Capitalism Is Immoral, but Moral Economies May be Worse
Since its rise as a dominant economic system in the early 19th century, capitalism has been criticized as immoral. “It is, indeed, the moral economy that they [the proponents of capitalism] always keep out of sight,” wrote James Bonterre O’Brien in 1837, proceeding to charge that capitalism destroys virtues. Eleven years later in the Communist Manifesto, Karl Marx and Friedrich Engels likened capitalism to a sorcerer casting an evil spell on humanity. In his first 1867 volume of Capital, Marx continued to write about the “domination and exploitation” of workers by capitalists that “degrade” workers to the “level of an appendage of a machine.” In his 1944 book, The Great Transformation, Karl Polanyi once again called attention to capitalism’s eradication of the moral bonds between people and their replacement with market calculus. More recently, in 2015 Pope Francis warned against a “dictatorship of an impersonal economy lacking a truly human purpose.” In the same year, Bernie Sanders said: “When we talk about morality, when we talk about justice, we have to . . . understand that there is no justice when so few have so much and so many have so little.”
The history of criticizing capitalism on moral grounds is therefore long. However, it isn’t accompanied by agreement about what a moral economy alternative to capitalism is or how to bring it about. Most critics agree that a moral economy would distribute wealth more equally, or at least distribute more of it to those in need, but few believe that the skewed distribution of wealth is capitalism’s only moral failing. Instead, most believe that the moral failings of capitalism are rooted in the capitalist creed, or its underlying philosophy. This must therefore be uprooted and replaced with a more moral economic philosophy. But what this more moral economic philosophy should be and how can it be implemented are questions with different answers.
In their 2009 book, Right Relationship, for example, Peter Brown and his coauthors recommend a Quaker orientation as a moral alternative to capitalism, emphasizing its greater sensitivity to environmental issues. In his 2016 book, The Moral Economy, Samuel Bowles calls for a replacement of capitalism’s utilitarian morality with Aristotelian virtue ethics. The authors of both books hope that moral persuasion will be sufficient to dislodge the capitalist creed, but offer different moral alternatives. Others, of course, subscribe to one or another socialist creed. Some of these even still propose a revolution of the proletariat to realize it, although that strategy seemingly appeals in direct proportion to how ill-defined the resultant moral economy is left.
Although the search for a moral economy lacks clear consensus goals and agreed-upon strategies to reach them, it doesn’t lack moral warrant. Capitalism is in fact an immoral economic system that ought to be replaced with a more moral one. A more thorough investigation of the challenges that confront the creation of a moral economy is therefore in order. The place to begin may be with a moral critique of the capitalist creed.
The Immorality of the Capitalist Creed
Adam Smith’s 1776 book, The Wealth of Nations, is generally considered the foundational statement of the capitalist creed. In one of the most frequently quoted passages from that book, Smith summarizes the creed this way:
“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 self-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.”
Although this passage is so familiar that we are probably numb to it, its take on everyday economic interactions should still startle us. It is after all not only cynical but also empirically wrong.
Everyone who shops in small stores like these (it may be different in large corporations) knows that customers don’t address shopkeepers in terms of their self-love, but in fact do address their humanity. They ask about the shopkeepers’ families, discuss the weather or current events, and periodically do speak of their necessities. Reciprocally, butchers set out free samples of meats, brewers offer free tastes, and bakers give a “baker’s dozen.” It’s not even uncommon for the businesses to donate to charities and for customers to tip. Everyone of course knows that shopkeepers need to earn livings and customers want value for their money, but it’s rare for these motives to be accentuated.
Smith though dismisses the motives that are accentuated as mere camouflage for self-interest, and then tells us that self-interest is the only relevant motive. Moreover, although he elsewhere admits that people are free to act less selfishly if they want to, he also insist that insofar as people are acting economically, they should act according to their self-interest. It’s no wonder that even many economists recognize that capitalism is erected on the assumption that everybody is a psychopath.
It gets worse. Note the word “advantages” in this passage. The Wealth of Nations is chock full of reference to people seeking an advantage over others. By this, Smith frankly means that self-interest motivates each party in economic transactions to try to get the better of the other parties. Not only does this intensify the callousness of capitalism, but it also ensures that capitalism will create inequalities that can’t be justified by the greater economic contributions of the parties that gain the advantages. This is because there are many ways to gain an advantage that bear little relationship to the value offered by the advantaged party.
To be sure, the capitalist creed forbids the use of overt coercion, but it doesn’t forbid manipulating the presentation of information (something that everyone is familiar with in advertising and the “fine print”). More importantly, it is unconcerned that the greater resources of some parties virtually guarantee that they will gain the advantage of other parties. Job-seekers born poor, for example, must find jobs working for those who are richer, an imbalance that enables employers to take advantage of employees. Similarly, aspiring entrepreneurs without capital must find it from those who are richer, and the richer investors can be counted on negotiate deals advantageous to themselves. In these ways and others, capitalism generates inequalities born purely of allowable advantage-seeking.
