The Moral Basis of Capitalism

With the fall of communism and the alleged end of the "era of big government," many commentators and politicians grudgingly acknowledge the practical value of capitalism. The free market, they concede, is the best system for producing wealth and promoting prosperity; the private economy, in Bill Clinton's words, is the "primary engine of growth."

But this has not led to the triumph of capitalism. Quite the opposite: Federal taxes as a percentage of gross domestic product are at their highest rate since the Second World War; antitrust assaults on the market's winners are growing; the regulations on the federal register continue to expand by 60,000 pages per year; even the Republicans' recent tax cut proposal would only mandate a minor decrease in the projected growth of government revenues. By practically every measure, government interference in the free market is growing.

If capitalism is recognized as the only practical economic system—then why is it losing out to state control? The reason is that no one, neither on the left nor the right, is willing to defend capitalism as moral. Thus, both sides agree, whatever the practical value of capitalism, morality requires that the free market be reigned in by government regulations. The only disagreement between the two sides is over the number of regulations and the rate of their growth.

What no one has grasped yet is that capitalism is not just practical but also moral. Capitalism is the only system that fully allows and encourages the virtues necessary for human life. It is the only system that safeguards the freedom of the independent mind and recognizes the sanctity of the individual.

Every product that sustains and improves human life is made possible by the thinking of the world's creators and producers. We enjoy an abundance of food because scientists have discovered more efficient methods of agriculture, such as fertilization and crop rotation. We enjoy a lifespan double that of the pre-industrial era thanks to advances in medical technology, from antibiotics to X-rays to biotechnology, discovered by doctors and medical researchers. We enjoy the comfort of air conditioning, the speed of airline transportation, the easy access to information made possible by the World Wide Web—because scientists and inventors have made the crucial mental connections necessary to create these products.

Most people recognize the right of scientists and engineers to be free to ask questions, to pursue new ideas, and to create new innovations. But at the same time, most people ignore the third man who is essential to human progress: the businessman. The businessman is the one who takes the achievements of the scientists and engineers out of the realm of theory and turns them into reality; he takes their ideas off the chalkboards and out of the laboratories and puts them onto the store shelves.

Behind the activities of the businessman there is a process of rational inquiry every bit as important as that of the scientist or inventor. The businessman has to figure out how to find and train workers who will produce a quality product; he has to discover how to cut costs to make the product affordable; he has to determine how best to market and distribute his product so that it reaches its potential buyers; and he has to figure out how to finance his venture in a way that will best feed future growth. All of these issues—and many others—depend on the mind of the businessman. If he is not left free to think, the venture loses money and its product goes out of existence.

The businessman has to have an unwavering dedication to thinking, not only in solving these problems, but also in dealing with others. He has to use reason to persuade investors, employees, and suppliers that his venture is a profitable one. If he cannot, the investors take their money elsewhere, the best employees leave for better opportunities, and the suppliers will give preference to more credit-worthy customers.

The businessman's dedication to thought, persuasion, and reason is a virtue—a virtue that our lives and prosperity depend on. The only way to respect this virtue is to leave the businessman free to act on his own judgment. That is precisely what capitalism does. The essence of capitalism is that it bans the use of physical force and fraud in men's economic relationships. All decisions are to be left to the "free market"—that is, to the un-coerced decisions of buyers and sellers, manufacturers and distributors, employers and employees. The first rule of capitalism is that everyone has a right to dispose of his own life and property according to his own judgment.

Government regulation, by contrast, operates by thwarting the businessman's thinking, subordinating his judgment to the decrees of government officials. These officials do not have to consider the long-term results—only what is politically expedient. They do not have to back their decisions with their own money or effort—they dispose of the lives and property of others. And most important, they do not have to persuade their victims—they impose their will, not by reason, but by physical force.

The government regulator does not merely show contempt for the minds of his victims; he also shows contempt for their personal goals and values.

In a free-market economy, everyone is driven by his own ambitions for wealth and success. That's what "free trade" means: that no one may demand the work, effort, or money of another without offering to trade something of value in return. If both partners to the trade don't expect to gain, they are free to go elsewhere. In Adam Smith's famous formulation, the rule of capitalism is that every trade occurs "by mutual consent and to mutual advantage."

It is common to condemn this approach as selfish—yet to say that people are acting selfishly is to say that they take their own lives seriously, that they are exercising their right to pursue their own happiness. By contrast, project what it would mean to exterminate self-interest and force everyone to work for goals mandated by the state. It would mean, for example, that a young student's goal to have a career as a neurosurgeon must be sacrificed because some bureaucrat decrees that there are "too many" specialists in that field. Such a system is based on the premise that no one owns his own life, that the individual is merely a tool to be exploited for the ends of "society." And since "society" consists of nothing more than a group of individuals, this means that some men are to be sacrificed for the sake of others—those who claim to be "society's" representatives. For examples, see the history of the Soviet Union.

