Capitalism for the Poor Capitalism for Democracy

Democracy, Winston Churchill once said, is a bad system of government, except when compared to all the others. Much same might be said of capitalism. It is not a system much celebrated by poets, philosophers, or priests, from time to time it has seemed romantic to the young but not very often.

Capitalism is a system that commends itself best to the middle aged, after they have gained some experience of the way history treats the plans of men. In order to be grateful for capitalism, one does not have to indulge in excessive celebration. My friend Irving Kristol once wrote a book called Two Cheers for Capitalism. That may have been excessive. Given the alternatives, one cheer may be quite enough.

My own field of inquiry is theology and philosophy. From the perspective of these fields, I would not want it to be thought that any system is the Kingdom of God on earth. Capitalism isn’t. Democracy isn’t. The two combined are not. The best that can be said for them (and it is quite enough) is that, in combination, capitalism, democracy, and pluralism are more protective of the rights, opportunities, and conscience of all citizens than any known alternative.

Many people in this world seem not to be satisfied except by utopian thinking. In America, thank God, since at least Federalist #10, our people have resisted “the utopic theorists.”

We prefer a practical philosophy that “works,” especially one that works “better” than any known alternative. We have in mind certain ideals, of course, in whose light we form criteria for judging what works better and what works worse. But, fortunately, we insist on keeping actual working models under the judgment of the ideals, without confusing the one with the other. We try hard not to allow the perfect to become the enemy of the good. We prefer imperfect real things to perfect non-existents.

There are two powerful arguments in favor of capitalism over its historical alternatives. The first is that capitalism better helps the poor to escape from poverty than any other system. The second is that capitalism is a necessary condition for the actual success of democracy. Before coming to those arguments, though, a discussion of the alternatives may be useful.

On this planet today, there are only two real alternatives to capitalism: socialism such as one finds it in North Korea, Cuba, Vietnam, the Republic of China, and a few other places; and the traditional, third world state-controlled economy, such as one finds in much of Latin America, most of Africa, and large sections of Asia.

Some would add that the social democracies, such as Germany and the Scandinavian countries, are a third alternative. It seems more accurate to say that such forms of social democracy are part of a continuum with democratic capitalism, even though they are quite far toward the leftward extreme of state control.

This is how Peter Berger analyzes the evidence in The Capitalist Revolution. One piece of evidence on his side is that leading socialists in such countries describe their systems as “rotten, corrupt, bourgeois, capitalist countries” (which they are trying to whip into the shape of true socialist societies). If the socialists call these nations “capitalist,” that’s good enough for me.

Powerful evidence, then, attests to the truth of two propositions. First, better than the third world economies, and better than the socialist economies, capitalism makes it possible for the vast majority of the poor to break out of the prison of poverty; to find opportunity; to discover full scope for their own personal economic initiative; and to rise into the middle class and higher. One can even watch the crowds on the streets of free nations: they walk the walk of the free—erect and purposeful and quick.

To repeat: Capitalism is better for the poor than is socialism or the traditional third world economy. Sound evidence for this proposition is found in the migration patterns of the poor of the world. From which countries do they emigrate, and to which countries do they go? Overwhelmingly they flee from socialist and third world countries, and they line up at the doors of the capitalist countries, often in long lines curving around the corner like theatergoers queuing for a Broadway hit.

A second way of bringing sound evidence to light is to ask of virtually any audience, in almost any capitalist country, how many generations back in family history they have to go before they reach poverty. For the vast majority of us in the United States, we need go back no farther than the generation of our parents or grandparents. In 1900, a very large plurality of Americans lived in poverty, barely above the level of subsistence. Most of our families today are described as affluent. Capitalist systems have risen up the poor in actual family memory.

We are thinking systemically here. We are talking of systems, not of individuals. Capitalism is a social system. In human history, capitalism is also a new system. Max Weber held that it arose only some generations after the Protestant Reformation, even though it had earlier precursors. R. H. Tawney also thought of capitalism as a late arrival. In my view, both of these thinkers, and many others, misjudged the essence of capitalism. But they are no doubt correct in thinking that the new term “capitalism” applies only to a system that appeared during the last 200 years.

In 1848, Karl Marx marveled at the newness and the greatness of this new thing: “The bourgeoisie, during its rule of scarce 100 years, has created more massive and more colossal productive forces than of all preceding generations together.” In 1848, he hadn’t seen the half of it!

