But, I shall be told, the case is quite different when savings are invested in industrial enterprises. When such enterprises succeed, and produce something useful, this may be conceded. In these days, however, no one will deny that most enterprises fail.
That means that a large amount of human labor, which might have been devoted to producing something that could be enjoyed, was expended on producing machines which, when produced, lay idle and did no good to anyone.
The man who invests his savings in a concern that goes bankrupt is therefore injuring others as well as himself. If he spent his money, say, in giving parties for his friends, they (we may hope) would get pleasure, and so would all those upon whom he spent money, such as the butcher, the baker, and the bootlegger.
But if he spends it (let us say) upon laying down rails for surface card in some place where surface cars turn out not to be wanted, he has diverted a mass of labor into channels where it gives pleasure to no one.
Nevertheless, when he becomes poor through failure of his investment he will be regarded as a victim of undeserved misfortune, whereas the gay spendthrift, who has spent his money philanthropically, will be despised as a fool and a frivolous person.
What Bertie is missing is the value of the deductive tinkering in any new business endeavour.
What reading The Origin of Wealth has taught me is that the value of free markets lies in their ability to generate many new and interesting ideas, then apply a selection process to them, and then amplify the successful ideas.
Innovation does not just emerge from one Big Man with a Plan but rather from the collective efforts of thousands of competing enterprises, businesses, startups, and university faculties, all deductively tinkering their way around idea space.
Laying out surface car tracks, as in Russell's example, may not end up being economically useful, but if the business were (for example) to develop a slightly more efficient way of laying down track then there would be a positive outcome for humanity, if not for the erstwhile entrepreneur 1.
The core lesson of The Origin of Wealth is that knowledge is value, and finding things out by trying and failing is a worthwhile activity, if not in the narrow rationally self-interested sense.
Chris Dillow has a post up that has relevance to this point:
So not only is Russell missing the value of failure in business he also misses the fact that certain kinds of labour are enjoyable and that it is extremely difficult to determine beforehand what will make us happier and what will make us richer (in all senses of the word).
Labour is not just a cost, to minimized. It is - or can be - a form of satisfaction in itself - a way of asserting who we are.
It is on this point, of course, that Marxism starkly confronts neoclassical economics. Marx’s gripe with capitalism was that it transformed work from a means of expressing one’s nature into a force for oppressing and demeaning people. So great has been capitalism’s triumph that many of us don’t even appreciate the possibility that Marx could have been right. It’s just taken for granted that work must be alienated drudgery.
Hence trying and failing is good. Trying is good. And some kinds of work are good.
1. Unless he had the forsight to patent his improved track-laying process, then he could licence the method for profit. Humanity as a whole would still benefit from increased speed of track-laying and the innovation would become widely available after the patent expires.