Adam Smith proposed that capitalism was uniquely capable, almost alchemically so, of transforming mankind’s selfish impulses to the betterment of the larger society. Adam Smith’s virtuous capitalist baker would bake his bread for his own selfish purpose of making money with its sale. But the competitive market in which he operated meant that the community would be supplied with bread at the lowest possible cost and highest quality, as each baker baked bread as efficiently as possible so that they could profitably sell the bread in the competitive marketplace. The individual baker’s selfish act of baking and selling bread was tinged with altruism in its effects. All fine and well.
But Smith didn’t fully acknowledge the conditions necessary for the baker to accidentally benefit society with his baking, or that those conditions were almost always, in some measure, lacking.
The first condition precedent to Smith’s virtuous capitalism is a well-defined and sufficiently enforced regime of property and contract rights. It did the baker no good to bake bread if he couldn’t even be sure that the bread so baked belonged to him. And contracts the baker might make with others for the delivery of raw materials—with the miller who ground the flour, with the miner who dug the coal for his ovens– had to be enforceable and enforced, at the point of a bayonet if necessary, else he couldn’t manage his quality and costs in a manner that would yield profitability. The virtuous capitalist was absolutely dependent on a viable governmental infrastructure protecting property and contract rights. So the virtuous capitalist necessarily stood for law and order, no matter how desperately corrupt (or perhaps the more so the more desperately corrupt) was the regime providing it.
There had also to be a competitive market into which the capitalist’s wares might be sold if Smith’s alchemy was to properly function. A monopolist baker who could charge whatever he wished for his bread provided very little benefit for the larger society, instead capturing the benefits of his efforts for himself. And Smith didn’t acknowledge that the first thing a successful competitor in the marketplace would try to do with the profits his success engendered would be to attempt to make the market less competitive. He would lobby the self-same government upon which he depends for enforcing property and contract rights to impose laws and regulations favoring him over his competitors. If he became big enough that he could effectively turn the market infrastructure provided by the government to his own purposes, the alchemy failed, and the virtuous capitalist’s selfishness was not abrogated by any altruistic effects. It would be selfish capitalism run amok.
The capitalist’s efforts to make less competitive through government fiat the markets in which he competed accrued to the revenue side of his profit equation. But to the cost side of the equation accrued the most insidious of the virtuous capitalist’s selfishness. The capitalist makes more money the less his cost of production. In so far as human labor is a factor of production, his incentive is to pay the bare minimum that he can for the efforts of his laborers. In Smith’s own England, at the beginning of the Industrial Revolution and thereby shortly after Smith’s treatise on the virtues of capitalism was published (On the Wealth of Nations in 1776), poor houses had to be constructed and funded by the government for the capitalist’s workers who were paid so niggardly that they hadn’t even the means of sustaining themselves. Smith’s virtuous capitalist turned rapacious and free-loading, exploiting the labor markets so far as he was able, imposing costs on the broader society to bolster his own profitability. Smith’s alchemy conclusively failed. Marxism arose in defiance of the claim that capitalist and capitalism was inherently virtuous.
Thus is revealed the internal contradictions straining at Smith’s Panglossian view of capitalism. The capitalist is not at all virtuous, not even alchemically so. He seeks only his own gain at the expense of others. But it is ultimately others for whom he produces his wares. And when all the capitalists behave in such a manner, when all of them similarly exploit the labor markets to pay the lowest price possible for labor, the whole capitalist edifice collapses on itself. Capitalism run amok produces plenty of bright and shiny goods, but very few people who can afford them. Demand collapses. In essence, this is what happened during the Great Depression. As capitalists hoarded all the wealth that accrued from the lower costs of new processes and technologies incidental to the Industrial Revolution, demand collapsed, and with it, a good many capitalist enterprises. Capitalists produced the rope upon which they hung themselves, and with quite cheaply acquired labor. So much so that only they could afford to buy it.
But it is not only in the employment realm that capitalists seek a free ride on the larger society. The virtuous capitalist cares no more for the environment than he does for the laborer. He is continually compelled to impose his costs of production, as they affect the larger environment in which he operates, on the community at large. China’s experiences over the last several decades offer a perfect attestation to the reality. China’s virtuous capitalists, usually members of the Chinese Communist Party, have turned many of China’s urban areas into barely livable environmental hells. And it was easy for the Chinese capitalist to do so, because he and the Chinese government charged with protecting public assets, like clean water and air, were often one and the same. But the phenomenon is not unique to China. Environmental degradation has happened in every country where capitalists and capitalism gained purchase. In England in the 19th century, the smog from coal fires was so thick in London that the local moths evolved a darker color. And in the US West during the same time, the salmon runs of the mighty Columbia were so overfished that only a remnant of their former abundance remained by the turn of the century. These are but a few examples of what free-loading capitalists, hell bent on reducing costs by imposing them elsewhere, have done in the service of virtue.
Capitalists are inherently free loaders, relentlessly seeking to have others pay for the costs of their operations. Their exploitative impulses can only be thwarted by the power of the collective, i.e., by government, and the governments of capitalist economic systems are often coopted by the capitalists upon whom they depend for their sustenance. The capitalist impulse is not often thwarted, without which a great uprising of the people is required.
Capitalists depend upon government force for their continued accumulation of ever bigger piles of capital (i.e., profits). Governments must protect their accumulated fortune from confiscation by the people, else the virtuous capitalist is stripped of the bounty his virtuosity afforded him.
But capitalist economic systems are inherently unstable because they are inherently inequitable—profits accumulate in the hands of the capitalist and few others–and the people hired to defend and enforce the inequities eventually have more in common with those opposing the accumulation of such great fortunes than with the capitalists enjoying its benefits. But with globalization, the inequities can accumulate to a more brazenly unjust level before a tipping point is achieved, as international conclaves and movements of exploited workers and societies are much harder to coalesce across national and linguistic barriers. And sporadic dissent movements scattered across the globe have little effect on diminishing the power and wealth concentrated in international capitalists and the governments they manipulate to their advantage.
Pope Francis, the Roman Catholic pontiff and thereby the head of the only international organization capable of speaking for billions of exploited people, gets it. And he has spoken. In his recent papal exhortation, Francis recognizes the inherent inequities of globalized capitalism:
Just as the commandment “Thou shalt not kill” sets a clear limit in order to safeguard the value of human life, today we also have to say “thou shalt not” to an economy of exclusion and inequality. Such an economy kills. How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points? This is a case of exclusion. Can we continue to stand by when food is thrown away while people are starving? This is a case of inequality. Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.
Human beings are themselves considered consumer goods to be used and then discarded. We have created a “throw away” culture which is now spreading. It is no longer simply about exploitation and oppression, but something new. Exclusion ultimately has to do with what it means to be a part of the society in which we live; those excluded are no longer society’s underside or its fringes or its disenfranchised – they are no longer even a part of it. The excluded are not the “exploited” but the outcast, the “leftovers”.
This is powerful stuff. Imagine had the bishops of England been as concerned with the plight of the poor that instead of building poor houses, they built an equitable economic system, one which recognized that the exploitation of workers would inevitably doom laissez faire capitalism to failure, and then exported that model across the globe? Instead of exporting slavery (India and the Americas) and environmental exploitation (the British trading companies), they had exported equity.
The Pope tackles the exploitation of workers from the moral angle. He could just as well have attacked it from a practical level, observing that it destroys from within the capitalist system which allows it. Global capitalists have concentrated interests in continuing the exploitation scheme. Global labor’s interests are more diffused. There are few among the labor community who understand that so long as the Bangladeshi garment worker is allowed to be treated as a “leftover”, all are leftovers; that so long as any laborer is likewise exploited, all are. Perhaps Pope Francis can galvanize an international labor movement that transcends, like the globalized capitalists transcend, national and linguistic boundaries. The coalescence of some sort of worker movement seems the only possible way that the inherent contradictions and inequities of capitalism, particularly as it is globally practiced, won’t result in its cataclysmic destruction through depression or war or crisis.
The point of an economic system, of any economic system, must necessarily be the material well-being of its members. When an economic system produces only a risible few who reap the bounties of its operation, the system has necessarily failed of its essential purpose. In the global economic system, the one that has arisen after the end of the Cold War during this latest era of Pax Americana, the vast majority of the members of the system have seen very little material improvement. It is a moral imperative that people not be treated as leftovers. But it is a practical imperative that the riches produced by man are not hoarded by only a few men and denied to the majority of them.
The Pope attacked a favorite shibboleth of the capitalist apologists, the idea that massive fortunes accumulated by dint of allowing capitalists’ their exploitative strategies will trickle-down to the ones being exploited:
In this context, some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting. To sustain a lifestyle which excludes others, or to sustain enthusiasm for that selfish ideal, a globalization of indifference has developed. Almost without being aware of it, we end up being incapable of feeling compassion at the outcry of the poor, weeping for other people’s pain, and feeling a need to help them, as though all this were someone else’s responsibility and not our own. The culture of prosperity deadens us; we are thrilled if the market offers us something new to purchase. In the meantime all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us.
It should first be noted that the kernel of truth in the idea of the trickle-down theory—that if capitalists are allowed to get rich, their doing so benefits society at large through the innovation and efficiencies they develop, and that even a bit of wealth actually trickles down—does not apply to an open economic system. American capitalists can get quite rich exploiting foreign labor markets without bringing a favorable return to anyone but themselves back home. The foreign laborers might enjoy some marginal benefit at having been employed, and thereby earning steady wages just enough to eke out a wretched and dismal existence, but domestic workers lose out. Ever since the globalization of the economic system, the notion that wealth trickle downs to the lower classes is but a quaint, archaic idea.
All those first-world-ers who marvel at the latest trinket or bauble to arrive from the leading-edge tech behemoths (e.g., Apple and its serial releases of iPhones, iPads, etc.) need to understand that their purchases entrench the exploitation of workers in lesser developed countries. Apple makes its iPhones mainly in Chinese factories. While conditions in those factories compare favorably to those in, say, the Bangladesh garment industry, where the exploitation of workers is several magnitudes greater, they don’t approach any sort of utilitarian ideal—suicides are a routine happenstance in the company towns and villages created by Apple’s contractors–and the pay is so low that the workers can’t even afford to buy the gadgets they manufacture. The exploitation hurts Apple along with the workers. By how many multiples would the potential market for Apple products be increased if people everywhere could afford to buy them? Apple is free-riding on the world’s labor market, counting on national boundaries to keep wages relatively high in enough areas that demand won’t suffer so much by its impulse to pay its contract workers as little as possible. The wage exploitation can be clearly seen in Apple’s outrageous profit margins, upwards of thirty percent, on what amounts to very inexpensive-to-produce electronic commodities.
Apple is not an Adam Smith capitalist. It is not an unintentionally altruistic and virtuous capitalist delivering the best good or service at the lowest possible price. Exploiting workers to keep its costs artificially low, it nonetheless charges market prices for its products, reaping the accruing windfall for its own coffers. When all capitalists do as Apple does, and they necessarily must in the Darwinian dog-eat-dog paradigm of globalized capitalism, the potential for market demand to grow in a manner beneficial to their long run interests is greatly impaired. The irony is that if someone or something required, in a legitimately enforceable way, all employers to pay some sort of international minimum wage, doing so would mainly accrue to the benefit of capitalists, as the greater wealth dispersion yielded profoundly more robust market demand. No capitalist produces a good or service for some abstract market. Goods and services are produced by people to be used and consumed by people. The competitive nature of the marketplace means that no capitalist will unilaterally act to improve its treatment of laborers (though some precious few realize their enlightened self-interest compels better treatment, they are reluctant to do so without which it is required). And piecemeal policies cobbled together to protect specific and discrete bands of employees of diverse nationalities will always be swept away in the relentless tide of globalized capitalist competitors seeking the lowest cost inputs.
Perhaps the most profound of the Pontiff’s economic musings then follow:
One cause of this situation is found in our relationship with money, since we calmly accept its dominion over ourselves and our societies. The current financial crisis can make us overlook the fact that it originated in a profound human crisis: the denial of the primacy of the human person! We have created new idols. The worship of the ancient golden calf (cf. Ex 32:1-35) has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose. The worldwide crisis affecting finance and the economy lays bare their imbalances and, above all, their lack of real concern for human beings; man is reduced to one of his needs alone: consumption.
While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules. Debt and the accumulation of interest also make it difficult for countries to realize the potential of their own economies and keep citizens from enjoying their real purchasing power. To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide dimensions. The thirst for power and possessions knows no limits. In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market…
Indeed, man is reduced to one of his needs alone, consumption, reminiscent of Albert Jay Nock’s lament about the onslaught of “mass men” in the early twentieth century in his Memoirs of a Superfluous Man. To Nock, a mass man is not psychically human. He is just an animal propelled to follow his belly and his loins wherever they might lead, making him easily manipulable by the power-and possession-driven psychopaths in his midst known adoringly as capitalists, or making him desire that he might also join their ranks. Steve Jobs was one of the most admired men on earth by the time of his death, yet he was also one of its most cynical in the manner with which he manipulated the public’s craven desires.
But the idolatry of money is a uniquely human phenomenon. No species except Homo sapiens tries to accumulate possessions and power wildly exceeding any possible need they might have for them in their lives. It is only humans who will relentlessly accumulate power and things beyond their existential needs. It is only humans who strive for immortality through accumulation. The source of all evil in the world is the unmitigated desire to accumulation. It is not power itself that is evil—all creatures need the power of freedom to do as they require in meeting their existential needs. Nor is it money or possessions which are inherently evil. All creatures must acquire the possessions necessary to life. It is the uniquely human desire to accumulate beyond that which is necessary that is the source of all evil. It is the human desire to extend one’s life beyond the grave through accumulation that provides the justification for treating fellow humans as mere implements for achieving grand designs. That is the essence of human evil.
Christ offered a different path to eternal life than relentless acquisition and Pope Francis extols his path in his exhortation. Christ admonished that it is harder for a rich man to get into heaven than for a camel to pass through the eye of a needle because a rich man necessarily serves himself while Christ admonishes that eternal life depends upon serving others.
How could a capitalist get to heaven? It’s simple: share the wealth. Pay people according to the value they create instead of according to the lowest cost that is required to compel them to work. Imagine how many would clamor to work for Walmart if it shared its profits with its employees. Imagine how wealthy would the workers at Apple’s contractors become were they paid a portion of Apple’s profits. Imagine how many more tech gadgets Apple could sell if everyone did the same. To imagine that one man, or group of men, could take a company like Apple and make it so fabulously wealthy is to make an idol of men. It took everyone to make Apple rich. Everyone who helped along the way should profit commensurately with their contribution. A capitalist who had the idea that he would lead his company in a manner that enriched its employees as much as it did him would be a man who would be welcomed with open arms at St. Peter’s gates. Leadership is service, pure and simple. Properly done, it is exactly the opposite of selfishness, which is exactly as Christ taught.
The Catholic Church is finally led by a pontiff who seeks to live as closely as possible to the ideals espoused by Christ (his first act upon ascension to the papacy was washing the feet of convicts), and one who appears unabashedly willing to apply Christ’s ethics to the existential struggles of today. While I have focused here on Pope Francis’ ideas about modern globalized capitalism, the rest of his missive carries essentially the same message—that God’s grace is for everyone and its essence is treating others as we would wish to be treated. I am neither Catholic nor Christian, but I aspire (and repeatedly fail, as do all others) to live as Christ taught.
Pope Francis writes in a style reminiscent of St. Augustine’s, perhaps the greatest of all Christian theologians and philosophers. He is forceful and clear, while also managing to be elegant and magisterial. For anyone wondering what Christianity is, or what it should be, this papal exhortation issued by Francis is a good place to start. Read it and marvel at the wonder of a Pope who is focusing the Church on service instead of sanctimony. Pope Francis not only understands that leadership is service, he happens also to be remarkably gifted in his capacity to explicate the truth. The Catholic Church did well in electing him its leader. The world will be a better place for it.