The Morality of Capitalism

By Bob Gerecke, Ivan Light and Merrill Ring
 
Does capitalism have a moral center? Three essays.
 
(1) What Happened to the Moral Center of American Capitalism?
By Bob Gerecke
 
Robert Reich recently asked the question ‘What Happened to the Moral Center of American Capitalism?’  Let me try to answer.  
 
Reich implies that once upon a time there was a moral center to capitalism in this country.
 
Was capitalism moral when the businesses were locally owned and operated by people whose customers and employees were neighbors?

In my wife's small upstate New York town of only 1500, the merchants cheated their customers and employees.  During high school she worked in a food store, where the owner stood to one side of the large round scale when weighing flour and other bulk goods, so that from his angle the needle would look like a full load when it was less.  He insisted that she do the same.  She refused and quit.

A few years later, when local businesses were audited by the government, the audit discovered that both she and her mother had been cheated by paying them less than the full amount of the minimum wage for the total hours worked.  After this discovery, both she and her mother received checks from their former local employers.

During high school I lived in a town of 8000 and worked briefly in a locally-owned grocery store.  Day after day the owner would give me a 15-minute task 5 minutes before quitting time.  I asked an older employee about this, and he said this was how the owner obtained some unpaid labor.  I quit.

When health insurance was being debated, I read two reports which proved that doctors in private practice adjusted their advice to generate money for themselves.  In one study, two counties in California were compared.  The county with fewer patients per doctor prescribed far more visits and treatments for the same problems than the county with more patients per doctor. The treatment outcomes were the same in both counties.  In the other study, two counties in Texas were compared.  In one the doctors had investments in hospitals and laboratories; in the other, they didn't.  Doctors prescribed far more hospital visits and lab tests in the first county than in the second, for the same problems, with equivalent outcomes.

Small capitalism wasn't and isn't necessarily ethical. 

 
Big capitalism involves an even greater risk of unethical behavior, because the absentee investor and the CEO can demand maximum results without becoming involved in the messy details of how to get them, and the employees are trapped by fear of job loss or co-opted by rewards.

Some businesses crow that their employees are paid salary rather than commission, so they can be trusted to give the customers good advice.  This itself is an admission that economic incentives generate anti-social behavior. 

 
Capitalism isn't moral; it's neutral at best and a source of temptation at worst.  It motivates anti-social as well as socially beneficial behavior.  The wisecrack that "business ethics" is an oxymoron isn't far off course.

Some -- perhaps most -- people cannot resist the temptation to act unethically when it's financially advantageous.  In recessions, it may even be necessary to survive.  Once it's been done without penalty, a psychological line has been crossed, and it will be crossed again.  Laws, regulations and their enforcement are necessary to protect us. 

If we're not careful, the profit motive can even infect public service.  We have read that police in some areas target minorities for minor infractions, that police are sometimes under pressure to write many tickets, and that police have used laws to seize property from people who are accused of crimes but never convicted.  Can you imagine how many children would be put in foster care if social workers received commissions from the foster homes?  Or how many would be left with their parents to be abused further if the workers received bonuses for avoiding foster care?  Can you imagine how high court awards would be in civil cases if the judges and juries received a cut?  Can you imagine how many shoddily-built buildings would be approved by the inspectors if they received bribes for doing it, as occurs in countries where public employees are poorly paid?  Bribery and bonuses insert the profit motive into the public sector. The person who is paid an adequate fixed salary is liberated to do what's right and is more likely to do so, in my opinion. 

 
The profit motive impedes ethical behavior.  A system that relies on it has -- and never had -- a moral center.
 
(2) The Moral Defense of Capitalism at Its Inception
By Ivan Light
 
Bob Gerecke’s question is so good that I wanted to offer in support what I know of the academic literature that deals with it. 
I have also had my personal brushes with cut-throat capitalism, recollecting especially the summer I sold the Crowell Collier encyclopedia door to door as a student, and was taught to lie to customers about the “special deal” they were getting.
Beyond anecdotes, there’s now no dispute that markets are amoral (not immoral). Even the defenders of market capitalism acknowledge that.  Their defense of capitalism turns on its efficiency in giving people what they want and allocating resources to this purpose in the economy. If people want snuff films, capitalism will provide them. If they want gasoline, capitalism will provide all they want. 
That said, Bob Gerecke says that a profit-driven system cannot be an ethical system “and never was.”  Here I must disagree. That is the old-time religion, and it’s really old.  Aristotle condemned production and trade of commodities for exactly Bob’s reason.  As for the Romans, a bit later, they thought that the god Mercury was the patron of both thieves and merchants. Similarly, Hindus and Chinese classically ranked merchants below peasants in their social status hierarchy, and above only prostitutes.  Moral condemnation was, we now believe, the ubiquitously hostile view of market capitalism in the traditional, pre-modern era.
 
Arguing against the old-time view a century ago, the German sociologist Max Weber went back to the origins of modern capitalism in the sixteenth century when it, then an economic innovation, expressed what Weber called “the Protestant ethic.” By that term he meant that Protestantism, especially Calvinist Protestantism, conferred a moral legitimation on market capitalism that the system had never previously enjoyed. This legitimation helped early capitalism to survive the moral condemnation of the Roman Catholic church.
 
