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The Morality and Virtues of Capitalism and the Firm

Thursday, October 13, 2016 2:30
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The case for the morality of capitalism lies in its voluntary nature and its synthesis of self-interest and empathy, two of mankind’s most virtuous and important traits. Self-interest focuses business leaders on advancing their goals as efficiently as possible, while empathy encourages them to understand and recognize the viewpoints of others.

This essay develops that argument, noting that capitalism is moral, based on its voluntary nature and its reliance on virtuous core human traits. Furthermore, it shows how the entity that embodies capitalism in the market, the firm, hones and enhances these virtues through a vast array of mutually beneficial exchanges, which in turn enable other types of interactions beyond the realm of business.

Capitalism operates in the real world through its key institution, the firm or corporation, a cooperative venture that must consider the values and wants of everyone in its community—customers, employees, suppliers, and investors.

A moral defense of capitalism needs to illustrate how capitalism not only makes people wealthier, but also advances other important values and concerns, such as fairness and justice. Failure to make that case leaves business vulnerable to attack by anti-market critics, demagogic office-seekers, and overzealous regulators.

Businessmen may well articulate the quality of their products and services, as well as their record of cooperative relationships with employees, suppliers, and customers. However, they may not articulate quite so well the voluntary, self-organizing nature of the market and the institutions essential to its survival. This essay provides some materials to assist business to better communicate their achievements and values.

The economist Deidre McCloskey refers to capitalism’s achievements as “The Great Enrichment”—an almost 30-fold increase in living standards from the 1750s through today. During the early part of the Great Enrichment, the public recognized the value of that vast improvement in living standards. However, as the greater wealth made possible by capitalism spread throughout society, a middle class emerged, and with it an increasingly powerful class of intellectuals hostile to commerce and capitalism.

The economist Joseph Schumpeter anticipated the problems such hostility would create. But he also believed an effective defense was possible. Business leaders must regain the pride, confidence, and knowledge needed to stand proud and resist political encroachments, to express how capitalism advances a virtuous moral society.

The foundations for that defense were outlined by Adam Smith in An Inquiry into the Nature and Causes of the Wealth of Nations, which developed the role of enlightened self-interest, and The Theory of Moral Sentiments, which developed the comparable role of empathy. Market exchanges bring the self-regarding and other-regarding qualities into balance.

The genius of the market is that it enables a wide array of individuals, groupings, and associations to organize spontaneously and unconsciously to advance their various interests in a cooperative fashion that yields win-win arrangements for all involved. The Great Enrichment is capitalism’s greatest triumph. It needs defending.

Read the full paper here.

Thursday, October 13, 2016
Defending Capitalism in Theory and Practice
Fred L. Smith, Jr.
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