M I MANHATTAN INSTITUTE FOR POLICY RESEARCH 2012 2012 ssues ssues I I

AN AUDACIOUS PROMISE: No. 12 May 2012 THE MORAL CASE FOR James R. Otteson “The market will take care of everything,” they tell us…. But here’s the problem: it doesn’t work. It has never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible postwar booms of the ’50s and ’60s. And it didn’t work when we tried it during the last decade. I mean, understand, it’s not as if we haven’t tried this theory.

—President Barack Obama, Osawatomie, Kansas, December 6, 2011

Milton Friedman once said that every time capitalism has been tried, it has succeeded; whereas every time has been tried, it has failed. Yet President Obama has oddly claimed that we’ve tried free-market capi- talism, and it “has never worked.” This is rather remarkable. Since 1800, the world’s population has increased sixfold; yet despite this enormous increase, real income per person has increased approximately 16-fold. That is a truly amazing achievement. In America, the increase is even more dramatic: in 1800, the total population in America was 5.3 million, life expectancy was 39, and the real gross domestic product per capita was $1,343 (in 2010 dollars); in 2011, our population was 308 million, our life expectancy was 78, and our GDP per capita was $48,800. Thus even while the population increased 58-fold, our life expectancy doubled, and our GDP per capita increased almost 36-fold. Such growth is un- precedented in the history of humankind. Considering that worldwide per-capita real income for the previous 99.9 percent of human existence averaged consistently around $1 per day, that is extraordinary.

