Capitalism, A Beneficial Exchange

Blogger Sam Rocha wrote a post the other day titled, "A Brief Defense of 'Capitalism'". However, Rocha's attempt is, I think, somewhat hampered by the fact that he by his own description does not think much of capitalism.

For the most part we (by “we” I mean those of us on the left, yes I will own up to being something of a leftist, whatever that means) like to say that all capitalism, and its governing libertarian sentiment, desires is for there to be no limit at how much one can take for one’s self. It is a creed of the indulgent and the rich. Greed, selfishness, isolationism, sterile individualism and other nasty things, are what we enjoy making capitalism out to be.

With such an opener, what might wonder what it is that Rocha then finds to praise in capitalism. What he find is, I think, not at all unique to capitalism narrowly defined, but it is something which those of us in the West are much attached to:

If we can cut-out the name calling, I think we can find a powerful meaning within capitalist sentiment. Namely, the much-abused, taboo, and rejected idea of the individual, the person-singular. I think that if we take notions of private property and negative freedom (”freedom from”) inherent in capitalist sentiment, and ponder what they mean, we will find that we all value such things privately....

Here is my defense: Capitalism, as it is believed in benevolently, reminds us of our radical existence as images of God with a potency to as we wish within the vast sea of possibility. What we need next is the ability to control ourselves with the prudence, grace, and love of our Creator in this stormy sea of freedom. But we should never be too quick to accept external-control over our bodies, minds, and hearts. We need to be free. And perfect freedom is not the raw, brute force of libertarianism, to be sure. At the same time, it also is that imposing force.

I don't find what Rocha finds to praise unappealing, but at the same time I think that there is something more to be found in capitalism as described by Adam Smith and others which even many of those who frequently condemn capitalism would find it in themselves to admire if they could look past their preconceptions and see Smith-ian capitalism for what it is.

The following is based on my efforts over the last few week to keep up with the folks over at the EconTalk book club as they work through Adam Smith's Theory of Moral Sentiments (a book he wrote before On the Wealth of Nations but continued to revise until his death). I've not finished the book yet, nor indeed have I been able to make it through as fast as the podcasters have been doing so, but it's been an enjoyable experience and I may well be writing more about the book once I'm done.

First, I think it's important to understand that Smith in both his famous works is engaged in what he considers a descriptive rather than a prescriptive exercise. He does offer judgments and advice at times, but he is not attempting to set forth an order which, if followed, would result in a utopia (which is the Marxist project) but rather to describe how things work. In this sense, one probably does well to think of Smith in the context of a society shaped by English common law attitudes, where intricate order emerges from thousands of small decisions over hundreds of years rather than being planned at a single sitting.

Next, let us take a moment on Smith's concepts of morality, on which the Theory of Moral Sentiments is focused. Smith seems to draw moral notions from two primary sources. First is a sort of empathy. We feel for other people's predicaments by imagining them to be our own, and as such we feel the urge to help them. Second is a notion of status or approval. We want to be seen to treat others well, and so we are always conscious of how our actions towards others would appear to an impartial observer, and try to act in ways that such an impartial observer would approve of. However, these are modified by another human factor, which is that the difficulties of others are necessarily less immediate to us than our own. We know this, and try to make up for it with empathy, but for instance: When we visit a family who has recent lost a loved one, we do so in the knowledge that no matter how much empathy we may feel we do not experience their grief as acutely as they do. Further, the acuteness with which we are able to sympathize with others' sufferings is related to how close they are to us in kinship and/or location. So we will naturally feel the death of a neighbor's child more acutely than we will the report that someone in China just experience the same tragedy.

Now note: These are moral observations rather than moral precepts. There's much more of psychology than of theology or philosophy here.

Let us now turn to capitalism. I would put it forward that the essence of capitalism is not "for there to be no limit at how much one can take for one’s self" nor indeed "the individual, the person-singular", though the latter is implied by capitalism and the former is sometimes allowed by it. Rather, I would say that the essence of capitalism is roughly this: That which you possess or produce is yours until you agree to give it to another in return for some mutually agreed upon good or service.

Why should people who are communitarian in outlook appreciate this?

Smith observes that our own troubles are naturally more immediate to us than those of others. As such, the baker will naturally be more conscious of his own family's need for food and his own desire to spend leisure time with his family than he will be of the hunger of the blacksmith's family. And the blacksmith will naturally be more conscious of his own needs for iron implements and for time with his family than he will be of the baker's need for iron implements.

Because of this, both men will be better served to rely upon the other's self interest than the other's beneficence. If the blacksmith gives the baker a new griddle in return for a week's bread, or if he pays the baker coin which the baker can then use to purchase clothes from the tailor or grain from the miller, he joins the baker's well being to his own well being.

Does this mean that capitalism suggests that everyone simply be greedy? Not necessarily. Greed is a passion for consumption, which seeks to take all things into oneself. What this principle of exchange is really based upon is relationship: If I want to get something from someone else, I may only do so by giving him something which is of equal or greater value to him. I must form a relationship (however tenuous) with him and give him something which he values in order to get from him what I value. Capitalism is thus at root a system which requires a certain degree of relationship and solidarity, as I cannot get anything without providing to others what they in turn need.

Now here is where I may lose my more left-leaning readers: I would put it that the advantage of capitalism (understood as the principle that we own what we have or produce and that in order to get me to part with those things which I own, you ought to propose a mutually beneficial exchange) is that it is the only means of moving goods around through society which does not rely on the threat of force. People often like to talk about the "inherent violence of capitalism" (I suppose because they picture the central image of capitalism being Mr. Moneybags forcing thousands of impoverished workers into a factory) but while capitalism theoretically rests upon mutually beneficial exchange, socialist/communitarian systems do in fact rest upon the implicit threat of violence. How so? Well, in our earlier illustration, if the blacksmith and the baker live in a socialist society, the reason for the baker to give bread to the blacksmith is the implicit threat of the political entity's monopoly on legal violence: If he doesn't give bread to everyone in the village someone will come and take it from him, or he will be punished for not doing his job.

Now, any reasonable polity must use its implicit threat of violence to exact a certain amount from people, in order to run the state and provide basic services to those who need them. But one reason why we ought to prefer that as much of the movement of goods and services within society be capitalistic rather than communitarian is that the former is based upon mutually beneficial exchange, while the latter on the implicit threat of violence. I would suggest that we ought to prefer that as much of the exchange in our society as possible be mutually beneficial rather than forced.


A brief concluding digression: I'm sure that someone will point out that in reality there is often so much inequality between the richest in a society and the poorest that it is impossible for them to be on an even footing to make mutually beneficial exchanges. Thus, with extreme inequality, people may be "forced" to work for wages which are not in fact adequate to sustain them. I would agree that extremes of inequality do allow capitalism to become much less beneficial for the have-nots. And to mitigate extreme injustices, the state doubtless sometimes has to use its implicit threat of force to protect the vulnerable. However, beyond assuring basic human needs are met, I would tend to support finding ways for the have-nots to be more productive in relation to the haves (and thus giving them more leverage when negotiating exchange) rather than a more radical leveling approach to bringing the haves down. I would imagine that nearly everyone supports both these methods to some extent, but the difference between left in right has a great deal to do with where one sees the proper balance between them.