on the inefficiency (and inhumanity) of capitalism
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Economics Without Morality is Inefficient
Essay:
In this essay, I will question the efficiency of modern economics, particularly that of the
prevalent neoliberal economics, focusing specifically on the efficiency of competition, the
profit motive, and private property. In each case, I will question how they improve efficiency
and thus what efficiency is in such economic thought . Subsequently I will critique that view
by adding a moral constraint to show that efficiency solely in terms of markets and financial
profit alone does not benefit society generally, but rather promotes an increased wealth for
a minority, often at the expense of the majority. With the moral constraints I propose, this
new definition of profit will therefore lead to a more just society.
The Right to Life
Much of the following argument is based on an important assumption, that the right to
property is secondary to the right to life. Life precedes property, for no-one can ownproperty without first owning their life. Though property rights are often considered to have
developed out of the need to hold personal possessions , to consume that necessary to
sustain life, the permanent right to an exact possession in modern law has evolved, often
superseding the right to life, as later shown.
What follows from this is a new definition of profit. Throughout I will contrast the monetary
definition of profit with a long-term social profit based around economics working for
people rather than people working for economics. This new form of profit is based on the
above assumption and suggests that efficiency isnt just of monetary value, but must
account for the inalienable right to life of each person. This difference is pivotal inunderstanding the inefficiency of the profit motive, competition and private property, as
although it may be possible to bring about greater nominal wealth, it is inefficient, according
to measures of inalienable rights, to concentrate wealth in the hands of a minority: this
social definition of profit, then, is the practical application of the right to life superseding
property.
Profit and the Profit Motive
Perhaps the most popularized argument for the free-market is that while the capitalist
intends only his owngain... he is... led by an invisible hand to promote an end which was
no part of his intention (Smith, 1976, p.477). It is, however, also important to note Smiths
concern for the capitalists greed, as All for ourselves, and nothing for other people, seems,
in every age of the world, to have been the vile maxim of the masters of mankind. (Smith,
1976, p.437) Though considered the founder of modern economics, Smith noted the threat
of an unchecked and individualistic profit motive, arguing that markets do not always
correct themselves; some control is necessary to protect the market from monopolies and
other vested interests.
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Many liberals consider self-interest as rational or part of human nature. Since, in the
formulaic statistical approach of micro and macro economics, utility is often considered no
more than self-interested financial gain, promoting monetary interests over others. With
such assumptions of human nature, the inevitability of competition in producing both
winners and losers leads those winners to logically strengthen their own position , creating a
kind of superstructure perpetuating little but their own success. Thus we have been left with
the terminologies of development economics, where we assume underdeveloped,
developing and developed countries. The linguistics of such categories shows the
normative thought behind it, the assumption that if countries are developed by definition
it seems they have nothing to learn. It therefore becomes acceptable, ifnot a moral duty, to
teach less developed countries the art of profit, providing a justification for paternalistic
development theories.
It is here that John Ruskinnotes the effects of such economic principles, writing that profit
in economics is a zero sum game: for every buyer, there is a seller; one receives only what
another gives. If the art of making money is to take all you can from the buyer perhaps You
sold your bread well today: [but] was it to a dying man who gave his last coin for it and will
never need bread more...? (Ruskin, 1860, p.44) Thus, a brief history of how such
developed countries financed their industrialization usually reveals some form of slavery,
colonialism or coercion. Thus, while this means profit becomes the general maxim to Buy in
the cheapest market and sell in the dearest, it seems that such financial profit usually
comes at a social cost not factored into traditional economic accounting: Charcoal may be
cheap among your roof timbers after a fire, and bricks may be cheap in your streets after an
earthquake; but fire and earthquake may not therefore be national benefits. ( Ibid, p.44)
It is not difficult to see, then, how the art of profit is often the art of exploiting others, andeconomics without such moral constraint leads to such violations of humanity, to the point
at which:
...the pluses, make a very positive and venerable appearance in the world, so that
everyone is eager to learn the science which produces results so magnificent; whereas
the minuses have, on the other hand, a tendency to retire into back streets, and other
places of shade, -- or even to get themselves wholly and finally put out of sight in graves:
which renders the algebra of this science peculiar, and difficulty legible; a large number
of its negative signs being written by the account-keeper in a kind of red ink, which
starvation thins, and makes strangely pale, or even quite invisible ink, for the present.
