The Morality of Capitalism

Well, sometimes the self-generated posting just doesn’t come easily, which describes my state over the last few days. So, that’s when we bloggers revert to the excerpt-other-people’s-writing-and-compile-and-synthesize tactic. (Well, it’s better than nothing).
I recently read this piece from Richard Karlgaard on Forbe’s web site in which he wrote:

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…
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…
…[Adam Smith] 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.

To this, Samuel Gregg elaborates:

Adam Smith’s reference to the “invisible hand” perplexes some, but is simply a metaphor for the idea that through allowing people to pursue their self-interest, unintended but beneficial social consequences for others will follow.
As individuals pursue profit, they unintentionally add to the sum total of the wealth in society, unintentionally allow people from different nations to come to know each other, unintentionally promote civility and peace, unintentionally allow others to benefit from more and better jobs, and unintentionally contribute to technological development. None of this means that commercial society does not afford opportunities for people to act altruistically. Rather, it is precisely because increasingly large numbers of people in commercial society are able to accumulate sums of capital that exceed their immediate needs and acquired responsibilities, they begin to develop opportunities to be generous to others.

Finally, a post dealing with “self-interest, rightly understood” (especially by me) can’t go anywhere without that estimable Frenchman, de Tocqueville!

In the United States hardly anybody talks of the beauty of virtue, but they maintain that virtue is useful and prove it every day. The American moralists do not profess that men ought to sacrifice themselves for their fellow creatures because it is noble to make such sacrifices, but they boldly aver that such sacrifices are as necessary to him who imposes them upon himself as to him for whose sake they are made….They…do not deny that every man may follow his own interest, but they endeavor to prove that it is the interest of every man to be virtuous…
The doctrine of interest rightly understood…is as often asserted by the poor man as by the rich…The Americans…are fond of explaining almost all the actions of their lives by the principle of self-interest rightly understood; they show with complacency how an enlightened regard for themselves constantly prompts them to assist one another and inclines them willingly to sacrifice a portion of their time and property to the welfare of the state. In this respect I think they frequently fail to do themselves justice, for in the United States as well as elsewhere people are sometimes seen to give way to those disinterested and spontaneous impulses that are natural to man; but the Americans seldom admit that they yield to emotions of this kind; they are more anxious to do honor to their philosophy than to themselves…
The principle of self-interest rightly understood produces no great acts of self-sacrifice, but it suggests daily small acts of self-denial. By itself it cannot suffice to make a man virtuous; but it disciplines a number of persons in habits of regularity, temperance, moderation, foresight, self- command; and if it does not lead men straight to virtue by the will, it gradually draws them in that direction by their habits. If the principle of interest rightly understood were to sway the whole moral world, extraordinary virtues would doubtless be more rare; but I think that gross depravity would then also be less common. The principle of interest rightly understood perhaps prevents men from rising far above the level of mankind, but a great number of other men, who were falling far below it, are caught and restrained by it. Observe some few individuals, they are lowered by it; survey mankind, they are raised.

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klaus
klaus
14 years ago

Hmmmm…I can quote Adam Smith, too. How’s about this one: …The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the publick. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to interest the publick; but to narrow the competition must always be against it, and can only serve to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the publick, who have generally an interst to deceive and even to oppress the publick, and who accordingly have, upon many occasions, both deceived and oppressed it…. Sorry for the length, but Mr Smith deserves to be heard, n’est ce-pas? Let’s see: business interests are often contrary to the public interest, those who live by profit seek to narrow competition, and often deceive and oppress the public, profits from narrow competition are an “absurd tax on their fellow citizens…. OK, so now that Mr Smith has proven that businesses are IMmoral–unless deceit is moral in your universe– what do you suggest we do? Let them regulate themselves? Oh wait, Mr Smith says that’s not a good idea. He says to study… Read more »

frank
frank
14 years ago

Klaus, capitalism is the promotion of competition in all areas of business. Mr. Smith seems to be warning against monopolizing any particular sector. Are you an idiot or do you just choose not to see the difference between an individual’s business interests, which are, of course, a self-centered interest, and the healthy environment created by multiple unencumbered business interests all striving for their market share, which geatly benefits society?
However if you substitute “public employee union interests” for “business interests”, the above sounds about right.

