Monday, August 27, 2007

The Morality of Capitalism

Vino argues, in the comments to my last post, that it is capitalism that is breaking down community and leading to the social catastrophe I lament. Essentially, his argument is that capitalism makes people callous about the interests of others. I profoundly disagree.

On the contrary, one of the great moral qualities of capitalism is that, unlike the caricature painted by both the Left and too many on the Right, it promotes less selfishness than any other system. The reason is explained in George Gilder's Reaganite classic 'Wealth and Poverty'.

In a capitalist system my well being depends upon anticipating and satisfying the needs of others. If I can do that then I will have a market and I will prosper. On the other hand, if I do not think of others then there will be no market and I will suffer. As such, the capitalist system has created an imperative for me to think about the desires of others and to try to help them. It has aligned my interests with theirs and, by making me care more about others, morally improved me.

Economists talk a lot about competition and this can further the impression that the process is a cut-throat one. However, this is only to look at the relationship between the competitors. Once one considers the bigger picture it should become apparent that the competitors are competing to be able to serve the market. They are fighting to be the ones best able to help others.

If this sounds too far fetched think of it in the same terms that Baumol argued for the dynamic potential of capitalism. Baumol's argument was that capitalism, by providing returns to productive enterprise, channelled entrepreneurial ability towards productive uses. In other societies it was channelled towards destruction, as in a feudal society where the best means of getting big rewards was to fight, kill and take or a socialist society where getting to the top meant political manoevring. A successful society is one that channels ambition and talent towards productive ends.

Baumol's argument illustrates why capitalist socieities have invariably been more inventive than others. It also illustrates why capitalist societies are more moral. A society in which a bright and resourceful man or woman who wants to get ahead will be most successful if they help others is one which will be, in the long term, more peaceful, more harmonious and morally superior.

Social breakdown has come not because of capitalism but because it has been endangered: By welfare dependency (both personal and regional) that means people can advance their interests best by scamming or politically manoevring for more welfare. By the breakdown of the institutions of law, order and tradition that separate any system of government - capitalism in this case - from anarchy. Restoring true capitalist order is the way we might see our society healed.


Mountjoy said...

I agree that welfare dependency, not capitalism, has led to social breakdown. The 'poverty trap' has been well documented by economists and sociologists. One of the major problems is a disincentive to work caused by the tax system.

In his CPS pamphlet, "A better way to help the low paid: US lessons for the UK tax credit system" (downloadable at,
Rupert Darwall (pp iv - v) notes that,

"UK tax credits have extremely high marginal rates of tax (of up to 70%). These create a huge fiscal barrier to the low paid being rewarded for full-time work. A single mother on earnings 25% above the minimum wage can see her after-taxand-benefit income fall to just £1.89 an hour depending on the number of hours worked per week – a little more than one third of the Minimum Wage."

He goes on to say, "Although tax credits give poor families more money, they also make it harder for poor families to earn more money. They are socially divisive, helping to create a stratified, twoclass Britain – one, a class of advancement and achievement;
and the other, a class of dependency, passivity and social breakdown."

Vino S said...

That's an interesting point, Matt, and one that i will try to look into in more detail later. But, as a first response, I think it is important to differentiate between positive aspects of market mechanisms [i.e. that we can get our dinner not from the benevolence of the butcher or the baker but because they themselves are working to provide food so that they too can earn money, to paraphrase Adam Smith] and the side-effects of a market society.

Market mechanisms are all well and good - where they have positive side-effects, as they often do. But, a society that always relies on markets will corrode relations that are not based on the cash nexus. The desire (for example) of people to make money by letting out former council houses on short-term lets has had the effect of creating a more transient population and adding insecurity to the lives of their tenants [and, perhaps, breaking up family networks].

Additionally, a market society where people are working long hours to gain more and more money to meet non-essential material desires is also one that means that people have less time for their friends and families etc. I think it is no conincidence that sociologists think social capital has declined as we have become a more market-oriented society and job-insecurity has made people feel obliged to engage in 'presenteeism'.

In response to Mountjoy's point, it brings to my mind some of the discussions i have read and taken part in on this side and on others about the pluses and minuses of a Basic Income scheme. Basically, as someone on the Left, I would not like to see the poorest in our society made worse off by any changes in the social security/in-work benefits systems. As such, if you want to reduce the tapering at which benefits get withdrawn as people's earned income rises, then you have to be prepared to spend more on them [if you reduce the tapering from 70% to 30%, for example, the state will only be able to reduce their benefit expenditure by £3 for every extra £10 benefit reciepients earn, compared to the £7 they can reduce it by now). Somehow I doubt anyone on the right would be willing to pay the taxes required to reduce tapering sharply or give a decent Basic Income.

Alternatively, of course, you can avoid this by reducing the initial amount of benefit paid - a policy i wouldn't be keen on. That policy is simply the old-fashioned right-wing one of chipping away at the safety net. That's nothing new and is not so much about re-incentivising people as simply about cutting expenditure.

Ian Appleby said...

Matt, if you will forgive the manual trackback, there are one or two points in this piece I take issue with. I suppose, as I say in my conclusion, I am essentially asking what you mean by a "true capitalist order".