(Ibid, p.79)
With such self-interest the capitalist may still, as Smith notes, benefit society. He argues that
the farmer, butcher and baker all act in their own self-interest but still provide a service to
society, a better organization through the division of labor. Though such externalities do
benefit society, Ruskin notes those negative externalities which are often forgotten,
products and occupations which damage society, and the majority who suffer due to the
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distribution of such goods. Ruskins hypothesis, then, seems ever more correct the wealthier
society becomes; despite increasing wealth, poverty and inequality continue to grow: in
1830, the ratio in average per capita income was three to one, in 1960 sixty to one, and in
1997 seventy-four to one. (Risse, 2005, p.349).
Competition
Without competition, the profit motive would not be possible. The incentive and
practicalities of making money can only exist in some sort of competitive framework. It is
important to note, then, that those who finish first in any competition do so only in relation
to those who finish second and third respectively. Therefore, in any such competition
inequality is an inevitable result. As results are found and winners receive their prize, their
position is strengthened and thus their ability to reinvest with greater capital, gaingreater
market share, or extract more marginal product from employees. In this framework, Ricardo
defines the natural rate of wages as that which maintains the laborer, but Ruskins appeal to
morality shows that profit for the capitalist does not meangain for all. Instead of an invisiblehand gently pushing towards the benefit of everyone, such competition leads to an
inequality which is much more of a vivid slap in the face for that majority born into poverty.
Ruskin thus changes the priorities of economics, noting that Twenty people cangain money
for one who can use it; and the vital question, for individual and for nation, is, never how
much do they make? but to what purpose do they spend? (Ibid, p.85) Where Ricardo
defines the natural rate of wages, Ruskin questions the very purpose of natural; keeping
laborers on subsistence is beneficial from the capitalists perspective, efficiency and the
natural are thus seen from the interests of an elite. If seeing laborers as mere tools in their
factory and keeping a multitude in poverty for cheap labor is beneficial, then such wages
and conditions are natural according to this view.
It makes economic sense, therefore, for even those working in healthcare to test banned
drugs on children with falsified documents to support ethical consent, and to make their
own product appear more effective by lowering the recommended dose of the control drug
to patients, even if this leads to the disablement and death of children (Ahmad, 2001). The
entire relationship between capital and labor, then, between those who won the
competition and those who have nothing, is based on a power struggle of exploitation.
Without balance, one dominates the other, their interests effectively determining the life of
the other. Until each person has an inviolable right to life, such exploitation can only
continue. Where such exploitation exists, no inviolable right to life does so.
Private Property
What follows competitive markets is inequality, but what permits the legality of the extreme
inequality today is the institution of private property. Permanent property rights allow one
person the legal right to choose to withhold even the means to life. Once we take our first
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assumption, however, the right to life is above property rights requiring a more just
distribution. Even Nozicks Entitlement Theory, ultimately driven by property rights,
acknowledges this priority; a point which when properly expounded erodes propertys
permanence to agree with our assumption :
an owners property right in the only island in an area does not allow him to order a
castaway from a shipwreck off his island as a trespasser... the theory does not say that
owners do not have these rights, but that the rights are overridden to avoid some
catastrophe.(Nozick, 1974, p.180)
Consequently, in moderate scarcity should one person not have justly acquired enough
property for their own consumption while another has justly acquired more than they can
consume, some distribution seems to be required to avoid such catastrophe: the owners
right to deny a person those means of life is overridden because of a greater need. It is this
acknowledgement, that need is greater than property, which demands redistribution for the
sake of social justice, particularly for those who have been born into poverty cycles and who
had no choice in their acquisitions . In this sense, the efficiency of economics is judged by its
ability to fulfill those obligations of social justice, rather than being a summary of collective
wealth by GDP, PPP or some other average statistical measure. Where the natural rate of
anything was defined according to the interests of those capitalists, now natural assumes a
moral constraint which must first be fulfilled: once those inalienable rights of man have
been satisfied, we cangear economics towards industry.
