The term capitalism has long been used by critics as a catch-all to denote a system replete with greed, indulgence, excess, and deprivation. It is easy to misinterpret self-interest as selfishness and write off capitalism and economics. But the truth of the matter is much more complicated…
I find myself still scratching my head over George Stanciu’s recent essay “Capitalism and the Gospel of Love,” published here at The Imaginative Conservative. My desire in writing is to offer the reader a fair but firm rebuttal of Dr. Stanciu’s argument from an economic perspective, and to parse out several of the arguments he makes against “capitalism.”
Dr. Stanciu makes a host of perplexing connections, any one of which could be challenged: Does Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations represent the ethical heart of capitalism? Is self-interest synonymous with selfishness? Do Pueblo Native Americans exemplify the benefits of a lack of competition? Are elementary school spelling bees evidence of cutthroat capitalist ethics? Do businessmen purposefully destroy community? Does his grade school field trip to an automobile assembly line qualify him to speak from “experience” about factory labor? And on and on.
Dr. Stanciu is good to give us the opportunity to challenge these ideas so that we may lay them to rest. My hope is that this essay reverses Dr. Stanciu’s indictment in the reader’s mind and demonstrates that free-market capitalism is congruent with a greater Christian conservative worldview.
Let us narrow our critique to the most essential errors:
1. Is the term “capitalism” used correctly?
Dr. Stanciu conflates capitalism with materialism and consumerism and claims that Adam Smith endorsed (if not grandfathered) all three ideas. This is an unfair treatment of all the ideas involved.
The term capitalism refers to an economic organization in which the means of production are privately owned, and production is guided by profit. Materialism is an ethic in which physical goods are valued more highly than spiritual ideas, and consumerism refers to a culture in which people prefer to acquire consumer goods than to dwell on higher virtues. These three concepts may coincide, but they definitely do not have to, nor have they historically. And they certainly do not spring from Adam Smith’s endorsement as Dr. Stanciu suggests. In fact, one could easily make the opposite case—that the ethics historically associated with American capitalism are a shrewd business sense marked by thrift, frugality, saving, sound investment, planning, industry, hard work, charity, and a principled commitment to the community. These are the precise ethics that Dr. Stanciu praises in his parents. So why overlook them in favor of a pejorative and opprobrious “capitalism?”
The term capitalism has long been used by critics as a catch-all to denote a system replete with greed, indulgence, excess, and deprivation. Say the critics: capitalism enables unique viciousness not possible elsewhere. But this is ahistorical and counterfactual. No economic organization ameliorates human vice. Human vice is not confined to any economic system. Consider the historical atrocities associated with feudalism, mercantilism, imperialism, socialism, and communism; have these been ethically superior?
We may plausibly say that capitalism enables more vice only if we acknowledge first that capitalism enables more people. At the time Adam Smith wrote, there were approximately 770 million people in the world. Within 300 years that number has skyrocketed to 7.7 billion. Despite this population growth (or perhaps because of it) there are more resources on the planet than there have ever been. What enabled this growth if not an enhanced understanding of how nations get wealthy? We should thank Adam Smith for teaching us how to raise the standard of living for most and to support a population heretofore unsustainable.
Furthermore, it is deceiving to discuss capitalism broadly without recognizing the spectrum of economies to which it refers. The term simultaneously describes free-market or laissez-faire capitalism—in which the government plays zero role in the economy—and economies replete with central banking, artificial interest rates, price controls, minimum wages, labor politics, corporate welfare, bailouts, social safety net programs, public works programs, stimulus packages, et cetera. Rarely do critics distinguish between true free-market capitalism and the crony, corporatist, Keynesian, protectionist, welfare states that operate under the same name.
We could make a similar study of the term socialism. In the past, it described economies in which the state controlled the means of production, but it has recently been expanded in popular usage to include market economies (i.e., capitalist economies) with high tax rates that offer an extended list of public benefits. These economies can range from mostly free to completely centralized. Compare the economies of Sweden and Venezuela, for example: both are “socialist” by name, yet Sweden ranks higher on the index of economic freedom than the United States! Meanwhile Venezuela finishes second to last ahead only of North Korea. Would it be fair to discuss the failures or successes of “socialism” without making these distinctions? Why then omit them in a discussion of capitalism?
By omitting these distinctions, critics such as Dr. Stanciu can blame the problems of one variety of capitalism on another. Consider for example the standard leftist critique of America’s economy: Laissez faire free markets have run amok and produced poverty for most, riches for a few, and fostered a materialist ethic contrary to Christian charity. But the premise of this narrative is false: America has drastically reduced the scope of economic freedom over the last 100 years. As the economy labors under the weight of regulation and intervention, critics blame the poor performance on the vestiges of freedom rather than the encroachment of bureaucracy. By failing to distinguish the variety of practices that pass as “capitalist,” critics may write off the entire concept rather than grapple with the effects of particular policies.
What is needed is to analyze the specific features of American capitalism to show where each succeeds and fails. Dr. Stanciu might wish to narrow his critique of capitalism to a criticism of Keynesianism—the philosophy that spending and consumption drive economic growth—as the cause of materialistic consumerism. It may surprise him to learn that many capitalist economists oppose Keynesianism while upholding capitalism as a system that benefits most people, most of the time. It is quite possible to root out one idea and leave the other.
“Capitalism” should not take the rap for every poor policy that is practiced within it.
2. Should we disparage the profit motive?
Critics such as Dr. Stanciu argue that we should not act from a desire to profit. This sounds highly moral at face value. But let us analyze this claim to understand its implications:
Profit is an inescapable category of human action—all action aims at profit. Any act I perform—from reading a book to digging a hole to blinking my eyes—implies an expectation to substitute a more satisfactory state of affairs for a less satisfactory state. Why else would I act? To criticize broadly “the desire to profit” is to misconceive the impetus to do anything at all whatsoever.
But profit is in no way limited to material gain, nor to narrow self-interest. People are free to assume the interests of others as their own, and to act on behalf of spiritual ideas. And yet neither case diminishes the expectation to gain from what one is doing.
I agree with Dr. Stanciu: Monetary profit should not be our sole motivation. We should strive daily for intellectual and spiritual profit. But even while believing this we must acknowledge that monetary profit is an indispensable economic mechanism.
Profit indicates demand. Businesses are profitable only when they satisfy a need, and they are most profitable when they do it well. Profits call entrepreneurs into industries that people are eager to patronize. Without the profit motive as a guiding mechanism, we would have no rational means of allocating resources to their most urgent end.
When Adam Smith observed that the baker and the brewer work not from benevolence but from a desire to profit, he was not condoning selfishness. Rather, he was noting with surprise that businessmen profit only by benefiting someone else. Profit is only half of the equation—customer satisfaction is the other half. It is impermissible to condemn the former without realizing that it is built upon the latter.
This is what is so remarkable about the capitalism described by Smith—the only way to profit personally is to offer others something of benefit.
3. Is self-interest the same as selfishness?
Did Adam Smith really teach selfishness as a “central tenet” of capitalism? This is perhaps Dr. Stanciu’s most perplexing claim—first, because Adam Smith says no such thing, and second, because there is such a vast literature rebutting this misconception. Let’s discuss these two points in order:
Smith observes that people are motivated by self-interest, but this is a far cry from promoting selfishness. In fact, Smith believed acting in the interests of others brings us the most satisfaction. Consider what Smith wrote in The Theory of Moral Sentiments:
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.
And hence it is, that to feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety. As to love our neighbour as we love ourselves is the great law of Christianity, so it is the great precept of nature to love ourselves only as we love our neighbour, or what comes to the same thing, as our neighbour is capable of loving us.
Like the rest of us, Smith understood that compassion and charity are an integral part of any society. To caricaturize Smith as a greedy capitalist who endorses selfishness is to do violence to his work.