But advantage-seeking isn’t merely allowed under capitalism; it is institutionalized in the profit motive. So accustomed as we are to the profit motive that we rarely pause to appreciate that it is for the most part institutionalized advantage-taking.
Profits are by definition gains in excess of costs, including the costs of one’s own labor. This raises the question of where profits can come from if not from losses other parties incur. With one exception, they do come from losses incurred by others. The exception is when a party introduces innovations that increase the available wealth. If more wealth is created, profits can be taken by the innovative party without anyone else incurring a loss. However, wealth-creating innovations are rare, while profiting is routine.
Consider the over 62,000 bars, taverns, and nightclubs in the United States. All are oriented toward profits. Even if they weren’t, their suppliers and creditors expect to profit. This expectation forces the 62,000 bars, taverns, and nightclubs to at least profit enough to to satisfy their suppliers and creditors, even if they don’t make a profit themselves. Yet, not since the emergence of the sports bar during the 1980s and perhaps the rise of craft breweries has there much innovation in this industry. It’s also frankly hard to believe that either sports bars or craft beers are wealth-creating innovations. Like most of the so-called innovations that businesses like to take credit for, these changes were introduced to gain an advantage over competitors, not because they create additional wealth.
Thus, the profits these businesses accrue come from losses incurred by others. In this business, at the forefront of those who lose are the customers and the employees. No matter where they go out, customers pay a surcharge for business profits, while no matter where they work, employees accept wages lower than the value they add in order for their employers to profit from employing them. It’s structural advantage-taking, and under capitalism there’s not much anyone can do about it.
Moreover, the bulk of profits made by creditors in the securities industry don’t involve financing wealth-creating innovations either. According to an analysis published by the University of Chicago’s generally pro-capitalist Booth School of Business, 90 percent of all securities trading is zero-sum, meaning one party wins while the others lose. Other analyses may find creditors to businesses contributing more to wealth-creating innovations than this, but as anyone with consumer loans knows, lenders win, borrowers lose, and nobody is creating new wealth.
So keen is this criticism of the profit motive as institutionalized advantage-seeking that defenders of capitalism go to great lengths to deny it. In their imaginary world there are only individuals, not institutions, and all individuals are sufficiently equal to prevent any other from gaining systematic advantage over them. (This imaginary world also permits businesses to inflict harm on the public at large, such as when they pollute the air or the water. The public at large doesn’t exist in the capitalist framework; only individuals exist. In fact, insofar as public harms are recognized, they are called “externalities” — the very term indicating that they are outside the capitalist framework.) As evidence for their contention that individuals are equal, defenders of capitalism point out that even individuals in disadvantaged circumstances make self-interested choices that they believe will improve their lives. This argument, however, ignores the circumstances that force many people to accept imbalanced deals that are merely marginally better for them.
A good example of this denial is a question on the Economic Literacy Quiz developed by the Council for Economic Education. It asks, “When a person rents an apartment, who benefits from the transaction?” The answer scored as correct is that both the tenant and the landlord benefit. This answer is misleading. Yes, tenants benefit from having a place to live, but they don’t benefit as much as the landlords. This is because few landlords enter the business without expecting to gain profits in addition to fair compensation for their management, and most do eventually profit. And again, even if they don’t expect a profit, their creditors and suppliers do. The only parties to these transactions who don’t expect a profit and don’t get one are the tenants. Thus, landlord/tenant transactions are structurally imbalanced in favor of landlords, a reality that makes the Council for Economic Education’s notion of economic literacy capitalist ideology more so than economic fact.
Once cornered, the proponents of capitalism believe that they have a way out. This is to say that everyone in capitalism is free to start their own businesses and profit too (while tenants can buy their own homes). Actually, everyone can’t start their own businesses because not everyone has the capital. Then, if they managed to borrow it, the lenders would still take structural advantage of them by charging interest at rates that include a profit. Moreover, if everyone could start their own businesses, there would be no one left to work for the businesses. All businesses would either be a sole proprietorship or worker-owned, and if worker-owned, the capitalists could no longer profit. Not least, there remains the problem of where all the wealth would come from to enable everyone to profit. Except for the few who introduce wealth-creating innovations, there wouldn’t be any wealth to distribute among the mass of capitalists. Most people would therefore make no profit at all.
In reality, everyone in capitalism can’t be a capitalist. Under the guise of promising opportunity for all, capitalism quietly assumes that only a few will successfully seize their opportunities. It is therefore a predatory creed that promises a few winners and a lot of losers.
