Is Capitalism Ethical? Looking for Morality in the Marketplace

Is it time to reassess whether capitalism is an ethical, morally-proper economic system?

I. Road to Freedom, Road to Serfdom

On Tuesday, NPR's Steve Inskeep spoke with the president of the American Enterprise Institute Arthur C. Brooks regarding Brooks' book, The Road to Freedom: How to Win the Fight for Free Enterprise. From Brooks' perspective, the question of a nation's economic policy would appear to be tied to morality. Brooks: "This is one of the greatest weaknesses of people on the political right and free enterprise advocates in America today is this inability or unwillingness to make moral arguments. People who are not especially sympathetic to the free enterprise system have very successfully been making moral arguments. The leitmotif of the 2012 campaign, it turns out, is going to be fairness, and that is a moral argument."

Brooks argues that in light of the free enterprise system, "people are happier with less government." Even so, Brooks is not in favor of there being no government at all. Brooks: "The government should be doing two things, basically. The first is providing a minimum basic safety net for the truly indigent. That means enough food, enough housing, enough medical care. Today the safety net we have in this country reaches all the way up into the middle class." Brooks cited the Social Security system as being an example of this basic safety net's having become unsustainable.

Brooks argued that a social safety that attempts to achieve greater income equality is improper. Brooks: "[A] social safety net should be relieving the worst suffering." According to Brooks, "the second role of the government is to try to rectify cases where markets don't give us the best outcomes: monopolies, cases of pollution, crime, public goods like the army." He continued that "picking winners, social engineering, stimulus, [and] bailouts ... are not the proper role of government and they're sending us in the wrong direction."

On the topic of environmental concerns, Brooks discussed "geo-engineering solutions" as being a response to issues like "global warming". He also discussed that cap and trade is "an opening for abuse." Brooks: "One of the biggest problems that we have in this country today is not just statism. It is the co-dependent spouse of statism, which is corporate cronyism." Brooks continued in that criticism of crony capitalism is "something that the Occupy movement has exactly right ... there are too many people with too many carve-outs and bailouts and loopholes and access to government." In this way, cap and trade could be seen as "the ultimate marriage of statism and corporate cronyism."

On the topic of average Americans and small businesses, Brooks discussed that "there are so many more barriers to the success of [an individual] because of the government itself: the regulatory barriers, the tax barriers, the labor market barriers, the environmental barriers." Brooks: "Who knows if we were to set him or her free what we would need to do, what kind of incentives we would not need to give to that person."

Brooks explained that there is an apparent "paradox" of free enterprise in the US. Even though "70 percent of Americans think that the free enterprise system is the best system for America's economy ... something like 65 percent of Americans say that the government should pay for their health care." Thus, "the paradox of government is basically that we say we want free enterprise in the abstract", but the phenomenon of continued entitlements "leads us down this road to serfdom". Brooks concluded in that "[w]e need to do something differently, and really only an ethical argument is going to do the trick."

II. The Ethical Justification of Capitalism and History

Brooks' discussion and book title appear to allude to Friedrich Hayek's The Road to Serfdom. That being said, when it comes to an ethical defense of the capitalist system, the name Ayn Rand comes to mind. In light of man's natural rights and the proper role of government, Rand viewed capitalism as "a social system based on the recognition of individual rights, including property rights, in which all property is privately owned." Whereas the fundamental role of the government is to protect man's rights, government intervention in the economy compromising man's rights violates objective morality. From Rand's perspective, the proper role of government is limited to police, the army, and the courts. Rand: "When I say 'capitalism,' I mean a full, pure, uncontrolled, unregulated laissez-faire capitalism -- with a separation of state and economics, in the same way and for the same reasons as the separation of state and church." Thus, Rand argued that "the moral justification of capitalism lies in the fact that it is the only system consonant with man's rational nature, that it protects man's survival qua man, and that is ruling principle is: justice."

In February 2012, I went into depth regarding the implications of Rand's perception of capitalism in light of the global economy. At that time, I asked, "Is Atlas shrugging or has Atlas simply reached old age, subsisting on life support?" I wrote, "Though capitalism may have economic benefits, for Rand laissez-faire capitalism is to be defended fundamentally on moral grounds." In theory, even if a capitalist economy resulted in a society that was for the most part impoverished and starving living in debilitating, polluted environmental conditions with exploited natural resources and a severe concentration of wealth (to the point of unconscionability), per Rand's perspective capitalism remains the ideal form of human economy. To be fair, a follower of Rand could argue that such a dismal dystopia would not result from a laissez-faire system; rather, a pure laissez-faire market would work toward equilibrium to provide a just and satisfactory system for all in protecting man's freedom.

In terms of ethical standards, one could argue that government intervention became necessary in human history owing to the fear of monopolies that would compromise politics. Ergo, we find antitrust law. In this way, giving the government some measure of control over the marketplace theoretically works to guarantee a certain level of stability and efficiency in the market -- to effectively protect civil society and the government. On the other hand, a free-market advocate might argue that any government intervention distorts the market and leaves the greater populace in a generally lesser position at the expense of unjust socio-economic policies. 

In considering the ethical implications of capitalism, it is important to unhinge the theoretical capitalist model from human history while maintaining an emphasis on the importance of individual freedom. In this way, the idea that laissez-faire free-market capitalism is the absolute ideal form of human society would appear to be problematic in that "from Rand's perspective ... for indigenous peoples, ancient Greeks and Romans, and medieval lords, [such a capitalist system] would have presumably been the most ethical, most morally proper form of government and economy."

In light of Karl Marx's theory of historical materialism, to attempt to impose some form of laissez-faire free-market capitalism on ancient or medieval societies may have been impractical and absurd. (If laissez-faire capitalism is a form of economy that depends on a particular historical level of development, how could it be the ideal form of human society?) Such concerns may sound like mere science-fiction speculation, but as I previously wrote, "This comparison demonstrates how and why theoretical capitalism has to be separated from historical capitalism."

