A famous anecdote goes something like this:
F. Scott Fitzgerald – “Are the rich different from the rest of us?”
Hemingway’s response – “Yes, they have more money.”
If I understand this incident correctly, it was Hemingway’s way of expressing contempt for the very rich. Fair enough, from one point of view, but completely wrong as a clue to understanding capitalism. Because the rich have more money, behavior that is rational for them is often irrational for us.
If you are walking in the street and spot a $10 bill lying in what looks to be a filthy pool of water, you may put your bad back at risk and bend down to pick it up. If you have a few million dollars, you are not so inclined to do that. If someone says, “Pick a 5-clubs from out of the deck and I will kill you. Pick anything else and I will give you $5000,” and if you have a net worth of $500, that offer may appeal to you. If you have a few million dollars, the offer doesn’t sound good.
That’s all there is to venture capitalism. The venture capitalist is praised for taking risks and he is often rewarded for doing so. The man sleeping under the bridge cannot join in the fun. The capitalist laughs and says that it is a free country and we may all sleep under the bridge in the pouring rain if we wish to. The capitalist laughs and praises rugged individualism, pointing out that “taking sensible risks to help our money grow” [the old Dreyfus lion ad] is what makes our country so great. With his eye on the vulture and not on the sparrow, the capitalist takes note of our very high median income and even higher mean income. The capitalist does not seem to notice that exactly half the people are below the median. He is pleased to note that the mean income of ten people, nine of whom have nothing and one who has a billion dollars, is very high and he refers us to the greatness of America.
The capitalist, with the blessing of 10,000 people with Ph.D. degrees, informs us that only capitalism can produce a growth economy – and that is important for something or other but I forget what. The Robert Kagans of the world boast that American capitalism is raising the standard of living for all the world but Jeffrey Sachs must be mathematically challenged if Kagan is right because his own down-in-the-trenches dirty work led him to calculate that over one billion people are starving to death on incomes under $1 per day. Read his The End of Poverty.
Capitalism has not always been with us. On Day One there was no use for money. On Day Two, some bright-eyed bushy-tailed guy said to some poor schlimazel, “Hey, come work for me,” and the rest is the history of degeneracy.