But while the immorality of the capitalist creed is plain, this conclusion stumbles on a strange set of facts. Adam Smith, the architect of the capitalist creed, was by occupation a moral philosopher. He didn’t believe that the capitalist creed is immoral. The popular writings of more recent defenders of capitalism, such as F.A. Hayek and Milton Friedman, are also largely moral arguments in favor of capitalism. When the search is for a moral economy, it’s only reasonable to consider the main moral defenses of capitalism too.
Moral Defenses of Capitalism
There are four traditional moral defenses of capitalism. These are that self-interest isn’t greed, self-interest contributes to the public good, capitalism generates prosperity for all, and capitalism supports freedom.
The argument that self-interest is different from greed may be the oldest, arising at a time when humans were believed to be driven by antisocial passions that required bridling. Greed was regarded as an antisocial passion. But the thinking was that instead of trying to suppress greed completely (an impossible task) it was better to temper it by channeling it through rational self-interest. In this way, the antisocial passion could be be reshaped into a neutral if not a prosocial motive.
For example, consider how greedy butchers and self-interested butchers would behave differently. Greedy butchers might put their thumbs on the scales to overcharge customers, substitute inferior cuts of meat for the ones ordered, shortchange their customers, and so on. Self-interested butchers would do none of this. They would reason that a reputation for honesty and quality is more valuable in the long run than short-term gains, and operate their businesses with an eye toward earning this reputation. Self-interest might even motivate some butchers to support public welfare programs at the cost of higher taxes on themselves, reasoning that the programs will create a more favorable business climate and increase the number of their customers.
This is a compelling argument for capitalism that observations suggest is often true, but there are two difficulties with it. One is that there are no mechanisms in capitalism to force people to to replace greed with rational self-interest, and some don’t. Capitalist economies are replete with quick-buck schemes, dishonest operators, and even business freeloaders, such as the butchers who take advantage of the culture of honesty created by competitors to cheat their customers. The other difficulty is that reputations for honesty and quality can be created by marketing campaigns regardless of how the business really operates. Businesses today pour billions of dollars into creating brand identities that sometimes bear little relation to the actual businesses, such as when banks sponsor soccer teams. The fact that profit-oriented businesses are willing to spend this money tells us that they believe this spending enhances their reputations, even though (and perhaps because) it has nothing to do with how they actually operate their businesses.
The moral defense of capitalism that self-interest contributes to the public good has already been touched upon in the example of butchers supporting public welfare programs. However, the main emphasis of this defense is on the distributional efficiencies of capitalism, as measured by both the supply of goods and services and the rewards merited by the suppliers.
Under capitalism, for instance, it is sometimes said that there are no bread lines. There aren’t because thousands of self-interested bakers are constantly adjusting their outputs and prices to meet their customers’ demand, a process of micro-adjustments more efficient than central planners could ever achieve. Bakers don’t though do this because they especially care about the public good of efficient access to bread, but rather because it is in their self-interest. Likewise, bakers who meet their customers’ demand the best will make the most money (while bakers who don’t meet it may go out of business). Thus, capitalism rewards businesses in proportion to the extent they provide for the public good, as defined by the efficient production and distribution of goods and services, and therefore justly.
This too is a strong argument in favor of capitalism, just perhaps not as strong as it appears. There may be no bread lines in capitalist economies, but there can be bread riots. In fact, when the concept of a moral economy was reintroduced by E.P. Thompson in 1971, the examples used were the bread riots in England during the 17th and 18th centuries. Thompson suggests that these riots represented a rejection of the rising capitalist system, which can establish prices for bread too high for the poor to pay. This happens because at a low price point where capitalist producers can’t sell at a profit, they will no longer produce or sell goods, no matter how many people need them to survive. This seemingly still occurs today, given that an estimated 815 million people in the world (11 million in the United States) are chronically undernourished. Meanwhile capitalism may not even distribute goods like bread among those who can afford them as efficiently as this defense of capitalism assumes. According to a United Nations study, in 2011 fully 30 percent of the food produced in the now largely capitalist world was lost or wasted.
Neither is it entirely believable that capitalism always rewards businesspersons in proportion to their economic contributions. To believe this is to rely on circular reasoning. This is because the only measure of economic contributions are the rewards received. Thus, businesspersons who make a lot of money are assumed to contribute more to the economy than those who make less, even though nobody knows whether or not they really do.
The result is such discrepancies as the CEO of the company that makes Hostess Twinkies, Andrew Callahan, earning $3.8 million a year while the average bakery owner in the United States earns $25,000. Since Twinkies were introduced before Callahan was born and there’s no evidence that he can even bake a cake from a box, justifications for Callahan’s $3.8 million have to rest on something other than his baking skills. A glance at the company suggests that in fact Callahan’s real job amounts to managing a labyrinth of holding companies and the like. From this, it can be inferred that capitalism prioritizes these skills over baking. But if it does, we’re a long way from the argument that capitalism rewards the best bakers the most.
