"We have it in our power to begin the world over again."
--Thomas Paine, Common Sense, 1792.
Spring 2009 -- The crisis in financial markets has set off a predictable torrent of anti-capitalist sentiment. Despite the fact that government regulations were a major cause of the crisis, anti-capitalists and their enablers in the media have blamed the market and called for new restraints. The government has already exerted an unprecedented degree of intervention in financial markets, and it now seems clear that new economic controls will expand far beyond Wall Street.
Regulation of production and trade is one of the two basic things that government does in our mixed economy. The other is redistribution—transferring income and wealth from one set of hands to another. In this realm, too, anti-capitalists have seized the moment to call for new entitlements such as guaranteed health care, along with new tax burdens on the wealthy. The economic crisis, along with the election of Barack Obama, has revealed a huge pent-up demand for redistribution. Where does that demand come from? To answer that question in fundamental terms, we need to look back at the origins of capitalism and look more closely at the arguments for redistribution.
The capitalist system came of age in the century from 1750 to 1850 as a result of three revolutions. The first was a political revolution: the triumph of liberalism, particularly the doctrine of natural rights, and the view that government should be limited in its function to the protection of individual rights, including property rights. The second revolution was the birth of economic understanding, culminating in Adam Smith's Wealth of Nations. Smith demonstrated that when individuals are left free to pursue their own economic interests, the result is not chaos but a spontaneous order, a market system in which the actions of individuals are coordinated and more wealth is produced than would be the case if government managed the economy. The third revolution was, of course, the Industrial Revolution. Technological innovation provided a lever that vastly multiplied man's powers of production. The effect was not only to raise standards of living for everyone, but to offer the alert and enterprising individual the prospect of earning a fortune unimaginable in earlier times.
The political revolution, the triumph of the doctrine of individual rights, was accompanied by a spirit of moral idealism. It was the liberation of man from tyranny, the recognition that every individual, whatever his station in society, is an end in himself. But the economic revolution was couched in morally ambiguous terms: as an economic system, capitalism was widely regarded as having been conceived in sin. The desire for wealth fell under the shadow of the Christian injunction against selfishness and avarice. The early students of spontaneous order were conscious that they were asserting a moral paradox—the paradox, as Bernard Mandeville put it, that private vices could produce public benefits.
Few of capitalism's defenders are prepared to assert that it is morally honorable, much less noble or ideal.
The critics of the market have always capitalized on these doubts about its morality. The socialist movement was sustained by allegations that capitalism breeds selfishness, exploitation, alienation, injustice. In milder forms, this same belief produced the welfare state, which redistributes income through government programs in the name of "social justice." Capitalism has never escaped the moral ambiguity in which it was conceived. It is valued for the prosperity it brings; it is valued as a necessary precondition for political and intellectual freedom. But few of its defenders are prepared to assert that the mode of life central to capitalism—the pursuit of self-interest through production and trade—is morally honorable, much less noble or ideal.
There is no mystery about where the moral antipathy toward the market comes from. It arises from the ethics of altruism, which is deeply rooted in Western culture, as indeed in most cultures. By the standards of altruism, the pursuit of self-interest is at best a neutral act, outside the realm of morality, and at worst a sin. It is true that success in the market is achieved by voluntary trade, and thus by satisfying the needs of others. But it is also true that those who do succeed are motivated by personal gain, and ethics is as much concerned with motives as with results.
In everyday speech, the term "altruism" is often taken to mean nothing more than kindness or common courtesy. But its real meaning, historically and philosophically, is self-sacrifice. For the socialists who coined the term, it meant the complete submersion of the self in a larger social whole. As Ayn Rand
put it, “The basic principle of altruism is that man has no right to exist for his own sake, that service to others is the only justification of his existence, and that self-sacrifice is his highest moral duty, virtue, and value". Altruism in this strict sense is the basis for the various concepts of "social justice" that are used to defend government programs for redistributing wealth. Those programs represent the compulsory sacrifice of the people taxed to support them. They represent the use of individuals as collective resources, to be used as means to the ends of others. And that is the fundamental reason why they should be opposed on moral grounds by anyone who defends capitalism.