In a nutshell, the Calvinist legitimation of capitalism worked like this. Sure, one can relieve human suffering by giving one’s money to the poor as the Catholics recommended, but that method does not eliminate poverty. It just offers transitory relief to some poor people. A million dollars will provide one dollar for a million people if given away as charity.  It is far more moral to invest one’s million dollars in a productive enterprise that creates employment and provides high-quality wholesome products to the public at a reasonable price.  That way the money initially invested continues to do good work forever rather than being dissipated in one fell swoop by donation to the poor. 
 
To accomplish this productive investment, the Protestant theologians recommended a life of hard work, reinvestment of profits in the business, and a personally ascetic life style. No booze, no dancing, no luxury, just hard work.  Moreover, since anyone who lived that way would naturally prosper, the Calvinist theologians concluded that capitalists were doing God’s work. So he blessed them. Wealth acquired in trade then became a sign of divine election and poverty a sign that the impoverished person was a no-good idler, abandoned by God in this life and condemned to hell in the next.
 
There’s more to say, but let me point out the lingering implications of this theology even among those who don’t go to any church.  Being rich is meritorious. Poverty is a result of laziness. That is why Donald Trump should be the next President of the United States. That is also why the welfare state should be abolished.  Indeed, if you hear someone say, “that God-damned” Joe Blow did this or that reprehensible thing, what’s asserted is that God damned Joe Blow to perdition. His misconduct is only proof of that divine disfavor. 
 
Here in America, an exceptional land, a city built on a hill, we cannot get away from our cultural heritage any more than they can in Iraq, Iran, or Saudi Arabia.
 
(3) Morality and Capitalism: Some Comments
By Merrill Ring
 
Opening apology:  forgive my failure to mention all relevant failures and benefits of capitalism.  And especially forgive me for talking of capitalism as if it were a single economic system.
The (partial) disagreement between Bob Gerecke and Ivan Light over whether capitalism has a “moral center” requires some commentary.
 
Light correctly points out that markets are amoral:  firms that participate in them are not required or expected to take into account moral issues in making decisions.  For instance, you fire Joe, quite a good person, because he is not needed by your company and you retain Sam because he is valuable to the company even though he is a moral failure; their differing moral qualities simply are not to be taken into consideration in your business decisions.  Again, you move your plant elsewhere because you can make more money that way and are not required to think of the hardship created in the local community (neither the old nor the new) by the move. 
 
However, the question of the “moral center” of the system remains.  Gerecke and Light point to quite different matters in their disagreement.  Gerecke emphasizes that, in the pursuit of profits, those in business are encouraged by the system, by the motivation built into the market system, to do the morally wrong thing.  Light agrees, offering an anecdote of his own in support.  And of course those anecdotes could be multiplied many times over.  There must somewhere in the academic literature be studies of how individuals in a system built on the profit motive are put under pressure to act wrongly.  (Barbara Ehrenreich’s Nickeled and Dimed is a great narrative of the how the system produces pressures on the lowest level of workers.)
 
Light says that at least once upon a time there was a “moral center” to capitalism and defends that by calling attention to matters quite different from how the pursuit of profits tends to cause the pursuer to act wrongly.  In talking about how Protestant theologians in the early modern era defended capitalism as a morally significant economic system, Light, and the theologians, run together two different considerations in support of that view. 
 
Capitalism was defended by Protestant theologians as a superior way of achieving the moral ends of what had been the province of charity.  If you want to seriously help people, it is better to do so by engaging in productive activities than by providing them with charity.  The moral center that Light refers to rests upon the idea that capitalism is a better means than the going economic organization for providing for the economic well-being of the entire community but especially of those who are poor.  Capitalism is better than charity.
 
Light, however, also notices a different line of argument the Calvinist theologians used to defend a capitalist economic system.   This second kind of defense concerns not the poor and how to provide for their needs, but rather concerns what Weber famously called ‘the Protestant Ethic’.  Something was needed to spur people into those productive activities which were aimed at alleviating the plight of the poor.  Light nicely spells out the set of ideas that was created to justify the life of capitalist money-making.
 
However, despite the occurrence of the word ‘ethic’ in its name, the Protestant Ethic is not a system of morality, a set of moral beliefs.  When we encourage people to have a better work ethic we are not urging moral improvement on them.  The great athletes who have a great work ethic (say Kobe Bryant or Albert Pujols) are not thereby morally great persons.
 
Morality has to do with our relations to others – the Protestant Ethic is more like a work ethic, encouraging individuals to behave a certain way for their own good. 
 
Of course, as the word ‘Ethic’ makes clear it is very easy to slide from a set of ideas about how a person should behave to the idea that living in that way, living by those precepts, is a matter of morality.  Light’s final words remind us of just that:  that our judgments of the rich and of the poor are treated as if they were moral judgments.  Having worked to make money does not make one a morally better person and not being interested in engaging in productive work does not render someone a moral failure.  That Americans respond otherwise is, as Light says, a matter of our cultural history.