Fight and Face Danger!

1. rimi s
Hillsdale College Hillsdale, Michigan 49242 Vol . 9, No . 1 2
December 1980
THE MORAL SOURCES OF CAPITALIS M
By George Gilder
George Gilder is Program Director of the Interna-
tional Center for Economic Policy Studies in New Yor k
City . A graduate of Harvard University, he has pub-
lished five books, including Naked Nomads, Visibl e
Man, and Wealth and Poverty .
He has also published numerous articles and review s
on political, economic and social subjects, in suc h
journals as Harper's, The New York Times Magazine ,
The New York Times, Reader's Digest, Commentary ,
National Review, The Wall Street Journal, The Bosto n
Globe, The Boston Globe Magazine, Washingto n
Monthly, Washington Star, Chicago Tribune, Boo k
World, Book Digest, among others .
He has been a speechwriter for both U .S . Presiden-
tial and Vice Presidential campaigns, and was responsi-
ble for part of Ronald Reagan's acceptance speech at
the Republican National Convention .
Mr . Gilder delivered this presentation recently a t
Hillsdale as part of the Ludwig von Mises Lectur e
Series .
What is most extraordinary about this economist' s
"Businessmen are bastards" : This crude view o f view is not its extremity, vehemence, or apparen t
men of commerce, once famously pronounced by Presi- incongruity, but the fact that it was a perfectly ordinary
dent John F . Kennedy, sums up the sentiments o f statement for such a man to make . It sums up what has
socialist thinkers in America and around the world , been the prevailing attitude of the leading defenders o f
from Jane Fonda to the remaining followers of the lat e free enterprise ever since the time of Adam Smith .
Chairman Mao . In fact, the idea that businessmen are Although Smith himself did not use such bawdy lan-
bastards is such a cliche' among the progressive an d guage, he insisted that businessmen were in general an
enlightened men of the left that most of them would b e unattractive lot who "seldom gather together except t o
hurt and startled if a businessman responded by callin g conspire against the public interest ." According to
them the bigots that they objectively are . Smith the motive force of a capitalist economy is self -
Early in 1980, however, these same words wer e concern, which is a more polite way of depicting wha t
vehemently uttered by a conservative professor of eco- a leftist would call avarice or greed . "Not from benev-
nomics at a major American college . Yet conservative s olence," said Smith, "do we expect our bread from th e
are considered to be the friends of business . In fact, baker" but from self-interest . "As by an invisible
this economist in particular was wearing a handsome hand," Smith immortally maintained, these individual
Adam Smith necktie and imagined himself to b e acts of avarice flow together to promote the genera l
staunchly defending private enterprise at the very time welfare, even though few of the businessmen are con-
he made his rude remark about businessmen . cerned with any aim beyond their own enrichment .
IMPRIMIS is the journal from The Center for Constructive Alter -
im•pri•mis Om-pri-mis) adv . In the first place . Middle English , natives . As an exposition of ideas and first principles, it offer s
from Latin in primis, among the first (things) . . . alternative solutions to the problems of our time . A subscriptio n
is free on request .

2. These arguments of Adam Smith, espoused in The personal avarice and ambition into collective prosperit y
Wealth of Nations, the masterwork of capitalist eco- but because it calls forth, propagates, and relies upo n
nomics, recur in various forms throughout the literatur e the best and most generous of human qualities .
of free enterprise and lend to many of these writings a
strangely anti-business cast . The general idea is that Capaitalism begins with giving . This is a growin g
businessmen are useful sorts but you wouldn't wan t theme of "economic anthropology," from Melvill e
Herskovits's pioneering book by that name to Marvi n
your daughter to marry one . Just as English aristocrat s
Harris's Cannibals and Kings . The capitalists of primi-
still sometimes express disdain for people "in trade, "
tive society were tribal leaders who vied with on e
so American intellectuals, even on the right, ofte n
another in giving great feasts . Similarly, trade bega n
depict capitalists as crude, boorish, and predatory fig-
with offerings from one family to another or from on e
ures .
