The Morality of Capitalism What Your Professors Won’t Tell You Edited by Tom G. Palmer Students For Liberty Atlas Network Centre for Civil Society Liberal Youth Forum AtlasNetwork.org StudentsForLiberty.org LYFIndia.org CCS.in New Delhi, India Copyright © 2011 by Students for Liberty and Altas Economic Research Foundation Published by Centre for Civil Society in partnership with Students For Liberty & Atlas Network. General permission to reprint was granted by the Atlas Economic Research Foundation. “The Market Economy and the Distribution of Wealth,” by Ludwig Lachman reprinted by permission of the Institute for Human Studies. “Human Betterment through Globalization,” by Vernon Smith reprinted by permission of the Foundation for Economic Education. “Does the Free Market Corrode Moral Character? To the Contrary,” by Jagdish Bhagwati reprinted by permission of the John Templeton Foundation. All other essays published by permission of the authors. Edited by Tom G. Palmer Cover Design by Sadaf Hussain The editor gratefully acknowledges the assistance in preparing this book, not only of the authors and copyright holders, but of the members of Students For Liberty, most especially Clark Ruper, Brandon Wasicsko, and Ankur Chawla, who worked tirelessly to format and prepare the essays for publication. Their dedication and zeal for liberty is itself an inspiration. For information and other requests please write Centre for Civil Society A-69 Hauz Khas, New Delhi 110016 Voice: +91 11 2653 7456 email: [email protected] website: www.ccs.in Printed at: Mehra Impressions 102, Tihar, Opp. Subhash Nagar, New Delhi, India ISBN: 81-87984-02-3 Table of Contents Foreword The Dharma of Capitalism ..............................................................................................5 By Gurchuran Das Introduction The Morality of Capitalism .............................................................................................9 By Tom G. Palmer Section I: The Virtues of Entrepreneurial Capitalism Interview with an Entrepreneur ....................................................................................23 Featuring John Mackey (Conducted by Tom G. Palmer) Liberty and Dignity Explain the Modern World ......................................................33 By Deirdre N. McCloskey Competition and Cooperation .....................................................................................37 By David Boaz For-Profit Medicine and the Compassion Motive ....................................................43 By Tom G. Palmer Section II: Voluntary Interaction and Self Interest The Paradox of Morality .................................................................................................49 By Mao Yushi (Translated by Jude Blanchette) The Moral Logic of Equality and Inequality in Market Society ............................60 By Leonid V. Nikonov Adam Smith and the Myth of Greed ...........................................................................67 By Tom G. Palmer Ayn Rand and Capitalism: The Moral Revolution ...................................................72 By David Kelley 3 The Morality of Capitalism Section III: The Production and Distribution of Wealth India’s Challenge: Unequal Distribution of Economic Freedom .......................89 By Parth J. Shah Don’t Worry about Inequality .....................................................................................96 By Swaminathan S. Anklesaria Aiyar The Market Economy and the Distribution of Wealth ......................................... 100 By Ludwig Lachmann Political and Economic Freedoms Together Spawn Humanity’s Miracles ....... 108 By Temba A. Nolutshungu Section IV: Globalizing Capitalism Global Capitalism and Justice .................................................................................... 115 By June Arunga Human Betterment Through Globalization ........................................................... 119 By Vernon Smith Does the Free Market Corrode Moral Character? To the Contrary .................. 125 By Jagdish Bhagwati The Culture of Liberty ................................................................................................. 129 By Mario Vargas Llosa A Little Further Reading for Fun and Profit ........................................................ 137 (and Better School Papers) Notes ............................................................................................................................... 140 Index of Proper Names ............................................................................................... 144 About Centre for Civil Society ............................................................................... 146 4 Foreword: The Dharma of Capitalism By Gurcharan Das Tom Palmer has edited a remarkable series of essays which bring together some of the best thinking about the ethical dimension of the market. I am honoured to be invited to contribute to this debate through this foreword. Although two decades have passed since with the reforms of 1991 when Indians began their love affair with free markets, capitalism is still trying to find a comfortable home in India. Like most people, Indians believe that the market is efficient but not moral. I have come to believe, the opposite. Human beings may be immoral and will behave badly whether in a socialist or a capitalist society or under a democracy or autocracy. The institution of the market itself is deeply moral and what has convinced me about its ethical nature is the classical Indian notion of dharma. At the heart of the market system is the idea of exchange between ordinary, self-interested human beings, who seek to advance their interests peacefully in the marketplace. The reason that strangers are able to trust each other in the market is, in part, due to dharma, which is a like an invisible glue that is based on underlying shared norms and which gives people a sense of safety when they cooperate and transact. The idea that an ancient Indian idea might offer insight into capitalism’s nature is, on the face of it, bizarre. I was exposed to Western ideas when I was in college, and I assumed unthinkingly that ‘capitalism’ came from the West. I read Adam Smith, Marx, John Locke and others, who introduced me to the liberal tradition. But I realized my mistake later in life when I happened to read the two thousand year old Sanskrit epic, Mahabharata. The epic is obsessed with the notion of dharma, and as I tried to come to grips with it I realized that there might also be non- Western roots for the ideas of liberty and market capitalism, and the liberal tradition might, in fact, be universal. Dharma is a frustrating word (even for Indians) and not easy to translate. Duty, goodness, justice, law and custom have something to do 5 The Morality of Capitalism with it, but it is chiefly concerned with doing the right thing, both in the private and the public life. It derives from the Sanskrit root dh, meaning to ‘sustain’ and ‘hold up’ like a foundation. It is the moral law that sustains an individual, society and the cosmos. From its root ‘to sustain’ dharma carries the connotation of ‘balance’—it is the balance within each human being, which is reflected in the balance and order of the cosmos. When individuals behave in accordance with dharma there is order, balance and trust within society. Dharma is especially suited for understanding the dynamics of the market place in particular and of public policy in general, because it does not seek moral perfection. It is based a pragmatic view of human beings—it views men to be sociable but imperfect, with strong desires and passions that need to be restrained by dharma. For example, the king’s dharma is to nurture the productive forces in society: ‘The king, O Bharata, should always act in such a way towards vaishyas, ‘merchants’ and ‘commoners’, so that their productive powers may be enhanced. Vaishyas increase the strength of a kingdom, improve its agriculture, and develop its trade. A wise king levies mild taxes upon them. [Mahabharata XII.87] Practical advice, indeed, for otherwise, the epic adds, they will shift to the neighbouring kingdom. Dharma thus provides the underlying norms of a society that are commonly shared by the people, and which permits them to cooperate. It creates obligations and duties for the rulers and the ruled. In the marketplace, it places restraints for buyers and sellers. Because we share a common dharma I readily accept a cheque from you. A cab driver takes me in as a passenger because he knows that the restraint of dharma will ensure that I will pay him at the journey’s end. I trust my fruit vendor who claims that her mangoes are expensive this week because of their higher quality. If the mangoes turn out to be bad, I will accuse her of not adhering to his dharma, and I will be punish her by going to her competitor. She will not only lose my custom but that of others as word of mouth spreads—she will come to be known as a person of low dharma. Suppliers will not trust her; she will not be able to attract good employees. On the other hand, a person of high dharma will be rewarded with a good reputation; she will also enjoy high satisfaction among customers, suppliers, and employees. The market system depends ultimately not on laws but on the self-restraint of individuals. A sense of dharma provides that restraint for the vast majority 6 The Morality of Capitalism of people who tend to behave with mutual respect in most societies. However, there are also crooks