Demands for social justice
Demands for social justice take two different forms, which I will call welfarism and egalitarianism. According to welfarism, individuals have a right to certain necessities of life, including minimum levels of food, shelter, clothing, medical care, education, and so on. It is the responsibility of society to ensure that all members have access to these necessities. But a laissez-faire capitalist system does not guarantee them to everyone. Thus, argue the welfarists, capitalism fails to satisfy its moral responsibility and so must be modified through state action to provide such goods to people who cannot obtain them by their own efforts.
According to egalitarianism, the wealth produced by a society must be distributed fairly. It is unjust for some people to earn fifteen, or fifty, or a hundred times as much income as others. But laissez-faire capitalism permits and encourages these disparities in income and wealth, and is therefore unjust. The hallmark of egalitarianism is the use of statistics on the distribution of income. In 2007, for example, the top twenty percent of U.S. households on the income scale earned fifty percent of total income, whereas the bottom twenty percent earned only 3.4 percent. The goal of egalitarianism is to reduce this difference; any change in the direction of greater equality is regarded as a gain in equity.
The difference in these two conceptions of social justice is the difference between absolute and relative levels of well-being. The welfarist demands that people have access to a certain minimum standard of living. As long as this floor or "safety net" exists, it does not matter how much wealth anyone else has, or how great the disparities are between rich and poor. So welfarists are primarily interested in programs that benefit people who are below a certain level of poverty, or who are sick, out of work, or deprived in some other way. Egalitarians, on the other hand, are concerned with relative well-being. Egalitarians have often said that of two societies, they prefer the one in which wealth is more evenly distributed, even if its overall standard of living is lower. Thus, egalitarians tend to favor government measures such as progressive taxation which aim to redistribute wealth across the entire income scale, not merely at the bottom. They also tend to support the nationalization of goods such as education and medicine, taking them off the market entirely and making them available to everyone more or less equally.
Let us consider these two concepts of social justice in turn.
Welfarism: the unchosen obligation
The fundamental premise of welfarism is that people have rights to goods such as food, shelter, and medical care. They are entitled to these things. On this assumption, someone who receives benefits from a government program is merely getting what is due him, in the same way that a buyer who receives the good he has paid for is merely getting his due. When the state dispenses welfare benefits, it is merely protecting rights, just as it is when it protects a buyer against fraud. In neither case is there any necessity for gratitude.
The concept of welfare rights, or positive rights as they are often called, is modeled on the traditional liberal rights of life, liberty, and property. But there is a well-known difference. The traditional rights are rights to act without interference from others. The right to life is a right to act with the aim of preserving oneself. It is not a right to be immune from death by natural causes, even an untimely death. The right to property is the right to buy and sell freely, and to appropriate unowned goods from nature. It is the right to seek property, but not a right to a dowry from nature, or from the state; it is not a guarantee that one will succeed in acquiring anything. Accordingly, these rights impose on other people only the negative obligation not to interfere, not to restrain one forcibly from acting as he chooses. If I imagine myself removed from society—living on a desert island, for example—my rights would be perfectly secure. I might not live long, and certainly would not live well, but I would live in perfect freedom from murder, theft, and assault.
By contrast, welfare rights are conceived as rights to possess and enjoy certain goods, regardless of one's actions; they are rights to have the goods provided by others if one cannot earn them oneself. Accordingly, welfare rights impose positive obligations on others. If I have a right to food, someone has an obligation to grow it. If I cannot pay for it, someone has an obligation to buy it for me. Welfarists sometimes argue that the obligation is imposed on society as a whole, not on any specific individual. But society is not an entity, much less a moral agent, over and above its individual members, so any such obligation falls upon us as individuals. Insofar as welfare rights are implemented through government programs, for example, the obligation is distributed over all taxpayers.
The essence of welfarism is the premise that the need of one individual is a claim on other individuals.
