Capitalism’s Moral Ledger, Briefly Attempted
In my first essay in this series, I asked who should be the moral arbiter in values-based investing. In the second essay, I explored why thoughtful, serious people find their moral compasses pointing in different directions even when they share the same core values.
This essay tries to create clarity about the thing we’re trying to moralize about. Before we can decide how to align a portfolio with a conscience, perhaps we need a clearer picture of capitalism itself: where it came from, what it has done, what it has cost, and why the same set of facts seems to produce radically different moral conclusions depending on who’s reading them. I’ve been spending time lately with the work of Sven Beckert, a Harvard historian whose recent book offers what I think is the most useful framework I’ve encountered for thinking about these questions: a global history of capitalism that takes seriously both its extraordinary achievements and its extraordinary costs, without landing squarely on either a defense or an indictment.
Knossos
I have been to Knossos once. What struck me wasn’t the archaeological grandeur, though the scale of the Bronze Age palace is genuinely astonishing. What struck me was the plumbing.
Around 1700 BCE, Minoan Crete had running water, sophisticated drainage, frescoed walls depicting athletes and dolphins and elaborate ceremony, and storerooms packed with olive oil and wine accumulated through maritime trade across the Aegean and Eastern Mediterranean. These were merchants as much as they were artists. The prosperity enabling that beauty was underwritten by risk-taking, production, and exchange.
Then the Ottomans came. Crete’s occupation from 1669 to 1898 contracted those trade networks. Prosperity collapsed. Human suffering increased.
The juxtaposition is hard to ignore: what is it about commerce, exchange, and capital accumulation that, under the right conditions, seems to enable human flourishing? And what is it about the disruption of those conditions that caused suffering?
Or are these even the right questions in the first place?
Beckert, whose starting point for the history of capitalism is not in Crete but, rather, the port of Aden in Yemen around 1150 CE, would recognize the Minoan traders immediately. Different civilization, different century, same basic logic: invest surplus, take risks, connect distant markets, accumulate capital. More on Aden shortly.
WHAT IS CAPITAL FORMATION, AND WHY DOES IT MATTER?
Before we can evaluate capitalism, we need to be precise about what we’re evaluating. What is capitalism?
Capital formation is the process by which surplus resources are directed toward productive investment rather than immediate consumption: building the tools, infrastructure, knowledge, and organization that make future production possible. A Minoan merchant loading a ship with surplus olive oil to trade across the Aegean was engaged in capital formation. So is a venture fund backing a company developing fusion energy. The question of who captures the gains from that process — who owns the ship, who bears the risk, who gets the olive oil — turns out to be at the center of capitalism’s moral debate.
Enter Joseph Schumpeter. I first read Capitalism, Socialism and Democracy (1942) just a few years ago. As I have been thinking about these essays, I keep returning to his concept of “creative destruction.” This is the idea that capitalism’s engine is the perpetual sweeping away of old industries by innovation. This process is turbulent and socially disruptive even as it generates enormous wealth. The entrepreneur in Schumpeter’s story is not a passive investor but an active agent; Someone who looks at existing resources and sees a new arrangement nobody else has tried. Schumpeter called this heroic. I think the Minoan traders loading ships for destinations they’d never visited would have recognized the feeling.
But Schumpeter’s pessimism is what I find most interesting. His argument was that capitalism’s very success would eventually undermine it. Rising prosperity generates intellectuals with the leisure and education to criticize the system that made their leisure possible. Bureaucratic tendencies accumulate. The entrepreneurial spirit that produced the wealth gradually yields to the administrators that try to manage it.
\”[C]apitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the defense they may hear …\”
Beckert adds a historical correction that I find equally important: the Industrial Revolution, which most people treat as capitalism’s origin story, is actually its most important offspring. It cannot be understood in isolation, only embedded within a broader global story that reaches much further back in time. By the time the spinning jenny appeared in Lancashire in the 1760s, centuries of merchant capital accumulation, global trade networks, and plantation economies had already created the markets, the raw materials, and the organizational knowledge that made industrialization possible. Starting the story in Manchester means starting in the middle.
WHAT ARE WE ACTUALLY TALKING ABOUT?
