I am tired of capitalism being misrepresented by politicians, academics and other commentators. Both proponents and critics of capitalism are to blame.
Proponents typically argue that if the government gets out of the way and if people are free to own property and pursue their own interests, everything will be fine. Generalized statements such as this demonstrate virtually no understanding of what capitalism is and how and why it works.
Critics point to problems (e.g., market cycles, corporate scandals, income inequality, etc) as evidence that capitalism is not working and cannot work. Is the fact that the profits of some companies are so high (Apple made $48 billion, Verizon and AT&T about $30 billion each, and Wells Fargo $22 billion in 2018, according to Fortune) an indication that capitalism is functioning as intended, or not?
Several years ago my wife brought home a book from the library for me to read by an academic who proposed ideas on how to solve many of the economic problems we are observing in society. In the introduction the author noted that “standard textbook economics” supports the view that an unregulated capitalistic system consisting of private enterprise will solve all of our problems. Frankly, I am not familiar with any contemporary economic textbook that makes such as claim, and if there is one the author (presumably an academic) should immediately be stripped of tenure. I didn’t finish the book.
The crucial element of capitalism that is missing by proponents and critics alike is the role of self-restraint, public virtue and justice. Capitalism cannot persist without a people that is willing to exercise some self-control in their personal, economic and public behavior. Even the “father” of modern capitalism, Adam Smith, recognized this. He wrote Theory of Moral Sentiments before Wealth of Nations. Moral sentiments are the foundation, not a by-product, of capitalism. There is a plethora of modern scholarship supporting this view of Smith. Unfortunately, our policymakers, and even many academics, do not keep up with the academic literature.
Justice is the pillar that holds up capitalism. Justice requires both a just people and just institutions. Many, if not most, of the problems we are experiencing in economic society occur because people are excessively selfish. Period. Where is the other-regarding behavior necessary for capitalism to survive? While self-interest is a central aspect of Smith’s economic system (capitalism), selfishness is not.
But the line between self-interest and selfishness is thin. Both Smith and Darwin noted that altruism does not necessarily give individuals a selective advantage, but groups made of up altruistic individuals will. In his 1871 book, The Descent of Man, Darwin said that a group that has members “possessing in a high degree the spirit of patriotism, fidelity, obedience, courage, and sympathy, [who] were always ready to aid one another, and to sacrifice themselves for the common good” would out-compete selfish groups. I can’t believe I’m writing this, but Darwin is correct. So everyone else practice public virtue while I lie, cheat and steal. And that is the rub. Since other people will have this same thought, public virtue and moral behavior decline. Another example of the Prisoner’s Dilemma. This is the root cause of our economic failings.
Capitalism is not the problem. The problem is people who believe that anything they do to enrich themselves will be good for society. Adam Smith’s “invisible hand” does not work this way. If we can’t live with an invisible hand, then someone, or something, else’s iron hand will become all too visible. Note the connection with the foundation of a Constitutional republic. Quoting John Adams: “Our Constitution was made only for a moral and religious people.” And Benjamin Franklin: “Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters.”
If we lose capitalism in our selfish pursuits, then are we really willing to accept what must come in its place?