In an opinion piece in the Financial Post, Philip Cross advocates sanctions, such as seizing its assets, against Russia for its war on Ukraine. He also urges us not to do business in Russia because that would be a losing proposition in the long term: Russia is a corrupt, authoritarian country. Cross also argues that Russia cannot create conditions conducive to business – freedom and capitalism – because it its social system lacks the morality that capitalism requires.
In response, many people would ask: What does morality have to do with capitalism? Capitalism is based on greed! I address the question below; more about greed later.
Cross attempts to defend capitalism by citing an author who claims: “Capitalism’s core is empathy, not greed.” It’s true that “businesses need to care what people want” if they want to be successful, but that does not make ‘empathy’ the core of capitalism.
Cross’ defense lacks clarity. He does not tell us what capitalism is, other than referring to free markets and property rights in passing. Nor does he explain what morality means and what moral code capitalism requires, beyond claiming, correctly, that morality’s importance to capitalism has been overlooked.
Capitalism is worth defending, and worth defending clearly, because it is the social system that has maximized human freedom and flourishing wherever it has been allowed to develop, as thinkers such as Ayn Rand and Ludwig from Mises have shown.
To defend capitalism, we need to know what it is and what its moral basis is. Ayn Rand defines capitalism as “a social system based on the recognition of individual rights, in which all property is privately owned.” Under capitalism, individuals and businesses produce and trade goods and services, incentivized by profit and loss to provide the best value possible amidst competition. Their freedom to do so is protected by the government that upholds their rights against physical force and fraud by others.
Morality, citing Rand again, is “a code of values to guide man’s choices and actions – the choices and actions that determine the purpose and course of his life.”
Capitalism, a system of freedom, leaves individuals and businesses free to make their own choices to sustain themselves and flourish instead of obeying government dictates, as long as they don’t violate others’ rights. But as fallible beings, we don’t automatically know the right (self-sustaining and rights-respecting) course of action. Therefore, we need a moral code for guidance.
The moral code capitalism rests on is rational egoism, first identified by Aristotle and further developed by others, most extensively by Ayn Rand. Rational egoism, or egoism for short, recognizes the need and the right of individuals and businesses to pursue their self-interest. This means that all their interactions must be voluntary and mutually beneficial, based only on persuasion and trade, not coercion or fraud.
Egoism does not permit preying on or exploiting others. Such conduct is not in anyone’s self-interest, despite the claims of those who characterize egoism as “unconstrained self-seeking.” Preying on and exploiting others is destructive, not only to the victims but to the perpetrators as well, who will eventually be caught or run out of victims.
Examples of such predators in recent history are the investment fraud king Bernie Madoff, Elizabeth Holmes of the Theranos fraud, and the crypto currency fraudster Sam Bankman-Fried. All received long prison sentences for their victimization of others. Before his death in incarceration, Madoff wrote about the misery his fraud had caused also to himself and his family.
As promised, a note on greed. In its original meaning, greed was simply the desire to pursue more wealth, which of course is a legitimate activity and necessary to sustain and improve our lives. Greed has since been twisted into a package-deal concept that combines the legitimate pursuit of material wealth and an insatiable lust for unearned wealth, acquired through any means, including deceit and fraud. This is similar to packaging together rational self-interest and “unconstrained self-seeking.”
Rights-violating pursuit of wealth is incompatible with capitalism’s foundational principle of individual rights to life, liberty, property, and the pursuit of happiness. Rights-violating pursuit of wealth also violates capitalism’s moral code of egoism that guides individuals and businesses to pursue their rational self-interest through productive activity and voluntary, mutually beneficial trade with others, in countries where the freedom to do so is protected.
Capitalism is not based on empathy nor on greed – but on the rights-respecting moral principles of self-interest and voluntary trade, which explain the greater human flourishing and prosperity in countries (such as those in the West) where greater freedom and more elements of capitalism prevail compared to those where they are missing (such as Russia, China, and others with authoritarian, corrupt regimes).
Photo credit: Yasir Eryilmaz @unsplash
Jaana Woiceshyn teaches business ethics and competitive strategy at the 