Although one might suppose that such men should b e tribe to its neighbor . The gifts, often made in th e
kept on a short reign by government, the conservative s course of a religious rite, were presented in hopes of a n
argue on the contrary that governments should keep out eventual gift in return . The compensation was no t
of the fray and allow the disciplines of the free marke t defined beforehand . But in the feasting process it wa s
to keep the predators in line . In essence, these econo- expected to be a return with interest, as another "bi g
mists answer President Kennedy by saying, "Yes , man," or mumi as he was called among the Sivai in th e
businessmen are bastards, but the best thing to do is let Solomon Islands, would attempt to excel the offering s
them loose, to fight it out among themselves, and ma y of the first .
the best bastard win . "
Harris describes the process :
Needless to say, conservative economists offer man y
other, more sophisticated arguments against the growt h A young man proves himself capable of becomin g
of the state . Most of what they say about the virtues o f a mumi by working harder than everyone else an d
free markets is luminously true . Nonetheless, thei r by carefully restricting his own consumption o f
essential view of the nature and motivation of capital- meat and coconuts . Eventually, he impresses hi s
ists, inherited from Adam Smith, is insidiously fals e wife, children and near relations with the serious-
and fails to explain in any convincing way the source s ness of his intentions, and they vow to help hi m
of economic growth and progress . It just won't do an y prepare for his first feast . If the feast is a success ,
longer to suggest that businessmen are bad guys, o r his circle of supporters widens and he sets to wor k
ambitious dolts, or self-serving money grubbers, an d readying an even greater display of generosity . H e
then conclude that if they are given maximum freedom , aims next at the construction of a men's club -
they will build the new Jerusalem : a good and bounti- house, and if this is also a success his circle o f
ful society . Capitalism needs no such labored and supporters—people willing to work for the feast to
paradoxical defense . The fact is that capitalism is good come—grows still larger and he will begin to b e
and successful not because it miraculously transmutes spoken of as a mumi . . . . Even though larger and
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3. larger feasts mean that the mumi's demands on hi s dollar, you both acknowledge a debt to him of a certai n
supporters become more irksome, the overal l value, and you pass on to him an acknowledgement o f
volume of production goes up . . . . debt given to you by someone else . But the process has
to start somewhere, with a giver and a gift, a feast an d
Helen Codere describes potlatching, a similar se-
a mumi, an investment and an investor .
quence of work and saving, capital accumulation an d
feasting, performed among the Kwakiutl of the north - By giving a feast, the mumi imposed implicit debt s
western United States : "The public distribution of on all his guests . By attending it, they accepted a
property by an individual is a recurrent climax to a n liability to him . Through the gifts or investments o f
endless series of cycles of accumulating property— primitive capitalism, man created and extended obliga-
distributing it in a potlatch—being given property tions . These obligations led to reciprocal gifts an d
again accumulating and preparing ." The piles of food further obligations in a growing fabric of economi c
and other gifts and ceremonial exchanges could moun t creation and exchange, with each giver hoping fo r
to dumbfounding quantities . One South Sea offerin g greater returns but not assured of them, and with eac h
mentioned by Herskovits consisted of 10,000 coconut s recipient pushed to produce a further favor . Thi s
and ten baskets of fish . spreading out of debts could be termed expanding th e
money supply . The crucial point is that for every
These competitions in giving are contests of altruism .
liability (or feeling of obligation on the part of th e
A gift will only elicit a greater response if it is based o n guest), there was a previous asset (meal) given to him .
an understanding of the needs of others . In the mos t
The mumi, as a capitalist, could not issue demands o r
successful and catalytic gifts, the giver fulfills an un-
impose liabilities or expand money without providin g
known need or desire in a surprising way . The recipient
commensurate supplies . The demand was inherent i n
is startled and gratified by the inspired and unexpecte d
the supply—in the meal .
sympathy of the giver and is eager to repay him . I n
order to repay him, however, the receiver must come to The next step above potlatching was the use of rea l
money . The invention of money enabled the pattern o f
understand the giver . Thus the contest of gifts leads t o
an expansion of human sympathies . The circle o f giving to be extended as far as the reach of faith an d
trust—from the mumi's tribe to the world economy .
