This article will demonstrate 4 ways the principle of charity, which is not the same thing as charity itself, is good for the economy.
The principle of charity is often heard of as an approach to debate. The idea is that if we genuinely seek to understand our opponent and even genuinely improve our opponent’s argument or sympathize with them then we:
- Develop a stronger counter-argument because we are in fact defeating the true argument rather than a simplification, or we are defeating an even stronger argument, or
- We may so strengthen our opponent’s argument that we fail to defeat that argument, but that’s OK because we are all closer to the truth which is the true point of a good debate.
I am going to quickly argue that the principle of charity can also be applied in the real world. Its application boils down to assuming goodness in other people, or giving the benefit of the doubt to some person or thing.
A person in application of the principle of charity, then, would weight more positively the expected productivity of a person, for example, when there is some risk about that person’s productivity. However, this is not to say that we should weight productivity higher when there is no risk or uncertainty; that would simply be an unjustified and naiive calculation bound to inefficiency.
Here are 4 ways the principle of charity can lead to efficient economic action:
- If a hiring manager delegates interviews to several sub-managers then each sub-manager will have a deficit of information on hiring decisions. They would make an inefficient choice if they are asked for a recommendation. In this case it is the least bad situation if the err on the side of charity because in the real world it is often better to hire too much than too little.
- Entrepreneurs and innovators in the economy are better off and more likely to occur and flourish due to higher expected profit in an economy where new brands, businesses, products, and ideas are given the benefit of the doubt.
- Social capital will improve in an economy where many agents apply the principle of charity. People will think more highly of each other and interact more often with more positive predisposition yielding more positive results.
- Risk will be more efficiently spread in the economy. This is because the principle of charity often amounts to a larger acceptance of risk and people are usually naturally risk averse. I have discussed in the past how risk neutrality is the efficient allocation. The result of more risk neutrality means lower demand for insurance and higher demand for all other goods. It might also imply a more efficient interest rate, smarter business decisions around the economy, more innovation, more risky investments, and other things.