Capitalism: Only One Cheer

In America, we give three cheers to persons and things that earn our unrestrained approval: the American flag, the United States Marine Corps, Pope John Paul II.

By this standard, I can give only a single cheer to capitalism. My friend Irving Kristol once wrote a book called Two Cheers for Capitalism. The phrase was suggested, I believe, by E.M. Forster, who wrote that three cheers should be reserved for “love, the beloved Republic.” For Kristol, socialist intellectuals erred in thinking that political or commercial arrangements are the highest end of man. Hence, two cheers for capitalism and none for socialism.

While capitalism should aspire to two rousing cheers, it now merits but one.

Capitalism is the least imperfect economic arrangement by which to organize the exchanges of producers and consumers. The question is, organize to what end? Since men and women gain their humanity as children issuing from a family, a family must precede every human being, at least in time. There is no such thing as an individual not born of a family, and as the family gives rise to the human person, so it is anterior to the state. The family and the person are the means and the ends of the social order. It follows that capitalism is made for the family—not the family for capitalism.

Properly conceived, capitalism is primarily an economic mechanism that, given a certain social and political order, may produce remarkable wealth. While it is from the sweat of his brow that man must toil for his bread, no economic principle is, by itself, sufficient to guide his social order. Indeed, no economic institutions, even the efficacious mechanisms of capitalism, are sufficient to maintain the free markets themselves. Some may contest this proposition at a moment when the U.S. stock market, the totem of triumphal capitalism, attracts every envious eye around the world.

Capitalism Will Grow

Capitalism is the way men and women create new products and services and organize mobile factors of production, by means of a free-price mechanism, into the channels of supply and demand. These institutional arrangements are more equitable and efficient within a legal regime of free labor and private property. There is, I believe, nothing in this view of capitalism that the Roman Catholic Church, in principle, rejects. In the 1878 encyclical Quod Apostolici Muneris (On the Evils of Socialism), Pope Leo XIII explained the position of the Church in plain language: “The Church recognizes the existence of inequality among men, who are by nature unlike in mental endowments and strength of body…; and [thus, the Church] enjoins that the right of property and its disposal, derived from nature, should, in the case of every individual, remain intact and inviolate.” The social teaching of the modern Church has made this clear, from the magisterial Rerum Novarum (On the Condition of the Working Classes) to John Paul II’s Centessimus Annus (On the Hundreth Anniversary of Rerum Novarum).

While private property is a local institution, capitalism is by its nature an open and expanding system. The innovative and productive mind of man, linked to the irresistible mechanism of arbitrage, engenders in capitalism a relentless drive to engulf all mental and physical endowments, equal and unequal, of all people in all places. No commercial borders exist under the restless regime of capitalism. There can be no such thing as a pure national economy if commercial borders are open—only a dynamic global economy, ever struggling toward stability.

It is true that capitalism provides remarkable opportunities. It creates efficient markets for goods and services: food in the supermarket, shelter for our families, clothing for our bodies. The invention of the light bulb, the telegraph, and the semiconductor all manifest the ingenuity of man as displayed in the free market.

But careful observation suggests that the market mechanism is by its nature amoral. While it enables man to provide varying quantities, at flexible prices, of earthly needs, the autonomy of the free market also enables man to provide the services of prostitution, pornography, slavery, and abortion. If these are the products of licensed greed—avarice run amok in amoral free markets—they may appear everywhere under capitalism in the absence of conscientious and lawful respect for the dignity of man and the family.

Paradoxes of Capitalism

It is undeniable that free labor, private property, and free prices—the essential economic mechanisms of capitalism—have led to a cornucopia of wealth never imagined by impoverished cultures. But free markets and individual autonomy can lead also to thriving markets in lethal narcotics, the sale of sex with children, and fetal tissue stripped from aborted children. While free markets can transmute a moribund socialist economy into a wholesome economy ennobling the human person, free markets can also create the gangster capitalism of Russia and the slave markets of Sudan, not to mention the huge shadow economies of Japan, the United States, and Europe.

The paradoxes of capitalism suggest that the social value of unguided free markets is always problematic because autonomous capitalism knows no moral borders. In malignant cases, capitalism has given rise, in the trenchant words of Pope Leo XIII, to a “liberty which, by the vilest means, by false principle, and, freely indulging in the sensual gratification of lustful desires, thwarts the goodly influences of the worthiest citizens of every class.” Since the economic mechanisms of capitalism engender no intrinsic principle to rule out goods and services corrupting the human person, capitalism produces both good and evil fruit.