The moral defense of capitalism in terms of its ability to generate prosperity for all initially rested on speculation, though is increasingly defended empirically. The speculation is that self-interest and the profit motive encourage both business efficiencies and wealth-creating innovations. However, as noted, the argument that self-interest and the profit motive spawn innovations is easily exaggerated. Actually, the bulk of profits are made without any innovation at all. Neither is it clear that material self-interest is a main incentive for innovating. Most wealth-creating innovations today result from the work of salaried researchers who don’t personally profit from their innovations. The incentive to innovate seems more closely associated with the quest for knowledge, even sometimes with altruism, than with the quest for material gain.
Even when innovators are motivated by money, they rarely make a lot. Walter Hunt, who invented the safety pin in 1849 in the hopes of making money, made about $12,000 in 2018 dollars from his invention. The company that bought the rights to it proceeded to make millions. Innovative business startups today typically experience a similar success trajectory, being bought out by a larger company that eventually makes the lion’s share of the profits. More extreme was the fate of McDonald’s franchisee Jim Delligatti after he invented the Big Mac. He saw an uptick in business at his franchise, but McDonald’s only gave him a plaque, not money. There are even allegations of companies buying the rights to innovations in order to suppress them and thereby maintain their existing advantage.
The empirical argument for capitalism generating prosperity turns on noting both the greater wealth of capitalist countries and the rising standards of living for almost everyone over the course of the capitalist era. These empirical observations are both true, but it’s not clear how much of the credit capitalism deserves.
The greater wealth of the earliest capitalist countries, mainly in Europe and North America, may have been initially gained by old fashioned conquest and plunder, and only after that did these countries adopt the politer but still predatory capitalist creed. More recently wealthy countries, mainly in Asia, appear to have achieved their prosperity via a good deal of state management of their economies, not by adopting capitalism as such.
Historically, the argument that the world has become wealthier during the capitalist era overlooks the fact that this era also witnessed the industrial revolution and rise of mostly publicly-financed sciences. Indeed, in his 2006 book, Global Capitalism, Jeffry Frieden shows that over the course of the 20th century, non-capitalist countries (including the Soviet Union) enjoyed faster economic growth rates often enough to suggest that capitalism may actually suppress prosperity. Then too, insofar as capitalism can be credited with increased global prosperity, it must be faulted for increasing the gap between the poor and the rich, even if the poor are better off too.
The final moral defense of capitalism is that it champions individual freedom. This it does. In capitalist economies, everybody is free to do (or not do) as they please, and nobody is coerced. However, this capitalist freedom is an abstract individualistic value that ignores the circumstances that shape and often restrict the ability of individuals to exercise it.
For example, both Smith and Hayek after him use the example of beggars to illustrate the freedom available to all under capitalism. In their view, people are just as free to become beggars as corporate CEOs. It’s doubtful, however, that either Smith or Hayek was personally acquainted with many beggars. If they were, they would have realized that that not many beggars choose their lifestyle, but instead turn to it in desperation. Ignoring this, these defenders of capitalism imply a greater abundance of freedom in capitalist economies than as a practical matter exists.
Then, even the defenders of capitalism indirectly concede that abstract individual freedom is insufficient. This they do by departing from their usually limited-government creed and supporting public education. Their reasoning is that access to public education equalizes individual circumstances sufficiently to permit everyone to exercise their capitalist freedom. Whether or not public schools achieve this goal can remain an open question. However, capitalist support for public education shows that even capitalists don’t believe that their abstract individual freedom can be realized without non-capitalist strategies to provide the disadvantaged with opportunities they wouldn’t otherwise enjoy.
Despite the criticisms that each of these moral defenses of capitalism invite, all of them contain kernels of truth. It would be a mistake to dismiss them entirely. Even so, none is as strong as its proponents imply, and even when added together, they don’t change the fact that capitalism promotes self-interested advantage-seeking that leads to unmerited inequalities. What then is the moral economy alternative?
The Moral Economy
The essence of a moral economy is not the denial that people are self-interested and sometimes seek the advantage over others, but to subordinate these motives to a broader moral framework that tempers and restrains them. This distinction between denial and subordination is important for avoiding pointless debates about human nature. Proponents of capitalism like to claim that theirs is the more realistic depiction of human nature while their opponents’ belief in a more cooperative and altruistic human nature is fantasy. The truth is that neither side knows for sure what human nature really is, and the cross-cultural evidence suggests that these human orientations vary somewhat by cultural context. (Samuel Bowles and his coauthors review some of this research in their economics textbook, Understanding Capitalism.) The emphasis of a moral economy is therefore less on human nature than it is on the cultural norms that shape and direct it. Specifically, instead of allowing self-interested advantage-seeking to direct economic actions, moral economies subordinate these motives to other norms.
Nearly all economies prior to capitalism were moral economies in this sense. In fact, prior to capitalism, not many considered economics a separate sphere of human activity, much less one that allowably operates according to its own rules.
