The Justice-Morality Matrix

There’s a lot of discussion about whether particular policies or outcomes are just or moral.  Often the terms are used synonymously or never really defined or distinguished.

I have written about what I see as crucial and fundamental differences between justice and morality in this post.  I claim that justice is public and subjective – an emergent phenomena to deal with conflict and coordinate peace – while morality is private and objective – and internal compass to deal with self-regulation and coordinate peace of mind.

“Justice is about living with other people, while morality is about living with yourself.  Justice is about right relation to others as measured against the mores of society, while morality is about right relation to right itself, as measured against your own beliefs”

To further illustrate what I mean by this, here’s a matrix showing four actions and where they might stand in relation to justice and morality:

Justice-Morality Matrix (1)

Just-Moral is pretty easy to accept and needs little clarification.  No parties are harmed and the actor feels no guilt.  We’re assuming this action was not in violation to any belief or commitment to abstain from boat-buying on the part of the buyer.

Just-Immoral depends more on your own beliefs about right and wrong, but regardless of belief systems or acceptance/rejection of any divine or natural morality, all humans have a sense of guilt.  The just-immoral quadrant is for those actions that cause no one else any harm, but harm the actor by giving him/her a sense of guilt and wrongdoing, regardless of its origin.  The point is that the act feels wrong to the actor, and they in fact believe it to be wrong.

Moral-Unjust is when an act clearly causes harm to someone even though the actor feels complete confidence it was the right thing to do.  Justice, in service to maintaining cooperation and peace, might demand recompense, but no guilty feelings are associated with the action.  Third parties observing may be inspired by the morality of the action, but to conflate that with justice is unfair to the harmed party.

Immoral-Unjust is pretty easy as well.  A party was wronged and the actor violated conscience or belief in right/wrong.

These examples may be flawed, but I think the fact that justice and morality are not the same thing is incredibly important.  When they become conflated, and far worse when either become conflated with government edict, moral atrocities and grave injustices unfold on small and large scales.

The key for both is an open, spontaneous, evolving system of give and take – a market for norms and institutions – rather than a tightly defined universal and centralized enforcement.  Common law and basic manners are good examples of this, whereas criminal law and legislation are the opposite.

Four Visions of the World: Constrained, Unconstrained, Stasist, Dynamist

About half a dozen years ago, I read two books in succession that I did not expect to have much to do with each other.  They both proposed intriguing dichotomies.  These dichotomies cut up the world differently, but I began to see interesting ways they could be layered on top of each other.

The books were The Future and Its Enemies, by Virginia Postrel, and A Conflict of Visions, by Thomas Sowell.

Both books are phenomenal and I highly recommend them.  Let me briefly describe the central dichotomy presented in each.

Stasists vs. Dynamists

Postrel defines two outlooks on human life and society, static and dynamic.

The stasist fears and resists change.  They wish to preserve things as they are, or possibly even return to an imagined glorious past.  Every change, whether social, technological, or environmental, is bemoaned as the harbinger of all manner of moral and civil decay.

It’s an obvious mindset to spot in many conservatives, exemplified in William F. Buckley’s mission statement for National Review, to “[S]tand athwart history, yelling Stop”, but it doesn’t just describe conservatives.  A great many modern liberals fall into this category as well.  Environmentalists who fear invasive species or believe any changes to any ecosystems are always bad, unionists who want to set work arrangements and productions methods in stone, or social justice advocates who wish to maintain certain ratios in material wealth between people.

The dynamist embraces change and does not fear it.  This includes fans of free markets, free speech, and economic growth, techno optimists and pioneers.  Dynamists are, by nature, less organized but also more prone to have a big impact on the world individually.  Again, it cuts through simplistic left/right political paradigms and includes some liberals who want mores to evolve and some conservatives who want industry to do the same.

Constrained vs. Unconstrained

Sowell has a different dichotomy.  It’s a bit more subtle, but like Postrel’s, it does not fit into left/right political rhetoric neatly.  He defines two visions of the world and humanity, constrained and unconstrained.

Those with a constrained vision see certain physical, moral, or spiritual realities as unchangeable.  Scarcity, self-interest, human fallibility, and evil.  This doesn’t make the constrained vision a pessimistic one, but simply, to quote the great economist Peter Boettke, “Puts parameters on utopias.”  You can improve the world only by first understanding the fundamental laws of both material and human nature.  You can’t achieve flight by wishing away gravity or achieve human harmony by wishing away greed.  The constrained visionary realizes these parameters and innovates in ways consistent with them.  Smith’s Invisible Hand and Hayek’s Spontaneous Order are fundamentally constrained concepts, as they accept human avarice and limits to knowledge and describe social orders that turn all that imperfection into progress.

