Getting Capitalism Terribly Wrong
Adam Smith, arguably the father of this thing we call capitalism, in his book “An Inquiry into the Nature and Causes of the Wealth of Nations” wrote not just about economics, but about a “political economy”. Smith’s book and his view of capitalism incorporated philosophy, political science, history, economics, anthropology, and sociology. He analyzed laissez-faire structures that were part of a larger theory of human behavior and the social systems that serve to benefit the overall human condition.
Smith was not an economist; he was a philosopher. He was also – as were many leading thinkers during his time during the 17th and 18th century Enlightenment period – a strong moralist. His first book, “The Theory of Moral Sentiments” sets the stage for his overarching moral perspectives on capitalism. Ironically it has also fueled “scholarly” debates divided along ideological lines. One side inaccurately suggests Smith’s work from his first book, which supposedly assumed altruistic human motivation, contradicts his writing in Wealth of Nations which allegedly assumed egoism. The other side gets it wrong too – and more destructively so with respect to the ongoing health of this thing called capitalism – in assigning the entire definition of capitalism to a sort of self-serving interpretation that the rights of pursuit of self-interest are nearly absolute and all restrictions to profit and earnings should be eliminated.
These two moral extremes: egalitarianism, and egoism – the view that the system either takes care of everyone or everyone should be free and expected to take care of themselves – have defined the primary ideological battles throughout most of modernity. And with respect to the view of Smith and capitalism, both get it terribly wrong.
Smith recognized that capitalism was primarily a social system. In fact, Smith never really uses the term “capitalism” but refers to the thing as “commercial society”. His view was that economics was a very important component of the overall human condition. However, he concludes that any working economic system within a moral and just society must concern itself with its least well-off members, not just those with economic success. Smith viewed the market, the free market, as a mechanism of morality and social support, not just a means to an end for individual wealth generation.
Negative Branding of Capitalism
Capitalism has a bad rap these days. In a 2021 poll, while only 57% of all respondents have a positive view of capitalism, a whopping 54% of Gen-Z adults have a negative view of capitalism.
Who can blame the young people for souring on the very system that created the marvelous machines they use to respond to these polls? They cannot help it that they grow frustrated with their inability to achieve what they feel they deserve. We adults told them to get an expensive education, and this would cause them to magically launch into a life of high status and income. It was a lie of course… one told by the education industry taking advantage of the profit-making egoism memes of capitalism. The truth was that for most students, their time in higher learning would serve mostly as a delay in their launch to economic self-sufficiency while also saddling them with student debt and an entitled expectation for an immediate high-social-status good life. That was their mistake; but one that they were sold by adults that, if truly moral, would have been more honest about it.
And then to add insult to injury, when these students did eventually launch into their post-education life, they would find fewer paths to economic self-sufficiency than previous generations… negative changes caused by the same adults who raised tuition and housing costs and that are still telling lies about it all.
Human Nature is to Always Want More
There is a common human psychological need for personal advancement. In modern society this can be measured and valued in many ways. Some people are satisfied with tacit self-approval of growth and achievement, but more often people are motivated toward higher social status within some group they relate to. In a market-based system social status and economic status can be connected. This tendency for expecting individual advancement has led to marvelous human progress in science, exploration, and invention. However, it has also led to wars, death and destruction. Like many things, it is both a blessing and a curse. However, it is baked into our biology… and probably is explained by being a Darwinist case for species survival… because if not constant growth and progress, the alternative would generally be decline and eventual depletion of the species.
This common tendency of human nature – to always desire more – provides the backstop for support of systems that positively harness that human nature. If people in their natural state will always expect more any system that effectively blocks their productive growth and achievement will cause them frustration and result in reactive behavior that can limit system progress and even grow systemically destructive.
The natural correctness of a system like the US, one based on the principles of democratic free market capitalism, contrasts with a socialist system because of the principle of “from those that can, to those that cannot” always degrades to a system of “from those that do, to those that do not”. When the pursuit of self-interest is restricted, it conflicts with human nature, and thus it frustrates the motivation of people to strive in achievement, growth, and progress. It causes rebelling… either silent in a refusal to work as hard, or vocal and violent in demands for greater access to individual advancement opportunity.