“Capitalism” is one of the most contested words in the modern lexicon.
Beckert’s definition, which I find more useful than most: privately owned capital, productively invested in order to produce more capital.
What holds together the mid-17th century Caribbean plantation, Great Britain in the 1850s, Detroit in the 1950s, and Shenzhen today is that same core logic, expressed in radically different institutional, political, and cultural forms.
His first and most important insight: capitalism is a process, not a thing. “It is impossible to pinpoint an exact place or moment when capitalism began,” he writes. “Capitalism is a process, not a discrete historical event with a beginning and an end, and it did not drop fully formed into a particular location.” Every effort to isolate one birthplace, whether we are identifying Florence, Barbados, Amsterdam, or Manchester, has proved insufficient, because the capitalist revolution drew energy from many sources simultaneously. He describes the earliest stirrings as rivulets feeding into streams, streams encountering sandbanks and mountain ranges, shape-shifting through the centuries until they became something powerful enough to reorganize the economic life of the entire planet.
But before we can understand capitalism, we need to understand what it displaced. And this is where the story gets, to me, more interesting than I expected!
The pre-capitalist baseline, for the vast majority of people on Earth well into the 19th century, was subsistence farming: producing for yourself and for local exchange, not for markets. I grow wheat, you grow corn, we trade some of each. No capital investment, no accumulation, no market logic driving the transaction. Alongside subsistence farming, the other dominant economic structure was feudal extraction: peasants as dependents of rulers or religious authorities who claimed a portion of what others produced. When you travel through Europe today and see the castles and the cathedrals, you are looking at the physical residue of that system, accumulated not by productive investment but by dispossession. Beckert draws a sharp line: in those systems, wealth was consumed or displayed. In capitalism, it is reinvested to produce more wealth. That (seemingly simple) reinvestment logic is what makes capitalism genuinely novel in human history.
This is also why the transition from subsistence and feudalism to capitalism was neither smooth nor voluntary. Beckert gives examples. In the Scottish Highlands in the late 1700s, manufacturers trying to staff the new cotton mills faced a fundamental problem: people did not want to work in factories. Many were afraid of them. What broke the resistance, in many cases, was enclosure; When people lost access to land, they had no alternative. In India in the 1840s, British merchants attempting to build cotton plantations discovered that workers consistently preferred their own subsistence farming in their home villages to wage labor on someone else’s land. There was serious discussion among British merchants about whether some form of coercion might be necessary. The spread of capitalism was not universally welcomed. In many places, it happened because the alternative was taken away.
So where did capitalism begin? Beckert’s answer is layered, and worth working through carefully. This book, and through listening to a handful of his interviews, has changed what I see when I look at the modern economy.
He begins his history not with neither the Industrial Revolution, Adam Smith, nor with Venice or Florence, but with the port of Aden in Yemen around the year 1150. Merchant communities there were doing things that would be recognizable to any investor today: assembling cargoes, inspecting wares, haggling over prices, providing shipping services, exchanging currencies, extending credit, raising capital, and sometimes financing the production of the very goods they traded. They linked the Mediterranean to the Indian Ocean. Beckert calls these proto-capitalists, people operating on capitalist logic before capitalism as a system existed. His phrase for this period is, “capitalists without capitalism.” The logic was present but the system was not yet developed.
Similar merchant communities existed across the medieval world: in West Africa, China, India, the Arab world, and the Italian city-states. The Medici in Florence are the ones we remember, but Beckert works hard to show that European merchants were, at this stage, neither the wealthiest nor the most sophisticated. Chinese and Indian merchant networks were more extensive, more capable, and operating in economies far larger than anything in Europe.
What changed in the 15th and 16th centuries was that European merchants formed an unusual coalition with European states. The coalition was born of mutual weakness. European states were small, territorially fragmented, and perpetually at war with each other, which made them deeply dependent on merchants who could mobilize resources for warfare. European merchants, meanwhile, were blocked from direct access to the riches of Asia by the powerful merchant communities of the Arab and Muslim world. Both parties needed each other. Together, they pushed into the Atlantic, first along the African coast, then to the Americas.
