View source for Notes:BC1.EF.Returns of Giving

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|HasArticleDate=2014/12/16
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|HasArticleText=Most of the notes below are quotes from Gilder's ''Wealth and Poverty''.
#Capitalism begins with giving.  
#:The first paragraph, third chapter (The Returns of Giving) of George Gilder's ''Wealth and Poverty'':
#::"Capitalism begins with giving.  Not from greed, avarice, or even self-love can one expect the rewards of commerce, but from a spirit closely akin to altruism, a regard for the needs of others, a benevolent, outgoing, and courageous temper of mind.
#::"Such a universal trait as self-interest--altogether as prevalent in any socialist backwater or deadening bureaucracy as in the realms of great enterprise--will reveal virtually nothing of the rare sources of riches in human society.  Not taking and consuming, but giving, risking, and creating are the characteristic roles of the capitalist, the key producer of the wealth of nations, form the least developed to the most advanced."<ref name="W&P">Gilder, George. ''Wealth and Poverty,  A New Edition for the Twenty-First Century''. Washington, DC. Regnery Publishing, Inc. 2012</ref>
#The gift is the secret of the creation of wealth.
#:Feasting and potlatching illustrate a capitalist tendency to assemble and distribute wealth.  But many primitive societies, for all their gift giving remained poor.  Many Theorists have focused on voluntary exchange as the secret of the creation of wealth. The crucial question with regard to gift giving as a prototype of capitalism is the source of capital gains, or increase in the total value of the society's goods.  How do societies become rich?
#::Trading itself provides part of the answer.  A voluntary exchange presumably improves the positions of the parties. Free market transactions continually improve the distribution of goods in a community by moving them from owners who value them less to owners who value them more.  
#:Adam Smith argues that the extent of the market determines the possible range for the division of labor, the process of increasing specialization that he sees as the source of economic growth. . . The progress of economies can indeed be measured by the extent of the system of exchange.  But . . 
#:It is not the exchange that elicits the goods and generates the increase in their value; it is the gift that evokes the desire to reciprocate and thus induces exchange.  The gift comes first.  
#::It is not the market that expands the division of labor.  It is the process of invention and specialization--the production of new goods--that expands the market.
#Capitalism requires an understanding of the needs of others.
#:The anthropological evidence suggests that capitalism begins with the gift and continues with competitions in giving.  These competitions succeed in generating new wealth largely to the extent that they are contests of ''altruism'', defined as a regard for or orientation toward others.
#:A gift will only elicit a greater response if it is based on an understanding of the needs of the recipient.  
#The extraordinary productivity of capitalism
#:Adam Smith argues that the extent of the market determines the possible range of for the division of labor that he sees as the source of economic growth.
#:However, the anthropology of the potlatch impels us to focus not on the exchange mechanism (market) but on the prior gift and its creation  
#::It is not the exchange that elicits the goods and generates the increase in their value; it is the gift that evokes the desire to reciprocate and thus induces exchange.  The gift comes first
#:It is not the market that expands the division of labor.  It is the process of invention and specialization--the production of new goods--that expands the market.  
#::Only if the fisherman can trade his extra fish for other things he needs can he afford to specialize in fishing.
#What the givers were doing, by transcending barter, was creating a kind of money: a mode of exchange that by excluding exact contractual planning allowed for freedom and uncertainty.
#Says Law
#:"Capitalism consists of providing first and getting later."
#::The ''mumi'' became impatient with the tangled negotiations of exchange and started simply donating his product.  It worked.  He had invented a form of capitalist investment, giving up his wealth in order to save it, parting with his goods in order to partake of a growing diversity of goods donated by others.  As devices of savings and investment, they depended for success on the continued honesty and economic returns of all members.
#:One can think of the free market as infrastructure for capitalism.  A free market is part of freedom.  It is not capitalism.  Property rights are part of freedom - not capitalism.  A just society with rule of law and courts is part of freedom.  But all these things are necessary to capitalism.  Capitalism is robust on one hand and delicate on the other.  It is hard to eliminate capitalism, but easy to impede it--excessive taxation and regulation(the substitution of power for knowledge)--ambitious 'redistribution'.
#Money grants freedom.
#:The chief difference between money and other liabilities is its indefiniteness.  Money bears a presumption of faith and a grant of freedom.  Without money all exchanges must be partly determined in advance.  <b>It is the willingness of men to give--or work--without a specific reward that allows liberty.</b>
#::Money in a planned economy tends to be a deceit or false promise because the purchases are mostly preordained, limiting the currency's use to a very limited ist of consumer goods in essentially predetermined amounts.