The term economics, for example, comes to us from ancient Greece, where it was regarded as an aspect of household management (almost akin to what we today would call home economics). This relegation of economics to household management reflects the relative lack of importance of economics for the Greeks. More important were politics, the arts, sciences, philosophy, and even sports. The Roman moral hierarchy was somewhat different from the Greeks’, but it too relegated economics to an inferior position. And so it was in western (as well as non-western) history through the time when Adam Smith wrote. In fact, he and his immediate followers were considered to be writing about political economy, a modification of the term “economy” that reflected the lingering belief that economics remained subordinate to a broader moral framework, in this case that established by governments. It wasn’t until Alfred Marshall published his Principles of Economics in 1890 that economics came to be regarded as a separate realm of human activity governed by its own rules, which in Marshall’s language were sometimes called economic laws.
There are therefore myriad examples of moral economies throughout history. Importantly, whereas they have all been alike in subordinating economics to a broader moral framework, their moral frameworks have not been alike. Ambitious moral philosophers may detect deep universal moral principles operating across cultures, but a more superficial view reveals a bewildering array of cultural norms. The wealthy, for example, may be morally obligated to periodically redistribute their wealth, as was the Potlatch custom among indigenous peoples in the Northwest of North America, or they may be buried with it, as was a Mycenaean warrior 3500 years ago. The cultural definitions of wealth can also vary, with some cultures placing enormous value on seemingly worthless shells (while others of course value largely worthless gold). More generally, the extent to which people are entitled to fruits of their own labors versus compelled to share them with others — and then the others with whom they’re obligated to share — varies from culture to culture.
But a good example of a moral economy prior to capitalism is Britain’s as it operated before the enclosure movement got well underway. The enclosure movement was the centuries-long process of elites (or aspiring elites) claiming legal ownership of land used in common by peasants, enclosing it, and putting it to private use. Many historians maintain that the enclosure movement paved the way for capitalism. It did both by establishing the principle of private property used for profit and by driving peasants out of their rural villages, where they could no longer survive, and into the cities, where they became the original capitalist working class. Most historians also maintain that the enclosed land was generally used more productively than it had been when it was used in common (a point made in moral defense of capitalism). Moreover, although cause and effect are difficult to establish, it’s likely that the more productive use of the enclosed land helped to spawn innovations in agriculture that eventually enabled the peasants, or at least their descendants, to be better fed (another point made in the moral defense of capitalism). Thus, while there was suffering on the part of the dislocated peasants, and further suffering among them when they became exploited workers in the industrial capitalist regime, the broad picture suggests that capitalism as represented by the enclosure movement increased aggregate wealth to the point of improving the material well-being of even those sectors of the population initially harmed by it.
Given these benefits of enclosed land, the question is why the common land wasn’t enclosed all along, or at least why the enclosure movement didn’t begin earlier and proceed more quickly. The usual answer is that the laws initially forbade enclosing common lands, but this answer simply pushes the question back a step. Why didn’t the laws permit enclosing the land?
The answer is that prior to the allowance of enclosures, economic actions were subordinated to a broader moral framework that protected the peasants’ customary lifestyles over the self-interests of the potential private owners. As is well-known, this broader moral framework was rooted in the teachings of the Catholic Church, and included much more than protection for peasants’ use of common lands. It also included the doctrine of a just price, which may be at some odds with the market price; prohibitions against usury, which in the main forbade charging interest on lent money; and the insistence that greed (or avarice) is one of the seven deadly sins.
Indirectly, Catholic teachings even granted peasants an enormous amount of leisure. Although it varied from time to time and place to place, medieval peasants sometimes only worked 150 days a year. Given that feudal lords benefited from peasant labor, it’s odd that they would have permitted the peasants a whopping 215 days off annually. And given the meager material lives of the peasants, it’s odd that they wouldn’t have voluntarily worked more. Preventing the peasants from working more, though, were the myriad holy days established by the Catholic Church, which coupled with the smattering of weddings and so forth, didn’t leave many days left for work.
Nowadays it’s common for those of us steeped in capitalism (including most economists) to dismiss this moral economy of Europe prior to capitalism with a know-it-all smirk, as if most people then were so beholden to religious superstitions that they were blind to economic realities. The smirk is inappropriate, for behind its is simply ignorance of moral economies. The whole point of moral economies is to elevate moral values above what capitalists consider economic realities.
Even so, minus the smirk, these critics express a valid objection to moral economies. This is that moral economies probably do sacrifice some narrowly economic goals to broader moral goals. Thus, for example, when environmentalists today say that the environment can be protected without economic costs, it’s appropriate to be skeptical. A similar skepticism should attend claims that initiatives to assist the poor, increase the rights of workers, and so on can be achieved at no economic costs. Often there are trade-offs between narrowly economic and broader moral goals. Fortunately, people today are better acquainted with capitalist economics than were the medieval clergy and are better prepared to manage the trade-offs, but it’s naive to believe that moral economies can operate at no economic cost.