The result was the plantation economies of the Caribbean and South America: Barbados producing sugar, Potosí producing silver, and eventually the cotton fields of what would become the American South. Beckert calls these the first truly capitalist societies… places organized from the ground up around the logic of investing capital to produce more capital, with nothing else competing for priority. The labor was enslaved; the violence was systematic; the accumulation was staggering. This is the history that Empire of Cotton excavated in detail, and it is the history Beckert insists cannot be separated from the Industrial Revolution that followed. The mills in Lancashire were fed by cotton grown by enslaved people in Mississippi. The market for cotton textiles had been built over centuries of trade with India. The capital that financed early industrialization had been accumulated in the plantation economies. These were not separate stories.
One aspect of Beckert’s argument I find to be important: capitalism, he argues, is fundamentally undogmatic. It has thrived under liberal and illiberal regimes alike. It has organized labor through wages and through slavery. It has operated inside city-states, empires, and democracies. It has been compatible with high tax rates and low ones, with powerful welfare states and minimal ones. This undogmatism is the secret of its durability. And it is also the reason the question of what kind of capitalism we want is genuinely open and not determined in advance by the nature of capitalism itself.
A final point from Beckert that I keep returning to: the relationship between capitalism and the state. The common assumption is that markets and states are in fundamental tension and that capitalism is most itself when government gets out of the way. The historical record says otherwise. “The state made the market,” Beckert argues. Capitalism has never existed as a pure market; it has always been embedded in political institutions that define property rights, enforce contracts, organize trade, and direct investment. The plantation economy required state power to enforce slavery. The Industrial Revolution required state power to enforce enclosures and trade agreements. These are not contradictions. They are the same engine pointed in different directions, which means the direction is always, at least in part, a political choice.
CULTURE IS OUR OPERATING SYSTEM
Capitalism is not a single system. It is a family of systems. The same basic architecture of private ownership and market exchange produces very different outcomes in Denmark, in the United States, or in Brazil.
Adam Wattis is Swedish-born. He moved to the United States fifteen years ago at twenty years old to attend Penn State’s business school, and now works in software development and AI consulting. When I spoke with him for this essay, he offered me surprising and incredibly thoughtful insights.
He described growing up in a culture that treated recycling not as a personal choice but as a collective obligation. His mother didn’t present it as a preference… “This is what you do, Adam.” Full stop. When he arrived at Penn State and his American roommate suggested throwing batteries in the regular trash, it was a “mental blocker.” Not a reasoned moral position. An immediate gut reaction.
What struck me about this story and about Adam’s broader reflection on fifteen years of living between two cultures was his observation that Sweden and the United States share many of the same surface-level values: environmental concern, social solidarity, belief in education and merit. But the architecture of how those values are expressed and enforced is completely different. Sweden is, he said, “very relaxed, liberal, do whatever you want” and simultaneously “very cohesive, very same.” That paradox is easy to dismiss and hard to actually explain.
A frame that came up in our conversation, and that I’ve since borrowed for this series: culture as a personal operating system of stories, expectations, and values; Culture is something that runs beneath conscious reasoning, shaping behavior before reflection kicks in. Adam’s recycling reaction is a good example. He didn’t debate the ethics of battery disposal. He just couldn’t do it.
NOTE: I think I heard this “culture is an operating system” from Sam Harris on a handful of occasions.
The political scientists’ answer to the Nordic paradox involves trust. Robert Putnam and Francis Fukuyama have written extensively about how high-trust societies dramatically lower transaction costs. In Denmark, a deal can be made on a handshake. Generalized trust lubricates commerce in ways that standard economic models typically don’t capture. The welfare state, counterintuitively, may also increase entrepreneurial risk-taking: if failure doesn’t mean destitution, people are more willing to start companies, to accept the Schumpeterian cycle of creative destruction. The Nordic model may be more Schumpeterian in practice than the American model.
Adam, though, offers a complication to this picture that I find clarifying. Swedish socialism peaked in the 1970s, he told me, to the point where workers began acquiring increasing ownership stakes in companies. Ingvar Kamprad, the founder of IKEA, relocated to Switzerland to avoid Swedish taxes. Then Astrid Lindgren, the beloved author of Pippi Longstocking and a national icon, was taxed at more than 100% of her earnings due to marginal rate stacking. When that became public, the backlash was swift. The system, people concluded, had gone too far.