Some scholars define capitalism in a more encompassing fashion. Friends like Thomas Bethell and Michael Novak and great teachers like Milton Friedman might argue that I have ignored its political institutions, overlooked its legal framework, blinded myself to its voluntary and mediating institutions. Kristol and neoconservative colleagues insist that the non-heroic bourgeois virtues of diligence, thrift, and fair dealing characterize capitalism. But careful study suggests that it is not capitalism that creates these virtues. On the contrary, it is the other way around: These bourgeois virtues were inculcated and upheld by Judeo-Christian teaching that the human person was created in the image of God. Over the centuries, this teaching provided the philosophical foundation of an ethical capitalism, a free market worthy of the dignity of the human person.

Indeed, to argue that the economic mechanisms of capitalism incorporate specific political institutions—only the good ones— and also equitable and sturdy legal institutions is at best a circular argument. Moreover, to plead that capitalism assumes a specific written constitution, and a criminal code grounded in equal justice and equal laws, begs the question of the origins of these very institutions. To insist that capitalism encompasses a civil and commercial code based on secure rights to wages and private property, grounded in consent and contract, and enforced by police and courts is an equally circular argument. In fact, to argue that these social and legal institutions are intrinsic to capitalism is perversely to stand the historical order on its head.

Capitalism Across the Centuries

Consider the fact that private property has a feudal history, a monarchical history, and an oligarchic history. Moreover, the right to accumulate capital in a market ruled by reasonably free prices also has a history within dictatorial, imperial, even fascist and socialist regimes. Capitalist mobility of the factors of production may be as characteristic of contemporary one-party authoritarian regimes as they are of many emerging democracies. The recognizable mechanisms of capitalism appeared in the Tigris-Euphrates Valley, the Chinese coastal economies, and the Mediterranean trading systems more than two millennia ago, not to mention the brilliance of the medieval commercial economies of Italian city-states and European river valleys.

Because capitalism is essentially an economic arrangement, it is subordinate to the political and legal regime in which it operates. For example, any government may gradually override the free-price mechanism and confiscate earned rights to wages and capital, causing capitalism to atrophy, like the price and wage controls of President Nixon. Moreover, the absence of an enforceable legal code, which secures freedom to the mind of man and clear title to the fruit of his work and to his private property, would make capitalism a furtive creature of arbitrary political power.

Nowhere, perhaps, can this argument be better illustrated than in the birth of the American republic. To demonstrate the contingent nature of capitalism, especially in the context of its greatest success story, I choose American history because America is now the model for all nations who embrace, even loosely or grudgingly, the spirit of capitalism.

Prosperity in Good Governance

One forgets that the American republic reached global pre-eminence in only 15 decades. The Articles of Confederation of 1777 did not lead to a free and prosperous economy or to security of property and national unity, all of which the Americans claimed to be fighting for. On the contrary, after the American military victory in 1781 and the peace treaty with England in 1783, the American people, under the feeble Articles of Confederation, endured economic depression and the worst paper money inflation in American history. In fact, many of the so-called democratic state legislatures of the liberated colonies, ignoring the new national Congress in Philadelphia, voided valid contracts previously made in the private markets of labor and capital—all of which depressed economic activity.

Only after the historic constitutional reforms made between 1787 and 1789, followed by the extraordinary achievements of Alexander Hamilton, the first secretary of the treasury, did the economic boom get under way in the fledgling nation. And it was no accident, for the new regime implicitly repudiated the flawed Articles of Confederation. After the approval of the Constitution of 1789, President Washington’s administration and Congress promptly organized strong national institutions that guaranteed the execution of contracts voluntarily arrived at and provided for just compensation of property taken by government. Moreover, the Constitution of 1789 established the basis in law for a stable monetary standard, an energetic national executive, and the authority for a strong national defense.

Happily, the first four years of the American republic, 1789 to 1793, were presided over by remarkable statesmen who instilled immense moral and economic energy into the new legal and political order of the infant republic. A federal court system was created to uphold the constitution as the supreme law of the land. By statute, a gold monetary standard established a stable currency. To finance a growing economy, a successful national bank was launched. The immense government debts, incurred during the Revolution, were consolidated and funded in world financial markets. Whenever challenged at home, the new national government appeared, in the words of Alexander Hamilton, “like a Hercules” to cow those who would use brute force to impeach a popular constitution dedicated to the rule of law and to republican political institutions. It was by means of such a powerful legal and political framework that the fragile seed of American capitalism took deep root in North America.

