The Morality of Capitalism
Isaac Morehouse is taking us through an eight-part series on the morality of capitalism. He's demonstrating how capitalism not only "passes the minimum test by failing to violate basic moral standards," but it's also a system that works to actively promote morality.
The Morality of Capitalism: Introduction
It is a common belief that capitalism “delivers the goods” and creates prosperity, but does so only at the cost of our souls, our dignity and our humanity. Many people doubt capitalism not because they fail to see its wealth-generating capacity, but because they believe it to be immoral. I wish to contest the idea that capitalism is immoral and present evidence to the contrary. Not only do I believe capitalism passes the minimum test by failing to violate basic moral standards; I believe it actively promotes a robust sense of morality in a way far superior to any other system.
Economist Thomas Sowell describes two ways of looking at the world, or two “visions:” constrained and unconstrained. Sowell’s book, "A Conflict of Visions," is an application of many themes in the work of economist F.A. Hayek; especially Hayek’s views on the dispersed nature of information, the limits to what humans can know about each other, and the problems with attempts to replace organic and decentralized markets with top-down rational planning.
The simplest way in which capitalism is peaceful is by its abstention from direct acts of violence. Free markets offer no positive prescription for what market participants must do. A genuine capitalist system is one of free trade and voluntary association. People are free to do, in the words of Leonard Read, "Anything that’s peaceful." There are no "do's," and the only real don't at bottom is, "don't use force." All else is permitted, but there is no guarantee the market will sustain or reward it.
In a previous post I talked about the honesty of capitalism; people are not angels. A capitalist economy recognizes this fact, and our greed doesn’t ruin the system. Closely related to the honesty about people's motives is capitalism's humility about people's limits. Humans are not all-knowing, and if force is absent, a free-market is what emerges to deal with this fact and spread valuable and coordinating information the best way possible. Markets are a result of our lack of individual knowledge, and a constant reminder of how fallible we are.
"All things are subject to the law of cause and effect." The opening sentence in Carl Menger's 1871 "Principles of Economics" seems at first glance little more than a truism, but it is an idea so foundational and so often ignored that it deserves great attention. It applies not only to economic activities, but to all human endeavors. If we seek to live moral lives and promote what is morally good, we ought to heed these words.
Capitalism gets saddled with a lot of baggage that doesn't properly belong to it. Some of this is the result of ignorance of basic economics, some of it a poor reading of history, but most of it is due to a bad definition of capitalism. In the first post in this series I defined what I mean by the term.
When analyzing any social or economic system, the three most important words are: "Compared to what?" Capitalism has its shortcomings. It has shortcomings because life has shortcomings in our own subjective evaluations. That is, we can always imagine a state of affairs better than the one we experience. It is exactly this kind of imagination that has been the driver of human progress.
Beauty is not often on lists with virtues like peace, honesty and humility. But true beauty is a virtue—it is awe-inspiring, praise-evoking and brings the kind of joy that humans seek for fulfillment. When I think of life's best moments, beauty is involved; a sunset over Lake Michigan, my wife's smile, a moving piece of music, my kids laughing, a good cigar. These experiences are sensory, emotional and, each in a different way, beautiful.
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Charlie is right: capitalism is moral--in fact, it is the only moral social system. Why? Because it is the only system that makes human flourishing possible. Many people, including most business school graduates, do not understand this--because they do not have a clear concept of capitalism. Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned (Rand, 1967: Capitalism: The Unknown Ideal). Although capitalism does not exist today, a mixed economy being prevalent in most countries, it is the only system where people can freely pursue their self-interest, and where the government's only role is to protect everyone's individual rights against initiation of physical force or fraud.
Those brief periods in history closest to pure capitalism where unprecedented in innovation and wealth creation. Even today, we can see glimpses of the positive impact of capitalism on human well-being: the least regulated industries (such as information technology and consumer electronics) produce the most innovations (in comparison to the most regulated, such as health care).
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