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Jewish World Review
Feb. 26, 2008
/ 20 Adar I 5768
Impatience + Greed = Trouble
When markets enter a period of turbulence observers moralize about the frailties of human nature that are responsible for the upset. This ignores the fact that markets require corrections, even violent ones, from time to time. They themselves reflect human nature and must, over a period, hold the balance between optimism and pessimism.
All the same, markets are determined by moral strengths and weaknesses, and it is useful to identify what those are at each major episode. The state of the present market is the consequence of undue impatience combined with excessive greed.
Impatience led many thousands of ordinary people to seek to acquire properties of much higher value than their savings justified. They thus sought to borrow collectively immense sums that they could not hope to repay for many years and, in some cases, ever. As a rule, this would not be a problem; banks and other loan agencies should simply have turned down such borrowers. The borrowers would then have had to contain their impatience until their savings accumulated to a level at which they could borrow prudently.
Unfortunately, impatience coincided with excessive greed on the part of a number of bankers. Many of the world's top bankers lead highly competitive, high-spending lifestyles and are tempted to increase turnover thus increasing their salaries and bonuses through generous lending. The consequences of this behavior could be catastrophic.
Is More Legislation Needed?
Certainly not. All powerful human impulses are constructive as well as destructive. Impatience is an interesting case in point. The desire to get on, not slowly and patiently, but to get whatever it is one wants and have it now is a form of human eagerness that creates dynamism. If all people were models of patience, content with their lot and not eager for change, we'd still be living in primitive hunter-gatherer societies. Economic progress is created when vigorous impatience is combined with existing ways of doing things.
All periods of rapid advance, such as the Renaissance and the Industrial Revolution, have been marked by impatience. Thomas Edison was a notoriously impatient man, as was James Watt, who greatly improved the Newcomen steam engine by adding a separate condenser. Some of the most useful inventions are symbols of furious impatience: The zipper grew out of an impatience with buttons; safety razors, with the old cutthroat razors.
Without impatience bankers would just be static strongboxes for storing cash. There's nothing wrong with the vast majority of ordinary people being impatient to have better houses. Impatience becomes dangerous only when it parts company with reality. People who borrow money in amounts they cannot reasonably hope to repay in their lifetimes are dangerous to the whole principle of credit and should be disciplined by the banks.
This, of course, is where greed on the part of the bankers encouraging excessive impatience turns a dynamic force into a highly destructive one. Indeed, it's hard to think of a more dangerous combination than an overimpatient borrower and a too greedy lender.
Notice I write of "too greedy." I risk censure by the absolute moralists by pointing out that greed, in an economic sense, is not necessarily or always evil and harmful. Economic growth is not possible without a certain amount usually a great deal of greed, any more than it's possible without impatience. Greed is merely a harsh word for what, in objective terms, we call the acquisitive instinct. This desire to amass quantities of money or goods lies at the heart of capitalism and, thus, at the heart of any expanding economy. Acquisition is beneficial so long as what is acquired is put to constructive use and not just hoarded.
All energetic men and women are greedy to some extent. Expending their energies on systematic acquisition is one way of preventing the energy from going into more nefarious activities. As Samuel Johnson put it: "There are few ways in which a man can be more innocently employed than in getting [i.e., accumulating] money." Keynes put it another way: "It is better that a man should tyrannize over his bank balance than over his fellow-citizens." What's important is that the greed be combined with the desire to render a service or supply useful products to society. Capitalism is the most reliable source of modern progress precisely because when it functions at its best it combines the realism of acquisition (or greed) with the idealism of serving the public.
So let's not despise impatience and greed. Some measure of both is necessary for the economic system to function well and for progress to advance. What we must beware of is unrestrained impatience and excessive greed each fueling the other. At the center of any financial system there have to be powerful individuals and bodies that can detect these excesses and take action to control them.
That's the job of those who run the reserve banks. They must be moralists as well as financiers able to smell the sin of intemperance, to come down hard on it and in time.
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© 2006, Paul Johnson