The heart of free civic activity is people pursuing their interests without participating in political affairs. The modern market economy is an important and creative realm of this activity. This activity relieves individuals, families, religious institutions, and the government apparatus (politicians and bureaucrats) from providing for the improvement of the daily life of its citizens. It involves every individual and family in the economic plan for the nation. To enter civil society is to accept the moral order civil society assumes.
However, civil society has a distinctive social, cultural, and ethical character that we cannot understand in purely economic relations. Marx located the means of production in the material arrangements of society rather than in human freedom and creativity. This central error is reason why Marxism cannot work as a system of organizing cultural, political, and economic life. His desire to destroy the modern society he saw has its foundation in an inability to see beyond the alienating forces of modern society and see toward its potential organization of our social world. Participants enjoy other forms of free association as well. It is the realm of a network of associations: unions, professional associations, social movements, churches, neighborhoods, etc. Nationalizing civil society leads to the nationalization of the whole of life, and thus to the function of each individual in society. The result is dehumanization.
The most important event in the
recent history of ideas is the demise of the socialist dream. Socialist ideals have withered away in the
shadow of Stalin,
The success that the ideas of Adam Smith and
the U. S. Constitution accomplished has reduced, over time, their appeal to
later thinkers. They were attracted by
the good that a stronger government could achieve, if only government power
were in the right hands. These ideas
gained the upper hand in the 1930’s. The
role of government as a parent replaced that of government as an umpire. The government also has an invisible hand: an
individual who intends only to serve the public interest by fostering
government intervention is led by an invisible hand to promote private
interests which was no part of his intention.
Adam Smith’s observation that self-interest will lead to improvement of
humanity has proven powerful. However,
if we continue to expand government, we run the risk of deadening private
initiative. As the powers of the federal government are expanded, our
individual rights are eroded through regulation and taxation and spending. Too many people have been convinced that
Socialism, by which I mean the
nationalization of the means of production and the central economic planning
that this makes possible, has long had the advantage in the intellectual
community. In the 20th
century, we have seen democratic socialism in some countries, and a
totalitarian version in Nazi Germany and Fascist Italy, as well as communist
Utopian approaches make the mistake of assuming that government can mold individuals into anything they want.
Most people in modern society appear to desire some socialism; therefore, western democracies have gone this direction. The main question is where this movement will lead us. If the outcome is different from our intention or purpose, then it is clear that sinister forces must have derailed us. To put it boldly, complete socialism means slavery. The idea of complete centralization of the direction of economic activity still appalls most people. Yet, we still hear concerns to substitute some sort of central and governmental planning for the competition that free enterprise proposes.
The primary problem with socialism for economic well-being is this. Socialist and totalitarian government will support the past, for creativity is unpredictable and uncontrollable. Excessive regulation to save us from risks is the greatest danger to the economy. The solution of many people is to remove risk and uncertainty with the certain provision of government programs that divide a static economic pie. The chief threat to the system is taxation to the point that the rich will not invest their income. Government can support the future best by refraining from trying to shape it. The government planners cannot duplicate the knowledge of entrepreneurs. Socialism is an attempt to shield everyone from risk. It proceeds from a rational definition of needs or demands to a prescription of planned supplies. One does not supply until the demands have already been determined and specified. Rationality rules; it rules out uncertainties and acts of faith needed for the progress of human knowledge and progress. The result is to shield them from knowledge of the real dangers and opportunities ever-present in any society. It will give society a stagnant economy in a changing world. It discourages innovation and entrepreneurship. Tariffs, import quotas, accelerated depreciation, and other tax and trade polices are useful for settled firms with long a history to protect. The media, unions, and many politicians, perpetuate the fear of losing the past and the fear of what the future might bring. This fear leads government to support mismanagement and inefficiency. Comfortable failure will always turn to politics to protect from change. Declining businesses do it. Groups of people who want to avoid productive work and family do it as well. If we can have our condition declared a social crisis and a national responsibility, we can protect ourselves form personal responsibility for change. The government can then create subsidies for problems, and incentives for unemployment, inflation, family disorder, housing decay, and municipal deficits. It can make problems worse by making them profitable. Government planners tend to live in the past, for the only past is sure, statistical, and predictable.
For economic planners of all types, whether democratic socialism or those who plan a social welfare state, have the vague goal of the common good, the general welfare or the general interest. Each of these goals could have as many answers as there are individuals within society. Only these individuals can govern their actions toward their own unique purposes. Therefore, the only way a culture can implement social planning is by imposing the will of the minority, the planners, upon everyone else.
One of the reasons citizens move
the direction of national economic planning is their fear of large
corporations. At any given moment in history, one can take a snap shot of a
free enterprise society and discover that the largest businesses will be the
most efficient. Yet, size is not the crucial characteristic of a successful
business. Companies that achieve
multi-national status have achieved a rate of efficiency that few competitors
will venture into their fields. They
dominate their fields, which tend to be old markets. Yet, new developments almost never arise from
leading companies in an industry. Small
firms still provide the primary impetus from economic growth and
The beauty of the economic vision in modern society is that it invites every individual to have a role in the economic plan of the country. Since this vision has come under attack, I hope I can lie to rest some myths.
Everyone seeks to have his or her dignity and worth recognized by other human beings. In early Greek and Roman civilization, primitive cultures, various Chinese and Japanese cultures, medieval culture, people received this recognition in the military arena as kings and princes fought bloody battles with each other for primacy. In the modern social world, this struggle for recognition has shifted from the military to the economic realm, where it has the socially beneficial effect of creating rather than destroying wealth. Beyond subsistence levels, we frequently undertake economic activity for the sake of recognition. Our material needs are few in number and relatively easily satisfied. Work and money are much more important as sources of identity, status, and dignity. Nothing enhances self-esteem like achieving through work. Others affirm our individuality through our interactions with them. Such achievement allows one to provide for oneself and for family. Capitalism recognizes that it is part of human nature to achieve. We achieve through developing a skill and marketing that skill. We offer a gift when we extend ourselves in such a way. We offer the gift of ourselves, as well as the skill. In addition to self-interest, most human actions have an element of generosity and altruism. We will the welfare of others as well. Economic activity represents a crucial part of social life and is knit together by a wide variety of norms, rules, moral obligations, and other habits that together shape the society. Analysts cannot legitimately separate culture and economics.
