In Chapter 7, I discuss the latest crisis of capitalism and Amartya Sen’s journey to rescue capitalism from the capitalists. I begin by discussing the increasing vulnerability of capitalist societies at the end of the twentieth century due to the deregulatory environment encouraged by the Chicago School. I use Karl Polanyi’s double-movement theory to explain the rise of the Chicago School and its assault on the “relationship capitalism” that had evolved in the postwar period. While the new “investor capitalism” was successful at unleashing the power of the market, it also increased the vulnerability of capitalist societies to opportunistic self-interest. This increased vulnerability was fully realized in the 2007–08 mortgage-backed security crisis that nearly collapsed the global financial system. After describing the near collapse of the global financial system, I discuss the implications of the collapse for the neoclassical theory out of Chicago. This leads to a discussion of Amartya Sen’s journey from India to the West to rescue capitalism from the capitalists. This discussion introduces the role of the East in the development of capitalism and its future promise. I conclude by discussing Sen’s critique of capitalism based on Adam Smith’s original moral foundation.

In Chapter 4, I address humanism as a moral foundation for capitalism by discussing the lives and writings of Karl Polanyi and John Maynard Keynes. The narrowing of political economy by nineteenth-century classical economists was challenged on two fronts. Some economists fought to maintain a broad social and moral perspective, but some economists turned the narrowing theory of classical economists into a stinging rebuke of capitalism itself. I begin by discussing the rising influence of humanism in the twentieth century. Next, I discuss the Hungarian-Austrian political economist Karl Polanyi and his critique of capitalism based on humanism. Although he was initially attracted to Marx’s moral critique, Polanyi eventually rejected Marxism on similar grounds as Tawney. In his search for a moral foundation for capitalism, Polanyi rediscovered the moral theory behind Adam Smith’s writings. I then discuss the British political economist John Maynard Keynes. Similar to Polanyi, Keynes rejected the narrow utilitarianism of both Marx and the classical economists in forming his moral foundation for capitalism based on responsibility and duty. This sets up a discussion of humanism as a moral foundation for capitalism based on Polanyi’s and Keynes’s seminal works.

In Chapter 1, I address the continuing demand for a moral foundation for capitalism from the perspective of business leaders, business educators, and policymakers. These parties have been heavily impacted by the neoclassical economic view of capitalism based on narrow self-interest. I begin by discussing the demand for a moral foundation from the perspective of business leaders attempting to return to the stakeholder view of corporate responsibility that existed before the influence of the Chicago School. Next, I discuss the demand from the perspective of business educators attempting to return to the moral foundation provided by the early founders of the university-based business school. Finally, I discuss the demand from the perspective of policymakers attempting to return to an enlightened public policy that meets the broader needs of capitalist society. I conclude by outlining the leading characters and themes contained in this book. The search for a moral foundation for capitalism is not new. It has a long history going back to Adam Smith and the Scottish Enlightenment. The purpose of this book is to tell the story of this search through the lives and writings of its leading characters.

In Chapter 5, I address self-interest as a foundation for capitalism by discussing the development of the Chicago School and the life and writings of Ayn Rand. Neoclassical economists after Alfred Marshall continued the narrowing of their discipline begun by classical economists. Whereas Polanyi and Keynes emphasized responsibility and duty in their moral foundation based on humanism, neoclassical economists associated with the Chicago School eschewed all social and moral responsibility and made narrow self-interest their reigning behavioral assumption. I begin by discussing the continued narrowing of neoclassical economics in the twentieth century and the rise of self-interest as the defining principle in economics. I discuss how the assumption of self-interest gained momentum and eventually conquered the Chicago School of Economics. I then discuss Ayn Rand’s glorification of self-interest in her novels and her interaction with the political right in America. I show how Rand’s moral foundation for capitalism based on narrow self-interest (rational egoism) represented a natural extension of the straightjacket of self-interest out of Chicago. This sets up a discussion of self-interest as a moral foundation for capitalism based on the seminal writings of the Chicago School and Ayn Rand.

