A little more than a month ago I wrote about my experience attending a conference on Toronto on the topic of “Communicating Energy”, or learning to discuss fossil fuels and energy consumption in a positive way, and global warming sensationalism in a negative way. At that conference I met a Financial Post columnist named Peter Foster, who was currently being sued for defamation by a prominent Canadian climate scientist. Foster gave me a copy of his book to read, and told me to come out to observe his trial in the BC Supreme Court in Vancouver.

One thing led to another, and I ended up in a court of law (my first ever) reading a book titled Why We Bite the Invisible Hand: The Psychology of Anti-Capitalism. My reflections on the trial are published somewhere else, but the book got me thinking about ideas my theology/academics weren’t entirely comfortable with. After finishing the book I sent Foster an email with a couple questions. He was gracious enough to answer, and give me permission to publish his comments in full here. My own thoughts run to different conclusions, but I find the discussion of what capitalism is and does to be incredibly fascinating. As Foster suggests in his book, our puny human brains are not great at comprehending vast and complicated networks of information (markets, for example), and consequently we tend to compress them down to simple black-and-white moralities.

My questions are bolded. The first two paragraphs are Foster’s preamble:

Generally, as I suggest in the early part of the book, I believe there is a good deal of misinformation peddled about both the history and nature of capitalism (a term created by its enemies). It is in the obvious interest of politicians to dwell on the system’s imperfections and “failures.” My bottom line is that it is important to understand the system – and human nature – before you start “changing” it, a la Marx, or fine tuning it, a la (even?) Stephen Harper, who – like all politicians – is prone to bad populist policies (such as regulating who the railroad industry must serve).

My book isn’t really prescriptive, except to say that we can’t make good policy without understanding economics, thinking about the origins and nature of morality (something we are reluctant to do), and realizing the perpetual dangers of power-seekers, who invariably see themselves as “well motivated.”

In The Wealth of Nations, Smith points to several important functions of government, including the armed forces, policing, and infrastructure-building. Advocates of big government often argue that we live in a system much more complicated than that of Smith’s day, and therefore there are many more roles that government should necessarily fill. In your opinion, what are the characteristics of a function ideally suited to be fulfilled by the government as opposed to private enterprise?

My book is designed to provide a prism – using Smith’s insights, corroborated and updated by newer cognitive sciences — through which to view ideology and policy. I say in the introduction that those insights are more rather than less relevant in an increasingly complex world because government must increasingly lag the market, which thrives on diversity. Moreover, government’s objective is not necessarily to fulfill “functions” effectively but to serve its own institutional interests.

I suggest that Smith could not have begun to conceive where capitalism would go. However, he would perhaps be unsurprised at how government has grown by exploiting economic misunderstanding and moral confusion about capitalism, even as it has grown to unprecedented size by exploiting its fruits.

The bounty of capitalism has fed areas such as the welfare state and socialized medicine, which obviously only government can provide (although it should always try to harness the innovation of private provision). I would not dream of turning back the clock on such policies. It would be impossible. But when it comes to areas such as regulation, there is the constant tendency to ignore past failures, or treat them as merely valuable lessons from which to make more and better legislation.

Smith – and classical liberals – thought that government should be minimal. Their case is still a good one, even if it has been swamped by the growth of government. The bigger and more powerful government, historically, the more potentially corrupt, incompetent and oppressive. Mine is not a call for “no government,” but rather a warning that we should always check our assumptions in case they might lead us away from the policy objectives we claim to espouse.

 Globalization and the information revolution have made it increasingly easy for single corporations to expand their reach around the world, and create monopolies in industries that require significant technological specialization. Is it permissible for the government to intervene to block mergers and limit corporate growth in the interest of protecting competition?

You would have to be more specific in this question. I can’t really understand it until I know what corporate monopolies you are talking about. However, in general I am a skeptic about government overseeing competition because government tends to be a far greater destroyer of competition via its own preferential policies, support for “national champions” etc. Also, the threat of monopoly is largely a myth. The largest competitors are ever vulnerable to new ideas.

