That question first preoccupied my mind while I was a Managing Director at (the old) JPMorgan in the late 1990's and inspired the creation of Capital Institute in 2010.
Too often, discussion around this question devolves into the same shallow debate (Capitalism versus Communism or Socialism) we see now in response to Pope Francis' encyclical on the environment,
Laudato Si': On Care For Our Common Home
, in anticipation of his visit to the United States this week.
While social outcomes across economic systems are rightly the subject of continuous debate, the truth is, no system of political economy that has operated in modern times is sustainable from an ecological perspective: not present day Capitalism; not the Social Democracies of Scandinavia; and certainly not our experiences with Communism in the Soviet Union or China.
Marxist scholars will correctly argue that true Marxism has yet to be tried on a large scale. I would say the same is true for the free enterprise system Adam Smith imagined when he coined the phrase "invisible hand" in his
Wealth of Nations
, where he explained the critical role self-interest plays in a free market economy:
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."
But Smith's "self-interest" should not be confused with Gordon Gekko's "greed is good" that permeates modern finance-driven capitalism. Students of Smith are aware that the philosophical underpinnings of his thinking appear in his earlier work, The Theory of Moral Sentiments. It is there that Smith laid out his central idea that individual selfish acts would be self-regulated in our human nature by what he called "sympathy" (what today translates better as "empathy"). The book begins:
"How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it...That we often derive sorrow from the sorrows of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous or the humane...The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it."
In other words, Smith believed that the invisible hand would be constrained by an ethic of reciprocity, what is generally referred to as the "Golden Rule" (i.e. do unto others as you would have them do unto you). Such a humanistic ethic of empathy and compassion is universal, uniting virtually all great religions and wisdom traditions across cultures throughout the ages. No government intervention required.