The End of Capitalism?

… 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. …

…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.

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 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.