But managing the trade-offs between economic and moral goals isn’t the most serious obstacle to moral economies today; a more serious obstacle is forging agreement on the moral goals to begin with. As noted, there isn’t one moral economy, but rather many, each varying by their moral frameworks. Gone are the days when the majority of people accepted the morality dictated by a common religious authority, and gone even are the days when people are likely to agree among themselves about morality.
Suppose, for example, that American moralists proposed lowering the value of estates that can be transferred tax-free to heirs from the current $11.4 million to the $3.5 million Bernie Sanders proposes. The rationale for this would be that it still permits people to get rich on their own while giving their heirs a substantial head start, but draws the line at bequeathing a few fortunate heirs enough to spend their entire lives in idle affluence. It would also raise tax revenues that could assist the many who don’t have such a lucky lineage.
Believe it or not, only 32 percent of Americans support an estate tax increase along these lines — while 31 percent want to go the other way and eliminate the estate tax altogether. This is in an economy where the value of 99.8 percent of the estates is too low to be subject to the tax. While these results may betray ignorance on the part of Americans about a main source of unmerited economic inequality, they also reveal deep differences in moral opinion. If people can’t even agree on limiting inherited wealth, how will a moral consensus on such things as eliminating zero-sum profits ever be forged?
Creating moral economies in the modern world may therefore be a pipe dream. However, there is a more serious problem with moral economies than the lack of the moral consensus required to establish them and the trade-offs they require. This problem is apparent when moral economies succeed.
The Problem of Successful Moral Economies
Jean-Jacques Rousseau is usually regarded as one of the more collectivist thinkers in the modern western canon, even a forerunner of much leftist thought. His 1758 Discourse on Political Economy doesn’t disappoint. In it he introduces his concept of a general will, or roughly a society’s consensus moral values. It is from this general will that Rousseau believed that economic policies could flow for the benefit of all, or to put it in the present phrasing, a moral economy could be crafted.
However, there is a little-noticed caveat in Rousseau’s Discourse, namely that foreigners are excluded from the general will. Although Rousseau doesn’t explain who exactly foreigners are, he implies that foreigners can be present inside as well as outside of societies. Rousseau also doesn’t explain why foreigners are excluded, but it’s not difficult guess his reasoning. It is that scant few human beings adopt the bulk of their moral values through independent study and reflection. Instead, most people have their moral values instilled in them by parents, teachers, religious figures, and other members of their communities. For people to reach a moral consensus adequate for a moral economy, they must therefore already be members of the same tribe, to put it in contemporary parlance.
And this of course was characteristic or the moral economy of Europe prior to the enclosures. Only really Roman Catholics were included. Jews and the Romani people (Gypsies) were excluded, as if they were foreigners living in the midst of Catholics. Both also suffered from discrimination. Outright heretics were burned at the stake. When Protestantism arose, it sparked religious warfare. Externally, Catholic Europe had no use Muslims, and for over three centuries launched brutal Crusades against them. Later, when Catholic Europe had the wherewithal, it embarked on imperialistic campaigns to conquer the world, slaughtering and enslaving millions of human beings it regarded as foreigners. This moral economy didn’t merely exclude foreigners, it brutalized them.
Catholic Europe wasn’t unique among moral economies either. The ancient Greeks could afford to be indifferent to economic matters because they enjoyed the free labor of slaves, foreigners captured in battle. The Romans proceeded the same way, although outdid the Greeks during their imperial era by largely living off military conquest and foreign plunder. Although it’s a matter of dispute, it would appear that some of the hunter-gatherers, renowned for their cooperative moral economies internally, treated their foreigners similarly. Plundering raids of nearby villages coupled with the enslavement of the foreigners whose lives were spared are not unknown in the anthropological literature.
There is even the argument advanced by Peter Tuchin in his 2016 book, Ultrasociety, which is in turn anchored in evolution’s group selection theory, that hostility toward foreigners up to and including warfare is the flip side of the moral cohesion that enables societies to create moral economies. The underlying idea is that human evolution is not about individual or species survival, but about cultural survival. The best cultures, which in fact are the cooperative ones with moral economies, will ultimately prevail, although in order to do so they must exclude dissidents and combat rival cultures.
Whether or not group selection theory is correct, Rousseau’s exclusion of foreigners from the general will and therefore from a moral economy does appear to be the historical pattern. At the same time, research today shows that the greater the religious and ethnic diversity of community, the less moral is the economy, as measured by both public spending on common goods and voluntary donations to private charities. Insofar as this is a necessary pattern, the quest for a moral economy conflicts with the more universalistic values popular today, including the value of diversity. Moral economies, it would appear, are tribal economies.
