The Purpose of Capitalism
- Karen Kuykendall
- Jul 18
- 5 min read
Updated: Jul 20
This post is the first in a five-part series that considers the purpose and spirit of capitalism.
What is the purpose of capitalism? Pose this question to 10 different people, and you'll likely get at least 12 different opinions.
Few of us were formally taught about capitalism's true purpose. So, even if we gave the question any thought, we typically reached our opinions based on personal experience or what we witnessed happening to others. As a result, there is a good bit of contradiction and uncertainty surrounding the true purpose of this economic model.
To clear up the confusion, we need to start with the foundational fact that economics is never simply about money; it always involves relationships as well. (Have you ever heard someone say, "It's not personal, it's just business?" We can guarantee you that person is confused about capitalism.) The answer to this question, then, must take those relationships into account.
Directives from both our American judicial system and Christian faith traditions point us back to the words of Jesus: "Do unto others as you would have them do unto you." Similar words exist in other judicial systems and faith traditions. Applied to capitalism, these words speak of mutually beneficial and net positive exchanges for everyone involved. Another term for this kind of interaction would be ethical, or virtuous, capitalism.
To explain the true purpose of capitalism, we turn to one of our guest writers and friends to weigh in. Ken Barnes, who nicely frames the purpose as that of being virtuous writes:
"At its most basic, the driving force for the development of traditional capitalism was framed by a desire to emerge from the drudgery of subsistence living. Now, it is easy to lose sight of just how difficult basic survival was for most of human history. With the establishment of nation-states, emergence of an accessible banking system, improvements in the division of labor, international commerce, laws of incorporation, increases in population, and newfound political and religious freedoms, a post-subsistence existence became a distinct possibility.
Free markets provided a vehicle for enterprising individuals and companies to create the wealth necessary for people to enjoy life, not merely to survive it. For the first time in history, education, healthcare, the arts, democratic government, and countless other benefits were available to large portions of the population and not just the landed gentry. It was a noble purpose and led to economic, technological, and social advances, many of which are still enjoyed today.
As technology advanced at breakneck speed, though, and as the Industrial Revolution brought about previously unimagined improvements in production, the ability for some people to accumulate vast amounts of personal wealth became the primary purpose of modern capitalism. While many of the wealthiest industrialists chose, primarily for religious reasons, not to enjoy the fruits of their wealth, they nevertheless fed the economic ethos that would lead to postmodern capitalism's insatiable appetite for conspicuous consumption. The avarice and hedonism that drives much of capitalism today has led to huge disparities of wealth and an almost palpable contempt for the poor.
Supported by a narrative that distorts liberal economic orthodoxy, governments have colluded with the super-rich to perpetuate the false notion that wealth concentration and economic excesses are necessary evils to be tolerated in order to ensure the efficacy of the free market. This is a completely false notion. While closed economic systems may indeed be less efficient than free-market capitalism, markets themselves are far from infallible and require ethical – and sometimes regulatory – constraint. As fund manager George Soros rightly said:
If we care about universal principles such as freedom, democracy, and the rule of law, we cannot leave them to the care of market forces; we must establish some other institutions to safeguard them.
The general purpose of virtuous capitalism, then, is neither wealth accumulation nor conspicuous consumption but a genuine desire to see the power of free markets used for the purpose of human flourishing. By flourishing I mean wellbeing in all of its forms - economically, socially, spiritually, physically, and politically. In other words, capitalism would once again be the servant, not the master, of humankind (emphasis ours).
Virtuous capitalism would be free enough to create wealth sufficient to benefit all of humanity, while still rewarding those who take reasonable risks, work hard, innovate, and are motivated to succeed. Benefits for the common good would be achieved, not by imposing a utopian egalitarianism or an arbitrary redistribution of wealth, but by creating a new narrative around the purpose of wealth-creation and the development of an ethos of generosity.
Believing that we are all in this together certainly is not a new concept. At the end of the Fourth Gospel, Jesus tells his disciples that if they truly love him, they must 'feed [his] sheep' (John 21:15-19). While it is reasonable to suggest that Jesus was speaking of spiritual food in this passage, we cannot ignore the obvious connotation that his disciples were also responsible for the material wellbeing of their neighbors, as demonstrated by the early church's communal environment (see Acts 2 and 5). At the very least, maintaining a just and properly functioning economic system is paramount to following Jesus's admonition." (Barnes, Redeeming Capitalism, p. 189, 191)
Virtuous capitalism offers people on all levels of society the means to create a comfortable life. It offers workers a living wage for their labor because it's the right thing for employers to do. It compensates entrepreneurs for risks taken because others deal with them fairly. It rewards companies for treating their employees well by creating a dedicated and highly productive workforce.
Does virtuous capitalism offer comfort and rewards in equal amounts to everyone? The answer is a common sense "no," because we understand that some people have the ability to achieve greater success than others. What it does offer, though, is a society where people do not take advantage nor are taken advantage of. It offers a baseline living standard where, if you work hard and are prudent, you can live a good life, enjoying the gifts that it has to offer.
Of course, capitalism cannot achieve its own purpose; that can only be done through individuals engaged in mutually beneficial interactions across our society as a whole. Society as a whole, in turn, is changed by one net positive action at a time.
Are you frustrated with your American Dream being blown up by capitalism that doesn't operate according to its true purpose? You don't have to stay frustrated. You can fix your American Dream by helping return capitalism to its true, virtuous purpose. This begins with each of us, one by one, shifting to the mindset of, "Business is made primarily of personal relationships, and going forward, I will insist on and engage in only relationships that are mutually beneficial."
Our vision is to benefit society by transforming capitalism's current core ethic of 'maximize shareholder value' to the better core ethic of 'optimize mutual value.' We achieve our vision by impacting learning, opinion, beliefs, and policy. Institute for Better Capitalism, Inc.
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