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Posted 7/3/2003
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7 pursuit-of-happiness all-stars
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By Victor Niederhoffer and Laurel Kenner
It is appropriate for investors and all others in celebrating the Declaration of Independence this week to reflect on how the profit motive has been responsible for so much of the happiness that we achieve.
A good way to start is to think about the many failed attempts to establish settlements in the Americas by the Spanish, French and English. Not until some entrepreneurs got the idea that the most effective way to establish a colony was to appeal to the self-interest of those doing the colonizing did incentives, infrastructure and institutions combine to make it work. The Jamestown settlement established in 1607, now an open-air museum, testifies to the many obstacles the stockholders of the Virginia Company had to overcome in establishing their thriving farm export business.
It was not from the benevolence of the colonists or British government planners that the colonies eventually became successful and rich, but from the pursuit of self-interest. This pursuit is what Adam Smith had in mind when he wrote: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their self-interest.”
The corresponding passage in the Declaration is “that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness.” Note that the word is “pursuit.” The right isn’t just to pursue property, but for people to use their property in diverse ways to be happy.
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The signers believed that the proper role of the individual is not to seek status or dispensations from a lord or a government; existence per se gives him a right to his life, liberty and pursuits. As Don Boudreaux, chairman of the Economics Department at George Mason University, puts it, the capitalist ethic “encourages a division of labor driven not by tradition or the dictates of secular or religious authorities but, instead, by the countless opportunities for mutually advantageous gain that are individually perceived and acted upon.”
The pursuit of happiness remains the single best way to get what we want, and is responsible for many unintended benevolent consequences. This is clearly shown every day in millions of ways, including the list of the 10 companies in the Dow Jones Industrial Average that had the greatest increase in shareholder wealth during the ups and downs of the last five years:
| Top 10 Dow Jones Industrials, 1998-2003 | ||||||||||||||||||||||
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If there’s one thing that almost all of these companies have in common, it’s that they all purvey efficiently manufactured products that are affordable and used by a great many people. Their customers pay a small part of their income for the average products bought, and purchase them repetitively. Therefore, there are golden circles of mutual benefit involved.
Unalienable right
It’s no accident that Adam Smith’s "The Wealth of Nations" was published in the same year that the Declaration of Independence was signed. Pursuing happiness had worked so well in the American colonies that, by the time of the American Revolution, the economy was flourishing. This is that inspired Smith to delve into the principles that were responsible for the wealth of the colonies in North America.
Some will object that business, in addition to giving us what we want, gives us something we don’t want: pollution. Our environment, however, is vastly cleaner than it was 50, 100 or 1,000 years ago. Let’s start with something that really matters: disease from pollution. As the late free market economist Julian Simon observed: “When considering the state of the environment, we should think first of the terrible pollutants that were banished in the past century or so: the typhoid that polluted such rivers as the Hudson, the smallpox that humanity finally pursued to the ends of the earth and just about eradicated, the dysentery that distressed and killed people all over the world.”
Boudreaux points out that people today live long enough to wring their hands with concern over carbon dioxide testifies to the improvements that industry and capitalism have brought to our lives. Consider, say, what life was like before:
- Antibiotics. Infections routinely killed our ancestors.
- Refrigeration. Our ancestors risked ingesting deadly bacteria every
day.
- Clean, affordable clothes. In pre-industrial times, people wore the
same clothes day after day without washing them.
- Cheap soap, safe tap water, clean towels, toothpaste, mouthwash,
bathrooms and toilet tissue. Our ancestors rarely bathed. Their
discomfort must have been extreme, and we would have regarded them as
filthy.
- Readily available building materials. “The interiors of our homes are immaculate compared to the squalid interiors of almost all pre-industrial dwellings,’’ Boudreaux writes. “Floors were typically just dirt, which made the farm animals feel right at home when they wintered in the house with the humans. Of course, there was no indoor plumbing. Nor were there household disinfectants, save sunlight.” Unfortunately, windows were costly, and screens are an invention of the industrial age, so there was no way to let the sunlight in while keeping insects out. And thatched roofs “rotted from alternations of wet and dry, and harbored a menagerie of mice, rats, hornets, wasps, spiders and birds.”
What people want
People wrongly believe that the world is dirtier and less healthy today than in the past, and many “blame the free market for all real and imaginary environmental problems,” Boudreaux writes. “In fact, the free market is the greatest cleanser and disinfectant of the environment, the most successful pollution fighter that the world has ever known.”
To see the truth of this, one only has to think of the many great industrial enterprises that are household words: Unilever
There are trade-offs in the manufacture and use of all of these goods, of course. But pollution is much less where the business sector is vibrant. Consumers are very capable of voting with their pocketbooks, and business is amazingly good at providing products that keep people and their environment clean.
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Dinesh D’Souza, in ‘’What Makes America Great?’’ notes that the cultures of antiquity regarded merchants and traders as inferior to those who didn’t work for a living. Priests, philosophers, nobles and military men were held to be the ideal. The idea of America is different. Here, “the self-interest of entrepreneurs and workers would be directed toward serving the wants and needs of others. In this view, the ordinary life, devoted to production, serving the customer, and supporting a family, is a noble and dignified endeavor.”
Halls of fame exist for almost everything under the sun. We believe there ought to be an Invisible Hand Hall of Fame, for companies that, in the course of increasing shareholder wealth, have improved our lives. We nominate seven of them for the Hall of Fame:
- Unilever
(UN, news, msgs)
- Procter & Gamble
(PG, news, msgs)
- Colgate-Palmolive
(CL, news, msgs)
- Gillette
(G, news, msgs)
- DuPont
(DD, news, msgs)
- Crown Cork & Seal
- Sonoco
(SON, news, msgs)
- Fan Milk of Ghana, which has revolutionized milk
distribution in Africa.
- Nirma of India, a producer of low-cost detergents.
Final note: The end of the first half of the year is a time of regrouping and changing horses. On our Web site, Daily Speculations, we analyze and show how to take advantage of that and explain why we're selling the five best first-half performing in the Dow and buying the five worst.