POLITICS PART 5: CAPITALISM
When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns–or dollars. Take your choice–there is no other–and your time is running out.”
Francisco d'Anconia
Francisco d'Anconia
There is probably nothing that has benefited mankind so immensely, yet has been demonized more, than capitalism. Well, maybe sex, but it's certainly a close second! Its enemies are legion, both in popular culture and academia, while many of its so-called defenders are weak and sheepish in its defense (think Mitt Romney). Its philosophical foundation is profoundly misunderstood, often characterized as a system of "greed", "dog eat dog", "materialistic", "exploitative", "evil" and worse! At best, we get a grudging acceptance of it in pragmatic terms. It's hard to argue with its tremendous contributions to wealth and prosperity, so society puts up with it, but it's like a salivating guard dog; extremely dangerous, and must be kept on a short leash or it will inflict serious damage. Few people defend it consistently, and even fewer defend it on moral and philosophical grounds.
Born out of the Enlightenment, America was implicitly founded on capitalism, and the northern states in the 19th century were probably the closest mankind has come to pure capitalism (the South wasn't capitalist for obvious reasons). However, capitalism was never properly justified on philosophic grounds, even from the Founding Fathers, and it didn't take long for its attackers in the 19th century, like Marx, to begin dismantling it. The economic benefits and justifications for capitalism are more than evident if one takes a rational look at economics. Almost all of the popular free market fears are based on fallacies (i.e. fear of monopolies, frequent depressions, the middle class turned into slaves, etc.). The scope of this site isn't economic in nature. For that, there is a mountain of great free market economists, a good start would be to visit mises.org. The purpose here is to examine capitalism and justify it on philosophic, moral grounds. While capitalism has done more to improve the standard of living for both rich and poor alike than anything else, that's not the primary reason it's a desirable or moral system. That's secondary, a natural result flowing from its morality. The primary justification is a moral one, and only philosophy can give that justification. So, how on earth can the system so many hate be moral?
WHAT IS CAPITALISM?
To examine it properly, we must first define capitalism correctly.
Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.
To examine it properly, we must first define capitalism correctly.
Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.
Another good definition, from a great economist.
In other words, capitalism is a social system (the only social system) that doesn't violate the non-aggression principle. It's a system where people interact voluntarily. A free market means free from the initiation of force. People may produce, buy, sell, trade and gift goods, advertise, persuade, discuss, and sign contractual agreements with each other. What they are forbidden from doing is initiating force against another's person or property (this includes fraud). This lifts us from the law of the jungle, and is the complete opposite of "dog eat dog" or "survival of the fittest". It's the rest of the animal kingdom that operates on these principles, and has to fight over scarce resources. It's our ability to deal with one another using reason that elevates us. Unlike animals, there is not a fixed amount of resources available to us. The amount of wealth and prosperity is as endless as the human mind is powerful. This doesn't mean that people will only act rationally under capitalism, just that it sanctions and rewards rational actions, while outlawing irrational ones.
Capitalism here means laissez-faire capitalism. The complete separation of state from economy, just as we separate church and state (and for the same reasons). The only interventions should be to protect individual rights, and force should only be used in retaliation. Force and fraud must be outlawed in the marketplace by some mechanism, but that agency does not have the moral authority to violate rights.
Any divergence from capitalism (i.e. socialism, fascism, or a "mixed economy") means introducing force into society's interactions. The more government controls there are, the more individuals are forbidden to act by right, and must act by permission. Thus, society begins functioning using the threat of force at the expense of rights. The height of reason is to deal with one another voluntarily, not with force. As we learned in Ethics Part 4, reason is man's primary virtue, from which all others derive. For this reason, capitalism is the most profound moral system, as it's the one that complies with the NAP and respects rights. In Intro to Politics, we decided to find the social system that jives best with human morality. To confirm that capitalism does this, let's look at the other derivative virtues and see how it contributes to them, and how diverging from capitalism hinders them.
(Note: These virtues were all covered in-depth in Ethics 5-10.
Capitalism here means laissez-faire capitalism. The complete separation of state from economy, just as we separate church and state (and for the same reasons). The only interventions should be to protect individual rights, and force should only be used in retaliation. Force and fraud must be outlawed in the marketplace by some mechanism, but that agency does not have the moral authority to violate rights.
Any divergence from capitalism (i.e. socialism, fascism, or a "mixed economy") means introducing force into society's interactions. The more government controls there are, the more individuals are forbidden to act by right, and must act by permission. Thus, society begins functioning using the threat of force at the expense of rights. The height of reason is to deal with one another voluntarily, not with force. As we learned in Ethics Part 4, reason is man's primary virtue, from which all others derive. For this reason, capitalism is the most profound moral system, as it's the one that complies with the NAP and respects rights. In Intro to Politics, we decided to find the social system that jives best with human morality. To confirm that capitalism does this, let's look at the other derivative virtues and see how it contributes to them, and how diverging from capitalism hinders them.