#::Money demand consists entirely of acknowledgement of debt for goods and services.  (When receiving goods and services money is remitted which is a proxy for goods and services produced by the payer.)  It is therefore more valuable than the supplies of goods because it confers freedom; it does not have to be spent on any particular good.
#::''In a capitalist economy every worker and businessman knows instinctively that his buying power consists of his supplying power, no more, no less.''
#:A useful definition of inflation is the dissociation of demand from supply--the rise of the belief that one's buying power can long exceed one's supplying power, that one can get something for nothing, that one can continually take from others without giving.
#::Particularly if the central bank funds these demands, all too soon the value of money, the instrument of demand, approaches nothing, which, as Voltaire observed, is the natural worth of such scraps of paper.
#:::Even if the government makes them convertible into gold, they have no value if the moral fabric of production and exchange dissolves.  In a collapsed economy, where trust everywhere fails, a man might trade an ounce of gold for a pound of corn.  In a thriving economy, his ounce of gold might buy him half a ton of corn.
#The essence of giving is not the absence of all expectation of return, but the lack of a predetermined return.
#:The gifts of advanced capitalism in a monetary economy are called investments.
#:Like gifts, capitalist investments are made without a predetermined return.
#Capitalists are motivated by the freedom and power to consummate their entrepreneurial ideas
#: not primarily by the desire to consume wealth or indulge their appetites.
#:They are doers and givers obsessed with positive visions of change and opportunity.  They are men with an urge to understand and act, to master something and transform it, to work out a puzzle and profit from it
#Capitalists need capital to fulfill their role in launching and financing enterprise.
#:Are they greedier than professionals - doctors, lawyers, writers, professors, civil servants?  Their goals seem more mercenary,  But this is because money is their very means of production.  The sociologist needs books and free time, the bureaucrat needs arbitrary power and the capitalist needs capital
#:Entrepreneurs must be allowed to retain wealth for the practical reason that only they, collectively, can possibly know where it should go, to whom it should be given.  Successful capitalism confronts the potential investor, public or private, with millions of small companies, scores of thousands of them launched every year with growth rates of between 20 and 40 percent and more, and suffering from crises of expansion and cash flow.  It offers a Babel of business plans and projects presented by every form of fast-shuffling charlatan, stuttering genius, business school tyro, flimflam artist, sleek financier, babbling broker, etc. all mixed in a teeming marketplace of "investment opportunities."
#::The flood of protean growth can be comprehended and sustained only by millions of individuals with access to disposable savings and deep involvement in the companies themselves--that is, by investors who have money of their own and who can share in a pass on the profits as they gain new knowledge and investment skills.
#:Although the desire to consume is ubiquitous and motivates all men, more important to capitalism is the drive to understand the world and to create things: to generate wealth (value defined by others) and reinvest it in the continuing drama of human invention and progress.
#::The fatal problem of a system without accumulations of personal income and without the possibility of large profits is not the lack of incentives but the lack of dynamism and flexibility.  
#Under a system of forced redistribution, the rich, aggressive, and ambitious gain their inevitable advantages not by giving by taking; 
#:they earn money and power only at the expense of others, by pursuing the zero-sum maneuvers of excessive government, financial finagling, sclerotic bureaucracy and legal pettifoggery, or by retreating into the invisible arms of an overgrown system of public sumps and subsidies.
#:It is capitalism that best combines the desire and ability to do good and create value with the resources to accomplish these goals.
#::But this is not well understood.  ''We confuse the creation of investing of wealth with the seizing and hoarding of it.''  And we misunderstand the nature and role of giving in human society.
#:An important truth:  ''The effort to predetermine returns by coercion or exploitation is inimical to the spirit of giving on which capitalist growth depends.  the reciprocation must be voluntary to succeed.  The grasping or hoarding rich man is the antithesis of capitalism, not its epitome, more a feudal figure than a bourgeois one.  The grasping and hoarding rich man is the antithesis of capitalism, not its epitome, more a feudal system than a bourgeois one.'' 
#Welfare is necessary but very problematic
#:A society without welfare of any kind--a system like China's that forces people to work on pain of starvation--is as hostile to the spirit of giving as a society that forces them to work at the point of a gun.  
#::Sensible levels of benefits are both generous and capitalistic, since they relieve people of coercion and thus permit them freely to join the system of giving.
#:Nonetheless, welfare beyond a minimal level becomes deeply problematic.  It is extremely difficult to transfer value to people in a way that actually helps them.  
#::Excessive welfare hurts its recipients, demoralizing them or reducing them to an addictive dependency that can ruin their lives.  