What explains it? It would seem that it is due principally to the complex of institutions usually included under the term “capitalism,” since the main thing that changed between 200 years ago and the previous 100,000 years of human history was the introduction and embrace of so-called Published by the Manhattan Institute 2 Issues 2012 No. 12 May 2012 threats It but as opportunities. gives us an incentive people toseethoseoutside theircommunitiesnotas no longercausefordiscord. Capitalism encourages flict—become, undercapitalism, irrelevant—and thus would lead to conflict—even violent, bloody con that inothertimesandunderdifferent institutions and worshipdifferent gods. The socialcharacteristics languages, wear different clothing,eatdifferent foods, around the world—even people who speak different from—people notonlyfrom nextdoorbutfrom laborate, cooperate,andshare with—aswell aslearn people totrade,exchange, partner, associate,col But isthatbad?Capitalismcreates for opportunities to escapethestrictures oftheirlocalcommunities. their—self-interest. So capitalismenablespeople our love orcare forthembutoutofourown—and munity, even completestrangers, not onthebasisof trade and associate withpeopleoutside our localcom Take community. Capitalism gives us incentives to of thechargesare notasstrong asmightbesupposed. The listofchargesagainstcapitalismislong.But some to odiousdollar-and-centcalculations. includinghumanbeings, reduces everything, dehumanizes peoplebecausethecontinualsearch for nature; it impoverishes third-world countries; and it one another;itexploitsnaturalresources ordespoils dividuals or“alienates” (Marx’s term)peoplefrom it encourages selfishnessor greed; it “atomizes” in over theircommunities.Other objectionsinclude: social solidarityby allowing individualssomepriority some tobecomewealthier thanothers;anditthreatens against capitalism:itgeneratesinequalityby allowing its ideals. Two mainchargesare typicallymarshaled tical, ismorallysuperior—ifonlywe couldlive upto muster. By contrast,socialism,whileperhapsnotprac todeliver the goods but fails to meet moral necessary A widespread consensusisthatcapitalismmightbe problems. Why? ready toindictcapitalismformanyofoursocial movement isonlythelatesttohave shown, we seem more than just suspicious: as the Occupy Wall Street Yet peopleremain suspiciousofcapitalism—and been fulfilledbeyond anyone’s wildestimagination. ity. It seemsfairtosaythatthispromise, atleast,has been thatitwillleadtoincreasing materialprosper and markets. One centralpromise ofcapitalismhas capitalist institutions—particularly, ------ ofNations this remarkable passagefrom ’s 1776 but rather to differently configured ones. Consider Capitalism therefore doesnotleadto notbepossible. associations thatwouldotherwise to lookbeyond ournarrow parochialisms andform sharply reduce ourstandard ofliving—causingus bonds, the loss of gains from forsaken trade would changes thatcouldbebased onpersonalcaringand were insteadtorestrict cooperationonlytothoseex instincts by engaginginfar-flungcooperation. If we lows ustotranscendtheconfinesofoursmall-group It contemplatesasetofsocialinstitutionsthatal the atomismthatsomecriticsofcapitalismclaim. existence as the ideal for humans; but neither is it orangutan-like who envisionedakindofsolitary Frenchcentury philosopherJean-Jacques Rousseau, total independencedemandedby theeighteenth- This isacelebrationforSmith. It represents notthe from someofthoseworkmen tootherswhooften have beenemployed thematerials intransporting How manymerchants andcarriers,besides,must order tocompleteeven thishomelyproduction. many others,mustalljointheirdifferent in arts the spinner, theweaver, thefuller, thedresser, with the wool-comberorcarder, thedyer, thescribbler, of workmen. The shepherd, ofthewool, thesorter the produce ofthejointlabouragreat multitude day labourer, ascoarseand rough asitmayappear, is The woollencoat,forexample,whichcovers the is commonlyaccommodated. imagine, theeasyandsimplemannerinwhichhe be provided, even according falsely to, what we very couldnot meanestpersoninacivilized country very assistance andcooperationofmanythousands,the each ofthem,we shallbesensiblethatwithoutthe consider whatavariety oflabourisemployed about men!... [I]fwe examine,Isay, all these things,and to produce thetoolsofmeanestthosework inorder What avariety oflabourtooisnecessary often comefrom theremotest cornersoftheworld! the different madeuseofby thedyer, drugs which must have beenemployed inorder tobringtogether ship-builders, sailors, sail-makers, rope-makers, commerce andnavigationinparticular, how many How of the country! distant part live in a much very : no community The The - - - to regress steadily to the status quo ante of human Keeping people in poverty seems too high a price to existence—namely, $1 per day. By contrast, markets pay in the service of equality. One is tempted to say allow us to “serve” one another even when we do not that only a person who has never experienced poverty love one another—even when we do not know of one could think differently. another’s existence. That implies an extensive, deep, and pervasive interdependence—which is a real, if Consider that allowing these inequalities actually different kind of, community. reflects a respect for individual dignity. In a famous passage in The Wealth of Nations, Smith writes: “It is What about inequality? Capitalism does allow—and not from the benevolence of the butcher, the brewer, perhaps even requires—inequality. Because people’s or the baker, that we expect our dinner, but from their talents, skills, values, desires, and preferences vary regard to their own interest. We address ourselves, not and because of sheer luck, some people will be able to their humanity but to their self-love, and never talk to generate more wealth in a free-enterprise system to them of our own necessities but of their own advan- than others will; inequality will result. But it is not tages.” Some read that and hear selfishness. But Smith clear that we should worry about that. saw in the dynamics of such exchanges not selfishness but respect. Perhaps that sounds counterintuitive, but Consider first that the voluntary exchanges that take consider the assumptions in such negotiations. Each place in the free-enterprise system are positive-sum, person is saying to the other: “I understand that your not zero-sum—meaning not that one person benefits life is yours to lead, and rather than trying to trump only at another’s expense but rather that all parties your schedule of values with mine, I will respect and to the transaction benefit. If you and I agree that I recognize your schedule. Thus I do not second-guess will complete a task for you for $100, that means or question you; instead, I propose that we meet each that I the $100 more than the labor and other other as peers and cooperate.” That is a surprisingly forsaken opportunities that it costs me, and you value profound way to respect others. Consider, by contrast, the completed task more than the $100 that it costs the assumptions when we want to prevent others from you. That we voluntarily strike this deal means that mutually voluntary cooperation: “We do not believe we both benefit, each according to his respective that you are competent to lead your own life, so we schedule of values. What capitalism proposes is to shall do it for you.” That may be a proper way to treat expand the frontiers of possibility for such mutually children or the mentally infirm, but it is a demeaning beneficial transactions so that more and more people and disgraceful way to treat adults—and unacceptable can work together in more and more ways. This for a free people. increasing cooperation means increasing benefit in new, unpredictable, and yes, unequal but nevertheless Smith wrote: “Little else is requisite to carry a state substantial, ways. to the highest degree of opulence from the low- est barbarism but peace, easy taxes, and a tolerable Even if we do not all get rich at the same rate, we all administration of justice: all the rest being brought still get richer. To see the importance of this point, ask about by the natural course of things. All govern- yourself: If you could solve only one social ill—either ments which thwart this natural course, which force inequality or poverty—which would it be? Or sup- things into another channel, or which endeavour to pose that the only way to address poverty would be arrest the progress of society at a particular point, are to allow inequality: Would you allow it? This seems unnatural, and to support themselves are obliged to a no-brainer: poverty is a far larger factor in human be oppressive and tyrannical.” misery than is inequality. If we could have steadily fewer people suffering from grinding poverty, is that There is a profound naturalness to, as Smith called not something to wish for, even if it comes with it, the “obvious and simple system of natural ” inequality? This appears to be the position in which that he contemplated. Once we get a “tolerable ad- we find ourselves. The only way we have discovered ministration of justice” and are protected from inter- to raise people out of poverty is the institutions of national and domestic aggression, and once a scant capitalism, and those institutions allow inequality. few public services (roads, canals, elementary educa-

