Capitalism and human happiness
Friday, 10 April 2009
Nur-Taz Rahman
PRIMA facie, Adam Smith's explanations in favour of capitalism sound perfect. His concepts of people's moral right to property and economic success in a freely competing market seem to be the only socio-economic solution to the human misery brought about by other economic systems such as socialism or communism (Dubner 2008). However, as is evident today - capitalism when allowed to run its course for a long period of time - can also yield human suffering. This makes Karl Marx and Friedrich Engles' criticisms of a capitalistic system easier to agree to than before.
When explaining that free market competition without any external interference, will result in overall improvement of the economy and society, Smith ignores the fact that since there is competition, some individuals will flourish in the economy, while the relatively inefficient ones will wither away (Dubner 2008). This leads to what Karl Marx had concluded: that the free competition encouraged in a capitalistic society will only help a few individuals in the society to accumulate wealth, resulting in inequality and formation of oligopolies (Shaw and Barry 2007).
The social inequality in wealth, spawned by capitalism, is not faced only by a single generation. It trickles down, because children of unsuccessful parents are already born with a disadvantage to fight in the free market, while children of wealthy parents can get a head start with the property they already own through inheritance. As D. W. Haslett explains, the right of inheritance breeds an inequality that disagrees with capitalism's pre-requisite of equal opportunity (Shaw and Barry 2007). However, the solution he proposes - that the government become the owner of a deceased individual's property - is also in violation of capitalism's foundation of people's moral right to property (Rideau, 2005). It is arguable whether an individual is morally entitled to one's parents' property, but since most religions provide doctrines of how to bestow a deceased individual's property to his/her children, it is unlikely that many will agree to the notion that children have no moral rights towards their parents' wealth.
Therefore, the inequality arising from capitalism only keeps on accumulating over the years eventually resulting in social imbalance, identified by Stephen Dubner (2008) as "[inherent] turbulence" due to capitalism. This instability not only encourages the formation of oligopolies, but is also worsened by it. When oligopolies start controlling the market, the competition in the market no longer remains free, thus nullifying the advantages of a free market economy that capitalism promises. Adam Smith's capitalism is what democracy was to Churchill - ". . . the worst form of government, except for all those other forms . . ." - but it is undeniable that it is the breeding ground for inequality and, hence, poverty (quoted in Dubner). So, human misery is inevitable in capitalism as well, only that it becomes apparent much later.
Given the foundations and fluent arguments on which capitalism is built, it seems obvious to suppose that, if under capitalism, the society faces an economic imbalance, it is the responsibility of the business personnel whose profitable ventures have resulted in the emergence of inequality and oligopolies (Rideau 2005). So it is logical to suppose that they would be the ones to fix the problem in the society through appropriate measures, for example, by providing employees with welfare, subsidising dwindling enterprises, and injecting money into the economy. This logic fails, as seen in the current economical condition in the U.S., and the reason for its failure is apparent from Adam Smith's own explanation of why capitalism is a great economic system.
As Shaw and Barry mentioned in their book "Moral Issues in Business," Adam Smith believed that rewarding people in proportion to their effort in a free market would ensure a healthy socio-economic situation (2007). In other words, the fact that human beings are competitive and reward-motivated by nature should help maintain a stable economy with minimal human misery. However, the very true presumption that human beings are "self-interested" or "self-motivated" clarifies that capitalism does not expect business personnel to take voluntary steps towards correcting the economy when it fails (Shaw and Barry 2007). As President Obama's financial adviser admits, "I made a mistake in presuming that the self-interests of organisations, specifically banks and others were such that they were best capable of protecting their own shareholders and their equity in the firms," (quoted in Schmick). Although Adam Smith and his disciples often try to show that capitalism is a utilitarian concept, and hence morally right, the very fundamental foundation of capitalism mocks this concept (Shaw and Barry 2007).
Capitalism works on the principle that people are motivated to work for themselves, which is an individualistic approach to morality. Members of a capitalistic society are not expected to look out for the greater good, or the happiness of others around them. Smith's prediction that people's self-motivation will bring about economic success is probably true, but one should note that this is a by-product of the people's egoistic actions; they are not actively thinking about their business decisions and taking morally right steps. Therefore, capitalism is not necessarily a utilitarian-based system. When such is the case, and the economy fails, there is only the government who can interfere and try to boost the economy back up (Meacham and Thomas 2009).
