Our Passions, Self-interest, and the Economic Mess

On October 23, Alan Greenspan told lawmakers that “those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief” at the market melt-down.  (http://www.iht.com/bin/printfriendly.php?id=17206624 )  At issue (in Greenspan’s testimony and in various opinion pieces since) is our whole concept of capitalism: the markets, rational self-interest, the lot.  Many questions are being asked about it.  But in the end, those anxious questions boil down to one: is capitalism, which Adam Smith defined for us as a “self-regulating” mechanism a good thing?

Interests are Passions

That may be the wrong question.  For Adam Smith wrote in a world where, as Albert O. Hirschmann documents in his The Passions and the Interests: Political Arguments for Capitalism before its Triumph, it was understood that interest was just another name for passion.  As Hirschmann explains, beginning with Machiavelli many people began to believe that “one set of passions, hitherto known variously as greed, avarice, or love of lucre, could be usefully employed to oppose and bridle such other passions as ambition, lust for power, or sexual lust” (p. 41).

Of course this dim view of humanity was difficult for most to swallow.  (Even Machiavelli, brilliant as he was, could not sell this idea.  He never did manage to procure employment with the Medici.)  For the notion to take hold, the countervailing passions had to be re-conceptualized as something benign or at the very least innocuous.  The term “interest” did the job because, as Hirschmann explains, it connotes predictability (a valuable asset in an age beset by wars and civil wars) and harmlessness.  As Dr. Johnson famously put it, “There are few ways in which man can be more innocently employed than in getting money.”