Doubts about Ed Phelps’ Cowboy Capitalism

Jay Richards at the AEI blog is doing a series of posts about Ed Phelps’ old First Things essay about the morality of capitalism. I’m broadly supportive of Phelps’ project, but I think Richards’ reading is rather too sympathetic.

The first thing that confused me about Phelps’ piece was his eccentric take on St. Augustine’s most famous phrase:

I personally hold that the classical spirit of challenge and self-discovery is a fundamental human trait. By showing how the risk-taking activity of individuals contributes to social benefits, economics helps societies to accommodate what Augustine called our “restlessness of heart.”

Phelps doesn’t flesh this out, but I assume he recognizes that Augustine was speaking of man’s desire for God, not his desire for mammon.

I found the central part of the essay even more problematic. Phelps tries to move us past the limited view of homo economicus, but his alternative, homo innovaticus, is even more problematic. What Phelps means by homo innovaticus is revealed when he describes men as risk-taking being whose life is “interesting, exciting and rewarding.” This excitement comes from “leaping into the unknown”:

The shortcoming I have come to see in Rawls’ model is that it has no place for anything other than the distribution of material goods. He leaves out self-discovery, adventure, and leaping into the unknown. It is wrongheaded to maintain that a good society could be one that stifles challenge and personal growth if that is what it takes to provide the people at the bottom the last cookie that can be eked out of society’s resources. People don’t have the right to a few more cookies if it comes at the expense of all other people’s self-realization, self-discovery, and self-fulfillment as homo innovaticus.

Any investment of time and effort in the creation of something carries with it the possibility of failure. But to acknowledge the inevitability of such risk is not to embrace it as a good in itself. Phelps’ homo innovaticus can only enjoy wealth if he is able to thrill his imagination by contemplating the possibility of deprivation. The exhilaration of risk is real, but it is neither universal nor fundamental. It is properly the motive force of Atlantic City, not Wall Street or the world. Free markets must be defended and strengthened because they enable man to exert his creative faculty, but when they become playgrounds for perverse cultural and personal impulses, we should start to worry.

Phelps’ argument would have found surer (but I suppose less exhilaratingly uncertain) footing had he made the simple observation that economics is the result of man’s universal need to create, which results from his nature as homo faber. Thomistic philosophy suggests that this desire to create—whether by building a home, painting a picture, or creating wealth—is fundamental because it is, in the words of Etienne Gilson, “an outer manifestation of the act of existing.” It results naturally from the fact of man’s being.

Phelps comes to close to making this point when he talks about the relationship between economics and what we today call “creativity.” (This is the part that Richards, understandably, focuses on.) Phelps’ gestures in this directing indicate that he could have described homo economicus simply as homo faber (and thus saved himself from inventing the ill-defined homo innovaticus), but doing so would have justified only the existence of economics and not of one strand of cowboy capitalism.