In the book, he describes capitalist society as the “extended order of peaceful social cooperation,” drawing on the thought of Friedrich Hayek. The key institutions of a capitalist society are, according to Livingston, private property and the Rule of Law. “It is hoped,” he tells us, “that this book will improve understanding of the extended order of peaceful social cooperation and its prerequisites.”
Livingston’s exaltation of the entrepreneur taps intellectual history beginning with Alexis de Tocqueville. In a fanciful prologue, Livingston imagines Tocqueville expressly warning the 21st century of “activities now taking place that are dishonorable even though they are considered to be perfectly legal.” Tocqueville characterizes honor as acting based on the virtues of “courage,” “honesty,” and “hard work.” These virtues need exercising. Livingston’s Tocqueville warns, “Today, dishonorable business executives commit acts of plunder when they seek and obtain preferential treatment from compliant politicians whose legislative actions weaken private property rights and undermine the Rule of Law.”
Rule of law / Livingston reviews the history of private property rights and the Rule of Law. The ancient Greeks, Romans, English, and Americans contributed to these key institutions. Livingston shares this wisdom of Aristotle: “Property should be in a certain sense common, but, as a general rule, private; for when everyone has a distinct interest, men will not complain of one another and they will make more progress because everyone will be attending to his own business.”
The Greeks called their Rule of Law “isonomy.” Livingston cites Hayek’s The Constitution of Liberty to explain isonomy as meaning “that equal laws were created for the noble and the base—all Athenian citizens were governed by known and general rules rather than by the caprice of tyrants.” Under the Roman version of the Rule of Law, the Law of the Twelve Tables, all citizens (rulers and the ruled) had comprehensive private property rights.
Fast forward several centuries. The English produced the Magna Carta. Landed barons, with the support of commoners, demanded that the king respect property rights and civil rights. Move ahead another five centuries to the American contribution. “From their study of history,” Livingston tells us, “the Founders concluded that human beings are tragically flawed and vulnerable to the corrosive effects of excessive power.” The U.S. Constitution enshrined private property rights and the Rule of Law. The Founders’ idea of separating powers among legislative, executive, and judicial branches of government, and between national and state governments, bolstered the Rule of Law and mitigated the tyranny of the majority. Alas, the document was imperfect because it institutionalized slavery, ultimately resulting in immense civil disorder to rectify.
Bad capitalists / Property rights and the Rule of Law enable entrepreneurs to act. An author intent on celebrating entrepreneurs might first illustrate the material benefits of entrepreneurial activity, but Livingston tacks in another direction. He first considers nonmaterial benefits by reviewing Samuel Johnson’s 1759 novel The History of Rasselas: Prince of Abissinia. Rasselas, the main character, flees the “happy valley” where he had everything he could want except happiness. He and his comrades observe people in different walks of life, many of whom are unhappy. The only happy people are those doing business. Rasselas’ adviser, however, suggests that just because people doing business in Cairo appear to be happy, doing business itself is not necessarily the key to happiness. Livingston’s point in telling the story is that just as entrepreneurs take risks to become wealthy, they take risks to become happy.
Writer Willi Schramm observed: “The trouble with socialism is socialism. The trouble with capitalism is capitalists.” Livingston sees three types of bad capitalists. One type lobbies government officials for favorable tax treatment or subsidies without understanding that this rent-seeking behavior undermines capitalist society. A second type understands that rent-seeking is antisocial, but does it anyway because it is legal. The third type is just plain dishonest, a clever knave eager to circumvent legislation or laws for gain.
The author does not profess mind-reading ability to determine whether business executives understand that their rent-seeking behavior weakens capitalism. He does document such behavior, however. Take the bailouts during the Great Recession: “General Motors received $50 billion, while $182 billion was spent to save the giant insurance company AIG.” Subsidies distort the agricultural sector: “From 1995 to 2012 farmers received $292.2 billion in subsidies from the Federal government, and ‘aid’ was given even when profits were high.” Crony capitalists convince politicians to exempt them from taxes. For instance, “At the beginning of 2013, Democrats and Republicans agreed on a fiscal cliff deal that saw taxes go up for all ‘millionaires and billionaires’ unless they were fortunate enough to own a NASCAR track in Michigan, a wind energy company, a rum distillery, a business located on an Indian reservation, or a tuna company operating in American Samoa.”