It would be easy to argue about how to interpret Adam Smith. But without reference to Smith we may simply ask of our own experience: Does it mean the same thing to say that men are motivated by self-interest as it does to say they are motivated by selfishness? The short answer is, no.
A preliminary Google search of the question, “Is self-interest the same as selfishness?” returns dozens of pages of credible articles debunking this myth. Perhaps most notably, Christian writer C.S. Lewis argued against this understanding repeatedly in his writing. So how should we understand the difference?
When we say that men act from self-interest, we are saying that men act toward what they perceive to be desirable. Each of us is motivated by our own hierarchy of values. These values may include the interest of others, and often do. Economists and moral philosophers such as Smith have argued that we should be allowed to act toward our own ends. Friedrich Hayek, the Nobel laureate and Austrian economist, understood the distinction:
If we put it concisely by saying that people are and ought to be guided in their actions by their interests and desires, this will at once be misunderstood or distorted into the false contention that they are or ought to be exclusively guided by their personal needs or selfish interests, while what we mean is that they ought to be allowed to strive for whatever they think desirable.
The true basis of his [the individualist’s] argument is that nobody can know who knows best and that the only way by which we can find out is through a social process in which everybody is allowed to try and see what he can do.
It is easy to misinterpret self-interest as selfishness and write off capitalism and economics. But the truth of the matter is much more nuanced. What Smith observes is that when we are allowed to act toward our own set of values, we tend to draw one another into a community of production and exchange, which benefits everyone.
4. The Montaigne Dogma: Is the capitalist economy a zero-sum game?
There is hardly a bigger fallacy in economics than the assertion that one person succeeds only at the expense of another. This fallacy receives a full address in Ludwig von Mises’ classic, Human Action. Naming it “the Montaigne dogma” after an essay by Michel de Montaigne, Mises argues:
What produces a man’s profit in the course of affairs within an unhampered market society is not his fellow citizen’s plight and distress, but the fact that he alleviates or entirely removes what causes his fellow citizen’s feeling of uneasiness. What hurts the sick is the plague, not the physician who treats the disease. The doctor’s gain is not an outcome of the epidemics, but of the aid he gives to those affected. The ultimate source of profits is always the foresight of future conditions. Those who succeeded better than others in anticipating future events and in adjusting their activities to the future state of the market, reap profits because they are in a position to satisfy the most urgent needs of the public.
To repeat an earlier point, profit is a byproduct of customer satisfaction. In a market economy in which people exchange goods and services, one man gains only if he benefits another. The case cannot be made more simply.
Trade is not singularly beneficial. Any time two people trade freely, each values the other’s item more than he values his own. When they trade, both parties increase their satisfaction. Both parties give up what they prefer less and receive what they prefer more. Economists refer to this as the mutual inequality of a trade, and it demonstrates the inclusive benefits of free-market activity.
The zero-sum activity that Dr. Stanciu describes is true of contests such as spelling bees, or in cases of theft and fraud; it is also true in cases of communal property – if I take something from the common stock I necessarily deprive someone else of that item. But it is not remotely true of a market economy. Each person benefits from the work of others when we privatize property and enable production and trade.
Even in extreme cases – in which one business drives another out by offering lower prices or better services – customers win in the long term. We reap the rewards of more efficient production in the form of lower prices, increased purchasing power, and a higher standard of living. To suggest that one man gains only at the loss of another is to misunderstand the ultimate source of profit and loss on the market.
What we should glean from this is that barring contests, theft, or communal property, one man gains only at the benefit of another.
5. Can we live without the divisions of labor?
Equally absurd is the notion that we could somehow dispense with the divisions of labor, or that its costs outweigh its benefits. To be upfront, there are no viable alternatives to the divisions of labor. Consider the sole alternative—each person making all of what they need. Is such an arrangement even possible? Try to construct these circumstances in your mind. Such a situation would reduce us instantly to the poverty level of bare subsistence.
