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Friday, May 13, 2016

The Moral Case for Competitive Capitalism, Revisited

Capitalism Is Ethically Superior, Too

When economist Don Billings first wrote this essay, published by FEE in the Freeman in July 1983, he was a professor in the department of economics at Boise State University in Idaho. At that time, defenders of capitalism (by which I mean free markets, not cronyism with government favors) often focused heavily on its productive superiority over socialism.

In places like Sweden, partial socialism seems to work because the remaining capitalism pays its bills.

Indeed, the fact that capitalism produces more and better “stuff” (which, incidentally, is what feeds, clothes and houses people while it lengthens and enriches their lives) is still a compelling argument. A quick glance at the Index of Economic Freedom or the Economic Freedom of the World reports reveals year after year that the more capitalist a country is, the higher the general standard of living; the more socialist it is, the more impoverished it is. The human traffic around the world is almost entirely in one direction — from socialist countries to the more capitalist ones.

The socialist countries that seem to work do so not because of the socialism they have but because of the capitalism they haven’t destroyed. Sweden, for example, is often regarded as a model of “democratic socialism” because of its penchant for the welfare state and redistribution, but it has universal school choice, lower business taxes than the United States, and an economy wide open to international trade and investment; it also doesn’t nationalize industries as many socialists desire.

In places like Sweden, partial socialism seems to work because the remaining capitalism pays its bills. Western European welfare states have long had their national defense heavily subsidized by more capitalist America. The difference between socialism of the partial, “democratic” variety and the more totalitarian kind exemplified by Nazi Germany, Stalinist Russia, or the Cambodia of the Khmer Rouge is the difference between milking the cow and shooting it. Socialist Venezuela is proving right now in 2016 that you can easily milk the cow to death as well.

FEE’s founder, Leonard E. Read, put it well in an insightful 1963 article, “Socialism: A Barren System”:

Socialism depends upon and presupposes material achievements which socialism itself can never create. Socialism is operative only in wealth situations brought about by modes of production other than its own. Socialism takes and redistributes wealth, but it is utterly barren when it comes to producing wealth.

In the timeless essay below, Don Billings turns our attention away from the economic argument to one we should be emphasizing more these days: the moral one. Ultimately, that’s where we find the strongest, loftiest, and most convincing case for capitalism.

Billings explains why socialism of all varieties is precisely what Frederic Bastiat termed it nearly two centuries ago: legalized plunder, theft on a national scale. Its very essence is stealing. Socialists wrap their iron fists with rhetorical velvet gloves (“Equality for all!,” “Power to the people!,” “People, not profits!” and with offers of free “stuff” for some at the expense of others), but in the final analysis, they glorify the use of force.

In the death spiral of Venezuelan socialism at this very moment, crime is soaring. Stories abound of people, desperate for food, resorting to theft themselves and thereby eliminating the middleman of the bureaucratic state. They may well be thinking, “If it’s OK for the state to steal on my behalf, why should I have to pay the state to get it for me when I can grab it myself?” Those scenes from Caracas make a sad but compelling case that socialism, immoral from the start, produces even more immorality in its effects.

—Lawrence W. Reed
President, Foundation for Economic Education

“What is under attack is the capitalist system; and it is attacked mainly on ethical grounds as being materialistic, selfish, unjust, immoral, savagely competitive, callous, cruel, destructive. If the capitalistic system is really worth preserving, it is futile today to defend it merely on technical grounds (as being more productive, for example) unless we can show also that the socialist attacks on ethical grounds are false and baseless.” — Henry Hazlitt

As Karl Marx noted in the Communist Manifesto, capitalism is a great “engine of growth,” a proposition with which today few informed observers of the economic scene would disagree. Yet the free-market system continues to be viewed as materialistic, unjust, callous, cruel, and therefore immoral by great numbers of people all over the world — especially . This is especially true among many, if not most, intellectuals.

Alexander Solzhenitsyn, in a National Review article in 1978, acknowledged that “it is almost universally recognized that the West shows all the world a way to successful economic development.” However, and unfortunately, he goes on: “many people living in the West are dissatisfied with their own society. They despise it or accuse it of not being up to the level of maturity attained by mankind” (italics added).

Following this line of thought, the world continues to witness attempts by supposedly beneficent dictators to remake mankind in terms of some utopian, and more often than not very vaguely specified, image. But societies designed from above to promote morality are rarely successful.

Indeed, totalitarian regimes frequently appeal to morality as a convenient device to assist in the subjugation of their peoples. Henry Hazlitt cites an incident, recorded in Marx’s correspondence with Engels, at the communist First International in which Marx admitted, “I was obliged to insert in the preamble two phrases about ‘duty and right,’ and ‘truth, morality, and justice.’ But these lamentable phrases are placed in such a way that they can do no harm.”

In fact, as Max Eastman records, “The notion of an earthly paradise in which men shall dwell together in millennial brotherhood is used to justify crimes and depravities surpassing anything the modern world has seen.”

Consider the Alternatives

The morality or justice of the system of competitive capitalism, therefore, cannot be fully appreciated until the alternatives observed in the real world are evaluated. For as the late libertarian economics professor Arthur Shenfield reminds us, “It is a plain historical fact that the treatment of man by man became conspicuously more humane side by side with the rise of capitalism.”

