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.