Several years ago, a man conducted an experiment in which he attempted to make his own chicken sandwich entirely from scratch. He grew and milled the wheat for the bread, made his own salt and oil, and raised his own chicken and vegetables; he made his own tools to produce his ingredients. All in, the project took him six months and $1,500 to produce a single, low-quality meal. Compare that process with buying a pre-made sandwich at your convenience from any grocery store deli. What makes the second situation so much easier than the first? One answer: the divisions of labor.
In his famous essay “I, Pencil,” Leonard Read depicts the benefits of trade under the divisions of labor. Mentally catalogue all the parts of a pencil—the rubber eraser, the graphite, the metal tip, the wood stock, and the yellow lacquer. These constituent parts must be tapped, mined, grown, cut, shaped, assembled, painted, and finished, often miles away from where they are used. What if you had to do each of these tasks? Would you be able to produce—by your own labor—something as ordinary as a pencil? No! The divisions of labor enable production on a scale inconceivable to the average man.
Ideally, say critics, we would all be liberal artists, occupied with diversifying our skills and knowledge. The divisions of labor divert us from the versatile lines along which we would otherwise develop. Marx made this argument in his German Ideology. For Marx, the solution was to obliterate the divisions of labor under communism. Under communism:
…nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic.
As pleasant as this may sound, it is economically preposterous. Imagine the decline in continuity and productivity you would experience working any job you pleased on an hourly basis. Most work in society is built upon education and training so that workers are not interchangeable between industries. How would such a society function logistically?
Marx’s fantasy incorporates an older fable—the Myth of the Golden Age. The Myth of the Golden Age is an Edenic narrative that asserts that at some time before (or after) the divisions of labor, man lived in peace and abundance and cultivated a rich inner life. Prior to commerce and industry, man communed with nature, shared the land, and effortlessly produced art and philosophy.
This narrative is entirely false. No such age has ever existed. Below a certain standard of living, men must allocate more time toward survival activities. This necessarily leaves less time to pursue the higher goals of philosophy, art, and religion. A certain standard of living precedes a systematic contemplation of loftier forms of goodness. The state of poverty is rarely if ever an environment conducive to meditation and self-improvement. Only because of the divisions of labor do we have the time to ask these deeper questions.
Dr. Stanciu is right to highlight another of Marx’s criticisms: What if each of us were reduced to a single task—something as specialized as putting heads on pins all day (to use Adam Smith’s example). Would this extremely specialized division of labor diminish our personhood? Would it retard our total development? Would it destroy the interior life of the worker?
Economists have pointed out that the divisions of labor do not force us into any particular trade—that choice is largely up to us. Rather, the divisions of labor liberates us from the need to do everything. Without it, I am responsible for all my needs; with it, I divert more time to the tasks I prefer. Would you rather work sixteen hours a day to provide bare subsistence? Or work eight hours a day at a single task, and enjoy leisure and abundance with the other eight hours? When we have more free time, we pursue activities we value more.
We could also consult experience on Marx’s claim: Do we see that the division of labor is making people stupider? The fact is that since the rise of industry and the divisions of labor, education has become a good of the highest order. The average man is more educated now than he has ever been prior. People who specialize have endless educational options available to them as well as increased leisure time with which to pursue them.
We may also observe that since the time of Adam Smith, the world has experienced universal movement upward toward liberalism and away from violence: slavery is virtually eliminated, democracies flourish, universal suffrage reigns, et cetera. It appears that as capitalism raises the standard of living, so grows our aversion to violence. We are left to question, then, just how much gravity to lend any major criticism of the divisions of labor.
6. “Righteousness as the ultimate standard of the individual’s action”
The innermost heart of Dr. Stanciu’s critique is the notion that we can substitute a better economic system for capitalism. But unfortunately, he does not specify what we should or ought to do. He appeals to conscience, but never makes clear how to affect a broad change of conscience.