A system that sacrifices the self to "society" is a system of slavery—and a system that sacrifices thinking to coercion is a system of brutality. This is the essence of any anti-capitalist system, whether communist or fascist. And "mixed" systems, such as today's regulatory and welfare state, merely unleash the same evils on a smaller scale.

Only capitalism renounces these evils entirely. Only capitalism is fully true to the moral ideal stated in the Declaration of Independence: the individual's right to "life, liberty, and the pursuit of happiness." Only capitalism protects the individual's freedom of thought and his right to his own life.

Only when these ideals are once again taken seriously will we be able to recognize capitalism, not as a "necessary evil," but as a moral ideal.

What no one has grasped yet is that capitalism is not just practical but also moral.

Agreed...but those in charge have to be accountable and ethical for the system to work.

Capitalism is the only system that fully allows and encourages the virtues necessary for human life.

Our current system, unfortunately, seems to be losing that aspect...as the educational system changes and leisure becomes more defined, people are losing creative, unstructured outlets. What is studied, the complexities of life, and even leisure, are taking away the time and space needed to explore, discover, create.

It is the only system that safeguards the freedom of the independent mind and recognizes the sanctity of the individual.

Has the independent mind become a thing of the past? I hope not.

This article is excellent...thanks for the post. It is a reminder that capitalism isn't the problem; the problem lies with corrupt and non-accountable leadership, in both public and private sectors. It lies with a population so burdened with debt it can't even consider possibilities. It lies with a huge divide between the haves and have nots. The fact that virtually no institutions can be trusted now, including the churches, takes away the basis for a free, successful economy, society, government. Music, thought, style, possibilities, it's all being controlled from up top. The rich and successful and famous are becoming more and more isolated from the rest of us.

I constantly go back to HG Wells TIME MACHINE. We are becoming a society of Morelocks, separated from and feeding off of everyone else, and Elyoi, living a simple but decent life on the other side of the divide...guess which group survived?

From a historical perspective, there's just too much going on too be real optimistic about the immediate future.

Capitalism is immoral.

If you are pointing out that Capitalism alone does not yeild a just political system I heartedly agree. Good conservative economists make the same distinction.

Patrick Boarman's speach to the Phildelphia Society discussing the legacy of Wilheilm Roepke points up as much:

In this textbook, in his great trilogy The Social Crisis of Our Time, Civitas Humana, and International Order and Economic Integration,, and in innumerable publications in the years that followed, Roepke argued for the rejection of socialism and the reconstitution of the market economy as the only economic system compatible with human freedom. The market economy for which he pleaded, however, differed fundamentally from the system which, under the vague and emotion-charged label of "capitalism," had persisted in Europe until the 1930s and then perished of its own degeneracies. Capitalism for Roepke was a highly imprecise noun, freighted with the ideological ballast of the nineteenth century which gave birth to the term, and even today carrying the value tags, positive or negative, of whomever happens to be defining it. In contrast, the market economy, at its core and unencumbered with labels from the right or the left, was for him a term embracing those universal human behaviors associated with acquiring and using economic resources and famously codified in the laws of supply and demand. Indiscriminate mixing of the concept of a market economy with "capitalism" results in the attribution of qualities to the market mechanism that properly are only ascribable to some specific capitalist societies of the past, notably those of the 19th and early 20th centuries. Thus, the market economy that was installed in West Germany after World War II—and which the Germans chose to call a "social market economy"—represented a deliberate attempt to divorce the market idea from historical capitalism. The lasting achievement of Roepke’s friend, Erhard, was his abstraction of the powerful concept of the market from the institutional matrix of nineteenth century capitalism in which it was embedded and his demonstration that the market can yield a quite different result within a different institutional framework.
The social market economy itself, in turn, echoed one of Roepke’s conceptions of a much earlier date, that of the "third road." In his numerous elaborations of this idea, he showed how the old antitheses of laissez-faire and planned economy could be transcended in a new synthesis of the "third road," later rebaptized as a "humane economy." In such an economy, the laws of supply and demand, while allowed full play to maximize the wealth of the nation, were yet constrained within a framework of (market-conforming) rules, including, importantly those intended to preserve competition. The concept envisaged, as well, the continuous influencing of economic behavior by extra-economic institutions rooted in moral and spiritual values (law, tradition, religion, etc.). For in the absence of such rules and institutions, the benevolent social outcomes of the pursuit by each individual of his self-interest, posited by the classical economists, are extinguished; the market becomes an arena for a dog-eat-dog struggle. It is a thesis for which Russia today furnishes the unhappy proof. In effect, the Russians desired to have the fruits of a free market and democracy but without being able or willing to put in place the infrastructure of civic and personal virtues that democracy and economic freedom require.

