The Moral Foundations of Capitalism by Donovan Albanesi

This is a transcription of the speech I gave at The Free Minds Conference in 2011. 

The Moral Foundations of Capitalism Typically, if you ask a person why capitalism needs a moral base, you will encounter one of two viewpoints:

The first view is that capitalism doesn’t really need a moral base. Morality is considered irrelevant, impractical, simply a social convention unrelated to political theory. One who subscribes to such a viewpoint will go on to say that he doesn’t care why you support capitalism: he doesn’t care if you support it because of your faith, because of your feelings, or just because it works. He only cares that you claim to be for freedom. This is called the subjective approach to morality.

In contrast to the subjectivist approach, another person will say that morality is important, but he will try to defend capitalism on religious or socially altruistic grounds. This is called the intrinsic approach to morality. Such a person often considers capitalism moral, but not typically practical. This thinking is prevalent among conservative Republicans who feel uncomfortable with the idealism of total unregulated laissez-faire capitalism. Pure, unregulated capitalism means that the government would not be permitted to intervene into the economy, or provide social safety nets.

But, let’s begin today by discussing morality in further detail.

What is morality?

Morality is the science or the branch of philosophy that guides a man's choices and actions. Morality consists of the principles that guide one’s choices, one’s actions, and one’s behavior. A person’s morality defines his character.

Fundamentally, there are four schools of morality: The mystic, the social, the subjective, and the objective.

The mystic school holds that the good is revealed and established through revelation; its rules are dogmatic, non-contextual absolutes. In essence, a mystic argues that the good must be accepted on faith, which means that no scientific evidence or rational demonstration is needed to validate this code of ethics.

In the social theory of ethics, the good is determined by majority vote, which means the masses set the ethical standards. The democratic approach determines what is moral and what is true. The moral standard is the “common good” or the good of society, or the will of the people.

In the subjectivist school of thought, morality is completely relative to each individual, which means the good is whatever one thinks or feels because he thinks or feels it. Morality, in the subjectivist view, is nothing more than an opinion. It rejects both the intrinsic and the objective schools of morality. In essence, the subjectivist view maintains that morality consists of nothing more than arbitrary opinions; and that moral absolutes are unknowable and indemonstrable.

Ayn Rand’s morality, as defined in her philosophy called Objectivism, offers a radical alternative to the mystic, social, and subjective schools of ethics. To quote Rand from The Virtue of Selfishness, “Since reason is man’s basic means of survival, that which is proper to the life of a rational being is the good; that which negates, opposes or destroys it is the evil.”

In Objectivism, moral actions are defined based on the facts of reality and man’s nature. Now that we have defined the four basic schools of morality, let’s discuss why man needs morality at all.

Why does man need a code of ethics?

Unlike other animals, man is a conceptual being. The essential tool of his survival is his rational faculty. He has to think, to make choices, and to make abstractions. These abstractions become the code of morality which guide his choices, his actions, his behavior and form his character.

Reason is fundamentally unique to man. In The Objectivist Ethics, Ayn Rand states: “reason is the faculty that identifies and integrates the material provided by man's senses.” Man has the innate ability to abstract, to think, to form concepts, to develop language, to philosophize. Since reason is his only means of knowledge, it logically follows that reason is his only valid guide to action. This means, in order to survive and enjoy life, man must act rationally. Men that survive without the use of reason must depend on other men to do the reasoning for them.

It is very important to observe that a need is that which an organism requires by the standard of its survival. In other words, man's nature objectively defines his fundamental needs and his conditional values. An authentic metaphysical need is determined by the fact that man has a specific identity. This is the root of Ayn Rand's innovative solution to the “is-ought” problem in philosophy. An entity’s identity determines what it ought to do. Man, in order to exist, in order to live, must be rational.

Now that we have identified why man needs a code of ethics, let’s explore the subject of politics.

What is politics?

In The Vision of Ayn Rand, Nathaniel Branden defines the science of politics as follows: “Politics deals with the principles, purposes, and organization of social systems. It is concerned with such questions as: What is the proper relation of government to the individual? Is the power of government limited? Does man possess rights? What issues are properly the subject of legislation?”

In principle there are three basic forms of political theory: Anarchism (no government), Statism (unlimited government), and Constitutionalism (limited government).

What then is the relationship between a man’s code of ethics and his politics? Let me demonstrate in a more concrete manner, how morality relates to political theory.

Let's consider the following example:

I recently had a conversation with a public school teacher who described herself as a socialist. She was expressing her frustration with the government because they were cutting funds and she felt that education is the last service that should have its budget cut. I asked her why she thought the government should be in the field of education at all, and by what right could she justify expropriating someone's property to support government schools?

