Adam Smith already covered this topic
Posted by aogSaturday, 03 January 2004 at 10:26 TrackBack Ping URL

Over at Slate, Money Box has missed the forest for the trees.

Money Box is apparently upset about American Express using fund raising for restoring the Statue of Liberty as a marketing ploy. My first thought was “is this guy simply unaware that we have a basically capitalistic economy in this country?”. I think Money Box should go back and read some Adam Smith to get a handle on what is going on here.

It is the essence of capitalism that it (in general) aligns private greed with social good. If AmEx were a public institution, instead of a private one, it wouldn’t need to do anything like this at all. It is only because AmEx’s customers can go elsewhere that AmEx has to please them. One way it can do this is by sponsoring things such as the restoration of the Statue of Liberty.

Note further that this cuts both ways - AmEx is strongly motivated to find things that the public actually cares about, rather than things some elite thinks the public does (or should) care about.

Finally, in questioning the effeciency of this style of fund raising, Money Box is overlooking two factors.

The first is transaction costs. It’s a lot easier to hear that AmEx is doing this and then chose to use an AmEx card as one has been doing or instead of another when making a purchase vs. doing something one would not otherwise have done. Many people will see this as being a good corporation and providing convenience.

The second is what, exactly, is “effecient”? Other mechanisms may well be penny-wise and pound-foolish. Capitalism certainly doesn’t produce the best of all outcomes in all situations. It is just the system most likely to have things work out well in the long term. In a contingent world, this is the best one can do. It’s just not feasible to plan for everything — one has to accept some local ineffeciencies to avoid larger ones. As they say, pay now or pay later.