In the year 1800, demographers estimate that there were only 750 million human beings on earth. Some calculate that the average age at death was then about 18. Just 194 years later, thanks largely to new discoveries in such fields as medicine and pharmaceuticals, sanitation and hygiene, the number of living humans has surpassed five billion, and the average age at death has risen to more than 58 even in the poorest nations, and to over 75 in the more advanced nations. Because more people live longer, more are alive today—and their material conditions are far better than those of 200 years ago. Two examples: Most of this nation’s founders had some wooden teeth, and George Washington was bled to death by his physician.

The second great argument to be presented is that capitalism is a necessary condition for the success of democracy—a necessary, but not a sufficient, condition. This is an empirical proposition, based on cases that have already appeared before our eyes. There have been cases of countries, which are capitalist, but not democratic. The fact that a country is capitalist is not a sufficient condition for it becoming democratic. Nonetheless, the instances of Greece, Portugal, Spain, Chile (after Pinochet), South Korea and others allow us to predict that once a capitalist system has generated a sufficiently large and successful middle class, the pressures for turning toward democracy become very strong. This is because successful entrepreneurs speedily recognize that they are smarter and more able than the generals and the commissars. They begin demanding self-government.

As has been recognized since ancient times, the middle class is the seedbed of the republican spirit. Capitalism tends toward democracy as the free economy tends toward the free polity. In both cases, the rule of law is crucial. In both, limited government is crucial. In both cases, the protection of the rights of individuals and minorities is crucial. While capitalism and democracy do not necessarily go together, particularly in the world of theory, in the actual world of concrete historical events, both their moving dynamism and their instincts for survival lead them toward a mutual embrace. “Capitalism” and “democracy” go together as do “political” and “economy.”

On this basis, one can predict that as the entrepreneurial spirit grows in the Republic of China, particularly in its southern provinces, and as the middle class gains in self-confidence and independence, we will see an ever stronger tide in favor of democratic institutions begin to make itself felt in China. The free economy will unleash forces that propel China toward the free polity.

For a moment, allow me to stress the other side of this proposition, as well. Although some dictators have chosen to permit capitalist systems, even though such systems put a severe limitation on their own personal power over the economy, there is an inherent defect in one-man rule that makes capitalism in such nations vulnerable. That defect is human mortality and the problem of succession. Dictatorships face severe problems in solving the problem of succession. One of the great advantages of democracy is that it solves that problem in a routine, regular, and peaceful way. For the long-run health of capitalism, then, I venture the hypothesis that democracy, with its methods of peaceful succession, is also a necessary condition.

But that is not the only support for my hypothesis. Another service to capitalism that democracy performs better than dictatorship draws upon its representational function. A free economy has a great many parts, and a Parliament or representative congress tends to represent all these parts. Thus, in a democracy, every part of the economy has at least some active political voice. This may make it more difficult for clear and simple decisions to be made, and it may increase the probabilities of one form or another of “good luck.” But the active representation of all economic parties does make less likely the harsh, unilateral decisions to which dictators are prone, which have the potential of wiping out entire sections of the economy with one false move. Democratic rulers are forced to face all the consequences of their decisions. Dictators are not. Pinochet and other dictators have caused great harm to their economies by unconsidered unilateral decisions, which a Parliament might have prevented them from making.

We now return to the main argument. Around the world, people do not love democracy if it does not bring improvement in their economic conditions. They will not be satisfied with democracy, if all it means is the opportunity to vote every two years. They want to see economic conditions improve. Typically, they do not ask for utopia. But they would like to see the possibility of solid economic progress for their families over the next three or four years. They want at least some small improvements, and they need a realistic hope that those will actually happen. This is the psychological mechanism, which makes capitalism, or at least a dynamic economy, indispensable to the success of democracy. Capitalism delivers the goods that democracy holds out as one of its promises.

A second service provided by capitalism to democracy is less well understood. The founders of the United States understood it very clearly, however, as one can see by a careful study of Federalist #10 and #51. Benjamin Franklin in London and Thomas Jefferson in Paris searched libraries to find out why previous republics had failed. Envy, it turns out, is the most destructive social passion—more so than hatred, which is at least visible and universally recognized as evil. Envy seldom operates under its own name; it chooses a lovelier name to hide behind, and it works like a deadly invisible gas. In previous republics, it has set class against class, sections of cities against other sections, leading family against leading family.

For this reason, the early Americans stood against division (“Divided we fall”) and sought to neutralize envy. Unless a republic defeats envy, it cannot stand.

To accomplish this task, they determined that a republic cannot be built upon the clerical (priestly) class; nor upon the aristocracy and military, whose interests in “honor” caused so many rivalries and contestations; but upon a far humbler and typically more despised class. They opted for what they called “a commercial republic.” Why did they choose as their social foundation a class, and an activity, universally regarded by philosophers, religious leaders, and poets as lowly and ignoble? Why did they choose crass commerce? Lowly, servile, mercantile industry? Things instrumental, rather than “ends-in-themselves” such as the liberal arts have always held to be superior, as the noble is superior to the ignoble?

