Dr. Rasmussen is Professor of Philosophy at St. John’s University in New York City.

Business ethics does not stand by itself. It depends in large measure on the insights of political philosophy and ethics. Of course, it is not possible to do everything at once, and works in business ethics cannot be expected to deal with more general questions about the ultimate normative dimensions of capitalism, much less with the fundamental nature of morality and moral reasoning. Nonetheless, it is important to note two fundamental political and ethical insights that are crucial to appreciating the ethical significance of capitalism.

To begin with it should be understood that “capitalism” is not a mere descriptive term. It has a normative dimension. For example, “Murder Incorporated” is not regarded as a business firm in a capitalistic system. It is something criminal. One does not have the right to offer murder as a service that can be bought. This “service” is not allowed to operate. Similarly, the term “profit” does not mean merely a return on an exchange that is over costs; it also involves a certain type of exchange, namely a free or voluntary exchange. The gunman’s offer, “Your money or your life,” is, for example, not considered a free or voluntary exchange—even though one would prefer remaining alive to losing one’s money. The problem with such an “exchange” is, of course, that the gunman does not have the right to demand from you either your life or your money in exchange for the other. Thus, there is an ethical perspective that is presupposed in our very understanding of capitalism and our notion of free or voluntary exchange.

The Role of Rights

In order to understand the ethical perspective from which the terms “capitalism” and “profit” derive their particular meaning, the concept of “rights” should be considered. “Rights” are a moral concept, but they are different from other moral concepts. They have a unique function. Their function is not to directly secure the moral well-being of individuals. Rather, their function is to protect the self-directedness of individual human beings and thereby secure the liberty under which individual human moral well-being can occur.[1]

Rights provide guidance in the creation, interpretation, and evaluation of political/legal systems. They protect individuals from being used by others for purposes to which they have not consented. Rights are used to determine fundamentally what ought to be a law. They provide the normative basis to law, but they do not, like the virtues, provide individuals with any guidance regarding what choices to make in the conduct of their daily lives.

The idea that “no one’s purposes or goals take moral precedence over the purposes and goals of any other person in a way that would justify the complete or partial subordination of any individual to any other individual or to any group of individuals”[2]—more simply put, that there are no natural moral slaves or sovereigns—is expressed in the claim that individuals have rights. Smith’s having a right in this sense legally obligates others to abstain from initiating physical compulsion, coercion, or interference against Smith.

It should be emphasized that the protection against being used for purposes to which one has not consented is understood to proscribe the nonconsensual use of the product of one’s labor. As Robert Nozick has said:


      Seizing the results of someone’s labor is equivalent to seizing hours from him and directing him to carry on various activities. If people force you to do certain work, or unrewarded work, for a certain period of time, they decide what you are to do and what purpose your work is to serve, apart from your decisions. This process whereby they take this decision from you makes them part-owner of you; gives them a property-right in you. Just as having such partial control and power of decision, by right, over an animal or an inanimate object would be to have a property right in it.[3]

Government’s proper function is to implement and enforce laws that protect the lives, time, and resources of persons from being used without their consent.

Capitalism is a socioeconomic system based on the recognition of individual rights. It is thus only against the political/legal backdrop provided by individual rights that a moral evaluation of the activities of creating wealth and exchanging goods and services within a capitalist system can be properly made.

Morality and Moral Reasoning

We need to consider the nature of morality and moral reasoning. When it comes to making an accurate moral assessment of capitalist activities, it is crucial that a certain understanding of the moral good of human beings be considered. Otherwise the moral significance of capitalism, as distinct from the political/legal significance, will not be appreciated.

Contrary to what is sometimes thought, it is not necessary to assume that the fundamental principle of human conduct and relations within capitalism is sheer greed or hedonism. Further, it is not necessary to assume that in order for capitalist activities to be morally defensible what is good for a person must be simply a matter of taste. It is quite possible to understand the activities of business people within capitalism as being motivated by the pursuit of more than merely wealth or pleasure. People can be understood as pursuing their moral well-being or fulfillment. In other words, the human moral good could be something objective, and yet the diverse activities of persons operating within capitalism be consistent with the attempt to achieve the good.

Human moral well-being need not be viewed as something abstract, impersonal, or uniform in order to be objective. Rather, the human good could be objective and nonetheless be concrete, personal, and variable. Though there are generic virtues that abstractly define the human good, what they amount to in the concrete situation for any individual human being varies. This does not mean that what is good for any person is simply a matter of taste or that there are no right or wrong choices, but it does mean that it would be a mistake to think that what is good for someone in some concrete situation can be determined merely from some armchair.

If human moral well-being is both real and pluralistic, this has great importance when it comes to morally assessing capitalist activities. It allows one to see the ethical importance of a socioeconomic system that protects and permits individuals in using their practical insight toward achieving their good in contingent and particular cases. This is especially so if it is true, as it certainly seems to be, that human moral well-being involves the creation, maintenance, and use of wealth in fulfilling ways. The judgments exercised by persons as producers and consumers are then related to the central intellectual virtue of practical reason of which Aristotle speaks in his ethical works.[4]

There is a parallel between an argument that Mises and Hayek used to show that socialist economics could not efficiently coordinate the production and exchange of goods and services and an Aristotelian argument against rationalistic accounts of the good life. Just as central planners do not have access to the contingent and particular facts that individuals do in exercising the “entrepreneurial insight” that moves free markets toward equilibrium, so too speculative insight into the nature of the human good is not sufficient for a person’s well-being to be achieved. Practical insight is needed, and this insight can only be used by that individual, no one else, in confronting at the time of action the contingent and particular facts of his or her life. Such insight cannot function from an abstract perspective in finding the “mean” that is appropriate for the individual. Thus, there is a creative role for the individual to play in discovering the individuative content that gives reality to the good life philosophers abstractly describe. It is the practical insight of individual human beings, not only in the creation of wealth but in achieving their unique form of the human good, that a system based on political and economic liberty helps to make possible.

Here then are two insights—one from political philosophy and one from ethics–that make a crucial difference as to how one morally evaluates the activities of persons within a capitalistic socioeconomic system. The idea that individual rights provide the basis for a political/legal context that protects the exercise of practical reason by individuals and the idea that the human good is objective, but individualized, are fundamental. It is important for anyone taking up issues in business ethics not to forget the import of these ideas–as well as others from political philosophy and ethics–for the understanding of capitalism.

1.   See Douglas B. Rasmussen and Douglas J. Den Uyl, Liberty and Nature: An Aristotelian Defense of Liberal Order (La Salle, Ill.: Open Court, 1991) for a defense of individual rights.

2.   Eric Mack, “The Ethics of Taxation: Rights Versus Public Goods,- in Dwight R. Lee, ed., Taxation and Deficit Economy (San Francisco: Pacific Research Institute for Public Policy, 1986), pp. 489-490.

3.   Robert Nozick, Anarchy, State and Utopia (New York: Basic Books, 1974), p. 172.

4.   See Douglas B. Rasmussen, “Capitalism and Morality: The Role of Practical Reason,” in Robert W. McGee, ed., Business Ethics & Common Sense (Westport: Conn.: Quorum Books, 1992), pp. 31-44. Yet, also see Douglas J. Den Uyl, The Virtue of Prudence (New York: Peter Lang, 1991) as well as Liberty and Nature.