What Capital Does Not Understand

I went to a local tapas restaurant tonight, Cesar’s, to follow the returns from the UK vote. While I was hoping for a different outcome, as my students will confirm, I was not surprised by the results. When Aristotle first theorized democracy in the fourth century BCE he explicitly left out δουλος, δεσποτης, and οικονομικον (workers, managers, and entrepreneurs) because he believed that each of these groups was unaccustomed to promoting the public good.

http://www.theguardian.com/politics/2016/jun/24/gold-prices-oil-eu-referendum-out-vote

It is customary to interpret Aristotle’s framework as a justification for rule by elites, with good reason. Yet, over the past half millennia theorists have wondered whether Aristotle may have been constrained by his own circumstances to overlook an alternative reading of this framework. If the efficiencies of capital were redistributed downward and outward, providing wealth, education, good health, security, and leisure to all, then none would have reason to promote their own private, particular interests and all would share an interest promoting the common wealth. This, in fact, was the conclusion ultimately reached by the authors of The Federalist Papers: the sustainability of the Republic depended in the end on making sure that policy makers did not “have a horse in the race,” as the saying goes. Yet, because they could not conceive of a circumstance under which laborers, managers, and entrepreneurs would constrain themselves, they instead settled on near substitutes: wealth, land, and in some cases education.

This proved a grave mistake. For, as Aristotle knew all too well, wealth, land, and education are not what we are aiming for, but only the means to that end. And it was simply all too easy to mistake the means for the ends and so draw the mistaken conclusion that these means were themselves of value.

In the case of Great Britain’s Brexit, capital recognized that its value was optimized by open borders, which reduced transaction costs and favored an optimal distribution of human capital. What capital did not understand — still does not understand and cannot understand — is that human beings are themselves, ultimately, distortions in the optimization of value.   Our aim is to lower factor costs and increase the production function. It is “natural” to pursue this efficiency, while it is “unnatural” to “intervene” into markets, which are simply and innocently pursuing their “natural” end. If this entails lower wages, diminishing purchasing power, expanding income inequality, and so on, these are simply the price we pay for “liberty.”

The irony, of course, is that capital really doesn’t care. So Great Britain has voted to leave the EU. So global markets have plunged on this news. It was nothing that was not anticipated in advance. Well before the outcome was announced, capital, it will be discovered, had moved on. And all of those voters celebrating this morning? Celebrating what? The declining purchasing power of the Pound? The self-imposed constraints on British markets? The higher costs of goods? The higher transaction costs for trade? Capital itself will not even notice these inconveniences. It will have moved on. But working families in Great Britain, many of whom were convinced to vote for leaving the EU, they will genuinely suffer deeply.

But the tragedy is that capital will never comprehend how it was itself the trigger that led to Brexit. It will never comprehend how the pursuit of private self-interest at the expense of public interest eventually leads consumers to act against both their own interests and against the interests of capital.

Aristotle’s solution was simple: first, the chief end of private enterprise is to finance public goods, which, of course, are incapable of financing themselves; but second, private enterprise should never be granted a hand in shaping public interest, since its whole raison d’être is to promote its own private interests. That’s it. That’s Aristotle’s solution.

Tragically, British citizens — or in any event 52% of them — have settled on the worst course possible: rule by private enterprise without any of the benefits arising from its efficiencies. It is the opposite of Aristotle’s solution.

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