Economist James Pethokoukis at the American Enterprise Institute writes:
But it may not be enough to point out liberal democratic capitalism and creative destruction create a wealthier, healthier, and more interesting society. I mean, that should be enough. Maybe not, however. What about the “moral” case for capitalism and the economic growth it generates like no other system ever devised or imagined? Does capitalism make a better society in non-material aspects? Harvard University economist Benjamin Friedman made a powerful affirmative case that it did in his 2005 book, “The Moral Consequences of Economic Growth.”
So far so good. Then Pethokoukis quotes Benjamin Friedman:
The experience of many countries suggests that when a society experiences rising standards of living, broadly distributed across the population at large, it is also likely to make progress along a variety of dimensions that are the very essence of what a free, open, democratic society is all about: openness of opportunity for economic and social advancement; tolerance toward recognizably distinct racial, or religious, or ethnic groups within the society, including new immigrants if the country regularly receives in-migration; a sense of fairness in the provision made for those in the society who, whether on account of limited opportunities, or lesser human endowments, or even just poor luck in the labor market, fall too far below the prevailing public standard of material well-being; genuinely contested elections that determine who controls the levers of political power; and democratic political rights and civil liberties more generally. Conversely, experience also suggests that when a society is stagnating economically—worse yet, if it is suffering a pervasive decline in living standards—it is not only likely to make little if any progress in these social, political, and (in the eighteenth-century sense) moral dimensions; all too often, it will undergo a period of rigidification and retrenchment, sometimes with catastrophic consequences.
Most of these are good. But Friedman seems to be implying that rising standards of living lead to a bigger welfare state, and that that’s good. I’m not the only one who thinks Friedman is saying that. Pethokokuis thinks so too. Pethokokuis writes:
It’s an appealing intuition that Friedman supports through a political and economic analysis of US and Western European history. For example: The Great Society was passed in the Go-Go 1960s, while the economic volatility of the 1970s was followed by a decline in public support for welfare programs and immigration.
The Great Society was a substantial increase in the welfare state and, therefore, a substantial decline in economic freedom, which includes people’s freedom to choose how to allocate their resources.
So the moral case for capitalism, according to Friedman and Pethokokuis, is that it leads to greater wealth, which leads to bigger government and, in some areas, less freedom.
I don’t think that’s a good moral case for capitalism. It’s contradictory. More capitalism should mean less government control over resources, not more.
But is there a moral case for capitalism? Yes, there is. The moral case for capitalism is that it lets each person make his/her own choices about how to live: what work to engage in, what to spend money on, whom to associate with, how to arrange his/her private property, what substances to ingest in his/her body, and how to spend his/her leisure time, to name six.
HT2 Don Boudreaux.
READER COMMENTS
Jairaj Devadiga
Aug 20 2020 at 5:56pm
Pethokoukis writes:
“But it may not be enough to point out liberal democratic capitalism and creative destruction create a wealthier, healthier, and more interesting society. I mean, that should be enough. Maybe not, however. What about the “moral” case for capitalism…”
My experience has been the opposite; that moral arguments are far less persuasive than economic ones.
For a moral case to succeed, other people must have the same moral priors as we do. For example, many people think that inequality is a moral evil which must be corrected, property rights be damned. Waxing eloquent about how force is immoral or that people must be free to choose is ineffective when arguing with them.
Instead, there is the economic argument. We point out that while an ideal government would take from the rich and give to the poor, actual governments often steal from the poor to line the pockets of the rich. Showing this with empirical evidence will more effectively persuade egalitarians that capitalism is indeed better than its alternatives.
This was the great strength of economists such as Buchanan, Tullock, and Demsetz. They showed that regardless of what “moral” goals one has, free markets are a better tool to achieve them than government control.
Mark Z
Aug 20 2020 at 7:44pm
I think Israel Kirzner made one of the best moral defenses of capitalism long ago (he wrote a whole book basically on this question) that went in the opposite direction, specifically arguing that profit (probably the most controversial aspect of capitalism) was morally justified as compensation for entrepreneurial discovery (even discovering useful resources like land is in its own right a productive feat). His argument thus goes against the idea that capitalism is specifically justified by the expropriation of profits, since the accretion of profit itself is morally justified.
