Capitalism: Morality and the money motive
Growth’s guilty secret: the capitalist system is able to lift people out of poverty but struggles to create a just society
by: John Plender
At first sight the spectacular stock market bubble that has wreaked havoc on the Shanghai and Shenzhen exchanges in recent weeks appears uniquely Chinese. It was, after all, substantially fomented by the state, no doubt with a view to recapitalising rocky government-owned enterprises on the cheap thanks to stratospheric share prices.
Yet the difficulty Beijing has had in propping up the market since the recent plunge demonstrates the limits of China’s authoritarian, interventionist model of capitalism. A bubble is a bubble regardless of location. Taming the capitalist beast turns out to be as tricky in China as it is in the west.
China illustrates on an epic scale a fundamental truth about the capitalist system it embraced in 1978 under the leadership of Deng Xiaoping. It has a phenomenal capacity to lift people out of poverty.
Yet it does so at a cost, which is not just about the tendency of capital to tyrannise dehumanised workers in the early stages of industrialisation; nor about the rigours of creative destruction and the turbulent cycles that have marked the system from the industrial revolution up to the great financial crisis of 2008; nor again the rising levels of inequality that have accompanied capitalism in recent decades — especially in the English-speaking countries and in China.
There is a more fundamental question of legitimacy, relating to the central role of the money motive — greed, in a word — in driving economic growth. As the economist John Maynard Keynes is said to have remarked, “capitalism is the astonishing belief that the nastiest motives of the nastiest men somehow or other work for the best results in the best of all possible worlds”.
This concern about the moral character of money goes back at least as far as Plato and Aristotle. In Laws, Plato’s Athenian speaker accused business of “breeding in men’s souls knavish and tricky ways”. Aristotle, too, frowned on trade, which he regarded as both ignoble and prone to undermine civic commitment. Then there was Jesus, who had no time for the rich, and St Paul, who remarked that the love of money was the root of all evil.
Business people have had as bad a press as business itself. From antiquity to the present day, the vulgarity and pretension of the nouveau riche businessman has been ruthlessly satirised by novelists and dramatists, the supreme examples being the repulsive guests at Trimalchio’s banquet in Petronius’s Satyricon and Molière’s Monsieur Jourdain, who delighted in the discovery that he had spent a lifetime speaking prose. Nineteenth-century novelists such as Balzac, Dickens, Zola and Dostoevsky excelled in the portraiture of miserly ogres and business rogues. In the modern age few authors, with the notable exception of Ayn Rand, have trumpeted the social benefits of wealth creation in novels or poetry.
We have to acknowledge that for much of history anti-business sentiment has been a given of the political and social structure, which helps explain why capitalism has been such an uncomfortable implant into the cultures of both the west and east. The values of Plato and Aristotle, intermediated by the 13th-century philosopher Thomas Aquinas, survived in Europe into the feudal era. At that time, power and wealth came from land — aristocrats looked down on commerce. Arms, estate management and the church were the only careers suitable for nobles. They had no time for the bourgeois virtues of thrift and enterprise.
The same was true in much of Asia. Early Confucian scholars in China taught that there was a hierarchy of callings — The Four Occupations — which started with gentleman-scholars and ran via rural peasants, then artisan-craftsmen, down to lowly merchants and traders. In the similarly stratified feudal society of Japan over many centuries before the Meiji restoration of 1868, the social hierarchy descended from samurai, to farmer, to artisan and finally to the merchant, who was at best regarded as a necessary evil.
Why did so much opprobrium attach to business and finance? The economic context provides part of the answer. For centuries there was little or no growth in per capita income. Without growth, trade seemed a zero-sum game where one man’s profit inevitably inflicted loss on another man. The moral basis of trade thus appeared dubious.
That prejudice began to erode first in the Islamic world, where the Prophet Mohammed was pro-trade, though anti-finance. In China a progressive commercialisation between the 10th and 17th centuries, under the Song and Ming dynasties, saw a loosening of the occupational categories and the absorption of rich merchants into the landowning gentry — though China’s bureaucracy was still a powerful brake on the development of a capitalist economy.
Business’s long march to semirespectability in Europe started in earnest with the Italian city states. Between the 12th and 14th centuries, merchants and bankers melded into a powerful ruling aristocracy, severing the link between power and land. Their economies became money-based and proto-capitalist in the sense that they were rooted in market exchange and supported by reasonably clear property rights. Boccaccio, in The Decameron, was even able to declare that “merchants are cleanly and refined men”.
