It was a mild October evening with the moon peeking through the clouds as I entered the WSHU Public Radio building at Sacred Heart University in Fairfield, Connecticut, for a debate on capitalism versus socialism. The distinguished panelists were seated at the front of the room, with two podiums flanking them — one on the left and the other on the right — from which they would make their arguments and defend their positions. It was standing-room only, with a mixture of undergraduate students, professors and members of the community in the audience as the debaters began their opening remarks, alternately praising the economic ideals of Adam Smith and of Karl Marx. Both sides delivered compelling opening statements that captivated the audience, judging by the quiet attention with which they sat.
While my own predispositions are solidly capitalist, I believe Professor Bill Yousman (who argued for the socialist position) deserves credit for acknowledging in his opening remarks the dangerous political path that socialism took in the 20th century. If we are going to have a serious debate about both capitalism and socialism, this is a point we must never forget. This is not to say that capitalism is without its sins. As Yousman noted, here in the United States there are approximately 40 million people living in poverty today. That is an incredible statistic that should cause all of us to pause and ask: Can we do better as a nation? It is certainly fair to judge a society at least in part by how its most vulnerable members are treated. It comes back, however, to the question of what is the best way to lift people out of poverty and raise their standards of living, which is what the capitalism versus socialism debate is all about.
During the Q&A session, I wanted to probe a bit, so I asked the socialist debaters if they thought there were any good economic policies coming out of the current U.S. federal administration, particularly given the current strength of the economy, and that real wages for lower income workers in particular have been rising at impressive levels over recent periods. Although there was general acknowledgement of this phenomenon, it was pretty much brushed aside as the socialists noted that the average worker was only earning an additional few hundred dollars a month, while folks like Jeff Bezos, the founder of Amazon, continued to make many millions more. If only I had had a chance to be on the panel myself, I would have brought up the counterpoints that Prime Minister Margaret Thatcher made during her final speech and the ensuing questions she received before the House of Commons on November 22, 1990. Below is the relevant excerpt:
Mr. Hughes: “There is no doubt that the Prime Minister, in many ways, has achieved substantial success. There is one statistic, however, that I understand is not challenged, and that is that, during her 11 years as Prime Minister, the gap between the richest 10 percent and the poorest 10 percent in this country has widened substantially. At the end of her chapter of British politics, how can she say that she can justify the fact that many people in a constituency such as mine are relatively much poorer, much less well housed and much less well provided for than they were in 1979? Surely she accepts that that is not a record that she or any Prime Minister can be proud of.”
The Prime Minister: “People on all levels of income are better off than they were in 1979. The honorable Gentleman is saying that he would rather that the poor were poorer, provided that the rich were less rich. That way one will never create the wealth for better social services, as we have. What a policy. Yes, he would rather have the poor poorer, provided that the rich were less rich. That is the Liberal policy.”
When I first studied the works of Adam Smith’s The Wealth of Nations, I was reminded by my economics professor at the time to think back to the period of its writing not far removed from the period of European feudalism — a time in which one’s birthright determined one’s future — and how Smith’s work was as much a cry for individual freedom as it was an economic system. This point was underscored when Professor Lucjan Orlowski (who argued the capitalist side) held up a piece of the Berlin Wall during the debate. He noted: “Capitalism relies on freedom of the individual rather than uniformity of social values,” and “innovation is embedded in capitalism.” Building upon this, Professor Burton Spivak (also on the capitalist side) pointed out the tremendous wealth that has been created under capitalism since its inception, and how this represents a significant multiple of all the previous wealth created. What, then, are capitalists to think of the socialist critiques today? Are they to simply be ignored?
These are good questions to ask, and such criticism is healthy because it gives a system such as capitalism the opportunity to reform itself and to do better. Case in point, on August 19, 2019, the Business Roundtable released a new statement on the Purpose of a Corporation, which was signed by 181 CEOs who committed to lead their companies for the benefit of all stakeholders — customers, employees, suppliers, communities and shareholders alike. This is a strong step in the right direction, and one that I suspect would not have been possible without tough questions being asked.
Does more need to be done to improve capitalism? Certainly. I think back to a CEO I worked with early on in my career. He was very successful, and also an intellectual who liked to reflect upon the works of the great political economists such as Adam Smith, David Ricardo and John Maynard Keynes, among others. To this day, I am really not sure why he took all the time he did to talk with me about these topics, but I will always be grateful. One day, he asked what I was reading. I told him I was studying The Wealth of Nations by Smith. He said “Good, Michael. But what about part one?” I asked, “part one?” He said, “Michael, The Wealth of Nations was never meant to be separated from Smith’s first work, The Theory of Moral Sentiments, and doing so can be dangerous to society.” I did not fully appreciate the knowledge he had shared with me at the time, but he certainly did plant an important seed. Below is a brief summary on the ending of The Theory of Moral Sentiments from the Adam Smith Institute that I believe illustrates the importance of “book one,” and the counterbalance it brings to The Wealth of Nations:
“Smith ends The Theory of Moral Sentiments by defining the character of a truly virtuous person. Such a person, he suggests, would embody the qualities of prudence, justice, beneficence and self-command.
Prudence moderates the individual’s excesses and as such is important for society. It is respectable, if not endearing. Justice limits the harm we do to others. It is essential for the continuation of social life. Beneficence improves social life by prompting us to promote the happiness of others. It cannot be demanded from anyone, but it is always appreciated. And self-command moderates our passions and reins in our destructive actions.”
Capitalism has created the greatest amount of good for the greatest number of people because it is tied to individual spirit and free enterprise — calling upon the higher instincts of mankind and leveraging our inbuilt desire to seek a higher purpose in our work. This stands as the antithesis of socialism, a system that is ultimately built upon redistribution and which fails in no small part because it appeals to our baser human instincts, while simultaneously ignoring the incentives that drive individual action.
As has been said many times before, sooner or later, the socialist runs out of other people’s money to redistribute, and that is its inherent flaw. That does not mean the capitalist should be dismissive of all the criticisms emanating from the socialist; instead, the capitalist should use these critiques as an opportunity to reflect and to strengthen the foundations of our free enterprise system with reforms such as those coming out of the Business Roundtable. And perhaps, just perhaps, there are a few centuries-old lessons still waiting for us in Adam Smith’s other book, The Theory of Moral Sentiments that could make capitalism even stronger today!
As I left the WSHU building, a cold front had moved in, the moon was hidden behind the clouds, and a cold rain began to pound the rooftops. As miserable as the weather was, I remained uplifted by the debate I had just participated in, and I was invigorated to have seen all of the undergraduate students in attendance. To my surprise, many of them had spoken up in defense of capitalism.
Michael D. Herley is a second-year DBA in finance candidate at Sacred Heart University, which has campuses in Connecticut, Luxembourg and Dingle, Ireland.