In last week's blog there were opposing ideas presented about capitalism.
One can from Adam Smith and the other from George Gilder. Smith argues that entrepreneurs are driven by greed and self-interest when pursuing risky economic endeavors while Gilder believes that reciprocity and sympathy dominates the business motives. How does someone distinguish between the two?
George Gilder claims that capitalism is a system based on giving first before taking.
Self interest and self love was the main argument from Smith. Open markets work because they channel self interested artisans to serve themselves by first serving others.
The difference is what they each believe to be the driving force behind capitalistic adventure. However they agree that the process begins with giving!
Dr Steve Trost brought up the argument, in a video, that in a situation where uncertainty on return is the highest, entrepreneurial activity will be more highly motivated by reciprocity than self interest.
Dr Trost goes on to make 4 assumptions about what might drive people to engage in productive economic endeavors.
-Reciprocity (as a social norm)
-Greed and Self-Interest
-Self-Sacrifice (as a social norm)
-Genuine Self Sacrifice
The first two assumptions form the basis of the perspectives of Gilder and Smith, respectively. Self sacrifice as a social norm is self sacrifice with some external motivation for returns. Genuine self sacrifice is hopefully clear. It is sacrificial behavior based on internal motivation that aims to benefit someone or something else without concern of personal benefit.
In the video where Dr. Trost speaks about this topic, he spent very little time on the possibility for genuine self sacrifice, so I am going to dive deeper in this by discussing an anecdote.
I am writing this post as a college student. During my last two summers, I have worked with a company called Southwestern Advantage. I use the words "work with" as opposed to "work for" because I was an independent contractor for them and for all intents and purposes a private business owner in the sales of educational resources. This venture consisted of me moving across the country to start my own business to sell educational books, websites, and apps without the safety net of salary. I worked entirely off of commission. I lived in Virginia while I worked an average of 84 hours per week going door-to-door selling the resources. Housing was not providing. Southwestern provided me with materials, countless hours, of sales training, and mission statement that sticks with me today. Their mission statement is "to develop the skills and character in young people that they need to achieve their goals in life."
Now, I understand that the typical college student does not want to do something this extreme during the summer, but I personally wanted to learn how to be an entrepreneur. I wanted to develop communication skills and work ethic that would benefit me for the rest of my life. Money, for me, was simply a byproduct of hard work. Some days I would not make a single dollar. My motivation was not the reciprocity or the greed. My motivation was to develop my own character and to truly make an impact in the future of the kids I met by being able to sell helpful educational products. One might categorize this as self interest, but it is was not financially driven as so many other cases are. From my experience, this taught me how supply and demand works and how to sell. It is about finding a need and filling it. That is the true work on an entrepreneur.
A foundation of capitalism based on genuine self sacrifice is actually quite hard to obtain. I want to expand on the anecdote in order to explain this thought. From personal experience, it is difficult to act with genuine self sacrifice because people around you will doubt or even make you doubt your own motives. Because this foundational underpinning is so rare, many people are confused why someone would pursue something of high economic risk unless there was high monetary motivation or unexpressed greed.
When I decided to work as an educational consultant for the summer with Southwestern Advantage my close friends and my family all assumed that the only reason I would do such a thing is because I thought I could make a lot of money. Although I did average $15,000 in profit per summer, that was not the case at all. Comments like that hurt emotionally because the people that were closest to me assumed I would only do something entrepreneurial because of some infatuation with money. It made me doubt myself and feel like I was silly to want to grow in character and work ethic. It’s awful to think that the society around us has been brainwashed into seeing risky economic endeavors to be solely for greedy purposes, but many times that is the case. It felt like genuine service and care for others was somehow wrong. How can that be?
After hard hours worked and careful introspection I realized most people have been trained to avoid risks especially if the product of taking the risk cannot be materialized. I agree with what Dr Trost said about social and political factors playing large roles in what drives people to partake in economic endeavors because it is evident in the lessons that I have learned. Dr Trost did not speak much on the topic of genuine self sacrifice, and I believe the reason is because that type of motivation is so rare compared to reciprocity, greed, and apparent self sacrifice, but I wanted to show that genuine self sacrifice can exist, and I believe it can have a huge impact both personally and financially.
To connect the dots between the concepts mentioned thus far about capitalism beginning with giving one might ask where the gifts are coming from. The answer from George Gilder is the supply side.
Gilder brings up the views of Adam Smith once again to show that he did not believe that power of demand constitutes a nation’s wealth but rather the power of supply. Supply must come before demand! In fact, supply creates demand. Gilder uses the analogy of political leaders and explains how the leadership that politic figures possess often shape the response they get from their constituents in the form of public opinion. By this, we can see that leadership is supply and public opinion is demand. When demand is prioritized above supply, society sees a decline in productivity and an overall an uncreative economy.
Value is the intersection of supply and demand curves. Value gives a visual representation to the factors that allow economist and businesspeople to determine prices of goods. Value may seem intangible to some, but value comes in many shapes and sizes. As an entrepreneur, you can't be nervous when your heart is on service. That is a statement I live by and I use it to remind myself that even when it is hard to balance supply with demand and the anticipation of customer wants, if the goal stays on serving your customer then all things usually turn out fine. Capitalism does begin with giving, after all!