Advocates of capitalism may argue that instead of letting the government intervene, the society should wait out the economical crisis and allow Adam Smith's "Invisible Hand" of capitalism set the economical parameters into balance again (Shaw and Barry 2007). The problem with that solution is the time length required for full revival of the economy. For example, the current U.S. economic crisis has already culminated in an unemployment rate that is at its highest in 16 years (Meacham and Thomas 2009). If there is no government intervention, then the unemployment rate will dip even further before the underlying principles of capitalism can rectify the economic scenario. There is no doubt that it will give rise to human misery, illustrating not only that there is nothing utilitarian in capitalism but also that socialism is not as evil as it sounds when a free market economy is booming. So it is no big surprise that people are now eagerly waiting for the government to play an active role in providing them protection from banking and housing failure (Meacham and Thomas 2009). It feels more like the society is now welcoming government interference rather than the government bull-dozing its head into self-motivated individuals' businesses.
The genesis of governmental role-playing in the economy makes one wonder whether the market will again be as free, and fear whether the society will gradually become socialistic (Dubner 2008; Meacham and Thomas 2009). According to Schmick (2008), it will be "months if not years" before the U.S. economy reverts back to complete capitalism. Given that individuals of the twenty-first century are well-informed about the life-style offered by socialism, it seems more plausible for capitalism to survive the test of economic turbulence. People will certainly be more interested to embrace back capitalism, instead of socialism.
The fears of the grip of socialism loom as large shadows in the public mind. Socialism's infamous attempt of molding people's intrinsic character, into something that is beneficial to the society as a whole, is an experience no individual fantasises of going through after having lived and worked in a free market economy. In his article "Don't Throw Away Your Capitalism Just Yet," Dubner cites Micael Heller's experiences in socialistic Soviet Union to illustrate how the granted comforts in life are snatched away by socialism (2008). Dubner's socialism-phobia portrays the way socialism is viewed by the world at the present time (2008). Hence it is unlikely that socialism will resurface in the twenty-first century.
That being said, as experts have come to realise that government intervention in the economy is both necessary and inevitable, they are predicting that for at least the next five years there will be less of the free market economy as Adam Smith defined it. Government will continue to play a significant role in helping to keep the economy afloat. Individuals in the society are even starting to feel less supportive capitalism than they used to before the economic melt down (Schmick 2008). Financial adviser Bill Schmick believes that there would be considerable governmental control over the market in the "capitalistic" society of the U.S. (2008).
Meacham and Thomas (2009) also fear that the governmental is playing an increasingly greater part in the economy. So there is a high probability that a new form of economic system will emerge, one that is a hybrid of both socialism and capitalism. In this system, which will be very different from worker control socialism, a major portion of the property will continue to be privately owned, but the governmental authorities will strongly regulate the market.
Since individuals make decisions based on the established economic system in their society, it follows that the economic theories of Smith, and Marx and Engels are susceptible to ethical evaluation. As discussed earlier, Smith's capitalism supports people's rights to property and acknowledges an individual's inherent drive to improve oneself (Shaw and Barry 2007). There is no doubt that Adam Smith's free market economy also allows members of the society to be freer without any external power to dictate individual decisions. Also, capitalism's promise of rewarding individuals according to their effort towards work seems ethically correct. Unfortunately, capitalism can often work against the greater good, and cease to be utilitarian.
Previously mentioned ethically objectionable aspects of capitalism include the formation of inequality and oligopolies. Another vital ethical drawback of capitalism can be read in a copy of François-René Rideau's speech "Capitalism is the Institution of Ethics" (2005). Although the author supports capitalism throughout, he points out during the course of his lecture that individuals in a capitalistic society are responsible for their actions (2005). Unregulated actions in the society mean that individuals are free to cause destruction to the environment while they carry out their business affairs. They are responsible for their actions, but capitalism does not require them to stop their actions because it is hurting the environment, and therefore, other individuals. As long as the business actions bring in rewards, the individuals have not violated any of the requirements of capitalism. However, they are certainly involved in morally sound activities.
Socialism and/or communism, through strong governmental or worker control, can ensure that individuals are only involved in ethically correct actions. Yet, it is difficult to agree with the fundamental beliefs of socialism and communism: that wealth is to be divided equally between individuals in a society. Also, the attempt of external authorities to alter individual will tend to violate Universal human rights (Dubner 2008). Given the different ethical consequences of both capitalism and communism, it is hard to conclude whether Smith or Marx has proposed a better theory.
Majority will probably agree that capitalism is the better of two evils. As Dubner mentions in this article, capitalism is not perfect and has "flaws, blind spots, unfortunate losers, and undeserving winners" (2008). However, capitalism has a more libertarian approach in regards to property rights and competition. With only the required amount of government control, the drawbacks of capitalism: inequality, birth of oligopolies, and destruction to the environment can be eliminated, and this hybrid system can give rise to a more ethically correct system.