Attitudes and policies toward the punishment of crime, treatment of women, lunatics, the feeble-minded, the lame, and in attitudes toward slavery and serfdom, the treatment of workers, changed significantly for the better during the rise of industrial capitalism. There was even an “explosion of charitable endeavor in the countries which bore the most marked impress of capitalist principle and practice.” The economic system of private property, voluntary exchange, and free markets brought with it, according to Shenfield, an improvement on what had gone before and very definitely an improvement over the socialist dictatorships of the 20th century.

For centuries in precapitalist Christendom, men were urged to lay up their treasure not in this world but in heaven, to eschew greed and selfishness, to care for the poor, the sick, the widow and the orphan, to treat all Christians, if not others, as brothers. Yet the normal and universal treatment of man by man in every respect was so inhuman by our present standards that we would be unable to picture it to ourselves were it not that we know it to be matched in the postcapitalist socialist countries of our time. And these socialist countries are conspicuous not merely for their pervasive cruelty and oppression but also for their loud claims to be in the process of building a comradely society free from greed and selfishness!

Socialism, immoral from the start, produces even more immorality in its effects. 

Following the lead of the economist Benjamin Rogge, it is in fact the case that “the most important part of the case for economic freedom is not its dramatic success in promoting economic growth, but rather its consistency with certain fundamental moral principles of life itself.” For personal freedom, and therefore economic and political freedom, is not “ethically indifferent” but a necessary condition of morality.

In The Road to Serfdom, F.A. Hayek reminds us of certain fundamental conditions of the moral life:

It is … an old discovery that morals and moral values will grow only in an environment of freedom, and that, in general, moral standards of people and classes are high only where they have long enjoyed freedom — and proportional to the amount of freedom they have possessed.… That freedom is the matrix required for the growth of moral values — indeed not merely one value among many but the source of all values — is almost self-evident. It is only where the individual has choice, and its inherent responsibility, that he has occasion to affirm existing values, to contribute to their further growth, and to earn moral merit.

Morality and the Market

It appears that the free market system, in which exchange is voluntary and mutually beneficial, is a necessary condition for a moral order in which the integrity of the individual conscience is respected. Hayek points out that only

where we ourselves are responsible for our own interests … has our decision moral value. Freedom to order our own conduct in the sphere where material circumstances force a choice upon us, and responsibility for the arrangement of our own life according to our own conscience, is the air in which alone moral sense grows and in which moral values are daily recreated in the free decision of the individual. Responsibility, not to a superior, but to one’s conscience, the awareness of a duty not exacted by compulsion … and to bear the consequences of one’s own decision, are the very essence of any morals which deserve the name.

“Surely,” adds Hayek on another occasion, “it is unjust to blame a system as more materialistic because it leaves it to the individual to decide whether he prefers material gain to other kinds of excellence.”

Whatever the goals of individuals, whether virtuous or not, the “vulgar calculus of the marketplace” is still the most humane way mankind has found for dealing with the economic problems of scarcity and the difficult allocation of resources.

In Man, Economy, and State, Murray Rothbard forcefully reminds us that “in a world of voluntary social cooperation through mutually beneficial exchanges … it is obvious that great scope is provided for the development of social sympathy and human friendships.” Indeed, “it is far more likely that feelings of friendship and communion are the effects of a regime of contractual social cooperation rather than the cause.”

Capitalism tends to favor those who respect the sanctity of their contracts because of its respect for and enforcement of private property rights. The work ethic, encouraged by the institution of private property, represents an important source of moral responsibility as well as a continuous reminder that our actions always entail costs — a pervasive characteristic of human existence. These essential ingredients of a free market order, Shenfield tells us, define a set of social institutions that encourage mutual respect for each and every individual:

What we want above all for ourselves, and which therefore we must accord to our neighbor, is freedom to pursue our own purposes.… As a corollary to this freedom we want others to respect our individuality, independence, and status as responsible human beings.… This is the fundamental morality which capitalism requires and which it nurtures. It alone among economic systems operates on the basis of respect for free, independent responsible persons. All other systems in varying degrees treat men as less than this.

Peaceful Trade

The processes by which we satisfy human wants through social cooperation do not, of course, exhaust the purposes to which individuals aspire. The search for personal happiness and inner peace must be found within the individual alone. Nevertheless, mankind’s social relationships are generally far more peaceful under a system of private property and free trade. (The heyday of capitalism, from Waterloo to the First World War, was a relatively peaceful century; the 20th was one of the bloodiest, thanks to socialist regimes like those of Hitler, Stalin, Mao, and Pol Pot.)

Furthermore, Shenfield, Hayek, and others remind us that competitive capitalism was the first social system in human history to direct man’s desire to become rich to the peaceful supply of greater quantities of goods and services for his fellow human beings, especially greater abundance for the working class and the poor.

And remember, Shenfield warns us, “The alternative to serving other men’s wants” through voluntary exchange “is seizing power over them.” Where socialism has prevailed it has invariably meant not only lower living standards for most people “but also their reductions to serfdom by the new privileged class of socialist rulers.”