Those with an unconstrained vision see everything as perfectible.  We can eliminate scarcity (this is very different than simply “have an abundance of stuff”, as it assumes time and choice can also be eliminated), we can remake man into a perfect version, we can stop playing by old stuffy rules and simply rebuild a society without greed.  If humans are flawed we can remake humans, instead of forming social orders that work around the flaws.  We don’t need institutions that channel bad desires to good outcomes, we simply need to remove bad desires.

Both conservatives and liberals alike throughout history have had both visions.  Individualists and collectivists are not neatly plotted into one or the other.  Jefferson had a more unconstrained vision, along with the French Revolutionaries and many early anarchist and socialist revolutionaries.  Modern anarcho-capitalists and Burkean conservatives alike share a constrained vision.

Let’s add them together and see what we get…

Yay, time for a 2×2 matrix!  Don’t take this too seriously.  It’s been a while since I read these books and I’m playing around with this ideas rather loosely and humbly, so don’t get caught up on specific verbiage.  Instead, see if you can gain anything from the intersection of these two dichotomies.

In each quadrant I include a single phrase that I think defines the dominant desire, then list a few ideologies, groups, and types of action and orientation that I think fit it.

Why now?

I got to thinking a lot about this recently when reading the phenomenal series, Breaking Smart, by Venkatesh Rao. (If you read nothing else this year, read this!)

Rao describes the implications of the fact that ‘software is eating the world’.  Part of the analysis involves the inevitable backlash against software-enabled progress and disruption.  Rao calls the resistors Pastoralists, and provides a very compelling look at the two apparently opposite ways pastoralism manifests.

One is a resistance to all change.  The other is driven by agents of change themselves who adopt a single vision of change and wish to force it on the rest.  You can see how the first might fit into Postrel’s stasist category, but the second doesn’t quite.  That’s where combining Postrel and Sowell becomes so powerful.

I think the three great threats to human freedom and flourishing today are constrained stasists (resist all change), unconstrained stasists (remake the world in the image of the imagined past), and unconstrained dynamists (force the right kind of progress on all these hapless idiots).

I think all the promise and joy comes from the outlook of constrained dynamism.  One that understands failings in human knowledge and virtue and the physical reality of scarcity and wishes to allow change to emerge and evolve organically within unplanned orders to address them in ways no one can imagine ahead of time.

See if you can map yourself or others on the matrix!

You can also check out other fun 2×2 matrices I’ve played around with on various topics:

Obedience-Entitlement Matrix

Rules-Intelligence Matrix

Work-Happiness Matrix

Profit is a Better Goal Than ‘Social Good’

Yesterday I got an email from Kickstarter that at first I laughed off as silly PR and signalling.  Then it made me sad.  Then it made me upset.

I like Kickstarter.  I use it.  It’s a supercool platform and has opened up a whole new world of crowdfunding, the effects and possibilities of which we are only beginning to see.  So what did they send me that rubbed me so wrong?

Kickstarter is no longer a traditional corporation but a Public Benefit Corporation (PBC).  I have not looked into the legal structure of PBC’s nor am I any kind of legal expert.  The way a company chooses to structure itself doesn’t really matter to me.  The thing that got me was the description in the email:

Until recently, the idea of a for-profit company pursuing social good at the expense of shareholder value had no clear protection under U.S. corporate law, and certainly no mandate. Companies that believe there are more important goals than maximizing shareholder value have been at odds with the expectation that for-profit companies must exist ultimately for profit above all.

Benefit Corporations are different. Benefit Corporations are for-profit companies that are obligated to consider the impact of their decisions on society, not only shareholders. Radically, positive impact on society becomes part of a Benefit Corporation’s legally defined goals.

What could it mean to have legal “protection” and, far more ominous, “mandate” to pursue social good?

The most obvious questions are what is social good and who gets to define it?  Even if specific goals or outcomes are written in to a legal charter, who gets to interpret them?  If an investor puts millions in to a business with expectation of financial return and the money gets squandered on a giant made-from-recycled-shoes art project at the office, could it be argued that this was the legally correct move because it’s good for the community or some other undefinable value?

Firms are not profit driven because they are evil.  They’re not even profit driven because they care more about profit than anything else.  No one got together and decided to make firms profit driven as an evil conspiracy.  They simply ended up that way because it’s the best possible method of accountability to value creation.

They’re profit driven because profit is the only uniform, objective measure of all the diverse goals and desires of everyone involved in the enterprise.  Designers might want to make the world more beautiful, customer service people may want to help others solve little problems (except maybe at Comcast), investors may want to be a part of something new and exciting, founders may want to change the world, and customers may want a specific feeling the product provides.  To keep creating value in these myriad ways the firm needs resources.  They can’t be consuming more value than they produce.  They need to create something that is valued by the customers more than the raw inputs were valued on the market.  The only way to measure all these subjective preferences is with profit and loss.