The writer is with Wesleyan College, 4760 Forsyth Road, Macon, GA 31210
PRIMA facie, Adam Smith's explanations in favour of capitalism sound perfect. His concepts of people's moral right to property and economic success in a freely competing market seem to be the only socio-economic solution to the human misery brought about by other economic systems such as socialism or communism (Dubner 2008). However, as is evident today - capitalism when allowed to run its course for a long period of time - can also yield human suffering. This makes Karl Marx and Friedrich Engles' criticisms of a capitalistic system easier to agree to than before.
When explaining that free market competition without any external interference, will result in overall improvement of the economy and society, Smith ignores the fact that since there is competition, some individuals will flourish in the economy, while the relatively inefficient ones will wither away (Dubner 2008). This leads to what Karl Marx had concluded: that the free competition encouraged in a capitalistic society will only help a few individuals in the society to accumulate wealth, resulting in inequality and formation of oligopolies (Shaw and Barry 2007).
The social inequality in wealth, spawned by capitalism, is not faced only by a single generation. It trickles down, because children of unsuccessful parents are already born with a disadvantage to fight in the free market, while children of wealthy parents can get a head start with the property they already own through inheritance. As D. W. Haslett explains, the right of inheritance breeds an inequality that disagrees with capitalism's pre-requisite of equal opportunity (Shaw and Barry 2007). However, the solution he proposes - that the government become the owner of a deceased individual's property - is also in violation of capitalism's foundation of people's moral right to property (Rideau, 2005). It is arguable whether an individual is morally entitled to one's parents' property, but since most religions provide doctrines of how to bestow a deceased individual's property to his/her children, it is unlikely that many will agree to the notion that children have no moral rights towards their parents' wealth.
Therefore, the inequality arising from capitalism only keeps on accumulating over the years eventually resulting in social imbalance, identified by Stephen Dubner (2008) as "[inherent] turbulence" due to capitalism. This instability not only encourages the formation of oligopolies, but is also worsened by it. When oligopolies start controlling the market, the competition in the market no longer remains free, thus nullifying the advantages of a free market economy that capitalism promises. Adam Smith's capitalism is what democracy was to Churchill - ". . . the worst form of government, except for all those other forms . . ." - but it is undeniable that it is the breeding ground for inequality and, hence, poverty (quoted in Dubner). So, human misery is inevitable in capitalism as well, only that it becomes apparent much later.
Given the foundations and fluent arguments on which capitalism is built, it seems obvious to suppose that, if under capitalism, the society faces an economic imbalance, it is the responsibility of the business personnel whose profitable ventures have resulted in the emergence of inequality and oligopolies (Rideau 2005). So it is logical to suppose that they would be the ones to fix the problem in the society through appropriate measures, for example, by providing employees with welfare, subsidising dwindling enterprises, and injecting money into the economy. This logic fails, as seen in the current economical condition in the U.S., and the reason for its failure is apparent from Adam Smith's own explanation of why capitalism is a great economic system.
As Shaw and Barry mentioned in their book "Moral Issues in Business," Adam Smith believed that rewarding people in proportion to their effort in a free market would ensure a healthy socio-economic situation (2007). In other words, the fact that human beings are competitive and reward-motivated by nature should help maintain a stable economy with minimal human misery. However, the very true presumption that human beings are "self-interested" or "self-motivated" clarifies that capitalism does not expect business personnel to take voluntary steps towards correcting the economy when it fails (Shaw and Barry 2007). As President Obama's financial adviser admits, "I made a mistake in presuming that the self-interests of organisations, specifically banks and others were such that they were best capable of protecting their own shareholders and their equity in the firms," (quoted in Schmick). Although Adam Smith and his disciples often try to show that capitalism is a utilitarian concept, and hence morally right, the very fundamental foundation of capitalism mocks this concept (Shaw and Barry 2007).
Capitalism works on the principle that people are motivated to work for themselves, which is an individualistic approach to morality. Members of a capitalistic society are not expected to look out for the greater good, or the happiness of others around them. Smith's prediction that people's self-motivation will bring about economic success is probably true, but one should note that this is a by-product of the people's egoistic actions; they are not actively thinking about their business decisions and taking morally right steps. Therefore, capitalism is not necessarily a utilitarian-based system. When such is the case, and the economy fails, there is only the government who can interfere and try to boost the economy back up (Meacham and Thomas 2009).
