Capitalism has a side of lightness and a side of darkness.

Observations about the bright side go back at least to Montesquieu’s “doux commerce” and are echoed, in similar form, by authors as different as Adam Smith, Joseph Schumpeter, Friedrich Hayek, and John Rawls.

The general idea is that because in commercial societies success (that is, money-making) depends on pleasing others, offering them something they are willing to buy or trade for, the trait of niceness pervades all human behavior and spreads from business deals into personal interactions.

The light side, the “adoucissement des moeurs” (softening of manners), becomes even stronger with the commodification of people’s ordinary lives. In developed capitalist societies, many of our daily transactions do have an ulterior, mercenary motive. And while this is something that at times empties such transactions of their traditional meaning (and thus might present the dark side of commercialized societies), it also makes us behave toward others with consideration and respect. As the sphere of transactionary relations expands, so does the sphere of niceness—compromise and awareness of other people’s preferences and interests.

In a commercialized society, we are interdependent: we cannot satisfy our interests without also satisfying those of other people. Adam Smith’s baker cannot sell his loaf of bread unless he convinces his customer that it is better than other loaves. All of this makes us more polite and cognizant of other people and their needs.

Purely commercial societies are by definition societies where hierarchies, or distinctions among people, are not based on extra-economic criteria like one’s family background or membership in a social order (e.g., the aristocracy or clergy), or even the type of work one does (which, for example, in Hinduism is used to stratify the population).

Hierarchy is based simply on monetary success, and such success is in principle open to everyone.

It is not equally open to everyone in practice, but ideologically it is. Nothing would disqualify those who started at the bottom of the social pyramid and had managed to become rich from receiving as much respect from their peers as if they had started in the middle or at the top. They might even receive more recognition because of the difficulties they had overcome.

Money is a great equalizer, and commercial societies provide the best examples of its power.

The gradual equalization of opportunity for people of different genders, sexual preferences, disabilities, and races additionally makes it possible for members of these formerly disadvantaged groups to attain top positions.

Even more important for our purposes, these individuals do not carry over any stigma from their earlier disadvantaged position: once they have become rich they are as good as anyone else. This, I think, is at its most obvious in the United States, where it is sometimes said that wealth acts as a form of cleansing.

Money “launders” all previous “sins.”

When hierarchy is determined only by wealth, it naturally leads people to focus on acquiring wealth. As Rawls writes: “The social system shapes the wants and aspirations that its citizens come to have. It determines in part the sort of persons they want to be as well as the sort of persons they are”. Systematic rational pursuit of wealth has been, since Max Weber defined it as such, one of the key sociological characteristics of capitalism. Even the “pursuit of happiness,” a famous addition to the US Declaration of Independence (which Jefferson introduced in place of property in the more common expression “life, liberty, and the protection of property”), could be seen as a call to the untrammeled pursuit of wealth—untrammeled by the old-fashioned feudal entrapments of rank and birth—because wealth is, not unreasonably, seen as a proxy (or a key requirement) for happiness. That such a pursuit of wealth would dissolve the extra-economic hierarchy among people was noticed early on by Adam Smith in The Theory of Moral Sentiments.

Smith also noted, in the same work, that there is a danger that this single-minded pursuit of wealth might end in encouragement of amoral behavior. This is why Smith vehemently, but not altogether persuasively, disagreed with Bernard Mandeville’s view of economics, aptly summarized in the title of his book as “private vices, publick benefits”—without denying that the system of “Dr. Mandeville . . . in some respects bordered upon the truth.”

And this leads us to the dark side.

For in reality, Mandeville noticed very early on and very well what was the distinguishing feature of the new commercialized societies. Success depended on stimulating in individuals the most selfish and greedy behavior—behavior that was “mollified” and concealed through the need to be pleasant to others, but which tended to produce falsehood and hypocrisy.

Thus, greed and hypocrisy go hand in hand (and yes, pun very much implied referencing Smith’s “invisible hand”).

Smith saw the danger, worrying that such a literal reading of the spirit of capitalism might lead to moral turpitude or moral equivalence regarding the way wealth is acquired—which for a moral philosopher like Smith was abhorrent. He tried to disprove Mandeville.

But I am not sure he succeeded—not only because he lacked good arguments, but because (I think) Smith himself, at least when he was wearing his economist’s hat in The Wealth of Nations, did not entirely believe that Mandeville’s key insight was erroneous.

For Marx, greed is the product of a “particular social development”; it is historical, not natural. It is inextricably linked with the existence of money. The remarkable paragraph from Grundrisse in which Marx defines greed as “abstract hedonism” is worth quoting in full:

 “Private vices, public virtue”

Greed as such, as a particular form of a drive, i.e., as distinct from a craving for a particular form of wealth, e.g. for clothes, weapons, jewels, women, wine is possible only when general wealth . . . has become individualized in a particular thing . . . money.