Her basic answer was that need constitutes right; that one has a right to an education, because education is one of the most basic resources that a man needs in order to live. Fundamentally, she was maintaining that life (and all that is required to support it) trumps the right to liberty and the right of property. As a socialist, she believes that by taking a little bit money from everyone, everyone is better off, even the so-called victim that lost a “small” portion of his wealth or property.

This teacher revealed her basic code of morality. She was, in fact, applying her ethical principles to politics consistently. Based on her altruistic principles, it is our duty to help others. Need constitutes a moral claim. Anyone unwilling to support a socialist, welfare state must be selfish, greedy, and have no concern with the lives of others.

At the end of our conversation she yelled at me, “you don't care about other people, and that's why you are not a socialist!”

I’d like to share how I answered her. I emphasized that capitalism is based on the idea that individuals should have the power to decide if they want to help others, which groups they want to help, and to what degree. Socialism empowers other people to make those choices for you.

So, from this example discussion, we can observe that morality is the foundation on which one evaluates ideas, actions, and even politico-economic systems. Now let’s look at capitalism in greater depth.

In Capitalism: The Unknown Ideal, Ayn Rand defined capitalism as “a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.” Rand additionally noted that parallel to the four fundamental branches of philosophy, there are four fundamental keystones of capitalism: “Metaphysically, the requirements of man's nature and survival – epistemologically, reason - ethically, individual rights - politically, freedom.”

Now, let’s outline the distinguishing characteristics of laissez-faire capitalism in greater detail. Observe how each is based on a moral principle:

  1. The function of government must be objectively and clearly defined, and it must be limited to the protection of individual rights: this means a proper government must have a written constitution.
  1. Individual rights must be recognized as inalienable and inherent by virtue of the fact that man is a rational being: this means that the source of his rights must be logically demonstrable and related to his nature, i.e., his means of survival.
  1. Under laissez-faire, each individual has the right to pursue life, gain property, and seek happiness, but not at government expense, or by the implementation of physical force against others.
  1. All property, including the means of production and its results, must be privately established and owned: this means the individual belongs to himself and he is not the property of the state.
  1. The initiation of physical force by anyone, including the government, must be entirely banned: this means that the government recognizes that force is antithetical to man's fundamental mode of self sustenance which is reason and the power of persuasion.
  1. The governing principle of law must be objective justice, i.e., the recognition of the fact that criminality entails the initiation of physical force: this means that a system of courts and laws must be implemented to objectively protect the innocent and to resolve disputes.
  1. Intellectual and economic freedoms must be recognized and respected: this means that the government protects intellectual and material property from parasitism.

Now that we have defined capitalism and identified its essential characteristics, let’s look at four philosophical positions regarding capitalism based on how people understand the relationship between the moral and the practical.

The first view is that Capitalism is moral, but impractical:

Let’s look at an example: The person with this view agrees that a capitalist society based on free trade is moral. But he also believes that a government cannot function without taxes. Although he recognizes that taxes are a form of theft, he considers taxes to be absolutely necessary. Since pure capitalism is inconsistent with taxation, he concludes that capitalism is moral, but impractical.

There are many variations of this viewpoint. Capitalism is moral in its ideology, they say; but in application it is impractical: it leads to monopolies, cycles of boom and bust, depressions, poor allocation of resources, etc.

The second view is that Capitalism is practical, but immoral:

These people believe that capitalism produces the most wealth and the greatest abundance of goods, but it creates a non-egalitarian society, and they consider this unjust. A Garden of Eden, a society where everyone’s needs are met, is their MORAL ideal, but since every attempt to create such a society has failed, they conclude that capitalism is a necessary evil, something to be grudgingly tolerated.

The third view is that Capitalism is immoral and impractical:

This position is less common in the general population, but it still exists in varying degrees, especially among left-wing college students and university professors. These are the communists. Capitalism, per their view, is unjust because it allows people to be unequal; it allows for some people to become rich and for others to struggle, therefore it is immoral. But aside from their view that capitalism is immoral, they also think it leads to all kinds of economic problems. Since they maintain that the source of wealth is labor, and not the mind, they hold that collectivism is the practical. Their basic principle of morality is altruism and they believe that it is moral to force others to be moral.

The fourth view is that Capitalism is both moral and practical:

The Objectivist view of capitalism is that it is both a moral and practical system. Capitalism is moral because it enables the producers to be rewarded for their achievements by allowing them to keep the results of their effort, which is consonant with the Objectivist view of justice. It is moral because it is the only system that consistently banishes the initiation of physical force. It is the system which recognizes ability and self-determination. The rich are rich because they earned it, and morally, such productive giants like J.P. Morgan and Andrew Carnegie, are entitled to the fruits of their labor. Capitalism is practical, because it is the system that allows men as individuals to sustain their lives. To observe the economic results of capitalism, one needs only to consider the differences between North and South Korea today, China and Hong Kong in the 1980s, and East and West Germany in the 1960s.