When people decry profit they seem to treat it as a one-sided bilking affair.  Profit is really, really hard.  Loss is far more common.  And loss is just as important.  Loss is the greatest force for resource conservation the world has ever known.  It lets us know that a company is, quite literally, destroying value.  It puts the brakes on fun but destructive behavior.  They are consuming resources valued at X and are only able to sell them at X-1.  They have transformed resources into something less valued by society.

Profit and loss are the best signals humanity has ever had to make decisions about resource allocation.  Relying on warm fuzzies or good intentions is far less effective and can even be downright deadly.  If you allocate resources based on perceived need or good feels you’ll end up with big shortages and surpluses, like every planned economy ever, and the poorest will suffer from lack of access to food, health care, etc.  This is how mass starvation happens.  High minded ideals replace organically emerging prices as the means by which resources are allocated, and well-intentioned elites from on high replace self-interested individual decisions makers on the ground.

I’m not trying to get dramatic here.  For all I know PBC’s could be an improvement over current state offered options for incorporation like 501c3’s or C-Corps or what have you.  I’m also not such a fool to think technical legal jargon so powerful that it can override informal institutions or cause investors to make horrible decisions with their money.  Chances are, if you’re knowingly investing in a PBC, you trust the assumed definition of “social good” or whatever other goals enough to take the risk.

The troubling thing is the rhetoric and the built-in assumption that profit and loss provide worse information about how to improve the world than vague things like a “commitment to the arts”.  Being committed to a high ideal without really knowing enough to bring it about in the everyday lives or real people (hint: none of us do) is a great way to waste a lot of resources and do a lot of damage while feeling good about yourself.  Being committed to accounting profit and loss is a great way to create value for the world, whether you intended to or not.

*BONUS

I was discussing this with a friend on Voxer, and added this very important point about what prices really are.  They’re not only about incentivising people to do things.  Even in a world where people were able to rise above self-interest, prices would still be crucial for the information they convey.  It’s an incentive wrapped in information.  Here’s an excerpt from our conversation:

Justice and Morality

It seems there’s a difference between justice and morality.  I’ve never quite come to a comfortable conclusion about the nature of the two concepts and their relationship, but it’s worth exploring.

Suppose you jump in someone else’s car parked in the valet entrance at a hotel and speed away to get your wife in for an emergency C-section.  You’ve saved the baby and possibly the mother.  It would be strange to call this immoral.  In fact, it might be very moral, even heroic.  But it also seems clear that the owner of the car has been wronged.  She was unable to make her meeting in time, some of her gas was used up, and maybe you even got a few dings in the door.  She has suffered an injustice.  So even though you acted morally, it’s possible you acted unjustly.

Let’s say you have a deep hatred for your neighbor.  One day an envious rage takes over so you pick up a rock and throw it at his new car, hoping to shatter the window.  You miss.  No one sees the action, and the rock rolls harmlessly into the weeds.  It seems likely you’ve acted immorally by trying to destroy his property.  But it would be odd to say any injustice was done.  Your neighbor hasn’t suffered a wit from your failed attempt at vandalism.

Justice is about living with other people, while morality is about living with yourself.  Justice is about right relation to others as measured against the mores of society, while morality is about right relation to right itself, as measured against your own beliefs.

Whether or not justice exists objectively or is entirely a social construct, it has an unmistakable universality.  The particulars, and the process of discovering and remedying injustice differ in each society, but the basic tenets are the same.  No society has ever praised or rewarded breaking a promise, stealing, or murder.  There are instances where such acts are called by other names or given a pass under special circumstances, but that’s just it; they always require justification.  The default human position is that coercion is bad, and social systems evolve to mitigate it.

What would justice demand from you in the car theft scenario?  The nice thing is, we don’t have to decide in the abstract.  Justice always takes place in a social context, and the process seems just as important as the outcome.  For productive cooperation, the systems that determine and deal with injustice are best when they are transparent, stable yet flexible, knowable in advance, and not applied preemptively.

Even though everyone may acknowledge that your theft of the car was unjust, if the process allows arbitrators to consider circumstances, they may let you off, or they may ask only that you pay the owner a small fee.  These contexts are rich, and the owner has a lot to consider as well.  Perhaps she hears your story and decides not to pursue any recompense.  Maybe she is really ticked and wants to, but realizes the social approbation she’ll get for doing so isn’t worth it, even though she would win her case.  Since justice exists only in a social context, and for the use and benefit of humans, even if it is violated, there needn’t be black and white, always-and-everywhere rules demanding uniform punishment.  Though a uniform and recognizable process is needed, uniform outcomes don’t seem to be.  This is why common law is so much more effective than legislation at maintaining peace.

Morality is trickier.  I might be using the term differently than most people in this post (I have often used it more loosely myself, many times on this blog…don’t hold it against me!), but I think morality is something that exists in all of our minds, whether or not it exists “out there” objectively.  We have a conscience.  We have beliefs about right and wrong that are distinct from our sense of justice.  That’s why nearly everyone would agree that you acted immorally in story number two, even though justice demands nothing of you.  Our sense of morality changes over time, and is very different from person to person.  Part of life’s journey is discovering it and constantly adapting to it.