#:Sensible levels of benefits are generous and capitalistic, since they relieve people of coercion and ''thus permit them freely to join the system of giving''.
#::The anonymous private donation may be a good thing in itself.  As an example for others, it may foster an outgoing and generous sprit in the community.  But a s a rule of society it is best if the givers are given unto, if the givers seek some form of voluntary reciprocation.  Then the spirit of giving spreads, and wealth tends to gravitate toward those who are most likely to give it back., most capable of using it for the benefit of others
#:<b>It is the genius of capitalism that it recognizes the difficulty of successful giving, understand the hard work and sacrifice entailed in the mandate to help one's fellow men, and offers a practical way of living a life of effective charity.</b>
#Capitalism is the most effective way of expanding wealth because it links knowledge with power.
#:Capitalism is an epistemological system, a way of making discoveries and exploiting them.
#::with every enterprise is an invisible profit of expanded knowledge.  Investments are purposeful experiments, and whatever the outcome, the results are informative.  
#:It gives control of resources and the future flow of investment not to political bureaucracies of certified experts or to the most avidly self-loving pursuers of leisure and luxury, but to the particular businessmen who manage successful experiments of enterprise.  It grants riches to the individuals who have proven their ability to forgo immediate gratifications in pursuit of larger goals; who refuse to waste or hedonistically consume their wealth.  
#::Under capitalism, economic power flows not to the intellectual, who manipulates ideas and basks in their light, but to the man who gives himself to his ideas and tests them with his own wealth and work.  
#:Steeply progressive tax rates not only destroy incentives; more important, they destroy knowledge.  They take from the givers and thus prevent them from giving again, from reinvesting their winnings in the light of the new information generated by the original gift.
#:The vast bulk of human knowledge that makes an economy work is in people's heads.  It consists of an astronomical mass of technical information, skill, intuition, and practical experience.  When moving from this to written or documented learning alone, one reduces total knowledge by a factor of millions.  
#::And when one moves from written knowledge to mathematical data--the kind of information that can be programmed on a computer--one reduces total knowledge by another factor of millions.  
#:Yet every socialist plan normally begins with just such a reduction leaving ony a pile of statistical ashes from which to reconstruct the edifice of economic activity.
#:And this is also the main weakness of economics.
#''X-efficiency''
#:Leibenstein showed that productivity differences between workers doing the same job in a particular plant are likely to vary as much as four to one, that differences as high as 50 percent can arise between plants commanding identical equipment and the same size labor force that is paid identically.  Matters of management, motivation, and spirit--and their effects on the willingness to innovate and seek new knowledge--dwarf all measurable inputs in accounting for productive efficiency.
#:Without this ''x'' factor, most of the highest possibilities of an economy will remain latent.  The spirit factor is best elicited by ownership--which means exposure to the risks and benefits of productive property, whether it is one's own land and labor or IBM shares.
#Socialism is an insurance policy bought by all the members of a national economy to shield them from risk.
#:Rather than benefiting form a multiplicity of gifts and experiments, the entire economy absorbs the much greater risk of remaining static in a dynamic world.
#::In a capitalist economy, with more of the risks borne by the individual citizens and entrepreneurs, and thus vigilantly appraised and treated, the overall system may be more stable.
#:Socialism presumes that we already have most of the knowledge we need to accomplish our national goals.  Capitalism is based on the idea that we live in a world of unfathomable complexity, ignorance, and peril; and that we cannot possibly prevail over our difficulties without constant efforts of initiative, sympathy, discovery, and love.
#::One system maintains that we can reliably predict and elicit the results we demand.  The other asserts that we must give long before we can know what the universe will return.  One is based on empirically calculable human power; the other on optimism and faith
#::In a socialist economy, one does not supply until the demands have already been determined.  Rationality rules, and it rules out the awesome uncertainties and acts of faith that are indispensable to an expanding and innovative system. 
#One can seek the surprises of profit, rather than the more limited benefits of contractual pay
#:The capitalist vs. the rest of us.
#When faith dies, so does enterprise.  It is impossible to create a system of collective regulation and safety that does not finally deaden the moral sources of the willingness to face danger and fight, that does not dampen the spontaneous flow of gifts and experiments that extends the dimensions of the world and the circles of human sympathy.  
#The ultimate strength and crucial weakness of both capitalism and democracy are their reliance on individual creativity and courage, leadership and morality, intuition and faith.  
#:But there is no alternative except mediocrity and stagnation.  
#:Rationalistic calculation, for all its appeal can never suffice in a world where events are shaped by millions of men, acting unknowably, in fathomless interplay and complexity, in the darkness of time.
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