How should I put this? How to be polite, informative, and not have too many people shouting at me?
Chief Adviser Muhammad Yunus is wrong. There, I said it.
Now, Yunus has a Nobel, not something you or I are likely to get -- definitely not me. Yunus also had a grand, even fascinating, economic insight. No, it wasn't the invention of microfinance: It was working out how to make microfinance work.
The poor can't gain credit because the poor have nothing which can be security for a loan.Therefore the poor remain poor because they cannot borrow to build assets which would make them less poor.
But do the poor have an asset which could be used as security? Yes, they do -- their social reputation.
So, if we organize the poor into groups and only one of the group is allowed to borrow at any one time then what happens? The social pressure to repay -- so that other members of that same group may then borrow -- means that the loan is more likely to be repaid.
Whatever you hear from elsewhere this was indeed the grand Yunus innovation. It was also an insight of blinding genius -- people had been working with the poor for millennia without grasping it and he did.
Like every grand idea it's obvious once stated -- of course your neighbours waiting for you to repay will increase the likelihood of you repaying -- but it does need to be observed and then stated. I think that deserved the Economics Nobel, not the Peace but perhaps that's just me.
But, now, even Homer nods.
We are told that “Unless wealth is shared, you cannot sustain a society” which is true. On the very basic principle that if it isn't, those it isn't shared with are going to have some very violent ways of expressing their displeasure. But: “Greed will destroy us?” No, that's not right.
Greed is a constant of human nature. We're not going to change the existence of greed any more than we are going to change human nature. And do note that if we change humans into being what they're not then we no longer have humans.
What we need to do is tame greed into serving the society as a whole for we cannot eradicate it.
Fortunately we already know how to do this, it was Adam Smith who pointed this out to us. Markets are the antithesis to capitalism.
The cure for greed is not to hope that it doesn't exist, it's to direct it to our general benefit through the use of markets
Yes, of course everyone who sets up a business wants to make vast profits -- that's the very point of the adventure. But if all the benefits of a business flow to those who set it up then we get to that very society being warned against, where wealth is unshared.
But markets, ah, markets. The owner of the business has to compete against everyone else also sincerely trying to get rich. Their greed -- yes, the right word, greed -- for our money means they have to share the benefit of their business with us. For if they don't then the others, also greedy for our money, will.
We can see this in simple markets like, well, the markets. If there are three guys selling pomegranates then the price each can charge is reduced by the presence of the other two. This is true of all markets, always. Competition means that the benefits of the economy are shared with everyone, not just kept by the capitalists.
The Yunus insight was a grand and great one. There's an aspect of human nature, social standing, that can be turned to economic benefit: What the neighbours think can become security for a loan.
The same is true of greed. Yes, it exists. That greed for our money is a motivation for people to go do things. It's markets, many people greedy for our money, which means that some of the benefit flows to us, not to them.
Another Nobel Laureate, William Nordhaus, once estimated that 97% of the benefit of human greed -- only in free markets -- flows to us consumers out here. That's a pretty good deal really.
As with the original Yunus insight it's not that we're going to change humans. It's that we can manipulate aspects of humans to be socially useful. The cure for greed is not to hope that it doesn't exist, it's to direct it to our general benefit through the use of markets.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.