Many analysts, such as Paul L. Wachtel, worry that Americans center their lives in this sphere of our culture. Such arguments do not persuade me. My suspicion is that these authors have themselves struggled with the role of balance in their lives, and have projected that picture upon the culture as a whole. Further, we cannot speak as if American culture is monolithic. Many segments of our culture have maintained a rather healthy balance in their lives of the various spheres of the social world that I have described here. Our investments in education, leisure, and family, as well as our spiritual quest, as embodied in institutional life, provide many opportunities for us know that our happiness does not consist in the abundance of the things we possess. However, I hope to show that without continued economic growth, we condemn the poor to genuine destitution.
Restless desire for more and more has been a major dynamic for economic growth. Such restlessness, such lack of satisfaction with what is, encourages us to envision and dream new possibilities. Journeys to countries that have had long-term economic stagnation for large portions of the population reveal this truth. This sense of hopelessness, the sense of “this is the best I can hope for in my life” is depressing in the extreme. Such experiences of lack in personal life have profound social implications; however, modern society provides citizens with the framework for experiencing what they lack. One aspect of that lack is in economic well-being. We need to be clear that economic health does not guarantee happiness in life. However, it is an important component for a life well lived.
Problems play an important role in the progress of human knowledge. They are not sources of discouragement and frustration, but the necessary spurs of new knowledge and creativity. The process of human knowledge exalts conflict and trouble as the invariable condition of knowledge in a world that passes through time. A thinker who shrinks from paradox and conflict cannot approach innovation. The crucial rules of creative thought are faith, love, openness, conflict, and falsifiability. The crucial rules of economic innovation and progress are faith, altruism, investment, competition, and bankruptcy. The experimental approach of capitalism accords well with the spirit of the gaining of all human knowledge. The investment, even if it fails, contributes to human knowledge and can lead to the next success. Knowledge is power; money is in the hands of those who must actually do the work. Capitalism succeeds because it is consistent with this process of human knowing.
Most of the time, we can rely upon people to pursue their own interests more often than they pursue common good. Biologically, this body is the only body we will have. This body is a unique set of genes that will need to offer what they can during the brief time that they survive in this body. Each of us has an interest in maximizing the potential of this human life we lead. In fact, we have more interest in that than anything else. Certainly, no one else will care for the degree of fullness of our human life more than we do. An aspect of our human nature is that we are rational, utility-maximizing individuals. We acquire the largest possible amount of the things we think are useful to us. We do this in a rational way, and we make these before we seek the benefit of any of the largest groups of which we are part. Society can achieve its greatest good by allowing these individuals to pursue their self-interest through the market. Rational self-interested calculation transcends cultural borders. Our modern civilization arose out of the interactions of such rational, utility-maximizing individuals.
Labor, production, and exchange is a system of needs fulfilled through the market economy. People are concerned with their own separate and particular needs. However, in order to meet those needs, they must enter into economic relationships with others, thereby coming out of themselves and considering the interests of others. What begins as the satisfaction of separate and particular needs becomes a system of interdependence. Individuals inevitably satisfy the needs of each other. In furthering our own interests, we further the economic interests of society, which in turn furthers our own interests. Subjective selfishness becomes a contribution toward the satisfaction of the needs of others.
The market appears anarchic and incomprehensible and thus appears alienating. The anonymity of the social forces is inherent in the structure of the free enterprise mode of production. Frederich Hayek calls this an emergent order, rather than a contrived or controlled order. Such complex interactions affect family ties, social custom, price fluctuations, and legal traditions. Adam Smith regarded the intentions of business leaders as selfish and anti-social. However, he also saw the systemic consequences of their competition as being far more beneficial to society than well-intentioned government regulation.People trying to satisfy their material needs unconsciously organize themselves into an economy through myriad individual acts of buying and selling; it happens without anyone being in charge or consciously planning it. Nevertheless, individuals within the system promote the common good within a structured system. This is no accident. A definite social goal does not unite free enterprise economies. That is their unique gift. A single aim does not unite us as individuals, who have particular interests that often coincide with others at one time and compete with others at another. Free enterprise is consistent with reality itself and with the progress of human knowledge in that it adheres to this open system of human activity. Competition is blind. Competition keeps us from sameness in economic life as well as education and other parts of our lives. Competition helps us pursue excellence. Free enterprise is decentralized planning, in which every member of the culture becomes part of the plan that emerges. Many interactions by individuals and groups within a society produce results controlled by no one. These interactions fall into a pattern determined by the incentives and constraints inherent in the circumstances. Present social organization is the result of individual interactions directed toward various and conflicting ends. Unfortunately, when we view the results of such random activity, it appears as if some group has the power to plan that result.
Our desire for security leads us to think that we need a coherent picture of the complete economic process that makes it indispensable that we need to coordinate by some central agency if social life is not to dissolve into chaos. However, as the web of economic activity becomes increasingly complex, competition and decentralization of economic life is the only method that can deal with this complexity. Coordination occurs, not through conscious control, but through the spontaneous interactions of people throughout culture. We break up the complexity of information into smaller bits that become manageable for those who need to know.
