The document provides an overview of capitalism including its definition, key historical developments, and moral justifications and criticisms. It defines capitalism as an economic system with private ownership operating under a profit/market system. Key topics discussed include the Protestant work ethic, Marx's critique of exploitation, alternative views emphasizing benevolence over self-interest, and alternatives to capitalism from Buddhist, Christian, and Islamic perspectives emphasizing social justice, charity, and the common good.

1. Business Ethics IMBA 2013
Lecture 6 Ethics of capitalism
Prof. dr Ronald Jeurissen

2. Goals for Today
• Defining capitalism
• Overview of historical developments in
capitalism
• Moral justifications and criticisms of
capitalism
• Alternatives to capitalism
• Fixing capitalism
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3. Capitalism defined
• “An economic system in which the major
portion of production and distribution is in
private hands, operating under what is termed
a profit or market system” (Shaw & Barry)
• Emerged in Western Europe in the 18th
century
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4. Capitalism Today: Five Defining Features
1. Existence of companies (as legal entities)
2. Profit motive
3. Competition
4. Private property (capital, means of
production)
5. Regulation (anti-trust, labour law, anti bribery
etc.)
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5. Marx’s definition
• M-C-M' cycle. The M-C-M' cycle is the
transformation of money (M) into commodities (C),
and the change of commodities back again into
money (M') of increased value.
• Using money to make more money, based on the
exchange value of goods.
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6. Max Weber: The protestant ethic and the
spirit of capitalism, 1904
Protestant Spirit of capitalism:
innerworldly •zeal and temperance
asceticism: •hard work
Secularized into
Calvin and the •frugality
English Puritans •save and invest
considered the •time is money
economic attitudes – •profit maximization
thrift, diligence,
sobriety, frugality,
work in a calling – as
Christian virtues.
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7. Benjamin Franklin
"Remember, that time is money. He that can earn ten shillings a day by his
labor, and goes abroad, or sits idle, one half of that day, though he spends
but sixpence during his diversion or idleness, ought not to reckon that the
only expense; he has really spent, or rather thrown away, five shillings
besides.[...]Remember, that money is the prolific, generating nature. Money
can beget money, and its offspring can beget more, and so on. Five
shillings turned is six, turned again is seven and threepence, and so on, till
it becomes a hundred pounds. The more there is of it, the more it produces
every turning, so that the profits rise quicker and quicker. He that kills a
breeding sow, destroys all her offspring to the thousandth generation. He
that murders a crown, destroys all that it might have produced, even scores
of pounds.”
Benjamin Franklin, Advice to a Young 7
Tradesman, Written by an Old One, 1748.

8. Werner Sombart: Capitalism as hedonism
Capitalism emerged from the demand for new consumer goods by a young
bourgeoisie, who had an urge to resemble nobility. Sombart sets the origin of
capitalism in a context of hedonism, which is interpreted as the bourgeoisie's
desperate mimicry of the feudal aristocracy. The then emerging accumulative and
profit-oriented system was, according to Sombart, not triggered by protestant
ideologies or the introduction of an interest-based economy, as in Marx and Weber,
but by extravagance, by taking pleasure in non-functional things, by trinkets and
knick-knacks, which promoted a desire to have more money. This desire for more
'money' is therefore equivalent to striving for similarity with something (with nobility),
but also to simultaneously depreciating and desiring something else (women), and to
gaining economic power.
W. Sombart, Luxus und Kapitalismus, 1922. (Luxury and capitalism)
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9. A Brief History of Capitalism *
• Emerged in the Renaissance
– Prior to that: guilds made products to order
– Businesses were a way to make a living, no profit
motive
• 14th century, Augsburg, Germany: Anton
Fugger became a weaver in 1380.
– Began collecting and selling other weavers’
products
– Employed many weavers, paid them for labor
– Son Jacob took over
* Source: Moral Issues in Business (8th ed.), by W. Shaw & V. Barry, published by Wadsworth.
