Is capitalism or the free market economy an immoral system?

Following is a response to Dr. Gunadasa Amerasekera’s criticism of the free market economy

By R.M.B Senanayake

Dr. Gunadasa Amerasekera has argued against capitalism or the free market economy. He also opposes globalisation. I will deal with the so-called moral case against capitalism.

During the reign of our Sinhalese kings, what did we find? Society was based on the caste system and many occupations were considered inferior with only farming being considered a superior occupation. Activities that were merely useful and used the hands and manual labour were considered inferior. The learned men and the clergy were the superior folk in society. All other occupations were considered to be inferior, servile and of low social standing. It was the same in Europe.

But with the Industrial Revolution, men’s ideas changed. The moral pretensions of the clergy and the nobility were exposed. The higher form of life of the clergy and the nobility depended on the servile toil of the lower classes. Roads were mere tracks for pack animals, markets were few and confined to the village and production was limited by the size of the market – an important principle discovered by Adam Smith.

The farmers had to give their produce to the clergy and the nobility for they alone were the landowners. Others who cultivated had only rights to work on their lands and were required to give a good proportion of the produce to the landowners – the clergy and the nobility. This was feudalism which was the economic system in most parts of the world at the time. The earlier philosophers who lived on the patronage of the king and the nobles wrote of the arts of war and power. There was Kautilya in India.

With the Industrial Revolution, a new class of thinkers like Adam Smith and David Hume arose. They for the first time in the world urged people to turn from the pursuit of power to the pursuit of plenty. They urged people to turn to the creative arts of commerce and industry.

Adam Smith wrote about the cause of the wealth of nations. His famous example of the pin factory explained new ways of organising production to increase wealth. The division of labour made it possible to produce much more pins and it also led to specialisation of skills. The invention of the machine made mass producing of pins possible. This emphasis on creativity and invention is the distinct characteristic of the capitalist system.

The capitalist economy is not characterised as Marx thought by the private ownership of the means of production and exchange. Nor were these present even in feudalism although the ownership was with the king, the clergy and the nobility.

The distinct feature of capitalism is really ‘enterprise’ – the employing of human creativity to innovate and invent in an atmosphere of freedom. The accumulation of material capital is not the only distinctive feature of capitalism.

The main resource of capitalism is human capital, which refers particularly to human skills and creativity. It could not be a feature in the feudal economy where manual labour was looked down upon and leisure was preferred to activity and the leisured class was limited to those who inherited land. Labour, particularly manual labour, was looked down upon if not exactly despised. All those engaged in such manual occupations were considered inferior in social status. There was no incentive to produce more for any person engaged in farming or other economic activity

Much has been made of the pursuit of self interest. Economists use this assumption as a base for their analysis. But there are economists who have pointed out that man is not inherently pursuing self interest and that he has other spiritual and moral values which lead him to modify economic behaviour driven only by self-interest.

Adam Smith took for granted that the capitalists would act according to the prevailing moral standards and nowhere in his work did he advocate the naked pursuit of self interest. He was the Professor of Moral Philosophy and wrote the work ‘The Theory of Moral Sentiments’.

Those who advocate equality do not realise that human beings are each so different from the other in talent, character, desire, energy and that inexplicable quality called luck that material equality can never be imposed on human beings except through the use of force.

Even those who advocate equality like to live in a way that is “more equal than others” as the Communist party leaders and bureaucrats did in the former Soviet Union and Eastern European countries like Ceausescu’s Rumania.

The reduction of poverty has only been possible in capitalist economies. Prior to 1940 many people in China and India died from regular famines. But not so today, where large numbers in both countries have risen above the level of poverty. The genius of capitalism is that it has released human ingenuity and creativity which no previous economic system was able to do.

In addition to being political animals, human beings are also moral beings thirsting for fairness and justice as well as liberty. But these values are best established in a democracy rather than a rule of kings or aristocracy.

Democracy requires economic liberty where human beings are allowed to own property and enjoy freedom of thought and expression. It is only in capitalism where there is a division of political and economic power that there is justice and freedom under the law. Our ancient rulers could be arbitrary and tyrannical as some of them were. Democracy and capitalism go together.

What about the spiritual aspects of human beings – are they hampered by capitalism as Dr. Gunadasa Amerasekera thinks? There is no merit in virtue where there is no choice. If liquor is prohibited and not available, there is no reason to argue that the persons who are not drinking are somehow virtuous. Enforced virtue is no virtue although our political leaders are quick to ban all forms of behaviour according to the moral values of Buddhism. Capitalism permits the freedom to practice virtue.