12/01/2011 03:43 pm ET | Updated Jan 31, 2012

Is Capitalism Moral? Part Two

Since my post on the morality of capitalism, in which I promised an argument about the morality of capitalism, the Occupy Wall Street and Los Indignados movements have broken out around the world. As the recent controversy surrounding Occupy London and St. Paul's Cathedral has shown, these movements are protests against a global economic system that believes itself to be above moral considerations -- because capitalism is neither moral nor immoral. During an impromptu visit last month to Zuccotti Park, one OWS demonstrator buttonholed me to ask whether Jesus is on the side of the rich or the poor, and how could he tell? This puts the question directly to the church. If Jesus is for the poor -- a doctrinal assertion -- then the faithful must make moral decisions based on that.

But an answer for a wider audience is also necessary. Morality itself is not a doctrinal question. All people must choose what is good and avoid what is evil -- that moral imperative applies everywhere, at all times. Of course, the perennial question is then, what are good and evil? I shall develop an argument about capitalism that does not require a specifically Christian outlook.

Because of its length, I must break it into three parts, three different blog entries. I hope you will not find this too inconvenient. Part two (this one) establishes the moral context in which business is done. Part three reckons that this context means that ethics in business are essential to capitalism in a democratic society. Part four moves to an even more basic viewpoint, pointing out that macroeconomic theory is insufficiently scientific, and proposes a new theory that can satisfy the needs of business and political leaders, as well as all the actors in the economy of a democracy.

Is Capitalism Moral? Wrong question, Part Two

Is capitalism moral? Many people think that the question is null and void, since capitalism as an economic system cannot be judged morally at all. This is Comte-Sponville's argument, for instance, that I quoted in the previous installment. But if we ask the question a bit differently, it seems to me that some answers can be teased out.

Let us ask, can the practice of capitalism be moral? Take the lone entrepreneur, for instance. She has a desire to be her own boss. He invents something he thinks will sell. There are all kinds of reasons for starting a business, but making a profit is always the prime goal. There is a basic law, which I have tried to teach my daughter: "when your outgo exceeds your income, your upkeep becomes your downfall." So whatever field of endeavor is chosen, the entrepreneur has to make a profit.

Of course, virtually no one can be profitable immediately. There has to be investment in the means of production, marketing, and delivery of goods and services. Investment expects a return, and almost always has to be patient. This is capital, and it is usually in the form of money. It is created by prior economic activity. Our entrepreneur has saved, has borrowed from friends and family, and her bank. He and all the other investors await a return, which depends on the business being profitable.

Already we can see that there is a moral dimension to this activity, because it is profoundly social. The goods or services cannot be criminal in intent or effect: highway robbery may be an enterprise, but no community can abide it for long. The means of production cannot involve exploitation of slave labor, i.e., people have to be compensated for work. Marketing cannot be founded on lies. Contracts with suppliers must be honored. Investors must receive the return they were promised, once the initial risk they took is confirmed to be sound. And taxes have to be paid.

These strictures are not merely legal conveniences. They are backed by law because infringing on them is profoundly damaging to the community. The practice of capitalism requires prior ethical standards of conduct, both for individuals, companies, and governments, including the right to private property, honesty in commerce and contract, and fruitfulness -- economic enterprise needs to benefit more than just the entrepreneur. This is the basic distinction between criminal and legal enterprises, immoral and moral capitalism.

But you knew this already, Gentle Reader. However, I needed to make the point before proceeding. The moral dimension of business does not lie somewhere outside of it, though it is usually treated that way, if at all. An inextricable aspect of human life is economic, and this applies at all times and in all places, from hunter-gathers to the postindustrial information society. Therefore the questions of an underlying moral norm, and how one judges the ethics derived from it, are absolutely relevant.

If these conditions apply to the lone entrepreneur and his undertaking, then how do they apply to much larger corporations, multinationals, even? Isn't that what people mean when they discuss the morality of capitalism? Not the lady down the street with her cleaning service, but Shell Oil?

No entrepreneur stays lone for long, for business is inherently social. Consider Apple, Inc., formerly Apple Computer, Inc. In 1976 it formed among three friends, Ronald Wayne, and the more famous "Steves", Wozniak and the late Steve Jobs. It started as Woz's hobby. A stunning example of modern capitalism, today Apple has more cash on hand than the United States government.

The company has gone through several stages of development. The first was the garage days, when what was up to then a hobby kit was marketed as a real personal computer, the Apple I. Then there was the rapid expansion to the Apple II series, and Steve Jobs' ascension, as Woz left the company (though he is still an employee and has kept his stock options!). This required raising a lot of capital, initially tapping out the original entrepreneurs, then raising venture capital, and then going public in late 1980. It also meant a division of labor. Jobs was the marketing and finance guy, Wozniak designed the machines. The venture capitalist, Mike Markkula, also brought in administrative and engineering help, helping the two original entrepreneurs do all the things a growing company needs: organize marketing, control production, hire personnel, organize management, develop accounting and finance, and invest inn more R&D. The rest is, as they say, history.

Once a company begins to have some success, it grows to meet demand. In Apple's case, it also creates demand by devising products that offer greater ease of use of new technology ("for the rest of us"), are beautiful in design, and well-made. (And if you are wondering about their well-honed abilities in marketing, just visit an Apple Store.) Two employees become thousands of people all over the world. Its one limited outlet (The Byte Shop) becomes the globe, as products are now available online. Its shareholders receive massive value for the risks they took in investing. (Nota bene: I own no Apple stock, but have bought its products for decades.)

But is this company exempt from the moral dimension described above? No. It still applies. In fact, the larger the corporation, the more important it is that they develop a culture of ethical behavior based upon solid moral norms. Specifically, this means paying attention to the social environment, as well as the physical environment.

Come back for Part Three...