giving (the profits of the economy) will grow as long a s
the gifts are consistently valued more by the receiver sAmong the most important transitional devices was th e
than by the givers . Chinese Hui . This became the key mode of capita l
formation for the overseas Chinese in their phenomena l
What the tribal givers were doing, by transcending successes as tradesmen and retailers everywhere the y
barter, was to invent a kind of money : a mode of went, from San Francisco to Singapore . A more sophis -
exchange that by excluding exact contractual planning ticated and purposeful development of the potlatchin g
allowed for freedom and uncertainty . Money consists of principle, the Hui began when the organizer neede d
liabilities, debts, or promises . By giving someone a money for an investment . He would raise it from a
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4. up of kin and friends and commit himself to give a made without a predetermined return .
es of ten feasts for them . At each feast a similar These gifts or investments are experimental in tha t
Junt of money would be convivially raised an d the returns to the giver are unknown ; and whether gain s
en by lot or by secret bidding to one of the othe r or losses, they are absorbed by him . Because the vas t
nbers . The rotating distribution would continue un- majority of investments fail, the moment of decision i s
every member had won a collection . Similar sys- pregnant with doubt and promise and suffused to som e
is, called the Ko or Tanamoshi, created savings for degree with faith . Because the ventures are experi-
anese ; and the West African Susu device of th e ments, however, even the failures in a sense succeed ,
-uba, when transplanted to The West Indies, pro- even the waste is often redeemed . In the course of time ,
ed the capital base for Caribbean retailing . Thi s perhaps even with the passage of generations, th e
de of capital formation also emerged prosperousl y failures accumulate as new knowledge, the most crucia l
3ng West Indians when they migrated to American kind of capital, held by both the entrepreneurs them -
es . All these arrangements required entrustin g selves and the society at large .
ney or property to others and awaiting returns in th e
ertain future . This new knowledge is a deeper kind than is taugh t
in schools or acquired in the controlled experiments o f
'hat supply creates its own demand is a principle of social or physical science, or gained in the experienc e
;sical economics called Say's Law . It has come to be of socialist economies . For entrepreneurial experiment s
tressed, and refuted, in many interesting technical are also adventures, with the future livelihood of th e
ms . But its essential point is potlatching . Capitalis m investor at stake . He participates with a heightene d
isists of providing first and getting later . The consciousness and passion and an alertness and dili-
nand is implicit in the supply . Without a monetary gence that greatly enhance his experience of learning .
,nomy, such gifts were arrayed in expectation of a n The experiment may reach its highest possibilities, and
nediate profit in prestige and a later feast of interest , its crises and surprises may be exploited to the utmost .
they could be seen as a necessary way to escape th e
straints of barter, to obviate the exact coincidence of This motivational advantage will often decide the
its and values required by simple trading . In mos t success or failure of enterprises or nations otherwis e
es, the feasts and offerings were essentially entre- equally endowed . Harvey Leibenstein of Harvard has
neurial . They entailed the acquisition of goods at a presented a large body of evidence which shows that
awn cost with the intention of acquiring in exchang e the key factor in productivity differences among firm s
n this case, over an extended period—goods o f and between countries is neither the kind of allocationa l
:nown value . As devices of savings and investment , efficiency stressed in economic texts nor any othe r
y depended for success on the continued honesty an d measurable input in the productive process . The dif-
nomic returns of all members . The entrepreneurs ferences derive from management, motivation, and
ceed only to the extent they are sensitive to th e spirit ; from a factor he cannot exactly identify bu t
ds of others, and to the extent that others succeed . which he calls X-efficiency . He quotes Tolstoy in War
ruism is the essence of capitalism . and Peace :
:apitalist production entails faith—in one's neigh - Military science assumes the strength of an arm y
s, in one's society, and in the compensatory logic o f to be identical to its numbers . . . . [In fact it] is th e
cosmos . Search and you shall find, give and you product of its mass and some unknown x . . .th e
l be given unto, supply creates its own demand . It i s spirit of the army . . . . To define and express the
cosmology, this sequential logic, that essentially significance of this unknown factor . . . is a proble m
.inguishes the free from the socialist economy . Th e for science . . .only solvable if we cease arbitraril y
ialist economy proceeds from a rational definition o f to substitute for the unknown x itself the condi-
ds or demands to a prescription of planned supplies . tions under which that force becomes apparent—
3 socialist economy, one does not supply until th e such as the commands of the general, the equip-
lands have already been determined and specified . ment employed and so on . . .and if we recogniz e
ionality rules, and it rules out the awesome uncer - this unknown quantity in its entirety as being the
[ties and commensurate acts of faith that are indis- greater or lesser desire to fight and to face danger .