Full article is available on the Portal
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10. A Brief History of Capitalism
• 15th century: Grandson Jacob II built dynasty
– Expanded to metals and textiles
– Financed the Habsburg wars
– In exchange for monopoly rights
on copper and silver
– Traded the ores and bought the mines
 Fugger controlled all means of production
 The company existed outside of family members
 Financial gain was pursued for its own sake
 Profits were measured in money, not land
http://upload.wikimedia.org/wikipedia/commons/c/c0/Albrecht_D%C3%BCrer_080.jpg
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11. A brief history of capitalism
• Early Western Capitalism 17th – 18th century
• Industrial Capitalism 19th century
• State welfare Capitalism 20th century
• Shareholder Capitalism 20th – 21 st century
• Global Capitalism 21st century – ?
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12. A Brief History of Capitalism
Early capitalism: 17th century, Mercantilism
– Rise of modern states; ambitious and aggressive
– Rise of the modern merchant class
– Glorification of the merchant
– Close unity between states and merchants
– Emergence of large scale international trade
– Focus on international trade surplus
Thomas Mun, ‘England’s Treasure by Forraign Trade,
or the Balance of foraign Trade is the Rule of our
Treasure’ (1630)
http://www.knowledgenews.net/moxie/todaysknowledge/meet-the-robber-barons.shtml
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13. United East India Company (VOC, 1602)
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14. ‘Heeren 17’ (17 gentlemen)
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15. A Brief history of capitalism
Industrial Capitalism 19 th century
– Industrial revolution
– Hard-driving, visionary
entrepreneurs: “Robber Barons”
(Rockefeller, Carnegie, etc)
– Opposition of capital and labour
– Economic liberalism
– Labour organisation, socialism
– Concentration and imperialism
– Stagnation (WW I; Great Depression)
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16. 16
A. Von Menzel, Das Eisenwalzwerk

17. A brief history of capitalism
Welfare capitalism: 20th century
- Keynesianism, marco economic planning
- Managerial capitalism
- Military-Industrial-Bureaucratic complex
- Marketing and the consumer culture
- Decolonisation and development aid
- Environmental awareness
- Stagnation from the 1980’s onward
- Financial and debt crisis as a result of structural
overspending
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18. Consumer culture
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19. A brief history of capitalism
Shareholder capitalism: 20th – 21st century
– Finance driven, leverage
– High risk orientation
– Market for corporate control
– Deregulation
– Flexibilisation, outsourcing, offshoring
– Increased social inequality
– Popular protests, decline of social trust and cohesion
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20. 20

21. A brief history of capitalism
Global capitalism: 21st century – ?
•Science based innovation
•Rapid industrialisation and rise to power of
developing countries
•Multipolar world
•Global macro-economic policies
•Global environmental problems
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22. Is Capitalism Morally Justifiable?
Three main moral justifications:
• Principled: People have a fundamental right to
property (Locke) – capitalism is the natural
outcome of this right
• Utilitarian: Ultimately, it works out for the greater
good (Smith)
– More efficient than any other system
• Copes with man’s vices (realistic, robust)
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23. Market economy: The invisible hand
“He intends only his own gain, and he is in this, as in many
other cases, led by an invisible hand to promote an end
which was no part of his intention. Nor is it always the
worse for the society that it was not part of it. By pursuing
his own interest he frequently promotes that of the society
more effectually than when he really intends to promote it. I
have never known much good done by those who affected
to trade for the public good. It is an affectation, indeed, not
very common among merchants, and very few words need
be employed in dissuading them from it.”