Greed is Prevalent, but is NOT Good
Smith framed his view of a “commercial society”, or “capitalism” as we refer to it today, as being the best design system for achieving the greatest positive results benefiting the human condition. He pointed out that basic natural human psychological needs would be better met by a system of free enterprise. However, this theory relied on a basic requirement of a strong foundational morality.
My view of this is like a large tree with strong roots and trunk, that can thus branch to the sky without toppling. The roots and trunk represent the strong foundational morality. The branches are growth and progress of the economy (and hence society) serving the overall human condition and fulfilling the individual need to constantly grow, achieve and advance.
What does that morality look like with respect to capitalism?
I think Elon Musk hit on it in several of his famous quotes:
“You need to have an environment that tries to protect little companies and help them get bigger.”
“I don’t think it’s a good idea to plan to sell a company.”
“Great companies are built on great products. When the product starts to become shoddy and uncompetitive, so does the company.”
“Man has the power to act as his destroyer – and that is the way he has acted through most of his history.”
“Patents are for the weak"
“Competition is fine; cheating is not”
The indicative principle of Musk from these quotes is one of copious free and fair competition.
Now, Musk is suing social media rivals for their attempts to add Twitter-like functions to their platforms, so certainly he is not an absolute moralist on this philosophy of completely open competition; however, he has been consistent in his general perspective that our era of massive corporate mergers and consolidations are not a good thing.
Destruction from Within
Let’s say you are on the board or the CEO of one of the four mega-sized food corporations that together control 80% of the USA meat market, and your continued business strategies to grow and gain more market-share are resulting in destroying the nation’s small ranchers and the small businesses that support them. What is the moral argument to justify the harm being caused? The most common argument from the egoism side is that larger corporations provide economies of scale that result in price benefits to consumers. But then when the cost of meat almost doubles in four years, the provided defense of the “bigger is better” argument is “the price is what the market dictates”. See how that works?
Stated plainly, the business strategies of offshoring, outsourcing and corporate mergers should be considered not in the spirit of true capitalism when they result in less competitive choice and fewer economic opportunities for citizens to make a living. Arguably, those practices are immoral.
More importantly for the people defending these things using their trusted libertarian principles that all government regulations are bad, and the world is better served just allowing people to seek all market advantages… is that they are in effect making sure that the masses sour on capitalism and start to demand the alternative collectivist model that would be a disaster for everyone.
The people defending uncontrolled greed as some sort of almost religious and righteous cause, seem blind to the fact that they are destroying the popular support for the system that supports their financial interests. Either they are blind, or they are willful participants in the looming death of the very system they thrive in.
Playing Games with Life
Let’s be frank here. A market economy is a life-game. It is a life-or-death game for many, but it isn’t really life.
To illustrate this point let’s imagine we set down 1000 people on some isolated land without any connection to any existing human system. These people need to start 100% from scratch to build a society. What would these people do first? They would need to satisfy their basic needs for food, water, and shelter. They would filter into groups most capable of doing certain work and begin to build, make and grow all the material things they needed to survive. In time they would barter… the family raising crops and food animals would trade some of their production with the family that weaves cloth. Specialization would happen because humans are blessed with certain innate capabilities, and their own natural motivation to advance would compel them to exploit those capabilities in a market system. Eventually they would create a government system to help provide common services to the benefit of the overall society. Money would be invented to simplify and standardize the exchange.
But these systems, both market and government, exist to support life… they are not life in and of themselves. Also, neither are sacrosanct with respect to their existence. If the market system does not support life well enough (say for example the cloth weaver family became the only producer of cloth and would threaten any upstart producer with harm), the community would soon consider it flawed and in need of replacement or reform. Same with a government system deemed to not provide enough support for life… if failing to address enough of the common good, the current system would eventually be scrapped and replaced (and generally with great bloodshed, because government power does not relinquish that power without a fight).