Marc Comtois
14 years ago

Klaus, You’re reading into this post the pre-conceived caricature of free-market conservativism that you’ve made up in the first place. If you care to stop arguing with that capitalism=no regulation strawman that you seem to find in every economic post, then read on. First, your Smith quote can be classed with the seemingly contradictory quotes (or characterizations of his thoughts, more exactly) referred to by both Karlgaard and Gregg. Put ’em all together and you see that Smith was a nuanced thinker who tried to explain “how things work”, both the good and bad. That is why Karlgaard’s quotation of Ziff and the one I supplied from de Tocqueville are so important. As a conservative, I realize that the concept of unfettered capitalism naturally leads to the fact that there will be a winner. Further, it’s also true that capitalists are looking to make the most money out of the least effort. Like in anything else, some play by the rules and some don’t. Thus, I also recognize that government needs to play a role in regulating the dirty players. With all of the unintended good that comes out of capitalism-something Smith also acknowledged (it’s part of the Invisible Hand)–you can’t say that capitalism is inherently immoral. When people make a lot of money, they also have more to give away. Look at Bill Gates. And that’s where the whole “self-interest, rightly understood” thing comes in. As both Ziff and de Tocqueville observed, capitalism or free-trade don’t create values or morality in and of themselves (but, again, that doesn’t make them inherently immoral, rather, at least in concept, I’d say they may be amoral). However, there has not been another economic system that has allowed so many to enjoy so much prosperity. All the rest may look good on paper,… Read more »

ron
ron
14 years ago

In the second post,Frank ask Klaus
“Are you an Idiot?”
Why is it that the “Right-Wing” has to
resort to insults?
The last election did not send a message
Truth is that both Klaus & Marc are partialy correct

Perry Ellis
Perry Ellis
14 years ago

Ron, who made you the bloggon blog god?

klaus
klaus
14 years ago

Marc, Thank you. I had planned to work in a point or two about economics and morality being separate issues, but I thought I went on too long as it was. So, if economics and morality are separate, as you state, then how can you claim that it’s moral? And, how does that square with your statement that “moral sentiments and self-interest are the same thing”? And what about Karlgaard’s contention that “money is good because capitalism is good”? From my quote–which was intended to fit in with the rest–it appears that Smith realized the inherent contradiction of the two things he was trying to reconcile, that of self-interest and the public interest. And,IMHO, I don’t believe he was entirely successful. Hence the quote about how the interest of profit-takers is contrary to the publick’s interest. And, note that he does not qualify that. Capitalism is not moral; it is certainly not “good” in any moral sense of the word, which is what Karlgaard is trying to imply, even if he doesn’t have the guts to say so directly. At best, it is morally neutral, because capitalism is about efficiency. There are benefits that derive from it–such as prosperity–but broad-based prosperity does not flow automatically from capitalism. America was capitalistic in the 1890s (another favorite topic of mine), but those benefits were, by and large, limited to very few people. How is that good? I’ve said it before: this isn’t about money as money. It’s that money is power, and just as Adam Smith understood the impetus to concentrate wealth (monopoly), a concentration of wealth leads–necessarily–to a concentration of power. Think Banana Republic. And, based on experience of what has really happened–not on some theory–the conclusion I draw is that capitalism has to be checked, and checked often, and the… Read more »

Marc Comtois
14 years ago

klaus, I think you’re confused as to who said what. It was Karlgaard who said this: 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.emphasis added Smith was talking about self-interest, which isn’t necessarily economics. There are other facets to self-interest besides material ones and Smith is alluding to a sort of community peer pressure. People want to be well-thought of and that goes beyond economics and includes pride or reputation and other factors. I also didn’t say that morality and economics were separate. What I did say was: With all of the unintended good that comes out of capitalism-something Smith also acknowledged (it’s part of the Invisible Hand)–you can’t say that capitalism is inherently immoral. To further explain, I’ll grant you that “on paper,” ie; by design, capitalism doesn’t seem moral. Capitalism can generate huge amounts of money and with that money comes power, which you said was the real issue. I can agree with that. The historian Bernard Bailyn pointed out the the Founders thought the greatest danger to Liberty was Power and that is indeed true. (Of course, the question is always how much power is too much? Or is it all perception? Another debate, another day). Back to this discussion: Can money and the power derived from it be put to nefarious–or at least not necessarily moral–ends? Of course! I’m not Pollyanna. But, as I said, the workings of the “Invisible Hand” are often manifested in a capitalist economic society as “good deeds.” So, when I wrote:… Read more »

frank
frank
14 years ago

Klaus, I do not feel like I won a round, as you say. As usual you have misjudged. I am trying to learn, understand, and discuss these issues, as I imagine we all are. I also think it would be nice if, one day, there could be agreement on what governmental/economic system would best serve the general interest. I simply find it idiotic how you tease out certain particulars to suit your view, and in the end, IMHO, get it wrong. If you paint everyone who is not a liberal with such broad strokes I doubt you will ever sound anything but irritating to anyone except a liberal. Which, I imagine, is your point. In your Adam Smith quote he described the self interest of the business owner. Fair enough. The real fear, however, was of the monopoly of a market and the undue costs to the public that would ensue due to a lack of competition, not of the business “dealer”. The bigger warning in this quote seems to be of the government, though. We are forewarned of the following: “ The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the publick, who have generally an interst to deceive and even to oppress the publick, and who accordingly have, upon many occasions, both deceived and oppressed it….” I take this to be a warning against the government prohibiting the enterprise of capitalism, against the government encouraging anything that would promote an… Read more »

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