Economic activity is not the only area in which we can describe a web of complex and sophisticated structure arises as an unintended consequence of a large number of individuals cooperating while each pursues his or her own interest. Language evolves in the same way. Scientific knowledge expands in the same way. Our values evolve by a system of trial and error. Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue. As such, the particularity of each member of society asserts itself in unequal income distribution. We cannot define poverty by the contrast between rich and poor. People are not poor just because they have less than others do. Economic and social equality are not ideals worthy of striving for. Equality of distribution will not overcome poverty. Since eliminating poverty requires increasing investment, the income gaps between the rich and poor will increase before they close. There is no such thing as trickle down economics. However, we do have an economics that depends upon investment by people of their dollars into an idea, bringing together human capital and a desire to produce a product that will meet a perceived need in the market place. The desire on the part of the human being to control and dominate needs to be replaced here especially with trust in the human processes and interactions of the various individuals and groups in society. It is not possible to control all motivations or behavior. The government can best enable the future by resisting the temptation to shape it. This view of the role of the government is based upon the concept of faith in the future and that the interaction of the business investment, the worker, and the customer provides a benefit to all parties.
Many people simply do not understand how a society creates and expands wealth. The key to creation of wealth is not a miracle or a secret. However, many people view financial success as "benefiting unfairly," when in reality their example ought to be lifted up for others to emulate. When do profits become unfair and excessive? Who should have the power to decide?
What appears to be distorted value from an ethical and religious perspective is an example of why a central authority ought not to dictate value. Ethical and religious considerations are not the sole factors in determining economic value. This fact frees ethical and religious communities to focus upon other dimensions of human life. The reality is that such communities are quite right: economic success does not guarantee a full, meaningful, and happy life. However, the political machinery it would take society, the restrictions upon freedom it would entail, are simply not the concern of such institutions. A basketball player can earn millions a year, while a teacher earns a few thousand. Yet, a player like Michael Jordan not only reached the highest level of the game thus far, but he pleased millions of people with his play. In other words, people are worth what the market value of their gift is. While there are thousands of teachers, there is only one Michael Jordan.
The price system within free enterprise accomplishes that which economic planners intend from their central planning and coordination. Conscious control of the economy could never achieve the present level of differentiation, complexity, and flexibility that liberal democracies have achieved.
The price system is the mechanism that performs this task without central direction, without requiring people to speak to each other or to like each other. Prices perform three functions. First, they transmit information. Second, they provide an incentive to adopt those methods of production that are least costly and thereby use available resources for the most highly valued purposes. Third, they determine who gets how much of the product. It transmits only the important information and only to people who need to know. Anything that interferes in the free conditions of demand or supply distorts the accuracy of the information given by prices.
Most economic fallacies originate in the idea of an economically fixed pie. One party can gain only at the expense of another. People best employ capital for the production and distribution of wealth under conditions of governmental noninterference, or laissez-faire, and free trade. The production and exchange of goods can be stimulated, and a consequent rise in the general standard of living attained, only through the efficient operations of private industrial and commercial entrepreneurs acting with a minimum of regulation and control by governments. To explain this concept of government maintaining a laissez-faire attitude toward commercial endeavors, Smith proclaimed the principle of the "invisible hand": Every individual in pursuing his or her own best plan of life is led, as if by an invisible hand, to achieve the best good for all. Therefore, any interference with free competition by government is almost certain to be injurious.
Considering that Marx believed that the most fundamental interests were class interests, that all history is the history of class struggle, it is surprising how little of history is about class struggle. National loyalties proved much more powerful than class solidarity, and co-nationals of all classes slaughtered enemy nationals of all classes with passion and enthusiasm. International class solidarity counted for next to nothing.
Yet, inequality of income distribution in free market societies often becomes the focal point of economic and political debate. In reality, the inequality of income distribution within the liberal democracy is one of its best features. If we focus upon distribution rather than production, we will forever count how many rich and poor exist, become outraged at the discrepancy, and argue for a government powerful enough to re-distribute wealth. The focus on distribution assumes that wealth is a zero-sum game, in which the gain for one person means a decline for another. Can a free society in which distributions are widely seen as unfair survive very long? Such thinking strikes at the heart of democratic capitalism. Why are some people richer than others are? In a free society, the answer is quite simple. Some people have a greater capacity to please others than most of us do. Most rich people have pleased many people, or are the children of people who have done so. People have different abilities, talents, desires, and characteristics. We are unequal by nature. In culture, this natural inequality rises to an inequality of skill and resources, and even to one of moral and intellectual attainment. The demand for a right of equality takes as real and rational the abstract nature of equality. There is no way government can equalize these differences, except by force. To focus on the apparent unfairness of this is to encourage envy and bitterness between classes. It also does not keep the focus on what the poor need, which is self-reliance and achievement. In every country, people are unhappy about the distribution of income. In command economies, the rulers receive that anger. In market-oriented economies, the market receives that anger. We all think that we are more valuable than what the market will allow.
I grant that inherited wealth does not fall into the category of wealth because of pleasing others. However, one does not need to resort to government to even the playing field. The stupidity and carelessness of many wealthy persons will do just fine. Statistics consistently show that unless such individuals learn to manage this wealth and put it to work, they eventually lose it.
Statistics of wealth distribution are static pictures of the economy at one moment in time. They do not reflect the normal up and down movement of income throughout the year or the decade. Nor do they reflect the matter of age, for those at the bottom are either past their ability to produce or only beginning their productive years. Since the young and the old will always be with us, we will always have people at the bottom of the income ladder.
Society tends to have hostility
toward its greatest benefactors, the producers of wealth. Many people want wealth in the nation without
the rich. Proudhon claimed that property
is theft, surely an exaggeration, and definitely a contradiction in terms. It
denies the legitimacy of property while the concept of theft presupposes it. We
hesitate to believe in capitalism. We do
not want to accept the enriching mysteries of inequality, or the inexhaustible
mines of the division of labor. Any
other group in society cannot do the risk-bearing role that the rich play as
effectively. The bottom of the economic
ladder does not create wealth. To put it
graphically, none of us would go to a poor person and ask for a job. Rather, we go to those who have generated
wealth. They then foster opportunities
for the classes below them. We cannot
believe in the multiplying miracles of market economics or the compounding
gains from trade and property. It is far
easier to see the masters of these works as evil and hunt them down like
On the international scene, people in countries with few national resources can achieve great material success. This happens when they organize around the principles of entrepreneurship, invention, and organization. In Hong Kong, the focus is on education and making it easy to start cheap and lawful business credit to the poor and low taxation are the primary economic policy. In Latin American, on the other hand, it is almost impossible for the poor to start businesses. The fees and bribes that they must pay inhibit their advance. When a society makes entrepreneurs criminals and punishes economic activism on the part of individuals, it generates poverty.
