“Capitalism needs both a new narrative and new ethical foundation, one that accurately reflects its intrinsic goodness and value.” — John Mackey, “Conscious Capitalism”
Today, I addressed the Principled Business Summit in New York City on the all-important question: “Is the Money-Making World of Capitalism Moral?”
Most of the world condemns capitalism as a dirty, filthy, stinkin’ business, but like politics is a “necessary evil” to achieve material success in life.
The traditional view is that only strict government regulation can protect consumers and citizens from greedy capitalists who, without close monitoring, will engage in price gouging, cutting corners and deceptive business practices, if not outright fraud if they could get away with it.
Even Herbert Spencer, the 19th century Social Darwinist and libertarian, contended that business was like a jungle, inherently chaotic, selfish and rapacious, fraught with fraudulent and unscrupulous practices, such as those used by the robber barons. It was Spencer who came up with the term “survival of the fittest.”
In his article “The Morals of Trade,” Spencer forcefully revealed the “innumerable” forces of “illicit trade” in British commerce. He described various bribes, thefts, false trademarks and tricks of the trade. Even the few honest people in business are, he said, “obliged” to cheat. “It is a startling assertion, but it is none the less a true one, that those who resist these corruptions often do it at the risk of bankruptcy.”
Hopefully, we’ve come a long way from Spencer’s dismal view of “profit maximization at all costs” and exploitative capitalism.
The fact is that capitalists can be heroes — or villains. We read in the media almost daily about how “American greed” leads to frauds and outright theft.
Adam Smith’s Harmonious ‘Invisible Hand’
In reality, you can never completely eliminate the depravity of man. Like the poor, the robber barons of the world will always be with us.
But is there a way to minimize the actions of bad actors in the marketplace and to moderate the passions and crony capitalism?
That was Adam Smith’s mission — to discover a way by which “pursuing his own interest, every individual is led by an invisible hand to promote the public interest.”
He made a breakthrough by discovering a system whereby private actions by individuals could benefit the general public — what we call the “invisible hand” doctrine.
What was the secret to Smith’s system that allowed a free-market commercial society to benefit both rich and poor? Smith described his simple, three-pronged formula this way in “The Wealth of Nations”, published in 1776:
“Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.” (Smith 1965, p. 651; emphasis added).
You see from this quotation that Smith’s model required three elements (highlighted in italics) for the invisible hand to work: justice, freedom and competition. In other words, by funneling the private actions of profit-seeking capitalists through the conditions of dynamic competition and the proper rules of the game, all would benefit.
Proof That the Adam Smith Model Is the Best System to Enhance Business Ethics
The Economic Freedom Index represents the Adam Smith model. It contains five elements:
- Limited government
- Legal system and property rights
- Sound money
- Free trade
- Minimal business regulation
The Economic Freedom Index confirms the Adam Smith model, suggesting that capitalists can achieve high profits without resorting to bribes, fraud or greed. The following chart confirms that Smith’s system of natural liberty leads to less corruption and more prosperity for all.
Source: The Fraser Institute.
Countries that adopt the Adam Smith “system of natural liberty” — maximizing liberty under conditions of “peace, easy taxes and a tolerable administration of justice” — will achieve prosperity and happiness for all.
‘Adam Smith As Hero: The Single Best Book in Economics Today’
Adam Smith and his “system of natural liberty” are the heroes of my book, “The Making of Modern Economics,” a history of the great economic thinkers. It’s now in its fourth edition and published by Routledge.
Every economist is judged by whether they sought to improve upon the “House that Adam Smith Built” (French laissez-faire, Austrian, Chicago and Supply-Side schools) or wanted to tear it down and build their own new model (Marxists, Keynesians, socialists). I have chapters on each school of thought.
To find out what’s in each chapter, go here.
John Mackey, the former CEO of Whole Foods Market, says, “Mark’s book is fun to read on every page. I’ve read it three times and recommend it to all my friends.”
Greg Feirman, manager of Top Gun Financial writes: “Skousen is a brilliant and prolific economist as well as writer of a popular financial newsletter, Forecasts & Strategies, for decades now. Because of his interest in financial markets, Skousen is an economist obsessed with the real-world applicability of his economic ideas. He has written over 20 books, including ‘The Making of Modern Economics’, the best history of modern economics around.”
The late, great William F. Buckley Jr., wrote, “I champion Skousen’s book to everyone. I keep it by my bedside and refer to it often. An absolutely ideal gift for college students.”
And Richard Rahn states, “Mark Skousen has produced the single best book on virtually all of those who have had a significant impact in economics. It’s a delight to read cover to cover.”
Routledge and Amazon charge over $50 for my book, “The Making of Modern Economics.” But I offer a major discount — only $37 — at my website, www.skousenbooks.com. I autograph each copy and mail it for no additional charge if mailed inside the United States.
Personal Note: I will be traveling over the next week to India for the Mont Pelerin Society meetings and a lecture on gross output (GO) before top government officials in India.
Also, I made the Wall Street Journal online Tuesday. Read it here: Opinion | The American Economic Association Snubs Hayek. The 300-plus comments by readers are hilarious.
Update on C-SPAN BookTV: I’m pleased to announce that the BookTV interviews with authors at this year’s FreedomFest have been appearing every Sunday for the past few weeks, and will continue to do so this Sunday with Peter Slen interviewing Rainer Zitelmann on “How Nations Escape Poverty.” For the full schedule, go to Book TV | Series | C-SPAN.org | C-SPAN.org.
Good investing, AEIOU,
Mark Skousen
You Blew it!
Mexico Goes Off the Deep End
by Mark Skousen
Last June, Claudia Sheinbaum, the former mayor of Mexico City, became the next president of Mexico and the first woman president. Like her predecessor, she’s a Marxist who won the presidential election by a landslide margin.
Before leaving office, Mexico’s current president Manuel Obrador — angered by the federal judges who opposed his draconian measures — pushed through a Constitutional amendment requiring all federal judges, including the Supreme Court, to be elected by the public.
The results are laughable. As one commentator noted in Marginal Revolution: “When Mexicans arrive at voting booths next year to elect their judges for the first time, they face a unique and daunting task. In the capital, Mexico City, voters will have to choose judges for more than 150 positions, including on the Supreme Court, from a list of 1,000 candidates that most people have never heard of. For each of the 150 posts, space will be allotted for voters to write out individually the names of up to 10 preferred candidates. Without makeshift solutions such as dividing up the judges into subdistricts, it could take 45 minutes just to fill in the ballot papers, one analyst estimated. Even with such fixes, voters will still have to choose from many dozens of unfamiliar names.”
“It’s impossible,” said Jaime Olaiz González, a constitutional theory professor at Mexico’s Universidad Panamericana. “In no country, not even the most backward, have they proposed a system like this.”
Not surprisingly, the Mexican stock market has fallen 20% since Sheinbaum was elected.