sable to an expanding and innovative system . In other words, measurable inputs, such as thos e
'he gifts of advanced capitalism in a monetar y that can be calculated in a planned economy, do not
nomy are called investments . One does not mak e determine output . Leibenstein shows that productivity
s without some sense, possibly unconscious, tha t differences between workers doing the same job in a
will be rewarded, whether in this world or the next . particular plant are likely to vary as much as four to
!n the Biblical injunction affirms that the giver wil l one, that differences as high as 50 percent can aris e
given unto . The essence of giving is not the absenc e between plants commanding identical equipment and
all expectation of return, but the lack of a pre - the same size labor force that is paid identically .
!mined return . Like gifts, capitalist investments are Matters of management, -motivation, and spirit—and
4

5. their effects on willingness to innovate and seek ne w businessmen are among the most persistent and in-
knowledge—dwarf all measurable inputs in accountin g genious of donors and all of us who benefit should b e
for productive efficiency, both for individuals an d thankful .
groups and for management and labor . A key differenc e
How is it then that the contrary view is so prevalen t
is always in the willingness to transform vague infor-
in the world—that most observers of capitalism se e
mation or hypotheses into working knowledge : willing-
businessmen not as givers but as takers? There ar e
ness, in Tolstoy's terms, transferred from the martial t o
many reasons, including envy, ignorance, and the cor-
the productive arts, "to fight and face danger," to exer t
ruption of many businessmen by the snares of the state .
efforts and take risks .
But the key source of confusion is what can be calle d
Socialism presumes that we already know most o f the materialist fallacy : the belief that wealth consists
what we need to know to accomplish our nationa l chiefly not of human knowledge and creativity, gener-
goals . Capitalism is based on the idea that we live in a osity and love, but of a limited fund of "natura l
world of unfathomable complexity, ignorance, an d resources," always in danger of running out, and the
peril, and that we cannot possibly prevail over ou r accumulated inheritance of physical capital embodied i n
difficulties without constant efforts of initiative, sym- farms, factories, and machines .
pathy, discovery, and love . One system maintains tha t
This belief is one of the oldest of human delusions ,
we can reliably predict and elicit the outcomes w e
from the period of empire when men imagined tha t
demand . The other asserts that we must give lon g wealth was land, to the era of mercantilism when the y
before we can know what the universe will return . One
fantasized that it was gold, won through a favorabl e
is based on empirically calculable human power ; the
balance of trade, and continuing on to today when th e
other on optimism and faith . These are the essential
world believes that wealth is oil, and grasps at rea l
visions that compete in the world and determine ou r
estate and gold as well . Contemporary economists ,
fate .
liberal and conservative, make a similar error whe n
When faith dies, so does enterprise . It is impossible they define wealth as physical property and capita l
to create through the mechanisms of rational self - assets and measure it in quantitative terms .
interest a system of collective regulation and safety that
As long experience should show us, however, re -
does not finally deaden the moral sources of the will-
sources and machines are nearly useless without entre-
ingness to face danger and fight, that does not dampe n
preneurs and willing workers . Iran before the revolutio n
the spontaneous flow of gifts and experiments whic h
was replete with oil and factories, but all their re -
extend the dimensions of the world and the circles o f sources availed them little, because they lacked in th e
human sympathy . generosity and discipline of entrepreneurs . Hong Kon g
Walter Lippmann was much closer to the truth of th e and Taiwan have little material endowment, but thei r
system than many of its more conservative apologist s businessmen provide wealth for the world . Japan an d
when in 1936, in the midst of the Great Depression, h e Germany possess few natural resources and saw muc h
wrote that capitalism is based on "an ideal that for th e of their material capital destroyed during World War II ,
first time in human history" gave men "a way of but they have thrived by liberating enterprise . Through -
producing wealth in which the good fortune of other s out history, most of mankind has lived cramped an d
multiplied their own ." At long last "the Golden Rul e impoverished lives in materially affluent countries be -
was economically sound . . .and for the first time me n cause of an absence of the metaphysical capital that i s
could conceive a social order in which the ancien t most crucial to progress : the trust in others, the hope
moral aspiration of liberty, fraternity, and equality wa s for the future, the faith in a providential God tha t
consistent with the abolition of poverty and the increas e allows freedom and prompts the catalytic gifts of capi-
of wealth ." Once "the worldly policy was to be talism .