In the 17th and 18th century the intellectual climate saw a step change. In the aftermath of devastating religious wars in Europe, philosophers such as Grotius, Spinoza and Hobbes attacked the militaristic values that had prevailed through the middle ages and the anti-materialism of the Christian tradition. Their aim, in the interests of securing peace and stability, was to divert people away from military heroics and a preoccupation with eternal salvation to prosperity in the here and now. At the same time writers such as Cervantes in Don Quixote lampooned the heroic values of the medieval aristocracy, while La Rochefoucauld in Maximes emphasised human hypocrisy, self-interest, vanity and greed rather than chivalric virtue.
Then came Adam Smith, with his glorification in 1776 of self-interest in The Wealth of Nations. The 18th-century French political philosopher Montesquieu tried to make trade respectable by writing in De L’Esprit des Lois: “ … the natural effect of commerce is to lead to peace. Two nations that trade together become mutually dependent: if one has an interest in buying, the other has one in selling; and all unions are based on mutual needs.”
The rules of the game changed dramatically in the second half of the 18th century with the industrial revolution, which embodied the workings of what we now know as capitalism — the system that would lift millions out of grinding poverty.
The snag was that red-blooded capitalism brought with it the extremities of the business cycle and an even more extreme financial cycle, prompting savage critiques — not least from Marx and Engels, who were shocked by capital’s tyrannising over labour. Schiller, in his Letters on the Aesthetic Education of Man, fulminated about the triumph of utility over art, while Oliver Goldsmith, in his poem “The Deserted Village”, highlighted the social disruption that arose from the urbanisation that accompanied industrialisation.
Among the most perceptive critics was Goethe. In Faust, especially in his story of the great land reclamation project that Faust undertakes with Mephistopheles, he anticipates critiques of capitalism that followed later in the 19th century.
Today in the developed world, the harshest features of capitalism have been softened by state intervention, albeit at the cost of ever increasing public debt. Yet the worry about the moral basis of capitalism remains. Ever contradictory, Keynes tried to put the best complexion on it in The General Theory : “Dangerous human proclivities can be canalised into comparatively harmless channels by the existence of opportunities for money making and private wealth, which, if they cannot be satisfied in this way, may find their outlet in cruelty, the reckless pursuit of personal power and authority, and other forms of self-aggrandisement. It is better that a man should tyrannise over his bank balance than over his fellow citizens.”
It is an intriguing insight, but one that stretches the pro-money case, with its seeming implication that if only Hitler, Stalin and Mao Zedong had each been given a textile factory to run at an early age we might have been spared the worst horrors of the 20th century.
Capitalism has its eternal verities. One is that it has not and will never create the political economy of a just society. Another is that boom and bust, together with severe financial crises, are permanent features of the system. The Chinese bubble, like the financial crisis of 2008 in the west, is a salutary reminder of that fundamental truth.
This article is based on John Plender’s book Capitalism: Money, Morals and Markets, published by Biteback this month.
Yet the difficulty Beijing has had in propping up the market since the recent plunge demonstrates the limits of China’s authoritarian, interventionist model of capitalism. A bubble is a bubble regardless of location. Taming the capitalist beast turns out to be as tricky in China as it is in the west.
China illustrates on an epic scale a fundamental truth about the capitalist system it embraced in 1978 under the leadership of Deng Xiaoping. It has a phenomenal capacity to lift people out of poverty.
Yet it does so at a cost, which is not just about the tendency of capital to tyrannise dehumanised workers in the early stages of industrialisation; nor about the rigours of creative destruction and the turbulent cycles that have marked the system from the industrial revolution up to the great financial crisis of 2008; nor again the rising levels of inequality that have accompanied capitalism in recent decades — especially in the English-speaking countries and in China.
There is a more fundamental question of legitimacy, relating to the central role of the money motive — greed, in a word — in driving economic growth. As the economist John Maynard Keynes is said to have remarked, “capitalism is the astonishing belief that the nastiest motives of the nastiest men somehow or other work for the best results in the best of all possible worlds”.
Business people have had as bad a press as business itself. From antiquity to the present day, the vulgarity and pretension of the nouveau riche businessman has been ruthlessly satirised by novelists and dramatists, the supreme examples being the repulsive guests at Trimalchio’s banquet in Petronius’s Satyricon and Molière’s Monsieur Jourdain, who delighted in the discovery that he had spent a lifetime speaking prose. Nineteenth-century novelists such as Balzac, Dickens, Zola and Dostoevsky excelled in the portraiture of miserly ogres and business rogues. In the modern age few authors, with the notable exception of Ayn Rand, have trumpeted the social benefits of wealth creation in novels or poetry.