An Audacious Promise: The Moral Case for Capitalism 3 4 Issues 2012 No. 12 May 2012 generate prosperity, leading, according to Smith, to of facingtheconsequencestheirdecisions—will their localknowledge aswell astheresponsibility own conditionandguidedby thefreedom toexploit hand”—motivated by people’s desire to better their tion) are putintoplace,standback:the“invisible James R.Ottesonisjointprofessor ofphilosophyandeconomics,chairthePhilosophyDepartment, atYeshiva UniversityinNewYork. atoms, isolated from andunconnected to others. As Capitalism, moreover, doesnotsupposethatwe are us issovereign over hisown life. each of us has authority over himself and that each of others’ lives. It assumes only that as free moral agents, that capitalismdeniesanyofusabsoluteauthorityover lible; onthecontrary, itisbecausenooneinfallible subject. Capitalismdoesnotsupposethatwe are infal subject to correction from his superiors: acitizen, not a not beggingleave orpermissionbefore heacts, not capable ofleadinghisown life,ofholdinghisheadup, Capitalism assumesthateachofusisafree moralagent, each individualandtherespect thatdemands. is itspresumption ofthedignityandpreciousness of material prosperity, asthatis.And asimportant that hasanotherjustificationforitselfthanincreasing But ofalargersetsocialinstitutions capitalismispart maintenance andnurturing. that uphold them are fragile and require constant are theexception, andtheinstitutions nottherule, oflaw,the rule andsteadilyrisingstandards ofliving how quicklycivilization canturntobarbarism.Peace, democratic enlightenment—hasvividlydemonstrated ageof man lifeis;even thetwentieth century—that just how nasty, poor, thedefaultforhu andbrutish for granted. has shownThe rest us of human history is, however, nothing to sneeze at—and nothing to take hundreds ofmillionspeoplefrom grindingpoverty that isallcanbesaidonitsbehalf. Rescuing mous andunprecedented thatwe mighteasilythink Capitalism’s successatitsstatedgoalshasbeensoenor enoughtolive inthoseplaces. those fortunate model—not tomentionatremendous benefitfor two centuriesisaremarkable vindicationofSmith’s have enjoyed Smithian institutionsover thelast have beenfulfilledinthoseplacestheworldthat an audaciouspromise, andthefactthatitseemsto “general plenty” and “universal opulence.” That was - - - tion ofmaterialprosperity andmoralagency, thelikes individuals thattheyare. That isasublimeconjunc respecting peopleastheirreplaceable andprecious to be humanity’s miserable, if equal, to risefrom theimpoverished existencethatseems moral imperatives: allowing peopletheopportunity tutions thatmanagetocombinenotonebuttwogreat is theadoptionofthosepoliticalandeconomicinsti and simplesystemofnaturalliberty”—proposes, then, What the free-enterprise system—Smith’s “obvious ship andstillexpecttolive above subsistencelevels. therefore, onpersonalbondsoflove, care, orfriend persons.” the friendshipofafew We cannotdepend, wrote thatman’s “whole lifeisscarce sufficienttogain occasion forthehelpofhisbrethren.” Yet Smith also of great multitudes”; and“man hasalmostconstant at alltimesinneedofthecooperationandassistance Adam Smith wrote: “In civilized society[man]stands have also experienced, deserve nothingless. have alsoexperienced,deserve that some,butnotenough, othersaround theworld and prosperity thatwe Americanshave enjoyed, and titution. The great andprecious blessingsoffreedom has ever known ofrisingout itsnaturalstateofdes the institutionsthatgive humanitytheonlyhopeit in ourinequalitiesbutratherrefusal touphold its existence.Our crimetoday, however, wouldlienot that have plagued humanity for the vast majority of us toescapethestrictures ofpoverty anddisrespect to disdainon earth, the institutions that have enabled people whohave ever lived, in oneoftherichestplaces It wouldbealltooeasyforus,amongthewealthiest them. these benefitsratherthantocurtail forgotten. areWe otherwise shouldwishtoextend people andhave afforded adignitytopopulationsthat between lifeanddeathforhundreds ofmillions and unprecedented; theyhave meantthedifference benefits ofthefree-enterprise societyare enormous of the available systems of political economy. The To this end, we must honestly examine the prospects we can hope foriscontinuinggradualimprovement. human beingsis,orever willbe,perfect. The most ButCapitalism isnotperfect. nosystemcreated by ever contemplated,letaloneachieved. of whichnoothersystempoliticaleconomyhas status quo ; and - - - -