predatory . The claims of the spirit were otherworldly . "
Without these essentially spiritual dimensions, th e
But with the rise of capitalism "the vista was opened at
success of capitalism is inexplicable except where it i s
the end of which men could see the possibility of the
already occurring . The great flaw of the bastard capital -
good society on this earth . At long last the ancient
ism theory is that it cannot explain economic growt h
schism between the world and the spirit . . .was poten-
under the conditions where it is most needed : a de -
tially closed ."
pressed and impoverished economy in which there i s
To defend capitalism—even to understand it—you little to take, and as John Kenneth Galbraith ha s
have to comprehend that businessmen are not bastards, written, the most "rational" course is to accept one' s
but the heroes of the modern age—crucial vessels of poverty rather than fight hopelessly against it . Thi s
those generous and creative impulses that give hope to perception has prompted Galbraith and many othe r
an ever more populous humanity in overcoming its leftist thinkers to give up on further world developmen t
continuing scarcities and conflicts . In a world always and predict "lean years" of scarcity, entropy an d
divided in part between the givers and the takers, decay . A blindness to the spiritual sources of wealt h
5

6. thus is leading many "progressive" writers into a it will return to you many fold . Or even in the languag e
strange revival of the dismal science of 19th centur y of economics: supply creates its own demand . Capital -
economics . No Ricardian law of rents, no Malthusia n ism is not impugned but affirmed in the Biblical para-
cycle of population was ever more coldly remorseles s bles : the parable of the talents, in which Jesus praise s
in its rejection of the dreams of the poor than Richar d the man who invests and multiplies his money, or eve n
Barnet's "entropy theory" or Barry Commoner' s in the parable of the rich man, who is told to give awa y
"closing circle" of ecological limits to growth . rather than hoard his wealth .
Adam Smith's self-interest, however, is little mor e "Where your treasure is, so your heart is also ." It is
persuasive than Marxist ideas of exploitation and takin g Marxism and statism that are based on the materialis t
as an explanation of capitalist prosperity . The pursuit of fallacy, that believe in the treasure of things . It i s
self-interest would lead not to the always risky an d capitalism that is based on the treasure of ideas and
unpromising ventures of capitalism in an uncertain an d spirit. To the extent that capitalists are bastards —
perilous world but to the quest for safety and security i n predatory and materialistic, hoarding and miserly ,
an ever growing welfare state . The only way to escape hedonistic and prodigal—they betray the essence o f
the vicious cycles of poverty is through the expandin g capitalism and balk its growth . The fable of Midas i s
circles of creative giving, the investments of brave me n the story not of perils and contradictions of capitalis t
with hope for the future, trust in their fellow men an d wealth but of the pitfalls of materialism itself . The real
faith in providence . This impulse of philanthropy is th e capitalists have the anti-Midas touch, turning the hoard s
prime gift of business success . of gold and liquidity, through an alchemy of creativ e
spirit, into the productive capital of real wealth . And
Capitalism can be summed up in the language o f
the foundation of wealth is always giving, not taking .
scripture : Give and you will be given unto, search and
The deepest truth of capitalism is faith, hope and love .
you shall find . . . . Cast your bread upon the waters and
The opinions expressed in IMPRIMIS may be, but are not necessarily, the views of the Center for Constructive Alternatives or Hillsdale College .
Copyright © 1980 by Hillsdale College . Permission to reprint in whole or in part is hereby granted, provided customary credit is given .
Editor, Ronald L . Trowbridge .