Advocates of capitalism may argue that instead of letting the government intervene, the society should wait out the economical crisis and allow Adam Smith's "Invisible Hand" of capitalism set the economical parameters into balance again (Shaw and Barry 2007). The problem with that solution is the time length required for full revival of the economy. For example, the current U.S. economic crisis has already culminated in an unemployment rate that is at its highest in 16 years (Meacham and Thomas 2009). If there is no government intervention, then the unemployment rate will dip even further before the underlying principles of capitalism can rectify the economic scenario. There is no doubt that it will give rise to human misery, illustrating not only that there is nothing utilitarian in capitalism but also that socialism is not as evil as it sounds when a free market economy is booming. So it is no big surprise that people are now eagerly waiting for the government to play an active role in providing them protection from banking and housing failure (Meacham and Thomas 2009). It feels more like the society is now welcoming government interference rather than the government bull-dozing its head into self-motivated individuals' businesses.
The genesis of governmental role-playing in the economy makes one wonder whether the market will again be as free, and fear whether the society will gradually become socialistic (Dubner 2008; Meacham and Thomas 2009). According to Schmick (2008), it will be "months if not years" before the U.S. economy reverts back to complete capitalism. Given that individuals of the twenty-first century are well-informed about the life-style offered by socialism, it seems more plausible for capitalism to survive the test of economic turbulence. People will certainly be more interested to embrace back capitalism, instead of socialism.
The fears of the grip of socialism loom as large shadows in the public mind. Socialism's infamous attempt of molding people's intrinsic character, into something that is beneficial to the society as a whole, is an experience no individual fantasises of going through after having lived and worked in a free market economy. In his article "Don't Throw Away Your Capitalism Just Yet," Dubner cites Micael Heller's experiences in socialistic Soviet Union to illustrate how the granted comforts in life are snatched away by socialism (2008). Dubner's socialism-phobia portrays the way socialism is viewed by the world at the present time (2008). Hence it is unlikely that socialism will resurface in the twenty-first century.
That being said, as experts have come to realise that government intervention in the economy is both necessary and inevitable, they are predicting that for at least the next five years there will be less of the free market economy as Adam Smith defined it. Government will continue to play a significant role in helping to keep the economy afloat. Individuals in the society are even starting to feel less supportive capitalism than they used to before the economic melt down (Schmick 2008). Financial adviser Bill Schmick believes that there would be considerable governmental control over the market in the "capitalistic" society of the U.S. (2008).
Meacham and Thomas (2009) also fear that the governmental is playing an increasingly greater part in the economy. So there is a high probability that a new form of economic system will emerge, one that is a hybrid of both socialism and capitalism. In this system, which will be very different from worker control socialism, a major portion of the property will continue to be privately owned, but the governmental authorities will strongly regulate the market.
Since individuals make decisions based on the established economic system in their society, it follows that the economic theories of Smith, and Marx and Engels are susceptible to ethical evaluation. As discussed earlier, Smith's capitalism supports people's rights to property and acknowledges an individual's inherent drive to improve oneself (Shaw and Barry 2007). There is no doubt that Adam Smith's free market economy also allows members of the society to be freer without any external power to dictate individual decisions. Also, capitalism's promise of rewarding individuals according to their effort towards work seems ethically correct. Unfortunately, capitalism can often work against the greater good, and cease to be utilitarian.
Previously mentioned ethically objectionable aspects of capitalism include the formation of inequality and oligopolies. Another vital ethical drawback of capitalism can be read in a copy of François-René Rideau's speech "Capitalism is the Institution of Ethics" (2005). Although the author supports capitalism throughout, he points out during the course of his lecture that individuals in a capitalistic society are responsible for their actions (2005). Unregulated actions in the society mean that individuals are free to cause destruction to the environment while they carry out their business affairs. They are responsible for their actions, but capitalism does not require them to stop their actions because it is hurting the environment, and therefore, other individuals. As long as the business actions bring in rewards, the individuals have not violated any of the requirements of capitalism. However, they are certainly involved in morally sound activities.
Socialism and/or communism, through strong governmental or worker control, can ensure that individuals are only involved in ethically correct actions. Yet, it is difficult to agree with the fundamental beliefs of socialism and communism: that wealth is to be divided equally between individuals in a society. Also, the attempt of external authorities to alter individual will tend to violate Universal human rights (Dubner 2008). Given the different ethical consequences of both capitalism and communism, it is hard to conclude whether Smith or Marx has proposed a better theory.
Majority will probably agree that capitalism is the better of two evils. As Dubner mentions in this article, capitalism is not perfect and has "flaws, blind spots, unfortunate losers, and undeserving winners" (2008). However, capitalism has a more libertarian approach in regards to property rights and competition. With only the required amount of government control, the drawbacks of capitalism: inequality, birth of oligopolies, and destruction to the environment can be eliminated, and this hybrid system can give rise to a more ethically correct system.
The writer is with Wesleyan College, 4760 Forsyth Road, Macon, GA 31210