Morality and Capitalism

All a capitalist cares about?            Photo Credit: Freeimages.com/Fernando Mengoni

There are many such as Barack Obama, Hillary Clinton, Bernie Sanders, Elizabeth Warren, and Bill Gates, who think that businessmen are in general too self-interested, short-sighted and avaricious to provide solutions for humanity’s most serious problems. Examples often given for such problems are poverty and man-made global warming. Never mind that Anthropogenic Global Warming (AGW) does not exist. What matters is that many of capitalism’s critics believe in AGW and they fault businessmen for not limiting their activities that produce CO₂ emissions. Some, such as Barak Obama, Hillary Clinton, and Elizabeth Warren, declare that businessmen have little claim to having constructed their own businesses. They say the creation of an economic enterprise is a social endeavor, and that society (through government, of course!) should have more of a say about how they are run than their CEOs. Some, such as Bernie Sanders, claim that the selfish greediness of capitalist leaders require we convert to socialism if we are to solve our most serious problems.

Are they right?          

To come to these conclusions, capitalism’s critics must believe individual human beings are fundamentally evil, and that an individual’s self-interest extends no farther than to what will benefit him/her. Either that or a person who finds themselves in the role of running a company is transformed somehow into such an evil, grasping individual. Or perhaps the critics think it is merely highly probable that a human being is converted into something evil by becoming a capitalist avatar. Or perhaps advocates of capitalism are simply too ignorant to see beyond the end of their noses.

Is this really true of most human beings? For those who are capitalists are not terribly different from most human beings. Are most of us really that morally worthless?

This begs the question of what the leaders of capitalism see as their self-interest. I think that the answer must be pursued differently for businessmen in very large enterprises than for businessmen in small businesses. The problems, goals, capabilities, assets, and scale of the consequences of their actions are sufficiently different that we should consider them separately. Let us appraise the managers of small businesses first. Unfortunately, the small businessman today faces a very hostile economic environment, created by the Obama administration and the Federal Reserve conjoined. For evidence of this hostile environment, read:

• The Burden of Economic Regulations,
• The Debilitating Effects of Obamacare,
• Economic Effects of the Dodd-Frank Act,
• Current Economic Effects of the Federal Reserve,
• The EPA, CO2, Mercury Emissions, and “Green” Energy,
• Economic Effects of Current Tax Policy,
• Quantitative Easing and its Effects, and
• Economic Damage Created by the Fed .

With growth of small businesses stalled in October 2015 in a year where growth has been less than great, owners of small businesses have a lot more excuse than others not to see beyond the end of their nose, since their attention may have to be totally fixed on just surviving the next month, month after month.Their predicament however is not necessarily of their making, but is mostly due to the bad economic policies of the federal government and of the Federal Reserve. If the small businesses of this country are not doing well by this country, it is not due to any moral fault of small businessmen, but to the malfeasance of the government.

The greatest contributions any small business can make to society are to produce more wealth and to provide productive jobs for others. It is hard to see how any government intrusion can help small businesses in these tasks. Some government regulation is required to make sure small firms do not pollute, steal from others, break contracts, and do not otherwise harm others illegally, just as is expected from all the rest of us. However, for government to dictate precisely how a small business conducts its business otherwise will not help anyone, and on average can only be harmful to small enterprises. The managers of these companies know far better than any government bureaucrat how to most profitably  conduct their business. In addition, the best watchdogs for small business if they provide shoddy products or service are their customers; the judgement of the free market for not producing what customers want can be quite severe. If a small business actually harms a customer, the customer can always bring that tort to a court of law.

The moral environment of a large corporation is very different from that of small business. Having much larger assets and markets to satisfy, and having better access to human talent, much more is expected from a large enterprise in satisfying human needs and wants. A large company must successfully and efficiently allocate greater amounts of economic resources with a minimal amount of waste. If a large company fails economically, not only are its employees and stockholders hurt with the company’s bankruptcy, but society is hurt with much waste and loss of the scarce economic assets invested by the firm. Some might be salvaged by the creditors of the company, but inevitably much will be lost. If a great many large corporations fail, a large number of employees can easily lose their jobs and the economy thrown into recession.

Because of society’s greater vulnerability to the failure of large enterprises,  a certain amount of government intrusion into  corporate affairs is justified. Government should ensure corporations keep open, honest account books and require periodic auditing of the books by independent, third party auditors. This is demonstrably for the benefit of a company’s stockholders as well as for the rest of society. But beyond this, other than require corporations to obey the same laws all the rest of us have to obey, does government have any role in governing corporate affairs?

Socialists like Bernie Sanders and quasi-socialists like Barack Obama and Hillary Clinton would answer absolutely yes. They would like to dictate to car companies that they build electric cars or hybrid vehicles rather than gasoline burning vehicles. They would like to drive coal mining companies right out of existence. To ensure that corporations exhibit what they consider “social responsibility”, they would so integrate the government into basic corporate operations that large companies would simply become arms of the government. This is precisely the way the Nationalsozialistische Deutsche Arbeitpartei (aka Nazis) gained control of Germany’s companies in the 1930s. See also the Wikipedia entry on the Economy of Nazi Germany, and reference [E2].

Is such a socialization of large industries necessary or desirable? Who should decide which products a company produces? In a free-market economy it is the customers who ultimately choose by either buying or not buying a good. Every citizen with dollars to spend votes on what products will be produced, with each dollar being one vote. This would seem to be the most democratic way of voting, far more democratic than having government bureaucrats decide. Democrats might object this hands the “election” on what should be produced over to the very rich, the dreaded “1%”. In answer to this I suggest we review the arguments of my post The Morality of Wealth. We should remember that the extremely wealthy actually consume only a very small fraction of their wealth, with the immense remainder either spent in philanthropy or invested in securities. If they should not invest wisely, their money is taken away from them in stock losses, and given to those who had the perspicacity to sell those stocks to them. The money is taken from those who are unwise in investing and given to those who are wiser in allocating resources to society’s benefit. Is this not exactly the Christian parable of the faithful steward? But the real point is that the very rich have an out-sized number of votes (their investments in stock and bonds) only if they meet the needs and desires of those who buy the products, who are massively the non-rich.

Another reason we should not hand control of corporations over to the government is we know from history doing that ultimately destroys the health of the economy by upsetting all the economy’s supply and demand relationships. That is the reason the Union of Soviet Socialist Republics folded and why China and India did not start to appreciably grow economically until they left socialism and adopted some capitalist methods of economic organization. Although my post Why Socialism Does Not Work was written with a purely socialist economy in mind, almost all the arguments in it can be repeated verbatim for the government side of a highly mixed economy.

A final reason I will give is to what Friedrich Hayak pointed: the state of tyranny at which one ultimately arrives at the end of The Road to Serfdom.

Although the issues argued in the 2016 general election campaign will be about the economy, illegal immigration, and the danger of foreign threats, the most important underlying issue will be which direction our country will go: towards or away from socialism.

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