The End of Capitalism?

Who would have imagined 20 years ago — when the Berlin Wall fell and we celebrated the death of socialism — that capitalism would begin 2009 under heavy fire. The Cardinal of Westminster, Cormack Murphy O’Connor, reportedly went so far as to say that, as 1989 marked the end communism, 2008 was the year when “capitalism had died.”

What are we to make of capitalism in light of all the crises, fraud, and government intervention, when even some traditional supporters of markets are supporting bailouts and seem to have lost faith in the market order? Is capitalism no longer credible? Is capitalism really to blame for the financial woes we now face?

Before we try to answer this question, it is important to point out that the word “capitalism” is actually a Marxist term, and while we use it interchangeably with “market economy,” the Marxist view of capitalism surprisingly still shapes the way we tend to understand economics. The term capitalism gives the impression that the market is something out there: a nebulous force which can create great wealth but can also turn and harm us. This impersonal understanding can lead us to blame markets when things go wrong instead of looking for reasons that are harder to diagnose and often reveal deeper cultural and spiritual issues.

Pope John Paul II specifically rejected the term capitalism and its mechanistic, amoral, and impersonal image, preferring instead “market economy,” “business economy,” or “free economy.” He did so not to be pedantic, but to illustrate the important truth that markets are fundamentally networks of human relationships. Understanding markets this way sheds light not only on many economic problems, but also on the underlying moral nature of markets. If markets are intrinsically connected to human action then they necessarily have a moral dimension. Capitalism as seen by Marxists, or even within neo-classical mathematical models, separates markets from morality — and thus from reality. This, as we have seen, can have disastrous consequences.

Markets are the combined activities of millions of individuals and families. They are not composed merely of some guys on Wall Street; they are made up by us. Like anything else run by humans, markets are not perfect and can fail. If we become overly speculative and convinced that prices can go nowhere but up so that we violate all norms of prudence and keep buying at outlandish prices — as happened in the Tulip Bubble in 1637, the bubble in 2000 and the housing bubble last year — sooner or later reality will set in.

Despite their failures however, free markets have lifted more people out of poverty and helped create prosperity and peace better than any system ever devised. So much so that even in today’s financial downturn, as hard as it may be, very few people who live in mature market economies are completely without resources or on the brink of starvation. Notice that markets are often blamed for the downturns, yet we tend to forget the cause of the upturn.

In these days of financial turmoil, we often hear critics speaking about de-regulation or “unbridled capitalism.” Both of these are straw men. Unbridled capitalism is a myth. Try to think of one country where there are no regulations on the economy or business. For free markets to succeed and be sustainable, they require a framework built of rule of law, contracts, and secure property rights.

The real question is what kind of regulation and what level of intervention we should choose. It is important to remember that many of the contributing causes of this crisis were precisely an overly invasive government. Federal regulators required banks to provide mortgages to customers who could not pay back the loans; the Federal Reserve manipulated the money supply, exacerbating the housing boom; and politicians of all stripes promised bailouts that incentivized irresponsible behavior. These are prime examples of what Friedrich Hayek labeled “the fatal conceit”: the notion that bureaucrats and politicians have enough knowledge to plan an economy better than individuals and businesses.

At least on equal par with a juridical framework as a factor in sustaining market systems is a specific moral culture. This includes trust, diligence, collaboration, honesty, perseverance, and prudence. If this crisis has taught us anything, it is the importance of morality for a market economy. The list of the seven deadly sins comprises an outline of the crisis’s causes. How many of us out of greed, gluttony, or pride used credit cards to buy things we did not need or could not afford, just so we could have the latest gadget or keep up with the Joneses? What about Wall Street bankers who couldn’t resist the chance to make ever more and took imprudent risks with clients’ money, or out of pride bought financial instruments they hardly understood? Markets cannot succeed without a strong moral fabric among the citizenry.

Yet instead of learning the lessons of the past, we again hear calls for increased regulation and government involvement. Some regulation is necessary, but we must not look to regulation to solve our moral problems. Here is where the realization that markets are networks of human relationships is important.

