Wealth and Virtue The Moral Case for Capitalism

Presentation for: The Mont Pelerin Society Sri Lanka By Michael Novak Jan. 11, 2004
It is a special privilege for an American theologian-philosopher to come to this beautiful country. My family is literally married to Asia. My nephew lives and works in Sri Lanka, and is married to a beautiful Bangladeshi woman. My brother was a missionary in Bangladesh, where he lost his life, and another brother spent most of his professional life in Asia, and died from a disease he picked up in Afghanistan. Millions of Asians have taken up residence in the United States during the past five generations, and these days their numbers grow faster than ever. That is why over the years there has been in the United States much concern for the peoples of this region. The bonds between us are familial. But there has recently been formed yet another bond between us. A deep longing has formed in Asia to build a free society-a society designed for personal responsibility, for initiative and innovation, and for freely given cooperation with others; in short, a society that calls forth and nourishes the three great liberties for which the human spirit has been made. The first liberty is liberty from tyranny and torture, provided by a democratic republic. The second is liberty of economic initiative, invention, and enterprise, provided by a free and dynamic economy. The third is liberty of conscience and information and ideas, provided by an open and free civic society. These are the three great liberties-political, economic, and moral. Correspondingly, three steps are required to move from the Third World into the First World. A nation must create these three systems one by one. Each nation may do this in its own particular way. No two free nations are exactly alike. Through exercising all three of these liberties, each diverse people utters its own distinctive voice in history. Through these three liberties, humans everywhere answer the two great questions of human life. The first of these questions, the personal one, is: "Who am I, under these stars, with the wind on my face, and so brief a number of years in which to live?" The second, the social question, is: "Who are we? We the people of Sri Lanka? Or we the people of each of the other nations on earth? Who am I? Who are we?" Through answering these two questions, we work out our destiny, personal and communitarian. l. The Practical Case for Capitalism From a long distance away, it seems that at least one of these liberties is easy for the citizens of Asia to understand: economic liberty. In practical terms, neither the traditional economy of centuries past nor the failed socialist experiments of the 20th century came close to matching the productivity, wealth, and rising standards of living generated by the free and inventive economy. But am I wrong to think that the moral case for a free economy-for the market economy, for the enterprise society, for the regime of private property, for capitalism-is more difficult to grasp, and is greeted by some with a traditional hostility? It is easy to understand who the practical case for capitalism is easy to grasp. No other system so rapidly raises up the living standards of the poor, so thoroughly improves the conditions of life, or generates greater social wealth and distributes it more broadly. In the long competition of the last 100 years, neither socialist nor Third World experiments have performed as well in improving the lot of common people, paid higher wages, and more broadly multiplied liberties and opportunities. This point needs elaboration since, in Marxist analysis, the only beneficiaries of capitalism are said to be the rich. In actual fact, it is the poor who gain most from capitalism. That is why the poor have always gravitated toward capitalist countries. That is why my own grandparents (and scores of millions of others) left Europe for America. They sought opportunity, and they found it. Desperately poor on their arrival (just before 1900), they lived to own their own homes, watching their children and grandchildren advancing in income and education. "Give me your tired, your poor. . ." the Statue of Liberty beckoned to the world; and nearly 100 percent of Americans did come to America poor. Today barely over 12 percent of Americans are poor (which is defined as having an income below $18,000 per year for a family of four). That means that 88 percent are not poor, and we still have about 12 percent to help. In 1990, 38 percent of the American poor owned their own homes; 95 percent of the poor had their own television

sets; and a poor American was more likely to own an automobile than the average Western European. Today, the percentage of the American poor who own their own homes has climbed from 38 to 46 percent; more than half own two or more color televisions; almost two-thirds have cable or "dish": TV; three-quarters have a VCR or DVD player. Nearly three quarters of poor households own a car; 30 percent own two or more. Beyond the poor, half of all families have incomes above $50,000 per year. About 20 percent have incomes above $91,000 per year. It is sometimes suggested that American blacks are poor. But in the year 2002, 24 percent were poor; over 75 percent were not poor. Half of all black married couple households had incomes over $52,000 per year. The total income of America's 26 million blacks over the age of 15 came to $650 billion in 2002. This is larger than the Gross Domestic Product of all but fifteen nations. This is not to say that the task of eliminating poverty in America (or other capitalist countries) is finished. It isn't. But it is crucial to grasp that the task of capitalism is measured by how well it enriches the poor. To an amazing extent, it does do this. I would bet you that the great majority of Americans can remember when their families were poor, two or three generations ago; but they are not poor today. In the nations of Western Europe and in Japan, thecase is similar. So also in South Korea, Hong Kong, Taiwan and other newly capitalist countries. Measure capitalism by how well it raises up the poor. That is the test it is designed to meet. Look around the world and see. A second practical argument is also widely accepted. Every democracy on earth that really does protect the human rights of its individual citizens is based, in fact, upon a free capitalist economy. Empirically speaking, there is not a single contrary case. Capitalism is a necessary condition for democracy. A free polity requires a free economy. It certainly needs a dynamic, growing economy if it hopes to meet the restless aspirations of its citizens. These two practical arguments in favor of a capitalist economy are powerful. But they do not go to the heart of the matter. One could admit that, yes, capitalism does work better for improving the living standards of ordinary people, stocking the shops with goods in abundance, and imparting broad upward mobility and economic opportunity from the bottom of society. And one could admit further that, yes, capitalism is a necessary condition for the success of democracy, since without economic progress in their own daily lives ordinary citizens will not love democracy. No one will be satisfied merely with the right to vote for political leaders every two years or so, if living standards decline. One could agree with all this. And still one could say: "But capitalism is not a moral system. It does not have high moral ideals. It is an amoral, even immoral, system." The moral case for capitalism is, therefore, the most important case. In addition to being political animals seeking liberty and economic animals seeking prosperity, human beings are also moral animals, thirsting for fairness, justice, truth, kindness, and love. What has capitalism to do with these? In the lands of Marx and Lenin, the moral case for capitalism has been understated. To capitalism only evil was imputed. For that reason especially, I thought it useful to articulate for you, briefly and only in outline, the moral case for the goal you have already decided to pursue. It was precisely through a moral argument that capitalism first commended itself to human consciousness in America, Britain, and France. This is the case that Marx and Lenin overlooked. Indeed, even many in Western lands have also overlooked it, or accepted it only inarticulately and in fragments. Practical people often skip past moral arguments. They thereby run the risk of undermining their own accomplishments. For no historical movement can long outlive the conviction of its protagonists that what they are doing is morally admirable. Moral conviction is one of the greatest forces in history, not even armies can hold it back. 2. The Moral Case for Capitalism As it happens, the early rise of capitalist ideas and practices in America, Great Britain, France, and Italy since the l8th century was greeted with hostility from aristocratic, scholarly, artistic, and religious circles. In the ancient and medieval world, commerce was much despised. The desire for money was described as "the root of all evils." Activities that were merely "useful" or even "pleasantQuot; were held to be morally inferior to those that were "noble.&quoyt; An aristocratic bias dominated thinking about wealth. The work of agriculture was honored, along with such arts as architecture, sculpture, and painting. These were identified with "civilization." Grimy industry and sweaty commerce were held to be inferior, servile, and

mean occupations, of low moral and social standing. (The disdain in which Communism held merchants, entrepreneurs, and "profiteers," formed on other grounds, nonetheless parallels these ancient aristocratic prejudices.) Beginning in the mid-eighteenth century, certain thinkers in Scotland (David Hume and Adam Smith, for example) began to unmask the moral pretenses of the landowning aristocracy and the learned clerisy. The latter spoke of "nobility" and praised "leisure," but their allegedly "higher" form of life depended on the servile toil of laborers, their subjects. Roads were poor, markets were few, and the great agricultural abundance produced by the great landed estates had few outlets. With their vast produce, the aristocracy fed legions of retainers and raised substantial armies. When they coveted goods not available to them, they turned these armies loose for war and plunder. That is why the lords lived in castle fortresses, and why cities throughout most of history were walled. In the precapitalist world, wars were frequent, and marauding bands often swept the countryside in search of plunder and booty. The earlier philosophers close to the courts of kings and princes (Machiavelli, for example) wrote of the arts of war and power. For them, power, not plenty, was the social object. This was the context in which Hume, Smith, and others launched one of the great transvaluations of values of all time. They urged the world to turn from the pursuit of power to the pursuit of plenty. They urged human beings to turn from plunder, brigandage, rapine and warfare to the creative arts of commercial and industrial innovation. Smith, in particular, saw that the cause of the wealth of nations is not war, which impoverishes, but wit--the human c capacity to invent, to innovate, to discover, and to organize in n new cooperative ways. The cause of the wealth of nations is caput (Latin, head). To put this in Jewish and Christian terms, God created humans in his own image, to be co-creators. Each woman and man is born with the inalienable right to personal economic initiative, the right to invent and to create. Each human being is an Imago Dei, an image of God, born to be creative and inventive. One sees this in the very opening of Smith's Inquiry into the Nature and Cause of the Wealth of Nations (l776), in his example of the invention of the machine for mass-producing pins. Such invention is the chief cause of new wealth. This emphasis upon invention and creativity is the distinctive characteristic of the capitalist economy. The capitalist economy is "not" characterized, as Marx thought, by private ownership of the means of production, market exchange, and profit. All these were present in the precapitalist aristocratic age. Rather, the distinctive, defining difference of the capitalist economy is enterprise: the habit of employing human wit to invent new goods and services, and to discover new and better ways to bring them to the broadest possible public. The history of capitalism is very closely tied to the development of institutions supporting human practical intelligence, wit, and enterprise. Capitalism is, first of all, the stimulation of caput. Its main resource is human capital: knowledge, know- how, skill, the knack of insight into new possibilities for making life easier and better for as many others as possible. Its primary dynamic force is human wit. (That is why I prefer to call the new system foreshadowed by Hume and Smith "capitalism," rooted in caput, even though they never used that name, and even though Marx used it as a name of infamy, quite mistaking its unique and novel character.) 