To the degree a country respects individual rights and freedom; we can observe the achievement of wealth and prosperity on an unprecedented scale. Now, let’s consider how the mystic, the social, and the subjective schools of morality attempt (and fail) to properly defend capitalism.

The mystic attempts to defend capitalism on faith. First, it’s important to recognize that any appeal to faith is not a valid argument. Faith is the acceptance of an idea without sensory evidence, or scientific demonstration.

Those who attempt to defend capitalism on faith are in no better position than those who wish to defend socialism on faith. And one of the greatest dangers toward capitalism is the possibility that socialism can be made to appear rationally defensible by its advocates when one attempts to defend capitalism on religious grounds.

The social theory of ethics leads logically to an unrestrained, unlimited democratic system: it does not lead to capitalism which is a limited system of government. Inherent in the view of democracy is the belief that the individual can and ought to be sacrificed and subordinated to the majority.

In essence, the social theory of ethics maintains that rights pertain to the group, not to the individual. The function of government, in the view of the social subjectivist is to make real the whimsical desires of the majority. It's important to note parenthetically, that as far as the individual is concerned, it makes no difference if his rights are infringed upon by one man, a hundred-thousand men, a dictator, or a mob.

What is often either misunderstood or evaded by advocates of social morality is the fact that there is no such entity as the group, because a group vote consists of asking individuals to combine their judgments into a sum total. Therefore, the pertinent question to ask is: How does each individual arrive at his moral conclusions?

The answer, in effect is, that any group of men that accepts the social theory of ethics has among its members an Ellsworth Toohey, an intellectual prime mover so to speak, who declares himself to be the so called voice of the people.

The man that accepts a subjectivist view of ethics is uncertain of anything. Just as capitalism may be right for you, it may just as easily be wrong for others. It's important to observe that moral skepticism implicitly depends on epistemological skepticism, the results of which can lead to any form of political brutality. The moral skeptic is incapable of passing moral judgments. He cannot universally denounce the initiation of physical force.

Not much else needs to be said as to why subjectivism is an inadequate foundation for proving the morality of any political theory.

Now that we have explored the subject of morality, it’s relation to political theory, and how non-objective approaches to capitalism are invalid; let’s define the Objectivist approach.

Ayn Rand stated in Capitalism: The Unknown Ideal: “The moral justification of capitalism lies in the fact that it is the only system consonant with man’s rational nature, that it protects man’s survival qua man, and that its ruling principle is: justice.”

Capitalism is the only political system that can be implemented without a contradictory view of rights. This leads to a very important principle: a capitalist society can only be justified by an egocentric code of ethics. Under capitalism, a man is free to keep the results of his efforts, i.e., he is free to keep his paycheck in full. Implicit in capitalism is the idea that it is moral for a man to work for his own sake, for his own self-interest, and to make a profit.

Rand championed the position that reason is man’s basic means of survival and that man must implement the Virtue of Rationality, if he wishes to live. Consider the broader implications of this fact: rationality demands that a person take full cognizance of all the knowledge which is available to him.

In other words, rationality means holding context. Most importantly, rationality requires that people commit themselves to a policy of consistency, a policy devoid of contradictions. A rational man must formulate an integrated system of principles to live by, i.e., a system of virtues. Virtues, in essence, are the means to obtaining values. Ayn Rand maintained that reason is not only the standard for determining values, but also the means of determining virtues. In Atlas Shrugged, Ayn Rand defines six major derivatives of the virtue of rationality: independence, integrity, honesty, justice, productiveness, and pride.

How do the seven fundamental virtues of Objectivism relate to individual rights and capitalism? Only rational, i.e., valid moral principles in ethics can be logically sanctioned in politics.

Dr. Leonard Peikoff states this point in his lecture course entitled Understanding Objectivism when he says that the function of political science is to “institutionalize the conditions that enable man to follow morality.”The goal of a rational code of morality is life, which means politically, man requires the freedom to act to sustain his own life. The objective right to liberty is based on and derived from the fact that in order to sustain his own life, man requires the following moral virtues: Rationality, Independence, and Integrity.

The proper validation of the right to property is based on and derived from the Virtue of Productiveness, which enables a man to keep the results of what he has produced.

The right to the pursuit of happiness, is based on and derived from the Virtue of Selfishness, i.e., egoism, i.e., the profit motive, i.e., the moral right to pursue one's own well being. Objectivism teaches that life is the standard of value. The objective purpose of the science of politics is to define those principles, which allow for the achievement of life (as individuals) within an organized group, i.e., within society. Therefore, a rational political theory establishes what society cannot do to other men.

In order to understand why the government must be restricted from the initiation of physical force against its citizens, we must demonstrate why its institutionalization is fundamentally immoral and impractical.