Free trade raises the surplus value of the produce of one’s own country. The quantity of everything brought to market naturally suits itself to the demand. Producers have an interest that they not use their wealth to produce anything in excess of the demand. It is in the interest of all people that the good or service not falls below demand. Competition makes sure that this happens. An invisible hand guides this rather chaotic process. The worker wants to get as much as possible, and the owner wants to give as little as possible. Workers will want to combine to receive the highest wage possible. Producers will seek in subtle ways to keep wages down. The balance of trade is a non-issue. The receiving country benefits by receiving the products, and the country with the products benefits by selling them. The concept that trade with a particular country even can be balanced is absurd. We often impose tariffs because of the imbalance of trade. When two places trade with each other, this doctrine supposes that, if the balance is even, neither of them loses or gains. However, if an imbalance exists, one loses and the other gains. Only trade forced by monopoly could have such an effect. Two-way trade is always advantageous equally to both. Commerce, which ought to create bonds of friendship, has become the source of hatred and animosity. The ambition of political leaders leads to fatal jealously of merchants and manufacturers. The violence and injustice of the rulers of humanity is an ancient evil. Humanity does not have a remedy for this. The wealth of a neighboring nation is dangerous in war, but advantageous in trade. In trade, no country ought to grant favors to any country for a product. That exchange of commodities which free trade promises so greatly to increase, will ultimately have the effect of specializing, in a greater or less degree, the industry of each nation. Even the most remote and homogenous of tribes, the progress is toward connection with the whole human race. Just as each society becomes increasingly specialized and heterogeneous, the separate functions assumed by the many kinds of makers and traders in each town, and the separate functions assumed by the workers united in producing each commodity, so will each nation becoming specialized. Thus, as some jobs migrate to other nations, still other jobs become possible.
Some would prefer that social theories avoid the use of moral notions. Much social theory does well enough without using any moral ideas. Rawls says that the obvious example is economics. The situation in economic theory is peculiar. One can often make assumptions of a fixed structure of rules, combined with constraints that define the actions open to individuals and firms. Economic analysis simplifies motivational assumptions in a highly plausible way. However, I suggest that economics is not such an obvious example of a social system without morals as economic theory assumes. The fact of free individuals interacting creates a social community out of which moral arrangements are implicit.
Many people intuitively believe
that capitalism is bad for moral life. Markets put a price on everything and
replace human relationships with the bottom line. Modern capitalist society
comes more of the good will and trust it takes for people to work together than
it produces. Does capitalism require societies that they become wealthier
materially and poorer morally as time goes on? Critics of capitalism suggest
that it leads to vulgar and decadent civilization, afflicted with the ugly and
the trivial, the shallow and ungodly, lacking the discipline and courage to
survive or values worth preserving. The
Left denounces capitalism because it perpetuates gross immorality, such as
racism, sexism, inequality, environmental abuse. It brings inflation and unemployment. It prevents large-scale planning that is indispensable
in a time of world ecological crisis, resource scarcity, and rising
expectations in the populous
Walter Rauschenbusch gave a
sustained critique of capitalism on such a basis. He made the mistake of
assuming that the prophetic critique of the agrarian and theocratic society in
In the same spirit, Reinhold
Niebuhr says that business leaders achieve the status that soldiers and priests
in pre-modern societies, an observation that one makes if one does not
appreciate the genuine pluralism of modern society. The conflicting economic
interests in capitalism dominate political discourse to such a degree that
democracy reaches a common mind politically through economic force. Greed is the
dominant value of business leaders. For him, those who shaped the theory of
government by the consent of the governed had economic interests to protect. A
weak political state served their economic interests. Yet, his approach fails
to take seriously the possibility of failure in this economic system. A weak
political state will not prop up a failing business. Consequently, the
competitive approach in economics cannot guarantee anyone success. For him,
only the ignorance of the people leads to continued acceptance of the lack of
political involvement in economic affairs. Niebuhr was among those who helped
educate Americans of the role that government should have in the formation of
economic life. His writings, along with those of John Dewey, helped to prepare
the way for
Others have a concern that capitalism has entered a new phase where it cannot deal with public moral issues, such as pollution and growing scarcity of resources. Individual creativity is no longer as important to the capitalist system as large corporations and government bureaucracies. However, capitalist growth does not lead to hedonism and sensuality, but the lack of economic satisfaction. Without economic growth, poverty increases everywhere.
Modern civilization appears to have little to do with moral considerations. Moralists have lacked any objective criterion by which to distinguish moral facts from those that are not. I am confident that some would consider any discussion of moral life in capitalism as impossible. What I would like to do now is discuss the form of life in which capitalism engages and the moral life that arises out of it. However, I will admit that what I have to say here will seem hopelessly naďve to some.
Capitalism is often a destructive, disruptive force that breaks apart traditional loyalties and obligations. It also creates order and builds new norms. Capitalism is a net creator of norms and a net moralizing force in modern societies. The thrust of social order is that decentralized groups of people will tend to produce order if left to their own devices. A capitalist system is a web of ideas and feelings consistent with the process of human knowing. Thus, the norms, rules, and criteria that emerge in free societies are always experimental in the lives of its people and open to future changes. It operates in an intellectual and psychological arena. Free enterprise takes its direction from the whims and fancies of everyone within society. It depends upon creativity and appears less stable. Political freedoms are tied together with economic freedoms and with the formation of values.
