I notice that people use the word "greed" carelessly, in two misleading ways. First, they imply that greed is unnatural and immoral. And second, they behave as if greed afflicts only one party to a transaction.
Greed is in fact a completely natural impulse. Let's say you're holding a garage sale. You've got your front yard filled with unneeded toys, sports equipment, and clothing. Two people are interested in your old bike. One says they'll pay you $100 and the other says they'll pay you $200. Are you greedy if you take the $200? Or are you simply behaving rationally?
Assuming further that transactions among market participants are unforced (that is, consensual on both sides), can it be immoral to allow a transaction to take place exactly as both parties wish?
Before you decide on the morality of market transactions, consider the second point: which of us is the greedy one? We assume it is the seller who is the greedy party: greedy corporations raising prices and taking advantage of consumers. But what about the buyers? If one person at your garage sale bidding on your bike earns twice as much as the other person, and so can comfortably pay more, are they greedy for using their superior earnings to their advantage? To give another example, are the young professionals moving to your town and bidding up home prices greedy because they can pay more?
Or take two persons earning the same amount of money but placing different values on things. Person A likes to travel to new places, and so places a premium on their vacations. They could live in a small apartment and be happy. Person B loves to be at home and wants a house with a yard. When these two want to book a flight, Person A is willing to pay considerably more of their income to get the flight they want. When it comes to their housing, Person B is willing to pay more of their income to get the home they want. Is Person A greedy? Are they both greedy? Or do their decisions merely reflect different values and choices?
If you believe a seller is greedy for preferring to receive more money instead of less money, by the same logic a buyer is necessarily greedy for being willing to pay more to get what they want than another potential bidder.
You might be feeling uncomfortable right now with your understanding of greed, and for good reason. When we consider either the seller or the buyer to be greedy, our problem arises because we compare the actual transaction with a hypothetical one that we feel "should have happened" absent some imagined amount of greed:
- If only seller wasn't [imagined amount of greed] then buyer could have paid less for that bike.
- If only buyer wasn't [imagined amount of greed] then the less well-off buyer could have bought the bike.
It now should be clearer to us that "greed" is nothing more than competition for scarce resources playing out in markets with varied buyers. In our heads, we measure reality against a theoretical transaction that we think could have happened or should have happened, but didn't, and find the results unsatisfying.
But there is no objective standard by which to determine when normal price competition goes too far and becomes greed. When challenged to set standards, people usually fall back on another hypothetical and imaginary concept, "fairness." As in, "it's not fair to charge so much." Because fairness is situational and relative, everyone draws the line differently about what they think is fair.
You can easily imagine how chaotic the world would become if transactions were governed by people's imaginary concepts of greed or fairness. Back at our garage sale, the bidder who offered $100 for your bike will certainly think it's unfair that someone is willing to pay $200 for your bike. But is it unfair for you, as the seller, to accept the higher offer? Why exactly?
Or perhaps the people promoting "fairness" object to something else entirely: that people have different levels of desire for the same goods. Assume both bidders have the same amount of money, but one likes biking more. Is it "fair" that the avid cyclist is willing to pay more for the bike?
Now consider what would happen if we tried to promote "fairness" by eliminating "greed." As the seller at your garage sale, you could not take into account potential buyers' greater desire to own your bike, or their greater ability to pay. In fact, to be "fair" you'd have to know which person could afford the least or wanted the bike less, leading to absurd results. After hearing the bids for $100 and $200, the kid next door says "I've saved up $50, but I also want to go to the movies, so I can't pay more than $25. I still would like to have your bike." Is it fair to anyone if you sell your bike to the kid for $25?
When we apply standards like "Don't be greedy," and "Be fair," it's a short step to conclude that people who have no disposable income are most entitled to goods and services for free. Now most people recognize that individuals and companies cannot simply give things away, or they'd quickly go bankrupt. People then arrive at the idea that companies should be allowed to earn a "reasonable" profit, but not "excess" profits. Does this sound to you like another way of saying "Don't earn more than an arbitrary amount I decide is fair?" Because that's exactly what it is.
Fairness, like beauty, is in the eye of the beholder. Fairness is relative and situational, which means that what we think is fair changes over time and changes depending on who is doing the comparing. What you think is fair is likely quite different than someone in different circumstances than you thinks is fair.
To give an example, many people line up behind the slogan "tax the rich," thinking it's only fair. They never notice that "the rich" don't sit at a fixed level but are defined as people making comfortably more than them. Guess what, we're all rich compared to the vast majority of the world. All those less well-off would certainly think it fair to tax us and redistribute the money to them. Whose concept of fairness wins out? Is it fair for us to set the standards when a majority of people would set a different standard?
If all this seems messy and complicated, don't worry. There is a fantastically simply and effective solution. That is to not worry about greed or fairness but rather let market forces determine the prices of goods and services. Individuals expressing their individual preferences in pursuit of their own values effortlessly figure out what they're willing to pay.
In every other aspect of life, we give individuals freedom to decide how best to apply their interests and abilities. Some people are naturally talented, while some must work extra hard to achieve the same result. Others squander their gifts and waste their time. If we value individual freedom, we must accept the necessary diversity of outcomes that comes with it.
Last week we talked about why pursuing wisdom is an economically rational goal that is likely to lead to happiness in life. In this week's Moral Letter 117 On The AI Philosopher, we discuss why we should not expect to see wisdom from artificial intelligence anytime soon.
In Moral Letter 118 On Stepping Off The Treadmill, we explore why greed is not just irrational, but dangerous to the philosopher in pursuit of a well-ordered mind. The outward appearance of others tells us little about the whole of their lives. People who appear successful on the surface may have troubles and struggles we know nothing about. Hence, we should never envy those around us for their possessions or supposed success.
With this in mind, I will amend the title of today's newsletter. Don't worry about anyone else's greed. The only time we should worry about greed is when we are feeling it ourselves.
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