Sunday, August 21, 2011

The Morality Behind Capitalism

Capitalism is blamed for a myriad of societal issues, whether it is the destruction of the environment, economic exploitation, or even this recession.  You have a problem, I can guarantee that an overwhelming majority of those on the Left will attribute those woes to capitalism.  With such events as the Bernie Madoff scandal or the fiasco with Enron, morality and capitalism seem more like a big dichotomy than anything else.  Many free-market advocates can talk about the efficiencies and the improvement of quality of life that can objectively be attributed to capitalism, but they usually shy away when it comes to talking about "capitalism and morality."  It's about time that anybody who is a proponent of free markets breaks the silence, especially since it is clear that the Keynesian/social welfare approach is putting the world's financial health at long-term risk.

With that in mind, let's go into further detail as to why capitalism is a morally superior choice to socialism.

  • Competition. Socialists will opine that one of the reasons that capitalism is evil is because the competition it promotes is so cut-throat that it leaves people behind.  One of the things that socialists need to realize is that no matter which style of governance you choose, there will always be competition.  Competition is omnipresent in human nature.  Humans compete not just for jobs, but also for things such as love and honor.  The difference between capitalism and other economic systems is the way capitalism channels that competitive drive more constructively.  Property is obtained by peaceful means.  This leads to mutual cooperation between the consumer and the producer.  Since property rights are a hallmark of capitalism, the Golden Rule becomes a given in a capitalist society.  Socialism, on the other hand, does not have such peaceful methods because it is zero-sum.  There are those who win and those who lose. Socialism forces that the consumer's will to be that of the government.  In the extreme situation, you go to the gulags if you don't comply. In most situations, you have to wait in line to get your goodies from the government, and it usually involves getting elbowed out of the queue and having to go to the back of the line.
  • Profits.  There go those socialists again, talking about the evil of profit-making.  "If only we could go back to a simpler time, we would not have all these problems."  The problem with socialists is that they are in a pre-capitalist mentality.  Prior to the advent of capitalism, the world was one big pre-Industrial hellhole.  People during those times worked longer hours under worse conditions just to survive.  Unless you were that less than one percent who happened to be an aristocrat, being able to thrive or "live the good life" was not an option.  This is evident in modern-day Third World countries.  If you meet a rich person in a Third World country, odds are that he came about his wealth through crime and true exploitation.  In a capitalist society, you know that a rich person became rich because they made a positive contribution to society, not because they took from others.  Such innovators as Andrew Carnegie, Bill Gates, and Mark Zuckerberg come to mind.  That is why contrary to popular belief, most millionaires in America are self-made, first generation millionaires.  The other joy of capitalism is that when a rich person has a luxury item, you know that it will become commonplace in a matter of a few years because the rich subsidize it.  This was true of cell phones, air conditioning, the Internet, indoor plumbing, and many other inventions.  Everyone benefits from innovative people, not just the rich.  That is why the creation of one's wealth does not decrease the well-being of another individual.  The Invisible Hand guides the economy where the individual good is also the common good (i.e., positive-sum game).    
  • Equality vs. Freedom.  To continue from my previous point, socialists will complain that people do not receive the same amount, which means socio-economic disparity.  Although I am sure that certain socialists mean well, it's amazing how in socialist societies, people become equal......equally poor!  The reason that a socialist society becomes equally poor in the long-run is that if you take the notion of economic distribution seriously and have it permeate enough in societal institutions, everyone will have the same salary.  This will greatly disincentivize specialized labor to pursue certain fields (e.g., doctors, research and development, larger business).  If you're going to get the same amount regardless of what you do, why strive for greatness?  In capitalism, you unquestionably have freedom.  With that freedom, you have the option between making a right choice and a wrong choice, which people like to call free will.  In a socialist society, you don't have the leeway to make such choices.  The advantage of capitalism is that it provides us the ability to actualize our own morality.  Coercion is no gift.  True charity and virtue come through exercising it freely, thereby making it more satisfactory of a moral achievement.     
  • Self-interest.  Self-interest is another one of those facets of human nature that we cannot evade.  The Invisible Hand guides that selfishness into a constructive output both for the individual and society. That is why in capitalism, economic freedoms give individuals the right to exchange and transact freely. You can choose to live where you want, pursue whatever career you would like, explore pastimes, and spend money on luxury and travel. In capitalism, it's not about blind greed.  It's about an enlightened self-interest that provides you with freedom and rights. In socialism, your "rights" are the ill-defined wishes of governmental officials, and those officials are only responsible for the wishes of the powerful. To quote George Orwell's Animal Farm, "All animals are equal, but some are more equal than others."
  • Tolerance and Rule of Law.  Capitalism also promotes tolerance.  In socialist societies, you're just another number on a bureaucratic form.  In a capitalist society, people of different cultures, races, ethnicities, values, and world views can live together without rancor.  Why?  The Golden Rule! If you damage someone's property, you are responsible to compensate for that damage.  Since a capitalist society holds people accountable and to act more responsibly, the quality of property is more pristine than that in a socialist society.        
Postscript: Socialism is about dwindling an individual's freedoms to nothing out of some audacious presumption that "they know best."  It results in slavery of the individual.  It stymies economic growth and innovation, which greatly diminishes the quality of living for all.  Capitalism brings about freedom and makes the consumer sovereign.  Capitalism also protects the quality of property, or as Frédéric Bastiat put it in his essay, "Ce qu'on voit et ce qu'on ne voit pas."  As a result of this freedom, we become even wealthier and quality of living increases dramatically.  This improvement on quality of life probably has something to do with the division of labor.  Read "I, Pencil" for further detail.  Even in this country, the poor are even more well-off than the media would like to have us think.  In addition, the freedom gives us the exercise our free will in accordance with our religious beliefs, or lack thereof, as long as it doesn't violate the Golden Rule and the axiom of non-aggression.  Having non-aggression within the context of "rule of the law" brings about tolerance.  That tolerance means that anybody, black or white, straight or gay, short or tall, Christian or Jewish or atheist, has the ability to become rich, but is most certainly guaranteed the independence and freedom to pursue their own lives as they deem fit.  In summation, socialism puts us in chains.  Capitalism enhances morality.