(Note: These virtues were all covered in-depth in Ethics 5-10.
And for that reason...I'm out.
INDEPENDENCE
The virtue of independence means a person must use and trust the power of their own mind to achieve their values in life, not rely on others, or be a "second-hander". Under capitalism, this virtue is sanctioned and rewarded (providing one's mind is rational). The innovators of society are always independent thinkers. Under true capitalism, entrepreneurs are those who exercise this virtue. Figuring out a better way to satisfy consumers' needs, whether it be by inventing the light bulb like Edison, or figuring out a more efficient method to make steel like Carnegie, is a result of being independent, not conforming, or mooching off others. Usually, to create a new business or idea that is successful involves many headaches, swimming against the current, and even being called crazy! In a free society this is difficult. In a controlled economy it becomes untenable. The TV show Shark Tank is a great example of independent minds at work, and the resulting voluntary interactions they must make to sell their products. It's clear how it's to everyone's interest, both the entrepreneur and the "sharks", to use their own mind to determine the value of a product and the value of the company.
As an economy becomes more and more controlled, the virtue of independence becomes less and less valuable, even harmful to one's life. Functioning with an independent mind in a complete socialist economy like the Soviet Union or North Korea is impossible. To do so will quickly find one in conflict with the state, and will most likely end up in a prison, or worse. Not surprisingly, there is little, if any, innovation or independent thought that comes from these sort of societies. Instead of independence; obedience, cunning, and ruthlessness become "virtues", and the society ends up following this ethical path.
The virtue of independence means a person must use and trust the power of their own mind to achieve their values in life, not rely on others, or be a "second-hander". Under capitalism, this virtue is sanctioned and rewarded (providing one's mind is rational). The innovators of society are always independent thinkers. Under true capitalism, entrepreneurs are those who exercise this virtue. Figuring out a better way to satisfy consumers' needs, whether it be by inventing the light bulb like Edison, or figuring out a more efficient method to make steel like Carnegie, is a result of being independent, not conforming, or mooching off others. Usually, to create a new business or idea that is successful involves many headaches, swimming against the current, and even being called crazy! In a free society this is difficult. In a controlled economy it becomes untenable. The TV show Shark Tank is a great example of independent minds at work, and the resulting voluntary interactions they must make to sell their products. It's clear how it's to everyone's interest, both the entrepreneur and the "sharks", to use their own mind to determine the value of a product and the value of the company.
As an economy becomes more and more controlled, the virtue of independence becomes less and less valuable, even harmful to one's life. Functioning with an independent mind in a complete socialist economy like the Soviet Union or North Korea is impossible. To do so will quickly find one in conflict with the state, and will most likely end up in a prison, or worse. Not surprisingly, there is little, if any, innovation or independent thought that comes from these sort of societies. Instead of independence; obedience, cunning, and ruthlessness become "virtues", and the society ends up following this ethical path.
Kind of!
To a lesser degree, most modern democracies also punish independence. In almost every economic arena in the US, to start or run a business requires one to get a slew of approvals from the government. Navigating the regulations requires a team of lawyers, not an independent mind. There is not a business, or businessman today, who couldn't be crippled or put out of business by finding themselves on the wrong side of the government. As a result, to succeed often requires one to be a "second-hander", and focus on manipulating and currying favors with others. Not currying favors like in a free market, where value is traded for value, but by trading value for force. Lobbying, bribery and having a "friend" in government becomes essential to success in such a society, and the businessmen follow suit. Instead of competing in the marketplace, where interactions are voluntary, companies start competing in government, where interactions are backed up by force. The vilest form of man, the power-luster, is rewarded in this system.
"But the common man can never gain independence under capitalism because of the power held by employers, corporations, and monopolists!" we might hear. Under a truly free market, no entity is allowed to initiate force on another, so no violations of rights would be sanctioned. The only way to gain economic power without coercion is to provide products and services people want. In this regard, monopolies can only exist on the free market if a business continues to outperform all other firms, something that's highly unlikely. If one raises their prices (or lowers their wages) below market value, they open themselves up to competition. Contrary to popular belief, there were virtually no instances of monopolies in the 19th century where a firm gained control of a market and jacked up prices. To the contrary, prices fell (often substantially) and the standard of living for the common man increased faster than at any point in history. Ironically, it's the state which creates and enforces harmful monopolies, when it gives certain entities special favors, or prohibits competitors from entering the market. The Post Office, the public school system and taxi cabs are just some of these results.