While we're on the topic of ethics and capitalism, to a certain extent, in the spirit of Friedrich Hayek's second-cousin Ludwig Wittgenstein, I think we may be left to merely make simple observations regarding the connection between ethics and capitalism. Whereas capitalism in the collective consciousness could be seen as having a sort of impetus of freedom and rights, our perception of the system may change in different circumstances. Going back to a dystopian vision of Rand's ideas, were an individual a member of a starving family in a dismal, polluted, impoverished environment living in a hut with a severe dehumanizing concentration of wealth watching as his children starved while drinking polluted water and breathing in smoggy air, perhaps that individual's perception of capitalism-as-being-ethical would be different than an everyday American in the year 2012. Per Marx's observation: "It is not the consciousness of men that determines their being, on the contrary, their social being determines their consciousness."

Marx did not seek to justify capitalism's end in ethical terms, but in historical terms. And in taking into account human history, Marx noted that "[j]ust as our opinion of an individual is not based on what he thinks of himself, so we cannot judge of such a period of transformation by its own consciousness; on the contrary, this consciousness must be explained rather from the contradictions of material life, from the existing conflict between the social productive forces and the relations of production." Thus, as we make observations regarding the ethicality of free-market capitalism, we have to recognize and appreciate the historical forces that influence our perception.

III. The Line of Intervention and Looking Forward

Going back to Brooks' observations regarding free enterprise, the problem we find with any government intervention is that the line becomes blurred. Different thinkers may have different opinions regarding whether phenomena like antitrust law, taxation, and workplace safety standards serve to protect individuals' rights or are unjust government intervention in the marketplace. The debate could go on indefinitely amidst a politically-polarized American populace, and we must take note that "politics are the concentrated expression of economics." Whereas a certain level of faith is necessary to make an economic system functional, the political polarization and extreme difference of opinion in American society are quite ominous.

That being said, again and again we see this pursuit of civilization toward some ideal form of reality -- seeking out a better part of humanity: the ideal form of government, the ideal form of economy, the ideal society. It's as if we think that if only we had the proper blueprint, we could achieve such a utopian vision. Whereas we may disagree as to the path toward such a conception, I think many of us can agree that achieving the ideal that we hold in our minds rests in the behavior of individuals. Going back to Rand's vision, I have previously commented that "I think that humanity is going to find that the quality of a state is not about its form of government or its constitution written on paper. Rather, humanity will find that the quality of a state depends on the behavior of the state's citizens themselves." This observation seems to be missing from the contemporary American debate on free-market capitalism, and its absence speaks loudly. The issue is not about finding the proper moral quality of a system, but rather about finding the proper moral quality of individuals. "A state's goodness or badness is not in its form on paper, but its form as evidenced by the character of its citizens."

In this way, I'm not sure that we are as a society going to get anywhere analyzing the ethicality of free-market capitalism. If the viability of an economic system is tied to the populace's faith in that system, then we have to wonder how ongoing political dysfunctionality and the worldwide loss of faith and trust will affect our system. Given the shortcomings and severe volatility of the capitalist system, before questioning whether capitalism is an ethical economic system, maybe we need to first analyze the character of society itself. And in light of capitalism's perceived shortcomings, one has to wonder whether, if the moral quality of citizens were better, we would even question the ethical quality of capitalism. In other words, if most people behaved ethically, maybe the question of free-market capitalism's ethicality would not be an issue at all. But this is a question of the collective consciousness.

If we want to weigh the ethicality of the forest, it may help to take a look at the trees. Looking at the issue in this light may lead to key questions regarding the US economy: Why is there a student loan bubble? Why is youth unemployment so high? Why has the labor force participation rate fallen to levels not seen since the early 1980s? Why are there more than five times as many vacant homes as there are homeless individuals in the US? These are questions to be considered in judging the ethicality of both theoretical laissez-faire capitalism and contemporary capitalism in the US.

The specter in the back of the room of this discussion regarding ethics and economic activity is none other than the question of God's will. Now, I do not want to go into too much depth regarding the relationship between ethics, religion, and capitalism, but I do want to say that perhaps we can find some sense of hopeful reconciliation in Arthur C. Clarke's words: "Perhaps our role on this planet is not to worship God -- but to create Him." Clarke's words can be understood poetically. Though we cannot "create Him" in a physical or material sense, perhaps we can act in a beneficial spiritual sense today -- acting in the spirit of humanity's better and brighter side -- bringing the divine into the world every day through one's self and one's community through self-improvement and self-empowerment towards self-realization for the betterment of others.

There are groups in the US that understand this principle and are working to bring such ideas into realization on social and economic levels. Now, we can contrast this conception with that of exploitation, alienation, poverty, distrust, and dishonesty. Rather than individuals asking, "When is the system going to create a better world for me?", individuals can ask themselves, "What am I going to do today to create a better world for myself and the rest of humanity around me?" People may say, "The system is broken, the world is doomed," but one can respond, "Well, what are you going to do today to fix the system and make the world a better place?" A person might ask, "When is God or when is the government going to change the world and make it a better place?" and one could respond, "What are you doing today to change the world and make it a better place?" Again, we see this need for less focus on outside forces and more introspection toward self-realization.

I think there is hope we can find a better economic ethos for human civilization: To behave, to be kind, to pay it forward, to invest in one's community. In so many words, to act justly, to love mercy, and to walk humbly. If more individuals in the world lived this way, dare I say it, perhaps we would be able to find a viable, healthy, and functional ethicality in any economic system that we would choose to use. But then again, this is a question of the collective consciousness.