The Moral Basis of Capitalism

by | Jul 4, 2002

With the fall of communism and the alleged end of the “era of big government,” many commentators and politicians grudgingly acknowledge the practical value of capitalism. The free market, they concede, is the best system for producing wealth and promoting prosperity; the private economy, in Bill Clinton’s words, is the “primary engine of growth.” But […]

With the fall of communism and the alleged end of the “era of big government,” many commentators and politicians grudgingly acknowledge the practical value of capitalism. The free market, they concede, is the best system for producing wealth and promoting prosperity; the private economy, in Bill Clinton’s words, is the “primary engine of growth.”

But this has not led to the triumph of capitalism. Quite the opposite: Federal taxes as a percentage of gross domestic product are at their highest rate since the Second World War; antitrust assaults on the market’s winners are growing; the regulations on the federal register continue to expand by 60,000 pages per year; even the Republicans’ recent tax cut proposal would only mandate a minor decrease in the projected growth of government revenues. By practically every measure, government interference in the free market is growing.

If capitalism is recognized as the only practical economic system–then why is it losing out to state control? The reason is that no one, neither on the left nor the right, is willing to defend capitalism as moral. Thus, both sides agree, whatever the practical value of capitalism, morality requires that the free market be reigned in by government regulations. The only disagreement between the two sides is over the number of regulations and the rate of their growth.

What no one has grasped yet is that capitalism is not just practical but also moral. Capitalism is the only system that fully allows and encourages the virtues necessary for human life. It is the only system that safeguards the freedom of the independent mind and recognizes the sanctity of the individual.

Every product that sustains and improves human life is made possible by the thinking of the world’s creators and producers. We enjoy an abundance of food because scientists have discovered more efficient methods of agriculture, such as fertilization and crop rotation. We enjoy a lifespan double that of the pre-industrial era thanks to advances in medical technology, from antibiotics to X-rays to biotechnology, discovered by doctors and medical researchers. We enjoy the comfort of air conditioning, the speed of airline transportation, the easy access to information made possible by the World Wide Web–because scientists and inventors have made the crucial mental connections necessary to create these products.

Most people recognize the right of scientists and engineers to be free to ask questions, to pursue new ideas, and to create new innovations. But at the same time, most people ignore the third man who is essential to human progress: the businessman. The businessman is the one who takes the achievements of the scientists and engineers out of the realm of theory and turns them into reality; he takes their ideas off the chalkboards and out of the laboratories and puts them onto the store shelves.

Behind the activities of the businessman there is a process of rational inquiry every bit as important as that of the scientist or inventor. The businessman has to figure out how to find and train workers who will produce a quality product; he has to discover how to cut costs to make the product affordable; he has to determine how best to market and distribute his product so that it reaches its potential buyers; and he has to figure out how to finance his venture in a way that will best feed future growth. All of these issues–and many others–depend on the mind of the businessman. If he is not left free to think, the venture loses money and its product goes out of existence.

The businessman has to have an unwavering dedication to thinking, not only in solving these problems, but also in dealing with others. He has to use reason to persuade investors, employees, and suppliers that his venture is a profitable one. If he cannot, the investors take their money elsewhere, the best employees leave for better opportunities, and the suppliers will give preference to more credit-worthy customers.

The businessman’s dedication to thought, persuasion, and reason is a virtue–a virtue that our lives and prosperity depend on. The only way to respect this virtue is to leave the businessman free to act on his own judgment. That is precisely what capitalism does. The essence of capitalism is that it bans the use of physical force and fraud in men’s economic relationships. All decisions are to be left to the “free market”–that is, to the un-coerced decisions of buyers and sellers, manufacturers and distributors, employers and employees. The first rule of capitalism is that everyone has a right to dispose of his own life and property according to his own judgment.

Government regulation, by contrast, operates by thwarting the businessman’s thinking, subordinating his judgment to the decrees of government officials. These officials do not have to consider the long-term results–only what is politically expedient. They do not have to back their decisions with their own money or effort–they dispose of the lives and property of others. And most important, they do not have to persuade their victims–they impose their will, not by reason, but by physical force.

The government regulator does not merely show contempt for the minds of his victims; he also shows contempt for their personal goals and values.

In a free-market economy, everyone is driven by his own ambitions for wealth and success. That’s what “free trade” means: that no one may demand the work, effort, or money of another without offering to trade something of value in return. If both partners to the trade don’t expect to gain, they are free to go elsewhere. In Adam Smith’s famous formulation, the rule of capitalism is that every trade occurs “by mutual consent and to mutual advantage.”

It is common to condemn this approach as selfish–yet to say that people are acting selfishly is to say that they take their own lives seriously, that they are exercising their right to pursue their own happiness. By contrast, project what it would mean to exterminate self-interest and force everyone to work for goals mandated by the state. It would mean, for example, that a young student’s goal to have a career as a neurosurgeon must be sacrificed because some bureaucrat decrees that there are “too many” specialists in that field. Such a system is based on the premise that no one owns his own life, that the individual is merely a tool to be exploited for the ends of “society.” And since “society” consists of nothing more than a group of individuals, this means that some men are to be sacrificed for the sake of others–those who claim to be “society’s” representatives. For examples, see the history of the Soviet Union.

A system that sacrifices the self to “society” is a system of slavery–and a system that sacrifices thinking to coercion is a system of brutality. This is the essence of any anti-capitalist system, whether communist or fascist. And “mixed” systems, such as today’s regulatory and welfare state, merely unleash the same evils on a smaller scale.

Only capitalism renounces these evils entirely. Only capitalism is fully true to the moral ideal stated in the Declaration of Independence: the individual’s right to “life, liberty, and the pursuit of happiness.” Only capitalism protects the individual’s freedom of thought and his right to his own life.

Only when these ideals are once again taken seriously will we be able to recognize capitalism, not as a “necessary evil,” but as a moral ideal.

–Visit the Center for the Moral Defense of Capitalism

Robert Tracinski was a senior writer for the Ayn Rand Institute from 2000 to 2004. The Institute promotes the philosophy of Ayn Rand, author of Atlas Shrugged and The Fountainhead. Mr. Tracinski is editor and publisher of The Intellectual Activist and TIADaily, which offer daily news and analysis from a pro-reason, pro-individualist perspective. To receive a free 30-day trial of the TIA Daily and a FREE pdf issue of the Intellectual Activist please go to and enter your email address.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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