Phil H
Aug 21 2020 at 12:48am
“I don’t think that’s a good moral case for capitalism. It’s contradictory.”
The case for education is not that we should continue to be educated forever. It’s that we should be educated up to the point that we need it, and then we can use it. It is possible that capitalism could be like that. The argument that something is good does not have to be an argument that it is always good and eternally good. There is nothing incoherent about saying: capitalism is a good because it raises us to a certain level of development, and thereafter it can be dispensed with.
(As it happens, I wouldn’t make that argument, and I’m sure you wouldn’t, either. But it wouldn’t be a prima facie bad position.)
RPLong
Aug 21 2020 at 9:26am
On the contrary, I think saying that is incoherent. The reason I think so is because capitalism is not like a hammer, which you pick up when you need to hammer, and put down when you’re finished hammering. Instead, capitalism is more like logic. No one would claim that logic is good because it accomplishes a certain task, and thereafter it can be dispensed with. The moment you dispense with logic, you start to behave irrationally, and that eventually cancels out the progress you made with logic. That’s how market freedom works, in my opinion. The more we have, the more progress we make; and if we choose to dispense with it, we lose that progress.
Mark Z
Aug 22 2020 at 1:58am
I think comparatively intelligent socialists would argue that, even if capitalism were once necessary or useful in inducing progress, it no longer does, it’s hit a brick wall, and is holding us back now. Either because, while it was once true that central planners couldn’t plan as well as markets, now they can because of technological improvements, or because free markets’ usefulness depended on conditions (like more or less perfect competition or lots of low-hanging opportunities for improved productivity) that markets themselves tend to gradually erode and converge toward a monopoly-dominated economy.
Basically, the conditions under which markets are the best at allocating resources are not fixed but can change, they are not like the rules of logic, and that capitalism itself tends to cause those conditions to change. I don’t think this is necessarily an internally incoherent position, erroneous though it may be.
KevinDC
Aug 21 2020 at 10:44am
Hey Phil –
You said:
Whether or not this is incoherent depends on what is meant by the term “good” in this context. Your statement makes perfect sense if the term “good” here is meant to mean something like “instrumentally useful.” But that’s not how “good” is being defined here. In this conversation, “good” is being defined more like “intrinsically moral.” That’s why when David says (in paraphrase) “capitalism is moral because it allows people to make their own choices about how they want to live their lives along these six dimensions (among others)”, he doesn’t then follow up with “and that’s good because it leads to even more development” or some other consequence. He takes those things as good in themselves. And if you’ve read Friedman’s book, you know that when he says he’s talking about moral dimensions “in the eighteenth-century sense”, he means the same thing as David.
Now, possibly you think that “instrumentally useful” really is the proper definition of “good.” There’s an argument to be had there, but it’s a separate argument from this discussion. In this discussion, the definition of X has already been stipulated, and the question is whether or not a claim about X (as defined) is contradictory. Given that, it’s not a good response to say the argument wasn’t contradictory because you changed the definition of X from how it’s used in the argument. You can’t define X one way at one point of the argument and then define it a different way at a different point in the argument – that’s just a fallacy of equivocation.
Phil H
Aug 21 2020 at 11:33am
Er… I see what you mean. There’s a difference between being good per se and being instrumentally good. There’s a difference between being morally good per se and instrumentally morally good.
DH says that Friedman’s moral argument for capitalism is an instrumentalist argument (capitalism makes us (richer and thereby makes us) morally better). DH would prefer a non-instrumentalist moral argument for capitalism (his six dimensions).
All of that’s fine. But instrumentalist moral arguments are still moral arguments. If DH doesn’t like them, that’s OK. But that doesn’t make them wrong or bad, or contradictory.
KevinDC
Aug 21 2020 at 12:58pm
Hello again Phil –
I think we’re possibly getting caught up on a terminological quibble, so let me take another pass at it.
There’s a difference in making a moral argument for something, and making a moral argument from something.
Making a moral argument for capitalism is, very roughly, an argument that says “Morality, therefore capitalism is required.” This is David’s six dimensions argument. “Free association etc are intrinsically moral, so capitalism is morally required.”
Making a moral argument from capitalism is, very roughly, an argument that says “Capitalism, because it leads to morality.” This would be more akin to saying “Capitalism because it makes us richer and becoming richer also makes us more moral, so capitalism is morally required.”
Now, I suppose you could say those two aren’t contradictory as such, and fair point. But when making a moral argument from capitalism takes the specific form of “Capitalism, because it makes us richer and leads to more moral results, one of which is less capitalism,” then that is in fact contradictory to making a moral argument for capitalism. And that’s the contradiction David was alleging – that the case being made is contradictory to the idea of making a moral case for capitalism.
In the same way, some people argue “morality requires equality.” Other people argue “we should strive for equality because it leads to more moral results.” One is a moral argument for equality and the other is a moral argument from equality. And if I was to argue “We should strive for greater equality because it leads to more moral results, one of which would be greater inequality,” it would be perfectly reasonable to say that my argument is contradictory to the idea of making moral argument for equality.
BC
Aug 21 2020 at 12:53am
Another dimension: capitalism and welfare state aren’t really opposites. Capitalism can make a society more generous as it becomes wealthier but, in the absence of a welfare state, that generosity would manifest itself in private charities. So, in capitalist societies it’s probably better to juxtapose welfare states with private charities. (Obviously, I recognize that an over-expansive welfare state can encumber capitalism so much that it suppresses the wealth creation that would have engendered more generosity. I’m talking here about a welfare state that’s not large enough to seriously encumber a capitalist society but is large enough to crowd out charity.)
Here’s an example of what I mean. I saw a meme a few months ago with a picture of a man and a message like, “In Germany, we don’t have private charities like in the US. Our government actually fulfills it’s obligations to the needy.” I have no idea whether Germans generally agree with that sentiment — the (re-)poster of the meme wasn’t actually German — or to what extent Germans believe that government welfare absolves them of responsibility to be generous and humane towards their fellow mankind. The poster and creator of the meme, though, definitely thought they were being complimentary rather than derogatory towards Germans. Myself, I would prefer a society where people are generous with their own money rather than with Other People’s money.
john hare
Aug 21 2020 at 4:17am
I agree with using ones’ own money rather than that of other people. It better allows stop points when obviously going off the rails. Like “buying a drunk a drink”, some generosity is counter productive.
The strength of private vs government charity is the same as applies to business. The badly managed fail, and then stop doing further damage.
Jens
Aug 22 2020 at 5:09am
Private charity does not guarantee universal human rights. Of course, you can reject them completely or in a certain form.
A welfare state does not fulfill my obligations with other people’s money; it fulfills my obligations and other people’s obligations with my money and other people’s money.
But it is of course true that this changes the character of the recipient. He goes from supplicant to claimant. It doesn’t just affect him.
Jens
Aug 22 2020 at 5:03am
I think there are obviously some moral arguments for capitalism, just as there are some against it. Morality and economic order are orthogonal concepts.
E.g. if one assumes that universal human rights are a necessary requirement for a moral economic order, then there must be an authority that guarantees these rights, otherwise they are not universal.
To stay in DH’s picture: It could be that some of the choices mentioned by his/her violate the rights of third parties. That’s immoral.
So some element of capitalism will probably be necessary for a moral order, because universal human rights are expressed in activities that are typically characterized as capitalistic. But capitalism alone is not sufficient for a moral order.
Rick Rodriguez
Aug 22 2020 at 6:09am
Albert Hirschman put forward a principled position: neither a market, nor a centralized, nor a mixed economy are effective means of solving social problems. No type of economy can be considered a role model. Social problems cannot be solved by religious, moral, economic or political means. The main reason for this impossibility is the social institutions and groups professionally employed in the field of economics, religion, morality, politics and the production of ideologies.
Greg G
Aug 22 2020 at 7:13am
Yes, wealthy societies can afford, and tend to have, government funded social safety nets that are simply not possible in poorer, less market oriented societies. That is a feature, not a bug.
Most people do not believe that capitalism and economic freedom necessarily mean less government. Nor should they. We have never seen a modern capitalist society evolve in any of the many places without a relatively large and competent central government. People just aren’t willing to pool and risk large amounts of capital without the predictability that only a substantial and relatively competent central government can provide. Such a government is necessary, but not sufficient, for capitalism to thrive.