Sweden then gradually moved back toward market freedoms: privatizing the state pharmacy monopoly, modernizing its alcohol retail structure, competing aggressively in global trade. Adam’s point, which I instinctively agree with, is that Sweden’s prosperity was not created by its social programs. Those programs were funded by the capitalist ingenuity and entrepreneurial spirit that preceded them, and that the programs, at their peak, nearly choked off.
His own intellectual turning point came not in a classroom but at a gas station(!) A customer, seeing Adam working while attending school, handed him a copy of Thomas Sowell’s Basic Economics. The book fundamentally changed his view of government intervention. Sowell’s core argument: governments should influence behavior through incentives, not by mandating outcomes. Housing shortages, Adam told me, aren’t caused by a lack of building knowledge; rather, they’re typically caused by excessive legislation that prevents less sophisticated actors from entering the market. He asked me, “Do you think people forgot how to build houses?”
NOTE: I mentioned to him that I vaguely recall Sowell’s intellectual lineage runs through Hayek and von Mises, and offered to lend him my copy of The Road to Serfdom. He seemed interested. I hope I was right!!
What Adam’s story illustrates is that culture shapes market outcomes in ways that policy alone can’t. But culture is also neither fixed nor monolithic. Adam’s view of guns, of large American cars, of pharmaceutical advertising all shifted after fifteen years of living in a country where those things made different kinds of sense. “I’ve had moments,” he told me, “that lowered my moral guard, realizing that different perspectives can be equally valid.”
The Brazilian contrast makes the same point from a darker angle. Abundant natural resources, a large domestic market, sophisticated urban elites, world-class firms in some sectors and persistent inequality, low productivity growth, a business environment that frustrates entrepreneurs. Acemoglu and Robinson’s Why Nations Fail traces this to colonial institutions designed to extract wealth for a small elite, institutions that shaped the culture that followed. These are arguably rational responses to an environment where trust in relationships and institutions was historically unreliable. The problem is they make that environment much harder to reform. South Korea and Taiwan started from similar post-colonial baselines, made different institutional choices, and produced dramatically different outcomes. Which came first, institutions or culture, is genuinely contested. (I only read a summary of this book but hope to come back to it later this year!)
The lesson I take: “dynamism with decency,” Haidt’s phrase for what successful capitalism looks like at its best, isn’t a formula any country can simply adopt. It takes shape differently in different cultural and institutional containers. True even in Knossos, where the Minoan merchants operated within specific civilizational norms, hierarchies, and relationships. Commerce always has a container.
THE LEDGER (AN INITIAL ATTEMPT)
Here is what I think the evidence actually supports, stated as plainly as I can manage.
What capitalism has done well: The reduction of absolute poverty over the last two centuries is the most important economic fact in human history. Billions of people who would otherwise have lived shorter, harder, more painful lives have not. Technological innovation has extended and enriched life in ways no previous generation could have imagined. The doux commerce thesis including Montesquieu’s argument that commercial societies tend toward liberalism and away from authoritarianism finds real support in the data. Haidt’s world values surveys show that as countries develop economically, their populations shift toward greater concern for individual rights, environmental protection, and tolerance. The Knossos argument I am inclined to make, in favor of the virtue created in markets, has global empirical support.
Svetla Vitanova, a finance professional I spoke with, made an observation about mountaintop removal coal extraction that stuck with me. Norway and Sweden are countries we associate with environmental concern, financed this type of project. The practice ended not because of activist pressure or values-based investment screens but because the coal market collapsed. This is evidence, she argued, that market mechanisms can accomplish what moral campaigns sometimes cannot. I think she’s pointing at something real: markets are not only instruments of harm. Sometimes they are the most effective instruments of change for better moral outcomes.