Adam Smith, Wealth of Nations, 1776, Book IV, ii, 9
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25. ‘Private vices, public benefits’, Mandeville
(1670-1733)
“They that examine into the Nature of Man, may
observe, that what renders him a Sociable
Animal, consists not in his desire of Company,
Good-nature, Pity, Affability, and other Graces of
a fair Outside; but that his vilest and most hateful
Qualities are the most necessary
Accomplishments to fit him for the largest, and,
according to the World, the happiest and most
flourishing Societies.” (Fable of the Bees, 1724,
Preface)
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26. Milton Friedman, ‘Free to choose’
http://www.youtube.com/watch?v=D3N2sNnGwa4
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27. Criticisms of Capitalism
• Lingering (accelerating) inequality
– Income
– Opportunities / access (e.g., health care)
• Faulty assumptions about human beings
– Rational
– Autonomous
– Acquisitive
– Motivated by self-interest
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28. Alternative views to the self-interest paradigm
• Shaftesbury, Characteristics of Men, Manners, Opinions, Times,
(1711): The human mind also contains “passion, humour,
caprice, zeal, faction and a thousand other springs, which are
counter to self interest”.
• Richard Cumberland, A Treatise of the laws of nature (1727):
Men are lead by a principle of “benevolence”. Men in their social
motions follow a path conducive to the preservation of society.
• Joseph Butler, Sermons (1726): Natural human motives fall into
two categories, one “respecting self, and tending to private
good”, and the other respectiving society, and tending to
promote public good, the happiness of the society”.
• Ha-Joon Chang, 23 things they don’t tell you about capitalism
(2010): “Indeed, if the world were full of the self-seeking
individuals found in economics textbooks, it would grind to a halt
because we would be spending most of our time cheating, trying
to catch the cheaters, and punishing the caught”. (Thing 5).
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29. Criticisms of Capitalism
• Competition is faulty
– Breeds oligopolies (e.g., food industry)
• Exploitation, alienation and dehumanization
– Externalisation of costs
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30. Marx’s criticism
“The directing motive, the end and aim of capitalist production, is to
extract the greatest possible amount of surplus value, and
consequently to exploit labour-power to the greatest possible
extent. As the number of the co-operating labourers increases, so
too does their resistance to the domination of capital, and with it,
the necessity for capital to overcome this resistance by
counterpressure. The control exercised by the capitalist is not only
a special function, due to the nature of the social labour-process,
and peculiar to that process, but it is, at the same time, a function of
the exploitation of a social labour-process, and is consequently
rooted in the unavoidable antagonism between the exploiter and
the living and labouring raw material he exploits. .“ (Marx, Capital,
Vol. 1. Ch. 12)
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31. The paradox of choice
“Having too many choices produces
psychological distress, especially when
combined with regret, concern about status,
adaptation, social comparison, and perhaps
more important, the desire to have the best of
everything – to maximize”.
(G. Schwartz, The paradox of choice: Why more is
less, HarperCollins, New York, 2005, p.221.)
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32. Alternatives to capitalism
• Buddhist, Christian and Islamic views
• Occupy movement
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33. Buddhism: right livelyhood
the eightfold path towards Nirvana
1 right view
2 right intention
3 right speech
4 right action
5 right livelyhood
6 right effort
7 right mindfulness
8 right concentration
Right livelyhood is the step of particular interest from an economic
perspective. Right livelyhood is a way of making a living that does
not harm others.
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34. Buddhism: right livelyhood
"To practice Right Livelihood (samyag ajiva), you have to find a way
to earn your living without transgressing your ideals of love and
compassion. The way you support yourself can be an expression of
your deepest self, or it can be a source of suffering for you and
others. " ... Our vocation can nourish our understanding and
compassion, or erode them. We should be awake to the
consequences, far and near, of the way we earn our living.“
Thich Nhat Hahn, The Heart of the Buddha's Teaching,
Parallax Press, 1998, p. 104.
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35. P.A. Payutto, Buddhist economics
“The question of consumption is similar to that of value. We must distinguish which
kind of desire our consumption is intended to satisfy: is it to answer the need for
things of true value, or to indulge in the pleasures afforded by artificial value?
Consumption is said to be one of the goals of economic activity. However, economic
theory and Buddhism define consumption differently.
Consumption is the alleviation or satisfaction of desire, that much is agreed.