We have to acknowledge that for much of history anti-business sentiment has been a given of the political and social structure, which helps explain why capitalism has been such an uncomfortable implant into the cultures of both the west and east. The values of Plato and Aristotle, intermediated by the 13th-century philosopher Thomas Aquinas, survived in Europe into the feudal era. At that time, power and wealth came from land — aristocrats looked down on commerce. Arms, estate management and the church were the only careers suitable for nobles. They had no time for the bourgeois virtues of thrift and enterprise.
The same was true in much of Asia. Early Confucian scholars in China taught that there was a hierarchy of callings — The Four Occupations — which started with gentleman-scholars and ran via rural peasants, then artisan-craftsmen, down to lowly merchants and traders. In the similarly stratified feudal society of Japan over many centuries before the Meiji restoration of 1868, the social hierarchy descended from samurai, to farmer, to artisan and finally to the merchant, who was at best regarded as a necessary evil.
Why did so much opprobrium attach to business and finance? The economic context provides part of the answer. For centuries there was little or no growth in per capita income. Without growth, trade seemed a zero-sum game where one man’s profit inevitably inflicted loss on another man. The moral basis of trade thus appeared dubious.
That prejudice began to erode first in the Islamic world, where the Prophet Mohammed was pro-trade, though anti-finance. In China a progressive commercialisation between the 10th and 17th centuries, under the Song and Ming dynasties, saw a loosening of the occupational categories and the absorption of rich merchants into the landowning gentry — though China’s bureaucracy was still a powerful brake on the development of a capitalist economy.
Business’s long march to semirespectability in Europe started in earnest with the Italian city states. Between the 12th and 14th centuries, merchants and bankers melded into a powerful ruling aristocracy, severing the link between power and land. Their economies became money-based and proto-capitalist in the sense that they were rooted in market exchange and supported by reasonably clear property rights. Boccaccio, in The Decameron, was even able to declare that “merchants are cleanly and refined men”.
In the 17th and 18th century the intellectual climate saw a step change. In the aftermath of devastating religious wars in Europe, philosophers such as Grotius, Spinoza and Hobbes attacked the militaristic values that had prevailed through the middle ages and the anti-materialism of the Christian tradition. Their aim, in the interests of securing peace and stability, was to divert people away from military heroics and a preoccupation with eternal salvation to prosperity in the here and now. At the same time writers such as Cervantes in Don Quixote lampooned the heroic values of the medieval aristocracy, while La Rochefoucauld in Maximes emphasised human hypocrisy, self-interest, vanity and greed rather than chivalric virtue.
Then came Adam Smith, with his glorification in 1776 of self-interest in The Wealth of Nations. The 18th-century French political philosopher Montesquieu tried to make trade respectable by writing in De L’Esprit des Lois: “ … the natural effect of commerce is to lead to peace. Two nations that trade together become mutually dependent: if one has an interest in buying, the other has one in selling; and all unions are based on mutual needs.”
The rules of the game changed dramatically in the second half of the 18th century with the industrial revolution, which embodied the workings of what we now know as capitalism — the system that would lift millions out of grinding poverty.
The snag was that red-blooded capitalism brought with it the extremities of the business cycle and an even more extreme financial cycle, prompting savage critiques — not least from Marx and Engels, who were shocked by capital’s tyrannising over labour. Schiller, in his Letters on the Aesthetic Education of Man, fulminated about the triumph of utility over art, while Oliver Goldsmith, in his poem “The Deserted Village”, highlighted the social disruption that arose from the urbanisation that accompanied industrialisation.
Among the most perceptive critics was Goethe. In Faust, especially in his story of the great land reclamation project that Faust undertakes with Mephistopheles, he anticipates critiques of capitalism that followed later in the 19th century.
Today in the developed world, the harshest features of capitalism have been softened by state intervention, albeit at the cost of ever increasing public debt. Yet the worry about the moral basis of capitalism remains. Ever contradictory, Keynes tried to put the best complexion on it in The General Theory : “Dangerous human proclivities can be canalised into comparatively harmless channels by the existence of opportunities for money making and private wealth, which, if they cannot be satisfied in this way, may find their outlet in cruelty, the reckless pursuit of personal power and authority, and other forms of self-aggrandisement. It is better that a man should tyrannise over his bank balance than over his fellow citizens.”
It is an intriguing insight, but one that stretches the pro-money case, with its seeming implication that if only Hitler, Stalin and Mao Zedong had each been given a textile factory to run at an early age we might have been spared the worst horrors of the 20th century.
Capitalism has its eternal verities. One is that it has not and will never create the political economy of a just society. Another is that boom and bust, together with severe financial crises, are permanent features of the system. The Chinese bubble, like the financial crisis of 2008 in the west, is a salutary reminder of that fundamental truth.
This article is based on John Plender’s book Capitalism: Money, Morals and Markets, published by Biteback this month.
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