I’ve known people who genuinely believed it was wrong to have a drop of alcohol.  Whether or not I agree, it was clear that if they did, they would feel a lot of guilt.  They would be violating what they know to be right.  Some of those same people’s views changed over time, to where years later they no longer thought it wrong to drink, and they could do it with a clear conscience.  Morality doesn’t seem to be about the acts themselves like justice does.  It seems to be about whether or not a person is violating their own sense of right.  Many spiritual traditions talk of being in unity with oneself, being of one mind, or having an undivided heart.

It’s easy to conflate justice and morality, in part because we deliberately do so with children.  It’s more convenient to wrap everything up into right and wrong, and train kids to do and don’t do based entirely on these words.  I don’t think it’s helpful for kids in the long run, but it requires less work, so most adults do it.  Kids are told to say hi when someone says hi to them for the same reasons they’re told not to take Johnny’s toys; because it’s the right thing to do.  Yet the first is not unjust and probably not immoral, while the second is definitely unjust and probably immoral.  Children are also trained to obey the law because it’s right to do so.

They’re not often told that justice demands an abstention from coercion, even if the law doesn’t, or that the law may ask them to do something they feel is deeply immoral.  This oversimplification and lumping everything into basic right/wrong categories has the potential to result in atrocity.  Those who allow the law to be a shortcut for justice or morality, for example, can find themselves rounding the neighbors up and sending them off to prison, or worse.

There’s more to be explored on this topic, but I’ll save it for another day.

UPDATE: Check out this post with a handy-dandy 2×2 matrix to visualize these concepts.

Where Are All the Factories?

My wife and I recently watched a few seasons of Stargate Atlantis on Netflix. (Go ahead, say it.) Something that always bugs me about the show and many like it is the incredibly unrealistic way in which alien societies are portrayed.

There are countless episodes where the team finds a new planet with a thriving civilization. No matter what period of development the people are in, they always have a vast array of highly produced goods. Villages have houses with uniform, manufactured bricks, panes of glass, ornate wood and metal work, produce and meat, cooking utensils, tools, textiles, weapons, and on and on. These items require an expansive division of labor, a high degree of specialization, and a very deep or “round about” capital structure. Yet there is rarely any indication of these things. Most societies only have raw materials, like land and some farms or pastures, and consumer goods. It’s seems these societies magically convert raw materials into serviceable items with none of the complex, multi-layered in-between processes required in the real world.

It’s possible the writers cannot portray these features due to constrained budgets. After all, we see the same set re-purposed with a few small tweaks to represent several different villages. When the plot-line isn’t about the structure of society, it doesn’t make sense to spend a lot to show the way it works. But often the plot is built around the way the society works.

One episode had cities that followed orders from a computer screen, and structured their way of life to fit exactly what they were told, a la Sim City. They’d switch from making furniture to steam engines overnight. Somehow the invisible capital, labor and knowledge markets seamlessly switch course, and no major shortages or surpluses result. The childish absurdity of this is hard to fathom.

If it’s not because of budget, perhaps the simplistic portrayals are a reflection of the economic ignorance of the writers. It’s sad that so many intelligent people are utterly unaware of how the market works. It’s sad that so few have tried to contemplate the incredible complex dance of unplanned coordination required to produce a single, simple consumer item. Yet the fact that so many can be so ignorant of the workings of the market is also one of the things that makes true capitalism so great.

These writers are showing the world as they experience it. A huge marketplace of end-products, available everywhere you look in dizzying array. Their experience is one in which they have access to the products of the free market, without having to understand or even be aware of the incredible process that took raw materials, capital, ideas, and labor, and transformed them. No one has to be an economist or an expert in any field or industry to participate in a capitalist system; indeed to meaningfully contribute to that system through their actions.

As much as I’d love Hollywood writers and everyone else to understand the full-fledged spontaneous beauty of the market, I’m even more excited that they don’t have to in order for the market to serve them.

Crowd Funding vs.Taxation

The main justification given for taxation is that it solves a collective action problem.  Everyone would be better off, we are told, with the construction of a road or a park, but no individual has the incentive to pay for it, and if a collection were taken up, everyone would shirk and expect the next guy to pay.  If you know your few bucks won’t make or break the project and you’ll get the benefit either way, why pay?

There are many flaws in this analysis, but even if we accept it, consider the emergence of crowdfunding as an alternative.  You can share the details of a project and the cost, and offer specific access or benefits to those who contribute a certain levels.  The project does not move forward until full funding is committed.  This is an amazingly powerful tool that is just starting to reach its potential.

