Self-interest not whole secret of successful economy, economist says

While its ability to draw on self-interest has been among its greatest strengths, capitalism still needs a reserve of other values, says Louis Putterman, Brown University economics professor.

PROVIDENCE, R.I. -- Capitalism looked triumphant when the Iron Curtain fell, and stock markets repeatedly break records. Yet high unemployment and its political repercussions still loom over Western Europe, reform remains in tortuous waters in the former socialist world, and many Third World countries are mired in intractable poverty.

Is it time to reassess our confidence in the market system? No, but now is the time to take stock of the values that make capitalism work, says Brown University economist Louis Putterman.

While its ability to draw on self-interest has been among its greatest strengths, capitalism still needs a reserve of other values, says Putterman, who with colleague Avner Ben-Ner, an economist at the University of Minnesota, are co-editors of Economics, Values and Organization, published in March by Cambridge University Press.

"Neoclassical economics borrows from Adam Smith the dictum that `[i]t us not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest,'" Putterman notes. "It is sometimes pointed out, however, that even in the absence of public goods and other market failures, self-interest can be relied upon to generate want-satisfying economic activity only if a proper institutional environment is in place, including laws and their enforcement."

Yet without widespread respect for others' rights and for law and property, without integrity and trust in exchange relations, the costs of many economic transactions would become prohibitive and the burden of penalties against perpetrators of illegal actions would turn society into a Hobbesian nightmare, Putterman adds. "More broadly, society depends upon the operation of familial bonds for the nurturing of its young, on civic responsibility for the functioning of a democratic political order, and on values of tolerance and respect for the preservation of human rights. A society most of whose members do not subscribe to any values but individual self-interest could be expected to function poorly, if at all, and would be one that few would prefer to live in."

Putterman, who can be reached through the Brown University News Bureau, has taught at Brown since 1980. His work touches on a number of topics, including incentives, property rights, and the organization of production, the theory of the firm, comparative economic systems, and the economics of development. He is the author of over 70 scholarly articles and author, co-author, editor, or co-editor of seven books.