Sunday, December 06, 2009

Capitalism and Virtue

Many complain that the market is cold and callous, but the Acton Institute for the study of religion and liberty gives four great examples of how markets bring cooperation, not harmful greed:
Trustworthiness. Why do people keep their promises? There are surely many reasons. According to Smith, one of the more prominent is self-interest. He writes: “Where people seldom deal with one another, we find that they are somewhat disposed to cheat, because they can gain more by a smart trick than they lose by the injury that it does to their reputation.” Thus, the principal sanction that holds dishonesty in check is the loss of business that would follow the damage to the businessperson’s reputation. A reputation for being trustworthy will create business opportunities, while even a hint of suspicion of untrustworthiness may preclude such opportunities.

Self-Control. Trustworthiness assumes self-control. What, after all, is promise-keeping if not the ability or disposition to pass up an immediate advantage or gratification? That explains why, for Adam Smith, “self-command is not only itself a great virtue, but from it all the other virtues seem to derive their principal lustre.” Self-control is not a tradeoff between self-interest and the public interest; it is instead a tradeoff between short-term and long-term self-interest.

Sympathy. In a market economy, the fortune of an economic agent depends upon successfully meeting the needs of other people. To the extent that sympathy—or what might be called empathy—helps an entrepreneur to anticipate those needs, it contributes to economic success. Smith knew that sympathy is indirectly linked to self-interest because it might be in our self-interest to work to understand the needs of others.

Fairness. Like the other practical virtues, a reputation for fairness or equity is likely to create business opportunities. Since it is virtually impossible to regulate complex transactions by means of simple written contracts, in many cases parties prefer to restrict their business to those on whom they can rely not to take advantage of them if circumstances change. They are spared considerable transaction costs such as attorneys, auditors, and inspectors of all kinds.

All of the complaints against capitalism, except for maybe equality of results, are when we stray from markets and towards an intrusive government. Whether it's bailouts, bonuses, or stimulus packages, when the government does more protect property rights these virtues are skewed. What do you call a system where costs and benefits are returned to those who caused them? It's not Karma, it's capitalism.

5 comments:

  1. "It was the mystical dogma of Bentham and Adam Smith and the rest, that some of the worst of human passions would turn out to be all for the best. It was the mysterious doctrine that selfishness would do the work of unselfishness." GK Chesterton

    I want to point out that in my view, even though I love capitalism and all its benefits, acting in your own self-interest is not virtue. Certainly in a market situation it results in positive outcomes that are good for everybody - trade is a wonderful thing.

    But virtue is doing what is right despite the consequences. Giving when you will not be given to in return. Sacrificing when it is not in your own interest to do so. Risking or giving away your own assets or freedoms for the pure benefit of someone else. This is virtue.

    The way I see it, trustworthiness, self-control, and sympathy are not all that virtuous if they're only utilized when it's in your own best interest. And I'm not all that sure "fairness" is a virtue.

    So yes, all hail Capitalism as the best method for economic advancement the world has yet seen, even with its warts and bruises. But beyond that - when we extend it to a virtue or some kind of basis for morality - that's where I take exception.

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  2. I agree, selfness is not a virtue. What I was trying to point is that capitalism as a system inherently encourages certain virtues (listed above). It is difficult to be a lazy, apathetic, liar and be successful in business. My hope is that those values will spill over and make people generally more virtuous.

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  3. Yes but my point is what you have listed above either aren't really virtues or capitalism doesn't encourage them if they aren't in one's own self-interest, which isn't virtuous. So imo, Capitalism does not encourage virtue.

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  4. I think we have different definitions of virtue. Here's what Wikipedia says:

    Personal virtues are characteristics valued as promoting individual and collective well-being, and thus good by definition. The opposite of virtue is vice.

    How are these things not beneficial to individuals and everyone?

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  5. Well of course they are beneficial. But that doesn't make them virtuous.

    The American males who write Wikipedia may consider anything that promotes well-being a virtue, but I would side with Webster - virtue is the quality of doing what is right. Acting in your own self interest doesn't qualify as virtue just because it benefits others. Intentions and convictions matter.

    Another idea that just hit me from your post - the idea that capitalism discourages lying seems incredibly flawed to me. I understand your reasoning - that a company's lies will eventually be found out and will hurt its business. But I would consider this the exception, not the rule. Capitalism does not discourage lying, it encourages as much lying as will benefit the company. From what I see in the world - that's quite a bit.

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You are the reason why I do not write privately. I would love to hear your thoughts, whether you agree or not.