If what is funded benefits the whole world, great!  They needn’t be labelled free-riders, because everyone who pledged to support it knew ahead of time this would be the result, and indeed welcomed it.  If it’s a project that can’t sustainably benefit everyone, crowdfunding allows the ability to restrict access to those who pay.  It also utilizes the power of transparency and shame.  If you claim to really want a project to succeed, yet you pledge no money yourself, you’ll incur the wrath of your peers.  Crowdfunding harnesses people’s public spiritedness.  It lets you openly demonstrate what you’ve pledged.  It creates competition to cooperate.

I’m not just talking about bake sales for summer camp.  There have been startups that raised ten million dollars on sites like Kickstarter.  There have been massive research projects and prescription drug advances utilizing crowdsourcing (harnessing dispersed knowledge) as well as crowdfunding; not just the supply of capital, but the supply of human and intellectual capital can be done without central control.

The very projects that people worry wouldn’t happen without government funding are those most suited for crowdfunding.  Works of art that won’t generate tons of popular sales through traditional channels.  Highly speculative research.  Space travel.  Charity and welfare enhancing programs.  Helping a single person pay for a costly medical procedure.  Why couldn’t bridges or buildings be financed in the same way?

We live in an amazing world.  Every day, more people voluntarily coordinate and co-create and make the functions the state tries to monopolize less and less relevant.  Humans have always created free institutions that, under no compulsion and with no clear designer, enhance our individual and collective well-being.  Technology just puts it in high relief and speeds the process.

Capitalism is Beautiful

Part eight in a series of eight on the morality of capitalism.

Beauty is not often on lists with virtues like peace, honesty and humility. But true beauty is a virtue—it is awe-inspiring, praise-evoking and brings the kind of joy that humans seek for fulfillment. When I think of life’s best moments, beauty is involved; a sunset over Lake Michigan, my wife’s smile, a moving piece of music, my kids laughing, a good cigar. These experiences are sensory, emotional and, each in a different way, beautiful.

Odd as it may sound, I also feel a sense of awe when I walk in to a retail store and ponder the myriad products in front of me. Perhaps I’m a little crazy, but the more I think about it, the more beautiful capitalism is. There are times when I actually get choked up at the operations of the free market!

Consider, as Leonard Read famously did, the production of a simple pencil:

I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.

The wonder only grows as technology progresses. Consider, “I, Smartphone.”

The products we consume for our survival and enjoyment are not produced by you, me or any of us. Yet they are produced by all of us. How does this happen? How can the provision of the most basic necessities of life be beyond the ability and comprehension of any of the individuals who need those necessities? There is profound beauty in this mystery of human cooperation.

If you’ve ever been moved by the observance of a stranger coming to the aid of another, nothing should move you more than the operations of the market. A group of volunteers cleaning up and rebuilding homes after a disaster is beautiful. But consider that the same disaster, if markets are allowed to operate, will cause millions of people living thousands of miles away to reduce their consumption of needed water, plywood, generators and flashlights so that those in the affected areas can get enough. It will induce complete strangers, some of whom don’t even know of the disaster, to channel their energies toward the production and distribution of goods to the victims of the storm. The market is so powerful, in fact, that it will induce even those who dislike the victims and would wish ill upon them to alter their behavior in ways that alleviate the sufferers.

There is daily innovation in a capitalist economy. Entrepreneurs are in relentless pursuit of ways to make their fellow man happier and better off. The cornucopia of products from around the world available to us in a moment’s notice is truly a miraculous exception to the experience of humans throughout history, and it is human creativity unleashed by free-market capitalism that has made it possible. Free and open exchange is one of the most awe-inspiring, community-enhancing, peace-loving, relationship-building, cooperative and coordinating things humans can engage in.

The fact that the prosperity of a capitalist economy is the result of the laws of nature and facts of human nature, rather than anyone’s conscious design, makes it all the more inspiring. Consider the unlikely way in which bees are the keepers of flowers; as they seek only their own survival they pollinate the flowers and produce a dazzling garden.

Likewise, it is utterly amazing that billions of individuals seeking to better their condition do more to promote the welfare of their fellow man than any direct effort to do so ever could. I don’t want to confuse by saying that capitalism does this, because capitalism, or markets, can’t do anything; they represent the interrelated actions of individuals. It is the action of individuals that make this complex mosaic of harmonious interests and outcomes. But make no mistake; capitalism is the only canvas on which such a work of art can be created.

That, to me, is enough to stand in awe of a genius creator who put things in place to allow for this; or, for the non-religious, a spellbinding universe that is like a benevolent conspiracy of good. Capitalism is what occurs absent the use of coercion in human relationships, where spontaneous order emerges. Capitalism is beautiful.

Capitalism or What?

Part seven in a series of eight on the morality of capitalism.

When analyzing any social or economic system, the three most important words are: “Compared to what?”