People tend to act out of custom and habit, regardless of whether it is in their rational self-interest to do so. Democracy and capitalism work best when leavened with cultural traditions that arise from non-enlightenment sources. The wisdom of the ancients, whether in Christianity, Judaism, Islam, Buddha, Hinduism, or Confucius, has rich resources that enable the masses of people to lead their lives and interact with each other. Therefore, modernity and tradition can coexist in a stable equilibrium for extended periods. The most successful forms of modernity are not fully modern. Secular, scientific, democratic, and free enterprise culture, far from replacing traditional virtue of a culture, appears to need those virtues.
I would suggest that religious and ethical communities have an important contribution to make in fashioning the social world increasingly into a hospitable home for humanity. Religion in particular can be part of this process by reminding modern people that life is more than what they possess or achieve. The meaning of life is far more than what one accomplishes by the time of death, for individuals have invested themselves in individuals and causes throughout their lives. Therefore, the religion reminder of the eternal and infinite is as important in modern times as it was in ancient times. In fact, such a hope and faith in the future is an appropriate context for religious moral reflection. Although a perversion of this emphasis would result in denigrating the importance of this time and this space, it can also appropriately set individual human life in a larger context of meaning. The temptation in modern society to cling to people and things can benefit from the emphasis in religion upon the eternal and infinite.
Further, a system of the formation of needs leads to the division of labor, which leads to increasing interdependence. This division of labor is coherent. Individuals do not make decisions concerning their form of life in isolation. The many occupations provided by the modern social world allow for the unfolding of human particularity and fall into groupings that are natural and cohesive, such as agriculture, business, and public service. People can choose which natural grouping of which to be a part. In doing so, they also adopt a form of life suitable for them. Most people wisely consider the social groups of which they are a part, their networks of family, neighborhood, businesses, churches, and even nation. One typically balances one’s own interests in such a social context. One feels obligation toward family that goes beyond rationality. Workers develop solidarity, loyalties, and dislikes that shape their economic activity. Social and moral behavior coexists with self-interested utility-maximizing behavior on a number of levels. Groups of individuals who, because of a pre-existing moral community, are able to work together effectively achieve the greatest economic efficiency. Communities that generally act in trustful ways will innovate and permit a wide variety of social relationships to emerge. By contrast, if we do not have such trust throughout society people will cooperate only under a system of formal rules and regulations, which have to be negotiated, agreed to, litigated, and enforced. The legal apparatus becomes a transaction cost. Widespread mistrust imposes a tax on all forms of economic activity.
Far from whittling away the individual personality, the division of labor develops it. The advance of the individual personality and that of the division of labor depend on each other. We cannot will one without willing the other. We need to consider the inter-connection that this principle brings throughout society. Even the poorest person in the country relies upon the productivity of thousands of workers for the clothes, food, and shelter that he or she may have. The principle of the division of labor is not something that anyone designed rationally. Rather, it is a principle that we can discover as we observe the gradual extension of our basic need to truck, barter, and exchange one thing for one another. We stand in need of the co-operation and assistance of great multitudes, even while we actually have only a few genuine friends in life. Other animals are largely independent. We constantly need the help of others.
However, if we expect to receive that help from the benevolent spirit of another person, we will disappoint ourselves. If we appeal to the self-interest of the other person, demonstrating that we have something to offer them, then we are more likely to receive the assistance that we need. The people who own the store down the street does not give us the food we want out of benevolence, but out of regard for their own interest. We do not address ourselves to their humanitarianism, but to their love of themselves. We do not talk about our necessities but of their advantages. This is one of central insights: both parties to an exchange can benefit and that, as long as the cooperation is voluntary, no exchange will take place unless both parties do benefit.
As the division of labor becomes increasingly complex, the consciousness of being a member of society in a strong sense declines. This division becomes the main cause of solidarity. The stronger pressure exerted by social units upon each other brings about the progress of the division of labor. The sense of being a member of a larger society modifies the pressure toward individualism and toward solidarity with the group to which one belongs. As freedom and individualism expand, loyalty to any group lessens. Our consciousness of social membership, our common consciousness, is a product of the past. The authority of the common consciousness is nothing other than the authority of tradition. This authority diminishes as the segmentation of society increases. The segments from so many small societies more or less partitioned off from each other. Greater mobility weakens the influence of the traditions of family and territory. The elderly become the unique mediators between past and present. As society increases in complexity, it envelops individuals less tightly, restraining with less efficiency the diverging tendencies that appear. People who live in population centers feel with less force the pressure of opinion. The attention of each individual is distracted in too many different directions. We do not know each other well. Even neighbors and members of the same family are in contact less often and less regularly. The collective consciousness loses some of its prominence. We experience solidarity through the individuality encouraged by the division of labor and through collective consciousness. We have our unity in the civil sphere through the common consciousness that we achieve actualization through individuality in the strong sense. The division of labor increasingly fulfills the role that once fell to the common consciousness. This is mainly what holds together social entities in the higher types of society.
The professional ethics that may exist within professions, if reduced to propositions, would be imprecise and difficult to formulate. It does not have the moderating action of any rules. For this reason, economic forces continue to react to each other. People freely associate in a variety of associations, such as trade unions, corporations, charitable and educational voluntary associations and religious organizations. They become like a second family. However, far from surrendering one’s individual rights, as one does in family, this second family is an affirmation of individual rights. We freely associate with others who have shared interests and concerns. The form of social life they offer is friendship, collegiality, and solidarity. Others recognize us for our skills, abilities, and achievements. They share a common outlook and way of viewing themselves and the world. They have a common articulation of human spirit. As they assist their membership, they take on some of the characteristics of public systems of welfare. A society that failed to exhibit concern in its members would be an objectively alienating society.