"But the common man can never gain independence under capitalism because of the power held by employers, corporations, and monopolists!" we might hear. Under a truly free market, no entity is allowed to initiate force on another, so no violations of rights would be sanctioned. The only way to gain economic power without coercion is to provide products and services people want. In this regard, monopolies can only exist on the free market if a business continues to outperform all other firms, something that's highly unlikely. If one raises their prices (or lowers their wages) below market value, they open themselves up to competition. Contrary to popular belief, there were virtually no instances of monopolies in the 19th century where a firm gained control of a market and jacked up prices. To the contrary, prices fell (often substantially) and the standard of living for the common man increased faster than at any point in history. Ironically, it's the state which creates and enforces harmful monopolies, when it gives certain entities special favors, or prohibits competitors from entering the market. The Post Office, the public school system and taxi cabs are just some of these results.
INTEGRITY AND HONESTY
If integrity is the adherence to one's principles, and honesty is the recognition that faking reality is wrong, then capitalism upholds both of these in spades. A system of voluntary interaction leaves one free to live by their principles, and it encourages honesty in human interaction. It's under statist force where it becomes necessary to be "flexible" in regard to morality. One cannot truly be honest or have integrity under such a system, as one must either recognize the violations of the NAP and oppose it (usually not a wise move), or rationalize it somehow in their minds and carry on with life.
If integrity is the adherence to one's principles, and honesty is the recognition that faking reality is wrong, then capitalism upholds both of these in spades. A system of voluntary interaction leaves one free to live by their principles, and it encourages honesty in human interaction. It's under statist force where it becomes necessary to be "flexible" in regard to morality. One cannot truly be honest or have integrity under such a system, as one must either recognize the violations of the NAP and oppose it (usually not a wise move), or rationalize it somehow in their minds and carry on with life.
JUSTICE
Justice is the virtue of treating and granting others that which they deserve. Economically, how do we know what someone deserves for a product or service? The only way to know is to have a voluntary marketplace where people are allowed to trade freely. A genius might spend their entire life dedicated to studying penguins, but does that deserve an economic reward? How can we know? Only a voluntary marketplace can morally decide how a "penguinologist" should be compensated. If individuals or an organization want to voluntarily give him money, great! If no one values this service, then he is not entitled to a financial reward. This isn't saying there is no spiritual value in his penguin endeavors, just no financial ones. The only way to alter this state of justice would be to bring force into the equation. Perhaps, a bureaucrat loves penguins (or the penguin lobby) and decides they are worthy of support. The way this is accomplished is to direct "public" funds, meaning some people's property is plundered, to pay the penguinologist. In no rational way could this be considered just.
Furthermore, with bureaucrats its usually not the penuinologists who get subsidized. The Soviet Union produced great amounts of concrete and tanks, but that was hardly what its citizens valued. Sometimes we hear communism is "noble in theory but not practice". A theory that prescribes people can't be allowed to voluntarily decide value in the marketplace is hardly noble, and certainly not just.
For the virtue of justice to be applied, an individual must be free to make moral judgments and act accordingly. In the marketplace, if one finds an employer vile, or a company worthy of scorn, they have the right to not patronize them, write a review, or organize others to boycott peacefully. In dealings with state force, one has no such rights. If one doesn't like a policy or the government's meddling, they don't have the right to withhold funding, and in some cases don't have the right to speak out.
Obviously, not everyone will act virtuously under capitalism, nor adhere to the virtues of justice. Of course, there will still be fraudsters, thieves and crooks, as there are in any society. It's possible these types will still succeed in gaining economic values in a voluntary society, but it will tend to be on the fringes and short term. A business isn't built by defrauding its customers. Liars and hucksters do not achieve long-term success in a voluntary society if they don't offer any values. They tend to be ostracized and condemned. On the other hand, liars and hucksters do tend to thrive in government! It's in this realm where being good at deception, manipulation and corruption is a benefit. The more power the state wields, the more it will attract these sorts. Look at any totalitarian state, and it's evident the morality that is rewarded.
Justice is the virtue of treating and granting others that which they deserve. Economically, how do we know what someone deserves for a product or service? The only way to know is to have a voluntary marketplace where people are allowed to trade freely. A genius might spend their entire life dedicated to studying penguins, but does that deserve an economic reward? How can we know? Only a voluntary marketplace can morally decide how a "penguinologist" should be compensated. If individuals or an organization want to voluntarily give him money, great! If no one values this service, then he is not entitled to a financial reward. This isn't saying there is no spiritual value in his penguin endeavors, just no financial ones. The only way to alter this state of justice would be to bring force into the equation. Perhaps, a bureaucrat loves penguins (or the penguin lobby) and decides they are worthy of support. The way this is accomplished is to direct "public" funds, meaning some people's property is plundered, to pay the penguinologist. In no rational way could this be considered just.