Libertarians tend to argue that we always tend to see larger governments in prosperous market economies because government is parasitic on capitalism and a larger host will support a larger parasite. History suggests the relationship is symbiotic. If it wasn’t, we should have seen at least some examples of capitalist countries with shrinking governments outcompeting the rest. We ever see that.
In Russia, a large reduction in the size of government led to gangster kleptocracy, not more freedom and human flourishing. In China, a huge increase in economic freedom has been followed by a sharp turn toward more totalitarian government. No less of an apostle of capitalism that F.A. Hayak would remind us how futile it is to expect predictable cause and effect relationships in complex economies.
Mark Z
Aug 23 2020 at 1:37am
I’ve never bought this “if small government were a good idea, it would already have happened” argument. First of all, there is a wider variety of government sizes among successful societies than you acknowledge, from as high ~50% to as low as ~15%, much smaller than the current US government. I don’t know what you define as a large central government, but if the argument that no successful, prosperous societies have had significantly smaller governments than we have in the US, it’s clearly wrong.
Secondly, as societies become wealthier, ‘parasitism’ often becomes more lucrative, but also society becomes more tolerant of it. If the average person makes subsistence wages in a society, then losing 30% of your income to unnecessary expenditures is a far bigger deal than if you’re wealthy. I don’t think parasitism is a perfect analogy though. Much of government enlargement amounts to purchasing societal luxury goods. But the fact that we are well enough off to be able to spend lots of money on certain things doesn’t mean that those things are making us better off.
We also don’t need to spend 40% of our GDP to make sure that guarantee the degree of security necessary for people to be willing to invest. Ensuring property rights and enforcing contracts are a small fraction of that. Your argument (your arguments in general here, and the ‘institutional’ argument for government) may be worth making against an anarchist or minarchist, but the US and most modern developed countries are so far from that that I don’t think they’re remotely compelling reasons why we should expand or even maintain the current size of the state. It could be shrunk a great deal before where anywhere near being at risk of not having a strong central government.
David Seltzer
Aug 23 2020 at 3:13pm
The comments are well argued. Among the best I’ve read. I think the moral case for capitalism is also the moral case for free markets. My position is quite simply this. As one who has property, dominion and authority in my person, I am not duty bound to provide for another. In a free market…capitalist…setting, I choose to be charitable. Therein lies virtue and morality. Virtue and morality are lost when I’m forced to provide by arbitrary authorities. One might ask if that force constitutes third party harm. The phrase, “free market,” implies this.
JG
Sep 9 2020 at 11:17pm
“The moral case for capitalism is that it lets each person make his/her own choices about how to live: what work to engage in, what to spend money on, whom to associate with, how to arrange his/her private property, what substances to ingest in his/her body, and how to spend his/her leisure time, to name six.”
“Choice of how to live/work to engage in” – If I want to live outside my parent’s (or partner’s parents) house I better have enough money to go to college, hope that I pick a profession that enables me to pay for school loans/rent/food/utilities and other bills AND still save enough for a rainy day. I also have to do all of this while balancing WHERE I work since I can’t just pick any geographical location based off of my preference but where there is WORK.
“What to spend money on” I have a choice of WHAT I CAN AFFORD with what I have left of my paycheck.
“Whom I associate with” well I better hope I like my co-workers and boss, because I spend A LOT of time at work. If I didn’t I might not have a job and good paying jobs are hard to come by for many people.
“How to arrange my private property” most people rent, so sure I can arrange my knick knacks how I want in my rented apartment…Personal freedom – yay.
“what substances to ingest in his/her body” I’m choosing whether I want packaged noodles with an egg or with a hot dog.
“how to spend his/her leisure time” Since I only have two days off (if I’m not required to work OT, which doesn’t pay much) my choice is to do laundry and go grocery shopping or wear stinky clothes to work and go on a very strict diet. What other time I have left is for sleeping.
So the moral case for capitalism is more of limited consumer style of choice at the best of times and a choice between sleeping on the streets, moving back in with someone’s parents or towing the line and being a good wage slave.
Gotta love the “freedom” of choice, thanks Capitalism.
Comments are closed.