Is capitalism doomed after the financial crisis?

on March 30, 2009 at 1:30 PM, updated September 22, 2009 at 2:34 PM
"Few seem to appreciate the fact that capitalism is not merely about money."

By Charles Zola

There is no shortage of viewpoints about how to best resolve the current economic crisis. One nagging point of contention is the extent of the role the federal government should take in trying to resolve the predicament. Will the stimulus package move us closer to European democratic socialism or is the plan a temporary necessity to shore up American capitalism?

The role that central government should play in a capitalistic economy has never been adequately answered since Adam Smith first gave intellectual birth to the idea of capitalism in his masterwork "The Wealth of the Nations."

Smith argued for minimal government interference. While law and taxes are necessary, he envisioned what today is commonly called a strict laissez-faire system. Obviously, more than two centuries have changed the political and economic landscape. Consequently, it can be argued that there are certain times and circumstances that call for a more active role for government intervention in the business cycle.

While this debate has yet to be resolved, and the consequences of the Obama plan yet to be seen, I venture that whatever course of actions are taken, it must safeguard those moral principles that underlie capitalism itself. Few seem to appreciate the fact that capitalism is not merely about money. It is premised on certain moral values that dictate the direction that an economic system should take.

It is often forgotten that capitalism's roots lie in moral philosophy, not economics. Smith's initial claim to fame was his work, "The Theory of Moral Sentiments." In that work, Smith identified two chief characteristics of human psychology: self-interest and sympathy or "fellow-feeling," as he said. This observation eventually provided the moral framework for generating his latter capitalistic ideas.

In "Moral Sentiments," Smith correctly reasoned that human beings are interested in having and utilizing resources that serve their own egoistic tendencies. However, they do so in a way that is keenly sensitive to the feelings of their fellow human beings. Our wants are more easily satisfied when we are responsive to the concerns of our fellow human beings and we appeal to their own egoistic tendencies.

Smith's ideas eventually gave rise to capitalism. In short, "I get what I want, when I give you what you want." This is the basic formula of every business transaction.

As Smith correctly observed, we don't eat our dinner on account of the charity of others. Rather, our meat, bread and beer is obtained by giving the butcher, baker and the brewer what they want. Given the right social conditions, this interplay of personal inclinations results in a situation where all parties concerned will eventually benefit.

Only months before the American Continental Congress signed the Declaration of Independence, Smith's "Wealth of Nations" was published in England. His ideas exercised great influence on our founding fathers like Jefferson, Hamilton, Adams, and Franklin. In a very real sense, the United States became the proving ground for Smith's ideas.

Smith's capitalistic theory entails such ethical principles as autonomy, property rights, honesty, fairness and lawfulness. Any proposed stimulus plan should play on our egoistic tendencies by stimulating people to take ownership of their own economic lives, not depend upon a central government.

Government intervention should create more incentives for private investment that encourage job creation and promote the free exchange of goods and services. Private property must not be understood as a sign of greed. Rather, it is a sign of the hard work and self-determination of the human spirit.

But this free exchange can only transpire when it is fair to all parties concerned. In this sense, egoistic tendencies must be carefully balanced with our natural sympathy for the needs of others.

Government intervention must hold accountable those members of the business community who cheat, take advantage of others or misuse public funds. It must also address those issues of social injustice that prevent citizens from reaching full economic empowerment, such as spiraling education and health care costs.

It is difficult to say how any one economic plan can perfectly balance our egoistic and sympathetic tendencies. Both the American Republic and Smith's economic theory were born in the same year, generated by strong moral convictions about human character and moral actions. In some sense, both are works in progress. We must not lose sight of those fundamental ethical principles if we are to remain an American, capitalist economy.

CHARLES ZOLA, Ph.D., is the executive director of the Ethics Institute of Northeastern Pennsylvania at Misericordia University: