Acton.org | Michael Miller | Jan. 21, 2009
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 dot.com 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.
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