CHAPTER 4
The Nature of Capitalism
Learning Objectives
After completing this chapter students should be able to:
Think critically about the ethical underpinnings of capitalism, its history and evolution, positive and
negative aspects, and alternative economic systems.
Understand the mechanics and morality of each of the four features of capitalism—the existence of
Glossary
1. alienation: Becoming a stranger to humanity—one‘s own humanity and the humanity of others.
Dehumanization and demonization can be considered to be forms of alienation when we no longer
appreciate the reality of others being “humans” or “people.” Karl Marx argues that capitalism
causes people to lose an understanding of what it means to be human and they no longer see
themselves or others as being fully human. For example, exploitation is when a capitalist sees her
workers as being a “means to her ends.” They are to be “used” by her to make a profit and their
needs are not important to her.
2. capitalism: An economic system where people complete to make a profit and the ownership of the
means of production (resources and machines) are mainly owned by “the private sector” rather than
the government.
3. corporate welfare: Subsidies (money and resources) given to corporations from the government.
4. economic system: The way a society organizes business and money, such as capitalism,
communism, socialism, and feudalism. Economic systems should be distinguished from systems of
government.
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Chapter Summary Points
1. Capitalism is an economic system in which the major portion of production and distribution is in
private hands, operating under a profit or market system. Socialism is an economic system
characterized by mainly having public ownership of property and a planned economy.
2. Capitalism has gone through several stages: mercantile, industrial, financial, state welfare, and
globalized.
3. Four key features of capitalism are the existence of companies, profit motive, competition, and
private property. In particular, natural resources and means of production are owned by the
private sector.
Teaching Suggestions
Chapter 4 is the main starting point of “applied ethics”—an attempt to know the difference between right
and wrong in various situations. In this case, we want to know which economic system is “justified,”
“right,” or “best.” This presents a good opportunity to (a) analyze various philosophical arguments, (b)
apply normative theories through argument and debate, and (c) remind students how to apply logic to
their arguments. This can be done through class discussion, but it’s also an opportunity to help the
students analyze the arguments and assumptions.
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I will discuss three objections to Locke’s argument:
(a) If we have a natural right to property, that doesn‘t mean that no other moral considerations are
relevant. A natural right to property doesn’t guarantee that free market capitalism is morally justified
because we know that there are other important considerations that could be more important than our
right to property. A right to property can conflict with our right to autonomy and living a decent life. For
example, capitalism is compatible with “wage slavery”—being forced to work in horrible conditions
because it’s necessary for survival. An example of wage slavery was oppressive versions of
This objection raises the question—should the government or community share ownership of natural
resources or the means of production?
(c) According to Locke, it’s wrong for the wealthy to horde their wealth (resources, means of
production, and money) without leaving enough for others, but capitalism doesn’t require the wealthy to
do so. Capitalism often creates famines precisely because people have been taking the world‘s resources
without leaving enough for others.
2. The invisible hand. I have already discussed Locke’s invisible hand argument. He thinks a free market
can lead to quality products, hard workers, and low prices; and therefore benefit society as a whole.
I will give two objections to the invisible hand argument:
(a) Locke assumes that people are rational and well-informed. Rational and well-informed people will
buy the best products from the most ethical businesses at a reasonable price rather than shoddy products
from unethical businesses at overly high prices. However, it‘s not obvious that people are rational or
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This objection raises some questions. One, how rational or informed must people be for the invisible hand
to function? Two, how rational and informed are people?
(b) Locke’s invisible hand argument requires the assumption that we have a “free market” but we‘ve
never had a free market and such an ideal is unlikely to occur in the near future. The subsidies, tariffs, and
tax loopholes enjoyed by large corporations give some corporations an unfair advantage over the
Questions for Discussion
Introduction
What exactly is the nature of the economic system called capitalism? What are its underlying values,
principles, and economic philosophy? What has it accomplished, and what are its prospects for the future?
This chapter examines these and related questions. Do you agree?
Companies
“It’s not in the company’s interests . . . ’’ “The company thinks that . . . ’’ “From the company’s
viewpoint . . . ’’ “As far as the company is concerned. . . ’’—all of us have heard, perhaps even used,
expressions that treat a business organization like a person or at least like a separate and distinct entity.
Such personifications are not mere lapses into the figurative but bespeak a basic characteristic of
Profit Motive
Modern or not, profit in the form of money is the lifeblood of the capitalist system. Companies and
capitalists alike are motivated by a robust appetite for profit. Indeed, the profit motive implies and reflects
a critical assumption about human nature: that human beings are basically economic creatures who
Moral Justifications of Capitalism
Justifications for capitalism aren’t generally enough to fully justify it because there are many objections to
capitalism. We must consider both arguments for and against capitalism to decide if it‘s justified.
Additionally, we need to compare alternative economic systems to capitalism to see if anything else is
better. The arguments for or against capitalism are inconclusive until we can find out which economic
system is most justified.
Today’s Economic Challenges
The end of this chapter examines some of the more specific socioeconomic challenges facing the United
States today. These include (1) the decline of American manufacturing and the related problems posed by
the outsourcing of jobs and the growing U. S. trade deficit; (2) business’s obsession with short–term
results; and (3) changing attitudes toward work. Which of these challenges do you think is the most
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pressing and significant? What other challenges do you think face the United States today?
Additional Resources for Exploring Chapter Content
Further Reading
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