The case for the morality and justice of the system of capitalism rests on the intimate and complementary connection that exists between private property and voluntary arrangements and the sovereignty of the individual over his own life. In fact, “one might say,” as James V. Schall does in Religion, Wealth, and Poverty, “that capitalism, far from dehumanizing man, allowed him at last to assume the full individuality which Christianity had always accorded him as the possessor of a distinctive moral conscience.”

Paul Johnson reminds us, however, that “we tend to take the concept of individuality for granted. Yet it is a comparatively modern idea — no older than capitalism; scarcely older than the Industrial Revolution.”

Free and Responsible

The “dawn of conscience,” that point in history in which individuals were first argued to be morally free and therefore responsible for their actions, appeared in Egypt and was borrowed and developed by the Jews. Jesus and his illustrious apostle Paul outlined a view that recognized the unique personality of each human being. It is essentially an individualistic view of mankind in which, for the first time, the individual’s soul is the most important thing about him. Christianity provided an environment in which individuals, to gain salvation, made choices from a position of free will.

Not only did the church find that individual souls were worth saving, but Christianity also “implanted the concept of the rule of law” and contributed importantly to the establishment of the idea of freehold property and the land deed in the Western world. Admittedly, these contributions were largely to protect the church and its institutions and property from the power of the state. But over time the principle of the rule of law and the private ownership of property were progressively expanded to the relationships between individuals.

“The connection between Christian morality and capitalism thus centers essentially around the role and importance of the individual,” according to Paul Johnson:

More than to any other force, then, we owe the acknowledgement of our individuality to capitalism.… And individualism is rooted in the Judaeo-Christian doctrine of conscience and free will. Free will implies choice: the moral function of society, the way in which it best serves the moral needs of the individuals who compose it, is when it facilitates the process of choice, permits consciences to inform themselves, and so offers the individual the greatest possible opportunity to fulfill his part.… That, essentially, is the moral basis of capitalism.

I conclude, therefore, that the system of free and open markets is most conducive to the perfection, or at least improvement, of man’s free will and tends to generate and make possible moral behavior. While it is admitted that “society” itself cannot be moral or immoral, that only individuals are moral agents, it would appear, following the arguments developed by Shenfield, that an economic system, “if its essential characteristics on balance positively nurture or reinforce moral or immoral individual behavior, it is a moral or immoral system in its effects” (italics added). Where justifiably acquired property rights are defended, and where contracts are enforced, and where the rule of law applies, then “the voluntary nature of capitalist transactions propels us into respect for others.”

For John Stuart Mill, justice is likewise a moral issue:

Whether the injustice consists in depriving a person of a possession, or in breaking faith with him, or in treating him worse than he deserves, or worse than other people who have no greater claims, in each case the supposition implies two things — a wrong done, and some assignable person who is wronged … Justice implies something which it is not only right to do, and wrong not to do, but which some individual person can claim from us as his moral right.

Justice, maintains Henry Hazlitt in The Foundations of Morality, “consists of the social arrangements and rules that are most conducive to social cooperation.” Therefore, a system of institutional arrangements called “capitalism” is unquestionably more consistent with justice in this sense than any alternative set of social arrangements even conceivably available to us.

The obviously immoral character of socialist dictatorships, where the most elementary human freedoms are suppressed and where millions of human beings have been murdered in the name of a new social order, documents the case for the private property, decentralized market system.

Societies designed from above to promote morality are rarely successful. 

The great French economist and social critic Frederic Bastiat, writing in the 19th century, captured what would be the desirable characteristics of a truly just and moral order. He asked this question:

Which countries contain the most peaceful, the most moral, and the happiest people? Those people are found in the countries where the law least interferes with private affairs; where the government is least felt; where the individual has the greatest scope, and free opinion the greatest influence; where the administrative powers are fewest and simplest; where taxes are lightest and most nearly equal; … where individuals and groups most actively assume their responsibilities, and, consequently, where the morals of … human beings are constantly improving; where trade, assemblies, and associations are the least restricted; … where mankind most nearly follows its own natural inclinations; … in short, the happiest, more moral, and the most peaceful people are those who most nearly follow this principle: although mankind is not perfect, still, all hope rests upon the free and voluntary actions of persons within the limits of right; law or force is to be used for nothing except the administration of universal justice.

In light of these arguments by Hazlitt, Shenfield, Bastiat, and the others, a very interesting and important question remains to be asked. Why is it that a system of social organization that has produced historically unprecedented increases in living standards in those countries where the principles were practiced and which simultaneously did so much to reduce man’s inhumanity to man during its ascendancy has come to have such a low standing in the minds of so many millions of people?

Hayek was right when he insisted that “we must once again make the study of freedom an exciting intellectual issue.” And a moral one as well.

  • Donald Billings is a retired economics professor from Boise State University.

  • Lawrence W. Reed is FEE's President Emeritus, having previously served for nearly 11 years as FEE’s president (2008-2019). He is also FEE's Humphreys Family Senior Fellow and Ron Manners Global Ambassador for Liberty. His Facebook page is here and his personal website is