From an ethical standpoint, then, the essence of welfarism is the premise that the need of one individual is a claim on other individuals. The claim may run only as far as the town, or the nation. It may not embrace all of humanity. But in all versions of the doctrine, the claim does not depend on your personal relationship to the claimant, or your choice to help, or your evaluation of him as worthy of your help. It is an unchosen obligation arising from the sheer fact of his need.
But we must carry the analysis one step further. If I am living alone on a desert island, then of course I have no welfare rights, since there is no one else around to provide the goods. For the same reason, if I live in a primitive society where medicine is unknown, then I have no right to medical care. The content of welfare rights is relative to the level of economic wealth and productive capacity in a given society. Correspondingly, the obligation of individuals to satisfy the needs of others is dependent on their ability to do so. I cannot be blamed as an individual for failing to provide others with something I cannot produce for myself.
Suppose I can produce it and simply choose not to? Suppose I am capable of earning a much larger income than I do, the taxes on which would support a person who will otherwise go hungry. Am I obliged to work harder, to earn more, for the sake of that person? I do not know any philosopher of welfare who would say that I am. The moral claim imposed on me by another person's need is contingent not only on my ability but also on my willingness to produce.
And this tells us something important about the ethical focus of welfarism. It does not assert an obligation to pursue the satisfaction of human needs, much less the obligation to succeed in doing so. The obligation, rather, is conditional: those who do succeed in creating wealth may do so only on condition that others are allowed to share the wealth. The goal is not so much to benefit the needy as to bind the able. The implicit assumption is that a person's ability and initiative are social assets, which may be exercised only on condition that they are aimed at the service of others.
Egalitarianism: "fair" distribution
If we turn to egalitarianism, we find that we arrive at the same principle by a different logical route. The ethical framework of the egalitarian is defined by the concept of justice rather than rights. If we look at society as a whole, we see that income, wealth, and power are distributed in a certain way among individuals and groups. The basic question is: Is the existing distribution fair? If not, then it must be corrected by government programs of redistribution. A pure market economy, of course, does not produce equality among individuals. But few egalitarians have claimed that strict equality of outcome is required by justice. The most common position is that there is a presumption in favor of equal outcomes, and that any departure from equality must be justified by its benefits to society as a whole. Thus, the English writer R. H. Tawney wrote that "inequality of circumstance is regarded as reasonable, in so far as it is a necessary condition of securing the services which the community requires." John Rawls's famous "Difference Principle"—that inequalities are permitted as long as they serve the interests of the least advantaged persons in society—is only the most recent example of this approach. [See the sidebar on these two pioneers of egalitarianism.] In other words, egalitarians recognize that strict leveling would have a disastrous effect on production. They admit that not everyone contributes equally to the wealth of a society. To some extent, therefore, people must be rewarded in accordance with their productive ability, as an incentive to put forth their best efforts. But any such differences must be limited to those which are necessary for the public good.
What is the philosophical basis of this principle? Egalitarians often argue that it follows logically from the basic principle of justice: that people are to be treated differently only if they differ in some morally relevant way. If we are going to apply this fundamental principle to the distribution of income, however, we must first assume that society literally engages in an act of distributing income. This assumption is plainly false. In a market economy, incomes are determined by the choices of millions of individuals—consumers, investors, entrepreneurs, and workers. These choices are coordinated by the laws of supply and demand, and it is no accident that a successful entrepreneur, say, earns much more than a day laborer. But this is not the result of any conscious intention on the part of society. In 2007, the most highly paid entertainer in the United States was Oprah Winfrey, who earned some $260 million. This was not because "society" decided she was worth that much, but because millions of fans decided that her show was worth watching. Even in a socialist economy, as we now know, economic outcomes are not under the control of government planners. Even here there is a spontaneous order, albeit a corrupt one, in which outcomes are determined by bureaucratic infighting, black markets, and so forth.