If we regulate too much, we concentrate the power of markets in fewer and fewer hands. This has led to all sorts of evil and corruption. Socialist economies, cartels, oligarchies, and union-controlled industries where the price mechanism cannot function produce stagnation and create incentives for corruption. It is a false hope to believe that regulation will make everything right. This is a utopian dream that ignores human failing and is the same promise that has been peddled by the socialists.

It is likewise delusional to believe that markets alone are enough. Markets require more than just efficiency; they require virtue. Our Founders taught us that without virtue political liberty could not long be sustained. The same holds true for economic liberty. And yet without economic liberty there can be no political liberty. Like liberty, the market must be moral, or it cannot exist at all.

(A version of this article will appear in Legatus Magazine.)

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  • tednkate

    Too all those who think the banking industry is not regulated: you are so wrong. My husband works for a local bank and the regulations are horrendous. He accounting job is less about counting all the money up the bank has to see how “rich” the bank is, then about counting it all up to put on some government (Securities and Exchange Commision, or The Fed, etc) report. It is one report after another, often restating the same information in slightly different ways.

    Some years ago when our little preschool was looking for someone to sponsor an ad for us; my husband suggested asking the folks at the bank: due to some unnamed Federal law (which we now know as the disastrous Community Reinvestment Act–the same act that the government used to force banks into giving loans to people who could not pay them back), the bank had fork over a certain amount to non-profits and the like. My husband’s bank is not in areas where making “bad loans” is that common–up until recently, employement rates with good paying jobs where fairly common. The bank fulfilled its “good neighbor responsibilities” by giving money to non-profits and helping to sponsor local events, etc.

    Other banks where not as well geographically positioned to do that. And now look? The “free market” did not cause this mess as the markets are not free. They are controlled by the politions we elect (often because they promise to “bring home the bacon”) and the regulator/bureaucrats they appoint.

  • tednkate

    Again, my bad typing skills: that last line should read “They are controlled by the politicians…”

  • I’m no economist (I took macroeconomics in college–when I saw the first graph, I skipped all the lectures, bought the notes, changed my grade to pass/fail, and crammed enough to get a C- on every exam. Not a display of scholarly fortitude.) But Mr. Miller’s argument definitely has the rings of truth. His recognition that people make up markets may be what was wrong with my economics class–there was no sense that people were doing this; it was all about assumptions and numbers.

  • SharG

    This article beautifully puts into words what is wrong with our economy. This has clarified to me, too, what Catholic social teaching is all about – it’s about relationships – not politics, not money, but relationships. It always amazes me to see how our Faith, rightly understood, has the answer to all of our needs.

    I’d been thinking of visiting the Acton Institute website to try to make sense of this economic mess. Looks like that was a good instinct! Thanks for including this article at Catholic Exchange.

  • kent4jmj

    These links are a gold mine of information about free markets, banking and the economy based on the Austrian school of economics. From the home page one can access a whole online library. The articles and online books can be downloaded for free as well. Enjoy.

    The Corrupt Origins of Central Banking

    Don’t Trust the Brain Trust

    The Great Bank Robbery of 2008

    And many many more. Murray Rothbard is also an exceptionaly good read.

    Man, Economy and State
    Previous Section * Next Section
    Table of Contents
    The first truth to be discovered about human action is that it can be undertaken only by individual “actors.” Only individuals have ends and can act to attain them. There are no such things as ends of or actions by “groups,” “collectives,” or “States,” which do not take place as actions by various specific individuals. “Societies” or “groups” have no independent exist­ence aside from the actions of their individual members. Thus, to say that “governments” act is merely a metaphor;

    Ludwig von Mises (1881-1973)
    by Murray N. Rothbard

    “Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.”
    Ludwig von Mises, Human Action Biography

    One of the most notable economists and social philosophers of the twentieth century, Ludwig von Mises, in the course of a long and highly productive life, developed an integrated, deduct­ive science of economics based on the fundamental axiom that in­dividual human beings act purposively to achieve desired goals. Even though his economic analysis itself was “value-free” — in the sense of being irrelevant to values held by economists — Mises concluded that the only viable economic policy for the human race was a policy of unrestricted laissez-faire, of free markets and the unhampered exercise of the right of private property, with government strictly limited to the defense of person and property within its territorial area.

