Capitalism and Faith

This may seem like a pair of strange bedfellows. I expect people to generally consider faith superfluous when it comes to how the market operates: contracts and legal authorities regulate its function. During the search for an apartment, however, I considered the following hypothetical alternatives:

First, imagine a broker—regardless of whether working for a seller or buyer—who has no faith in the overall beneficence of the market system, let alone other people using the market. In that case, I imagine the person will think of every interaction with a potential counterpart on its own, as either a waste of time or making the desired big bucks.

Each time they show, or see, an apartment for, or with, a client they spend valuable time and energy. And for what? Possibly nothing, or so it may seem if no deal comes about, at least in the absence of a more long-term oriented thinking. If on the other hand seller and buyer come to an agreement, that means a lot of money. And an easy to satisfy client might only require a few hours of work, especially if the person can be coaxed to sell or buy sooner rather than later. In New York City, brokers generally split the customary 6% broker’s fee in half, meaning that at a purchase price of $800,000, that’s a $24,000 chunk of income—if the other side agrees to make the deal.

If the broker only considers each individual interaction, it would seem to make a lot of sense to try to sell the way a caricature of a traveling salesman might: don’t you worry about the long-term consequences of your sales practices, as long as you close the next deal. That, to me, is the central difference between a no-faith and with-faith attitude towards markets.

On the flip side, I can imagine a broker who believes that the apartments they show or see have value for their client, either the seller or buyer, and that their role is to help the two parties to come to a fair agreement. If this person has faith in the value of their own contribution to the process, I predict an entirely different attitude. They may at times get a bit frustrated about not closing with a specific counterpart. They would, however, not attempt to coax their client into selling or buying merely for receiving the broker’s fee as quickly as possible.

How does this matter? After reading “The Hidden Spring” by Mark Solms—a book I already mentioned in another post—I started to think of the market itself as manifesting the Free Energy Principle. Through the mechanism of finding a fair price, at which people are willing to trade a commodity for a generally accepted currency, the market minimizes wasteful resource allocation: goods end up in the hands of the people who have the greatest utility for them. However, for this to work to everyone’s benefit, a number of constraints must be met.

One such core constraint is that the people acting in a market must consider each interaction as one in a potentially infinite series of such interactions. And this is a tricky attitude to foster. Similar to simple sets of rules used in game theoretical experiments employing a payoff matrix to allocate benefits to players, if all players cooperate, a win-win outcome can be achieved. If some players start to play the game with an extractive mindset, believing in a zero-sum game environment, they will try to “win over” other players, and the dynamics change.

What does that have to do with faith? It is the essential component that, so it seems to me, is more and more lost on people. And to the extent that the market participants attempt to extract more and more value from the mechanism, above and beyond what a fair evaluation would suggest, the mechanism itself breaks down. I believe that this breaking-down is one of the major contributors to the current political struggle in the US.

People on the right cling to the utility of the market, often unquestioningly, without fully appreciating the conditions under which a market does indeed offer benefits for everyone—not just those who can successfully extract value from others. People on the (far) left seem to have adopted a kind of thinking that suggests that anyone with presumed power and privilege is using cultural institutions, including the market, to further their power and privilege. And this is then summarily judged as white supremacy or a colonial attitude, which needs to be overcome with a post-colonial revolution. Markets are, in consequence, seen as an instrument of power and privilege retention and expansion.

If my intuition has merit, I believe that there are two broad options available for how we can approach the necessity for commerce—the question of how to sustain the absolutely astonishing leverage and benefit achieved through global division of labor. We can either attempt to devise a central planning mechanism that replaces the market, at an incalculable risk of getting it wrong and creating a monstrous overlord agency that forces people to allocate their time and energy towards efforts they may or may not like to engage in.

Or we can find our way back towards a market that works—for everyone. This will require for people to regain faith and trust in this mechanism. And for that to happen, it will require to find ways to disincentivize short-term thinking, in which continued faith in the market is traded away for a momentary gain in the here and now, like making a quick buck via a broker’s fee on a naive client. Only if market participants experience this mechanism as morally just and useful does it provide the promised utility for everyone.