Money is therefore not only the object but the fountainhead of greed. The mania for possession is possible without money; but greed itself is a product of a particular social development, not natural, as opposed to historical.

There is little doubt, I think, that Marx would regard greed as a necessary concomitant of the increasing commodification of life. An alternative that would preserve the acquisitive spirit needed for the flourishing of commercialized societies but would keep that spirit in check was to internalize certain forms of acceptable behavior through religion.

This is why Protestantism, in Weber’s reading of it, not only was correlated with capitalist success but was indispensable for maintaining the otherwise incomprehensible eff orts of capitalists (their working and acquiring wealth without consuming it), the decorum of the upper classes, and the acceptance of unequal outcomes by the masses.

It eschewed ostentation and the crude behavior that characterized earlier elites. It was austere: it limited the consumption of the elites and imposed bounds on how much wealth was to be displayed. It internalized the sumptuary laws of the past.

 As John Maynard Keynes observed in The Economic Consequences of the Peace, nineteenth-century capitalism in Britain ensured sufficient popular acceptance of the landlord-capitalist-worker hierarchy that the society did not explode in a revolution of the kind that engulfed, one after another, feudal societies in France, China, Russia, the Habsburg Empire, and the Ottoman Empire.

As long as capitalists used most of their surplus income to invest rather than to consume, the social contract held. The internalization of desirable behavior, that behavior which, in John Rawls’s words, reaffirms in its daily actions the main beliefs of a society, was possible thanks to the constraints of religion and the tacit social contract. It is not clear if societies so dedicated to the acquisition of wealth, by practically any means, would not explode into chaos were it not for these constraints.

Neither of these two constraints (religion and a tacit social contract) holds in today’s globalized capitalism.

The two most important goalposts for monitoring progress are whether concentration of wealth and income from capital is being reduced, and whether intergenerational (relative) income mobility is improving. Both are longer-term indicators, so annual changes might not mean much. But it would be possible to set a goal in this way and to measure at several-year intervals whether progress is being made.

So, to finish this newsletter out I’ll leave you with two quotations.

The first, from Karl Marx and Friedrich Engels, is some 170 years old; the second, from Adam Smith, almost 250 years old.

[The bourgeoisie] compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilization into their midst, i.e., to become bourgeois themselves. In one word, it creates a world after its own image.

 —Marx and Engels, The Communist Manifesto (1848)

 At the particular time when these discoveries [of the Americas and the East Indies] were made, the superiority of force happened to be so great on the side of the Europeans that they were enabled to commit with impunity every sort of injustice in those remote countries.

 Hereafter, perhaps, the natives of those countries may grow stronger, or those of Europe may grow weaker, and the inhabitants of all the diferent quarters of the world may arrive at that equality of courage and force which, by inspiring mutual fear, can alone overawe the injustice of independent nations into some sort of respect for the rights of one another. But nothing seems more likely to establish this equality of force than that mutual communication of knowledge and of all sorts of improvements which an extensive commerce from all countries to all countries naturally, or rather necessarily, carries along with it.

 —Adam Smith, Wealth of Nations (1776)

These passages from two classic works of political economy capture, perhaps better than any contemporary writings, the essence of two epochal changes that the world is living through.

One is the establishment of capitalism as not only the dominant, but the sole socioeconomic system in the world.

The second is the rebalancing of economic power between Europe and North America on the one hand and Asia on the other, owing to the rise of Asia.

For the first time since the Industrial Revolution, incomes on the three continents are edging closer to each other, returning to roughly the same relative levels they had before the Industrial Revolution (now, of course, at a much higher absolute level of income). In world-historical terms, the sole rule of capitalism and the economic renaissance of Asia are remarkable developments—which may be related.

The fact that the entire globe now operates according to the same economic principles—production organized for profit using legally free wage labor and mostly privately-owned capital, with decentralized coordination—is without historical precedent. In the past, capitalism, whether in the Roman Empire, sixth-century Mesopotamia, medieval Italian city states, or the Low Countries in the modern era, always had to coexist—at times within the same political unit—with other ways of organizing production.

These included hunting and gathering, slavery of various kinds, serfdom (with workers legally tied to the land and banned from offering their labor to others), and petty-commodity production carried out by independent craftspeople or small-scale farmers. Even as recently as one hundred years ago, when the first incarnation of globalized capitalism appeared, the world still included all of these modes of production. Following the Russian Revolution, capitalism shared the world with communism, which reigned in countries that contained about one-third of the human population.

None but capitalism remain today, except in very marginal areas with no influence on global developments.