Furthermore, with bureaucrats its usually not the penuinologists who get subsidized. The Soviet Union produced great amounts of concrete and tanks, but that was hardly what its citizens valued. Sometimes we hear communism is "noble in theory but not practice". A theory that prescribes people can't be allowed to voluntarily decide value in the marketplace is hardly noble, and certainly not just.
For the virtue of justice to be applied, an individual must be free to make moral judgments and act accordingly. In the marketplace, if one finds an employer vile, or a company worthy of scorn, they have the right to not patronize them, write a review, or organize others to boycott peacefully. In dealings with state force, one has no such rights. If one doesn't like a policy or the government's meddling, they don't have the right to withhold funding, and in some cases don't have the right to speak out.
Obviously, not everyone will act virtuously under capitalism, nor adhere to the virtues of justice. Of course, there will still be fraudsters, thieves and crooks, as there are in any society. It's possible these types will still succeed in gaining economic values in a voluntary society, but it will tend to be on the fringes and short term. A business isn't built by defrauding its customers. Liars and hucksters do not achieve long-term success in a voluntary society if they don't offer any values. They tend to be ostracized and condemned. On the other hand, liars and hucksters do tend to thrive in government! It's in this realm where being good at deception, manipulation and corruption is a benefit. The more power the state wields, the more it will attract these sorts. Look at any totalitarian state, and it's evident the morality that is rewarded.
PRODUCTIVENESS
To point out the tremendous difference between the productiveness in a relatively capitalist vs. socialist/fascist economy is almost self-evident. Historical examples like East vs. West Germany or North vs. South Korea are clear. What's not as well understood is why? Remember, the virtue of productiveness requires one to use their mind and body to the best of their ability to sustain their life. In a free, capitalist society, this becomes the primary means that everyone must survive by. Unlike statism, there is no living to be made by plundering one's fellow man. There are no laws to reward criminals, looters and moochers. No shortcuts, or ways for one to force someone else to supply material goods. When confronted with this reality, the vast majority of people will figure out their talents and work to achieve them. This is because the vast majority of people are rational and good. Thus, when they live under a system that encourages these values, good things happen!
Capitalism is a system that generates much wealth, and for that it is often condemned. However, to those that understand its nature, this is capitalism's finest complement. The reason for this, is because of the nature of wealth. Wealth is a product of man's mind, and only by freeing people to use reason can it be created. To rise above any level of savage existence required us to use reason. Any attempts to stifle the mind (and the physical ability to use it) will send us back toward a savage existence and away from our true potential.
Thus, the apt observation of Francisco d'Anconia in Atlas Shrugged:
"If you ask me to name the proudest distinction of Americans, I would choose- because it contains all the others- the fact that they were the people who created the phrase 'to make money'. No other language or nation had ever used these words before; men had always thought of wealth as a static quantity- to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created. The words "to make money" hold the essence of human morality."
To point out the tremendous difference between the productiveness in a relatively capitalist vs. socialist/fascist economy is almost self-evident. Historical examples like East vs. West Germany or North vs. South Korea are clear. What's not as well understood is why? Remember, the virtue of productiveness requires one to use their mind and body to the best of their ability to sustain their life. In a free, capitalist society, this becomes the primary means that everyone must survive by. Unlike statism, there is no living to be made by plundering one's fellow man. There are no laws to reward criminals, looters and moochers. No shortcuts, or ways for one to force someone else to supply material goods. When confronted with this reality, the vast majority of people will figure out their talents and work to achieve them. This is because the vast majority of people are rational and good. Thus, when they live under a system that encourages these values, good things happen!
Capitalism is a system that generates much wealth, and for that it is often condemned. However, to those that understand its nature, this is capitalism's finest complement. The reason for this, is because of the nature of wealth. Wealth is a product of man's mind, and only by freeing people to use reason can it be created. To rise above any level of savage existence required us to use reason. Any attempts to stifle the mind (and the physical ability to use it) will send us back toward a savage existence and away from our true potential.
Thus, the apt observation of Francisco d'Anconia in Atlas Shrugged:
"If you ask me to name the proudest distinction of Americans, I would choose- because it contains all the others- the fact that they were the people who created the phrase 'to make money'. No other language or nation had ever used these words before; men had always thought of wealth as a static quantity- to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created. The words "to make money" hold the essence of human morality."
For another classic, eloquent take on both the effectiveness and morality of capitalism, see Milton Friedman's example of the pencil.