The modern social world entrusts the future of the nation in the hands of free decisions of individuals, as they choose their values, their careers, their families, their charitableness to the poor, their voluntary association with others of like mind and heart and interest, whether in political, religious, or other communities. Some will abuse their freedom and adopt self-destructive courses of action. Behaviors like abortion, pornography, prostitution, gambling, alcoholism and other forms of drug abuse, fall into this category, as do the abuse of business practices and the inappropriate use of wealth. Yet, freedom still seems to be the best way, even with such risks.
These facts are seemingly so much at odds that in every age moralists have hesitated about the true nature of friendship and have traced it now to the one cause, now to the other. However richly endowed we may be, we always lack something, and the best among us feel our own inadequacy. We seek in our friends those qualities we lack, because in uniting with them we share in some way in their nature, feeling ourselves then less incomplete. We must consider the division of labor in a new light. The economic services that it can render are insignificant compared with the moral effect that it produces, and its true function is to create between two or more people a feeling of solidarity. However this result is accomplished, it gives rise to these associations of friends and sets its mark upon them. Exchange does not constitute the social relationships that arise from the division of labor. Exchange implies two beings are mutually dependent upon each other because they are both incomplete. Exchange does no more than interpret externally this mutual dependence. The division of labor fulfills the function of integrating the body social and of ensuring its unity. Great political societies cannot sustain their equilibrium except by the specialization of tasks. The division of labor becomes the primary source of social solidarity. In the division of labor, we observe something other than a purely economic phenomenon. It contains the most essential condition of social life, as long as we do not consider it only for its material uses. It leads one immediately to look not only at the individuals and classes, but also at different peoples participating at the same time, each following in its own fashion and to its own special, determined degree, in a vast common enterprise. It is one whose inevitable and gradual development links those co-operating together at the present time with the line of their predecessors, whoever these may have been, and even to the line of their various successors. Thus, it is the continuous distribution of different human tasks which constitutes the principal element in social solidarity and which becomes the primary cause of the scale and growing complexity of the social organism. We know these things because social solidarity is a moral phenomenon.
Faith and imagination become the most important capital goods in a capitalist system. New knowledge does not come without a hunch, an intuition, that some new knowledge is out there, and we have not discovered it yet. Imagination, intuition, and hypothesis are the first signs of learning. Creative thought requires an act of faith. Yet, not all creative thought is true. We must test it by the response we get from sharing it. Creative thought is open to change and surprise. Ideas are falsifiable. We must be able to abandon ideas that do not fulfill their promise. Free Enterprise is open to faith and experiment because it is open to competition and bankruptcy. It is one of the ways we have of investing in the future. The pursuit of excellence requires energy and commitment. The vast majority of successful people have earned what they have. They were willing to take risks, and faced the possibility of failure. Success and happiness in life come because of our own ingenuity and creativity. Capitalists depend upon faith and an essentially fair and responsive humanity. Capitalist production entails trust. That is, trust in one’s neighbors, in one’s society, and in the compensatory logic of the cosmos. Search and you will find; give and you will be given unto. When faith dies, so does the enterprise. Capitalism and democracy rely upon individual creativity and courage, leadership and morality, intuition and faith. The genius of the free enterprise system is the creativity, quality, and leadership of individual entrepreneurs. It adjusts to the realities of chance in human life in ways other economic systems have been unable to do. Society needs to encourage individuals to own their own businesses that buy, sell, and trade goods and services in an open, competitive market based on supply and demand. We need to hold up those who achieve as positive examples. That is why no one should punish achievers or look with suspicion upon them. Too often, people view them as selfish, greedy, cruel, or criminal. Yet, punishing them will not bring happiness to the poor.
The creation of wealth is as simple as this: faith and freedom combine with risk and work. Free human beings with faith in the future and a commitment to it will prevail. Most people generate wealth in their minds first. A successful economy needs such risk taking. Such people contribute far more to society than they will ever recover. Many such innovators reap no riches at all. It takes that creative, imaginative person, willing to take risks, to generate economic activity. As a percentage, the number of persons who lead businesses is relatively small. This kind of activity needs to be encouraged, since success is a fragile experience. Wealth is more a product of mind than of money. However, the government, through regulation and taxation, can inhibit individuals and businesses from accomplishing all the good they can.
Chance is the foundation of change. The world itself is not as rational and predictable as it sometimes appears. Science has the ability to predict the working of nature with amazing accuracy. Yet, for individuals within the system, randomness occurs. Natural disasters and diseases spread rather randomly. It is impossible to foretell who will be the lucky ones or on whom disaster will strike. The world is not rational and predictable, and free enterprise builds upon this reality. Only freedom can prepare us for that future. We must be open to resources beyond the system. Capitalism succeeds because it accommodates chance and thus accords with the reality of the human situation. The demand for security, inconsistent with the nature of reality and with the process of human knowing, can also become a danger to liberty. We can expect some security from severe physical deprivation or protection against natural hazards or even protection against large-scale economic fluctuations. However, no one ought to have the security that leads to a given standard of life. We cannot protect people from declines in income that result from the competitive forces of free enterprise. The more security we seek to provide by intervening in the market system, the more insecurity we introduce. As Benjamin Franklin expressed it, “Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.” If we seek a rational and predictable world, we also seek hindering material and scientific progress.
Next, I would like to consider the way in which giving, love, and sacrifice are central to capitalism. Critics of capitalism claim that it begins with greed, avarice, or self-love, and self-interest. Taking and consuming will not bring wealth. Adam Smith’s error was that he established his theory on the mechanism of market exchanges themselves rather than on the business activity that makes them possible and impels their growth. The exchange itself computes by self-interest. However, the exchange has nothing to do with avarice. It reflects a mutual transfer of information, allowing an appropriate allocation of resources. Smith is also wrong to assume that the economy will run like a machine. Humanity is not a machine.