    For Mises was able to demonstrate (a) that the expansion of free markets, the division of labor, and private capital investment is the only possible path to the prosperity and flourishing of the human race; (b) that socialism would be disastrous for a modern economy because the absence of private ownership of land and capital goods prevents any sort of rational pricing, or estimate of costs, and (c) that government intervention, in addition to hampering and crippling the market, would prove counter-productive and cumulative, leading inevitably to socialism unless the entire tissue of interventions was repealed.
    On the free market, everyone earns according to his productive value in satisfying consumer desires. Under statist distribution, everyone earns in proportion to the amount he can plunder from the producers.”

    Murray N. Rothbard, Power and Market

    Murray N. Rothbard, a scholar of extraordinary range, made major contributions to economics, history, political philosophy, and legal theory. He developed and extended the Austrian economics of Ludwig von Mises,

  • kent4jmj

    Just came across this wonderfull article by Will Grigg at

    Kleptocrats of the World, Unite!

    His name isn’t Barton, but he is certainly a Fink: Newly installed economic dictator Timothy Geithner.

    Perhaps the only commendable thing newly installed Economic Dictator (and Barton Fink lookalike) Tim Geithner has done in a public career otherwise devoted to serving the Power Elite was to “cheat” on his taxes.

    Given that taxation is theft, “cheating” the taxman is bit like refusing to disclose every hidden pocket of household wealth to an armed robber.

    Unless they’re sick unto death with some form of collectivist psychosis, Americans submit to government taxation for the same reason they would pay off any other irresistibly powerful extortionist.

    At some point in any conversation about taxes someone, acting with smugly misplaced confidence in the power of cliche, will deploy Justice Holmes’ dictum about taxes being “the price we pay for civilization.”

    Actually, taxes are the price extracted from us by those determined to undermine civilization, which is built on the peaceful, mutually enriching exchange of knowledge, goods, services, sound traditions, and culture among people of goodwill.

    As Justice Holmes would have understood, had he not been a blinkered positivist and deranged militarist, taxation is what fuels the forces of barbarism — the Warmakers, empire-builders, and practitioners of public plunder in all of its malignant varieties.

    Based on Frederic Bastiat’s “The Law” Another easy read that cuts through todays modern economic mumbo jumbo.

  • elkabrikir

    Excellent essay. Excellent discussion. Thank you. The only problem is, most Americans are like chaff, blown about by the hurricane of their passions. They won’t read it and can’t remember rational thought processes. Satan has dehumanized many.

    As the daughter of a PhD economist and a daughter of the King, I “forecast”, if you will, this recession over a year ago. My son and I discussed that very fact this morning in the car.

    He asked how I knew. I replied, “God told me, I guess.” I just looked at what was going on in the country vis-a-vis the greed, credit gone crazy, materialism, and ridiculous reliance on self, and I knew. Many people living in a state of grace knew the “party” wouldn’t last forever. Also, God will get our attention. And, last year I said, “I think it’ll take a depression to get people to remember the truth of their existence.” Well, here we are.

    God amazes me with his mercy. This depression is a gift in many ways. Embrace it.

  • noelfitz

    I read about markets that “[t]hey are not composed merely of some guys on Wall Street”.

    When I read this I think of Enron, Madoff, Rockefeller, Soros etc.

    There is a need for regulation, otherwise the crooks will take over.

    God bless,


    In necessariis, unitas; in dubiis, libertas; in omnibus, caritas.

  • Noel,

    beyond requiring that bankers and other financial services providers neither lie, cheat, nor steal, what do you think it is proper to require of them?