Modern economics defines consumption as simply the use of goods and services to
satisfy demand. Buddhism, however, distinguishes between two kinds of
consumption, which might be termed "right" consumption and "wrong"
consumption. Right consumption is the use of goods and services to satisfy the
desire for true well-being. It is consumption with a goal and a purpose. Wrong
consumption arises from tanha; it is the use of goods and services to satisfy the
desire for pleasing sensations or ego-gratification.”
http://www.urbandharma.org/pdf/Buddhist_Economics.pdf
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36. Christian view: The common good
• “7. Another important consideration is the common good. To
love someone is to desire that person's good and to take
effective steps to secure it. Besides the good of the individual,
there is a good that is linked to living in society: the common
good. It is the good of “all of us”, made up of individuals, families
and intermediate groups who together constitute society. It is a
good that is sought not for its own sake, but for the people who
belong to the social community and who can only really and
effectively pursue their good within it. To desire the common
good and strive towards it is a requirement of justice and
charity.”
Pope Benedict XVI, Charitas in veritate, 2009
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37. Christian view: Option for the poor
The "[preferential] option for the poor" refers to a trend, throughout
the Judeo-Christian Bible, of preference being given to the well-
being of the poor and powerless of society. Jesus taught that on the
Day of Judgment, God will ask what each person did to help the
poor and needy: "Amen, I say to you, whatever you did for one of
these least brothers of mine, you did for me."
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38. Islamic economics
There is great emphasis in Islam on social and economic justice. This
justice is possible only when all sections of society can fullfil their
economic needs. Therefore, even people who are unable to take part in
the economic competition and those who need help to get started in it
should have their chances to exist as well. The goals of socio-economic
justice and equitable distribution of income and wealth are integral
parts of the moral philosophy of Islam. The poor and the needy are
entitled to a share of the society’s wealth. Thus, Zakat has central
importance in Islamic society. Everybody is permitted to accumulate
wealth that is left over after meeting one’s legitimate and reasonable
commitments and after giving a percentage of one's income to charity.
Another major tool for achieving socio-economic justice is the
prohibition of Riba to avoid any unfair advantage in exchange dealings
between parties.
http://www.financialislam.com/the-islamic-economic-system.html
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39. Occupiers
Initial Statement
This initial statement was collectively agreed by over 500 people on the steps of St Paul’s on 16 October
2011. Like all forms of direct democracy, the statement will always be a work in progress and is used as
a basis for further discussion and debate.
1.The current system is unsustainable. It is undemocratic and unjust. We need alternatives; this is where we
work towards them.
2.We are of all ethnicities, backgrounds, genders, generations, sexualities dis/abilities and faiths. We stand
together with occupations all over the world.
3.We refuse to pay for the banks’ crisis.
4.We do not accept the cuts as either necessary or inevitable. We demand an end to global tax injustice and our
democracy representing corporations instead of the people.
5.We want regulators to be genuinely independent of the industries they regulate.
6.We support the strike on the 30 th November and the student action on the 9 th November, and actions to defend
our health services, welfare, education and employment, and to stop wars and arms dealing.
7.We want structural change towards authentic global equality. The world’s resources must go towards caring for
people and the planet, not the military, corporate profits or the rich.
8.The present economic system pollutes land, sea and air, is causing massive loss of natural species and
environments, and is accelerating humanity towards irreversible climate change. We call for a positive,
sustainable economic system that benefits present and future generations.
9.We stand in solidarity with the global oppressed and we call for an end to the actions of our government and
others in causing this oppression.
10.This is what democracy looks like. Come and join us!
http://occupylsx.org/?page_id=575
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40. Assignment: fixing capitalism
• Identify a problem in the market economic
system (any problem, large or small, local or
global), and develop a solution.
• Structure your argumentation along the Stock
Issues Model.
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41. Stock issues model
1.There is a problem
2.The problem is serious
3.The probleem is inherent to present policy
4.There is an alternative that solves the problem
5.The advantages of the alternative outweigh the
drawbacks
6.The alternative is workable