The baker bakes bread, said Adam Smith in 1776, not to feed the people of the village, but to improve his lot in life.
The idea that people act to promote their self-interest is not surprising, but what is remarkable is Smith's contention that the actions of these individuals, driven by the desire to make themselves better off, result in the greatest improvement in society's welfare.
Mr. Smith's "Invisible Hand" doctrine, propounded in The Wealth of Nations, has proved to be a remarkably enduring idea, forming the basis for today's market economy. And so it is that as we contemplate a consumer forking over $5,000 for a refrigerator made of brushed stainless steel, or $80,000 for a Mercedes, or engage in any of the other myriad transactions that strike most people as conspicuous consumption, we must remember that voluntary exchange in a free market -- the individual, of his own volition, is buying a good in exchange for his income (derived from selling his labor services in the market -- tends to leave both parties better off. It is also likely, through sundry linkages and multiplier effects, to raise the overall level of welfare in society.
But yet we cannot shake off that nagging feeling. Surely there is something wrong about spending $600 for a hotel room for one night or thousands on an Armani suit or a piece of jewelry. If there is any justice in the world, one thinks, people who buy these things at outrageous prices will get their comeuppance in some fashion.
And what if profligacy were compounded by venality? Might it not be the case that some of these excesses were financed by wealth accumulated through spurious methods -- fat cat CEOs inveigling monstrous pay packages from servile boards of directors, government bureaucrats awarding defense contracts in exchange for promises of future employment at lucrative terms in the private sector, mutual fund managers exploiting information on imminent trades by their firms to conduct transactions on their private accounts.
Perhaps, and here one turns to religion for help. These people will pay for their ill-gotten gains and their profligacy in the afterlife. The Bible is actually quite clear on this point: the entry of the rich into heaven is likely to be very difficult. On the other hand, the deceased hoi polloi, the great unwashed, will discover that their relative penury on Earth has equipped them to pass through the pearly gates with scarcely a questioning glance from St. Peter (and no security check to deal with, either).
But yet, while this thought may buoy us momentarily, we are soon shaken by another: Are the rich really deserving of this treatment? Should they all be treated like terrorists seeking to enter this country, objects of suspicion solely because of their affluence in their previous (or only?) life? What if only a few had acquired their gains through dubious contrivances (say, like Bernie Ebbers or Ken Lay)? Was it not likely that the vast majority had acquired their wealth through industry, fortitude and pluck, and consequently deserved to be praised rather than condemned? How could one justify financial profiling -- this singling out of an entire class based, for large numbers within it, on an attribute they had diligently striven for all their lives and in the process promoted society's welfare in diverse ways?
But there was worse. For Peter had a list, and if your name happened to be on it, God help you. Well, on second thought, perhaps not. He put you on the list. There would be no way to dispute the charge, no legal guardian angels stood by to take up your case with the Bureau of Homeland Security. You could cry to the heavens, but all your tears wouldn't wash out one letter of your name on the list. There would be no entry into heaven. HOW UNJUST it was, and, irony of ironies, to encounter this patently unfair immigration procedure at the very gates of heaven. Paradise beckoned. It was so close. Behind the gates lay immortality and perhaps a cafe, but first they would have to get through security.
And so, back on Earth, we begin to look at the conspicuous consumers and the flagrantly wealthy in a new light. Our earlier feelings of envy would be greatly diminished, if not entirely eradicated. Now we would feel pity. Even for Donald Trump. We would hope that he doesn't get on Peter's list and risk being told, "You're fired!" The consequences would be devilishly unpleasant.
SANJAY PAUL is an associate professor of economics at Elizabethtown College.