They chose the lowlier thing for two reasons. First, when all persons in the republic, especially the able-bodied poor, see that their material conditions are actually improving from year to year, they are led to compare where they are today with where they would like to be tomorrow. They stop comparing themselves with their neighbors, because their personal goals are not the same as those of their neighbors. They seek their own goals, at their own pace, to their own satisfaction.

Indeed, in America, as Tocqueville and others noted, there was a remarkable freedom from envy. On the whole, people rejoiced in the success of others, as signs of the coming prosperity of their village, city, and nation. Across America today, in public schools and colleges, one still sees many portraits of public benefactors who were successful in commerce and industry. Democracy depends on a growing economy for its upward tide—for social mobility, opportunity, and the pursuit of personal accomplishment.

The third reason the framers chose commerce and industry as the economic foundation for this nation is to defeat the second great threat to republican institutions, the tyranny of a majority. Majorities can be even more tyrannical and crueler than a single dictator. Madison and Hamilton, in particular, understood the ravages of original sin in human affairs. They, therefore, strongly supported Montesquieu’s (and Aquinas’s) notion of separated powers, plus the “principle of division” throughout every branch of society. It is in the nature of commerce and industry that they focus the interests of citizens in many different directions: some in finance, some in production, some in supply, some in wholesale, some in retail, some in transport, some in lumber, others in tobacco, or cotton, or vegetables, or cattle, or sheep, or iron and steel, or coal, or whaling, or glassmaking, or woodwork, or silver and pewter, and the like. In their structure and goals, industry differs from industry, firm from firm. In such ways, commerce and industry render highly unlikely any single, universal economic majority.

In summary, commerce and industry are a necessary condition for the success of republican government— “government of the people, by the people, and for the people”—because they (1) deliver the goods for a better life for all; (2) defeat envy, through open economic opportunity and economic growth; and (3) defeat the tyranny of a majority, by splitting up economic interests into many different foci.

Let us turn to one final point: What is capitalism? Most of our dictionaries use the definition of Karl Marx: a system of market exchange; private property; and private accumulation or profit. But knowing Marx’s animosity against capitalism, why should we accept that definition, especially since it is contrary to the empirical evidence? As Max Weber and many other historians of economics have noted, a new kind of economic system emerged in history during the late eighteenth century. There was more to this new system than markets, private property, and profit (which were present in biblical times). Economists are divided on what that new thing is. My own view, following Schumpeter, Hayek, and Kirzner, but in my own words, is as follows: Capitalism is the economic system dependent on an appropriate political system and a supportive moral-cultural system, that brings a large variety of social institutions to the support of human economic creativity. It is the system oriented to the human mind: caput (L., head), wit, invention, discovery, enterprise. It brings institutional support to the inalienable right to personal economic initiative.

The point of such a system is to serve the human person in the whole range of human responsibilities. The rule of law, the political order, has priority over the economic order. The moral-cultural order has priority over both. Economics is not the be-all and the end-all; it is an instrumental art.

But what an instrument! It is the best hope for the poor of the third world. It is the necessary condition for the emergence of democracy. It is such a humble thing, but so important.

If it fails—in Central Europe, along that arrow that points across the huge plain stretching from Poland through Ukraine, on to Belorus and Russia, and on out to Northern Asia—the history of the twenty-first century may be bloodier than the twentieth. Liberty does not come with a guarantee. Its price, our founders reminded us, is everlasting vigilance. For liberty is in some ways the least stable of regimes; it depends on key ideas, and on fidelity to them. Any one generation at any moment may surrender liberty, give up on it, thrust it back to the giver.

It could even be that liberty will shortly burn out, having sped like a comet across history for a little more than two centuries, and leave in its wake only darkness. Our future could be bleak.

Such a fate, however, is not commanded by the stars. The greatest threat to liberty lies in the human heart. If our minds cling firmly to basic ideas, and if our wills choose what we ought to choose, we still have a chance to make liberty prevail. We have a chance at bat. That’s all that free women and free men ask: a chance, not a guarantee.


Michael Novak (1933-2017) founded Crisis Magazine with Ralph McInerny in 1982. He held the George Frederick Jewett Chair in Religion and Public Policy at the American Enterprise Institute and was a trustee and visiting professor at Ave Maria University. In 1994, he received the Templeton Prize for Progress in Religion. He was also an emissary to the United Nations Human Rights Commission and to the Conference on Security and Cooperation in Europe.

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