Social Utility

Eliot Spitzer, the disgraced former governor of New York, has written a piece attacking the investment bank Goldman Sachs for the on-line magazine Slate. In the column Spitzer raises the concept of “social utility.” He challenges Goldman Sachs to prove that the firm is socially useful by answering a series of questions regarding their internal trading operations.

The clear implication of the article is that Goldman Sachs is not “socially useful,” and therefore, should be eliminated, or at least reduced, by government fiat.

What a load of rot! That Spitzer can pronounce this pernicious twaddle with a straight face establishes that he hasn’t the faintest conception of how a free society functions.

You can deplore that the casino-like trading activities of Wall Street firms have swamped their traditional capital raising and capital allocation functions. You can be concerned that the lack of regulation of credit default swaps and other arcane financial instruments allowed some financial firms to pile up so much risk that they almost crashed the worldwide financial system. You can even argue that Goldman Sachs should not be allowed to sell securities that they have taken short positions against.

But banning or prohibiting activities because they lack “social utility”?

You would have a hard time providing an argument for the “social utility” of baseball cards, or beanie babies, Hummel figurines, but markets exist for all of those. The essence of a free market is that sellers offer something for sale, buyers offer payment, and a bargain is made between two willing parties. At no point does anyone have to meet a standard of serving a hypothetical greater good.

The essence of a free society is that you don’t have to justify your actions. You do have to take responsibility for them. If I wanted to light my farts on fire, and post the video on YouTube, I could do it, and I can’t think of anything of lower social utility than that.

And yet, a surprising number of people have chosen to spend their leisure in exactly that fashion.