I write in the book about the confusion between corporate “power,” which is purchasing power, and political “power,” which is coercive power. Government intervention is obviously “permissible” because it is permitted, and widely exercised. The question is whether the net effect is positive.

You write quite scathingly of global ‘salvationists’ like Maurice Strong and Bill Gates. While you imply that their crime is mostly in hijacking public money and policy as part of our evolutionary impetus towards charity, you do seem to say that most aid work around the world is useless (and possibly harmful). How do you resolve the dilemma that comes from being skeptical about the effect of aid, and yet also biologically incapable of watching someone suffer and doing nothing?

I certainly don’t think Strong and Gates are guilty of “crimes.” Historically, aid has been not merely useless but counterproductive. I quote numerous sources in the book for this perspective, such as William Easterly and Dambisa Moyo.

You raise an important point about the dilemma of wanting to help people, but winding up possibly doing harm. I suggest that the reason lies in failure to grasp the significance of cultural and geographical distance, and the tendency of aid funds to wind up entrenching bad governments, who are the real barrier to human development. I raise the “Would you have us do nothing?” question. The answer is that if what you are doing consistently fails, then you should examine both your moral assumptions and the practicalities of how you are trying to achieve your ends.

Your point about our biological inclination to help people is very important. The paradox is that we help people best by “exploiting” them in the labour market. It recently occurred to me that the “Giving Pledge” would be much more effective as the “Investing Pledge,” but investment is seen as “selfish” whereas giving is “virtuous.” I believe this orientation comes from our communal collectivist instincts, which are both ineradicable and in many ways “good.” One of my main themes, however, is that such instincts are invariably exploited by the political class, who claim that they should do our “redistributing” for us.

While the invisible hand is the best regulator of the market, there have been moments in history where the market has tolerated significant lengths of inequality and suffering before returning to periods of relative safety and prosperity.  If the market will take a generation to ‘wean’ out abusive employers (says during the Industrial Revolution boom you write about), is it not tempting for the government to intervene today, and ‘save’ employees from years of exploitation?  The market may be more efficient in the long run, but that isn’t a lot of comfort to finite beings stuck in the system’s largesse.

Inequality and suffering were the “natural” state of mankind for most of its existence. It is capitalism and markets that have enabled individuals to escape this condition in the past couple of centuries. Meanwhile markets don’t “tolerate” anything. Only people do. Again, to answer your question I need to know which the “moments in history” you are talking about.

One of the big themes I try to elaborate in the book is that people often, indeed usually, equate inequality (the condition of different levels of income and wealth) with inequity (the implication that such different levels are unfair). I suggest that the existence of “abusive” employers during the Industrial Revolution was greatly exaggerated (by Owen, Marx and Engels, for example), while the push for factory reform came from within the capitalist class itself. Also, it is important not to carry current sensitivities into the past, when society simply could not afford them. When it comes to “underpaid” workers, I suggest, following Alfred Marshall, that the root of low wages is not oppression or exploitation but low productivity, which is improved by enhancing human and physical capital (that is, through education, saving and investment). It may seem attractive to go into Third World “Sweat Shops” and start dictating wages and conditions, but this is not merely difficult to monitor, it may lead to perverse results. In the end, anybody who runs a factory that collapses isn’t going to find great market success. Our (or rather, politicians’) urge is always to believe that we might correct “negative” market tendencies, or get out in front of positive market tendencies, but such attempts often – if not invariably — go astray. Again, minimum wage legislation is the classic example, because in attempting to impose “living wages” for low productivity workers, it merely puts them out of work. Also, the very existence of minimum wage legislation indicts all employers as exploiters.


My thoughts on Foster’s book.

I'm a graduate student at Laurier University in Ontario. I used to be a journalist, and I moonlight as a writer / tennis player / LOTR nerd.

One Comment on “Biting the Invisible Hand: An Interview with Peter Foster

  1. Pingback: Dancing With the Invisible Hand | eucatastrophic

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