How does capitalism economize on goodness? The dilemma is, Who watches the watchmen? In order to make sure someone does what's right, we need someone to watch her. But then we need someone to watch the watchman. And so on. The only solution is for the watchman at some step in the chain to watch herself, breaking the regress. How can we trust the watchman who watches herself? Insofar as she is good, we can trust her. But goodness is scarce. Capitalism economizes on goodness: under capitalism, we can trust a self-watching watchman because her interest and the social interest are, GIVEN THE CONSTRAINTS IMPOSED BY THE CAPITALIST SYSTEM, aligned. We don't need to watch the owner of a Dairy Queen franchise to make sure she keeps her fridge plugged in. As the residual claimant, she has ample incentive to watch herself. She also has an incentive to charge customers a high price for a lousy product, but these incentives are checked by the capitalist principles of competition and consent: she has to offer a decent product for a decent price or her customers will not consent to buy her ice cream and will instead go to her competition. Thus, we get the desired social outcome, good ice cream at low cost, without requiring any goodness on the part of the businessmen. Profit solves the problem of who watches the watchmen. The information conveyed by prices is effective knowledge. If the lease on her building increases, that doesn't merely convey the information that its value in alternative uses has increased, it gives the franchise owner an incentive to heed that knowledge and give the building up to another user. While capitalism economizes on goodness, it by no means prevents people from being good--people are free to attempt to pursue the social interest.
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