What is Moral Capitalism?

Moral Capitalism is a field theory that integrates intangible moral considerations with traditional micro and macro economic postulates. In sum, Moral Capitalism asserts that interest and virtue are not necessarily in conflict; that virtue is an extension of interest rightly understood.

From the perspective of contemporary academic philosophy, the framework of Jugen Habermas most closely supports this approach to private property and free markets as preferable institutions for human civilization. Habermas points out that human actors engage a variety of realities in the course of performing their individual and collective discourses while alive in this Red Dust world.

One reality is what Habermas calls “Normativity” – the perceptional realities of the mind, the heart and the conscience. From dreams to ordinary thought in conventional languages, from mystical insight to scientific formulae, the realm of the mind and the spirit powerfully attracts the human being.

Another realm, equally compelling and controlling, is what Habermas calls “Facticity” – the material realities of hard and soft, night and day, steel and cotton. Habermas’s important suggestion is that human beings live in both realms and in the various dynamic interpenetrations between them. Ideas can be imposed on material conditions by human actions; material facts can change and so shape human ideas.

Moral Capitalism holds that business must partake of Normativity as well as of Facticity.

The role of Normativity

Material conditions alone do not suffice for business success. Most tellingly, capitalism did not arise in any of the worlds traditional cultures save one – Calvinism. This is the famous observation of Max Weber which has yet to be contradicted, if not yet fully explained. A religious context – a normative platform – consistently favored certain behaviors over others. Those behaviors provided for new social relationships of partnership, trust, and exploitation of technical inventions in order to produce new products and services in a dynamic of permanently expanding markets and economic opportunities. Thus was born the system which has come to provide the foundation for global human civilization.

Material conditions conducive to the birth of capitalism existed in China under the Sung Dynasty and in the city states of Tuscany in the 1400’s but neither China nor northern Italy converted such conditions to full-bore capitalism. Some necessary spark was missing; there was no prairie fire though the surrounding grass was dry enough.

Trust and confidence nourish business success. Reputational assets – good will and reliable, productive employees – attract custom and financial investment.

The expectations cultivated and preserved by good laws protecting rights of contract and free markets, punishing fraud and oppression and preventing theft, must be in place before business will be transacted in any significant scope and at levels of substantial risk.

Business and capitalism manipulate the impact of risk by providing rewards for those who invest and act in the present to achieve some benefit in the future. The mental state of taking risk, of gaining assurance that probable rewards offset present risk, is a function of mind in the realm of Normativity. To risk or not to risk draws on emotions and psychology as much as on rational analysis. It is a cognitive presence, not a material substance. Business cannot be without such mental efforts.

Now, risks and rewards turn on the actions of others. Business actions reach out to embrace the needs and motivations of others. Here again normativity comes into play. The actions of one are constrained by the need to comprehend and respond to the actions of others. Power in free market transactions is constrained by the need for mutuality and reciprocity. Our self-interest must be understood in a certain way: it must be understood upon the whole set of circumstances. It is self-interest placed within an ethical envelope.

Naked self-interest is quickly exposed and checked by others. Advantages quickly won through abuse of power can be as quickly lost. To do business on a sustained basis, ethical behaviors are sine-qua-non. A spiritual presence at the level of Normativity provides direction for such successful behaviors.

Successful capitalist business endeavor, then, is an infusion of spirit into matter through human agency, or a shaping of material conditions through human agency to reflect spiritual direction. Spirit gives meaning to matter and matter makes spirit manifest in the corporeal realm, objectifying it and reifying it.

Nowhere is this fusion more necessary than in the process of valuation of assets. The inducement to action and investment, the reduction of hopes to concrete measures, proceeds from placing value on some thing or course of action. The level of value ascribed – the value of a dollar, the price of a company – is purely normative and subjective. Yet the consequences of believing in a valuation are thoroughly factual playing themselves out in the realm of action and material circumstances.


The Role of Facticity

Factual circumstances contribute in their own independent right to a necessary moral dimension of successful private enterprise. Every successful business needs constructive relationships with its stakeholders – customers, employees, owners and other contributors of financial resources, suppliers, a strategy for market competition, and communities, including the physical environment. This state of affairs is effectively denoted by the Japanese concept of Kyosei –or the symbiosis that every living organism has with its supporting environment.

The factual reality of business is dependency on others: on customers for their trade, on employees for the quality and quantity of their productive efforts, on owners and lenders for working cash capital, on suppliers for appropriate inputs, on communities for conditions of law and order, trust, infrastructure, and other public goods. A business without customers is a failure; a business without workers is hardly worth discussion; a business without access to money is only somebody’s idea.

The wise business not only understands this reality, but finds opportunities to make a profit by serving the needs and desires of all its stakeholders. Business acumen is a kind of chemistry, mixing disparate elements to create new realities through dynamic interactions. The factual context is to advance one’s own interest by attending to the interests of others. This is one’s “self interest understood upon the whole”, which is an ethical state of mind. One’s use of power is constrained by consideration of its effects on others. Even a crassly calculated self-interest – if it considers all things upon the whole -rises above the “survival-of-the-fittest” egoism of brutish social Darwinism.

The approach of Moral Capitalism posits that stakeholder relationships each have a moral quality. That of customers is to set the value orientation of markets. That of employees is to be agents to a principal – fiduciaries. A company similarly owes fiduciary duties to its owners and similar obligations of transparency and accountability to its creditors. The relationship with suppliers partakes of a joint venture and its duties of mutual dependency. And, a company has an office – a set of responsibilities – to provide for the economic betterment of society.

When the range of key stakeholder relationships are considered, a theory of the firm under conditions of Moral Capitalism emerges. A moral firm takes as inputs five forms of capital – reputation capital, social capital, human capital, finance capital and physical capital. It converts these forms of capital into a product or a service, which is sold to customers for a price. Some proceeds of sales are returned as “rental payments” for the forms of capital used in production.

The stocks of necessary capital – factors than exist in the realm of facticity – each in its own way demands concern and consideration for the needs of stakeholders. Capital, then, is a social product, drawn from relationships of interdependency in a system of interactions. Capital cannot be created through selfish autonomy; it has a social or interpersonal essence and so transcends individual genesis.

Successful use of capital demands that its nature not be violated through excessive selfishness. Such exploitation reduces capital from an asset to a commodity that is consumed and not renewed. A business so destroying the source of its creative powers will soon be bankrupt.

The approach of Moral Capitalism is also informed by Adam Smith’s treatise on The Moral Sentiments, Catholic Social Teachings on human dignity, solidarity, and subsidiarity, Calvinist understandings of ministry and stewardship, common law requirements for fiduciary duties, Daoist writings on change, and Buddhist presentations on mindfulness.