When life precedes property, it becomes logical to conclude that distribution follows need.
It is not a far stretch from here to the familiar slogan From each according to his ability, to
each according to his need (Marx, 1875): only those who have can provide the resources,
only those with need will receive; anything else is unjust, an inefficient catastrophe. In this
vein Proudhon declares Property is robbery! (Proudhon , 1904, p. 3) as it denies what is
the right of those who need it. Empirically, therefore, over 24,000 children die daily, simply
because they lack the basic necessities1.
The problem is not scarcity, as there is enough food despite a 70% global population
increase, as calories per person has increased 17%
(FAO, 2002). That the required
redistribution cannot legally occur without the consent of the owner is due to the
institution of private property. In allowing property to override the right to life, it becomes
clear that those with the power to make the decisions a re doing so for their owngain . That
the richest seven people in the world have more wealth than the collective GDP of the 41
heavily indebted countries and their 567 million people attests to this inconsistency
between the rights to property and the right to life (Shah, 2009).
Economics as Morality
1Children are defined as those aged below five years old, thus the statistics are greater if children aged
between five and sixteen are included. Source: You et al
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Effectively, the debate is reducible to one thing: purpose; for what purpose are modern
economic assumptions established as law? The answer is fairly clear given the historical
basis of the evolution of power, that even voting rights, for example, were subject to
conditions of property ownership. Competition, private property and the profit motive all
serve the interests of a minority who won the competition and thus consolidate their wealth
and power. That minority control has continued to an extent whereby the wealthiest 1% of
the worlds population now own 40% of the worlds resources, and the richest 10% own
85% of the worlds resources (Davies et al, 2006). Almost all of these are from those
developed countries, creating a system of control, whereby entire nations of people are
classed as first, second, or third world, according to their respective wealth, where two
people from different economic situations are considered alien to each other based on how
much money they have.
Such definitions show the bankrupt morality of such principles. Perhaps this stems from the
evolution of economics as a separate subject. The etymology of economics derives from
house, meaning there was no clear distinction made between household management
and the economy, or between politics and economics, or between economic theory and
moral philosophy. (Holloway, 1992, p.160) When separated from the political realm, as
Holloway argues occurred in the transition from the Feudal to the Capitalist system, the end
goal of economics becomes monetary gain. Instead of that transition leading to greater
freedom, only greater poverty and inequality have been achieved; as capital and labor
became free, masters could search the globe for cheap labor, rather than being tied to any
particular serf.
Within such extreme inequality, justice, fairness and even the right to life have been lost.
But if we remove the partiality of those who establish profit motives for their own ends weare left with the conclusion that all people are equal, that life is worth more than property,
and we gain a purpose for wealth beyond the frivolous and useless consumption of scarce
resources (Smith, 1976, p.437). With growing poverty and inequality it is surely becoming
more and more necessary to challenge these assumptions ofneoliberal econo mics to stop,
perhaps, the greatest injustice in the history of mankind .
If the purpose of economics is in the accumulation of money we have our methods. If,
however, we finally see the moral imperatives in repatriating economics with other
disciplines we find a new rationality and efficiency. Where we finally accept the inalienable
rights of each person we allow ourselves the chance to recreate our world and fashionsociety in a manner fair for all. The next step in economic evolution is with us: either we
continue to reap the benefits of the suffering of so many, or we find those moral
imperatives and create our own purpose, to change the course of economics and the lives of
millions of people worldwide.
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