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The Robinson Crusoe Ethic
The method of Crusoe Economics used in Part II and Part III brings to our attention fundamentals of human action that other methods obscure, ignore or denigrate. Crusoe I, left to his own devices, has a strong incentive to allocate his time among short- and long-term goals: if he misallocates, then he bears the full brunt of his error, and if he blunders egregiously, then he imperils his own survival. Crusoe thus has a strong incentive to allocate with a view towards long-term survival and prosperity. We have seen that, given a beneficent endowment of the island by Mother Nature and a benign government on the neighbouring island, Crusoe I saves, generates a pool of funding, innovates and otherwise orients his activities towards the accumulation of capital.
Left to his own devices, then, Crusoe I emphasised and epitomised abstinence, thrift, diligence, patience and calculated risk-taking. The Robinson Crusoe Ethic venerates and elevates these traits to the status of virtues. But by orienting his activities towards the creation of wealth Crusoe I was no mere accumulator: despite his solitary existence for much of his time on the island, he bequeathed to his heirs quality goods, worthy values and the basis of a vigorous culture. More generally, by uncovering and practicing the virtues that help to secure material prosperity, the Robinson Crusoe Ethic has played an indispensable role in the advance of human civilisation.
This ethic has also played its part in the erratic progress of liberty. On Crusoe’s island the ownership and control of property are inextricably connected: liberty and property rights, in other words, are virtually indistinguishable. Further, unlike today’s Organisation Man, Crusoe is both an owner and a manager. Hence the separation of the ownership and management, a vexation of our age, is not just absent from but also alien to Crusoe’s world; indeed, one is tempted to say that agency problems are necessarily absent from Crusoe’s ethics. Crusoe runs his business and builds his estate according to his own calculations and desires, subject only to the vicissitudes of nature and the outcomes of his entrepreneurial activities. He is thereby responsible for his fate to an extent that would be unimaginable to – and would probably be feared if it could be imagined by – today’s Organisation Man.
Not inherited rank, status or perquisites but hard work, ingenuity and perseverance gave Crusoe his sense of self-worth. His modus operandi was highly individual, and so too was the source of his income and the composition of his estate. Buying from and selling to himself, borrowing from and lending to himself, implicitly calculating present and future values, Crusoe was in effect a financier, merchant, manufacturer, broker, and rentier rolled into one. His position was utterly incomparable to the white-collar manager, technocrat or professional salary-earner in today’s legal, medical, educational, civil service or manufacturing factories. The Robinson Crusoe Ethic and its associated culture promote lengthy time-horizons, entrepreneurial behaviour, productive capital and a series of virtues – all of which promote human prosperity and liberty.
Crusoes I and II versus Crusoe III and Organisation Man
In Australia today, however, most people (be they politicians, academics, bureaucrats, business executives, managers or humble employees) in effect discount, disregard or denigrate the Robinson Crusoe Ethic. Despite their myriad differences, what unites these individuals is their status as occupants of salaried positions within large public and private sector organisations. This attribute helps to explain what is often a lack of knowledge of or distaste for Crusoe, his life and accomplishments.
Unlike Crusoe, members of this salariat are another’s courtiers. Their incentive need not be (although, of course, it can be) to save, take calculated risks, create capital and thereby secure their independence; rather, more often than not it is to maintain and increase the security of their salaried positions at court. To do so they must minimise the risk that they displease their Sovereign; and to the extent that they please the Sovereign they can securely display their status (i.e., engage in conspicuous consumption) and rely upon the Sovereign’s soft compassion rather than their own hard capital.
Given these incentives, time horizons shorten (capital, as Crusoe showed us, can be bequeathed to heirs; salary cannot). Decades ago in Western countries, as the ranks of salary earners eclipsed those of independent business owners, farmers and artisans, sources as philosophically diverse as Joseph Schumpeter (Capitalism, Socialism and Democracy) and C. Wright Mills (White Collar: The American Middle Classes) noted that salary earners tend to be less willing to save and invest, more licentious and generally more concerned with immediate consumption than Crusoe’s counterparts. Unlike Crusoe, whose fortunes depend directly upon his own actions, salary earners’ fortnightly pay cheques depend at best indirectly – and often not at all – upon their actions during that fortnight.
For this reason salary earners expect to receive a steady income irrespective of the ebb and flow of wider economic tides. Further, governments and trade unions strengthen this expectation by promising to protect them from the vicissitudes of the marketplace, natural, personal and other misfortunes. Accompanying their high time preference, salaried earners often develop a psychological distance from the balance sheet, profit-and-loss statement – and not infrequently from commercial reality.
Since they draw a regular salary, salary earners have far less incentive than Crusoe to appreciate the causes of swings of the business cycle. Exceptions, of course, will exist; as a rule, however, their protected (relative to Crusoe) position affords them little direct participation in and hence personal knowledge of entrepreneurship and the creation of profits, losses and capital. Further, salaries go up but seldom if ever down; and “merit” – which everyone knows but surprisingly few can define – rather than ability to identify and satisfy consumers is regarded by most salary earners as the proper determinant of status and income (which for many salary earners are synonyms). For these reasons, like the traditional bureaucrats with whom they share many attributes salary earners tend to seek and value credentials and distrust market rewards. The salaried position of most members of the modern middle class, then, creates a set of incentives, attitudes and time preference that Crusoe would find incomprehensible and if implemented on his island would lead to disaster.
Most importantly for our purposes, salary earners’ high time preference and distance from the balance sheet often manifest themselves in a misunderstanding of the roles of private property and limited government, savings and investment, entrepreneurship and capital accumulation in the creation of wealth. Like Crusoe III, so too many of today’s white-collar workers: each regards his income as a secure annuity rather than the conditional fruit of service to consumers; borne of this complaisance and encouraged by governments’ policies and promises, each is tempted to eat his seed corn; each, therefore, is prone to sudden shocks caused by miscalculated time preference which can suddenly, drastically and often permanently decrease his standard of living; and each, lacking direct knowledge and experience of the process of capital accumulation, is apt to respond to these shocks with incomprehension, disbelief and anguished demands for compensation. Like Crusoe III, so too many of today’s white-collar workers: all are susceptible to The Distemper of Our Times.
...continued in Part V
 
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