Despite the absence of any literal act of distribution, egalitarians often argue that society is responsible for ensuring that the statistical distribution of income meets certain standards of fairness. Why? Because the production of wealth is a cooperative, social process. More wealth is created in a society characterized by trade and the division of labor than in a society of self-sufficient producers. The division of labor means that many people contribute to the final product; and trade means that an even wider circle of people share responsibility for the wealth that is obtained by the producers. Production is so transformed by these relationships, say the egalitarians, that the group as a whole must be considered the real unit of production and the real source of wealth. At least it is the source of the difference in wealth that exists between a cooperative and a non-cooperative society. Therefore society must ensure that the fruits of cooperation are fairly distributed among all participants.
But this argument is valid only if we regard economic wealth as an anonymous social product in which it is impossible to isolate individual contributions. Only in that case will it be necessary to devise after-the-fact principles of distributive justice for allocating shares of the product. But this assumption, once again, is plainly wrong. The so-called social product is actually a vast array of individual goods and services available on the market. It is certainly possible to know which good or service any individual has helped to produce. And when the product is produced by a group of individuals, as in a firm, it is possible to identify who did what. After all, an employer does not hire workers by whim. A worker is hired because of the anticipated difference his efforts will make to the final product. This fact is acknowledged by the egalitarians themselves when they allow that inequalities are acceptable if they are an incentive for the more productive to increase the total wealth of a society. To ensure that the incentives are going to the right people, as Robert Nozick has observed, even the egalitarian must assume that we can identify the role of individual contributions. In short, there is no basis for applying the concept of justice to the statistical distributions of income or wealth across an entire economy. We must abandon the picture of a large pie that is being divided up by a benevolent parent who wishes to be fair to all the children at the table.
Every form of social justice rests on the assumption that individual ability is a social asset.
Once we abandon this picture, what becomes of the principle espoused by Tawney, Rawls, and others: the principle that inequalities are acceptable only if they serve the interests of all? If this cannot be grounded in justice, then it must be regarded as a matter of the obligations we bear to each other as individuals. When we consider it in this light, we can see that it is the same principle we identified at the basis of welfare rights. The principle is that the productive may enjoy the fruits of their efforts only on condition that their efforts benefit others as well. There is no obligation to produce, to create, to earn an income. But if you do, the needs of others arise as a constraint on your actions. Your ability, your initiative, your intelligence, your dedication to your goals, and all the other qualities that make success possible, are personal assets that put you under an obligation to those with less ability, initiative, intelligence, or dedication.
In other words, every form of social justice rests on the assumption that individual ability is a social asset. The assumption is not merely that the individual may not use his talents to trample on the rights of the less able. Nor does the assumption say merely that kindness or generosity are virtues. It says that the individual must regard himself, in part at least, as a means to the good of others. And here we come to the crux of the matter. In respecting the rights of other people, I recognize that they are ends in themselves, that I may not treat them merely as means to my satisfaction, in the way that I treat inanimate objects. Why then is it not equally moral to regard myself as an end? Why should I not refuse, out of respect for my own dignity as a moral being, to regard myself as a means in the service of others?
Toward an individualist ethics
’s case for capitalism rests on an individualist ethics that recognizes the moral right to pursue one's self-interest and rejects altruism at the root.
Altruists argue that life presents us with a basic choice: we must either sacrifice others to ourselves, or sacrifice ourselves to others. The latter is the altruist course of action, and the assumption is that the only alternative is life as a predator. But this is a false alternative, according to Rand. Life does not require sacrifices in either direction. The interests of rational people do not conflict, and the pursuit of our genuine self-interest requires that we deal with others by means of peaceful, voluntary exchange.
To see why, let us ask how we decide what is in our self-interest. An interest is a value that we seek to obtain: wealth, pleasure, security, love, self-esteem, or some other good. Rand's ethical philosophy is based on the insight that the fundamental value, the summum bonum, is life. It is the existence of living organisms, their need to maintain themselves through constant action to satisfy their needs, that gives rise to the entire phenomenon of values. A world without life would be a world of facts but not values, a world in which no state could be said to be better or worse than any other. Thus the fundamental standard of value, by reference to which a person must judge what is in his interest, is his life: not mere survival from one moment to another, but the full satisfaction of his needs through the ongoing exercise of his faculties.
Man's primary faculty, his primary means of survival, is his capacity for reason. It is reason that allows us to live by production, and thus to rise above the precarious level of hunting and gathering. Reason is the basis of language, which makes it possible for us to cooperate and transmit knowledge. Reason is the basis of social institutions governed by abstract rules. The purpose of ethics is to provide standards for living in accordance with reason, in the service of our lives.
To live by reason we must accept independence as a virtue. Reason is a faculty of the individual. No matter how much we learn from others, the act of thought takes place in the individual mind. It must be initiated by each of us by our own choice and directed by our own mental effort. Rationality therefore requires that we accept responsibility for directing and sustaining our own lives.
To live by reason, we must also accept productiveness as a virtue. Production is the act of creating value. Human beings cannot live secure and fulfilling lives by finding what they need in nature, as other animals do. Nor can they live as parasites on others. "If some men attempt to survive by means of brute force or fraud," argues Rand, "by looting, robbing, cheating or enslaving the men who produce, it still remains true that their survival is made possible only by their victims, only by the men who choose to think and to produce the goods which they, the looters, are seizing. Such looters are parasites incapable of survival, who exist by destroying those who are capable, those who are pursuing a course of action proper to man."
The egoist is usually pictured as someone who will do anything to get what he wants—someone who will lie, steal, and seek to dominate others in order to satisfy his desires. Like most people, Rand would regard this mode of life as immoral. But her reason is not that it harms others. Her reason is that it harms the self. Subjective desire is not the test for whether something is in our interest, and deceit, theft, and power are not the means for achieving happiness or a successful life. The virtues I've mentioned are objective standards. They are rooted in man's nature, and thus apply to all human beings. But their purpose is to enable each person to "achieve, maintain, fulfill, and enjoy that ultimate value, that end in itself, which is his own life." Thus the purpose of ethics is to tell us how to achieve our real interests, not how to sacrifice them.
The trader principle
How then should we deal with others? Rand's social ethics rests on two basic principles: a principle of rights and a principle of justice. The principle of rights says that we must deal with others peaceably, by voluntary exchange, without initiating the use of force against them. It is only in this way that we can live independently, on the basis of our own productive efforts; the person who attempts to live by controlling others is a parasite. Within an organized society, moreover, we must respect the rights of others if we wish our own rights to be respected. And it is only in this way that we can obtain the many benefits that come from social interaction: the benefits of economic and intellectual exchange, as well as the values of more intimate personal relationships. The source of these benefits is the rationality, the productiveness, the individuality of the other person, and these things require freedom to flourish. If I live by force, I attack the root of the values I seek.
The principle of justice is what Rand calls the trader principle: living by trade, offering value for value, neither seeking nor granting the unearned. An honorable person does not offer his needs as a claim on others; he offers value as the basis of any relationship. Nor does he accept an unchosen obligation to serve the needs of others. No one who values his own life can accept an open-ended responsibility to be his brother's keeper. Nor would an independent person wish to be kept—not by a master, and not by the Department of Health and Human Services. The principle of trade, Rand observes, is the only basis on which humans can deal with each other as independent equals.
The Objectivist ethics treats the individual as an end in himself in the full meaning of that term.
The Objectivist ethics, in short, treats the individual as an end in himself in the full meaning of that term. The implication is that capitalism is the only just and moral system. A capitalist society is based on the recognition and protection of individual rights. In a capitalist society, men are free to pursue their own ends, by the exercise of their own minds. As in any society, men are constrained by the laws of nature. Food, shelter, clothing, books, and medicine do not grow on trees; they must be produced. And as in any society, men also are constrained by the limitations of their own nature, the extent of their individual ability. But the only social constraint that capitalism imposes is the requirement that those who wish the services of others must offer value in return. No one may use the state to expropriate what others have produced.