The scientific basis for this wisdom is the mutuality of gains from people engage in trade with each other, in the demand generated by supply, in the expanded opportunity created by growth, and in the economic futility of war. Giving requires sensitivity to the needs of others. That is another dimension of love. Sacrifice is the key to achievement. However, this sacrifice does not mean death for the one sacrificing, but life for oneself and for others. Only as we offer ourselves to our neighbors in such a sacrificial way, moving out of ourselves and meeting the needs of others, do we achieve economic well being. Most people achieve within this system because of this principle. The investment of one's imagination and creativity is not a selfish act. Rather, the foundation of free enterprise giving; it depends on sensitivity to others. The free enterprise system is based on an ideal that gave people a way of producing wealth in which the good fortune of others multiplied to their own. The golden rule has become economically sound. We can conceive a social order in which the ancient moral aspiration of liberty, fraternity, and equality was consistent with the abolition of poverty and the increase of wealth. The division of labor has made us rely upon the work of others in profound ways. We see the possibility of dissolving the schism between world and spirit, between self-interest and disinterest. One piece of wisdom embodied in free enterprise is that the good fortune of others will, eventually become one’s own. It is the golden rule, “Do to others as you would have them do to you,” translated into economics. It is a key to progress and prosperity. Capitalism is a spirit similar to altruism, in which the entrepreneur has regard for the needs of others, a benevolent, outgoing, and courageous temper of mind. Giving, risking, and creating are the characteristic roles of the capitalist, the key producer of the wealth of nations, from the least developed to the most advanced. The capitalist appears greedier because money is the result. However, whether one has a business idea or does surgery, the means of receiving wealth is ideas and skills. They need to retain the wealth they earn because only they, not the government, can determine where excess money ought to be channeled. The investor gives money, offers goods, freely, depending on the voluntary willingness of others to respond with creative efforts of their own. The law of reciprocity, that giving and receiving is part of the normal pattern of life, is true for enterprise. Capitalism transforms the gift impulse into a disciplined process of creative investment based on a continuing analysis of the needs of others. The investor cannot be selfish. A truly self-centered capitalist would have to abandon the imaginative understanding of the world beyond the self. Capitalism does not begin with the exchange, but with giving.
We live in a world full of poor people; no matter how much wealth we create. Poverty is a terrible reality generated by the basic structure of civil society itself. Poverty is material deprivation. Poverty is a condition of destitution, want, and need. Poverty has no redeeming moments. Poverty is not a right of any individual. People lack the resources, income and skills required to participate meaningfully in civil and political life. Poverty is a circumstance of alienation. These are evils. It may not have a solution. Therefore, poverty is a matter of deep concern, even if it seems insoluble. Poverty is a serious flaw in the liberal democracies. As such, we can legitimately wonder if the modern social world is worthy of our being reconciled to it, given the reality of ongoing poverty. The modern social world produces excess wealth; yet, poverty remains a problem that we need to solve. Although we could resign ourselves to poverty, that would require focusing on the shortcomings of the world, something all too easy to do. Can we make ourselves content living in a free society if we do not also live in a just society?
The freedom contained in the modern social world makes it possible for most people to rise above poverty.
One obligation of the modern social world is that in order for it to be a home it must guarantee the rights of all its citizens. The poor cannot be at home in the modern social world. The most disturbing aspect of the modern social world is that it leads to the creation of an underclass. They are part of a culture of poverty. They often exhibit indignation and rage against the rich, the government, and society and general. In addition to being poor, the underclass shares a common hostile outlook. This hostility accurately represents their circumstances. They have a right to meaningful participation, but they know they lack the means to do so. They believe that their condition is the result of the will of society. People who perceive themselves as victims get increasingly demanding. The bureaucracy that serves them gets demanding. Eventually, the helpers themselves will get angry. "Why can't they help themselves?" Many who were strongly in favor of such programs now have become cynical and negative. The modern social world accepts a form of social organization that excludes them from participating in it. On the other hand, the underclass often thinks that society owes them a living. They lack the will to work and the self-respect that comes form supporting themselves through their own labor. They are often frivolous and lazy. This ideology of victimization is a generalized cultural impulse to deny personal responsibility and to obsess on the grievances of the isolated, insatiable, weak self. With the ideology of victimization, society becomes the oppressor of the individual. Normal process of socialization and maturity became ideologically motivated and oppressive. People respond to incentives and disincentives. People are not inherently hard working or moral. In the absence of countervailing influences, people will avoid work and be amoral. People are responsible for their actions. Individuals accept the consequences of their own actions.
We must work out our understanding of economics with the poor always at the center of our attention. Political powers can increase and deepen poverty. Political leaders who provide a totalitarian structure for the social world of a nation have as their purpose deepening poverty for at least a portion of their culture. The government that pays people not to work turns the poor to a life of leisure not because of moral weakness but because the government pays them. The poor have a socialist system directed toward them that makes them dependent upon the state for health care, housing, food, and income. Government policies have made them slaves in a feudal plantation system. When government gives relief, it is stingy. Because of the vastness of the problem, there cannot be enough money for any family to live on, there cannot be enough personal contact, and there cannot be the appropriate challenge to strive for the best of what they are capable of becoming. Political leaders who punish creativity in achievement are increasing the amount of poverty in the world. Any economic system that does not provide for movement between economic classes, rewarding people for their successes and giving consequences for their failures, cannot provide the context for hope to come alive among those least fortunate in society.