3. Ten Moral Advantages of Capitalism In another place, I have counted ten different moral advantages that Hume and Smith foresaw in the new system they were commending to the practical energies of humankind. Time is too short to do more than mention these moral predictions briefly; I ask you to reflect on which of them still apply in Asia: l. The rise of capitalism would break the habit of servile dependency, and awaken the longing for personal independence and freedom. 2. It would awaken the poor from isolation and indolence, by connecting them with the whole wide world of commerce and information. 3. It would diminish warlikeness, by turning human attention away from war and towards commerce and industry. It would, as Adam Smith writes, introduce "order and good government, and with them, the liberty and security of individuals, among the inhabitants of the country, who had before lived almost in a continual state of war with their neighbors, and of a servile dependency on their superiors." (The Wealth of Nations, III, iv.4).

 4. It would bring the peoples of each country and of the whole world into closer, more frequent, and complex interaction, and stimulate them to learn of new goods and new methods through international exchange. 5. It would mix the social classes together, break down class barriers, stimulate upward mobility, encourage literacy and civil discourse, and promote the impulse to form voluntary associations of many sorts. 6. It would mightily augment "human capital" by inciting the emulation of new specialties, skills, and techniques. In addition, it would impart new tastes, and encourage the pursuit of new information and new ways of doing things. 7. It would teach the necessity of civility, since under the pressures of competition in free markets, dominated by civil discourse and free choice, sellers would learn the necessity of patient explanation, civil manners, a willingness to be of service, and long-term reliability. 8. It would soften manners and instruct more and more of its participants to develop the high moral art of sympathy. For a commercial society depends on voluntary consent. Citizens must learn, therefore, a virtue even higher than empathy (which remains ego-centered, as when a person imagines how he would feel in another's shoes). True sympathy depends on getting out of oneself imaginatively and seeing and feeling the world, not exactly as the other person may see it, but as an ideal observer might see it. This capacity leads to the invention of new goods and services that might well be of use to others, even though they themselves have not yet imagined them. 9. It would instruct citizens in the arts of being farsighted, objective, and future-oriented, so as to try to shape the world of the future in a way helpful to as large a public as possible. Such public-spiritedness is a virtue that is good, not merely because it is useful, but because it seeks to be in line, in however humble a way, with the future common good. 10. Finally, it is one of the main functions of a capitalist economy to defeat envy. Envy is the most destructive of social evils, more so even than hatred. Hatred is highly visible; everyone knows that hatred is destructive. But envy is invisible, like a colorless gas, and it usually masquerades under some other name, such as equality. Nonetheless, a rage for material equality is a wicked project. Human beings are each so different from every other in talent, character, desire, energy, and luck, that material equality can never be imposed on human beings except through a thorough use of force. (Even then, those who impose equality on others would be likely to live in a way "more equal than others.") Envy is the most characteristic vice of all the long centuries of zero-sum economies, in which no one can win unless others lose. A capitalist system defeats envy, and promotes in its place the personal pursuit of happiness. It does this by generating invention, discovery, and economic growth. Its ideal is win-win, a situation in which everyone wins. In a dynamic world, with open horizons for all, life itself encourages people to attend to their own self-discovery and to pursue their own personal form of happiness, rather than to live a false life envying others. In brief, a system rooted in the creative capacities of human persons takes as its horizon the whole, interdependent planet; seeks to liberate the poor of the world from the prison of poverty; focuses on the creation of plenty, rather than the pursuit of power; needs, and therefore encourages, a world under the rule of law, a world pacific, lawlike, and alive with voluntary cooperation. Failure at any of these points would indicate a breakdown in the system. This moral vision, it is important to note, is highly social; its horizon includes every nation on the planet, and it relies throughout on an unprecedented degree of voluntary cooperation and association. You will have noticed that in free economies employees live within a world of incentives and new possibilities and that they are encouraged to smile and to be helpful. In a certain sense, such a system is designed to get the best out of people, to inspire their creativity and cooperative impulses. You may object, rightly, that I am describing an ideal. But that is the point. A capitalist system does have high ideals. That these ideals are not always met in practice is also true. It is to capitalism's moral advantage, however, that it is driven by internal and necessary reasons to align its incentive structures with its ideals. The moral genius of capitalism, then, lies in its institutional support for the inalienable capacity of human beings to use their own wits creatively. To this genius it adds, as Abraham Lincoln once put it, the fire of interest. Capitalism attends closely to self-interest, both in a lowly and in a large-minded way. Lincoln, for example, was speaking of the Copyright and Patent Clause of the U.S. Constitution, which allows to inventors, for a limited time, the right to royalties from their own creations. This, it has turned out, is a magnificent and dynamic way of serving the common good, through stimulating heroic exertions on the part of inventors and discoverers.