Economic outcomes in the market—the distribution of income and wealth—depend on the voluntary actions and interactions of all the participants. The concept of justice applies not to the outcome but to the process of economic activity. A person's income is just if it is won through voluntary exchange, as a reward for value offered, as judged by those to whom it is offered. Economists have long known that there is no such thing as a just price for a good, apart from the judgments of market participants about the value of the good to them. The same is true for the price of human productive services. This is not to say that I must measure my worth by my income, but only that if I wish to live by trade with others, I cannot demand that they accept my terms at the sacrifice of their own self-interest.
Benevolence as a chosen value
What about someone who is poor, disabled, or otherwise unable to support himself? This is a valid question to ask, as long as it is not the first question we ask about a social system. It is a legacy of altruism to think that the primary standard by which to evaluate a society is the way it treats its least productive members. "Blessed are the poor in spirit," said Jesus; "blessed are the meek." But there is no ground in justice for holding the poor or the meek in any special esteem, or regarding their needs as primary. If we had to choose between a collectivist society in which no one is free but no one is hungry, and an individualist society in which everyone is free but a few people starve, I would argue that the second society, the free one, is the moral choice. No one can claim a right to make others serve him involuntarily, even if his own life depends on it.
But this is not the choice we face. In fact, the poor are much better off under capitalism than under socialism, or even the welfare state. As a matter of historical fact, the societies in which no one is free, like the former Soviet Union, are societies in which large numbers of people go hungry.
Those who are capable of working at all have a vital interest in economic and technological growth, which occur most rapidly in a market order. The investment of capital and the use of machinery make it possible to employ people who otherwise could not produce enough to support themselves. Computers and communications equipment, for example, have now made it possible for severely disabled people to work from their homes.
As for those who simply cannot work, free societies have always provided numerous forms of private aid and philanthropy outside the market: charitable organizations, benevolent societies, and the like. In this regard, let us be clear that there is no contradiction between egoism and charity. In light of the many benefits we receive from dealing with others, it is natural to regard our fellow humans in a spirit of general benevolence, to sympathize with their misfortunes, and to give aid when it does not require a sacrifice of our own interests. But there are major differences between an egoist and an altruist conception of charity.
We need a fourth revolution, a moral revolution, that establishes the moral right of the individual to live for himself.
For an altruist, generosity to others is an ethical primary, and it should be carried to the point of sacrifice, on the principle: give until it hurts. It is a moral duty to give, regardless of any other values one has, and the recipient has a right to it. For an egoist, generosity is one among many means of pursuing our values, including the value that we place on the well-being of others. It should be done in the context of one's other values, on the principle: give when it helps. It is not a duty, nor do the recipients have a right to it. An altruist tends to regard generosity as an expiation of guilt, on the assumption that there is something sinful or suspicious about being able, successful, productive, wealthy. An egoist regards those same traits as virtues and sees generosity as an expression of pride in them.
The fourth revolution
I said at the outset that capitalism was the result of three revolutions, each of them a radical break with the past. The political revolution established the primacy of individual rights and the principle that government is man's servant, not his master. The economic revolution brought an understanding of markets. The Industrial Revolution radically expanded the application of intelligence to the process of production. But mankind never broke with its ethical past. The ethical principle that individual ability is a social asset is incompatible with a free society. If freedom is to survive and flourish, we need a fourth revolution, a moral revolution, that establishes the moral right of the individual to live for himself.
David Kelley earned his Ph.D. in philosophy from Princeton University in 1975, and later taught cognitive science and philosophy at Vassar College and Brandeis University. His articles on social issues and public policy have appeared in Harpers, The Sciences, Reason, Harvard Business Review, The Freeman, and elsewhere. His books include Unrugged Individualism: The Selfish Basis of Benevolence; The Contested Legacy of Ayn Rand; The Evidence of the Senses; and The Art of Reasoning, one of the most widely used logic textbooks in the country. Kelley is founder and executive director of The Atlas Society.
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