Livingston likens the law-breaking type of bad capitalist to Narcissus of Greek mythology. “The impatient business Narcissus values success above everything else, and he pursues fame and fortune using unsavory means such as accounting sleights of hand that hide losses or that make his company’s profits seem more robust than they actually are.” Livingston is even more fanciful in describing Enron and its accounting firm Arthur Anderson:
In the end, the self-admiring business Narcissus stared into a pool of debt while trying to preserve an image of success, and when the inevitable failure came, Enron Narcissus and Arthur Andersen Echo pointed fingers at each other. Narcissus exclaimed, “We did nothing wrong,” and Echo repeated, “We did nothing wrong,” and when Narcissus said, “It is their fault,” Echo repeated, “It is their fault.”Entrepreneurs / The extended order, in which entrepreneurs thrive to benefit themselves and in doing so benefit others, has philosophical underpinnings. Livingston sets the stage with this philosophical foundation and profiles actual entrepreneurs. “Entrepreneurs are honorable, in the sense of Tocqueville, when they adhere to general rules of property and just conduct and avoid actions that are personally advantageous but detrimental to the extended social order.” Virtue is closely related to honor. Working with Aristotle’s concept of virtue, Livingston reasons:
The virtue of just conduct in the practice of entrepreneurship entails achieving excellence using economic means to acquire external goods of material success, while knowing and exercising those internal qualities that strengthen and preserve the institutions upon which the extended social order depends.A virtuous entrepreneur aims to satisfy consumers and outcompete other entrepreneurs. The “economic means” of earning a living, originally defined by Franz Oppenheimer, are production and trade. Add innovation to that list. In contrast to economic means, Oppenheimer equated the “political means” to stealing. Virtuous entrepreneurs embrace economic means and reject political means. They are upstanding citizens who respect property rights and Rule of Law.
Livingston profiles the 19th century entrepreneur Cyrus McCormick to exemplify the economic means of doing business. McCormick built a better machine to reap wheat. He located a factory near Midwestern wheat farmers, mass produced the machine at low cost, and enabled farmers to finance the purchase of his machines. The author likewise describes innovations in the communications and health care industries, though he doesn’t sketch biographies of the innovators.
He does name individuals who acted heroically in court. John and Florence Dolan, owners of a business in Tigard, OR, sought permission from the city to upgrade their property. The city wanted a quid pro quo: “10 percent of their property for a bicycle path and water drainage.” The Dolans argued that the city’s decision was an unconstitutional taking and they ultimately prevailed in the U.S. Supreme Court. “The Dolans’ actions were honorable,” Livingston declares, “because they curbed the ability of cities and other governmental entities to use regulation to require property owners to make public improvements that are unrelated to business licensing requests.”
The reader may wonder who is Livingston’s idea of an ideal entrepreneur. Perhaps it is John Allison, previous head of BB&T and previous president and CEO of the Cato Institute. The author tells the story of Kelo v. City of New London: City officials wrested Susette Kelo’s property from her, as well as her neighbors’, to pave the way for a corporate headquarters, shopping mall, and other businesses. To the dismay of defenders of liberty, when Kelo challenged this, the U.S. Supreme Court ruled against her. In Livingston’s interpretation, “The Supreme Court sanctioned the authority of governmental bodies to take private property for ‘public benefit’ in addition to the traditional ‘public use’ criterion.” Allison opposed such theft and, Livingston explains, “because of John Allison’s leadership, BB&T refused to make loans to any contractor involved with property that had been forcefully acquired through a political authority’s power of eminent domain.” After the Kelo decision, most state legislatures passed laws ostensibly protecting property owners from a government taking their property and transferring it to others for “public benefit.”
Social justice? / Entrepreneurs have a stake in calls for “social justice,” whose advocates argue for income redistribution. Livingston outlines three problems with this concept. The first is that no omniscient individual exists who is able to weigh manifold factors (ability, merit, etc.) and produce the idea of a fair distribution of income, let alone sell it to the public.
The second problem is that politicians who recognize the first problem could offer their ideas of fair distributions of income and citizens could vote for what they think is best. Livingston introduces an insight of theologian Reinhold Niebuhr to uncover the problem with that. Niebuhr explained that humans behave better in individual settings than in group settings. For example, my “reason” and my “conscience” tell me not to steal from my neighbor. But I drop those guiding faculties when a politician proposes to tax high-income earners and transfer the tax revenue my way through a government program. Politicians’ proposals to redistribute income might lead to a tyranny of the majority.
The third problem is that an authoritarian government, in an effort to overcome the first two problems, could dictate that each individual receives an identical income. But incentives to create income would then fade. Livingston puts it this way: “Everyone can be made equal, but everyone will be equally poor.” The author reiterates Hayek’s point that by denying an individual the autonomy to earn a higher income, a government also denies that individual the ability to develop morally.
The entrepreneur’s role in resisting social justice is the same as in business: embrace economic means and shun political means. Other actors have roles to play as well. Livingston describes American society as a “triune social order”: business, government, and “a moral–cultural system that embraces the ethic of pluralism.” For example, government officials could refrain from demonizing high-income earners and stirring envy among the public. Our culture could honor wealth creation and spurn redistribution of wealth by government; we could agree to disagree and tolerate differences.
Conclusion / This book is heavier on political philosophy than real-world stories of business ethics. The reader will encounter more intellectual figures than business executives. One such figure is Marcus Tullius Cicero, who pondered the choice between economic means and political means. Livingston quotes the Roman orator, “The rule of what is beneficial and of what is honorable is one and the same.”
Livingston is persuasive that entrepreneurship is a noble endeavor. When entrepreneurs choose to produce, trade, and innovate, and refrain from legal plunder, citizens receive goods and services as well as the intangible benefits of an extended order.