Capitalism has its shortcomings. It has shortcomings because life has shortcomings in our own subjective evaluations. That is, we can always imagine a state of affairs better than the one we experience. It is exactly this kind of imagination that has been the driver of human progress. However, when progress has been made it has been by a combination of imagination and an understanding of causal relationships that are unchangeable. The desire to fly, coupled with an understanding of physics, motivated people to create amazing contraptions from airplanes to rockets to parachutes. The desire to fly coupled with a denial of the force of gravity would lead to a much different experience.

When we feel frustrated with the morality of the free market, we should always ask what a better alternative might be. When you get down to it, there are few options. As explained in an earlier post, all government intervention is backed by the threat of violence. This is important to keep in mind when considering alternatives to capitalism.

If you think the price of a good is immoral, for example, ask yourself what you would do to address the problem. Price controls mean threatening violence to anyone who wants to sell above a certain price. Imagine storming to your neighbor’s garage sale with an armed thug and yelling, “Lower your prices or else!” Does that seem more moral than your neighbor peacefully putting an asking price on her old bowling shoes?

From a moral standpoint, since the alternatives to free markets mean coercion (whether partial intervention or complete control), it’s hard to imagine addressing the imperfections that can occur under capitalism with government action. Not to mention the fact that the interventionsdon’t work at achieving the desired results.

Most of the alternatives imagined by critics of capitalism either overlook the coercive nature of the state or rely on a superhuman, all-knowing, all-good state. But if people aren’t good enough to act justly in a market, how could they be good enough to wield government power over others? Sound social theory and historical evidence confirm that indeed, power tends to corrupt and absolute power corrupts absolutely. The difference between the power of a business tycoon in the market (assuming it’s a truly free market and he’s not in bed with government regulators) and the power of a government agent or politician is that the former can only woo while the latter can compel. Much as you mightn’t like the perceived power that people can get in the market, state power is far more dangerous. Businesspeople don’t conscript customers into war or kicked-down doors, except when in cahoots with the state.

There is a philosophical term for the tendency to compare one system to an imagined utopia, rather than to other possible alternatives. It’s called the Nirvana Fallacy. This is a prevalent form of argument against markets. A common example is, “Capitalism hurts the poor.” But compared to what? Look at the evidence of free economies vs. less free economies.

Minimum wage is example of how this fallacy can lead to bad outcomes for the intended beneficiaries. It is a result of the notion that some people don’t make enough money. But compared to what? What alternative is there to free-market wages that can improve the lot of the poor? Minimum wage laws only price the poor out of the labor market.

If we’re honest and use some economic thinking, it becomes clear that even the things we don’t like in a market system are better than the alternatives. (Of course, this is not true for the elites who have mastered the art of gaining political power and favors. For them, markets are worse than corporatism. But aren’t these just the kind of people we would like to see face the rigors of competition and put in an honest day’s work?)

It’s not a very fun argument nor is it the most compelling, but the worst that can be said of capitalism is that it is the “least bad” economic system.

Many accusations against capitalism turn out to be accusations against reality itself. We want to eat our cake and have it, too. We don’t like scarcity, which means trade-offs and choices. We don’t like that some people have no taste for high art (which is why Creed sold more records than Jimi Hendrix!), or that sometimes we enjoy cheap imported goods, or that fossil fuel allows us to do things that we find fulfilling. Capitalism is the wrong target in these cases; we’re frustrated at other people for being different, or ourselves for not being the way we wish we were, or at nature for the materials it yields. We’re upset at cause and effect. Certainly we are justified in feeling unease at failings of those around us or the difficulties nature presents, but we need to look for solutions in reality, not fantasy.

It might seem great if everyone in the world could have twice as much of everything right now. But that’s not possible, and capitalism shouldn’t take the blame for that any more than cement should take the blame for the fact that falling on cement can produce a skinned knee. We should continue to envision a better world and strive to create it, but we shouldn’t pursue a world that’s not possible. Let’s make progress through the peaceful coordination of the market, not the false hopes of a “new man” or the eradication of economic laws created by state centralization and coercion.

(I should add that it is extremely difficult in this country to know whether it is a fact of life or some government policy behind many of the problems we confront. This should make us especially cautious of blaming capitalism, since so often it is a lack of capitalism that makes reality seem harsher than it is. There are innumerable difficulties, both big and small, that entrepreneurs have solved but regulators have perpetuated.)

Capitalism is Not…

Part six in a series of eight on the morality of capitalism.

Capitalism gets saddled with a lot of baggage that doesn’t properly belong to it. Some of this is the result of ignorance of basic economics, some of it a poor reading of history, but most of it is due to a bad definition of capitalism. In the first post in this series I defined what I mean by the term:

[A] system where individuals are free to keep, trade, use, or give away property that was peacefully acquired. This is merely a negation of the use of force in the use and exchange of goods. I do not mean a system that is pro-capitalist, or pro-business, or pro anything but freedom for the individual.

