On the Inefficiency (and inhumanity) of Capitalism

8/9/2019 On the Inefficiency (and inhumanity) of Capitalism

1/6

1

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.


2/6

2

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


3/6

3

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


4/6

4

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


5/6

5

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.


6/6

6

Bibliography

Ahmad, K., 2001, Drug company sued over research trial in Nigeria , The Lancet, Volume 358,

Issue 9284, p.815

Davies, J., Sandstrm, S., Shorrocks, A. & Wolff, E., 2006. The World Distribution of

Household Wealth , retrieved from: http://www.wider.unu.edu/events/past-events/2006-

events/en_GB/05-12-2006/, last accessed 15/12/09 at 00:37

Food and Agriculture Organization, International Fund for Agricultural Development, World

Food Program, 2002, Reducing Poverty and Hunger, the CriticalRole of Financing for Food,

Agriculture, andRural Development. Available at:

http://www.fao.org/docrep/003/Y6265e/y6265e00.htm, last accessed 20:04 3/2/2010

Holloway, J., 1992, Crisis, Fetishism and Class Composition, Open Marxism: vol. II.Theory

and Practice, London: Pluto Press

Marx, K., 1970, Critique of the Gotha Programme , New Ed. Moscow: Progress Publishers,

Nozick, R., 1974, Anarchy, State, and Utopia , New York: Basic Books, Inc.

Proudhon, P.J., What Is Property?, New York: Cosimo, Inc. 1904

Risse, M. 2005, How Does the Global Order Harm the Poor?, Philosophy and Public

Affairs, 33, pp.349-76

Ruskin, J., 2007, Unto This Last, Minneapolis, Minnesota: Filiquarian Publishing

Shah, A., Poverty Facts and Stats, 2009: http://www.globalissues.org/article/26/poverty-

facts-and-stats, last accessed 20:07 7/2/2010

Smith, A., 1976, An Inquiry into the Nature and Causes ofThe Wealth of Nations , Chicago:

University of Chicago Press

World Hunger Education Service, 2009. World Hunger Facts 2009. Retrieved from:

http://www.worldhunger.org/articles/Learn/world%20hunger%20facts%202002.htm , last

accessed 20:31 7/2/2010

You, D., Wardlow, T., Salama P., and Jones, G., 2009, Levels and trends in under 5-mortality,

1990-2008, The Lancet, 375, no. 9709 pp.100 -103

Documents

On the Inefficiency (and inhumanity) of Capitalism