In Chapter 2, I discuss the moral foundation for capitalism provided by Adam Smith. The great philosopher of the Scottish Enlightenment is frequently invoked by economists as the father of their discipline, yet Smith’s life and writings have been widely distorted. In contrast to his popular caricature today, Smith was a moral philosopher of the highest caliber who incorporated important moral perspectives throughout his writings. Smith presented his moral theory based on social norms and culture in The Theory of Moral Sentiments and maintained it as the moral foundation for his economic theory in The Wealth of Nations. Smith’s moral theory is based on the principle of sympathy and the behavioral norms that arise due to past social experiences that reveal standards of right and wrong behavior. Similar to the other philosophers of the Scottish Enlightenment, he attributes moral judgment and the moral conscience to the impartial spectator, but he also reserves important roles for religion and moral codes such as the Stoic virtues. When nineteenth-century classical economists adopted narrow self-interest as the first principle of their discipline, therefore, they adopted a principle that Smith and the other Scottish Enlightenment philosophers had adamantly rejected.

In Chapter 8, I conclude by addressing the promise of capitalism from the perspective of those who have joined the search for a moral foundation. I first discuss how both classical and neoclassical economic theory have proven to be incomplete views of economic reality. Recent evidence suggests that, while highly descriptive of economic growth prior to the first industrial revolution in England, classical economic theory is incapable of explaining economic growth after around 1800. The neoclassical economic theory out of Chicago has also proven to be incomplete following persistent evidence of norm-based behavior in the lab and recurring market crashes, including the latest severe market crash in 2007–08. I then discuss three types of responses to the latest crisis of capitalism and how they have left the theoretical landscape ripe for future development and innovation. To further reveal the potential for theoretical development, I summarize key insights from the economists and philosophers covered in this book. After summarizing key insights from my own search, including a paper I presented at a recent research conference in Australia, I conclude by discussing why the search for a moral foundation for capitalism may be the critical challenge of our age.

In Chapter 6, I address how neoclassical economists have joined the search for a moral foundation for capitalism by discussing the lives and writings of Vernon Smith and Michael Jensen. I begin by discussing the victory of neoclassical economic theory over institutional economics. Max Weber and Frank Knight expressed deep concerns regarding the potential negative effects of neoclassical theory absent important social and moral norms, but their concerns went unheeded in the university-based business school. The victory of neoclassical economics over institutional economics altered the view of government regulation and business management in a way that severely reduced their value to capitalist society. Next, I discuss prominent neoclassical economists who have joined the search for a moral foundation for capitalism. I begin by discussing experimental economist Vernon Smith and his incorporation of Adam Smith’s moral theory to explain norm-based behavior emerging in the lab. I then discuss financial economist Michael Jensen and his incorporation of values and integrity into neoclassical theory after the crisis of capitalism brought on by the global market crash of 2007–08. This sets up a discussion of initial attempts to extend neoclassical economic theory and the continued resistance to such attempts.

In Chapter 3, I address religion as a moral foundation for capitalism by discussing the lives and writings of Max Weber and R. H. Tawney. Classical economists after J. S. Mill limited the motivations of economic man to narrow self-interest and increased the mathematical formalism of their discipline, which tied their hands in arguing for capitalism. I begin by discussing the narrowing of arguments for capitalism in the nineteenth century by classical economists and the resistance to this narrowing by historical economists in Germany. Next, I discuss Max Weber and his broad critique of capitalism which included important social and moral issues as well as economic considerations. Given their opposing views, I contrast Weber’s critique of capitalism with that of Karl Marx. I then discuss the British economist R. H. Tawney and his critique of capitalism as a devout Christian on the political left. Tawney’s attempts to address the social injustices of the British industrial revolution led him to support the British Labour Party, but he rejected Marx’s anti-religious views and his emphasis on class division. This sets up a discussion of the role of religion in the development of capitalism based on Weber and Tawney’s two seminal works.