This definition does away with many of the accusations made against capitalism. They may be true of our current system, but not of a genuinely free market. Still, there are a number of claims about capitalism that remain, and I wish to clear up at least a few of the common errors.

Capitalism is not a zero-sum game. For someone to win, it does not require someone else to lose. It is easy to observe a person who has done well and assume that there must be persons elsewhere who had to lose something in order for this person to have gained. That is true of every political system and many simulated scenarios like sporting events, but nothing could be further from the truth in a market.

When exchange takes place in a free market, both parties trade something they want less for something they want more. Of course, either may change their mind later and regret the decision, but at the time of the trade both parties valued what they got more than what they gave, otherwise they would not have traded. It is easy to see how value is created on both sides (because economic value is subjective), and how there was no “loser.” Beyond this simple illustration, over the long run the wealth generation of capitalist trade grows the overall pool of valuable resources and increases choice for all involved. This means the potential for more and bigger “wins” as time goes on and specialization and trade increase. Wealth is created, not distributed.

Capitalism is not for the rich. If there’s any class or group that benefits more from capitalism than any other, it’s not the rich, but the consumer. Of course all of us, rich and poor alike, play the part of the consumer at various times. But it is an inescapable fact that in order to succeed in a market, you must create value for consumers. Ludwig von Mises sums this up nicely:

“The riches of the rich are not the cause of the poverty of anybody; the process that makes some people rich is, on the contrary, the corollary of the process that improves many peoples want satisfaction. The entrepreneurs, the capitalists and the technologists prosper as far as they succeed in best supplying the consumers.”

The rich do not live at the expense of the poor, nor do the rich feel particularly secure in a free market; they often seek government intervention to protect them from competition. But any gains to the rich not only are the result of creating value for the consuming public, they often lead to direct benefits for the poor over time by way of lower prices and access to new technologies.

Even the most selfish, peasant-hating rich person wants to buy fancy new luxuries. Whether they like it or not, being early adopters of such goods helps fund the continual production, research and development of new technology and can bring the cost of production down over time. There is not a modern convenience in existence that did not begin as a plaything of the super-wealthy. TVs, cars, washing machines, cell phones, etc., ad nauseam. If there were no wealthy customers around to purchase these impractical items, it would have been nearly impossible for producers to continue to refine them and lower the cost of production. Rich and poor can certainly dislike each other in a free market, but they cannot avoid helping each other.

Capitalism doesn’t concentrate power. Capitalism disperses power. If you look at the list of Fortune 500 companies 50 years ago vs. today’s list, you’ll notice some familiar names. You’ll also notice that the majority of top players 50 years ago don’t make the list today, and a great many of them don’t even exist. There was a time when Sears threatened to dominate the entire retail industry through its innovative catalog approach. The previous big players in the retail scene, themselves viewed by some as invincible, were put under by Sears. Is Sears a retail hegemon today? Neither will Wal-Mart be tomorrow.

Capitalism is relentless, and consumers want value. They may have brand loyalties, but those only go so far. At the end of the day, the dynamic process of creation, imitation and destruction constantly wreak havoc on the best predictions of who will control the market into the future. Were it not for massive government interventions—including things like anti-trust, which is purported to break-up vested interests but typically does the opposite—we would see even more dynamism and less concentrated power.

It may be a bit disconcerting to realize how dynamic the free market is. The good news is while corporations and products and methods of production are created and destroyed all the time, the human and material resources in the economy are redeployed. It may cause temporary dislocation, but the transition from buggies to Fords was very good for market participants, even though it killed some buggy companies.

Capitalism isn’t about taking advantage of people. In fact, it’s about people taking advantage of the opportunity it provides. I used the example in a previous post of price gouging. Higher prices after a disaster are sometimes seen as an example of people being fleeced by the market when they are the most vulnerable. But when we understand what’s actually happening when prices rise—those less desperate are encouraged to conserve so those who need resources most can get them; suppliers are signaled to deliver more goods to the affected area, etc.—we see that the market is doing more than any other system could to provide for those who need it most.

I’ve heard people talk about the way that businesses take advantage of employees and force them into subpar working conditions. Of course we all have to make choices, and we all wish our options were better than they are (which is why we work to improve them). But is it true that capitalism allows companies to take advantage of people’s needs? Possibly, but no more than people take advantage of companies’ needs.

If you’ve ever shopped at Wal-Mart, supposedly one of the worst offenders when it comes to taking advantage of employees, you’ve noticed that most of the employees are not very helpful. I once waited for 30 minutes to pick up something ordered online. The store was not busy and four or five employees saw me there and did nothing. A few said they were going on break and someone else would help me soon. Some said nothing and just walked past, even when I tried to get their attention. When someone did arrive she was discourteous and messed up the check-out several times. I am far less likely to order from Wal-Mart after this experience.

