Aversion to Capitalism

After we covered the main moral codes–altruism, egoism, and cynical exploitation–in my MBA business ethics course, my students report that they are all egoists (I do tell them that egoism isn’t automatic but requires knowledge of what constitutes one’ self-interest). That isn’t surprising, given that egoism is a common sense morality: pursuing one’s self-interest without exploiting other people is what survival and flourishing requires. We haven’t discussed social systems yet, but one student said: “I like egoism, but why does it align with capitalism? I want social justice, so I am happy to pay taxes for public education and healthcare.”

What makes this student, and many other people, dislike capitalism even while claiming that they advocate the pursuit of self-interest? I think there are two primary reasons: 1) a lack of understanding of capitalism, and 2) a failure to integrate capitalism with the requirements of self-interest. Let’s discuss each in turn.

Capitalism is often confused with the mixed economies prevalent in most of the world today, and business schools do not do a good job of educating their students about capitalism. However, the lack of understanding of capitalism is relatively easy to correct. There are several books that explain capitalism, from Ayn Rand’s Capitalism: The Unknown Ideal to Andrew Bernstein’s The Capitalist Manifesto and Capitalist Solutions to Yaron Brook and Don Watkins’ Free Market Revolution. These works are available to anyone who wants to understand what capitalism is. (Of course, those averse to capitalism may not pick up any of them).

In Ayn Rand’s definition, capitalism is “a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.” Such a system does not exist today, but under capitalism the rich cannot exploit the poor, nor can the poor claim “need” and ask the government to give them some of the wealth of the rich. People are free to trade with each other and do whatever they want with their own property (spend it, invest it, give it away), and no-one can initiate physical force. The government’s only role is to protect individual rights against the initiation of physical force (through the police, the military, and the courts).

Presumably my student and others who prefer the welfare state over capitalism believe that those who are poor or otherwise less fortunate would be better off in a welfare state with “redistribution” of income from those who are more productive to government spending on education, healthcare, and other programs. But is that really true? Consider two systems: our current welfare state and a capitalist system where producers are free to produce and trade to the best of their ability and keep the rewards of their production. In which system would the poor—and everyone else—be better off? The one in which producers are demotivated and penalized for their productive efforts by highly progressive income taxes, or the one in which wealth creation is maximized through the freedom of producers, protected by government?

Understanding capitalism and how it benefits everyone, including the poor, is the first requirement of alleviating aversion to it. But people also need to recognize that the pursuit of self-interest and capitalism are integrated. This is hard because most people are not integrative thinkers but view ideas in isolated compartments. My student who claims to like egoism but not capitalism fails to recognize the single social requirement of pursuing self-interest: freedom. Capitalism is the only social system that protects people’s freedom (individual rights) and bans the initiation of physical force. To pursue self-interest, people must be free to think and act on their thinking—without violating the rights of others. If the government has the right to take income from those who are more productive to “redistribute” to those who are less productive in the form of various social programs of its choice, the producers’ freedom is limited. The ability of the more productive to pursue their self-interest is severely curtailed in such a welfare state.

The philosophical foundation of the welfare state is not egoism but altruism: the moral code of self-sacrifice for the sake of others. If you find yourself liking egoism but not capitalism, you need to check your premises. Egoism is the moral requirement of capitalism, and capitalism is the social requirement of egoism. Without capitalism, our ability to pursue self-interest is limited. If we want to not only survive but to flourish, we should embrace capitalism, not reject it.

  • Demosthenes

    This article does a fantastic job at pointing out the fallacies people make when they equate capitalism with modern mixed economies. It is essential to understand the way capitalism and egoism integrate, and how altruism is the antithesis to capitalism. If there could be any weak points in this article, it would be that the author doesn’t give a convincing argument for why capitalism would be better than the welfare state.

    In arguments of this nature, it is essential to provide incontrovertible evidence that taking from producers would be destructive enough to their pursuits to make everyone worse off than if they followed pure capitalism. The writer’s argument assumes that readers will accept the assertion they will be as axiomatic. The problem there is the only people who will be convinced by these arguments are those who already accept such axioms. This is more commonly known as “preaching to the converted.” – which is fine, but it probably wont win the hearts of many Liberal minded people.

    A better line of argument would be to show how a purely capitalist society without state imposed licenses and regulations, could help the poor to get jobs easier (because they can just learn on the job rather than needing to get expensive education, certification, etc. first), or entrepreneurs launch their businesses without punishing levels of red tape to get their ideas off the ground.

    This is just a suggestion.

  • Nathan Martin

    In pure capitalism, what could prevent sociopaths (and lovers of money) from eventually owning almost all the wealth? We should have an aversion to being economically owned by sociopaths.

    If you like economics, you might enjoy “Capital in the Twenty-First Century” and/or “Why Nations Fail: The Origins of Power, Prosperity, and Poverty”.

    Ayn Rand can be motivational and empowering, and everyone SHOULD be able to stand on their own two feet, but we can’t compete freely in a system where the “winners” are standing on top of everybody else.

    Perhaps it is selfish of me to want to live in a world that plays by sustainable rules?

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