In this respect, capitalism has taken man's measure more exactly than any other social system. It has found a better way than any other system to link self-interest to the advancement of the common good. Capitalism is by no means the Kingdom of God. It is a poor and clumsy human system. Although one can claim for it that it is better than any of its rivals, there is no need to give such a system three cheers. My friend Irving Kristol calls his book Two Cheers for Capitalism. One cheer is quite enough. It is not the paradise of humankind, but it is a highly moral system, nourishing the best that is in us and checking the worst. 4. Checks and Balances A capitalist system is only one of three systems composing the free society. The economic system is checked and regulated by both of the other two systems: by the institutions of the political system and by the institutions of the moral/cultural system. Capitalism does not operate in a moral vacuum. Those who fail to live up to the moral standards implicit in its own structure are corrected by forces from outside it. Thus, capitalism supplies only some of the moral energy present in the free society as a whole. There are moral energies in the democratic polity to call it to account. And there are moral energies in families, in the churches, in journalism, in the cinema, in the arts, and throughout civic society to unmask its failings and to call it to account. This is as it should be. For the free society is not constructed for saints. There are not enough saints on earth to people a free society. A free society must make do with the only moral majority there is--all those citizens called to a noble destiny, indeed, but often weak, tempted, egocentric and quite imperfect. In imagining the free society of the future, it is important not to be utopian. This century has built too many graveyards in its so- called utopias. The citizens of the 2lst century will warn one another against the mistakes of the 20th. In addition to systemic checks and balances, there must also be internal checks. James Madison wrote that it is chimerical to imagine that a free republic can survive without the daily practice of the virtues of liberty. A free society depends upon habits of responsibility, initiative, enterprise, foresight, and public spiritedness. It depends upon plain, ordinary, kitchen virtues. Citizens who are dependent, passive, irresponsible, and narrowly self-interested will badly govern their own conduct, and their project of selfgovernment is bound to fail. It is, therefore, a crucial act of statesmanship to identify and nourish the cultural habits indispensable to the practice and survival of liberty. The free society cannot be made to thrive on the basis of any set of moral habits at all. Where citizens are corrupt, dishonest, halfhearted in their work, inert, indifferent to high standards, willing to cheat and to steal and to defraud, eager to take from the public purse but unwilling to contribute to the commonweal, and entirely self-aggrandizing, self-government must fail. Many peoples of the world, in fact, have shown themselves incapable of making the institutions of liberty work. The road to liberty, Tocqueville warned, is a long one, precisely because it entails learning the habits of liberty. Not any habits at all will do. The road is narrow and the gate is strait. 5. Three Parting Wishes As you build a free society here in Sri Lanka, let me voice three wishes: First, that this new society will be rooted in the realism that underlies democracy--in limited government, under the rule of law, protecting the rights of individuals and minorities, and internally guarded by well-designed checks and balances against every form of power. We call this form of democracy the "democratic republic." Second, that your new economy will be rooted in the realism of the free, competitive economy, in which rights to personal economic creativity will not be repressed but, on the contrary, will flourish for the common good of all. And, finally, my third wish is that the ancient spirit of envy will be decisively defeated, by the attractiveness of a dynamic society of liberty and opportunity for all. Your struggles toward these noble goals are our struggles. Our families in America share them with your families here, and with the whole human family everywhere on earth.