For all aspiring nations, the American founders supply a working model for peoples who desire the necessary laws and institutions to secure the elusive wealth-producing mechanisms of capitalism. To desire a goal without the necessary means to attain that goal is, as one knows from experience, to court disaster. This principle also holds true in the American example. The economic boom in the new American republic of the 1790s was inaugurated by the very same Americans who had endured the great inflation and depression one decade before under the Articles of Confederation. The price mechanism was not much more free in 1795 under the new constitution than it was under the Articles in 1785. The factors of production were not much more mobile. The property base of the nation was virtually the same in both periods. While the implicit economic mechanisms of capitalism had been present in 1785, they had been disabled by ineffective legal and political institutions. But between 1787 and 1796, the political and legal regime had undergone a great mutation. By means of a new national constitution grounded in wise measures, the essential economic mechanisms of capitalism—private property, free prices, and mobile factors of production—had been secured. This new social order, self-consciously called by the founders themselves “a new order of the ages,” consisted in a strong but limited national government, an energetic executive, and a judicial department designed to enforce lawful rights and duties and to uphold the just claims of labor and property.

Only for a constitutional social order—in which ethical capitalism flourishes—should we deliver up the two cheers allotted by Irving Kristol. Even two cheers may prove vain echoes, as they did in the antebellum slave-based capitalism of the South, if they tend to celebrate political and economic expedients that lead to material prosperity, while overlooking the ethical preconditions of an enduring free-market order.

Free Under What Is Good

A free society is, in fact, not free. That is, a free society does not come free. More intellect, more effort, more decentralized power is required in the aggregate to sustain a free society than to uphold an authoritarian society. In a free social order, every man and woman must work each day to think and to do right. But in a despotism, the rulers must. In a constitutional republic, one that respects the laws of persons and property, it is the duty of each citizen freely to choose to do the lawful thing—not the unlawful thing potentially licensed by his autonomy in a free society. In particular, for a just market order to flourish, each person—despite the human passions of avarice, ambition, and lust—must summon the will every day freely to respect the human and property rights of his neighbor. That is to say, each citizen in a free society must properly govern himself such that a limited self-government of the whole might lightly regulate the general welfare of all.

But we learn from history, reason, and experience that men can be moved to do the lawful thing primarily by two social mechanisms: a morally grounded conscience or the external threat of civil and criminal penalties—monetary damages, prison, and the loss of freedom. If a majority is moved to do the lawful thing by coercion, penalties, and jail, who would deny that a free society must necessarily become, in time, an armed camp of police, prosecutors, and prisons? This outcome does not even consider the economic costs of a regime wherein a majority is moved to right-minded action primarily by force and fear. The cynical admonition “Follow your inclinations with due regard to the policeman around the corner” is no practical rule for a lasting social order. For when moral anarchy prevails, there can never be enough policemen! Thus, a free society can remain free; the creative mind of man can achieve its loftiest aims; and capitalism can be sustained in the long run, only if the vast majority is moved by the inner dictates of a well-formed conscience. Such a conscience, by itself, enables every person in the community to transact his business without fear of unaccountable theft and bodily harm. The well-formed conscience is also the simplest, least expensive, and most efficient regulator of a free social order.

In the end, a lasting free market order depends on the formation of right conduct deep in the character of each citizen. But what forms the well-formed conscience, this indispensable gyroscope of a free society? This is the supervening question of social policy. His Holiness Pope Leo XIII in the text of Rerum Novarum—an encyclical as magnificent in English as it is in the original Latin—unselfconsciously gives us the answer:

Christian morality when adequately practiced leads of itself to temporal prosperity; for it merits the blessing of God…who is the source of all blessing; [Christian morality] powerfully restrains the greed of possession and the thirst for pleasure, twin plagues, which too often make a man who is void of self-restraint [i.e., self-government] miserable in the midst of abundance…. No human expedients [e.g., penalties, prosecutions, prisons] will ever make up for the devotedness of Christian love.

