fix problems.
“…there is no other system that can produce so much wealth for so many, and which leads inexorably to all sorts of freedom.” – Michael Auslin
Of course, this debasing and manipulating of knowledge has been done by governments and businesses themselves (with a major assist by the media and universities). It is not merely the case that they cannot make good decisions; the truth is, many no longer wanted to, either out of greed or ignorance. Politicization of policy is the only explanation for the causes of the housing crisis, as Peter Wallison has shown. And businesses’ desire to defy the laws of gravity may be as old as Holland’s Tulip Mania of the 17th century, but they been given godlike powers by computing systems that aggregate numbers in ways that mere mortals cannot begin to deal with.
This is a symptom of something deeper, a natural evolution of Enlightenment thinking that assumed man could order the universe. For several hundred years, it worked well. Knowledge exploded: The means of collecting, organizing, and disseminating it became ever more efficient and sophisticated. Life in almost all parts of the world improved dramatically. But, there was also a hollowness at the core, a lack of boundaries, humility, and respect for many of the powers that advanced societies could now control. The result was an ever-accelerating manipulation of the physical world, often in harmful ways, with scant regard for the morality of what was being done. Allan Bloom highlighted this as the paradox of liberalism in his Closing of the American Mind. Knowledge became control became utopia became totalitarianism.
The financial crisis partook of this hubris. In its disregard of risk, by both small homeowners and directors of investment banks; in its ignoring of reality by government bodies intent on transforming society; in the unwillingness to acknowledge errors and the need for something beyond the tyranny of numbers — the capitalist world has abused the patrimony of the system that raised it so high. De Soto claims that there is not a crisis of capitalism, but that it needs to be rediscovered. This is undoubtedly true, insofar as there is no other system that can produce so much wealth for so many, and which leads inexorably to all sorts of freedom.
But we need a user’s manual for capitalism — one that somehow makes frighteningly evident the risks inherent in a lack of boundaries and that introduces an element of humility to the abilities we have to control and use information. It has to be linked to a sense of ethics and morals — not just corporate social responsibility, which is a form of guilt tax, but a better ability to produce wealth that does not threaten the working of the system itself. Maybe some old-fashioned fire and brimstone would do us good. Without such a rebalancing of capitalism, those who see it only as a short-term end, and not as a means to a better world, will constantly threaten the rest of us.
Michael Auslin is a resident scholar at AEI.
There are no comments available.
1150 17th Street, N.W. Washington, D.C. 20036
© 2014 American Enterprise Institute for Public Policy Research