No man of spirit will consent to remain poor if he believes his betters to have gained their goods by lucky gambling. To convert the business man into the profiteer is to strike a blow at capitalism, because it destroys the psychological equilibrium which permits the perpetuance of unequal rewards. The economic doctrine of normal profits, vaguely apprehended by every one, is a necessary condition for the justification of capitalism. The business man is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to society. (25-26).This came up in the context of a classmate's presentation of a wonderful working paper of his. He is thinking through the connection between economic theories of value (labor and capital's respective contributions to production) and normative theories of distributive justice (the degree to which prevailing distributions of income are just).
His paper looked at this question through Marx's discussion of commodity fetishism and classical economics. The great question that emerged from his paper was what *kind* of connection we should expect to find between theories of how wealth is created and theories of who deserves what share of that wealth.
Keynes' point in this passage is that (1) we will only tolerate inequalities of wealth IF we believe that those inequalities in some sense are understood to be just. And (2) we understand gains to be just if they are connected to someone's contribution to society.
This makes sense as a general sociological explanation for the persistent toleration of the material inequality generated by market systems. It is also the position defended explicitly by Greg Mankiw in his "Defending the One Percent" and his earlier "Spreading the Wealth Around." There, Mankiw argues that we should accept the extraordinary wealth of the 1% not just because the economic system that generates this inequality is beneficial to the rest of society, but because the rich deserve their tremendous wealth in virtue of their tremendous contributions.
We deserve what we contribute, and the rich contributed a lot more. Here's Mankiw in "Spreading the Wealth:"
Let me propose the following principle: People should get what they deserve. A person who contributes more to society deserves a higher income that reflects those greater contributions. Society permits him that higher income not just to incentivize him, as it does according to utilitarian theory, but because that income is rightfully his. This perspective is, I believe, what Robert Nozick, Milton Friedman, and other classically liberal writers have in mind. We might call it the Just Deserts Theory.Though Mankiw *claims* he is channeling the tradition of Nozick, Friedman, and other classical liberal philosophers, he is actually repudiating their central arguments for capitalism.
Friedman, I believe but haven't confirmed, resists the language of "moral desert," and prefers to speak instead just in terms of the consequentialist benefits of the market economy.
Nozick, as Mankiw acknowledges in the paper, explicitly rejects any "patterned theory of justice" according to which people are paid what they deserve. For Nozick, justice does not inhere in broad patterns of social distribution, EVEN a pattern on which people are paid precisely what they contribute. Justice inheres MERELY in the free, contractual agreements that individual agents reach.
Hayek is probably the most extreme case in this respect. Hayek argues vehemently against any theory of justice that connects income with moral desert. Contra Mankiw, Hayek is insistent that there is no such thing as "value to society." Articulating the classic subjectivist position, he writes in The Mirage of Social Justice:
though the conception of a 'value to society' is sometimes carelessly used even by economists, there is strictly no such thing and the expression implies the same sort of anthropomorphism or personification of society as the term 'social justice'. Services can have value only to particular people (or an organization), and any particular service will have very different values for different members of the same society. To regard them differently is to treat society not as a spontaneous order but as an organization whose members are all made to serve a single hierarchy of ends. This would necessarily be a totalitarian system in which personal freedom would be absent. (75-76)On Hayek's view, there is no such thing as an objective contribution of value to society. Consequently, it is absurd to suppose that people are being paid "justly" only if they are being paid as a function of their contribution. A few pages earlier, he writes:
It has been argued persuasively [by Keynes in the above quotation, for example] that people will tolerate major inequalities of the material positions only if they believe that the different individuals get on the whole what they deserve, that they did in fact support the market order only because (and so long as) they thought that the differences of remuneration corresponded roughly to differences of merit, and that in consequence the maintenance of a free society presupposes the belief that some sort of 'social justice' is being done. The market order, however, does not in fact owe its origin to such beliefs, nor was originally justified in this manner. (73)So we have a puzzle. It's common sense enough to believe that capitalist material inequality can only be tolerated if we believe that the inequality somehow maps on to a sense of moral desert. Keynes makes this prediction. Mankiw insists that the wealth inequality we see ACTUALLY DOES map onto moral deservingness based on contributions to society.
And yet the most sophisticated defenders of capitalism--Nozick and Hayek--explicitly REJECT this position. They reject any defense of capitalism which argues that people are paid what they deserve. Nozick focuses instead on free, individual agreement. Hayek focuses on non-moral rewards for subjectively valued success.
So the puzzle, crudely put, is that capitalism can only function if most people believe in something that capitalism's best defenders reject. The theorists of capitalism hate moralizing economic outcomes. The sociology of capitalism requires precisely that.
I'll end with a very different picture of the noble lie capitalism requires to sustain itself. In TMS IV.I, Adam Smith gives his famous story of the "poor man's son," a striving, bourgeois citizen who devotes himself to bettering his material condition. His whole life is motivated by a desire to attain the apparent happiness afforded by the luxurious, beautiful lifestyles of the rich. He is motivated to gain wealth because he believes wealth will make him happy. It is only after he attains that wealth that he realizes he has squandered his life in the pursuit of trinkets and baubles, while ignoring the true sources of personal fulfillment.
A false picture of happiness inspired his thrift and industry. And yet, Smith continues:
It is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. (TMS IV.I.10)Smith continues with his only explicit use of the phrase "invisible hand" in TMS, arguing that the same aesthetic deception doesn't just inspire the poor man to work hard, but leads the rich man to squander his wealth on useless trinkets and baubles. Conspicuous consumption leads him to (foolishly) redistribute his own wealth to the poor. A very different kind of "trickle down" economics than is typically associated with Smith.
So the Keynesian deception that motivates an acceptance of capitalism: A false belief that inequality is deserved because it tracks contributions to society.
The Smithian deception that motivates participation in capitalism : A false belief that the trinkets and baubles wealth will buy you are the sources of genuine happiness.
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