What options do we have? Call on people to do better? Call on government to make “more just” economic decisions for us? Communize property so everyone gets a “fair share?” What should we do? What kind of system would reformers like Dr. Stanciu advocate for? This question receives a full address in Mises’ Human Action. I cannot improve upon his argument, so I will quote him at length:
The system recommended, say its advocates, will be neither socialism nor capitalism nor interventionism. Not socialism, because it will preserve private ownership of the means of production; not capitalism, because conscience will be supreme and not the urge for profit; not interventionism, because there will be no need for government interference with the market.
The supporters of these doctrines fail to recognize the role which those springs of action they condemn as vicious play in the operation of the market economy. The only reason why the market economy can operate without government orders telling everybody precisely what he should do and how he should do it is that it does not ask anybody to deviate from those lines of conduct which best serve his own interests.
In urging people to listen to the voice of their conscience and to substitute considerations of public welfare for those of private profit, one does not create a working and satisfactory social order. It is not enough to tell a man not to buy on the cheapest market and not to sell on the dearest market. It is not enough to tell him not to strive after profit and not to avoid losses. One must establish unambiguous rules for the guidance of conduct in each concrete situation.
Says the reformer: The entrepreneur is rugged and selfish when, taking advantage of his own superiority, he underbids the prices asked by a less efficient competitor and thus forces the man to go out of business. But how should the “altruistic” entrepreneur proceed? Should he under no circumstances sell at a price lower than any competitor? Or are there certain conditions which justify underbidding the competitor’s prices?
Says the reformer on the other hand: The entrepreneur is rugged and selfish when, taking advantage of the state of the market, he asks a price so high that poor people are excluded from purchasing the merchandise. But what should the “good” entrepreneur do? Should he give away the merchandise free of charge? If he charges any price, however low, there will always be people who cannot buy at all or not so much as they would buy if the price were still lower. What group of those eager to buy is the entrepreneur free to exclude from getting the merchandise?
What we must recognize even at this point is that one cannot content oneself simply by telling the entrepreneur that he should not let himself be guided by the state of the market. It is imperative to tell him how far he must go in asking and paying prices. If it is no longer profit-seeking that directs the entrepreneurs’ actions and determines what they produce and in what quantities, if the entrepreneurs are no longer bound by the instrumentality of the profit motive to serve the consumers to the best of their abilities, it is necessary to give them definite instructions. One cannot avoid guiding their conduct by specified orders and prohibitions, precisely such decrees as are the mark of government interference with business. Any attempt to render such interference superfluous by attributing primacy to the voice of conscience, to charity and brotherly love, is vain.
Is any more argument required? Market mechanisms such as the profit motive and the price system are instrumental in moving resources efficiently to their most urgent end. There are no viable options for dispensing with or substituting them. Without them, we are essentially groping in the dark.
7. What’s the conclusion?
Dr. Stanciu’s criticisms are sincere and worth considering. He succeeds in painting a picture of many of the shortcomings of our modern age. He shares a sentiment not uncommon to thoughtful, educated, moral people. Like Dr. Stanciu, we all have yearned at times for a simpler life in which our obligation to labor was replaced with the fulfillment afforded by contemplation and leisure time. We are left by these experiences to wonder, “isn’t there a better way?” These feelings are perfectly justified.
But feelings such as these should not overwhelm our sober observation that there are no alternatives to sound economic principles such as the profit motive, rational self-interest, and the divisions of labor. Sound economic principles must be defended and explained, and the reader should understand that virtually no improvement is possible on these ideas.
But fortunately, the ideas outlined and defended above do not preclude Christian charity, as Dr. Stanciu suggests. In fact, charity serves a vital purpose in any economy. Something that Dr. Stanciu neglected to observe is that charitable donations in America increase yearly, and last year they surpassed a staggering $400 billion dollars. If this is not evidence of the compatibility of Christian charity and capitalism, I don’t know what is.
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4 “I, Pencil.”
5 “Giving USA 2018.”
Editor’s Note: The featured image is “The Conversation” (c. 1907) by Louis Moeller (1855-1930), courtesy of Wikimedia Commons.