4 - Capitalism, the Market Mechanism, and the State in Economic Development: An American Perspective

Summary

In sketching an American perspective on economic. development, capitalism and democracy, let me* begin by asserting that the fundamentals of human nature are universal. The profit-maximizing model beloved to classical economics exhausts neither the range of mankind's motives nor its capacity for folly. Still, history suggests that rapid material advancement depends on harnessing the acquisitive instinct — greed, if you must, or as Adam Smith put it, self-love. Recall Smith's premises:

It is not from the benevolence of the butcher, or the brewer, or the baker, that we expect our dinner, but from their regard for their own interest.

He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.… [H]e intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which is no part of his intention. Nor is it always worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.

The economic arrangements based on these observations and premises we call capitalism. Our century has been the testing-ground for alternative theories of economic development that purported to be based on more attractive motives, in which each would contribute according to his abilities and receive according to his needs. And Smith's invisible hand could be replaced by the wisdom of central planners guided by modern science. This debate was settled at Berlin in 1989. Economically, the supposed development exploits of socialism were revealed as a fraud. And morally, as a basic premise underlying an economic system, the alternative to greed was revealed as terror.

Given this experience, it can be distracting to talk of an “American” path to development and an “Asian” path to development.