For more on the morality of capitalism, please read The Morality of Capitalism, which is courtesy of the Foundation for Economic Education.


  1. While capitalism may be undoubtedly more profitable for the society and therefore a wiser strategy to implement, don't you think that from moral point of view, Torah's view of the society is fundamentally socialist? I.e., the society collectively owns all the land. If the society wants to prosper, it should embark on the path of socialism, but there is nothing immoral about it not doing so.

    I am not asserting, merely asking. One might get impression from laws of dina d'malchusa dina and kibush milchama that that's what Judaism envisions the society to be. But I don't have a good knowledge of Achroinim and Rishoinim on these topics.

    1. Dear Certified Ashkenazi,

      I thank you for your reply. First and foremost, I would like to direct you to a blog entry I had written a few months prior to this one that is entitled Judaism is Capitalist but...... I hope it answers many of your concerns, including why I don't think Judaism is fundamentally socialist. To respond to some of your other points that you brought up on your comments:

      1) You say their is nothing immoral about society imposing socialism. Why should society embark on the path of socialism? Was their something in the arguments of my blog entry that you found unsatisfying or not explained in enough detail?

      2) Dina d'malchuta dina has to do with the extent to which Jews obey non-Jewish authority figures. Although some debate whether or not this strictly applies to taxes, the idea is that we follow the laws of a given government unless it's a direct violation of halacha. Dina d'malchuta dina is followed whether we are in a capitalist or socialist society, thereby having no bearing on the morality of capitalism.

      3) Kibush milchama, or "right of conquest," has to do with the non-constestability of the acquisition of land during wartime. This halachic notion has to do with international relations, not with whether the government should control or heavily manage and regulate the economy.

      I look forward to your response.

  2. I have read that post. In it, you describe why capitalist relationship is more benign according to Torah (with some reservations). In your post above, you also describe that if our goal is to live in the most prosperous society possible, we should embark on the path of capitalism. First of all, I agree. But, that's not what I am asking here.

    Imagine that a landlord owns a house. If his goal is to make his tenants the happiest, he should install an air conditioner in every apartment (or some other example). But let's say we showed that legally and morally, he doesn't have to: because, after all, it's his property, and there is nothing in the lease that says that he must. So, he is not being unethical, just unwise in terms of having happy tenants (if that is his goal). Is it immoral to have unhappy and overheated tenants (if one is not breaking halacha, terms of the contract, law of the land, etc.)?

    1) I am saying that it might seem that according to Halacha, the government owns all the land. Therefore, it can establish whatever system of property ownership it wants on the land. It can establish de facto capitalism but de jure socialism: everyone owns private property (including karka), but sometimes, the government may exercise the right of eminent domain, regulation, zoning, redistribution, etc. It is unwise if our goal is to have the most efficient society, but it's not immoral, since the government may do whatever it wants on its property.

    2) and 3) Dina d'malchusa dina and kibush milchama are both seemingly based on the presumption that the government actually owns the land as a result of conquering it. Otherwise, why should the invading army be able to make a kinyan on what it acquires (including the movables)? If a thief stole something from me and then fled to another country, so that, practically speaking, I couldn't contest it, he would still be a thief. If someone robbed me in a wilderness, and he is stronger than me, he is still a robber. But if the landlord came into my apartment and by force took the fridge that was there when I moved in (and gave me a worse fridge in exchange), he is not a thief or a robber. He owned the fridge.

    The same re: DDD. Why should the government be able to send a bunch of guys in blue uniforms to take my money by force and kidnap/enslave me if I don't pay up? Seemingly, that violates the prohibition of gezeila. But since we say that kings have special powers to make a kinyan on property and even people (Rambam rules you may buy slaves that a king captured in a war waged specifically for the purpose of capturing slaves), we rule that it's not gezeila.