Capitalism’s Strongest Moral Defense
Karl Polanyi opens his 1944 critique of capitalism, The Great Transformation, on an unusual note. Instead of launching into a critique of capitalism, Polanyi writes about what he calls Europe’s hundred years peace (1815–1914). His point is that, nasty as it was, the rise of capitalism in Europe ended warfare. It did, claims Polanyi, because capitalist economic competition substituted for military confrontations. Of course, Polanyi didn’t believe that the substitution was permanent. He believed that the First World War showed that capitalism is to weak to ward off warfare forever. Absent a more persuasive economic interpretation of the First World War than Polanyi provides, though, it would appear that Polanyi was wrong about this.
Indeed, when have capitalist countries ever gone to war against one another? Although the answer may depend upon how capitalist countries are defined (all countries have mixed economies), the answer appears to fall somewhere between rarely and never. This may prompt some to note the multiple wars capitalist countries wage against non-capitalist countries and charge that capitalism is bent on global domination by any means necessary, including warfare. This may be true, but it doesn’t change the fact that capitalist countries don’t go to war against each other. Though, it may not be true. Even leftists have taken to talking about Neo-imperialism as opposed to ordinary imperialism, the prefix suggesting that capitalist domination increasingly relies less on dispatching soldiers than on other means, such as controlling the capital.
In economic circles, an economist steeped in the study of cultural evolution, Thorstein Veblen (1857–1929), may have been the first to ponder this reduction of warfare under capitalism. Veblen reasoned that when humanity evolved beyond the hunter-gatherer stage, it did so by adopting a warrior ethic. For millennia economic activity was dominated by military conquest, plunder, and enslavement of the vanquished. With the rise of capitalism, though, Veblen believed that a sporting ethic was supplanting the warrior ethic. Capitalists continue to act ruthlessly (and often use metaphors from warfare) but they rarely resort to outright violence. Instead, they embrace certain minimal rules of the game that forbid outright coercion, but permit everything short of that. It is as if capitalism came to operate as something of a Geneva Convention for economic predation — permitting it, but only within the framework of agreed-upon rules.
What Veblen didn’t explain, though, is why after thousands of years of military plunder, people chose to abandon the warrior ethic in favor of capitalism’s sporting ethic. Although it’s only speculation, capitalism’s distinction between rational self-interest and passionate greed may have played a part. That is, unlike a moral economy, capitalism didn’t tell people that they couldn’t take advantage of others, only that they’d be prudent to do so rationally rather than passionately. At the same time, rudimentary though it is, the capitalist value of freedom provided minimal moral guidelines for the restraint of self-interest. Coercive violence, in particular, was banned. By adhering to the capitalist game plan, people could therefore continue to seek advantage over others, even continue to exploit others, though mutually agree to draw the line at overt violence. Abiding by this game plan was also in the self-interest of the capitalists, since they were for the most part free of the fear that their competitors would kill or enslave them.
Capitalism’s opposition to slavery may illustrate this moral compromise. Although capitalists oppose slavery on the moral ground that it deprives slaves of their natural right to freedom, Adam Smith’s objections to slavery rarely mention this moral argument. Instead, Smith insisted that slavery is less profitable to businesspersons than is free labor. Although Smith was probably wrong about this (slavery can be profitable for slave owners), it’s the kind of argument that has successfully promoted capitalism for centuries. There’s still ample opportunity within the the rules of capitalism to profit by taking advantage of workers without literally enslaving them, so capitalists don’t need to enslave anyone.
None of this of course makes capitalism a moral economic system, but it does make it less immoral than the economies that preceded it. Those economies may have been more moral internally, but their treatment of foreigners was often morally worse. Capitalism may therefore reign because it combats tribalism and embraces diversity better than do moral economies, even though capitalism isn’t otherwise moral.
Prospects for a Moral Economy
The results of a 20-country survey a few years ago showed modest majority support for capitalism coupled with overwhelming support for government regulation of big businesses. Something like this is probably the global consensus today. Some people prefer capitalism, others are resigned to it, but almost everyone wants it regulated.
Unfortunately, regulation isn’t a particularly satisfactory way to temper capitalism. Governments might not quite be “committees of the bourgeoisie,” as Marx dubbed them, but they do often appear to operate as handmaidens for capitalist interests. In the United States, for instance, not only do lobbyists for businesses influence the laws that regulate them, but they also sometimes write the laws themselves. The situation is similar elsewhere, although poorer countries are typically so desperate to attract businesses that they feel forced to be lax about regulating them. At minimum, at the turn of the century there were already 3000 free trade zones in 116 countries — all established to attract businesses with tax breaks, infrastructure improvements, and of course minimal regulations. Meanwhile, the World Bank releases annual reports that rank countries by the ease of doing business in them. Too many “burdensome regulations” (the World Bank’s language) lower a country’s rank — and no country wants a low rank.
