How Moral Is Capitalism?

A writer calling himself "Adam Smith"--you'll see the irony in a moment--nuked me recently on my Forbes.com daily blog. He wrote: "You are too much of a materialistic person to understand the purpose of life. [You big mouths at magazines] find followers who want nothing but money, which they think buys happiness. It's not too late for you to drop your crap and look for the meaning of life--it is certainly not in making money. I wish you luck."

Sorry, Mr. Smith. I do not consider moneygrubbing the purpose of life. Never have. The use of God's gifts comes closer for me.

Still, moneygrubbing--a.k.a. the search for profit--has its purpose. Money (profit) is a tool. It is capital. Without capital there is no capitalism. Innovation starves. Prosperity weakens. Societies stagnate. God-given gifts wither. This is especially true for humanity's wonderfully zany outliers: artists, inventors, entrepreneurs. They need capitalism more than anyone.

Money is good, therefore, because capitalism is good. It delivers the goods, literally, and better--broadly and individually--than does any other system. Hugo Chávez would argue that point, but he's nuts.

Can we go even further and say that capitalism is good because it is moral? Following that logic, can we say: The purer the form of capitalism, the more moral it is? Is capitalism perfectly moral--enough to sustain itself over many generations?

Yes, say Ayn Rand's followers. But most of us would not go that far. We think a capitalism that lacks outside moral influences and pressures, restraints and safety nets would, sooner or later, fail.

Bill Ziff, a successful magazine capitalist who died last year, spoke for most of us: "[Capitalism] is not in itself sufficient to create values. It depends on what human and religious values we, ourselves, bring to our affairs. Insofar as those values fail, we would all descend toward a lawless, inhumane, cutthroat society that will no longer harbor our civilization."

Conservatives and liberals agree on little these days. But most agree on this: Capitalism works, but it is insufficiently moral. Conservatives--allow me to paint them with a broad brush--believe capitalism works best when it is spun with golden moral threads, when it weaves in those old values learned in church, charities, service clubs and the like.

Liberals are more skeptical. They know capitalism will produce losers as well as winners. They feel the winners must be forced into helping the losers. Forced help hurts everyone, say conservatives. Redistribution discourages winners from producing and losers from trying. It leaves everyone bitter.

Such is the national debate we find ourselves engaged in as the Democrats take power in the Senate and House. The minimum wage is a form of redistribution. It forces employers to pay workers more than their productivity merits, puny as those paychecks may be. Higher payroll taxes are also redistribution. Who believes higher payroll taxes will show up as higher monthly payments for the employee's retirement?

Restrictions on free trade are yet another form of redistribution, although you may not think of them as such. Tariffs imposed by the U.S. are usually countered by tariffs from other countries. That's what trade wars are all about--retaliation. Trade wars force American companies that are winners in the global economy--the IBMs, FedExes and Citigroups--to give up some of their winnings so that struggling domestic tool and textile manufacturers can stay in business. Trade protectionism asks California to subsidize Ohio and South Carolina.

Generally, Democrats favor forced redistribution more than Republicans do. Republicans--again, in general--would prefer to fix capitalism's shortcomings through good works and giving. This forces Republicans to higher standards of conduct, by the way. Bad people, in power, can redistribute as easily as good people. Only good people can inspire us to good works and giving.

Have Republicans succeeded in holding themselves to this higher standard? Hah! The top two Republicans in the House, John Boehner (Ohio) and Roy Blunt (Missouri), can't summon enough moral courage to say no to "earmarks"--a sneaky form of redistribution. Demo-crats are proud of redistribution. They have no need to be sneaky about it. Democrats will always play the redistribution game better.

What did Adam Smith--not my blogger critic but the real one--say about capitalism and morality?

The great Scotsman seemed to say two contradictory things. In The Wealth of Nations (1776) he wrote these famous words about self-interest: "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages." This sounds like selfishness: Greed is good.

But Smith never believed that. In his earlier book, The Theory of Moral Sentiments (1759), Smith defined self-interest not as selfishness or greed but as a psychological need to win favor within one's society. Smith revised The Theory of Moral Sentiments after he wrote The Wealth of Nations. He did not change his belief that moral sentiments and self-interest are the same thing.

Let's not forget our Adam Smith. When we do, capitalism loses its moral authority, and the redistributionists win.

"Capitalism's "core beliefs" are left up to the market."

And "the market" consists of each individual involved, with their judgments being made by personal interpretation. Inasmuch, there are no set of core beliefs in capitalism. Certainly, there is success and failure based on, as you say, giving the customer acceptable value for a service/product. But value is not a finite thing. I think its ridiculous to spend $4,000 for a Super Bowl football ticket. But, obviously, many other Americans wouldn't agree.

Capitalism as we know it probably could not have developed without a JudeoChristian base and the capitalism of the rest of the world is either informed by their Christian minorities or are attempting to copy the folkways of the world's Christian-derived businessmen.

The Medieval Jews in Europe, not allowed to own land and having their Mosaically derived ability to trust each other to do pretty much what they agreed to do, invented letters of credit and exchanged bills of lading at appropriate discounts for the risks of shipping, etc. The Christians on the Northeastern European coast learned to do it, too, and had that expectation of performance that came from their religion. Christianity overcame tribalism and Judaic practice, while largely tribal in itself, was spread throughout the Western World by the Diaspora.

In Asia the expectation, in dealings between men was that each will lie to the other and one cannot be expected to keep his word to one outside of the family or clan. The most extreme development of this attitude is among Arabs and Arabized populations. Long range trading remained within trading families and never developed very far until the advent of the Judeao-Christian traders and the necessity to compete with them. Most large-scale movement of goods was between royal courts or the result of raiding and conquest. Even now Chinese companies are, in China, mostly of the family type in that the large ones are government(artificial family) operations and exceedingly corrupt. The great Overseas Chinese Corporations have, until quite recently, been strictly family operations. The first attempts to enter the Western market by hiring foreign executives failed because the family members could not bring themselves to trust the outsiders and the outsiders knew well that they were not trusted.

There is and always been double dealing and villainy among the business class and there are atheists and others but the cultural norm is honesty and the developed free market is such that such dishonesty rapidly removes the villains from the marketplace. Their companies fail because cheating is ultimately inefficient and cannot continue longterm without government protection but that is an outside problem, not part of Judeo-Christian capitalism.

Socialism is also capitalism. Capitalism is merely the organization of surplus value, i.e. capital, for the production of more goods and more surplus value. Freemarketers do it by free trade which is far the most efficient method. Socialists do it by central allocation of surplus value- investment, which is terribly inefficient and must fail if there is no functioning freemarket system to borrow economic signals from. With that outside scale to measure against it will still fail but more slowly because while socialism is a theory of capitalism it is a false theory, like decreeing that the world is the center of the cosmos and flat because that is more convenient to the theorists.

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