If Wal-Mart is so good at exploiting employees, why were they unable to make them shorten their break to help me, or treat me with basic kindness, or master the proper checkout procedure? The answer is that Wal-Mart is not any better at getting what they want out of employees than employees are getting what they want out of Wal-Mart. The ease and regularity with which employees quit in the retail business is staggering, and employers often have to tolerate a lot of behavior that is detrimental to their profits to keep needed workers.

I don’t like to moralize about who’s exploiting who, but if we’re going to play that game we ought to consider the many ways in which employees, consumers and shareholders take advantage of managers, investors and corporations. It happens in both directions, but in a free market both are difficult to sustain in the long run. You have to serve other market participants, not cheat or exploit them. It’s not perfect, but capitalism does a better job of generating cooperation and limiting exploitation than any other system.

Capitalism doesn’t corrode our souls. Sure, free markets give us more choice and make us wealthier, but don’t they also make us crude, materialistic and shallow? It is true; in a more abundant market with lower costs, a person can more easily indulge their materialistic impulses. It is also true that countries where few go hungry also have more obesity. The cure is not to restrict the food supply.

A free market forces us to become people of character or suffer the consequences. We have more choices, which means the option of choosing things that are bad for us. But being deprived of choice altogether does not make us better people, just weaker people.

A person who has never lied because their tongue is cut out is not what we hope to become when we strive for honesty. Capitalism cannot corrode your soul, but it can provide you more modes of cultivating and expressing what’s in your soul—good or bad. You can’t escape ultimate responsibility for your choices under any system. Capitalism is up front about that.

Capitalism is Responsible

Part five in a series of eight on the morality of capitalism.

“All things are subject to the law of cause and effect.”

The opening sentence in Carl Menger’s 1871 “Principles of Economics seems at first glance little more than a truism, but it is an idea so foundational and so often ignored that it deserves great attention. It applies not only to economic activities, but to all human endeavors. If we seek to live moral lives and promote what is morally good, we ought to heed these words.

What often passes for praiseworthy is any action, or cause, whatsoever that is taken with a sincere desire to achieve a noble effect. The relationship between cause and effect is wholly ignored. But is it moral to take uninformed action that has no causal relationship to the ends sought?

To whom much is given

If I told you that one sick child would get well for every window you smashed, would you be a person of high moral character if you spent the night naively smashing windows with a sincere belief you were doing good? While your heart may be pure as the driven snow, doing good requires at least a genuine effort to understand the world and the likely effects of your actions. As C.S. Lewis said of moral busybodies, “They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth.”

None of us has perfect knowledge, but to the extent that we are able, we are responsible for using sound judgment. In the age of the Internet it would be hard to claim you didn’t know better for taking actions that hinder rather than help the target of your good deeds. A valiant self-education effort is possible in almost every field. To whom much is given, much is required.

Capitalism works

Once we accept the fact that genuine moral good requires more than intentions, it becomes immediately apparent that capitalism has a leg up on every other economic system when it comes to the noble goals of poverty alleviation, peace and health.

The desire to help the poor is nearly universal. But when it comes to actual efforts to do so, there is a spectrum of outcomes ranging from absolute oppression to life-changing relief. We need to consider the outcome before we advocate a course of action. Capitalism is the most powerful force for the material betterment of humanity in the world. State interventions like minimum wages, price caps, foreign aid, immigration restrictions, and professional licensing and regulations do unspeakable harm to those of limited means.

Economic theory predicts better outcomes from markets than governments. Observation backs the prediction. The evidence is abundantly clear that economic freedom does more than government interventions (and private charity) for improving living conditions by every measure. This video gives a brief overview of some of the data.

Many people base their arguments for economic freedom entirely on the fact that it produces better material outcomes. But don’t let that fool you into thinking capitalism “delivers the goods” and ignores morality. I’ve addressed just a few of the ways in which capitalism promotes moral values in previous posts, but let’s not overlook the moral component of an improved quality of life for the least of these. If helping the poor is good, and if good intentions must be coupled with results, a free economy is in excellent moral standing.

Individual responsibility

In addition to achieving the ends of poverty reduction, capitalism also promotes responsibility in individuals. Since it is a negative system in which we can’t force people to do what we want, we must learn patience and peaceful persuasion. We have to be ready to accept the consequences of our decisions and learn to act prudently. Freedom allows us to become responsible.

Poet and theologian John Milton famously argued for free speech by saying that without it, the ability to become a morally responsible individual would cease. Milton said that without the freedom to choose wrongly what books to read or doctrines to believe, there would be no concept of choosing rightly. People would not become moral, but would be of a weaker character and less able to resist evil when they encountered it. There is no righteousness in not making bad choices that are not available to you. A truly free market leaves open the possibility of bad decisions, but any system that does not allow these decisions makes us less, not more, morally responsible.

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