Worse is that where regulations are sorely needed — the global level — they scarcely exist. After his currency speculation helped precipitate the Asian financial crisis of the late 1990s, George Soros called for regulations against exactly what he did. Needless to say, no such regulations have been written (and even if they had been, there’s no entity to enforce them). Global capitalism therefore lurches along with either no regulations or only those established by various trade treaties. But those who negotiate these treaties as well as who enforce them through arbitration are overwhelmingly representatives of the businesses themselves. Advocates for the environment, workers, consumers, and the poor are invariably left to protest on the sidewalks outside of the swanky hotels where the negotiators craft the treaties in their self-interest.
Mostly, as any serious advocate for moral economies will stress, starting with capitalism only to try to regulate it has things backwards. The starting point should be the moral framework within which economies operate. Only after that is established should concessions be granted for those who want to conduct their economic affairs along lines that resemble capitalism. But how to start with these moral frameworks in a diverse world is the vexation. Two possible strategies present themselves.
One is to work toward crafting a broader moral consensus at the global level than now exists. Although this might be an impossible task, it’s worth remembering that capitalism has succeeded in making its rudimentary value freedom a universal human right, even as it has had some success promoting rational self-interest over passion-driven greed. If these minimal moral values can sweep the globe, it’s plausible that a few more could too. The recent Paris Agreement on climate change is a hopeful sign in this regard, as also are various human rights covenants, the occasional successes of the International Labor Organization, and so on.
The second strategy is for countries to craft their own moral economies, even withdrawing somewhat from global capitalism in order to do so. For countries to do this, they frankly need to be smaller, more culturally homogeneous, and yes more tribal than many of today’s large nation-states. The economies in the world today that stand out as more moral than others are after all those of the Scandinavian countries, together perhaps with the Netherlands, Iceland and a few others. These countries are all comparatively small and homogeneous. Moreover, when their homogeneity is threatened, as happened recently with the influx of ethnically different Syrian refugees into Sweden, there can be a backlash. Sweden’s right-wing and formerly fascist party, the Swedish Democrats, received an unprecedented 17.5 percent of the vote in the 2018 elections, largely because of its anti-immigration stance.
But small, homogeneous countries may not always be necessary. Smaller political units within larger nation-states periodically make movements toward moral economies that larger states don’t. In the United States today, for example, there are strong movements favoring the seemingly moral economy initiatives of universal healthcare and a $15 minimum wage. Scarcely noticed is that Massachusetts already has universal healthcare and New York City a $15 minimum wage.
Of course, withdrawing enough from global capitalism to craft moral economies is more difficult for poor countries. However, it may be more important. Every time a poor country suffers economic calamity, it’s always sparked by currency devaluation. Although the conventional capitalist explanation for these currency crises is poor fiscal management by governments, this conventional explanation overlooks the inevitable indebtedness of the country’s consumers and businesses to foreign capitalists too. In reality, almost everyone is buying and borrowing so much from capitalists abroad that they reach the point where they can no longer pay what they owe. When this happens, the solution, often imposed by the International Monetary Fund, is for the countries to take on still more foreign debt conditioned upon the governments cutting social welfare benefits. As a result, they are driven farther away from moral economies and deeper into the losing stratum of global capitalism. If poor countries just limited their exposure to global capitalism in the first place, they might be better off — and would be better positioned to establish moral economies.
In his 2007 book, How Rich Countries Got Rich and Why Poor Countries Stay Poor, Erik Reinert even essentially makes the case for poor countries rejuvenating the now largely discredited import substitution model. This model calls for establishing high tariffs on imported goods in order to protect local industries making similar goods. The critics say that this just raises prices for consumers, results in inferior substitute goods, and empowers a bloated government bureaucracy. The critics are probably right. Defenders though argue that this is the only way to nurture nascent industries — indeed, it’s the way rich countries created theirs — and even if not, the economic self-sufficiency it provides is worth the costs.
Though the problem of foreigners remains. Moral economies probably can’t embrace the kind of diversity that is now a popular value. But maybe this version of diversity is shortsighted. Maybe true diversity doesn’t involve peoples from different backgrounds sharing the same societies as much as it involves the preservation of culturally distinct societies in a diverse world. If evolution’s group selection theory is correct, this is how humanity will ultimately progress. The societies that get economic morality right will thrive. Others can then either emulate them or go extinct.
Then again, group selection theory may explain the past better than the future. The future may no longer belong to the best cultures, but to the progress made crafting a more moral global culture. If it does, the first global strategy takes precedence over the second strategy of forging smaller moral economies.
Fortunately, both strategies can be pursued simultaneously. Those who withdraw from global capitalism to fashion their own moral economies can remain morally engaged in global economic affairs too. As the old saying goes, you can think globally while acting locally. Even so, neither strategy is likely to achieve significant results anytime soon. Capitalism will be with us for a long time.