Indeed we see the distiction further in "Roepke and the Restoration of Property" a talk given by Ralph E. Ancil:

In a discussion with another famous conservative, Richard Weaver objected to the view that the solution of our problems lies in following in the footsteps of "our ancestors." This was not enough he argued, for we must ask "Which ancestors?" After all, some were wise while others were foolish. In a similar manner we may ask: Is it enough to say we are in favour of a market economy? Like Weaver we can respond by asking: "Which market economy?" Some forms are better than others. This was certainly the view of German economist Wilhelm Roepke who believed the best defense of a market economy was to distinguish its basic principles from the historical form the industrialized, capitalistic economy actually took. By observing this distinction, Roepke was able to defend the ideal of a free and humane market economy without becoming trapped into defending those distortions many critics of capitalism rightly identified. However, for those of us on the political right, this may prove uncomfortable. We are perhaps unused to such a distinction and live in the world restricted to two choices: either some form of the welfare state, where we are arguably on the road to communism, or alternatively, a laissez-faire market economy.
But if we are willing to entertain the possibility of more than one form of market economy, we are brought back to the basic question: "Which free market economy should we be advocating?" Roepke saw that our choices of market economy come in two basic shapes: (1) the proletarianized market economy and (2) the propertied market economy. Roepke argued strenuously all his life for the latter and not the former.
What is a proletarianized market economy? It is a deformity inherited from previous historical periods as well as from certain immanent tendencies in modern economies. Roepke was particularly critical of what he called "historical capitalism" ("historical liberalism") because it contained a number of such inherited abuses and distortions from the past which concentrated an excessive amount of wealth in the hands of a few and left most people with little or no productive property of their own and hence dependent solely on their wages and salaries, the fluctuations in the market, and on those who because of their wealth could exert disproportionate influence on the direction of policies as well as of the economy. (See especially his Social Crisis, pp. 100-148.) These dependent people were proletarians because they had only their labor to sell. When proletarianized, people become insecure and tend to seek relief in times of economic trouble through the expansion of government welfare benefits - and so growth of the proletarian market economy, and growth of modern governments are linked. To accept these deformities and tendencies complacently, however, would merely add fuel to the fires of the critics of capitalism and promoters of some form of collectivism. So some vigorous alternative is needed, though it cannot be a form of collectivism any more than it can be laissez-faireism in Roepke's view.
What then is left? Part of the answer which Roepke subscribed to is to follow the German Ordo-Liberal school of economic thought: it is Liberal in the sense it believes in the efficacy of the market economy in providing material well-being and freedom, but it is Ordo in the belief that a source of order is needed in the economy that originates outside it, and so there is room for an economic policy that shapes or gives some direction to a market economy consistent with its nature and other social goals. This is why Ordo-Liberals came to be identified with the social market economy in Germany, and explains why Roepke's book A Humane Economy is subtitled The Social Framework of the Free Market. A free market economy does not produce the framework upon which it rests. There are both moral and material prerequisites to such an economy if it is to serve its purposes well and that, in part, is a matter of public policy.
But Roepke went beyond his Ordo-Liberal colleagues in specifying the fundamentals that provide the "social" part of the market system, not by being socialistic, but by being humane, and this fact makes him finally difficult to categorize. Steeped as he was in the oldest traditions of the West, in the humanistic, Erasmian school of education which includes both Christian and pre-Christian learning, Roepke not surprisingly brought this perspective to bear on his economic thinking so that we may finally call him a "humane economist" and say he belonged to the "humanistic school" of economic thought as much or more so than to the Ordo-Liberal school. While we see this approach reflected in many ways in Roepke's works, it figures prominently is his plan for the restoration of property, the economic cornerstone of his vision of a humane economy.

We can also look at the experience of Peru as documented and analyzed by Hernando de Soto, in The Mystery of Capitalism where he shows that despite the institution of Capitalism and the ending of government socialism, Peru and other countries have failed to raise themselves from poverty because the missing framework of Property Rights and a Government of Law is a missing tradition from Peru and other less developed nations outside of the Anglo-American tradition.

Within that Government of Law is that respect for the Enduring Moral Order, both personal and social.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.