André Comte-Sponville is a popular French philosopher. When I say “popular” I mean that his writing sells books. One of his bestsellers is entitled Is Capitalism Moral? In a nutshell, he says that capitalism cannot be an activity constrained by anything other than the laws of the market, which are not moral but technical. Not your stereotypical French leftie spouting warmed-over Marxism, certainly, but much too glib nevertheless. Michael Moore, in his film Capitalism: A Love Story , posits that Americans have been sold a bill of goods — so to speak — concerning capitalism, uncritically accepting that market forces dictate life and if you play along, sooner or later you’ll get rich. Too bad that Mr. Moore makes his point with heavy-handed theatrics, in effect creating propaganda. As we contemplate the inability of the American economy to lift itself out of the depression that has devastated our common life, there is a temptation to say that capitalism is all wrong, immoral. However, alternatives were tried in the twentieth century, and they failed. The bloodbaths that drowned communist and national-socialist economies ended them (hard to remember that the Nazis were economically at least socialistic…) Or else to insist that the market will make all things right again, if only we lower taxes , get rid of government regulations, red tape, blah-blah-blah. Reaganomics ending up requiring the largest peacetime tax increases in history in order to avoid bankrupting the country. Now we’re almost there again… Complex economies are, well, complex, with all kinds of actors, including government, finance, manufacturers, service providers, and of course, millions of consumers. And it seems to be a tried-and-true fact that across all sorts of human differences, the best way to distribute goods and services is market capitalism. So is capitalism going to come to the rescue? No. Because what we are living under is not market capitalism, but something else. Market capitalism does work according to the laws of supply and demand, and markets need to be regulated to the extent that they remain open to all. The stock markets should be sources of capital, investors willing to place their surplus money (capital) into ventures that will have a reasonable chance of returning a profit. Those markets need regulation as well, since boom-bust cycles result from unbridled speculation. Of course, anyone investing in a business, whether directly or through stock ownership, is taking a risk — speculating. But there is a second level in which the instruments of speculation — stocks and bonds — become themselves marketed commodities. Mutual funds, which hedge risks by owning a spread of different financial instruments, are perhaps the simplest example of these. Those companies that go to the capital markets for investments become responsible to their shareholders. Being publicly traded means that corporate managers need to keep the stock value and dividends in mind as they make decisions in their particular markets. Now it used to be that if you wanted to get into the stock market, you would go to an investment counselor, a broker who had trading rights in the stock market, and after selecting what you wanted, you became part of a partnership of brokers all of whom had their own money invested as well. Things changed in the 80s, as brokerages became more and more aggressive and finally became publicly-traded themselves. For more, read Michael Lewis’ Liar’s Poker and his much more recent The Big Short . The minute a company is publicly traded, it loses some control, because it becomes responsible not only to its clients — who are the true source of corporate profits — but also to its shareholders, who deserve a return on their investments that underwrite the company’s expansions. Nothing wrong with that, or is there? Not if you are Alcoa or Pepsico. However, if a brokerage firm, whose clients are investors, is itself owned by investors, which investors should the firm favor? In the normal course of things, traders want to limit risk and maximize profits for their clients. I have mentioned the mutual fund, for example. The markets become themselves sources of profits. Commissions aren’t enough for your shareholders, however, because the richer you can make them the more likely they are going to keep you and pay you well. Options and futures aren’t profitable enough, we need other instruments to trade, other markets to create. The firm becomes not a partner with its clients but something else entirely. There is a straight line from this development to Goldman Sachs and other investment banks selling financial instruments to their clients while themselves betting that these instruments would lose money . They sold their own clients short, figuratively and literally. And don’t get me started on the credit rating agencies … Is this capitalism moral? Wrong question, because this ain’t capitalism. This is oligarchy, a few very rich and powerful firms not only selling for their clients but also buying for themselves in the financial markets. And that IS immoral. It excludes most of us, until we end up having to inject our tax dollars — or more exactly, until we borrow those dollars — in order to avoid a complete financial collapse. You and I can’t play their game, but we must certainly keep the people who cause the disaster in business so as to avoid abject poverty, roughly on the order of the Bronze Age. That is profoundly immoral. It is time to get real. In fact, it’s long past time. America needs to create new capital to invest in productive enterprises that will employ people, growing food, inventing new commodities and services, and improving the classic ones. We are not going to do that by selling each other our houses, or opening more fast-food outlets. We need a diversified economy based on market capitalism, not on oligarchs enriching themselves in gigantic shell games played with trillions of dollars. We need to rebuild the intellectual and physical infrastructures that undergird such an economy. That requires taxation. And it also requires regulation of markets. Any politician who will not level with the people about this daunting task has to be voted out. Bring capitalism back! should be our slogan. That is a tall order, because the so-called Masters of the Universe can threaten to destroy the banking system the world depends upon if we touch the source of their strength, namely, the so-called shadow banking system. If you remember Frank Herbert’s novel Dune , you will recall its salient point: the ability to destroy something is in fact to control it. The mountain of money spent to influence governments around the world, starting with the United States, is also a giant obstacle. If we continue down the primrose path of tax reduction, deficit increases, and oligarchical manipulation of capital markets, there will be a much greater depression . The Arab Spring should be teaching a lesson: “tipping points” happen, and suddenly the game changes, taking everyone by surprise. The scales will fall from the people’s eyes. A strongman will arise to “save” us, at the cost of our republic. History does repeat itself — Ave Caesar, Heil Hitler, Stalin Save Us … sound familiar? Finally, we need an economy that allows each person to be not only a consumer but an actor in it. The source of America’s wealth has never been finance, but in those goods and services that entrepreneurs make available to the widest possible audience, er, market. Anyone remember Charles Ives? Yes, the Charles Ives, considered to be America’s greatest composer of music. What does he have to do with this? In his lifetime, Ives was known not for his music but for his knack for taking something and making a lot of people wealthy by making it available to the masses. Life insurance for everyone was one of his dreams. If you have such a policy, it is because Ives felt that they were not just for rich people. When President Wilson wanted to raise money for World War I, he asked Ives to take it on. Ives promptly created bonds denominated so that the most ordinary patriot — economically speaking — could own at least one. It was a howling success. There have been huge numbers of examples since. There can be plenty more. But only if we break up the oligarchies and start practicing real capitalism again. A place to start: if you want to buy a stock, make sure your broker doesn’t have shareholders to answer to. Better yet, make sure she’s invested too. This didn’t answer the question I started with, I know. I think a morality of capitalism can be defined and defended, and that capitalist immorality therefore can be described in principle. It has to do with the notion of the common good. But that is for another day. Meanwhile, bring back capitalism!
