In my last article refuting a common critique of capitalism, I conceded that the many positive effects of capitalism do not put it above reproach. Most proponents of capitalism justify their support with references to capitalism’s efficiency and superior growth creation, and I have been among those who have valued it for those reasons. However, focusing on efficiency and considering all growth equally valuable may distort the actual merits of the capitalist system. Very seldom do conservatives make a strong and cogent moral case for capitalism, even though the morality of the system lies in its very roots. The current way in which many supporters of capitalism, especially conservatives, approach the system and measure its success is flawed, and that flawed understanding could be contributing to growing disillusionment with capitalism.
In a 2014 article titled “Capitalism Redefined,” authors Nick Hanauer and Eric Beinhocker criticize not capitalism itself, but the way that economic growth and success is currently measured in the United States. Gross domestic product (GDP) growth is commonly used to determine whether or not capitalism is “working”, while prices and value are synonymous in the current libertarian economic view. According to this way of thinking, prices will guide resources to things that are most highly demanded and growth will ensure an ever-increasing abundance of material goods with which to sustain the population. With as little intervention as possible, the system will do its job of allocating resources efficiently and maximizing utility, or welfare. The logic is airtight.
…Except that perhaps the benefits of capitalism are not in efficiency and maximized utility, but are of a completely different nature. The authors of “Capitalism Redefined” posit that capitalism does not actually create much efficiency and the products that are highly priced can create huge amounts of harm, but neither is an argument against capitalism. In fact, the authors continually affirm that capitalism is the system most able to produce prosperity for all citizens. The reason that inefficiency and poor product creation do not matter is that the virtues of capitalism are not in its efficiency or its creation of “stuff,” but its ability to facilitate and coordinate solutions to human problems. The authors explain,
“Understanding prosperity as solutions, and capitalism as an evolutionary problem-solving system, clarifies why it is the most effective social technology ever devised for creating rising standards of living.”
So what if the market is inefficient? Allowing enterprises to fail and for new ideas to destroy old ones, even when resources are lost, is part of finding solutions that lead to prosperity. If we think of capitalism as a system that permits trial-and-error and slowly directs human efforts to the best outcomes, we see that capitalism is valuable because it allows inefficiency.
Capitalism is working best, the authors claim, when everyone is benefiting and seeing real improvements in their quality of life and when people are producing successful solutions to today’s problems. Thus, the authors call for measures of capitalism’s success not by growth or price calculations, but by measures that discriminate between products that improve life and those that hurt it and that increase access to necessities.
I agree with the authors that capitalism is best viewed as a system that is meant to better society and that Americans should be wary when the system is benefiting the few or creating products that lower, rather than raise, the ability of humans to reach their full potential. However, I disagree with the authors’ claim that they are shining light on a uniquely 21st century idea. The authors contend that, though we have always known capitalism works, we have not understood why it works until now. They compare this discovery to Copernicus discovering the workings of the solar system or Newton the laws of gravity.
“This twenty-first-century way to understand economics allows us to understand capitalism as an evolutionary problem-solving system. It allows us to see that the solutions capitalism produces are what create real prosperity in people’s lives, and the rate at which we create solutions is true economic growth. This perspective also allows us to see that good moral choices will be the ones that create true prosperity.”
Unfortunately, the 21st century cannot take all the credit for this idea. Their view of capitalism, of the proper measure of its success and of its proper uses, is similar to Adam Smith’s justification for a free market system. Smith saw capitalism as a vehicle for human flourishing and a means to better the entirety of society and eradicate poverty. To suggest Smith thought of the free market system as an end in itself, a justification for selfish and immoral behavior, or a way to produce more with utter disregard for what is being produced is a gross misunderstanding of his work. Smith believed productivity and wealth creation were good, but he also assumed increasing productivity would create “that universal opulence which extends itself to the lowest ranks of the people.” His support of the free market was grounded in moral goals that mirror those supported in “Capitalism Redefined.”
The true justifications for capitalism from the father of the free market himself are well explained in an essay titled “Adam Smith and Human Flourishing” by Ryan Patrick Hanley. Hanley claims that Adam Smith’s interest in the flourishing of society and increased well-being is the foundation of his justification of a free market. Writes Hanley, “Smith’s defense of the superiority of market orders rests not on concerns with simple utility maximization, but rather on the belief that markets are indispensable to human flourishing.”
“Smith cannot be reduced to a caricature view that defines the good society as that in which the most talented few enjoy the maximum possible opportunities for achievement and self-advancement… freedom to pursue self-interest alone neither defines a flourishing society nor justifies a market order…indeed, only when the ‘far greater part’ of a society no longer lives in a state of indigence can the society be said to flourish.”
Hanley explains that Smith liked to talk about “comeattibleness”, a bulky term that was meant to explain the success of a society as a function of how available necessities were to the poor, or how easily the poor could “come at” goods.
“In short, his argument is that the market is desirable not as an end in itself, or merely because it makes possible economic growth, but because it alleviates the condition of the poor and thereby helps to realize the flourishing society.”
Smith, far from being an individualist or blind worshiper of efficiency and the natural market order, promoted the free market because of the potential it held to create good for society, to facilitate “human flourishing in its economic, political, and moral dimensions.” Throughout The Wealth of Nations, Smith praises the ability of free markets to benefit “all different ranks of society.” Any implementation of capitalism that is failing to fulfill this crucial purpose, whether due to regulation, misunderstanding of the system, or lack of morals among the people, is a failure of capitalism itself.
Even if “Capitalism Redefined” simply rediscovered this moral dimension, the article is no less valuable. Their ability to refocus the evaluation of capitalism on its real benefits to all people through the imagery of evolution is rather impressive. The authors of the article have unearthed the deeper purpose of capitalism and the moral guidelines that should dictate any application of the system–guidelines that were undoubtedly forgotten in the time since The Wealth of Nations was published. The ability of modern economics to quantify movement, measure growth, and model optimal situations creates a temptation to view success and failure as factors of objective statistics. It is now past time to return to the difficult art of quantifying standards of living, human flourishing, and happiness and judging capitalism based on the real value it brings to society as a whole.
The importance of recapturing the moral roots of the free market and viewing its success in a more nuanced way cannot be understated. The focus on statistics that proclaim capitalism is achieving record success when humans do not see improvements in their lives is baffling to people, and rightly so. Constant affirmations that the economy is serving its purpose when it is not solving day-to-day human problems convinces people that capitalism itself is flawed and that the system holds little promise for bringing benefit to ordinary people.
Furthermore, viewing all economic activity as equally positive or all prices as indicating value is dangerous for a society founded on moral standards and striving to be moral. Though we need not change prices through force or regulation, acknowledging harm caused by lucrative products is a valuable practice in itself. Economic freedom, like all freedom, does not imply the absence of moral obligations, but rather provides a means by which we can effectively fulfill our duties to others. As Benjamin Franklin said, “Only a virtuous people are capable of freedom.” Capitalism does not contain market controls that reward virtue or indicate moral value, but that does not mean that either is unimportant or nonexistent or that shifting incentives to create more virtuous activity is impossible.
If conservatives are to be honest subscribers to, and good salesmen of, the free market system, we need to reaffirm the moral roots of capitalism and express an understanding of its true value to society. Supporters of the free market have had the best of economic arguments for centuries, but, without the moral factor, definitive victory in the debate against less free, or even unfree, economic systems will continue to elude us. It is time to show people the true spirit of capitalism and to mend the system accordingly.