Labor and Capitalism are Joined at the Hip
The general expectation for real and moral capitalism is that domestic labor shares adequately in the returns of domestic capital investment.
Adam Smith, and even Ayn Rand, could never foresee a time when technology would enable massive outsourcing and offshoring of domestic jobs. Had they understood that future they would have sounded alarms for broken capitalism; because capitalism fails as a social system when domestic labor no longer enjoys adequate sharing in the returns from domestic capital investment. Labor would rebel to reject capitalism as labor is cut out of the market. This is happening today.
Corporations are Simple Beasts that Need Control
Corporations pursue profit and earnings like a dog pursues food and play. That is their primary function and there is nothing at all wrong with that.
But because they are simple beasts, they need to be trained and directed so they don’t get out of control. Government regulations and oversight are required but must be balanced and overarching… not so intrusive that the corporation’s ability to function is hampered. More importantly, government should be focused on keeping the competition among corporations (and all businesses) and not corrupting the market providing advantages to one corporation over another. Because if the beast sees that government collusion will help to benefit its profit and/or earnings, the beast will adopt the behavior to collude with government.
Lastly, the government needs to enforce the big picture ensuring that domestic capital investment produces enough good paying domestic jobs. There can be a carrot and stick approach to this… with the carrot approach always being more effective. For example, tax incentives for corporations that create and retain good paying domestic jobs. Given what the government already spends on overall job creation and retention, the funds can be redirected as tax incentives for the private economy to cover the need.
Consumerism Benefits are Not Enough
There are two perspectives with respect to capitalists understanding the need to keep domestic worker economic opportunity healthy and not just preaching all the inexpensive goods at Walmart as the derived benefit of cheap foreign labor: morality and self-preservation.
The moral view should be one where a good capitalist supports domestic business providing good-paying domestic jobs because of the benefits to individuals, families, and society in general. This is somewhat an egalitarian view, but one that fits more with the thinking of Smith and others where humanity is better served when people can earn their own way in life and fulfil their higher-level psychological needs for advancing (getting more) along a continuum.
This moral view of domestic job creation and retention is not at all at odds with the egoistic and self-preservation needs of capitalism as it both supports the principles of market competition (workers learn about the business and some start new business… and competition flourishes thus waving that invisible hand that motivates innovation and competitive pricing) while also helping to preserve the positive opinions of the voting public about capitalism being a valued system they continue to support.
Ideally a good capitalist understands this view of capitalism being a social system and thus adopts the position that the health of domestic worker economic opportunity is both a moral and self-preservation necessity. If profit and/or shareholder earnings come at the expense of the health of domestic worker economic opportunity, then there better be very strong arguments to make the case of the business having some alternative justified moral business model and strategy. Otherwise, capitalism goes away to be replaced by an inferior system and everyone loses.
Wrapping it Up
There is a trend for our elite managerial class to fret over population growth and the depletion and impact from consuming finite natural resources.
There is also this trend of corporatism; where government grows larger and favors larger private corporations to collude with… the goal being stronger control of income and wealth opportunities for the elite managerial class.
This makes the fretting over population growth and impacts from natural resource consumption suspect as conveniently supporting that same trend of elite managerial class dominance in continued consolidation of economic and political dominance. The already wealthy can afford the more expensive alternatives, but the masses get locked out of the market game and their consumer debt skyrockets.
Within this cohort of people dominating our institutions are false capitalists: people that claim to be principled supporters of the system, but who are really working to replace it with an authoritarian corporatist corporatocracy… and more likely a global one.
True supporters of capitalism need to help identify and target these false capitalists while also adopting the principles of free market morality and self-preservation that demand copious market competition and the health of domestic worker economic opportunity.
Getting rich from the free market is wonderful and should be celebrated, but only if done so within the strong moral foundation that our original capitalists, like Adam Smith, prescribed: one where the egalitarianism that fuels the radical left falls out of favor because the masses have a good enough shot at a good economic life.
“Oh how fond they are of the book of Esther, which is so beautifully attuned to their bloodthirsty, vengeful, murderous yearning and hope.” — Martin Luther
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