Capitalism and Ethics

Previously, we saw that while looking at economics on the micro-scale the forces of production and consumption were at odds, competing with one another for optimal pricing, in the bigger picture the far more fundamental relationship was one of cooperation. The two constitute a virtuous cycle, as the desire of one leads to the fulfillment of the other, around and around, resulting in ever increasing wealth and satisfaction of the desires of this life. The accumulation of capital was critical to this process, as the tools and other material resources allow the productive output of human labor to be multiplied. However, we noted that there were a few conditions which must be met for this relationship to be consummated; particularly one that property must be secure. Many people will try to argue that capitalism is in fact unethical, but the reality is that capitalism is utterly and absolutely dependent upon ethical behavior. Without ethical behavior on the part of economic actors, capitalism will fail. To illustrate this idea, let’s take a brief look at two possible imaginary “worlds,” one in which the ethics criteria is met, and one in which it is not. A theoretical treatment of the issue would show the same thing, but in this case I think an example is much clearer. Imagine that you are suddenly snatched up from this planet and find yourself living amongst aliens. They are primitive aliens, not very bright, but very honest and friendly. They have a hard life, as their planet is quite arid and they have little in the way of technology to grow their crops. They frequently experience famines and shortages, and life is quite tough. You are not a farmer, but find that even with only a simple knowledge of tools and a basic understanding of how agriculture is supposed to work, you are far more advanced than they are. You can design and make tools for them, and teach them how to use the new gadgets, how to irrigate their fields and as a result they are far more productive. In return, they pay for your services in the crops they grow, which is a good thing, because you would have had no idea what to grow on the alien planet in the first place. Within a single season, you are all quite comfortable and happy, with food to spare, and plans to expand next year! Now imagine you land in a very different place. It is still arid, and life is difficult, but the aliens here are quite different. They are still stupid and backwards, but these beings are vicious, jealous, and dishonest. You find that you cannot deal with them, as they will never fulfill their end of a bargain and try to take advantage of you at every turn. You produce tools for yourself, and grow crops the best you can, but at night, they come on to your property and steal your tools and whatever else of value they can find. By the end of the season, everyone is hungry, you have no accumulated tools or produce, and everyone is just barely surviving. You also find that you have absolutely no motivation to produce tools anymore, or attempt to better yourself or your situation in any way, because the result is that anything of value you produce and any investment you make is stolen from you. There is simply no way for anyone to get ahead in such a savage environment except through means of violence and at the expense of others. Yes, it is entirely obvious that an honest society will be more wealthy and productive than a dishonest one. The important thing to notice is the reason why: 1) a lack of ethics prevents the accumulation of capital and therefore lowers per capita productivity 2) a lack of ethics acts as a disincentive to investment and productivity. There is a tendency to produce only the bare minimum, as anything more is subject to confiscation. In fact, I would go so far as to say that “capitalism” itself is a misleading word. The institutions and conventions associated with this “form” of economic structure are not mandated by law or any other government act as are the planning boards and what-have-you of socialism. No government agency legislated banking into existence or lending with interest. They arise naturally in any ethical system where property is protected and fraud punished. As such, the word “capitalism” is like trying to apply a term for a state of “normalcy:” it is just what happens when ethical people go about their business in the real world. It is not a philosophy; really it is nothing more than allowing natural law to take its course. The variants of socialism (fascism, communism, and the like) are actually “something” in that they are actual political and social constructs brought about by force of the hand of man. Nobody forces anyone into capitalism, except possibly, it could be argued, God. Capitalism, then, is merely one of many manifestations of proper human ethics. Theft, corruption, and deception, on the other hand, are actually inimical to capitalism. That they might occur on occasion in a nominally capitalistic system, while detrimental, ought not to persuade a person that they are part and parcel of the system itself. This is simply the darker side of human nature flaring up, and regardless of what system is employed, this cannot be stopped. However, when they occur at rampant levels, and in fact become necessary to the functioning of the economy itself, one might be forced to consider whether or not the system itself is actually “capitalistic” or not. In this light, we may understand the failure of the “developing world” to ever develop, despite a never-ending supply of foreign aid and the opening of first-world economies for trade. These countries are now exporting enormous quantities of goods, but where is all that money going? It is being devoured by the forces of unethical behavior. As we have seen, in a society where theft and corruption are rampant, capital accumulation is strongly deterred. What money is earned is spent almost entirely on consumption or hidden away where nobody may find it that it may never be stolen. It is not invested, or “put to work” in new capital, due to these fears of theft, so per-capita productivity never increases and the society does not develop. Wealth never increases. Their perpetual “economic problems” and “poverty” are really not economic in nature at all. In reality, there are no “economic problems,” only ethical problems. While the ethical connection of production and consumption is not severed, the result of their natural action is the generation of wealth. This applies equally well to America’s “problems.” The fact is, the present economic crisis is a problem of ethics, the self-same theft that impoverishes most of the rest of humanity. The difference is that in this country, the theft has been forced into disguise. America is wealthy because of a long history of the embrace of ethical rule of law and enforcement of property rights. This is because the culture of its people demanded such laws of the government. In truth, there is still great popular opposition to the kind of overt theft and corruption which occurs in many parts of the world, and this is the factor far more than any supposed “force of law” which keeps this behavior to a minimum here. Because of this, in this country, such behavior must be especially well hidden. Ironically, it has found refuge in the most difficult to find of places: in plain sight. It occurs right under our noses because it has taken a form that people do not recognize. “Underground” behavior has been forced “above ground.” Rather than occurring through money passed in envelopes through back channels, the corruption here has cloaked itself in the legitimacy of law. Here, it is not called “theft,” or “corruption;” it goes under names like “redistribution,” “tax,” “incentive,” “deduction,” “welfare,” and “stimulus.” In most places, corruption is a risky black-market affair. Here, corruption is institutionalized and efficient. At the apex of this redistributive structure stands the Federal Reserve, which has the power to appropriate the saved funds of the entire nation at a moments notice through the agent of inflation. It regularly uses this power to “regulate” the economy. The vast majority of tax and regulatory law is devoted to the redistribution of funds from one entity to another. It’s a simple fact. Each time the baton of power passes from one party to another, one of the first issues to be jiggered with is tax law. New groups must be rewarded for their political patronage, and out of favor groups foot the bill. Furthermore, and even worse, the populace itself sees the redistributive process as a means to advance social and political objectives, often under the most innocent and noble sounding rhetoric. I have little doubt that President Bush meant what he said about the “ownership society” and the efforts of Fannie Mae and Freddie Mac to put folks on the lower scale of the income ladder into houses of their very own. I have little doubt that the folks who went along with it felt it was a perfectly justifiable and worthy use of government power. But the fact is the activity was subsidized. The subsidy money came from somewhere, and it was not the folks buying the house. It was not voluntarily given, but taken through force of law. The fact that a majority votes for an activity cannot change the ethics of an act. Democracy is a process, not a source of ethical legitimacy. The appearance may be different, but the result is the same. The mind of man may be fooled, but the universal and inescapable laws of God are not. The result of theft, whether known to us or not is always the same: the disincentive of production, the erosion of capital, and impoverishment. The fact is, we are all fooled. We fool ourselves. The further we travel down this path, the more we will look like the remainder of the world. Even as the present crisis unfolds, we turn to the same poison that led us to the very predicament we are currently grappling with. The crisis is construed to be a product of the free market. It cannot be a product of the free market because the market in the US is not free. Regulation is not the answer. Stimulus is not the answer. Bailouts and an increase of the money supply are not the answer. Government programs are not the answer. They are not the answer because they do not address the problem. They are the problem. The solution is ethics.