Capitalism and Chance

Forbes , October 11, 1998

My mother-in-law is a retired schoolteacher who has been married nearly a half century and raised four responsible children. For many years she cared for her aging mother with great devotion. She is, by any normal measure, a good woman.

To Adam Wolfson, however, my mother-in-law is a threat to capitalist virtue and cosmic order. She enjoys playing slot machines. Wolfson is the executive editor of The Public Interest and an up-and-coming Washington conservative. He is deeply worried about gambling--but not on the usual paternalistic grounds that a few gamblers can't control themselves.

That paternalist line is vulnerable to the libertarian reply that we shouldn't punish responsible people like my mother-in-law to protect a few irresponsible individuals. It does nothing to counter the widespread belief that gambling is not a big deal. If you want to ban gambling, you have to show harm. And that is what Wolfson is out to do on the biggest scale possible.

Writing in The Wall Street Journal he starts conventionally enough, "One wonders...whether the bourgeois virtues of industry and frugality—so vital to the workings of a capitalist economy—will survive our love affair with gambling."

Wolfson's invocation of "bourgeois virtues" has more in common with medieval attacks on usury than it does with the actual life of bourgeois capitalism. Risk-taking is, of course, every bit as essential to capitalism as industry and frugality. Capitalists do not prosper by betting only on sure things, and entrepreneurship is anything but frugal. The flip side of gambling is insurance, a vital institution whose mathematical foundation is derived from games of chance.

Wolfson's revulsion at gambling in fact has little to do with anything so crass as the market economy. In lottery tickets and slot machines he sees the entire universe at risk. Gambling, he says, "raises an almost metaphysical challenge to our belief in an ordered cosmos, governed either by providence or a fundamental rationality...a rejection of the belief that there is a rhyme or reason to things."

Many gamblers actually share Wolfson's faith in a deterministic universe. If they win, they believe that God (or Lady Luck) is smiling on them. They play their special lucky numbers, consult psychics on their lottery picks, blow on their dice, and indulge a myriad of other superstitions. Although they may only half-mean the gestures, such gamblers are invoking the pre-Enlightenment sense of a personal cosmic order that played favorites and had malleable rules.

Wolfson cannot endure a universe of "accident," which he equates with "chaos." If outcomes aren't determined in advance, he suggests, there is no "rhyme or reason to things." His real target is therefore probability—the mathematics of uncertainty—and the understanding that produced it.

The obvious problem with this claim is that it demands that we move to a different universe. I admit that I shared Wolfson's reaction when confronted in college with Richard Feynman's lectures on quantum physics: How can there be order in the universe if everything is probabilistic?

But the cosmos does not need our permission to be the way it is, and probability is orderly in a profound way—a lesson that casinos and lotteries teach well. The simple fact is that slot machines work: You put in your money, the wheels turn, and you win or lose according to odds established by the machine's maker. The casino's profits depend entirely on the fact that probability distributions provide an underlying order. That we can't predict how a given spin will turn out says nothing about "fundamental rationality."

The world is full of uncertainties, of events we lack the knowledge—or even the possibility of knowledge—to predict. That we have found ways to tame those risks, most notably through various financial institutions such as insurance and derivatives, is one of our great achievements.

These advances didn't come by demanding a fantasy world without chance.

So leave my mother-in-law alone.