    Note that I am playing devil's advocate here and trying to find why the above arguments are wrong. I agree with you that capitalism is the way to go. Not just economically, but morally too. But the assertion that socialism is immoral, since it's an aggression against someone's property, seems to go against the view of Judaism about the nature of property vis-a-vis the government.

  3. I don’t mind playing Devil’s Advocate at all. Not only is it fun, but it also helps make sure that every possible argument is covered. As for a response for the points you brought up, here we go.

    1: Responding to the Landlord Example

    1a) Until recently, air conditioning did not exist. When it did, it was a luxury for a rich. Over time, air conditioning has become more accessible, and thus established as a norm, at least in the Western world. As such, the societal expectation developed is that an air conditioning unit is in the apartment. Since that expectation exists, given that there is competition in the markets, it is in the best interest of the landlord to make sure that air conditioning exists in the apartment. If it doesn’t, then the consumer can either buy their own fans or air conditioning unit, or they can find an apartment complex that has air conditioning. In an economic system with competitive markets and economic liberty, landlords have the incentive to please their customers and meet their demands. If not, the consumer will spend their dollars with other landlords and the inferior apartment complexes will go under as a result. To answer one of your questions, it’s not so much a morality issue as it is an issue of having unhappy and overheated tenants translates into bad business.

    1b) Air conditioning costs money, not only for the unit itself, but also for the electricity to run it. Even if it is included, either the landlord or the tenant would bear the cost. Unless the landlord can justify incurring the cost because it would increase the number of tenants, the tenant would most likely bear the cost, which means increased rent.

    1c) To what extent are we responsible for other people’s happiness? Happiness is such a subjective concept with a myriad of factors involved. Especially given the overt materialism in our society, something tells me that people will not be satiated with the installation of air conditioning. What about a wireless connection? Should that be included as a part of the rent or have those costs bore by the landlord? How about a jacuzzi for every tenant? There’s a fine line between what people need and what they want. The Declaration of Independence is very wise in its wording when it guaranteed “life, liberty, and pursuit of happiness,” as opposed to downright happiness.

    2: Government’s Interaction with Land

    2a) Although I wouldn’t classify it as “the government owning the land,” at least looking at political theory, the government does have de jure sovereignty over the land. Many economic systems and forms of governance have existed throughout history. Since the government has this sovereignty over the land, it has the power to establish whatever economic system it wants. Even with kibush milchama, the concept of Right to Conquest was norm in international relations throughout a sizable part of the 20th century.

    2b) You stated that exercising eminent domain or regulations is not immoral “since the government may do whatever it wants on its property.” Capability cannot be synonymous with morality. Just because an entity can do something does not mean it is morally proper. The underlying question of ethics is whether or not one should do something.

  4. 3: Socialism and Morality

    3a) This blog entry was presenting the moralistic issues from a more secular viewpoint. I will attempt to translate them with a more religious, Jewish parlance. There is the issue that when laws such as dina d’malchuta dina were established about two millennia ago, the modern-day notion of capitalism neither exist conceptually nor legally. The best one can do is apply halachic dicta and Jewish values to the current situation as accurately as possible.

    3b) There are three general approaches to rights. The first is that they don’t exist. The second is that the government is the guarantor of said rights. The third is that natural rights exist. If the first approach is true, then we just deal with it. If the second is true, then rights are provisional and can be rescinded when the government dictates it. The third implies that the government acts as the protector of such rights, and the government should be limited in enforcing those natural rights.

    3c) Prior to capitalism, the human condition was miserable unless you were the less than 0.001% who were aristocratic. Then along comes capitalism, and the economic liberties brought about unprecedented technological development, economic growth, and increased prosperity. The increased quality of life results in decreased poverty. Abject poverty is no way to live. Having capitalism has severely cut back on poverty, both quantitatively and qualitatively.

    3d) How does that make socialism an inferior choice? Well, coming up with a working definition of socialism is difficult because there are so many strands of it. The extent to which the government controls, manages, and regulates production and other facets of economics dictates the type of socialism. In its most extreme form, it’s communism. But you even have social welfare types that are more seemingly benign.

    To answer the question, one has to discern that since socialism provides less economic freedom, that means less economic growth, which creates problems in the long-run, even if we consider the Nordic countries that have generous social welfare programs.

    3e) I find the motifs of Pesach, especially that of freedom, to come into play. We were not meant to be slaves to the government; we were meant to be free (e.g., Avadim Chayinu). By bringing about economic liberalization, you are free as a moral agent to exercise your free will to the fullest. Socialism constrains those choices, and thus limits oneself to do something that is so axiomatic to Judaism (i.e., exercise your free will).

    Economics is complicated, and gets more complicated when we not only consider Jewish law, but factor in how society has changed since the Talmudic era. However, when I look at what socialism does, particularly when stunting the individual, I cannot opine that socialism is morally sound.

  5. The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital... the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.