And so, we are led to ask, where does one discover the inner sovereign by which one freely does right rather than wrong, such that rights of persons might be respected—without threat of dungeons to ourselves? In Rerum Novarum, Leo XIII declares an unequivocal answer: “It is in the soul [alone] that [this] sovereignty resides, in virtue whereof man is commanded to rule the creations below him and to use all the earth and the ocean for his profit and advantage.” To embrace this truth implies that there is no just basis for “profit and advantage,” that there can be no long-run foundation for private property without the proper orientation of the soul, vindicated by a well-formed conscience. The secret Leo XIII reveals to us is this: The just warrant for private property resides in the soul of man, and the morally formed conscience is but the soul in action, the law written in our hearts.

Some philosophers and free-market advocates hold to the spurious idea that the “long run” is a phantom, even that capitalism can be sustained without an objective moral code forming the conscience of every citizen. “In the long run, we are all dead,” the famous John Maynard Keynes taught three generations of modern economists. This Keynesian delusion was the cavalier conceit of an aesthete, a man who, for himself, rejected traditional family life and had no children. Keynes’s dismissal of the long run may have come easily to him. For where there are no children, there may be no “long run” future. And the people perish.

But as soon as there are children, there comes necessarily into view a long run and the profound challenge to form and maintain the Judeo-Christian conscience, the sine qua non of the long-run sustenance of a free social order—and of its contingent economic mechanisms called capitalism. But conscience is properly formed in children by the love and right-minded instruction of their parents, their family, their teachers, their neighbors, the laws of their country, and the faith of their fathers and mothers. It is this gift of love, from parents to children, that quickens into life the law written in their hearts. If capitalism might consist in offering one’s talents in the market, it is the gift of conscience, transmitted through love and right-minded instruction, that inaugurates the just social order and, with this leaven, maintains legitimate free markets.

This is the essential social teaching of Pope Leo XIII. From his genius, and especially from Rerum Novarum, modern Catholic social teaching, including Centessimus Annus, derives its inspiration. Unmoored from the authentic social teaching of the Church, unfettered capitalism will drift dangerously without a moral steering wheel. But moral drift need not be the fate of the free market. For the Judeo-Christian conscience, vindicated by Catholic social teaching, is the essential gyroscope of civilization. And it can still, at all times and in all places, successfully guide and maintain the free market. As Leo XIII explained in his encyclical of April 21, 1878, “It is perfectly clear that the very notion of civilization is a fiction of the brain, if it rest not on the abiding principles of truth and justice.” What His Holiness writes of civilization should today be said of capitalism in America and the world over.

But what of our friends, especially our fellow Americans who do not embrace authoritative Catholic social teaching? Is there no American social teaching that brings together, on common moral ground, both Catholic Americans and other American citizens? While there have always been some Americans who cling to the conceit that the autonomous citizen can be sustained by means of a strictly relativist, utilitarian code—devoid of an objective moral foundation—such an attitude does not characterize the American heritage of four centuries or the majority of American citizens today. In fact, constraining all Americans—past, present, and future—is the Declaration of Independence and the Constitution of the United States, an authoritative social teaching to which all Americans should be bound. This is, namely, that all human beings “are created equal,” that “they are endowed by their Creator with certain inalienable rights.” First is the right to life, then liberty, then the pursuit of happiness. To show that American social teaching is, in principle, harmonious with authoritative Catholic social teaching, I can do no better than to invoke the authority of America’s founding father, President Washington, who delivered to his fellow Americans one of the greatest state papers in the history of the English language. It was known then, and has come down to us, as “The Farewell Address of President George Washington.” In a peroration, he implored his fellow Americans:

Of all the dispositions and habits which lead to political prosperity, Religion and morality are indispensable supports. In vain would that man claim the tribute of Patriotism, who should labour to subvert these great Pillars of human happiness, these firmest props of the duties of Men and citizens…. A volume could not trace all their connections with private and public felicity. Let it simply be asked, where is the security for property, for reputation, for life, if the sense of religious obligation desert the oaths, which are the instruments of investigation in Courts of Justice? And let us with caution indulge the supposition that morality can be maintained without religion…. Reason and experience both forbid us to expect that…morality can prevail in exclusion of religious principle…. [But] virtue or morality is a necessary spring of popular government. [And this] rule…extends with more or less force to every species of free Government.

  • Lewis E. Lehrman

    Lewis E. Lehrman is a noted writer, historian, philanthropist, business leader, and conservative activist.

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