What capitalism has also done is demonstrated in Thomas Piketty’s data on wealth concentration. The data are hard to dispute. When returns to capital consistently exceed economic growth, wealth concentrates, and concentrated wealth produces concentrated political influence, which tends to reproduce the conditions for further concentration. The commodification of things arguably not suited for markets, such as political influence, produces distortions that are real and measurable. And there is the environmental account, which is simply very large.
The coercion embedded in capitalism’s early development belongs on the ledger too. The transition from subsistence and feudal economies to capitalist ones was not, in most places, peaceful or voluntary. Enclosures, dispossession, and the systematic destruction of alternative ways of life were often the mechanisms by which capitalist logic spread. Beckert is careful to note that capitalism can exist without slavery and without colonialism, and the 20th century demonstrated that. But the specific capitalism we inherited was built substantially on both, and the wealth accumulated through that process funded the industrialization that created the modern world. An honest accounting includes that fact.
Schumpeter’s internal critique remains the most uncomfortable: capitalism generates the rationalist, critical culture that eventually turns against itself. I don’t know if this is fatal or corrective; Perhaps it is not inevitable. The Nordic evidence suggests corrective, that a capitalist society can develop the cultural and institutional antibodies to its own excesses. The Argentine and Venezuelan evidence suggests otherwise. Perhaps, as Haidt shared in other contexts, there is no single answer…
Is there a morally superior form of capitalism? The evidence from Denmark and Sweden suggests the Anglo-American version is not the only viable option and arguably not the most humane. But whether the Nordic model can be exported, or whether it is the product of specific historical, demographic, and cultural conditions that cannot simply be legislated into existence elsewhere, is genuinely uncertain. Adam reminded me that Swedish success came from capitalist ingenuity first, and social programs second, not the other way around.
WHERE HAS THIS EXPLORATION LED?
My first essay asked who should be the moral arbiter in values-based investing. My second explored why thoughtful people disagree about what’s ethical in the first place. This essay has tried to understand the capitalism itself.
Here is what I think I’ve learned:
Any framework for values-based investing that treats capitalism as uniformly good or uniformly bad is starting from the wrong place. The moral architecture of capitalism is varied and shaped as much by culture and institutions as by the underlying market logic. A company operating within a high-trust, efficient economy produces different outcomes from a structurally identical company operating within a low-trust, FUBAR institutional environment. The market mechanism is not morally neutral as much as it is morally shaped by its container.
Beckert’s most important contribution to this exploration, for me, is his insistence on what he calls denaturalization. Capitalism, he argues, is not the natural order of things. It is not how human economic life has always been organized. It is a radical departure from the subsistence and feudal structures that preceded it. “We live in capitalism like fish in water,” he says, “unable to see clearly what surrounds us.” The workers of Saint-Domingue who launched the Haitian Revolution helped end plantation slavery and reshape global capitalism. The labor movement of the late 19th and early 20th centuries created the post-war welfare state. These were not people with institutional power. They were poor people who pushed on a system they recognized as a human construction, not a law of nature. And it moved.
Adam Wattis thinks ethical screening is a “luxury belief” for the comfortable, and I understand his argument. He’s not wrong that the freedom to weight values against returns is itself a form of privilege. But the physician from my second essay, who felt immediate guilt after profiting from Dogecoin and now seeks out investments in companies doing something genuinely good, is also responding to something real. The intuition that our financial lives should reflect something beyond pure return-maximization is not mere sentimentality. It is a moral claim. And as Josh Wretzel reminded me: every action is, in the existentialist sense, an essence-defining action. How we invest defines something about what kind of people we are and what kind of world we think should exist.
The impulse to trade, to take risks, to create surplus and invest it in beauty and welfare… this is all very old. The Minoan traders who loaded ships with olive oil and sailed into uncertain waters weren’t thinking about ESG ratings or Haidt’s moral foundations or Schumpeter’s creative destruction. They were trying to build something. Beckert’s merchants in Aden in 1150 were doing the same. The question hasn’t changed in thousands of years. It has only gotten more complicated.
Who owns the ships? Who bears the risks? Who gets the olive oil?
I don’t have a settled answer. But I think they are the right questions… I suppose another question is, “How does this affect how we should think about the future?”
For now, I will leave you with a thoughtful video from Jonathan Haidt for his view: