Capitalism
The Returns of Giving
In chapter three of Gilder’s book, Wealth and Poverty, he discusses the role of capitalism and how it works in the economy. He begins the chapter with,
Not taking and consuming, but giving, risking, and creating are the characteristic roles of the capitalist, the key producer of the wealth of nations, from the least developed to the most advanced (Gilder, 2012, p. 27).
Capitalists control the economy in which we live in due to production for profits. Capitalists are the entrepreneurs of society because there is risk involved to create the products that consumers use to benefit themselves. This follows the trends in other chapters that entrepreneurs produce to consume. It is a balanced system in which we engage in mutual trades to benefit both sides. This brings in the giving aspect of the capitalist because they give to our economic system by the control that they have on it. Capitalism thrives on profiting which can only occur from giving. This leads into Gilder’s next section on reciprocity. In the words of Levi-Strauss (2012, p. 28), he explains that reciprocity is the essence of social life. When we receive, we tend to reciprocate that action with a gift in return. I believe that this is an accurate representation of society. It is our human nature to always pay each other back, even when it is intended as a gift. We do not like to be in debt to each other and are inclined to do nice gestures for each other to reciprocate. This creates the flow of capitalism because we are constantly keeping the economy running with exchanges, which is another topic previously discussed in earlier modules. Another way that this is explained is,
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 (Gilder, 2012, p. 31).
This is an interesting way to explain this type of market transaction. We think that exchanges create the value of the product, but in reality, it is the gift that evokes exchanges in which we see valuable. For example, when we receive a gift of sorts, we try to reciprocate a gift in return of what we deem to be of similar value. Though when we make exchanges, they occur because we see more or equal value in what the other person has to offer compared to what we have to offer, creating the value level for that exchange. The exchange that is referenced by Gilder though is one spurred by receiving first before giving in return of similar value. Following this explanation, Gilder (2012, p. 31) says that gifts create greater responses when the needs of the recipient are understood. When reading this, I think about birthday and Christmas gifts, but also just random acts of kindness from friends and family. The value of the gift goes up when the person giving it to you knows your interests and what you need, making the gift more thoughtful and cherishable. When you are given something that does not fit your needs or interests, then the value of the gift goes down. Though it is still thoughtful, the importance of fully reciprocating the action becomes smaller because the response is not as fulfilling. We give back the same value of what we feel we received. A greater response elicits a greater gift and vice versa. Another aspect of this idea of giving and receiving is the discussion of potlatching. Potlatching is an essential point in Say’s Law, which explains that you give expecting to receive, creating the exchange economy because of the entrepreneurial ability to create to receive for you to satisfy your own needs (Gilder, 2012, p. 33).
One quote that stuck out to me in this chapter is,
Capitalists are motivated not chiefly by the desire to consume wealth or indulge their appetites, but by the freedom and power to consummate their entrepreneurial ideas (Gilder, 2012, p. 35).
As I mentioned earlier, capitalism is essentially entrepreneurs who run the economy because of new inventions and their impact on society. However, it is known that entrepreneurs are not in the business for money. Starting a business is a lot of work because you run almost all aspects of it and are the ones at risk if it fails. Most people would not want to get involved just for the potential profits that come from it. One of the most important characteristics of an entrepreneur is to have passion for the business. This is why business owners branch out to pursue their ideas because they have the freedom to do what they love rather than working for someone else. Entrepreneurs are free to run their business how they please with ideas that they are passionate about. Therefore, capitalists are not driven by wealth like most would believe, but by internal motivation for doing what they want to do that could bring them wealth. Gilder then goes on to mention Adam Smith’s “invisible hand” which explains how capitalism works because of its “effective and predictable system of rational incentives” (2012, p. 42). The invisible hand of society is the metaphor for the free-market economy that consumers and producers work to keep the economy at equilibrium. It is our tendency to keep the market in equilibrium due to prices and demand that change depending on the supply available. The “invisible hand” works to do this because we do not intend to keep the economy flowing steadily, it just occurs because of the ability to fluctuate.
One final quote that stood out to me is,
Entrepreneurial learning is of a deeper kind than is taught in schools, or acquired in the controlled experiments of social or physical science, or gained in the experience of socialist economies. For entrepreneurial experiments are also adventures, with the future livelihood of the investor at stake (Gilder, 2012, p. 45).
I believe that entrepreneurship is a subject that cannot necessarily be taught, but acquired through experimentation, skills, and traits. It is such a valuable subject to learn about and experience because it offers such a wide variety of skillsets that is not taught in school. With entrepreneurship, you have management, accounting, economics, marketing, and so many more areas that are vital to making a company run. There are so many risks involved in starting a business but is an adventure that will take you so many places. Your future is unknown, but it could lead to greatness if you succeed.
Conclusion
In conclusion, this chapter on the “The Returns of Giving” explains the importance of capitalism and how it works in comparison to entrepreneurship. Giving to others reciprocates returns that follow the invisible hand of society to keep market transactions flowing. Entrepreneurs are a vital asset to the economy because they are the reason for the exchanges of new innovations for consumer interactions. This chapter was informative for understanding capitalism in a new light of good, rather than previous thoughts of greed when referring to capitalists.
References
Gilder, G. F. (2012). Chapter Three: The Returns of Giving. In Wealth and poverty (pp. 27–49). essay, Regnery Publishing, Inc.
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I think you did such a great job at covering the information very well. You talked about details from all over the chapter and brought some great insight to your essay. I was looking back at my essay as I was reading yours, and we talked about very similar things.
I liked how you talked about how it is human nature to want to repay a debt. I never really thought about the human nature aspect of this, but I do think there is a lot of truth in this. Something that you did not quite cover, which is the exact opposite side of the coin then this is that when people give gifts, they are typically giving them with the expectation of a gift in return. I also liked the emphasis you put on how the gift must be of value to the consumer in order for it to require a valuable return. This means that whatever value a gift holds for the receiver is the value to which they will try and reciprocate the gift. This has nothing to do with the actual market value of an item.
I thought this was really well put and just very simple. Gilder definitely said this in his own words in his original piece, but I liked the way you simplified it. You go on to talk about how entrepreneurs are not in it for the money. This is something that a lot of people misunderstand about capitalists / entrepreneurs. More often than not, the most successful entrepreneurs did not start what they are doing in order to get rich. Typically, they started because they saw a need, they had unique resources, or they had a passion about something in particular.
I am glad that you talked about the idea of the ‘invisible hand”. This is something that I too took a bit of time to discuss in my essay, and I found it very interesting. I think that the idea of the invisible hand goes to show that people's intentions are not really the most important thing to look at. There can be input into the economy put there by someone who is just looking to make a buck, and it can still positively influence the economy if it balances. This is really just saying that we don’t have to think about the balance of the economy and worry about keeping it flowing steadily, it will take care of itself.
One thing that I thought was really significant in this chapter that you did not cover was the whole comparison between socialism and capitalism toward the end of the chapter. Gilder talks about how socialism addresses demand before supply, which as you mentioned in your essay, in capitalism, supply happens first and then reciprocation follows. Capitalism is based on trusting the fellow members of society and socialism is based on strategic planning of every economic shift.
Overall, I think you did a great job covering the material from this chapter and I enjoyed reading your post.