I humbly suggest that all of us bear some responsibility for the economic position in which we exist today. I further suggest that we can improve that condition. A suggestion such as this is not popular. Some persons with a political agenda of enhancing government intrusion into economic life would suggest that I am blaming the victim. In their view, if one does not embrace the poor, no matter what their demands or conduct, one has blamed the victim of modern society. Any program that emphasized changing or improving behavior of the poor participates in blaming the victim. One could always blame middle class values, big business, or racism. For these persons, the poor have no responsibility for their economic situation. Victims should not have to suffer the consequences of their actions. However, to take personal conduct off the table is to denigrate the humanity of the poor. They have the power to make judgments about their conduct and their future. The freedom individuals have and the values by which they live remain significant contributors to economic life, even if they do not determine it. Values like thrift, sacrifice, job skill, and education are still important for the poor to possess. Although self-esteem is important, one builds self-esteem through building skill in accomplishing something in which one has interest. The failure of schools in poor communities to teach skills for living is not helping the poor elevate their economic condition. Although personal choice, character, and moral climate do not determine economic consequences, they do contribute to one’s full participation in the economic life of modern society.
American community has experienced a persistent form of alienation from modern
The rise of government programs does not seem to help. Illegitimacy and crime grew with the rapid growth of AFDC programs. The decline of the fathers in the African-American household is the largest single variant in this picture. Efforts to end discrimination and poverty must begin here, in a re-valuation of the important of family for the incorporation of proper values for participation in modern society. The African-American community is an example of a sub-culture that has low trust, and therefore less ability to work together toward a common purpose. The cultural habits necessary to share norms and values so that people learn to work reasonably well together has not developed. Many ethnic communities, such as Chinese or Jewish communities, stick together and buy from each other. The black community has a lower rate of self-employment; an entrepreneurial class has not developed. The black community is thoroughly atomized, individuals finding it difficult to work together to raise families, make money, or petition city hall. If full-fledged individualism means the unwillingness or inability to subordinate one’s individual inclinations to larger groups, the black community is one of the most individualistic segments of American society.
The only dependable route from poverty is reorient oneself toward the modern social world: domestic life becomes important, involvement in places of employment and other civic institutions, and acceptance of the modest role one can play in political world, all become crucial. Re-engagement with the modern social world involves attitudes like faith, hope, self-esteem, development of skill, and entering into contracts with others. To depart from the underclass requires movement to a different place in one’s mind and heart that includes work, family, and faith. The poor must work harder than other classes to rise out of poverty. The maintenance of monogamous marriage and family is also an important part of rising out of poverty. Marriage is a consistent encouragement toward rising out of poverty. Further, faith in humanity, in oneself, and in the future, is an important part of the psychology of rising out of poverty. The poor need to have the same freedoms and opportunities, the values of family and faith, which are indispensable to all wealth and progress. What the underclass need is not handouts that fail to recognize their capacity to improve themselves. What they do need are mentors who teach by world and deed the value of actualizing oneself and being a social member.
The mystery is not why there is poverty, for that has existed for most of human history and for most of the people. The mystery is why there is affluence. The answer may be the structure of freedom that the modern social world provides. That structure includes domestic life, civic life free of government, and political life in which one can meaningfully participate. This culture of freedom provides the opportunity for individualization and social membership in ways that other societies cannot do.
Modern people have long had sympathy for the downtrodden. Compassion for the less fortunate has been considered part of what makes one a moral and ethical person. Compassion has a long and rich tradition. Compassion in the modern social world has its roots in the harsh reality of poverty. The attention rightly paid to such disadvantages has given rise to serious confusion. The zeal of social reformers and advocates of the poor have led them to slander the ones they hope to help. The poor are just as good and happy as other classes. Advocates lose the distinction between the poor home and the bad home. There is no larger proposition of bad homes among the poor as among the wealthy.
Compassion or charity is the way in which people reconciled to the modern social world seek to overcome the obvious alienation of the underclass and help them actualize themselves as individuals and as social members. Compassion recognizes the capacity of the poor to respond to the demands of life and challenging them to achieve independence and a better human life. It is vital that the poor fill their need for cash, food, housing, clothing, and health care. It is harmful to provide such necessities to them on a long-term basis. Well-meaning reformers who step in with some form of dole undermined their self-esteem and impaired their capacity to thrive independently. In one sense, the self-interest of those reconciled to modern economic life suggests the path of compassion. After all, large numbers of persons alienated from the modern social world constitute a threat to that world. Given the risks of modern society, one can always imagine oneself in economic need and the recipient of compassion from others. Modern society thus increases the likelihood that people will surplus time and money in a compassionate way.
Compassion that genuinely helps the poor or underclass will have several components. One is re-connecting people to family, friends, and local community. Mentoring on a one to one basis is an important step. Those who help the poor need to give time, love, and counsel. Cases in which persons have severe problems with self-destructive behavior, such as alcohol, drugs, or general laziness, need a separate form of treatment from those who simply need motivation and skill. Frankly, any subsidizing of bad behavior by the government does not help the poor find their way out of poverty. When the poor see such behavior subsidized by government it discourages them from making needed changes in their lives. This fact recognizes that personal conduct, using one’s freedom to make self-destructive choices, makes an important, even if not definitive, contribution to one’s economic condition. Work is critical to building self-esteem and hope in the future. Consequently, work needs to be a condition for compassion, not because one is cruel, but because one has genuine compassion. The vision is that freedom from government support is important for future improvement of economic life. Escaping poverty is, in one sense, painfully simple: long hours, good morality, good work habits, and commitment to family. Compassion needs the balance of challenging people to lead the best human life they can lead. For the hard cases (alcohol, drugs, and crime), some form of spiritual transformation is often necessary, a genuine conversion to a new form of life than that to which one had committed himself. Such recognition that one has been in the wrong, and needs to have life made right, is not easy to achieve. With a purely secular or scientific program, it is almost impossible. In any case, those in need of help are able to make it, not because of a government check, but because others take an interest in them.
The tragedy is that the one to one work of charity came to be viewed as not enough by certain persons early in the 1900's. There came the idea that relief should be universal and immediate. If people were naturally good, as they believed, then poverty was not the result of vice, freely chosen. They came to believe that massive transformation of society and elimination of poverty were possible if wealth was redistributed. Society caused bad behavior, and to do otherwise was blaming the victim. Are the poor better off? What of the poverty of spirit that clearly pervades the American large city?