In principle, there are two methods by which men can deal with one another: persuasion or force, rational demonstration or coercion. On this point, Nathaniel Branden states in The Vision of Ayn Rand: “The choice to deal with men by force implies your rejection of reason as man's means of survival - your confession of intellectual bankruptcy - your admission that you have no values to offer, by means of which you could win your victim's voluntary consent - your belief that men are sacrificial animals, whose minds, lives, and property are yours to command and loot. When you resort to the use of force to gain the values you desire, it is your self that you reduce to the state of an animal's. You declare that you are a wild beast, who is no longer to be treated or regarded as a rational being.”

And furthermore on this point, Ayn Rand writes in Atlas Shrugged:

“To interpose the threat of physical destruction between a man and his perception of reality is to negate and paralyze his means of survival. To force him to act against his own judgment is like forcing him to act against his own sight. Whoever, to whatever purpose or extent, initiates the use of force is a killer acting on the premise of death in a manner wider than murder - the premise of destroying man's capacity to live. To force a man to drop his own mind and to accept your will as a substitute, with a gun in place of a syllogism, with terror in place of proof, and death as the final argument, is to attempt to exist in defiance of reality. Reality demands of man that he act for his own rational interest. Your gun demands of him that he act against it. Reality threatens man with death if he does not act on his rational judgment. You threaten him with death if he does. You place him into a world where the price of his life is the surrender of all the virtues required by life, and death by a process of gradual destruction is all that you and your system achieve, when death is made to be the ruling power, the winning argument in a society of men.”

Ladies and Gentlemen, reason and force are opposites. Logically, since reason is the tool of creativity, force is the tool of destruction. It is precisely man’s mind which cannot function under the threat of force. In effect, force makes a man’s value judgments irrelevant.

This principle is the keystone of capitalism. It is the only system, which consistently protects a man from the initiation of physical force, allowing rational persuasion and voluntary cooperation to flourish. As a result, under capitalism, each man deals with others based on the trader principle, where none are treated as objects of sacrifice.

An objective theory of rights entails the recognition of the fact that rights are universals. To illustrate this point, consider the following: the right to pursue happiness does not mean the right to be happy. The political right to the pursuit of happiness by one man cannot entail that another man be required to sacrifice the pursuit of his goals and achievements. If instead, man had the right to be happy, from whom could he demand such a right?

To maintain that one has the right to be happy would require the exploitation and enslavement of other men.

The final question we will explore is: Why must capitalism be defended on moral grounds?

The answer basically amounts to the fact that every politico-economic system is derived from a view of morality. Why? Because anytime a person asks: What do I need to do in order to live? Or, what does my survival require? He is asking a moral question. When a man asks himself, what is the right course of action? Or, what should I do? He is asking a moral question. So, even if a man lives alone on a desert island, he needs morality, but he would not need a political theory.

Politics deals with ethics applied to a social context. The pertinent question, therefore, is:

Which code of morality is correct? Because, only the correct morality will allow a person to judge which political system is correct. How do you know which political system is right or wrong? Only a process of reason can answer this question. This is why it is important that the source of one’s morality be rationally validated. If a person takes a moment to consider the various schools of morality, he will find that each school will guide him toward a political system that reflects that morality: If he thinks that the common good is the correct moral code to live by, he will most likely endorse a collectivist political system in one of various forms.

If he thinks that God defines which actions are right and wrong, then his religion and faith will become his reference point for establishing societal laws. If he maintains that moral action is rational action, then politically he will regard man’s nature, his identity, and objective reality to be the source of individual rights.

In conclusion, it is important to note that although more people today than ever before are reading Atlas Shrugged, most are unable to comprehend that capitalism and religion are incompatible. Others do not recognize the powerful arguments against a mixed economy and in favor of laissez-faire capitalism. Some readers of Atlas Shrugged are unable to grasp the four fundamental premises which thwart the success of capitalism: mysticism, altruism, the soul-body dichotomy, and tribalism.

To establish and maintain a capitalist society, the culture must first embrace reason, egoism, mind-body integration, and independence. We can no longer depend on the “American sense of life” to protect freedom. In the high schools and colleges across the nation, students are taught that capitalism is either impractical, immoral, or both. Between the misrepresentations of capitalism and the moral premises which dominate our culture, the road ahead is ominous and disconcerting.

Because of the belief in the soul-body dichotomy, Most people have never understood the relationship between morality and practicality and they believe that somehow, the two, although at odds with each other, can and must compromise, in hopes of maintaining a mixed economy. The results of such a compromise will be neither a moral nor a practical society.

Thanks to Ayn Rand’s new concept of egoism, America may eventually discover capitalism as the ideal.


Photograph provided by: © © René Mansi